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PETITIONER: ARORA ENTERPRISES LTD. & ORS.

       Vs.

RESPONDENT: INDUBHUSHAN OBHAN & ORS.

DATE OF JUDGMENT:       10/03/1997

BENCH: B.P. JEEVAN REDDY, K.S. PARIPOORNAN

ACT:

HEADNOTE:

JUDGMENT:                       J U D G M E N T PARIPOORNAN, J.      Special leave  granted I.A.  Nos. 5  and 6  of 1997  to implead M/s  Kamal Construction  Co. (a partnership firm) as additional respondent in the appeals, are allowed. 2.   There are  three appellants in these appeals. Appellant No. 1  is a firm wherein appellant No. 2 and 3 are partners. Appellants were  original plaintiffs  in Suit  No. 133/89 in the High   Court  of Bombay. These two appeals are preferred against the  judgment and orders dated 10.7.1996 passed by a Division Bench of the Bombay High Court in Civil Appeal Nos. 464/96  and   513/96,  dismissing  the  appeals.  The  first respondent was  originally the  first defendant.  Respondent Nos. 1(a) to 1(d) are his legal heirs. Respondent Nos. 2 and 3 are co-owners of the property in question. Respondent No.4 is M/s Kamal Construction Co. (a firm). 3.   Original defendant  No.1, Indubhushan  M.  Obhan,  died pending the  suit .  He owned  and possessed 1/3rd undivided share in the property measuring 20569.51 sq. mts. situate in Kanjur village, Kurla Taluk, Bombay. The other two co-owners are  his   brothers.  Indubhushan   was  adjudicated  as  an insolvent on 29.7.1971. Evidently, this aspect seems to have been published in the Gazette and also in the Newspapers. PM 9.5.1988,  while   Indubhushan  was  still  an  undischarged insolvent, an  agreement for  sale of  the suit property was entered into between the plaintiffs in the suit and the said Indubhushan. Under  the said  agreement, the plaintiffs seem to have  been deposited a sum of Rs.7 lacs with Indubhushan, towards the  sale of  the share  in the  property  owned  by Indubhushan. Stating  that Indubhushan,  the first defendant committed breach  of the said agreement and has also started construction work  on the  land agreed  to be  sold  to  the plaintiffs, suit  No. 133/89  was laid  in the High Court of Bombay by  the  appellants  herein  claiming  the  following reliefs:      (a)  to declare  that  there  is  a      valid,   subsisting   and   binding      agreement  between  the  appellants      and   the   first   defendant,   as      contained in  the  agreement  dated

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    9.5.1988;      (b)  that   the    properties    be      properly partitioned  by metes  and      bounds in  three separate parts and      one plot  marked in  red colour  be      allotted to the appellants;      (c)  that  the  defendants  in  the      suit  (Indubhushan   and  his   two      brothers)     be     ordered     to      specifically   perform   the   said      agreement;      (d)   in   the   alternative,   the      defendants be  ordered to pay a sum      of Rs. 2 crores;      (e)  in the  alternative, a  decree      may be  passed  against  the  first      defendant for  recovery of a sum of      Rs. 7  lacs with  18% interest  per      annum;      (f)  that  upon   failure  of   the      defendants to  pay the said amount,      the property  may be  sold  to  the      appellants to  the  extent  of  the      share owners  the first  defendant;      etc.      (It may  be mentioned  that defendant  Nos. 2 and 3 are the brothers  of Indubhushan  -- the  first  defendant).  It appears that  Indubhushan had initiated proceeding by taking notice of motion for annulment of this insolvency. While so, the first  defendant --  Indubhushan died  on 22.4.1989. The proceeding initiated  for annulment of insolvency proceeding was withdrawn  by  his  counsel.  The  appellants  took  out chamber summons  769/89 in  the  suit  to  bring  on  record respondent Nos.  1 to  4 therein,  as defendant No. 1 as his legal heirs  and also  to appoint  guardian for  the  minors respondents 2  to 4  and add  respondent No.5 - the official assignee of the High Court of Bombay as party defendant No.4 in the  suit. Prayer  to amend  the plaint  in terms  of the draft amendment  mentioned in  the schedule  containing  the above prayer  was also  specified. The  Chamber  summons  is dated 21.7.1989.  The above  chamber  summons  came  up  for hearing and  disposal before   Variava,  J. on  2.2.1990. It seems the  suit was  not posted  to the  day. After  hearing Counsel for  the  parties,  the  learned  Judge  passed  the following order on 2.2.1990:      "Suit to  enforce Agreement entered      into by Defendant No. 1, who was an      Insolvent.  Till   date  leave   of      Insolvency  court   not   obtained.      Clear that  Agreement is  void  and      unenforceable    and    suit    not      maintainable.           Amendments  seek   to  convert      this suit.  In my  view, cannot  be      allowed to this.        Chamber summons dismissed.        No order as to costs."           (emphasis supplied)      The appellants  (plaintiffs in  the suit)  filed Appeal No. 413/91 against the aforesaid order of the learned single Judge of  the High  Court of Bombay dated 2.2.1990, before a Division Bench.  The Division  Bench summarily dismissed the appeal by  its judgment and order dated 9.7.1991. The result of the above proceedings is that the suit (No. 133/89) stood abated against Indubhushan’s (estate) legal heirs.

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4.   It appears  that the  legal heirs of the original first defendant  entered   into  an   agreement  with  M/s.  Kamal Construction Co. (a firm) for sale of the suit property. M/s Kamal Construction  Co. have filed I.A. Nos. 5 and 3 of 1997 to implead  them as  a party  respondent in the appeals. (We have allowed  the same).  On  3.5.1994,  the  insolvency  of Indubhushan to  sell the  property was  entered into between the legal  heirs of  Indubhushan and  M/s Kamal Construction Co. on  2.9.1995. On  20.11.1995, the  appellants  took  out fresh chamber  summons No.  1123/95 (in  suit  No.  133/89), praying  to  amend  the  plaint  by  deleting  the  name  of defendant No.1  - Indubhushan  - from  the title of the suit and in  his place to add the names of defendant Nos. 1(a) to 1(d) --  respondents herein,  as the legal heirs of deceased defendant No. 1. According to the appellants, as a result of annulment of  insolvency stands  wiped out and the agreement entered into  by the  appellants  with  the  original  first defendant dated  9.5.1988 revived and binding on his estate, and the  dismissal of  the earlier chamber summons declining to implead  the legal  heirs and the consequent abatement of the suit  are of  no consequence,  as they  are non  est and ineffective, that  the appellants  are entitled  to have the said heirs  on record of the suit and to have the abatement, if any  set aside  as a  matter of  law and so, the proposed amendments to  implead the  legal heirs  of defendant  No. 1 should be  allowed. The  legal heirs  of the first defendant (respondent herein)  as also  M/s.  Kamal  Construction  Co. opposed the  above motion  and contended inter alia that the earlier  order   passed  in   chamber  summons  No.  769/89, declining to  implead the  legal heirs  and to  implead  the official assignee  has become  final and  conclusive and the suit (No.133/1989) stood dismissed by a learned single Judge and affirmed by a Division Bench. It was further stated that the above  suit itself  has abated by non-impleadment of the legal heirs  within the  time allowed  by law  and,  so  the present notice  of motion should be rejected. Similarly, the appellants took  out another  chamber summons No. 14 of 1996 in the  said suit  to implead M/s Kamal Construction Co. and also praying to declare that the agreements entered into the legal heirs  of defendant  No. 1  and M/s Kamal Construction Co. dated 13.4.1994 and 20.9.1995 are invalid. The above two chamber summons  i.e. No.1123/95 and 14/96 were dismissed by a learned single Judge of the Bombay High Court by his order dated 8.3.1996.  While passing  the order in chamber summons no. 1123/95,  the  learned  single  Judge  adverted  to  the earlier proceeding  which  resulted  in  the  dismissal  the earlier proceedings  which  resulted  in  the  dismissal  of chamber summons  NO. 769/89  by Variava,  J., and  held that there was  no change  in the circumstances for the appellant to take  fresh chamber  summons No.  1123/95 that  the order passed on  2.2.1990 holding  (a) that  the agreement between the appellants  and the first defendant is void and the suit is not  maintainable, has become final, and (b) that no case has been  made out  by the  appellant for  setting aside the abatement of  the suit,  as against  the estate of the first defendant. As a sequel thereto, Chamber summons No. 14/96 to implead M/s  Kamal Construction  Co. as  5th respondent  was also dismissed. The appeals filed by the appellants from the aforesaid common  judgment and order as Appeal No.513/96 and Appeal No.464/96  were dismissed  by a Division Bench of the High Court  of Bombay  by  its  judgments  and  order  dated 10.7.1996. The  original plaintiff  have come  up in appeals against the  aforesaid judgments  and orders  so rendered by the High  Court in Civil Appeal Nos. 464/96 and 513/96 dated 10.7.1996.

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5.   We heard  Shri Soli  J. Sorabjee,  Senior  Counsel  who appeared for  the appellants,  and M/s  Dr. Dhanuka and Shri K.K.  Venugopal,  Senior  Advocates  who  appeared  for  the respondents. The arguments advanced before us covered a wide range. It  may not  be necessary  to  adjudicate  the  rival contentions urged  before us  in detail, in the light of our conclusion regarding  the  scope  of  the  order  passed  in chamber summons  No.769/89 dated  2.2.1990.  We  shall  only indicate in  brief the  rival pleas  urged before us and our conclusion thereon. 6.   At this  juncture, we  should bear  in mind  a  crucial aspect in these cases. The appellants filed the suit against Indubhushan (defendant No. 1) on 13.1.1989. Indubhushan died on 22.4.1989.  On that day he was an undischarged insolvent. The appellants  took out  chamber summons No. 769/89 in suit No.133/89. After hearing the parties, a learned single Judge of the  Bombay High  Court by order dated 2.2.1990, rejected the chamber  summons on  two distinct and different grounds. They are  - (1)  the agreement  dated 9.5.1988  between  the appellants and Indubhushan is void and unenforceable and so, the suit  for specific  performance of the said agreement is not  maintainable;   (2)  the   amendments  sought   by  the appellants to  delete the name of the first defendant and to implead defendant Nos. 1(a) to 1(d) (as respondents 1 to 4 ) in place  of the  deceased defendant  No.1 and  to  add  the official assignee as a party defendant, were disallowed.      Though, the  motion to implead the legal heirs seems to have been  made in  time, the  prayer to amend the plaint to bring the  legal heirs  of defendant  No. 1  on  record  was declined after  hearing the  parties, by  passing a judicial order as  early as  2.2.1990. Thereby,  the suit (No.133/89) stood abated against defendant No. 1 and his legal heirs. It is long  thereafter,  after  a  lapse  of  five  years,  the appellants initiated  proceedings for  the issue  of another chamber summons  No. 1123/95(in the suit -- which has abated against the  estate of  the first defendant), making a fresh attempt to  bring the  legal heirs of the first defendant on record and  prayed for appropriate amendment of the pleading in that  regard. According  to the appellants, the abatement of the  suit as against defendant No.1 by reason of the non- impleadment of the heirs of the original defendant No. 1, is non est  and ineffective  and the  abate of the suit, if any require to  the set aside, as matter of law , in view of the annulment of  insolvency by  order dated 30.5.1994. We shall advert to these aspects, later in our judgment. 7.   Shri  Soli   J.  Sorabjee,   Senior  Counsel   for  the appellants, urged the following points:      The  adjudication   of  Indubhushan   as  insolvent  on 29.7.1971 stood  wiped out  by the order of the annulment of the same  on 30.5.1994.  The legal effect of annulment is to wipe out  the insolvency and to restore the state of affairs as on  the date  of adjudication.  In this  perspective, the order dated  2.2.1990 passed  in chamber  summons No. 769/89 declining to  implead or  bring on record the legal heirs of Indubhushan is  of no effect. There is no prohibition in law to enter  into an  agreement with an undischarged insolvent. In view  of the  annulment of  the insolvency,  the property revested in the insolvent and the original agreement to sell dated  9.5.1988   entered  into   by  the   appellants  with Indubhshan, is alive and enforceable. In this view, the High Court was  in error in holding that the earlier order passed in Chamber  summons No.  769/89 is  a bar  for  the  present motion by  way of  chamber summon  NO.1123/95  to  bring  on record the legal representative of Indubhushan and for grant of appropriate  reliefs. The  agreement entered  into by the

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legal heirs  of Indubhshan  with respondent  No. 4  was also before the  annulment of the insolvency proceeding and so it also vitiated.  According  to  counsel,  the  entire  matter requires a  fresh look  in  view  of  the  legal  effect  of annulment of  insolvency proceedings which is to restore the state of  affairs as  on the  date of  adjudication  and  to ignore all  subsequent events.  To  substantiate  the  above points  counsel   brought  to   our  notice   the  following decisions:-      Rup Narain  Singh and  another vs. Har Gopal Tewari and others  [AIR   1933  Allahabad  449];  Subbaiah  Goundan  v. Ramasami Goundan and others [AIR 1954 Mad. 604 (FB)] at page 613 para  28 and Page 618 para 40]; Bhyradevanhalli Lingappa v.  Official  Receiver,  Bellary  [AIR  1937  Mad.  717-718; Ratnavelu Chettiar  v. Franciscu Udayar and Others [AIR 1945 Mad. 388;  Ps.Ar.Ar. Arunachalam  Chettiar v.  Narayanaswami Goundar [AIR  1951 Mad.  63(FB) at  page 62  par  7;  Gamoji Venkata Ramakrishnarao  v. Gullapalli  Sambamurti [AIR  1951 Mad. 581];  C. Jabbarchand  and other  v. Mrs. c. Oliver and another [AIR  1965 Mysore  117]; Kumari  Rangappa  v.  Reddi Govinda Reddy  and Other  [AIR  1963  Andhra  Pradesh  228]; Gunupudi Subba  Rao &  Co. v.  Boggarapu Gurusmany [AIR 1966 Andhra Pradesh  25(26)], Passages  from Mulla  on The Law of Insolvency in India (Third Edition) para 343 and 344. 8.   On the other hand Mr. Dhanuka and Mr. Venugopal, Senior Counsel, who appeared for the respondents submitted thus:      The effect  of the  order passed in chamber summons No. 769/89 dated  2.2.1990 is a dismissal of suit No. 133/89 and that is  the end  of the matter. There is no pending suit in which the  proceedings by way of chamber summons No. 1123/95 could be  filed. The  suit had  abated  long;  ago  and  the abatement has  not been set aside. There is inordinate delay in  the   matter.  Even   in  the  present  chamber  summons No.1123/95 thereis  no prayer  factually, as  such,  to  set aside the  abatement of  the suit. The only plea is that the abatement of the suit, if any , requires to be set aside, as a matter  of law. This plea is untenable. The suit stated to pending, is against a dead person. No proceeding will lie in the said  suit. Suit  No. 133/89  itself was  filed  without obtaining leave,  which is a condition precedent. The defect is fatal.  It has  no existence  in law.  In any view of the matter, since  the earlier  order dated 2.2.1990 refusing to implead or  bring on  record the legal heirs of Indubhushan, has become  final and  conclusive, the  suit has  abate.  By initiating the present chamber summons No. 1123/95 in a non- existent suit,  the attempt  is  (to  bring  on  record)  to implead  the  legal  heirs  of  Indubhushan;  such  indirect attempt to implead the legal heirs of Indubhushan, after the suit has  abated and  after inordinate  delay,  is  patently unsustainable. The  legal heirs  of Indubhushan  had entered into  a   valid  contract  with  4th  respondent  after  the annulment of  the  insolvency  on  20.9.1995.  In  pursuance thereto ,  4th respondent  took possession  of the property, made vast improvement therein and has built 12 flats and has sold the  same.  Even  though  insolvency  was  annulled  on 30.5.1994,  the   proceeding  by   way  of  chamber  summons No.1123/95 was  initiated only  on 20.11.1995,  more than 18 months  after   the  annulment   of  insolvency.   There  is inordinate delay  in the  matter and   the  rights of  third parties have  intervened; and  the court below was justified in dismissing chamber summons No.1123/95 taking into account the earlier  proceeding. Our  attention was  invited to  the following decisions :-      Kisan Sitaram  Ambekar and  others v.  Sitaram Tulsiram and others  [AIR 1951  Nagpur 241]; Jehangir Gursetji Mistri

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v. Kastur Pannaji Oswal [AIR 1939 Bom. 344]; Davood Mohideen Rowther v.  Sahabdeen Sahib  [AIR 1937 Mad. 667]; Katragadda Sreeramamma v.  Official Receiver,  Guntur &  anr. [AIR 1955 Andhra Pradesh  115]; Bai Pani Vankar v.; Madhabhai Galabhai Patel [AIR 1953 Bom. 356]; Firm Sarju Prasad-Bhagwati Prasad Sah v. Rajendra Prasad and  others [AIR 1937 Allahabad 271]; Satyadhyan Ghosal  and others  v. Smt. Deorajin Debi another [AIR 1960  SC 941];  and passages  from Mulla  on the law of Insolvency in India (Third Edition) para 238. 9.   Though the arguments addressed before us covered a wide range, we  are  of  the  view  that  it  is  unnecessary  to pronounce in  detail on  the various aspects involved in the matter at  this stage. Suffice it to say that pre-ponderance of judicial opinion is in favour of the view that the effect of annulling  the adjudication  in insolvency proceeding, is to wipe  out the  effect  of  insolvency  and  to  vest  the property retrospectively  in the  insolvent. The consequence of annulling  an  order  of  adjudication  is  to  wipe  out altogether the  insolvency and its effect. The property will revest in the insolvent retrospectively from the date of the vesting order. We hold that the law is fairly clear to above extent. But  this does not solve the problem arising in this case. The  effect of  the suit  (independently) filed by the appellants  and   the  order   passed  therein  have  to  be considered. That  is a  distinct and different matter, which has its  own existence  and legal  impact, unimpaired by the annulment  of   the  insolvency.  In  other  words,  by  the annulment of  the  insolvency  and  wiping  out  its  effect retroactively, in  law, the  suit and  the  judicial  orders passed thereon  are not  wiped out,  or rendered  void or  a nullity, automatically.  The order passed in the suit is not non est  or ineffective.  In the suit laid by the appellants (suit No.133/89), praying for declaration that the agreement between the  appellants and  Indubhushan dated  9.5.1988  is valid and  subsisting, that  the property should be properly partitioned  and   that  a  decree  may  be  passed  against Indubhushan-first defendant  for recovery  of a sum of Rs. 7 Lacs etc;  on the  demise of  Indubhushan on  22.4.1989, the appellant took  out chamber  summons No.769/89  in the  suit (No.133/1989). The  court rejected  the chamber summons by a composite order  on two different and distinct points -- (1) the agreement  dated 9.5.1988 entered between the appellants and Indubhushan  is void  and unenforceable and so, the suit is not  maintainable;  (2)  the  amendments  sought  by  the appellants to implead defendants 1(a) to 1(d) as respondents 1 to  4 in  place of  deceased defendant No.1 and to add the official assignee as a party defendant, were disallowed. The legal effect  of the said order is that Suit No.113/89 stood abated against  the legal  heirs  of  the  first  defendant, Indubhushan  and   the  order  passed  on  2.2.1990  reached finality. It  so happened, as a result of the judicial order passed by  the court  in a proceeding between the parties to this proceeding  as earl  y an 2.2.1990. This order is valid until set  aside or annulled, in appropriate proceedings. It cannot be  ignored. It  will have  legal effect  of its own, until appropriate  proceeding are  taken  to  establish  its invalidity and  to get  it annulled  by a person entitled to avoid it.  The said  order stand even today; it has not been set aside. So long as the said order stands the abatement of the suit  has  become  unassailable  in  these  proceedings. Nearly five  years thereafter,  the appellants  filed  fresh chamber summons  No. 1123/95  in  a  non-existent  suit.  No factual plea  as such  was made  to set aside the abatement. The plea  in  that  regard  is  that  by  the  annulment  of insolvency, the  abatement of  the suit, if any, requires to

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be set aside as a matter of law. For reasons stated earlier, the abatement  of the suit (an independent proceeding), that ensued, cannot  be ignored  or the  proceedings in  the suit revived, by the annulment of insolvency, as a matter of law. Moreover, there   is  inordinate delay,  even if such prayer was made  in the  application. The  attempt made  in chamber summons No.1123/95  to bring  the legal  heirs of  the first defendant on  record, is  a futile  attempt to bring back to life a suit which no longer existed. The legal effect of the order passed  in chamber  summons No.  769/89 dated 2.2.1990 has resulted  in the abatement of the suit against the legal heirs of  the first defendant- Indubhushan. In such state of affairs, the  fresh chamber  summons taken (No.1123/95) in a nonexistent suit,  is patently  barred, unsustainable in law and merits  no consideration. In this view of the matter, we affirm the  judgments and order passed by the High Court and no interference  is called for in these appeals. The appeals are without  merit and are dismissed. There will be no order as to costs.