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Narayanan Vs. Kannabiran Mudaliar and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1974)2MLJ303
AppellantNarayanan
RespondentKannabiran Mudaliar and anr.
Cases ReferredSrinivasa Naicker v. Engammal
Excerpt:
.....justified in setting aside the sale, inasmuch as no notice of auction had been issued by the official receiver to the creditors and the price fetched at the auction for the properties and that, too, in favour of the husband of the grand-daughter of the insolvent was too very low. even so, the power under section 68 is a judicial power and must be exercised on well recognised principles, justifying interference with an act of the receiver, which he is empowered to do under section 59 (a) of the act. even so, the decision of the official receiver in favour of a sale should not be set aside unless there are good grounds for interfering with the discretion exercised by the official receiver. this allegation appears to have been substantiated by proof of the close relationship between..........of certain properties from the official receiver of chingleput who held on 16th april, 1968 an auction sale of the properties of the insolvent in i.p. no. 1 of 1953 on the file of the sub-court, chingleput. the first respondent herein, who is the son and legal representative of one of the petitioning creditors (since dead), filed a petition under sections 4 to 6 and 68 of the provincial insolvency act to set aside the sale. this was opposed by the official receiver and by the appellant, the purchaser. the learned subordinate judge, kanchipuram, after an elaborate discussion of the evidence adduced by the parties, set aside the sale on the ground that the auction sale had been conducted by the official receiver without any notice to the petitioning creditor and that the price fetched.....
Judgment:
ORDER

S. Makarajan, J.

1. The appellant is the purchaser of certain properties from the Official Receiver of Chingleput who held on 16th April, 1968 an auction sale of the properties of the insolvent in I.P. No. 1 of 1953 on the file of the Sub-Court, Chingleput. The first respondent herein, who is the son and legal representative of one of the petitioning creditors (since dead), filed a petition under Sections 4 to 6 and 68 of the Provincial Insolvency Act to set aside the sale. This was opposed by the Official Receiver and by the appellant, the purchaser. The learned Subordinate Judge, Kanchipuram, after an elaborate discussion of the evidence adduced by the parties, set aside the sale on the ground that the auction sale had been conducted by the Official Receiver without any notice to the petitioning creditor and that the price fetched at the Official Receiver's auction was unduly low. Against the order of the Subordinate Judge, the appellant preferred C.M.A. No. 41 of 1970 on the file of the District Judge, Chingleput. The learned District Judge, upon a review of the evidence held that the trial Court was perfectly justified in setting aside the sale, inasmuch as no notice of auction had been issued by the Official Receiver to the creditors and the price fetched at the auction for the properties and that, too, in favour of the husband of the grand-daughter of the insolvent was too very low. Upon this finding, the first appellate Court dismissed the appeal with costs. It is against that judgment that the present appeal has been filed.

2. Before going into the merits of the case, I think it right to refer to the ruling of the Supreme Court reported in Srinivasa Naicker v. Engammal : AIR1962SC1141 in which the power of the Court under Section 68 of the Provincial Insolvency Act and the limitations upon that power have been discussed. Their Lordships observed at page 1143 as follows:

It may be accepted that the power of the Court under Section 68 is not hedged in by those considerations which apply in cases of auction sales in execution proceedings. Even so, the power under Section 68 is a judicial power and must be exercised on well recognised principles, justifying interference with an act of the receiver, which he is empowered to do under Section 59 (a) of the Act. The fact that the act of the receiver in selling properties under Section 59 (a) is subject to the control of the Court under Section 68 does not mean that the Court can arbitrarily set aside a sale decided upon by the Official Receiver. It is true that the Court has to look in insolvency proceedings to the interest in the first place of the general body of creditors; in the second place, to the interest of the insolvent, and lastly, where a sale has been decided upon by the Official Receiver, to the interest of the intending purchaser, in that order. Even so, the decision of the Official Receiver in favour of a sale should not be set aside unless there are good grounds for interfering with the discretion exercised by the Official Receiver. These grounds may be wider than the grounds envisaged, in auction sales in [execution proceedings. Even so, there must be judicial grounds on which the Court will act in setting aside the sale decided upon by the Official Receiver. These grounds may be, for example, that there was fraud or collusion between the receiver and the insolvent or the intending purchaser; the Court may also interfere if it is of opinion that there were irregularities in the conduct of the sale which might have affected the price fetched at the sale; again, even though there may be no collusion, fraud or irregularity, the price fetched may still be so low as to justify the Court to hold that the property should not be sold at that price. These grounds and similar other grounds depending upon particular circumstances of each case may justify a Court in interfering with-the act of the Official Receiver in the case of a sale by him under Section 59 (a) of the Act.

3. Applying the principles laid down by their Lordships and testing the sale in this case in the light of those principles, I have little hesitation in holding that both the Subordinate Judge and the District Judge were right in setting aside the sale in question. Be it noted that the insolvent Kuppuswami Naidu and his brothers were adjudged insolvents in this case on a creditor's petition filed by three persons, one of whom was the deceased father of Kannabiran Mudaliar who filed M.P. No. 345 1968 to set aside the sale and was a major creditor to whom more than. Rs. 15,000 was due by the insolvent. He was therefore, vitally interested in seeing that the properties of the insolvent fetched, the highest possible price, so that out of the sale proceeds thereof, the largest amount of dividend could be declared in favour of the general body of creditors. Curiously enough, the Official Receiver, who held the auction sale, sent no notice whatsoever of the date of sale to the petitioning creditor. The Official Receiver does not, in his counter, deny the averment in M.P. No. 345 of 1968 that the properties were sold without any notice to Kannabiran Mudaliar or his father. This is all the more strange in view of the fact that an earlier sale conducted by the Official Receiver was set aside on an application filed by one K.M. Ramaswami and a resale was ordered by the insolvency Court. As per the rules contained in the circular orders issued by the High Court and published at page 258 of the Civil Rules of Practice and Circular Orders, Volume 1 (1941 Edition), in auction sales held by the Official Receivers the right to adjourn an auction should always be reserved if there are not sufficient bidders or if the highest bid is not adequate. According to another rule printed at the same page, when a sale is adjourned for more than a month, there-ought to be a fresh proclamation and if no fresh proclamation is made, atleast there ought to be notice to the creditors-There ought to be something to convince one that the amount realized at the sale did not suffer a diminution for want of publicity of the adjourned date.

4. Now, in this case, the properties sold constituted the insolvent's 7/12th share in a house bearing Door No. 9, Apparao Mudali Street, Kanchipuram, and in the land measuring 23 acres 52 cents in Koneri Kuppam Village. The house is said to have fetched a price of Rs. 4,060 and the land, a sum of Rs. 5,550. It is significant that the purchaser of these two properties was no other than the husband of the grand-daughter of the insolvent himself. He lives 50 miles away from Kanchipuram and it is intriguing that while the petitioning creditors were not apprised of the auction held by the Receiver, this man, who lives 50 miles away from Kanchipuram, should have got scent of this sale and offered bid at the auction. It has been alleged in the petition that the sale itself is the result of fraud and collusion between the insolvent and the purchaser and that the sale has been effected solely to benefit the insolvent. This allegation appears to have been substantiated by proof of the close relationship between the purchaser and the insolvent and the failure on the part of the Receiver to give due publicity to the sale. One other circumstance, which has weighed with both the Courts below, is that the auction has fetched not even half the market value of the properties. According to R.W. 1, the purchaser himself, the prevailing market value of the land is between Rs. 30 and Rs. 40 per cent. P.W. 1's evidence is that there is a well and pump set worth Rs. 5,000 in this land and that at the time of the sale, the 7/12th share of the insolvent in the land would be worth Rs. 12,000. If we take the valuation given by R.W. 1, it would come to much more than Rs. 12,000. As for the house, the total extent of the site upon which the house stands is 38' X 200' and the built-in area is 38' X 120'. In the petition, it has been alleged that the house is worth not less than Rs. 7,500. Both these properties together have been sold for Rs. 9,500 in favour of the appellant. Having regard to the context in which, and the person to whom, the sale had been effected both the Courts below held that the price fetched at the auction held by the Official Receiver was excessively low. In fact, the petitioner before the first Court offered to purchase the properties for Rs. 20,000, that is to say, for more than double the amount for which the Official Receiver has actually sold the same to the appellant. In these circumstances, I do not think that the concurrent judgments of the Courts below can be regarded as being contrary to law. On the other hand, I think the grounds upon which the Courts below decided to set aside the sale are quite sound and acceptable.

5. One other contention raised by the-appellant is that the Kanchipuram Sub-Court had no jurisdiction at all to entertain the petition to set aside the sale. The I.P. seems to have been filed originally in Chingleput Sub-Court. But after the Sub-Court at Kanchipuram was established the records of cases relating to the area over which the newly established Sub-Court would have territorial jurisdiction were transferred by the District Judge to the Kanchipuram Sub-Court. Learned Counsel for the appellant, who did not raise any objection as regards jurisdiction either before the Sub-Court or before the first appellate Court has however, raised this objection in this Court. Section 3 of the Provincial Insolvency Act provides that the District Court shall be the Court having jurisdiction, under the Act, provided that the State Government may, by notification in the Official Gazette, invest any Court subordinate to a District Court with jurisdiction in any class of cases and any Court so invested shall within the local limits-of its jurisdiction have concurrent jurisdiction with the District Court under this Act. The Sub-Court at Kanchipuram came into existence by virtue of G.O. Ms. No. 2505, Home Department, dated 6th October, 1969. By G.O. Ms. No. 1731, dated 5th June, 1924 of the Law (General) Department, the following notification was published in the Fort St. George Gazette;

In exercise of the powers conferred by the proviso to the Sub-section (1) of Section 3 of the Provincial Insolvency Act (V of 1920) the local Government are pleased to invest all Courts of subordinate judges in the Presidency with jurisdiction under the said Act, in respect of all cases of petitions presented by creditors.

6. This is an omnibus G.O. which confers insolvency jurisdiction upon all Sub-Courts in the State of Madras. The argument of the learned Counsel for the appellant is that it could confer jurisdiction only upon such Sub-Courts as were in existence on the date of the G.O., namely 5th June, 1924. I am unable to agree. It invests all Courts of Subordinate Judges in the State, existing or to come into existence in future, with insolvency jurisdiction. The moment the Kanchipuram Sub-Court came into existence, this G.O. operated to confer upon that Court the insolvency jurisdiction, which every other Sub-Court in the State had been invested with under the G.O. I therefore reject this objection relating to jurisdiction as not tenable.

7. The result is that the appeal fails and will stand dismissed. No costs.


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