MAMIDI CHINA VENKATA SIVAYYA Vs. NEKKANTI SURYANARAYANA

JUDGEMENT

(1.) The question in this appeal relates to the validity of a sale of immovable property in execution of the decree in O.S. No. 290 of 1934 on the file of the District Munsif's Court of Narsapur obtained by the appellant against one Nekkanti Suryanarayana and his two sons. The property was sold on 2nd October, 1935 and purchased by the appellant the decree-holder himself. An application was made by the said Nekkanti Suryanarayana the first judgment-debtor to set aside the sale alleging that there were material irregularities and fraud in the conduct of the sale in consequence whereof the property did not fetch a fair price. He also impeached the sale on the ground that before the date of the sale he had filed an application in the Sub-Court of Narsapur for his being declared an insolvent, that the said petition was admitted and an interim receiver appointed, that he applied to the Court (the District Munsif of Narsapur) to stop the sale but the Court declined to do so and the sale was therefore in contravention of Section 52 of the Provincial Insolvency Act. The learned District Munsif, on a consideration of the evidence adduced, came to the conclusion that there was no fraud or material irregularity in the conduct of the sale that the price realised at the time of the sale was a reasonable price and in regard to the second objection he held that there was no substance in it. The learned Subordinate Judge in appeal concurred in the view of the learned District Munsif in regard to the finding as to the material irregularity and reasonable price but he was of the opinion that the sale was in contravention of Section 52 of the Provincial Insolvency Act and therefore he allowed the appeal and set aside the sale. It is this order that is being attacked in this Civil Miscellaneous Second Appeal.

(2.) So far as the questions of material irregularity and fraud are concerned, there are concurrent findings of fact and they cannot be challenged in second appeal.

(3.) The question therefore for consideration is whether the sale is invalid. It is contended that once an interim receiver has been appointed and the fact of such appointment is brought to the notice of the executing Court, it is bound to stay the sale and a sale held after such notice is invalid and the purchase at any such sale with notice of the insolvency could not be held to be a purchase in good faith. To test the soundness of this contention it will be necessary to examine the relevant provisions of the Provincial Insolvency Act bearing on the matter. They are Secs.28, 51 and 52. In construing these provisions two principles have to be kept in view : (1) It is the policy of the law of insolvency that when a debtor commits an act of insolvency, there must be an even distribution of his property among his creditors and no creditor of his should be entitled to receive more than a rateable proportion of the amount realised from the property of the insolvent and available for distribution equally with other creditors. (2) It is the policy of the law not to frustrate the effort of a diligent execution creditor and deprive him of the fruits of his execution. I think the provisions of the Insolvency Act have been enacted to secure the object underlying these principles. Under Section 28(2) of the Provincial insolvency Act, on the making of an order of adjudication, the whole of the property of the insolvent vests in the Court or in an Official Receiver appointed by the Court but until then the property of the insolvent is not divested from him and every creditor is free to have recourse to all available remedies against the debtor for realisation of his debt. The section clearly provides that the disability of the creditor to have any remedy against the property of the insolvent is only after the order of adjudication. This is clear from the expression "thereafter" in the section. Even then it is not an absolute disability imposed by the Act but only subject to the provisions of the Act as indicated by the words "except as provided by this Act." From the provisions of Section 28(2) it is clear that a decree-holder can attach and bring the property to sale and have the property sold till the date of the order of adjudication. The question therefore is if, before the date of the order of adjudication, the property is sold and the sale proceeds are deposited into Court, what are the rights of a creditor, the purchaser and the receiver in regard to the property and the sale proceeds?