http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: P. SRINIVASA NAICKER

       Vs.

RESPONDENT: SMT. ENGAMMAMMAL AND ANOTHER

DATE OF JUDGMENT: 28/11/1961

BENCH: WANCHOO, K.N. BENCH: WANCHOO, K.N. SHAH, J.C.

CITATION:  1962 AIR 1141            1962 SCR  Supl. (1) 690

ACT:      Insolvency-Sale of  insolvent’s  property  by official Reciver-Appeal-Grounds  for setting aside the  sale-Revision-High  Court’s  jurisdiction  to interfere with  the order  of  District  Judge-The Provincial Insolvency  Act, 1920  (V of 1920), ss. 59(a), 68, 75.

HEADNOTE:      The official  receiver put  the properties of the insolvents N and his sons for sale, which were subject   to   mortgage.   The   properties   were ultimately knocked down to the appellant whose bid was the  highest. The  first  respondent  made  an application  under   s.  68   of  the   Provincial Insolvency Act,  1920 which  was  allowed  by  the Subordinate Judge  on the  ground that  the  price fetched was  very low on appeal under s. 75 of the Act the  District Judge, inter alia, held that the price fetched  was not  low. In revision under the proviso to  s. 75  of the  Act, the High Court did not consider  whether the  order of  the  District Judge was  according to  law but accepted an offer made by  the  first  respondent  and  allowed  the revision petition. ^      Held, that the power of the court under s. 68 is a judicial power, and must be exercised on well recognised  principles,   justifying  interference with an  act of the receiver which he is empowered to do  under s.  59(a) Provincial  Insolvency Act, 1920, and the court must not arbitrarily set aside a sale  decided upon  by  the  official  receiver, unless  there   are  good   judicial  grounds   to interfere with  the discretion  exercised  by  the official receiver,  for  example  that  there  was fraud or  collusion between  the receiver  and the insolvent or  intending purchaser, or the court is of the  opinion that  there were irregularities in the conduct  of the sale which might have affected the price fetched at the sale, or price was low as to justify  the Court  to hold  that the  property

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

should not be sold at that price. 691      The High  Court had  therefore to see whether the  Sub-Judge’s  order  was  justified  on  these grounds and  whether the  District Judge  made any mistake in  law in  reversing that order otherwise the High  Court cannot interfere in revision under the proviso  to s. 75 of the Provincial Insolvency Act, 1920,  for the  High Court’s  jurisdiction to interfere arises only if it is of opinion that the District Judge’s  order was  not according to law, and only  then it  can pass  such order  as it may think fit.

JUDGMENT:      CIVIL APPELLATE  JURISDICTION:  Civil  Appeal No. 274 of 1959.      Appeal by special leave from the judgment and order dated  July  27,1956,  of  the  Madras  High Court, in C.R.P. No. 90 of 1955.      N. C.  Chatterjee, R.  Ganapathy Iyer  and G. Gopalakrishnan for the appellant.      K. N.  Rajagopala Sastri,  R. Mahalinga  Iyer and M. S. K. Aiyengar, for respondent No. 1.      1960. November, 28. The Judgment of the Court was delivered by      WANCHOO, J.-This  is  an  appeal  by  special leave in  an insolvency  matter. The  brief  facts necessary for  present purposes  are these. S.V.N. Nanappa  Naicker   and  his   sons  were  adjudged insolvents on  an  application  of  Smt.  Engammal (hereinafter referred  to as the respondent). They had preferred  an appeal  before the High Court of Madras but  it was  dismissed on  April 17,  1953. Thereafter the  official receiver  took  steps  to sell  the   property  of   the  insolvents,  which consisted of  two lots,  the first  lot comprising 145 acres  10 cents of dry land and masonry house, and the  second lot,  8 acres and odd of dry land. Both these  properties were  subject to  mortgage. The official  receiver fixed  September 28,  1953, for sale  of the properties by auction. Fifteen of the  creditors  were  present  when  the  sale  by auction took  place,  including  the  son  of  the respondent. No  request was  made on  that day  by anyone for  postponing the  sale and  consequently bids were made. The highest bid for lot 1 was of 692 Rs. 4500/-  and the  highest bid  for lot 2 was of Rs.  70/-.  Both  these  bids  were  made  by  the appellant  who  is  a  brother-in-law  of  Nanappa Naicker. The reason why the two lots were sold for Rs. 4570/-  was that  there was  an encumbrance on the entire  property of Rs. 17,200/-. The official receiver did not close the sale on that day in the hope that  some higher offers might be made by the creditors and  postponed it  to various dates upto October  26,   1953.  On   all  these  dates,  the respondent’s son  was present  but no higher offer was made  on behalf  of the respondent. On October 26, 1953, an application was made on behalf of the respondent praying  that the sale be postponed for another three months apparently on the ground that

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

there had been drought in that area for some years past and agricultural lands were not fetching good price. The  official  receiver,  however,  saw  no reason to  postpone the sale, particularly when no higher offer  was forthcoming from the side of the respondent  and   decided  to   knock   down   the properties in favour of the appellant.      Later, an  application was  made on behalf of the respondent on November 18, 1953 under s. 68 of the Provincial  Insolvency  Act,  No.  V  of  1920 (hereinafter referred  to as the Act). The case of the respondent was that the sale had been made for a very inadequate price and there had been drought in the  village for  several years in the past and there was  very  great  stringency  in  the  money market and  it was  hoped that  if  the  sale  was postponed for three or four months, the properties would fetch  a good  price of  not less  than  Rs. 15,000/-,  exclusive   of  the   sum  due  on  the encumbrances. The  respondent also  stated that if the sale  was postponed for three months she would be prepared  to bid  more than  Rs. 7500/- for the properties. There  were some  other allegations in the  petition  suggesting  collusion  between  the official receiver on the one side and the 693 insolvent and  the appellant  on  the  other.  The respondent  therefore  prayed  that  the  official receiver  should   be  ordered  not  to  sell  the properties to  the appellant  at the  price bid by him. The  application was  opposed by the official receiver as well as by the appellant. The official receiver contended  that he  had done his best and that no  higher bid  could be  obtained.  He  also denied the  allegation made  against  him  in  the nature of  collusion and  also about the manner of conducting the sale.      The Subordinate Judge allowed the application on the  ground that  the price fetched was low and that the  general body  of creditors to whom debts to the  extent of  Rs. 30,000/- were payable would be considerably prejudiced if the sale was allowed to stand.  Thus  the  only  ground  on  which  the application under  s. 68  was allowed was that the price fetched was low.      Thereupon there was an appeal to the District Judge under  s. 75  of the Act. The District Judge allowed the  appeal. He pointed out that there was nothing to show that there was any irregularity in the conduct  of the sale. He also pointed out that there was  no reason  to hold  that  the  official receiver was  in any  way in  collusion  with  the insolvent and  the appellant.  He also pointed out that the  respondent’s son  was all  along present and if he really thought that the price fetched at the auction  sale was  low he could offer a higher price on  behalf of  the respondent.  Finally, the District Judge held that the Subordinate Judge was not right  in his  view that the property had been sold for  a low price and gave various reasons for coming to that conclusion.      The matter  was then  taken in revision under the proviso  to s.  75 of the Act, which lays down that "the High Court for the purpose of satisfying itself that an order made in any appeal decided by

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

the District  Court was according to law, may call for the  case and  pass such  order  with  respect thereto as it 694 thinks  fit".  The  High  Court  however  did  not consider the  question whether  the order  of  the District Judge  was according  to law.  It appears that before  the High  Court an  offer was made by the respondent  that she  was prepared  to deposit Rs. 9,000/-  if a fresh auction was held and would start the  bid at  Rs. 9,000/-  and also  that she would pay  Rs. 1,000/-  to the  appellant for  any loss caused  to him.  The High Court accepted this offer, though  it was of opinion that it could not be said  that the price fetched at the auction was unconscionably low; it however held that the price was low  considering the  extent and nature of the properties, and  if Rs.  9,000/- or  more could be got for the properties the creditors would receive appreciably more as dividend. It therefore allowed the  revision   on  the   terms  offered   by  the respondent.      It is  this order of the High Court which has been brought  before us  by special  leave and the only question that has been urged on behalf of the appellant  is   that  the   High  Court   had   no jurisdiction to  interfere with  the order  of the District Judge  unless it  came to  the conclusion that the  order was  not according  to law.  It is contended at  the High Court’s order does not show that it  applied its  mind to the question whether the order  of the  District Judge was according to law or  not and  that the High Court seems to have been  carried  away  by  the  offer  made  by  the respondent to  make minimum bid of Rs. 9,000/- for those properties.  It is  pointed out however that this offer  was made three years after the auction and is no indication that the price fetched in the auction in  1953 was  inadequate, for  prices  may have risen during this period of three years.      On the  other hand, it is contended on behalf of the  respondent that the court’s power under s. 68 in  appeal from  an act of the receiver is much wider than the power of the court in dealing with 695 auction  sales   in  execution   proceedings   and therefore  the  Subordinate  Judge  was  right  in setting aside  the act  of the receiver in knowing down the  properties to the appellant and the High Court was  consequently right in setting aside the order of  the District Judge and resorting that of the Subordinate Judge.      It may  be accepted  that the  power  of  the court under  s. 68  in  not  hedged  in  by  those considerations which  apply in  cases  of  auction sales in execution proceedings. Even so, the power under s.  68 is  a  judicial  power  and  must  be exercised   on    well   recognised    principles, justifying  interference   with  an   act  of  the receiver which  he is  empowered to do under s. 59 (a) of  the Act.  The fact  that the  act  of  the receiver in  selling properties under s. 59 (a) is subject to  the control  of the  court under s. 68 does not  mean that  the court can arbitrarily set aside  a   sale  decided   upon  by  the  official

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

receiver. It is true that the court has to look in insolvency proceedings  to  the  interest  in  the first place  of the  general body of creditors; in the second place to the interest of the insolvent, and lastly,  where a sale has been decided upon by the official  receiver  to  the  interest  of  the intending purchaser  in that  order. Even  so, the decision of  the official  receiver in favour of a sale should not be set aside unless there are good grounds  for   interfering  with   the  discretion exercised by  the official receiver. These grounds may be wider than the grounds envisaged in auction sales in  execution proceedings.  Even  so,  there must be  judicial grounds  on which the court will act in  setting aside the sale decided upon by the official  receiver.  These  grounds  may  be,  for example, that there was fraud or collusion between the receiver  and the  insolvent or  the intending purchaser; the  court may  be also interfere if it is of  opinion that  there were  irregularities in the conduct  of the sale which might have affected the 696 price fetched  at the  sale;  again,  even  though there may  be no collusion, fraud or irregularity, the price  fetched may  still  be  so  low  as  to justify the court to hold that the property should not be  sold at  that  price.  These  grounds  and similar other  grounds depending  upon  particular circumstances of  each case may justify a court in interfering with  the act of the official receiver in the  case of sale by him under s. 59 (a) of the Act.      The High  Court had  therefore to see whether the Subordinate  Judge’s order  was  justified  on these grounds  and whether the District Judge made any mistake in law in reversing that order. If the Subordinate Judge’s  order was  not  justified  on these grounds  or if  the District  Judge made  no mistake in law in interfering with that order, the High Court  cannot interfere in revision under the proviso  to   s.  75,   for   the   High   Court’s jurisdiction to  interfere arises only if it is of opinion that  the District  Judge’s order  was not according to  law. If the High Court comes to that conclusion, it  can then pass such order as it may think fit.      Let us  therefore turn  first to the order of the Subordinate  Judge and  see if it is justified on  the  ground  mentioned  above.  Now  both  the Subordinate Judge  and the  District  Judge  found that there  was no  reason to  hold that there was any fraud or collusion on the part of the official receiver in  this case.  Further, the  Subordinate Judge did not find that there was any irregularity committed by  the official  receiver in conducting the sale  and the  District Judge  has  definitely found that  there was  no such  irregularity.  The only ground  on which  the Subordinate  Judge held that the  sale should  be set  aside was  that the price fetched  was low.  Now  if  that  ground  is justified, the  Subordinate Judge  would have been right in interfering with the sale proposed by the official receiver. That matter has been considered by the District Judge and he has

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

697 held that  there is  no reason  to hold  that  the properties were  being sold  for a  low price. The Subordinate Judge  in dealing with the question of price has  pointed  out  that  the  insolvent  had valued the  properties at  Rs. 80,000/-, though he was conscious  of the  fact that this was properly an exaggeration.  He therefore  did not  hold that the properties were worth Rs. 80,000/-. He came to the conclusion  that the properties would be worth at least  Rs. 40,000/-  and the main reason why he said  so   was  that   the  properties   had  been mortgaged for over Rs. 20,000/- in 1936. According to him there seems to be some infallible rule that one must  double the  mortgaged money  in order to arrive  at   the  valuation   of  the   properties mortgaged. The  District Judge has pointed out-and we think,  rightly-that there can be no such rule. Therefore, the main basis on which the Subordinate Judge held  that the  properties  were  worth  Rs. 40,000/- and  therefore the  bid of  the appellant was low, falls to the ground as pointed out by the District Judge. The Subordinate Judge also pointed out that  the insolvents were in possession of the properties during  the pendency  of the insolvency appeal and had been depositing Rs. 2000/- annually on the  order of the High Court in order to remain in possession.  The Subordinate  Judge however did not calculate  the value  of the properties on the basis that  their annual income was Rs. 2,000/-and rightly  so-because  the  amount  deposited  by  a litigant on  the order  of a  court  in  order  to retain  possession   of   some   property   cannot necessarily lead  to the  inference that  was  the annual income  of the property. It seems therefore that the  District Judge  was right  when he  held that there  was no  evidence on  the record  which would justify the finding of the Subordinate Judge that the  price fetched  by the  sale in this case was inadequate or unreasonable. We may add that it was  open   to  the  respondent  to  show  to  the Subordinate Judge by well recognised methods 698 of  valuation   as  to   what  the  value  of  the properties was.  The Subordinate Judge should have then taken  into account  the total  amount of the encumbrance on these properties. The mortgage deed is not  on the  record and  we do  not  know  what interest, if  any,  the  mortgage  money  carried. Before the  Subordinate Judge  could come  to  the conclusion that the price offered by the appellant was low, he had first to find out the price of the properties by  some recognised method. He had then to find  what was  the total amount of encumbrance on the  properties. If  on finding these things it appeared that  the difference  between the two was much larger  than the  price bid by the appellant, the Subordinate Judge would have been justified in interfering  with   the  order   of  the  official receiver, even  if there was no question of fraud, collusion or irregularity in the present case. But no  such   findings  have   been  given   by   the Subordinate   Judge   and   the   District   Judge consequently was  right when he said that the view of the  Subordinate Judge  that the  price fetched

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

was  inadequate  and  unreasonable  is  incorrect. Unfortunately, the  High  Court  did  not  address itself to  the question  whether the  order of the District Judge  was according  to law  or not.  It seems to  have been impressed by the offer made by the respondent,  overlooking  the  fact  that  the offer of  Rs. 9,000/-  as the  minimum bid and Rs. 1000/- for  the appellant  was  being  made  three years after the auction during which, for all that we know, the prices might have risen. Further, the High Court  has remarked that the price offered by the appellant  was not  unconscionably low  but it felt that  it was  still low  on a comparison with the offer  made by  the respondent in 1956. As the High Court  did not  consider the question whether the order  of the  District Judge was according to law or not and did not come to the conclusion that order was  not according  to law,  the High  Court would have  no jurisdiction to interfere with that order. 699      Learned counsel for the respondent urged that even though the High Court may not have considered the  matter   from  this  aspect,  we  should  not interfere with  the order  of the High Court if we are satisfied  that in  fact the  price offered by the  appellant   was  low,  in  the  circumstances prevailing in  1953.  We  agree  that  if  it  was possible for us to come to the conclusion that the price offered  by the  appellant  was  low,  there would be  no reason to interfere with the order of the High  Court, even  though it  might  not  have considered what  was necessary  for it  to do  for interfering under the proviso to s. 75; but as are have  pointed  earlier,  there  is  no  sufficient material on  the record  on which  we can say that the price  offered by  the appellant is low. As we have already  pointed out,  no attempt was made in the  Subordinate   Judge’s  court   to  value  the properties by  any of  the well recognised methods by which properties are valued. Further no attempt was made  to show  the total  encumbrance  on  the property. Unless  the valuation  was properly made and the  encumbrance was  found  out,  it  is  not possible  to  say  that  the  offer  made  by  the appellant was  low, for that would depend upon the difference between the value of the properties and the amount of encumbrance. In these circumstances, it is not possible for us to say that the order of the  District   Judge  when   he  held   that  the Subordinate Judge  was not  right in  holding that the price  fetched was inadequate or unreasonable, is not according to law.      We therefore  allow the appeal, set aside the order of  the High  Court and restore the order of the District  Judge. The  appellant will  get  his costs in this Court from the first respondent.                                    Appeal allowed. 700