E.M. Jackiria Sahib vs Official Receiver, West Tanjore

(1) This appeal is filed by the purchaser of the property from the insolvent against the order of the learned District Judge, West Tanjore, allowing

the petition of the official receiver annulling the sale-deed in his favour.

(2) The property was owned by the insolvent Balakrishna Naidu and his brother Kannan. They were running a coffee hotel in the property in

question. But the business failed and Balakrishnan got himself involved in debts. He executed the impugned sale-deed for himself and as guardinan

of his minor brother and minor sons to the appellant on 27-8-1956 for a sum of Rs. 32,000. The sale deed was registered on 24-9-1956 for

adjudicating Balakrishna Naidu as insolvent on the ground that the sale-deed in question was an act of insolvency. Balakrishna Naidu was

adjudged as an insolvent by an order 3-12-1956.

(3) One S. L. Ct. Lakshmanan Chettiar, a creditor of the insolvent, obtained a decree against the insolvent for Rs. 600/- in S. C. No. 67 of 1955,

on the file of the Sub-Court, Kumbakonam and attached the property in dispute on 25-9-1956 in E. P. No. 107 of 1956. The appellant herein

preferred a claim of the property and objected to the attachment. The claim petition was allowed by the Court on 3-4-1957 for setting aside the

order in the claim petition and for a declaration that the property was liable to attachment. Lakshmanan Chettiar filed a petition for leave to sue on

behalf of all the creditors of the insolvent. This petition was allowed by the Court on 12-9-1957. In the suit no notice was given to the official

receiver. After trial the learned District Munsif dismissed the suit on 18-4-1958 holding that the purchase by the appellant was bona fide and for

consideration and that the summary order passed by the learned Subordinate Judge was valid. He also held that the transaction was not in fraud of

the creditors.

(4) In the present petition because the Subordinate Judge the Official Receiver impugned the sale on the ground that the sale-deed was executed

without good faith and the considerations recited were fictitious and incorrect. He also contended that the property was worth more than Rs.

40,000, and that the appellant colluded with the insolvent to deprive the creditors of their right to proceed against the property by executing the

sale-deed. The appellant contended that the property was not worth more than Rs. 32,000/- and that the sale-deed was executed in good faith

and for proper consideration and that it could not be impugned by the official receiver. He also submitted that he had obtained the permission of

the Court before purchasing the property and therefore the sale deed was not liable to be attacked. He also contended that at the time when the

Official Receiver filed a petition in the lower Court, the proceedings in insolvency were not pending, and that the petition was incompetent. Further,

he contended that the judgment and decree in O. S. No. 140 of 1957 on the file of the District Munsif, Kumbakonam operated as res judicata and

that the official receiver should not be permitted to dispute the validity of the sale-deed in his favour.

(5) Both the lower Courts have held that the sale-deed in favour of the appellant was not a bona fide transaction and was brought about with a

view to defeat and delay the creditors of the insolvent Balakrishna Naidu. Both the Courts have also found that the consideration of Rs. 32,000/-

for the building was inadequate. I have no hesitation in accepting the finding of the Courts below. The evidence of P. Ws. 1 to 3 amply prove the

case of the Official Receiver. I accept their evidence and the finding that the property was worth over Rs. 40,000/-. P.W. 3 in fact offered to

purchase the property for Rs. 45,000/-.

(6) The insolvent Balakrishna Naidu was highly indebted and knew that his insolvent was imminent. The sale was effected on 27-8-1956 and

immediately thereafter one of the creditors filed a petition for adjudicating Balakrishna Naidu as an insolvent.

(7) The sale-deed was by the insolvent on behalf of his minor brother and minor sons. The minor brother is entitled to a half share and the sale-

deed recited that a sum of Rs. 15,000/- will be reserved and kept by the purchaser. This amount was deposited in the Indian Bank Ltd,

Mayavaram in the name of one Muhamad Mustafa and there is nothing to show that it was on behalf of the minor brother. The various recitals in

the sale-deed are highly suspicious and I have no hesitation in agreeing with the Courts below that the sum of Rs. 3225/- said to have been paid in

cash to the insolvent was in fact not paid. The purchaser paid only such sums as became unavoidable. He deposited Rs. 4,000/- into Court as per

orders of the High Court and I agree with the trial Court that the purchaser was careful not to discharge the bulk of the debts as he entered into

shady transactions and did not want to take any risk. I entirely agree with the findings of the Courts below on the facts and hold that the property

was not sold for proper consideration.

(8) Mr. Gopalaswami Aiyangar, learned counsel for the appellant contended that the Official Receiver had no locus standi to maintains this petition.

This petition out of which this appeal arises was filed by the Official Receiver on 30-6-1958. The Official Receiver submitted a report on 25-11-

1957. In that he stated that the creditors were not taking any steps as there was no fund in the estate and that he was not able to do anything

except to close the proceedings and therefore he closed the proceedings. This report of the Official Receiver Mr. Gopalaswami Aiyangar

contends, should be taken as terminating the insolvency and therefore the Official Receiver had no locus standi to file the petition.

I am unable to accept the contention. The proceedings in insolvency were not terminated. The insolvent was given time for discharge till 3-12-1957

and thereafter time was extended twice to enable the insolvent to apply for discharge. On 8-7-1953 the Official Receiver brought to the notice of

the Court that the petitioning creditor Lakshmanan Pillai had deposited a sum of Rs. 1,000/- and executed an indemnity bond for Rs. 1,000/-

praying for steps being taken for setting aside the alienation in favour of the appellant. Under the circumstances the Official Receiver requested

extension of time for one year from 3-6-1958. As the proceeding in insolvency has not been terminated, the objection raised by Mr. Gopalaswami

Aiyangar has got to be rejected.

(9) The question that remains to be considered is whether the judgment and decree in O. S. No. 140 of 1957on the file of the District Munsif,

Kumbakonam, would operate as res judicate and bar the present petition by the Official Receiver. O. S. No. 140 of 1957 was filed by

Lakshmanan Chettiar for setting aside the summary order passed by the Sub-Court, Kumbakonam, holding that the property was purchased by

the appellant for full consideration and that it was not liable to be attached in execution of the decree obtained by Lakkshmanan Chettiar in S. C.

No. 67 of 1955 on the file of the Sub-Court, Kumbakonam. The plaintiff in the suit moved the Court seeking permission for filing the suit in a

representative capacity and it was ordered. In the suit the Court after trial found that the purchase by the present appellant was bona fide and for

consideration and that the transaction was not in fraud of the creditors. As stated by me earlier, in the suit the plaintiff and the other creditor did not

choose to make representations to the Official Receiver or to make him a party in the suit.

(10) Explanation VI to section 11 provides that where persons litigate bona fide in respect of a public right or of a private right claimed in common

for themselves and others, all such persons interested in such right shall for the purposes of this section, be deeded to claim under the persons so

litigating. Order 1, Rule 8 provides that where there are numerous person having the same interest in one suit, one or more of such persons may,

with the permission of the Court, sue or be sued, or may defend, in such suit on behalf of or for the behalf of all persons so interested. But the

Court is bound to give notice of institution of the suit to all such persons either by personal service or by public advertisement as the Court in each

case may direct. It has been held in AIR 1933 183 (Privy Council) that the observance of all the requirements of the rule is essential and that unless

its provisions are strictly compiled with, section 11 Explanation VI will not be applicable and that persons interested in the right will not be bound

unless they are on the record. Their Lordships dealing with the requirements as to notice observe as follows :-

The observations of these requirements, their Lordships hold to be essential. They constitute the nearest available substitute when dealing with

numerous persons, scattered it may be throughout India, for the personal service upon a defendant required in the case of an ordinary suit. It is no

more permissible to dispense with the one requirement than with the other if the person in view is to be bound by the decree. It may indeed be the

case that in some representative suits, however far-reaching the notice, absent persons will have only a chance of knowing that litigation affecting

their interests is on foot. But of that chance they are not to be deprived. It will be as good a chance as the Court can give and they are entitled to

rely on the due discharge by the Court of its duty in this matter--one of the more responsible with which it could be entrusted.

(11) In the suit there was no attempt at all by the plaintiff to serve the Official Receiver and the Court also has in the judgment observed that the

plaintiff and the other creditors did not choose to make representations to the Official Receiver. It cannot be said that service of notice on the

Official Receiver was not reasonably practicable. Therefore, in the absence of a notice to the Official Receiver it cannot be said that he will be

bound by the decision in O. S. No. 140 of 1957. It is no doubt not incumbent on the creditor to implead the Official Receiver as a party in a suit

u/s 53 of the Transfer of Property Act. But he cannot contended that the Official Receiver will be barred by res judicata by the decision in the suit

when he does not choose to make him a party to the suit.

(12) The learned counsel for the appellant referred me a decision in Gannamani Ramanna as representing the General Body of Creditors in I.P.

No. 20 of 1936, District Munsif Court Vs. Donga Suramma, . That decision is not applicable to the facts of the case, as in that case the Official

Receiver was a party to the suit, though he did not choose to contest the suit. For reasons states above I hold that the decision in O. S. No. 140 of

1957 will not prevent the Official Receiver from questioning the sale-deed in favour of the present appellant. In the view I am taking it is

unnecessary to consider the contention of the learned counsel for the respondent that a suit by a creditor u/s 53 of the Transfer of Property Act is

entirely different from a petition by the Official Receiver in insolvency and therefore will not operate as res judicata.

(13) Mr. R. Gopalaswami Aiyangar finally contended that as the sale was executed by the insolvent on behalf of his minor brother and sons and as

the father alone was adjudicated insolvent and others were not adjudicated, their property does not vest in the Official Receiver. According to him,

it is only the interest of the insolvent father that vests in the Official Receiver. He submits that in the petition by the Official Receiver for setting aside

the sale in favour of the present appellant the Court can set aside the sale in respect of the share of the father alone. The learned counsel relies on a

decision in Chennappa Chetty Vs. Official Receiver, Salem and Others, . In that case the question that arose for consideration was whether when

an alienation by the father is set aside u/s 54 of the Provincial Insolvency Act, the setting aside of the alienation affects merely the interest of the

insolvent or whether the interest of the sons also is divested from the vendee. Their Lordships observed as follows :

Viewing the case apart from authority, it is clear to us that on the adjudication of an insolvent what vests in the Official Receiver is the interest of

the insolvent and when a transaction entered into by the father not merely on his own behalf, but the behalf of others, who are not adjudicated and

whose property does not vest in the Official Receiver, is set aside, what vests in the Official Receiver as the result of such setting aside is merely

the interest of the insolvent father and not that of the non-insolvent.

(14) The above passage no doubt supports the contention of Mr. Gopalaswami Aiyangar, but in that case it was admitted that the purpose for the

alienation was binding on the sons for it was for necessity and for discharge of antecedent debts. If the sale was for discharge of antecedent debts

or for necessity, it would certainly be confirming the title of the vendee. But, as observed by their Lordships, they were not concerned with an

alienation which was sham and nominal. In this case it has been found by the trial Court that the sale has taken place in secrecy and in haste in

order to defeat and delay the other creditors of the insolvent and there is no merit in upholding it. The appellate Court agreed with the appreciation

of the evidence of the trial Court and confirmed its order setting aside the sale in respect of half share of Balakrishna Naidu. From the facts found it

is clear that the insolvent never intended that the title should pass to the purchaser, that the whole transaction was shady and that the purchaser did

not want to take any risk in the transaction. Apart from intending to deprive the creditors, of their legitimate dues neither the insolvent nor the

appellant herein intended that the title should pass by the sale. This case therefore comes within the exceptions contemplated in the Bench decision.

On the above finding the case reported in Chennappa Chetty Vs. Official Receiver, Salem and Others, has no application to the present case. The

appeal is therefore is dismissed with costs. Leave granted.

(15) Appeal dismissed.