Sadanala Narayana Rao and Another vs The Official Receiver, Rajahmundry and Another

Mack, J.—This revision petition filed u/s 115, Civil Procedure Code, should, as the following facts will show, have been more properly filed

as an appeal u/s 75(2) of the Insolvency Act. I do not, however, propose to attach any importance to this technicality in disposing of it on its

merits.

The short facts are these,. The petitioners are minors by their mother as guardian who took a conveyance of about 11 acres of land from-an

insolvent in 1940 prior, of course, to his adjudication. It is common ground that the Official Receiver got this alienation set aside u/s 53 of the

Insolvency Act. The petitioners filed an appeal in the District Court, East Godavari, the first Court of insolvency being the Subordinate Judge of

Amalapuram. In the District Court, the Official Receiver entered into a compromise with the petitioners by which they undertook to deposit Rs.

1,000 in Court in one month to "" meet the claims of the creditors and the necessary expenses in the insolvency."" They also agreed to deposit any

further sum required for this purpose within a month of the Official Receiver giving them notice; and that their appeal would stand dismissed with

costs if this deposit of Rs. 1,000 was not made within one month. Another term of the compromise was that the Official Receiver should at once

address the Subordinate fudge of Amalapuram for sanctioning the proposed settlement. It is common ground that this sanction was obtained, that

the Rs. 1,000 was deposited in the District Court, East Godavari, that the Official Receiver paid all the creditors in full and that after incurring all

expenses in the administration a balance of Rs. 879 remained to the credit of the administration. As the deposit of Rs. 1,000 was made in the

District Court, they filed an application there u/s 151, Civil Procedure Code, whereas Section 4, Insolvency Act, would have been far more

appropriate, for payment to them of this balance as something deposited by them over and above what was necessary to pay all the creditors in full

and the expenses of the administration. The insolvent made a counter claim for this balance as surplus payable to him u/s 67 of the Insolvency Act.

The learned District Judge upheld the claim of the insolvent and dismissed the petition of these alienees.

An interesting point of conflicting equities arises for determination in the case of these parties to a transaction which the insolvency Court has

found to be one neither entered into in good faith nor for valuable consideration and on these grounds voidable as against the Official Receiver.

My attention has been drawn to a decision by Horwill, J., in R. Thimmappa and Another Vs. Lingutla Balayya and Others, , which appears to

be the nearest decision applicable to the present facts. In that case an alienation by an insolvent was set aside at the instance of the Official

Receiver. Subsequently, the alienees deposited into Court sufficient money to pay off all the creditors. Later, the insolvent deposited sufficient

money not Only to pay all the creditors but also the alienees themselves in full. It was held applying the decision in Dharmasamarajayya Vs.

Sankamma and Others, by King, J., that as the object of setting aside an alienation is to satisfy the debts of the creditors, the property must be

restored to the alienee from whom they were taken, and not to the insolvent, on the object being achieved otherwise than by sale of the property.

The alienees were not permitted to withdraw their deposits. They retained the property and the insolvent was directed to take back the amount he

had deposited. The decision of King, J., on which reliance was placed did not concern itself with any deposit made in Court. The facts there were

these. An insolvent executed a gift in favour of his wife and the alienation was set aside in the insolvency. There was, however, no necessity to sell

this property in the administration and subsequent to the adjudication being annulled the insolvent executed a will disregarding the gift. It was held

that the rights under the gift deed had become automatically restored by the annulment of the adjudication, following a dictum of Wright, J., in the

English decision In re Parry: Ex parte Salaman (1904) 1 K.B.129, that the setting aside of an alienation operated only so far as may be necessary

to pay the creditors in the bankruptcy.

In view of these authorities which were not placed before the learned District Judge, the alienee has a more equitable claim to this balance which

cannot be considered as surplus remaining after the administration and the payment of all creditors in full to which the insolvent is entitled u/s 67 of

the Act.

Quite apart from the case-law on the subject, I would make the same inference from the terms of the compromise itself also, as an agreement

entered into by the Official Assignee representing both the insolvent and the creditors on the one hand and the alienees on the other. By the

compromise, the alienees undertook broadly to deposit into Court a sum necessary to pay all the creditors in full and also to defray the expenses of

the administration. The sum of Rs. 1,000 they deposited was a tentative amount. There is no clause in the compromise under which the insolvent

becomes entitled to any balance. Therefore, reading the compromise as it stands, the alienees appear to be entitled to the return of any balance out

of the deposit they made after paying the creditors in full and defraying the administration expenses. Section 67 of the Act does not, therefore, from

any standpoint, apply to the present facts.

The petition is allowed; but, in this case of conflicting equities, I direct the parties to bear their own costs throughout.