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CASE NO.: Appeal (civil)  176 of 1997

PETITIONER: Sankar Ram and Co.                               

RESPONDENT: Vs. Kasi Naicker and others                          

DATE OF JUDGMENT: 30/07/2003

BENCH: Shivaraj V. Patil &[D.M. Dharmadhikari.  

JUDGMENT:

J U D G M E N T

Shivaraj V. Patil,J.

       "Whether protection provided in the proviso to  Section 55 of the Provincial Insolvency Act, 1920 is  available to a bonafide transferee for valuable  consideration after the presentation of any insolvency  petition but before the date of passing of the order  for adjudication without notice of the presentation of  the insolvency petition by or against the debtor", is  the short question that arises for consideration and  decision in this appeal.

       The appellant filed petition under Section 55 of  the Provincial Insolvency Act, 1920 (for short ’the  Act’) for recovery of Rs.25,155.40 with interest from  the Bank (respondent No. 2) on the ground that it had  paid the said amount on 24.8.1978 for purchase of  shares belonging to the insolvent Kasi Naicker  (respondent No. 1).  Said Kasi Naiker had filed a  petition to declare him as insolvent in I.P. No. 7/76  in 1976, which was dismissed on 25.10.1977 by the  Subordinate Court, Tuticorin.  He filed appeal in  C.M.A. No. 116/77 before the District Court challenging  the order of dismissal, which was allowed on  17.10.1978.  The appellant purchased 249 shares of  Rajapalayam Mills belonging to the debtor Kasi Naicker  by depositing the amount to get the shares released in  its favour with the consent of the debtor.  When the  bank neither released the share certificates nor  returned the money deposited by it, the appellant filed  IA No. 6/79 in I.P. No. 7/76 under Section 55 of the  Act for declaration that 249 shares of Rajapalayam  Mills belong to it or in the alternative to return the  money with interest paid by it.  The said petition was  allowed by order dated 19.10.1984 directing the bank to  pay sum of Rs.25,155.40 with interest at 9% per annum  from 24.8.1978 to the appellant.  Kasi Naicker filed  C.M.A. No. 40/84 aggrieved by the said order made in  IA6/79 in I.P. 7/76 in the court of District Judge  Tirunelveli.  The appeal was allowed holding that the  order of adjudication dates back to the date of filing  of the petition and, therefore, any transaction by the  insolvent thereafter would not bind the receiver and  the appellant was not entitled to any relief.  The

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appellant approached the High Court by filing revision  petition in C.R.P. 6/92 in the High Court challenging  the order passed by the learned District Judge.  The  High Court dismissed the revision petition.  Hence the  appellant has filed this appeal.         In the trial court contentions were raised  opposing IA No. 6/79.  It was contended that the  petition itself was not maintainable; that the amount  was not paid by the appellant and the benefit of  Section 55 of the Act was not available to it.   Rejecting the contentions relief was granted to the  appellant.  The learned District Judge in the appeal  set forth following three points for determination: - "1.     Whether the amount Rs.25,155.40  remitted by insolvent on 24.8.78  with the bank of Thanjavur  belongs to Srinivas Naicker,  proprietor of Krishna Stores or  belongs to the Petitioner  Shankar Ram and Co. 2.      Whether the Insolvency Court has  got jurisdiction to decide this  claim.

3.      Whether the petitioner Shankar  Ram & Co. is not entitled to  file this petition under Section  55 of the Provincial Insolvency  Act."

       The learned District Judge recorded finding on  points (1) and (2) in favour of the appellant but held  against the appellant on point No. (3).  It may be  mentioned here that against the order passed by the  learned District Judge no revision was filed by Kasi  Naicker or others.  It was only the appellant, which  filed the revision before the High Court calling in  question the validity of the order passed by the  District Judge in holding that the protection given in  Section 55 of the Act was not available to it.  As is  evident from the order passed by the High Court in  revision only point No. (3) was considered and decided.   Thus the findings on point Nos. (1) and (2) have  attained finality.  This being the position it is  unnecessary for us to consider the other aspects but to  answer the question set out in the beginning.         It is concluded that the amount was paid by the  appellant to the bank and not by Kasi Naicker for  purchase of shares.  It is a matter of record that the  appellant purchased the shares belonging to Kasi  Naicker from the bank on payment of money before  passing the order of adjudication, declaring Kasi  Naicker insolvent on 17.10.1978 in C.M.A. No. 116/77.   It is also found that the appellant had no notice of  the presentation of insolvency petition by the debtor  Kasi Naicker on the date when it purchased the shares.   As already noticed above the trial court had allowed  the claim of the appellant but the District Court in  appeal took a view that although the order of  adjudication was passed on 17.10.1978 it related back  to the date of filing the insolvency petition in IP  7/76 in 1976 in view of Section 28(7) of the Act and as  such the purchase of shares made by the appellant is  not protected under Section 55 of the Act.  The answer  to the question depends upon the proper construction

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and interpretation of provisions of Sections 28 and 55  of the Act.  Sections 28 and 55 read: - "28. Effect of an order of adjudication  â\200\223 (1) On the making of an order of  adjudication the insolvent shall aid to  the utmost of his power in the  realization of his property and the  distribution of the proceeds among his  creditors. (2)     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, and thereafter,  except as provided by this Act, no  creditor to whom the insolvent is  indebted in respect of any debt provable  under this Act shall during the pendency  of the insolvency proceedings have any  remedy against the property of the  insolvent in respect of the debt, or  commence any suit or other legal  proceeding, except with the leave of the  Court and on such terms as the Court may  impose.

(3)     For the purposes of sub-section  (2), all goods being at the date of the  presentation of the petition on which  the order is made, in the possession,  order or disposition of the insolvent in  his trade or business, by the consent  and permission of the true owner, under  such circumstances that he is the  reputed owner thereof, shall be deemed  to be the property of the insolvent. (4).    All property which is acquired  by or devolves on the insolvent after  the date of an order of adjudication and  before his discharge shall forthwith  vest in the Court or receiver, and the  provisions of sub-section (2) shall  apply in respect thereof. (5).    The property of the insolvent  for the purposes of this section shall  not include any property (not being  books of account) which is exempted by  the Code of Civil Procedure, 1908, or by  any other enactment for the time being  in force from liability to attachment  and sale in execution of a decree. (6).    Nothing in this section shall  affect the power of any secured creditor  to realize or otherwise deal with his  security, in the same manner as he would  have been entitled to realize or deal  with it if this section had not been  passed. (7).    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."

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"55. Protection to bona fide  transactions. â\200\223 Subject to the foregoing  provisions of this Act with respect to  the effect of insolvency on an  execution, and with regard to the  avoidance of certain transfers and  preferences, nothing in this Act shall  invalidate in the case of an insolvency-  

(a)     any payment by the insolvent to  any of his creditors;

(b)     any payment or delivery to the  insolvent;

(c)     any transfer by the insolvent  for valuable consideration; or

(d)     any contract or dealing by or  with the insolvent for valuable  consideration:

       Provided that any such transaction  takes place before the date of the order  of adjudication, and that the person  with whom such transaction takes place  has not at the time notice of the  presentation of any insolvency petition  by or against the debtor."

       The object of Section 28 of the Act is to secure  unrestricted right to dispose of insolvent’s property  after an order of adjudication is made.  This Section  clearly states that during the pendency of the  insolvency proceedings, the creditor shall not commence  any proceeding against the property of the insolvent in  respect of his debt without the leave of the Insolvency  Court.  On making an order of adjudication, the whole  of the property of the insolvent shall vest in the  court or in a receiver, as the case may be, in terms of  sub-section (2).  An obligation is placed upon the  insolvent to assist the official receiver to realize  the assets.  When sub-section (1) is read alongwith  sub-section (7), the effect would be an order of  adjudication relates back to the date of presentation  of insolvency petition and the order of adjudication  takes effect from the date of the presentation of the  insolvency petition.  Consequently, vesting of property  under sub-section (2) also relates back to the date of  presentation of the insolvency petition.  Combined  reading of sub-sections (1), (2) and (7) makes the  position clear that the interest of the creditors is  safeguarded, parties are put on notice against attempt  to transfer the property after the date of presentation  of the insolvency petition by the petitioners or others  relating to his property and also to warn the intending  purchasers or transferees that they are taking the risk  of purchasing or getting the property transferred in  their names during the pendency of the insolvency  proceedings from the date of presentation of the  petition itself and even before passing of an order of  adjudication.  In the absence of such provisions, by  design, the claims and interests of the creditors could

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be defeated by effecting transfer of properties after  filing the insolvency petition and before passing an  order of adjudication.  Sections 28 and 55 of the Act  are to be read together.  Where the transfer has been  made by the insolvent after presentation of the  insolvency petition, the transfer cannot be held as  void ab initio but its validity or otherwise depends  upon a consideration of the question whether the  conditions specified in Section 55 are or are not  satisfied.  If the view of the High court affirming the  view of the district court that the protection of  Section 55 was not available to the appellant even on  satisfying the requirements of Section 55, the said  provision, although is on the statute book, does not  serve any purpose or it is redundant or superfluous.

       It is a cardinal rule of construction that  normally no word or provision should be considered  redundant or superfluous in interpreting the provisions  of a statute.  In the field of interpretation of  statutes, the courts always presume that the  legislature inserted every part thereof with a purpose  and the legislative intention is that every part of the  statute should have effect. It may not be correct to  say that a word or words used in a statute are either  unnecessary or without any purpose to serve, unless  there are compelling reasons to say so looking to the  scheme of the statute and having regard to the object  and purpose sought to be achieved by it. A Constitution  Bench of this Court in Jaipur Zila Sahakari Bhoomi Bank  Ltd. Vikas vs. Shri Ram Gopal Sharma and Ors. [JT 2002  (1) SC 182] while interpreting and considering the  effect of proviso to Section 33(2)(b) of the Industrial  Disputes Act, 1947 in para 13 observed â\200\223 "The proviso  to Section 33(2)(b) as can be seen from its very  unambiguous and clear language, is mandatory...........    Taking a contrary view that an order of discharge or  dismissal passed by an employer in contravention of the  mandatory conditions contained in the proviso does not  render such an order inoperative or void, defeats the  very purpose of the proviso and it becomes meaningless.   It is well-settled rule of interpretation that no part  of statute shall be construed as unnecessary or  superfluous.  The proviso cannot be diluted or  disobeyed by an employer......... The interpretation of  statute must be such that it should advance the  legislative intent and serve the purpose for which it  is made rather than to frustrate it."  Once the  requirements of Section 55 of the Act are satisfied,  the appellant is entitled for the protection of the  said Section as a bona fide transferee.  Taking a  contrary view takes away the very protective umbrella  specifically made available to a bona fide transferee  covered by Section 55.  Protection provided for bona  fide transfer in Section 55 is in a way exception to  Section 28(7).

       Proviso to Section 55 of the Act protects bona  fide transactions mentioned in clauses (a) to (d) of  Section 55.  As per the proviso, in order to get  protection to transactions mentioned in the said  Section, two conditions are to be satisfied â\200\223 (1) that  any such transaction takes place before the date of the  order of adjudication, and (2) that the person with  whom such transaction takes place has not at the time  

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notice of the presentation of any insolvency petition.   By implication flowing from the said proviso, any  transaction that takes place after the date of the  order of adjudication does not get protection of  proviso to Section 55 whether or not the person with  whom such transaction takes place has any notice of the  insolvency petition by or against the debtor.   

       In the case on hand on the facts found, it is  clear that the shares were transferred in favour of the  appellant before the date of the order of adjudication   was made on the insolvency petition filed by Kasi  Naickar and the appellant had no knowledge at the time  of purchasing the shares as to the presentation of the  insolvency petition, the transfer of shares was for  valuable consideration and such transfer was bona fide.   In this view, the appellants did satisfy the  requirements of proviso to Section 55 of the Act and  hence they are entitled for the claim made by them. We  may add that Sections 28 and 55 must be read together  harmoniously.  As already noticed above, these Sections   are designed and intended to serve different purposes.   In the proviso to Section 55 itself, there is reference  to order of adjudication and the presentation of any  insolvency petition.  Order of adjudication and  presentation of insolvency petition are two different  events essentially referring to two different dates  when in the same proviso, legislature consciously made  a clear statement as to two different dates, they  should be given effect to.  If the intention of the  proviso to Section 55 of the Act was not to protect  even a bona fide transferee for valuable consideration  without notice of presentation of insolvency petition  before an order of adjudication was made, the  legislature could have simply said any transaction  taking place after the date of presentation of any  insolvency petition by or against the debtor instead of  qualifying the transaction that takes place before the  date of the order of adjudication.  In this situation,  the said proviso which is intended to serve a definite  purpose should be given full meaning and effect.  It is  not possible to ignore a part of the provision, namely,  "any such transaction takes place before the date of  the order of adjudication". It stands to the reason as  well, that a bona fide transferee for valuable  consideration without the knowledge of the presentation  of insolvency petition on the date of transfer of  property is to be protected.

       In view of the facts found, discussion made and  reasons recorded above, we are unable to sustain the  impugned judgment of the High Court affirming the order  of the district court.  We answer the question set out  above in the affirmative and in favour of the  appellant. Hence, the appeal is allowed.  The impugned  judgment of the High Court affirming the order of the  District Judge is set aside and that of the trial court  is restored.  Parties to bear their own costs.