NADIMINTI SATYANARAYANAMURTHI Vs. MALLURI PAPAYYA

JUDGEMENT

(1.) This is an appeal from the order of the learned Subordinate Judge of Amalapuram dismissing an application by a transferee decree-holder under Order 21, Rule 16 to recognise the transfer of the decree in his favour and to execute it against the judgment-debtor's property. The decree that was transferred was a decree for costs in favour of an undischarged insolvent. He obtained the decree after the order of adjudication under the following circumstances. The order adjudging the transferor insolvent was passed in 1923. On a mortgage executed by him before the adjudication a suit was instituted in 1927 being O.S. No. 1 of 1927 on the file of the Subordinate Judge's Court, Amalapuram. An ex parte decree was passed against him and he sought to set aside that decree. The learned Subordinate Judge who heard the application dismissed it on the ground that he had no right to present the application because he was an undischarged insolvent and the right to redeem vested in the Official Receiver. Against the said order an appeal was presented to the High Court. Their Lordships Reilly and Anantakrishna Aiyar, JJ., took the view that though the insolvent was not a necessary party to the suit, yet as the plaintiff therein chose to make him a party, he was entitled to be heard on his petition to get costs at least for having been unnecessarily impleaded. But since nothing would be gained by getting the suit heard, they did not go into the merits whether he had sufficient reason for not appearing on the date of the trial and dismissed the appeal. They however directed the plaintiff to pay the costs of the insolvent in the appeal and in the application out of which the said appeal arose. It was this decree for costs that was transferred in favour of the appellant transferee decree-holder.

(2.) The ground on which the Subordinate Judge declined to recognise the transfer was that under Section 28 (4) of the Provincial Insolvency Act the decree vested in the Official Receiver and the insolvent was not competent to transfer it. He followed a decision of this Court reported in Lingayya V/s. Venkatapathy . It was a decision of our learned brother Pandrang Row, J. In that case the insolvent succeeded to certain property as reversioner subsequent to the date of the order of adjudication and before his discharge. He sold the property to the plaintiff in that case who sued to recover possession on the strength of the said sale deed. The suit was dismissed on the ground that the property vested in the Official Receiver and that the insolvent had no title to convey. It was contended before Pandrang Row, J., that the dismissal was improper on the ground that inasmuch as the Official Receiver did not intervene, the insolvent had title to convey relying on the decision in Cohen V/s. Mitchell (1890) 25 Q.B. 262, but the learned Judge took the view that the doctrine of Cohen V/s. Mitchell (1890) 25 Q.B. 262, did not apply to cases arising under Section 28 (4) of the Provincial Insolvency Act and in coming to this conclusion he relied on the decision of the Privy Council in Kalachand Banerjee V/s. Jagannath Marwari (1927) 52 M.L.J. 734 : L.R. 54 I.A. 190 : I.L.R. 54 Cal. 595 (P.C.). It is contended by Mr, Ramachandra Rao before us that this view is wrong, that the rule of English law as laid down in Cohen v. Mitchell (1890) 25 Q.B. 262, namely: Until the trustee intervenes all transactions by a bankrupt after his bankruptcy with any person dealing with him bona fide and for value, in respect of his after-acquired property, whether with or without knowledge of the bankruptcy, are valid against the trustee, has been applied to cases in India arising both under the Presidency Towns Insolvency Act and the Provincial Insolvency Act and if that rule is given effect to, the transfer in favour of his client ought to be recognised. He relied also on a number of cases including the latest Full Bench decision of this Court reported in Sobhanadri V/s. Nagayya , with which we shall presently deal.

(3.) The question therefore is how far this contention is tenable. Section 28 (4) of the Provincial Insolvency Act runs thus; All property which is acquired by or devolves on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or receiver. Unfettered by authority and on the plain language of the section all property acquired by an insolvent subsequent to the date of adjudication and before his discharge vests in the Official Receiver the moment the acquisition was made. The word forthwith in the section leaves no room for any other interpretation. Section 28 (4) of the Provincial Insolvency Act (V of 1920) which governs this case is almost identical in language with Section 16 (4) of the Provincial Insolvency Act (III of 1907). It runs thus: All such property as may be acquired by or devolve on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or receiver. Lord Salvesen in delivering the judgment of the Judicial Committee in Kalachand Banerjee V/s. Jagannath Marwari (1927) 52 M.L.J. 734 : L.R. 54 I.A. 190 : I.L.R. 54 Cal. 595 (P.C.), interpreted the section thus: This provision is perfectly clear. The moment the inheritance devolved on the insolvent Amulya, who was still undischarged, it vested in the Receiver already appointed and he alone was entitled to deal with the equity of redemption. (The italics are ours). Later on he remarked thus: The Court only acts through a Receiver, and any estate acquired by or devolving on an insolvent is vested in him as from the date of acquisition or devolution whatever the date of the Receiver's actual appointment. The question in that case arose thus: There was a suit in January, 1915 for foreclosure instituted against one Tara Prasanna Bose whose son the insolvent was. The suit was subsequent to the adjudication in insolvency, namely, 21 February; 1914. There was a compromise entered into between Tara Prasanna Bose and the mortgagees and the deed of compromise was filed on the 6 March, 1915. Under the deed of compromise time was given for the payment of the mortgage debt and in default of payment on the due date the mortgage was to be foreclosed. Before any decree could be passed in terms of the compromise Tara Prasanna Bose died leaving the insolvent as his sole heir. Thus the equity of redemption devolved by inheritance on the insolvent. The mortgagees brought the insolvent on record who ratified the compromise and obtained a preliminary decree on the 15 March, 1916. The Official Receiver put in applications to set aside the decree but they were rejected and a final decree was passed. Thereupon the Receiver instituted a suit to set aside the said decrees and for redemption. Their Lordships of the Privy Council held that he was entitled to do so. After placing the above interpretation on Section 16 (4) of the Provincial Insolvency Act, 1907 their Lordships observed as follows: 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, therefore, must be given the opportunity of redeeming the property. (The italics are ours). Therefore this decision is absolutely clear on the point, viz. the property from the moment of its acquisition vests only in the Receiver and he is the person having the sole interest therein competent to deal with it thus excluding the idea of. any property vesting in the insolvent at all and leaving no scope for any theory of intervention. Since the decision in Kalachand Barterjee V/s. Jagannath Marwari (1927) 52 M.L.J. 734 : I.R. 54 I.A. 190 : I.L.R. 54 Cal. 595 (P.C.), the question was considered by both the Bombay and Allahabad High Courts and they reached the same conclusion. In Girikant Shivlal V/s. Vadilal Vrijlal (1935) I.L.R. 60 Bom. 141, Beaumont, C. J., remarked: Unless we disregard altogether, the word forthwith we cannot say that the property did not vest until the receivers intervened. Wadia, J., who concurred with him observed that this view was confirmed by the said decision of the Privy Council. To a similar effect are the observations of Sulaiman, C. J., in the Full Bench decision in Abdul Rahman V/s. Nihal Chand (1935) I.L.R. 58 All. 132 (F.B.). The Lahore and Rangoon High Courts have taken the same view and they rely on the plain language of the section (vide Diwan Chand Vs. Manak Chand (1934) I.L.R. 16 Lah. 392, and Ma Phaw V/s. Maung Ba Thaw (1926) I.L.R. 4 Rang. 125). It must be noticed that though the Diwan Chand V/s. Manak Chand (1934) I.L.R. 16 Lah. 392, case was after the decision of the Privy Council, no reference was made to it. The preponderance of opinion is thus in favour of the view that it is not permissible to invoke any doctrine of intervention in construing the plain language of Section 28 (4). Mr. Ramachandra Rao contends that the Provincial Insolvency Act is based on the English Bankruptcy Act and that Section 28 (4) must be read in the light of the English decisions and therefore subject to the rule laid down in Cohen V/s. Mitchell (1890) 25 Q.B. 262. He placed considerable reliance on Ramanatha Aiyar V/s. Nagendra Aiyar , and Jagadish Narain Singh V/s. Mussammat Ramsakal Kuer (1928) I.L.R. 8 Pat. 478, which applied the said rule. To test the soundness of this contention we think it necessary to briefly advert to the relevant provisions of English law and to the cases based thereon. Cohen V/s. Mitchell (1890) 25 Q.B. 262, was decided under the English Bankruptcy Act of 1883. The relevant provisions of the said Act are Secs.44 and 54. Portions of the said sections so far as material to the present case run thus: 44. The property of the bankrupt divisible amongst his creditors, and in this Act referred to as the property of the bankrupt... shall comprise the following particulars: (i) All such property as may belong to or be vested in the bankrupt at the commencement of the bankruptcy or may be acquired by or devolve on him before the discharge.... 54. (1) Until a trustee is appointed the Official Receiver shall be the trustee for the purposes of this Act, and immediately on a debtor being adjudged bankrupt, the property of the bankrupt shall vest in the trustee. (2) On the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed.