Bengal Nagpur Railway Employees'' Urban Bank, Ltd. vs Erie Walter Seager

Manohar Lall, J.—This is an appeal by a creditor who is aggrieved by an order passed by the learned Insolvency Judge refusing to declare him a secured creditor in the following circumstances:

The appellant is the Bengal Nagpur Railway Employees'' Urban Bank, Ltd., a society registered under the Co-operative Credit Societies Act. The insolvent E.W. Seager is a guard in the Bengal Nagpur Railway and is a member of the appellant society. He applied on 7th March 1937 for a loan of Rs. 2500. He gave in that application as security his salary bills which would be due from time to time from the employer, the Railway Company. This application was apparently granted by the appellant because on the same date a bond was executed by the insolvent in favour of the society which is at p. 17 of the paper book. The relevant part of this bond is that the insolvent agrees to pay the loan of Rs. 2500 with interest at 7� per centper annum from the month of March 1937, or subsequently when the loan is actually advanced and that the loan will be repaid by 48 instalments. He further agrees to be bound by and to observe the bye-laws and rules of the Urban Society in respect of the recovery of this loan and in any other respect, and lastly, he agrees to repay the amount advanced within a month should it be applied by him for purposes other than those disclosed in his application. It will be noticed that there is no agreement in this bond that the 48 instalments should be paid by deduction from his salary which will be due to him from the Bengal Nagpur Railway. The terms of the bond leave the insplvent free to pay the amount from his other sources and also make it obligatory on him to repay the amount almost immediately if he applies it for purposes other than household expenses. On the same date a letter of authority was written by the insolvent to the Bengal Nagpur Railway Co. requesting them and authorizing them to deduct from the amount of his salary, bills or any other sums which may be due to him by that company, all or any part of any sum or sums of which the Bengal Nagpur Railway Employees'' Urban Bank Ltd., may apply to the company for payment as due by him to the society on account of the principal, interest or otherwise in respect of the loan of Rs. 2500 granted to him or as may be found due by him to the society on any account whatever at the time of his death.

For succeeding in his application, the appellant must satisfy the Court that the documents which I have summarized above constitute an equitable charge in favour of the appellant. This can only be done if the provisions of Section 130, T.P. Act, are complied with. It has been held by the Judicial Committee in the case reported in Mulraj Khatau v. Vishwanath Prabhuram (�13) 37 Bom. 198 that the section applies to absolute transfers as well as to equitable charges like the one in the present case. It is, therefore, important to see whether there is any document in writing by which an equitable charge has been created in favour of the appellant. I do not find any such document. The learned advocate for the appellant argued that if the application of the insolvent is read along with the bond executed by him and the authority given by him in favour of the Bengal Nagpur Railway Co., it must be held that there is an assignment in writing within the meaning of Section 130, T.P. Act. But the application for loan, of 2nd March 1937, is nothing more than an application or a request by the insolvent to the appellant. It is a negotiation which preceded the actual contract. The only contract in writing which can be looked at is the bond dated 2nd March 1937. The material terms of that bond have already been stated by me above. The bond does not profess to constitute any assignment either absolutely or by way of charge as is contemplated by Section 130, T.P. Act. For these reasons I agree that the learned District Judge took the correct view when he held that the documents in the present case which were relied upon before him as well as before us do not constitute an equitable charge in favour of the appellant. It may be observed that although under the equitable rules which prevail in England, there can be assignment of property which may come into being in future, yet so far as the Indian Courts are concerned, we are bound to follow the strict requirements of the Indian Statute, and under the provisions of the Transfer of Property Act such an equitable assignment or equitable charge can only be created, by a document in writing as provided by those sections. The matter can be looked at from another point of view. Assuming that there was in this case, on 7th March 1937 a contract to assign his future salary to the society, but later an important event happened, namely that the insolvent applied to the Court of the District Judge on 11th October 1939 for being adjudged an insolvent and he was adjudged as insolvent by an order dated 12th April 1940. So the provisions of Section 28, Sub-section (4) now come into operation, that is to say, all property which is acquired by or devolves on the insolvent after the date of the order of adjudication (which means the date of the application by Section 28 (7) shall forthwith vest in the Court and the provisions of Sub-section (2) shall apply in respect thereto. Sub-section (2) provides that on the making of an order of adjudication the whole of the property of the insolvent shall vest in J the Court. As in the present case no receiver has been appointed, so, by the operation of these two Sub-sections the future property which devolves upon the insolvent after the date of the application, that is to say, the salary which he earns thereafter has vested in the Court and therefore, the appellant cannot be entitled to any charge on that property even if it is assumed that there is a document creating a charge in his favour. But I have already held that there is no such document and therefore the appellant cannot successfully challange the view taken by the learned District Judge.

Towards the close of his argument Sir Manmatha Nath Mukherji very properly drew our attention to a recent judgment of the Madras High Court given by a Single Judge reported in Official Assignee Vs. Secretary M. and S.M. Railway Employee''s Co-operative Urban Bank Ltd., which substantially takes the same view which I have expressed above and which was taken by the learned District Judge in the order under appeal. The result is that the appeal fails and is dismissed.

We are, however, not satisfied with the order passed by the learned District Judge on 12th April 1940, by which he has directed that only Rs. 30 a month should be deducted from the salary of the insolvent and be made available for distribution among all the creditors. This amount is too small, and the learned District Judge may well consider whether the circumstances disclosed do not justify his attaching a larger sum from the salary which becomes due to the insolvent from time to time, always having regard to the provisions of Section 60, Civil P.C.: see also Section 28(5), Provincial Insolvency Act.

In the memorandum of appeal filed in this Court among the respondents were cited the insolvent and some of the creditors, and respondent 2 was the District Judge representing the estate of the insolvent. The learned Advocate-General and the Assistant Government Advocate appeared to protest against the inclusion of the District Judge as a party respondent. They were not at all interested beyond suggesting that the District Judge has been unnecessarily made a party in this appeal. Having heard learned Counsel on both sides it seems to me that the provisions of Section 28, Sub-clause (2) of the Insolvency Act, make it imperative for the appellant to make the District Judge a party respondent to the appeal only in this capacity that the property of the insolvent has vested in him because no receiver has been appointed. It was argued that the learned District Judge was, in duty bound to carry out any orders of this Court, and therefore, he should not have been made a party to the appeal before this Court. The short answer to this contention is that no order passed by this Court is binding upon the estate of the insolvent unless the estate of the insolvent is represented in these proceedings. It is not incumbent upon the District Judge to make any appearance at all in this Court, but that is quite different from the objection which has been taken that he should not have been made a party. For these reasons I think the objection taken by the learned Advocate-General was unsound and as he has not opposed the appeal on any other ground at all, he is not entitled to any costs in this appeal.

Harries C.J.

I agree.