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PETITIONER: TUKARAM RAMCHANDRA MANE (DEAD) BY L.R.RS

       Vs.

RESPONDENT: RAJARAM BAPU LAKULE (DEAD) BY L.RS.

DATE OF JUDGMENT:       16/04/1998

BENCH: K. VENKATASWAMI, A.P. MISRA

ACT:

HEADNOTE:

JUDGMENT:                      J U D G E M E N T K. Venkataswami J.      A short  question that arises for consideration in this appeal is  that what  is the  meaning to  be ascribed to the words "all acts theretofore, done, by the court or receiver, shall  be   valid;"  occurring   in  Section  37(1)  of  the Provincial Insolvency  Act,  1920  (hereinafter  called  the Act). Brief facts are given as hereunder.      The   deceased    respondent   Rajaram    Bapu   Lakule (hereinafter called  the debtor) was the original owner of a suit property,  namely C.T.S.  No. 926  Peth  Baug,  Sangli, Bombay. By  a deed  of mortage  by  conditional  sale  dated 22.1.1962 (Ex.41),  he  transferred  the  suit  property  in favour of  the appellant  (hereinafter called  the creditor) for a  sum of  Rs. 7,500.  The condition  was that   on  the amount of  Rs. 7,500/-  if repaid  within five  years of the execution of the document, the property was to be reconveyed to the  debtor. On  8.1.63 within  one year from the date of conditional  sale,  the  debtor  executed  another  document (Ex.42) a  regular sale  deed after  receiving an additional amount of  Rs. 500/-.  On 9.4.63 Insolvency Application 7/64 for being adjudicated as an insolvent. By proceedings of the court  dated  8.1.65,  the  debtor  was  adjudicated  as  an insolvent and  an official receiver was appointed in respect of the  properties  belonging  to  the  insolvent  /  debtor including the  suit property. In the year 1965, the receiver moved the  Insolvency Court  for a declaration that the sale deed namely,  ex.42 dated  8.1.63 in  favour of the creditor (appellant) was  a sham  and nominal transaction and as such it was  null and void. After taking evidence, the Insolvency Court held  that the  said sale  deed  (Ex.42)  was  a  sham transaction and  that it  was the  result of  the  collusion between the  debtor and  the creditor.  It was also found by the Insolvency  Court that  possession of  the suit property was never  taken over by the creditor. Against that order of the Insolvency  Court ,  an appeal   was  filed being M.C.A. 50/68 and  the same  was dismissed  by the  Extra  Assistant Judge, Sangli.   By an order dated 26.6.1971, the Insolvency Court passed an order of annulment.      Thereafter the  debtor filed  a Civil  Suit  62/76  for

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redemption   of the mortgage Ex.41. This suit for redemption was on  the footing  that the sale deed Ex.42 was a sham and bogus document  and it  was never acted upon. Simultaneously the debtor  moved the  authority under  the Maharashtra Debt Relief Act,  1975 for  a declaration that the debt which was the subject matter of the mortgage stood extinguished as the mortgagor being a debtor within the meaning of the said Act. The appellant contested the said application contending that in view  of the  order of  annulment and  in  the  light  of Section 37(1)  of the  Act, Ex.42  (sale deed) in his favour stood revived  and therefore,  there was  no relationship of debtor and  creditor to  move the application under the Debt Relief Act. The authorised officer on a consideration of the documents  overruled   14.480  held  that  in  view  of  the declaration regarding  Ex.42 (sale  deed) by  the Insolvency Court and by the Appellate Court that the sale was void, the earlier document  viz. conditional  sale Ex.41 stood revived and the debtor’s relationship existed. On that basis allowed the application  under the  Debt Relief  Act. The result was that the debt stood wiped out.      Aggrieved by  the order of the authorised officer under the Debt  Relief Act,  the appellant  moved the  Bombay High Court by filling W.P. 3438/80.      It was  contended on behalf of the appellant before the High Court  that the  authorised officer  was not  right  in holding  that   even  after  the  order  of  annulment,  the declaration made by the Insolvency Court holding Ex.42 (sale deed) as  null and void, holds the field. In other words, it was the  case of  the appellant that the effect of the order of annulment  was to  wipe out altogether the insolvency and its effect  including the  adjudication made on Ex.42 by the courts and  the saving  clause in  the first part of Section 37(1) shall  not keep  the order  passed by  the  Insolvency Court, affirmed  by the  appellant  Court,  declaring  Ex.42 (sale deed ) as null and void in force any longer. According to  the   cause  of  the  appellant,  the  words  "all  acts theretofore" occurring  in  Section  orders  passed  by  the court declaring  Ex.42 (sale  deed) as  sham and nominal. In support of that judgements from some High Courts were placed before the Bombay High Court.      Contending contrary,  it was  argued on  behalf of  the debtor that  in view  of the  declaration by  the Insolvency Court, declaring  Ex.42 (sale  deed) as null and void, being sham transaction  and affirmed  by the  Appellate Court, the same is  saved by the first part of Section 37(1) as it will come within the purview of the acts done by the court.      The Division  Bench of  the Bombay  High  Court,  after referring to  several judgments  of  different  High  Courts placed before  it, preferred  to follow  a judgement  of the Kerala  High   Court  reported   in  Kumaran   &  Ors.   vs. Cheriyambadam Ayidru & Ors (AIR 1969 Kerala 211). Ultimately the Division Bench held that the view taken by the authority under the  Debt Relief Act cannot be faulted and EX.42 (sale deed) was  non   est in  the eye of law and consequently the position occupied  by the  parties as  debtor  and  creditor continued till  the appointed  date as  contemplated by  the Debt Relief  Act. Since all other conditions were satisfied, the authority  was justified  in ordering the extinguishment of the  debt. On  that view,  the writ petition filed by the appellant was dismissed. Hence the present appeal.      Mr. V.N.  Ganpule, Senior  Counsel  appearing  for  the appellants reiterated  the same  argument, namely  that  the effect of  annulment on the facts of this case was to revive the validity  of regular  sale (Ex.42)   notwithstanding the declaration of  the Insolvency court and the Appellate Court

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during  the  pendency  of  the  insolvency  proceedings.  In support  of  his  contention,  he  placed  reliance  on  the following judgments : 1)   Jethaji Peraji Firm vs. Krishnayya & ors. 2)   Dharmasamarajayya vs.  Sankamma &  Ors. ( AIR (30) 1943      Madras 453 3)   S. Janabai  Ammal vs. Narasimhalu Naidu & Ors (AIR 1956      Madras 341 )      He fairly submitted that the judgment in Kumaran & Ors. vs. Cheriyambadam  Ayidru & Ors (AIR 1969 Kerala 211)  which is directly on point is against his contention.      Mr. U.U.  Lalit,  learned  counsel  appearing  for  the respondents submitted  that the  judgment of the Kerala High Court lays  down the  correct law and even AIR 1930 (Madras) 278 supports his case and not the case of the appellant. Mr. Lalit also  pointed out  that after  the annulment order was passed,  the   Insolvency  Court  did  not  pass  any  order regarding   the vesting of the property in any person and in the absence  of such direction, the property shall revert to the debtor to the extent of his right or interest therein as per Section  37(1) of  the Act. He submits that the judicial pronouncement declaring  Ex.42 (sale  deed) as null and void and the  outcome of  collusion  between  the  mortgagor  and mortgagee is saved by the first part of Section 37(1). The contention to the contrary that the word ’acts’ will not include  orders passed  by the  court, according  to the learned counsel  is contrary  to  a  plain  reading  of  the Section.      For a  proper appreciation  of the rival submission, we give below Section 37(1) of the Act :-      "37(1)   Where an  adjudication  is      annulled,     all     sales     and      dispositions   of    property   and      payments duly  made, and  all  acts      theretofore, done,  by the Court or      receiver,  shall   be  valid;   but      subject as  aforesaid, the property      of  the  debtor  who  was  adjudged      insolvent shall vest in such person      as the  Court may  appoint, or,  in      default of  any  such  appointment,      shall revert  to the  debtor to the      extent of  his  right  or  interest      therein on such conditions (if any)      as  the  Court  may,  by  order  in      writing,    declare."     (Emphasis      added).      A plain reading of the above Section will show that the orders  passed   by  the   court   or   receiver   including adjudication of disputed question on title, will come within the purview  of "all acts". The Kerala High Court in Kumaran & Ors. vs.Cheriyambadam Ayidru & Ors (supra) after referring to a judgment rendered, constructing & corresponding Section of the  English Bankruptcy  Act, 1869  held  that  an  order passed by  the Insolvency  Court or  the  official  receiver could be an act within the meaning of Section 37 of the Act.      Following the  judgement of  the Kerala High Court, the Division Bench held as follows:-      "At least  prima facie and upon the      plain  reading   of  said   Section      37(1), we find no justification for      holding that  the Declaration dated      26th August,  1968 did  not  answer      the  Description   of  the   "acts"      referred to  in said Section 37(1).

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    After all,  the  Court  acts  in  a      number  of  ways.  when  the  Court      grants any  declaration, it  cannot      be said  not to have performed some      "act" .  A  decree  passed  by  the      Court is  one of the acts. An order      passed by the Court is another such      act. Even  a more declaration given      will be  another act. Point is that      the  expression   "acts"  is   wide      enough to  take  in  its  fold  the      declaration made  by the Court such      as the one dated 26th August, 1968.      On  the   plain  reading   of   the      section. therefore,  it is somewhat      difficult  to   accept  Mr.  Apte’s      contention.           Mr. Apte  relied upon  certain      authorities  in   support  of   his      contention that,  upon the order of      annulment, every   order  passed by      the Court  became  non-existent  or      non est.  Mr. Shah,  on  the  other      hand,  relied   upon  quite  a  few      authorities  in   support  of   his      submission  that   the   order   of      annulment had  no effect  upon  the      declaration already  given  by  the      Insolvency   Court    holding   the      particularly sale  deed to be void.      We  will  presently  examine  those      authorities. Here, we are concerned      with  the   interpretation  of  the      section on  the basis  of its plain      reading.           In this  connection, Mr.  Apte      also  relied  upon  the  subsequent      portion  of   said  Clause  (1)  of      Section  37.   By  the   subsequent      portion, the effect of the order of      annulment  is   provided  for.  The      effect is  that the  property which      stood vested in the Court or in the      Receiver  till   the  date  of  the      annulment would,  from the  date of      the annulment, stand vested in such      person as  the Court  m ay  appoint      and if  the court does not make any      appointment of  any person for that      purpose,  the   property,   it   is      provided,  shall   revert  to   the      debtor, no  doubt, to the extent of      his right  and interest therein. On      the basis  of this  provision,  the      counsel argued  that no  order  was      passed   by  the  Insolvency  Court      appointing any  person in  whom the      property should  vest.   He  argued      that the  property must, therefore,      go back  to the  person to  whom it      was to  belong before  the date  of      the adjudication.           We are afraid, the argument is      not quite  correct. In  the instant      case, the effect of the declaration

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    was that the property vested in the      Receiver  because   the  order   of      appointment of  Receiver  was  very      much there.  If no order was passed      by the Court directing the property      to continue to vest in the Receiver      or if  there  was  no  other  order      passed by  the Court  directing the      property  to   vest  in  any  other      person,    the     third     result      contemplated by  said clause (1) is      that it  would revert  back to  the      debtor. The  incident of vesting is      not mentioned  in the order because      there is  no order  passed in  that      behalf.  It  could  be,  therefore,      legitimately argued  that it  would      vest in  the  debtor  entirely.  We      make  it  clear  that  we  are  not      called upon to decide this question      as to whom, in given circumstances,      the  property   would  revert   for      certain.  Point  here  is  that  it      would either  vest  in  the  person      appointed by  the Court or it would      revert  back   to  the  debtor.  No      position  is  contemplated  by  the      said clause  (1) that  the property      would revert back, in the case such      as  the   present   one,   to   the      ostensible purchaser under the sale      deed,      Ex.42,      was      the      mortgagee/creditor. Said clause (1)      does not  provide that the property      would go  to the mortagee/creditor.      If at all it reverts back, it would      revert  to  the  mortagagor/debtor.      The argument  advanced by Mr. Apte,      in fact, boomerangs against his own      contention."      We are  in full  agreement with  the view  taken by the Division Bench  in the  judgment under appeal. We would have considered the  authorities cited by the learned counsel for the appellant,  claiming to  support his contention that the effect of  annulment was to the effect that the adjudication of the  Insolvency Court  holding Ex.42 (sale deed) null and void, would  become non est and ineffective but for the fact that in a recent judgment of this Court in Arora Enterprises Ltd & Ors. vs. Indubhushan Obhan & Ors . ( (1997) 5 SCC 366) which had escaped the attention of the counsel on both sides settling  the  issue.  This  court  in  the  said  case  had considered the  scope of  Section 37(1)  and the  effect  of order of annulment. The facts of the case dealt with by this Court in  Arora Enterprises  Ltd.  (supra)  briefly  are  as follows:-      One  Indubhushan   alongwith  his  two  brothers  owned certain properties.  The said Indubhushan was adjudicated as an insolvent  on 29.7.1971.  While the  said Indubhushan was continuing as  undischarged insolvent, one Arora Enterprises entered into  an agreement  on 9.5.1988 for sale of the suit property  (Indubhushan’s  share)  and  paid  a  sum  of  Rs. 7,00,000/-.As the  said Indubhushan  failed to  execute  the sale pursuant to agreement, the said Arora Enterprises filed a suit  (No.133/89) on  the basis  of the  said agreement. . Pending the  suit, Indubhushan  on record, Arora Enterprises

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moved a  chamber summons  before a  learned single  judge of High Court, Bombay. The said chamber summons was disposed of by the  learned Single  Judge holding  inter alia  that  the agreement of  sale was  void and  unenforceable as  leave of Insolvency Court  was not  obtained and, therefore, the suit itself was not maintainable. An appeal was filed against the learned Single  Judge’s said  order which was also dismissed by the  Division Bench  on 9.7.1991. The result of the above orders was  that the  suit filed  by Arora Enterprises stood abated  against   Indubhushan’s  (estate)  legal  heirs.  On 30.5.1994  the   insolvency  of  Indubhushan  was  annulled. Thereafter the  legal representative  of Indubhushan entered into a  fresh  agreement  to  sell  the  property  with  one M/s.Kamal Construction  Co. Taking advantage of the order of annulment, Arora  Enterprises, the original agreement holder , took  out  fresh  chamber  summons  in  an  original  suit (No.133/89) filed  by it  in the  year 1989 praying to amend the plaint  by deleting  the name  of Indubhushan and to add his legal  heirs. It was the contention of Arora Enterprises that the  order of  annulment wipes  out the adjudication of insolvency and  the result  of that  was that  his agreement with Indubhushan  dated  9.5.98  automatically  revives  and binds on  his estate.  It was  also the  contention that the dismissal of  earlier chamber  summons declining  to implead the legal heirs and the consequent abatement of the suit are of no  con sequence. The said application was opposed by the legal heirs  as well  as   M/s. Kamal  Construction Co.  The learned Single Judge as well as the Division Bench rejecting the contention  advanced on  behalf  of  Arora  Enterprises, dismissed the second chamber application. Aggrieved by that, an appeal  by special  leave came  to be filed in this Court and this  Court after noting as many as sixteen judgments of various High  Courts on  the scope  of Section 37 of the Act held as follows:-      "10. 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 the preponderance of      judicial opinion  is in  favour  of      the  view   that  the   effect   of      annulling   the   adjudication   in      insolvency proceedings,  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 the above extent. But, this does      not solve  the problem  arising  in      this case.  The effect  of the suit      (independently)   filed    by   the      appellant  and  the  orders  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  and

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    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 est      or ineffective. In the suit laid by      the  appellant  (Suit  No.  133  of      1989) praying  for declaration that      the   agreement       between   the      appellant  and   Indubhushan  dated      9.5.88  is  valid  and  subsisting,      that   the   property   should   be      property  partitioned  and  that  a      decree  may   be   passed   against      Indubhushan-  the  first  defendant      for recovery  of a  sum  of  Rs.  7      lakhs  etc.;   On  the   demise  of      Indubhushan     on   22.4.89,   the      appellant took  out Chamber Summons      No. 769 of 1989 in the suit (No.133      of 1989).  The court  rejected  the      chamber  summons   by  a  composite      order on two different and distinct      points -  (1) the  agreement  dated      9.5.88    entered    between    the      appellant an  Indubhushan  is  void      and unenforceable  and so, the suit      is  not     maintainable;  (2)  The      amendments sought  by the appellant      to implead  Defendants 1(a) to 1(d)      as Respondents  1 to  4 in place of      deceased Defendant 1 and to add the      official  assignee   as   a   party      defendant,  were   disallowed.  The      legal effect  of the  said order is      that Suit   No.  133 of  1988 stood      abated against  the legal  heirs of      the  first  defendant,  Indubhushan      and  the  order  passed  on  2.2.90      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 early as 2-2-90. This      order is  valid until  set aside or      annulled,      in       appropriate      proceedings are  taken to establish      its  invalidity   and  to   get  it      annulled by  a person  entitled  to      avoid it.  The  said  order  stands      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   appellant  filed      fresh Chamber  Summons No.  1123 of      1995 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   be  set  aside  as  a

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    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."      The above  judgment of  this Court  squarely applies to the facts  of this  case which are given in the earlier part of this  judgment. Therefore,  we observed  earlier that the need to  go into the matter elaborately does  not arise view of the pronouncement in Arora Enterprises (supra) with which we are in respectful agreement.      In the  result there is no merit in this appeal and the judgment under  appeal is  in  conformity  with  the  recent ruling of  this Court  in Arora  Enterprises  case  (supra). Accordingly the  appeal fails and is dismissed with no order as to costs.