Rajasthan High Court - Jaipur
Gajanand vs Kailash Chand And Ors. on 8 March, 1994
Equivalent citations: 1994(1)WLN492
JUDGMENT Rajesh Balia, J.
1. This appeal arises out of an order dated 5.8.84 passed by the Additional District Judge, Bhilwara Under Section 20 of the Provincial Insolvency Act by which the interim Receiver was appointed in respect of properties mentioned in Schedule B and Schedule C attached with the Insolvency petition moved Under Section 9 of the said Act on 30th April, 83.
2. On 30th April, 83 Kailash Chandra filed an application Under Section 9 of the Provincial Insolvency Act for adjudging respondents No. 3 to 7, namely Girdharilal, Jamnalal, Gopal lal, Om Prakash and Shyam Sunder, member of Joint Hindu Family Girdharilal-Jamnalal as insolvent. Application Under Section 28 was also moved. Schedule C was annexed with the petition showing the property belonging to and in possession of non-applicants Nos. 1 to 6 in the petition. 25 properties were shown in Schedule B which were alleged to be transferred during the period from 29.1.88 to 12.2.83 to the non-petitioners Nos. 7 to 25. The Additional District Judge by the impugned order granted the application for appointment of interim receiver directing, him to take possession of all the properties mentioned in Schedule B and Schedule C and without deciding whether the properties which had been transferred prior to the filling of the petition were transferred with intend to defeat the creditors and the transfers were not purchasers for value without notice.
3. The appellants who were not parties before lower Court sought leave to prefer this appeal challenging the order of the Additional District Judge in respect of appointment of Receiver regarding properties transferred prior to filing of the petition Under Section 9.
4. The appellants urges that they are transferees of some of the properties mentioned in Schedule B and Schedule C for value and they are bona fide purchasers for value without notice of any fraudulent intention on the part of the debtors transferors. Their names were not included in the list of transferees also and therefore, the order has been passed without notice to them.
5. Leave is granted.
6. The principle contention raised on behalf of the appellants is that Under Section 20 only such property can be put in possession of Receiver which is the properly of debtor, who is sought to be adjudicated as insolvent as on the date of application and no property which has been transferred to the third parties before that dale can be subject matter of appointment of Receiver.
7. Learned Counsel for the respondents contends that appellants have not disclosed in the appeal nor they have filed any documents to show as to which of the properties they have acquired by transfer before the date of petition, and therefore, they have no locus-standi to challenge the order under appeal.
8. I have carefully considered the rival contention.
9. It would be appropriate to notice that the provisions of Section 20 as well as 53 of the Provincial Insolvency Act in order to understand the controversy. Section 20 reads as under:
Appointment of interim Receiver-The Court when making an order admitting the petition say and where the debtor is the petitioner ordinarily shall appoint an interim Receiver of the property of the debtor of any part thereof, and may direct him to take immediate possession thereof or of any part thereof, and the interim Receiver shall thereupon have such of the powers conferrable on a Receiver appointed under the Code of Civil Procedure (V of 1908) as the Court may direct. If an interim Receiver is not so appointed, the Court may make such appointment at any subsequent time before adjudication and the provisions of this section shall apply accordingly.
Section 53 Avoidants of voluntary transfer-Any transfer of property not being a transfer made before an in consideration of marriage or made in favour of a purchaser of incummrancer in good faith and valuable consideration shall, if the transfer or is adjuded insolved on a petition presented within two years after the date of the transfer, so avoidable as against the receiver and may be annuled the Court.
It is to be seen from the aforesaid provisions that in case of an application is filed by a debtor for adjudicating him insolvent, an obligation has been cast on the Court to appoint an interim Receiver. But question is left in the discretion of the Court where application has been moved by a person other than the debtor. The receiver is to be appointed only of the property of the debtor or any part thereof. That is to say the property which does not belong to debtor cannot be subject matter of jurisdiction of receiver whether appointed as an interim measure or on adjudication. Section 53 makes the transactions of transfer made by the debtor within a period of two years immediately before the filling of the petition voidable at the instance of receiver. Availing the provisions of Section 53 of the Provincial Insolvency Act, which are similar to provision of Section 53 of the Transfer of Property Act which also render fraudulent transfer to void creditor voidable at the instance of creditors, requires an order of the Court. In either case the transaction by itself is not rendered void. That is to say unless the transaction is avoided by taking appropriate steps. Its subsists and so also rights flowing from such transaction also subsist unless it is avoided by taking appropriate measures for avoiding such transaction.
10. When a transfer of property takes place in accordance with law, the interest in such property vest in the transferee. Even, if such transaction is voidable, the rights under the transfer is to vest in transferee until it is in fact avoided by getting a declaration about its invalidity by exercising option to avoid it. But until such legal effect is brought, it cannot be said that the property continuous to vest in the transferor. In view of this clear position it cannot be said that properties which have been transferred before the date of the petition Were the properties of the debtor on the date of such petition, which can be made subject matter of order Under Section 20. It can be brought under receiver appointed Under Section 20 only on such transaction being declared void by the Court on receiver making a claim to it Section 53 of the Act, in view of this, in my opinion, an unconditional direction to the receiver to take possession of that property also which has been transferred to other persons and which transaction can be avoided Under Section 53 if the conditions thereof are fulfilled cannot be sustained. The decisions relied on by the lower Court in this connection AIR 1933, Lahore-192 and AIR 1936 Nagpur-120 are beside the point. The fact that in two authorities it has been held that the scope and ambit of authority of Receiver appointed Under Section 20 as a measure of interim arrangement of finally on adjudication of the debtor as a insolvent has no relevance to the question whether the receiver, whether interim or final, can take possession of the property to which the third party claims his right without determination of such rights by treating it to be a belonging to the debtor.
11. In this connection the principle has correctly been enuntiated in Patit Pawan Daw v. Harisadhan Nundi and Ors. AIR 1938 Calcutta 182, wherein a receiver appointed Under Section 20 went to the shop which was alleged to be a property of debtor and demanded the possession form the occupier. The occupier raised an objection that shop does not belong to the debtor. The proper course to be adopted by the receiver was stated to be:
In these circumstances, it is clear law, beyond all question, in my opinion, that the receiver should have stayed his hand until the question of whether not the shop was the property of the debtor had been determined by the Court.
For arriving at this decision the Court relied on an earlier decision of Allahabad High Court in Hasmat Bibi v. Bhagwan Das and Ors. AIR 1914 Allahabad, 264.
12. The same view was "expressed in Gulab Chand Prasad and Ors. v. Lachuman Sah and Ors. . The court opined as under:
Under the provisions of Section 20 the interim receiver has no authority to take possession of property which were not admitted to be the properties of the debtor firm.
From the aforesaid it can be said that true principle is that the receiver appointed Under Section 20 can take possession of the properly that is admitted to be belonging to the debtor. If any objection is raised that the property does not belong to debtor then the receiver must stay his hand until the question as to who has the right to property is determined by the Court. This is all the more true to the properties which are alleged to have been transferred to third parties, but are sought to be avoided on the ground that they are fraudulent and have been made to defeat the creditors in terms of Section 53. In that event only course that has to be adopted is to leave the receiver to lake appropriate action first to get a decree for invalidating such transfer Under Section 53. On such declaration the property reverts back to the debtor and once it becomes the properly of debtor, it comes within the reach of the receiver, until it is done, it is not within the reach of the receiver.
13. Keeping in view the aforesaid principle in mind, it is clear that if the appellants have raised any objection to the ownership of the debtor to the property in question, the receiver must keep his hand off and get the matter determined by the court. If no objection is raised, the question of such determination does not arise. Therefore, in the aforesaid circumstances, this appeal is allowed and order of the Additional District Judge is modified to the extent that if any objection is raised by any person as to the ownership of the property to the debtor in respect of any properties which has been directed to be taken possession by the receiver as per the orders of the insolvency court, the receiver before proceeding further in the matter shall gel the matter adjudicated by the Court and until then he should stay his hand off. In such situation it is also open for the Court to pass necessary orders by way of interim measure so as to protect the property from being vested or going out of the reach of the proceedings.
14. There shall be no order as to costs.