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Judgment
Ratnam , J.—This civil revision petition raises the question whether on the adjudication of the defendants in a suit for recovery of money as
insolvents, the plaintiff is entitled to impleaded the official Assignee as either a necessary party or even as a proper party and to continue the suit.
The first respondent instituted O. S. No. 77 of 1977, Sub-Court, Kumbakonam, against respondents 2 to 4 for the recovery of amounts due
under a promissory note executed by them in favour of the first respondent. Respondents 2 to 4 are Subject to the provisions of this partners in
Sundaram Fire Works. During the pendency of the suit, in I. P. No. 68 of 1972, respondents 2 to 4 were adjudicated as insolvents and their
properties also vested with the Official Assignee, Madras. Claiming that the Official Assignee is a necessary party to the suit the first respondent
filed I. A. No. 259 of 1978 in O. S. No. 77 of 1977 praying for an order impleading the Official Assignee as 4th defendant in the suit.
That application was opposed by the Official Assignee on the ground that since the suit is one for recovery of amounts due under a promissory
note, the claim would be a money claim provable in insolvent and the first respondent has to establish her claim before the Official Assignee as and
when the decree or order is passed and that therefore, the Official Assignee would neither be necessary nor a proper party to the suit. A further
plea was also raised that the suit does not relate to any ""Property"" and therefore, the application is not maintainable. On these grounds, the Official
Assignee prayed for a dismissal of the application. The learned Subordinate judge, Kumbakonam, who heard the application, was of the view that
since the properties of respondents 2 to 4 have already vested with the Official Assignee of Madras, he should be impleaded as a formal party,
even though the first respondent has not sought any relief as against the petitioner herein. This, according to the learned Subordinate judge, was
necessary in order to avoid any future technical objections and also in the interests of justice. On these conclusions, the learned Subordinate judge
allowed the petition.
In this civil revision petition, the learned counsel for the petitioner strenuously contends that having regard to the nature of the claim made in the
suit viz., money claim, the circumstance that the executants of the Promissory note have been adjudicated insolvents would not enable the first
respondent to implead the Official Assignee as a party defendant to the suit as the claim does not relate to any ""property"" as such of respondents 2
to 4. It is not in dispute that in the present case, the adjudication was under the Provisions of the Presidency Towns Insolvency Act. Under S. 68
of that Act, provision has been made for enabling the Official Assignee to institute, defend or continue any suit or other legal proceedings. S. 68(1)
(d) is the relevant section in this connection and it reads as under:
68 (1) Subject to the provisions of this Act, the Official Assign shall, with all convenient speed, realize the property of the insolvent, and for that
purpose may -
(a)
(a) to (c) .................................................
(d)
(d) institute, defend or continue any suit or other legal proceeding relating to the property of the insolvent:"" (underlining mine).
The question therefore arises whether as a result of the aforesaid statutory provision, the Official Assignee is either entitled or even may be
compelled to defend the suit in the instant case. The cases in which the Official Assignee or Receiver as the case may be may either enforce by suit
or permit on enforcement as against him of causes of action as representing the estate of the insolvent may be broadly divided into three classes
viz., (1) causes of action in suits by the insolvent pending at the commencement of the insolvency; (2) causes of action in suits pending against the
insolvent at the time of the commencement of the insolvency and (3) causes of action which are either vested in the insolvent at the commencement
of the insolvency or which devolve on him after insolvency and before discharge. As regards the cases falling under the first category the Official
Assignee or the Receiver is entitled to continue them, if the cause of action vests in him. Regarding the second category of cases, the Official
Assignee or Receiver would be a necessary party, if the suit relates to the property of the insolvent which has vested in the Official Assignee or
Receiver. In the last category of cases, the causes of action may be enforced by suits by the Official Assignee or Receiver, unless the cause of
action is of such a nature that it does not vest in him. In the present case, we are concerned with the second category referred to above. It is
therefore obvious that unless the suit relates to the property of the insolvent, the Official Assignee or Receiver cannot be brought into or impleaded
as a Party to the suit. The statutory provision in this regard has already been referred to. The question is what precisely is the meaning to be
attributed to the words ""relating to the property of the insolvent."" Are the words to be construed to take in suits which directly or immediately
affect the property of the insolvent or do they take in a legal proceeding which might eventually and ultimately result in affecting the property?
Precisely this question came up for consideration in AIR 1926 Mad 1008 . In that case, the Division Bench was dealing with appeals arising from
two suits--one by the appellant against a decree for recovery of a images for breach of contract obtained by the respondents and the other against
the dismissal of his suit for recovery of advance paid with interest. After the filing of the appeals, the appellant became insolvent and the appeals
were not pressed by him. Thereafter, the Official Receiver who was not a party earlier, applied to be made a party to the appeals on the ground
that he had no notice of the appeals or their pendency and that there was a good case to represent against the decrees. That application was
granted on certain terms an at the time of the final hearing of the appeals a preliminary objection was taken that under the Provincial Insolvency
Act, it is incompetent for the Official Receiver to prosecute an appeal which merely related to a claim for damages and did not affect any property
of the insolvent. In dealing with this contention, the Division Bench observed at page 1135 thus:
Turning to this section, what we have to see is what under Cl. (1) is the meaning of the term, ""Relating to the property of insolvent,"". Is it a suit
which directly or immediately affects the property of the insolvent or is it a suit or legal proceeding which might ultimately result in a decree which if
executed or sought to be enforced would be payable out of the assets of the insolvent and thereby affect the property? The argument of Mr.
Krishnaswami Iyer is that it should be such as directly and immediately affects the property and that we cannot hold ""Relating to the Insolvent''s
property"" to mean ""affecting the property"", because that construction would result in every cause of action which the insolvent had being continued
or defended by the Official Receiver for the benefit of the insolvent, while the law clearly is that so far, as regards merely personal actions the
Receiver cannot continue them, but he can continue actions which are not personal and he referred to some English cases on the point. We do not
think there is very much use in referring to English Law on the subject, because the Provincial Insolvency Act has codified and crystallized the law
which we have to administer on the subject and we have not been referred to any corresponding, section in the English Act. We do not think there
is any authority for holding that the words ""relating to"" must be taken to mean ""affecting"". Mr. Ananthakrishna Iyer himself admits that such a
construction, which would give the Official Receiver power to conduct suits of a purely personal nature, which no Court has yet allowed to be
done, would be placing an undue stretch on the section. What he argues is that where once a decree is passed or where the cause of action does
not relate to personal actions but relates to actions founded on contracts and not of a purely personal nature, as the effect of a decree passed
would be if improper, to reduce the assets which are divisible among creditors, or, as the effect of a suit dismissed, if proper, should be to diminish
the amount coming into the bands of the Receiver for distribution to the creditors, a wide construction would be placed on S. 59(d). It is argued
that the Official Receiver has no remedy in such cases unless a liberal construction is put on S. 59 (corresponding S. 68(1)(d)). It seems to us that
the Official Receiver has in such cases a remedy. The definition of a debt under the Insolvency Act includes a decree debt because S. 2(a) states
that ""Creditor includes a decree-holder and ""debtor"" includes a Judgment-debtor."" Proceeding further to consider the effect of the passing of a
decree without the Receiver being made a party, the Bench further stated thus:
Thus we find that where a decree is passed without the receiver being made a party, it is open to him to contest the validity of that decree in
proper proceedings under the Insolvency Act. So far as the law in England is concerned, it is clear that the Bankruptcy Court is not bound by the
decrees passed against the insolvent but can go into proof of the consideration and the amount which is due and validity of those decrees. We may
refer to Williams on Bankruptcy (13th Edition, page 258). It is therefore not a case where the Official Receiver is without a remedy. We are of
opinion that Section 59 does not authorize the Official Receiver to appeal against a decree which was passed against in a suit damages which the
respondent filed against him.
Dealing with the appeal filed against the decree rejecting the claim for the return of the deposit, the Bench stated that the deposit is the ""property
of the insolvent, unless it was otherwise established that the respondents had a right to appropriate the same and not to return it. Ultimately, it was
held that since in the suit in which a decree was obtained for credit was given to the advance and the damages exceeded the deposit, that suit also
will have to fail and in this view, that appeal was also dismissed. From the observations extracted above, it is clear that the suit for the recovery of
money as such against the defendant who has been subsequently adjudicated an insolvent cannot be said to relate to the property of the insolvent
and to such a suit, the Official Receiver cannot be either a necessary or a proper party. To similar effect is the judgement in Chandrakant Devji Vs.
Narottamdas Amarchand, . There again a suit relating to the property of the insolvent was interpreted to mean a suit, which if successful, will
increase the assets distributable amongst the creditors or the defence of which may prevent the assets being diminished and that a right to constitute
an appeal, which merely relates to a money claim against an insolvent is not a legal proceeding relating to the property of the insolvent and does not
fall within the powers given by S. 68 of the Presidency Towns Insolvency Act, 1909, to the Official Assignee and that therefore, the Official
Assignee cannot maintain the appeal filed by debtor before insolvency for the benefit of the insolvent''s creditors. It was also further observed that
the official Assignee is not bound by the judgment appealed from and can in insolvency decline to admit the debt. Again in Govindji Mavji v.
Jadavji Valji AIR 1953 Sau 82), the principles referred to above were applied and it was held that the words ""might maintain"" mean ""has the
power"", or is entitled, to maintain and that under S. 59 of the Provincial Insolvency Act, a suit or appeal which the receiver is required to continue
is one relating to the property of the insolvent and therefore an appeal which relates to a money decree passed against file insolvent does not
amount to a legal proceeding relating to the property of the insolvent and if the receiver declines to continue the appeal, the insolvent appellant is
entitled to continue the same. Having regard to these principles which are applicable to the instant case, the claim in the suit cannot, by any stretch
of imagination, be construed to relate to the ""property"" of the insolvent and therefore, the presence of the Official Assignee is unnecessary. The
conclusion of the court below to the contrary is, therefore, untenable and consequently, that order is set aside and the civil revision petition is
allowed. No costs.
Petition allowed.