Rm.Al.Rm.Alagappa Chettiar and Another vs Kannappa Chettiar and Others

Newsam, J.—The plaintiffs'' suit for a declaration of their title to a house has been decreed. The two defendants appeal.

The relevant facts may be briefly stated as follows:--In I.P. No. 2 of 1927 on the file of the Rangoon High Court, a firm of Nattukottai

Chettiars, of which the father of each defendant was a partner, was adjudicated insolvent. On 17th January, 1928, what is described as a

composition scheme was approved by the Court in an order which has been exhibited as D. The terms were as follows:--The Official Assignee

was to be paid his expenses and his commission; the creditors agreed to receive and were guaranteed payment of five annas in the rupee by two

Chettiar firms, who were described as sureties but who were in reality purchasers of the entire assets of the insolvent firm, In pursuance of this

scheme the purchasers of the assets paid Rs. 52,173-9-9 privately to certain creditors and Rs. 55,450 to the Official Assignee for distribution to

the remaining creditors. These payments amounted to paying five annas in the rupee of the insolvent firm''s liabilities. Thereupon by a deed of

indenture dated 22nd February, 1928 (Ex. E), the Official Assignee transferred all the assets of the insolvents described in their schedule with all

the right, title and interest of the said insolvents therein to the sureties (or rather purchasers).

On 28th September, 1929, the purchasers sold the suit house to the plaintiff (Meyappa Chetti) for Rs. 75,000.

The defendants (appellants) are the undivided sons of the insolvent partners. The chief argument developed on their behalf is that the order of

the High Court, Rangoon, only empowered the Official Assignee to convey "" assets of the insolvents now vested in him "". The power of a Hindu

father, manager of a trading family, to sell his sons'' shares is not, it is argued, an asset of the insolvent father. It is an obligation of the sons to their

father''s creditors, it is said. On the contrary, we are of opinion that it is a pious obligation of the sons to their father, which can only be evaded by

attacking the father''s debts as immoral. No such attempt has been made in this case. We further think that the word "" assets "" is sufficiently wide to

embrace the father''s right to bind his sons'' share for proper reasons. It undoubtedly enhances a Hindu father''s credit that he is entitled to pledge

his sons'' shares for the good of the family business. This right is therefore an asset. The same result can be reached in another way:--Admittedly

the insolvent fathers'' power to sell their sons'' share does vest in the Official Assignee. Admittedly also the power was exercised by the Official

Assignee under Ex. E, for he conveyed all the right, title and interest of the insolvents. There is absolutely nothing in the order of the High Court

(Ex. D) which negatived or forbade the exercise of this power. Consequently the sons'' share was validly conveyed.

We overrule this contention. But before leaving this part of the case it may not be out of place to make a few general remarks on the

administration of bankrupt estates. Any deviation from the letter or the spirit of Insolvency Law is calculated to open the door to fraud and

profiteering. It is far from our purpose to criticize what has happened in this case but to express our views as to'' what ought to be done in all

cases. We think that both the realization and the distribution of the assets of an insolvent should be entirely carried out by official agency. That is

the only safeguard provided both for the insolvent and for his creditors. Incidentally it is the only way in which the Official Assignee can properly

earn his commission. We are strongly of the opinion that a purchaser from the Official Assignee of an insolvent''s assets should never be allowed to

pay creditors direct out of his purchase money.

Moreover, a composition between an insolvent and his creditors and a sale of an insolvent''s assets by the Official Assignee are two distinct

things and should be kept distinct. When the two are combined in one hybrid transaction, the issue of the unnatural union must necessarily be of

doubtful character.

We express ourselves thus strongly because, while aware of the practice which exists both here and elsewhere, we think that a stricter

adherence to the underlying principles of the Insolvency Act would clarify its complexities and inspire greater confidence by reducing the

opportunities for fraud and speculation in bankrupt estates.

The other point taken in appeal is that there was a secret agreement between one of the insolvents (second defendant''s father) and the

transferees from the Official Assignee whereby the latter, in return for the former''s help in realizing assets and a cash consideration of Rs. 5,000

promised to leave each insolvent brother his house. Now this was obviously a fraudulent agreement, assuming it to be a true agreement. It is an

agreement which we cannot countenance, being a secret collusive agreement by the appellants'' insolvent fathers and the purchasers of their assets

from the Official Assignee not to make all their assets available to their creditors but to reserve something--in other words to defeat the very object

of the insolvency proceedings. That is clearly against public policy, and we can only add that the very fact that such an agreement should be openly

pleaded is evidence that in insolvency matters dishonesty is a commonplace.

We dismiss this appeal with costs.