PETITIONER:
TUKARAM RAMCHANDRA MANE (DEAD) BY L.R.RS
Vs.
RESPONDENT:
RAJARAM BAPU LAKULE (DEAD) BY L.RS.
DATE OF JUDGMENT: 16/04/1998
BENCH:
K. VENKATASWAMI, A.P. MISRA
ACT
HEADNOTE
JUDGMENT
JUDGEMENTK. Venkataswami J.
A short question that arises for consideration in this appeal is that what is the meaning to be ascribed to the words "all acts theretofore, done, by the court or receiver, shall be valid;" occurring in Section 37(1) of the Provincial Insolvency Act, 1920 (hereinafter called the Act). Brief facts are given as hereunder.
The deceased respondent Rajaram Bapu Lakule (hereinafter called the debtor) was the original owner of a suit property, namely C.T.S. No. 926 Peth Baug, Sangli, Bombay. By a deed of mortage by conditional sale dated 22.1.1962 (Ex.41), he transferred the suit property in favour of the appellant (hereinafter called the creditor) for a sum of Rs. 7,500. The condition was that on the amount of Rs. 7,500/- if repaid within five years of the execution of the document, the property was to be reconveyed to the debtor. On 8.1.63 within one year from the date of conditional sale, the debtor executed another document (Ex.42) a regular sale deed after receiving an additional amount of Rs. 500/-. On 9.4.63 Insolvency Application 7/64 for being adjudicated as an insolvent. By proceedings of the court dated 8.1.65, the debtor was adjudicated as an insolvent and an official receiver was appointed in respect of the properties belonging to the insolvent / debtor including the suit property. In the year 1965, the receiver moved the Insolvency Court for a declaration that the sale deed namely, ex.42 dated 8.1.63 in favour of the creditor (appellant) was a sham and nominal transaction and as such it was null and void. After taking evidence, the Insolvency Court held that the said sale deed (Ex.42) was a sham transaction and that it was the result of the collusion between the debtor and the creditor. It was also found by the Insolvency Court that possession of the suit property was never taken over by the creditor. Against that order of the Insolvency Court , an appeal was filed being M.C.A. 50/68 and the same was dismissed by the Extra Assistant Judge, Sangli. By an order dated 26.6.1971, the Insolvency Court passed an order of annulment.
Thereafter the debtor filed a Civil Suit 62/76 for redemption of the mortgage Ex.41. This suit for redemption was on the footing that the sale deed Ex.42 was a sham and bogus document and it was never acted upon. Simultaneously the debtor moved the authority under the Maharashtra Debt Relief Act, 1975 for a declaration that the debt which was the subject matter of the mortgage stood extinguished as the mortgagor being a debtor within the meaning of the said Act. The appellant contested the said application contending that in view of the order of annulment and in the light of Section 37(1) of the Act, Ex.42 (sale deed) in his favour stood revived and therefore, there was no relationship of debtor and creditor to move the application under the Debt Relief Act. The authorised officer on a consideration of the documents overruled 14.480 held that in view of the declaration regarding Ex.42 (sale deed) by the Insolvency Court and by the Appellate Court that the sale was void, the earlier document viz. conditional sale Ex.41 stood revived and the debtor’s relationship existed. On that basis allowed the application under the Debt Relief Act. The result was that the debt stood wiped out.
Aggrieved by the order of the authorised officer under the Debt Relief Act, the appellant moved the Bombay High Court by filling W.P. 3438/80.
It was contended on behalf of the appellant before the High Court that the authorised officer was not right in holding that even after the order of annulment, the declaration made by the Insolvency Court holding Ex.42 (sale deed) as null and void, holds the field. In other words, it was the case of the appellant that the effect of the order of annulment was to wipe out altogether the insolvency and its effect including the adjudication made on Ex.42 by the courts and the saving clause in the first part of Section 37(1) shall not keep the order passed by the Insolvency Court, affirmed by the appellant Court, declaring Ex.42 (sale deed ) as null and void in force any longer. According to the cause of the appellant, the words "all acts theretofore" occurring in Section orders passed by the court declaring Ex.42 (sale deed) as sham and nominal. In support of that judgements from some High Courts were placed before the Bombay High Court.
Contending contrary, it was argued on behalf of the debtor that in view of the declaration by the Insolvency Court, declaring Ex.42 (sale deed) as null and void, being sham transaction and affirmed by the Appellate Court, the same is saved by the first part of Section 37(1) as it will come within the purview of the acts done by the court.
The Division Bench of the Bombay High Court, after referring to several judgments of different High Courts placed before it, preferred to follow a judgement of the Kerala High Court reported in Kumaran & Ors. vs. Cheriyambadam Ayidru & Ors (AIR 1969 Kerala 211). Ultimately the Division Bench held that the view taken by the authority under the Debt Relief Act cannot be faulted and EX.42 (sale deed) was non est in the eye of law and consequently the position occupied by the parties as debtor and creditor continued till the appointed date as contemplated by the Debt Relief Act. Since all other conditions were satisfied, the authority was justified in ordering the extinguishment of the debt. On that view, the writ petition filed by the appellant was dismissed. Hence the present appeal.
Mr. V.N. Ganpule, Senior Counsel appearing for the appellants reiterated the same argument, namely that the effect of annulment on the facts of this case was to revive the validity of regular sale (Ex.42) notwithstanding the declaration of the Insolvency court and the Appellate Court during the pendency of the insolvency proceedings. In support of his contention, he placed reliance on the following judgments : 1) Jethaji Peraji Firm vs. Krishnayya & ors. 2) Dharmasamarajayya vs. Sankamma & Ors. ( AIR (30) 1943
Madras 453 3) S. Janabai Ammal vs. Narasimhalu Naidu & Ors (AIR 1956
Madras 341 )
He fairly submitted that the judgment in Kumaran & Ors. vs. Cheriyambadam Ayidru & Ors (AIR 1969 Kerala 211) which is directly on point is against his contention.
Mr. U.U. Lalit, learned counsel appearing for the respondents submitted that the judgment of the Kerala High Court lays down the correct law and even AIR 1930 (Madras) 278 supports his case and not the case of the appellant. Mr. Lalit also pointed out that after the annulment order was passed, the Insolvency Court did not pass any order regarding the vesting of the property in any person and in the absence of such direction, the property shall revert to the debtor to the extent of his right or interest therein as per Section 37(1) of the Act. He submits that the judicial pronouncement declaring Ex.42 (sale deed) as null and void and the outcome of collusion between the mortgagor and mortgagee is saved by the first part of Section 37(1). The contention to the contrary that the word ’acts’ will not include orders passed by the court, according to the learned counsel is contrary to a plain reading of the Section.
For a proper appreciation of the rival submission, we give below Section 37(1) of the Act :-
"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." (Emphasis
added).
A plain reading of the above Section will show that the orders passed by the court or receiver including adjudication of disputed question on title, will come within the purview of "all acts". The Kerala High Court in Kumaran & Ors. vs.Cheriyambadam Ayidru & Ors (supra) after referring to a judgment rendered, constructing & corresponding Section of the English Bankruptcy Act, 1869 held that an order passed by the Insolvency Court or the official receiver could be an act within the meaning of Section 37 of the Act.
Following the judgement of the Kerala High Court, the Division Bench held as follows:-
"At least prima facie and upon the
plain reading of said Section
37(1), we find no justification for
holding that the Declaration dated
26th August, 1968 did not answer
the Description of the "acts"
referred to in said Section 37(1).
After all, the Court acts in a
number of ways. when the Court
grants any declaration, it cannot
be said not to have performed some
"act" . A decree passed by the
Court is one of the acts. An order
passed by the Court is another such
act. Even a more declaration given
will be another act. Point is that
the expression "acts" is wide
enough to take in its fold the
declaration made by the Court such
as the one dated 26th August, 1968.
On the plain reading of the
section. therefore, it is somewhat
difficult to accept Mr. Apte’s
contention.
Mr. Apte relied upon certain
authorities in support of his
contention that, upon the order of
annulment, every order passed by
the Court became non-existent or
non est. Mr. Shah, on the other
hand, relied upon quite a few
authorities in support of his
submission that the order of
annulment had no effect upon the
declaration already given by the
Insolvency Court holding the
particularly sale deed to be void.
We will presently examine those
authorities. Here, we are concerned
with the interpretation of the
section on the basis of its plain
reading.
In this connection, Mr. Apte
also relied upon the subsequent
portion of said Clause (1) of
Section 37. By the subsequent
portion, the effect of the order of
annulment is provided for. The
effect is that the property which
stood vested in the Court or in the
Receiver till the date of the
annulment would, from the date of
the annulment, stand vested in such
person as the Court m ay appoint
and if the court does not make any
appointment of any person for that
purpose, the property, it is
provided, shall revert to the
debtor, no doubt, to the extent of
his right and interest therein. On
the basis of this provision, the
counsel argued that no order was
passed by the Insolvency Court
appointing any person in whom the
property should vest. He argued
that the property must, therefore,
go back to the person to whom it
was to belong before the date of
the adjudication.
We are afraid, the argument is
not quite correct. In the instant
case, the effect of the declaration
was that the property vested in the
Receiver because the order of
appointment of Receiver was very
much there. If no order was passed
by the Court directing the property
to continue to vest in the Receiver
or if there was no other order
passed by the Court directing the
property to vest in any other
person, the third result
contemplated by said clause (1) is
that it would revert back to the
debtor. The incident of vesting is
not mentioned in the order because
there is no order passed in that
behalf. It could be, therefore,
legitimately argued that it would
vest in the debtor entirely. We
make it clear that we are not
called upon to decide this question
as to whom, in given circumstances,
the property would revert for
certain. Point here is that it
would either vest in the person
appointed by the Court or it would
revert back to the debtor. No
position is contemplated by the
said clause (1) that the property
would revert back, in the case such
as the present one, to the
ostensible purchaser under the sale
deed, Ex.42, was the
mortgagee/creditor. Said clause (1)
does not provide that the property
would go to the mortagee/creditor.
If at all it reverts back, it would
revert to the mortagagor/debtor.
The argument advanced by Mr. Apte,
in fact, boomerangs against his own
contention."
We are in full agreement with the view taken by the Division Bench in the judgment under appeal. We would have considered the authorities cited by the learned counsel for the appellant, claiming to support his contention that the effect of annulment was to the effect that the adjudication of the Insolvency Court holding Ex.42 (sale deed) null and void, would become non est and ineffective but for the fact that in a recent judgment of this Court in Arora Enterprises Ltd & Ors. vs. Indubhushan Obhan & Ors . ( (1997) 5 SCC 366) which had escaped the attention of the counsel on both sides settling the issue. This court in the said case had considered the scope of Section 37(1) and the effect of order of annulment. The facts of the case dealt with by this Court in Arora Enterprises Ltd. (supra) briefly are as follows:-
One Indubhushan alongwith his two brothers owned certain properties. The said Indubhushan was adjudicated as an insolvent on 29.7.1971. While the said Indubhushan was continuing as undischarged insolvent, one Arora Enterprises entered into an agreement on 9.5.1988 for sale of the suit property (Indubhushan’s share) and paid a sum of Rs. 7,00,000/-.As the said Indubhushan failed to execute the sale pursuant to agreement, the said Arora Enterprises filed a suit (No.133/89) on the basis of the said agreement. . Pending the suit, Indubhushan on record, Arora Enterprises moved a chamber summons before a learned single judge of High Court, Bombay. The said chamber summons was disposed of by the learned Single Judge holding inter alia that the agreement of sale was void and unenforceable as leave of Insolvency Court was not obtained and, therefore, the suit itself was not maintainable. An appeal was filed against the learned Single Judge’s said order which was also dismissed by the Division Bench on 9.7.1991. The result of the above orders was that the suit filed by Arora Enterprises stood abated against Indubhushan’s (estate) legal heirs. On 30.5.1994 the insolvency of Indubhushan was annulled. Thereafter the legal representative of Indubhushan entered into a fresh agreement to sell the property with one M/s.Kamal Construction Co. Taking advantage of the order of annulment, Arora Enterprises, the original agreement holder , took out fresh chamber summons in an original suit (No.133/89) filed by it in the year 1989 praying to amend the plaint by deleting the name of Indubhushan and to add his legal heirs. It was the contention of Arora Enterprises that the order of annulment wipes out the adjudication of insolvency and the result of that was that his agreement with Indubhushan dated 9.5.98 automatically revives and binds on his estate. It was also the contention that the dismissal of earlier chamber summons declining to implead the legal heirs and the consequent abatement of the suit are of no con sequence. The said application was opposed by the legal heirs as well as M/s. Kamal Construction Co. The learned Single Judge as well as the Division Bench rejecting the contention advanced on behalf of Arora Enterprises, dismissed the second chamber application. Aggrieved by that, an appeal by special leave came to be filed in this Court and this Court after noting as many as sixteen judgments of various High Courts on the scope of Section 37 of the Act held as follows:-
"10. Though the arguments addressed
before us covered a wide range, we
are of the view that it is
unnecessary to pronounce in detail
on the various aspects involved in
the matter at this stage. Suffice
it to say that the preponderance of
judicial opinion is in favour of
the view that the effect of
annulling the adjudication in
insolvency proceedings, is to wipe
out the effect of insolvency and to
vest the property retrospectively
in the insolvent. The consequence
of annulling an order of
adjudication is to wipe out
altogether the insolvency and its
effect. The property will revest in
the insolvent retrospectively from
the date of the vesting order. We
hold that the law is fairly clear
to the above extent. But, this does
not solve the problem arising in
this case. The effect of the suit
(independently) filed by the
appellant and the orders passed
therein have to be considered. That
is a distinct and different matter,
which has its own existence and
legal impact, unimpaired by the
annulment of the insolvency and
wiping out its effect
retroactively, in law, the suit and
the judicial orders passed thereon
are not wiped out, or rendered void
or a nullity, automatically. The
order passed in the suit is not est
or ineffective. In the suit laid by
the appellant (Suit No. 133 of
1989) praying for declaration that
the agreement between the
appellant and Indubhushan dated
9.5.88 is valid and subsisting,
that the property should be
property partitioned and that a
decree may be passed against
Indubhushanthe first defendant
for recovery of a sum of Rs. 7
lakhs etc.; On the demise of
Indubhushan on 22.4.89, the
appellant took out Chamber Summons
No. 769 of 1989 in the suit (No.133
of 1989). The court rejected the
chamber summons by a composite
order on two different and distinct
points - (1) the agreement dated
9.5.88 entered between the
appellant an Indubhushan is void
and unenforceable and so, the suit
is not maintainable; (2) The
amendments sought by the appellant
to implead Defendants 1(a) to 1(d)
as Respondents 1 to 4 in place of
deceased Defendant 1 and to add the
official assignee as a party
defendant, were disallowed. The
legal effect of the said order is
that Suit No. 133 of 1988 stood
abated against the legal heirs of
the first defendant, Indubhushan
and the order passed on 2.2.90
reached finality. It so happened,
as a result of the judicial order
passed by the court in a proceeding
between the parties to this
proceeding as early as 2-2-90. This
order is valid until set aside or
annulled, in appropriate
proceedings are taken to establish
its invalidity and to get it
annulled by a person entitled to
avoid it. The said order stands
even today; it has not been set
aside. So long as the said order
stands, the abatement of the suit
has become unassailable in these
proceedings. Nearly five years
thereafter, the appellant filed
fresh Chamber Summons No. 1123 of
1995 in a non-existent suit. No
factual plea as such was made to
set aside the abatement. The plea
in that regard is that by the
annulment of insolvency, the
abatement of the suit, if any,
requires to be set aside as a
matter of law. For reasons stated
earlier, the abatement of the suit
(an independent proceeding), that
ensued, cannot be ignored or the
proceedings in the suit revived by
the annulment of insolvency, as a
matter of law."
The above judgment of this Court squarely applies to the facts of this case which are given in the earlier part of this judgment. Therefore, we observed earlier that the need to go into the matter elaborately does not arise view of the pronouncement in Arora Enterprises (supra) with which we are in respectful agreement.
In the result there is no merit in this appeal and the judgment under appeal is in conformity with the recent ruling of this Court in Arora Enterprises case (supra). Accordingly the appeal fails and is dismissed with no order as to costs.