Citation Codes

Equivalent Citations

citation codes

Case Number

C. R. Ps. Nos. 538 and 539 of 1957.

Attorney(S)

Messrs. D. Ramaswami Ayyangar and P. R. Varadarajan for Petr.
Messrs. K. S. Ramamurthi and T. R. Mani for Respt.

Judges

Rajagopala Ayyangar, J.

Acts

S. 3 (2) (a) of the Madras Cultivating Tenants' Protection Act
S. 19 (1) of the Provincial Insolvency Act enacts:19 (1)
S. 3 of the Cultivating Tenants Protection Act
S. 55 of the Provincial Insolvency Act.
S. 50 of the Transfer of Property Act
TRANSFER OF PROPERTY ACT

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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

These are revision petitions challenging orders of the Sub Collector of Pollachi (Revenue Divisional Officer) passed under S. 3 of the Cultivating Tenants Protection Act directing eviction of the petitioners on the ground of alleged arrears of rent.

The property in question originally belonged to Messrs. Mohamed Hussain Sahib and four others who were adjudicated insolvents in I. P. No. 17 of 1953 (filed in the Sub Court, Coimbatore). The landlords' estate vested in the Official Receiver after adjudication on 13th July 1955; the petition in insolvency had been presented on 2nd February 1953.

The petitioners were tenants under a registered lease dated 19th March 1951 for an annual rental of Rs. 4,000 for a five-year term. At execution the tenants paid the landlords an advance of Rs. 5,000, with the lease stipulating that Rs. 1,000 of the advance would be adjusted towards the fourth year's rent and the balance Rs. 4,000 treated as rent for the fifth year. The tenants paid Rs. 4,000 for each of the first three years and Rs. 3,000 for the fourth year (as stipulated).

The Official Receiver applied for eviction on the ground that payments and adjustments made after the date of presentation of the insolvency petition (2nd February 1953) were not binding on him; consequently he alleged arrears of Rs. 16,000 (rents for second, third, fourth and fifth years). The Revenue Divisional Officer accepted that contention, found arrears of Rs. 16,000 and directed eviction in default of payment.

The petitioners sought revision of that eviction order, arguing there were, in fact, no arrears. Two petitions with substantially similar facts were considered together; the opinion recounts facts primarily from G. R. P. No. 538 of 1957.

Legal Issues Presented

Whether payments and contractual adjustments made between the date of presentation of the insolvency petition (2nd February 1953) and the date of adjudication (13th July 1955) are binding on the Official Receiver under S. 55 of the Provincial Insolvency Act.
Whether publication of the insolvency proceedings in the Fort St. George Gazette (as notice to creditors under S. 19 of the Provincial Insolvency Act) constitutes the requisite knowledge of presentation of the petition for the proviso to S. 55 to operate and thereby deprive such payments of protection.
Whether an adjustment provided by a pre-insolvency contract (the 1951 lease agreement allocating the advance towards future rents) which operates in respect of rent due after adjudication is binding on the Official Receiver, given that the Official Receiver steps into the insolvents' shoes.
Whether, under S. 3(2)(a) of the Madras Cultivating Tenants' Protection Act, eviction can be ordered only for arrears of rent which accrued due subsequent to 31st March 1954, and the effect of that provision on which instalments (years) of rent could properly be treated as arrears for eviction purposes.

Arguments of the Parties

Petitioners' (Tenants') Arguments

There were no arrears of rent payable from them; payments and adjustments had been made in accordance with the lease and they had no knowledge of the presentation of the insolvency petition.
The adjustment arrangement embodied in the 1951 lease (advance of Rs. 5,000 to be credited against fourth and fifth years) was binding and had been acted upon; therefore the amounts alleged as arrears were not due.

Official Receiver's Arguments (as respondent)

The Official Receiver contended that payments made to the insolvents and adjustments in pursuance of the lease that related to rents payable after the presentation of the insolvency petition (2nd February 1953) were not binding on him because his title related back to the presentation date.
The Official Receiver relied on the publication of the insolvency petition in the Fort St. George Gazette (as part of creditor notice under S. 19) to assert that the tenants had notice of the petition; thus the proviso to S. 55 would exclude protection for payments made after presentation.
The Revenue Divisional Officer also relied on a decision of the Patna High Court (Ramlal Marwari v. Mahadeo Marwari) and a passage construing S. 50 of the Transfer of Property Act to support the contention that certain advance payments or adjustments might not protect the tenant from liability to pay again.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Ramlal Marwari v. Mahadeo Marwari (Patna High Court)	Extracted passage construing S. 50 of the Transfer of Property Act: that payment of rent before it is due may be treated as an advance (not payment in fulfilment of rent) and therefore may not relieve the payer from subsequent liability to pay rent again.	The court considered the cited passage but rejected the interpretation, holding that it did not establish the law that a pre-lease contract for adjustment of an advance is a mala fide payment, and concluded that an assignee (or Official Receiver) takes subject to pre-existing contractual rights — thus the adjustment under the 1951 lease was binding on the Official Receiver.

Court's Reasoning and Analysis

The court began by identifying the central statutory provisions: S. 28(7) (relating back of adjudication to the petition date) and S. 55 of the Provincial Insolvency Act, which provides protection for payments and dealings with the insolvent made before the date of adjudication, "provided that" the person with whom such transaction takes place has not at the time notice of the presentation of any insolvency petition.

Applying the facts, the court set out the due dates of the rents (19th March of each year) and the actual dates and modes of payment:

Rent due 19th March 1953: Rs. 4,000 paid in cash on 26th February 1953 (before adjudication but after presentation).
Rent due 19th March 1954: Rs. 4,000 paid in cash — payments on 5th July 1953 (half) and 27th February 1955.
Rent due 19th March 1955: Rs. 4,000 paid as Rs. 1,000 in cash on 27th February 1955 and Rs. 3,000 by adjustment per lease.
Rent due 19th March 1956 (fifth year): paid by adjustment as provided for in the contract (this due date is after adjudication).

For payments made before adjudication (though after presentation), the court held S. 55 applies to protect such payments, unless the person making or receiving the payment had knowledge of the presentation of the petition. The Official Receiver had not pleaded or proved that the tenants had actual knowledge of the presentation. Witnesses called for the Official Receiver did not suggest tenant knowledge, and no document was produced to infer actual knowledge.

The Revenue Divisional Officer treated Gazette publication of the insolvency petition (per S. 19) as sufficient notice such that the proviso to S. 55 would remove protection. The court rejected that approach: S. 55 protects bona fide transactions and the proviso excludes those done with knowledge of the petition. The court held that the knowledge required by S. 55 is actual/factual knowledge; the constructive notice contemplated by publication for creditor-notice purposes under S. 19(2) is insufficient to impute the requisite actual knowledge to deprive a person of S. 55 protection. The court also noted the Gazette was produced after close of evidence, and the tenants had no opportunity to rebut knowledge of publication.

Consequently, the payments for the second, third and fourth years (as described) were protected by S. 55.

The matter of the adjustment in relation to the fifth year's rent (due 19th March 1956, after adjudication) was considered separately. The court observed the elementary insolvency principle that the Official Receiver steps into the shoes of the insolvent and can claim no greater rights than the insolvent, subject to special provisions in the insolvency statute (Ss. 51–54). Where a pre-insolvency contract (the 1951 lease) created an agreement to adjust the advance against future rents, that contractual right attached to the property and bound an assignee or succeeding title-holder. The court therefore held that the adjustment clause in the lease was binding on the Official Receiver and could not be successfully disputed by him.

The court reviewed the Patna High Court extract relied on by the Revenue Divisional Officer (regarding S. 50 of the Transfer of Property Act) but refused to accept that extract as establishing that a contract for adjustment of a pre-paid advance renders the payment mala fide or that the tenant must pay twice. The court stressed that an assignee or successor takes subject to pre-existing rights.

The court also considered S. 3(2)(a) of the Madras Cultivating Tenants' Protection Act, which the court read as limiting the arrears capable of being made the basis of conditional eviction orders to arrears of rent which accrued due subsequent to 31st March 1954. On that basis only the fourth and fifth instalments could have been actionable arrears for eviction; but the factual findings (payments and adjustments) showed even those instalments were covered by payments/protections previously described.

Holding and Implications

Holding: Both revision petitions (C.R.P. No. 538 of 1957 and C.R.P. No. 539 of 1957) were allowed and the orders of the Revenue Divisional Officer (ordering eviction) were set aside. The Official Receiver was ordered to pay the costs of the petitioners in both petitions.

Implications:

Direct effect: The eviction orders based on alleged arrears were vacated because the court found there were no arrears the tenants could lawfully be directed to pay in the circumstances as established in these cases.
Statutory interpretation: The decision applies S. 55 of the Provincial Insolvency Act to protect bona fide payments and adjustments made before adjudication even if after presentation, unless actual knowledge of presentation is proved; constructive notice by Gazette publication under S. 19(2) was held insufficient to amount to the necessary actual knowledge for the proviso to S. 55 to operate.
No broader precedent beyond the statutory determinations is expressly announced in the opinion; the decision treats the adjustments under the pre-insolvency lease as binding on the Official Receiver and resolves the petitions on that basis and on the operation of S. 55 and S. 3(2)(a) of the Madras Act.

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A.R Ghazani Mohammed Sahib v. The Official Receiver. Coimbatore.

These revision petitions have been filed to revise the orders of the Sub Collector of Pollachi passed under S. 3 of the Cultivating Tenants Protection Act directing the eviction of the petitioners on the ground that there were arrears of rent due from them. The ground urged by learned Counsel for the petitioners was that there was really no arrears and that therefore orders for eviction should be set aside.

A few facts are necessary to be stated in order to appreciate the manner in which this point arises. The facts of the two petitions are nearly the same and as the points raised are identical it is sufficient to set out the facts involved in G. R. P. No. 538 of 1957.

The property from which the petitioners-tenants were sought to be evicted originally belonged to Messrs. Mohamed Hussain Sahib and four others who were adjudicated insolvents in I. P. No. 17 of 1953 on the file of the Sub Court, Coimbatore: The property was leased out to the petitioners under a registered lease deed dated 19th March 1951 for an annual rental of Rs. 4000 for a term of five years. At the time of the execution of the lease, the tenants paid the landlords an advance of Rs. 5000 and in regard to this amount the lease provided that Rs. 1000 out of it was to be adjusted towards the rent payable for the fourth year and the entire balance of Rs. 4000 was to be taken as the rent for the fifth year. The tenant was paying the rent regularly at Rs. 4000 a year for the first, second and third years and he paid a sum of Rs. 3000 for the fourth year as stipulated in the lease deed.

The Official Receiver in whom the estate of the landlords vested, filed an application for eviction on the ground that the tenants were in arrear of rent which they had defaulted to pay. This was sought to be made out in the following manner, I. P. No. 17 of 1953 in which the landlords were adjudicated as insolvents was presented on 2nd February 1933. The adjudication order was passed on 13th July 1955. The Official Receiver in his petition stated that all payments made to the insolvents after 2nd February 1953 (the date of the presentation of I. P. No. 17 of 1953) as also all adjustments towards the rent made in pursuance of the conditions in the lease deed in regard to rent payable after the date of the presentation of the petition, would not be binding upon him, with the result that on the date of the application for eviction the rent payable for the second, third, fourth and fifth years namely Rs. 16.000 would be due from the tenants and that in default of their paying this sum to him, he was entitled to an order for eviction. The Revenue Divisional Officer has accepted this contention and ascertaining that an arrear of Rs. 16,000 was due from the tenants directed their eviction in default of payment of this sum within a time limited.

There is no doubt that on the adjudication of the landlords on 13th July 1955 the Official Receiver stepped into their shoes by operation of law. It is also undoubted that the title of the Official Receiver related back to the date of the presentation of the petition namely 2nd February 1953. The question that has now to be considered is whether from these it follows that payments made by the tenants to the insolvents or adjustments made in regard to the rents which had accrued due under contracts entered into long before the insolvency are or are not binding on the Official Receiver. The provision of law with reference to which, this matter has to be decided, is contained in S. 55 of the Provincial Insolvency Act. Notwithstanding that S. 28 (7) of the Act provides for the order of adjudication relating back and taking effect from the presentation of the petition on which it was made, S. 55 enacts:

“55. Subject to the foregoing provisions of this Act with respect to the effect of insolvency on an exécution, and with respect to the avoidance of certain transfers and preferences, nothing in this Act shall invalidate in the case of an insolvency

(a) …………

(b) any payment or delivery to the insolvent

(d) any contract or dealing by or with the insolvent for valuable consideration, provided that any such transaction takes place before the date of the order of adjudication, and that the person with whom such transaction takes place has not at the time notice of the presentation of any insolvency petition by or against the debtor.”

Taking the facts of the present case it would be seen that payments which would be in dispute are those in relation to the second, third, fourth and fifth years which would be respectively due on 19th March 1953, 19th March 1954, 19th March 1955 and 19th March 1956, the first three payments being between the date of the presentation and the date of the order of adjudication and the last one, after the order of adjudication. It would be apparent from what has been stated earlier, that for the amount due on 19th March 1953 a sum of Rs. 4000 was paid in cash. This was on 26th February 1953. The sum of Rs. 4,000 due on 19th March 1954 was also paid in cash the payments being half on 5th July 1953 and the other on 27th February 1955. The sum of Rs. 4,000 due on 19th March 1955 was paid, Rs. 1,000 in cash on 27th February 1955 and Rs. 3,000 by way of adjustment as stipulated in the lease deed. The last instalment which was due on 19th March 1956 was paid by adjustment as provided for in the contract. It would thus be seen that except the last payment all the other payments or adjustments were before the date of the adjudication though after the presentation of the petition, a situation for which S. 55 made provision.

In the application filed by the Official Receiver there was no allegation that the tenants were aware of the presentation of the petition before they made the payments. In their statement of objections which they filed to the petition for eviction before the Revenue Divisional Officer, they specifically pleaded that they had no knowledge of the presentation of the petition. Witnesses were examined on behalf of the Official Receiver and in their evidence it was not suggested that the tenants had knowledge of the presentation of the petition. Nor was any document filed from which an inference that they had knowledge of these proceedings could be drawn. After the close of the evidence Counsel on behalf of the Official Receiver appears to have produced before the Revenue Divisional Officer a copy of the Fort St. George Gazette in which the insolvency petition was advertised. S. 19 (1) of the Provincial Insolvency Act enacts:

“19 (1) Where an insolvency petition is admitted, the Court shall make an order fixing a date for hearing the petition.”

The Sub-S. (2) reads:

“(2). Notice of the order under Sub-S.(1) shall be given to creditors in such manner as may be prescribed.”

The tenants who are the petitioners here had had dealings with the insolvents as a result of which the insolvents owed them moneys. When the petition which was admitted was advertised in the Gazette these tenants were shown as creditors in respect of those sums and their names were included in the advertisement. The Revenue Divisional Officer held that this publication in the Gazette of the insolvency proceedings constituted notice of the presentation of the petition which was sufficient to bring it within the terms of the proviso to S. 55 and take it out of the operation of the main provision. I am unable to agree in this interpretation of the proviso. S. 55 is concerned with the validity of payments made by or to insolvents by persons who do so bona fide. The proviso makes provision for taking out of the protection of the substantive part of the section, the payments and transactions which would not be bona fide, the test of bona fides being knowledge of the presentation of a petition. The knowledge that the section postulates would necessarily be factual knowledge. The constructive notice which S. 19 (2) postulates would be wholly an insufficient basis for depriving a person of the protection afforded by S. 55. The notice prescribed by S. 19 (1) by publication in the Gazette is limited for the purpose of the assertion of rights as creditors and it cannot be held that from that constructive notice for particular purposes an actual knowledge of the pendency of the proceedings could be imputed sufficient to bring it within the proviso to S. 55. If for instance the Official Receiver had been able to establish that the tenants had taken part in the insolvency proceedings or otherwise had notice in fact of the presentation of the insolvency petition either by seeing the publication in the Gazette or otherwise the case would have stood on a different footing. This apart, the publication in the Gazette was brought in after the conclusion of the evidence, when the tenants had no opportunity even to formally deny their knowledge of the publication. I therefore hold that the payments are protected by S. 55.

This would however extend only to the second, third and fourth years' rents and not to the adjustment in regard to the last year in respect of the rent due on 19th March, 1956 a date subsequent to the order of adjudication. In regard to this the Court below has held that it was not protected even by S. 55 of the Provincial Insolvency Act. The case in regard to this however rests on a different principle. There was a contract entered into between the insolvents and the tenants in 1951—long prior to the insolvency. It is an elementary principle of insolvency law that subject to the special provisions enacted by the insolvency statute—Ss. 51 to 54—the Official Receiver merely steps into shoes of the insolvent and can claim no higher rights than the insolvent. If the contract to adjust was binding on the insolvents it was equally binding on the Official Receiver who is merely their representative in law. The agreement to adjust was therefore binding on the Official Receiver and there is really no legal basis upon which that adjustment could be disputed by the Official Receiver or be held not binding on him. The Revenue Divisional Officer in this connection referred to a decision of the Patna High Court in Ramlal Marwari v. Mahadeo Marwari(1) as support for holding the adjustment not to be binding. The case itself involved a construction of S. 50 of the Transfer of Property Act and the portion of the decision extracted by the Revenue Divisional Officer runs:

“Section 50 of the Transfer of Property Act protects a tenant against having topay his rent twice over, if paid in good faith, But if he had paid the rent before it was due, it is merely an advance to the landlord and is not a payment in fulfilment of an obligation to pay rent………Consequently an advance payment will not gave him from liability.”

I am unable to read the passage as a statement of the law that a contract for an adjustment of rent paid at the commencement of a lease is a mala fide payment and that if after receiving the sum the landlord transferred the property to another, the tenant was bound to pay once over the rent due for the period commencing from the date of the transfer, if the decision can be taken to lay down this law, I must respectfully dissent from it. An assignee takes the property only as it was, on the date of the assignment and if on such date a third person has rights over the properly, the assignee takes it only subject to those rights. I am clearly of the opinion that the contract to adjust the rents or the rental out of the advance paid in March, 1951 was binding on the Official Receiver with the consequence that the adjustment effected in pursuance thereof was equally binding on him. This would be sufficient to dispose of the petitions but learned Counsel for the petitioners also urged another argument which would show that the order of the Revenue Divisional Officer holding that arrears were due for second and third years was erroneous. S. 3 (2) (a) of the Madras Cultivating Tenants' Protection Act under which the application for eviction was filed enacts that the only arrears which a tenant could be directed to pay under the provision of that Act and in regard to which a conditional order for eviction could be passed was arrears of rent which accrued due subsequent to 31st March, 1954. On this basis only the non-payment of the fourth and fifth instalments of rent could be arrears for which eviction could be ordered. In regard to the fourth instalment RS. 3000 was paid and if it was a payment protected by S. 55 it would be deemed as a payment to the landlords. The other adjustment of Rs. 1,000 and Rs. 4,000 I have already upheld as binding on the Official Receiver.

The result therefore is that there was no arrear of rent due from the petitioners which they could be made to pay and in default their eviction ordered from the suit property. C. R. P. No. 538 of 1957 has, therefore, to be allowed and the order of the Revenue Divisional Officer set aside.

As I have already stated earlier the facts in C.R.P No. 539 of 1957 are very similer except as to the amounts of rent involved and the due dates. For the reasons just now stated C.R.P No. 539 of 1957 is also allowed and the order of eviction passed is also set aside. The Official Receiver will pay the costs of the petitioners in both the petitions.

V.C.S

A.R Ghazani Mohammed Sahib v. The Official Receiver. Coimbatore.

Structured Summary of the Opinion

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' (Tenants') Arguments

Official Receiver's Arguments (as respondent)

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

A.R Ghazani Mohammed Sahib v. The Official Receiver. Coimbatore.

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