Abdul Latif v. J.R Percival

R.C Mitter, J.:— The appellant before me got a decree for money against one Abdul Hamid on November 4, 1933. Later on, on December 22, 1933, the said Abdul Hamid was adjudicated an insolvent on the application of another creditor and the respondent Mr. Percival was appointed receiver. He, however, failed to apply for his discharge with the result that on August 15, 1934, his adjudication was annulled. On that date, however, the Court did not vest his properties in any person, but later on a creditor moved the learned District Judge for making an order under s. 37 of the Provincial Insolvency Act for vesting his properties in a person to be appointed by him. The learned District Judge on September 18, 1934, made such an order appointing Mr. Percival, as the person in whom the properties are to vest. The appellant before me filed an application for execution of his decree against Abdul Hamid on January 28, 1935, in the Fourth Court of the Munsif at Chittagong. In the said application he prayed for sale of some immoveable properties, which, according to the purport of the aforesaid order of the learned District Judge, dated September 18, 1934, had vested in Mr. Percival. Mr. Percival filed an objection under s. 47 of the Code of Civil Procedure contending that the execution could not proceed but the appellant was bound to come and take dividends from him in the usual course of administration of Abdul Hamid's affairs. This objection has been upheld by both the Courts below and the execution dismissed. The appellant challenges the correctness of these orders on two grounds.

His first ground is that the order passed by the learned District Judge on September 18, 1934, vesting Abdul Hamid's properties in Mr. Percival is without jurisdiction as the order annulling adjudication had already been made before. The contention is that a vesting order under s. 37(1) can only be made at the time of the order of annulment and not later on-The second point is that, even assuming the vesting order so made was a goorder, the appellant is not bound in law to recover his decretal dues through dividends to be paid by Mr. Percival in the course of his administration. He says that the insolvency proceedings ended with the order of annulment and that he can now pursue his ordinary remedies for realizing his decree, that is by execution, which had only been suspended by reason of the adjudication, with the only difference that he has to make Mr. Percival as an additional party (which he had not done), as the properties against which he wants to proceed are vested in him. He says that he is not bound to come in the administration of the assets held by the person in whom the insolvent's properties had vested by virtue of an order under s. 37. The contention has been carried further by the advocate for the appellant who urges that such a person has no right to administer, he cannot admit proofs and distribute the assets by declaring dividends. I have some doubts as to whether an appeal lay to the lower appellate Court or a Second Appeal lies here, but I need not pursue the point in detail as no preliminary objection has been taken. I consider Mr. Percival's position to be like that of a claimant who prefers his claim under O. XXI, r. 58 of the Code and not that of a representative of the judgment-debtor Abdul Hamid and his objection to the execution was not really an objection under s. 47 of the Code. But I need not pursue the point further as no preliminary objection has been taken either to the competency of the appeal in the lower appellate Court or in this Court. Some support is lent to my view by the course of proceedings in the case of Balla Mal v. Fatima Bibi, a case to which I will refer later on in connection with the first point raised before me by the appellant.

I shall now deal with the two points raised by the appellant. Regarding the first point I do not find anything in the language of either s. 43 or 37 of the Provincial Insolvency Act which would-suggest that the order of vesting property in a person appointed by the Court must be made at the time of making the order annulling the adjudication. Section 43 is one of the sections defining the circumstances under which the adjudication is to be annulled. A failure on the part of the insolvent to apply for discharge in time or to appear in support of his application for discharge does not automatically annul the adjudication. It requires an order of the Court. The annulment of the adjudication under the conditions defined in s. 43 is intended as punishment to the insolvent. This is indicated by sub-s. (2) of s. 43. The protection conferred on him by reason of his adjudication is withdrawn, but it does not necessarily follow that he is to get back from the control of the Court his assets. An order annulling adjudication may be made in a variety of circumstances, e.g, (a) when a composition is approved by the Court, (b) when the Court is convinced that the man ought not to have been adjudicated at all, (c) when the debts are paid in full, (d) when the insolvent fails to apply for discharge in time or to prosecute his application for discharge. In the second and third of these cases it is but just that the assets still left in the hands of the receiver should be returned to him. In the first case the bankruptcy proceedings continue only in another form, and in the fourth case unless there are special circumstances the Court ought not to release from its hold the assets of the insolvent, but should act in such a way as would protect his creditors. The vesting of the property in a person appointed by the Court as provided in s. 37 of the Act is designed to carry this object into effect. Section 37 merely states the effect of an annulment and an adjudication can be annulled under a variety of circumstances which I have indicated above. The insolvency proceedings do not automatically terminate with the annulment, and it cannot be said that by an order passed under s. 43 of the Act the Judge loses season of the matter and cannot thereafter make any order in those proceedings. I fail to see why a vesting order under s. 37 cannot be made after the date of the annulment order. If there be any doubt on this matter or if the law be that such vesting order has to be made at the time of the order annulling adjudication, I do not see what would prevent the Court from exercising its inherent powers in supplying an omission later on for the ends of justice or to prevent abuse of process of the Court. That power has been inherently in the Court all along and s. 151 of the Code of Civil Procedure has simply recognised it. It has not created it. In any view of the matter, as in the view of the Patna and Lahore High Courts, the powers defined in s. 151 of the Code have been conferred on insolvency Courts by the provisions of s. 5(1) of the Provincial Insolvency Act [Chouthmal Bhagirath v. Jokhiram Surajmal* Balla Mal v. Fatima Bibi]. The learned District Judge while following Chouthmal's case remarked that the decision in that case was in conflict with the earlier decision of the same Court which arose out of the same insolvency. [Jokhiram Surajmal Firm v. Chouthmal Bhagirath*(3)] I do not find any conflict. The facts were that a creditor presented on February 24, 1926, an application for adjudicating Gurudat insolvent. That application was dismissed by the first Court on February 12, 1927, but on appeal the High Court on November 8, 1927, passed the adjudication order. In the meantime two creditors of Gurudat, creditors Nos. 2 and 3, who had already obtained money decrees, levied execution against him in the Court of the Subordinate Judge of Chaibasa. Those applications were made on June 16, 1927, and a debt, the amount of which had not been ascertained then due to Gurudat from the B.N Railway Co., was attached. The said debt was sold in execution and purchased by Jokhiram for Rs. 5,750 on April 1, 1927 This sum of Rs. 5,750 was paid to the executing creditors Nos. 2 and 3. The debt due from the B.N Railway to Gurudat was later on, found to be Rs. 6,095-15. On July 17, 1928, the Subordinate Judge of Chaibasa (the executing Court), wrote to the said railway company to pay the said sum to Jokhiram, the purchaser.

About a month before, that is, on June 14, 1928 the adjudication was annulled under s. 43 of the Insolvency Act. On that no vesting order under s. 37 was made, but it was made later on August 1, 1928, by which the insolvents properties were vested in a receiver. Thereafter a question arose whether Jokhiram, the purchaser at the execution sale, could get the said sum of Rs. 6,095 odd, the money that the B.N Railway Co. owed to Gurudat. The District Judge found that Jokhiram was benâmdâr of creditors Nos. 2 and 3 and by an order dated January 17, 1929, directed the receiver to take the said sum and distribute it among all the creditors of Gurudat-. This order was the subject-matter of the appeal by Jokhiram in the first case reported in I.L.R 9 Pat. 945. Although the jurisdiction of the insolvency Court to make the vesting order after the order annulling adjudication was raised, the said question was not decided by the Patna High Court in that appeal. The said Court only decided that the title to the said sum of Rs. 6,095 and odd has passed to Jokhiram by reason of the execution sale by reason of the provision of s. 51 of the Act, and they held that this sum of Rs. 6,095 as due from the Railway Co. did not vest in the receiver under s. 37 as it was not at the date of the vesting order the property of Gurudat but had validly passed to Jokhiram. The question whether the sum of Rs. 5,700 paid by Jokhiram as the price for purchasing at the execution sale the said debt due from the railway company to Gurudat had vested in the receiver appointed under s. 37 was not decided in the I.L.R 9 Patna case, but was the subject-matter of the appeal No. 217 filed by another creditor of Gurudat, namely, Tajmal Marwari, and was the subject-matter of the decision of the Patna High Court in the case of Chouthmal Bhagirath v. Jokhiram Surajmal*. After the disposal of the appeal of Jokhiram in the High Court I.L.R 9 Pat. 945) Tajmal made an application to the District Judge asking him to realise the said sum of Rs. 5,700 from creditors Nos. 2 and 3. This application was rejected, the District Judge holding that no proceeding was pending and that the receiver in insolvency, that is the receiver in whom the property had vested under s. 28 of the Act, and who is the person mentioned in s. 51, had become functus officio, as the annulment of the order of adjudication had terminated the insolvency proceedings. Tajmal filed the appeal before the High Court and contended that the insolvency proceedings were still continuing as a vesting order had been made under s. 37. To meet that contention the respondent's advocate, Sir Sultan Ahmed, contended that the said vesting order was ultra vires as it had not been passed simultaneously with the order of annulment of adjudication. This contention was overruled. The question which is involved in the case before me was therefore decided in the I.L.R 12 Pat. case and not in I.L.R 9 Pat. case and I, accordingly, do not see any conflict between the two. I am in complete agreement with the reasons given by Mohammad Noor, J. in the case of Chouthmal Bhagirath v. Jokhiram Surajmal* and I follow the said decision. I, accordingly, overrule the first point.

I cannot also accept the second contention of the appellant, although it has for its support the case of Panna Lal v. Official Receiver. In that case it was held that the proceedings in insolvency terminates on-annulment of adjudication and the person in whom the property is vested under an order passed under s. 37 has no power to admit proof of debts, distribute dividends and do any act of administration of a nature which a receiver in insolvency can do in the normal course in a pending insolvency. It was accordingly held that a creditor after annulment has the right to pursue his remedy for realising his money under the ordinary civil law. In my view the object of annulment under s. 43 is punishment of the insolvent; the protection offered to him by reason of his insolvency is withdrawn. It is not to put him in a position of advantage. The object of the vesting order under s. 37 is to protect all the creditors, who would have been treated fairly and equally by the Court if the insolvency proceedings went on in normal course. The vesting order clothes the appointed person with legal ownership. He can sell the properties vested in him and turn them into cash assets. If one creditor were free to execute his decree he would be in a position to take all the assets from his hands if his decree exceeded or equalled them. That would deprive the other creditors. Such a course, if open, would afford no protection to all the creditors and would defeat the end that the legislature had in view in enacting s. 37. An annulment order does not terminate the insolvency proceedings absolutely and completely. I hold, accordingly, that the person in whom the property is vested under s. 37 is in the position of a trustee for the creditors and in such a character he has the power and is under the duty of administering the assets vested in him fairly and equally amongst all the creditors and in this matter he has to guide himself by the rules of administration contained in the Insolvency Act. I, accordingly, overrule the second point also and dismiss this appeal, but without costs.

A.K.D

Appeal dismissed.