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Muthusami Samiar v. Somoo Kandiar
Judgment Summary — Oldfield, J. (Concurring: Seshagiri Aiyar, J.)
Factual and Procedural Background
The plaintiff (here the appellant) purchased the mortgage right now sued on at a sale held by the Official Receiver, Tanjore District, in the insolvency of the 4th defendant. The plaintiff then sued the 1st defendant (the mortgagor) to recover by sale of the mortgaged property. The principal defence asserted at trial — and the only defence considered in the opinion — was that the plaintiff did not obtain the mortgage right by his purchase because the mortgage right had not vested in the Official Receiver and therefore could not lawfully be sold by him.
The Lower Courts accepted that defence with reference to the earlier decision in Official Receiver of Trichinopoly v. Somasundaram Chettiar. This appeal challenges that acceptance. The Court of Appeal considered the correctness and effect of the earlier decision and the statutory scheme (especially provisions of the Provincial Insolvency Act such as Sects. 16, 18, 19 and 52) on whether the insolvent's estate vests in the Official Receiver without a distinct court order appointing him receiver.
Legal Issues Presented
- Whether, when an adjudication of insolvency is made by an Official Receiver exercising powers delegated under Sect. 52(1)(a) of the Provincial Insolvency Act, the insolvent's estate vests in the Official Receiver automatically or only upon a court order vesting the estate in him (for example, an order appointing him receiver under Sect. 18).
- Whether, in the exercise of delegated powers under Sect. 52, the Official Receiver becomes "the Court" (or is to be treated as the Court for the purpose of vesting the estate under Sect. 16(2)(a)).
- Whether Sect. 19(2) of the Provincial Insolvency Act operates to make the Official Receiver the receiver by operation of law in every insolvency, so as to bring such receiverships within the phrase "or in a receiver as hereinafter provided" in Sect. 16(2)(a).
Arguments of the Parties
Appellant's Arguments
- The appellant contended that the Official Receiver, when exercising delegated powers under Sect. 52, became for ancillary purposes the "Court" and thus the vesting in "the Court" under Sect. 16(2) should be treated as having occurred without a separate court order.
- Alternatively, the appellant argued that under Sect. 19(2) the Official Receiver becomes by operation of law the Receiver in each case and that such statutory receiverships fall within the "as hereinafter provided" language in Sect. 16(2)(a), so that no distinct court order appointing a receiver is necessary for vesting of the estate.
Respondent(s)' Arguments
- The respondents (as reflected in the Lower Courts' view and advanced by counsel for the 3rd respondent, Mr. Seshagiri Sastri) argued that unless the Official Receiver is appointed receiver in the particular insolvency (i.e., unless a court order appointing him is passed), the property of the insolvent does not vest in him. The defence asserted that the mortgage right purchased by the plaintiff had not vested in the Official Receiver and so could not be sold by him.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Official Receiver of Trichinopoly v. Somasundaram Chettiar | Holds that when an adjudication of insolvency is made by an Official Receiver under delegated powers (Sect. 52(1)(a) Prov. Insolvency Act), the insolvent's estate does not vest in him under Sect. 18 or otherwise unless a court order vesting it is passed. | The Lower Courts relied on this decision; Oldfield, J. reviewed the statutory wording and reasoning and concluded that the law was correctly stated in that decision and must be followed. |
| Firm of Ramakrishna Iyer v. Official Receiver, Tinnevelly | Referenced as an instance in which one of the judges responsible for the Trichinopoly decision judicially noticed it. | The Court observed that Official Receiver v. Somasundaram Chettiar had little other judicial notice except in this matter; this fact was noted but did not alter the Court's adherence to the earlier ruling. |
| Alia v. Kuppai | Used to support the textual point that Official Receiver's acts being deemed those of "the Court" under Sect. 52(2) does not make the Official Receiver fall within the statutory definition of "the Court" (Sect. 2(1)(g)). | The Court relied on this authority in rejecting the contention that the Official Receiver becomes "the Court" by exercising delegated powers. |
| In re Cohen (Court of Appeal) | Interprets English Bankruptcy Act provisions to show that the Official Receiver becomes trustee automatically in many circumstances and that on appointment of a trustee property vests in the trustee; cited for the English practice and its interpretation. | Seshagiri Aiyar, J. cited this decision when discussing the English statute's interpretation that the Official Receiver functions as trustee from adjudication until a trustee is appointed; used to compare English practice with the Indian statutory scheme. |
| In re Calcott and Elvin's Contract (Court of Appeal) | Considered whether an order of adjudication is a conveyance and addressed the timing of title under bankruptcy rules; supports the English view that adjudication effects vesting in the trustee though it is not a deed. | Quoted by Seshagiri Aiyar, J. to illustrate English authorities accepting that adjudication vests the property in the trustee and to compare this with Indian provisions. |
| 2 Halsbury (sect. 169) | States the law (as authoritative commentary) that the Official Receiver "becomes" trustee automatically under the English statute. | Cited by Seshagiri Aiyar, J. as further authority reflecting the English position on the automatic vesting/role of the Official Receiver. |
Court's Reasoning and Analysis
Oldfield, J. began by setting out the competing constructions of the Provincial Insolvency Act. The Lower Courts had followed Official Receiver of Trichinopoly v. Somasundaram Chettiar, which concluded that when adjudication is made by an Official Receiver acting under delegated powers (Sect. 52(1)(a)), the insolvent's estate does not vest in him unless a subsequent court order appointing him receiver (or otherwise vesting the estate) is passed.
The Court examined two principal lines of argument advanced for automatic vesting:
- That the Official Receiver, when exercising delegated powers under Sect. 52, becomes the "Court" for ancillary purposes (including vesting under Sect. 16(2)), and
- That Sect. 19(2) makes the Official Receiver, by operation of law, the receiver in each case so as to fall within the phrase "or in a receiver as hereinafter provided" in Sect. 16(2)(a).
The Court rejected the first argument succinctly: the stages of adjudication and administration are distinct; while Sect. 52(2) deems certain acts or orders of the Official Receiver to be those of the "Court," this deeming does not cause the Official Receiver to fall within the statutory definition of "the Court" (Sect. 2(1)(g)). The Official Receiver therefore does not become "the Court" by virtue of delegated powers.
Turning to the second contention and the broader statutory scheme, the Court scrutinised the wording of Sect. 16(2)(a), which provides for vesting "in the Court or in a receiver as hereinafter provided," and the absence of an explicit vesting provision in Sect. 19 (which deals with Official Receivers). The appellant's alternative interpretation (that Sect. 19(2) operates to vest the estate in the Official Receiver by operation of law) was considered.
Although the balance of convenience might favour construing Sect. 19(2) so as to avoid practical difficulties, Oldfield, J. concluded that the wording of Sect. 18(2) and the English Act on which the Indian procedure was modelled indicated that a distinct order constituting a receiver is intended. He relied on comparison with Sect. 9 of the English Bankruptcy Act 1883 (which shows distinct receiving-order forms constituting the Official Receiver) and on the differing structures of the English and Indian statutes (including considerations about multiple possible Official Receivers in India and the draftsman's intentions reflected in Sect. 19(2)). The Court held that the adaptation from the English Act to the Indian Act was imperfect and that the Indian statutory language had to be given effect as it reads.
On this textual and comparative basis, Oldfield, J. held that the law had been correctly stated in Official Receiver of Trichinopoly v. Somasundaram Chettiar, and therefore the appellant's contentions could not succeed.
Seshagiri Aiyar, J. expressly agreed with Oldfield, J.'s conclusion but added observations: the decision departs from previous practice in the Presidency towns, is attributable to the drafting of Sect. 19(2) of the Provincial Act, and produces an unsettling effect on lower court practice. He examined Parliament's drafting choices, compared the Provincial Act unfavourably with the explicit vesting provision in Sect. 17 of the Presidency Towns Insolvency Act, surveyed the English statutory provisions and cases (including In re Cohen and In re Calcott & Elvin), and suggested that adopting certain English-style forms might ameliorate practical difficulties — but he did not dissent from the legal conclusion reached by Oldfield, J.
Holding and Implications
Holding: The appeal is DISMISSED and the order below is affirmed; costs were awarded against the appellant.
Implications:
- The Court affirmed the principle, as stated in Official Receiver of Trichinopoly v. Somasundaram Chettiar, that when adjudication is made by an Official Receiver under delegated powers, the insolvent's estate does not vest in the Official Receiver unless a court order vesting it (for example, an order appointing him receiver) is passed.
- The decision upholds the Lower Courts' application of that principle in the present case and therefore supports the view that sales made by an Official Receiver in the absence of an order vesting the estate may not effect valid transfers of rights that have not vested in him.
- The concurring judgment observes that this holding unsettles prior practice in Presidency towns and identifies statutory drafting (notably Sect. 19(2) of the Provincial Insolvency Act) as the cause of the difficulty; the Court did not create a novel rule but affirmed an existing interpretation.
This summary is prepared strictly from the content of the provided opinion. No information that is not present in the opinion has been added.
Oldfield, J. — Plaintiff, here appellant, purchased the mortgage right now sued on at a sale held by the Official Receiver, Tanjore District, in the Insolvency of 4th defendant and has sued 1st defendant, the mortgagor to recover by sale of the mortgaged property. The only defence with which we are concerned at present, is that plaintiff did not obtain the mortgage right by his purchase because it had not vested in the Official Receiver and could not be sold by him. The Lower Courts accepted this with reference to Official Receiver of Trichtnopoly v. Somasundaram Chettiar in which two learned judges held that when as in the present case, an adjudication of insolvency is made by an Official Receiver in the exercise of the powers delegated to him under Sect. 52 (1) (a) Provincial Insolvency Act, the insolvent's estate does not vest in him under Sect. 18, or any other provision and will not do so, unless an order vesting it in him is passed by the Court. Official Receiver of Trichinopoly v. Somasundaram Chettiar has not been judicially noticed except by one of the learned Judges responsible for it in Firm of Ramakrishna Iyer v. Official Receiver, Tinnevelly(3) The reasoning supporting the portion of the judgment in question is very shortly stated, but the conclusion reached must affect insolvency practice, throughout the Presidency. That conclusion entails the Offical Receiver's inaction after passing the order of adjudication, until he has reported his doing so to the Court, which originally entertained the insolvency petition, and has obtained its order appointing him receiver and vesting the estate in him. Any postponement of the vesting of the estate in an authority more competent to administer it than that Court is to be deprecated and may have disastrous results, if movable property is in question. We think it necessary to satisfy ourselves that this result is inevitable by close scrutiny of the law. It is urged first that it is not, because the Official Receiver in the exercise of his delegated powers under Sect. 52 becomes the ‘Court’ for purposes ancillary to that exercise, of which the vesting of the insolvent's estate in ‘the court’ under Sect. 16 (2) is one. This can be rejected shortly. The stages of adjudication and administration are distinct under Sect. 52. The Official Receiver does not become the ‘Court’ in the exercise of his delegated powers, but under Sect. 52 (2) his orders, or acts are merely to be deemed to be those of the ‘Court,’ and he does not come within the definitition of ‘the Court’ in Sect. 2 (1) (g) [Alia v. Kuppai.]
To turn to more substantial considerations the decision in Official Receiver of Trichinopoly v. Somasundaram Chettiar, was reached with reference to the provision in Sect. 16 (2) (a), for the vesting of the estate “in the Court or in a receiver as hereinafter provided” and the construction of the last three words as relating only to the provision in Sect. 18 (1) for the appointment of a Receiver and the vesting in him thereupon of the estate. Reliance is placed on the absence of any provision for vesting, in Sect. 19 relating to Official Receivers and the argument that the Act does not provide for it, except in connection with an appointment, which is therefore necessary in each case. The alternative contention is that under Sect. 19(2), the Official Receiver becomes by operation of law the Receiver in each case and that such Receiverships also and not only those conferred by appointment under Sect. 18, are within the purview of the words already referred to, “as hereinafter provided” in Sect. 16 (2) (a).
The balance of convenience is, as I have pointed out, in favour of the second of these constructions. But consideration of the wording of Sect. 18 (2) and of the English Act, on which this procedure is founded, forbids its adoption. For Sect. 18 (2) assumes by its reference to an order of appointment of a receiver that such an order is to be passed, even if the Official Receiver is to act; and, although there is no separate provision for such an order, this reference cannot be disregarded. Its significance and probably its origin are disclosed by comparison with Sect. 9 of the English Bankruptcy Act of 1883, under which “on the making of a receiving order an Official Receiver shall be thereby constituted Receiver of the property of the debtor,” the word ‘thereby’ supporting no appointment by mere implication, since, as the forms of receiving order Nos. 28 and 29 show, a distinct order constituting a receiver for the estate is to be passed. The necessity for such an order is accounted for, by the fact that in England, as Sect. 66 (3) of the Act and R. 323-A framed under it show, the contingency of the existence of more than one Official Receiver for each area is contemplated; and it is possible that, although no explicit reference is made to this contingency in the Indian Act, it was in the mind of the draftsman and is provided for in Sect. 19(2), the introduction of the procedure authorised by Sect. 17 of the Presidency Act with its immediate vesting of the property in the Official Assignee being deliberately avoided. It is consistent with this that, whilst under Sect. 77, Presidency Act, only one person can be appointed to the office of Official Assignee of insolvents’ estates, for each High Court, under Sect. 19 (1) of the Provincial Act there is no restriction on the number of appointments for a particular area. It may be said on the one hand that this conflicts with the reference in Sect. 19 (2) to the appointment of an Official Receiver for the local limits of any Court having jurisdiction under the Act, his designation as the receiver to act in all cases asising in it and the omission of any direction, such as the English Act gives, regarding the method of selection of the Official Receiver to act, when more than one have been appointed and on the other hand that the Indian provisions cannot be explained by reference to the English, when the Scheme of the latter, including the employment as matter of course of the Official Receiver as Receiver from the receiving order until the order of adjudication and the subsequent vesting in him as trustee under the English Sect. 54, differs radically from that of the former. But the only conclusion can be that the adaptation of the English procedure to Indian circumstances has been imperfect and that reason has not been shown for the rejection of an explanation of the wording of the Indian Sect. 19 (2), for which appellant has failed to account and which must receive effect.
In these circumstances I am constrained to hold that the law was stated correctly in Official Receiver of Trichinopoly v. Somasundaram Chettiar.
The appeal is dismissed with costs.
Seshagiri Aiyar, J.—While not disagreeing with my learned brother I cannot help saying that the previous decisions of this Court and the conclusion to which he has come have the effect of unsettling the practice in the lower Courts and of making an unnecessary departure from what obtains in insolvency matters in the Presidency towns. The drafting of the Act, and especially of Cl. 2, Sect. 19 of the Provincial Insolvency Act is responsible for this state of things.
Mr. Justice Oldfield has stated the facts and the law fully, I shall only add a few sentences. The contention of Mr. Seshagiri Sastri, Vakil for the 3rd respondent is that, unless the Official Receiver is appointed in each case of insolvency, as receiver of the estate, the property of the insolvent does not vest in him. Sect. 15, Cl. 2, provides for the vesting of the property in the Court or in a Receiver as hereinafter provided. Under Sect. 52 the High Court can, by rules, invest the Official Receiver with jurisdiction to hear insolvency petitions, to examine the debtors and to make orders of adjudication. Reading these two provisions, the natural inference is that the Official Receiver—appointed by the Local Government and invested with powers to adjudicate by the High Court, would have the property of the insolvent under his control. Unfortunately Sect. 19 Cl. 2, uses this language:—“Where any Official Receiver has been so appointed for the local limits of the jurisdiction of any Court having jurisdiction under this Act, he shall be the recejver for the Purpose of every order appointing a receiver issued by any, such Court……” I do not find it easy to understand the meaning of the words underlined by me. If it was the intention of the legislature that the property should not vest in the Official Receiver unless he was appointed Receiver in the particular Insolvency, fewer words would have sufficed. It is equally open to argument as was suggested by the learned vakil for the 3rd respondent, that if the legislature intended that if in the Official Receiver, by virtue of his appointment, the property of the insolvent vests, the section would have been differently worded. The real trouble arises from the difference in language between the Presidency Towns Insolvency Act, and the Povincial Insolvency Act. In Sect. 17 of the Presidency Towns Insolvency Act, there is an express declaration that, on the making of an order of adjudication, the property shall vest in the Official Assignee. There is no reason why an Official Receiver appointed by the Local Government should not have the same authority. There is nothing in principle to suggest a distinction. In the Presidency Towns as in the Muffassal, in addition to the Official Assingee or the Official Receiver, there can be a special Trustee or Receiver; but, whereas in the Presidency Towns Insolvency Act, a special provision is inserted for vesting the property in the Official Assignee, there is no such provision in the Provincial Insolvency Act.
My learned brother has referred to the sections of the English Bankruptcy Act. I shall examine them with some care. Sect. 7 of IV and V George V says, “On the making of a receiving order an Official Receiver shall be thereby constituted receiver of the property of the debtor.”. …Sect. 18, Cls. 6 and 8, provide for the Official Receiver assuming management and directing the proceedings, in case the debtors do not appoint a trustee. Sect. 53, CI. 1, says “Until a trustee is appointed, the Official Receiver shall be the trustee for the purposes of this Act, and immediately, on a debtor being adjudged bankrupt, the property of the bankrupt shall vest in the trustee.” There can be no doubt that this section makes the Official Receiver the trustee of the property, without requiring that he should be appointed specially for that purpose. The next clause is, “on the appointment of a trustee, the property shall forthwith pass to and vest in the trustee appointed.” In this clause, the use of the words ‘a trustee’ indicated that there is but one trustee from the beginning of the adjudication and that the Official Receiver will be that trustee, until the creditors appoint a trustee, and on such an appointment the latter shall step into the shoes of the Official Receiver. That this is the meaning of the sections I have referred to, is made clear in In re Cohen. Lord Justice Vaughan Williams, in delivering the judgment of the Court of Appeal, says in page 710 “Sect. 54, sub-Sect 2 (the learned Lord Justice was referring to the Act of 1883) provides that on the appointment of a trustee, the property shall forthwith pass to and vest in the trustee appointed……in my judgment contrasts the case where the property of the bankrupt vests in the Official Receiver independently of any appointment of him, as trustee, and the case where the property of the bankrupt passes to a trustee forthwith on his appointment. There can be no doubt but that in sub-Sect. 2 of Sect. 54, the word ‘appointed’ is used in the sense in which it is employed in Sect. 21.’ Then the learned Lord Justice quotes two decisions containing certain dicta of Lord Selbourne and Lord Esher and proceeds: “The provisions of sub-Sect. 1 of Sect. 54 will necessarily in every case in which the creditors appoint the trustee, make the Official receiver the trustee, before there is a creditor-trustee, because a creditors’ trustee is appointed by a meeting called after the adjudication.”
A similar view was taken in an earlier case, in re Calcott and Elvin's contract. The court of appeal had to consider whether; an order of adjudication in bankruptcy is not a conveyance and whether the title of the Official Receiver was not postponed to that of the mortgagee, until the adjudication order was registered. Lindley, L.J, the Master of the Rolls, says in page 465, referring to Sect. 54 of the old Act: “The order by which a man is adjudicated a bankrupt, and which by the rules has to be in writing and in a particular form, is simply to the effect that the debtor has been adjudged a bankrupt. Is that a deed or a convey, ance, within the meaning of the Statute of Anne? No doubt the effect of it is that all the property vested in the debtor becomes vested in the the trustee, but that does not make it a conveyance.”
I may also mention that the law is stated in 2 Halsbury Sect. 169 in the same way. Referring to the Official Receiver, it is said, ‘He is not appointed trustee under the provisions of the Bankruptcy Act, but he becomes so automatically.’
This interpretation of the English Statute is not quite consistent with forms Nos. 28 and 29, under the English Bankruptcy Act, to which my learned brother has referred in his judgment. Those forms seem to contemplate that a prospective order in every case of bankruptcy is to be made, constituting the Official Receiver the receiver of the estate of the debtor. These forms are known as the Receiving Orders. By adopting similar forms in this country also, the difficulty may perhaps be got over. For that purpose it may become necessary that the High Court should prescribe…….forms for employment by the Muffasal Courts.
I am therefore not prepared to differ from the conclusion which my learned brother has reached and which has the sanction of the previous decisions of this Court. I agree with the order as to costs.
S. SAppeal dismissed.
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