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S. Janabai Ammal Vs. Narasimhalu Naidu and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1956)1MLJ519
AppellantS. Janabai Ammal
RespondentNarasimhalu Naidu and ors.
Cases Referred(viz.) Chennappa Chetty v. Official Receiver
Excerpt:
- - the result, however, is that the properties except for the fact that they were put up for sale, were not effectively sold by the official receiver. 6. this appeal has to fail on another ground also. 7. in any view of the case the appeal has to fail and it is dismissed......mudaliar, the father of the tenth defendant. but this sale was set aside at the instance of the official receiver as offending the provisions of the provincial insolvency act. the properties were taken possession of by the official receiver and leased back to gopala mudaliar, the father of the tenth defendant. they were also put up for sale along with the other properties of the insolvent and from the certified copy of the bidders' list, exhibit b-24 dated 16th april, 1924, it is seen that deivasigamani mudaliar, who is a cousin of gopala mudaliar, purchased them on behalf of gopala mudaliar. the sale was for a sum of rs. 101; but excepting that deivasigamani mudaliar was declared to be the purchaser for a sum of rs. 101 as is seen from the bidders' list, it is not the case that the.....
Judgment:

Krishnaswami Nayudu, J.

1. This appeal arises in a suit for partition instituted by the plaintiff-appellant for a one-eighth share in the suit properties. We are now concerned in this second appeal with only items 11 to 14 of the plaint schedule and not with the other properties concerned in the suit. The first defendant is the undivided lather, and defendants 2 to 7 are the undivided brothers, of the plaintiff. The first defendant was adjudicated an insolvent in I.P. No. 22 of 1929. The properties in dispute were sold by the first defendant under Exhibit B-12, dated 9th May, 1929, prior to his adjudication to Gopala Mudaliar, the father of the tenth defendant. But this sale was set aside at the instance of the Official Receiver as offending the provisions of the Provincial Insolvency Act. The properties were taken possession of by the Official Receiver and leased back to Gopala Mudaliar, the father of the tenth defendant. They were also put up for sale along with the other properties of the insolvent and from the certified copy of the bidders' list, Exhibit B-24 dated 16th April, 1924, it is seen that Deivasigamani Mudaliar, who is a cousin of Gopala Mudaliar, purchased them on behalf of Gopala Mudaliar. The sale was for a sum of RS. 101; but excepting that Deivasigamani Mudaliar was declared to be the purchaser for a sum of RS. 101 as is seen from the bidders' list, it is not the case that the sale become really effective. It is common ground that no sale deed was executed in favour of Deivasigamani Mudaliar and there is also no evidence excepting the statement of the tenth defendant's mother, that money was paid in fact by Gopala Mudaliar, her husband as it was stated, that the sale was obtained by Deivasigamani Mudaliar on behalf of Gopala Mudaliar and he purchased these items for his benefit. The result, however, is that the properties except for the fact that they were put up for sale, were not effectively sold by the Official Receiver. The adjudication was eventually annulled by an order of Court. The plaintiff is now seeking to recover his share of the suit properties and the question for determination is what is the effect of the annulment of the adjudication.

2. Section 37 of the Provincial Insolvency Act provides:

(1) Where an adjudication is annulled, all sales and dispositions of property and payments duly made, and all acts theretofore done, by the Court or Receiver, shall be valid; but subject as aforesaid, the property of the debtor who was adjudged insolvent shall vest in such person as the Court may appoint, or, in default of any such appointment, shall revert to the debtor to the extent of his right or interest therein on such conditions (if any) as the Court may, by order in writing, declare.

3. There does not appear to have been any order passed vesting the properties in any person other than the insolvent; and in default of such appointment the properties of the insolvent will revert to him as provided for under Section 37 of the Act. Both the Courts took the view relying on the decision reported in Sakhamuri Peraya v. Nimmaraju Kondayya : AIR1948Mad430 , and, in particular the decision of King, J., in Dharmasamarajayya v. Sankamma : AIR1943Mad453 , that the effect of the annulment would be to leave the alienation, Exhibit B-12 in favour of Gopala Mudaliar, untouched as if an order setting aside the alienation had not been passed.

4. The effect of an annulment has been recently considered by a Full Bench of this Court in Subbiah v. Ramaswami : (1953)2MLJ766 , and it was held that once the adjudication was annulled without imposing any conditions, it must he taken that there was no insolvency at all, and by reverter under Section 37 of the Act, the prior state of things was restored and the property vested in the insolvent with retrospective effect. The effect of annulling the insolvency was to wipe out the effects of insolvency altogether, and to vest the property in the insolvent debtor, subject however to the exceptions provided in Section 37. There is no question here of any property which was in the possession of the insolvent and which had by reason of his adjudication vested in the Official Receiver which could by virtue of Section 37 of the Act be considered to revest in the debtor. The properties in question had already prior to the adjudication been alienated by the insolvent for himself and on behalf of his minor sons to the tenth defendant's father, Gopala Mudaliar, for valuable consideration; and it is the finding of both the Courts that the alienation, Exhibit B-12, could not be attacked on the ground that it was for illegal or immoral purposes, as it is found that the consideration for the sale was for discharge of antecedent debts. Ordinarily therefore, but for the order setting aside the alienation which was passed in the insolvency, the alienation would be binding on the minor sons and the question therefore is whether the order setting aside the alienation continues to be effective in spite of the annulment of adjudication. The judgment of King, J., in Dharmasamarajayya v. Sankamma : AIR1943Mad453 , is in point. In that case the appellant was a lessee of certain properties under a permanent lease from the first defendant, the appellant being the third defendant. The first defendant was the widow of one Nagaraja Shetty. In 1926 Nagaraja Shetty made a gift in favour of his wife, the first defendant, of the suit properties. In October, 1926, Nagarja Shetty was adjudicated an insolvent and in March, 1927, the gift was set aside. In March, 1928, the adjudication was annulled. Although the gift deed had been set aside, it had not been necessary for the Official Receiver to dispose of the property which was dealt with by the gift deed. In the meantime Nagaraja Shetty executed a will on the assumption that as the gift deed had been set aside the property had reverted to himself and he could dispose of it, by giving the property not only to his wife but also to his daughter, with a life interest reserved to the wife and the remainder to the daughters. The contention of the daughters was that the permanent lease given by the first defendant to the third defendant was not valid beyond the life-time of the first defendant. Both the Lower Courts upheld the contention but in the appeal it was held that though the gift deed was set aside in 1929, it was set aside not in the interests of the insolvent but in the interests of the insolvent's creditors and that the effect of setting aside the gift should, therefore, automatically be considered to disappear in the insolvency proceedings and following the principle of law laid down in Parry, In re, L.R. (1904) 1 K.B. 129 the learned Judge held that the annulment of an alienation of this kind is solely in the interests of an insolvent's creditors, and to the extent that those interests do not require the annulment, the annulment is automatically cancelled. The view taken by the learned Judge was that from the date of the annulment of the adjudication of Nagaraja Shetty in March, 1928, the rights which had accrued under the gift deed automatically became restored and the learned Judge then proceeded to discuss the other points raised in that case on the assumption that the gift deed continued and the annulment will not have any effect. This decision of King, J., was cited with approval by a Bench of this Court in Muhammad Hussain Sahib v. Karutha Syed Mohammad Rowther (1952) 2 M.L.J. 823, consisting of Govinda Menon and Mack, JJ. I am in respectful agreement with the view taken by King, J., in the case referred to, Dharmasamarajayya v. Sankamma : AIR1943Mad453 , that the object of setting aside the alienation as offending the provisions of the Insolvency law was for the benefit of the insolvent's creditors and since no provision is required to be made from and out of the property so far as the insolvent's creditors are concerned and by reason of the adjudication having become annulled, the limited purpose for which the benefit of such an order of setting aside was intended having disappeared, the alienation in question must, therefore, be deemed to have been left untouched but restored as observed by King, J., in the case of the gift in that case.

5. Mr. G.R. Jagadisa Ayyar, however urges that on the language of Section 37 of the Provincial Insolvency Act, the order setting aside the sale to Gopala Mudaliar under Exhibit B-12 must be considered to be an act done by the Court which is expressly saved by Section 37 of the Act and it is only subject to such savings the property of the debtor would revert to the debtor. The clause relied upon in Section 37 of the Act is ' where an adjudication is annulled, all sales and dispositions of property and payments duly made, and all acts theretofore done, by Court or Receiver shall be void '. Mr. Jagadisa Ayyar lays emphasis on the use of the words ' and all acts theretofore done, by the Court or Receiver ' and argues that the order declaring the alienation Exhibit B-12 void must be considered to be an act done by the Court and as such its validity could not be questioned. In support of this contention reliance is placed on the observations of Venkatasubba Rao, J., in Jethaji Peraji Firm v. Krishnayya : (1929)57MLJ116 , as to the meaning of the word ' acts ' in Section 37 of the Act. In that case, pending the disposal of an application taken out by the Official Receiver for annulment of a mortgage executed by the insolvent prior to adjudication under Section 54 of the Provincial Insolvency Act, the adjudication was annulled by reason of the insolvent not having obtained discharge within the time specified; and on annulment there was no necessity to proceed with the application under Section 54 and dismissed that petition on the ground that it lapsed automatically. No order was made as to the continuing of the vesting of the property in the Official Receiver. The order was considered to be erroneous and the learned Judges confirmed the order of annulment subject to the condition that the property shall remain vested in the Receiver, and as a result of the view taken that the insolvency petition not having come to an end, the proceedings started by the Receiver under Section 54 of the Act must be deemed to be pending, the Lower Court was directed to complete the enquiry and dispose of the petition-under Section 54. In the course of the judgment Venkatasubba Rao, J., referring to Section 37 of the Act observed that the consequence of annulling, validates all the acts done previously by the Official Receiver. In his view the word ' acts ' is wide enough to include the Receivers act of avoidance under Section 54 and the effect of the saving in Section 37 is to preserve the validity of the Receiver's exercise of his option of avoidance. Reliance is, therefore, placed on this construction of the clause and the meaning given to the word ' acts ' in Section 37 and it is urged that while a petition for setting aside a transfer under Section 54 of the Act could be considered to be an act, an order actually setting aside a transfer under Section 54 must necessarily be an act of the Court and as such it is saved under Section 37 of the Act. With great respect to the learned Judge I find myself unable to agree with that meaning given to the word ' acts ' in the said clause of the section. What is saved under Section 37 are ' sales and dispositions of property and payments duly made' and the ' acts' done by the Court or Receiver could not be any act done at any time by the Court or Receiver but must be acts done by the Court or Receiver which will have a relation to the sales and dispositions of property and payments duly made. In my view that is the proper construction that should be put on the clause. If it was intended that all orders passed by Courts or all acts done by the Court or Receiver during the subsistence of the Insolvency should be saved under Section 37 there was no need to use the word 'theretofore' which has got some significance and which cannot be ignored. The word ' theretofore ' means that the acts must have some reference to that contained in the previous clause whereby certain transactions are saved, namely, all sales and dispositions of property and payments duly made. 'Theretofore ' means that which is in relation to or pertaining to what is before. 'Theretofore,' could therefore only have reference to the previous clause relating to sales and dispositions of property and payments duly made. 'Theretofore', qualifies 'all acts' done in relation to 'sales and dispositions of property and payments duly made' and not any act done at any time and which has no relation to the ' sale or disposition of property and payments duly made '. The purpose of expressly saving sales, dispositions of property and payments made is to safeguard the interests of third parties which might have accrued by reason of the sales and dispositions of property made by the Official Receiver and payments made by him with or without the orders of Court and in such cases the acts that are referred to are orders of Courts sanctioning the payment or sanctioning the sales or disposition of property and the acts of the Official Receiver could only be such acts as the execution by him of any sale deed or any document in his capacity as Receiver. This express saving as to the acts of the Receiver or Court becomes necessary with reference to sales, and dispositions of property and payments made, for the reason that it might be contended that the insolvency having ceased to exist, any act done in the insolvency in pursuance of the orders of the insolvency Court might also be urged to have likewise become nonexistent as a logical consequence of the annulment. In my view the subsequent clause referring to acts done, by the Court or Receiver has been added in order to validate such transactions in which third parties ' rights have accrued. If every order or act by Court or Receiver is expressly saved there is no meaning in holding that the legal effect of the annulment of the insolvency must be taken to be that there was no insolvency at all and the annulment wipes out the effect of the insolvency altogether. I am therefore of the opinion that the ' acts could not include the act of ordering the setting aside of transfer in the present case, the effect of the annulment being to restore the prior state of things. It must therefore be taken that the order setting aside the transfer in favour of the tenth defendant's father has ceased to have any effect with the annulment of the adjudication. I am, in entire agreement with the view taken by the Lower Courts that the rights of the purchaser are not affected by reason of the order passed setting aside the transfer.

6. This appeal has to fail on another ground also. Mr. RamachandraAyyar has invited my attention to the view taken by a Bench of this Court in Chennappa Chetty v. Official Receiver, Salem (1954) 2 M.L.J. 755, as to the effect of an order setting aside a transfer under Section 54 of the Provincial Insolvency Act and as to whether it would affect the rights of the alieness in respect of the interests of the minors which had already become transferred to him by reason of the sale. There was some difference of opinion on this question so far as our High Court was concerned, Sundaram Chetty, J., holding the view now taken by the Bench and Pandrang Row and Abdur Rahman, JJ., holding the contrary opinion. This is now resolved by the Bench decision referred to (viz.) Chennappa Chetty v. Official Receiver, Salem (1954) 2 M.L.J. 755. In this case it was held that on the adjudication of an insolvent what vests in the Official Receiver is the interest of the insolvent and when a transaction entered into by the father of a joint Hindu family not merely in his own behalf, but on behalf of others (there two minor sons) who are not adjudicated and whose property does not vest in the Official Receiver is set aside, what vests in the Official Receiver as the result of such setting aside is merely the interest of the insolvent father and not that of the non-insolvents: and in so far as the insolvents ' share of the property is involved in the alienation, the Official Receiver would get it back when the alienation is set aside, but if under the power vested in the insolvent father under the general law he alienated the interests of his sons who were not insolvents and were minors, no order of the Insolvency Court under Section 54 of the Act could get back from the alienee and vest in the Official Receiver the interests of persons who had not been adjudicated. The plaintiff's interests in the present case having already been parted with by the father who was competent to represent the plaintiff and sell the property for purposes binding on him and as it has been found in this case that it was to discharge antecedent debts and the alienation would otherwise be binding on him, it is not open to the plaintiff to question the alienation even on the assumption that the order setting aside Exhibit B-12 continues after the annulment. In so far as the plaintiff is concerned, his interests had already passed to the alienee, that is, the tenth defendant's lather and his interest did not vest in the Official Receiver that it reverts consequent on the annulment, the reason being that consequent on the setting aside of the alienation it was only the insolvent's interest that vested in the Official Receiver and that interest alone could revert to the debtor on annulment.

7. In any view of the case the appeal has to fail and it is dismissed. In the circumstances of the case, especially as the plaintiff is dead and his widow is proceeding with the appeal, this is a case where I should order each party to bear their respective costs of the second appeal.


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