The Official Assigne... v. Allu Ramachandra Ayy..., Madras High Court, Judgment, Law, casemine.com

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Case Number

Original Side Appeal No. 49 of 1921

Advocates

The Advocate-General (C.P Ramaswami Ayyar) for the appellant.—I concede that the sons' shares do not vest in the Official Assignee. But the father as manager was in possession of all the joint family properties and the Official Assignee is entitled to that possession. The Official Assignee is entitled to exercise the father's power of sale for debts: see Fakirchand Motichand v. Motichand Harruckchand(1), Nunna Setti v. Chidaraboyina(2).
M.A Tirunarayana Achariyar for the respondent.—The Official Assignee is in the position of an alienee of an undivided share, and it is well settled that such alienees are not entitled to joint possession with other co-parceners, Kota Balabadra Pali v. Khetra Boss(3). The right of managership is purely personal to the co-parcener, and cannot pass to the Official Assignee. Grey v. Lamond Walker(4). At any rate the Official Assignee cannot be entitled to more than joint possession. To claim possession of the whole is to claim possession of shares which do not vest in the Official Assignee, Sanyasi Charan Mondlal v. Asutosh Ghose(5). The fact that the Official Assignee may in certain circumstances have a power of disposition over the son's shares does not give him is right to present possession of them.
The Advocate-General replied.

Judges

Sir Walter Salis Schwabe
Kt.
K.C, C.J
Coutts Trotter, J.

Acts

sections 7, 30 and 52 of the Presidency Towns. Insolvency Act

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Smart Summary

Factual and Procedural Background

The Official Assignee in the insolvency of N.B. Baluswami Ayyar and Narasimha Ayyar brought a suit to set aside a deed of partition executed by N.B. Baluswami Ayyar in favour of his minor sons. The trial judge, Kumaraswami Sastri, J., held that the deed was fraudulent and void as against the Official Assignee. The Official Assignee sought declarations that (a) the interests of the minors in the property had vested in him and (b) possession of all properties included in the deed should be delivered to him. Those declarations were refused, and the Official Assignee appealed.

Before the appellate court it was admitted that the declaration that the shares of the sons had vested in the Official Assignee was rightly refused. The sole question for the court's decision was whether possession ought to have been ordered to be delivered to the Official Assignee.

Relevant background facts stated by the court: N.B. Baluswami Ayyar was the managing member of a joint Hindu family consisting of himself and his sons; his interest in the partnership business was not ancestral property; the minor sons had no interest in that partnership business; and the insolvent's debts were mainly business debts incurred in the partnership business.

The opinion records that the case is "one of general importance" and concludes with an order relating to costs. The solicitors for the parties are named in the opinion: V. Varadarajulu for the appellant (Official Assignee) and A. Kandaswami for the respondent (minor sons).

Legal Issues Presented

Whether, on the insolvency of the managing member of a joint Hindu family, the Official Assignee is entitled to possession of the joint family property (i.e., whether possession should be delivered to the Official Assignee).

Arguments of the Parties

Official Assignee's Position

The Official Assignee sought possession of the properties comprised in the deed of partition, relying on his rights as representative of the insolvent managing member and on established principles of insolvency law and Hindu joint family law (as summarized in the opinion).
He had earlier sought declarations that the minors' interests had vested in him; that declaration was not sustained and is not pressed as an issue on appeal.

Minor Sons' Position

The minor sons (or their representatives) contended that the debts were incurred for an illegal or immoral purpose — the business was alleged to be speculative — and this was advanced as a ground to resist the Official Assignee's exercise of rights over the joint property. The trial judge decided this point against the minor sons.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Fakirchand Motichand v. Motichand Harruckchand (Latham, J.)	Settles that on the insolvency of the managing member the Official Assignee succeeds to (1) the undivided interest of the insolvent in the joint property and (2) his rights as managing member so far as they can be exercised for his own benefit; the Official Assignee is not entitled to have the shares of other members vested in him but can deal with them as the insolvent could lawfully have done.	The court treats this decision as establishing the combined principles applied in the present case and relies on it to support the proposition that the Official Assignee can alienate co-parceners' interests to pay ordinary debts (subject to the illegality/immorality exception).
Nunna Setti v. Chidaraboyina	Cited as authority regarding the effect of the Presidency Towns Insolvency Act provisions in conjunction with Hindu law on the rights of a managing member.	Used to support the court's statement about the combined effect of sections 7, 30 and 52 of the Presidency Towns Insolvency Act and applicable Hindu law concerning the managing member's rights.
Sanyasi Charan Mandal v. Asutosh Ghose	Example where a receiver (in the position of an Official Assignee) was directed to take possession of the proportion of the property corresponding to the share of those adjudicated insolvent (receiver took possession of four-fifths when four-fifths were insolvent).	The court cites this case by analogy to show precedent for an official representative taking possession of the insolvent share and applies that reasoning to conclude that, in the present case, the Official Assignee (as representing the managing member) is entitled to joint possession of the whole.

Court's Reasoning and Analysis

The court began from established principles: upon the insolvency of the managing member of a joint Hindu family, the Official Assignee succeeds to (a) the insolvent's undivided interest in the joint property and (b) the insolvent's rights as managing member to the extent they can be exercised for his own benefit. The court identified these principles as supported by the cited precedent (Fakirchand Motichand) and by the combined effect of sections 7, 30 and 52 of the Presidency Towns Insolvency Act together with Hindu law (as noted in Nunna Setti v. Chidaraboyina).

From those propositions the court deduced that the Official Assignee may alienate the interests of co-parceners (including minors) in joint property to pay the insolvent's debts, except where the debts were incurred for an illegal or immoral purpose (the presumption being that they were not illegal or immoral).

The central analytic step was to address whether the Official Assignee — who is both a joint owner (by succession to the insolvent's undivided interest) and the representative of the managing member — is entitled to possession of the joint property. The court concluded that he is entitled to joint possession. The court distinguished the Official Assignee from a stranger purchaser (who could not insist on joint possession), emphasizing that the Official Assignee stands in the shoes of the insolvent and so is not an alienee.

The court acknowledged limits to the Official Assignee's authority: certain rights that are personal in nature to a family member (for example, the right to live in the family house or to share family meals) cannot be exercised by the Official Assignee. Apart from such personal rights, the Official Assignee is entitled to the rights of the insolvent, including possession.

The court declined to make determinations about future disputes concerning the exercise of the insolvent's managing-member rights (for example, whether particular assets should be sold to pay debts, or the extent to which separate assets of the insolvent may be used). The court noted it is for the Official Assignee to examine the nature of the debts and to decide how to proceed; it also observed that minor sons could object to any proposed sale if they contend the debts are illegal or immoral (a contention already decided against them by the trial judge in this case).

Finally, the court relied on Sanyasi Charan Mandal v. Asutosh Ghose as precedent for a representative taking possession of the share corresponding to insolvent members, and by analogy concluded that in the present facts the Official Assignee is entitled to joint possession of the whole. Accordingly the court varied the earlier order (which had refused to deliver possession) to grant possession to the Official Assignee.

Holding and Implications

Core Ruling: The court varied the earlier order and held that the Official Assignee, as representative of the insolvent managing member, is entitled to joint possession of the whole joint family property included in the deed of partition. The earlier refusal to declare that the minors' shares had vested in the Official Assignee was admitted to be correct and is not disturbed.

Practical consequences stated in the opinion:

The Official Assignee may take joint possession of the properties and, subject to examining the nature of the debts, may exercise the insolvent's managing-member rights (including, where appropriate, alienation) to pay the insolvent's debts, unless those debts are illegal or immoral.
Certain personal family rights (for example, the right to live in the family house or to share family meals) are excluded from the Official Assignee's powers because of their personal nature.
Minor sons retain the ability to object to proposed sales on the ground that the debts to be discharged were illegal or immoral, though that point has already been decided against them in the trial court in this case.

Costs: The court ordered no general order as to costs, but directed that the Official Assignee may take his taxed costs of this appeal on the Original Side scale out of the estate.

This summary is confined to the material expressly contained in the provided opinion and does not add information beyond the text of that opinion.

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The Official Assignee Of Madras (Petitioner), v. Allu Ramachandra Ayyar And Others (Minor By Mother And Guardian Swaranambal, ),

Sir Walter Salis Schwabe, C.J:— The Official Assignee in the insolvency of N.B Baluswami Ayyar and Narasimha Ayyar brought this suit against the minor sons of N.B Baluswami Ayyar to set aside a deed of partition executed by that insolvent in favour of his minor sons. The learned Judge Kumaraswami Sastri, J., held that the deed was fraudulent and void as against the Official Assignee. The Official Assignee asked for declarations that the interests of the minors in the property should be vested in him and that the possession of all the properties included in the deed should be delivered to him. These declarations were refused and hence this appeal. It has, however, been admitted before us that the declaration that the shares of the sons had vested was rightly refused and the only question remaining for our decision is whether possession ought to have been ordered to be delivered to the Official Assignee.

This involves a consideration of the rights of the Official Assignee to joint family property, when the managing member is adjudicated insolvent, for N.B Baluswami Ayyar was the managing member of a joint Hindu family consisting of himself and his sons and, as such managing member, had control over the properties in question. This insolvent's interest in the partnership business belonging to the two insolvents was not an ancestral property. The minor sons had no interest in it and the debts of N.B Baluswami Ayyar are in the main, business debts incurred in the partnership business.

It can be taken as established law that the Official Assignee on the insolvency of the managing member of a joint Hindu family succeeds to two things (1) the undivided interest of the insolvent in the joint property and (2) his rights as managing member so far as they can be exercised for his own benefit. It is also established that he is not entitled to have vested in him the shares of the other members although he can deal with them if the insolvent could lawfully have done so if there had been no insolvency. These propositions are to be found clearly stated in the judgment of Latham, J., in Fakirchand Motichand v. Motichand Harruckchand, which has been followed in many subsequent cases. This is the combined effect of sections 7, 30 and 52 of the Presidency Towns. Insolvency Act and of the Hindu Law as to the rights of a managing member— see Nunna Setti v. Chidaraboyina. It follows that the Official Assignee standing for this purpose in the shoes of the insolvent can alienate the minor sons' interests in the joint property for the purpose of paying the insolvent's debts unless the debts in question were incurred for an illegal or immoral purpose, the presumption being that they were not.

The question remains whether the Official Assignee is entitled to possession of the joint property. He is joint owner of the property and, in my judgment, he must be entitled to joint possession thereof. It is no doubt true that a stranger cannot by reason of having purchased a share in the joint property insist on having joint possession. But the Official Assignee is not an alienee, but the representative of the insolvent.

There are certain rights of a managing member which the Official Assignee cannot exercise by reason of the personal nature of the rights, such as the right to live in the family house or to share in the family meals. But in my judgment, he is entitled to all the rights of the insolvent including the right to possession except such rights as are in their nature personal to a member of the family as such.

I expressly refrain from deciding anything as to what the respective rights of the parties will be hereafter. It is for the Official Assignee to decide after examining the nature of the debts whether he can exercise the insolvent's right, as managing member, of selling the assets for the benefit of the creditors; and if there are separate assets of the insolvent in which his co-parceners have no interest, to what extent they are to be used in paying the debts, in relief of the joint family property, and so on, and it may be open to the minor sons, if so advised, to object to any proposed sale on the ground that the debts that it is proposed to discharge were incurred for an immoral or illegal purpose; though it is right to point out that it has in this case already been argued that the business was of an illegal or immoral character by reason of its alleged speculative nature and this point has been decided adversely to the contention of the minor sons by the learned Judge who heard the case. In Sanyasi Charan Mandal v. Asutosh Ghose where persons entitled to four-fifths of the undivided joint family property were adjudicated insolvents, but the member of the family entitled to the other one-fifth was not, the Court directed that the Receiver who was in the position of the Official Assignee should take possession four-fifths share of the property. In this case the Official Assignee as representing the managing member is entitled to joint possession of the whole and the order in this case must be varied accordingly.

The case is one of general importance and there will be no order as to costs except that the Official Assignee will take his taxed costs of this appeal on the Original Side scale out of the estate.

V. Varadarajulu, Solicitor for appellant.

A. Kandaswami, Solicitor for respondent.

K.R

The Official Assigne... v. Allu Ramachandra Ayy...