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Kuttan Pillai Vs. Ammamuthu and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai High Court
Decided On
Reported inAIR1976Mad187; (1976)2MLJ406
AppellantKuttan Pillai
RespondentAmmamuthu and anr.
Cases ReferredGovindaraj v. Kandaswami Goundar
Excerpt:
- .....act; the effect of that petition would be to vest all the properties of thanuvan (debtor) in the official receiver. in lieu of his 1/4th share, he was allotted 19 cents, which 19 cents were sold in favour of kutty nadar, under exhibit b-2, dated 1st february, 1960 by the children of thanuvan. therefore, what was sold in favour of the plaintiff was only 53 cents, i.e., 72 cents being the subject-matter of the othi, out of which 19 cents having been sold in favour of kutty nadar. after the proceedings under the act, thanuvan had no title and therefore, exhibit a-2 would be void. that being the position the plaintiff will have no right to redeem.4. the learned district munsif decreed the suit holding that the proceedings under the act, did not have the effect of vesting the property of.....
Judgment:

S. Mohan, J.

1. The plaintiff is the appellant in this second appeal. The short facts are as follows:

2. Survey No. 769 of Arumana village consists of 4 acres and 86 cents of garden lands. Originally it belonged to one M. Thanuvan. He created an othi over an extent of 72 cents under Exhibit A-1, dated 30th November, 1932 in favour of the first defendant, Ammamuthu. Thanuvan died in 1949. Thereafter, Thanuvan's children sold 53 cents under Exhibit A-2, dated 2nd February, 1963 in favour of the plaintiff (Kuttan Pillai) with a direction to redeem the othi, Exhibit A-1. Therefore, he issued a notice to the first defendant, Exhibit A-3, dated 30th of June, 1965 seeking to redeem, Exhibit A-1 othi. To this, it was replied under Exhibit A-5 dated 9th of July, 1965 stating that the plaintiff was not entitled to redeem, in view of the petition filed by Thanuvan under the Travancore Debt Relief Act (II of 1116 M.E., 1940)(hereinafter referred to as the Act). Hence, O.S. No. 192 of 1967 was preferred in the District Munsif's Court, Kuzhithurai.

3. In the written statement, the mortgagee contended as follows: Thanuvan, before his death, filed the petition Exhibit B-1, dated 22nd August, 1942 under the Act; The effect of that petition would be to vest all the properties of Thanuvan (debtor) in the Official Receiver. In lieu of his 1/4th share, he was allotted 19 cents, which 19 cents were sold in favour of Kutty Nadar, under Exhibit B-2, dated 1st February, 1960 by the children of Thanuvan. Therefore, what was sold in favour of the plaintiff was only 53 cents, i.e., 72 cents being the subject-matter of the othi, out of which 19 cents having been sold in favour of Kutty Nadar. After the proceedings under the Act, Thanuvan had no title and therefore, Exhibit A-2 would be void. That being the position the plaintiff will have no right to redeem.

4. The learned District Munsif decreed the suit holding that the proceedings under the Act, did not have the effect of vesting the property of Thanuvan, since no action was taken thereon. Consequently, the plaintiff would be entitled to redeem the mortgage. Thus a decree for redemption was granted.

5. On appeal in A.S. No. 49 of 1971, the learned Subordinate Judge, Nagercoil, reversed the findings of the trial Court and held that after the proceedings under the Act, there was no title which remained with Thanuvan and therefore, Exhibit A-2, did not convey valid title and the plaintiff will not be entitled to redeem.

6. Mr. R. Gopalaswami Iyengar, learned Counsel for the appellant, strenuously contends before me that the lower Appellate Court was not justified in reversing the judgment of the trial Court, especially when nothing more was done, excepting to pass a paper order, in the proceedings under the Act. Having regard to the scheme of the Act, usufructuary mortgages are exempted from the operation of the Act and consequently, the proceedings under the Act would have no effect at all. It is the further submission of the learned Counsel that the effect of the proceedings under the Act would not convert the assets of the debtor, and in such a case, it would be open to the purchaser, as a co-owner, to redeem the property.

7. By virtue of Section 91 of the Transfer of Property Act, it would be open to the plaintiff, as a person interested in the redemption of the mortgage and it does not lie in the mouth of the mortgagee (first defendant) to say that the plaintiff cannot redeem. Even accepting the stand of the mortgagee, the Official Receiver will undoubtedly, be entitled to redeem it. Inasmuch as he is a party, either a joint decree for redemption or a decree for redemption in favour of the Official Receiver may be passed.

8. Mr. S. Padmanabhan, learned Counsel for the 1st Respondent in reply submits that there is a vital difference between the proceedings under the Act and the general insolvency proceedings. Where a debtor files an application under the Act, the effect of that would be to vest all the properties in the Official Receiver. In the instant case, he, having been allotted 19 cents, which 19 cents form the subject-matter of Exhibit B-2, it can no longer be contended that the proceedings under the Act, were of no effect. It is incorrect to contend that the Act does not apply to usufructuary mortgages. That has been decided in his favour by a decision of the Travancore-Cochin High Court. Inasmuch as no valid title had been conveyed in favour of the plaintiff, he cannot be a person interested within the meaning of Section 91 of the Transfer of Property Act and, therefore, no decree for redemption can arise in his favour. Nor, can a decree be passed in favour of the Official Receiver, since not only the Official Receiver has remained ex-parte, but the claim of the plaintiff himself is adverse to that of the Official Receiver.

9. I may state that in support of the respective submissions, both the learned Counsel referred to many authorities and it is not necessary to refer to them at this stage, since I am considering them below.

10. For a proper appreciation of the respective contentions, it would be worthwhile to formulate the following questions, which arise for determination in this case:

(1) Whether the Act (The Travancore Debt Relief Act) (Act II of 1116 ME) applies to usufructuary mortgages?

(2) What is the effect of presenting a petition under the Act?

(3) What is the extent and the scope of applicability of insolvency law to such petitions presented vnder the Act?

(4) Since the Official Receiver is a party to these proceedings, can at least a decree be passed in his favour?

(1) Whether the Act applies to usufructuary mortgages?

Section 5(1) of the Act reads as follows:

Except in the cases mentioned here-under, nothing contained in this Act, shall affect any usufructuary mortgage.

Exceptions. - (a) Any transaction which purports to be ususfructuary mortgage but which is proved to have been intended to be or treated only as a hypothecation.

(b) A claim by the mortgagee whether arising under a decree or otherwise for recovery of the mortgage amount.

The definition of 'usufructuary mortgage' is contained under Section 2(ix) of the Act. Section 3 is as follows:

(1) subject to the provisions of Sections 4 to 7, this Act shall apply to all debts incurred before the 23rd day of Dhanu 1112 and subsisting at the commencement of this Act.

(2) Notwithstanding anything contained in Sub-section (1) or Sections 4, 5 and 6 the provisions of Sections 18, 19, 20, 21 and 23 shall, subject to the provisions of Section 7, apply to all classes of debts whether incurred before, On or after the 23rd Dhanu 1112.

11. In the instant case, the mortgage, Exhibit A-1, is dated 15-4-1108 (M.E.)(30th November, 1932). By referring to Sections 5(1) and 3(1), Mr. R. Gopalaswami Iyengar, would contend that the Act would be inapplicable to Exhibit A-1, Othi while Mr. Padmanabhan, would state that such a construction does not take note of the exceptions provided under Section 5(1) and also Sub-section (2) of Section 3.

12. Instead of myself embarking upon an enquiry as to the correctness of the respective contentions, I need only base my conclusion on the ruling of the Full Bench of the Travancore High Court in Padmanabha Pillai v. Chacko (1943) T.L.R. 1219:

The other argument for the appellant was that the usufructuary mortgagee goes out of the section and that he cannot be affected by the Act or by Section 19. This is an overstatement of the true position. Section 3(2) puts out of Sections 18 to 21 and 23, the class of debts exempted under Section 4. It is wrong to say that the Grown debts and debts of a similar kind are exempted from the operation of the proceedings under Section 19. They too come in. The proceedings are for a full settlement of all debts. Grown debts etc., secured debts, unsecured debts all come in for settlement under Section 19. As pointed out above secured debts are to be paid in full as far as possible. Grown debts etc., left unsecured are next to be paid and next come simple money debts to be discharged pra rata. Hence, we hold that in view of the specific provisions of Section 19, usufructuary mortgages do come within the administration under Section 19. Section 4 is obviously controlled by Section 3, Clause (2) and not vice versa.

at page 1228:

The first difficulty is whether a usufructuary mortgage is excluded. The learned Advocate-General contended for the appellant that a usufructuary mortgage was excluded from the Acts for all purposes. Section 3(2) provides (in simplified language) that, notwithstanding anything contained in Sections 4, 5 and 6, and subject to an exception the provisions as to insolvency (omitting Sections 16 and 17) shall apply to all classes of debts whenever incurred. If Section 3 could be regarded as referring only to the time when the debt was incurred, as is suggested by the marginal note, it might be fairly simple to construe, but the excepted sections deal both with time (see Section 4 (k)) and various classes of debts. Section 5 provides that nothing in the Act shall affect any usufructuary mortgage, subject to exceptions which are not immediately relevant. The joint effect of these provisions appears to be that the quasi-insolvency proceedings are to apply to a debt whenever incurred, notwithstanding that nothing in the Act affects a usufructuary mortgage, and therefore notwithstanding that the debt is secured by a usufructuary mortgage. The opposite construction could be justified by various provisions in the relevant sections; notably the omission of Section 16 which refers to debts, from Section 3(2), thus leaving the exclusion of usufructuary mortgages from the provisions of Section 16 intact, save for the reference in Sections 16(3)(c) to mortgages, and the fact that Section 16(1) contemplates a 'full' settlement of debts and a comparison of the word 'claim' in, Sections 5(1)(b), 16(3)(b) and 18. But this construction might result in the debt being included in the Acts and the security being excluded. Such an aberration from insolvency practice was presumably not intended, particularly as provision is made for the payment of secured creditors, by the second proviso to Section 19. Thus while this conclusion cannot be described as free from doubt, I think the true meaning of the sections is that usufructuary mortgages are within the quasi-insolvency proceedings. On this point I am fully in agreement with the learned Chief Justice.

at page 1237:

Whether a usufructuary mortgage is also subject to the administration under Sections 16 to 20 is a point which depends upon the answer to the question whether the entire assets include securities or not. In the view that has been taken of the meaning of the entire assets, the conclusion seems obvious. That conclusion is reinforced by the provisions for full settlement of his debts and for distribution by making over to the creditors the remaining assets after payment of all liabilities by way of public, revenue tax, cess, fee rent, jenmikarom or such other dues chargeable by virtue of any enactment for the time being in force, and also by the succeeding provisions that the secured creditors shall rank in preference to the unsecured creditors in the order of mutual priority. Secured creditors include both usufructuary and simple mortgagees. In the absence of anything to the contrary (and there is much for it in Section 3 (2)) it must be assumed that the usufructuary mortgagees like simple mortgagees are also roped in for the settlement of the liabili-iss of the debtor in the course of the administration.

13. Consequently, in view of the above decision, there is, therefore, no difficulty in holding that the Act applies to the usufructuary mortgages also, subject, of course, to the exceptions noted in the Act itself.

14. For the sake of convenience, question No. 2, (What is the effect of presenting a petition under the Act?) and question No. 3, (What is the extent and the scope of applicability of insolvency law to such petitions presented under the Act?) may be dealt with together.

15. According to Mr. Gopalaswami Iyengar, a reading of Sections 16 to 19 of the Act, would make it clear that there is no vesting of the properties in the Official Receiver. The properties of the erstwhile debtor are taken possession of for the purpose of settlement of the liabilities of the debtor, in the manner provided under Section 19, and notwithstanding the presentation of the application under Section 16, the debtor continues to have the title to the properties and this is made clear since Section 18 says that the procedure prescribed under the Travancore Insolvency Act shall mutatis mutandis be applicable to such proceedings. In support of this contention, the learned Counsel relies on the decision in Fruit and Vegetable Merchants Union v. Delhi Improvemerit Trust : [1957]1SCR1 , Panathi Amma v. Easo Yohannan A.I.R. 195 TC. 241, and also Letters Patent Appeal No. 2 of 1968.

16. For contra, it is argued by Mr. Padmanabhan, that once an application is presented under Section 16 of the Act, there is a vesting of the properties in the Official Receiver and the debtor cannot claim to be the owner of the properties, since under Section 19(a), 1/4th of the entire assets not exceeding Rs. 3,000 is allotted in favour of the debtor, to which alone he will be entitled and the rest being available for distribution among the creditors. It is only the procedure as is applicable under the Insolvency Act that is made applicable to the proceedings under this Act. But, there is a great deal of difference between the Insolvency Act and this Act, since there is no question of an order of discharge or annulment. Nor anything against the above 1/4th is available to the debtor under the insolvency proceedings. The learned Counsel places reliance on Sankaran v. Kochukutty (1953) K.L.T. 883 : A.I.R. 1954 T.C. 259.

17. Before I proceed to deal with the respective submissions, it may be necessary to refer to the Press Communique, dated 16th September, 1940 which provides the necessary background for appreciating the scope of the various provisions of the Act. Hence, I am extracting the same.

18. One noteworthy feature of this Act is that the benefits conferred by it are designedly made applicable to such debtors as are willing to discharge their liabilities by depositing at least a portion of the debt in half-yearly instalments. Debts repaid within a period of 2 years will be reduced to 70 percent, of the total amount while those paid within 6 years will be reduced to 75 per cent, and those repaid within 9 years will be reduced to 80 per cent. It is further provided that in determining the amount of a decree-debt for purpose of payment, not more than one-half of the principal in the case of money debts and not more than the principal in the case of paddy debts will be payable towards interest up to the date of the decree and not more than a like amount will be payable towards interest from the date of the decree. From the date of the commencement of this Act no future interest exceeding simple interest at 4 per cent, in the case of paddy debts could be charged. Provision is also made for the setting aside in certain cases, of sales of immovable properties in execution of a decree. If, for payment towards a decree-debt, one-third of the amount payable under the decree is deposited within six months from the date of the commencement of the Act and the balance sufficient to make up 70 percent, of the amount payable under the decree is deposited within a further period of six months, the sale will be set aside. In the case of persons unable to pay the debts provision has been made for settlement of liabilities by Court under which the debtor will make available to his creditors 75 per cent, of the assets reserving to himself 25 per cent, of such assets but so as not to exceed Rs. 3,000 in value. Where a person, therefore, files an application under Sections 16, it is because, he is unable to meet the claims of his creditors. He surrenders all the properties whereupon an order being passed, there is a statutory conversion of those assets. 25 per cent, (not exceeding Rs. 3,000 and homestead, wherever possible) to be allotted in favour of the debtor and the rest of the 75 per cent, for distribution among the creditors. In such a case, it is impossible to state that there would have been any intention on the part of the mortgagor (debtor) to keep alive the mortgage, in the instant case Exhibit A-1 and make provision only with regard to the other debts. The presentation of the petition would necessarily include and, in fact did include, the othi debt, under Exhibit A-1. Mr. Gopalaswami Iyengar, is not correct in his submission that the properties are taken possession of by the Official Receiver without there being vesting for the purpose of the adjustment of the claims. Nor again do I find any force in the argument that the proceedings under the Insolvency Act would be applicable in full vigour to the proceedings under this Act. The proper construction to be placed on Sections 16 to 19 of the Act should be as laid down by the Full Bench in Padmanabha Pillai v. Chacko (1943) I.L.R. 1219:

The object of the provisions is for a full settlement of his debts. The method of proof (and not of administration by the Court) is the method prescribed by the Insolvency Act in such proceedings with necessary variations. The variations are assumed to be such as are consistent with the spirit and object of the Debt Relief Act. Under Section 18, the Court shall first determine the admissibility and amount of each claim; and under Section 19, the Court shall then settle the liabilities of the debtor in the manner mentioned therein after. It is in such settlement and as incidental thereto, that one-fourth of the entire assets has, to be reserved, subject to necessary charges and limitations for the debtor. Such reservation is part of the settlement of liabilities and can be effected only at that stage. Having placed all his assets in the control of the Court, the debtor cannot immediately turn round, and even before the process of administration and settlement commences, demand a free one-fourth fat his own; if at all, the statutory gift of one-fourth flames out of the embers of insolvency administration and this can only be through the process of settlement of his liabilities. It may be unfair that an insolvent debtor should be given a statutory gift of one-fourth of his entire assets. But the policy of the Debt Relief Act is not the policy of the general insolvency law, Whereas the Insolvency Act was primarily designed for the protection of creditors, the Debt Relief Act intended that the debtor should not be uprooted and thrown over destitute, but that he should be maintained, if possible, rooted to the soil and with an opportunity to make a fresh start on a saving given to him out of the wreck. He is therefore given an one-fourth in due time in the course of the administration of his assets and of the settlement of his debts, subject only to the liabilities and limitations under Section 19(a).

19. If this is the correct position, none of the decisions relied on by Mr. Gopala swami Iyengar, viz., Fruit mid Vegetable Merchants Union v. Delhi Improvement Trust : [1957]1SCR1 , Parvathi Amma v. Easo Yohannan A.I.R. 1955 T.C. 241, and Letters Patent Appeal No. 2 of 1968, will help him.

20. This apart, as rightly contended by Mr. S. Padmanabhan, there is neither an order of discharge, nor an annulment under the Act, unlike in the case of insolvency, and as seen above, there is a question of allotment of 1/4th in favour of the debtor under the insolvency proceedings.

21. As to the effect of filing a petition under Section 16 of the Act, a Full Bench of the Travancore-Cochin High Court has held in Sekharan v. Kochukutty I.L.R. (1953) T.C. 633 : A.I.R. 1953 T.C. 591:

If the debtor chooses to present an application properly under Section 16, there is an automatic statutory conversion of all his assets into co-ownership property to be held by the Court and liable to be distributed by it among the co-owners who are the petitioner-debtor and his unsecured creditors, subject to the payment of the paramount liabilities and the satisfaction of the claims of secured creditors under Section 19.

The consequence of a proper presentation of an application by a debtor under Section 16 being, as already stated, to statutorily convert the assets of the debtor into co-ownership property of himself and of all his unsecured creditors, the rights of the latter under the ordinary law to pursue their remedies by a suit and or execution of a decree and recover the moneys due are extinguished and in their stead is substituted a right to get a distributive share in the assets of the debtor. Those parties would have a decree extinguishing their existing rights and creating new rights instead, without anything done or any order passed by the Court.

From this it is clear that all the assets come into the hands of the Official Receiver and, therefore, it cannot be contended that the usufructuary mortgage still remained to be redeemed. But, having regard to the facts of this case, it is argued by Mr. Gopalaswami Iyengar, that nothing was done, in this case, no possession was taken, as seen from Exhibit A-6, the report of the Receiver, dated 8th December, 1949. The report says that there were no funds in the hands of the Receiver or in the treasury deposit, to enable the Receiver to meet the necessary expenses in connection with the giving of notice to all the creditors and inviting bidders for realising the assets by the sale of the property and he had requested the Court to pass necessary orders directing Thanuvan, the petitioner therein, to deposit a sum of Rs. 30. It is true that no steps were taken for the division of the property among the creditors, but it is important to note that Thanuvan surrendered all his properties and in lieu of his 1/4th share, he got 19 cents, which the children of Thanuvan sold under Exhibit B-2, dated 1st February, 1960 in favour of Kutty Nadar. But for this, they would not have had any right to this 19 cents. All the properties were surrendered by Thanuvan, when he filed the petition, Exhibit B-1. Therefore, the fact that the Official Receiver did not take possession cannot be highlighted and this is where the trial Court erred, while the lower Appellate Court had come to the correct conclusion. Hence, upon the passing of the order under the Act, if there is a legal vesting, even though for the purpose of administration, the title to the properties under Exhibit A-1 cannot continue in Thanuvan, in which event, his heirs could not convey a valid title in favour of the plaintiff, the present appellant.

22. This legal position is not obliterated either by the passage of time or by the so-called inaction on the part of the Official Receiver. This leads me to conclude that the plaintiff is not a person interested within Section 91 of the Transfer of Property Act and, therefore, he will not be entitled to redeem the property.

23. Since the Official Receiver is a party to these proceedings, can atleast a decree be passed in his favour: Mr. Gopalaswami Iyengar, basing on Subbaiah v. Ramaswami : (1953)2MLJ766 , and Order 1, Rule 10, Code of Civil Procedure, submits that a decree for redemption can be passed either jointly or at any rate, in favour of the Official Receiver, since he is a party to this proceeding, whereas Mr. Padmanabhan, submits that the claim of the petitioner is adverse to that of the Official Receiver and, therefore, there can be no question of a joint decree. Further, their cannot be a decree for redemption by transposing the Official Receiver as a co-plaintiff, since the right of redemption presently is barred by limitation and by such an order, he will be highly prejudiced.

Subbaiah v. Ramasuami I.L.R. (1954) Mad. 80 : : (1953)2MLJ766 , is a case wherein it has been held as follows:

Pending a mortgage suit which was instituted on 9th October, 1931 and decreed on 5th December, 1931 a petition to adjudicate one of the mortgagors as insolvent was filed on 14th October, 1931. The adjudication was ordered on 19th February, 1932 and related back to the date of the petition. The mortgagee-decree-holder brought the properties to sale and purchased them himself on 21st March, 1935. Neither in the mortgage suit nor in the subsequent execution proceedings was the Official Receiver made a party. As the insolvent failed to apply for a discharge, the insolvency itself was annulled on 13th October, 1935 without making any vesting order.

Held: The decree and execution proceedings were valid and binding on the insolvent.

24. It is true that the omission to implead the Official Receiver as a party to the mortgage action and the execution proceedings made the proceedings in effect against the property and such as not to bind the equity of redemption which vested in the Receiver or to make the sale valid so as to confer a title on the purchaser. But the decree and execution were not null and void in the sense that they had no legal existence at all. Under Section 91 of the Transfer of Property Act, the mortgagor was a person entitled to redeem the property, and notwithstanding his insolvency and his having no interest in the mortgage security, he was a necessary and proper party to the action, under Order 34, Rule 1, Code of Civil Procedure.

and at page 115:

Insolvency does not operate as civil death. The insolvent's property vests in the Official Receiver for the purpose of administering the estate and for meeting the claims of the creditors. The Act does not affect the capacity of the insolvent to enter into contracts and to otherwise deal with the property. He is in the position of a person who has alienated all his property or otherwise lost it. But his position cannot be equated to that of a minor or a lunatic. He can be sued with or without the leave of the Court as the case may be, and in that suit he can properly represent himself. But any decree that might be obtained against him would not bind the Official Receiver in whom his entire properties vest. If the properties vested in the Official Receiver are sold as if they were the properties of the insolvent, the sale would be valid and the judgment-debtor cannot question the validity of the sale. Such a sale would be analogous to a sale of the property of a third party as if it was the property of the judgment-debtor. The sale cannot be held to be a nullity or one made without jurisdiction.

25. Inasmuch as I have already held that the Act is very different from the Insolvency proceedings, the above observations will have no application to this case. No doubt, this is an authority for the proposition that in order to bind the Official Receiver, he must be necessarily impleaded as a party. But, that is very different from saying that notwithstanding the plaintiff claiming adversely to that of the Official Receiver, since it is his definite case that the properties did not vest in the Official Receiver, as a result of Exhibit B-1 petition, the plaintiff would be entitled to contend that there could be a decree is favour of the Official Receiver. As laid down in Govindaraj v. Kandaswami Goundar : AIR1957Mad186 , the plaintiff cannot be allowed to abandon his own case, adopt that of the defendant and claim relief on that footing.

26. The learned Counsel for the 1st respondent is right in his submission that the right of redemption had become barred, and therefore, immense prejudice would be caused, passing a decree in favour of the Official Receiver.

27. For all the above reasons, I am unable to disagree with the findings of the lower Appellate Court and hence, the second appeal is dismissed with costs. No leave.


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