MOTURI VEERAYYA Vs. PVSREENIVASA RAO

JUDGEMENT

(1.) The following two questions have been referred to us: (1) Where the Insolvency Court annuls an adjudication under Section 43, Provincial Insolvency Act, V of 1920, and chooses to pass an order under Section 37 vesting the properties of the quondam insolvent in an appointee (Official Receiver or any other person), is the administration in insolvency to continue for the realization and distribution of the assets of such a person despite the annulment of the adjudication itself? and (2) If not what is the scope of his functions as a trustee by reason of the vesting order under Section 37. The two sections referred to in these questions run as follows: Section 43(1).--If the debtor does not appear on the day fixed for hearing his application for discharge or on such subsequent day as the Court may direct, or if the debtor does not apply for an order of discharge within the period specified by the Court, the order of adjudication shall be annulled, and the provisions of Section 37 shall apply accordingly. (2) Where a debtor has been released from custody under the provisions of this Act and the order of adjudication is annulled under sub-s (1) the Court may, if it thinks fit, re-commit the debtor to his former custody, and the officer in charge of the prison to whose custody such debtor is so re committed shall receive such debtor into his custody according to such re commitment and thereupon all proceedings which were in force against the person of such debtor at the time of such release as aforesaid shall be deemed to be still in force against him as if no order of adjudication has been made." Section 37(1)--Where an adjudication is annulled all sales and dispositions of property and payments duly made, and all acts theretofore done by the Court or Receiver, shall be valid; but, subject as aforesaid, the property of the debtor who was adjudged insolvent shall vest in such person as the Court may appoint, or, in default of any such appointment, shall revert to the debtor to the extent of his right or interest therein on such conditions (if any) as the Court may, by order in writing, declare. (2) Notice of every order annulling an adjudication shall be published in the Local Official Gazette and in such other manner as may be prescribed.

(2.) What then is the situation when an Insolvency Court annuls an adjudication under Section 43 and also vests the insolvent's property in an appointee under Section 37. Three points of view are possible. The first is that with the annulment the insolvency proceedings come to an abrupt and final conclusion. The Insolvency Court has no longer any power to pass any orders in regard to the insolvent's property, its order vesting that property in the appointee being its last expiring act. The appointee is a mere custodian of the insolvent's property. No doubt he should carry on the ordinary work of ad ministering and preserving the property in his hands, but he has no further control over it, and must merely hold it subject to any orders as to attachment and sale which he may receive from any Court entertaining an application in execution against the insolvent. The insolvent's creditors, subject to anything which may have been validated by Section 37, are restored to the position in which they found themselves before the insolvency proceedings began, and all must pursue afresh their remedies by execution or by suit in the ordinary way, which will mean in practice that the insolvent's property will go to some and some only of his creditors. The second view is that if a vesting order is made, the insolvency proceedings are continued for all purposes.

(3.) The third view is one intermediate between these two, and, we think, is the view which must prevail. It is this, that the appointee continues to be subject to the directions of the Insolvency Court which appointed him, that these directions relate to the property of the insolvent, and that they should be given in accordance with the policy and provisions of the Insolvency Act. It will be found on our further examination that this is not in all respects equivalent to the actual continuation of the insolvency proceedings. For the first point of view, authority is meagre. Only two cases can be cited in its support. The first, reported in Arunagiri Mudaliar V/s. Official Receiver (1926) M.W.N. 950 : 98 Ind. Cas. 1060, goes to the extreme length of saying that the insolvent's properly should remain in the hands of the appointee for the insolvent's own benefit. The second reported in Panna Lal V/s. Official Receiver lays it down that the vesting order is: only for the purpose apparently of making the property available to creditors to proceed through the Civil Court.