N. Muthusami Chettiar vs Periyal Achi and Another

Wadsworth, J.—The petitioner was the first defendant in a suit for recovery of money collected by the first defendant as a result of a decree

which is alleged to be the property of the plaintiff''s husband. The facts are rather peculiar. The decree in question was transferred from a third

party to the name of the first defendant and it is alleged that the real owner was the plaintiff''s husband who is now dead. The plaintiff''s husband

was adjudged an insolvent in 1930. He died in June, 1934, at or about the time when the first defendant effected a sale of the properties acquired

in execution of the decree in question. It would appear that at the time of his death the plaintiff''s husband had failed to carry out the Court''s orders

in prosecution of his insolvency and had not applied for a discharge. It would also appear that the debts due to creditors in the insolvency were the

subject of an extra judicial composition. In June, 1937, the plaintiff, widow of the deceased insolvent sued the first defendant for the sale proceeds

of the property, acquired under the decree which she asserts forms part of her husband''s estate. She impleaded in her suit the Official Receiver

and alleged that the Official Receiver had taken no action to get possession of this money for the estate. At the time when she filed this suit, she

was taking steps for the annulment of the adjudication of her husband but she does not in her plaint specifically pray that the money claimed in the

suit should be made payable to the Official Receiver. She claims it for herself, possibly anticipating that the annulment of the adjudication would

intervene before the suit was decreed. The adjudication was eventually annulled in an appellate order of the District Judge. At the time of the

annulment the suit was barred as regards one item but was still within time as regards the other item. The learned District Judge annulled the

adjudication knowing of the extra judicial composition since, having regard to the death of the insolvent and all the circumstances, he thought it

unnecessary to endeavour to undo this composition.

A preliminary issue was framed in the suit on the question whether the suit was maintainable when the plaintiff''s husband''s estate had vested in

the Official Receiver. Ordinarily this Court will not entertain revision petitions against decisions on issues which are not decisions of the whole suit,

but in the circumstances of the present case it seems to me that the matter should be decided in revision. It essentially relates to the jurisdiction of

the Court to entertain the suit and it relates to a matter which, if decided wrongly in favour of the plaintiff, may result in an elaborate trial which

would otherwise be unnecessary.

The question is by no means free from difficulty. Ordinarily speaking the provisions of Section 43, Provincial Insolvency Act, regarding the

annulment of an adjudication for the default of the debtor will scarcely apply to the estate of a dead man, and one would think that the proper

order to pass would be one u/s 17, merely terminating the administration; the debtor being dead and no further administration being necessary in

the interests of the estate. However, it does appear in this case that before the death of the insolvent there was a default from which annulment

would normally result. I am not therefore prepared to say that the annulment order was improper. In any case we are not now concerned with its

correctness, ft has been made and is binding.

What is the effect of a subsequent annulment order upon a suit filed by the legal representative of a deceased insolvent impleading the Official

Receiver, which suit should strictly have been filed by the Official Receiver himself? There is no clear authority on the subject. The Court below

relies on a decision in Bhyradevanhalli Lingappa Vs. Official Receiver, , which itself is rather an unusual case. It purports to follow Ramasami

Kottadiar and Others Vs. Murugesa Madali and Others, and to decide that the effect of the dismissal of an insolvency petition is to revest the

debtor''s property in the debtor as from the date of the order of adjudication, so that a transfer by the insolvent made after his adjudication and

before the order of dismissal would be a good transfer upon which the transferee can sue. The case in Ramasami Kottadiar and Others Vs.

Murugesa Madali and Others, , was a case under the old Act which had no provision for the annulment of adjudication for the default of the

insolvent. The case in Bhyradevanhalli Lingappa Vs. Official Receiver, , which the learned Chief Justice was considering was under the Act of

1920 and presumably the order terminating the insolvency must have been in effect one of annulment, though the word ''dismissal'' is used in the

judgment. I have examined the papers in that case and find that they contain very little information. It arose from a suit filed originally by the

transferee from the insolvent, who impleaded the Official Receiver as a co-plaintiff apparently after the suit had become barred by limitation. The

trial Court overlooking the difficulty of limitation gave a decree in favour of the Official Receiver. The defendant filed a revision petition raising the

question, of limitation. The learned Chief Justice called for a report from the District Judge and as a result of what was contained in the report,

ascertained that the original adjudication was an ex parte order, subsequently reconsidered on the intervention of the insolvent with the result that

the petition was dismissed. One would have thought that the order should have been one not of dismissal but of annulment u/s 35 of the Act and it

must be regarded as having the same effect. The learned Chief Justice holds that the decisions in Ramasami Kottadiar and Others Vs. Murugesa

Madali and Others, , is authority for the position that the effect of an order setting ''aside an adjudication is, subject to the protection of the receiver

for the acts done by him, to revest the debtor''s property in the debtor as from the date of the vesting order. The learned Chief Justice infers that if

the property is revested in the debtor as from the date of the vesting order, a transfer made by the debtor during the continuance of the insolvency

acquires a validity by the subsequent cancellation of the insolvency, so that the title of the transferee is good and sufficient to support a decree in his

favour. It is to be noted that this is not a case of a suit filed by an insolvent during the continuance of the insolvency but a case of a suit filed by a

transferee from an insolvent on the strength of a title alleged to have been created by the insolvent during the continuance of his insolvency.

There is no statutory prohibition of a suit by an insolvent during the continuance of his insolvency, but it seems to follow from the fact that all the

properties of the insolvent vest in the receiver, that the insolvent will during his insolvency have* no such title in any part of the estate vested in the

receiver as would form a basis for a suit regarding that property, and so much has been repeatedly held vide Subbaraya Chettiar v. Lakshmi

Ammal (1918) M.W.N. 289. If the insolvent cannot maintain a suit regarding the property vested in the Official Receiver so long as the insolvency

enures, it is difficult to see how the insolvent can take advantage of the Court''s delays in disposing of that suit so as to clothe a suit, which in its

inception was bad, with a validity due only to the subsequent annulment of the insolvency. If the insolvent or his legal representative had no right of

suit when the suit was filed, that suit should have been dismissed.

It is suggested that the action of the insolvent''s legal representative in impleading the Official Receiver as a defendant and disclosing to the Court

the full facts of the insolvency makes that suit substantially one on behalf of the estate. I find it difficult to accede to the proposition that the failure of

the Official Receiver to get in a particular property makes it open to the insolvent or any one else to file a suit which should legitimately have been

filed by the Official Receiver and give to that suit an appearance of regularity by impleading the Official Receiver as a defendant. The Act

specifically prohibits suits against an insolvent without the leave of the Court and it has been held that when a suit is filed without leave against the

insolvent during the pendency of the insolvency, a subsequent annulment of that insolvency does not give a retrospective validity to the suit vide

Ponnusami Chettiar Vs. Kaliaperumal Naicker, and this decision has been quoted with approval in a Full Bench decision reported in Davood

Mohideen Rowther Vs. Sahabdeen Sahib, . If the subsequent annulment of an insolvency does not take away the necessity for leave in respect of a

suit against an insolvent filed before the annulment, it is difficult to see how a subsequent annulment can give validity to a suit filed by an insolvent or

his legal representative during the pendency of the insolvency when the property vested in the Official Receiver.

Another argument which has been advanced is that the effect of Section 78, Provincial Insolvency Act, makes it clear that though an annulment

in one sense puts the insolvent back to the position which he occupied before the adjudication, it is not the intention of the legislature to give a

retrospective sanction to unauthorized suits filed in respect of the insolvents estate during the pendency of the abortive insolvency. Under this

section the whole of the period occupied by the abortive insolvency may be ignored for the purpose of limitation in respect of any suit which might

have been brought but for the order of adjudication. It is true that this section will not enure to the benefit of the insolvent himself, for a suit can be

brought by the. Official Receiver on behalf of the insolvent and the adjudication does not prevent the assertion of rights for or on behalf of the

insolvent. Still there is a suspension of limitation operating on behalf of the creditors who have proved their debts and it is clearly contemplated that

to this extent at any rate the legislature does not contemplate the filing of suits during an insolvency with a view of a prospective annulment, of the

adjudication. This is in fact what has happened in the present case. The plaintiff hoping to get the adjudication annulled has filed this suit at a time

when she had no vested interest in the estate presumably in order to save limitation.

I come to the conclusion that she had no legal basis for her suit at the time when it was filed. As however the suit was within time so far as the

second item is concerned when the adjudication was annulled the suit with reference to this item is maintainable. With reference to the first item the

suit will have to be dismissed on the ground that the plaintiff had no cause of action when the suit was filed, the property being vested in the Official

Receiver and the suit for this item being time barred before the adjudication was annulled. The petition is therefore allowed to this extent. The

petitioner will be entitled to three-fourths of his costs in revision.