Chidambaram Chettiar (died) and Others vs Sellakumara Goundan and Others

Alfred Henry Lionel Leach, C.J.—The question which has been referred is this:

Is a suit by a creditor under S. S3 of the Transfer of Property Act to set aside an alienation made by the debtor before he is adjudged an insolvent

maintainable without the leave of the Insolvency Court?

In Vasudeva Kamath v. Lakshminarayana Rao (1918) 36 M.L.J. 453 : ILR Mad. 684 a Bench of this Court (Wallis, C.J., and Ayling, J.,) held

that such a suit could not be instituted without the leave of the Insolvency Court and this decision was accepted as being correct by the Rangoon

High Court in Mohamed Adjim Nacoda v. E.M. Chettyar Firm I.L.R.(1930) Rang. 7 and by the Lahore High Court in Din Mohammad v. Mt.

Walait Begum AIR 1938 Lah. 856. The decision was, however, strongly criticised by another Bench of this Court (Wallace and

Thiruvenkatachariar, JJ.,) in Subramanyam v. Narasimham (1928) 56 M.L.J. 489. We consider that there is full justification for the criticism.

Section 53 of the Transfer of Property Act states that every transfer of Immovable property made with intent to defeat or delay the creditors of

the transferor shall be voidable at the option of a creditor defeated or delayed. Before 1929 a creditor could bring a suit under this section in his

individual capacity, but in that year the section was amended and there is now a specific direction that the suit shall be instituted on behalf of, or for

the benefit of, all the creditors. Section 17 of the Presidency Towns Insolvency Act and Section 28 of the Provincial Insolvency Act vest the

property of the insolvent in the Official Assignee or the Official Receiver as the case may be and these sections prohibit, without the leave of the

Insolvency Court a creditor of the insolvent filing a suit against the insolvent during the pendency of the insolvency proceedings. All matters

regarding the insolvent''s estate have to be decided by the Insolvency Court in proceedings contemplated by the Act.

Property which the insolvent has transferred in fraud of his creditors is not his property. The transaction is voidable, but until it has been set aside

the transferee has a valid title. Therefore, where property has been transferred by a deed which falls within the mischief of Section 53 and the

transferor becomes insolvent, the property does not form part of his estate and come within the purview of Section 17 of the Presidency Towns

Insolvency Act or Section 28 of the Provincial Insolvency Act. Of course, it comes within the purview of these sections when the Official Assignee

or the Official Receiver or a creditor, obtains a declaration that the transaction offends against Section 53.

In Vasudeva Kamath v. Lakshminarayana Rao (1918) 36 M.L.J. 453 : ILR Mad. 684 certain creditors filed a suit for a declaration that an

alienation of Immovable property by an insolvent was void u/s 53 of the Transfer of Property Act. They did not ask for the leave of the Insolvency

Court, notwithstanding that the Official Receiver was made a party to the suit. The Court held that the effect of an adjudication u/s 16 (1) of the

Provincial Insolvency Act, Act III of 1907 (which corresponds to Section 28 (2) of the present Provincial Insolvency Act) was to prohibit a

creditor bringing a suit u/s 53 of the Transfer of Property Act without the consent of the Insolvency Court. The learned Judges who decided that

case overlooked the fact that a suit u/s 53 of the Transfer of Property Act is not a suit in respect of the property of the insolvent, but is a suit in

respect of property which had been the property of the insolvent and which he had transferred in fraud of his creditors. Such a suit does not fall

within the prohibition of the Insolvency Act. Moreover, the very definite right given by Section 53 of the Transfer of Property Act to a creditor

cannot be taken away without an express provision by the Legislature to this effect and there is nothing in the Presidency Towns Insolvency Act or

the Provincial Insolvency Act which can be read as taking away his right. This was pointed out in Subramaniam v. Narasimham (1928) 56 M.L.J.

The learned Judges who decided that case also pointed out that a suit to set aside a transfer because it offends against the provisions of

Section 53 of the Transfer of Property Act is not a suit respecting the property of the insolvent. As already indicated once a declaration has been

obtained, the property does become the property of the insolvent and automatically vests in the Official Assignee or Official Receiver as the case

may be. A creditor can get no personal advantage out of it, as the section now stands.

A creditor who brings a suit u/s 53 of the Transfer of Property Act may desire to make the Official Assignee or the Official Receiver a party, but

he can only do so with the consent of the Insolvency Court. This is quite a different matter from saying that the Insolvency Court must give its

consent before a suit can be instituted u/s 53 of the Transfer of Property Act when the representative of the insolvent''s estate is not made a party.

It follows from what we have said that we are in full agreement with the decision in Subramaniam v. Narasimham (1928) 56 M.L.J. 489 and

that Vasudeva Kamath v. Lakshminarayana Rao (1918) 36 M.L.J. 453 : ILR Mad. 684 was wrongly decided. Consequently the answer to the

question referred will be in the affirmative.

The costs of this reference will be costs in the appeals.