Atmakuru Rama Rao vs Sri Digambar Rath and Another

Das, J.—This is an appeal by Atmakuru Rama Rao, Opposite Party No. 6 in the Court below, against an order of the learned District Judge of Ganjam-Puri, dated 29-7-1943, passed in the exercise of his insolvency jurisdiction. The main question for decision in the appeal is the effect of an order passed u/s 37, Provincial Insolvency Act, in the following circumstances: The father of the appellant was adjudicated an insolvent on 16-8-1934, on which date a vesting order was passed in favour of the receiver in the insolvency proceeding. The insolvent did not apply for discharge in time, and on 6-2-1941, the order of adjudication was annulled under the provisions of Section 43, Provincial Insolvency Act. On that very day another order was passed u/s 37, Provincial Insolvency Act, to the following effect:

I direct that the properties of the insolvent shall revest in the receiver who will dispose them of and distribute the sale proceeds amongst the creditors with the sanction of the Court.

Several years before the adjudication order, the father of the appellant appears to have executed a sale deed in respect of certain properties in favour of his wife on 4-10-1927. In 1933 the wife of the insolvent brought a suit for a declaration of her title to, and possession over, the lands and houses conveyed to her under the aforesaid sale-deed. This suit was O.S. No. 58 of 1933. The suit was decided on 4-8-1942, and the learned Subordinate Judge found that the sale-deed was not a bona fide transfer for consideration but was a nominal transaction created to defraud the creditors and that the properties continued to belong to the insolvent and his son. In January 1943, the appointee in whom the property of the insolvent had been vested by the order u/s 37, Provincial Insolvency Act, applied to the Court for being put in possession of the properties covered by the aforesaid sale-deed on the ground that the properties vested in him, and that an Amin, who had been directed to deliver possession of the properties, had been obstructed by the opposite party. This application was considered by the learned District Judge, and he passed an order directing that the receiver, who had been appointed u/s 37, Provincial Insolvency Act, should take joint possession along with the present appellant of all the properties in question except some which had been sold at auction in execution of a mortgage decree. It is against this order of the learned District Judge that the present appeal has been filed by the son of the debtor, namely, Opposite party No. 6. As I have stated above, the main question for decision is if the receiver as the appointee u/s 37, Provincial Insolvency Act, can ask for possession of the property of the debtor in the circumstances mentioned above.

On behalf of the appellant it was contended in the Court below, as has been contended before us also, that the order u/s 37 did not vest the properties in question in the receiver, and that, in any case, the insolvency Court ceased to have jurisdiction after the order of annulment, and, therefore, no order for possession could be passed in favour of the appointee u/s 37, Provincial Insolvency Act. In support of these contentions learned Counsel for the appellant has relied on Jaing Bir Singh v. The Official Receiver AIR 1933 Rang. 223, Annamalay Chettiar v. R.K. Banerjee AIR 1936 Rang. 284 and Panna Lal and Another Vs. Official Receiver and Others, . The first two cases are Full Bench decisions of the Rangoon High Court. In Jaing Bir Singh v. The Official Receiver AIR 1933 Rang 223 the point actually decided would appear from the following observations from the judgment of Page, C.J., with whom the other two Judges agreed:

In my opinion, inasmuch as the appointee in whom the property is vested u/s 37 is vested with the property of the debtor and not the property of any one else, it follows that the appointee is not entitled to make use of the special provisions of Section 53 or Section 54, Insolvency Act, for the purpose of enlarging, the estate of the debtor by annexing property which belongs to other persons.

In the later Pull Bench decision in Annamalay Chettiar v. R.K. Banerjee AIR 1936 Rang 284 the question propounded was:

Is the power of a person appointed u/s 37(1), Provincial Insolvency Act, limited to holding the assets pending suits against the property by the creditors, or, has he the power to realise and distribute the assets among the creditors with or without directions to that effect by the Court?

The first part of the question was answered in the affirmative, and the second part in the negative. Reliance was placed on Panna Lal and Another Vs. Official Receiver and Others, which also held that Section 37, Provincial Insolvency Act, did not allow an Insolvency Court, on annulling an insolvency, to proceed to distribute the assets of the insolvent among any of the creditors, and that the course open to the Court was either to return the property to the debtor on condition that he furnishes security which will make it available to the creditors to take their remedy under the ordinary" civil law, or pending such security or for some other reason the Court may direct the property of the insolvent to vest in a certain person and that such vesting order was only for the purpose of making the property available to creditors to proceed through the civil Court. It would appear from what I have stated above that none of the three decisions, on which learned Counsel for the appellants has placed reliance, decides the much narrower question which is before us in this appeal. The question before us is if the appointee in whom the property of the debtor Is vested can ask for possession of the property when delivery of possession is obstructed by certain other persons. I find it difficult to accept the contention that even though the property of the debtor vesta in the appointee by virtue of the order u/s 37 of the Act, he cannot got possession thereof by an order of the Court. That the property of the debtor vests in the appointee by the order u/s 37 of the Act does not admit of any doubt. The insolvency Court had passed an order to that effect on 6-2-1941, and though the Receiver in insolvency has ceased to function qua Receiver as a result of the order of annulment, he has become the appointee by the order u/s 37. of the Act. There can be no doubt that the particular properties in question were the properties of the debtor and his son. It was so held in the suit which was brought by the wife, and it was clearly found therein that the sale deed was a mere nominal transaction which was no transfer at all. Even on the date on which the adjudication order was passed the property of the insolvent vested in the Receiver. The Receiver ceased to be a Receiver in insolvency as soon as the order of annulment was passed, but he assumed the new character of an appointee u/s 37 of the Act, and the property of the debtor was vested in him as such appointee. It would be meaningless to say that he cannot get possession of the property, even though it vests in him.

It should be noted, however, that the view of Section 37, Provincial Insolvency Act, taken in the cases mentioned above has not been followed in other High Courts. In Veerayya v. Sreenivasa Rao AIR 1935 Mad. 826, which is a Full Bench decision, it has been held that the insolvency Court retains full power to give directions u/s 37 as to the realization and disposal of the debtor''s assets, and that though the order u/s 37 has not the effect of continuing the insolvency proceedings for all purposes, the person appointed u/s 37 has such powers as are necessarily implied by the vesting order and as may be necessary to carry out the directions of the Court in connection with the realization and distribution of the debtor''s property in accordance with the Insolvency Act. There is reference to an earlier decision of the Madras High Court in Jethaji Peraji firm v. Krishnayya AIR 1930 Mad. 278. The same view has been expressed in a later Full Bench decision of the Madras High Court in Periakaruppan Chettiar v. Arunachalam Chettiar AIR 1940 Mad. 375 where it has been observed that Section 37 gives the Court a wide discretion, and the annulment of the adjudication does not mean that the debtor who is adjudicated is necessarily to be placed in possession of the property which is in the hands of the Official Receiver at the time the adjudication is set aside, and that the directions of the Court must depend on the circumstances in each case.

There is a decision of this Court in Choutmal Bhagirath v. Jakhicam Surajmal A.I.R 1933 Pat. 84 where the vesting order u/s 37, Provincial Insolvency Act, was passed some time after the order of annulment, and the question was whether the vesting order was valid and operative. It was observed in that case as follows:

It is not correct to say that after the order of annulment the insolvency proceeding comes to an end ipso facto...Cases may arise in which the direction and orders of the Court may be necessary for the purpose of doing acts to complete the titles of the transferees etc., or for protecting their interests, and there is no reason to hold that the Court after the order of annulment ceases to have jurisdiction in the insolvent''s estate.

This decision was noticed in Annamalay Chettiar v. R.K. Banerjee AIR 1936 Rang. 284 and was dissented from. The same question was considered again in Khemkaranclas Jokhiram v. Choutmal Bhagirath AIR 1938 Pat. 225 where certain observations made by Mohammad Noor J. in an earlier stage of the case were considered and explained. Dealing with Section 50, Provincial Insolvency Act, it has been observed by Wort J. as follows:

I think it is perfectly clear, and indeed, it is obvious, that, S. SO is one of those sections which govern the procedure of the Court during the course of the administration of the debtor''s assets in insolvency...I would repeat that Section 50 is the procedure during the insolvency, and it seems to be quite clear, therefore, that when the insolvency has come to an end by annulment, the procedure provided by the Act in an insolvency can no longer apply, and it is on that short ground that I decide this appeal.

Manohar Lall J. in a concurrent judgment had observed that Section 50, Provincial Insolvency Act, would come into operation only if the insolvency proceedings were continuing in the real sense and not in a limited sense as in that case. It would appear, therefore, that their Lordships decided that case with reference to the terms of Section 50, Provincial Insolvency Act, and no final decision was given on the question if an appointee u/s 37, Provincial Insolvency Act, could proceed to realise the assets of the debtor and distribute them amongst the creditors. It was further explained that the observations made by Mohammad Noor J. as to the continuation of the insolvency proceedings were to be read in the sense that such proceedings continued for the purpose of Section 37 only. Manohar Lall J. expressed himself as follows On this point:

I think what the learned Judges did in fact lay down was that notwithstanding the annulment of adjudication the powers of the Court which are vested in it u/s 37 will continue; that is to say, that the Receiver will proceed to realize the particular sum which was in question, and whether this particular sum can be distributed by the Receiver or not was not decided by that order.

The question arose again in Misc. Appeal No. 70 of 1940 (Circuit Court, Cuttack) decided on 14-2-1944. No decision was, however, given, though there is a reference to the conflicting rulings on the question. It is to be noted that the Madras view in Jethaji Peraji firm v. Krishnayya AIR 1930 Mad. 278 was accepted in In Re: Keshablal Dhar, .

As at present advised, I think that the Madras view correctly explains the position u/s 37, Provincial Insolvency Act: an order u/s 37 has not the effect of continuing the insolvency proceedings for all purposes, but the person appointed u/s 37 has such powers as are necessarily implied by the vesting order and as may be necessary to carry out the directions of the Court in connection with the realization and distribution of the debtor''s property in accordance with the Insolvency Act. It is, however, unnecessary to decide the wider question in this case, which, as I have stated above, is concerned with the question if an appointee u/s 37, Provincial Insolvency Act, can ask for possession of the property which is vested in him by an order u/s 37 of the Act.

It is clear to me that the interest of the debtor in the properties in question had legally vested in the Receiver as appointed u/s 37, Provincial Insolvency Act, and the appointee was entitled to ask for possession of the same. The order of the learned District Judge giving him possession is correct in law. The result, therefore, is that the appeal fails and is dismissed with costs.

Sinha, J.

I agree.