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TMI Blog1959 (8) TMI 51X X X X Extracts X X X X X X X X Extracts X X X X ..... This petition remained pending for a considerable time and ultimately on January 7, 1939, an order was made on it adjudicating Venkatachalam Chettiar an insolvent. By that order respondent No. 1, the official Receiver of Ramanathapuram, was appointed the receiver in insolvency and the insolvent's estate vested in him. This order was based on the finding that the transfer of the decree by Venkatachalam Chettiar to Meenakshi Achi was a fraudulent preference and an act of insolvency. On January 26, 1942, the receiver made an application in the insolvency proceedings for an order annulling the transfer of the decree by the insolvent to Meenakshi Achi and on this application an order was made on April 9, 1943, under s. 54 of the Act annulling that transfer. 3. In the meantime, Meenakshi Achi had made two applications for execution of the decree as the assignee of it and a reference to them is necessary. The first of these applications was made on December 14, 1939, for an order recognising her as the assignee of the decree and for its execution against some of the judgment-debtors. This application was disposed of by an order made on September 27, 1937, recognising her right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cations made in accordance with law to the proper court for execution within the meaning of the article and his application was within time as it had been made within three years of the date on which the final order on Meenakshi Achi's last application was made. 9. It is said on behalf of the appellants that it view of the orders in the insolvency proceedings it must be held that she was not entitled to the decree on any of the dates on which she applied for its execution and that her applications were therefore incompetent and not in accordance with law. 10. The appellants put their contention in several ways. It is first said that the order annulling the assignment of the decree to Meenakshi Achi related back to the date of the assignment with the result that it has to be deemed as if she had never been entitled to the decree and that, therefore, the applications for execution by her were not competent and hence were not in accordance with law. 11. We think this contention is wholly unfounded. We will assume for the purpose of the present case that when an order is made under s. 54 of the Act annulling a transfer, the transfer stands annulled as from the date it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on being made, there would be no need to provide for its annulment by court. It would follow that Meenakshi Achi was legally possessed of the decree and competent to apply for its execution till the transfer of the decree to her was annulled under s. 54. 14. It is then said that though it may generally be that a transfer liable to be annulled under s. 54 remains valid till it is annulled, that is not so where the transfer is the act of insolvency upon which the order of adjudication is founded, for, in such a case the order itself annuls the transfer. So, it is said that as the order of adjudication in this case was founded upon the transfer of the decree to Meenakshi Achi, that transfer became annulled on the order being made on January 7, 1939, and the second application for execution by Meenakshi Achi was incompetent. It is true that if this in the correct view, then the receiver's application for execution must be held to have been made beyond the time allowed, for, it had been made more than three years after the final order on the first application for execution by Meenakshi which is the only order on which the receiver can on this basis rely for resorting to the fifth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the appellate Judges felt that there was a decision binding on the transferee that the transfer was void as a fraudulent preference and they thereupon annulled the transfer as a matter of course. The judgments in the High Court are reported in 45 C.W.N. 441. The transferee who was not a party to the insolvency petition, then asked for an extension of time to prefer an appeal from the order of adjudication but this was refused. 17. Then the matter was taken up to the Judicial Committee in further appeal. The Judicial Committee held that the appellate Judges of the High Court were right in their view that the principle of Ex parte Learoyd (1878) 10 Ch. D. 3, applied to cases under the Presidency-towns Insolvency Act, but they thought that in the circumstances of the case the order of the appellate judges refusing to extend time for the transferee to appeal from the order of adjudication was not justified and set it aside and extended the time to appeal. In order, however, to make the order in the contemplated appeal, should it succeed, effective, they also set aside the order annulling the transfer though in their view it was plainly right . This would appear from their observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication is based on an act of insolvency constituted by a transfer of property found to be a fraudulent preference, the transfer stands till it is set aside. In our view, this is the correct position and nothing to the contrary has been brought to our notice. 19. An argument had been raised at the bar that under the Provincial Insolvency Act an order of adjudication has not that binding force which Mahomed Siddique Yousuf's case I.L.R.(1943) IndAp 93, held it had under the Presidency-towns Insolvency Act. It was said that this was so because the terms of the two Acts were dissimilar. We do not think it necessary to express any opinion on this question. We have discussed Mahomed Siddique Yousuf's case I.L.R (1943) IndAp 93, only to show that it does not support the proposition for which it was cited. It is unnecessary for us to say whether it will govern a case under the Provincial Insolvency Act or what the effect of the dissimilarity pointed out in the terms of the two Acts is. That question is not before us. 20. There remains one other point to deal with. It is said that the official receiver was not entitled to take advantage of the applications for execution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of insolvency. On December 14, 1936 the assignee, Meenakshi Achi, filed E.P. No. 37 of 1937 for recognition of the assignment in her favour and for execution of the decree. The judgment-debtors did not object either to the recognition of the assignment of the decree or the execution thereof. The said Visvanathan Chettiar intervened in the execution petition and applied in E.A. No. 817 of 1937 for stay of execution of the decree on the ground that he had filed an insolvency petition against the decree-holder and also on the ground that the said assignment was nominal. The learned Subordinate Judge disallowed the objection of the creditor, recognised the assignment, and permitted the assignee-decree-holder to proceed with the execution of the decree. On September 27, 1937, a settlement was entered into between the assignee-decree-holder and the judgment-debtors and the said execution petition was closed. On January 7, 1939, Venkatachalam Chettiar was adjudicated insolvent on the ground that the assignment of the said decree by him in favour of his mother, Meenakshi Achi, was an act of insolvency, whereupon his properties vested in the first respondent, the Official Receiver, Ramanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of remand. 24. Learned Counsel for the appellants contended that the execution petitions, E.P. No. 37 of 1937 and E.P. No. 243 of 1940, were not in accordance with law for the following reasons : (1) The order dated April 9, 1943, annulling the assignment of the decree by Venkatachalam Chettiar in favour of his mother, Meenakshi Achi, related back to the date of the transfer, i.e., February 3, 1936, and, therefore, E.P. No. 37, 1937, which was filed on December 14, 1936 and E.P. No. 243 of 1940 which was filed on August 2, 1940, were ineffective to save the bar of limitation, as on the dates they were filed Meenakshi Achi had no title in the decree; (2) the order of adjudication dated January 7, 1939, was based on the finding that the said assignment of the decree was an act of fraudulent preference and that the order related back to the date of the filing of I.P. No. 10 of 1936 on March 26, 1936, and, therefore, the two execution petitions filed thereafter were filed by a person without title, with the result that the said two petitions were not in accordance with law; (3) assuming that the said two execution petitions were in accordance with law, the Official Receiver neith ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cy, and one of them is a transfer made by a debtor which would be void as a fraudulent preference if he were adjudicated insolvent. Section 7 enables a creditor or a debtor to present an insolvency petition for adjudicating the debtor an insolvent. Section 9 lays down the conditions on which a debtor may petition. Section 13 prescribes the particulars a creditor has to give in his petition, and one of the particulars to be given in the act of insolvency committed by the debtor. When an insolvency petition is admitted, s. 19 provides that notice should be given to creditors in such manner as may be prescribed, and, when the debtor is not the petitioner, notice of the order admitting the petition should be served on the debtor. On the date fixed for hearing, the Court should require proof of the matters mentioned under s. 24 of the Act; it enables the Court to examine the debtor and the creditors and take the evidence adduced by them. After making the necessary enquiry, the Court may dismiss the petition or make an order of adjudication. On the making of the said order of adjudication, the whole property of the insolvent would vest in the Court or in the Receiver appointed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (3) transfers made after adjudication. A transfer made after adjudication in not binding on the Receiver. A transfer by an insolvent after the filing of the petition is also not binding on the Receiver subject to a protection clause. A purchase in good faith under a sale in execution (s. 51(3)) and a transfer inter vivos in good faith for valuable consideration (s. 55) fall within the protected class of transactions. A transfer before the filing of the petition is binding on the Receiver unless it is annulled under Sections 53, 54 or 54-A of the Act. The scheme of the Act in regard to transfers clearly demonstrates that transfers before the filing of the petition are good unless they are annulled in the manner prescribed in the Act and even the doctrine of relating back of the order of adjudication does not reach them as they fall on the other side of the line. If it was the intention of the legislature that the said order by its own force should declare the transaction void, it would have fixed the date of the transfer as the datum line instead of the date of the filing of the petition. It appears to me that this was designedly done to give an opportunity to the party affected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the insolvency of a debtor relates back to the time of the commission of the act of insolvency on which the order of adjudication has been made against him. But under s. 28(7) of the Provincial Insolvency Act, the order of adjudication relates back to and takes effect from the date of the presentation of the application on which it is made. Under s. 56 of the Presidency-towns Insolvency Act, transfer of a property in favour of a creditor with a view to give preference to him over other creditors shall be deemed fraudulent and void as against the Official Assignee, whereas under s. 54 of the Provincial Insolvency Act, the said transfer has to be annulled by the Court. There are, therefore, essential differences in the structure of the scheme between the three Acts in the matter of adjudication. 31. With this background let us look at the Privy Council decision in Mohomed Siddique Yousuf's case I.L.R (1943) IndAp 93, to ascertain the basis of that decision. The facts in that case were : On January 20, 1939, the insolvent assigned to the appellant a decree obtained by him for consideration. On April 19, 1939, the petitioning creditor filed a petition in the High Court for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tucker (1879) 12 Ch. D. 308, and content themselves with striking out the act of bankruptcy complained of, and leaving the official assignee to make a fresh application without themselves determining the facts. 33. This decision decides three points, namely : (i) having regard to the express provisions of the Presidency-towns Insolvency Act, and for maintaining the status of the debtor and the stability of the administration of his estate, the decision affecting the rights of a third party though made behind his back, would be binding on him; (ii) an appeal can be entertained against the order of the adjudication at the instance of the transferee, and, if necessary, by excusing the delay in preferring the appeal; and (iii) in such an appeal, the High Court may strike out one of the acts of insolvency, i.e., the transfer in favour of the appellant, and leave it to the Official Assignee to make a fresh application. Though the principles underlying the relevant provisions of the Act were expounded, the decision mainly rested on the express provisions of the Presidency-towns Insolvency Act. Nor did the Privy Council hold that when there was an order of adjudication on the basis of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... title related back to that act of bankruptcy James, L.J., after a brief survey of the historic background of the Bankruptcy Act, based his judgment mainly on the construction of the provisions of Sections 10 and 11 of the Bankruptcy Act. The learned Judge observed at p. 8 : A man cannot be 'duly' adjudged a bankrupt, unless the great requisite of all exists, that he has committed an act of bankruptcy. That is the capital offence of which he must have been guilty before he can be 'duly' adjudged a bankrupt. That he has been 'duly' adjudged a bankrupt, necessarily involves the previous commission of an act of bankruptcy. The mere fact that an adjudication has been made could have been proved without the aid of sect. 10. That section may, however, only involve this, that some act of bankruptcy had been committed before the adjudication was made. But then comes sect. 11, which has no operation at all as between the bankrupt and the trustee. The bankrupt has no rights whatever; all his rights have been transferred to the trustee. The mere fact that sect. 11 is dealing with the relation back of the trustee's title, shews that it is dealing with the rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the trustee's title from the act of bankruptcy. The former section made the order of adjudication conclusive against third parties and the latter section vests the title of the property concerned in the official receiver from the date of the act of insolvency. This judgment, therefore, cannot be applied to an Act which differs in all respects from the relevant provisions of Sections 10 and 11 of the Bankruptcy Act on the basis of which that judgment was given. In the Provincial Insolvency Act, neither the order of adjudication is conclusive evidence that it has been duly made, nor the trustee's title dates bank to the act of insolvency on which the adjudication is founded. I am, therefore, of the view that neither the decision in Ex parte Learoyd (1878) 10 Ch. D. 3, based on the provisions of the Bankruptcy Act, 1869, nor the Privy Council decision in Mahomed Siddique Yousuf v. Official Assignee of Calcutta I.L.R. 1943 IndAp 93, based upon the provisions of the Presidency-towns Insolvency Act, has any bearing in construing the relevant provisions of the Provincial Insolvency Act. A similar view was expressed by a Full Bench of the Madras High Court in The Official Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... title through or under a creditor of the insolvent. 39. It is clear from the provisions of this section that a transfer of property by a debtor before insolvency in favour of a creditor giving him preference over other creditors is not absolutely void. As between the transferor and the transferee, the title in the property conveyed passed from one to the other, but it is liable to be annulled at the instance of the receiver. This is because the Insolvency Act confers on the official receiver a title superior that of the insolvent enabling the former to get it annulled in the interest of the creditors. Sub-section 2 of that section also indicates that the transfer is not void ab initio, for under that sub-section the rights of any person, who in good faith and for valuable consideration acquired title through or under a creditor of the insolvent, are protected. If the transfer was ab initio void in the sense that it is a nullity, all the depending transactions should fall with it. Emphasis is laid upon the word void in s. 54(1) of the Act, but the said word in the context can only mean voidable, for it is made void only against the receiver and requires to be annulled by the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transfer is void ab initio and subsequent transferees can never be protected because the foundation of their title does not exist.......... On the other hand, if the transfer made by the debtor was not wholly fictitious and bogus but the intention of the parties was that property should is fact passed to the transferee, then the result would depend on whether the transferee was a purchaser in good faith and for valuable consideration, or not. The transfer for the time being is valid, though it is voidable at the option of the receiver, and it is discretionary with court to annul it under section 53 of the Provincial Insolvency Act. 43. The said observations will apply mutatis mutandis to a situation under s. 54 of the Act. Indeed, a Division Bench of the Nagpur High Court in Rukhmanbai v. Govindram I.L.R. (1935) All. 900, in the context of s. 54 of the Act, stated to the same effect thus at p. 275 : The wording of the section (s. 54) thus very clearly indicates that a transfer of the nature mentioned therein is voidable as against the receiver and is not void ab initio and may be annulled by the Court........... It is thus clear from the section that till the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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