Putta Rm. Ramanatha Iyer vs T.S. Ramachari and Another

Ramachandra Iyer, J.—This revision arises u/s 75 of the Provincial Insolvency Act at the instance of an execution creditor. The petitioner

obtained a money decree against one Srinivasa Iyer. In execution of his decree he attached certain property belonging to the debtor, obtained

leave to bid and set off the sale proceeds against his dues under the decree and brought the properties to sale. The sale took place on 15-9-1952

and was confirmed on 21-10-1952, A few days before the sale, i.e., on 6-9-1952 the debtor filed I.P. No. 26 of 1952 on the file of the Sub

Court, Madurai, to adjudicate himself an insolvent.

Srinivasa Iyer was adjudicated an insolvent on 19-6-1953 and his properties vested in the Official Receiver. The Official Receiver was then moved

to take steps to set aside the sale which took place in execution of the petitioncr''s decree but the Receiver held that the court sale was valid but

that the petitioner should deposit the sale amount into court. A creditor of the insolvent and the petitioner filed appeals to the Subordinate Judge in

M. P. Nos. 13 and 16 of 1954 u/s 68, the former seeking directions to have the court sale set aside, the latter objecting to the order directing him

to bring into court the sale amount.

The learned Subordinate Judge directed the Official Receiver to take steps to set aside the sale. In that view he set aside the order calling upon the

petitioner to bring the sale proceeds. The petitioner thereupon filed an appeal to the District Court against the order of the Subordinate Judge. The

learned District Judge held that the court sale was valid and could not be set aside but that the petitioner could not set off the sale amount against

his dues and should bring it into court for the benefit of the general body of the creditors. The petitioner has filed this revision against the order of

the District Judge.

It is not disputed that the petitioner was not aware of the institution of the insolvency proceedings at tlie time when he purchased the properties in

the court auction and that he did so in good faith. The only question for decision is whether the petitioner is entitled to set off the sale price against

3iis decree.

The effect of the adjudication of the debtor as insolvent is that u/s 28(7) read with Section 28(2) the properties of the insolvent would vest in the

Offical Receiver as from the date of presentation of the petition. Therefore all the property which the debtor had on the date of the insolvency

petition would statutorily vest in the Official Receiver but Section 51(3) protects the title of a bona fide purchaser in a court sale which takes place

after the presentation of the insolvency petition.

u/s 51(11) the executing creditor will not be entitled to the benefit of execution as against the receiver in respect of assets receiver after the

admission of the insolvency petition. u/s 51(3) the title of a purchaser in good faith in an execution sale would be protected as against the receiver

notwithstanding the fact that the title to the property had vested in the latter anterior to the execution sale by virtue of the principle of relation back

embodied in Section 28(7). The combined effect of Section 51(1) and (3) is that while a purchaser in good faith gets Rood title to the properties

sold in court auction after the presentation of an insolvency petition, the decree holder cannot get any right to the proceeds which would vest in the

Receiver.

Mr. T. S. Vaidyanatha lyer, the learned advocate for the petitioner, contended that Section 51(1) would not apply to a case where the decree-

holder had obtained leave to bid and set off and later purchased. He relied in this connection on Bachu Mallikarjuna Rao Vs. The Official Receiver

and Others, . But the question that arose in that case was whether Section 51(3) would protect court sales after the order of adjudication and the

learned Judges answered the question in the negative. From that the learned Advocate argued that a court sale prior to the order of adjudication

was valid.

That is undoubtedly so if the purchaser acts in good faith but the protection given to the purchaser is not extended to the decree-holder. In Muthu

Chettiar v. Venkataswanri Naicker, ILR (1986) Mad 928: AIR 1986 Mad 819 it was held that the executing creditor was not entitled to the

benefit of execution against the receiver unless the assets are received before the admission of the petition. That case held that Section 51(3) wonld

apply even after adjudication a point on which the learned Judges in Bachu Mallikarjuna Rao Vs. The Official Receiver and Others, took a

contrary view.

Karamsetti Guravaiah Vs. V. Rangiah, Official Receiver and Others, affirmed the latter view. A recent decision of a Full Bench of the Andhra High

Court in Lokanathan Srirangamma v. Ganagalla Narayanamma. AIR 1956 And. Pra. 243 has accepted the decision in Muthan Chettiar and

Another Vs. Venkituswami Naicken, . Rut in my opinion these decisions which relate to the validity of a sale u/s 51(3) afford no assistance to the

question involved in the case whether a decree-holder auction-purchaser having obtained leave to bid and set off under Order 21 Rule 72 C.P.C.

should u/s 51(1) pay the sale amount into court. Section 51(1) states that the decree-holder is not entitled to the benefit of execution. In Henry

Merieu Vs. Official Receiver, it was held that the decree-holder-auction-purchaser in such circumstances could not be asked to pay.

But in Mamidi China Venkata Sivayya Vs. Nekkanti Suryanarayana, a contrary view was taken, viz., that the decree-holder, auction-purchaser,

cannot set off but should put the money into court. The latter view was approved in a decision of a Bench of this court in The Firm of Bhimaji

Motiji Vs. The Official Receiver, . The actual point for determination in that case was whether the decree-holder auction-purchaser could give up

or have the sale cancelled or whether he should pay the amount of his bid less the costs of execution.

The learned Judges held that he could not repudiate the sale but should give up the benefit of the execution, viz., the amount of the bid, although he

was given leave to bid and set off. It is therefore clear that the learned District Judge was right in directing the petitioner to bring into court the

amount of the petitioner''s bid in the execution sale. The civil revision petition fails and is dismissed. In the circumstances of the case I make no

order as to costs in the civil revision petition.