PATRI VENKATA SRINIVASA RAO Vs. SECYOF STATE

JUDGEMENT

(1.) This appeal raises a point which appears to be entirely free from authority. The appeal is by the Official Receiver of Guntur and the respondent is the Secretary of State. One K. Thomasu Reddy was adjudged an insolvent in 1924. Subsequently his adjudication was annulled because he failed to apply for his discharge within the time specified by the Court. Upon the annulment of the adjudication under Section 37, Provincial Insolvency Act, the property of the debtor was by order vested in the Official Receiver who sold some of the properties of the insolvent and is in possession of the sale proceeds and other properties of the debtor. Subsequent to the date of the annulment of the adjudication, the debtor preferred four appeals in the District Court, Guntur, in forma pauperis. These appeals were dismissed and the court-fee payable on the respective appeals was ordered to be paid to Government. Government then put in an application to the Official Receiver for payment of the court-fees payable by reason of the appellate decrees out of the assets of the debtor's estate in his hands claiming to be entitled to be paid in priority to the debts of all other creditors because the debt due is a Crown debt. The Official Receiver declined to recognize the Government's claim contending that, on account of the order under Section 37, Provincial Insolvency Act, vesting the property in him, he held the property of the debtor for the benefit of creditors whose debts were provable and proved in the insolvency and that in distributing the assets in his hands as a result of the vesting order he has to be governed by the same rules that govern the case of an insolvency. It is quite clear that by reason of Section 34(2) the debts provable in insolvency are those which the debts is subject to when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of his adjudication. Therefore no debt incurred after his adjudication is provable in insolvency. Hence it is contended by the appellant that as this was a debt incurred after the insolvent s, adjudication, indeed after the annulment of the adjudication, the Crown has no debt which the Official Receiver can recognize. The learned District Judge allowed the claim of the Crown.

(2.) What we have to consider is what is the effect of the annulment of an adjudication and the subsequent vesting order under Section 37(1), Provincial Insolvency Act? A Full Bench of this Court has on a reference to it in Appeal No. 135 of 1931 and C.R.P. No. 1194 of Veerayya v. Srinivasa Rao Since reported in 1935 Mad. 826 considered the following question, viz.: Where the insolvency Court annuls an adjudication under Section 43, Provincial Insolvency Act 5 of 1920 and chooses to pass an order under Section 37 vesting the properties of the quandum insolvent in an appointee (Official Receiver or any other person) is the administration in insolvency to continue for the realisation and distribution of the assets of such a person despite the annulment of the adjudication itself and has given the following answer, viz. 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; and that "this is not in all respects equivalent to the actual continuation of the insolvency proceedings." In the view of the Pull Bench the principle underlying Section 43 of the Act which provides that the Court shall annul an adjudication on the failure of the insolvent to apply for an order of discharge within the period specified by the Court is primarily to punish the insolvent by depriving him of any protection which he may hitherto have been enjoying under the Insolvency law. It is stated in the judgment: Why should the negligence of the insolvent have the necessary effect of upsetting the rights of his creditors inter se for, if this first view is to be upheld those creditors can no longer expect the fair and equal treatment which had been assured to them by the insolvency. Those who have got no decree will be hopelessly handicapped as against those who may proceed immediately to execution, and those who are aware of the annulment will have an advantage over those who are not.

(3.) These observations relate to a contention which had been put forward that with the annulment of the adjudication the insolvency proceedings come to an abrupt and final conclusion, that 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, that the appointee is a mere custodian of the insolvent's property 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 and that the insolvent's creditors 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. That contention the Full Bench did not agree with, nor did it accept the contention which went to the other extreme, namely, that the insolvency proceedings are continued for all purposes. The view which is one intermediate between these two before-mentioned extreme contentions was accepted; by the Pull Bench as being correct.