Mukti Ram Marwari and Others vs Ganga Ram and Gulraj Ram and Others

Courtney-Terrell, C.J.—This is an appeal from the order of the District Judge of Monghyr, made upon the report of the receiver of the estate of an insolvent by which order two sales and delivery possession in execution of a decree obtained by two of the creditors was annulled. The appeal is in respect of one of the sales, by one of the other creditors. On 23rd April 1928 the judgment-debtor filed a petition for an adjudication of insolvency. On 25th August 1928 the appellant-creditor filed a petition of objection alleging that he (the appellant) had already instituted a suit for money due to him by the debtor and that the trial was pending. On 5th December the appellant obtained a money decree.

On 23rd March 1829 he applied for execution of the decree but did not apply for attachment of the property in question and asked for notice to issue under Order 21, Rule 66, Civil P.C. He did not ask for the issue of any notice to the receiver. On 6th April 1929 before the notice was served an order of adjudication was made and the notice under Order 21, R.66, was not effected until 23rd April, On 11th May the decree-holder deposited the publication costs and the proclamation of sale was issued. On 24th June 1929 the sale was held and the appellant decree-holder purchased the property. On 21st September the judgment-debtor u/s 52, Insolvency Act, gave notice to the executing Court of the insolvency proceedings and asked that the sale might not the confirmed.

The request of the judgment-debtor was refused and on 12th November the sale was confirmed. Throughout these proceedings the receiver had no notice. He got to know of the facts and tried to get the nazir of the executing Court to refrain from delivering possession but his request was refused by the nazir and delivery of possession to the appellant was duly carried out. The receiver reported to the Judge who by his order of 2nd February 1932 set aside the sale and delivery of possession. The appeal is from that order.

It is objected by the appellant that the order of the District Judge in insolvency was without jurisdiction and that the only remedy of the receiver and the other creditors was u/s 52, Provincial Insolvency Act, or to obtain from the receiver the proceeds of the sale u/s 51 for distribution among the creditors and that no such application had in fact been made to the executing Court. Reliance is also placed on Sub-section (3), Section 51 which states:

A person who in good faith purchases the property of a debtor under a sale in execution shall in all cases acquire a good title to it against the receiver.

It is argued that after confirmation of sale no Court, save on appeal from the order of confirmation, has power to set it aside. We were referred to the English case In re Trustee of the Woolford Estates v. Levy (1892) 1 QB 772 in support of this argument. This was an action by the trustee in bankruptcy against the sheriff for damages for having wrongfully sold the property of the bankrupt after he had notice of the bankruptcy proceedings. The sheriff was able to prove that the Official Receiver had written to him asking him to proceed with the sale and to account to him for the sale proceeds. In addition to this fact it was contended before us that in that case there was a further difference in, that the property of the debtor bad not at the time of the sale vested in the trustee who was appointed after the sale, but I am of opinion that this particular distinction is immaterial, for the learned Judges (Esher, M.R. and Fry, L.J.) proceeded upon the assumption that the property of the debtor had vested in the receiver, and overruled the argument that the sheriff had therefore sold the property of some one other than the debtor.

But they held that the sale was nevertheless good as against the trustee because the step''s open to the receiver were specified by Section 46 of the Act (corresponding to Section 52 of the Indian Act) which was the only limitation on the power of the sheriff who had not acted illegally and the sale was not illegal and had been conducted with the actual approval of the Official Receiver. Secondly there was no contention "and no facts in that case to justify a contention" that the proceedings by which the sheriff''s activities were set in motion were void ab initio. In the case before us however it is clear that both the judgment-debtor and the appellant were aware of the insolvency proceedings for they had been parties to such proceedings from the beginning.

The appellant set the executing Court in motion without giving any notice to the receiver under Order 21, Rule 22, Civil P.C., notwithstanding that the property of the debtor had vested in the receiver and his action was clearly prompted by an intention to obtain preferential treatment. Had the executing Court had notice of the order of the adjudication on 6th April 1931, it would have been bound u/s 29 to stay the sale. In the case of Raghunath Das v. Sundar Das Khetri AIR 1914 PC 129, it was held by the Privy Council that a sale without notice to the Official Assignee was a nullity and that the decree-holder purchasers (as in this case) had been responsible for the irregularity in procedure in not taking proper steps to bring the Official Assignee before the Court.

As to the argument that the insolvency Court had no power to annul the sale and delivery of possession there is direct authority to the contrary in the case of the Kochu Mahomed Asan Tharagan and Another Vs. Sankaralinga Mudaliar and Others, and the action of the Court is moreover in my opinion covered by Section 4, Insolvency Act. An analogous case is presented by Westbury v. Twigg & Go. (1892) 1 QB 77 in which it was held that if a company were being wound up either voluntarily or by the Court the Court would have power to stay proceedings in execution against the company, the intention of the legislature being that the assets of insolvent companies should be distributed equally among the creditors. The appellant who was himself the purchaser certainly cannot avail himself of any protection afforded by Sub-section (3), of Section 51, for his conduct has obviously been devoid of good faith.

In my opinion the order of the District Judge was right and this appeal should be dismissed. The contesting creditors are entitled to one set of costs and the Official Receiver is entitled to other.

Saunders, J.

I agree.