Bans Gopal Sheo Narain v. P.K. Banerji

Agarwala, J.:— This is a defendant's application in revision. The applicant had entered into a contract with Shyam Behari Lal and Kunj Behari Lal, plaintiff opposite parties, on the 29th of December, 1939, for the purchase of twenty-five bales of gunny bags. The date of delivery fixed in the contract was 25th January, 1940. The applicants failed to take delivery of the goods contracted for with the result that on the 23rd of January, 1943, the plaintiffs-opposite parties filed a suit for the recovery of Rs. 2,121 as damages for breach of contract. While the suit was pending the plaintiffs applied on the 13th of January, 1944, for being declared insolvents. Before this application was granted, Mr. P.K Bannerji, Official Receiver, was appointed an Interim Receiver of the properties of the plaintiffs by the insolvency court on the 15th of January, 1944. The 4th of February, 1944, was the date fixed for the final hearing of the suit. On that date the parties applied for time to file a compromise. No compromise was, however, filed but the suit was adjourned and the 18th of April, 1944, was fixed for final hearing. On that date the plaintiffs remained absent while the defendants were present with the result that the suit was dismissed for default of the plaintiffs.

On 18th May, 1944, the Interim Receiver filed an application for restoration of the suit under Order IX, rule 9, Civil Procedure Code, on the ground that the plaintiffs of the suit had colluded with the defendants in order to defraud the general body of the creditors, and he had no information of the date fixed in the suit. The defendants applicants objected that the Interim. Receiver had no right to apply for restoration. The case was adjourned, however, in order to await the result of the insolvency petition. The plaintiffs were ultimately adjudicated insolvents on the 10th of November, 1944. The restoration application was then taken up for orders. The lower court allowed it and the order dated the 18th of April, 1944, dismissing the suit was set aside and the suit restored to its original number subject to the payment of Rs. 20 as costs. It is against this order of the learned Munsif that the defendants-applicants have come up in revision to this Court.

It is urged on their behalf that the court below had no jurisdiction to restore the suit as the Interim Receiver had no locus standi to make such an application, firstly, because the application having been made at a time when the order of insolvency had not been passed, the Interim Receiver could have made an application, only if he had been granted power by the insolvency court to contest the suit or make the application for restoration and secondly, because the subject-matter of the suit was a mere right to sue for damages which did not west in the Official Receiver.

As regards the first point, we are of opinion that the contention is not sound. It is true that at the time when the restoraton application was made Mr. P.K Bannerji was merely an Interim Receiver of the properties of the plaintiffs. It is also true that there is nothing on the record to prove that the insolvency court had invested the Interim Receiver with the power of making a restoration application in the suit or of prosecuting or defending suits in which the plaintiffs, were interested. But when once the order of adjudication was passed it related back to the date of the petition of insolvency—vide section 28(7) of the Provincial Insolvency Act, which runs as follows:

“an order of adjudication shall relate back to take effect from the date of the presentation of the petition on which it is made.”

Now the application for insolvency was made on the 13th of January, 1944, before the suit was dismissed for default. If the order of adjudication related back to the presentation of the petition for insolvency, Mr. P.K Banerji, the Official Receiver, was entitled to say that his application for restoration, made on the 18th of May, 1944, should be treated as having been made by him not only in his capacity as an Interim Receiver, but also in his capacity as Official Receiver of the estate of the plaintiffs. We think, therefore, that the restoration application could not be thrown out on the ground suggested by the learned counsel.

This lead us to a consideration of the question whether the subject-matter of the suit vested in the Official Receiver as a result of the order of adjudication.

Now section 28, sub-section (2) of the Provincial Insolvency-Act provides that:

“on the making of an order of adjudication, the whole of the property of the insolvent shall vest in the court or in a receiver as hereinafter provided….”

Sub-section (5) of section 28 lays down that:

“The property of the insolvent for the purpose of this: section shall not include any property (not being books of account) which is exempted by the Code of Civil Procedure, 1908, or by any other enactment for the time being in force from liability to attachment and sale in execution of decree.”

section 2(d) defines “property” as including:

“any property over which or the profits of which any person has a disposing power which he may exercise for his own benefit.”

Two questions, therefore, have to be answered, namely;

(1) Is the subject-matter of suit “property”? and

(2) Is it such property as is exempted by the Code of Civil Procedure or by any other enactment from liability to attachment and sale in execution of a decree?

The subject-matter of the suit is a claim for damages on account of breach of contract. The definition of the word “property” in section 2(d) of the Provincial Insolvency Act is not exhaustive. The word “includes” in the definition, merely enlarges the meaning of the term and makes it include matters which ordinarily may not have been included. It does not confine the meaning of the term to what is stated to be included within it—Rodger v. Harrison(1). The definition of the word “property” therefore in section 2(d) of the Act is not exhaustive. As Salmond points out in his Book on Jurisprudence, the word “property” is used in four different senses:

(1) In its widest sense, “property” includes all a person's legal rights, of whatever description. A man's property is that all that is his in law.

Thus Blackstone speaks of the ‘property’ (i.e right) which a master has in the person of his servant and a father in the person of his child. “The inferior”, he says “hath no kind of property in the company, care, or assistance of the superior, as the superior is held to have in those of the inferior”—Black-stone III, 143.

(2) In a second and narrower sense, “property” includes not all a person's rights but only rights in respect of things and not in respect of persons. The former constitute his estate or property, while the latter constitute his status or personal condition. In this sense, a man's lands, cattles shares and the debts due to him or his rights in action are his property, but not his life or liberty or reputation.

(3) In a third sense “property” includes not even all proprietary rights, but only those which are both proprietary and real—in other words, a man's rights in things in rem and not a man's rights in things in personam. In this sense “freehold” or leasehold estate in land, or a patent or copyright, is “property”, but a debt or the benefit of a contract is not.”

(4) Finally, in the narrowest use of the terms, it includes nothing more than corporeal property—that is to say, the right of ownership in a material object, or that object itself identified with the right by way of metonymy.

Thus Bentham considers as “metaphorical and improper the extension of the term to include other rights than those which relate to material things”—(Bentham, Principles of Legislation, page 231). (See Salmond on Jurisprudence, Eleventh Edition, pages 578-580).

Now the first sense of the word “property” mentioned by Salmond is now obsolete. The last two senses are too narrow, and the word “property” is not confined to them. The word “property” cannot be confined to the material object, it must include rights in and over that object. A person may have certain rights, e.g leasehold or mortgagee rights over the property of another. These jura in re aliena are also “property” of the person who owns them, though the material object is owned by another. Again, debts or actionable claims which are personal rights cannot be legitimately left out of the connotation of the word “property”.

The second sense thus conveys the true meaning of the word “property” as used in law. In that sense ‘benefits arising out of a contract’ will be included in the term ‘property’. The right to claim damages for breach of a contract is one of the benefits of a contract. According to Holland—

“the sum total of a man's fortune, including not only the objects of which he is owner, but also the value of any claims which he may have against other persons, after deducting the amount of any claims which might be made good against himself, is described as his “property”, and he is said to “own” it.”—(Holland on Jurisprudence, Eleventh Edition, page 202).

In other words, the whole complex of the mass or rights in rem and in personam, less deductions, are a man's “property”. Such a mass of property, should its subject die, becomes what was called in Roman Law a hereditas. Under the Roman Law the right to the performance of an Act by another was considered as “property” though an incorporeal property (res incorporalis)—(See Code Civil, Article 529).

In the Conveyancing Acts, 1881 and 1882, 44 and 45 Victoria, Chapter XLI, section 1; and 45 and 46 Victoria, Chapter XXXIX, Section 1, “property” was defined as—“including any debt, and anything in action, and any other right or interest.”

In the English Bankruptcy Act, 1914, 4 and 5 George V, Chapter LIX, “property” is defined in section 167 as follows:

“property includes money, goods; things in action, land, and every description of property, whether real or personal and whether situate in England or elsewhere; also obligations, casements, and every description of estate, interest, and profit, present or future, vested or contingent, arising out of or incident to property as above defined.”

In Jones v. Skinner, Langdale M.R described the word “property” as being “the most comprehensive of all the terms which can be used, inasmuch as it is indicative and descriptive of every possible interest which the party can have.” A Full Bench of this Court in Ram Shankar Lal v. Ganesh Prasad(2), following this case, held that the word “property” is used in the Transfer of Property Act in this most comprehensive sense. In Ex parte Huggins(3), Jessel, M.R makes observations which may be summarised as follows:

There are many classes of property which are undoubtedly property although no judicial tribunal can enforce the contract out of which they arise. It cannot then be a good definition of property to say that it must, at any rate, be a chose in action; and inability to sue for a thing does not, therefore, make it the less “property”.

Thus things in action and obligations are both included in the definition of the term “property”. A claim for damages on account of breach of contract is a right arising out of contract and is an obligation qua the person who is guilty of breach and his property. Section 58(4) of the Presidency Towns Insolvency Act also speaks of things in action as property of the insolvent and lays down that such things shall be deemed to have been duly transferred to the official assignee. There is, therefore, no doubt that the claim for damages for breach of contract which was the subject-matter of the suit in the present case is “property”. It is to be remembered that all properties need not be transferable or attachable and saleable or even heritable, and we should keep the idea of “property” distinct from the idea of its transferability or or attachability or heritability.

This leads us to a consideration of the question whether the right to claim damages for breach of contract is exempted by the Code of Civil Procedure or by any other enactment, for the time being in force, from liability to attachment and sale in execution of a decree.

Section 60 of the Code of Civil Procedure lays down a list of properties that are not liable to attachment or sale. Clause (e) of that section provides that—

“A mere right to sue for damages” cannot be attached or sold.

In the present suit, as the plaintiffs claim damages only, it is undoubtedly a case of “a right to sue for damages, but is it a mere right to sue for damages”? What is the significance of the word “mere” in this clause?

All rights are either substantive or procedural and all substantive rights are either “antecedent” or “remedial”. An antecedent right is a right to have an act done for its own sake, and a “remedial right” is a right to have an act done on default of another act—(See Holland on Jurisdprudence, Tenth Edition, page 141). The right to the delivery of goods under a contract is an “antecedent right”. The right to have damages for breach of contract is a remedial right because it is claimable on default of the original right of delivery of goods. The antecedent right, out of which a remedial right may arise, may be a right of property or may not be a right of property. For instance, a right to personal safety and freedom, a right to the society and control of one's dependents, a right to one's reputation and a right to immunity from damages by fraud—these being rights-in-rem—;the conjugal right of a husband against his wife, the right of chastisement or restraint of a father against his child, the right of a guardian to restrain his ward—these being rights-in-personam—are all rights which cannot be classed as “property”. If any of these rights infringed there may arise a right to get damages by way of compensation, but such right to damages does not arise out of what may be termed a “property right”.

On the other hand, antecedent rights may be of possession and owner ship—rights-in-rem or to the specific performance of a contract, e.g, a contract for delivery of goods—a right-in-personam. These are all property rights. Any remedial right arising out of these rights may be said to arise out of property rights. In our opinion this distinction furnishes a clue to the real significance of the word “mere” in phrase “mere right to sue for damages”. Where a right to sue for damages arises out of an antecedent right which is a right of property, it is not a “mere” right to sue for damages. But where it arises out of an antecedent right which is not a right of property, it may be termed as a “mere right to sue for damages”. Again, the expression “mere right to sue for damages” can be validly applied to a case in which the antecedent right of property is severed by transfer or otherwise from its remedial right. Where the antecedent right vests in one person and the “remedial right to sue for damages” vests in another person, then also the “right to sue for damages” may legitimately be said to be a “mere Tight to sue for damages”. We would, therefore, hold that “a mere right to sue for damages” is a right which either does not arise out of a right of property, or though originally arising out of a right of property has been severed from it by transfer or otherwise and vests in a person different from the person who holds the antecedent right of property.

Now, in the present case, if the receiver became entitled to the benefits of the contract which had been entered into between the insolvent and the defendant-applicant, the right to sue for damages for breach of contract in his hands will not be a mere right to sue for damages. It is true that the contract was broken by the defendant when he failed to deliver the goods on the 25th of January, 1940, the last date of delivery, and in a loose sense we may say that the contract had come to an end, but that is not the right way of looking at the matter. A contract gives rise to both antecedent rights and remedial rights, i.e the benefits arising out of a contract include not only the right to have an act being performed in accordance with its terms but also the right to get compensation for the omission to so perform the act. This latter right of compensation may be a term embodied in the contract itself or may be available as a matter of law. In both cases it is a benefit that arises out of the contract, and is, in every sense, a part of the contract. In the true juristic sense even though the contract has not been performed according to its terms, it nevertheless, remains in force till the remedial rights arising out of it are performed. If the contract was not dead and its benefits remained alive on the date from which the adjudication order took effect, the official receiver became vested with those benefits and his right to sue for damages or to continue the suit already filed and to take all steps in connection therewith was a right which was connected with the contract in suit and thus was connected with “property”, and cannot be said to be a “mere right to sue for damages”.

Under the Presidency Towns Insolvency Act the position is the same having regard to sections 17 and 58(4) of that Act. Our view is in accord with the state of the law in England. It has been held there that rights of action generally, even for damages arising out of contracts made with the bankrupt, pass to the trustee under the insolvency. In Williams on Bankruptcy, Fifteenth Edition, page 281, the law has been summarised in the following words:

“(1) A right of action in respect of a tort or of a breach of contract resulting in injuries wholly to the person or feelings of the bankrupt does not pass to the trustee. Howard v. Crowther, Beckhem v. Drake, Wilson v. The United Counties Bank.

(2) A right of action in respect of a tort or of a breach, of contract resulting in injuries wholly to the estate of the bankrupt passes to the trustee. Stanton v. Collier(4).”.

In Halbury's Laws of England, Volume II, Article 255, page 186, the law has been stated as follows:

“All rights of action which relate directly to the bankrupt's property and can be turned into assets for the payment of debts pass to the trustee, but where a cause of action arises from the bodily or mental suffering or personal inconvenience of the bankrupt, or from injury to his person or reputation, then the right of action remains with the bankrupt.”

The view that we have expressed above was also taken by Raymond, A.C.J, in Official Assignee of Bombay v. Firm of Chandulal Chimanlal(5). In Gordhandas Kalidas v. Firm of Gokal Khatoo,(6) the same learned Judge had to deal with a case in which there was an attachment of the right to sue for damages arising out of the breach of a contract for sale of goods. The learned Judge distinguished that case from his previous decision in Official Assignee of Bombay, upheld the latter. In the case of an attachment of a right to sue for damages, the original contract by itself is not generally attached what is attached is merely the right to sue for damages. In the case of insolvency, however, the Official Receiver completely steps into the shoes of the insolvent so far as his estate is concerned. The benefits arising out of a contract for the purchase of goods, entered into by the insolvent thus vest in the official receiver. Such a contract carries with it the right to sue for damages. That right to sue for damages also vests in the Receiver because if is connected with the contract itself which has vested in him. In other words, the right to sue for damages is connected with the insolvent's estate, the benefits arising out of the contract being part of an estate.

On behalf of the applicant we have been referred to the following cases—Abu Mahomed v. S.C Chunder; Khetra Mohan Das v. Biswa Nath Bern; Hira Chand Amichand v. Nem Chand Fulchand, Liladhar v. Nago and Ram Dayal v. Mukat Manohar.

In the case of Abu Mahomed v. S.C Chunder, the facts were that by a contract dated the 2nd of December, 1904, Messrs Ebrahim Hajee Sulaiman & Co., had purchased from the defendant a certain quantity of goods. Some of the goods contracted for were not supplied by the defendant. After the breach Messrs Ebrahim Hajee Sulaiman & Co. became insolvent; and the Official Assignee of Bombay conveyed the outstanding assets and their interests to one Sulaiman Cassim Peroo Mahomed, who again assigned his interest in those contracts to the plaintiff. The Official Assignee by his assignment assigned “all actionable claims arising out of the transactions of the Calcutta and Bombay firms and the benefits of all contracts entered into by the Calcutta and Bombay firms of Ebrahim Hajee Sulaiman & Co. to Sulaiman Cassim Peroo Mahomed, and the latter assigned the same over to the plaintiff. The plaintiff then brought a suit for recovery of damages on account a breach of contract. The defence was that the plaintiff could to maintain the suit as the plaintiff was merely the transferee of a right to, sue.” Sir Francis Maclean, C.J observed that what the plaintiff in that case had purchased was a mere claim for damages for breach of contract, and as such, it was a mere right to sue within the meaning of section 6 of the Transfer of Property Act and was not transferable. The basis of the decision was that after the breach notrung remains in a contract, but a mere right to sue damages and that this right to sue for damages is not an “actionable claim” as defined in the Transfer of Property Act. His Lordship further referred to the English Law, according to which a claim for damages is not transferable. Now, on far as the point that after the breach there is only a right to sue for damages is concerned, we may respectfully point out that, in a contract for purchase of goods, there can be no question of enforcing any right in any court of law before the appointed time. The only right that can be enforced in a court of law is after the breach, and that right can only be to claim damages. Before the breach, the promissor may deliver the goods on receipt of a purchase price, but that is his choice, he may or may not deliver the goods. If he does not deliver the goods and chooses to pay damages, nobody can stop him from doing so. After the breach, if the promisor wishes to deliver the goods, it is open to the promisee to accept them if he waives the time limit. Thus, there is no essential difference between the case of a transferee of a contract before its breach and the case of a transferee of a contract after its breach, so far as their rights enforceable in a court of law are concerned. It is well settled, both in England and in this country, that an executory contract, not based upon personal considerations, is transferable. After the breach a claim for damages appears, in England, to be not assignable, the reason being that otherwise there would be a contravention of the law of maintenance and champerty. In Glegg v. Bromley, Parker, J., observed at page 489 as follows:

“Ordinary choses in action were not assignable at law, but were, generally speaking, assignable in equity whether themselves legal or equitable choses. In the former case equity compelled the assigner to allow his name to be used for their recovery in legal proceedings, in the latter case the assignee could sue in equity in his own name. There was one exception to this rule. Equity on the ground of public policy did not give validity to the assignment of what is in the cases referred to as a bare right of action, and this was so whether the bare right were legal or equitable. I have looked at a good many authorities on that point, and I am satisfied that the reason why equity did not allow the assignment of a bare right of action, whether legal or equitable, was on the ground that it savoured of or was likely to lead to maintenance.”

There is no rule against maintenance and champerty in this country, and we can find no reason whatsoever why a contract, like the one we have in the present case, which could certainly be assigned before its breach, becomes unassignable simply because the promisor has chosen not to perform it. Indeed, if anything does happen after the breach, it is that the measure of damages is fixed because the market rate at which the damages are to be calculated becomes known, whereas before the breach it is unknown and uncertain. If a contract is an “actionable claim” before its breach it cannot cease to be so after its breach.

Mr. Justice Harington in the case of Abu Mahomed v. S.C Chunder, arrived at the same result as the learned Chief Justice, but his reasoning was slightly different. According to His Lordship, the contract, after the breach, was “at an end.” We respectfully think that this view is not sound. As we hate already pointed out, the contract is not at an end when the promisor fails to perform it within the appointed time. The contract is very much alive, and indeed the claim for damages is based upon it. Mr. Justice Fletcher, however, observed that he felt considerable doubt that the “Statute meant to limit the right of a person to assign his right under a contract by the fact, that the other party to the contract had broken it.”

We respectfully think, Mr. Justice Fletcher was right.

In Khetra Mohan Das v. Biswa Nath Bera, a right to take accounts and to recover such sums as may be found due was held not assignable as it was a “mere right to sue” within the meaning of section 6, clause (e) of the Transfer of Property Act. The facts of the case were that the defendant no. 1 was a gumashta under defendant no. 2 and had 5 executed an agreement by way of security hypothecating certain property for the due fulfilment of his debts in favour of the latter. By a deed of transfer defendant no. 2, without transferring the security bond, transferred to the plaintiff the right to take accounts from the defendant no. 1. It was, therefore, an attempt to transfer a right to sue merely without transferring the security bond itself. In this view of the matter, the transfer was of a ‘mere right to sue’. This was not a case under the Insolvency Act, and is strictly speaking not relevant to the present discussion.

In Hirachand Amichand v. Nemchand Fulchand, there was a breach of contract and a right to sue for damages had accrued. Without transferring the contract as a whole, an attempt was made to transfer the mere right to recover damages. The transferee brought a suit for recovery of damages. It was held that a mere right to recover damages was not transferable. The Calcutta case of Abu Mahomed v. S.C Chunder, was followed. It will be observed that this also was not a case under the Insolvency Act.

In Liladhar v. Nago, the suit was for damages for wrongful appropriation of crops by the defendant. The suit was dismissed. There was an appeal to the District Judge. During the pendency of the appeal the plaintiff was adjudged an insolvent. It was held that since the suit was not for recovery of crops but their value and interest on it by way of damages, it did not vest in the official assignee. The reason given was that it was a mere right to sue for damages which was exempted by section 60(e) of the Code of Civil Procedure from vesting in the official receiver. This case followed the reasoning adopted in Abu Mahomed's case, and the remarks already made with regard to the latter case, apply to it as well.

In the case of Ram Dayal v. Mukat Manohar, the facts were that there was a usufructuary mortgage executed by one Umrao Singh in favour of the defendants. No rate of interest was specified, but it was provided that the profits would be taken in lieu of interest on the mortgage money. The mortgagees did not pay the entire mortgage money, yet they all along realized the profits from the mortgaged property. Umrao Singh then became insolvent. The equity of redemption under the mortgage was put up to auction by the receiver and was purchased by the plaintiff. The plaintiff thereupon sued for redemption of the mortgage and also for rendition of accounts of profits on the ground that the amounts left with the mortgagees to be paid out of the sale consideration were not paid by them in full. It will be noticed that the transfer to the plaintiff was only of the equity of redemption. Apparently there was no transfer of the benefits of the contract entered into with the insolvent. The benefits of the contract were held not to run with the land which the plaintiff had purchased, and, as such, he was not entitled to claim them. It was, however, further observed that the benefits of the contract did not vest even in the receiver because they amounted to a mere right to sue and were not “property” as defined in section 2(d) of the Provincial Insolvency Act. This observation was merely obiter dictum unnecessary for the decision of the case. With great respect we may point out that the definition of the word “property” in section 2(d) is not exhaustive as the word “include” would indicate. It cannot be denied that the benefits arising out of a contract are “property”.

To our minds the benefits arising out of a contract for delivery of goods vest in the official receiver on the insolvency of the promisee, even after the breach of contract by the promisor, and as such, ‘the right to sue for damages’ which is one of the benefits arising under the contract also vests in him and cannot be said to be a mere right to sue for damages within the meaning of section 60, clause (e), of the Code of Civil Procedure.

We, therefore, dismiss this revision. As nobody appears on the other side we make no order as to costs.

Application dismissed.