Sevadappa Goundar vs K.V. Narayanaswami Aiyar, Special Receiver

King, J.—The subject-matter of this appeal is a mortgage-deed executed by a person who subsequently became an insolvent. The date of

the mortgage is 9th December, 1927 and the mortgagor was adjudicated insolvent in October, 1930. The appellant is the mortgagee. In June,

1931, he sued on his mortgage in the Court of the Subordinate Judge of Coimbatore. In August, 1931, the Official Receiver applied in Insolvency

before the same Judge under Sections 4 and 53 of the Provincial Insolvency Act to have the mortgage set aside. In October, 1934, the

Subordinate Judge decreed the appellant''s suit and dismissed the application of the Official Receiver. Against the decree, no appeal was filed by

the Official Receiver who contented himself with filing an appeal against the order of dismissal under the Provincial Insolvency Act. That appeal

was heard by the learned District Judge of Coimbatore who reversed the decision of the learned Subordinate Judge and u/s 4 of the Act held that

the mortgage was not good against the rights of the general body of the insolvent''s creditors. This is now an appeal against that order of the

learned District Judge.

The only point upon which there has been any serious argument in this appeal is the question of res judicata which has been dealt with by the

learned District Judge in paragraph 9 of his judgment. The argument in appeal is that the learned District Judge ought to have held that as there had

been no appeal against the decree of the Subordinate Judge, he was'' precluded by the rule of res judicata from disposing of the issue before him

u/s 4 of the Provincial Insolvency Act. The learned District Judge in disposing of the appeal says that there is really no substance in this contention:

As has been just now said both the petition and the mortgage suit were tried together and common evidence taken in both by the consent of

parties. The governing litigation is the one on the insolvency side. As has been held in The Official Receiver of Coimbatore Vs. Palaniswami Chetti

alias Ponnuswami Chettiar and Another, , it is the duty of the Court executing the mortgage decree to give effect u/s 4 of the Provincial Insolvency

Act to the decision in the insolvency enquiry.

It seems to me obvious that apart from any specific rulings which may be cited, the plea of the appellant before the learned District Judge on the

question of res judicata is one which should prevail. There was a decree of competent Court on the question of this mortgage which had not been

appealed against and therefore had become final. It was final and in full force and effect at the date when the learned District Judge heard the

appeal and the learned District Judge ought to have recognised this fact and dismissed the appeal on that ground.

It remains, however, to consider two rulings in this connection one of which has already been referred to by the learned District Judge and

another of which has been brought to my attention during the course of the hearing of this appeal. The Official Receiver of Coimbatore Vs.

Palaniswami Chetti alias Ponnuswami Chettiar and Another, is a case which is not directly in point. The question at issue in that case was whether

when proceedings u/s 53 of the Insolvency Act had been initiated by the Official Receiver, a suit on a mortgage which was then pending, ought or

ought not to have been stayed, and the decision in the case was that the institution of proceedings u/s 53 of the Provincial Insolvency Act in no way

takes away the jurisdiction of the ordinary Civil Court to try a mortgage suit and that therefore, the suit need not be stayed. There are however

passages in the judgment which deal with the question of the concurrent jurisdiction of the Civil Court and of the Insolvency Court and there is an

interesting distinction drawn by Mr. Justice Wallace between the position of the Official Receiver in defending a mortgage suit and his position as

petitioner under the Insolvency Act. It is held by Mr. Justice Wallace that there may be certain defences against a mortgage suit which the Official

Receiver impleaded in that suit is unable to put forward. For instance, it would not be competent for him to say that although the mortgage was true

in fact and the mortgagor, that is, the insolvent had received the money covered by it, nevertheless, the mortgage ought to be set aside in the

interests of the general body of creditors. Or, in other words, the Official Receiver might not be able to put forward some of the contentions which

would justify him in filing an application u/s 53. But it cannot, I think, be held that in the present case, the Official Receiver in defending the

mortgage suit was debarred in any way from putting forward the actual case, which he did in fact put forward both in the suit and in the

proceedings under the Provincial Insolvency Act. There is some ambiguity in the way in which his pleadings have been framed. But, as the case can

be finally to be disposed of by the learned Judge, it seems clear to me that his real case was that there was no consideration for the mortgage at all.

Such a defence was a perfectly valid defence to be put forward by him in his capacity as defendant in the mortgage suit. The distinction, therefore,

which has been drawn in The Official Receiver of Coimbatore Vs. Palaniswami Chetti alias Ponnuswami Chettiar and Another, is of no assistance

to the respondent in the present case. Nor can it be contended here that by virtue of the fact that proceedings are pending u/s 63 of the Provincial

Insolvency Act, the decision of the Insolvency Court must take precedence over any decree of the Civil Court. No doubt it has been held in The

Official Assignee of Bombay Vs. Obla Kuna Muna Sundarachari and Others, that it is the Insolvency Court alone which is entitled to dispose of

the subject-matter of an application u/s 53. But on the chronology of this case, it is clear that Section 53 cannot be applied at all. As has already

been made clear, the mortgage was executed more than two years before the date of the insolvency. Section 53 therefore does not apply and the

only order that can possibly be passed under the Provincial Insolvency Act to set aside the mortgage must be one u/s 4. I have been shown no

authority which suggests that the subject-matter of Section 4 of the Provincial Insolvency Act is one with which the Insolvency Court alone is

concerned. On the other hand, as has already been pointed out in The Official Receiver, Coimbatore v. Palaniswami Chetty (1905) 16 M.L.J. 63 :

ILR 29 Mad. 333 , it is definitely held that the existence of insolvency proceedings does not take away the jurisdiction of the ordinary Civil Court.

The second case with which I must now deal is Panchanada Velan v. Vaithinatha Sastrial (1905) 16 M.L.J. 63 : ILR 29 Mad. 333 . That is a

case decided by a Full Bench of the Madras High Court in which there were two cross suits and an appeal was filed against only one of them, the

other decree being left without any appeal. It was contended that the appellate Court could not dispose of the one appeal which was filed, on the

ground, that the non-filing of the second appeal rendered the decree of the Court which was thus not appealed against final. The High Court held

that the doctrine of res judicata could not apply to the facts of that case. It observed that the subject-matter of the litigation in the two suits was the

same, the evidence was the same and the two suits were tried together.

The doctrine does not apply when, as here, the very object of the appeal, in substance if not in form, is to get rid of the adjudication which is said

to render the question which the appellate Court is asked to decide res judicata. The tenant''s appeal in his suit, if successful, will have the effect of

superseding the adjudication in the landlord''s suit.

At the same time the High Court points out that technically two appeals ought to have been filed. Finally they say:

It would lead to startling results if we were to hold that an Appellate Tribunal is precluded from dealing with a question which comes before it on

appeal because an inferior Court, upon the same facts, but in a case other than the case under appeal, had given a decision which had not been

appealed against at the same time as the decision in the case under appeal.

It is of course obvious from the facts of that case that, if the second appeal had been filed, it would have been filed in the same Court as the first

appeal and no question arises at all as to the competency of the appellate Court to have decided the two appeals itself. The essential distinction in

the present case is that the learned District Judge of Coimbatore was not competent to decide an appeal against the decree in the mortgage suit as

the amount involved in the mortgage suit was Rs. 11,200. An appeal therefore lay only to the High Court. It seems to me that this is a fundamental

distinction and renders the arguments of the learned Judges of the High Court in Panchanada Velan v. Vaithinatha Sastrial (1905) 16 M.L.J. 63 :

ILR 29 Mad. 333 inapplicable to the facts of the present case.

In the result, I am, therefore, of opinion that the learned District Judge in deciding this appeal ought to have decided it in the manner contended

for by the appellant herein by holding that the subject-matter of the appeal before him was already res judicata. I accordingly set aside his order

and restore the order of the learned Subordinate Judge with costs throughout.

Leave to appeal is granted.