JAGANNATH FAKIRCHAND MARWADI Vs. BABURAO GANESH DESHMUKH

JUDGEMENT

(1.) THE question arising for decision in this revision application is whether, when an order adjudicating a debtor insolvent has been annulled by the Insolvency Court under Section 43 of the Provincial Insolvency Act for the failure of the insolvent to apply for his discharge within the time allowed to him by the order of adjudication, the custodian of the property of the debtor appointed by the Insolvency Court under Section 37 of the Act could, continue an application which had been made by the receiver in insolvency under Sections 53 and 54 of the Act for setting aside a fraudulent alienation.

(2.) THE facts are briefly as follows. THE petitioner, Jagannath Fakirchand Marwadi, who was a creditor of one Ramkisan Khubchand, filed a darkhast against him to recover a certain amount due to him, and on May 28, 1934, the debtor Ramkisan executed in favour of the petitioner a mortgage-deed for Rs. 7,000 in respect of two houses. On June 11, 1934, another creditor of Ramkisan filed application No.14 of 1934 for declaring Ramkisan an insolvent, and on June 8, 1936, Ramkisan was adjudicated an insolvent. THE opponent in this application, Mr. Deshmukh, was appointed receiver of the insolvent's property. By the order of adjudication the insolvent was directed to apply for discharge within two years. In the course of the insolvency proceedings on December 22, 1936, the receiver in insolvency filed application No.254 of 1936 against the petitioner, the mortgagee, under Sections 53 and 54 of the Provincial Insolvency Act, 1920, to set aside the mortgage in the petitioner's favour. THE insolvent failed to apply for discharge within two years from the date of adjudication, and on August 3, 1940, the Insolvency Court annulled the order of adjudication under Section 43 of the Act. THE Court also made an order under Section 37 vesting the property of the insolvent in a custodian. Mr. Deshmukh who had been the receiver in the insolvency was appointed the custodian. On the same day, on the petition of one of the creditors, the Court made an order that the application made by the receiver under Sections 53 and 54 of the Insolvency Act should be continued by the custodian. This order appears to have been made without hearing the mortgagee, the applicant before us, and he applied for a reconsideration of the order. His application was dismissed and the previous order directing the custodian to continue the proceedings under Sections 53 and 54 of the Act was confirmed. THE applicant appealed to the District Court, and the learned Assistant Judge who heard the appeal confirmed the order made by the Insolvency Judge. It is against this order that the applicant has come in revision.

(3.) THE learned Assistant Judge has taken the view that the custodian has the power to continue such proceedings, and in support of this view he has relied on a decision of a division bench of the Madras High Court in Jethaji Peraji Firm v. Krishnayya (1929) I.L.R. 52 Mad. 648. It was held in that case that on an annulment of adjudication under Section 43 of the Provincial Insolvency Act owing to the insolvent's failure to apply for his discharge the insolvency proceedings do not necessarily come to an end and his property does not ipso facto revert to the insolvent; that the Court may, in proper cases, vest it in the Official Receiver or other person as provided by Section 37 of the Act; and that if before the annulment the Official Receiver had applied to set aside a mortgage under Section 54 of the Act, as an act of fraudulent preference, he can prosecute the application after the annulment. A contrary view has been taken by a full bench of the Rangoon High Court in Jaing Bir Singh v. THE Official Receiver (1933) I.L.R. 11 Ran. 287, F.B. It was held in that case that on an order of annulment being passed under Section 43 of the Provincial Insolvency Act the Court ceases to have jurisdiction to entertain, hear, or determine an application by the receiver to have a transfer of property set aside under Section 53 or Section 54 of the Act, whether such application was presented before or after the order of annulment; that in making a vesting order under Section 37 the Court may impose conditions relating to the property of the debtor, but not of any other person; and that in vesting the property of the debtor in any appointee, the Court cannot order that he should continue the liquidation of the debtor's assets on the same terms and conditions as those on which the receiver in insolvency would have been entitled to carry out the liquidation of the estate if the insolvency had still been subsisting. THE contrary view taken by the Madras High Court in Jethaji's case and other decisions to the same effect were considered and expressly dissented from.