K.S.P. Thangavelu Chetti vs K.S.R. Chockalingam Chetti and Others

Vere Mockett, Officiating C.J.

The appellant is the insolvent. The first respondent is one Chockalingam Chetti, his cousin brother. The second respondent, the Official Assignee

of Madras, is formally on the record. The Official Assignee on the 22nd December, 1942, took out an application for directions before the learned

Insolvency Judge with regard to the disposition of properties which ""according to the insolvent and also to Chockalingam Chetty, represent

properties which, under an oral partition, were allotted to the insolvent''s share"" as well as other properties. One of those properties is to be found

in item 4 of Schedule A which is a half share in 9 Devathi Pilliar Koil Street, Pulicat. With that house, I am concerned and I will call that house ""the

Pulicat House."" The learned Judge on the 11th January, 1943, directed the Official Assignee to sell the properties in the schedules to the

application before him and the Pulicat House was included. The Official Assignee came before the Court with a further application on the 15th

April, 1943, and he said in paragraph (c) of his report that with regard to the Pulicat House the insolvent and Chockalingam Chetti were entitled to

a half share each, that an offer had been received from Chockalingam Chetti for Rs. 300 and that he had reports that it was worth more; and he

asked for directions as to whether the house might be sold. Chockalingam Chetti in his affidavit in reply to the Official Assignee''s report said in

paragraph 5 that he was ""prepared to abide by any fair price which the Official Assignee or this Honourable Court may suggest.

The learned Judge''s judgment of the 19th April, 1943 was as follows:

Having regard to the fact that the Pulicat House is stated to be the family house to continue in occupation of which Chockalingam Chetti will have a

natural desire, I am of the opinion that it need not be sold but that Chockalingam should pay to the estate a half share of its value on the basis that

the property is worth Rs. 1,500.

The order followed the learned Judge''s judgment and said that the ""house at Pulicat shall not be sold but the said K.S.R. Chockalingam Chetti

do pay to the Official Assignee a sum of Rupees seven hundred and fifty only representing a,half share of its value."" This order has led to

subsequent proceedings.

On the 31st May, a Notice of Motion was filed by the insolvent in which he asked u/s 8(1) of the Presidency Towns Insolvency Act that the

Insolvency Court should vary the order of the 19th April. He pointed out that owing to the sale of other properties and other circumstances he was

in a position to pay sixteen annas in the rupee to his creditors and that therefore it was not necessary to sell the Pulicat House; and he asked that

the order of the 19th April, should be varied by directing the Official Assignee not to execute any conveyance in respect of the same. In fact his

expectations were realised and quite apart from the Pulicat House sixteen annas in the. rupee was paid to the creditors. On the 23rd August, the

parties appeared before the learned Judge and there were a number of applications in the 11st. The last application was for annulment by the

insolvent. The Official Assignee who is before us today states that he did not file a report in the present application which is No. 647 of 1943 but

he was before the learned Judge and gave him all the information he desired. The outstanding fact was that on that date, the 23rd August, the

creditors had been paid in full and that the only question to be considered and with which we are now concerned was whether a house which now

belonged to a man who in a matter of minutes would be solvent, should be sold. If it had been sold, the money would have been paid to the

Official Assignee who would have at once handed it over to the (lately) insolvent. The learned Judge took the view that he would not go back on

his order of the 19th April, ""which was passed after taking into account all the circumstances then existing"" and which was ""now sought to be

varied, only because there has been a change in the circumstances with reference to the financial situation of the insolvent.

It must be remembered that the circumstance then existing and the financial situation of the insolvent were of great importance. First of all he was

an insolvent. It was necessary that his assets should be realised for the payment of his creditors; but on this day, the 23rd August he was in a few

moments to cease to be an insolvent, no money was required for the payment of any creditors, because they had all been satisfied. That is

important. It has been urged before us that this is a matter for the discretion of the learned Insolvency Judge. But, with respect, I am unable to

agree with the Order in this case. I think that the whole reason in this case and basis for the original order had disappeared, and that unless affected

by Section 23 of the Presidency Towns Insolvency Act the Court should save from sale property of the insolvent which was not required to be

sold for the purpose of paying creditors and which he did not desire to be sold. It has been difficult on the merits for the earned Counsel for the

first respondent to support the learned Judge''s order. He has, however, argued that Section 8 of the Presidency Towns Insolvency Act cannot be

invoked by the insolvent because he was not himself a party to the original order sought to be reviewed. It was a fact that the parties to that order

were the Official Assignee, the petitioning creditors and the first respondent K.S.R. Chockalingam Chetti. The Official Assignee, of course, was

then representing the insolvent. I do not think, however, it is necessary to say more than this about that aspect of the case. It. must be remembered

that before the learned Judge were a large number of applications dealing with the insolvent''s affairs. The learned Judge was fully apprised of the

circumstances by the Official Assignee and I think it is clear--and this is supported by the authorities--that the Court has the widest possible

discretion to use its powers u/s 8. The Official Assignee had by his letter of 25th May, 1943, directed the insolvent to apply to the Court, With

before it all these circumstances, I think that the Court could have and may be taken to have acted on its own initiative in making this order.

The other point taken on behalf of the first respondent was that Section 23 was a bar to the Court acting u/s 8. Very few words, I consider, can

dispose of that argument. Authorities show that the test is whether by reason of an act of Court the insolvent''s property has been vested in

somebody, a third party. The object of the section is to preserve accomplished acts. There is no authority for the proposition, as was argued, that

there was no order which could be reviewed u/s 8, because that is what it really amounted to. It is directly opposed to the wording of the section.

On the other hand, there is authority that innumerable orders can be reviewed u/s 8. In this particular case no property had vested in anybody. All

that happened was that property had been directed to be sold because it was thought that a sale was necessary for the payment of the insolvent''s

debts. But it afterwards turned out that it was wholly unnecessary. I therefore think that the learned Judge should have reviewed that Order by

cancelling it. The fact that a sale might have.caused the parties to cease quarrelling does not seem to me to be relevant.

For these reasons I consider that this appeal should be allowed with costs as against the first respondent.

Krishnaswami Ayyangar, J.

I am of the same opinion. So far as the merits are concerned, the change in the circumstances of the insolvent was of such a character that to do

justice it was incumbent upon the Court to set aside the order of the 19th April, 1943. Enough money had been collected for payment in full to all

the creditors not only of sixteen annas in the rupee but also the interest accrued. The sale of the property in question was therefore totally

unnecessary for the purpese of the insolvency administration. The learned Judge seems to have been influenced by the fact that the amount of Rs.

750 was fixed with reference to the proper value of the property and that to allow the insolvent to get back his share would result in the fight

between the parties continuing. These may be very good reasons for directing the sale of the property if the question had arisen in a suit instituted

for partition. With respect it seems to me that these considerations are quite alien to the matter before the learned Judge which was in an insolvency

proceeding.

It was, however, vehemently contended on behalf of the first respondent that the application to the learned Judge was incompetent inasmuch as

the insolvent had no locus standi to make it. This objection was considered by the learned Judge, but he overruled it on the ground that the section

does not provide that a review of an order or its variance can be had only at the instance of a party to the application. If I may say so with respect,

I find myself in complete agreement with this view. The language used in Section 8(1) of the Presidency Towns Insolvency Act is that the Court

may review, rescind or vary any order made by it under its insolvency jurisdiction. Ordinarily no doubt the Court would act on applications made

to it by parties to the order sought to be rescinded : but the language, undoubtedly, indicates a wider jurisdiction in the Court. In the course of the

arguments the question was put to the learned advocate for the respondent as to whether the Court had not inherent jurisdiction to act suo motu for

purpose of rescinding its previous order in a proper case. The answer was that the Court had the jurisdiction. But it was contended that in the case

on hand the learned Judge was not acting suo motu at all. It seems to me that if the Court had the necessary jurisdiction, the fact that it obtained the

necessary information which induced it to rescind or vary its order, from the insolvent can be no objection. The fact, however, is that the Official

Assignee was himself present in Court and he has told us that he placed the material facts before the Court and informed it that the debts of the

insolvent had been discharged completely without reference to the money sought to be obtained by the sale of the property in question. That being

so, I feel little doubt that the order of the Court is not open to challenge merely on the ground that it was the insolvent who moved it. Then it was

said that there was something in Section 23 of the Act which took away the power of the Court to vary an order passed by it although the power

has been expressly given by Section 8(1). Reliance is placed upon the language of Section 23(1) namely,"" Where an adjudication is annulled, all

sales and dispositions of property ""and payments duly made, and all acts theretofore done, by the Official Assignee or other person acting under

his authority, or by the Court, shall be valid, but the property of the debtor who was adjudged insolvent shall vest in such person as the Court may

appoint, or, in default of any such appointment shall revert to the debtor to the extent of his right or interest therein on such terms and subject to

such conditions (if any) as the Court may declare by order."" It is argued that here is an act done by the Court, namely, the order passed by it on

the 19th April, 1943, and it is said that that order cannot be disturbed at all even by the Court acting u/s 8(1). That, it seems to me, is not the

purpose of Section 23. If a final order had been made and property had become vested either in the Official Assignee or in a third party by reason

of an order made, the annulment of the adjudication cannot operate to disturb the state of affairs so brought about. But if an order had been made,

it must be taken for granted that that order is liable to be challenged either by the procedure laid down in Section 8(1) or by an appeal or

otherwise in the manner provided by law. I therefore find it difficult to assent to the proposition that Section 23(1) takes away the power expressly

granted to the Court u/s 8(1) in a case where the annulment of the adjudication had taken place.

It was argued that the order of Court is in the nature of a completed act that it was not executory in character, that it really included a contract

between the Official Assignee on the one hand and the respondent on the other and so on. In answer to a direct question the learned advocate for

the respondent admitted that there was in fact no contract at all between the Official Assignee and the first respondent. He attempted, however, to

argue, that we must read such a contract into the order and upon that footing say that there was some completed act which became binding upon

all the parties including the insolvent. The argument is so palpably wrong that it does not merit serious consideration. An order of the Court remains

in force only so long as it had not been varied or rescinded, but if it is varied or set aside by a procedure permitted by the Act, the consequence is

that the parties are relegated to the position in which they were at the time when the original order was made. No higher sanctity can attach to the

order simply because the Official Assignee expressed his willingness, to sell the property to the first respondent in case the Court sanctioned the

arrangement. Nor can I see any substance in the argument that the order has passed the executory stage and has become, as the learned advocate

called it, an executed order. I find it extremely difficult to follow the argument because most orders are executory in character and in the present

case it was undoubtedly so. There was merely a direction that the Official Assignee should sell the property to the respondent. There was neither a

conveyance executed nor any consideration received at the time when the application was made to the Court below.

I agree that the appeal must be allowed and I also agree as to the order for costs made by my Lord.