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Judgment
Wallace, J.—These appeals are against the dismissal by the Lower Court of three petitions by a petitioning creditor u/s 53 of the Provincial
Insolvency Act seeking to avoid certain alleged fraudulent alienations. The alienations attacked date from June and July, 1921. The insolvency
petition was filed on 12th October, 1921. The three petitions, which were by the appellant, were put in 1925. The District Judge''s order was
passed on 29th April, 1927. The District Judge did not finally decide the petitions on the merits, because he discovered during the hearing of the
petitions that the insolvent had failed to apply for his discharge within the time granted, and that the time granted had expired on 31st August, 1926.
The appellant applied for extension of time but the District Judge refused it and went on to hold that by force of Section 43 of the Provincial
Insolvency Act the adjudication is automatically annulled and that therefore the three petitions will fail. u/s 37 he ordered the property of the
insolvent to vest in the Official Receiver; but he evidently regarded the dismissal of the petitions as an automatic consequence of the annulment; and
it is that legal position that has been attacked here.
The respondents contended inter alia that the District Judge had definitely decided that he would not exercise his power, if he had the power u/s
37, to allow the enquiry into the petitions to be continued. But I am quite clear that that is not so. The learned Judge says, regarding one petition,
that he would have set it aside if the petitions had not failed on the technical ground, and of another he says that he finds it impossible to give a
decision on the merits as the evidence has not been concluded. In his final order dismissing the petitions he makes no distinction between one and
another but deals in one sentence with all three. So it is clear that he regarded himself as having no option but to dismiss the petitions once the
adjudication was annulled. The correctness of that legal position has to be examined.
It is clear from Sections 43 and 37 that when an adjudication is annulled u/s 43 the insolvency proceedings will come to an end except so far as
they are kept alive by orders passed u/s 37. That position has been clearly laid down by a Bench of this Court in Jethaji Peraji Firm v. Krishnayya
ILR (1929) 52 M. 648 : 57 M.L.J. 116, where the Bench considers and to some extent relies upon the judgment of Tiruvenkatachariar, J. and
myself in Timmappa v. Devasi Harpal (1928) 56 M.L.J. 458. The point from which the Bench differs from my judgment is, if I may say so with
respect, based on some misapprehension of the language used by me. I say at page 462, ""Under Section 43 therefore the annulment of
adjudication is evidently intended to put an end to the insolvency proceedings as a whole."" The Bench takes that to mean that I was saying that
nothing of the insolvency jurisdiction remains after an order is passed u/s 43. But as Section 37 is itself stated by Section 43 to come into operation
on the annulment of adjudication u/s 43, my language was not intended to convey that Section 37 did not come into operation at all. It is clear,
however, that the adjudication is annulled save in so far as some direct order is passed and some direct condition is imposed by the Court u/s 37.
Prima facie, therefore, if the adjudication is annulled u/s 43, the insolvent is placed status quo ante the insolvency. But Section 37 says that
all sales and dispositions of property and payments duly made, and all acts theretofore done, by the Court or receiver, shall be valid; but, subject
as aforesaid, the property of the debtor who was adjudged insolvent shall vest in such person as the Court may appoint, or, in, default of any such
appointment, shall revert to the debtor to the extent of his right or interest therein on such conditions (if any) as the Court may, by order in writing,
declare.
This might be taken to imply that the original vesting is put an end to by the annulment of the adjudication; that is, that while acts done by the
Court or the receiver up to the date of the annulment remain valid, such acts as have not been completed remain in that state of incompleteness and
do not continue and cannot be continued any further unless the Court directs their continuance. Therefore, for example, as I have indicated, the
original vesting in the Official Receiver, while valid and validating all acts done under it up to the date of the annulment, does not continue but
automatically comes to an end by the annulment and therefore has to be renewed by direct order if the Court wishes it to continue. Similarly I
should infer, an enquiry u/s 53 or 54, begun prior to the annulment, stops short where it is on the date of the annulment and will not continue, unless
by order of the Court it is directed to continue.
This is the position maintained by the respondents who. argue further on the footing of Jethaji Peraji Firm v. Krishnayya ILR (1929) 52 M. 648 :
57 M.L.J. 116 that the re-vesting u/s 37 will not permit the entertainment of a fresh petition to avoid but only permits continuance of an enquiry in
the one already put in. It is not necessary however in this case to consider whether Section 37 would authorise the Court to entertain a fresh
application to avoid since in the present case the Court had already received and given its permission to the prosecution of an enquiry on petitions
already presented. I do not think this view is in substance at variance with that expressed in Jethaji Peraji Firm v. Krishnayya ILR (1929) 52 M.
648 : 57 M.L.J. 116, because the learned Judges there held in effect that the fresh order vesting the property in the Official Receiver implied a
direction to him to continue any proceeding to avoid fraudulent alienation on which he had already embarked. It may be correct to hold that a
direction continuing the proceedings is not necessary in law, but it would certainly be more satisfactory from the legal point of view if'' such a fresh
direction is given in express terms.
That the Court has authority to give a direction to continue such an enquiry already begun seems to me also the practical common sense view.
The rulings in both Timmappa v. Desai Harpal (1928) 56 M.L.J. 458 and Jethaji Peraji Firm v. Krishnayya ILR (1929) 52 M. 648 : 57 M.L.J.
116 point out that the annulment of adjudication u/s 43 is by way of punishment to a recalcitrant debtor who refuses or neglects to apply for his
discharge in time. If the effect of such refusal is going to be the dismissal of all applications to avoid his fraudulent preferences, obviously a Court
will be much more reluctant to exercise its powers u/s 43. I am clear that it cannot have been the intention of the legislature that a section intended
to punish a debtor for his slackness was also intended to let him ""get away"" successfully with his fraudulent preferences. It does not meet this
difficulty to say that the Official Receiver or the creditors may themselves apply to have the time extended, because that would merely mean that in
order to continue the fraudulent preference enquiry the Court has to withhold its punishment from the debtor; in other words, the Court will be
precluded at the same time from punishing the debtor by annulling the adjudication and from setting aside his fraudulent preferences.
I am therefore clear that Section 37 was intended to permit and does permit a Court to direct as one of the conditions of the annulment that
proceedings begun with its permission u/s 53 or 54 shall not automatically cease because of the annulment but may be continued. In the present
case such a direction cannot be spelt into the Lower Court''s order vesting the property in the Official Receiver, since it was not the Official
Receiver who was maintaining the proceedings u/s 53. What is necessary is a specific direction permitting the proceedings instituted by the
appellant to continue.
I hold, therefore, that the Lower Court''s view of its powers is erroneous and set aside its orders. It will now in the light of the above judgment
consider how far, if at all, in respect of-each alienation, - and of course with reference to the merits of each and the evidence adduced in each
case, - it desires that an enquiry already begun by the appellant ought to continue and will give directions accordingly.
I may point out incidentally that it is not clear to my mind that I.A. No. 182 is barred by time. I have not had the facts of the case fully put before
me, but so far as I have been informed it appears that the alienee in that application is not a creditor and therefore the application is one not u/s 54
as the District Judge seems to hold but would be u/s 53.
For the reasons given therefore I reverse the order of the Lower Court and direct that it re-entertain the applications and pass orders
accordingly. Costs up to date in all Courts will abide the result.