Official Receiver, Prakasham District vs Varra Nagi Reddy and Another

The order of the learned Principal Subordinate Judge, Ongole in E.A.No.509 of 1997 in E,P.No.20 of 1994 connected with O.S.No-12 of 1987 is challenged.

Petitioner is the Official Receiver of Prakasham district. He filed an application to stop the sale of the schedule property which was brought for sale in the execution proceedings by the 1st respondent. It was contended that the 2nd respondent was making hectic efforts to stop the sale and to cause delay in the realisation of the decree amount. The learned Subordinate Judge after hearing both sides came to the conclusion that there is no merit In the petition as the sharers of the other judgment-debtors are not going to be affected. The petition was thus closed with the observations saying that there is no need to stop the sale at that stage and permit the 2nd respondent to succeed in his attempts to prolong the litigation or to delay and defraud the 1st respondent in realisation of the E,P. amount.

The learned advocate for the petitioner has contended that by virtue of Section 52 of the Provincial Insolvency Act, 1920 (in short the ''Act''), the receiver is entitled to get the possession of the property of the Judgment Debtor to deal with accordingly subject to the rights of the creditors to be fulfilled after realisation of the amounts by the receiver by selling the property etc. The learned advocate for the 1st respondent has contended that since the Judgment Debtor had only a share in the properties sought to be sold and there were other sharers, the delivery of possession to the official receiver would have materially prejudiced the right of the decree holder and put the Judgment Debtor to the advantage to avoid the possession of the property thereby causing delay in the execution of the decree.

The learned Subordinate Judge appears to be totally wrong in dealing with the matter. Admittedly, by virtue of the insolvency petition filed by the Judgment Debtor-1st respondent herein, an interim receiver is appointed u/s 20 of the Act. Admittedly, Respondent No.1 has filed a petition for execution of the decree in O.S.No.12 of 1987 for recovery of the decree amount from the Judgment Debtor and when the sale of the schedule property is in process, the insolvency petition is filed which is pending. Section 52 of the Act reads as follows :

"52. Duties of Court executing decree as to property taken in execution :-Where execution of a decree has issued against any property of a debtor which is saleable in execution and before the sale thereof notice is given to the Court executing the decree that an insolvency petition by or against the debtor has been admitted, the Court shall, on application, direct the property, if in the possession of the Court to be delivered to the receiver but the costs of the suit in which the decree was made and of the execution shall be a first charge on the property so delivered, and the receiver may sell the property or an adequate part thereof for the purpose of satisfying the charge."

Admittedly, the receiver has filed an application seeking possession of the property from the Court. It is mandatory u/s 52 of the Act that the possession of the property belonging to the Judgment Debtor shall be delivered to the receiver subject to the condition that the costs of the suit in which the decree was made and of the execution shall be made as a first charge on the property so delivered and the receiver would be at liberty to sell the property or an adequate part thereof for the purpose of satisfying the charge thereby the rights of the 1st respondent being preserved. The petitioner-official receiver while getting possession of the property to deal with and by selling it and after realising the proceeds, is bound to satisfy the decree of the first respondent also subject to other liabilities and interest of the creditors. The contention that the Judgment Debtor had only a share in the property and other sharers are not going to be affected has no basis to determine such a question. Whether the receiver sells or the Court sells the property, it is only the share of the Judgment debtor that will be sold. Even assuming that the other shares are in possession of the property, the possession taken delivery u/s 52 of the Act will also be a symbolic possession not to disturb the shares of others as it is the official receiver who has the right to deal with it and distribute the assets and discharge the liabilities of the creditors of the judgment debtor according to the scheme of the Act. The learned Subordinate Judge has without reference to these legal implications has dismissed the application of the petitioner filed u/s 52 of the Act, The order requires to be revised and rectified.

In the result, the petition is allowed. The property in question shall be delivered to the petitioner subject to the observations made above and subject to the limitations prescribed u/s 52 of the Act and the other provisions thereunder. The impugned order of the learned Subordinate Judge is set aside. No costs.