Chengayya vs M.V. Swaminatha Mudaliar and Others

S. Nainar Sundaram, J.—The question that comes up for consideration in this revision is with reference to the scope and import of the

expression ""any other person...aggrieved"" occurring in Section 68 of the Provincial Insolvency Act (V of 1920) hereinafter referred to as the Act.

The question arises under the following circumstances. A concern by name Sivanandam Palayakot Company, Gudiyatham, which is under

voluntary liquidation, filed C.S. No. 14 of 1947 on the Original Side of this Court against A. Kaliappan, the second respondent herein, to recover

a sum of Rs. 1,61,000 and obtained a decree. In execution of that decree, the house property of the judgment-debtor was brought to sale on

several occasions, but the sale could not take place for one reason or other. Pending the above proceedings, the judgment-debtor got himself

adjudged an insolvent in I.P. No. 8 of 1968 on the file of the Subordinate Judge of Vellore, obviously u/s 10 of the Act. The result was all his

properties, including the house property which was sought to be sold in execution of the decree in C.S. No. 14 of 1947, came to vest in the

Official Receiver, Vellore, the third respondent herein. The consequence was the execution proceedings in C.S. No. 14 of 1947 could not be

further prosecuted. In the course of administration of the estate of the insolvent, the Official Receiver, Vellore, brought the house property situated

in Gudiyatham Town, belonging to the insolvent to sale in public auction by virtue of the provisions u/s 59 of the Act. Several times the property

was brought to sale, but the sale could not take place for some reason or other. Ultimately, the sale took place on 14th March, 1973 for a price of

Rs. 26,000 to and in favour of the petitioner in this revision. The first respondent in the revision is a shareholder of Sivanandam Palayakot

Company, Gudiyatham, the decree-holder in C.S. No. 14 of 1947. He filed an application u/s 68 of the Act to set aside the auction sale held by

the Official Receiver on 14th March, 1973, urging several grounds. The auction-purchaser, viz., the petitioner herein, mainly contested the

application. The application, I.A. No. 39 of 1973 in I.P. No. 8 of 1968 was enquired into by the Additional Subordinate Judge, Vellore, and by

judgment and decree dated 10th January, 1974, he dismissed the application negativing the pleas of the first respondent herein. There was an

appeal by the first respondent, C.M.A. No. 50 of 1974 which wag heard and disposed of by the District Judge of North Arcot at Vellore by his

judgment and decree dated 6th January, 1975. The appellate Court chose to reverse the findings of the first Court and held that the sale held by

the Official Receiver, the third respondent herein on 14th March, 1973 is affected by serious illegalities, irregularities and infirmities and in that

view, the appellate Court set aside the sale concerned and allowed the application, I.A. No. 39 of 1973 referred to above. The auction-purchaser

has now preferred this revision challenging the judgment and decree of the appellate Court.

Two contentions were urged before me by Mr. M.N. Padmanabhan, learned connsel appealing for the petitioner in this revision. The first

contention is that the first respondent herein, the applicant in I.A. No. 39 of 1973 in I.P. No. 8 of 1968 on the file of the Subordinate Judge,

Vellore, cannot be characterised as a ""person aggrieved"" within the meaning of Section 68 of the Act. The learned Counsel points out that the first

respondent is a shareholder and director of a company which is under voluntary liquidation and all or whatever grievances the said Company may

have as a creditor of the insolvent, could be ventilated only by and through the liquidator appointed for the Company and the fisrt respondent can

never come within the definition of a ""person aggrieved"" u/s 68 of the Act.

It would be relevant to extract Section 68 of the Act.

Appeal to Com against receiver. - If the insolvent or any of the creditors or any other person is aggrieved by any act or decision of the

receiver, he may apply to the Court, and the Court may confirm, reverse or modify the act or decision complained of, and make such order as it

thinks just:

Provided that no application under this section shall be entertained after the expiration of twenty-one days from the date of the act or decision

complained of.

There is no dispute that the Company, Sivanandam Palayakot Company, Gudiyatham, is a creditor of the insolvent and the Company has large

amounts to be realised out of the estate of the insolvent now in the hands of the Official Receiver, Vellore the third respondent herein. It cannot be

stated that the first respondent herein is not interested in the amounts to be realised by the creditor Company out of the estate of the insolvent. By

realising the maximun benefit out of the estate of the insolvent in administration of the same by the Official Receiver, the first respondent stands to

gain in his own interest. If the property of the insolvent fetches fair and proper price, it will be available in the hands of the Official Receiver for the

purpose of satisfying the creditors of the insolvent and the Company in which the first respondent is a shareholder is one such creditor. If the above

features are considered, it cannot be ruled out that the first respondent is not a ""person aggrieved"" within the meaning of Section 68 of the Act, if

other grounds for interference by the Court under the said section are made out.

Mr. P. Sivaramakrishniah, learned Counsel appearing for the respondents, drew my attention to the ditums laid down by some of the judicial

precedents in this behalf. In Sayyed Khasim Sahib and Another Vs. The Official Receiver, Guntur and Another, Yahya Ali, J. recognised that it is

not merely the insolvent, or the creditors, or any other aggrieved person, who can take action to bring the conduct of a Receiver in any particular

respect to the notice of the Court, but the Receiver being an officer of the Court, when it comes to the knowledge of the Court that his action in

any particular respect is objectionable, the Court has inherent powers to rectify his errors or mistakes or to reverse or modify his acts or decisions.

The learned Judge further held, relying on Hanseswar Ghosh v. Rakhal Das Ghose 20 Ind.Cas. 683 that when a Receiver had been appointed, he

becomes an officer of the Court and if he is about to act in excess of his authority, it is competent even to a stranger to bring that fact to the notice

of the Court, which has inherent power to review the conduct of the Receiver, so that the stranger may not be prejudiced by an unlawful act of its

own officer.

In J.V. Venkatakrishna Ayyar Vs. The Official Receiver, it has been recognised, that an insolvency Court has inherent powers vested in it

outside the provisions of Section 68 of the Act to rectify the defects, mistakes or errors committed by the Official Receiver; it cannot be said that

the Court is powerless to prevent an injury being done to the general body of creditors and the insolvent in consequence of a mistake committed

by the Official Receiver in the conduct of an auction sale held by him, merely because the person who applies to the Court to have the mistake

rectified is the Receiver himself and not a creditor or insolvent.

Mr. M.N. Padmanabhan, learned Counsel appearing for the petitioner wants to derive support for his case from the ratio of certain decisions.

He brings to my notice a decision of a Bench of this Court reported in Ramaswami Reddiar Vs. The Official Receiver of South Arcot and Another,

. There, the question in issue in the present case did not come up for consideration at all.

In S. Kasi Chettiar Vs. The Rt. Hon''ble the Secretary of State for India in Council and Others, . Abdur Rahman, J., was concerned with a case

where the suit by the Official Receiver to set aside a sale of the insolvent''s property was dismissed; the Official Receiver refused to prefer appeal

and a creditor wanted to prefer an appeal against the dismissal. The learned Judge held that the creditor was not entitled to prefer an appeal on the

principle that a right of appeal is not a mere right of procedure and it is a substantive right and is primarily a creature of statute.

In N.V. Vaidyanatha Ayyar and Another Vs. Indian Bank Ltd., Tiruchirapalli and Others, a Division Bench of this Court was concerned with a

case of sale of immovable property belonging to a limited company, in execution of a decree and the filing of an application to set aside the sale by

a shareholder of the company under Order 21, Rule 90 of the Code of Civil Procedure. The Bench observed as follows : (at page 102)

A shareholder is no doubt interested in the property of the company in which he holds shares; if the property is not properly looked after and

administered, the share-holder would naturally suffer in his pocket. But this does not mean that every shareholder, who apprehends that the

property of the company is being mismanaged or is even fraudulently disposed of, is entitled to come in the manner the petitioner has done. It is

easy to see that if such a course were permitted, the business of the company can be brought to a complete standstill when differences of opinion

exists among the members of the company. One legal effect of incorporation is to vest the ownership of the property in the company, which

acquired a separate legal existence. The property has, to be managed by the directors, subject to the control of the shareholders and the provisions

of the constitution of the company. If the directors misbehave, they can be removed. If they are able to get the backing of the majority and threaten

to sue the majority to oppress the minority, that will be an occasion when the Court will interfere. The petitioner alleges that the managing director

has preferpetrated a fraud on the company in collusion with Chellappa Chettiar. In respect of such a conduct, the petitioner has a specific remedy

provided u/s 153-C of the Indian Companies Act.

In S.K. Kuttalingam Pillai Vs. S.V.N. Chinnakannu Pillai and Another, , Ramaswami Gounder, J., was concerned with a case where in a

winding up proceedings the District Judge allowed 6 per cent, per annum interest to the shareholder who had overdrawn the company money and

the learned Judge held that it is only the Official Receiver who is competent to file an appeal and an appeal by another shareholder is not

competent.

In Shyamlal Purohit and Another Vs. Jagannath Ray and Another, , a Bench of the Calcutta High Court was concerned with the question as to

whether a shareholder in process of compulsory winding up of a company has locus standi to apply for setting aside a sale of property belonging to

the company. The Bench was concerned with the expression ""whose interests are affected by the sale"" occurring in Order 21, Rule 90 of the CPC

and in the context of the case before them, observed as follows : (page 430)

The words ''or whose interests are affected by the sale'', in Order 21, Rule 90 are no longer confined to an interest in Immovable property or to

proprietary or possessory rights. The word ''interest'' must be given a wide meaning, and may include a contingent interest, but the right may be

exercised by one who is directly and immediately affected by the sale of an Immovable property. Rights which are likely to be affected or interest

which may hypothetically or remotely be affected cannot be considered as coming within the four corners of Order 21 Rule 90.

Ramanujam, J., in B. Belli Gowder Vs. B. Govindan and Another, had occasion to deal with the case of a lessee of the insolvent''s property

who wanted to resort to Section 68 of the Act and in those circumstances, the learned Judge laid down the proposition as follows:

In this case, no creditor has come forward-to challenge the sale conducted by the Official Receiver. It is not possible to say that any lessee of the

property of the insolvent will be a person aggrieved within the meaning of Section 68 of the Provincial Insolvency Act. On a close reading of

Section 68 of the Provincial Insolvency Act, it is seen that ''any other person'' cannot be construed to include any person unconnected with the

insolvent''s property or its administration. The words ''any other person'' has to be understood in the light of the words following them, that is, ''is

aggrieved''. Even if the learned Counsel''s contention is accepted that a lessee will come within the scope of any other person in Section 68, it

should be further shown that he is aggrieved by the order sought to be challenged by him. As already stated except to protect his position, he is not

interested in the insolvent''s property or the administration thereof.

I do not think that the decisions relied on by the learned Counsel for the petitioner could be considered as negativing the case of a shareholder

of a creditor company which is under liquidation to seek the process u/s 68 of the Act as a ""person aggrieved"", Hence, in my view, the first

respondent will come within the ambit of a ""person aggrieved"" u/s 68 of the Act.

It was then submitted by the learned Counsel for the petitioner that no tenable grounds for interference u/s 68 of the Act have been made out.

In P. Srinivasa Naicker Vs. Smt. Engammal and Another, , the power of Court u/s 68 of the Act to set aside & sale by a Receiver and the

grounds on which the sale can be set aside have been explained. It will be pertinent to extract the relevant passage occurring in the decision:

It may be accepted that the power of the Court u/s 68 is not hedged in by those considerations which apply in cases of auction sales in execution

proceedings. Even so, the power u/s 68 is a judicial power and must be exercised on well-recognised principles, justifying interference with an act

of the receiver which he is empowered to do u/s 59(a) of the Act. The fact that the act of the receiver in selling properties u/s 59(a) is subject to

the control of the Court u/s 68 does not mean that the Court can arbitrarily set aside a sale decided upon by the Official Receiver. It is true that the

Court has to look in insolvency proceedings to the interest in the first place of the general body of creditors; in the second place to the interest of

the insolvent, and lastly, where a sale has been decided upon by the Official receiver to the interest of the intending purchaser in that order. Even

so, the decision of the Official receiver in favour of a sale should not be set aside unless there are good grounds for interfering with the discretion

exercised by the official receiver. These grounds may be wider than the grounds envisaged in auction sales in execution proceedings. Even so,

there must be judicial grounds on which the Court will act in setting aside the sale decided upon by the official receiver. These grounds may be, for

example, that there was fraud or collusion between the receiver and the insolvent or the intending purchaser; the Court may also interfere if it is of

opinion that there were irregularities in the conduct of the sale which might have affected the price fetched at the sale; again, even though there may

be no collusion, fraud or irregularity, the price fetched may still be so low as to justify the Court to hold that the property should not be sold at that

price. These grounds or similar other grounds depending upon particular circumstances of each case may justify a Court in interfering with the act

of the official receiver in the case of a sale by him u/s 59(a) of the Act.

The dictum of the Supreme Court has been followed by Maharajan, J., in Narayanan v. Kannabiran Mudaliar (1947) 2 M.L.J. 303, Keeping

the above principles in mind if the facts of the present case are considered, I find that the appellate Court, on a proper appraisal of the factual

materials, came to the conclusion that there had been no due proclamation of sale for the auction held on 14th March, 1973 5 that the petitioner

herein has entered into some colourable arrangement or agreement with a view to knock away the property for a low price and accordingly

purchased, the same for Rs. 26,000 though the property, in fact, is worth much more than that. The appellate Court relied on the evidence

adduced, on behalf of the first respondent herein and other materials on record to come to the conclusion that there was no due proclamation of

sale of the property in question. The appellate Court has also taken into consideration the fact that the petitioner herein is the tenant of the property

concerned for the past several years and the property would definitely fetch a higher price if the sale had been properly advertised and due

publicity given thereof. These considerations are purely factual and as laid down in Malini Ayyappa Naicker (Now Dead) through I.R. etc. Vs.

Seth Manghraj Udhavadas Firm by Managing Partner Chathurthuj Chhabildas (Dead) Thereafter by I.Ss. and Others, , the Court ought not to

interfere u/s 75(1) of the Act merely because it thinks that possibly the Judge who heard the case may have arrived at a conclusion which the High

Court would not have arrived. The powers of revision of this Court u/s 75(1) of the Act are narrow and interference is possible by this Court only

on a question of law. The findings of fact rendered by the Tribunals created under the Act are findings which are final as provided for in Section

75(1) itself. The above is the view expressed by Ramaprasada Rao, J., in The District Official Receiver Vs. Lakshmi Ammal and Others, . The

same principle has been followed by me in M.S. Narayana Iyer v. A.G.A. Funds C.R.P. No. 107 of 1975. In view of the above, it is not possible

for this Court to come by the appellate Court on the factual questions involved. The judgment and decree of the ""not according to law"" so as to

warrant interference in revision. Hence this revision is dismissed. But, there will be no order as to costs.