Vakacharla Sumitra and others vs Vakacherla Lakshminarayanarao and others

Chinnappa Reddy, J.—Defendants 4, 5 and S to 11 in O.S. No. 69/1964 on the file of the Court of the Additional District Judge, Rajahmundry are the appellants in this appeal. They and respondents 4 and 5 are the legal representatives of the first defendant who died during the pendency of the suit in the lower Court. The plaintiff is the brother of the first defendant. The 2nd defendant is their sister. The suit was filed to recover one third of the amount said to have been deposited by their mother Setharathnam with the first defendant. Various defences were raised by the first defendant all of which were overruled by the learned Additional District Judge and the suit was decreed. The legal representatives of the first defendant have preferred this appeal.

The first submission of Sri N. Bapiraju, learned counsel for the appellants was that the plaintiff was an undischarged insolvent on the date of the filing of the suit and, therefore, the suit itself was not maintainable. To appreciate the argument it is necessary to mention a few facts. The plaintiff adjudged an insolvent in I.P. No. 9/1958 on the file of the District Court, Rajahmundry and his properties became vested in the Receiver. Seetharatnam, the mother of the plaintiff and defendants 1 and 2 died on 15-2-1961. The present suit was filed on 17-2-1964. The adjudication was annulled on 4-3-1964. But, simultaneously an order for the vesting of the properties in the Official Receiver was also made. The Official Receiver was impleaded as a party to the suit on 6-1-1965.

According to the allegation of the plaintiff he became entitled to a share of the amount said to have been deposited by Seetharathnam with the first defendant on the death of Seetharathanam on 15-2-1961. u/s 28(4) of the Provincial Insolvency Act, property acquired by or devolving on an insolvent after the date of adjudication before his discharge forthwith vests in the Court or the Receiver. Therefore, on the death of Seetharathnam the share of the plaintiff if any, in the deposit made by Seetharathnam with the first defendant vested in the Official Receiver. The Official Receiver alone was competent to lay the suit and not the insolvent. This position is now well settled. In Nadiminti Satyanarayanamurthi Vs. Malluri Papayya and Another, a Division Bench of the Madras High Court pointed out that the doctrine of Cohen v. Mitchell, (1890) 25 QBD 262 did not apply to cases arising u/s 28(4) of the Provincial Insolvency Act and held that u/s 28(4) all property acquired by an insolvent subsequent to the date of adjudication and before discharge vested in the Official Receiver, the moment the acquisition was made. A transfer by the insolvent after the adjudication and before the discharge was not valid and where the transfer was of a decree for costs the transfer would not be recognised by the Court. The learned Judge relied upon the observation of the Privy Council in AIR 1927 108 (Privy Council) to the following effect:

The latter alone (that is, the official Receiver) is entitled to transact in regard to it and he and not the insolvent has the sole interest in the subject matter of the suit. To him, there must be given the opportunity redeeming the property.

The principle laid down in Nadiminti Satyanarayanamurthi Vs. Malluri Papayya and Another, was reaffirmed by Rajamannar C.J. and Mack J. in Abdul Rahim v. Official Assignee, AIR 1949 Mad 449.

Sri M. Jagannadha Rao, learned counsel for the plaintiff argued that the only person who could contest the right of the undischarged insolvent to file a suit to recover property was the Official Receiver who could not put himself forward and claim to recover the property himself. But such right could not be contested by any one other than the Official Receiver. The learned Counsel relied on T. Kuppuswamy Vs. Meer Husafar Hussain and Another, Chalavadi Narasimham and Another Vs. Chalvadi Ramayya and Another, , Abdul Rahman Vs. Nihal Chand, and Alleppy A.T.T. Devaswom v. Ponnu Ninar, AIR 1957 TC 241. In Kuppuswami v. Mir Husafar Hussain, the question turned on the meaning of the expression property as defined in Section 2(d) of the Provincial Insolvency Act. The learned Judges held that a mere claim for remuneration of payment in terms of a contract set up by an insolvent was not property within the meaning of Section 2(2) of the Provincial Insolvency Act, and, therefore did not vest in the Official Receiver. A suit by an undischarged insolvent to recover remuneration payable to him for alleged service rendered by him, was, therefore, held to be competent. The case has no application since it cannot for a moment be pretended in the present case that what is sought to be recovered is not property within the meaning of Section 2(2) and Section 28(4) of the Provincial Insolvency Act. In Abdul Rahman v. Nihal Chand it was observed that where a loan was advanced by an insolvent after his adjudication it did not necessarily follow that the money was property which had vested in the Official Receiver. It might be that the Insolvent was a mere benamidar. It might be property except u/s 28(5) C.P.C or some other enactment. Where the Official Receiver did not institute an action to recover money lent by the insolvent after the adjudication it must be presumed it was money which did not and could not vest in the Official Receiver. The suit would, therefore, be competent. This case also has no application since, as we said, it cannot be doubted that the share of the plaintiff, if any, in the deposit made by Seetharathnam with the first defendant was property which certainly became vested in the Official Receiver u/s 28(4) of the Act. The case of Narasimham v. Ramayya is of little relevance as what was decided in that case was that under certain circumstances an insolvent could also be a person aggrieved for the purpose of the preferring appeals against orders made in insolvency proceedings. In Alleppy A.T.T. Devaswom v. Ponnu Ninar the High Court of Travancore. Cochin expressed the view that Section 28(4) did not prohibit any independent legal proceeding by an insolvent against his debtors. It is difficult to agree with this proposition since the very vesting of the property in the Official Receiver would bar the insolvent from instituting an action in respect of that property.

Sri M. Jagannatha Rao''s next submission was that the annulment of the adjudication had the effect of wiping out the disability of the insolvent as if he had never been adjudicated an insolvent. Therefore, he submitted, the suit, even if it was not validly instituted, could be continued by the insolvent after the annulment of his adjudication. He relied on the decisions in Ps. Ar. Ar. Arunachalam Chettiar Vs. Narayanaswami Goundar, & Subbaiah Goundan Vs. Ramasami Goundan and Others, . It was held in those two cases that the effect of annulment of an adjudication was to vest the property retrospectively in the insolvent, wiping out altogether the insolvency and its effect except to the limited extent of saving the acts of the Court and the Receiver. The argument of Sri Jagannatha Rao was that the adjudication having been annulled the effect of the annulment was to validate the suit instituted by the insolvent when the adjudication was in force. The answer of Sri Bapi Raju was that it would not be so where the annulment of adjudication was accompanied by a simultaneous order vesting the property in a person appointed u/s 37 of the Provincial Insolvency Act.

In Moturi Veerayya Vs. P.V. Sreenivasa Rao and Others, a Full Bench of the Madras High Court considered the effect of an annulment of adjudication and a simultaneous vesting of the insolvent''s property in an appointee u/s 37. The learned Judges observed that there were three possible views and they expressed their preference for the view that while the property of the insolvent vested in the appointee u/s 37 he was subject to the directions of the Court. The appointee had only such powers as were necessarily implied by the vesting order. The learned Judges did not accept the other two views, namely, (1) that the annulment of the adjudication brought the insolvency proceedings to an end and the Insolvency Court, thereafter would have no power to pass any orders in regard to the insolvent''s property, the appointee u/s 37 being a mere custodian of the insolvent''s property and (2) that if a vesting order was made the insolvency proceedings were continued for all purposes, Thus, according to the learned Judges, the person appointed under Sec. 37 would not be a mere custodian nor would he have all the powers of the Receiver, but the property would vest in him and he would have to carry out the directions of the Court. If the property vests in the appointee u/s 37 it follows that the insolvent cannot maintain or continue an action in respect of such property. The distinction between an unconditional annulment of adjudication and a conditional annulment of adjudication along with which an order for vesting u/s 37 is made was brought out by Somayya J. in two cases decided by him. In Ratnavelu Chettiar by mother and guardian Madhuravalli Ammal and Another Vs. Franciscu Udayar and Others, , Somayya J., held that an unconditional annulment of adjudication would have the effect of vesting the property retrospectively in the insolvent so as to save the sale of a property in execution of a decree obtained against the insolvent without the leave of the insolvency Court. In another case Kolaparathi Venkatasubbiah Vs. Madallapalli Venkatasubbiah and Another, ) Somayya J. held that where while annulling an adjudication the Insolvency Court passed an order u/s 37 vesting the debtor''s properties in the Official Receiver a sale of such properties through Court without impleading the Receiver in execution of a money decree obtained against the debtor was void, The learned Judge pointed out that there was no ''reversion of the debtor''s property to himself'' where an order u/s 37 vesting the property in a person other than the debtor was passed. In such a case the only person entitled to represent the estate would be the appointee under the Section.

In N. Muthusami Chettiar Vs. Periyal Achi and Another, ) Wordsworth J. took the view that the subsequent annulment of adjudication could not give validity to a suit filed by an insolvent during the pendency of insolvency when the property was vested in the Official Receiver. He said:

There is no statutory prohibition of a suit by an insolvent during the continuance of his insolvency, but it seems to follow from the fact that all the properties of the insolvent in the Receiver, that the insolvent will, during his insolvency, have no such title in any part of the estate vested in (he Receiver as would form a basis for a suit regarding that property, and so much has been repeatedly held (vide Subbaraya Chettiar (dead) and Another Vs. Papathi Ammal alias Lakshmi Ammal and Others, ) If the insolvent cannot maintain a suit regarding the property vested in the Official Receiver so long as the insolvency enures, it is difficult to see how the insolvent can take advantage of the Court''s delays in disposing of that suit so as to clothe a suit, which in its inception was bad with a validity due only to the subsequent annulment of the insolvency. If the insolvent or his legal representative had no right of suit when the suit was filed, that suit should have been dismissed.

In the present case, it is not necessary to go to the extent that Wordsworth J., did since simultaneously with the annulment of adjudication an order was made vesting the property in an appointee u/s 37. Even so, it was argued by Sri Jagannadha Rao that the Receiver having been impleaded as a party to the suit, the suit could not be defeated on the mere ground that the Receiver had not instituted the suit. Whatever force there may be in this submission it is of no avail in the present case since the Receiver was not impleaded as a party to the suit originally, but was impleaded as a party only after the period of limitation had expired. In Sripada Venkatasubba Rao Vs. Namagiri Venkateswaralu, the insolvent had filed suits without obtaining the permission of the Court, Finding that the suits were defective for want of permission he applied for and obtained permission beyond the date of limitation. The High Court held that inasmuch as the suits were barred by limitation on the date of permission such permission should not be granted.

In Nathumal v. Kisan, AIR 1953 Nag 227, it was held that permission to implead the Receiver as a party to a suit brought by the insolvent, after the expiry of the period of limitation in a suit brought by the insolvent should not be granted. Sri M. Jagannatha Rao relied on the decision of T. K. Kaliaperumal Naicker and Others Vs. O. S. Ramchandra Ayyar and Others, . That was a case in which after the institution of a suit the defendant was adjudged as an insolvent. Thereafter the Receiver was brought on record. The order of adjudication itself was passed after the period if limitation and the Receiver was brought on record after the period of limitation had expired. It was held that there was no defect fatal to the suit. The decision was based on the express language of Section 29 of the Insolvency Act. This case has obviously no application to the facts of the present case. We, therefore, held that the plaintiff had no right to institute or continue the suit filed by him.

Sri N. Bapi Raju, learned counsel for the appellant also urged that the suit was had for failure to obtain a succession certificate. It is unnecessary to go into this question. It is also unnecessary to go into the plea of discharge set up by the first defendant. The appeal is allowed and the suit is dismissed. There will be no order as to costs, either here or in the lower court.