Ramagopal Naicker v. Muthukrishna Ayyar And Another.

1. The order of reference to the bench by Krishnaswami Nayudu, J., is sufficiently detailed as regards the facts of the case and no useful purpose will be served by our restating them once again. As stated by the learned Judge the question is whether an acknowledgment by an Official Receiver would be sufficient to prolong the period during which claim subsists. That there is an acknowledgement in writing of an existing debt cannot be disputed in view of Exhibit A-5 if it is admissible in which the Official Receiver has explicitly stated that the sale would be subject to the mortgage under Exhibit A-3.

2. But the question is whether it would be an acknowledgment of a liability under Section 19 of the Limitation Act, paragraph 1, which lays down that if an acknowledgment of liability in respect of a property or a right has been made in writing signed by the party against whom such property or right is claimed or by some person through whom he derives title or liability a fresh period of limitation shall be computed from the time when the acknowledgment was so signed. Whether the Official Receiver who has signed the document is the party against whom such property or right is claimed has to be decided. The effect of the order of adjudication is contained in Section 28 of the Provincial Insolvency Act, Sub-section (2) which is as follows:

On the making of an order of adjudication the who : of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the creditors and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding except with the leave of the Court and on such terms as the Court may impose.

3. There can be no doubt that so far as the properties are concerned the insolvent completely goes out of the picture; his ownership in the properties at least temporarily ceases and becomes fully vested in the Court or the Official Receiver. In other words, the Court or the Official Receiver stands in the shoes of the insolvent and he has all the rights, privileges and commitments which the insolvent may have. Learned Counsel for the respondents wanted us to compare the provisions of Sections 47, 59 and 61 along with Section 28(2) and hold that as a result of such comparative reading the only inference that could be drawn is that the vesting of the property of the insolvent in the Court or the receiver under Section 28(2) of the Act is only for a limited purpose, so that the insolvent is not completely effaced out of the scene. Section 47 speaks of secured creditors who after realising their security may prove for the balance due to them after deducting the net amount realised. But where they relinquish their security for the general benefit of the creditors, they may prove for their whole debt. Sub-Section (3) contemplates a set of circumstances where the secured creditor has not either realised or relinquished his security. We are not concerned with Sub-sections (4) to (6).

4. We are at a loss to understand how Section 47 can in any way derogate or reduce the nature of the Official Receiver's right in the property that is vested in him. Section 59 lays down the duties and powers of the Official Receiver. Clauses (a) to (h) are mainly concerned with the powers which the Official Receiver can exercise and Clause (z) imposes a liability on him to divide in their existing form amongst the creditors according to their estimated value, any property which from its peculiar nature or other special circumstances cannot readily or advantageously be sold. Clause (g) gives a right to the Official Receiver to mortgage or pledge any part of the property of the insolvent for the purpose of raising money for the payment of his debts. If such a power vests in the Official Receiver we fail to see why he could not renew an existing valid mortgage on the insolvent's property. To take an example, suppose before the expiry of the period of limitation for filing a suit on a mortgage from the insolvent the mortgagee threatens with a suit which might be detrimental to the interests of the insolvent's estate for some reason is it not open to the Official Receiver to renew the mortgage for a fresh term and thereby avert danger or loss to the estate of the insolvent by a precipitous sale of the property in Court-auction? Learned Counsel for the respondents, Mr. S.V. Venugopalachari, had to admit that it is within the competence of the Official Receiver to renew a valid mortgage in order to avert loss or danger to the property of the insolvent. If that is the case, we fail to see any distinction in the Official Receiver acknowledging an existing mortgage and thereby permitting a further period of limitation for the mortgagee to sue on the document. In our opinion Clause (g) of Section 59 of the Act affords sufficient answer to the contention that the Official Receiver has no power to acknowledge a binding debt of an insolvent. Section 61 deals with the priority of the debts the provisions of which do not strictly concern the subject-matter of the present appeal. Such being the case a combined reading of Section 28(2) and 59(g) makes it clear that when the property of the insolvent is vested in the Official Receiver he can mortgage or sell the property or renew the existing mortgage for a further term.

5. It is difficult to hold that the Official Receiver is only an agent of the insolvent when he gives an acknowledgment of the insolvent's liability. The relationship between an Official Receiver and an insolvent is nothing akin to that between a principal and his agent and the relevant sections relating to agency in the Indian Contract Act can by no stretch of imagination be made applicable to an Official Receiver. Whore-as in the case of a principal he is the dominating personality under whose directions and within the four corners of the authority given by him to his agent the latter has to act, in the case of an insolvent he in no way resembles the principal and with due respect to the learned Judges of the Bombay High Court who decided the case in Currimbhai v. Ahmedalli (1922) I.L.R. 58 Bom. 505, it seems to us that the Official Receiver is not an agent of the insolvent. The learned Chief Justice, Sir John Beaumont, refers to the decision of Coutts-Trotter, J., in Govindaswami Pillai v. Dasai Goundan (1921) 41 M.L.J. 423 : 44 Mad. 971, with regard to the power of the Official Assignee in whom the insolvent's property is vested to sign an acknowledgment on behalf of the insolvent and then seeks to distinguish that case. But it seems to us that the principle enunciated by Coutts-Trotter, J., is applicable and not distinguishable. Moreover the Bombay case1 does not discuss the import and implications of Section 28(2) of the Provincial Insolvency Act.

6. The decision in Paramasivan v. Chokona A.I.R. 1918 Mad. 1122, is directly applicable to the present case though the reasoning in that case is based upon the provisions of Section 354 of the Civil Procedure Code, 1882. We do not find that under the present Provincial Insolvency Act there is any difference with regard to vesting of property. Under Section 354, Civil Procedure Code, 1882, just like Section 28(2) of the present Provincial Insolvency Act all the properties of the insolvent vest in the Official Receiver and therefore, as the learned Judge rightly puts it, he is the party against whom such property or right can be claimed and hence under Section 19 of the Limitation Act an acknowledgment by the Official Receiver will furnish a fresh starting point for limitation. The following observations of the learned Judge are relevant:

This acknowledgment is contained in Exhibit C an application by the receiver to sell the mortgaged property which contains an admission of the debt due to the plaintiff. The contention that Exhibit G does not amount to an acknowledgment is not seriously pressed, for it undoubtedly is an acknowledgment: vide Uppi Haji v. Mammavan (1893) I.L.R. 16 Mad. 366 and Narayana Ayyar v. Venkataramana Ayyar (1902) I.L.R. 25 Mad. 220 (F.B.) but a more difficult question is raised in the objection that the Receiver could not make an acknowledgment, on behalf of the mortgagor. Under Section 354, Civil Procedure Code of 1882 the order of the 13th December, 1899, operated to vest in the Receiver all the insolvent's property and consequently plaintiff's claim under the mortgage had to be enforced against the receiver and the receiver would appear to be the party against whom such property or right (i.e., the right under the mortgage) is claimed, within the meaning of Section 19 of the Limitation Act. Under Section 19, therefore, an acknowledgment by the receiver would furnish afresh starting point for limitation. It is urged that under Section 356, Civil Procedure Code, the receiver's duties are strictly limited and must be carried out under the direction of the Court and that as there had been no direction of the Court to make an acknowledgment the Receiver acted beyond his powers.

7. Reliance was placed upon the English cases such as Whitley v. Lowe (1858) 25 Beav. 421, in Re Hale Lilley v. Foad (1899) 2 Ch. 107, and the well-known case Chinnery v. Evans (1864) 11 H.C.L. 115.

8. In our view this decision is directly applicable. A very recent judgment of Viswanatha Sastri, J., in Venku Dikshitulu v. Subbayya Setti (1955) An.W.R. 626, is also instructive. Viswanatha Sastri, J., discusses the application of Section 20, Sub-section (1) of the Limitation Act and the meaning of the words "a person liable to pay" and comes to the conclusion that the words "a person liable to pay" are of wide import not necessarily confined to a person who is personally liable under his covenant or promise to pay the debt and that the words are wide enough to cover property liability also.

9. Then the learned Judge observes:

The position of the Official Receiver is not analogous to that of a de facto guardian or a mere manager or custodian of the property but is that of a person in whom the title to the property of the insolvent vests. Therefore the Official Receiver in whom the estate of the mortgagor vested on his adjudication comes within the description of "a person liable to pay" the mortgage debt within the meaning of Section 20(1) of the Limitation Act and an endorsement of payment of certain amount and the signature by the Official Receiver on the mortgage document is operative to give a fresh starting point of limitation for the suit on the mortgage under Section 20(1) of the Limitation Act.

10. We are in entire agreement with the learned Judge.

11. Then he discusses a large body of case-law on the subject. This decision was not concerned with an acknowledgment under Section 19 of the Limitation Act. But when once we come to the conclusion that the Official Receiver is the person in whom the property of the insolvent vests then there can be no doubt that he comes within the provisions of Section 19(1) of the Limitation Act. Learned Counsel for the appellant also invited our attention to the decision in Lakshmanan Chetty v. Sadayappa Chetty (1918) 35 M.L.J. 571, wherein it was held that an acknowledgement of a debt due by a firm under dissolution made by a Receiver of that firm is valid to save limitation if it is authorised by the terms of the order appointing the Receiver. These observations are not very helpful with regard to what we have to consider in the present case. Likewise the observations contained in Venkataramaiah Pantulu v. Subramaniam Pillai (1915) 16 M.L.J. 489 are also not very helpful.

12. On the other hand, we are pressed by the respondent with the judgment of Panchapakesa Ayyar, J., in Venkatasubbamma v. Venugopala Rao , where the learned Judge has observed that the Official Receiver is a trustee in respect of the entire body of creditors and has no power to acknowledge or to pay time-barred debts not binding on the insolvent's estate under the law including the law of limitation. He has not considered the decision in Paramasivan v. Chokona A.I.R. 1918 Mad. 1122, or the effect of Section 28(2) read with Section 59 of the Provincial Insolvency Act. It seems to us that this decision is not good law and cannot be followed.

13. The decision in Paramsivan v. Chokona A.I.R. 1918 Mad. 1122, has been followed by Jagannatha Das and Panigrahi, JJ., in Una Vigesu Patro v. Somayya Raju , and we are in entire agreement with the reasoning in that judgment especially when the learned judge, Jagannatha Das, J., stated that a person in the position of an Official Receiver in an insolvency is in relation to the equity of redemption which originally belonged to the judgment-debtor and which now vests in him, covered by the phrase "the party against whom such property or right is claimed". Dealing with the relationship between the Official Receiver and the insolvent the learned Judge observes:

We are therefore, quite clear in our mind that the acknowledgment in the present case is by a person competent to make it and that it binds the judgment-debtor. This view is supported by the judgment of Phillips, J., in the case reported in Paramasivam v. Chokona A.I.R. 1918 Mad. 1122. It is no doubt true that in that case the other learned Judge, Oldfield, J., was not prepared to go as far as Phillips, J., on the ground that having regard to the terms of Section 354, Civil Procedure Code, which was the governing provision relating to the powers of a receiver in connection with the insolvency then in question he was not prepared to say that the receiver had the power to make arrangements in respect-of the property for the future advantage of the creditors. But in that very judgment his Lordship pointed out that the position would be different with reference to Section 20 of the Provincial Insolvency Act, of 1907, which contained clear provisions relating to the powers of the Official Receiver as regards arrangements for the future advantage of creditors. A corresponding provision is new made in Section 59 of the present Insolvency Act of 1921. Therefore, the objection with reference to which His Lordship Oldfield, J., hesitated to agree with the conclusion reached by Phillips, J., no longer exists and the view expressed by Phillips, J., holds good under the provisions of the present Provincial Insolvency Act. The decision of the Courts below that the respondent's application for execution, filed on 3rd February, 1947, is not barred by time is correct and must be upheld and the appeal, must be dismissed with costs.

14. We endorse our full concurrence with this passage. For the reasons stated above it cannot be said that an acknowledgment by the Official Receiver will not save the bar of limitation.

15. The question then is whether there has been a valid acknowledgment in the present case. Learned Counsel for the respondents has referred to Exhibit A-4 as not containing any acknowledgment at all. Exhibit A-4. is to the effect that items 1 to 4 are subject to two mortgages one for Rs. 150 and the other for Rs. 450. The mortgage in question is for Rs. 500 and could never have been the subject-matter of the statement in Exhibit A-4. With regard to Exhibit A-5 it has to be mentioned that it is not a registration copy. It purports to be a certified copy of the office copy of the sale-deed stated to have been issued by the Official Receiver in favour of the second defendant. It is therefore a copy of a copy. That being the case Exhibit A-5 is inadmissible in evidence. The original sale-deed has not been produced and the copy of the office copy cannot be taken to be a certified copy. Under these circumstances it has to be held that the alleged acknowledgment has not been; proved. While, therefore, agreeing with the learned Counsel for the appellant on the question of law argued by him we hold agreeing with the learned Subordinate Judge that the acknowledgment sought to be proved has not been proved. The second appeal fails and is dismissed but in the circumstances without costs throughout.