INCOME TAX OFFICER Vs. GOVINDASWAMY K A

JUDGEMENT

(1.) THIS appeal is directed against the judgment of Paul J., in Application No. 173 of 1973, in I.P. No. 39 of 1970. A petitioning creditor filed a petition in insolvency against his debtor, one P. Vasudevan, on the ground that the debtor committed acts of insolvency under Sections 9(d)(ii) and 9(d)(iii) and 9(g) of the Presidency Towns Insolvency Act. THIS petition was presented on May 4, 1970. Prior to the presentation of this petition, to wit, on January 15, 1970, Vasudevan (the debtor) entered into an agreement with one Govindaswamy, the first respondent for the sale of his house and ground bearing plot No. 113, 12th Cross Street, Indra Nagar, for a sum of Rs. 83,000 and in pursuance of that agreement, the first respondent, Govindaswamy, had paid Rs. 43,000 and it was agreed that the balance should be paid after Vasudevan gets clearance from the State Housing Board with whom Vasudevan had a lease-cum-sale agreement entered into between him and the board in or a.bout July 15, 1965. We shall presently refer to the terms of the said agreement. The insolvency petition filed as above by the petitioning creditor was heard and by an order dated March 23, 1971, Vasudevan was adjudicated as an insolvent. Whilst these proceedings were pending, Govindaswamy, on the strength of the agreement for sale dated January 15, 1970, which was indeed oral and further on the footing that he has paid a sum of Rs. 43,000 to the insolvent pursuant to the said agreement of sale desired to bring himself on record in the insolvency proceedings so as to secure his rights as intending purchaser who parted with a part of the purchase price to the vendor. Fearing that Govindaswamy was likely to claim an interest as a secured creditor pursuant to the payment of the part of the agreed purchase price in furtherance of the agreement of sale referred to above, the insolvent filed Application No. 589 of 1971, and sought for a declaration that Indra Nagar house as above did not vest in the official assignee, as he had no transferable or assignable interest therein. The application of Vasudevan (Application No. 589 of 1971) was rejected by Palaniswamy J., who held that Vasudevan under the lease-cum-sale agreement with the State Housing Board acquired an interest in the property and was entitled to get a conveyance from the Housing Board on his fulfilment of the obligation undertaken by him under the lease-cum-sale agreement and that that right was in the nature of a right to get a sale and that such a right was property which on adjudication of Vasudevan as lessee-allottee vested in the official assignee. THIS matter was taken up in appeal to the First Bench in O.S.A. No. 2 of 1972. Veera-swami C.J. agreed with Palaniswamy J., and observed that Vasudevan before his adjudication did possess certain rights over the Indra Nagar house property, hereinafter referred to as "the property", which included continuance in possession till the end and asking for a conveyance to be made in his favour by the board. The Division Bench also observed that Vasudevan's rights were valuable rights which could well be treated as property, which on adjudication would vest in the official assignee. Whilst this was the position and when the official assignee sought to bring the property to sale as a statutory functionary representing the body of creditors, Govindaswamy, who was anxious to get a sale deed but for the intervening of insolvency, and who, it appears, has also prepared a. draft sale deed for the purpose, could not proceed with it; but he was, on the other hand, willing to permit the official assignee to sell the property publicly, provided the statutory charge to which he was entitled under Section 55(6)(b) of the Transfer of Property Act, was declared in his favour. The official assignee with the concurrence of the court (vide order in Application No. 338 of 1970), accepted the stand of Govindaswamy and brought the property to sale, after admitting the claim of Govindaswamy for the sum of Rs. 43,000 with interest at 6 per cent. per annum thereon as a secured debt. Thereafter, in March, 1973, the Income-tax Officer, Hundi Circle I, Madras-6, filed Application No. 173 of 1973, praying to set aside the order of the official assignee dated May 5, 1971, admitting the claim of Govindaswamy as a secured creditor and sought for an interim direction to the official assignee to stay the payment of the amount due to Govindaswamy as such secured creditor. Govindaswamy resisted this application and asserted that he has secured a statutory charge as per the provisions of the Transfer of Property Act and that, therefore, the Income-tax Officer representing the " State, cannot dislodge the vested rights in him and sought for a dismissal of the said application.

(2.) PAUL J. heard the application and held that under the terms of the lease-cum-sale agreement entered into between Govindaswamy and the State Housing Board, Govindaswamy had a right in the property and was entitled to become full owner on the fulfilment of the stipulations under it and in that sense he agreed with Palaniswamy J. He upheld the charge over the property in favour of Govindaswamy to the extent of Rs. 43,000. On the question whether the Government can claim priority over the debt due to Govindaswamy, he held that as such a priority can be claimed over unsecured creditors only and as the debt in question is a secured debt, in consequence of which Govindaswamy secured a statutory charge under Section 55(6)(b) of the Transfer of Property Act, he would not agree with the State and dismissed the said application. The present appeal is by the Income-tax Officer, representing the State, questioning once over the nature of the right of Govindaswamy in the property and claiming priority in respect of the arrears of income-tax admittedly payable by the insolvent.

(3.) IT is seen that all such property over which the insolvent had the capacity to exercise rights and take proceedings for exercising all such powers, in or over or in respect of property as might have been exercised by the insolvent for his own benefit at the commencement of his insolvency shall be deemed to be property of the insolvent. On a fair reading of the lease-cum-sale agreement it is clear that he has a right to obtain ownership over the property on fulfilment of certain conditions agreed to therein. Once the stipulations under the agreement are satisfied he has a right to purchase the property from the board and the board has no option except to sell it to the allottee-lessee. There is no discretion in the Housing Board to avoid such a result. This right to obtain a conveyance of immovable property which is apparent in the lease-cum-sale agreement is not equable to a contingent right. IT has to be fairly held that this right is a right in immovable property and is certainly property which comes within the meaning of the expression " property over which he has the capacity to exercise and take proceedings for exercising such powers in or over or in respect of property ". Palaniswamy J. rightly relied upon the decision in Willingham v. Joyce [1796] ER 951 and Buckland v. Papillon [1867] 2 Ch App 67, and held that the benefit of the rights which flow from the lease-cum-sale agreement being property rights would pass on to the official assignee. In our view, the rights inbuilt in the lease-cum-sale agreement are not bare expectancies or possibilities, but are rights which could be transmitted in accordance with law and, in this sense, the right, title and interest of the insolvent over the property under the said agreement would vest in the official assignee after adjudication. As the effect of an order of adjudication is to vest in the official assignee every beneficial matter belonging .0 the insolvency estate, it cannot be said that the benefit which the insolvent has obtained under the lease-cum-sale agreement cannot pass on to the official assignee. The learned counsel for the State Housing Board was unable to place before us any decision or authority to hold that the insolvent did not have a right in the property at the time of adjudication and that it was the board alone which had the predominant right over it and that the insolvent had no rights at all under it. The Division Bench which approved of the judgment of Falaniswamy J. in Application No. 589 of 1971 and O. S. A. No. 2 of 1972 also reiterated that the rights which the allottee-lessee acquired are valuable rights which could be treated as property which on adjudication will vest in the official assignee. We respectfully agree with the view expressed by the learned judges as above and hold on the first point that the insolvent, Vasudevan, had an interest in the property in question and the benefit of such an interest automatically got transmitted and vested in the official assignee under Section 52 of the Presidency Towns Insolvency Act.