Gopal Gunaji v. Balaji And Others

1. The plaintiff-appellant-held a mortgage over certain property. The mortgagor became insolvent. The insolvency Court at the request of the mortgagee, directed the mortgaged property to be sold separately, free from the mortgage rights, and gave the mortgagee the same rights in the sale proceeds as he had in the property. It seems probable that there was some misapprehension at the time of the auction. The property was sold for Rs. 50 to the son of the mortgagor and this son Gopal (D.W 2) stated before the insolvency Court that he had purchased the property subject to the mortgage. The mortgagee brought this suit for foreclosure of the property sold. The learned trial Judge held that what was put up for sale was the property free from the mortgage but that the insolvency Court though it purported to sell the property free from the plaintiff's mortgage, could not legally do so. The mortgagee was therefore given a decree for foreclosure. The purchaser Gopal appeals.

2. It is urged that the insolvency Court had power to sell the property free from the plaintiff's mortgage. The learned trial Judge has correctly stated that Section 47 of the Provincial Insolvency Act, does not provide for the sale which was effected. But S. 47 gives power to a creditor to insist on certain procedure: there is nothing in the section which prohibits the adoption of some other procedure with his consent. The learned Judge has referred to Sant Prasad v. Sheodutt Singh A.I.R 1924 Pat. 259 , 2 Pat. 724.

3. The decision in that case does not appear relevant. At p. 728 the learned Judges remark:

“It is of course open to the appellant to consent to the property being sold in the insolvency proceedings, but we do not find that the appellant, at any time, consented to the properties being sold by the insolvency Court.”

4. Where the mortgagee does not consent to the sale of the property, free from his mortgage, an order that the property should be so sold would be in derogation of his rights, and he could claim that it should be set aside. There are remarks in Kannappa Mudali v. Raju Chettiar A.I.R 1924 Mad. 761 , 47 Mad. 605, which support the view taken by the learned trial Judge. But the decision is mainly based on the fact that the mortgagee did not consent, and the remarks are not supported by detailed argument.

5. Section 28(2) of the Act states that on the making of an order of adjudication the whole of the property of the insolvent shall vest in the Court or in a receiver. “Property” is defined in S. 2(1)(d):

“‘Property’ includes any property over which or the profits of which any person has a disposing power which he may exercise for his own benefit.”

6. Section 2(1)(e) is as follows:

“‘Secured creditor’ means a person holding a mortgage, charge or lien on the property of the debtor or any part thereof as a security for a debt due to him from the debtor;”

7. In view of Ss. 2(1)(d) and 2(1)(e) it seems impossible to hold that, where the land is subject to a mortgage, the property of the mortgagor can be considered to be limited to the right of redemption; it would be non-sense to speak of a person holding a mortgage on a right of redemption. S. 28(6) states that the vesting of the property in the Court shall not affect the power of any secured creditor to realize his security:—there is nothing in sub-Section (6) which suggests that the mortgaged property is not to be considered the property of the insolvent. S. 59(a) authorizes the receiver to sell the property of the Insolvent. The receiver, then, has power to sell property on which a secured creditor holds a lien; the sale, of course, must be effected with due regard to the rights of the secured creditor. The mortgagee may find it convenient that the property should be sold free; the mortgage rights and that the mortgage debt should be recovered from the sale proceeds. If he desires that this course should be taken, the insolvency Court is, in my opinion competent to comply with his request: it would be unfortunate if the insolvency Court had not power to adopt this procedure when convenient to all parties.

8. The sale effected by the insolvency Court was therefore a legal sale. It is unfortunate that owing to some misapprehension the property fetched only Rs. 50, but I must hold that the property free from the mortgage debt, was sold for Rs. 50. Even if the purchaser did not know what he was purchasing this will not affect the validity of the sale. The purchaser, then, obtained the property free from liability to the mortgage. The mortgagee cannot enforce his decree against the rights of the purchaser. The appeal must therefore succeed. The suit is dismissed. In view of the fact that the appellant did not know what he was purchasing and obtained large rights for a small one, I direct that costs in the proceedings should be borne as incurred.

P.N/R.K

9. Appeal allowed.