Annamalai Chettiar vs Lakshmanan Chettiar

Wadsworth, J.—This appeal raises the question of the effect of the insolvency of the judgment-debtor under a mortgage decree, the

adjudication taking place after orders had been passed for the sale of the hypotheca under the decree but before the sale was actually held. The

appellant, who is the plaintiff, is a purchaser under a subsequent sale held by the Official Receiver. The following are the essential dates. The

mortgage decree is dated 19th May, 1925. The judgment-debtor preferred his insolvency petition on 1st July, 1926. The sale under the mortgage

decree was ordered on 8th July, 1927. The adjudication was on 26th July, 1927. On 7th September, 1927, the sale in execution of the mortgage

decree was held without notice to the Official Receiver and the defendant purchased the property. On 31st January, 1930, the Official Receiver

sold the property to the plaintiff subject to the mortgage upon which the decree was passed and the subsequent mortgage. The sale-deed was

actually executed nearly a year later. The suit is one for possession on the basis of this sale from the Official Receiver, the plaintiff offering to

redeem the mortgage on which the decree was passed if necessary. The first question is whether the respondent (purchaser under the mortgage

decree) is protected by Section 51, Sub-section (3) of the Provincial Insolvency Act. On this question it seems that the matter is concluded by a

bench decision reported in Bachu Mallikarjuna Rao Vs. The Official Receiver and Others, , the learned Judges reading Section 51 in the light of

the heading ""Effect of insolvency on antecedent transactions"" and holding that it has no relation to transactions taking place after the adjudication.

This decision dissents from an obiter dictum of Venkatasubba Rao, J., in a case reported in Muthan Chettiar and Another Vs. Venkituswami

Naicken, . I respectfully agree with the learned Judges of the bench that Section 51, Sub-section (3) does not apply to a purchase in execution

after the adjudication which vests the property in the Official Receiver.

It has, however, been held by the lower appellate Court, relying on the cases reported in Kondapalli Tatireddi v. Ramachandra Rao (1921) 13

L.W. 616 and Subbaraya Goundan and Another Vs. V.V.R. Virappa Chettiar Bank and its partners being Valliappa Chettiar and Others, that the

insolvent to whom notice went in the sale proceedings under the mortgage-decree at a time when the properly still vested in him, represents the

estate for the continuation of those proceedings and that therefore the sale would be good as against the Official Receiver even though no notice

was given to the Official Receiver under Order 21, Rule 22, Civil Procedure Code. Both the cases upon which the learned Subordinate Judge

relied are cases dealing with the power of an insolvent to continue proceedings connected with an application to set aside a sale in execution of the

decree after his adjudication. In such cases there is no question of the property being vested in the Official Receiver, for until the sale is set aside

there is nothing left to vest, and there is no particular reason why the insolvent, who was a party to the proceedings in the appeal stage, should not

be allowed to continue them, subject presumably to the right of the Official Receiver to claim the property, if any, if the sale is set aside. There are,

however, a number of specific decisions to the effect that when, after the execution proceedings have been started under the decree, the judgment-

debtor is adjudicated as an insolvent, the sale cannot convey title to properties vested in the Official Receiver unless he is made a party to the

proceedings. The leading case is the decision of the Privy Council in Raghunath Das v. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 IndAp

251 : ILR 42 Cal. 72 . That was a case of a money decree, the property in question having been attached before the adjudication and sold without

impleading the Official Assignee after the adjudication. Their Lordships point out that

In the first place the property having passed to the Official Assignee, it was wrong to allow the sale to proceed at all. The judgment-creditors had

no charge on the land, and the Court could not properly give them such a charge at the expense of the other creditors of the insolvents. In the

second place no proper steps had been taken to bring the Official Assignee before the Court and obtain an order binding on him, and accordingly

he was not bound by anything which was done. In the third place the judgment-debtors, had at the time of the sale no right, title or interest which

could be sold to, or vested in, a purchaser, and consequently the respondents acquired no title to the property.

It was pointed out for the respondent that this decision relates to a money decree and their Lordships expressly point out that there was nothing

in the nature of a charge by reason of the attachment under that decree. It seems to me, however, that the fact that we are now dealing with a

mortgage decree will not take away the applicability of this decision, though it will have a bearing upon the nature of the decree to be passed.

At the time when the sale in favour of the respondent was held, the mortgagee decree-holder had a charge over the property to the extent of his

decree. In realisation of that charge he proceeded to sell the right, title and interest of the judgment- debtor to whom due notice was given. After

the sale was ordered, by operation of law, the right, title and interest of the judgment-debtor, subject always to the decree-holder''s charge,

became vested in the Official Receiver. Adopting the reasoning of their Lordships of the Privy Council, when this sale was held there was no title

vested in the judgment-debtor which could by the Court sale pass to the purchaser. At the same time the purchaser, having by payment to the

mortgagee decree-holder liberated the property from the mortgage decree, certainly has an equity as against the judgment-debtor and as against

the Official Receiver in whom the judgment-debtor''s property had become vested to be reimbursed the amount which he has spent by his bona

fide purchase to relieve the property of this burden. There is a decision of a bench of this Court reported in Devaraja Aiyangar v. Tirumalasami

Naidu (1915) 32 I.C. 489, wherein the rule laid down by the Privy Council in Raghunath Das''s case has been applied to the case of a mortgage-

decree. Mr. Krishnaswami Aiyar has sought to get over this ruling by describing it as an obiter dictum. I doubt whether this description is legitimate

regarding a decision on one of the two points decided in a case, merely because the other point, which was taken up first, was itself sufficient to

dispose of the case. The learned Judges discuss both the contentions and, in spite of having given a decision on the first contention which makes it

unnecessary to decide the second contention, they do definitely give a decision on the question in which we are now interested, which was a

question which arose for decision and would have been sufficient to dispose of the case if the decision on the first point had been otherwise. Such a

decision cannot in my opinion, be correctly described as an obiter dictum. It seems to me in view of these authorities, that it is unnecessary to draw

any analogy from the decision of the Full Bench to which I was a party, reported in Kanchamalai Pathar v. Shahaji Rajah Sahib (1935) 70 M.L.J.

162 : ILR 59 Mad. 461 , to the effect that when the judgment-debtor dies after the sale has been ordered and before the sale has been held, no

title passes to the purchaser when there is no notice to the legal representatives of the judgment-debtor. The essential principle seems to me to be

the same, namely, that the Court sale in execution of a decree passes no title unless the person in whom at the time of the sale the title vests, is a

party to the sale proceedings. In this view I disagree with the learned Subordinate Judge and hold that the plaintiff is entitled to recover possession

of the property on reimbursing the purchaser under the mortgage decree the amount which he has paid to discharge that decree. The appeal is

therefore allowed with costs here and in the lower appellate Court. The decree of the trial Court is restored and the respondent will be entitled to

draw the amount in Court deposit if still available. There seems tome to be some doubt whether the amount deposited in Court is still in Court

deposit after the lower appellate Court''s judgment. If the amount has been withdrawn it should be re-deposited in the trial Court within one month

and may then be drawn by the respondent.

Leave to appeal refused.