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Baikuntha Nath Haldar S/O Kailash Chandra Haldar Vs. Kishori Mohan Banerjee and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtKolkata
Decided On
Reported inAIR1943Cal133
AppellantBaikuntha Nath Haldar S/O Kailash Chandra Haldar
RespondentKishori Mohan Banerjee and anr.
Cases ReferredAbdul Latiff v. J.R. Percival
Excerpt:
- .....the court therefore rejected her claim and directed the receiver to proceed with the sale of the debtor's properties. against this order, the debtor, whose adjudication was annulled, took an appeal to the court of the district judge, 24 parganas. the appeal was heard by mr. s.k. ganguly, additional district judge, who by his order dated 9th september 1941, dismissed the appeal and affirmed the order of the trial court. it is against this order that the present rule has been obtained.3. two points have been taken by the learned advocate who appears in support of the rule. it is contended in the first place that the order passed by the sub-judge on 16th may 1941 is not a proper or valid order under section 37, provincial insolvency act, no person being appointed as contemplated by that.....
Judgment:

B.K. Mukherjea, J.

1. This rule is directed against an appellate order of Mr. S.K. Ganguly, Additional District Judge, Alipore, passed in Misc. Appeal No. 256 of 1941, affirming an order made by the Sub-Judge, fourth Court of that place, in exercise of insolvency jurisdiction, under Section 37, Provincial Insolvency Act. The material facts are not in controversy and may be shortly stated as follows : The petitioner before us was adjudicated an insolvent on his own application on 26th July 1940. The adjudication order directed the insolvent to apply for his discharge within 26th January 1941. The insolvent as it appears from the order sheet, did put in an application for discharge on 21st January 1941, but as the requisite process fees were not paid, the application was not heard on that date. After several adjournments it came up for hearing on 16th May 1941 and as the insolvent was absent on that date the Court made the following order:

The insolvent does neither appear nor take any step to-day though the date was fixed for hearing the discharge matter. Ordered : that the application for discharge is dismissed for non-prosecution. The adjudication is hereby annulled. O.R. to deal with the insolvent's property and proceed with the sale as Birahini Debi has not produced any proof of purchase. To 16th June 1941 for O.R's. report.

2. It may be mentioned here that Birahini Debi, whose name appears in the above order, laid a claim to two items of property belonging to the insolvent, on the ground that she purchased them at a rent sale. She was asked to produce the sale certificate or any other evidence in proof of her purchase. This she failed to do; the Court therefore rejected her claim and directed the receiver to proceed with the sale of the debtor's properties. Against this order, the debtor, whose adjudication was annulled, took an appeal to the Court of the District Judge, 24 Parganas. The appeal was heard by Mr. S.K. Ganguly, Additional District Judge, who by his order dated 9th September 1941, dismissed the appeal and affirmed the order of the trial Court. It is against this order that the present rule has been obtained.

3. Two points have been taken by the learned advocate who appears in support of the rule. It is contended in the first place that the order passed by the Sub-Judge on 16th May 1941 is not a proper or valid order under Section 37, Provincial Insolvency Act, no person being appointed as contemplated by that section and no vesting order made. The second point urged is that even if the Official Receiver be taken to be an appointee within the meaning of Section 37, Provincial Insolvency Act, the Insolvency Court could not give him any authority to sell or distribute the properties of the debtor, as if the insolvency proceedings were still going on. So far as the first ground is concerned, I am bound to say that the order made by the Sub-Judge is rather ill-expressed. There are no clear words to show that the Official Receiver was made the appointee under Section 37, Provincial Insolvency Act, in whom the properties of the debtor were to vest. I have, no doubt however that such was the intention of the Sub-Judge. The order was made under Section 43(1), Provincial Insolvency Act, which provides that 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, the order of adjudication shall be annulled and the provision of Section 37 shall apply. The Court purported to annul the adjudication as contemplated by Section 48(1) and then proceeded to apply the provision of Section 37. It was not the intention of the Court that the properties should revert to the debtor, and hence the direction was given, that the Official Receiver was to deal with them. The choice of an appointee under Section 37 rests entirely with the Court, and it seems to me that what the order really meant was that the Official Receiver was to be the person in whom the debtor's property was to vest. The Subordinate Judge should have, in my opinion, looked to the language of Section 37, Provincial Insolvency Act and made an order in conformity to the same but as the matter is one of substance and not of form, I am unwilling to set aside the order on that ground alone.

4. The second ground urged by the learned advocate for the petitioner raises a question of some importance upon which there is considerable divergence of judicial opinion.

5. Section 37(1), Provincial Insolvency Act, lays down that when an adjudication is annulled all sales and dispositions of property and payments duly made and all acts theretofore done by the Court or the receiver shall be valid. Subject to these the Court is competent to make an order vesting the properties of the debtor in such person as it may appoint, but in default of such appointment the properties should revert to the debtor on such conditions (if any) as the Court may by order in writing declare. It is difficult to say what exactly was the intention of the Legislature regarding the scope and effect of a vesting order under Section 37, Provincial Insolvency Act. The Legislature simply uses the word 'vest' in the section without any other word or expression which might throw light on its intention as to what was implied in such a 'vesting' order. According to one view, as the insolvency proceeding is at an end as soon as adjudication is annulled the appointee under Section 37, Provincial Insolvency Act, is a mere custodian of the properties of the ex-insolvent. The creditors are left to their ordinary remedies at law, and the person appointed under Section 37 is to hold the properties of the debtor subject to any order of attachment and sale which he might receive from any Court. He might take steps to preserve the assets vested in him but he has no right under the Insolvency Act to distribute them amongst the general body of creditors. This is the view taken by the Allahabad High Court in Panna Lal v. Official Receiver : AIR1931All71 and by the Rangoon High Court in Jaing Bir Singh v. Official Receiver ('33) 20 A.I.R. 1933 Rang. 223 and Annamalay Chettiar v. R.K. Benerji ('36) 23 A.I.R. 1936 Rang. 284. The legal effect of a vesting order under Section 37, Provincial Insolvency Act, was thus stated by Sir Arthur Page C.J. in Annamalay Chettiar v. R.K. Benerji ('36) 23 A.I.R. 1936 Rang. 284 at p. 268:

It appears to me that the sole object and intention of the Legislature in enacting Section 37 was to put a brake upon the ex-insolvent's activities by giving the Court a discretion, if it thought fit to do so, not to hand back to the debtor his property unconditionally or at once, but either to do so after imposing a condition upon him in a proper case which would give the creditors an opportunity to make good their claims in the ordinary course of law against the debtor or to vest the debtor's estate in some person appointed by it presumably for a reasonable period, so that if the creditors thereafter acted with reasonable diligence, they would be able by attachment or otherwise to liquidate any decrees that they might have obtained against the debtor out of the assets in the hands of the appointee.

6. The other view which has been expressed in a number of cases is to the effect that the appointee under Section 37, Provincial Insolvency Act, is competent under the directions of the Court to realise the assets of the debtor and distribute them amongst the general body of creditors, much in the same way as is provided in the Insolvency Act : vide Jethaji Peraji Firm v. Krishnayya ('30) 17 A.I.R. 1930 Mad. 278, Soma Sundaram Chettiar v. Perikaruppan Chettiar ('30) 17 A.I.R. 1930 Mad. 520, Veerayya v. Sreenivasa Rao ('35) 22 A.I.R. 1935 Mad. 826 and Bagiram v. Chanan Mal ('28) 15 A.I.R. 1928 Lah. 453. It is not said that the insolvency proceedings are continued for all purposes, for that would be to ignore the meaning of the word 'annul' altogether. As King J. observed in the Pull Bench case in Veerayya v. Sreenivasa Rao ('35) 22 A.I.R. 1935 Mad. 826 at p. 925:

The fact that not only the Official Receiver, but any other person may be appointed under Section 37 is against the view that an order under Section 37 continues the insolvency proceedings for all purposes. The person appointed under Section 37 has no longer by the mere fact of his appointment, the powers which a receiver has under the Act. He has only such powers as are necessarily implied by the vesting order, which are, as we understand them, to carry out the directions of the Court, and those directions as we have said, should, so far as the realization and distribution of the debtor's property are concerned, be in accordance with the provisions of the Insolvency Act.

7. A similar view has been taken in this Court by Mitter J. sitting singly in Abdul Latiff v. J.R. Percival : AIR1936Cal573 , and it has been held by the learned Judge that the person in whom the estate of the debtor vests under Section 37, Provincial In. solvency Act, occupies the position of a trustee for all creditors and he has not only the power, but is under the duty of administering the estate in accordance with the rules of administration contained in the Insolvency Act. The only other authority of our Court to which reference may be made in this connexion is the case in In re Keshab Lal Dhar : AIR1933Cal386 . This was a ease under Section 41, Presidency Towns Insolvency Act, which corresponds to Section 37, Provincial Insolvency Act, and it was held by Ameer Ali J. that on an annulment being made under Section 41, the fund should be vested in the Official Assignee, or proper officer under the Act in force, and is so vested in him for the benefit of the creditors and may be dealt with as if the fund was being dealt with in the insolvency. The learned Judge relied expressly upon the decision of the Madras High Court in Jethaji Peraji Firm v. Krishnayya ('30) 17 A.I.R. 1930 Mad. 278. As I have said already, the difficulty in giving a definite answer to the question that is involved in the present case, is mainly due to the fact that nothing has been said by the Legislature in Section 37, Provincial Insolvency Act, by way of indicating the powers and functions of the person in whom the estate of the debtor is to vest under orders of the Court, on his adjudication being annulled. The Legislature merely empowers the Court to make an order appointing a certain person in whom the properties are to vest. What is meant by and implied in the vesting order will have therefore to be gathered not merely from the actual words used, but from the scope and object of the section itself and the purpose which the Legislature might be deemed to have in view in making the pro-vision.

8. Section 37, Provincial Insolvency Act, lays down the proceeding to be taken by the Court when an adjudication is annulled. There are four kinds of annulment contemplated by the Provincial Insolvency Act which are dealt with in Sections 35, 36, 39 and 43 of the Act. Section 35 says that the Court shall annul the adjudication where a debtor ought not to have been adjudged insolvent or where his debts have been paid in full. Section 36 gives the Court power to cancel an order of adjudication, when there is a concurrent proceeding in insolvency pending before another Court. Section 39 enacts that the order of adjudication shall be annulled on the Court approving a composition or scheme of arrangement, and Section 43 provides inter alia that if the insolvent does not apply for discharge within a certain period the order of adjudication shall be annulled. Section 43 was introduced for the first time in the Provincial Insolvency Act of 1920, and there is nothing corresponding to it in the English Bankruptcy Act. It is perfectly clear that this is meant to be a penal provision, and its object is to punish the debtor if he does not with due diligence apply for his discharge. It is to be noted, that annulment of any kind, irrespective of the ground upon (which it is made will attract the operation of Section 37. That section gives a discretion to the Court to make an order vesting the property in a person other than the bankrupt and if no such order is made the properties would revert to the debtor either unconditionally or on such conditions as the Court might impose.

9. It is clear that when the annulment is on the ground that the adjudication ought not to have been made, the Court will in all respects try to remit the bankrupt to his original position, and a vesting order would be altogether unnecessary. When there is a concurrent proceeding in insolvency in another Court then also such order would be unnecessary if the other Court has already passed the adjudication order. When the Court has approved of a scheme of composition, a vesting order can certainly be made, and it is well 'settled that in such cases there is continuance of the bankruptcy proceedings though in another form. The control of the Court is still retained and the proceedings are moulded on the terms of the composition under the direction of the Court : vide West v. Baker (1875) 1 Ex. D. 44. It seems to me that when the Court annuls an adjudication under Section 43(1), Provincial Insolvency Act, and makes an order vesting the property of the ex-insolvent in some other person, it still retains control over the debtor's properties and though the annulment of adjudication puts an end to the insolvent's state of insolvency, it does not terminate the insolvency proceedings for all purposes. I cannot hold that the last act which the Court can do in exercise of its insolvency jurisdiction, is to make an order vesting the property of the debtor in some other person, and it becomes functus officio after that. That would be to frustrate the very object for which adjudication was annulled. Nor can I hold that the appointee is merely a passive trustee for the debtor, and must retain the properties for the benefit of the latter, subject to any order of attachment and sale that might be obtained at the instance of any creditor. Section 37 itself provides that the properties would revert to the debtor with or without conditions if no appointment is made by the Court and unless a different result is intended to follow, there is no sense in vesting the properties in a third person, if he is again to hold it for the benefit of the debtor. Then again the reason for annulling the adjudication under Section 43(1) is the negligence of the debtor himself, and if the annulment is meant to be a punishment for the debtor by depriving him of the protection which he was enjoying under the Insolvency laws, it is difficult to see why the creditors should be made to suffer for the laches of the debtor. It is clear that if the creditors are relegated to their ordinary remedies under law, there would not be any fair and equal distribution amongst them; and those who have got no decrees would be hopelessly handicapped.

10. It seems to me that the word 'vest' as used in Section 37, Provincial Insolvency Act, connotes much more than physical custody or detention. It means that the title of the debtor inheres in the appointee, and he has the power to deal with the property. The purpose of 'vesting' though not clearly expressed in the section must be the distribution of the assets amongst all the creditors of the ex-insolvent and that is the only way of fulfilling the object for which the annulment order was made. It will be noticed that under Section 37, Provincial Insolvency Act, the property is to vest in the appointee, not for any particular period, and no conditions can be imposed on him though a reverter to the debtor can be saddled with conditions. The appointee therefore is to hold the estate of the debtor till it is completely administered, in accordance with the principles recognized in Insolvency laws. It is true that all the provisions of the Insolvency Act may not be made applicable and the appointee may not have all the powers of the receiver in insolvency, but the general principles of distribution embodied in the Insolvency laws which are based on broad principles of equity and justice can certainly be applied.

11. As I have already said, the Court still retains control of the debtor's estate in spite of the cessation of insolvency and the appointee has got to administer the estate under the control and guidance of the Court which can direct him from time to time as to how he should proceed. In my opinion, therefore, the view taken by the Madras Full Bench in Veerayya v. Sreenivasa Rao ('35) 22 A.I.R. 1935 Mad. 826 which is in substantial agreement with that expressed by Mitter J. in Abdul Latiff v. J.R. Percival : AIR1936Cal573 is the proper view to take. The position therefore is that it must be taken that by the order dated 16th May 1941 the Sub-Judge appointed the Official Receiver as the person in whom the estate of the debtor is to vest under Section 37, Provincial Insolvency Act. The Official Receiver will proceed to realise the assets of the debtor and distribute them rateably amongst all the creditors subject to such directions as the Court may from time to time choose to give. The Official Receiver will have to prepare a schedule of creditors, and it would be open to him or the debtor to raise a question at the time of the preparation of the schedule, as to whether the amount payable to any creditor could exceed the limits imposed by Section 30, Bengal Money-Lenders Act. In case any dispute arises either with regard to this or any other point the matter will be decided by the Court. It goes without saying that the assets if any that might be left after paying the dues of the creditors or whatever they might agree to take, would be returned to the debtor. Subject to these observations, the rule is discharged. There will be no order for costs either in this Court or in the Court below.

Blank, J.

12. I agree.


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