Mokshagunam Subramania Aiyar v. S.V. Ramkrishna Aiyar

Sadasiva Aiyar, J.:— As soon as the adjudication was made against Kasipathi Aiyar he ceased to be the owner of the equity of redemption on 29th February, 1916 as his property vested at once either in the Court or in the Receiver as the case may be Section 16, Clause 2(a) of the Provincial Insolvency Act (111 of 1907).

2. The decree for sale obtained in July 1916 in a suit in which a person was impleaded as defendant who had no right whatever in the property ordered to be sold is a nullity so far as the true owner (not made a party to that suit) is concerned, unless the case is governed by the doctrine of lis pendens which cannot affect the Court or the Receiver. The sale held in execution of such a futile decree stands in no better footing than the decree itself.

3. The appellants defence was therefore rightly rejected by the lower Appellate Court and this Second Appeal fails with costs payable by the appellant.

Spencer, J.:— The appellant sold a house to one Kasipathy Aiyar on June 12th, 1914. For the unpaid portion of the purchase money he instituted a suit on March 22nd, 1916 and obtained a decree on July 11th, 1916 establishing his vendor's lien over the house. Kasipathy Iyer applied on November 19th, 1915 to be adjudicated insolvent.

4. An adjudication whs made on February 29th, 1916, and of July 15th an order was passed by the Insolvency Court vesting the insolvent's property in the Official Receiver.

5. The Official Receiver sold this item of property to the respondent on 17th August, 1916. The appellant executed his decree and purchased the property himself on December 22nd, 1916.

6. The question that has to be decided on these facts is what title the respondent got by virtue of, his purchase from the Receiver who was not a party to the appellant's suit.

7. It seems clear that in respect of properties which are subject to a mortgage or charge what vests in the Official Receiver upon an adjudication of insolvency and the making of a vesting order is the insolvent's equity of redemption which at the time constitutes the “whole of the property of the insolvent” in such items. This is the consequence of Clause 5 of Section 16 of the Provincial Insolvency Act III of 1907 which preserves the rights of secured creditors, without affecting the Official Receiver's power to administer encumbered estates.

8. But during the pendency of insolvency proceedings no creditor has any remedy against the property of the insolvent or may commence any suit without the leave of the Court (vide Section 16(2)(b) of the Provincial Insolvency Act). Insolvency proceedings commenced in this case with the presentation of the debtor's petition on 19th November, 1315.

9. The suit commenced on March 22nd. 1916 was irregular, and the decree and subsequent execution proceedings to which the Receiver was not a party did not bind him. The debt due to the appellant was provable under the Act, and that he cannot claim, immunity from the provisions of Section 16 of the Provincial Insolvency Act. Even the debts due to secured creditors may be proved under Section 31 of the Provincial Insolvency Act.

10. The appellant having only an equitable right under the provisions of Section 55(4)(b) of the Transfer of Property Act to recover the purchase moneys from the property that he had sold did not obtaia the status of a secured creditor until his right was declared by a decree of Court. The decree that he obtained cannot be pleaded in defence to a claim made by the Official Receiver or the Assignee from him.

11. As pointed out in Puninthavelu Mudaliar v. Bhashyam Ayyangar(1), the Official Assignee or Receiver is not affected by the doctrine of lis pendens and a party seeking to bind him by the result of the suit must apply to have him joined as a party to the suit under O. 22, R. 10 of the CPC.

12. Now the appellant's remedy to obtain personal payment of unpaid purchase-money is time-barred under Article 111, Limitation Act. The lien that he had, does not in any case prevail against the title of a bona fide purchaser without notice. The District Judge was therefore right in his view that the respondent's title is not affected by proceedings taken by the appellant behind the back of the Official Receiver.

13. The Second Appeal fails and must be dismissed with costs.

14. Second appeal dismissed.