Seetaramayya vs Ramachandrudu

When a judgment-debtor is declared an Insolvent u/s 351, Civil Procedure Code, after an enquiry u/s 350, Civil Procedure Code, he is entitled

to be discharged from jail and cannot again be arrested under the decree in execution of which he was imprisoned (Section 341, Civil Procedure

Code).

With the declaration of insolvency, the Court may also discharge the insolvent u/s 851, Civil Procedure Code, or if a Receiver is appointed by

the Court he may be discharged u/s 356, Civil Procedure Code, after a certificate from the Receiver that the insolvent has placed him in possession

of all his property or has done everything in his power for that purpose. After he has obtained his discharge as above u/s 351 or 355, Civil

Procedure Code, he cannot again be arrested or imprisoned on account of any of the scheduled debts (Section 357, Civil Procedure Code). In the

case before us, a Receiver has been appointed, and the question for decision is whether an insolvent who has not been discharged u/s 355, Civil

Procedure Code, can be arrested by a scheduled creditor. We are of opinion that he cannot be arrested. u/s 352, Civil Procedure Code, a

schedule has to be framed of the creditors and their debts which they have to prove and the declaration of insolvency u/s 351, Civil Procedure

Code, after an enquiry to which they are parties, is to be treated as a decree in their favour for the scheduled debts. This schedule may be altered

by the addition of the names of new creditors or striking out any names already in the schedule and also as regards the amount or nature of any

debt The Receiver in whom all the insolvent''s property is vested by the Act is bound to possess himself of all his property, and under the direction

of the Court discharge the secured debts and make a rateable distribution of the balance among the scheduled creditors, Section 856 Civil

Procedure Code. The intention obviously is to relieve the judgment-debtor by protecting him from being harassed by creditors and at the same

time to pay the creditors as stated above.

That intention will obviously be defeated by allowing each scheduled decree-holder to pursue his remedy by arrest and imprisonment or by

realizing his debt otherwise than through the Receiver, see Gauri Dat v. Shanhar Lal ILR 14 A. 358. It is clear that no scheduled creditor can

proceed against the property to realize his debt as all the judgment-debtor''s property is vested in the Receiver by the declaration of insolvency.

The arrest and imprisonment of the judgment-debtor is only a mode of executing the decree (Section 235, Civil Procedure Code) and is intended

to compel him to pay his debt. But he cannot pay it when the law vests all his property in a Receiver and he is deprived of all control over his

property, and it must be presumed to be the intention of the legislature when so vesting his property by the order u/s 351, Civil Procedure Code,

to which the decree-holder was a party, that he must look from that date to the Receiver and not to the judgment-debtor for payment of his debts

If any scheduled creditor is entitled, and therefore allowed, to execute his decree by arrest and imprisonment he will be in a more favourable

position than the decree-holder who first arrested the judgment-debtor and who is prohibited by Section 3.41, Civil Procedure Code, from again

arresting him--a preference for which it is difficult to find any reason at any rate while the process of realization and distribution is going on.

The provision for rateable distribution also suggests that one scheduled creditor should not by his diligence be allowed to gain an advantage over

the others. Further the scheduled creditor by arresting the insolvent is pursuing an idle remedy so far as any special benefit to himself is concerned

as anything realised by him has to be paid over to the Receiver for the benefit of all the other creditors. If it appears that the insolvent prevented the

Receiver from obtaining possession of his property, or if it subsequently transpires that he has committed some act of bad faith, then the Court may

refuse to discharge the insolvent u/s 355, Civil Procedure Code. It may then be open to creditors to apply to execute their decrees. It was argued

before us that the right to arrest in execution conferred on a decree-holder by the CPC can only be taken away by an express provision of law as

by Section 245(a), (b) and 357, Civil Procedure Code, and there is no prohibition by law that prevents a scheduled decree-holder from availing

himself of that remedy. The answer is that arrest is only a mode of executing the decree and the decree-holder cannot execute that decree for the

reasons aforesaid.

It was also argued that Section 357, Civil Procedure Code, shows that the insolvent may be arrested. The answer is that that section only

declares the effect of the discharge of the insolvent under Sections 351 and 355, Civil Procedure Code, and has therefore no bearing on the

question whether the scheduled decree-holder can execute his decree while the property remains vested in the Receiver.

We, therefore, answer the question in the negative.

This appeal coining on this day for final hearing: the Court delivered the following.

In accordance with the decision of the Full Bench we allow the appeal, reverse the orders of the Court below and dismiss the application to

execute the decree by arrests with costs throughout.