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B. Veeranna Sha And Another v. The Official Receiver Of Secunderabad
Judgment Summary
Factual and Procedural Background
This appeal arises from a partition suit (C.S. No. 420 of 1922, Original Side) in which three members of a joint Hindu family sued for partition of the family estate. One plaintiff died and the remaining two plaintiffs were adjudicated insolvent by the District Judge of Secunderabad pursuant to an application dated 27 August 1928; the adjudication order was dated 15 October 1928. Secunderabad was not part of British India and the adjudication was therefore treated as one made by a foreign Court.
A preliminary decree in the partition suit was passed on 5 December 1922. Separately, on 15 June 1926 a Bombay creditor obtained a decree against the plaintiffs in the Bombay High Court; that decree was transferred to this Court for execution. In execution proceedings the Bombay creditor attached the preliminary decree on 20 December 1926. Other creditors obtained decrees and nine creditors attached the preliminary decree before the adjudication; three creditors obtained orders of attachment after the adjudication, two of whom are the appellants in this appeal.
The partition suit was compromised on 18 April 1937 and Rs. 1,31,231-9-0 (cash and Government securities) was paid into Court. The Official Receiver of Secunderabad settled with seven creditors who had attached before adjudication for Rs. 66,926-1-0. After those settlements and other adjustments there remained Rs. 64,305-8-0. The Official Receiver sought payment of that balance to himself; the appellants opposed that application but the Court granted it. Under the compromise decree an additional 50,000 sicca rupees was paid in; the Court reserved sufficient funds to meet the appellants' claimed amount (about Rs. 21,000) and the claim of another post-adjudication attaching creditor, but thereafter the Official Receiver withdrew the monies. The appeal concerns whether the appellants are entitled to withdraw their claimed Rs. 21,000 from the funds in Court.
Legal Issues Presented
- Whether creditors who obtained attachments after a foreign adjudication (i.e., after the debtor was adjudged insolvent by a foreign Court) are entitled to rateable distribution from funds in Court in the same manner as creditors who attached before the adjudication.
- Whether Sections 64 and 73 of the Code of Civil Procedure operate to give post-adjudication attaching creditors rights of rateable distribution that would override the private international law rule treating a foreign adjudication as a private transfer of property.
Arguments of the Parties
Appellants' Arguments
- The appellants contended that they are entitled to rateable distribution with the creditors who attached before the adjudication under the combined operation of S. 64 and S. 73 of the Code of Civil Procedure; because there was sufficient money in Court, they claim entitlement to the full amount of their demand (about Rs. 21,000).
- As an alternative (and apparently advanced during argument but not before the first instance judge), the appellants contended that, if not entitled to the whole Rs. 21,000, they should receive from the moneys in Court the amount they would have received had the aggregate of the seven creditors' claims (Rs. 98,000) been rateably distributed between those creditors and the appellants.
- Counsel for the appellants relied on a passage in Lord Thankerton’s judgment in Anantapadmanabhaswami v. Official Receiver, Secunderabad to argue that a decree which had been attached was “ear-marked” and represented a valuable right that should be protected.
Respondent / Official Receiver (as reflected in the opinion)
- The Official Receiver opposed the appellants' application to withdraw funds and, consistent with the settled approach, settled with the creditors who had attached before adjudication and sought payment of the remaining funds to himself.
- The legal stance taken for the respondent side (and accepted by the Court) was that a foreign adjudication operates as a private transfer of the insolvent’s property (per Anantapadmanabhaswami) and that the foreign receiver is entitled to the debtor’s moveable assets that were free to be assigned at the date of adjudication — which excludes assets required to satisfy attachments already in existence at that date. Accordingly, attachments obtained after adjudication cannot prevail against the foreign receiver’s right to free assets.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Anantapadmanabhaswami v. Official Receiver, Secunderabad | The Privy Council held that a foreign adjudication of insolvency operates as a private transfer within the meaning of S. 64 of the Code of Civil Procedure; only the moveable property in British India which the insolvent was free to assign at the date of adjudication vests in the foreign Receiver. The adjudication does not affect the rights of a creditor who had attached before adjudication. | The Court relied on this decision to treat the foreign adjudication as a private transfer and to preserve the rights of creditors who had attached prior to adjudication; it used the decision to distinguish the position of post-adjudication attachers (the appellants) who could not acquire rights that would override the foreign Receiver's claim to free assets. |
| Galbraith v. Grimshaw (Galbraith's Case) | Principle that a foreign adjudication will be recognised but should not be allowed to interfere with a process of execution or attachment already pending in the territory at the date of the foreign adjudication; the attachment in the local jurisdiction prior to the foreign adjudication is effective. | The Court relied on the House of Lords' principles as applied by the Judicial Committee to support that prior attachments remain effective; the Court also used the case to show the contrast between pre-adjudication and post-adjudication attachments (the latter cannot interfere with the rights of the foreign Receiver). |
| Goetze v. Aders (referenced) | Cited in Lord Dunedin’s speech (quoted in Galbraith's case) as an example of the doctrine of international comity — that courts should not allow steps in their territory to interfere with a foreign process of universal distribution that is already pending. | Referenced in the Court’s exposition of the international-law principle (comity) underpinning the decisions in Galbraith and Anantapadmanabhaswami; used to explain why Indian statutory provisions could not be read as overriding private international law on this point. |
Court's Reasoning and Analysis
The Court's reasoning proceeded in these key steps, following the logic and authorities set out in the opinion:
- Characterisation of the foreign adjudication: The Court accepted that the adjudication by the Secunderabad Court was in law a foreign adjudication and, by application of Anantapadmanabhaswami, operated as a private transfer of the insolvent’s property under S. 64 of the Code of Civil Procedure. Consequently, only moveable property which the insolvent was free to assign at the date of adjudication vested in the foreign Receiver.
- Interaction of S. 64 and S. 73 with private international law: The appellants relied on S. 64 (which renders private transfers contrary to an attachment void as against claims enforceable under the attachment) and S. 73 (which mandates rateable distribution of assets held by a Court among multiple creditors who applied before receipt of assets). The Court analysed whether those municipal provisions could operate to give post-adjudication attachers the same position as pre-adjudication attachers.
- Distinction between pre- and post-adjudication attachments: Drawing on Galbraith and the Privy Council decision, the Court emphasized the established private international law principle that a court will not allow its processes to interfere with a foreign process of universal distribution already pending; thus, a creditor who attached before the foreign adjudication keeps the benefit of that prior attachment (even if the attachment only gave an inchoate right to share proceeds under S. 73). By contrast, an attachment obtained after the foreign adjudication is different in kind and does not override the foreign Receiver's rights.
- Definition and scope of "free assets": The Court held that the foreign Receiver is entitled to the insolvent’s free assets — which the Court defined, for present purposes, as those assets not required to satisfy charges or attachments in existence at the date of adjudication. The Court rejected the appellants' submission that S. 64 and S. 73 were intended by the legislature to alter this private international law rule.
- Conclusion on appellants' entitlement: Because the appellants’ attachments occurred after the adjudication, they could not validly attach assets that fell within the foreign Receiver’s entitlement to free assets. Their remedy was therefore limited to proving in the insolvency proceedings; they were not entitled to any distribution from the funds in Court by reason of their post-adjudication attachment.
Holding and Implications
Holding: The appeal is dismissed. The Court held that the appellants, who attached after the foreign adjudication, are not entitled to withdraw the Rs. 21,000 claimed from the moneys in Court; the adjudication prevented their attachments from having validity and they are left only with the right to prove in the insolvency.
Implications:
- The direct effect on the parties is that the appellants do not obtain payment from the funds in Court and must seek recovery, if at all, by proving as creditors in the insolvency; the Official Receiver's distributions to pre-adjudication creditors were upheld.
- The decision applies established private international law principles (as expounded in Galbraith and affirmed in Anantapadmanabhaswami) to refuse to allow municipal statutory sections (S. 64 and S. 73 of the Code of Civil Procedure) to be read so as to displace the rule that a foreign adjudication vests the foreign Receiver with assets free at the date of adjudication. The Court did not purport to lay down a novel precedent but applied existing authorities to the facts of the case.
Disposition: Appeal dismissed with costs.
JUDGMENT
(Delivered by The Chief Justice.)
This appeal raises a question of private international law. In C.S No. 420 of 1922 of the Original Side of this Court three members of a joint Hindu family sued for partition of the family estate. One of the plaintiffs died and the other two were adjudicated insolvents by an order of the District Judge of Secunderabad, dated the 15th October 1928, on an application filed on the 27th August 1928. Secunderabad is not part of British India and the adjudication was therefore in law an adjudication by a foreign Court. On the 5th December 1922 a preliminary decree was passed in the partition suit. On the 15th June 1926 a Bombay creditor of the plaintiffs obtained a decree against them in the Bombay High Court and the decree was transferred to this Court for execution. In the execution proceedings which followed, the Bombay creditor on the 20th December 1926 attached the preliminary decree which the plaintiffs had obtained in the partition suit. Other creditors of the plaintiffs obtained decrees against them and nine of them also attached the preliminary decree before the order of adjudication was passed. Three of the creditors obtained orders of attachment after the adjudication. Two of the creditors who attached after adjudication are the appellants in the present appeal.
On the 18th April 1937 the partition suit was compromised and in pursuance of the compromise the amount of Rs. 1,31,231-9-0 in cash and Government securities was paid into Court. The Official Receiver of Secunderabad settled with seven of the creditors who had attached before adjudication for the sum of Rs. 66,926-1-0. We are told that two of the creditors who attached before judgment allowed their claims to become barred by the law of limitation and one proved in the insolvency. After settling with the seven creditors there remained a balance of Rs. 64,305-8-0. The Official Receiver asked that this amount should be paid out to him. The application was opposed by the appellants, but was granted. Under the compromise decree in the partition suit a sum representing 50,000 sicca rupees had to be paid into Court in addition to the Rs. 1,31,231-9-0. It was paid in and after reserving sufficient to meet the claim of the appellants which amounted to some Rs. 21,000, and the claim of the other creditor who had also attached after the order of adjudication all the moneys were withdrawn by the Official Receiver. The appeal concerns the right claimed by the appellants to withdraw the Rs. 21,000.
The appellants' case is that they are entitled in law to rateable distribution with the creditors who attached before adjudication and as there is sufficient money to pay all the creditors they are entitled to be paid the full amount of their claim out of the moneys in Court. In the course of the arguments the appellants' Counsel put forward an alternative claim, which was not advanced before Gentle J. who heard the application. The aggregate amount claimed by the seven creditors with whom the Official Receiver settled was Rs. 98,000. It is said that even if the appellants are not entitled to withdraw the whole of the Rs. 21,000 they are entitled to receive out of the moneys in Court a sum representing the amount they would have received if the Rs. 98,000 had been rateably distributed between them and the seven creditors. In rejecting the claim made by the appellants before Gentle J. the learned Judge relied on the judgments in Anantapadmanabhaswami v. Official Receiver, Secunderabad(1) and Galbraith v. Grimshaw(2).
In Anantapadmanabhaswami v. Official Receiver, Secunderabad, an appeal arising out of this very insolvency, the Privy Council held that the adjudication by a foreign Court operated as a private transfer within the meaning of S. 64 of the Code of Civil Procedure. When a foreign Court adjudicates a person insolvent the only property in British India which vests in the Receiver is the moveable property which the insolvent was free to assign at the date of the adjudication and such property vests by virtue of private international law. Having regard to S. 64 of the Code of Civil Procedure the adjudication did not, however, affect the rights of a creditor who had attached before adjudication. The creditor was the Bombay creditor to whom I have already referred.
S. 64 of the Code of Civil Procedure reads as follows:—
“Where an attachment has been made, any private transfer or delivery of the property attached or of any interest therein and any payment to the judgment debtor of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment.
Explanation:—For the purposes of this section, claims enforceable under an attachment include claims for the rateable distribution of assets.”
By virtue of the provisions of S. 73 of the Code, where assets are held by a Court and more persons than one have, before the receipt of assets, applied to the Court for the execution of decrees for the payment of money passed against the same judgment-debtor and have not obtained satisfaction, the assets, after deducting the costs of realisation, shall be rateably distributed among them all. There are provisos to the section, but they do not call for mention here. The appellants contend that inasmuch as S. 64 states that a private transfer of property which has been attached shall be void as against all claims enforceable under the attachment and as the section expressly declares that “claims enforceable under attachment” include claims for rateable distribution, they are entitled by virtue of S. 73 to be treated in the same way as the creditors who attached before the adjudication are treated.
Under the municipal law a creditor who has attached before adjudication but has not received payment is not a secured creditor. The adjudication puts an end to the execution proceedings and the only course open to him is to prove in the insolvency. The law of British India is the same as the law of England in this respect. An adjudication by a foreign Court, being a private transfer within the meaning of S. 64 of the Code of Civil Procedure, does not affect the position of a creditor who before the adjudication has attached moveable property of the insolvent. He remains entitled to the benefit of his attachment. In deciding the appeal in Anantapadmanabhaswami v. Official Receiver, Secunderabad, the Judicial Committee applied principles laid down by the House of Lords in Galbraith v. Grimshaw. In that case the adjudication was in Scotland, but before adjudication a creditor had attached personalty in England. It was held that the attachment was effective. Lord Thankerton who delivered the judgment of the Board quoted the following passage from the speech of Lord Dunedin in Galbraith's Case:
“Now so far as the general principle is concerned it is quite consistent with the comity of nations that it should be a rule of international law that if the Court finds that there is already pending a process of universal distribution of a bankrupt's effects it should not allow steps to be taken in its territory which would interfere with that process of universal distribution; and that I take to be the doctrine at the bottom of the cases of which Goetze v. Aders, is only one example.”
Lord Thankerton then went on to say:
“This means that, after the date of the foreign adjudication order, it will be recognised as effective but it is equally clear from the opinions expressed in Galbraith's case that it will not be allowed to interfere with any process, at the instance of a creditor, already pending, even though such process is incomplete, provided that at that date the bankrupt's freedom of disposal was so affected by the process that he could not have assigned the subject matter of the process to the Receiver.”
But an attachment after adjudication by a foreign Court is entirely a different matter. The receiver of the foreign Court is entitled to what Lord Magnaghten described in Galbraith's case as the free assets of the bunkrupt. I consider that the free assets must include assets which are not required to meet a charge or an attachment in existence at the time of the adjudication. It is said on behalf of the appellants that S. 64 of the Code of Civil Procedure read with S. 73 puts the Indian Law on a different basis. I am unable to accept this contention. The Legislature could not have intended the provisions of these sections to override this rule of private international law. By reason of this rule the appellants were not in a position to attach after adjudication.
On behalf of the appellants Mr. Krishnaswami Iyengar has laid stress on the following passage in Lord Thankerton's judgment in Anantapadmanabhaswami v. Official Receiver, Secunderabad(3):
“In the present case, at the date when the foreign adjudication order was made, the appellant was entitled to the benefit of his prior attachment of the decree in the Madras partition suit. The decree was thereby ear-marked for the purpose of answering the Bombay money decree, and that inchoate right would have ripened into execution and sale; it is no matter that under S. 73 of the Code of Civil Procedure the appellant would have to share the proceeds of sale with other decree-holders; it would still be a valuable right.”
It appears to me that Lord Thankerton must here have had in mind decree-holders who had also attached before adjudication. The position of a creditor attaching after adjudication was not under consideration.
As the foreign receiver is entitled to all the moveable assets of the insolvent which were free at the date of the adjudication and as I hold that the free assets must be deemed to be the moneys left over after the satisfaction of the claims of the creditors who had attached before the adjudication it follows that in my opinion the appellants are not entitled to anything by reason of their attachment. The adjudication prevented the attachment having any validity and they were left merely with the right to prove in the insolvency. This disposes of both the points raised by the appellants.
The appeal fails and must be dismissed with costs.
Appeal dismissed.
N.R.R
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