C. Ramesh vs Karuppannan

V. Periya Karuppiah, J.—This Revision has been filed by the petitioner against the order passed by the Execution Court in REA. No. 216

of 2007 in REP. No. 37 of 2005 in O.S. No. 103 of 2004 dated 27.04.2007.

The revision petitioner, as plaintiff, had filed the suit O.S. No. 103 of 2004 against the respondent herein/defendant for the recovery of a

pronote debt. The suit was decreed in favour of the revision petitioner/plaintiff. He had filed execution petition in R.E.P. No. 37 of 2005. The said

EP for sale attachment was ordered and thereafter, sale was also ordered. A Court auction was conducted and auction purchaser had successfully

bid and the sale was confirmed and he deposited the amount into the Court. The petitioner has filed REA.216 of 2007 for the payment of the

decree amount from out of the said deposit. The said application was dismissed by the lower Court. Hence, the present revision has been

preferred by the decree holder/petitioner.

The averments in the application filed by the revision petitioner/plaintiff are as follows: The petitioner had filed the suit for the recovery of

pronote debt from the respondent/defendant. After decree, the petitioner filed Execution petition attaching the properties of judgment debtor. In

furtherance of the same, out of two items of properties attached, one of them was sold in court auction sale on 20.12.2006 in favour of one

Chinnadurai for a sum of Rs. 1,62,000/- and he paid 1/4th amount. Subsequently the auction purchaser deposited the balance amount and as such

there is an amount of Rs. 1,62,000/- in the Court deposit in the said REP. No. 37 of 2005. The petitioner/decree holder is entitled to get back a

sum of Rs. 1,38,936/- towards the decree amount as noted in the proclamation form dated 28.11.2006. Even during the pendency of EP, the

respondent filed petition questioning the same stating that he had filed I.P. No. 44 of 2005. But his objection was met and answered suitably. The

decree holder filed counter stating that the judgment debtor did not include the EP properties in the schedule of properties in IP and further, even if

included, unless and until the judgment debtor is declared as insolvent, the EP proceedings cannot be stayed or stopped. Perusing the same the

Court was pleased to dismiss the petition REA. No. 488 of 2005. As such the petitioner/decree holder is entitled to get back a sum of Rs.

1,38,936/- out of the sale amount of Rs. 1,62,000/-. There is no attachment or any other impediment nor any minor claim over the same. There is

no appeal, revision or stay against the decree, EP or REA to the knowledge of the petitioner. Accordingly, the said sum has to be paid to the

petitioner in the name of his counsel. Mr.S.Sridhar, Advocate, Salem, whose vakalat is still in force. Hence, he prays for an order of disbursement

of a sum of Rs. 1,38,936/-.

The respondent had filed a counter contending as follows: The application is not maintainable in law and the same is barred by Insolvency law. It

is not tenable to say that the petitioner is entitled to get back a sum of Rs. 1,38,936/- towards decree amount as noted in the proclamation dated

28.11.2006. It is not tenable to say that the application filed by the respondent in REA.488 of 2005 dismissed by the Court and the petitioner is

entitled to withdraw the amount since the respondent is to be declared as an insolvent in the I.P. No. 44 of 2005 filed by the petitioner. The

properties said to be sold in the Court auction is part and parcel of properties in I.P. No. 44 of 2005 and the sale conducted by the Court is not

valid in law in view of the respondent''s insolvency proceedings in I.P. No. 44 of 2005. The petitioner is not entitled to get back a sum of Rs.

1,38,936/- out of the sale amount of Rs. 1,62,000/- since there is no attachment or any minor claim, appeal or revision or stay against the decree.

It is further stated that the respondent has also filed an application to set aside the sale conducted by the Court since the Court has conducted the

same contrary to law and over looking the pendency of Insolvency proceedings. A decree on the basis of an unsecured debt is not to be executed

in view of the respondent''s bounden duty to distribute his assets proportionately to his creditors. The petitioner is well aware of the Insolvency

proceedings under the Insolvency Law and the amount in the Court deposit is to be distributed proportionately to the respondent''s creditors after

deducting sale proceeds. The respondent has also taken steps to withdraw the amounts mentioned in the application by an order of insolvency

Court through the Official Receiver in accordance with law. The petition is bad in law and devoid of merits and liable to be dismissed.

The lower Court had refused the request of the petitioner for disbursing the amount of Rs. 1,38,936/- out of Rs. 1,62,000/- lying to the credit of

REP. No. 37 of 2005, being the sale proceeds on the auction sale held by the said Court, and thereby dismissed the application. Hence, the

decree holder in the suit/the petitioner in the EP proceedings, has preferred this revision against the said order.

Heard the learned Senior counsel Mr. K. Duraisamy appearing for M/s.Muthumani Duraisamy for the revision petitioner and the learned

Counsel Mr. V. Rajasekaran for the respondent.

The learned senior counsel would submit in his argument that the lower Court had grossly erred in dismissing the petition sought for payment of a

sum of Rs. 1,38,936/- being the EP amount from out of the sale proceeds held by the said Court. The lower Court had wrongly considered the

principles of law and had come to the conclusion that the petition was not maintainable in view of the insolvency proceedings filed by the

respondent. He would further submit that Insolvency Petition filed by the respondent before the Insolvency Court in the year 2005 in I.P. No. 44

of 2005 will not in any way a hurdle to the proceedings in the EP as there was no stay order passed by the Insolvency Court in respect of the

execution proceedings. He would further submit in his arguments that the Execution Court had proceeded with the sale proceedings in the EP,

despite the Insolvency Petition was pending even from 2005 and the sale was confirmed and the auction purchaser had also initially paid 25% of

the sale amount and subsequently, the entire amount was paid into Court and it is kept pending to the credit of the execution proceedings and the

petitioner is entitled for the decree amount paid from and out of the said amount and therefore, the payment, out of sale proceeds, being one of the

process of execution petition, shall not be refused by the lower Court. He would also point out that the lower Court had originally proceeded with

the sale process in the EP, despite the objections raised by the respondent that Insolvency Petition is pending, however, the lower Court had now

passed a contradictory order of refusal of the payment, to which the petitioner/decree holder was entitled to in the said execution petition. He

would also draw the attention of this Court to the judgment of this Court reported in C. Ponnudurai, Official Receiver Vs. K.A. Kumaraswamy

Mudaliar and Others, to the principle that the Executing Court while executing a decree passed against the insolvent, need not stay its hands merely

on the admission of the insolvency petition. Again he had also drawn the attention of this Court to the judgment of this Court made in Kuppu

Boyan and Another Vs. Sengottaiyan, for the principle that merely on the fact that the judgment debtor''s property has been included in the

Insolvency Petition filed by the Judgment Debtor before the Insolvency Court and the Official Receiver has not been appointed so far, the

pendency of such insolvency petition will not in any way stall the proceedings before the Execution Court. Similarly, he has also cited a judgment of

this Court made in P.S.K. Finance and Chit Funds Ltd. Vs. R. Govindhan, to the point that unless the Insolvency Court had granted stay of the

proceedings u/s 29 of Provincial Insolvency Act, the Executing Court cannot close the execution petition on the foot of the mere pendency of the

insolvency petition. Further, he had also placed his reliance on a judgment of this Court reported in Sudhandiran Vs. S. Krishnan, for the same

proposition of law. Therefore, he would request the Court to interfere with the order passed by the lower Court and the petitioner''s request that

the decree amount of Rs. 1,38, 936/- may be ordered to be disbursed from out of the sale proceeds in accordance with law, and thus the Revision

petition may be allowed.

The learned Counsel for the respondent/judgment debtor would submit in his argument that the respondent/Judgment Debtor had filed a petition

before the Insolvency Court in I.P. No. 44 of 2005 and it is pending before the Insolvency Court and in the event of the Insolvency Court

adjudicating the respondent as insolvent, the order of adjudication would date back to the filing of the insolvency petition. He would also submit

that the property brought to the sale in the execution petition before the lower Court was also included in the said insolvency petition and the

decree holder was also made as one of the parties to the said proceedings and therefore, the insolvency proceedings, even though no stay has

been granted, still have its own effect and the property sold in Court auction or the sale proceeds of the said property would be vested with the

Official Receiver in case the Insolvency Petition is allowed by the Insolvency Court. He would further submit in his argument that the application

filed before the Insolvency Court to include the property of the respondent (i.e,) the subject matter of EP. No. 37 of 2005 and the same was

allowed and the amendment was also ordered and the revision preferred by the petitioner and others before this Court in CRP.PD. No. 3661 of

2007 against the said order of amendment was dismissed on 10.07.2008 upholding the inclusion of the property as ordered by the lower Court.

He had also produced the copy of the said order for perusal. He would again insist in his argument that since the property belonging to the

respondent was brought in Court auction sale in the REP.37 of 2005 and included in the insolvency petition and the sale proceeds are to be

considered as the properties mentioned in the Insolvency Petition and if the sale proceeds is ordered for the payment of the decree amount, it

would be amounting to undue preference given to the petitioner, who is also one of the parties/creditors to the Insolvency Petition and therefore,

the order passed by the lower Court, even though without any details, was correct and it may not be interfered with and the revision may be

dismissed.

I have given anxious thoughts to the arguments advanced on either side. The admitted facts of the present dispute in between the petitioner and

the respondent would be that the petitioner had obtained a decree against the respondent in O.S. No. 103 of 2004 and on the foot of the decree

he had filed the execution proceedings before the lower Court in REP. No. 37 of 2005 for the payment of the said decree amount and in default to

bring the said property for sale and to appropriate the decree amount from out of the sale proceeds. Even during the pendency of the proceedings,

the respondent/judgment debtor had filed an insolvency petition in I.P. No. 44 of 2005 before the Insolvency Court and he had filed a petition

before the execution Court for setting aside the sale conducted by the Court in respect of the property mentioned therein and however, the sale

was conducted and the auction purchaser had purchased the property through the process of Court and the sale was also confirmed and the

auction purchaser had deposited the sale price of Rs. 1,62,000/- into the Court and it is being kept in the Court deposit to the credit of the said

REP. Admittedly, there was no order of stay passed by the Insolvency Court and the questioning of the sale by respondent was disallowed by the

Court by saying that there was no stay order passed by the Insolvency Court and the pendency of IP proceedings will not be a hinder to the

execution Court to proceed with the sale of the property. The Judgment of this Court reported in C. Ponnudurai, Official Receiver Vs. K.A.

Kumaraswamy Mudaliar and Others, would support the case of the petitioner as follows:

It is true that according to Section 28(7) of the Act once an order of adjudication is made it will relate back to the date of the filing of the petition,

but that will not have the effect of nullifying the judicial orders made in execution of the decree against the judgment-debtor. Section 52 of the Act

contemplates a situation that at the time of the execution sale of the insolvent''s property there has been a receiver appointed by the Insolvency

Court as a result of which the property had vested in him. Section 52 will have no application when a Receiver had not been appointed in respect

of the property of the insolvent. The rights of the auction-purchaser will be protected u/s 51(3) of the Act.

So the principle enunciated in the aforesaid judgment would go to show that the order passed by the Insolvency Court even though relate back to

the date of filing of the petition on the adjudication of the petitioner as insolvent, will not have the nullifying effect over the judicial order made

during the execution of the decree. Therefore, we could see that the auction sale held by the Court and the confirmation of the same in EP

proceedings in EP.37 of 2005 and the deposit of sale proceeds to the tune of Rs. 1,62,000/- by the auction purchaser will not be affected by the

mere pendency of the insolvency proceedings in I.P. No. 44 of 2005.

Yet another judgment of this Court made in Kuppu Boyan and Another Vs. Sengottaiyan, , followed the principle laid down in the above

referred judgment reported in C. Ponnudurai, Official Receiver Vs. K.A. Kumaraswamy Mudaliar and Others, which would run as follows:

In C. Ponnudurai, Official Receiver Vs. K.A. Kumaraswamy Mudaliar and Others, , Ramajujam, J, had an occasion to consider the scope of

Section 52 of the Provincial Insolvency Act. At page 254 the lerned Judge has observed:

Section 52 will have no application when a Receiver had not been appointed in respect of the insolvent''s properties. So an executing Court while

executing a decree passed against the insolvent need not stay its hands merely on the admission of an insolvency petition.

....

In this case, it was not stated that the properties of the petitioners were taken by the Official Receiver in pursuance of the order of the Insolvency

Court; nor the order of the Insolvency Court was brought to the notice of the executing Court. Under these circumstances, I amof the view that the

unreported judgment of Fakkir Mohammed, J, in CRP. No. 2050 of 1981, D/- 23.12.1981, relied on by the learned Counsel appearing for the

petitioners, does not apply to the facts of this case nor does it lay down any law on this aspect.

The judgment of this Court made in P.S.K. Finance and Chit Funds Ltd. Vs. R. Govindhan, , also followed the said proposition laidown by

this Court in the earlier referred judgment. The relevant passage would be like this:

The learned Counsel for the peitioner by drawing my attention to Section 29 of the Provincial Insolvency Act, 1920, would contend that in the

absence of any order staying the proceedings, the Executing Court is not competent Court to close the execution petition merely on the basis of a

memo filed by the judgment debtor. Admittedly, though the respondent-judgment debtor has filed an insolvency petition, no order staying any of

the proceeding has been secured/obtained. In such a circumstance, I am of the view that the learned Counsel for the petitioner is right in contending

that the Court below is not justified in closing the execution petitions.

Same principle was laiddown by this Court in a judgment reported in Sudhandiran Vs. S. Krishnan, , by following the above said judgments

passed by this Court, especially the judgment reported in C. Ponnudurai, Official Receiver Vs. K.A. Kumaraswamy Mudaliar and Others, . It

would refer thus:

Just because of an application has been filed by the petitioner himself before the Insolvency Court, in the absence of any order or adjudication by

the said Court, the executing Court need not stay its proceedings. Considering the above said facts as well as the oral and documentary evidence,

the trial Court has rightly refused to stay the execution proceedings and dismissed the application filed by the revision petitioner hererin.

That was a case in which the stay of the execution proceedings was sought for and was rejected by the Court by saying that the mere pendency of

a petition before the Insolvency Court will not be enough for staying the execution proceedings. Admittedly, there was no stay order passed by the

Insolvency Court in I.P. No. 44 of 2005 staying the execution proceedings in REP. No. 37 of 2005. Therefore, the execution proceedings need

not be stayed at all.

At this stage the point for consideration is whether the disbursement of the decree amount to the petitioner from out of the sale proceeds could

be treated as one of the execution proceedings and be permitted. It is a settled principle enunciated u/s 28(7) of the Provincial Insolvency Act that

the order of adjudication will date back from the date of filing of the petition. It is also not in dispute that the property brought for sale in REP.37 of

2005 was also ordered to be included in I.P. No. 44 of 2005 and the same was confirmed by this Court in CRP.PD. No. 3661 of 2007 on

10.07.2008. If for any reason the respondent is adjudicated as an Insolvent in the said I.P.44 of 2005 by the Insolvency Court, the order will date

back from the date of filing of the petition viz., in the year 2005. Admittedly no such adjudication order has been passed till the court auction sale

was performed.

As rightly pointed out in the judgment of this Court made in C. Ponnudurai, Official Receiver Vs. K.A. Kumaraswamy Mudaliar and Others, .

mere pendency of IP proceedings will not in any way prejudice the judicial orders passed. Therefore, the sale held by the EP Court is not liable to

be set aside even though an order of adjudication is likely to be passed in I.P. 44 of 2005 after a full-fledged enquiry to be held by the Insolvency

Court in the said petition. However, the sale proceeds are still before the Court. There is no doubt that the rights of the Court auction sale

purchaser will be protected u/s 51(3) of the Provincial Insolvency Act. In such circumstance, the rights of general body of creditors have to be

considered. Indisputably, the petitioner is also one among those creditors in the insolvency petition. This Court while discussing about the

applicability of Section 52 of Provincial Insolvency Act, in the aforesaid judgment reported in C. Ponnudurai, Official Receiver Vs. K.A.

Kumaraswamy Mudaliar and Others, , it relied upon a judgment reported in Prasad Nath Jogi Vs. Ambika Prasad Singh and Others, and had

come to the conclusion, which would run as follows:

The difference between Section 29 and 52 is that whereas u/s 29, on mere proof that an order of adjudication has been made, the executing

Court''s power is checked, u/s 52 no such result automatically follows from the mere fact that notice of the admission of an insolvency petition has

been given to the Court. Section 51, unlike Sections 28, 29 and 52, deals not with procedure but with substantive rights. It enacts that an

execution creditor is not entitled to the benefit of the execution against the receiver unless the assets are realised before the admission of the petition

and the material date here is the date not of the insolvent''s adjudication but of the admission of the insolvency petition.

On a careful perusal of the aforesaid decision rendered by this Court, I am in full agreement with the decision reached by the Patna High Court

reported in Prasad Nath Jogi Vs. Ambika Prasad Singh and Others, to the effect that if no such receiver had been appointed by the Insolvency

Court during the pendency of execution proceedings, the Court should proceed with the execution, but to hold the sale proceeds subject to an

order, which the Insolvency Court may likely to pass in the matter. Therefore, there is no dispute that the execution proceedings can be proceeded

even during the pendency of the Insolvency Petition before the Insolvency Court and mere admission of the IP will not be a hurdle to the execution

proceedings, but the sale proceeds should not be disbursed to the detriment of general creditors of the Judgment debtor. Therefore, I do not find

any infirmity in the decision of the lower Court even though it had not discussed elaborately for reaching its decision.

In the result, the order of the lower Court is upheld as there is no reason to interfere with the conclusion reached by the lower Court.

Accordingly, the revision is dismissed. Connected Miscellaneous Petition is also dismissed. No costs.