The Official Receiver vs R.M. Nagaratna Mudaliar

Venkatasubba Rao, J.—I shall briefly state the fact''s that have given rise to this appeal. Execution was taken out of a money-decree and the

judgment-debtor agreed to pay the decree-holder interest at an enhanced rate and executed in his favour a security bond in respect of certain

Immovable properties. As a result of this, an order was made postponing execution under Order XX, Rule 11, C.P.C. The judgment-debtor was

subsequently adjudicated an insolvent and on the decree-holder seeking to attach the properties secured and bring them to sale, the Official

Receiver applied to the Insolvency Court for an order to stay the sale directed by the Executing Court. The application was refused by the District

Judge of East Tenjore and this appeal has been filed questioning the correctness of his order.

Mr. Varadachariar, the learned Vakil for the decree-holder, objected that apart from the merits of the case the Insolvency Court would have no

power to make an order binding upon the Court executing the decree. As on hearing full arguments on the other contentions raised we intimated

that we were against the appellant, Mr. Varadachariar did not have to argue the point relating to the power of the Insolvency Court. I shall,

therefore, proceed to deal with the case as if the objection to the property being sold had been raised before the Executing Court itself.

Mr. T.M. Krishnaswami Iyer the learned Vakil for the appellant advanced two main contentions:

(1) A security of this kind cannot be enforced in execution, as to do so will contravene the terms of Order XXXIV, Rule 14, C.P.C.

(2) That u/s 52 of the Provincial Insolvency Act (V of 1920) the Executing Court on being informed that the judgment-debtor has become an

insolvent is bound to stay the sale and direct the property to be handed to the Receiver in Insolvency.

I shall deal with these contentions in the order in which I have stated them.

The first contention is based on the terms of Order XXXIV Rule 14, C.P.C. It runs, thus:

�Where a mortgagee has obtained a decree for the payment of money in satisfaction of a claim arising under the mortgage, he shall not be

entitled to bring the mortgaged property to sale otherwise than by instituting a suit for sale in enforcement of the mortgage.... "" Every essential is

wanting in this case. The section contemplates a mortgage and a decree. Under the section there must be first a mortgage and then a decree in

respect of a claim arising under the mortgage. The position here is reversed. Long previous to the mortgage there was a decree and it was

impossible that the decree could be in respect of a claim arising under a mortgage which was non-existent. The section, therefore, does not in

terms apply.

Where the charge is created by the decree itself, Order XXXIV, Rule 14 can have no application. See Sawbajia Ammal v. Manika Mudali 22

M.L.T. 386 : (1917) M.W.N. 782 : 6 L.W. 701 and Indramani Dasi v. Surendra Nath Mondal AIR (1922)(C.) 35.

Where the security comes into existence subsequent to the decree, the principle applies a fortiori and Order XXXIV, Rule 14, cannot be a bar.

In this connection I may notice two sets of cases to which reference has been made at the bar:

First, cases u/s 145, where in execution, security was sought to be enforced against a surety.

Second, cases under certain other sections of the Code where the judgment-debtor was the party against whom security was attempted to be

enforced.

Let me first deal with cases u/s 145. In Mukta Prasad v. Mahadeo Prasad 33 Ind. Cas. 982 : 14 A.L.J. 385 the property of the surety was

allowed to be sold in execution. The ground of the decision was that he rendered himself per sonally liable and his personal liability could be

enforced by the very property given as security being attached and sold. In Amir v. Mahadeo Prasad 38 Ind. Cas. 33 : 15 A.L.J. 76 it was held

that although the surety had made himself personally liable, the charge against the property could be enforced only by means of a regular suit. I may

point out that though Mukta Prasad v. Mahadeo Prasad 33 Ind. Cas. 982 : 38 A. 327 : 14 A.L.J. 385 was in this case distinguished, the ground pf

the distinction is wrong as what was attempted to be sold was not merely the judgment-debtor''s equity of redemption. In Chandrabati v. Babu

Ram 27 Ind. Cas. 365 : 19 C.W.N. 178 the bond created a personal liability but it was held that the property given as security could not be sold

in execution although the personal liability of the surety could be otherwise enforced. In Brojendra Lala Dass v. Lakshmi Narain Khanna 29 Ind.

Cas. 149 : 19 C.W.N. 961 Section 147 was held inapplicable as the surety had not undertaken any personal liability and the propeties were not

allowed to be sold in execution. In Raj Raghubar Singh v. Jai Indra Bahadur Singh 55 Ind. Cas. 530 : 6 O.L.J. 682: 18 A.L.J. 263 : 22 Bom. L.R.

521 : 46 I.A. 228 : 13 L.W. 82 (P.C.) their Lordships of the Judicial Committee observe that if the surety has not rendered himself personally

liable, Section 145 has no application; but when there is a personal liability undertaken the question is left open.

An examination of most of these cases will show that what is mainly said to be in the way of the security being enforced, is the repealed

Section 99 of the Transfer of Property Act or the provision now corresponding to it, namely, Order XXXIV. Rule 14, C. P. C.

These cases, in my opinion, may be easily disposed of as they deal with a specific section of the Code which gives express rights against a

surety and what these rights are, must be determined with reference to that section alone. We are not now in this appeal concerned with Section

145.

I shall now deal with cases where a security bond was executed by a party to the suit itself. In Shyam Sunder Lal v. Bajpai Jainarayan 7

C.W.N 914 an application was made by the defendant judgment-debtor for stay of execution and it was granted upon his giving security in the

sum of Rs. 10,000. By the security bond which was executed, certain properties were mortgaged as security for the due performance of the

decree. The decree holder applied for realisation of the decree amount by sale of the properties comprised in the bond. Section 99 of the Transfer

of Property Act was relied on by the judgment-debtor who opposed the application. It was held that that section was not a bar as the bond was

not addressed to the decree-holder but was in favour of the Court and that, therefore, there was no mortgage created.

In Tokhan Singh v. Girwar Singh 9 C.W.N. 372 : 1 C.L.J. 118 the judgment-debtors executed a bond to the Registrar of the Court as

security for the costs of the respondents in appeal to the Privy Council. They sought to enforce the security by selling in execution of the decree for

costs the property comprised in the bond. It was held that a valid mortgage was created and that u/s 99 of the Transfer of Property Act, the

security could not be enforced without the institution of a regular suit.

Although Shyam Sundar Lal v. Bajpai Jainarayan 7 C.W.N 914 was distinguished in Tokhan Singh v. Girwar Singh 9 C.W.N. 372 : 1 C.L.J.

118 on the ground that in the former case the bond was given to the Court and in the latter it was executed to the Registrar, these decisions are in

truth irreconcilable.

Section 99 of the Transfer of Property Act has been replaced by Order XXXIV, Rule 14 of the C.P.C. The repealed section ran thus:

Where a mortgagee in execution of. a decree for the satisfaction of any claim, whether arising under the mortgage or not, attaches the mortgaged

property, he shall not be entitled to bring such property to sale otherwise than by instituting a suit u/s 67....

Order XXXIV, Rule 14, has been reproduced in an earlier part of this judgment.

The effect of the alteration is to confine the operation of the rule to cases where a mortgagee has obtained a personal decree against the

mortgagor on the mortgage debt. In such a case, the mortgagee can have the property sold only by instituting a regular suit for sale. The Madras

High Court in Subramania Chettiar v. Raja of Ramnad 43 Ind. Cas 187 : 6 L.W. 762, (1917) M.W.N. 872 : 34 M.L.J. 84, recognising the effect

of this alteration has held that the provision now in force does not stand in the way of the property given as security being sold in execution. In that

case Immovable property was given by a judgment-debtor as security for the due performance of a decree pursuant to an order made under

Order XLI, Rule 5(3), C.P.C., and it was held that the property could be sold in execution. In that case Immovable property was given by a

judgment-debtor as security for due performance of a decree, pursuant to an order made under Order XLI, Rule 5(3) C.P.C., and it was held that

the property could be sold in execution without recourse being had to an independent suit. I may mention that in Baij Nath Goenka v. Sia Ram Das

18 Ind. Cas. 900 the Calcutta High Court held that Section 99 did not operate as a bar. This was decided later than Shyam Sundar Lal v. Bajpai

Jainarayan 7 C.W.N 914 and Tokhan Singh v. Girwar Singh 9 C.W.N. 372 : 1 C.L.J. 118 and previous to Subramania Chettiar v. Raja of

Ramnad 43 Ind. Cas 187 : 6 L.W. 762, (1917) M.W.N. 872 : 34 M.L.J. 84. The referring Judges advert to the conflict of authority and indicate a

clear preference in favour of the view that the property can be sold in execution.

In the most recent case, Jyoti Prakash Nandi v. Mukti Prakash Nandi 81 Ind. Cas. 734 : AIR (1921)(C.) 485, the view of the Madias High

Court has been followed.

The weight of authority, therefore, supports the view that security given by a judgment-debtor can be enforced and the property covered by

the bond be sold in execution.

In the cases mentioned above, security was not taken under Order XX, Rule 11 and on this ground it may be contended that there is no direct

authority on the question raised. But in principle is there any difference? Order XX, Rule 11, contemplates a complete or qualified stay of

execution and some of the sections, at any rate, considered in those cases provide similarly for stay of execution. If the view of the law taken in

those cases is correct, the fact that in the present case, the security bond was taken under Order XXI, Rule 11, makes no difference and we must

hold that the decree-holder in execution of his decree and without being compelled to file a regular suit can bring the property to sale.

In regard to cases that arise under Order XX, Rule 11, the principle may be thus stated. Unless it is shown that the security was taken in

satisfaction of the decree, it was presumably intended that the order made should be capable of execution. If on a construction of the order, the

Court comes to the conclusion that the decree is not satisfied and there is no bar created which precludes the decree from being executed, it is the

duty of the Court to allow execution by enforcing sale. Whether it be regarded that what is sought to be executed is the original decree itself or an

executable order made under the special provision of the law contained in Order XX, Rule 11, it makes very little difference.

In Subramania Chettiar v. Raja of Ramnad 43 Ind. Cas 187 : 34 M.L.J. 84 the learned Judges took the view that it is not only the right of the

decree-holder to bring the property to sale in execution but that u/s 47, C.P.C., the remedy by way of regular suit is not open to him. It is not

necessary to rest my judgment on this ground.

General considerations were strongly pressed before us both in favour of and against the acceptance of this view.

In Tokan Singh v. Girwar Singh 9 C.W.N. 372 : 1 C.L.J. 118 Page of 23 C.--[Ed.] and in Amir v. Mahadeo Prasad 38 Ind. Cas. 33 : 15

A.L.J. 76 Page of 39 A.--[Ed.] the view that it is impolitic to sell the property in execution is set forth In the first case Mookerjee, J., says thus:--

It is quite conceivable for instance that after a properly has been given in security by the judgment-debtor an interest may be acquired in it by

other persons; if it is sold in execution of the decree...it would in such a case be necessarily sold behind the back of persons interested who would

have no opportunity of redemption and their interest would not be prejudiced by the sale and they would be entitled to enforce their claim by

independent suits"".

Weighty reasons are given for the view I am disposed to take by the referring Judges in Baij Nath Goenka v. Sia Ram Das 18 Ind. Cas. 900 :

17 C.L.J. 267. The provision is embodied in the law for the protection of the decree-holder and it must be interpreted to operate to his advantage.

By refusing to sell the property in execution, far from securing to the decree-holder the due execution of his decree the Court renders the decree

itself incapable of execution against the property covered by the security. This is clearly unjust This view is shared by the learned Judges who

decided Subramania Chettiar v. Raja of Ramnad (10), for to quote their very words ""It would be a most mischievous state of law if such a thing (a

mortgage suit) were necessary and it would fetter the discretion of the Court in accepting Immovable property as security"".... In my opinion if it is

permissible to advert to such general considerations the balances of convenience is clearly in favour of the view taken by the Calcutta Judges and

the learned Judges of this Court.

Mr. Varadachariar suggested that if there are subsequent encumbrancers their right will be to proceed against the surplus money, if any. On the

other hand, Mr. T.M. Krishnaswami Iyer urged that such encumbrancers will be entitled to redeem the purchaser at the sale I do not propose to

express any opinion on this point as this has only a remote bearing on the question to be decided, in the appeal.

Then arises the question, is there any thing in the security bond or the order of the Court which precludes the security from being enforced in

execution? In my opinion there is no obstacle created. On the contrary, the effect of the security bond seems to recognise this right of the decree-

holder. The debtor renders himself personally liable, creates the charge and covenants that the security bond shall be in force till the decree is

entirely satisfied. The order of the Court recites the fact that the security bond has been executed. On a construction of the bond and the order, I

am of the opinion that the parties intended that the security should be capable of being realised in execution.

I have now disposed of the first contention raised by Mr. Krishnaswami Iyer. I shall proceed to deal with the second contention, namely, that

based upon Section 52 of the Insolvency Act. Under that section, where after execution has issued, the Executing Court receives notice of the

insolvency of the judgment-debtor, it is bound to direct the property if in its possession to be delivered to the Receiver in insolvency. It ia

conceded by Mr. T.M. Krishnaswami Iyer that this does not apply to mortgage-decree holders and this is obvious enough. But he says that the

decree in question being a money-decree, the fact that the decree-holder is a secured creditor makes no difference and that Section 52 applies. I

am unable to agree Section 52 is somewhat generally worded, but it must receive construction not repugnant to the general scheme of the Act,

namely, to save the rights of secured creditors. It is sufficient to refer in this connection to Section 28(6), Section 47 and Section 51(2). There is

nothing in the wording of these sections to show that money decree-holders who have obtained security are excluded. u/s 2 creditor is defined as

including a decree-holder, debt as including a judgment debt and secured creditor is described as a person holding a mortgage charge or lien on

the property of the debtor as security for a debt due from him. I am clearly of the opinion that Section 52 does not apply.

I have so far dealt with the two main contentions raised on behalf of the appellant. There is a subsidiary point which has been taken on his

behalf and I shall now proceed to deal with it. it is said that the decree was passed against the father only but that the bond was executed by the

father and the sons and that, therefore, the property cannot be sold in execution. There might bersome force in the argument if the bond had been

executed not by the sons of the judgment-debtor but by others. But in the present case the decree-holder''s right is not enlarged nor is the liability

of the executants affected by reason of the existence of the security bond. It was executed by the father as the guardian of his minor sons and

whether they were parties to it or not, their right would still be the same, namely, to question the debt if it is tainted with illegality or immorality. The

circumstance that sons are also parties to the bond, therefore, makes no difference.

The order appealed against must be upheld and the appeal fails and is dismissed with costs.

Madhavan Nair, J.

The facts of the case are fully set out in my learned brother''s judgment. The first question arising for our decision is whether the Immovable

properties given by the judgment-debtor as security pursuant to an order made under Order XX, Rule 11, Clause 2, C.P.C., can be realised by

the decree-holder in execution or can only be realised in a separate suit.

The material portion of the security bond runs asfollows:-- "".... Whereas on your petition attchment has been ordered of our lands in Tenkarai

Isranu for the said decree amount, whereas you have consented to our request not to proceed with the attachment and sale, we have hereby given

as security to you for the amount of Rs. 12,620-4-0 being the amount up to date under the said decree our properties as mentioned in the

schedule.... We shall pay you without trouble or compulsion theabove said decree amount, etc., according to the terms of the kararnama petition

(vis., petition under Order XX, Rule 11, of the C.P.C.).... If we do not pay you accordingly, you shall execute the said decree according to the

terms of the kararnama petition, and for the balance, if any, after what is so realised by you, we undertake to pay you up to the limit of Rs.

12,620-4-0 on the security of the said properties and on our personal responsibility"". The circumstances relating to the execution of the security

bond clearly show that the parties to the security bond intended that if the attachment and sale of the properties became necessary it should be

done in execution. The security bond was executed after attachment was ordered; the judgment-debtor made himself personally liable; and the

bond is to remain in force till the decree is fully satisfied. The security is intended to be operative if the judgment-debtor does not pay the decree

amount and interest. Provision for the contingency of non-payment being made by the security bond, the, parties could not have meant that when

such contingency arose they should institute a separate suit to realise the properties covered by the bond. There can he no doubt that the parties

intended that the properties should be realised if necessary in execution. But whatever be the intention of the parties, if there is any legal

impediment in the way of realisation by execution, then the decree-holder will have to realise his security only by means of a separate suit. It has

been strenuously argued by Mr. T.M. Krishnawami Iyer on behalf of the appellant that Order XXXIV, Rule 14 of the C.P.C. operates as a bar to

the enforcement of the security in execution.

(1) Rule 14 of Order XXXIV provides as follows:

Where a mortgagee has obtained a decree for the payment of money in satisfaction of a claim arising under the mortgage, he shall not be entitled to

bring the mortgaged property to sale otherwise than by instituting a suit for sale in enforcement of the mortgage, and he may institute such suit,

notwithstanding anything contained in Order II, Rule 2"". The words ""claim arising under the mortgage"" have been substituted in this rule for the

words ""any claim whether arising under the mortgage or not"" in the repealed Section 99 of the Transfer of Property Act. The effect of this

alteration is to confine the prohibition against bringing the mortgaged property for sale except by bringing a suit, to cases where a mortgagee has

obtained a personal decree against the mortgagor on the mortgage debt. Obviously the rule in terms does not apply to the present case. ""The

language of the rule makes it clear that the rule does not apply unless the decree obtained by the holder of the mortgage or charge falls within the

description of a decree for payment of money in satisfaction of a claim arising under the mortgage or charge. The mortgage or charge

mentioned...must obviously be a mortgage or charge existing prior to the...decree and not one created by the decree"" see Indramani Dasi v.

Surendra Nath Mondal 64 Ind. Cas. 852 : 35 C.L.J. 61 : AIR (1922) (C.) 35 or one created by the act of parties subsequent to the decree.

Having regard to the important change introduced by Order XXXIV, Rule 14, it has been held in Sowbagia Ammal v. Manika Mudali 42 Ind.

Cas. 975 : 6 L.W. 701; Indramani Dasi v. Surendra 64 Ind. Cas. 852 : 35 C.L.J. 61 and Brajasunder Deb v. Sarat Kumari 38 Ind. Cas. 791 : 2

P.L.J. 55 : (1917) Pat. 67 : 3 P.L.W. 202 that where a maintenance decree provided that the allowance in the decree should be charged on

certain Immovable properties, such properties could be sold in execution of the decree and that there was no necessity to bring a separate suit for

sale. The decision in Subramania Chettiar v. Raja of Ramnad (1917) M.W.N. 872 : 34 M.L.J. 84 is an instance of a case where the security was

given by the judgment-debtor after a decree. In that case Immovable property was given by a judgment-debtor as security for the due

performance of the decree in compliance with an order made under ""Order XLI, Rule 5(3)"" and the question was raised whether such property

can be realised by the decree-holder in execution or can only be realised by a separate suit. In view of the alteration of the language contained in

Order XXXIV, Rule 14, it was held that the provision contained in that rule did not operate as a bar and that the decree-holder'' can realise the

property in execution. The learned Judges observe ""There is no need in such a case that there should be anything in the nature of a mortgage suit

for sale u/s 67 of the Transfer of Property Act with all the expense and delay which would be thereby involved. It would be a most mischievous

state of law if such a thing were necessary and it would fetter the discretion of the Court in accepting Immovable property as security for the

execution of the decree "" In the Order of Reference to the Full Bench in Baij Nath Goenka v. Sia Ram Das 18 Ind. Cas. 900 : 17 C.L.J. 267 the

learned Judges while discussing the principleunderlying the provisions of Section 545, Clause (c) of the old C.P.C. point out that the provisions

embodied in the law for the protection of the decree-holder must be interpreted to operate to his advantage and express their inclination to accept

the view that the properties covered by the security bond executed pursuant to an order under that section could be realised in execution of the

decree without instituting a separate suit On this question, the view of the Madras High Court in Subramania Chettiar v. Raja of Ramnad 43 Ind.

Cas 187 : 6 L.W. 762, (1917) M.W.N. 872 : 34 M.L.J. 84 has been followed in the most recent case in Calcutta reported as Jyoti Prakash

Nandi v. Mukti Prakash Nandi 81 Ind. Cas. 734 : AIR (1921) (C.) 485.

In my view the principle underlying the decision in Subramania Chettiar v. Raja of Ramnad 43 Ind. Cas 187 which relates to the realisation in

execution of properties covered by security bond executed after a decree may well be applied to the decision of the present case, though the

security bond here has been executed not under Order XLI, Rule 5 but only under Order XX, Rule 11, Clause (2) it has been argued that an

order passed under Order XX, Rule 11, Clause (2) is incapable of execution. Whether this is so, or not, is largely a question of the construction of

the order and of the intention of the parties as may to gathered from the circumstances relating to the making of the order. I have already pointed

out at the commencement of my judgment that there can be no doubt that the parties in this case intended that in the event of non-payment by the

judgment-debtor the properties covered by the bond should be realised in execution. Execution being postponed by the order made under Order

XXI, Rule 11, Clause (2) which provided also for the taking of a security bond to meet the possible contingency of non payment by the judgment

debtor, I fail to see when such contingency arises how the Court can refuse execution unless there be some legal impediment compelling the Court

to disallow it.

All the cases discussed above show that if Order XXXIV, Rule 14, does not operate as a bar, then the decree-holder can proceed against the

secured properties by execution. But it is argued by Mr. Krishnaswami Iyer that even then, in this case, the properties charged cannot be sold in

execution because the minor sons of the judgment-debtor who were not parties to the suit have joined in the execution of the security bond, their

father representing them as guardian. There is no force in this contention. Thene w parties are not strangers but only the sons by the judgment-

debtor. In view of the fact that the judgment-creditor is not seeking to sell under the security bond any interest which he could not otherwise have

sold, I think this objection must be overruled.

Before I pass on to consider the second argument, I may state that it is unnecessary to discuss the decisions in Mukta Prasad v Mahadeo

Prasad, 33 Ind. Cas. 982 14 A.L.J. 385; Amir v. Mahadeo Prasad 38 Ind. Cas. 33 15 A.L.J. 76; Raj Raghubar Singhv. Jai Indra Bahdur Singh

55 Ind. Cas. 530 : 22 O.C. 212 quoted by the appellant''s learned Vakil in connection with his argument regarding the bar created by Order

XXXIV, Rule 14, as all these cases dealt with securities given by third parties u/s 145 of the C.P.C.

The second question for decision arises in connection with the argument based on Section 52 of the Provincial Insolvency Act. According to

that section, where execution of a decree has issued against any property of a debtor which is saleable in execution and before it has been actually

sold, notice is given to the Executing Court that an insolvency petition by or against the debtor has been admitted, then the Executing Court is

bound, on application to that effect, to direct the property if in the possession of the Court to be delivered to the Receiver. It is argued by Mr.

Krishnaswami Iyer that the decree which is sought to be enforced in this case being a money decree, Section 52, of the Act applies and that,

notwithstanding the fact that a security has been executed in favour of the decree-holder subsequent to the decree, his client is entitled to apply to

the Executing Court to deliver over the property in question to him. Although a secured creditor is not expressly excluded from the operation of

this section, it seems to me that the section does not affect him. The Provincial Insolvency Act takes special care to preserve the power of secured

creditors to realise or otherwise deal with their securities, as may be seen from the Sections 28(6) and 51(2). The exemption from the operation of

the section which must be understood to have been thus given to secured creditors must, in my opinion, be extended to money-decree-holders

who have obtained securities in the course of execution, as in the present Case. It is conceded that Section 52 does not apply to mortgage decree

holders. In my opinion nothing in that section affects the rights of money decree-holders who have obtained securities in respect of the property

covered by such securities.'' They must also be treated as secured creditors for purposes of the section [see also Section 2(a) and (e) of the Act.]

The argument based on Section 52 must, therefore, be overruled.

In the result, I agree with my learned brother that the order appealed against must be upheld and the appeal must be dismissed with costs.