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Case Number

Appeal Against Order No. 301 of 1929.

Attorney(S)

Messrs. T. M. Krishnaswami Aiyar and T. S. Vaithianatha Ayyar for the Appellant.
Mr. A. V. Viswanatha Sastri for the Respondent.

Judges

Madhavan Nair
Jackson, JJ.

Acts

Sect. 7 of the Presidency Towns Insolvency Act, Act III of 1909,
Sect. 4 of the Provincial Insolvency Act the Insolvency Court
Sect. 7 of the Presidency Towns Insolvency Act (III of 1909)
Sect. 18, Cl. 3 of the Provincial Insolvency Act (III of 1907),
4, 5 and 56 of the Provincial Insolvency Act (V of 1920)
Sect. 7 of the Presidency Insolvency Act (III of 1909)
Sect. 7 of the Presidency Towns Insolvency Act,
Sect. 105 of the English Bankruptcy Act, 1914,
7 of the Presidency Towns Insolvency Act
Sect. 56 of the Provincial Insolvency Act
Sect. 4 of the Provincial Insolvency Act
Provincial Insolvency Act (V of 1920),
Provincial Insolvency Act of 1907.
PROVINCIAL INSOLVENCY ACT
4, Cl. 1 of Act V of 1920

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Smart Summary

Structured Summary of the Provided Opinion

Factual and Procedural Background

One Singaram Chettiar was adjudged insolvent by the District Judge of West Tanjore on 26 October 1923 (Order on O. P. No. 24 of 1923). On 30 May 1923 he executed a usufructuary mortgage for Rs. 25,000 in favour of Appadurai Odayar and transferred his rights under a hypothecation bond for Rs. 20,000 to Appadurai for Rs. 36,000. After the estate vested in the Official Receiver, the Official Receiver filed O. P. No. 15 of 1924 seeking annulment of those two alienations under Section 53 of the Provincial Insolvency Act; the alienations were annulled on 18 October 1924.

The Official Receiver later filed I. A. No. 556 of 1926 seeking an order that Appadurai Odayar pay Rs. 4,000 as mesne profits for the two years from 30 May 1923 to June 1925. On 29 January 1927 an ex parte order directed Appadurai to pay Rs. 4,000 as mesne profits for 1924 and 1925, during which period he was held to be illegally in possession. Appadurai subsequently died and his grandson was brought on record as legal representative (the appellant in this appeal). The Official Receiver sought execution of the mesne-profits order against that legal representative; objections were overruled in the lower court, and this appeal challenges principally whether the Insolvency Court had jurisdiction to pass the mesne-profits order against a third party/stranger to the insolvency proceedings.

Legal Issues Presented

Whether the Insolvency Court had jurisdiction under Section 4 of the Provincial Insolvency Act (Act V of 1920) to pass an order directing payment of mesne profits against a person who was a stranger to the insolvency proceedings (i.e., Appadurai Odayar).
Whether the Insolvency Court had jurisdiction to pass the order under Section 53 of the Provincial Insolvency Act (the court observed that Section 53 did not provide such jurisdiction).
Whether, as a matter of practice and discretion, claims against third parties (including money claims and disputed title issues) should be decided by the Insolvency Court under Section 4 or left to ordinary Civil Courts.

Arguments of the Parties

Appellant's Arguments

The Insolvency Court lacked jurisdiction to pass an order directing payment of mesne profits because Appadurai Odayar (against whom the order was made) was a stranger to the insolvency proceedings.
It was argued (and acknowledged by the opinion) that the Insolvency Court had no jurisdiction to pass the order under Section 53 of the Provincial Insolvency Act.

Official Receiver's Arguments

The Official Receiver contended that Section 4 of the Provincial Insolvency Act confers ample power on the Insolvency Court to pass orders like the mesne-profits order against third parties.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Abdul Khader v. The Official Assignee of Madras	Held that under Section 7 of the Presidency Towns Insolvency Act (III of 1909) the High Court in insolvency jurisdiction can adjudicate claims relating to immovable property outside ordinary civil jurisdiction; jurisdiction is discretionary and Insolvency Courts will rarely try difficult title questions, usually directing the Official Assignee to establish title in an ordinary Civil Court.	The court relied on this decision to illustrate the discretionary but wide jurisdiction of insolvency courts to adjudicate disputes involving third-party rights and titles.
In re Kancherlakrishna Rao	Accepted Abdul Khader as laying down the correct law (i.e., supporting the discretionary jurisdiction of insolvency courts under the analogous provision).	Noted as confirmation that Abdul Khader's statement of law is correct and relevant for interpreting Section 4 of the Provincial Insolvency Act.
Official Receiver, Tinnevdly v. Sankaralinga Mudaliar	Recognized that a Receiver can apply to annul sales and obtain delivery of possession under the Provincial Insolvency Act; discussed whether insolvency courts have exclusive or concurrent jurisdiction to deal with claims against persons holding estate assets adversely.	The court cited Oldfield, J.'s observations to support that exclusive or plenary jurisdiction in insolvency administration is recognised elsewhere and that Section 4 of the Provincial Insolvency Act replicates that wide power.
Ramaswami Chettiar v. Ramaswami Aiyangar	Held that under Sections 4, 5 and 56 of the Provincial Insolvency Act an Insolvency Court can inquire into disputed title and order delivery of the insolvent's property to a purchaser, removing third-party obstruction; supports plenary powers to deal with claims of third parties.	Cited to support the proposition that the Insolvency Court has plenary powers to decide claims of third parties under the present Act.
Official Assignee of Madras v. E. Narasimha Mudaliar (Full Bench)	Interpreted the scope of Section 7 of the Presidency Towns Insolvency Act prior to its 1927 amendment: Section 7 was not limited to matters where Official Assignee claims higher title; the Official Assignee could proceed by motion in money claims against strangers, with the limitation that if a summoned witness denies indebtedness a suit is required; jurisdiction is discretionary and large or difficult money claims should be by suit.	The court used this Full Bench reasoning to interpret Section 4 of the Provincial Insolvency Act (which is similar in terms) and to explain the discretionary limits on proceeding by motion in insolvency courts.
Chittammal v. Ponnuswami Naicker	Held that an application under Section 56 will not lie where the person in possession disputes the insolvent's title; but noted that it is open to try the issue under Section 4 of the Act.	The appellant relied on this, but the court stated the decision does not support his position that Section 4 cannot be used—the case actually acknowledged Section 4 as the proper route to try disputed title.
Venkatram v. Chokkier	Held that when Official Receiver sold family property including sons' shares, the purchaser's remedy to obtain possession of the sons' share was to institute a regular suit in the ordinary Civil Court; Section 4 did not apply because the question did not relate to distribution of the insolvent's property.	The court treated this case as distinguishable: it supported the proposition that Section 4 does not extend to matters not connected to distribution of the insolvent's estate.

Court's Reasoning and Analysis

The court proceeded by first observing that the Insolvency Court plainly had no jurisdiction under Section 53 of the Provincial Insolvency Act to pass the mesne-profits order. The central question therefore was whether Section 4 of the Provincial Insolvency Act (Act V of 1920) — which confers on the Court "full power to decide all questions whether of title or priority, or of any nature whatsoever" arising in insolvency "for the purpose of doing complete justice or making a complete distribution of property" — authorized the Insolvency Court to adjudicate claims by or against third parties, and specifically to order payment of mesne profits against a person who was a stranger to the insolvency proceedings.

The court compared Section 4 of the Provincial Act to Section 7 of the Presidency Towns Insolvency Act (III of 1909), noting the close similarity in language and purpose. Because of that similarity, the court examined prior decisions interpreting Section 7 to illuminate the scope of Section 4. The court reviewed and relied upon several authorities (including Abdul Khader, the Full Bench in Official Assignee of Madras v. E. Narasimha Mudaliar, Official Receiver, Tinnevdly v. Sankaralinga Mudaliar, and Ramaswami Chettiar v. Ramaswami Aiyangar) which collectively establish:

Section 4 (and the similar Section 7) grants wide and plenary powers to the Insolvency Court to decide questions of title and other matters necessary for a complete distribution of the insolvent's property.
This jurisdiction includes the power to adjudicate disputes between the insolvent's estate and third parties, though such jurisdiction is discretionary in nature.
In practice, Insolvency Courts will usually avoid trying difficult or large title questions by motion and may direct the Official Assignee to litigate in ordinary Civil Courts where appropriate; only simple and readily provable claims should be decided summarily by motion.

The court rejected the appellant's reliance on Chittammal v. Ponnuswami Naicker and Venkatram v. Chokkier as supporting a contrary rule. It explained that Chittammal in fact recognized Section 4 as the appropriate provision to try disputed title, and that Venkatram was distinguishable because it concerned a situation where the issue was not linked to distribution of the insolvent's estate and therefore Section 4 did not apply.

Given the authorities and the language of Section 4, the court concluded that the Insolvency Court has full jurisdiction to pass an order for payment of mesne profits against the father of the appellant (i.e., Appadurai), and that Section 5 of the Act provides that orders of the Insolvency Court are enforceable in the same way as Civil Court orders. The court also emphasized the discretionary character of the jurisdiction, reiterating that difficult questions of title may appropriately be referred to ordinary Civil Courts by the Insolvency Court.

The court noted it was unnecessary to decide the separate procedural question whether an objection to jurisdiction can be taken in execution proceedings, because it had concluded that the lower court had jurisdiction.

Holding and Implications

Holding: The court concluded that the learned District Judge had jurisdiction under Section 4 of the Provincial Insolvency Act to pass the mesne-profits order against Appadurai Odayar (the father of the appellant), and therefore the appeal was dismissed with costs.

Implications:

The direct effect on the parties: the Insolvency Court's mesne-profits order stands and may be executed against the legal representative brought on record; the Civil Miscellaneous Appeal is dismissed with costs.
On the scope of insolvency jurisdiction: the decision affirms that Section 4 vests wide, plenary and discretionary powers in Insolvency Courts to adjudicate questions of title and to determine claims involving third parties where doing so is expedient or necessary for complete justice or distribution of the insolvent's property.
On procedural practice: the court reiterated that the jurisdiction under Section 4 is discretionary; complex or large claims, especially those involving difficult title disputes or money claims that are not simple to prove, should generally be litigated in ordinary Civil Courts rather than by summary motion in the Insolvency Court.
Execution: Section 5 allows Insolvency Court orders (including the mesne-profits order) to be given effect and executed in the same manner as Civil Court orders.
No new broad precedent beyond the application of settled principles was purportedly created by this judgment; the court applied and confirmed existing authorities concerning the scope and discretionary limits of Section 4 jurisdiction.

Disposition: Appeal dismissed. N. R. R. — Appeal dismissed (costs awarded).

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Palanivelu Odayar, Minor By Guardian Kunju Alias Vijayalakshmi (). v. The Official Receiver, West Tanjore At Tanjore (Petitioner).

One Singaram Chettiar was adjudged insolvent by the District Judge of West Tanjore on 26th October, 1923, by the Order on 1. P. No. 24 of 1923. On 30th May, 1923, he had executed a usufructuary mortgage for Rs. 25,000 in favour of one Appadurai Odayar and had also transferred to him for Rs. 36,000 his rights under a hypothecation bond for Rs. 20,000. After the estate of the insolvent became vested in the Official Receiver, he filed O. P. No. 15 of 1924 for the annulment of the two alienations in favour of Appadurai Odayar under Sect. 53 of the Provincial Insolvency Act. These alienations were annulled on 18th October, 1924. Subsequently, the Official Receiver filed I. A. No. 556 of 1926 in which he asked the Insolvency Court to pass an order for the payment by Appadurai Odayar of Rs. 4,000 as the profits for the two years from the 30th of May 1923 to June 1925. On 29th January, 1927 an ex parte order was passed against him in which he was directed to pay the Official Receiver Rs. 4,000 as mesne profits for the two years 1924 and 1925, during which time he was illegally in possession of the property. After this order Appadurai Odayar died and his grandson was brought on record as his legal representative. In the petition out of which this appeal arises the Official Receiver sought to execute the order for mesne profits against the legal representative, the appellant before us.

Various objections against the execution of the order were pressed in the lower Court but all were overruled by the learned District Judge. Of these the only objection pressed before us is, that the Insolvency Court has no jurisdiction to pass the order directing the payment of mesne profits, inasmuch as Appadurai Odayar against whom the order was passed was a stranger to the insolvency proceedings. It is obvious that the Insolvency Court has no jurisdiction to pass the order in question under Sept. 53 of the Provincial Insolvency Act. That being so, it is argued that the Insolvency Court has no jurisdiction to pass an order on what is called “a garnishee summons” directing a third party, a stranger to the insolvency proceedings, to make a payment in favour of the Official Receiver. In reply it is contended by the Official Receiver that Sect. 4 of the Provincial Insolvency Act gives ample power to the Insolvency Court to pass an order like the one in question.

Sect. 4, Cl. 1 of Act V of 1920 is as follows:—

“Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognisance of the Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.”

This provision did not exist in the previous Provincial Insolvency Act of 1907. It is framed on the lines of Sect. 7 of the Presidency Towns Insolvency Act, Act III of 1909, which is as follows:—

“Subject to the provisions of this Act, the Court shall have full power to decide all questions of priorities, and all other questions whatsoever, whether of law or of fact, which may arise in any case of insolvency coming within the cognisance of the Court or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.”

This section was later on amended in 1927 by the addition of a proviso to it. it is obvious that Sect. 4 of the Provincial Insolvency Act is almost identical in terms with Sect. 7 of the Presidency Towns Insolvency Act. Under both the sections the Insolvency Courts have wide powers not only to decide all questions of priority but all other questions………which the Courts may deem it expedient or necessary to decide for the purpose of doing complete justice or of making a complete distribution of property. The question is whether under the wide powers given under Sect. 4 of the Provincial Insolvency Act the Insolvency Court has jurisdiction to adjudicate upon the claims of third parties or whether in such cases, the Official Receiver should be directed to institute suits in ordinary Civil Courts. As the terms of Sect. 4 of the Provincial Insolvency Act are similar to the terms of Sect. 7 of the Presidency Towns Insolvency Act, cases explaining the scope of the latter Sect. 7 may well be relied on to interpret the nature of the jurisdiction of the Insolvency Courts under Sect. 4 of the Provincial Insolvency Act. The learned Counsel for the respondent has relied on these cases in support of his contention. He has also relied on some cases which are express decisions under Sect. 4 of the Provincial Insolvency Act itself. A recent Full Bench decision of this Court, Official Assignee Of Madras v. E. Narasimha Mudaliar, in which the scope of Sect. 7 of the Presidency Towns Insolvency Act prior to its amendment in 1927 is explained has also been brought to our notice. We will now proceed to examine these cases.

In Abdul Khader v. The Official Assignee of Madras , it was held that “under Sect. 7 of the Presidency Towns Insolvency Act (III of 1909) the High Court of Madras in the exercise of its Insolvency Jurisdiction, has jurisdiction to adjudicate on claims relating to immovable property situate outside the limits of its Ordinary Original Civil Jurisdiction” it was also pointed out that “the jurisdiction conferred by Sect. 7 of the Act is of a discretionary character, and it is seldom that the Insolvency Court will deem it expedient to try difficult questions of title; and the Judge in such cases would ordinarily ask the Official Assignee in Insolvency to establish his title in an ordinary Civil Court”. In coming to this conclusion the learned Judges relied on various English cases which fully recognise the jurisdiction of the Court of Bankruptcy in England in deciding upon the rights of third parties. This decision was accepted as laying down the correct law in the decision in In re Kancherlakrishna Rao .

The decision in Official Receiver, Tinnevdly v. Sankaralinga Mudaliar , was one under Act III of 1907 but in the course of the judgment the learned Judges refer to Sect. 4 of the Act V of 1920. In that case “where after the appointment of a Receiver for the estate of an insolvent had been made by a District Court, some of the properties of the insolvent were sold in auction by a District Munsif's Court in execution of a decree for money passed by the latter Court prior to the order of adjudication,” it was held “that it was competent to the Receiver to make an application to the District Court for annulment of the sale and for delivery of possession of the properties from the purchaser under Sect. 18, Cl. 3 of the Provincial Insolvency Act (III of 1907)”, and the order of the District Judge that the Official Receiver had no locus standi to impeach the same by means of a petition to the Insolvency Court was set aside. With reference to the point under discussion the following observations of Oldfield, J. may be referred to with advantage.

“The general question thus raised is whether the Court dealing with an insolvency under the Provincial Insolvency Act has either an exclusive jurisdiction or one concurrent with that of the ordinary Courts to deal, for the purpose of the administration of the Insolvent's estate, with claims against persons holding it adversely to him, whether they have arisen from purchase at Court sale or otherwise. Before dealing with the provisions of the Act, I observe that such an exclusive jurisdiction is well recognised elsewhere in insolvency systems, which are of longer standing than the Provincial Act, and which are usually referred to in its construction. Reference may be made on this point to the decisions collected under Sect. 105 of the English Bankruptcy Act, 1914, at page 375 William's Bankruptcy Practice, 11th Edition, and to Sect. 7 of the Presidency Insolvency Act (III of 1909) of which the material portion was reproduced from the English Act in force at its date; and it is significant that, although there is no reason for presuming any intention to change the law, the legislature has included a similar provision, as Sect. 4 in the Provincial Insolvency Act (V of 1920), which is now in force.”

Seshagiri Ayyar, J., even went to the extent of saying that the wide powers given by Sect. 4 of the present Act had already existed in the Insolvency Court and that Sect. 4 only declares what has been the law throughout. For our present purpose it is not necessary to discuss this position.

In Ramaswami Chettiar v. Ramaswami Aiyangar , which was a case under the present Act, it was held that

“under Sects. 4, 5 and 56 of the Provincial Insolvency Act (V of 1920) a Court of Insolvency can inquire into disputed title and order delivery of an insolvent's property to a purchaser thereof from the Official Receiver, removing the obstruction of a third party”.

In the course of the judgment the learned Judges stated thus:—

“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 decision requiring notice is the Full Bench decision in Official Assignee Of Madras v. E. Narasimha Mudaliar . In this case the Full Bench considered the nature of the jurisdiction vested in the Court under Sect. 7 of the Presidency Towns Insolvency Act before the amendment and how far that jurisdiction was limited by the amendment to that section introduced in 1927. It was held that

“Sect. 7 of the Presidency Towns Insolvency Act is not limited in its scope to matters in which the Official Assignee by the operation of the Insolvency Law claims higher title than what the insolvent himself would have had, and the Official Assignee is entitled to proceed by way of motion under Sect. 7 in cases where he has a money claim against strangers to the insolvency, the only limitation placed on the jurisdiction of the Insolvency Court being, that when once the Official Assignee has summoned a witness under Sect. 36 of the Act and that witness disputes his indebtedness, the Official Assignee has no option but to proceed by way of suit.”

It may be observed that Sect. 4 of the Provincial Insolvency Act has no proviso like the one in Sect. 7 of the Presidency Towns Insolvency Act. In the judgment of Beasley, J., as he then was, it was made clear “that Sect. 7 before its amendment was not limited in its scope to matters in which the Official Assignee by the operation of the Insolvency Law claims a higher title than the insolvent would himself have had.” Having pointed out how in one direction the amendment of Sect. 7 has affected the powers of the Insolvency Court, the learned Judge made the following observations regarding the discretionary nature of the jurisdiction vested in the Court by that Section and how that jurisdiction should be exercised:

“It is then for the Court to say whether the matter is one which is reasonable, having regard to the convenience of all concerned, to deal with on a motion or whether it should be dealt with in a regular suit. But in my opinion, no money claim in which any difficult questions arise should be dealt with by way of motion, nor should large claims; only simple cases capable of easy and speedy proof should be so dealt with.”

It will be observed that in Abdul Khader v. The Official Assignee of Madras also the discretionary character of the jurisdiction was pointed out by Rahim, J.

It will be seen from all these cases that very wide powers are given to the Court under Sect. 4 of the Provincial Insolvency Act. It may decide any question which it may deem expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property and in doing so it has ample power to decide questions of title arising between the estate of an insolvent and a third party. This jurisdiction is no doubt of a discretionary character and in cases which involve determination of difficult questions of title the Insolvency Court will be well advised in asking the Official Assignee to institute proceedings in an ordinary Civil Court.

As against the above decisions the appellant has mainly relied upon two decisions of this Court, namely, Chittammal v. Ponnuswami Naicker , and Venkatram v. Chokkier . Neither of these decisions in our opinion helps him. In Chittammal v. Ponnuswami Naicker , the learned Judges held that an application will not lie under Sect. 56 of the Provincial Insolvency Act because the person in possession disputed the insolvent's title and they pointed out that “it is open to the Court on a proper application being made under Sect. 4 of the Act to try the issue whether the insolvent is entitled to the property or not”. The decision in Venkatram v. Chokkier might at first sight seem to support the appellant but the reasoning in the judgment makes it clear that the decision really does not help him. In that case, on the insolvency of a Hindu father the Official Receiver sold the family property including the sons' share. The question was whether the purchaser from the Official Receiver of the sons’ share can obtain delivery of possession of the shares of the sons under Sect. 4 of the Provincial Insolvency Act. It was held that in so far as the sons' share was concerned the remedy of the purchaser would be to institute a regular suit for possession in the ordinary Civil Court. The reasoning on which this conclusion was based is this:—

“Once the Official Receiver has sold the property to a stranger and converted the insolvent's estate into money, his business is to distribute this money among the creditors and it cannot be said that delivery of possession is a necessary part in the work of distributing the assets of the insolvent among the creditors. Where a claim is made against the insolvent himself in respect of his share only or against a rival purchaser of the insolvent's property itself the matter may be different.”

It is clear from this reasoning that it was held that Sect. 4 did not apply because the question that arose in that case was not a question which related to the distribution of the property of the insolvent; on this ground the case is clearly distinguishable.

We have not been shown how the wide powers vested in the Court under Sect. 4 as pointed out in the decisions we have referred to, which would include also power to adjudicate on the claims of third parties, has been curtailed by any other provision contained in the Act. It follows therefore that the Insolvency Court has full jurisdiction to pass an order for the payment of mesne profits against the father of the appellant in this case. Sect. 5 of the Act provides for effect being given to the orders and decrees passed by the Insolvency Court. The order directing the payment of mesne profits can therefore be executed in the same way as orders passed by Civil Courts.

For the above reasons we hold that the learned District Judge had jurisdiction to pass the order in question, under Sect. 4 of the Provincial Insolvency Act and that this Civil Miscellaneous Appeal should be dismissed with costs.

In the view that the learned District Judge had jurisdiction to pass the order, it is not necessary to discuss whether the objection that the order was passed without jurisdiction can be taken in execution proceedings.

N. R. R.Appeal dismissed.

Palanivelu Odayar, M... v. The Official Receive...