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The Official Receive... v. The Imperial Bank Of...
Structured Summary of the Opinion
Factual and Procedural Background
The appeal challenges an order of the learned District Judge of East Godavari made in an execution application. The execution creditor (plaintiff) had sued the father and manager of a joint Hindu family and his son and nephew. The plaintiff obtained a decree against the father personally and against the son and nephew in respect of their shares in the joint family property. Execution led to attachment of the family property — the interests of the father (manager) and of his son and nephew. Subsequently the father became insolvent and the Official Receiver took charge of his properties and claimed the whole of the attached property, seeking to stop the sale. The executing Court continued with the sale; the sale proceeded subject to the question of entitlement to the sale proceeds. The learned District Judge held that the Official Receiver was not entitled to that part of the sale proceeds representing the interests of the son and nephew. This appeal challenges that holding.
Legal Issues Presented
- Whether, upon the father's insolvency, the Official Receiver is entitled to the whole of the sale proceeds of property attached in execution, including the shares of the sons and nephew, relying on Ss. 51 and 52 of the Provincial Insolvency Act.
- What is the scope of "the property of the debtor" under Ss. 51 and 52 — specifically, whether the father's power to alienate joint family property (including sons' shares) passes to the Official Receiver if the sons' shares have already been attached in execution.
- Whether there is any principled distinction between attachment of a son's interest when the son is sued as the principal debtor and attachment when the son's interest is made liable because of the father's liability (the pious obligation rule).
Arguments of the Parties
Official Receiver's Arguments
- The Official Receiver contended that he was entitled to the whole of the sale proceeds because the action was in respect of the father's debts and the father later became insolvent.
- He argued that the judgment-creditor should not be in a better position than the general body of creditors and that the attachment did not prevent the Receiver's claim, since the relevant time is when the insolvency petition was admitted (invoking Ss. 51 and 52 of the Provincial Insolvency Act).
The opinion does not contain a detailed, separate enumeration of the opposing party's (the execution creditor's) formal arguments in the same manner; the judgment records the Court's assessment and the legal authorities relied upon against the Receiver's claim.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Subraya v. Nagappa | Held that when a Hindu son's right, title and interest in joint ancestral property has been attached in execution and private alienation by him is prohibited by a Court order under S.276 CPC, the father is deprived of the power of alienation of that interest in satisfaction of his own debts. | The Court relied on this to show that once a son's interest has been attached, the father's normal power to alienate that interest ceases and therefore cannot pass to the Official Receiver on the father's insolvency. |
| Gopalakrishnayya v. Gopalan | Explained that the father's power to sell the shares of his sons passes to the Official Receiver but is subject to the same qualifications that applied to the father; if the son's share was attached by a creditor prior to the Receiver's vesting, the Official Receiver cannot sell that share and the attaching creditor may proceed with execution. | The Court cited this authority to support the proposition that an attachment of the son's share precludes the Receiver from exercising any power of sale over that share. |
| Subba Rao v. Official Receiver, Guntur | Held that although the property of an insolvent father vests in the Receiver, the undivided sons' shares do not actually vest; only the father's power to sell such shares vests. If the sons' shares are attached before vesting, even that power does not vest in the Receiver, who is therefore not entitled under S.52 to delivery of the entire property. | The Court relied on this decision to confirm that a Receiver cannot claim the whole property under S.52 where the sons' shares were attached prior to vesting, reinforcing the conclusion in the present case. |
Court's Reasoning and Analysis
The Court began by analysing Ss. 51 and 52 of the Provincial Insolvency Act. It observed that both sections are concerned with "the property of the debtor" and that "property" includes personal assets and rights of the debtor. One such right is the father's right, as manager of a joint Hindu family, to alienate family property.
Section 52 provides for delivery to the Receiver of property against which execution has issued, but subject to a first charge for costs of the suit and execution; S.51 restricts benefits of execution against the Receiver to assets realised before admission of the insolvency petition. The Court held these sections relate to the property of the debtor, which includes his rights, but only insofar as those rights subsist at the time of vesting.
The critical legal question was whether the father's right to alienate the joint family property (including the sons' shares) existed at the relevant time so as to pass to the Receiver. The Court concluded — following Subraya v. Nagappa, Gopalakrishnayya v. Gopalan and Subba Rao v. Official Receiver — that where a son's interest in the joint family property has been attached in execution prior to vesting in the Receiver, the father's normal power of alienation over that interest ceases at the moment of attachment. If that power has ceased, there is nothing of that power to transfer to the Official Receiver on the father's insolvency.
The Court explicitly rejected any distinction in principle between cases where the son's interest was attached because the son was sued as principal debtor and cases where the son's interest was made liable because of the father's liability under the pious obligation rule. In both scenarios, once the son's interest is attached, the father's power to alienate in order to pay his debts is extinguished and cannot be transferred to the Receiver.
Applying these principles to the facts, the Court agreed with the learned District Judge that the Official Receiver was not entitled to that portion of the sale proceeds representing the interests of the son and nephew, because those interests had been attached and the father's power to alienate them had ceased prior to vesting in the Receiver.
Holding and Implications
APPEAL DISMISSED
Holding: The appellate court upheld the District Judge's decision and dismissed the appeal with costs. The Official Receiver is not entitled to the portion of the sale proceeds that represent the interests of the son and nephew in the joint family property, where those interests had been attached in execution prior to vesting in the Receiver.
Implications: The direct effect is that sale proceeds attributable to the attached shares of the sons/nephew remain available to satisfy the attaching creditor's execution (and are not wholly claimable by the Receiver). The Court treated Ss. 51 and 52 as applicable only to those rights of the insolvent which subsist at the time of vesting; where a son's share is already attached, the father's power over that share does not survive to the Receiver. The opinion does not set out broader policy changes beyond the application of these principles to the facts and the cited authorities.
Disposition: Appeal dismissed with costs.
This is an appeal against an order passed by the learned District Judge of East Godavari in an execution application and it is an order that raises a point of some interest. The facts can be shortly stated. The action was brought by what I will call the execution creditor against the father and manager of a joint Hindu family and his son and nephew. In that action the plaintiff was successful and obtained a decree against the father personally and against the son and nephew in respect of their share in the joint family property. Following upon that decree the judgment-creditor attached the family property, that is to say, the interest therein, both of the father and manager and of his son and nephew. The next step was that the father became an insolvent. The Official Receiver took charge of his properties. He communicated with the executing Court claiming the whole of the attached property and sought to stop the sale. The executing Court decided to continue the sale and everything thereafter has proceeded on the basis that the sale took place without in the least affecting the rights of the Official Receiver to the sale proceeds, that is to say, if the Official Receiver has a right in respect of the whole property the whole of the sale proceeds are his and on the other hand if he has a right in part, he is entitled to part of the sale proceeds. The learned District Judge has held in fact that the Official Receiver is not entitled to such part of the sale proceeds which represent the interests of the son and nephew in the joint family property.
It is urged before us that the Official Receiver is entitled to the whole of the sale proceeds on the ground that the action was in respect of the father's debts, that the father had subsequently become an insolvent and that the judgment-creditor should be in no better position than the general body of creditors, that the attachment has not affected the sale, for the relevant time is when the petition was filed, and that Ss. 51 and 52 of the Provincial Insolvency Act apply. In our opinion, however, the legal position that arises in circumstances such as this can be shortly expressed as follows. S. 52 provides:
“Where execution of a decree has issued against any property of a debtor which is (saleable) in execution and before the sale thereof notice is given to the Court executing the decree that an insolvency petition by or against the debtor has been admitted, the Court shall on an application, direct the property, if in the possession of the Court, to be delivered to the receiver, but the costs of the suit in which the decree was made and of the execution shall be a first charge on the property so delivered, and the receiver may sell the property or an adequate part thereof for the purpose of satisfying the charge.”
That section in our opinion relates to a decree which was issued against the property of a debtor. S. 51 restricts the rights of a creditor in execution in the following terms:
“Where execution of a decree has issued against the property of a debtor, no person shall be entitled to the benefit of the execution against the receiver except in respect of assets realised in the course of the execution by sale or otherwise before the date of the admission of the petition.”
Both these sections are concerned with the property of the debtor. The question we have to determine is, what does the property of the debtor include? We apprehend that the property of the debtor includes all personal assets including his rights and one of such rights is the right of the father and manager of a joint Hindu family to alienate the joint family property which right passes together with his other valuable rights to the Official Receiver on his becoming an insolvent. Did this right, which the father and manager of a joint Hindu family normally possesses exist in the circumstances of this case? If it did then it passed on to the receiver; if it did not then it did not pass on to the receiver. In Subraya v. Nagappa it was held that
“when the right, title and interest of a Hindu son in joint ancestral property has been attached in execution of a decree against him and its private alienation by him has been prohibited by an order of Court under S. 276 of the Code of Civil Procedure his father is deprived of the power of alienation of that interest in satisfaction of his own debts.”
From that it appears to follow that once a decree has been followed by an attachment of the son's interest in the joint family property the normal power of the manager of that property to alienate it for payment of debts from the moment of attachment ceases to be his right. Therefore the right in him having ceased it cannot be transferred on his insolvency to the Official Receiver.
This appears to be the ground on which a Bench of this Court (Ramesam and Devadoss, JJ.) in Gopalakrishnayya v. Gopalan considered the position that arises on the insolvency of the father of a joint Hindu family as regards the power of the father to sell the son's share in the family property. Although that right passes to the Official Receiver, it was held in those circumstances,
“If the son's share was attached by a creditor, the Official Receiver has no power to sell the share after attachment, but the attaching creditor is entitled to proceed with the execution by selling the son's share. They observe only the power of the father to sell the shares of the sons passes to the Official Receiver. But the power is subject to the same qualification as it is in the father's hands. In this case the son's shares have been attached and after such an attachment, the Official Receiver cannot exercise the power of sale.”
More recently my learned brother had to consider a similar point in a case in Subba Rao v. Official Receiver, Guntur and he held that
“when a Receiver is appointed by the Insolvency Court on a petition in which the father of a Hindu joint family is sought to be adjudicated an insolvent, the property of that insolvent is vested in the Receiver, but the shares of his undivided sons do not actually vest in the Receiver, but only the father's power to sell such shares. When such shares of the sons have been attached before the vesting in the Receiver had taken place, there can be no vesting of even this power to sell the sons' shares in the Receiver and the Receiver in insolvency is not therefore entitled to apply under S. 52 of the Provincial Insolvency Act for delivery of the entire property.”
Now it is urged before us that though it is sound law that where the attachment which affects the son's interests arises out of a case in which the son is sued as a person primarily liable, it does not apply where the son's interest is attached in a case in which the father is sued as a person primarily liable and the sons are merely joined in order to have a decree passed against them so that in execution proceedings the sons will not be at liberty to oppose the execution on the ground that their shares should not have been made liable because the debt of the father was illegal or immoral. But in our opinion there can be no difference in principle between a case where the son's interest is made liable in an action brought by the plaintiff with whom the father has contracted and a case where the son's shares are made liable in an action in which the plaintiff sues the sons in respect of the sons' own contractual liability. Because in the first case the only reason why a decree can make liable the son's interest is that under the Hindu Law the son is liable under the pious obligation rule for his father's debts. His liability in such a case is not contractual but it is nevertheless a liability and a liability that is imposed upon him by law and is one which places him subject to certain exceptions and safeguards in the position of a person that is responsible in the eye of the law for his father's debts as if he had himself contracted.
We can see therefore no difference in principle between a case where the son's interest is attached because he is held to be liable under the pious obligation rule and a case where the son's interest is made liable because he is himself the principal debtor. In both cases the son's interest is made liable. In both cases assuming the attachment has begun, the son's interest is attached. Once the son's interest is attached then the father's right to alienate the joint family property in order to pay the father's debts is gone. Once the right is gone the power of the law to transfer that right to the Official Receiver in insolvency is gone too, because there is nothing to transfer. In our opinion therefore the learned District Judge arrived at a correct conclusion and this appeal must be dismissed with costs.
Appeal dismissed.
N.R.R
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