1. This Revision Petition is directed against, the judgment of the District Judge given on 10th December, 1962, whereby he disallowed the appeal filed by the petitioner before me and confirmed the judgment of the Subordinate Judge, Kurnool.

2. The necessary facts are that Medahal Pedda Rangappa, Lakshminarayana and Venkayya were adjudged insolvents. The petitioner G. Syamala Bai is a mortgagee of the insolvents in respect of certain properties. The second respondent Y. Panchaksharayya is another mortgagee of the insolvents in respect of a different property. The first respondent is the Official Receiver who is administering the estate of the insolvents.

3. In I.P No. 40 of 1955, the second respondent filed a memo on 10th April, 1956 (Exhibit B-1) stating therein that he valued the property at Rs. 45,350 and that he has no objection to the property being sold free of mortgage with a lien on the sale price. The Official Receiver was requested to obtain the necessary permission from the Sub-Court. The Official Receiver sought the permission of the Sub-Court, which permission was granted. In pursuance of this permission, the mortgage property was sold free of any encumbrance and it fetched a certain amount. The second respondent-mortgagee filed an application to pay the amount of Rs. 45,350 as assessed by him in his memo. Exhibit B-1. This application was resisted by the petitioner on the ground that the mortgagee has relinquished his security and therefore he ranks only as an ordinary creditor. He cannot be paid preferentially out of the sale proceeds of the property which was mortaged to him. The Official Receiver rejecting the contention of the petitioner directed the amount to be paid to the second respondent in pursuance of his mortgage is a secured creditor. The petitioner therefore took the matter in appeal before the Subordinate Judge, Kurnool. His appeal however was rejected. It was held by the Subordinate Judge that the mortgagee the second respondent had not relinquished his security, that the sale is valid and that he is entitled to be preferentially paid as a secured creditor under section 47(3) of the Provincial Insolvency Act. The same view was confirmed in appeal preferred by the petitioner by the District Judge, Kurnool.

4. The principal contention of Mr. E. Subrahmanyam, the learned Counsel for the petitioner is that the second respondent must be considered to have relinquished his security; he cannot therefore be given any preference in payment out of the sale proceeds recovered by sale of the mortgage property. His contention is that the Official Receiver could not have accepted the offer made by the second respondent and sold the property free of any encumbrances. Although the sale by the Official Receiver is valid, his contention is that the second respondent can be ranked only as an ordinary creditor and not a secured creditor. Reliance in support of this contention was placed on Kanniappa Mudali v. Raju Chettiar . 1924 47 M.L.J 16; I.L.R 1924 47 Mad. 605..

5. In order to understand the implications of this contention, it is necessary to read sections 28, 47 and 59 of the Provincial Insolvency Act, hereinafter called the Act.

6. Section 28 of the Act gives the effect of an order of adjudication. According to sub-section (6) of that section, nothing in that section affects the power of any secured creditor to realise or otherwise deal with his security in the same manner as he would have been entitled to realise or deal with it if that section had not been passed.

7. Section 47 which relates to the secured creditors enjoins that where a secured creditor realises his security, he may prove for the balance due to him after deducting the net amount realised. Secondly, where a secured creditor relinquishes his security for the general benefit of the creditors, he may prove for his whole debt; and thirdly, where a secured creditor does not either realise or relinquish his security he shall before being entitled to have his debt entered in the schedule, state in his proof, the particulars of his security and the value at which he assesses it and shall be entitled to receive a dividend only in respect of the balance due to him after deducting the value so assessed.

8. According to sub-section (4) of that section where a security is so valued, the Court may at any time before realisation redeem it on payment to the creditor of the assessed value. Sub-section (6) states that where a secured creditor does not comply with the provisions of this section, he shall be excluded from all share in any dividend.

9. Section 59 of the Act concerns itself with the duties and powers of the Receiver. According to that provisions he has power to sell all or any part of the property of the insolvent, apart from other powers mentioned in the section. He can mortgage or pledge any part of the property of the insolvent for the purpose of raising money for the payment of his debts.

10. A reading of these provisions would reveal that a secured creditor is not affected by any order of the Insolvency Court. He has the freedom either to subordinate himself to the jurisdiction of the Insolvency Court or keep himself aloof and follow the remedies which are available to him under the common law. Under section 47 however he has got three alternatives to take advantage of the insolvency proceedings. He can as stated earlier prove for the balance due to him after deducting the net amount realised or he can relinquish his security for the general benefit of the creditors and then he will be permitted to prove his whole debt; or he can assess his security and he shall be entitled to receive a dividend only in respect of the balance due to him after deducting the value so assessed. It is clear from section 47 that the Court before the security is realised can always redeem a mortgage on payment to the creditor of the assessed value as per sub-section (4).

11. Under section 59, the powers of the Official Receiver are very wide. It is true that equity of redemption in such cases vests in him, but he has powers to redeem the mortgage or sell the equity of redemption.

12. It will be thus plain that what section 47 provides is only for the benefit of the mortgagee and not to his detriment. He can follow any one of the three procedures suggested in the section. In this case, I dont think it can be validly argued that the mortgagee has relinquished his security. Exhibit B-1 makes it clear that he had no objection if the property is sold free of mortgage but a lien is kept in so far as the value he had assessed is concerned and is preferentially paid out of the sale proceeds. There are no words, in Exhibit B-1 which warrant any conclusion that the mortgagee had relinquished his security. There is no prohibition in section 47 or any other provision of the Act forbidding the sale of a mortgage property free of lien, providing at the same time preferential payment to the mortgagee out of the sale proceeds. In fact, sub-section (3) of section 47 lends support to this method of payment to the mortgagee. If the Official Receiver proceeds to sell the security, the Court first has to pay the amount at which, the security was valued to the secured creditor out of the sale proceeds. Whatever may be position in regard to the balance in so far as the value of his assessment is concerned, he can be preferentially paid out of the sale proceeds. Merely because section 47 gives three alternatives it cannot be inferred that the Official Receiver has no power to sell the security free of encumbrance with the permission of the Court and pay the mortgagee first out of the sale proceeds of the security. Section 59 read with section 47 authorises the Official Receiver to take such a step with the permission of the Court. I find nothing illegal in such an action on the part of the Official Receiver. The mortgagee cannot be said in such circumstances to have relinquished his mortgage; nor can it be argued that thereafter he ranks only as an ordinary creditor. He has to be therefore paid preferentially from the sale proceeds of the security. In this case, it is dear that he had assessed the value of his security at Rs. 45,350 and it is that amount which is preferentially paid to him.

13. I think that action is well supported by section 47(3) read with section 59 of the Act. The Official receiver cannot be accused of exercising any excessive power in following the procedure which he had followed in holding the sale of the property free of mortgage. It was not disputed that the sale was valid. If the sale was valid, I fail to see how could the mortgagee be deprived of his security, particularly when he had not relinquished. The property was sold with a clear understanding that the mortgagee will be paid first from the sale proceeds. This mode of realisation of security is not in my view derogatory either to section 47 or to section 59 of the Act.

14. It is difficult to agree with the contention that Kanniappa Mudali v. Raju Chetliar, holds that in such circumstances the mortgagee would be deemed to have relinquished his security. The facts of that case are far removed from those of the present case. What had happened in that case was that the Official Receiver gave a notice to the mortgagee stating that he proposes to sell the properties free from the mortgage and called upon the mortgagee to give his consent. He added that if no consent is expressed within a specified time he would take it that the mortgagee had consented to his proposal. Since no consent was expressly conveyed the Official Receiver proceeded to sell the property. The mortgagee thereupon instituted a regular suit for recovery of his mortgage on the foot of the mortgage deed. Their Lordships held that the right of the mortgagee to institute the suit is not taken away merely because the Official Receiver gave a notice in a particular manner. Their Lordships also stated that it cannot be said that the mortgagee had relinquished his security. Reliance however was placed by the advocate for the petitioners on the following passage of the judgment:

“But it seems to us that a sale by mortgagor without a relinquishment by the mortgagee, but merely with the consent of the mortgagee expressed in an unregistered document, cannot be valid unless the facts amount to an authorisation of the mortgagor to sell on the mortgagee's behalf or to an agreement by the mortgagee to accept such sum as may be realised in the sale in discharge of his debt.”

15. I do not see how it can be said from the above said passage that the mortgagee would be deemed to have relinquished his security or that if he gives such permission he can be ranked only as an ordinary creditor. Far from any such thing, in fact this passage goes against the construction sought to be placed on the said decision by the learned Advocate for the petitioner. It clearly observes that if there is an agreement by the mortgagee to accept such sum as may be realised in the sale in discharge of his debt, a sale free from encumbrances cannot be objected to.

16. This case was considered in Gopal Gunaji v. Balaji. His Lordship observed:

“There are remarks in Kannappa Mudali v. Raju Chettiar . 1924 47 M.L.J 16; I.L.R 1924 47 Mad. 605. which support the view taken by the learned trial Judge. But the decision is mainly based on the fact that the mortgagee did not consent, and the remarks are not supported by detailed argument.”

17. With due respect to the learned Judge, I do not think that the remarks referred to in any way support the view canvassed by the learned Advocate for the petitioner here as was held by the lower Court in that case. The above said observation in the Madras case as stated earlier supports the view that with the consent of the mortgagee a security can be sold by the Official Receiver, of course with the permission of the Court, free of encumbrances, and the mortgagee can be preferentially paid out of the sale proceeds. It is however true that the above said Madras decision is mainly based on the fact that the mortgagee did not give any consent. His Lordship in the above cited Nagpur case in a similar situation considering the provisions of the Insolvency Act held that:

“where a mortgagee desires that the mortgage property of the insolvent mortgagor may be sold free from mortgage rights and the mortgage debts should be recovered from the sale proceeds the Insolvency Court is competent to comply with his request.”

18. With due respect, I accept that proposition of law as correct, and I do not find that Kannappa Mudali v. Raju Chettiar goes in any way contrary to this Nagpur decision. For the aforesaid reasons I am satisfied that there is no flaw in the judgment of the Courts below. This revision petition therefore fails and is dismissed with costs.

19. Revision dismissed.