The Official Receiver vs Narra Gopalakrishniah and Others

This Civil Revision Petition raises the question whether the recent decision of the Privy Council in Mahomed Siddique Yousuf v. Official

Assignee of Calcutta (1878) 10 Ch. D. 3 applies to orders of adjudication under the Provincial Insolvency Act as well as to orders of adjudication

under the Presidency Towns Insolvency Act.

To appreciate the full effect of the judgment in that case a short statement of the facts, on which it is founded is necessary. One Ali Mahomed

Hashi was adjudicated an insolvent by ''the High Court of Calcutta. It was alleged and found that he had committed several acts of insolvency. One

of the acts alleged against him was the granting of a fraudulent preference to a creditor (the appellant in the Privy Council). To this creditor he had

assigned within three months of the petition asking for his adjudication a decree which he had obtained for Rs. 6,750 and interest. The assignee

had hot been given notice of the application for adjudication and had not been made a party to the insolvency proceedings. The date of the order

of adjudication was the 13th June, 1939. On the 5th April, 1939, the petitioning creditor obtained a decree against the insolvent for Rs. 15,789-

10-0. In the month of May, 1939, the appellant instituted proceedings in execution of the decree which had been assigned to him and an order was

made that the judgment-debtor should pay the amount into Court; but the order further provided that the money was not to be withdrawn without

the leave of the Insolvency Court. In August the appellant applied for leave to take the decretal amount out of Court. Leave was given subject to

leave being obtained in the suit. The appellant then applied in the suit for leave, but his application was opposed by the Official Assignee. On the

31st August, 1939, the Court held that the appellant was entitled to withdraw the amount on furnishing security, but said that if the Official

Assignee made any application on the first insolvency day after the reopening of the Court, which was then closed for the vacation, the appellant''s

application was to abide the result; if no application was made by the Official Assignee, the order of the appellant''s application was to be granted

as asked for.

On the 23rd November, 1939, the Official Assignee moved the Insolvency Court to declare the assignment to the appellant void and to pass an

order setting it aside. The Official Assignee raised two contentions. The first was that the transfer having been found to be an act of insolvency in

the order of adjudication, the transferee was no longer in a position to say that the transaction was valid. This argument was based on the judgment

in Ex parte Learqyd1. The second contention was that the evidence showed that there was in fact a fraudulent preference. The learned Judge

hesitated to apply the principle laid down in Ex parte Learqyd1 in view of the fact that the Madras High Court in Official Assignee of Madras v.

O.R.M.O.R.S. Firm (1826) 52 M.L.J. 352 : ILR 50 Mad. 541 had held that it did not apply in India, but he found that the intention to prefer had

been proved. On appeal a Division Bench of the Calcutta High Court expressed the opinion that Ex parte Learoyd1 did apply. The Privy Council

agreed with the appellate Court and consequently their Lordships overruled Official Assignee of Madras v. O.R.M.O.R.S. Firm (1826) 52 M.L.J.

352 : I..L.R. 50 Mad. 541. They held, however, that the appellant was entitled to appeal against the adjudication order and indicated that the

provisions of Section 5 of the Limitation Act could here be invoked.

In Ex parte Learqyd,1 the Court of Appeal held that by virtue of Sections 10 and 11 of the Bankruptcy Act, 1869, an adjudication in

bankruptcy was conclusive against a third party; but a third party whose title to property was affected by the adjudication order was a person

aggrieved "" and therefore was entitled to appeal against the order of adjudication. Section 10 of the Bankruptcy Act, 1869, provided that an order

of adjudication in bankruptcy should be published in the London Gazette, and the production of a copy of the Gazette containing the order should

be conclusive evidence in all proceedings of the debtor having been duly adjudged a bankrupt and of the date of adjudication. Section 11 stated

that the bankruptcy of a debtor should be deemed to have relation back to and to commence at the time of the act of bankruptcy, or if more acts

than one had been committed to have relation back and to commence at the time of the first of the acts proved to have been committed within

twelve months of the order of adjudication. Similar provisions are to be found in the Presidency Towns Insolvency Act and this was the reason for

the application in the Calcutta case of the principle settled by Ex parte Learqyd1. Section 116 corresponds to Section 10 of the Bankruptcy Act,

1869, and Section 51 to Section 11.

It follows that if the relevant provisions of the Provincial Insolvency Act are on all fours with those of the Presidency Towns Insolvency Act, the

principle of Ex parte Learoyd1 must be applied to adjudications under the Provincial Insolvency Act, but not otherwise. An examination of the

relevant sections shows that there are wide differences between the two Acts. Section 116 of the Presidency Towns Insolvency Act states that a

copy of the Official Gazette containing a notice inserted in pursuance of the Act shall be evidence of the facts stated in the notice.. Section 51 says

that the insolvency of a debtor'' shall be deemed to have relation back to and commence at (a) the time of the commission of the act of insolvency

on which an order of adjudication is made against him, or (b) if the insolvent is proved to have committed more acts of insolvency than one, the

time of the first of the acts of insolvency proved to have been committed by him, within three months next preceding the date of the presentation of

the insolvency petition.

The section dealing with the publication of the order of adjudication under the Provincial Insolvency Act is Section 30 which says that notice of

an order of adjudication shall be published in the Official Gazette, but it does not provide that the publication of the notice shall be evidence of the

facts stated therein, as is the case with Section 116 of the Presidency Towns Insolvency Act. The relation back section is also different. In the

Provirecial Insolvency Act, it is Section 28(7)'' which says that an order of adjudication shall relate tack to, and take effect from, the date of the

presentation of the petition on which it is made.

There is a further difference between the two Acts. Section 54 of the Provincial Insolvency Act says that every transfer of property, every

payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become

due from his own money in favour of any creditor, with a view of giving that creditor a preference over the other creditors, shall, if such person is

adjudged insolvent on a petition presented within three months after the date thereof, be deemed fraudulent and void as against the receiver, and

shall be annulled by the Court."" The words"" shall be annulled by the Court "" do not appear in the corresponding section of the Presidency Towns

Insolvency Act, Section 56.

Therefore we have these differences between the two Acts : (1) Under the Provincial Insolvency Act, the publication in the Official Gazette of

the order of adjudication is not evidence of the fact stated therein as is the case in the Presidency Towns Insolvency Act; (2) the order of

adjudication under the Provincial Insolvency Act relates back only to the date of the petition asking for the adjudication, whereas in the Presidency

Towns Insolvency Act it relates back to the very act of insolvency itself; and (3) the Provincial Insolvency Act requires a fraudulent transfer to be

annulled by a direct order of the Court which is not the case under the Presidency, Towns Insolvency Act. The first two are the most important of

the differences.

The question whether Ex parte Learoyd1 could be applied in the case of an adjudication under the Provincial Insolvency Act fell to be decided

in 1936 by a Division Bench of the Rangoon High Court, of which I was a member. The case was Ma Htwe v. Maung Pu (1826) 52 M.L.J. 352 :

I..L.R. 50 Mad. 541. The Court held that Ex parte Learoyd1 had no application because of the differences in the wording of the Bankruptcy Act,

1869, and the Provincial Insolvency Act. This decision was followed by this Court (Byers, J.) in the un-reported case of K.V. Krishnamurthi Iyer

v. K.S. Viswanatha Iyer, C.R.P. No. 1474 of 1943. The question has been fully argued before us and we consider that there is no room to doubt

that Ex parte Learoyd1 does not apply when the adjudication order: has been passed under the Provincial Insolvency Act because that Act does

not contain the provisions on which the decision in Ex parte Learoyd1 was based. Under the Presidency Towns Insolvency Act, as under the

Bankruptcy Act, 1869, an order of adjudication operates to vest the property of the insolvent in the Official Assignee from the earliest proved act

of insolvency and, therefore, any alienation by the insolvent from the commencement of the act of insolvency is entirely inoperative. Under the

Provincial Insolvency Act the property does not vest in the Official Receiver until the date of the presentation of the petition which means that all

unlawful transactions entered into prior to that date require to be set aside.

In the case now before us, the Subordinate Judge held that the decision of the Judicial Committee in Mahomed Siddique Yousuf v. Official

Assignee of Culcutta applied; but this view was not shared by the District Jude on appeal. It follows from what we have said that we are in

agreement with the opinion of the District Judge and consequently the petition must be dismissed with costs.