Citation Codes

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citation codes

Case Number

Appeal against Order No. 295 of 1920

Attorney(S)

T.M Krishnaswami Ayyar replied.

Judges

Ayling
Venkatasubba Rao, JJ.

Acts

section in the old Provincial Insolvency Act, Act III of 1907, corresponding to section 4 of the present Act.
provisions of section 4 of the present Provincial Insolvency Act
SECTION 7 PRESIDENCY TOWNS INSOLVENCY ACT
provisions of the Provincial Insolvency Act, Act V of 1920.
PRESIDENCY TOWNS INSOLVENCY ACT
sections 4, 5 and 56 of this Act. By section 56(3)
Act, 11 and 12 Vict., Ch. 21, the Insolvency Court
provisions of the Insolvency Act of 1920,
section 18(3) of Act III of 1907,
section 47 of Act III of 1907
section 18(3) of the old Act
section 4 of Act V of 1920,
section 56 or section 4

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Smart Summary

Structured Summary of the Judgment

Factual and Procedural Background

The appeal concerns whether a purchaser who bought property from the Official Receiver of an insolvent (the Receiver representing the insolvent's estate) can obtain an order from the Insolvency Court for delivery of possession of that property when a third party resists the purchaser's application. In the underlying proceedings the purchaser attempted to take possession but was obstructed by a third party who claimed possession (the obstructor, described in the opinion as the son of the insolvent). The District Judge disallowed applications for delivery of possession on the ground that the Court could not issue a delivery warrant on the application of a stranger to the proceedings. The appeal proceeded on the basis that the rights of the parties were governed by the Provincial Insolvency Act, Act V of 1920, and involved interpretation of sections 4, 5 and 56 of that Act. The Insolvency Court's power to decide title disputes involving third parties and to put a purchaser in possession was contested. The appellate court set aside the order of the District Judge and remanded the application to the District Judge for disposal according to law in light of the observations in the judgment. Costs of the appeal were to abide the result.

Legal Issues Presented

Whether a purchaser from the Official Receiver of an insolvent's property can obtain an order from the Insolvency Court for delivery of possession of the purchased property when that application is resisted by a third party.
Whether the Insolvency Court (and its executing machinery under section 5) may be availed of by a purchaser from the Receiver to execute a warrant of possession or otherwise give effect to orders made under sections 4 or 56 of the Provincial Insolvency Act, Act V of 1920.
Whether, after the Official Receiver has parted with his interest in property (by sale), the Official Receiver can still apply to the Court to obtain possession on behalf of the purchaser (this point was discussed though the court stated it was unnecessary to decide it in the present appeal).

Arguments of the Parties

Appellant's Arguments

The appeal was argued on the footing that the rights of the parties are governed by the Provincial Insolvency Act, Act V of 1920, and specifically by sections 4, 5 and 56 of that Act.
Section 56(3) permits the Court, where it appoints a receiver, to remove from possession any person in possession of property claimed as that of the insolvent; the natural meaning of the clause should not be restricted to applications only by the Receiver.
Section 4 gives wide powers to the Court to decide questions necessary for complete justice and distribution of property, including claims between the estate and third parties; thus the Insolvency Court can decide rights of purchasers from the Receiver against obstructors.
Section 5 provides for giving effect to orders and decrees passed by the Insolvency Court; the execution mechanism available to the Receiver should also be available to a purchaser from the Receiver to effect possession orders.
Decisions under the older Provincial Insolvency Act (Act III of 1907) are distinguishable because Act V of 1920 enlarged the Court's powers.

Respondent's Arguments

The District Judge (and respondent's counsel) contended that the Court cannot issue a delivery warrant on the application of a stranger to the proceedings—i.e., the auction purchaser could not apply for a warrant of possession as he was not a party to the Insolvency proceedings in the relevant sense.
The respondent asked the court effectively to read into section 56(3) the limiting words "on the application of the Receiver," thereby restricting the clause to applications by the Receiver only.
It was further contended that the Insolvency Court's powers to execute orders were limited to executing orders in favour of Receivers appointed under the Act and that a purchaser could not avail himself of the execution machinery of the Court.
The respondent relied on several prior decisions under the old Act (Act III of 1907) to support the contention that a purchaser could not, under the older law, obtain such a possession order.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Narasimhaya v. Veeraraghavulu	Under the old Act (Act III of 1907) a District Judge in insolvency did not have jurisdiction, by summary proceeding, to decide questions of title with respect to property claimed by third persons; the District Judge had no jurisdiction to pass an order giving possession to a purchaser from a Receiver.	The court treated this decision as one under the old Act and held it distinguishable from the present case under Act V of 1920, because section 4 of the present Act gives the Insolvency Court power to decide questions of title and claims involving third parties.
Official Assignee Of Madras v. Vedavalli Ammall	Under the corresponding provision (section 7 of the Presidency Towns Insolvency Act, III of 1909) the Court is vested with jurisdiction to deal with questions arising between the Official Assignee and third parties.	The court relied on this precedent to support the proposition that the Insolvency Court has jurisdiction to deal with claims between an insolvent's estate and third parties; and observed section 4 of the Provincial Act is if anything wider than that corresponding provision.
Maddipoti Peramma v. Gandrapu Krishnayya	Under the old Act (section 18(3) of Act III of 1907) there was disagreement whether the Court could determine title between the insolvent and third parties; the court in that case held that an order by a District Judge on an application by a purchaser directing a third party to deliver possession was without jurisdiction.	The appellate court treated this as an authority under the old Act, noting it did not stand in the way of deciding in favour of a purchaser's rights under the present Act, which grants wider powers.
Official Receiver, Tinnevelly v. Sankaralinga Mudaliar	Case decided under the old Act (III of 1907); contains observations about section 4 of the present Act which the judgment describes as obiter.	The court regarded the observations as obiter and unnecessary to discuss in the present decision, because the case arose under the old Act.
Minatoonnessa Bibee v. Khatoonnessa Bibee	Held that "a purchaser at a Receiver's sale had a right to obtain the assistance of the Court in obtaining possession" (in that case the Receiver was appointed in a suit and the court provided instances of the Calcutta High Court making similar orders).	The court used this decision to support the proposition that there is no principled distinction between a purchaser from a Receiver appointed in a suit and a purchaser from a Receiver appointed in insolvency proceedings; it supports the purchaser's right to seek court assistance to obtain possession.

Court's Reasoning and Analysis

The court's analysis proceeded by close textual examination of the relevant provisions of the Provincial Insolvency Act, Act V of 1920—principally sections 4, 5 and 56—and by comparing the present statutory scheme with the prior law (Act III of 1907) and corresponding provisions in other insolvency statutes.

Key steps in the court's reasoning:

Section 56(3) was read in its plain terms: where the Court appoints a receiver it may remove from possession any person in possession of such property; the court rejected the argument that the clause should be confined to applications made only by the Receiver, finding no textual justification to introduce limiting words such as "on the application of the Receiver."
Section 4 was examined and characterized as conferring very wide powers on the Insolvency Court to decide any question necessary for doing complete justice or making complete distribution of property. Sub-section (2) expressly refers to claims between the debtor/estate and all claimants, and discretion is vested in the Court to decide such questions in insolvency proceedings.
Section 5 was treated as the provision prescribing how orders and decrees of the Insolvency Court are to be given effect; the court held that execution of orders made under sections 4 or 56 would be regulated by section 5 and that there was no textual basis for excluding purchasers from availing themselves of the executing machinery the Act contemplates.
The court rejected the respondent's contention that the Insolvency Court's executing powers were limited to orders in favour of Receivers only. It reasoned that if the Court can make an order (for example, a warrant of possession) in favour of a Receiver or of a purchaser from him, the method of execution under section 5 will be the same as for a warrant issued in the exercise of the Court's original civil jurisdiction.
Decisions under the old Provincial Insolvency Act (Act III of 1907) which had earlier held that summary proceedings could not determine title or that a purchaser could not obtain possession were distinguished: those cases arose under the older, more limited statutory regime and therefore did not control the present interpretation under Act V of 1920, which contains expanded remedial provisions (notably section 4).
The court drew support from authorities under comparable provisions (for example, section 7 of the Presidency Towns Insolvency Act, III of 1909) and earlier decisions holding that courts could exercise jurisdiction between official assignees/receivers and third parties; it concluded that section 4 of the Provincial Act is at least as wide and thus the Insolvency Court has plenary power to deal with claims of third parties.
Because the District Judge declined to determine the merits of the obstructor's claim on the ground that he lacked power, the appellate court set aside that order and remanded the application for disposal according to law and in light of the court's observations regarding the scope of the Act's provisions.

Holding and Implications

Core Holding: The appellate court set aside the District Judge's order and remanded the application for disposal according to law, holding that a purchaser from the Official Receiver can apply to the Insolvency Court for a warrant of possession and that, under the provisions of the Provincial Insolvency Act, Act V of 1920 (notably sections 4, 5 and 56), the Insolvency Court has power to decide questions involving the estate of an insolvent and third parties and to give effect to its orders.

Implications and direct consequences:

The District Judge's refusal to entertain the purchaser's application on the ground that the Court could not issue a delivery warrant to a "stranger" was incorrect; the matter is remitted to the District Judge to decide the application on its merits and in accordance with the court's statutory interpretation.
The court concluded that the execution machinery contemplated by section 5 may be used to give effect to orders made under section 4 or section 56, and there is no textual basis for limiting execution to orders solely in favour of Receivers.
The appellate judgment distinguishes prior decisions under the old Provincial Insolvency Act (Act III of 1907) and treats them as not controlling where Act V of 1920 grants broader jurisdiction; accordingly, the court confirmed a broader remedial scope under the present statute for obtaining possession after a sale by the Receiver.
Costs of the appeal were ordered to abide the result.

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S.R.M.S.T.R.M Ramaswami Chettiar Through His Authorized Agent Kuppanna Iyengar () v. T.S Ramaswami Iyengar And Another (Official Receiver And Petitioner)

The Court delivered the following JUDGMENT:

This Appeal in effect raises the question whether a purchaser from the Official Receiver of a property of the insolvent whom the Receiver represents, can obtain an order from the Insolvency Court for delivery of possession of the property where his application is resisted by a third party.

This Appeal has been argued before us on the footing that the rights of the parties are governed by the provisions of the Provincial Insolvency Act, Act V of 1920. It is necessary to examine carefully the terms of sections 4, 5 and 56 of this Act. By section 56(3) it is provided that

“Where the Court appoints a receiver, it may remove the person, in whose possession or custody any such property as aforesaid is, from the possession or custody thereof.

“Provided that nothing in this section shall be deemed to authorize the Court to remove from the possession or custody of property any person whom the insolvent has not a present right go to remove.”

This section clearly applies to the case of a receiver applying for the removal of an obstructor from the possession of the property claimed to be the property of the insolvent. It is also clear that, for the purpose of determining the right of the receiver as against the obstructor to the possession of the property, the Court can hold an inquiry under this section.

There is no section in the old Provincial Insolvency Act, Act III of 1907, corresponding to section 4 of the present Act. There were conflicting decisions in regard to the power of the Court to deal with the claims of third parties against the insolvent and it was to set at rest the doubt that existed upon the subject that section 4 was introduced into the present Act. It will be seen that very wide powers are given to the Court under section 4: the Court may decide any question which it may deem it expedient or necessary to decide for the purpose of doing complete justice or making complete distribution of property. Sub-section (2) refers, in terms, to the claims between the debtor and the debtor's estate on the one hand and all claimants against him or it on the other hand. It is also to be noted that a discretion is given to the Court to decide the question in the Insolvency proceedings and that it is not binding upon the Insolvency Court to decide under this section every claim which is brought up before it.

Passing to section 5, it makes provision, inter alia, for effect being given to the orders and decrees passed by the Insolvency Court. Under these sections does the purchaser from the Official Receiver have the right to apply to the Court for being put in possession of the property purchased by him? The District Judge disallowed the applications on the ground that the Court cannot issue a delivery warrant on the application of a stranger to the proceedings. Clause (3) of section 56 is not limited to the case of an application by the Receiver and the terms of the clause are general. Why should we restrict the operation of this clause to applications by the Receiver himself? The learned Vakil for the respondent asks us, virtually, to introduce into the section the words “on the application of the Receiver.” In our opinion there is no justification for refusing to give to the words of clause (3), of section 56, their natural meaning and for restricting the scope of the clause.

It has also been contended before us for the respondent that the Insolvency Court is not vested with powers to execute the orders except to the limited extent of being enabled to execute orders in favour of the Receivers appointed under the Act. If it is conceded that there is an executing machinery that is available to the Receiver, we fail to see on what principle this machinary Cannot be availed of by a purchaser from the Receiver. The execution of any order made by the Court under section 56 or section 4 will be regulated by the terms of section 5. For instance, if an order for a warrant of possession is made in favour of the Receiver or of a purchaser from him, the method of executing the warrant under section 5 will be the same as that prescribed for the execution of a warrant issued by the Court in the exercise of Original Civil Jurisdiction. The Legislature having invested the Insolvency Courts with extensive powers under section 4, it would be, in our opinion, anomalous to hold that the Courts are powerless to give effect to their judgments or orders. The terms of sections 4, 5 and 56 do not suggest that any such limitation is intended. We are, therefore, unable to accept the contention of the learned vakil for the respondent that the auction purchaser cannot, under the provisions of the Insolvency Act of 1920, apply to the Insolvency Court for a warrant of possession.

Several cases were relied on by the respondent. The first case cited by him is Narasimhaya v. Veeraraghavulu. Certain property alleged to belong to an insolvent was sold by the Receiver and the purchaser while attempting to take possession was obstructed by the appellants who claimed to be in possession as owners. The District Judge purporting to act under section 47 of Act III of 1907 ordered possession to be given to the purchaser. The High Court held that the District Judge had no jurisdiction to pass such an order. Abdur Rahim, J., at page 441, says:

“It would be going much too far to say that a Judge in Insolvency in the mufassal has powers by a summary proceeding to decide questions of title with respect to property, claimed by third persons.”

The Courts have now power to decide questions of title under section 4 of Act V of 1920, and the reasoning given in this judgment would not, therefore, apply to an application made under the present Act. The judgment proceeds upon the ground that section 47 of Act III of 1907 which corresponds to section 5 of the present Act did not apply because there was no decree, and a sale by the Receiver was not a sale in execution of a decree. We are of opinion that the Court has the power not only to make an order in favour of the purchaser but also to give full effect to it. We fail to see that there is anything in the terms of section 47 which fettered the power of the Court because the sale happened to be a sale made by a Receiver and not a sale made in pursuance of a decree. However, it is sufficient to say that this is a decision under the old Act and that it is distinguishable on that ground, especially in view of the enlarged powers possessed by the Court under the present Act.

We have no doubt that the Insolvency Court under Act V of 1920 has ample power to deal with questions arising between the estate of an insolvent and a third party. Section 4 is modelled on section 7 of the Presidency Towns, Insolvency Act, III of 1909. Under this corresponding provision of the Presidency Towns Insolvency Act it has been held that the Court is vested with jurisdiction to deal with questions arising between the Official Assignee and third parties. This point was expressly decided in Official Assignee Of Madras v. Vedavalli Ammall, J., sitting in the Insolvency Court held that, although, under the old Act, 11 and 12 Vict., Ch. 21, the Insolvency Court had a discretion to exercise jurisdiction over third parties, Act III of 1909 effected a change in the law and that the jurisdiction was curtailed. This view was not accepted by the Appellate Court. The provisions of section 4 of the present Provincial Insolvency Act are if anything, wider than the terms of section 7 of the Presidency Towns Insolvency Act, III of 1909. We have therefore no hesitation in holding that the insolvency Court has plenary powers to deal with the claims of third parties under the provisions of the present Provincial Insolvency Act.

The next case cited to us is Maddipoti Peramma v. Gandrapu Krishnayya. Bakewell, J., took the view that under section 18(3) of Act III of 1907, the Court had power to remove a person in possession of property of the insolvent from possession, but that the power was not intended to provide for the determination of questions of title as between the insolvent and third parties. Krishnan, J., took the opposite view on this matter. But they agreed in holding that an order passed by the District Judge, on the application by a purchaser of the insolvent's property from the Official Receiver, directing the third party claiming title to deliver possession of the property to the purchaser, was without jurisdiction. The observations we made in regard to Narasimhaya v. Veerarayhavulu apply to this case also and we are prepared to hold that this case being a decision under the old Act, does not stand in the way of our deciding in favour of the rights contended for on behalf of the purchaser from the Receiver.

We have been referred to Official Receiver, Tinnevelly v. Sankaralinga Mudaliar which is also a case decided under the old Act III, of 1907. The observations of Seshagiri Ayyar, J., at page 532 that “section 4 of the present Act should not be regarded as if for the first time a new power had been conferred” are obiter, and it is unnecessary to discuss this point.

We may observe that in the present case an application was also made by the Official Receiver to the District Court asking for, possession of the property. He applied that the auction purchaser might be put in possession of the property on his behalf. The learned District Judge was of opinion that, under section 18(3) of the old Act the Official Receiver having ceased to be the owner could not apply. It is unnecessary to decide the question whether, after parting, with his interest, the Official Receiver can apply, because, as stated above we are of opinion that the application on behalf of the auction purchaser would lie to the Insolvency Court and that the District Judge was in error in refusing to entertain the application.

We would also like to refer to Minatoonnessa Bibee v. Khatoonnessa Bibee where it was held by Sale, J., that “a purchaser at a Receiver's sale had a right to obtain the assistance of the Court in obtaining possession.” No doubt, the Receiver referred, to here was a Receiver appointed in a suit. At page 482 reference is made to an order made by the Calcutta High Court in an administration suit in which the Receiver appointed in the suit was directed to sell and upon the application of the purchaser an order was made directing possession to be given to the purchaser. In the Judgment are given several instances of similar orders made by the Calcutta High Court in the exercise of its Original Civil Jurisdiction. We think that there is no distinction in principle in this respect between a purchaser from a Receiver appointed in a suit and a purchaser from a Receiver appointed in regard to an insolvent's property.

The District Judge in the present case on account of the view he took of his powers, refused to deal with the merits of the claim of the obstructor who is the son of the insolvent and who put forward certain contentions. We set aside the order of the District Judge and remand the application to be disposed of by him according to law in the light of the observations contained in this judgment.

Costs of this Appeal will abide the result.

N.R

S.R.M.S.T.R.M Ramasw... v. T.S Ramaswami Iyenga...