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M. Abdul Rahim Vs. the Official Assignee of Madras - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported in(1948)2MLJ656
AppellantM. Abdul Rahim
RespondentThe Official Assignee of Madras
Cases ReferredCohen v. Mitchell
Excerpt:
- - both kinds of property vest in the official assignee or the trustee in bankruptcy, and they vest in him in precisely the same manner. this provision is perfectly clear. whether a bankrupt twice certificated and who has not paid 15 shillings in the pound has a good right to after-acquired property, in that case, the bill of exchange, against the parties to the bill and all the world except the assignees or no right whatever so that he could not sue at all upon the bill. the opinion of the court was that he had a good right except as against the assignees, and as the plea did not state that they had interfered, it did not contain a complete defence. this conclusion was arrived at 'as well upon the authorities as upon the reason and convenience of the principle which they establish......p.v. rajamannar, c.j.1. this is an appeal against an order of clark, j., passed in insolvency on the original side of this court. one syed yousuff sahib was adjudicated insolvent on 22nd october, 1930. on 20th september, 1934, he purchased a house for rs. 800 and on 22nd may, 1943, he conveyed it to his brother-in-law, the appellant before us. the consideration was a sum of rs. 750, but of which rs. 350 were paid in cash and the appellant undertook to pay the balance in discharge of a mortgage which the insolvent had executed in favour of one bijraj sowcar on 6th april, 1937. on 5th july, 1943, the appellant in his turn sold the property to one mahomed badsha sahib for rs. 600, out of which a sum of rs. 400 was utilised to pay off the mortgage in favour of the sowcar. contemporaneous with.....
Judgment:

P.V. Rajamannar, C.J.

1. This is an appeal against an order of Clark, j., passed in insolvency on the Original Side of this Court. One Syed Yousuff Sahib was adjudicated insolvent on 22nd October, 1930. On 20th September, 1934, he purchased a house for Rs. 800 and on 22nd May, 1943, he conveyed it to his brother-in-law, the appellant before us. The consideration was a sum of Rs. 750, but of which Rs. 350 were paid in cash and the appellant undertook to pay the balance in discharge of a mortgage which the insolvent had executed in favour of one Bijraj Sowcar on 6th April, 1937. On 5th July, 1943, the appellant in his turn sold the property to one Mahomed Badsha Sahib for Rs. 600, out of which a sum of Rs. 400 was Utilised to pay off the mortgage in favour of the Sowcar. Contemporaneous with the sale by the appellant to Mahomed Badsha Sahib, there was an agreement by Mahomed Badsha Sahib to re-convey the property to the appellant. In pursuance of this latter agreement, the appellant paid the consideration for the reconveyance to Hasena Bi, the widow of Mahomed Badsha who had died in the meantime. Before the property was re-conveyed, the Official Assignee coming to know of these transactions, after notice to the appellant and the tenant of the property, filed an application to this Court in the exercise of insolvency jurisdiction for an order declaring that the property in question was vested in him and that neither the appellant nor Hasena Bi had any rights to the said property. He also claimed delivery of title deeds of the property and prayed for a direction that the appellant or Hasena Bi should pay to him the rent for three years collected by them from the property in question. The application was made on the ground that Syed Yousuf Sahib continued at all material times to be an undischarged insolvent and the property vested in the Assignee on and from the date of the purchase by the insolvent in 1934 and the subsequent transactions were not valid and binding upon the Assignee. It was conceded by the Official Assignee at the trial that the transfer by the insolvent to the appellant was bona fide and for value.

2. The learned Judge granted the application of the Official Assignee in so far as it prayed for a declaration that the property was vested in him and that the appellant had no right to the property and for delivery of the title deeds. But he dismissed the application in so far as it prayed for the recovery of the rent for three years collected by the appellant and Hasena Bi from the property.

3. The law relating to insolvency in the Presidency Towns is contained in the Presidency Towns Insolvency Act (III of 1909). The provisions relevant to the disposal of the present appeal are the following:

17. On the making of an order of adjudication, the property of the insolvent wherever situate shall vest in the Official Assignee and shall become divisible among his creditors....

52. The property of the insolvent divisible amongst his creditors, and in this Act referred to as the property of the insolvent shall not comprise the following particulars, namely:

(a) property held by the insolvent on trust for any other person;

(b) the tools (if any) of his trade and the necessary wearing apparel, bedding, cooking vessels, and furniture of himself, his wife and children....

(2) Subject as aforesaid, the property of the insolvent shall comprise the following particulars, namely

(a) all such property as may belong to or be vested in the insolvent at the commencement of the insolvency or may be acquired by, or devolve on him before his discharge;

(b) the capacity to exercise and to take proceedings for exercising all such powers-in or over or in respect of property as might have been exercised by the insolvent for his own benefit at the commencement of his insolvency or before his discharge; and

(c) all goods, being at the commencement of the insolvency in the possession, order or disposition of the insolvent, in his trade or business by the consent and permission of the true owner, under such circumstances that he is the reputed owner thereof.

The language of these provisions follows the language of the corresponding pro visions of the English Bankruptcy Act of 1883, the material portions of which run thus:

44. The property of the Bankrupt divisible amongst his creditors and in this Act referred to as the property of the bankrupt...shall comprise the following particulars:

(1) All such property as may belong to or be vested in the bankrupt at the commencement of the bankruptcy or may be acquired by or devolve on him before the discharge.54. (1) Until a trustee is appointed the official receiver shall be the trustee for the purposes of this Act and immediately on a debtor being adjudged bankrupt the property of the bankrupt shall vest in the trustee;

(2) On the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed.

Confining one's attention to the words of the sections, it is clear that no distinction is made between property belonging to and vested in the insolvent at the commencement of the insolvency and property which may be acquired by, or devolve on him subsequent to the adjudication and before discharge. Both kinds of property are comprised in the property of the insolvent divisible amongst his creditors. Both kinds of property vest in the Official Assignee or the trustee in bankruptcy, and they vest in him in precisely the same manner. It follows that the moment a property is acquired by, or devolves on, an undischarged insolvent, such property becomes eo instanti vested in the Official Assignee or receiver. A similar provision of the Provincial Insolvency Act (III of 1907) was construed in that manner by their Lordships of the Judicial Committee in Kala Chand Banerjee v. Jagannath Marwari (1927) 52 M.L.J. 734 : L.R. 54 IndAp 190 : I.L.R. 54 Cal. 595 (P.C.) Section 16(4) of the Provincial Insolvency Act is as follows:

All such property as may be acquired by or devolve on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or Receiver and become divisible among the creditors in accordance with the provisions of Sub-section (2), Clause (a).

Dealing with this provision, their Lordships say:

This provision is perfectly clear. The moment the inheritance devolved on the insolvent Amulya, who was still undischarged, it vested in the Receiver already appointed, and he alone was entitled to deal with the equity of rdemption. The alternative in the section applicable to vesting in the Court was no doubt inserted to provide for the case of a Receiver not being appointed at the same time as the adjudication of insolvency was made and to foreclose an argument that vesting was suspended until the actual appointment of a Receiver.

The matter, however, is complicated by the course of case-law in England and the importation into the law in this country of principles laid down in the English decisions, so far as after-acquired property is concerned. The result has been not a little of uncertainty and divergence of judicial opinion.

4. In England, from the earliest times, in spite of provisions in the statute that after-acquired property passes to the assignees without any new assignment, it had been held that subject to the right of the trustee to intervene, an undischarged bankrupt could maintain any action with relation to after-acquired property or sue on any contract made with him after bankruptcy or for damages for breach, after bankruptcy, of a contract for personal service made before and remaining unexecuted at the date of bankruptcy. See Webb v. Fox (1797) 7 T.R. 391 : 101 E.R. 1037 Fowler v. Down 1 B& P Rep. C.B. 44 : 126 E.R. 769 and Herbert v. Sqyer (1844) 5 Q.B. 965 : 114 E.R. 1512. A great deal of historical information on this subject is to be found in the judgment of Tindal, C.J., in the case of Herbert v. Sayer (1844) 5 Q.B. 965 : 114 E.R. 1512 in which the action was on a bill of exchange by an indorsee who had twice become a bankrupt and had not obtained discharge. The learned Chief Justice describes the point to be considered and decided as of great importance, and states the question thus: Whether a bankrupt twice certificated and who has not paid 15 shillings in the pound has a good right to after-acquired property, in that case, the bill of exchange, against the parties to the bill and all the world except the assignees or no right whatever so that he could not sue at all upon the bill. The opinion of the Court was that he had a good right except as against the assignees, and as the plea did not state that they had interfered, it did not contain a complete defence. This conclusion was arrived at 'as well upon the authorities as upon the reason and convenience of the principle which they establish.' The Learned Chief Justice, after dealing with the successive statutes relevant to the question, arrived at the conclusion that whatever right an uncertificated bankrupt had before the statute then in force in after-acquired property an uncertificated bankrupt had still. It became therefore necessary to ascertain what was the right of an uncertificated bankrupt to after-acquired property before the recent statutes. After discussing several earlier decisions including Fowler v. Down 1 Bos & Pall Rep. C.B. 44 : 126 E.R. 769 and Webb v. Fox (1797) 7 T.R. 391 : 101 E.R. 1037 which according to him, enunciated a well-known principle in that branch of law, a principle well established for a long series of years, he summed up the result of common law, statute law and judicial decisions thus:

All future property and contracts vestint he assignees, by the words of Stat 6 G. 4, Clause l6 Sections 63, 127 and by the construction put by the Courts on the words of the older statutes. But there must be property in the bankrupt, or contracts with him, before such property or contracts can vest in the assignees. The effect of the statutory enactments may be either to transfer immediately such property or contracts from the bankrupt to the assignees, vesting the property in the bankrupt for an instant only, or to give the assignees the beneficial interest and to make the bankrupt acquire property or contract for their benefit only, in the nature of an agent. The cases accord with the latter construction of the statute; and it is most consistent with convenience, for otherwise there would be no protection to persons dealing with an uncertificiated bankrupt. Not only would they acquire no title by purchases from him, but payments for such purchases, and for all other debts due to the uncertificated bankrupt, would be invalidated. The legislature, by several statutes, have protected all payments by and to, and all dealings and transactions with, the bankrupt bona fide made or entered into without notice of the act of bankruptcy before the fiat; but there is no provision by the statute law for such payments dealings or transactions after the fiat; and the only way by which they can be rendered valid, and great confusion, inconvenience and hardship prevented, is by adopting the latter construction, and holding that the bankrupt acquires property, and contracts, for the assignees, who may, whenever they please, disaffirm his act, but, until they do so, his acts are all valid. If, then, an uncertificated bankrupt contracts on behalf of and for the benefit of his assignees, it is perfectly clear that he may sue on such contracts in his own name; and it is no plea that the property is vested in, or the contracts made for the benefit of, the assignees, unless it contains an averment that they have interfered and desired the defendant to pay to them, any more than it would be a defence to an action by a factor, broker or agent for another, to plead that the property belonged to, or the contract was made by the plaintiff for his principal. Such a plea, to be a good answer, must aver that the principal has interposed, or disclosed some other ground of defence.

Though the decision dealt with the right of an undischarged bankrupt to maintain an action in respect of after-acquired property, the implied basis of the decision was that the undischarged bankrupt had an interest in after-acquired property which might even be described as a ' special property.' This was made explicit in the decision of the Court of Appeal in Cohen v. Mitchell (1890) 25 Q.B.D. 262 the leading case on this branch of bankruptcy law in England. The facts in that case were as follows: An undischarged bankrupt carried on a business in buying and selling agricultural machines. To enable him to carry on this business, he borrowed several sums of money from the plaintiff who had knowledge of the bankruptcy. Some of the machinery which had been acquired in the business after the bankruptcy was seized wrongfully by one Foale, and the bankrupt brought an action in his own name against the wrongdoer and recovered judgment for a sum of money as damages. To enable him to carry on the action, he borrowed further sums of money from the plaintiff and assigned to him the cause of action as security for the moneys due. After judgment and before the money was paid over, the trustee claimed it for the benefit of the estate. The plaintiff also claimed the amount under his assignment. The judgment-debtor paid the money into Court and interpleaded. The question arose whether the plaintiff who was the assignee of the cause of action or the trustee in bankruptcy was entitled to the money. It was held that the assignment was valid against the trustee and that the plaintiff was entitled to the money. Lord Esher, M.R., laid down a proposition which was agreed upon by Fry, L.J., and Lopes, L.J. It is this:

Until the trustee intervenes, all transactions by a bankrupt after his bankruptcy with any person dealing with him bona fide and for value, in respect of his after-acquired property, whether with or without knowledge of the bankruptcy, are valid against the trustee.

Though the learned Master of the Rolls admitted that in terms they were laying down a proposition wider than what appeared to have been laid down before nevertheless he observed that what had been laid down before involved a principle which supported the proposition to its full extent. The following steps in his reasoning are important. In the case of property which vested in the trustee at the time of adjudication, if the bankrupt were to endeavour to maintain an action, it would be a good plea that the property was not his but vested in the trustee.' But with regard to after-acquired property it had been held that such a plea would be bad unless the trustee had intervened before the transaction in respect of which the action was brought. That was conclusive to show that the bankrupt had a property whether absolute or not is immaterial, in such things till the trustee interfered Fry, L.J., expressly relies on the judgment of Tindal, C.J., in Herbert v. Saver (1844) 5 Q.B. 965 : 114 E.R. 1512 His Lordship also observes that the rule had not been formulated in such definite terms before, but that it appeared to him to be the result of the earlier authorities which established a fundamental distinction between the two modes of vest in in respect of the two kinds of property, namely, property belonging to the bankrunt at the commencement of the bankruptcy and after-acquired property.

5. Though the proposition enunciated in Cohen v. Mitchell (1890) 25 Q.B.D. 262. was very wide in its terms, it was held in In re New Land Development Association and Gray (1892) 2 Ch. 138 that the rule laid down therem did not apply to real property. It is true that the. Court of Appeal did not decide the case in In re New Land Development Association and Gray (1892) 2 Ch. 138 on this point, but in a subsequent case, it was assumed that the Court of Appeal approved of the view expressed by Chitty, J., that the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 would not apply to real estate. This limitation on the rule was recognised in subsequent decisions (vide Bird v. Philpott (1900) 1 Ch. 822 London and County Contracts, Ltd., v. Tallack (1903) 51 W.R. 408 and In re Clayton and Barclay's Contract (1900) 1 Ch. 822. Chitty, J., had again to deal with this matter with reference to 99 years' leases. Such leases were granted to an undischarged bankrupt and were subsequently demised by him. by way of mortgage without any intervention by his trustee in bankruptcy. Chitty, J., held that the mortgage was valid. Though he adhered to the view that real estate was not within the view of the Court of Appeal in Cohen v. Mitchell (1890) 25 Q.B.D. 262 he was of the opinion that he ought not to attempt to introduce any further limitation as the language was large enough to include all property and certainly to include a chattel interest in land.

6. In Official Receiver v. Cooke (1906) 2 Ch. 661. Neville, J., was apparently not impressed with the distinction made between personality and reality in In re New Land Development Association and Gray (1892) 2 Ch. 138 though he considered that he was bound by the interlocutory remarks made in the course of the argument in that case by both Kay, L.J., and Lindley, L.J. After referring to the case of In re Clayton and Barclay's Contract (1906) 2 Ch. 661 he observed thus:

But why there should be a distinction between real and personal estate in this regard I confess I do not think has been satisfactorily explained by the decisions which have been cited to me.

He hoped that at no distant date the matter might come before the Court of Appeal in order that it may be put on a more satisfactory footing than it stood on at present. This hope was not fulfilled and it became necessary for Parliament to intervene and cure the defect by legislation, namely, Section 11 of the Bankruptcy Act of 1913 reproduced in Section 47 of the Bankruptcy Act of 1914, which runs thus:

(1) All transactions of a bankrupt with any person dealing with him bona fide and for value, in respect of property, whether real or personal, acquired by the bankrupt after adjudication, shall, if completed before any intervention by the trustee, be valid against the trustee, and any estate or interest in such property which by virtue of this Act is vested in the trustee shall determine and pass in such manner and to such extent as may be required for giving effect to any such transaction. This sub-section shall apply to transaction with respect to real property completed before the first day of April, 1914, in any case where there has not been any intervention by the trustee before that date. For the purpose of this sub-section, the receipt of any money, security, or negotiable instrument, from, or by the order or direction of, a bankrupt by his banker, and any payment and any delivery of any security or negotiable instrument made to, or by the order or direction, of a bankrupt by his banker, shall be deemed to be a transaction by the bankrupt with such banker dealing with him for value.

(2) Where a banker has ascertained that a person having an account with him is an undischarged bankrupt, then unless the banker is satisfied that the account is on behalf of some other person, it shall be his duty forthwith to inform the trustee in the bankruptcy or the Board of Trade of the existence of the account, and thereafter he shall not make any payments out of the account, except under an order of the Court or in accordance with instructions from the trustee in the bankruptcy, unless by the expiration of one month from the date of giving the information no instructions have been received from the trustee.

It is now necessary to refer to decisions relating to insolvency provisions applicable to the Presidency Towns in India. Before the passing of the Presidency Towns Insolvency Act of 1909, the law relating to after-acquired property of an insolvent in. Presidency Towns was contained in the provisions of 11 and 12, Viet., Ch. 21, Section 7, the material parts of which ran as follows:.it shall be lawful for the said Court and the said Court is hereby authorised and required to order that all the real and personal estate and the effects of such petitioner...and all debts due to him and all the future estate, right, title, interest and trust of the said petitioner in or to any real or personal estate or effects within or without the said territories which such petitioner may purchase or which may revert, descend, be devised or bequeathed or come to him, and all debts growing due to him before the Court shall have made its order in the nature of a certificate as hereinafter mentioned do vest in the official assignee for the time being of the said Court...And such order when so made shall by virtue of this Act relate back to and take effect from the filing of the said petition and shall instantly and without any conveyance or assignment vest all the real and personal estate effects and debts as aforesaid in the said official assignee....

7. In Kerakoose v. Brooks (1859) 8 M.I.A. 339 the Judicial Committee of the Privy Council, in construing this provision, said:

Under the Statute, nth and 12th Viet. C. 21, the assignee has a right to the subsequently' acquired property of an insolvent, unless the insolvent has obtained a certificate and discharge; but the Assignee's right to the subsequently-acquired property is subject to two qualifications. In the first place, if the insolvent has acquired property subject to liens and obligations, then any property taken by the Assignee under that state of things is taken subject to those charges and equities which affect the property in the hands of the insolvent. The second qualification is this that if the insolvent carries on trade at a subsequent period, with the assent of the Assignee of the estate under the Insolvent Act, in the first instance the property which is acquired in the subsequent trade will be subject in equity to the charge of the creditors in that trade, in priority to the claim of the Assignee under the first insolvency.

It is important to note that their Lordships make no reference to the doctrine of postponement of vesting of after-acquired property until intervention by the assignee. But it must be mentioned that this case was long before the decision in Cohen v. Mitchell (1890) 25 Q.B.D. 262. In Krishtocomal Mitter v. Suresh Chunder Deb I.L.R. (1882) Cal. 556 which was also before Cohen v. Mitchell (1890) 25 Q.B.D. 262. Wilson, J., held that till intervention by the Official Assignee an uncertificated bankrupt had power to deal with and dispose of after-acquired property. He considered that the law on the point was summed up in Herbert v. Sayer (1844) 5 Q.B.D. 965 : 114 E.R. 1512 and that Karakoose v. Brooks (1859) 8 M.I.A. 339 was clear authority that the Indian Act was to be construed on the same principle. Though I can appreciate the learned Judge saying that the law in England was summed up in Herbert v. Sayeri,. with respect, I am unable to follow how Kerakoose v. Brooks (1859) 8 M.I.A. 339 is authority that the Indian Act is to be construed on the same principle, especially when their Lordships; of the Judicial Committee made no reference whatever to the intervention of the assignee in determining the vesting of after-acquired property. The case before Wilson, J., related to immovable property but no point was made about the nature of the property because the case was decided long before the case of In re Clayton and Barclay's Contract (1895) 2 Ch. 217.

8. When the case of Rowlandson v. Champion I.L.R. (1894) Mad. 21 came up for decision the statute applicable continued to be n and 12 Viet. C 21. In that case, the adjudication was in 1888. The insolvent obtained a house under a deed of gift in April 1891. In December, 1891 she executed a mortgage in favour of the respondents. She died in May 1892, having never obtained a discharge. In September, 1892, the Official Assignee intervened and claimed the property free from the mortgage. It was, held that the Official Assignee was entitled to the mortgaged property free from the mortgage. Clark, J., decided in favour of the Official Assignee in this case mainly on the strength of this decision, and Mr. M. S. Venkatarama Aiyar for the appellant has tried to persuade us to hold that it requires re-consideration. It is therefore necessary to examine it in detail. The application by the Official Assignee came up in the first instance before Collins, C.J. He applied the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 and upheld the validity of the mortgage. The appeal against his decision was heard by Muthuswami Aiyar and Best, JJ. The appeal was allowed and it was held that the Official Assignee was entitled to the property free from the mortgage. The learned Judges, however, arrived at the same conclusion on different grounds. Best, J., was of the opinion that in order to be binding on the Official Assignee, a charge on after-acquired property created by an adjudicated insolvent who had not obtained his final discharge must come within the scope of one or the other of the two qualifications stated in Kerakoose v. Brooks (1859) 8 M.I.A. 339 and the mortgage in question did not come within either of those' qualifications. He was inclined to understand the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 in a very limited and restricted sense as applying only to cases where an insolvent was allowed to carry on trade or other business in circumstances in which the official assignee's assent will be presumed up to such time as he might intervene. Muthuswami Aiyar, J., on the other hand held that the reasoning in the English cases, Herbert v. Sayer (1844) 5 Q.B.D. 965 : 114 E.R. 1512 and Cohen v. Mitchell (1890) 25 Q.B.D. 262 was applicable in construing the provisions of the Indian Insolvency Act (11 and 12, Vict., c. 21); the learned Judge saw no substantial difference on the point between the Indian Act and the English Bankruptcy Acts. But in his opinion, according to the decision in In re New Land Development Association and Gray (1892) 2 Ch. 138 the rule laid down in Herbert v. Sayer (1844) 5 Q.B.D. 965 : 114 E.R. 1512 and Cohen v. Mitchell (1890) 25 Q.B.D. 262. was not applicable to immoveable or real property and was limited in its scope to moveable property. The learned Judge felt himself bound to adopt the proposition laid down by the Court of Appeal in the interlocutory remarks made during the hearing by Kay, L.J. and Lindley, L.J., in In re New Land Development Association and Gray (1892) 2 Ch. 138. There is a clear divergence of opinion between the two learned Judges as to the method of vesting of after-acquired property. Best, J., would not at all apply the doctrine of intervention, while Muthuswami Aiyar, J., was apparently willing to apply it in the case of moveable property.

9. In Sriramulu Naidu v. Andalammal (1906) 17 M.L.J. 14 : I.L.R. 30 Mad. 145 there was no question of any contract or transfer by the insolvent relating to his after-acquired immoveable property. The only question there was whether an undischarged insolvent could sue to recover property which devolved on him subsequent to his adjudication. Sir Arnold White,C.J., and Subramania Aiyar, J., held that he could sue, following the decision in Herbert v. Sayer (1844) 5 Q. B.D. 965 : 114 E.R. 1512. The learned Judges assumed the correctness of the decision in Rowlandson v. Champion I.L.R. (1894) Mad. 21 in so far as it held that the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 did not extend to an interest in immoveable property. But apparently they were not inclined to agree with Muthuswami Aiyar, J., that the rule in Herbert v. Sayer (1844) 5 Q. B.D. 965 : 114 E.R. 1512 should be limited to personality. Though the actual decision in the case was as regards the right of an undischarged insolvent to maintain a suit in respect of after-acquired property, the basis of the decision was the existence of special property in the bankrupt both in regard to personality and reality which was good against all the world except the assignee. Mr. Venkatarama Aiyar, relied on this decision in support of his contention that the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 was applicable to both moveable and immoveable property, but I do not think it supports him in any way, because (1) the learned Judges clearly assumed the correctness of Rowlandson v. Champion I.L.R. (1894) Mad. 21 and (2) they say that the right of the insolvent to after-acquired property is good against all the world except the assignee, this is to say, that the insolvent cannot pass a title to any one which will hold good or which would prevail against the assignee.

10. No decision of this Court subsequent to Sriramulu Naidu v. Andalammal (1906) 17 M.L.J. 14 : I.L.R. 30 Mad. 145 was cited before us dealing directly with this question. There is an instructive account of case law in England and India on this question in Satyanarayanamurthy v. Papayya : AIR1941Mad713 But that case arose under the Provincial Insolvency Act.

11. There is a considerable number of decisions of other Courts in India, according to which the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 would apply to all kinds of after-acquired property of an undischarged insolvent, moveable and immoveable, personaltyand realty. Alimahmad Abdul Hussain v. Vadilal Devchand I.L.R. (1919) Bom. 890 Chhote Lal v. Kolamath I.L.R. (1924) All. 565 and the Official Assignee v. N.P.A.K. Chettlar FirmI.L.R. (1937) Ran. 229. The following passage in Mulla's Law of Insolvency, at page 363, may be taken as a correct summary of the conflict of judicial opinion in India:

In India there is a conflict of opinion whether the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 applies to immoveable property. If it does a transfer by an insolvent of immoveable property acquired after adjudication and before discharge to a bona fide purcaser for value before the intervention of the Official Assignee is binding on the Official Assignee. If it does not the transfer is void as against the Official Assignee. The High Court of Madras has held that the rule in Cohen v. Mitchell, (1890) 25 Q.B.D. 262 does not apply to immoveable property, on the other hand, it has been held by the High Courts of Bombay, Calcutta, Allahabad, and Rangoon, that it does so apply.

Mr. Venkatarama Aiyar, by his able and exhaustive argument persuaded us to hold that there was no justification for restricting the application of the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 to moveable property, so far as this country was concerned, which did not recognise any difference in law between realty and personalty. With very great respect to the eminent Judge, Muthuswami Aiyar, J., I am unable to see why the restriction of the rule in Cohen v. Mitchell1 based upon a distinction between realty and personalty should be imported into Indian Law which knows of no such distinction. On this point, I agree with Shah, J., of the Bombay High Court, when he said in Alimahmad Abdul Hussain v. Vadilal Devchand I.L.R. (1919) 43 Bom. 890:

I do not think that the nature of the after-acquired property forms any essential part of the rule;.The reason of the rule does not compel the recognition of any restriction as to the nature of the property in its application and I do not think that the distinction between real and personal property made in England in applying the rule can be properly applied to immoveable and moveable property in India.

12. In the words of Venkataramana Rao, J., in Satyanarayanamurthy v. Papayya : AIR1941Mad713 .:

There is no distinction between realty and personalty in Indian law, either the principle of simultaneous vesting or that of vesting being deferred until intervention must apply to both.

If I were of the opinion that the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 should be followed in India, I would have referred this case to a Full Bench to reconsider the decision in Rowlandson v. Champion I.L.R. (1894) Mad. 21. But I am convinced that there is no justification for importing this rule of English law when considering the provision of the Indian statute namely, the Presidency Towns Insolvency Act of 1909. On the date of the passing of this enactment, the law in England on this point was very uncertain. Alongside provisions of the English Bankruptcy Act of 1883 was the large body of case law, replete with divergence of judicial opinion. There were first decisions like Herbert v. Sayer (1844) L.R. 5 Q.B.D. 965 : 114 E.R. 1512 and Cohen v. Mitchell (1890) 25 Q.B.D. 262 there was then the case of In re New Land Development Association and Gray (1892) 2 Ch. 138 which restricted the scope of the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 and there were later decisions in which there was a clear note of dissatisfaction with the imposition of such a restriction. It is unreasonable to presume that the Legislature, when enacting Sections 17 and 62 of the Presidency Towns Insolvency Act, intended to import wholesale this conflicting state of English law, without an express provision on the point.

13. I am aware that the provisions of the Presidency Towns Insolvency Act of 1909 with respect to after-acquired properties are identical with the corresponding provisions of the English Bankruptcy Act of 1883. If learned Judges in England have construed sections of the English Act in a particular way, their opinion is certainly entitled to very great weight and ought to be followed in the absence of valid grounds for disregarding it. But on a careful examination of the English decisions on the point, I find that this rule of postponement of vesting of after-acquired property in the trustee in bankruptcy till his intervention is not a rule deduced from the provisions of the statute but a rule engrafted on the statutory provision and based on common law and equitable considerations. Eminent Judges have again and again pointed out that on the plain language of the statute there is no difference in the time or the manner of vesting of existing property and after-acquired property nor is there any difference between real and personal property. Fry, L.J., in Cohen v. Mitchell (1890) 25 Q.B.D. 262 concedes this. He says:

If one merely confined one's attention to the words of the section the reader might suppose that both those kinds of property vested absolutely in the trustee--vested in him in precisely the same manner.

Nevertheless, that learned Judge considered that the nature of the distinction between the two modes of vesting of the two kinds of property had been long ago established and had not been in his opinion altered in any way by recent legislation in bankruptcy. Even the earlier case of Herbert v. Sayer (1844) L.R. 5 Q.B.D. 965 : 114 E.R. 1512. proceeds on the footing that before the Bankruptcy statutes an uncertificated bankrupt had certain rights and such fights continued. In In re Clark, Ex parte Beardmore (1894) 2 Q.B. 393 A.L. Smith, L.J., after citing Section 44 of the Bankruptcy Act, 1883, observed:

.If matters rested there, not only property which belonged to the bankrupt at the commencement of the bankruptcy but all property which he might acquire or which might devolve upon him before his discharge... would be the property of the first trustee and not of the second. But an exception has apparently been engrafted upon the section, and a distinction has been drawn in some cases between property which belonged to the bankrupt at the commencement of the bankruptcy and property afterwards acquired by him. It has been held that as regards the after-acquired property, until the trustee intervenes, the bankrupt, though undischarged, is in a position to give a title to persons who deal with him bona fide and for value.

In the same case, Davey, L.J., said:

We have first to look at the words of the statute. The effect of Sections 44 and 54 of the Bankruptcy Act is this, that all such property as may be acquired by or devolve upon the bankrupt after the commencement of the bankruptcy, and before his discharge, is to vest in the trustee, and to be divisible by him amongst the creditors, meaning of course, the creditors who are entitled to prove in the bankruptcy, and who have done so. If we apply the words of the statute literally there can be no doubt what our decision ought to be in this case.

And then he goes on to refer to the rule engrafted by decisions like Cohen v. Mitchell (1890) 25 Q.B.D. 262 The following passage in the judgment of Lord Cozens-Hardy, M. R. in Hill v. Settle (1917) 1 Ch. 319 is very illuminating:

Now it is necessary to consider somewhat carefully what is the law upon matters of this kind Under Section 44 of the Bankruptcy Act, 1883, all the property belonging to or vested in the bankrupt or acquird by him or devolving upon him before his discharge is vested in the trustee....Then, by a long series of authorities which it is quite impossible, I think, for this Court, or any Court, to review, it was held that that vesting could not be regarded as operating in the strict and full sense of the term. As long as the trustee did not intervene, the bankrupt himself had power to enter into transactions for value with persons dealing with him bona fide in relation to his after-acquired property. That is dealt with in so many cases that I do not think it is necessary for me to refer to any more than Cohen v. Mitcheell (1890) 25 Q.B.D. 262....The Legislature has plainly recognised the validity and effect of that which is to be found in what is, no doubt, judge-made law as expressed in a series of decisions extending over some 200 years.

The reference to the Legislature is to the enactment of Section 47 of the Bankruptcy Act of 1914 which has been extracted earlier in this judgment. This section according to the learned Master of the Rolls, furnishes a firm foundation for the theory established by numerous decisions and in his view, the section was only an assertion of what was the common law.

14. It is clear, therefore, that the rule of postponement of vesting of after-acquired property till intervention by the trustee is not based upon an interpretation of the language of the statute but is really a rule of judge-made law and an engrafting on the statutory provisions. It also appears to have its foundations in the. common law of the country going back to the eighteenth century. I do not think that the Indian Legislature when enacting the Presidency Towns Insolvency Act in 1909 intended to import this rule of judge-made law in England into this country without making an express statutory provision.

15. It was urged before us that this rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 is a just and equitable rule though not in accordance with the strict letter of the law and therefore could be followed in this country also. It must not be overlooked that according to the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 the alienee from the undischarged bankrupt is protected even when he enters into the transaction with knowledge of the subsisting bankruptcy. Mr. Venkatarama Aiyar, the learned advocate for the appellant in the course of the argument, had to admit that there is to a certain extent a mixing up of two principles in the rule accepted by some of the High Courts in India following Cohen v. Mitchell1, the two principles being (1) the legal principle that there is no vesting in the trustee till intervention, and (2) the equitable principle that a bona fide transferee for value should be protected. Logically, if the first principle applies, there is no justification for insisting on bona fides, because if the property is not vested in the trustee but is still vested in the bankrupt, he can give to the transferee, whether bona fide or not, a good title. If, on the other hand, the first principle is not sound, then there is no statutory provision to support a disposal of the property by the undischarged insolvent, even in favour of a bona fide alienee, because the bankrupt would have no title to pass.

16. There are certain well recognised classes of cases in which the assignee's rights to after-acquired property appear at first sight to be affected; but on analysis it will be found that none of these involves an application of the doctrine of postponement of vesting. The following are typical examples:

(1) Where liens and obligations have been created and incurred in the process of the acquisition of the property the assignee cannot take the property free of such liens and obligations. The case of Kerakoose v. Brooks (1859) 8 M.I.A. 339 is an instance in point.

(2) Where the Official Assignee knows and consents to the undischarged insolvent carrying on business, he is precluded from disputing the liability which might be incurred by the insolvent in the course of the business. This is really an application of the general rule of estoppel.

(3) An uncertificated bankrupt has been allowed to sue for recovery of property from a trespasser. This right can be supported on an implied theory of agency for acquisition.

17. In all these instances, it may appear that the bankrupt is allowed to exercise certain rights in respect of after-acquired property, but they do not need for their validity any affirmation of the rule of postponement of vesting.

18. If there is a necessity for the existence of a rule similar to that laid down in Cohen v. Mitchell (1890) 25 Q.B.D. 362 in India, the most appropriate and straightforward course would be to introduce a provision analagous to Section 47 of the English Bankruptcy Act of 1914 into the Indian enactments. I fail to see why this equitable rule should apply only to Presidency towns and not to the rest of the country. It is certainly not permissible for Courts to import it into the law relating to Presidency towns only. While on this subject, I would like to point out the anomaly of material differences between the law applying to Presidency towns and that applying to the moffusil. Whatever historical accidents might have led to such differences, there is no longer any valid ground for perpetuating them. It is high time the Legislature intervenes and abolishes these differences. It would then be for the consideration, of the Legislature whether it is desirable to make a provision similar to Section 47 of the English Bankruptcy Act, 1914.

19. Neither the learned Counsel for the appellant nor the learned Official Assignee-was able to refer me to a single decided case reported or unreported in which the rule in Cohen v. Mitchell (1890) 25 QB.D. 362 has been applied by this Court in any insolvency arising under the Presidency Towns Insolvency Act. In Rowlandson v. Champion I.L.R. (1894) Mad. 21 the learned Judges refused to apply the rule to transactions relating to immoveable property. But the decision cannot be taken to be an authority for holding that the rule applies to any other kind of property, because Best, J., was inclined to hold that the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 362 was merely an authority for the proposition that when an insolvent is allowed to carry on trade or other business the official Assignee's assent thereto will be presumed up to such time as he may intervene. In the absence of any direct authority binding on me, I find myself free to hold that the rule in Cohen v. Mtichell (1890) 25 QB.D. 362 statutorily recognised in England in the Bankruptcy Acts of 1913 and 1914 does not apply to the transactions of an undischarged insolvent in the Presidency towns in India. I therefore agree with Clark, J., that the application of the Official Assignee must be allowed, though on different grounds.

20. The appeal is dismissed. No costs.

Mack, J.

21. I have had the advantage of perusing the judgment of My Lord the Chief Justice with which I am in complete agreement. I should like to state briefly one or two further grounds on which I do not think that the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 362 can be applied to insolvency law in India. With great respect to the learned Judges of Indian Courts who have applied the rule in Cohen v. Mitchell2, to Indian Insolvency Law I think they overlooked an important difference between the policy of the English Bankruptcy statutes and Indian insolvency legislation towards uncertificated bankrupts and undischarged insolvents. The Indian statutes now in force place on the insolvent a direct and statutory obligation to apply for his discharge within a prescribed period by annulling his adjudication if he fails to do so, driving him thereby out of protection and sanctuary of insolvency and exposing him to attacks by his creditors under the ordinary civil law. In the English Bankruptcy statutes we can find no section corresponding to Section 41 of the Presidency Towns Insolvency Act enacted in 1909 or Section 43 of the Provincial Insolvency Act enacted in 1920.

22. These two sections make the policy of Indian Insolvency Law to my mind quite clear which had as its objective the termination of the period of the insolvent's civil disability in as short a time as possible. Section 41 of the Presidency Towns Insolvency Act is as follows:

If an insolvent does not appear on the day so appointed for hearing his application for discharge or if an insolvent shall not apply to the Court for an order of discharge within such time as may be prescribed, the Court, on the application of the Official assignee or of a creditor, or of its own motion, may annul the adjudication or make such other order as it may think fit, and the provisions of Section 21 shall apply on such annulment.

Section 43 of the Provincial Insolvency Act which is mandatory and more drastic reads as follows:

(1) 'If the debtor does not appear on the day fixed for hearing his application for discharge or on such subsequent day as the Court may direct, or if the debtor does not apply for an order of discharge within the period specified by the Court, the order of adjudication shall be annulled, and the provisions of Section 37 shall apply accordingly.'

If insolvency courts and official assignees and receivers do what is expected of them under these two sections, cases of the present kind, namely, an alienation by an undischarged insolvent more than 7 years after adjudication should not arise. The two statutes contemplate a termination of the status of disability of the insolvent in as short a time as is compatible with efficient administration of the insolvent's assets. On the other hand under the English Bankruptcy Act, the penalty the bankrupt pays for not applying for his discharge is the disability of remaining uncertificated, there being no statutory obligation on him to apply with any penalty of annulment as under the Indian law. The English Bankruptcy Acts provide generally for two categories of annulment of adjudication, an honourable annulment on payment of all debts in full, or in those cases where the adjudication should not have been made at all, and an annulment on composition with creditors. The two insolvency statutes in India make provision not only for these but also for another form of annulment of adjudication, a dishonourable annulment for failure to apply for discharge in the prescribed time. In all cases of annulment there is a revesting of the insolvent's property in him including of course after-acquired property subsequent to the adjudication unless the Court makes a special order to the contrary under 23(1) of the Presidency Towns Insolvency Act or under 37(1) of the Provincial Insolvency Act. It is true that for many years after the Indian Insolvency statutes were passed the obligation on courts under the Provincial Insolvency Act to annul adjudications when no discharge was made in time was not fully realised and that many insolvents adjudicated years ago having never applied for their discharge still remained undischarged. In comparatively recent years, however, the insolvency courts are taking suo motu action to annul adjudications where no applications for discharge are made in time under Section 43 of the Provincial Insolvency Act. I understand that in adjudications made in the High Court also a prescribed time of 18 months is now generally fixed for discharge. Under the Presidency Towns Insolvency Act, however, there is a discretion cast on the Court to annul the adjudication on application by the Official Assignee if the application is not made within the prescribed time. The Provincial Insolvency Act, however, enacted 11 years later gives no discretion for a Court and makes such annulment a mandatory obligation.

23. The rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 based on the doctrine of Official Receiver's intervention laid down in 1890 many years of course before the Indian statutes, was a judge-made expedient, it would appear, to deal with an increasing number of hard cases of bona fide persons who had transactions with an increasing number of uncertificated bankrupts. In 1892 another Court of Appeal in New Land Development Association and Gray, In re (1892) 2 Ch. 138 declined to extend the rule to real property resolutely and in no uncertain terms. Chitty, J., however, showed himself more tolerant of it in 1895, in the case of Clayton and Barclay's Contract, In re (1895) 2 Gh. 212 and extended it to a chattel interest in land or a mortgage of a leasehold for 99 years. The resulting deadlock in the application of the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 is apparent from the judgment of Neville, J., in 1906 in Official Receiver v. Cooke (1906) 2 Ch. 661 who reluctantly excluded from its operation a mortgage on freehold. The deadlock continued, as has been pointed out in my learned brother's judgment, until the Legislature came to the rescue and gave recognition to the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 in the Bankruptcy Act of 1914. It is significant that the English Courts could not devise any means of applying the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 to all kinds of property without statutory intervention. We are however asked to do so on two apparently simple grounds: (1) that the rule in Cohen v. Mitchell1, having been held to apply to move-able property and there being no real distinction between moveable and immoveable property such as existed in England it may as well be extended in India to immoveable property; and (2) to bring the judge-made law in the Madras Presidency into line with other High Courts which have applied the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 to all kinds of property. As regards the first point, we are unable to break the language of the statute in order to extend the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 in this way; nor have we any greater powers in this direction than the English Judges who invoked a rule to mitigate the rigour of an existing law on a number of hard cases of innocent purchasers from uncertificated bankrupts in the conditions which existed in the year 1890 in England and found themselves powerless to extend the rule to all kinds of property. Whether a Legislature of the future in India may think it fit and necessary to bring Indian statutory law into line in this respect with English Bankruptcy law and give statutory recognition to the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 it is not for me to say. I would, however, venture to express the opinion that the rule in Cohen v. Mitchell (1890) 25 Q.B.D. 262 is inconsistent with the policy of the Indian Insolvency Acts in relation to undischarged insolvents, and that unless the policy of the Act is changed in this respect, any application of this rule to transfers by insolvents of their after-acquired property will result in weakening the desirable objectives that the Indian statutes in some divergence from the English statutes had in view in relation to the conditions prevailing in India and in opening the avenues for further abuses.

24. The case of the appellant-alienee is no doubt a hard one; but a hard case cannot make good law. Even at this late hour I think the machinery of the Presidency Towns Insolvency Act should be set in motion under Section 41 to have the adjudication of this insolvent annulled and his period of disability terminated, leaving him free not only to transact business himself but also to be proceeded against under ordinary civil law by persons with whom he has transacted business while under statutory disability.


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