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PETITIONER: OFFICIAL ASSIGNEE, HIGH COURT, BOMBAY

       Vs.

RESPONDENT: HARADAGIRI BASAVANNA GOWD AND OTHERS

DATE OF JUDGMENT: 01/11/1962

BENCH: GAJENDRAGADKAR, P.B. BENCH: GAJENDRAGADKAR, P.B. SINHA, BHUVNESHWAR P.(CJ) WANCHOO, K.N. GUPTA, K.C. DAS SHAH, J.C.

CITATION:  1963 AIR  754            1963 SCR  Supl. (1) 809

ACT: Insolvency-Adjudication-Courts  of different  jurisdictions- Where property vests-Presidency Towns Insolvency Act, ss. 17 and  51-Provincial  Insolvency Act, 1920 (5  of  1920),  ss. 28,77.

HEADNOTE: Pending  adjudication proceedings instituted on  25-1-50  in the District Court of Bellary, the respondent was  permitted to  take  possession  of  the  goods  which  he  claimed  as belonging to him and to dispose of them on condition that if his  claim  was  disallowed, he should  redeposit  the  sale proceeds  together  with  interest in  the  Court.   On  the petition of other creditors, the Bombay High Court passed an adjudication  order on April 17, 1950 as a result  of  which all  the properties of the insolvent vested in the  Official Assignee  Bombay.   On December 13, 1950 while  passing  the order  of  adjudication, on an application of  the  Official Assignee,  the  District  Court  of  Bellary  directed   the Official Receiver, Bellary, to move the Bombay High Court to have  the  adjudication  order made by  it  annulled.    The respondent   was   a  party  to  the   Official   Assignee’s application.   The  Official Receiver not having  taken  any steps,  the  official  Assignee brought the  matter  to  the notice  of  the Bellary Court and  thereafter  the  Official Receiver moved the Bombay High Court which refused to  annul the  adjudication  order  made  by  it.  The  Bellary  Court directed  the Official Receiver to transmit all the  amounts lying in deposit in the Bellary Court to Bombay and directed the respondent to redeposit the amounts so that it could  be transferred to Bombay.  On appeal by the respondent the High Court  of  Andhra Pradesh held that the application  of  the Official  Assignee was not in conformity with s. 77  of  the Provincial  Insolvency Act and that it was  more  convenient that  the estate of the insolvent should be administered  by the District Court at Kurnool which was the successor of the District   Court   at  Bellary  consequent  upon   the   re- organisation  of  the  States.  On appeal  by  the  Official Assignee,

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810 Held, that the combined operation of s. 17 and s. 51 of  the Presidency  Towns Insolvency Act was to vest the  estate  of the insolvent in the Official Assignee and that such vesting did  not by reason of s. 28(7) of the Provincial  Insolvency Act become divested by relating the vesting back to the date of presentation of the petition in the Bellary Court. The Official Assignee of Madras v. The Official Assignee  of Rangoon by his Agent Subramania Aiyar, I. L. R. 42 Mad. 121, referred to. Held,  further,  that the application made by  the  Official Assignee  to the Bellary Court could not be construed as  an application under s. 77 of the Provincial Insolvency Act. Be : L. King & Co. 38 Cal. 542, referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : Civil Appeal No. 291 of 1960. Appeal  by special leave from the judgment and decree  dated October  21,  1955, of the Andhra High Court  at  Guntur  in Appeal against order No. 94 of 1952. I.   N. Shroff, for the appellant. P.   Ram Reddy, for the respondents. 1962. November 1. The judgment of the Court was delivered by GAJENDRAGADKAR,  J.-This appeal by special leave arises  out of  insolvency proceedings taken against the firm of  T.  A. Doshi, Bombay (hereinafter called the firm) by its creditors on  the original side of the Bombay  High Court, as well  as in the District Court, Bellary.  The orders of  adjudication passed  against the said firm by the two Courts have led  to some avoidable complications and delay, with the result that the claim made by the respondents in respect of a portion of the  property of the insolvent before the District Court  at Bellary  still  remains to be tried, though  the  involvency orders were passed as early as 1950.                             811. It  appears  that on January 25, 1950,  an  replication  was presented  (I.   P.  No. 2 of 1950)  in  e  District  Court, Bellary,   by  some  of  the  creditors  of  the  firm   for adjudicating  the  firm as insolvent, and on  December  13‘, 1950,  an  order of adjudication was  passed.   Pending  the adjudication  proceedings, the District Court appointed  the Official Receiver as interim Receiver at the instance of the petitioning creditors.  The Receiver was authorised to  take possession  of  certain  goods  alleged  to  belong  to  the insolvent   which   were   then  in   transit   to   Bombay. Accordingly, the Receiver took possession of the said  goods and  under the orders of the Court, disposed of  them.   The sale-proceeds were then deposited in court.  Thereupon,  the respondents  moved the District Court and claimed that  they were  entitled  to  a part of the  money  deposited  by  the Official Receiver, because the Railway Receipt in respect of the goods which had been sold by the Receiver had been  made over  to them by the insolvent for consideration.   On  this allegation, they prayed that as an interim measure, the sale proceeds  should  be  paid over to them,  because  they  had borrowed  money from a bank on the security of  the  Railway Receipt in question and since the goods had been taken  over by the Receiver, the bank was demanding immediate  repayment of the loss.  This application was allowed by the Court  and the  respondents  were permitted to withdraw the  amount  on giving  security and an undertaking to redeposit the  amount in court with interest @ 6% per annum when called upon to do

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so.  In accordance with this order, the respondents withdrew the  money  on  April  6,  1950.   The  claim  made  by  the respondents  in  this way still remains to be  tried  though they withdrew the amount as far back as 6-4-50. Whilst the insolvency proceedings before the District  Court had  proceeded  in  this  manner,  similar  proceedings  had already been taken against the firm by some other  creditors on the original side of the 812 Bombay  High  Court  on April 14, 1950, (I.  P.  No.  52  of 1950).   On  this  application, an  adjudication  order  was passed  on  April 17, 1950.  As a result of  this  order  of adjudication  all the properties of the insolvent vested  in the Official Assignee of Bombay.  The Official Assignee then moved    the District Court at Bellary (I.   A.  No.  183 of 1950),  and  prayed  that  insolvency  proceedings   pending against the firm in that Court should be stayed and that all the  assets  and  books  of  account,;,  belonging,  to  the insolvent   should  be  transferred  to  Bombay.   To   this application, the respondents were made parties. On   December   13,  :1950,  whilst  making  an   order   of adjudication,  the  District Court passed an  order  on  the application  made  before  it by the  Official  Assignee  of Bombay.   It  directed  its Official Receiver  to  move  the Bombay High Court to annul the adjudication order made by it on  April  17,  1950.   It  observed  that  when,  such   an application  is made before the Bombay High Court, the  said Court will consider all the relevant facts and circumstances and decide whether it would be convenient for all  concerned to  allow  the  assets and effects of the  insolvent  to  be administered  at  Bellary  or at Bombay  Having.  made  this order,  the District Court instructed the Official  Receiver not  to part with any portion of the assets and  effects  of the insolvent until he moved the Bombay High Court and final orders  were passed on his application.  It, however,  added that if the High Court, decides that the assets and  effects of the insolvent should be administered from Bombay, all the assets,  documents  and  account  books  belonging  to   the insolvent  will be handed over to the Official  Assignee  at Bombay.   ’Pending the final decision of the application  to be made by the Official Receiver, status quo was allowed  to be maintained.  This order was not challenged by the respon- dents by preferring an appeal against it. 813 Though the District Court had directed the Official Receiver to  move Bombay High Court, no action was taken by  him  for along  time;  and  so, the Official  Assignee  had  to  file another application before the Distt.  Court (I.  A. No. 171 of  1951)  on October 15, 1951.  By  this  application,  the Official Assignee brought it to the notice of the Court that the Official Receiver had taken no action in accordance with the  orders  already  passed by the Court and so,  it  was necessary in the interests of justice that the Court  should direct  the respondents to deposit all the amounts drawn  by them  on furnishing security and to transfer the  said  sums and  other  sums  in deposit in Court and  all  the  assets, movables  and the books of account of the  insolvent’s  firm together  with  the file of the Insolvency Case  No.  1.  P. 53/1950  to  the  Bombay High Court.  It  was  alleged  that unless  these  steps  were taken, the  estate  would  suffer irreparable loss and injury. Meanwhile, the Official Receiver moved the Bombay High Court for  annulment of the adjudication order already  passed  by it.  The High Court declined to annul its adjudication order and  directed the continuance of the insolvency  proceedings

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before  it because it took the view that the estate  of  the insolvent could be administered more conveniently in  Bombay than in Bellary.   When  the application’ made by the Official Assignee  (No. 171/1951)  came  to be heard by the District Court,  it  was duly  apprised of the order passed by the Bombay High  Court on  the application made by the Official  Receiver.   Having regard to the fact that the Bombay, High Court had  declined to annul its adjudication order, the District Court took the view  that  the application made by  the  Official  Assignee should  be  allowed.  It, therefore, directed  the  Official Receiver to transmit all the accounts and deposits lying  in court and called upon the respondents 814 to  refund the amounts drawn by them on furnishing  security with interest @ 6% per annum, so that the same could as well be transferred to Bombay. This  order was challenged by the respondents by  preferring an appeal before the High Court of Andhra Pradesh.  The High Court  has  allowed  the  appeal.   It  has  held  that  the application  made by the Official Assignee did  not  satisfy the requirements of section 77 of the Provincial  Insolvency Act  and  that, on the whole, it would be  more  convenient. that  the estate of the insolvent should be administered  by the  District Court at Kurnool which had been  clothed  with jurisdiction to try the said proceedings as a result of  the reorganisation  of the States.  It is against this  decision of  the High Court that the Official  Assignee  (hereinafter called the appellant) has come to this Court. The  first  question which calls for our  decision  in  this appeal is in whom does the property of the insolvent vest  ? For  deciding this question, the relevant provisions of  the Provincial   Insolvency   Act  and  the   Presidency   Towns Insolvency  Act  have  to be considered.   Sec.  17  of  the Presidency  Act provides, inter alia, that on the making  of an  order  of adjudication, the property  of  the  insolvent wherever  situate  shall vest in the official  assignee  and shall become divisible among his creditors.  Under s. 51  of the said Act it is provided, inter alia, that the insolvency of a debtor shall be deemed to have relation back to, and to commence  at, (a) the time of the commission of the  act  of insolvency on which an order of adjudication is made against him,  or  (b) if the insolvent is proved to  have  committed more  acts of insolvency than one, the time of the first  of the acts of insolvency proved to have been committed by  the insolvent within there months next preceding the date of the presentation  of the insolvency petition.  It is thus  clear that when an 815 adjudication order is made under s.17 it relates back to the date  specified  by  s. 51.  As a  result  of  the  combined operation of the said two sections, the insolvency under the Presidency  Act  commences on the commission of the  act  of insolvency  and it is on that date that the property of  the insolvent  vests in the Official Assignee.  Sec. 51  clearly shows  that  the insolvency is deemed to commence  from  the moment  when  the  debtor  committed  the  earliest  act  of insolvency  which  is proved to have been  committed  within three  months  before the presentation of  the  petition  on which the order of adjudication is made.  This petition  can be  made  either  by the debtor himself or  by  any  of  his creditors.   This position about the effect of the  doctrine of  ’Relation  back’  is  not  in  dispute.   Applying  this principle,  it  would  follow that  the  adjudication  order passed  by the Bombay High Court on April 17, 1950,  on  the

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insolvency  petition filed before it goes back not  only  to the  date  on which the said petition  was  presented,  viz, April 14, 1950, but to the earliest act of insolvency within three  months prior to the said presentation which is  March 14, 1950.  In other words, the adjudication order passed  by the Bombay High Court relates back to March 14, 1950. Let  us now examine the effect of the order of  adjudication passed by the District Court at Bellary.  Sec. 28 (2) of the Provincial Insolvency Act provides, inter alia, 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 as hereinafter provided, and shall become divisible among  the  creditors.   This corresponds to s.  17  of  the Presidency  Act.  Section 28(7) of the Provincial Act  which provides  for relation back of the adjudication order,  lays down that an order of adjudication shall relate back to, and take  effect  from,  the date of  the  presentation  of  the petition  on  which  it  is  made.   Unlike  s.-51  of   the Presidency Act which relates back 816 the  adjudication  order to the earliest act  of  insolvency within   three  months  before  the  presentation   of   the insolvency petition, s. 28(7) of the Provincial Act  relates back  the adjudication order to the date when  the  petition was presented; and that means that the order of adjudication passed  by  the District Court on December  13,  1950,  will relate  back  to  January 25, 1950  when  the  petition  was presented  in the said Court.  This position also is not  in dispute. The  question  which  then  arises  is  in  whom  does   the insolvent’s  estate  vest  ? Does it vest  in  the  Official assignee   by  reason  of  the  fact  that  the   order   of adjudication  was made by the Bombay High Court  before  the District Court made ’a similar order, or does it vest in the Official   Receiver  of  the  District  Court  because   the adjudication order passed by the Distt.  Court relates  back to  a  date earlier than the date to which the  Bombay  High Court’s  adjudication  order relates ? In our  opinion,  the property of the insolvent vests in the Official Assignee  by virtue  of  the operation of s. 17 of  the  Presidency  Act. Section  17 provides for the vesting of the property on  the making  of  the  order of adjudication,  and  so,  when  the District  Court at Bellary passed an adjudication  order  in the  insolvency  proceedings pending before it,  s.  28  (2) could  not  in  law operate in respect  of  the  insolvent’s property  because  the said property had by  virtue  of  the statutory  provisions contained in s. 17 of  the  Presidency Act  already vested in the Official Assignee.  The  doctrine of relating back on which s. 28(7) of the Provincial Act and s.  51  of  the  Presidency Act are  based,  could  have  no application  in the present case because the vesting in  the Official  Assignee is the result of a  statutory  provision; and  so, in the absence of any provision in  the  Provincial Act  for  the divesting of the property  which  has  already vested in the Official Assignee, it cannot be said that  the doctrine  of relating back has that effect.  The  object  of providing for the vesting of the insolvent’s  817 property  in the Court Officer obviously is to  protect  the said  property  in  the interests of the  creditors  of  the insolvent  and  to  facilitate its  fair  and  just  admini- stration.   If for achieving that object by operation of  an adjudication  order  passed  by the  Bombay  High  Court  in exercise  of its jurisdiction under s. 17 the said  property has  vested  in  the Official Assignee, there  would  be  no

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purpose  in  providing  that the  said  property  should  be divested  from  the  Official Assignee  and  vested  in  the Official  Receiver of the District Court.  In a  case  where adjudication  orders are made by two different  courts,  the procedure  to be followed may depend upon considerations  of convenience,  fair  play  and  justice;  but  there  is   no justification  for the argument that because s. 28(7)  takes the  adjudication order of the District Court to an  earlier date, the property which has vested in the Official Assignee should be divested and should be deemed to be vested in  the Official Receiver.  The reasonable way to reconcile s. 28(2) read  with s. 28(7) of the Provincial Act with  sections  17 and 51 of the Presidency Act is to hold that the doctrine of relation  back prescribed by s. 28(7) has no application  to cases  where the insolvents’ property has already vested  in the  Official  Assignee.  Therefore, we must hold  that  the property  of  the firm has validly vested  in  the  Official Assignee. A similar question fell to be considered by the Madras  High Court  in  The Official Assignee of Madras v.  The  Official Assignee  of  Rangoon  by his Agent  Subramania  Aiyar  (1). Wallis, C. J., who delivered the judgment of the Court  held that where there are successive adjudications in  insolvency by  two Courts, all the property of the insolvent  vests  in the  Official Assignee appointed by the Court in  which  the prior adjudication was made and it will not be divested from him by the subsequent adjudication of the other Court,  even if  the ’later adjudication be based on acts  of  insolvency committed  earlier in date than those upon which  the  prior adjudication (1)  I.L.R. 42 Mad. 121. 818 was  made.  It is true that in that case both the  competing orders of adjudication had been passed by the High Courts in proceedings  which  were governed by the provisions  of  the Presidency  Act.  But the principle which was enunciated  by Wallis, C. J., in dealing with that case would apply as such to the present case where the competing adjudication orders have been passed under the provisions of the Presidency  and the  Provincial  Acts respectively.  "’The provision  in  s. 17",  observed  Wallis, C. J., ""that on the  making  of  an order  of  adjudication  the  property  shall  vest  in  the Official Assignee is express, and there. is no provision  in the  Act divesting the property so vested in  that  Official Assignee  and transferring it to another  Official  Assignee under a later adjudication." (.p. 125).  Sec. 51 like s.  28 (7)  is really intended to enable the Official  Assignee  or the Official Receiver to recover property from third parties and  it  is  with  that  object  that  the  said  provisions prescribe the doctrine of relation back.  The said  doctrine is  not  intended to divest the property which  has  already vested  in  the Official Assignee by virtue of an  order  of adjudication and vesting it in another official assignee  or Official Receiver.  As Dicey (1) has observed, the  property to  be vested in the Court Officer under the Insolvency  Law "must  be in strictness property of the bankrupt.   Property which  once belonged to the bankrupt, if it has  before  the commencement of the bankruptcy become already vested in some other person, e.g., the trustee under a Scottish bankruptcy, is  not the property of the bankrupt, and does not  vest  in the  trustee  under the English bankruptcy."  Therefore,  in dealing  with  the present dispute, we must proceed  on  the basis  that  the  property of the firm  has  vested  in  the Official  Assignee  at Bombay and the Bombay High  Court  is entitled to deal with all matters arising in respect of  the

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insolvency of the firm. The  High  Court  of  Andhra  Pradesh  has  held  that   the application made by the Official Assignee (1)  Dicey’s Conflict of Laws. 7th Ed.  P. 691.  819 does  not  meet  the  requirements  of  section  77  of  the Provincial Act; and so it has set aside the order passed  by the District Court directing the transfer of the assets  and account-books  to Bombay.  Section 77 of the said  Act  lays down  that Courts should be auxiliary to each other, and  it provides  that all Courts having jurisdiction in  insolvency and   the  officers  of  such  Courts  respectively,   shall severally  act in aid of and be auxiliary to each  other  in all  matters of insolvency; and it adds that an order  of  a Court  seeking  aid with a request to another  of  the  said Courts  shall  be deemed sufficient to  enable  the  latter Court to exercise, in regard to the matters directed by  the order,  such  jurisdiction as either of  such  Courts  could exercise   in  regard  to  similar  matters   within   their respective jurisdictions.  Substantially, the same provision is  contained in sec. 126 of the Presidency Act.   According to  the  High  Court, an application made  by  the  Official Assignee  cannot be said to be a request made by the  Bombay High  Court to the District Court at Bellary, and  unless  a request is made as required by s. 77 of the Provincial  Act, the Bellary Court should not have acted upon the application made by the Official Assignee.  In our opinion, this view is substantially correct in so far as the construction of s. 77 is  concerned.  Section 77 lays down the  procedure  whereby one  Court can make a request to another Court, and in  that behalf  it  provides  that  considerations  of  decorum  and courtesy  require  that the request should be  made  by  the Court  itself  and not by its officers.  Therefore,  if  the Bombay  High  Court had to make a request to  the  Court  at Bellary  under s. 77, it would have been necessary  for  the said High Court. to make an order in that behalf and  follow it up by a letter of request addressed to the District Court at Bellary, vide in re. L.   King & Co.(1). (1) 30 Cal. 542. 820 The difficulty in accepting the conclusion of the High Court that  the District Court at Bellary should not have  allowed the official Assignee’s application however arises from  the fact that the said application does not purport to have been made and is, in fact, and, in law, not made under s. 77.  It will be recalled that the order passe by the District  Court at  Bellary on December 15, 1950 calling upon  the  Official Receiver to move  the Bombay High Court for annulment of its adjudication  order had not been complied with by  the  said Receiver,  and  so,  the principal object  of  the  Official Assignee in making the subsequent application was to  invite the attention of the Court to the failures of its officer to comply  with  the order already passed and  to  request  the Court  to transfer the assets and books of account  of  ’the firm   to  Bombay  The  Official  Assignee,  in   substance, contended that since the earlier order of the Court had  not been complied with, the last operative portion of the  order should  be enforced and transfer made as requested  by  him. We have already noticed that meanwhile the Official Receiver moved the Bombay High ’Court without success, and before the District  Court finally dealt with the Official  ’Assignee’s application., the said earlier order became fully operative. Therefore, the order passed by the District Court  directing the transfer of the assets and account books of the firm  to

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Bombay,  was, in a sense, a corollary to the  earlier  order passed by it on December 13, 1950.  That being the nature of the  proceedings taken by the Official Assignee  before  the District  Court, it,* appropriate to hold that s. 77 of  the Provincial  Act came into play and it had not been  complied with, Dealing  with this aspect of the matter, the High Court  was inclined  to take the view that the earlier order was not  a final  order and did not amount to res judicata between  the parties.  In our opinion, this view is erroneous.  The  said order was passed in  821 proceedings  to which the respondents were parties,  and  so far  as the District Court was concerned,it dealt  with  the whole  of  the  dispute then pending  between  the  Official Assignee  and  the respondents.  In terms ,  the  order  had provided  that  if the Bombay High Court  decided  that  the assets  and effects of the insolvent should be  administered from  Bombay, the said assets and account. books  should  be handed  over  to  the Official Assignee at Bombay,  and  so, there  can be.no doubt that the said order was complete  and final.   In  view of the subsequent events, the  said  order became effective and the Official Assignee was, entitled. to request  the  District  Court to act upon it  and  send  the assets and account books and document% to. Bombay.  We  must accordingly  hold  that  the  High Court  was  in  error  in reversing  the  order of the District  Court  and  directing instead  that the insolvency proceedings in so far  as  they related  to the dispute between ;the Official  Assignee  and the  respondents  should be tried at Kurnool.  It  would  be noticed  that when the Official Assignee moved the  District Court by his second application, he was really claiming that the  assets  of the insolvent should be transferred  to  him because  they had vested in him already, and he wanted  that the  claim made by the respondents has to be  tried  between him  and them and that can be done by the Bombay High  Court which  had passed an adjudication order under s. 17  of  the Presidency  Act.  This aspect of the matter does not  appear to have been properly placed before the High Court. Mr.  Ram Reddy for the respondents, however,  contends  that though  the Bombay High Court may be, the  principal,  Court entitled to deal with the insolvency proceedings against the firm,  the subsidiary question raised by the respondent  can nevertheless  be  tried by the District  Court  at  Bellary. This  argument is based mainly on grounds of convenience  of parties.  We do not propose to express any 822 opinion  on  this  point  in the  present  appeal.   We  are satisfied  that  the assets which have been ordered  by  the District  Court  to  be transferred to  Bombay  include  the amounts  allowed  to  be withdrawn  by  the  respondents  on conditions imposed by the District Court in that behalf.  If the  respondents desire that their claim to the said  amount should  be  tried  by  the  Bellary  Court  on  grounds   of convenience,  it is open to them to make an  application  to the Bombay High Court in that behalf. The entire  insolvency proceedings  against  the firm must be tried by  the  Bombay High  Court.  It would, however, be open to the Bombay  High Court  to allow the dispute between the respondents and  the Official  Assignee  to be tried by the Bellary Court  if  it came to the conclusion that it would be convenient, fair and just to adopt such a course.  Therefore, we will not  direct the respondents to redeposit the amount in the Bellary Court with  interest accrued due because we propose to  allow  the respondents liberty to make an application in that behalf to

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the Bombay High Court within two months from today.  If  the Bombay  High  Court accepts their plea and orders  that  the dispute  between the respondent’s and the Official  Assignee should be tried at Bella the said High Court may also decide whether  the  amount already withdrawn  by  the  respondents should  be redeposited before the said dispute  is  disposed of,  or  only after it is decided against them.  That  is  a matter  which would be in the discretion of the Bombay  High Court.   If,  however,  the  respondents  do  not  make   an application to the Bombay High Court within two months, they will  have to redeposit the entire amount in  Bellary  Court and  the said Court will thereupon transfer the said  amount to the Bombay High Court to be dealt with in accordance with the provisions of the Insolvency Law.  We ought to add  that Mr.  Ram Reddy has conceded, and we think, rightly, that  if the  Bombay High Court allows the matter in dispute  between the respondents and the Official Assignee to be tried in                                     823 the  District  Court,  it  should be so  tried  not  in  the District  Court  of  Kurnool but in the  District  Court  of Bellary. In  the result, the appeal is allowed, the order  passed  by the  High Court is set aside and that of the District  Court restored  with  the modification in respect  of  the  amount withdrawn  by  the  respondents, as  indicated  above.   The appellant will be entitled to his costs from the respondents throughout.                               Appeal allowed.