Dharamnath Prasad and Others vs Surji Devi and Others

Imam, C.J.—This is an appeal against the order of the District Judge of Darbhanga made in an insolvency proceeding. An application was made by the creditor, Mt. Surji Devi, under the Provincial Insolvency Act hereinafter referred to as the Act for adjudicating the opposite parties 1 to 5 of the application insolvents. Opposite parties 6 to 10 of the application were minors and there was no prayer to make them insolvents. The applicant further prayed for the appointment of an ''ad interim'' receiver to take charge of the property of the opposite party with a view to safeguarding her interest and that of the other creditors. An interim receiver was appointed, but when the question came up of taking possession of the property of the opposite party the minors put in an objection to the receiver taking possession of their share of the joint family property. The District Judge dismissed the objections raised by the minors. Hence the present appeal.

To decide the question arising in this appeal the provisions of Section 20 of the Act have to be considered and those of Section 28A of the Act. But before that is done one has to consider the preliminary objection raised on behalf of the respondent that the appeal is not maintainable in view of the provisions of Section 75, Sub-section (3) of the Act. It was contended that as the order passed by the District Judge is not one of those specified in Schedule I to the Act, under Sub-section (3) of Section 75 of the Act an appeal to this Court from the order of the District Judge could only be by the leave of this Court.

The present appeal was admitted by the Registrar and was unaccompanied by any application to this Court for leave to appeal against the order of the District Judge. Reliance was placed upon the plain words of Sub-section (3) of Section 75 of the Act as well as on a decision of the Madras High Court.

On the other hand, it was contended on behalf of the appellants that as the appeal had been, admitted, it must be deemed that this Court had given leave to appeal, and in any event, if the circumstances of the case justified the course, leave could be granted at the hearing of the appeal itself. Reliance was placed upon the case of Gopal Ram Vs. Magni Ram and Others, , where Jwala Prasad, J, was of the opinion that there was a good deal of force in the contention of Mr. De that when the appeal had been admitted by the Bench the requisite leave was virtually granted. The appeal had been treated as if leave had been granted and the order of the Court admitting the appeal should be construed as one granting leave. Jwala Prasad, J. further expressed the opinion that even if that was not sufficient he would, after hearing the entire case, consider that sufficient case had been made out by the appellants for obtaining leave to appeal, and his Lordship there and then granted leave to appeal.

In the case of -- Mahabir Prasad Poddar and Others Vs. Ram Tahal Mandar and Others, , a Division Bench of this Court also dealt with a preliminary objection that the appeal was incompetent inasmuch as the leave of the High Court had not been obtained u/s 75(3) of the Act. Their Lordships thought that the very fact that the appeal had been admitted by the Court amounted to an indication that if leave had been asked for it would have been granted and that to cure the irregularity, if any, it was enough to state that the case was one in which leave ought to be granted and their Lordships granted the requisite leave to appeal at the hearing of the appeal and relied upon the case of -- Gopal Ram Vs. Magni Ram and Others, .

In the case of -- Aniruddha Mitra Vs. Official Receiver, Alipur Judge''s Court and Others, , Mukherjee, J. expressed the opinion that in any event an appeal would lie with the leave of the Court, and that the Court would be prepared to grant such leave if it was necessary.

In the case of -- M.W. Elliot, Official Receiver Vs. Kopparapu Subbiah, , it was held that in cases of appeal u/s 75(3) of the Act it was not necessary that leave to file the appeal should be obtained before filing the appeal; it may be obtained afterwards, and reliance was placed upon the case of -- Pannai Ananthanarayana Aiyar Vs. Pannai Ramasubba Aiyar and Others, . In the case of -- M.W. Elliot, Official Receiver Vs. Kopparapu Subbiah, '' it would appear that the appeal had not been admitted by the Bench, while in the two Patna Cases, to which reference has been made, the appeal had been admitted by the Bench.

On the other hand, in the case of -- Ummadi Bala Venkata Reddi and Others Vs. Kanala Narayana Reddi and Others, , it was held that the leave referred to in Section 75(3) of the Act is leave granted by a Judge of the High Court and not by any of its administrative officers, and an admission of an appeal as a matter of routine in the office cannot be treated as tantamount to the grant of leave. It was held further that it was the duty of the Advocate before he filed an appeal to investigate and make certain whether leave was or was not necessary. Where the appeal had been coming on the list for a considerable time and no application for leave had been made, the Court would not allow an oral application for leave made at the time of the hearing of the appeal.

In the aforesaid case the learned Judges of the Madras High Court referred to a decision of the Allahabad High Court in the case of -- Balli Vs. Nand Lal and Another, .

In the case of--''Thakar Singh v. Ganga Singh'' AIR 1927 Lah 424 (2) (H), it was held that leave cannot be deemed to have been granted by the mere admission of an appeal. In the Lahore case leave was asked for at the time of the hearing of the appeal, but the learned Judge was unable to grant such a prayer because it was not noticed by the Advocate for the appellant till practically the whole case had been argued that it was necessary to ask for leave to appeal. It will be noticed that in the Lahore case and the Madras case -- Ummadi Bala Venkata Reddi and Others Vs. Kanala Narayana Reddi and Others, , it was not held by the learned Judges that the High Court had no jurisdiction to grant leave at the hearing of the appeal if in the opinion of the Court the circumstances appearing in the appeal were so substantial as to make it desirable that leave should be granted. In view of what was held in -- Gopal Ram Vs. Magni Ram and Others, , and in -- Mahabir Prasad Poddar and Others Vs. Ram Tahal Mandar and Others, '' and having regard to the opinion expressed by Mukherjea, J. in -- ''AIR. 1942 Cal 241 (C)'' and the decision of the Madras High Court in the case of -- M.W. Elliot, Official Receiver Vs. Kopparapu Subbiah, , I am satisfied that if the circumstances justify it the High Court can grant leave to appeal at the hearing of the appeal itself. I am satisfied that the circumstances arising in the present appeal justify leave being granted and I hereby grant leave to the appellants to appeal against the decision of the District Judge. The preliminary objection accordingly fails.

The application of Musammat Surji Devi under the Provincial Insolvency Act shows that the opposite party to the application were members of a joint family governed by the Mitakshara law and that opposite party No. 1 was the ''karta'' and that they carried on business under the name and style of a firm called Dayaram Babulall in mahalla Katkibazar in the town of Darbhanga and the said firm was ancestral and owned jointly by the opposite party. The joint family also owned various other properties as mentioned in the schedule to the application. In paragraph 27 of the application it was stated that the opposite parties Nos. 6, 7, 8, 9 and 10 were minors and as such could not under the law be adjudged insolvents, but their shares are bound "to the liability of the applicant", that is to say, the loan advanced by the applicant was liable to be paid by the joint family and the shares of the minors in the joint family property were bound by the liability created by the loan.

There were numerous allegations in the application to show that the opposite party were making fraudulent transfers in order to defeat their creditors and to put in jeopardy the applicant''s claim. As I have already said, an ''ad interim'' receiver was appointed and the question which has to be decided in this appeal is as to over which properties possession can be delivered to the receiver. The District Judge held on the grounds stated by him, that the ''ad interim'' receiver was entitled to take possession of the undivided interest of the minors also in the joint family property.

Section 20 of the Act reads as follows:

"The Court when making an order admitting the petition may, and where the debtor is the petitioner ordinarily shall, appoint an interim receiver of the property of the debtor or of any part thereof, and may direct him to take immediate possession thereof or of any part thereof, and the interim receiver shall thereupon have such of the powers conferable on a receiver appointed, under the Code of Civil Procedure, 1908, as the Court may direct. If an interim receiver is not so appointed, the Court may make such appointment at any subsequent time before adjudication, and the provisions of this section shall apply accordingly."

Under Section 2 of the Act "property" includes any property over which or the profits of which any person has a disposing power which he may exercise for his own benefit.

The Act also provides for the appointment of a receiver after adjudication and Section 28A which was introduced into the Act by the Provincial Insolvency (Amendment) Act, 1948, reads as follows:

"The property of the insolvent shall comprise and shall always be deemed to have comprised also the capacity to exercise and to take proceedings for exercising alt such powers in or over or in respect of property as might have been exercised by the insolvent for his own benefit at the commencement of his insolvency or before his discharge:

Provided that nothing in this section shall affect any sale, mortgage or other transfer of the property of the insolvent by a Court or receiver or the Collector acting u/s 60 made before the commencement of the Provincial Insolvency (Amendment) Act, 1948 which has been the subject of a final decision by a competent Court."

The other proviso to this section need not be quoted.

Section 28 of the Act relates to the effect of an order of adjudication, and Sub-section (2) reads as follows:

"On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter, pro- vided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, except with the leave of the Court and on such terms as the Court may impose."

It will thus be seen that where there is an order of adjudication the whole of the property of the insolvent shall vest in the Court or in a receiver.

The property of the insolvent in such circumstances would include property over which or the profits of which the insolvent has a disposing power which he may exercise for his own benefit. The provisions of Section 28A of the Act are similar to the provisions of Section 52 of the Presidency Towns Insolvency Act.

Their Lordships of the Judicial Committee in the case of -- AIR 1925 18 (Privy Council) , considered the provisions of Section 52 of the Presidency Towns Insolvency Act, and Sir John Edge, in delivering the judgment of the Privy Council, dealt with the question at length. Regarding the contention that, when Sri Kishan Das had been adjudicated insolvent by the High Court of Bombay, from the date of the adjudication the whole of the family estates and effects as well as the right, title and interest of the insolvent became vested in the Official assignee of Bombay, who since then became the legal owner with powers of control and disposal and obtained possession of and over all the estate and properties including the house over which the plaintiff claimed possession, Sir John made the following observation.

"That means that when a Hindu, who happens with his sons to constitute a joint family subject to the law of the Mitakshara, is adjudged an insolvent under the Presidency Towns Insolvency Act. 1909, not only his own right, but all the rights and interests of his sons who are his coparceners in joint family property vest in the official assignee by virtue of the adjudication alone. That is a startling proposition. It must depend on the wording of the Presidency Towns Insolvency Act, 1909, and the question is whether that could have been the intention of the Governor-General of India in Council when that Act was passed. It is quite clear that if this joint family could be treated as a firm carrying on its business in partnership an order adjudging the father who managed the business or even an order adjudging the firm insolvent could not be made under that Act even if the firm consisted solely of a Hindu father and his two minor sons, which would affect the interests of a minor who happened to be a partner in the firm."

Sir John Edge considered the provisions of Section 17. Presidency Towns Insolvency Act where the expression "the property of the insolvent" occurs, and referred to the definition of the word "property" in Section 2 of that Act. He was of the opinion that a Hindu father''s powers to sell the joint property and apply the proceeds to the payment of his debts was a disposing power for his own benefit. He, however, pointed out that the definitions in Section 2 are only to apply "unless there is something repugnant in the subject or context." He thought accordingly that it was necessary to consider the effect of the definition of "property" contained in that section in relation to the subject matter with which he was dealing, that is to say, the joint property of an undivided Hindu family.

He again expressed himself that it was a startling proposition that the insolvency of one member of the family should of itself and immediately take from the other male members of the family their interests in the joint property and from the female members their right to maintenance and transfer the whole estate to an assignee of the insolvent for the benefit of his creditors. Sir John Edge pointed out that the father''s power to dispose of the joint property was not absolute but conditional on his having debts which were liable to be satisfied out of that property, and in his opinion Section 2 seems to contemplate an absolute and unconditional power of disposal. He further thought, after having examined the provisions of Section 52, Presidency Towns Insolvency Act that it was difficult to reconcile its provisions with the proposition that the property itself vests in the assignee.

He ultimately expressed himself in the following well known words:

"It may be that under the provisions of Section 52, or in some other way, that property may in a proper case be made available for payment of the father''s just debts; but it is quite a different thing to say that by virtue of his insolvency alone it vests in the assignee, and no such provision should be read into the Act."

It seems to me quite clear on the decision in -- AIR 1925 18 (Privy Council) that while the property of the joint family in a proper case may be made available for payment of the father''s just debts, his insolvency alone would not vest the property in the receiver.

This decision in -- ''Sat Narain''s case (J)'' was referred to by the Judicial Committee in the case of -- AIR 1936 277 (Privy Council) , where Lord Thankerton observed:

"Under a previous decision of this Board, in a pre-emption suit instituted by the present appellants, it has been held that the adjudication order did not vest in the Official Assignee the appellants'' interest in the family property: -- AIR 1925 18 (Privy Council) . But the Official Assignee claims the right to exercise the insolvent''s power, as father, to sell the joint family property for payment of the insolvent''s antecedent debts, so far as not incurred for immoral or illegal purposes, by virtue of the provisions of Section 52, Sub-section 2(b), Presidency Towns Insolvency Act."

And the view expressed by Sir John Edge does not seem to have been doubted.

The definition of the word "property" in Section 2(1)(d) of the Act is similar to the definition of that word in the Presidency Towns Insolvency Act. The Act, however, did not contain any provision similar to Section 52, Presidency Towns Insolvency Act. Section 28A was introduced into the Act in 1948, and this was largely as a result of the decision of the Pull Bench of the Madras High Court in the case of -- Nori Ramasastrulu Vs. Teluguntla Balakrishna Rao and Another, , where it was held that in a joint Hindu family the father''s power to dispose of his son''s property was not property within the meaning of Sections 2(1)(d) and 28 of the Act, and the right of a manager who is not the father of the other coparceners to sell family assets to discharge debts which are payable out of the joint estate cannot be property within the meaning of Sections 2(1)(d) and 28 of the Act and, therefore, cannot vest in the Official Receiver on the insolvency of the manager. Leach, C.J. said that it was very regrettable that the law of insolvency should be different in cases which fell within the Presidency Towns Insolvency Act and cases which fell within the Provincial Insolvency Act. The remedy was in the hands of the Central Legislature and it was hoped that it would bring the two Acts into line and would do so without delay.

Section 28A having been introduced into the Act and being similar in terms to Section 52, Presidency Towns Insolvency Act it is quite obvious that the decision in -- AIR 1925 18 (Privy Council) must be followed in interpreting its provisions.

It seems to me, therefore, clear that even after adjudication of insolvency it is the property of the insolvent which vests in the receiver, and in the case of a Hindu joint family the whole of the property of the joint family does not vest in the receiver. In an undivided Hindu family governed by the Mitakshara law, the property of the family being joint, no member of the family can predicate which portion of it belongs to him. It is only on partition that a member of such a family is in a position" to say as to which part of the joint family property belongs to him. I think it must be now taken as clear, in view of the Privy Council decision in -- AIR 1925 18 (Privy Council) and the Pull Bench decision of the Madras High Court in -- Nori Ramasastrulu Vs. Teluguntla Balakrishna Rao and Another, , that on the insolvency of a member of such a family the joint family property does not vest in the Court or the receiver. Whatever power the receiver may exercise by virtue of the provisions of Section 28A of the Act and Section 52 of the Presidency Towns Insolvency Act to have the joint family properties sold to meet debts binding on the family, the joint family property itself does not vest in the receiver.

Such being the position after adjudication of insolvency I cannot for myself see how an ''ad interim'' receiver appointed before adjudication can be given possession of the joint family property. By virtue of the provisions of Section 28A of the Act and Section 52, Presidency Towns Insolvency Act certain power vests in the receiver by operation of law but in the case of an ad interim receiver nothing vests in him by operation of law and he can take possession of only such properties as belong to the debtor. The Court of insolvency has no power to direct an ''ad interim'' receiver to take possession of property other than that belonging to the debtor. It would be, in my opinion, misapplication of the law to apply to the provisions of Section 20 of the Act the provisions of Section 28A of the Act. It seems to me quite clear that an ''ad interim'' receiver cannot take physical possession of the disposing power of the karta or the manager of a joint family, although such disposing power may vest in him by operation of law after adjudication of insolvency.

It was, however, contended by the Government Advocate that u/s 4 a court of insolvency has full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case. Consequently, it was suggested that as the minors had been made parties to the proceeding although they could not be adjudged insolvents, and the debt in question was one which was binding on the joint family property, it was within the jurisdiction of the insolvency Court to direct the ''ad interim'' receiver to take possession of the joint family properties.

In my opinion Section 4 of the Act cannot override the express provisions of Section 20 of the Act, because Section 4 itself says that its provisions are subject to the provisions of the Act. Section 20 gives the power to the Court to appoint an ''ad interim'' receiver of the property of the debtor only, and that express provision cannot be avoided by having resort to the provisions of Section 4 of the Act. It will be noticed that u/s 20 of the Act an ''ad interim'' receiver has only such powers as a receiver appointed under the Code of Civil Procedure. In the circumstances,'' the ''ad interim'' receiver appointed u/s 20 of the Act could not be directed to take possession of the joint family property of an undivided Hindu family governed, by the Mitakshara law merely because one of its members, although the manager or ''karta'', is being proceeded against for an act or acts of insolvency.

In my opinion the order of the District Judge directing the receiver to take possession of the joint family properties of the appellants must beset aside and it must be held that the District Judge erred in holding that the receiver was entitled to take possession of the undivided interests of the minors in the joint family property. The appeal is accordingly allowed with costs.

Sahai, J.

I agree.