- Bookmark
- Share
- CaseIQ
Gummidela Anantapadmanabhaswami v. Official Receiver Of Secunderabad And Others
Structured Summary of the Opinion (Lord Thankerton)
Factual and Procedural Background
This appeal arises from an order of the High Court of Judicature at Madras (appellate) dated 2 October 1930 which set aside a judgment and order of the same Court in its original civil jurisdiction dated 23 April 1929. The appellant stands in the right of a Bombay High Court money decree for Rs. 53,230-9-0 dated 15 June 1926 in favour of the appellant's father against three persons (the judgment-debtors).
At the time of that Bombay decree the judgment-debtors were plaintiffs in a Madras partition suit (instituted 1922). A preliminary decree by consent was made on 5 December 1922 declaring certain properties and business assets to be the exclusive properties of the plaintiffs' branch, directing interim payments, and appointing arbitrators to take the joint family account and partition the property. The arbitrators failed to reach a final decision and the matter was referred to the Official Referee.
On 20 December 1926 the appellant's father caused the preliminary decree in the Madras partition suit to be attached in execution of the Bombay money decree, after execution proceedings were transferred from the Bombay High Court to the Madras High Court. On 21 September 1928 the Madras High Court ordered a final decree in the partition suit in terms of a compromise of 5 August 1928, subject to conditions including that the defendants first pay into Court the amount due to the appellant under the Bombay decree; that order was not complied with and was under appeal in the Madras High Court.
Separately, on 15 September 1928 the District Court at Secunderabad, on a creditors' petition, adjudged two of the plaintiffs in the Madras partition suit to be insolvent (the third having died and been represented by his widow). The Official Receiver of Secunderabad (trustee in the bankruptcy) became an active respondent in the present appeal.
On 4 March 1929 the appellant's father issued a Judge's summons in the Madras High Court for leave to execute the attached preliminary decree. The defendants in the partition suit and the Official Receiver opposed those proceedings; the Official Receiver was made a party plaintiff to the partition suit in substitution of the insolvents.
Legal Issues Presented
- Whether the adjudication order of the District Court at Secunderabad is to be regarded, in relation to the Courts of British India, as the order of a foreign Court.
- What effect should be given, under principles of private international law and comity, to a foreign adjudication order (declaring bankruptcy/insolvency) when it competes with a prior attachment (inchoate process) of a decree already pending in the domestic Court?
- Whether an attachment under the Civil Procedure Code, which is described as "prohibitory," creates any right, lien or security that can prevail against the foreign receiver (trustee) appointed by the foreign adjudication order.
Arguments of the Parties
Appellant's Arguments (as reflected in the trial Court's view)
- The appellant relied on his prior attachment (made 20 December 1926) of the Madras preliminary decree in execution of the Bombay money decree. The attachment earmarked the decree for the purpose of answering the Bombay decree and constituted an inchoate right which would have ripened into execution and sale if uninterrupted.
- Applying the rule in Galbraith v. Grimshaw, the appellant submitted that the foreign adjudication (insolvency) could not defeat a process of distribution already pending and affecting the bankrupt's freedom of disposal at the time the foreign adjudication occurred.
Respondent's Arguments (as reflected by the appellate Court and Official Receiver)
- The appellate Court held that an attachment under the Civil Procedure Code is purely prohibitory and does not operate to create any title, lien or security in favour of an attaching creditor which, according to British Indian law, could prevail over the receiver in insolvency.
- On that basis the appellate Court dismissed the appellant's application, treating the foreign adjudication as effective against the appellant's attachment despite the attachment being prior.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Hossain Ali Mirza v. Abid Ali Mirza (1893) 21 Cal 177 | Establishes that the British Cantonment in Secunderabad remains part of the Hyderabad State (property of the Nizam); orders of the Secunderabad District Court are orders of a foreign Court in relation to Courts of British India. | The Board accepted this to treat the Secunderabad adjudication as a foreign adjudication for the purposes of private international law and comity. |
| Galbraith v. Grimshaw (1910) AC 508 | Private international law principle: a foreign adjudication (bankruptcy/sequestration) will be recognized but will not be allowed to interfere with a process of distribution already pending in the forum if that prior process had so affected the bankrupt's freedom of disposal that he could not have assigned the subject-matter to the foreign trustee. | The Court relied on Galbraith as the governing test for whether the foreign adjudication could prevail over the prior attachment; the Board applied the reasoning and authority of speeches in that case (Lord Dunedin, Lord Macnaghten, Lord Loreburn) to hold for the appellant. |
| Goetze v. Aders (1874) 2 R 150 | Illustrative example of the doctrine that a Court should not allow steps which interfere with a process of universal distribution already pending. | Cited as an example supporting the general doctrine of comity and protection of pending processes; used to illustrate Galbraith's doctrinal background. |
| Hunter and Co. v. Palmer (1825) 3 Shaw 402 | Illustrates that arrestment (a form of inchoate diligence) preferred to a posterior foreign commission of bankruptcy in Scotland; arrestment is inchoate and requires subsequent decree of forthcoming to complete transfer. | Used by the Board as analogous authority: the appellant's attachment was inchoate and had been earmarked for the appellant; the foreign adjudication could not defeat that prior process. |
| Kristnasawmy Mudaliar v. Official Assignee of Madras (1902) 26 Mad 673 | Madras decision concerning effect of attachment in relation to insolvency; criticized in the opinion for ignoring an earlier Board opinion (Suraj Bansi) and for using dicta out of context. | The Board reserved opinion as to the soundness of this Madras decision but noted it had treated Board dicta inconsistently with earlier authorities. |
| Suraj Bansi Koer v. Sheo Proshad Singh (1880) 5 Cal 148 | Earlier opinion of the Board relevant to the interplay of attachments and insolvency proceedings (as cited to Madras Court). | The Board noted that some local decisions had not followed or had ignored Suraj Bansi; the Board remarked on this omission. |
| Motilal v. Karrab-ul-Din (1897) 25 Cal 179 | Contains dicta which were quoted by some local Courts; the Board observed those dicta had been taken from context and used for purposes not intended. | The Board reserved its opinion about the use of that dictum by local Courts and criticised such usage as out of context. |
| Frederick Peacock v. Madan Gopal (1902) 29 Cal 428 | Calcutta decision in which Suraj Bansi was not referred to and a dictum from Motilal was employed. | The Board observed that this Calcutta decision similarly employed dictum without addressing Suraj Bansi; the Board refrained from resolving the correctness of those local decisions. |
| Raghunath Das v. Sundar Das Khetri (AIR 1914 PC 129 = 24 IC 304 = 41 IA 251 = 42 Cal 72) | Privy Council decision referred to; in that case the point was not argued and the decision proceeded on an admission by counsel. | The Board noted the limited value of that decision on the present point because it proceeded on an admission and Suraj Bansi was not referred to. |
Court's Reasoning and Analysis
The Board proceeded in two principal steps: first it determined the character of the Secunderabad adjudication and secondly it applied principles of private international law to resolve the conflict between that foreign adjudication and the prior attachment in the Madras Court.
On characterization, the Board agreed with the Courts below that the Secunderabad adjudication was the order of a foreign Court for the purpose of relations with the Courts of British India. The opinion relied on the historical and governmental facts (as recorded in Hossain Ali Mirza v. Abid Ali Mirza) that the British Cantonment at Secunderabad remained part of the Hyderabad State and that orders of the District Court there are to be treated as foreign in relation to British Indian Courts.
On the conflict of processes the Board rejected the appellate Court's approach that the purely "prohibitory" character of an attachment under the Civil Procedure Code meant it could never create a right that would prevail against a foreign receiver. Instead, the Board treated the question as one of comity and private international law — governed by the doctrine set out in Galbraith v. Grimshaw and its accompanying reasoning.
The Board emphasised the principle from Galbraith that a foreign adjudication will generally be recognised, but it will not be allowed to interfere with a process of distribution already pending in the forum where, at the date of the foreign adjudication, the pending process had so affected the debtor's freedom of disposal that he could not have assigned the subject-matter to the foreign trustee. The Board quoted and relied on the speeches of Lord Macnaghten, Lord Dunedin and Lord Loreburn in Galbraith to explain that a foreign trustee can only claim the free assets of the bankrupt and must take those assets subject to existing processes and liabilities.
Applying that test to the present case, the Board found that at the date of the Secunderabad adjudication the appellant's prior attachment of the Madras preliminary decree had earmarked that decree for the appellant, creating an inchoate but valuable right which, if uninterrupted, would have ripened into execution and sale. It was also explicitly noted that, by reason of Section 64 of the Civil Procedure Code, the bankrupts could not have assigned their right in the attached decree at the material date. Therefore the foreign trustee could not claim the attached decree because the debtor himself could not, at that date, have assigned it.
The Board observed that this test makes it unnecessary to decide whether the attachment created a legal lien or title; what matters is the state of the debtor's power of disposal at the date of the foreign adjudication. The Board therefore held that the trial Judge's order (that the foreign receiver takes subject to the appellant's prior attachment and that the attachment be continued pending further orders) was correct.
The Board also noted and commented on various local decisions (Madras and Calcutta) which had reached different conclusions, reserving opinion as to their soundness, and pointed out that certain authorities had been relied on by the appellate Court without due regard to the test of freedom of disposal derived from Galbraith.
Holding and Implications
HOLDING: APPEAL ALLOWED; THE APPELLATE COURT DECREE DATED 2 OCTOBER 1930 IS REVERSED; THE ORDER OF THE TRIAL JUDGE DATED 23 APRIL 1929 IS RESTORED.
The direct consequences of the decision are:
- The appellant's prior attachment in the Madras partition suit is to be respected against the Secunderabad foreign adjudication; the attachment was continued and the appellant was given leave to execute the preliminary decree (as ordered by the trial Judge).
- The appellant was awarded the costs of this appeal and the costs in the earlier appeal before the appellate Court.
On broader implications, the Board applied and reaffirmed the private international law principle from Galbraith v. Grimshaw that recognition of a foreign bankruptcy or insolvency will not be allowed to disturb an existing process of distribution in the forum where, at the relevant date, the debtor's freedom of disposal was already so restricted that he could not have assigned the subject-matter to the foreign trustee. The Board did not purport to lay down a new rule of general application beyond applying that established doctrine to the facts of this case, and it expressly reserved opinion on the correctness of some local decisions which had been cited.
Appeal allowed.
Lord Thankerton.-
This is an appeal from a decree of the High Court of Judicature at Madras dated 2nd October 1930, which set aside a judgment and order dated 23rd April 1929, made by the same Court in its original civil jurisdiction. The appellant is in right of a money decree for Rs. 53,230-9-0 dated 15th June 1926, made in the Bombay High Court in favour of the appellant's father against three persons, who may be conveniently referred to as the judgment-debtors. At that time the judgment-debtors were the plaintiffs in a suit then pending in the Madras High Court for partition of certain joint family property between the plaintiffs' and the defendants' branches of the family. The Madras partition suit had been instituted in 1922, and on 5th December 1922 a preliminary decree by consent had been made, declaring inter alia certain properties and business assets involved in the suit to be the exclusive properties of the plaintiffs' branch and directing certain interim payments of money to be made by the defendants to the plaintiffs. The decree further directed certain arbitrators to take the joint family account and to partition the joint family property between the two branches of the family in two equal shares. The arbitrators failed to come to any final decision and the matter was referred to the Official Referee of the Court by consent. On 20th December 1926, the preliminary decree in the Madras suit was attached in the Madras High Court by the present appellant's father, in execution of the decree in the Bombay suit, the execution proceedings having been transferred from the Bombay High Court to the Madras High Court. In September 1928 the defendants in the Madras suit applied for a final decree in terms of a compromise entered into between them and the plaintiffs on 5-08-1928, and, on 21st September 1928, the High Court of Madras passed an order for a final decree in the partition suit in terms of the compromise but upon certain conditions, one of which was that the defendants should first pay into Court the amount of money due to the present appellant under the Bombay decree in respect of which the attachment had been made. That order has not been carried out and, in fact, is now under appeal in the Madras High Court.
On 15th September 1928 an order was made by the District Court at Secunderabad, on a creditors' petition, adjudging as insolvents two of the plaintiffs in the Madras partition suit, who are also the judgment-debtors (the third plaintiff having died leaving his widow as his legal representative). The Official Receiver of Secunderabad, who is trustee in the bankruptcy, is a respondent in the present appeal. On 4th March 1929 the appellant's father took out a Judge's summons in the High Court of Madras and started the present proceedings against the parties to the Madras partition suit, for leave to execute the decree attached by him. The proceedings were opposed by the defendants in the partition suit and by the Official Receiver of Secunderabad, who was then made a party plaintiff to the partition suit in substitution of the insolvents, the two surviving plaintiffs in that suit, and who is the active respondent in the present appeal. It is first necessary to consider whether, in the Madras Court, the adjudication order is to be regarded as the order of a foreign Court. Both the Courts below have held that it is to be so regarded and their Lordships agree with that conclusion. It is not suggested that the position of Secunderabad has altered from that stated by the Foreign Office to the Court, and referred to in the judgment, in Hossain Ali Mirza v. Abid Ali Mirza, (1893) 21 Cal 177 at p. 179. That reply makes clear that the British Contonment in Secunderabad still remains part of the Hyderabad State and the property of the Nizam. The administration of justice according to British enactments by the District Court established there does not render the orders of that Court anything but the orders of a foreign Court in relation to the Courts of British India.
There remains the question of what effect is to be given by the Madras Courts to the adjudication order of a foreign Court in competition with the prior attachment of a decree in the Madras Court. The learned trial Judge held, under the principles laid down in Galbraith v. Grimshaw, (1910) AC 508=79 LJ QB 1011=54 SJ 634=17 Manson 183=103 LT 294 that the present respondent could only take subject to the present appellant's rights of attachment, and made an order continuing the attachment until the further orders of the Court, and giving the appellant leave to execute the preliminary decree in the partition suit. The appellate Court set aside that order and dismissed the present appellant's application in substance on the ground that an attachment under the Civil Procedure Code is purely prohibitory and does not operate to create any title, lien or security in favour of the attaching creditor which, according to British Indian law, could prevail over the receiver in insolvency, and that it made no difference that the adjudication order was made by a foreign Court. Their Lordships do not agree with the reasoning or conclusion of the appellate Court. The question is one of comity between States and not one of the municipal bankruptcy codes of either country. The rule of private international law is clearly laid down in Galbraith v. Grimshaw, (1910) AC 508=79 LJ QB 1011=54 SJ 634=17 Manson 183=103 LT 294, as regards moveable estate, for it is settled that no adjudication order is recognized as having the effect of vesting in the receiver any immovables in another country. The reason for the rule is stated in the speech of Lord Dunedin in Galbraith's case, (1910) AC 508=79 LJ QB 1011=54 SJ 634=17 Manson 183=103 LT 294 (at p.513):
Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of international law that if the Court finds that there is already pending a process of universal distribution of a bankrupt's effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution; and that I take to be the doctrine at the bottom of the cases of which Goetze v. Aders, (1874) 2 R 150 is only one example.
This means that, after the date of the foreign adjudication order, it will be recognized as effective, but it is equally clear from the opinions expressed in Galbraith's case, (1910) AC 508=79 LJ QB 1011=54 SJ 634=17 Manson 183=103 LT 294 that it will not be allowed to interfere with any process at the instance of a creditor already pending, even though such process is incomplete, provided that at that date the bankrupt's freedom of disposal was so affected by the process that he could not have assigned the subject-matter of the process to the receiver. As Lord Macnaghten says (at p. 512):
The Scottish Court (the foreign Court) can only claim the free assets of the bankrupt. It has no right to interfere with any process of an English Court pending at the time of the Scotch sequestration. It must take the assets of the bankrupt such as they were at that date and with all the liabilities to which they were then subject. The debt attached by the order nisi was at the date of the sequestration earmarked for the purpose of answering a particular claim a claim which in due course would have ripened into a right. With this inchoate right the Scottish Court had no power to interfere, nor has it even purported to do so.
In an earlier passage Lord Macnaghten had said:
A creditor of the bankrupt having duly obtained an attachment in England before the date of the sequestration cannot, I think, be deprived of the fruits of his diligence.
In the present case, at the date when the foreign adjudication order was made, the appellant was entitled to the benefit of his prior attachment of the decree in the Madras partition suit. The decree was thereby earmarked for the purpose of answering the Bombay money decree, and that inchoate right would have ripened into execution and sale; it is no matter that under S. 73, Civil PC the appellant would have to share the proceeds of sale with other decree-holders; it would still be a valuable right. The Scottish case of Hunter and Co. v. Palmer, (1825) 3 Shaw 402, in which an arrestment in Scotland was preferred to a posterior English commission of bankruptcy, is very similar to the present case. Arrestment is only inchoate diligence; to complete the transfer and make the arrester's right real a decree of forthcoming must be subsequently obtained, which adjudges the fund arrested to the arrester. No decree of forthcoming had been obtained in Hunter's case, (1825) 3 Shaw 402. It is irrelevant to consider what effect a British Indian adjudication order would have had on the appellant's prior attachment. The question is what the pending process of attachment would have ripened into, if uninterrupted. Equally, it is irrelevant to point out that a British Indian adjudication order would not be effected by the prohibitory provisions of S.64 of the Code, as it is not a private transfer; such an order operates vi statuti, but the foreign adjudication order does not operate in British India vi statuti, but only under the rule of private international law. In Galbraith's case, (1910) AC 508=79 LJ QB 1011=54 SJ 634=17 Manson 183=103 LT 294, Lord Loreburn states the test as follows:
In each case the question will be whether the bankrupt could have assigned to the trustee at the date when trustee's title accrued, the debt or assets in question situated in England. If any part of that which the bankrupt could have then assigned is situated in England, then the trustee may have it; but he could not have it unless the bankrupt could himself have assigned it.
It is clear in the present case that, by reason of S. 64, the bankrupts could not have assigned their right in the decree which had been attached. This test renders it irrelevant to consider whether the attachment created a lien or charge or conferred title, and the cases relating to British Indian bankruptcies relied on by the learned Judges of the appellate Court have no bearing on the present question. In Kristnasawmy Mudaliar v. Offical Assignee of Madras, (1902) 26 Mad 673, the Court appears to have ignored the opinion expressed by this Board in Suraj Bansi Koer v. Sheo Proshad Singh, (1880) 5 Cal 148=6 IA 88=4 Sar 1 (PC), which was cited to them, and to have taken a dictum in the judgment of this Board in Motilal v. Karrab-ul-Din, (1897) 25 Cal 179=24 IA 170=7 Sar 222 (PC), from its context and used it for a purpose which it did not have in view. In Frederick Peacock v. Madan Gopal, (1902) 29 Cal 428=6 CWN 577 (FB), the case of Suraj Bansi was not referred to, and the dictum from Motilal's case, (1897) 25 Cal 179=24 IA 170=7 Sar 222 (PC), was similarly employed. Their Lordships desire to reserve their opinion as to the soundness of the Madras and Calcutta decisions. The decision of this Board in Raghunath Das v. Sundar Das Khetri, AIR 1914 PC 129=24 IC 304=41 IA 251=42 Cal 72 (PC) was also referred to, but that decision proceeded on an admission by counsel, the point was not argued and the case of Suraj Bansi, (1880) 5 Cal 148=6 IA 88=4 Sar 1 (PC) was not referred to. Accordingly, their Lordships are of opinion that the decision of the trial Judge was right, and they will humbly advise His Majesty that the appeal should be allowed, that the decree of the appellate Court, dated 2nd October 1930, should be reversed and that the order of the trial Judge, dated 23rd April 1929, should be restored. The appellant will have the costs of this appeal and his costs in the appeal before the appellate Court.
Appeal allowed.
Alert