Saraswathi and Another vs Krishnier

Ramamurti, J.—This civil miscellaneous appeal arises out of certain proceedings initiated by the respondent (petitioning creditor) in I. P. No.

4 of 1958 for a declaration that certain properties ''formed part of the estate of the insolvent, and that the Official Receiver should be directed to

take possession of the same. The petitioning creditor''s case was that the insolvent had put certain properties fictitiously in the names of his wife and

mother the appellants herein, that they were not genuine transactions, and that the properties put in their names still continued to form part of the

insolvent''s estate. The appellants resisted the same, claiming title in themselves.

The learned Subordinate judge., Nagarcoli. dismissed the application, but on appeal the learned District Judge modified the order of the trial

court, and upheld the claim of the petitioning creditor in respect of a portion of the properties. The appellants aggrieved by that portion of the

learned. District Judge''s order has preferred the present appeal.

Learned counsel for the appellants raises; the objection that the proceedings initiated by file petitioning creditor in his own name are incompetent

and misconceived, and that it was not open, to any individual creditor to initiate such proceedings. He urged that, when a person has been

adjudged insolvent, his entire estate would vest in the Official Receiver, who alone would be competent to take any such proceedings. If the

Official Receiver wrongfully declines to take the necessary proceeding, it will be open to any creditor, who had proved the debt in insolvency, to

apply for appropriate directions from the insolvency court. He can move the insolvency court for an order directing the Official Receiver to take

the requisite proceeding for recovery of the properties of ''the insolvent on condition that either he provides the costs of such proceedings or

indemnifies the Official Receiver in respect of such costs. He can also obtain appropriate directions from the insolvency court to initiate and

prosecute such proceedings in the name of the Official Receiver. Learned counsel contended that, if no such order is passed, no individual creditor

has any right to move the insolvency court u/s 4 in his own individual capacity.

There is considerable substance in this point and the reason is obvious. If the creditor initiates any such proceeding, any decision rendered

therein would not bind or affect the rights of the Official! Receiver in any manner. Such a decision would not operate as res judicata, as the Official

Receiver. in whom the properties have vested, had not been made a party thereto. It is because of this utter futility of any proceeding prosecuted

by the individual creditor that the law enjoins that the Official Receiver alone can prosecute such proceedings. It is a matter of great surprise that

this objection which goes to the root of the matter was not raised in the courts below.

Till 1926, there was divergence of opinion among the various courts regarding the right of an individual creditor to take proceeding for the

annulment of transfer Under Sections 53 or Section 54 of the Provincial Insolvency Act. By the Amending Act 39 of 1926 Section 54-A was

enacted to the effect that, with the leave of the Court, any creditor may take judicial proceeding for the annulment of transfer u/s 53 or Section 54,

provided he satisfies the court that the Receiver has been requested and has refused to take such ,proceeding. Section 4 of the Provincial

Insolvency Act of 1920 is a new provision conferring very wide jurisdiction on the insolvency court to decide questions of title, , priority or of any

nature whatsoever, arising in the course of insolvency. Under the Insolvency Act 1907, there was no such provision and the Official Receiver had

to invoke the jurisdiction of the civil courts for obtaining relief. But as far as the individual creditor was concerned he offered under the same

disability and the legal position remained unaltered because of the basic principle that, on adjudication, the entire property of the insolvent vested in

the Official Receiver, and he alone would be competent to represent the estate and transact business in regard thereto.

In AIR 1927 108 (Privy Council) one Krishna Base, the mortgagor, was adjudged insolvent, and thereafter a decree for foreclosure of the

mortgage was obtained without the Official. Receiver being made a party thereto. The attempt of the Official Receiver to intervene and get himself

impleaded as a party failed. The Privy Council held that the court only acts through a receiver and the entire estate of the insolvent vested in him,

and that the decree, which on the face of it showed that it was pronounced without the Official Receiver as a party would not attract the rule of res

judicata u/s 11 C.P.C. This decision illustrates the full significance of the legal effect of vesting of the insolvent''s estate in the Official Receiver. In

Ramsundar Ram v. Ram Charit Bhakat, ILR 51 Cal 663: AIR 24 Cal 827 a Bench of the Calcutta High court held that it was not open to an

individual creditor to take proceedings in regard to a conveyance executed by the insolvent, and that if was only the Receiver who could conduct

such proceedings. It was held that the new provision in Section 4 in the Act of 1920 did not justify the procedure adopted by the creditor, as

Section 4 was subject to the provisions of the Act which meant that the property of the insolvent vested in the Receiver and Section 4 would not

therefore, authorise a creditor to prosecute an enquiry of that kind.

In Mt. Garibia Bibi Vs. Mathura Prosad Rajgharia and Others, it was held that where the insolvency court is called upon to exercise jurisdiction

u/s & for declaring a transaction as fictitious, it should be for the receiver to move the court in this behalf, and, that, even with the permission of the

court, a creditor should not be allowed to do so in his own name. It was observed that Section 28 Sub-section 2 would not enable the individual

creditor to prosecute a proceeding u/s 4 with the permission of the Court, as the proceeding contemplated u/s 28 Sub-section 2 is a proceeding

against the estate of the insolvent represented by the Official Receiver. In Sankari Debi and Others Vs. Co-operative Urban Bank and Others, ,

the same view was taken that a proceeding u/s 4 can be conducted by the receiver alone and not by a creditor. If a claim is to be laid u/s 4. to a

particular property on the ground that it forms part of the insolvent''s estate, it is the receiver and receiver alone who is entitled to put forward that

claim. It was also held that, if the receiver declined to take such a proceeding, the court can direct the receiver to do so u/s 4 making it a condition

of the order that the creditor so applying should put the receiver in possession of funds and also indemnifies against the costs of the action.

In Vasudeva v. Annapuranamma, AIR 1935 Mad 809, a Bench of this Court was inclined to take the view that if the Official Receiver declined

to initiate proceedings u/s 4, It would be, open to a creditor to invoke the jurisdiction u/s 4 to make the, property available for the benefit of the

creditors after obtaining the leave of the court for the purpose. It was, at the same time, emphasised that the creditor should obtain the leave of the

insolvency court. The same view was taken in Padilam Narayanamma and Another Vs. Neti Venkatasomayajulu and Another, , by another Bench

of this court. In Pannai Ananthanarayana Aiyar Vs. Pannai Ramasubba Aiyar and Others, it was held that, if the Official Receiver declined to take

action, a creditor can apply to the court to allow him to use the Official Receiver''s name in order to recover the insolvent''s property or to set aside

a voluntary transfer or to avoid a fraudulent preference, and that the requirements f the law would be satisfied by making the Official Receiver a

part}'' to such proceedings. In Gontu Appireddi Vs. Gontu Chinna Appireddi and Others, a Bench of this court has taken the same view that for

obtaining an order annulling a transfer by the insolvent as illegal, it was the Receiver who should apply for such an order, and that until the Receiver

refused to do so. no one else had right to apply. It may be mentioned that this decision was rendered before the Amending Act of 1926.

The ambit of the right: of the creditor to use the name of the Official Assignee (under the corresponding provision in the Presidency Towns

Insolvency Act) came up for consideration before the Privy Council in Navaroji Ardeshir Cooper v. Official Assignee, Bombay, ILR 1942 Bom

740: AIR 1942 PC 39. The Privy Council held that the creditor has no unqualified right, that the Official Assignee has a discretion in the matter,

and that, if the Official Assignee thinks that there is no substantial point involved and there is no reasonably good prospect of success, he may

rightly refuse to allow the proceedings to be brought in his name. The Privy Council has stated the law in these terms at page 743:

Their Lordships desire to add that they entertain no doubt as to the principles on which the court should deal with such a motion as that which is

the subject of the present appeal. Such a motion seeks to get the court to overrule the decision of the Official Assignee not to litigate further. It is

not sufficient for the applicant to point to a possible point which could bet raised in argument. He must satisfy the Court that the Official Assignee,

in declining to give his name for the purpose of starting or continuing a litigation, notwithstanding that a full and proper indemnity has been offered

to him, is not acting as a reasonable man would act if he were owner of, and not merely a. trustee of the estate"".

From the foregoing, it will be clear that, both on principle and authority, the Official Receiver is the only person who can invoke the jurisdiction of

the court u/s 4 of the Provincial Insolvency Act, barring proceedings provided for u/s 54-A. Section 59 sub-section (d) confers the power , right,

and duty upon the Official Receiver to conduct such proceedings. Any other view would result in unnecessary multiplicity of proceedings as there

would be no finality in the administration of the estate of the insolvent. It is meaningless and futile to prosecute any proceeding in regard to the

estate of the insolvent which was vested in the Official Receiver without his being a party thereto. I, therefore, set aside the order of the learned

District Judge and dismiss the petition filed by the first respondent as incompetent. Accordingly the order of the Trial Court in I.A. 15 and 16 of

1959 shall stand restored. The parties will bear their own costs throughout. No leave. This order will not stand in the way of the creditor moving

the Official Receiver to initiate necessary or appropriate proceedings or to obtain appropriate directions from the Insolvency Court.