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293 paragraphs · 6,735 wordsVenkatasubba Rao, J.—The question we have to decide relates to the scope and effect: of Section 37 of the Provincial Insolvency Act (V
of 1920). I shall briefly state the facts. Periakaruppan (the respondent before us) obtained a decree against Marappa (the insolvent). He then
attached the latter''s properties and brought them to sale. They were sold by the Court on 24th July, 1923, and a sum of about Rs. 3,000 was
realised. In the meantime, Somasundaram (the petitioner before its), acting by his agent Maruda Pillai, presented on the 30th of June, 1923, an
insolvency petition against Marappa, who, thereupon, was adjudged an insolvent on 6th October, 1923. The Insolvency Court under Sections 51
and 52 of the Act directed the proceeds of the sale to be delivered to the Official Receiver. Periakaruppan, whose rights were thus affected by the
order of adjudication, filed an appeal against it to the High Court. Being advised that the more proper course was to apply to the Insolvency Court
itself to annul his debtor''s adjudication he subsequently on 9th March, 1926, withdrew his appeal. Thereupon, he presented a petition to the
Insolvency Court for annulling the adjudication of Marappa. He applied on two grounds, first, u/s 35 alleging that Marappa ought not to have been
adjudged insolvent, as Maruda Pillai was not Somasundaram''s authorised agent; secondly u/s 43, on the ground, that the debtor had not applied
for his discharge, within the period specified in the order of adjudication. The learned Subordinate Judge, acting u/s 43, annulled the adjudication.
It may be useful to note how this order came to be made. That the adjudication was liable to be annulled u/s 43 was admitted before the Judge'' by
all the parties concerned. Periakaruppan then appears to have restricted his application, to the ground mentioned in that section. The Court
specially noted in its order:
On this ground alone, the adjudication has to be annulled.
There can be no doubt, therefore, that we must proceed upon the footing that the order of annulment was made u/s 43. As a part of the same
order, the Judge directed, u/s 37, the assets of the insolvent to vest in the Official Receiver for being distributed among his creditors. It is with this
part of the order that we are concerned. Periakaruppan, being again disappointed, filed an appeal to the Lower Court. The learned District Judge
observing that the order u/s 37 vesting the insolvent''s property in the Official Receiver was rightly made, differed from the first Court in regard to
the meaning and effect of that order. The District Judge observed:
It appears to me that the assets of the insolvent, after an order of adjudication u/s 37, vest in the Official Receiver merely as a trustee. The Official
Receiver as it seems to me must merely hold those assets until the insolvent or some other person proves his right to receive them.
In the result, the District Judge modified the order of the first Court by expunging the direction to the Official Receiver to distribute the debtor''s
assets amongst his creditors.
Somasundaram has filed this Civil Revision Petition attacking the order of the District Judge. Periakaruppan, as may be expected, supports the
order, as it revives his right to receive the sale proceeds unaffected by the proceedings in insolvency. The question is, which of the two views is
correct?
Section 37 corresponds to an English rule which has been in force at least since the Bankruptcy Act of 1869. To deal with the point raised, one
may, therefore, usefully turn to an English section, its history and its interpretation by the English Courts. There were three sections that dealt with
annulment of adjudication in the Bankruptcy Act of 1869. Section 28 related to annulments consequent on compositions or schemes of settlement.
Section 84 referred to orders of annulment to be made on failure of creditors to appoint trustees. Then there was Section 81, the important one,
which ran thus:
Whenever any adjudication in bankruptcy is. annulled all sales and dispositions of property and payments duly made, and all acts theretofore done,
by the trustee or by any person acting under his authority, or by the Court, shall be valid, but the property of the debtor who was adjudged a
bankrupt shall in such case vest in such person as the Court may appoint, or in default of any Such appointment revert to the bankrupt for all his
estate or interest therein upon such terms and subject to such conditions, if any, as the Court may declare by order.
The Act of 1869 was repealed in toto by the Act of 1883. To that there is no special need to advert, as, in this respect, its provisions answered
to those in the latter Act of 1914, which repealed and re-enacted the previous statutes. This Act contains two sections in regard to an annulment of
a bankruptcy. Section 21 (corresponding to Section 23 of the Act of 1883) says that on the Court approving a composition or scheme, it may
make an order annulling the bankruptcy. This resembles the procedure u/s 28 of the Act of 1869; but it is to be observed that the power given to
the Court u/s 81 of that Act. is in express terms applied under the present Act to compositions or schemes; for Clause (2) of Section 21 runs thus:
If the Court approves the composition or scheme, it may make an order annulling the bankruptcy and vesting the property of the bankrupt in him
or any such other person as the Court may appoint, on such terms, and subject to such conditions, if any, as the Court may declare.
The next section that deals with annulment is Section 29 (answering to Section 35 of the Act of 1883). It gives power to the Court to annul a
bankruptcy, where a debtor ought not to have been adjudged bankrupt, or where it is proved that his debts are paid in full. Under the Act of
1869, such express power had not been conferred on the Court, but it was nevertheless held that it could at any time for good reasons annul any
bankruptcy in which an adjudication had been made. (Bacon, C.J., in Ex parte Ashworth (1874) L.R. 18 Eq. 705. It may be noted that in this
case, as u/s 21, the power conferred on the Court by Section 81 of the Act of 1869 was expressly applied under this Act to annulments made u/s
Clause (2) of that section runs thus:
Where an adjudication is annulled under this section, all sales and dispositions of property and payments duly made, and all acts theretofore done,
by the Official Receiver, trustee, or other person acting under their authority, or by the Court, shall be valid, but the property, of the debtor who
was adjudged bankrupt shall vest in such person as the Court may appoint, or, in default of any such appointment, revert to the debtor for all his
estate or interest therein on such terms and subject to such conditions, if any, as the Court may declare by order.
To sum up, under the Act of 1869, an adjudication may be annulled under Sections 28 and 84 of that Act, also under the general power
referred to by Bacon, C.J., in Ex parte Ashworth (1874) L.R. 18 Eq. 705 already cited. To every such annulment Section 81 of that Act applied
irrespective of the ground on which it was made. The Act of 1914 followed a different arrangement. Two sections in that Act dealt with annulments
and each of them contained a clause reproducing the terms of Section 81 of the earlier Act. It follows from what I have stated that, under the
English law, an order of annulment may either be absolute or conditional irrespective of the grounds on which the annulment is made. ,
In regard to the Indian legislation, it is unnecessary for my purpose to refer to the earlier Acts dealing with insolvency. I shall, therefore, proceed
at once to examine the relevant sections of the Act with which we are concerned (Act V of 1920).
There are four sections in the Act which refer to an annulment of adjudication:
(1) Section 35 which says that the Court shall annul the adjudication where a debtor ought not to have been adjudged insolvent or where his debts
have been paid in full (corresponding to Section 29 (1) of the English Act of 1914).
(2) Section 36 which gives the Court power to cancel one of several concurrent orders of adjudication.
(3) Section 39 which enacts that the order of adjudication shall be annulled on the Court approving a composition or scheme of arrangement
(answering to Section 21 (1) of the Bankruptcy Act).
(4) Section 43 which provides inter alia that if the debtor does not apply for an order of discharge within a certain stated period, the order of
adjudication shall be annulled.
Now it becomes necessary to carefully follow the arrangement of the sections in this Act. Sections 35, 36 and 37 form a group under the
heading ""Annulment of adjudication"". Section 37, the one with which we are immediately concerned, reads thus:
Where an adjudication is annulled, all sales and dispositions, of property and payments duly made, and all acts theretofore done, by the Court or
receiver, shall be valid; but, subject as aforesaid, 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 conditions (if any) as
the Court may, by order in writing, declare.
It need hardly be pointed out that every annulment made u/s 35 or Section 36"" attracts the consequence of Section 37. Then comes Section
39 under a different heading which also deals with annulments. The section, after providing that the order of adjudication shall be annulled, goes on
to say that the provisions of Section 37 shall apply. Similarly, Section 43, in yet another group, after saying that the order shall be annulled, adds:
The provisions of Section 37 shall apply accordingly.
What is the result?
To annulment of every kind, that is, irrespective of the ground on which it is made, Section 37 is applicable. The Indian law is thus not
dissimilar to the law in England. The grounds of annulment may somewhat vary under the two systems but the consequence are in effect identical.
It is further worthy of note that Section 39, which deals with approval of compositions, and Section 43 with failure to apply for discharge, both
refer in identical terms ''to the provisions of Section 37. I wish to lay stress on this point, for Section 43 marks a departure from the English law
and we cannot, therefore, look for guidance to English precedents; whereas Section 39, as I have already pointed out, has its counterpart in the
English Act and there are in consequence decisions of English Courts throwing light on the subject. Now then, what do the English cases establish?
The law is thus tersely stated by Williams in his book on Bankruptcy:
Although in cases where the annulment is on the ground that the adjudication ought never to have been made the Court will in all respects try to
remit the bankrupt to his original position, yet in cases where the annulment is, as it is u/s 21, after the Court has approved a scheme or
composition, a continuance of the bankruptcy in another form, the rights of and against bankrupt or the person in whom the bankrupt''s estate
becomes vested by the order of the Court in respect of that estate will remain as they were under the bankruptcy.--13th Ed., p. 135.
In other words, if the annulment u/s 39 of our Act is ""a continuance of the bankruptcy in another form"" it follows from my analysis of the
sections that the same description equally holds good in the case of annulments u/s 43. The contention of Mr. T.M. Kristinaswami Aiyar is, that
with an order of annulment, the proceedings in bankruptcy close. This is opposed to authority as I have shown in my judgment in Jethaji Peraji
Firm Vs. Tirupuramallu Krishnayya (dead) and Others, which the long argument of the learned Counsel has failed to convince me is wrong. In that
case I cited an observation of James, L.J., in Ex par to Lennard (1875) 45 L.J. (Bankruptcy) 49 to the effect that a certain order was made ""in
what continued to be a matter of bankruptcy"". Having regard to the facts of the present case, that is a very useful authority but I do not wish to
refer further to that ruling in this judgment. I may note in passing that the words quoted by me in Jethaji Peraji Firm Vs. Tirupuramallu Krishnayya
(dead) and Others, are to be found in Ex party Lennard (1875) 45 L.J. (Bankruptcy) 49. (The judgment of James, L.J., is somewhat differently
reported in In re, Chidley. In re Lennard (1875) L.R. 1 Ch. D. 177.)
West v. Baker (1875) L.R. 1 Ex. D. 44 points to the same conclusion. The question arose in this form: whether in a suit by a person in whom
the bankrupt''s estate was vested u/s 81 of the Act of 1869 the defendant could plead a set off for unliquidated damages which would have been
provable had the proceedings in bankruptcy continued. In giving effect to the plea, Cleass by, B., observes that the annulment of bankruptcy ""does
not take the matter out of the Bankruptcy Act so as to prevent the general rules of bankruptcy applying."" Pollock, B.s observations are even more
direct:
Before this Act there were two modes of proceeding open, either to go on under the bankruptcy, or to annul the proceedings altogether. Now,
however, there is an intermediate course by which the control of the Court , is retained, and the annulling of the bankruptcy only means that there
shall be no adjudication of bankruptcy in the ordinary way, but the proceedings, shall be moulded on the terms of the composition, under the
direction of the Court.
The question in each case is, is the annulment absolute and unconditional, or, is it made subject to stated terms? If absolute, the bankrupt is
remitted to his original position; if conditional, the bankruptcy continues in another form, according to the circumstances of the case.
In Flower v. Lyme Regis Corporation (1921) 1 K.B. 488 the Court having '' approved the composition, made an order annulling the
bankruptcy, but did not vest the property of the plaintiff in him or any other person, After the annulment) the plaintiff brought an action to recover a
sum of money and it was held that upon the order of annulment, the right re-vented in him arid he was entitled to sue for the amount. This case
shows by contrast as Mr. Sampath Aiyangar points out, that if the bankruptcy is unconditionally annulled, the insolvent is remitted back to his
original position.
Bailey v. Johnson (1872) L.R. 7 Ex. 263 also adopts the same test. Cockburn, C.J., points out that the Court of Bankruptcy in that case
imposed no condition. Therefore, the general provision of Section 81 of the Act of 1869 has its full effect, that is, it remits the bankrupt, the
moment his bankruptcy is annulled, to his original powers and rights in respect of his property. To the same group of cases belongs Crew v. Terry
(1877) L.R. 2 C.P.D. 403. The effect of the English authorities is thus clear and unambiguous on the point.
Now turning ""to the Indian cases, I have already referred to Jethaji Peraji Firm v. Krishnayya I.L.R.(1929) .M. 648 : 57 M.L.J. 11, decided
by a Bench, which follows and applies the view of the English Courts. Besides Thimmappa v. Devasi Harpal (1929) M.W.N. 22 (which is referred
to in Jethaji Peraji Firm v. Krishnayya I.L.R.(1929) .M. 648 : 57 M.L.J. 11) there are further cases which lend support to the petitioner''s
contention. In each of them, it is expressly stated that the object of making an order u/s 37 is to protect the interests of the creditors. See Roop
Narain v. Messrs. King King & Co. AIR 1926 Lah. 370 Shop Idan v. Bahadur Chand AIR 1927 Lah. 914 and Bagi Ram v. Chanan Mal AIR
1928 Lah. 453. The last mentioned case is a clear authority in favour of the petitioner. It decides that when an order is made vesting the property
in a receiver u/s 37 he has the power to sell it and distribute the proceeds proportionately amongst the creditors. This is the very opposite of what
the respondent maintains. The only case which supports his contention is Arunagiri v. Official Receiver of North Arcot (1926) M.W.N. 950. In
that, there is no discussion of the cases or the points involved; and the distinction is ignored between unconditional annulments and those made
subject to stated terms. With very great respect, I feel constrained to dissent from that decision, which, in my opinion, is opposed to all authority,
both English and Indian. It is of course open to a Court to make an unconditional order of annulment. But, if, on the contrary, it makes an order
vesting the property in some person, how can it possibly be contended that the vesting is for the benefit of the insolvent himself ? That is negatived
by the very order, for, if it is intended to benefit the bankrupt, the Court unconditionally restored the property to him. The respondent''s contention
leads to an obvious anomaly. Suppose that, while annulling the adjudication, the Court as in Jethaji Peraji Firm Vs. Tirupuramallu Krishnayya
(dead) and Others, makes an order vesting the property in the receiver and ,"" direct him to proceed with a petition then pending (under Section 53
or Section 54), is it to be inferred that the Court took this precaution for benefiting the debtor and enabling him to dispose of the same property
over again in fraud of his creditors ?
I reverse the order of the Lower Court and allow the petition with costs.
Madhavan Nair, J.
The facts of this revision petition are briefly these:--The respondent, one Periakaruppan Chetty, obtained a decree in O.S. No. 1991 of 1921
on the file of the Tiruppur District Munsif''s Court against one Marappa Goundan for Rs. 2,300 with interest and, in execution of that decree, the
properties of the judgment-debtor were attached and sold on the 24th July, 1923. A sum of Rs. 3,387-2-0 was realised by the sale. Meanwhile,
on 30th June, 1923, a petition to adjudicate the judgment-debtor as an insolvent, I.P. No. 61 of 1923, had been filed by the appellant through his
agent, and he was adjudicated as an insolvent on 6th October, 1923. Consequent on the insolvency proceedings the money realised in execution
and which was not allowed to be taken away by the respondent was transferred to the jurisdiction of the Insolvency Court and became vested in
the Official Receiver. The respondent preferred an appeal to the High Court--C.M.A. No. 108 of 1924--against the order adjudicating the
judgment-debtor as an insolvent ; that was withdrawn on 9th March, 1926, and he afterwards presented on 25th February, 1927, I.A. No. 115 of
1927, in the Court of the District Judge of Coimbatore under Sections 35 and 43 of Act V of 1920 to annul the order of adjudication. By this
date, the time granted to the insolvent for obtaining an order of discharge had long gone by; before annulling the order of adjudication for this
reason, the learned Subordinate Judge requested the Official Receiver to submit a report regarding the administration of the insolvent''s estate. He
reported that ""but for I.A. No. 115 of 1927 which was then pending a dividend would have been distributed long ago"" and in his opinion the action
of the respondent in filing that petition was to secure a benefit to himself exclusive of other creditors. To avoid this result the Official Receiver
requested the Court that ""orders may be passed u/s 37 of the Act. annulling the adjudication by directing the Official Receiver to make a
distribution."" On the ground that the insolvent had not applled for discharge within the time specified in the order of adjudication the learned
Subordinate Judge annulled his adjudication u/s 43 of the Act and in conformity with the request of the Official Receiver passed an order u/s 37
directing that the proceeds of the sale effected by the Official Receiver before this date will vest in the Official Receiver who will distribute the
assets among the creditors entitled thereto. I may here mention that this order, if strictly construed, will not include within its operation the amount
realised in execution of the respondent''s decree as the sale under which it was realised was not effected by die Official Receiver; but throughout
the proceedings the order has been understood to apply to this amount also; this has not been denied before us, and the case has been ""argued on
this basis. The respondent preferred an appeal against that order to the District Judge (C.M.A. No. 73 of 1928) taking exception to the direction
to the Official Receiver to distribute the assets in his hands to the creditors. The learned District Judge upheld his objection and modified the
Subordinate Judge''s order ""by expunging the direction to the Official Receiver to distribute the assets of the insolvent amongst his creditors.
The reasoning of the learned District Judge may be stated in his own words:
There can be no objection to his ordering that the assets should vest in the Official Receiver. But I must agree with the contention of the learned
pleader for the respondent that Section 37 does not give an Insolvency Court power to direct the Official Receiver to go on with the distribution of
the assets among the creditors as if the insolvency proceedings were still going on...It appears to me that the assets of the insolvent after an order
u/s 37 vest in the Official Receiver merely as a trustee. The Official Receiver, as it seems to me, must merely hold these assets until the insolvent or
some other person proves his right to receive them.
This Civil Revision Petition is directed against the above order of the learned District Judge. Under this order the respondent''s rights as
execution creditor against the insolvent will survive to him, which obviously will not be the case if the order of the Subordinate Judge is upheld.
It is contended on behalf of the appellant, the petitioning creditor, that the learned Subordinate Judge has ample jurisdiction u/s 37 of Act V of
1920 to pass a conditional order vesting the assets of the insolvent in the hands of the Official Receiver for the benefit of the creditors, that an
order annulling the adjudication does not necessarily put an, end to the jurisdiction of the Insolvency Court to deal with the insolvent''s assets and
that the order which the learned Subordinate Judge has passed in this case is justified both under the terms of Section 37 of the Act and under the
decisions of this and other Courts including decisions under the English Bankruptcy Act. On the other hand the respondent contends that an order
of annulment ipso facto puts an end to insolvency proceedings and that the only jurisdiction which the Insolvency Court has u/s 37 to pass a vesting
order is to pass such an order simply vesting the property of the insolvent in a Receiver or some other person appointed by the Court merely as a
trustee as held by the learned District Judge. We have now to examine which of these contentions should be accepted.
I shall first deal with the appellant''s argument based on the terms of Section 37 of the Act. Clause (1) of Section 37 runs as follows:
Where an adjudication is annulled, all sales and dispositions of property and payments duly made, and all acts theretofore done, by the Court (or
receiver, shall be valid; but, subject as aforesaid, 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 conditions (if any) as
the Court may, by order in writing, declare.
We are concerned only with the latter part of the section. Under this section when an adjudication is annulled the Insolvency Court has
jurisdiction to pass two kinds of orders regarding the property of the insolvent. It may pass an order vesting the property of the insolvent in such
person as the Court may appoint or it may pass an order which will have the effect of reverting the property to the debtor on such conditions (if
any) which it may by order in writing declare. If at the time of annulment no vesting order, is made by the Court or conditions be imposed, the
bankrupt is, subject to any prior disposition made by the trustee, remitted to his original position with regard to his rights over the property- (see
Bailey v. Johnson (1872) L.R. 7 Ex. 263; see also Flower v. Lyme Regis Corporation (1921) 1 K.B. 488 . The second kind of order that may be
passed under the section is obviously one to the advantage of the debtor and if the Court''s intention is to benefit the debtor it will be evident that
the order which the Court will pass u/s 37 will be one of this description. An order of this kind has not been passed in the present case. It will
follow from this reasoning that the other kind of order which the Court may pass, that is, an order vesting the property of the debtor in some
person appointed by the Court can only be an order in favour of the creditors, for there is no point in passing an order in favour of the debtor
under this part of the section when clearly an order of that description can be passed, as I have pointed out, under the second kind of order
contemplated by the section. The antithesis between the two kinds of orders that may be passed under the latter part of Section 37 clearly shows
that the Legislature, when it gave the Court power to make an order vesting the property of the debtor in a person appointed by it, intended that
the assets of the debtor should be administered by such a person in favour of the creditors. It is, therefore, clear, apart from the question whether
in spite of the annulment, insolvency proceedings continue or not, that under the terms of Section 37 (1), when the Court annuls the adjudication it
has ample jurisdiction to make an order vesting the property of the insolvent in the hands of the receiver or any other person for distributing the
assets in favour of the creditors. In this view no exception can be taken to the direction to the Official Receiver to distribute the assets in his hands
to the creditors contained in the order of the learned Subordinate Judge.
The same conclusion can be based on a less narrow ground. I think Section 37 is based on the broad principle that though the annulment of
insolvency puts an end to the insolvency proceedings against the insolvent, the Court should be held still to have jurisdiction over the insolvent''s
assets to pass the necessary orders in favour of the creditors as otherwise the insolvent will be benefited to the detriment of the creditors which is
unjust. ""The jurisdiction (of the Court) after the order to annul"" is thus stated in Robson''s Law of Bankruptcy (7th Edn., pages 675 and 676):
After the bankruptcy is annulled the authority of the Court will survive so far as may be necessary to complete the acts which were incomplete at
the date of the annulment order and to complete justice. So also the Court has jurisdiction over the proceedings notwithstanding the annulment of
bankruptcy.
Under the Provincial Insolvency Act annulment may be ordered under four sections, Sections 35, 36, 39 and 43. Stated concisely, Section 35
deals with the annulment where a debtor should not have been adjudicated insolvent or where it is proved that the debts of the insolvent have been
paid in full; Section 36 deals with the power of the Court to cancel one of concurrent orders of adjudication; Section 39 deals with annulment as a
result of a composition or a scheme of arrangement approved by the Court, and Section 43 deals with annulment on failure to apply for discharge.
Annulment u/s 43 with which we are concerned in this case is peculiar to the Act V of 1920. It finds no parallel either in the English Bankruptcy
Act or in the Presidency Towns Insolvency Act. It is intended as a punishment to the debtor for failure to apply for discharge within the stipulated
time. Section 37 applies generally to all the kinds of annulment under the Act. Orders annulling adjudication u/s 43 have been treated as standing
on the same footing as orders u/s 39- In Thimmappa v. Devasi Harpal (1929) M.W.N. 22 it was held that where an adjudication of insolvency has
been annulled u/s 39 of the Provincial Insolvency Act by the Court approving a scheme of composition
it does not put an end to the insolvency proceedings though it puts an end to the insolvent''s state of insolvency"" per Wallace, J.
It was accordingly decided in that case that a creditor entered in the insolvency schedule may prove his debt even after the annulment of
adjudication u/s 39 and that the Insolvency Court has jurisdiction to enforce any payment it may order to be made to such creditor under; the
scheme of composition even after the annulment. This decision was followed and the principle enunciated in it was applied in the case of annulment
order passed u/s 43 of the , Act in Jethaji Peraji Firm Vs. Tirupuramallu Krishnayya (dead) and Others, decided by my learned brother and Reilly,
J. It was held that in that case that on an annulment u/s 43 of the Provincial Insolvency Act owing to the insolvent''s failure to apply for his
discharge the insolvency proceedings did not necessarily come to an end and his property did not ipso facto revert to the insolvent and that the
Court might in proper cases vest it in the Official Receiver or other person as provided by section ''37 of the Act. That the Court has jurisdiction to
make an order u/s 37 vesting the property of the debtor in a receiver for the purpose of realisation and distribution amongst his creditors was
conceded in that case and this is specifically referred to by both the learned Judges. Decisions of the Lahore High Court (see Roop Narain v. King
King & Co. AIR 1926 Lah. 370 and Shop Idan Lichmi Narain v. Bahadur Chand AIR 1927 Lah. 914, cases of annulment u/s 43 and Bagi Ram
v. Chanan Mal AIR 1928 Lah. 453 annulment u/s 39) also show that when annulment orders are made under Sections 39 and 43 of the Act the
Courts have jurisdiction u/s 37 to pass orders vesting the property in a person appointed by the Court for the purpose of protecting the interest of
the creditors which is precisely what has been done in this case. The first one of these decisions is referred to in Tirumala Reddi Chinnappa Reddi
v. Kolakula Thomasu Reddi (1927) 54 M.L.J. 344 (also a case of annulment u/s 43) in ""which it is generally stated that the annulment of
adjudication does not necessarily revert the property in the debtor as the Court can u/s 37 give directions in whom the property should vest
pending further orders.
In re Chidley. In re Leonard (1875) L.R. 1 Ch. D. 177 (a case under the English Bankruptcy Act of 1869), as the head-note shows, a trader
was. adjudicated bankrupt, on the petition of a creditor who was, under an execution, in possession of chattels belonging to the trader. Under
order of the Court, the bankruptcy was afterwards annulled, and the property of the debtor was assigned by him to the same person who was
trustee in the bankruptcy, on trust to secure payment of a composition which the majority of the creditors had agreed to accept. The execution
creditor then threatened to proceed with his execution. It was held that as the assignment had been made and the composition had been accepted
with the approval of the Court the Court retained jurisdiction over the execution creditor though the bankruptcy had been annulled and that the
chattels were vested in the trustee discharged from the execution and that the creditor ought to be restrained from proceeding- with the execution.
The case shows (see Williams'' Bankruptcy Practice, page 101) that ""the passing of a composition resolution u/s 28, corresponding to Section 39
of the Provincial Insolvency Act even when accompanied by an order annulling the adjudication, did not, at all events in cases where provision was
made for the vesting of the bankrupt''s estate for the security of the creditors, alter the rights of secured creditors, or determine the jurisdiction of
the Court of Bankruptcy to protect the estate from creditors previously bound by the bankruptcy. This case completely sup-, ports the contention
of the appellant and was the basis of the decision on this point in Jethaji Peraji Firm v. Krishnayya (1929) ILR 52 M. 648 : 57 M.L.J. 116 already
referred to. Upon a similar principle it was decided in West v. Baker (1875) L.R. 1 Ex. D. 44 that when bankruptcy was annulled as a result . of
the composition u/s 28 of the Act of 1869 and the bankrupt''s estate was vested in a person named by the order of the Court such person took the
property ""subject to the right to set off debts which would have been provable in bankruptcy-'''' These decisions are authorities for the proposition
that ""in cases where the annulment is, as it is u/s 21"" (of, the Bankruptcy Act, 1914, corresponding to Section 28 of the Act of 1869 and Section
39 of the Provincial Insolvency Act) ""after the Court has approved a scheme or composition, a continuance of the bankruptcy in another: form, the
rights of and against the bankrupt of the person in whom the bankrupt''s estate becomes vested by the order of the Court in respect of that '' estate
will remain as they were under the bankruptcy"". (See Williams'' Bankruptcy Practice, page 135.) As already pointed out under the Indian Act
annulment orders under Sections 43. and 39 stand on the same footing. If annulment u/s 39 is to be considered as ""a continuance of bankruptcy in
another form"" then it follows that the same may be said about annulment orders u/s 43. Applying the principle laid down in the English decisions it
must be held that Courts in India have jurisdiction u/s 37 to pass orders vesting the insolvent''s property in the hands of the receiver for the
protection of the creditors.
Amongst the cases quoted by the respondent in support of his argument that the Court u/s 37 has no jurisdiction to pass an order of the kind in
question, only two deserve any notice, namely, Crew v. Terry (1877) L.R. 2 C.P.D. 403 and the decision of this Court by Deyadoss and
Sundaram Chetty, JJ., in Arunagiri v. Official Receiver of North Arcot (1926) M.W.N. 950. In the former case the bankruptcy was annulled upon
the acceptance of a composition on ""the debts proved and admitted in the bankruptcy"" and it was resolved that the property of the bankrupt
should be handed back to him. It was held that an execution creditor who had neither assented to the composition nor proved under the
bankruptcy could levy execution on the property of the debtor which had reverted to him on annulment. In the headnote of this case it is put as a
quaere:
Whether the seizure after the annulment would have been lawful if the composition had not been confined to ''the debts proved and admitted in the
bankruptcy'' and had extended to any debts provable under the bankruptcy.
At first sight this case may appear to support the respondent; but when the facts are examined it will be seen that it does not lay down any
principle inconsistent with the principle of the decisions already referred to. It may be observed that when the bankruptcy was annulled in this case
the property was handed over to the bankrupt without any condition. This feature distinguished this case from the decision in Re Chidley, Re
Lennard (1875) L.R. 1 Ch. D. 177. This distinction is thus referred to by Denman, J.:
The case of In re Chidley (1875) L.R. 1 Ch. D. 177 which was relied upon for the plaintiff, appears to me to be no authority in favour of his
contention; for, that was a case in which the resolution upon annulment was not to ''hand back'' the property to the bankrupt, but to vest it in a new
trustee for the benefit of the creditors whose duty it was to see the terms of the composition- carried out; whereas, in the present case, the
property was to be at once handed back to the bankrupt immediately on the confirmation of the scheme, and the creditors who assented to the
composition agreed that the adjudication should be annulled forthwith on the promissory notes for the composition and a certain sum for costs
being paid into the hands of the new trustees under the composition.
Another noticeable feature of the case is this: that the composition and scheme had been entirely confined to debts ""proved and admitted in the
bankruptcy."" Adverting to this feature the learned Judge observes:
It is not necessary to decide how far the execution creditors here might have been bound if the composition and scheme had not been entirely
confined to debts proved and admitted in the bankruptcy.
In this connection attention may be drawn to the following note which appears in Mr. Williams'' book on this case:
It may be doubted whether under the present Act it would be held, even in the absence of an express vesting order framed to secure the payment
of the composition, that composition accompanied with annulment of bankruptcy, would remit any creditor to his rights prior to the adjudication as
was held to be the case in Crew v. Terry (1877) L.R. 2 C.P.D. 403 especially as this section in terms contemplates in some cases a readjudication
after the acceptance of the composition, which Section 28 did not.(See page 101.)
The decision in Arunagiri v. Official Receiver of North Arcot (1926) M.W.N. 950 is a case exactly in point and supports the respondent
completely. It was held in that case that ""when an order of adjudication has been annulled, the property of the person who was sought to be
adjudicated cannot be distributed by the Official Receiver amongst the creditors. It mast remain in his hands for the benefit of the proposed
insolvent debtor."" The judgment is a short one and it does not discuss the question with reference to the decisions having a bearing on the point. It
has not been referred to either in Thimmappa v. Devasi Harpal (1929) M.W.N. 22 or Jethaji Peraji Firm Vs. Tirupuramallu Krishnayya (dead)
and Others, . With due respect to the learned Judges, I am not able to follow this decision.
In these circumstances both on principle and on authority I think the order of the learned District Judge expunging the direction to the Official
Receiver to distribute the assets in his hands amongst the creditors contained in the order of the learned Subordinate Judge should be set aside.
The Civil Revision Petition is allowed with costs.