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Nilmony Chowdhury, Vs. Durga Charan Chander and ors. - Court Judgment

LegalCrystal Citation
Decided On
Reported in46Ind.Cas.377
AppellantNilmony Chowdhury, ;purna Chandra Dutta and ;basanta Kumar Nandi
RespondentDurga Charan Chander and ors.
Cases ReferredJoy Chandra Das v. Mahamed Amir
provincial insolvency act (iii of 1907), sections 18(3), 36 and 47 powers of court under - receiver in insolvency, whether judicial officer--scope of section 18(3)--person in possession of insolvent's property, claiming adversely to insolvent, whether can be removed by court--suit by receiver at instance of creditor--liability of creditor. - richardson, j.1. this appeal arises out of certain proceedings in insolvency before the district judge of hooghly.2. the material facts as stated to us are as follows:3. bhobotara mullick and his nephew tripura chandra mullick, as tenants-in-common in equal shares of a property comprising an area of 24 bighas, purported, by an instrument, dated the 16th march 1913, to convey it to nilmony chowdhury, the appellant, for consideration of rs. 2,000.4. on the 25th june 1915 bhobotara applied to be adjudicated insolvent. apparently the petition was opposed, and on the 11th february 1916, before the order of adjudication was made, a receiver was appointed of the petitioner's estate at the instance of the opposing creditor. on the same day, at the instance of the creditor, the receiver was.....

Richardson, J.

1. This appeal arises out of certain proceedings in insolvency before the District Judge of Hooghly.

2. The material facts as stated to us are as follows:

3. Bhobotara Mullick and his nephew Tripura Chandra Mullick, as tenants-in-common in equal shares of a property comprising an area of 24 bighas, purported, by an instrument, dated the 16th March 1913, to convey it to Nilmony Chowdhury, the appellant, for consideration of Rs. 2,000.

4. On the 25th June 1915 Bhobotara applied to be adjudicated insolvent. Apparently the petition was opposed, and on the 11th February 1916, before the order of adjudication was made, a Receiver was appointed of the petitioner's estate at the instance of the opposing creditor. On the same day, at the instance of the creditor, the Receiver was directed by the District Judge to take possession of certain properties, including the appellant's original half share in the property apparently conveyed to the appellant. It is to that half share that this appeal relates. Two other properties apparently conveyed to the appellants in Appeals Nos. 313 and 314 are the subject-matter of those appeals. The three cases run on parallel lines and were heard together both in the Court below and before us. Though this judgment deals primarily with the case of the appellant Nilmony, it will also govern the other two appeals.

5. The order of adjudication was made on the 15th February 1916.

6. On the 20th March following the appellant filed an application before the District Judge stating that he was the true owner of the property in question under the conveyance in his favour, and on the 28th March the District Judge ordered the Receiver to make an inquiry and report within ten days.

7. Objections appear fro have been taken in the appellants' behalf, not only to the Receiver making any inquiry, but also to the jurisdiction of the Court to direct an inquiry by him. The Court was further asked to define the scope of the inquiry. In the result, on the 12th May 1916, the Receiver was directed to report (1) whether he had taken possession of the property; and (2) to whom the property belonged.

8. On the 29th May 1916, the appellant filed a petition in which he prayed, inter alia, that 'if the Court thinks that evidence should be gone into to ascertain the ownership of the property, the Court will be pleased to take such evidence itself as it thinks necessary.' No order was made except one extending the time within which the Receiver was to submit his report.

9. The Receiver went on taking time. On the 19th August 1916 the Receiver and the appellant both applied for summons on witnesses. Thereafter a formal inquiry was held, witnesses were examined on oath (though it seems none of the appellants tendered any) and on the 7th February 1917, the Receiver submitted his final report. He came to the conclusion 'that the right, title and possession of the properties included in the said three kobalas are with the insolvent (so far as his undivided half share is concerned) and that the alleged transfers are mere benami transactions effected with a view to defraud the creditor No. 1.'

10. Meanwhile on the 17th January 1917 the appellant Nilmoni had filed another petition protesting against the whole of the proceedings ab initio and praying the Court to withdraw its order of the 10th February 1916, in regard to the Receiver taking possession of the property, and to cancel the subsequent orders and proceedings of the Court and the Receiver in respect thereof.

11. On the 24th March 1917 the appellant filed a petition of objection to the Receiver's report.

12. On the 16th June 1917 the case was heard by the District Judge and on the 18th June he delivered the judgment from which this appeal has been preferred. The respondents are the creditors who opposed the insolvent's petition and the Receiver.

13. In regard to the objections on the ground of jurisdiction, the District Judge held, mainly on the authority of the decision of the Allahabad High Court in Bansidhar v. Kharagjit 26 Ind. Cas. 926 : 37 A. 65 : 12 A.L.J. 1273, that the Court had power to inquire into the reality of the alleged transfers.

14. On the further question whether the inquiry should be held by the Court or the Receiver, the District Judge held, in effect, on the authority of the same case, that the inquiry should be by the Court. He directed that the matter should be re-opened and that the parties should state their respective cases in writing, so that issues might be framed.

15. He made another order to which exception is taken. As to costs, he directed that the appellant Nilmony and the other two appellants should, 'having regard to the circumstances', pay half the costs of the inquiry before the Receiver, 'irrespective of the result.'

16. Now, in my opinion, the proceedings before the Receiver were entirely misconceived. I do not doubt that the Court, for the purpose of informing its mind and determining what action should be taken, was at liberty to direct the Receiver to make an administrative inquiry into the circumstances. But a Receiver is not a judicial officer and has no jurisdiction to make anything in the nature of a judicial inquiry. A glance at the list of the duties and powers of a Receiver given in Section 20 of the Provincial Insolvency Act (III of 1907) will show that judicial functions are wholly foreign to his position in relation to the insolvent's estate. I am of course not referring to an Official Receiver appointed by the Local Government under Section 19 and exercising such judicial or quasi-judicial powers as may be conferred on him by rules framed by the High Court under Section 52. I am dealing with the case of an ordinary Receiver whose duties and powers under Section 20 are executive in their character.

17. The power of the Insolvent Court to inquire judicially whether a third party in possession, claiming on his own account, is a mere benamidar of the insolvent, and to enforce an order requiring him to deliver possession to the Receiver, depends, in cases such as the present, which do not come within Section 36 of the Act, on the true construction of Clause (3) of Section 18.

18. By Section 16, on the making of an order of adjudication, the whole of the insolvent's property, with certain immaterial exceptions, becomes vested in the Court or the Receiver.

19. Clause (1) of Section 18 empowers the Court to appoint a Receiver for the property of the insolvent, and says that 'such property shall thereupon vest in such Receiver.' The appointment should be made 'at the time of the order of adjudication or at any time afterwards', and not before the order of adjudication as was done in the present case.

20. Clause (3) of the section lays down that 'when the Court appoints a Receiver, it may remove the person in whose possession or custody any such property as aforesaid is, from the possession or custody thereof.' But the important proviso is added 'that nothing in this section shall be deemed to authorize the Court to remove from the possession or custody of property any person whom the insolvent has not a present right so to remove.'

21. Certain other sections were referred to in the argument as throwing light on the extent of the power so conferred and so qualified.

22. Clause (d) of Section 20 clearly shows that the Act contemplates the possibility of the Receiver being driven to legal proceedings in the ordinary Courts to get in the insolvent's property.

23. Section 35 relates to property of the insolvent taken in execution.

24. Sections 36 and 37 confer a limited power on the Court to avoid and annul transfers in certain cases. Section 36 relates to voluntary transfers within its scope made within two years before the adjudication. Section 37 deals with what is known as preference and empowers the Court on that ground to annul any transfer in favour of a creditor made within three months of the date on which the petition for adjudication is presented.

25. Section 38 protects, subject to the three sections which precede it, bona fide transactions entered info by the insolvent including transfers for valuable consideration made by him at any time before the adjudication. The section is not of much assistance, as it does not protect pretended transfers without consideration.

26. The appeal section, Section 46, by Clause (2) gives an appeal as of right to the High Court from original orders made by a District Court under certain sections including Sections 36 and 37, but not including Section 18(3). An appeal from an order under Section 18(3) is subject by Clause (3) of Section 46 to the leave of the District Court or the High Court.

27. Section 47, which was mentioned on behalf of the respondent-creditor, deals mainly with the procedure to be followed in 'proceedings under this Act.' The powers referred to are powers to be exercised in proceedings which the Court has jurisdiction or authority to entertain under other provisions of the Act [Lalji Sahay Singh v. Abdul Ghani 7 Ind. Cas. 765 : 15 C.W.N. 253 at p. 257 : 12 C.L.J. 452]. The section, therefore, carries the matter no further.

28. If we return to Section 18(3) I should have thought prima facie, apart from the Allahabad case, that the clause was not intended to authorize the removal of any person whom the insolvent himself could not remove without the aid of legal proceedings. The language of the proviso follows that of Order XL, Rule 1(2) of the Civil Procedure Code. The clause would cover the dismissal of an agent or gomashta subject to the terms of his appointment, or the removal of a tenant subject to the conditions of his lease, but not, as I should have thought, the case of a person in possession claiming adversely to the insolvent.

29. The power is conferred by language which differs largely in form and presumably also in effect from the language of the Presidency Towns Insolvency Act (III of 1909). Apart from the provision in Clause (5) of Section 36 of the Presidency Act (corresponding to Section 27 of the English Bankruptcy Act of 1883), there is the wide power conferred by Section 7 (corresponding to Section 102 of the English Act of 1883). No such power is to be found in the Provincial Act. It has been held, moreover, that even under the Presidency Act, the jurisdiction is discretionary and that in a difficult case the parties may be relegated to a suit [In re Seehase 46 Ind. Cas. 196 : 22 C.W.N. 335 at p. 338].

30. A similar view of the effect of the Provincial Act appears to have been taken in two unreported decisions of this Court in Appeal from Order No. 146 of 1917 [Satya Kumar Mukherjee v. Manager Benares Bank 46 Ind. Cas. 335 : 22 C.W.N. 700] decided by Walmsley and Greaves, JJ., on the 12th July 1917, and Appeal from Order No. 213 of 1914 [Joy Chandra Das v. Mahomed Amir 44 Ind. Cas. 143 : 22 C.W.N. 702] decided by Fletcher and N.R. Chatterjea, JJ., on the 17th August 1917. In the former case the District Judge had issued an injunction restraining the insolvent from dealing with certain promissory notes standing in his name of the value of Rs. 26,000 odd. The appeal was from an order refusing to dissolve the injunction, and it was allowed on the ground that there was no evidence upon which an injunction should have been granted. There was, however, a further point as to an order of the District Judge directing an inquiry into the matter by the Receiver. As to that it was said: 'We treat the order of the District Judge as being simply a direction to the Receiver to inquire and report for his, the Judge's own, information and we see no harm in that being done. When the report has been made, it will be for the Judge to consider whether upon the facts before him he should direct the Receiver to bring a suit in order that the question of title may be decided, or whether the case is so clear, that is to say, that the title is not really in dispute that it can be dealt with in the insolvency without the necessity of a suit. If the question of title is seriously in dispute we state for the information of the Judge that he should direct the Receiver to bring a suit to have the question determined.'

31. It is true that in neither case is any express mention made of Section 18(3) but presumably the clause was referred to in argument.

32. It is also true that benami transactions are unquestionably very common in this country and that an Insolvency Court which cannot deal with such transactions at first hand may in some cases be somewhat handicapped. But we must administer the law as it is and as the Act stands, the result seems to be that where the benami character of the title is admitted or where the veil is transparent and the insolvent is in substantial beneficial possession, the Court may order the delivery of the property to the Receiver. But where the alleged benamidar is in possession claiming adversely to the insolvent, then any claim made by the Receiver or by a creditor that the property is really the property of the insolvent can only be enforced by suit in the regular Courts.

33. In arriving at this conclusion I differ with great respect from the view adopted by the Allahabad High Court in Bansidhar's case 26 Ind. Cas. 926 : 37 A. 65 : 12 A.L.J. 1273. That case does not appear to have been cited in Jagrup Sahu v. Ramanand Sahu 40 Ind. Cas. 378 : 39 A. 633 : 15 A.L.J. 738 where more guarded language is used.

34. If the Court at the instance of a creditor directs a suit to be instituted by the Receiver, the proper course, as Fletcher, J., points out [Joy Chandra Das v. Mahamed Amir 44 Ind. Cas. 143 : 22 C.W.N. 702], is to make the order on terms, namely, that the creditor should put the Receiver in funds and indemnify him against the costs of the suit.

35. In my opinion this appeal should be allowed, the proceedings before the Receiver should be declared to be of no judicial effect, and the order of the District Judge directing a further enquiry before himself should be set aside. Any possession which the Receiver may have taken, under the order of the 10th February 1916, must be restored to the appellant.

36. As to the costs of the inquiry before the Receiver, it is suggested for the creditor-respondent that the appellant acquiesced in the inquiry. There was, in my opinion, no acquiescence on his part. He took every opportunity to protest against the proceedings. The District Judge's order as to costs should also be set aside. The costs of the inquiry before the Receiver, and other costs in the Court below and the costs of this appeal must be paid in the first instance by the respondent creditor. If any of the properties in question in this appeal and the analogous appeals is recovered by suit instituted at his instance, then out of the proceeds he will be entitled to reimbursement of any money he may have paid as costs under this order.

37. The Rules are sufficiently disposed of by this judgment. No further order is necessary.

Walmsley, J.

38. I agree.

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