SYAMALA BAI Vs. OFFICIAL RECEIVER KURNOOL

JUDGEMENT

(1.) This Revision Petition is directed against the judgment of the District Judge given on 10th December, 1962, whereby he disallowed the appeal filed by the petitioner before me and confirmed the judgment of the Subordinate Judge, Kurnool. The necessary facts are that Medahal Pedda Rangappa, Lakshminarayana and Venkayya were adjudged insolvents. The petitioner G.Syamala Bai is a mortgagee of the insolvents in respect of certain properties. The second respondent Y.Panchaksharayya is another mortgagee of the insolvents in respect of a different property. The first respondent is the Official Receiver who is administering the estate of the insolvents.

(2.) In I.P. No. 40 of 1955, the second respondent filed a memo on 10th April, 1956 (Exhibit B-1) stating therein that he valued the property at Rs. 45, 350 and that he has no objection to the property being sold free of mortgage with a lien on the sale price. The Official Receiver was requested to obtain the necessary permission from the Sub-Court. The Official Receiver sought the permission of the Sub Court, which permission was granted. In pursuance of this permission, the mortgage property was sold free of any encumbrance and it fetched a certain amount.. The second respondent-mortgagee filed an application to pay the amount of Rs. 45,350 as assessed by him in his memo. Exhibit B-1. This application was resisted by the petitioner on the ground that the mortgagee has relinquished his security and therefore he ranks only as an ordinary creditor. He cannot be paid preferentially out of the sale proceeds of the property which was mortaged to him. The Official Receiver rejecting the contention of the petitioner directed the amount to be paid to the second respondent in pursuance of his mortgage as a secured creditor.

(3.) The petitioner therefore took the matter in appeal before the Subordinate Judge, Kurnool. His appeal however was rejected. It was held by the Subordinate Judge that the mortgagee the second respondent had not relinquished his security, that the sale is valid and that he is entitled to be preferentially paid as a secured creditor under section 47 (3) of the Provincial Insolvency Act. The same view was confirmed in appeal preferred by the petitioner by the District Judge, Kurnool. The principal contention of Mr. E. Subrahmanyam, the learned Counsel for the petitioner is that the second respondent must be considered to have relinquished his security; he cannot therefore be given any preference in payment out of the sale proceeds recovered by sale of the mortgage property. His contention is that the Official Receiver could not have accepted the offer made by the second respondent and sold the property free of any encumbrances. Although the sale by the Official Receiver is valid, his contention is that the second respondent can be ranked only as an ordinary creditor and not a secured creditor. Reliance in support of this contention was placed on Kanniappa Mudali v. Raju Chettiar (1924) 47M.LJ. 16: (1924) I.L.R. 47 Mad, 605.