R.S.K. Chandrasekaran vs The Official Receiver, Madurai and Another

Ismail,C.J.

This is an appeal against the order of N. S. Ramaswami J. dated 6th October, 1975 made in A. A0. No. 182 of 1975. 0. S. No. 145 of 1968

on the file of the Court of the Subordinate Judge of Madurai was a suit to enforce a mortgage and in that suit a decree was passed. E. P. No. 232

of 1970 was filed in that suit to execute the decree and the property was sold in auction on 1-111971, and the appellant herein was the auction-

purchaser. The judgment-debtors filed E. A. No. 207 of 1972 under 0. 21, Rule 90. C. P. C. to set aside the sale, and that application was

dismissed on 5-1-1974. The appeal preferred by the judgment-debtors. in A. A. 0. No. 51 of 1974, to this Court also failed, as the same was

dismissed on 13-8-1974. In the meanwhile, a petition to adjudge the judgment-debtors insolvents was filed on 30-10-1971, and the order of

adjudication itself was made on 17-12-1971. The Official Receiver, representing the estate of the insolvents, filed E. A. 2 of 1975 to set aside the

sale on the ground that no notice was given to him and that the permission of the court was also not obtained. The learned Subordinate Judge of

Madurai passed an order on 1-3-1975 dismissing the application, holding that the. adjudication took place only on 17-12-1971,that on the date

when the sale took place, namely, 1-11-1971, the Official Receiver was not in the picture, and that therefore, there was no question Of giving

notice to him or obtaining the Permission of the Court for the sale of the property. It was against this order of the learned Subordinate Judge that

the Official Receiver filed A. A. 0. No. 182 of 1975, before this Court. The learned Judge (N. S. Ram swami J.) by his order dated 6th Oct.,

1975, reversed the order of the learned Subordinate Judge, Madurai, and allowed the appeal, A. A. 0. 182 of 1975 allowing E. A. No. 2 of 1975

and set aside the sale. It is against this order the present appeal has been filed by the auction-purchaser.

2.The ground on which N. S. Ram swami J. reversed the order of the learned Subordinate Judge, is that by opera tion of S. 28(7) of the Provincial

In solvency Act, the vesting of the property in the Official Receiver on the adjudication of the debtors as insolvents dated back to the presentation

of the petition for adjudication, that in the present case it dated back to 30-10-1971, that by virtue of this statutory provision the equity of

redemption vested in the Official Receiver and that consequently the decree-holders could not have brought the property to sale without notice to

the Official Rece iver. The learned Judge further held that S. 51(3) of the Provincial Insolvency Act which corresponded to S. 53(3) of the

Presidency Towns Insolvency Act, saved only those persons who had purchased the property in good faith, that in this case the auction-purchaser,

namely, the appllantherein, had not even filed a counter contending that he had purchased the property in good faith and for consideration, and that

therefore that question did not arise. It is the correct ness of this conclusion of the learned Judge that is canvassed in the present Letters Patent

Appeal.

Section 38(2) of the Provincial In solvency Act provides for the vesting of the property in the Official Receiver on the making of an order of

adjudication, and it reads as follows qq28. (2) On the making of an order of adjudication, the whole of the property of the insolvent shall vest in

the Court or in a receiver as hereinafter provided and shall become divisible among the creditors and thereafter, except as provided by this Act, no

creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings

have any remedy against the property of the insolvent in respect of the debt or commence any suit or other legal proceeding, except with the leave

of the Court and on such terms as the Court may impose.

Section 28(7) states

An order of adjudication shall relate back to and take effect from the date of the presentation of the petition on which it is made.

Sub-section (6) of S. 28 states

Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would

have been entitled to realise or deal with it if this section had not been passed.

A combined reading of Sub-secs. (2), (6) and (7) of S. 28 of the Act will lead to the inference that in the case of a secured creditor his right to,

realise or otherwise deal with the security will not be affected either by the vesting provided for in S. 28(2) or by the doctrine of relation back

provided for in S. 28(7) of the Act. As we pointed out already, in this case the decree for the sale of the property must have been passed much

earlier to 30-10-1971, because the execution petition itself was filed in 1970. Even the order of the Court directing the sale of the property should

have been passed much earlier to 30-10-1971, because the sale actually took place on 1-11-1971. Under these circumstances, the question for

consideration is whether there is ''any reality in the requirement that the decree-holders should have obtained the permission of the Court for

bringing the property to sale or should have given notice to the Official Receiver before obtaining an order for sale. Even giving full effect to the

doctrine of relation back provided for in S. 28(7) of the Act, the order of the Court directing the sale of the property having been passed even

before 30-10-1971, It could not have been possible in practice for the decree holders to have given notice to the Official Receiver or to have

applied for and obtained the permission of the Court, because on that date even the petition for adjudication was not there and more so the Official

Receiver. Hence, looking at the Problem Purely from the practical point of view, it could not be contended that the sale which took place on 1-

111971, was liable to be. set aside on the ground that the order for sale was made without notice to the Official Receiver and without the

permission of the Court.

5.In our opinion, it is not. even necessary to go so far, in view of the provision contained in sub-sec. (6) of S. 28, that nothing contained in the

section shall affect the power of any secured creditor to realise or otherwise deal with the securityinthe same manner as he would be entitled to

realise or deal with it, if that section had not been passed, and, when it so Provide.it Proceeds to create fiction that, with regard to the rights of a

secured creditor referred to in Sub-sec tion (6) of S. 28, neither sub-sec. (2) nor sub-sec. (7) of S. 28 should be deemed to have been in

existence or enacted. If so, there is no scope for applying either the Provisions of vesting or the theory of relation back, so as to restrain or curtail

the power of the secured creditor saved under sub-sec, (6) of S. 28.

Mr. A C. Krishnamurthilearnedcounsel for the Official Receiver, brought to our notice the decision of the Bombay High Court in Babu Rama

Chaugule Vs. The Goodwill Bank Ltd., Miraj, . In that case, the Court had no Occasion to consider the practical implications of the doctrine of

relation back provided for in S. 28(7) of the Act. In that caw a final decree in a mortgage suit was Passed on 31-10-1949. A petition for

adjudication of the debtor as insolvent was made in 1950 and the actual order of adjudication was passed on 6-12-1957. The execution petition

with which the Bombay High Court was concerned was filed on 7-2-1963. It was in that set-up the question that came to be considered was

whether the Official Receiver should have been made a party to the execution Petition filed on V-2-1963. The Bombay High Court held that the

only person to represent the estate of the judgment debtor on 7-2-1963, was the Official Receiver, that therefore, he should have been made a

party and that the execution Proceedings instituted against the original Judgment-debtor without imp leading the Official Receiver, who alone

represented the estate, were misconceived. It was in that context, only that the Bombay High Court observed (at p. 346)

To be more explicit, if a secured creditor has a right to sell the property through Court or privately, or to foreclose it, that right is not affected The

manner of enforcing the security, viz., selling Privately or through Court foreclosing through the same manner is also not affected. This does not

mean that the secured creditor could deal with the property in the absenceofmylegal. Representation of that property it is by operation of law

pending suit cannot be ignored by the secured creditor.

It is pertinent that to point out that in the above case, the Bombay High Court referred to the date of the adjudicatition and not the date of

presentation of the petition for adjudicatition"" with reference to the operation of S 28(7) of the Act and that is the reason why we pointed out the

Bombay High Court had no occasion to consider the scope of the doctrime of the relation back provided for in S 28(7) of the Act on which alone

N.S Ramaswami J. relied for reversing the conclusion of the learned Subordinate Judge.

Ram swami J.himself has relied on the decision of a Full Bench of this Court in Raghava Reddi v. Official Assignee Madras 1964 2 Mad

549.that case was not concerned with a mortgage decree thereforethe learned Judges had no oc casion to consider the exact scope of Section

28(6) of the Act. What the learned Judges, after elaborately considering the statutory provisions and some of the, decisions, held was

To sum up, the title a purchaser in an execution sale against a debtor, after the admission of a petition to adjudicate the latter as insolvent is a

defensible title, if the insolvency petition is dismissed, he gets good title We would normally be displaced by the Official Assignee or Official

Receiver , as the case may be; but this rule is subject to an exception, in favour of purchaser In good faith who will be protected by reason of such

good faith. Section. 53(3) being, therefore an exception to the general rule of relation back of the Official As signee''stitle operationofwhich makes

the statuary title of of the Official Assignee to give way before it, the burden of proving good faith will be on the, person seeking advantage of the

exception."" Havingregardto the fact that the Full Bench was not considering a mortgages decree and therefore was not considering the scope of S

28(6) of the Act that decision has no application to the present case, Under these circumstances the appeal is allowed the order of N.S.

Ramaswami J. dated 6th October 1975, is set aside and the order of the learned Sub-ordinate Judge dated 1-3-1975 is restored. There will be no

order as to costs.

Appeal allowed.