Cheedalla Polamma vs Official Receiver and Others

Pandrang Row, J.—This is an appeal from the order of the District Judge of Nellore dated 18th February, 1936, allowing an application by

the Official Receiver to set aside a sale held in execution of a decree by the Additional District Munsiff of Nellore, on the 23rd January, 1933. The

relevant facts are as follows. The properties that were sold in Court auction belonged to the insolvents against whom a creditor''s petition to

adjudicate them as insolvents was admitted in October, 1932. Notice of the petition was published in the Gazette on 14th January, 1933. The sale

was actually held, as observed already, on the 23rd January, 1933, that is to say, after the publication in the Gazette of the petition. The properties

were brought to sale by another creditor of the insolvents, the appellant Polamma, who was represented throughout by her agent Chidambaram

Chetti. There is evidence in the case which has been accepted by the Court below to show that before the sale there was an attempt to bring about

a composition, that Chidambaram Chetti, the agent was also one of those present when the matter of composition was talked about and that he left

the place after promising to take the instructions of his employer. Instead of doing so he got the properties purchased in the name of the decree-

holder his employer on the 23rd January. The facts therefore clearly show that the decree-holder purchaser as well as her agent was perfectly

aware that there had been an insolvency petition filed and that it was pending and it was with this knowledge which they kept back from the

executing Court which held the sale that they had the properties brought to sale actually on the 23rd January and purchased them in the name of

the decree-holder. It is-further alleged that the amount for which the properties were purchased by the decree-holder was very low but this matter

need not be pursued because there has been no finding on that point. The decree-holder was permitted to set off the purchase money against the

amount due under the decree to herself. This is therefore a case in which one creditor has been able to get hold of some of the properties of the

insolvents for herself to the exclusion of the other creditors. Prima facie in my opinion this is inconsistent with good faith. The question that arises in

this case is whether the decree-holder purchaser is entitled to claim the benefit of Section 51(3) of the Provincial Insolvency Act which provides

that a person who in good faith purchases the property of a debtor under a sale in execution shall in all cases acquire a good title to it against the

Receiver. Considerable reliance has been placed by the appellant''s learned Advocate on the observations contained in Muthan Chettiar and

Another Vs. Venkituswami Naicken, , more particularly on the observations dealing with the effect of Section 51(3) of the Provincial Insolvency

Act. It has been laid down in that case by Venkatasubba Rao, J., that, in spite of the vesting of the properties in the receiver from the date of the

presentation of the petition for insolvency, if a sale is held in execution a purchaser in good faith acquires a good title to the property. It is not

necessary for the purpose of this appeal to deal with the contention that this observation is not in accordance with what was decided by 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 (P.C.) and by a Bench of this Court

in V.G. Anantharama Iyer Vs. Vettath Kuttimalu Kovilamma alias Nangachi Kovilamma and Another, . For the purpose of this appeal that point

may be assumed in the appellant''s favour, namely, that in spite of the vesting of the insolvents'' properties in the Official Receiver much earlier than

the sale in question the sale would be valid if the purchaser is found to have purchased the property in good faith. The only question therefore that

has to be decided is whether the purchaser acted in good faith. The finding on this point by the learned District Judge is in the negative, and after

going through his judgment I see no reason to differ from his finding. It may be that where the fact of the pending insolvency is brought to the notice

of the Court and the Court nevertheless proceeds with the sale as happened in Muthan Chettiar and Another Vs. Venkituswami Naicken, , the

mere knowledge of the insolvency possessed by the purchaser may not be sufficient to show that the purchaser acted in bad faith or did not act in

good faith. But that is not the case here. The Court which held that the sale was not informed by any one of the pending insolvency and the District

Judge observes that this happened on account of ""some hanky panky"" in his office and that it was also due to some manoeuvre on the part of the

decree-holder. Whatever the reason may be, the fact remains that in the present case the Court which held the sale did not know at the time that

there was a pending insolvency which affected the properties that were to be sold. Neither the decree-holder nor her agent who knew of the

insolvency informed the Court that there was a pending insolvency. They deliberately kept back from the Court this knowledge which they had,

and the object of such suppression of fact from the Court was obviously to get on with the sale and purchase the properties themselves to the loss

of the other creditors who otherwise would have shared equally with them. This amounts to fraudulent conduct on the part of the decree-holder

purchaser who by wilfully suppressing a most material fact induced the Court to go on with the sale and thereby obtained an unlawful benefit

herself. This again is very strong evidence of bad faith and is certainly inconsistent with good faith. In fact what the decree-holder or her agent did

was obviously dishonest, and they made a dishonest gain at the expense of the other creditors by the course which they adopted. In these

circumstances it is impossible to say that the finding of the learned District Judge is not supported by the evidence in the case and by the undisputed

facts. It would therefore follow that the appellant was not a bona fide purchaser, or, in other words, did not act in good faith when she purchased

the properties of the insolvents. She is therefore not protected by Section 51(3) of the Provincial Insolvency Act. It follows therefore that the sale

in Court auction was utterly invalid as the sale was held at a time when the Official Receiver was in law vested with the properties and he had no

notice of the sale, and there was no good faith on the part of the purchaser. It is a part of the general law that a sale of a person''s property without

notice to him is not valid and the Official Receiver in whom the insolvents'' property is vested is no exception to this rule. In effect the application of

the Official Receiver was that certain properties belonging to the insolvents in the possession of the appellant should be handed over to him on the

ground that the sale in the appellant''s favour was not valid. I do not see how it can be said that the Insolvency Court had no jurisdiction to decide

a claim of this kind u/s 4 of the Provincial Insolvency Act. It is a claim which it was necessary to decide for the purpose of making a complete

distribution of the insolvents'' property and the Insolvency Court had therefore jurisdiction to decide it. The objection on the score of jurisdiction

therefore fails. In view of my opinion that the sale itself can be set aside in these circumstances it is unnecessary to consider the contention that the

alternative relief claimed by the Official Receiver for a direction to the decree-holder to deposit the purchase money can alone be granted on the

ground that this is the only relief available to the Receiver in the circumstances. No other objection has been taken to the order of the District

Judge.

The appeal therefore fails and is dismissed with costs.