Mokshagunam Subramania Aiyar vs S.V. Ramakrishna Aiyar

Sadasiva Aiyar, J.—As soon as the adjudication was made against Kasipathi Aiyar he ceased to be the owner of the equity of redemption

on 29th February 1916 as his property vested at once either in the court or in the Receiver as the case may be (Section 16 Clause 2(a) of the

Provincial Insolvency Act (III of 1907). The decree for sale obtained in July 1916 in a suit in which a person was impleaded as defendant who had

no right whatever in the property ordered to be sold is a nullity so far as the true owner (not made a party to that suit) is concerned, unless the case

is governed by the doctrine of lispendens which cannot affect the Court or the Receiver. The sale held in execution of such a futile decree stands in

no better footing than the decree itself.

The appellants defence was therefore rightly rejected by the Lower Appellate court and this Second Appeal fails with costs payable by the

appellant.

Spencer, J.

The appellant sold a house to one Kasipathy Aiyar on June 12th 1914. For the unpaid portion of the purchase money he instituted a suit on

March 22nd 1916 and obtained a decree on July 11th 1916 establishing his vendor''s lien over the house. Kasipathy Iyer applied on November,

19th 1915 to be adjudicated insolvent. An adjudication was made on February 29th 1916, and on July 15th an order was passed by the

Insolvency Court vesting the insolvent''s property in the Official Receiver. The Official Receiver sold this item of property to the respondent on

17th August 1916. The appellant executed his decree and purchased the property himself on December 22nd 1916.

The question that has to be decided on these facts is what title the respondent got by virtue of his purchase from the Receiver who was not a

party to the appellant''s suit.

It seems clear that in respect of properties which are subject to a mortgage or charge what vests in the Official Receiver upon an adjudication of

insolvency and the making of a vesting order is the insolvent''s equity of redemption which at the time constitutes the ""whole of the property of the

insolvent"" in such items. This is the consequence of clause 5 of Section 16 of the Provincial Insolvency Act III of 1907 which preserves the rights

of secured creditors, without affecting the Official Receiver''s power to administer encumbered estates,

But during the pendency of insolvency proceedings no creditor has any remedy against the property of the insolvent or may commence any suit

without the leave of the court (vide Section 16(2b) of the Provincial insolvency Act.) Insolvency proceedings commenced in this case with the

presentation of the debtor''s petition on 19th November 1915. The suit commenced on March 22nd 1916 was irregular, and the decree and

subsequent execution proceedings to which the Receiver was not a party did not bind him. The debt due to the appellant was provable under the

Act, and thus he cannot claim immunity from the provisions of Section 16 of the Provincial Insolvency, Act. Even the debts due to secured

creditors may be proved u/s 31 of the Provincial Insolvency Act, The appellant having only an equitable right under the provisions of Section 55(4)

(b) Transfer of Property Act to recover the purchase money from the property that he had sold did not obtain the status of a secured creditor until

his right was declared by a decree of Court. The decree that he obtained cannot be pleaded in defence to a claim made by the Official Receiver or

the assignee from him. As pointed out in Puninthavelu Mudaliar v. Bhashyam Ayyangar ILR (1907) Mad. 406. The Ufficial Assignee or Receiver

is not affected by the doctrine of lis pendens and a party seeking to bind him by the result of the suit must apply to have him joined as a party to the

suit under Order 22, Rule 10 of the Code of Civil Procedure. ''Now the appellant''s remedy to obtain personal payment of unpaid purchase money

is timebarred under Article 111, Limitation Act. The lien that he had sould not in any case prevail against the title of a bona fide purchaser without

notice.

The District Judge was therefore right in his view that the Respondent''s title is not affected by proceedings taken by the appellant behind the

back of the Official Receiver.

The Second Appeal fails and must be dismissed with costs.