Nadiminti Satyanarayanamurthi vs Malluri Papayya and Another

This is an appeal from the order of the'' learned Subordinate Judge of Amalapuram dismissing an application by a transferee decree-holder

under Order 21, Rule 16 to recognise the transfer of the decree in his favour and to execute it against the judgment-debtor''s property. The decree

that was transferred was a decree for costs in favour of an undischarged insolvent. He obtained the decree after the order of adjudication under the

following circumstances. The order adjudging the transferor insolvent was passed in 1923. On a mortgage executed by him before the adjudication

a suit was instituted in 1927 being O.S. No. 1 of 1927 on the file of the Subordinate Judge''s Court, Amalapuram. An ex parte decree was passed

against him and he sought to set aside that decree. The learned Subordinate Judge who heard the application dismissed it on the ground that he had

no right to present the application because he was an undischarged insolvent and the right to redeem vested in the Official Receiver. Against the

said order an appeal was presented to the High Court. Their Lordships Reilly and Anantakrishna Aiyar, JJ., took the view that though the insolvent

was not a necessary party to the suit, yet as the plaintiff therein chose to make him a party, he was entitled to be heard on his petition to get costs

at least for having been unnecessarily impleaded. But since nothing would be gained by getting the suit heard, they did not go into the merits

whether he had sufficient reason for not appearing on the date of the trial and dismissed the appeal. They however directed the plaintiff to pay the

costs of the insolvent in the appeal and in the application out of which the said appeal arose. It was this decree for costs that was transferred in

favour of the appellant transferee decree-holder.

The ground on which the Subordinate Judge declined to recognise the transfer was that u/s 28 (4) of the Provincial Insolvency Act the decree

vested in the Official Receiver and the insolvent was not competent to transfer it. He followed a decision of this Court reported in Matam Lingayya

Vs. Anumala Venkatapathy and Others, . It was a decision of our learned brother Pandrang Row, J. In that case the insolvent succeeded to

certain property as reversioner subsequent to the date of the order of adjudication and before his discharge. He sold the property to the plaintiff in

that case who sued to recover possession on the strength of the said sale deed. The suit was dismissed on the ground that the property vested in

the Official Receiver and that the insolvent had no title to convey. It was contended before Pandrang Row, J., that the dismissal was improper on

the ground that inasmuch as the Official Receiver did not intervene, the insolvent had title to convey relying on the decision in Cohen v. Mitchell

(1890) 25 Q.B. 262 but the learned Judge took the view that the doctrine of Cohen v. Mitchell (1890) 25 Q.B. 262 did not apply to cases arising

u/s 28 (4) of the Provincial Insolvency Act and in coming to this conclusion he relied on the decision of the Privy Council in (1927) L.R. 54 I.A.

190 (Privy Council) . It is contended by Mr, Ramachandra Rao before us that this view is wrong, that the rule of English law as laid down in

Cohen v. Mitchell (1890) 25 Q.B. 262 namely:

Until the trustee intervenes all transactions by a bankrupt after his bankruptcy with any person dealing with him bona fide and for value, in respect

of his after-acquired property, whether with or without knowledge of the bankruptcy, are valid against the trustee,

has been applied to cases in India arising both under the Presidency Towns Insolvency Act and the Provincial Insolvency Act and if that rule is

given effect to, the transfer in favour of his client ought to be recognised. He relied also on a number of cases including the latest Full Bench

decision of this Court reported in Devulapalli Sabhanadri Sastrulu Vs. Dorbala Nagayya Sastry and Others, , with which we shall presently deal.

The question therefore is how far this contention'' is tenable. Section 28 (4) of the Provincial Insolvency Act runs thus;

All property which is acquired by or devolves on the insolvent after the date of an order of adjudication and before his discharge shall forthwith

vest in the Court or receiver.

Unfettered by authority and on the plain language of the section all property acquired by an insolvent subsequent to the date of adjudication and

before his discharge vests in the Official Receiver the moment the acquisition was made. The word ''forthwith'' in the section leaves no room for

any other interpretation. Section 28 (4) of the Provincial Insolvency Act (V of 1920) which governs this case is almost identical in language with

Section 16 (4) of the Provincial Insolvency Act (III of 1907). It runs thus:

All such property as may be acquired by or devolve on the insolvent after the date of an order of adjudication and before his discharge shall

forthwith vest in the Court or receiver.

Lord Salvesen in delivering the judgment of the Judicial Committee in (1927) L.R. 54 I.A. 190 (Privy Council) interpreted the section thus:

This provision is perfectly clear. The moment the inheritance devolved on the insolvent Amulya, who was still undischarged, it vested in the

Receiver already appointed and he alone was entitled to deal with the equity of redemption.

(The italics are ours). Later on he remarked thus:

The Court only acts through a Receiver, and any estate acquired by or devolving on an insolvent is vested in him as from the date of acquisition or

devolution whatever the date of the Receiver''s actual appointment.

The question in that case arose thus: There was a suit in January, 1915 for foreclosure instituted against one Tara Prasanna Bose whose son the

insolvent was. The suit was subsequent to the adjudication in insolvency, namely, 21st February; 1914. There was a compromise entered into

between Tara Prasanna Bose and the mortgagees and the deed of compromise was filed on the 6th March, 1915. Under the deed of compromise

time was given for the payment of the mortgage debt and in default of payment on the due date the mortgage was to be foreclosed. Before any

decree could be passed in terms of the compromise Tara Prasanna Bose died leaving the insolvent as his sole heir. Thus the equity of redemption

devolved by inheritance on the insolvent. The mortgagees brought the insolvent on record who ratified the compromise and obtained a preliminary

decree on the 15th March, 1916. The Official Receiver put in applications to set aside the decree but they were rejected and a final decree was

passed. Thereupon the Receiver instituted a suit to set aside the said decrees and for redemption. Their Lordships of the Privy Council held that he

was entitled to do so. After placing the above interpretation on Section 16 (4) of the Provincial Insolvency Act, 1907 their Lordships observed as

follows:

The latter alone (that is, the Official Receiver) is entitled to transact in regard to it and he and not the insolvent has the sole interest in the subject

matter of the suit. To him, therefore, must be given the opportunity of redeeming the property.

(The italics are ours).

Therefore this decision is absolutely clear on the point, viz. the property from the moment of its acquisition vests only in the Receiver and he is the

person having the sole interest therein competent to deal with it thus excluding the idea of. any property vesting in the insolvent at all and leaving no

scope for any theory of intervention. Since the decision in (1927) L.R. 54 I.A. 190 (Privy Council) the question was considered by both the

Bombay and Allahabad High Courts and they reached the same conclusion. In Girikant Shivlal v. Vadilal Vrijlal I.L.R.(1935) 60 Bom. 141

Beaumont, C. J., remarked:

Unless we disregard altogether, the word ''forthwith'' we cannot say that the property did not vest until the receivers intervened.

Wadia, J., who concurred with him observed that this view was confirmed by the said decision of the Privy Council. To a similar effect are the

observations of Sulaiman, C. J., in the Full Bench decision in Abdul Rahman v. Nihal Chand I.L.R.(1935) All. 132 (F.B.). The Lahore and

Rangoon High Courts have taken the same view and they rely on the plain language of the section (vide Diwan Chand v. Manak Chand I.L.R.

(1934) Lah. 392 and Ma Phaw v. Maung Ba Thaw I.L.R.(1926) Rang. 125). It must be noticed that though the Diwan Chand v. Manak Chand

I.L.R.(1934) Lah. 392 case was after the decision of the Privy Council, no reference was made to it. The preponderance of opinion is thus in

favour of the view that it is not permissible to invoke any doctrine of intervention in construing the plain language of Section 28 (4). Mr.

Ramachandra Rao contends that the Provincial Insolvency Act is based on the English Bankruptcy Act and that Section 28 (4) must be read in the

light of the English decisions and therefore subject to the rule laid down in Cohen v. Mitchell (1890) 25 Q.B. 262. He placed considerable reliance

on Kuppu Ramanatha Aiyar (dead) and Others Vs. Thoguluva S. Nagendra Aiyar, , and Jagadish Narain Singh v. Mussammat Ramsakal Kuer

I.L.R.(1928) Pat. 478 which applied the said rule. To test the soundness of this contention we think it necessary to briefly advert to the relevant

provisions of English law and to the cases based thereon. Cohen v. Mitchell (1890) 25 Q.B. 262 was decided under the English Bankruptcy Act

of 1883. The relevant provisions of the said Act are Sections 44 and 54. Portions of the said sections so far as material to the present case run

thus:

The property of the bankrupt divisible amongst his creditors, and in this Act referred to as the property of the bankrupt... shall comprise the

following particulars:

(i) All such property as may belong to or be vested in the bankrupt at the commencement of the bankruptcy or may be acquired by or devolve on

him before the discharge....

(1) Until a trustee is appointed the Official Receiver shall be the trustee for the purposes of this Act, and immediately on a debtor being

adjudged bankrupt, the property of the bankrupt shall vest in the trustee.

(2) On the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed.

In Cohen v. Mitchell (1890) 25 Q.B. 262 the facts were as follows. The bankrupt before he obtained his discharge was carrying on business in

buying and selling agricultural machines. He had a right of action for damages against a person who wrongfully took possession of some of the

machines. He sued the wrongdoer and obtained judgment for damages. After the action was commenced the bankrupt assigned his right of action

to the plaintiff. After the judgment was ,recovered the trustee in bankruptcy intervened and claimed to recover the amount. The question was

whether the plaintiff or the trustee was entitled to do so. The plaintiff was held entitled to recover. Lord Esher proceeded on the admission of the

counsel in the case and on prior authorities particularly Herbert v. Sayer (1844) 5 Q.B. 965 : 114 E.R. 1512 and Ex parte Dewhurst (1873) Law

Rep. 7 Ch. 185. Fry L. J., dealt with the provisions of the statute and remarked thus:

If one merely confined one''s attention to the words of the section, the reader might suppose that both those kinds of property vested absolutely in

the trustee--vested in him in precisely the same manner. But the inconvenience of such a conclusion has been apparent not only from the present

statute, but from many statutes which have preceded it, which contain substantially the same language.

After so remarking he observed that there was no difficulty in divesting out of the bankrupt and vesting in the trustee the whole of the property that

belonged to the bankrupt at the commencement of the bankruptcy but there was the greatest difficulty in supposing so with reference to the

subsequently-acquired property, but that difficulty had been met by establishing a distinction and recognising that in the case of subsequently-

acquired property it vests in the trustee absolutely from the moment of intervention and the bankrupt takes some kind of interest therein. He

followed Herbert v. Sayer (1844) 5 Q.B. 965 : 114 E.R. 1512. The decision in Cohen v. Mitchell (1890) 25 Q.B. 262 therefore proceeded

wholly on prior authority based as it was stated on substantially the same language of the Acts prior to the Bankruptcy Act of 1883. If one might

say with respect to the eminent Judges who dealt with the Bankruptcy enactments in England the language might afford scope for the above

interpretation based on the argument ab inconvenienti. But if the language is so-worded as to vest eo instanti the acquisition was made, it would not

be possible to apply this argument. And the effect of the language may well be to exclude the theory of intervention. This is clear from the following

observations of Tindal C.J., in Herbert v. Sayer (1844) 5 Q.B. 965 : 114 E.R. 1512 :

The effect of the statutory enactments may be, either to transfer immediately such property or contracts from the bankrupt to the assignees, vesting

the property in the bankrupt for an instant only, or to give the assignees the beneficial interest and to make the bankrupt acquire property or

contract for their benefit only, in the nature of an agent. The cases accord with the latter construction of the statute ; and it is most consistent with

convenience; for otherwise there would be no protection to persons dealing with an uncertificated bankrupt.

Let us now turn to the consideration of the language of Sections 44 and 54 of the English Bankruptcy Act of 1883. What Section 54 says is:

Immediately on a debtor being adjudged bankrupt the property of the bankrupt shall vest in the trustee.

The property of the bankrupt is defined in Section 44 (1) as including subsequently-acquired property. As Fry, L.J., pointed out in Cohen v.

Mitchell (1890) 25 Q.B. 262 there is no difficulty in the property existing on the date of the bankruptcy being divested out of the bankrupt and

vesting in the trustee immediately on a debtor being adjudged insolvent because it follows from the plain language of the section; but immediately on

the debtor being adjudged insolvent the future property cannot vest because the property has to be got or acquired and the word ""immediately

has prima facie reference to the moment of adjudication. Section 54 (2) only provides that as and when the trustee is appointed (vide Section 21 of

the same Act) the property will pass from the Receiver to the trustee. Thus it was possible to give effect to the argument based on inconvenience

and hardship. But the language of Section 28 (4) is explicit and unambiguous and to use the expression of Tindal, C.J., in Herbert v. Sayer (1844)

5 Q.B. 965 : 114 E.R. 1512 transfers immediately the property from the insolvent to the Official Receiver.

Though the rule as laid down in Herbert v. Sayer (1844) 5 Q.B. 965 : 114 E.R. 1512 and Cohen v. Mitchell (1890) 25 Q.B. 262 was wide

enough to cover realty and personalty and the reason of the rule might well apply to both, when the question arose as to subsequently-acquired

realty, Chitty, J., declined to apply it--In re New Land Development Association and Gray (1892) 2 Ch.138--and the decision of Chitty, J., was

followed in later cases until Parliament intervened and enacted Section 47 of the Bankruptcy Act of 1914. Thus the English law up to 1914 was

that in the case of realty the moment it was acquired it vested in the trustee, whereas in the case of personalty it did not vest in him until he

intervened. The reason assigned by Lindley, L.J., in the course of the argument for this distinction was ""the real estate passes by conveyance and

not by delivery."" Even if this is the basis of the rule, the decree in the present case requires a conveyance and the decree cannot therefore vest in

the insolvent.

There is no distinction between realty and personalty in Indian law; either the principle of simultaneous vesting or that of vesting being deferred

until intervention must apply to both.

We shall now briefly examine the insolvency law in India and see if the Legislature intended to incorporate the English rule and if so, how far it

has succeeded in doing so. Up to 1909 in Presidency Towns and Rangoon the law as to insolvency was governed by 11 and 12 Vict., Ch. XXI

and so far as the Provincial Insolvency Act is concerned, up to 1907 the law was regulated by the provisions contained in the various Civil

Procedure Codes enacted from time to time and they were very limited in scope. The provision relating to the vesting of property in 11 and 12

Vict, was Section 7 and the portion of the said section relevant for discussion ran thus:

All future estate, right, title, interest and trust of the said petitioner in or to any real or personal estate or effects...which may revert, be devised or

bequeathed or come to him ... do vest in the Official Assignee for the time being of the said Court.

Their Lordships of the Privy Council placed the following interpretation in Moses Kerakoose v. Benjamin Brooks (1860) 8 M.I.A. 339 :

Under the statute, 11 and 12 Viet. c. 21, the Assignee has a right to the subsequently-acquired property of an insolvent, unless the insolvent has

obtained a certificate and discharge; but the Assignee''s right to the subsequently-acquired property is subject to two qualifications. In the first

place, if the insolvent has acquired property subject to liens and obligations then any property taken by the Assignee under the state of things is

taken subject to those charges and equities which effect the property in the hands of the insolvent. The second qualification is this, that if the

insolvent carries on trade at a subsequent period, with the assent of the Assignee of the estate under the Insolvent Act, in the first instance the

property which is acquired in the subsequent trade will be subject in equity to the charge of the creditors in that trade, in priority to the claim of the

Assignee under the first insolvency.

It will thus be seen that the interpretation placed by their Lordships would apply both to real and personal property and the property would vest

in the Assignee as and when acquired subject to the two qualifications mentioned by their Lordships. So far as the first qualification is concerned, it

is clear that the acquisition when made must be subject to the lien or charge. In regard to the second qualification the doctrine of acquiescence or

estoppel on the part of the Official Assignee would apply and no question of intervention was suggested by their Lordships of the Privy Council in

regard to the vesting. in Rowlandson v. Champion I.L.R.(1893) Mad. 21 a question arose whether the mortgage of a subsequently-acquired

property was valid as against the Official Assignee. Collins, C. J., held it was valid applying the case of Cohen v. Mitchell (1890) 25 Q.B. 262 in

construing Section 7 of the said Act. But on appeal, Best, J., took the view that in order to be binding on the Official Assignee the charge on the

after-acquired property must come within the scope of one or the other of two qualifications stated in Moses Kerakoose v. Benjamin Brooks

(1860) 8 M.I.A. 339 and Cohen v. Mitchell (1890) 25 Q.B. 262 was merely an authority for the proposition:

That when an insolvent is allowed to carry on trade or other business, the Official Assignees'' assent thereto (required under the second of the two

qualifications mentioned in Moses Kerakoose v. Benjamin Brooks (1860) 8 M.I.A. 339 will be presumed up to such time as he may intervene.

Muttuswami Aiyar, J., was of the view that the language of Section 7 threw no light on the point beyond the fact that the word ''vest'' was used

with reference to both kinds of property, that he saw no substantial difference on the point between the Indian insolvency Act and the English

Bankruptcy Act, that the English cases dealt with the question as one of reasonable construction and that the whole of the reasoning was applicable

under the Indian Insolvency Act and that as the rule in Cohen v. Mitchell (1890) 25 Q.B. 262 was qualified with reference to real property by the

decision in In re New Land Development Association and Gray (1892) 2 Ch. 138 following the later decision he would hold the mortgage to be

invalid. In Sriramulu Naidu v. Andalammal (1906) 17 M.L.J. 14 : ILR Mad. 145 White, C.J., and Subraraania Aiyar, J., took a view different

from both Best, J., and Muttuswami Aiyar, J. They held that the rule in Cohen v. Mitchell (1890) 25 Q.B. 262 would apply to both moveable and

Immovable property and that, as in the case they were dealing with, the Official Assignee had not intervened, the plaintiff, an undischarged

insolvent was held entitled to maintain the suit for partition and recovery of his share of the property which had devolved on him by inheritance

subsequent to the date of adjudication.

It was in this state of the law the Presidency Towns Insolvency Act was passed in 1909. It was based on the Bankruptcy Acts of 1883 and

1890. Its provisions Sections 17 and 52 which relate to vesting are almost identical in language with Sections 44 and 54 of the Bankrutpcy Act of

1883. The question therefore would be whether in interpreting the said provisions of the Presidency Towns Insolvency Act the view in Sriramulu

Naidu v. Andalammal (1906) 17 M.L.J. 14 : ILR Mad. 145 or the view of Best, J., or Muttuswami Aiyar, J., in Rowlandson v. Champion I.L.R.

(1893) Mad. 21 is to be followed.

So far as the Provincial Insolvency Act is concerned, the only provision as to vesting before 1907 was contained in Section 354 of the Civil

Procedure Code, 1882, namely:

Every order u/s 351 ... shall operate and vest in the receiver all the insolvent''s property.

In 1907, i.e., two years earlier than the passing of the Presidency Towns Insolvency Act, Act III of 1907 was passed for placing the law of

insolvency in the moffussil on a satisfactory basis. In regard to the provisions as to vesting instead of adopting the language of Sections 44 and 54

of the English Bankruptcy Act, 1883, as was done in the case of the Presidency Towns Insolvency Act, Section 16 was enacted which contains a

specific provision by way of Clause 4 separately as to vesting of subsequently-acquired property thus leaving no scope for any other construction

than what the language according to its plain meaning would warrant and which construction was placed by the Privy Council in (1927) L.R. 54

I.A. 190 (Privy Council) . Why this distinction was made between the two Acts it is not possible to understand. Certain provisions of this Act were

amended in 1914 (Amending Act X of 1914) the year in which the English Bankruptcy Act of 1914 was passed enacting Section 47 of the Act

adopting the principle of Cohen v. Mitchell (1890) 25 Q.B. 262 both in regard to realty and personalty and yet no provision corresponding to

Section 47 was enacted nor even in 1920 when Act V of 1920 was passed. It is not for the Court to divine the reason why the Legislature did not

think it fit to do so. The Court is only bound to consider the enactment as it stands uninfluenced by any consideration of what the English law is. It

was contended before us that as the provisions of the Presidency Towns Insolvency Act are being construed in the light of the English decisions the

Legislature could not have meant to enact a different law for the moffussil and a different construction would lead to hardship and inconvenience.

As we have pointed out what the rule of English law to be applied to those sections is itself a matter of doubt. The argument ab inconvenienti which

found favour in English Courts is of no use when the language of a statute is plain. As stated in Craies'' Statute Law at page 87:

The argument ab inconvenienti is only admissible in construction where the meaning of the statute is obscure. Where the language is explicit, its

consequences are for Parliament, and not for the Courts, to consider. In such a case the suffering citizen must appeal for relief to the lawgiver, and

not to the lawyer.

In Abdul Kadir Sahib Vs. U.T.M. Somasundaram Chettiar, , the learned Judges followed Sriramulu Naidu v. Andalaminal (1906) 17 M.L.J. 14 :

ILR Mad. 145 a decision based on 11 and 12 Victoria remarking that they saw no reason why they should not follow the principle laid down in

that case and that no authority had been cited to show to the contrary. We have already pointed out the difference of view in regard to the

interpretation of Section 7 of that Act. Jagadish Narain Singh v. Mst. Ramsakal Kuer I.L.R.(1928) Pat. 478 does not carry the matter any further.

Both these decisions were before the Privy Council decision in Kalachand Banerjee v. Jagannath Marwari (1927) 52 M.L.J. 734 : 54 I.A. 190 :

ILR 54 Cal. 595 With due respect the interpretation placed by the learned Judges in the said decisions can no longer be tenable in view of the

clear pronouncement of their Lordships of the Privy Council which we feel bound to follow. The learned Judges in the Full Bench decision in

Devulapalli Sabhanadri Sastrulu Vs. Dorbala Nagayya Sastry and Others, , thought it unnecessary to go into this question and left it open as in that

case the Official Assignee intervened and the property vested in him and not in the bankrupt.

We have therefore come to the conclusion that the decree for costs vested in the Official Receiver the moment it was passed and that he was

the only person entitled to transfer it and the transfer in question is therefore invalid. In the result the appeal fails and is dismissed with costs.