1. The plaintiff is the appellant and he filed the suit for recovery of possession of three items of immovable properties on the strength of a Court sale held in execution of a money decree obtained against one Yegnayya.
2. The contesting respondents are subsequent purchasers of the properties from the heirs-at-law of Yegnayya and their defence is that no title passed to the plaintiff under the Court sale. Yegnayya was adjudged an insolvent and his adjudication was subsequently annulled under Section 43 of the Provincial Insolvency Act for failure to apply for discharge within time. While annulling the adjudication the Insolvency Court passed an order under Section 37 of the Act vesting the debtor's properties in the Official Receiver for a period of one year.
3. Before the year expired, the appellant brought the properties to sale without impleading the Receiver and purchased the properties. It appears that the debtor died before the sale and his heirs were brought on record as his legal representatives.
4. Without impleading the Official Receiver in whom the properties were directed to be vested under Section 37 and apparently without even notice to him, the Court sale was held. Is the sale valid and does it pass any title to the appellant
5. The question turns upon the effect of a vesting order passed under Section 37 of the Act. What is the legal status and position of the person in whom the properties are vested? In whom does the legal title rest--is it in the debtor
6. The effect of a vesting order has been the subject of several decisions and the High Courts have taken different views and even the same Court has expressed different opinions which it is not easy to reconcile. A Full Bench of our High Court has considered this question in the case of Veerayya v. Srinivasa Rao : (1935)69MLJ364 , Three possible alternative views that may be held on this question are set out on pages 921 and 922 of the report:
Three points of view are possible. The first is that with the annulment the insolvency proceedings come to an abrupt and final' conclusion. The Insolvency Court has no longer any power to pass any orders in regard to the insolvent's property, its order vesting that property in the appointee being its last expiring act. The appointee is a mere custodian of the insolvent's property. No doubt he should carry on the ordinary work of administering and preserving the property in his hands, but he has no further control over it, and must merely hold it subject to any orders as to attachment and sale which he may receive from any Court entertaining an application in execution against the insolvent. The insolvent's creditors, subject to anything which may have been validated by Section 37, are restored to the position in which they found themselves before the insolvency proceedings began, and all must pursue afresh their remedies by execution or by suit in the ordinary way, which will mean; in practice that the insolvent's property will go to some and some only of his creditors. The second view is that if a vesting order is made the insolvency proceedings are continued for all purposes. The third view is one intermediate between these two, and we think, is the view which must prevail. It is this, that the appointee continues to be subject to the directions of the Insolvency Court which appointed him, that these directions relate to the property of the insolvent, and that they should be given in accordance with the policy and provisions of the Insolvency Act. It will be found on our further examination that this is not in all respects equivalent to the actual continuation of the insolvency proceedings.
7. The first of these views was rejected by the Pull Bench but has found acceptance with the Rangoon High Court in the case of Annamalai Chettiar v. Bannerjee I.L.R.(1936) Rang. 254 and with the Allahabad High Court in Panna Lal v. Official Receiver I.L.R.(1930) All. 313. The appellant's attempt to place reliance on the decisions of the Allahabad and Rangoon High Courts cannot be countenanced.
8. The second view that the state of insolvency continues for all purposes was also negatived and this aspect was further considered by Beasley, C.J., and Cornish, J., in Official Receiver, Guntur v. Secretary of Stale for India : (1935)69MLJ856 . The decision of the Full Bench is that,
the appointee continues to be subject to the directions of the Insolvency Court which appointed him, these directions relate to the property of the insolvent and that they should be given in accordance with the policy and provisions of the Insolvency Act.
King, J., who delivered the leading judgment dealing with Section 37, said this on page 924:
Then we come to Section 37, itself, and the first point to be noticed is the antithesis between the vesting order and the reversion of the debtor's property to himself.
The proposition that the property reverts to the debtor even when,a vesting order is made was then considered at length and rejected. Then it was pointed out that the other extreme view that 'insolvency proceedings are continued for all purposes' was also,not tenable.
9. The third or the intermediate view was then accepted.
The person appointed under Section 37, has no longer by the mere fact of his appointment the powers which a Receiver has under the Act. He has only such powers-as are necessarily implied by the vesting order which are, as we understand them, to carry out the directions of the Court, and those directions, as we have sand, should so far as the realisation and distribution of the debtor's property are concerned, be in accordance with the provisions of the Insolvency Act.
10. Earlier in the judgment it was pointed out that the whole significance of the Court's action in vesting the insolvent's property in some one else seems to be that the Court is intended to preserve its control over that property.
11. This decision lays down in unmistakeable terms that when there is an order under Section 37, vesting the property in some one other than the debtor, there is no 'reversion of the debtor's property to himself'.
12. The same view was expressed by Beasley, C.J., and Cornish, J., in (official Receiver, Guntur v. Secretary of State for India : (1935)69MLJ856 . Beasley, C.J., says on page 1018,
It is quite clear in my view--and this as also the view of the Full Bench--that the appointee under Section 37, does not hold the property for the benefit of the insolvent,....But in the opinion of the Full Bench the legal effect of the vesting order will be different from the legal effect of the reversion of the property to the debtor.
The question came up in a different form before another Full Bench of this Court in Periakaruppan Chettiar v. Arunachalam Chettiar : AIR1940Mad375 . After holding that the debtor should never have been adjudged a bankrupt the Full Bench refused to hand over the monies in the hands of the Official Receiver but directed an order under Section 37, to prevent the debtors from getting the amount. And they directed the amount to be vested in the Official Receiver--not as Official Receiver--but as a person appointed under Section 37 and observed that the Official Receiver should in due course distribute the sum among the creditors who had proved in the insolvency proceedings.
13. The effect of these decisions is clear that the property did not revert to the insolvent. This being so the Court sale passed no title to the appellant. It is not a case merely of a sale held without the leave of the Insolvency Court as Mr. Srinivasathathachariar urges but a case of a sale of certain properties as those of A when the properties had vested in B. The only person entitled to represent the estate was the appointee under Section 37. A sale held without him on record; is a sale without the estate being represented in the execution proceedings. The decision of the Judicial Committee reported in Raghunath Das v. Shndar Das Khetris is directly in point and the sale is null and void. The property vested in the Official Receiver when the order of adjudication was made and it had not yet reverted because the reverting was prevented by the vesting order under Section 37.
14. I hold that the appellant got no title under the Court sale; hence this second appeal is dismissed with costs.
15. No leave.