ANNAMALAI CHETTIAR Vs. LAKSHMANAN CHETTIAR

JUDGEMENT

(1.) This appeal raises the question of the effect of the insolvency of the judgment-debtor under a mortgage decree, the adjudication taking place after orders had been passed for the sale of the hypotheca under the decree but before the sale was actually held. The appellant, who is the plaintiff, is a purchaser under a subsequent sale held by the Official Receiver. The following are the essential dates. The mortgage decree is dated 19 May, 1925. The judgment-debtor preferred his insolvency petition on 1 July, 1926. The sale under the mortgage decree was ordered on 8 July, 1927. The adjudication was on 26 July, 1927. On 7 September, 1927, the sale in execution of the mortgage decree was held without notice to the Official Receiver and the defendant purchased the property. On 31 January, 1930, the Official Receiver sold the property to the plaintiff subject to the mortgage upon which the decree was passed and the subsequent mortgage. The sale-deed was actually executed nearly a year later. The suit is one for possession on the basis of this sale from the Official Receiver, the plaintiff offering to redeem the mortgage on which the decree was passed if necessary. The first question is whether the respondent (purchaser under the mortgage decree) is protected by Section 51, Sub-section (3) of the Provincial Insolvency Act. On this question it seems that the matter is concluded by a bench decision reported in Mallikarjuna Rao V/s. Official Receiver, Kistna , the learned Judges reading Section 51 in the light of the heading "Effect of insolvency on antecedent transactions" and holding that it has no relation to transactions taking place after the adjudication. This decision dissents from an obiter dictum of Venkatasubba Rao, J., in a case reported in Muthan Chettiar V/s. Venkituswami Naicken . I respectfully agree with the learned Judges of the bench that Section 51, Sub-section (3) does not apply to a purchase in execution after the adjudication which vests the property in the Official Receiver.

(2.) It has, however, been held by the lower appellate Court, relying on the cases reported in Kondapalli Tatireddi V/s. Ramachandra Rao (1921) 13 L.W. 616 and Subbaraya Goundan v. Virappa Chettiar Bank that the insolvent to whom notice went in the sale proceedings under the mortgage-decree at a time when the properly still vested in him, represents the estate for the continuation of those proceedings and that therefore the sale would be good as against the Official Receiver even though no notice was given to the Official Receiver under Order 21, Rule 22, Civil Procedure Code. Both the cases upon which the learned Subordinate Judge relied are cases dealing with the power of an insolvent to continue proceedings connected with an application to set aside a sale in execution of the decree after his adjudication. In such cases there is no question of the property being vested in the Official Receiver, for until the sale is set aside there is nothing left to vest, and there is no particular reason why the insolvent, who was a party to the proceedings in the appeal stage, should not be allowed to continue them, subject presumably to the right of the Official Receiver to claim the property, if any, if the sale is set aside. There are, however, a number of specific decisions to the effect that when, after the execution proceedings have been started under the decree, the judgment-debtor is adjudicated as an insolvent, the sale cannot convey title to properties vested in the Official Receiver unless he is made a party to the proceedings. The leading case is the decision of the Privy Council in Raghunath Das V/s. Sundar Das Khetri (1914) 27 M.L.J. 150 : L.R. 41 I.A. 251 : I.L.R. 42 Cal. 72 (P.C.). That was a case of a money decree, the property in question having been attached before the adjudication and sold without impleading the Official Assignee after the adjudication. Their Lordships point out that In the first place the property having passed to the Official Assignee, it was wrong to allow the sale to proceed at all. The judgment-creditors had no charge on the land, and the Court could not properly give them such a charge at the expense of the other creditors of the insolvents. In the second place no proper steps had been taken to bring the Official Assignee before the Court and obtain an order binding on him, and accordingly he was not bound by anything which was done. In the third place the judgment-debtors, had at the time of the sale no right, title or interest which could be sold to, or vested in, a purchaser, and consequently the respondents acquired no title to the property.

(3.) It was pointed out for the respondent that this decision relates to a money decree and their Lordships expressly point out that there was nothing in the nature of a charge by reason of the attachment under that decree. It seems to me, however, that the fact that we are now dealing with a mortgage decree will not take away the applicability of this decision, though it will have a bearing upon the nature of the decree to be passed.