TAX RECOVERY OFFICER Vs. SUBHARAYUDAMMA D V

JUDGEMENT

(1.) DATLA Venkata Narasimha Raju, the debtor, a resident of Rajahmundry, filed an insolvency petition under ss. 10 and 13 of the Provincial Insolvency Act on 20th April, 1976. The learned subordinate judge, Rajahmundry, by his order dt. 23rd April, 1977, adjudged Venkata Narasimha Raju as an insolvent. No evidence was adduced on behalf of the ITO to substantiate the plea that the insolvent has some more properties which were secreted and that he has not valued his assets. According to the 1st respondent ITO, the petitioner himself valued item No. 2 at Rs. 1,25,000 for wealth tax purposes and they have got a charge over the assets of the petitioner, respondents Nos. 2 and 3 remained ex parte. Items Nos. 1 and 2 of the schedule were brought to sale by means of a public auction by the Official Receiver. The wife of Venkata Narasimha Raju participated in the auction and she was found to be the highest bidder of the 'B' schedule property building bearing No. 6 2 26/1 situated at Innespeta, Rajahmundry, and the Official Receiver accepted the bid in her favour on 8th Sept., 1977. On the date of the auction, the 1st respondent filed Ext. A 3. After the auction, the ITO, i.e., the 1st respondent in the main I.P. impleaded the Official Receiver, East Godavari District, as the 1st respondent and the auction purchaser as the 2nd respondent and the insolvent as the 3rd respondent. The 1st respondent filed IA No. 147 of 1977 in IP No. 4 of 1976 on 28th Sept., 1977, under Ss. 68 and 4 of the Provincial Insolvency Act and S. 151 of the CPC to set aside the sale of the property described as item No. 2 of the B schedule property building bearing No. 6

(2.) 26/1. Innespeta, Rajahmundry, held on 8th Sept., 1977, by the Official Receiver in favour of the wife of Venkata Narasimha Raju. After contest, the learned subordinate judge found that the IT Department filed a memo even on the date of sale. The Official Receiver who conducted the auction might have thought over the provisions contained in the IT recovery proceedings pending against the 3rd respondent before the TRO and those facts are suppressed by the 3rd respondent while the proceedings before the TRO went on till the sale was held and confirmed and the learned subordinate judge found that the sale has to be set aside not only on the question of fact regarding the low value fetched but also on account of the legal flaw on account of the provisions contained in the IT Act and Sch. II and r. 16. He also found that, in the peculiar circumstances appearing in the case, the Official Receiver cannot be a representative in interest of the 3rd respondent because the property of the 3rd respondent vested in the 1st respondent official Receiver and in a way he is interested in the property. He also found that it cannot be said that the Official Receiver is not a representative in interest of the 3rd respondent herein or his properties. He allowed that petition. Against that order, the auction purchaser filed AS No. 76 of 1980 on the file of the Second Addl. District Judge, Rajahmundry.

(3.) THE main aspect that has been placed before me is about the vesting and the limited right of the Official Receiver. With regard to the contention of the limited right of the Official Receiver that has been raised by counsel for the petitioners, I feel that there is no force. The IT authorities being a party to the I.P., cannot now be permitted to raise the legal plea on the ground that at any stage they are entitled to take the plea. It is no doubt true that legal pleas can be taken, but when an opportunity has been given to them in the main I.P. and time has been given before the sale, they have not taken steps for stopping the sale or for obtaining permission from the subordinate judge. I fail to understand how they are able to contend that they have a legal right and that right has been ignored or has been taken away by virtue of the auction that has been conducted by the Official Receiver, in spite of the fact of giving Ext. A 3 notice. Exhibit A 3 was given at a late stage. Nothing prevented the IT authorities from seeing that some more bidders participated. It is also seen from the order of the lower Court that there is no attachment effected by the TRO. For limited purposes the official receiver must be a representative in interest of the insolvent. But, for the purposes of r. 16(1) of Sch. II of the IT Act, it cannot be said that he is a representative in interest and he cannot be expected to surrender his rights and duties that have been conferred on him by the statute under the provisions of the Insolvency Act. A property once vested cannot be divested in the absence of a specific provision in the Act. In Official Assignee vs. Haradagiri Basavanna Gowd (supra), the effect of adjudication and the doctrine of relating back and vesting the insolvent's property was considered. In that case, it has been observed that where adjudication orders are passed by two different Courts, the procedure to be followed may depend upon considerations of convenience, fair play and justice, but there is no justification for the argument that because S. 28(7) of the Provincial Insolvency Act, 1920, takes the adjudication order of the District Court to an earlier date, the property which has vested in the official assignee under the Presidency Towns Insolvency Act, 1909, should be divested and should be deemed to be vested in the Official Receiver appointed under the Provincial Insolvency Act, 1920. Admittedly, by operation of law by passing the adjudication order, there is a vesting and the question of divesting the property under the guise of the notice that has been served in the year 1975 does not arise. It must be noted that there is no attachment by the IT people. It is only a notice and by their conduct, they allowed the property being vested in the Official Receiver and the vesting has taken effect by correctly implementing the provisions and by sale of the property for a reasonable amount. With regard to the upset price, the consistent finding of the two Courts below is sound and it is not necessary for this Court to repeat the same once again. In Sathar vs. Official Assignee, (1972) 1 MLJ 393, the effect of r. 16(1) and (2) has been discussed. But once it has been found that, by operation of law, the vesting has taken place in the Official Receiver, I hold that the question of divesting the estate for purposes of sale under the IT Act cannot be given effect, to particularly when the IT people themselves, by their conduct, allowed the auction to go on, in spite of the advance notice of 18 days given to them. It must be noted here that after the vesting the Official Receiver is bound by the orders of the subordinate judge who passed the adjudication order, but not by the orders or directions of the IT Department. If at all the IT Department has got any right, they have to approach the subordinate judge for directions and, in this case, admittedly, before the auction, i.e., 8th Sept., 1977, neither the ITO nor the TRO approached the Court and raised the legal pleas that are available to them under the IT Act or the Rules. It is only after the auction has been completed and the confirmation took place that the ITO and the TRO simultaneously filed petitions for setting aside the sale and the TRO filed a petition before the subordinate judge for granting permission. Nothing prevented the TRO from filing an application before 8th Sept., 1977, for permitting him to sell the same. Then, definitely, some order would have been passed, but the TRO has chosen to remain silent till the auction was completed and it is only after the auction was held that they raised their fingers and pointed out that they are having a statutory right. The statutory right, if any, they have got on the basis of Ext. A 1 that has been served on 21st March, 1975, must be only subject to obtaining orders from a competent Court, i.e., the subordinate judge's Court, Rajahmundry. It is the subordinate judge who has passed the adjudication order and he is the competent authority to pass the order, either granting permission or refusing permission based on the pleas that have been set up by the parties concerned. Taking all the legal pleas and the decisions that have been cited before me, I feel that the learned Additional District Judge was justified in setting aside the orders of the subordinate judge. No grounds have been made out for setting aside the sale held on 8th Sept., 1977, and no grounds have been made out for granting permission for sale of the property which has already been sold in public auction, following the procedure as contemplated under the Rules. All the three revisions fail and are dismissed accordingly, No costs.