Andhra HC (Pre-Telangana)
Sri Rachamalla Nagi Reddy vs Sri Pasurula Naganna on 3 August, 2004
Equivalent citations: AIR2005AP147, 2004(6)ALT220, AIR 2005 ANDHRA PRADESH 147, (2004) 5 ANDHLD 350 (2004) 6 ANDH LT 220, (2004) 6 ANDH LT 220
JUDGMENT D.S.R. Varma, J.
1. The interesting question involved in this Civil Revision Petition is, as to whether the decree-holder, who obtained an order of attachment before judgment under Order-38 Rule-5 of the Code of Civil Procedure and subsequently got the suit decreed in his favour is a secured creditor, as contemplated under Section-28 (6) of the Provincial Insolvency Act, 1920 (for short 'the Act').
2. The petitioner is the judgment-debtor and the respondent is the decree-holder.
3. For the sake of convenience, the petitioner and the respondent will be referred to as the "judgment-debtor and the decree-holder " respectively.
4. The facts that lead to the present controversy and which are not in dispute are as under:
5. The respondent filed the suit for recovery of money and obtained an order of attachment of properties of the petitioner before judgment under Order-38 Rule-5 of Code of Civil Procedure. Eventually, the suit was decreed in his favour and an execution petition had also been filed in the year 2002. During the pendency of the execution proceedings, it was brought to the notice of the Executing Court that the Judgment-debtor had already filed I.P. No. 17 of 2003 wherein the decree holder was figured as respondent No. 1. Notice seems to have been served on the decree-holder also. At that stage, the decree-holder had filed an application under Order-21 Rule-6 of the Code of Civil Procedure seeking to sell the properties mentioned in the Execution Petition schedule. At that stage, in fact, it was brought to the notice of the Executing Court by the judgment-debtor that the properties sought to be sold by the decree-holder were already the subject matter of I.P. No. 17 of 2003 and the said Insolvency Petition has to be adjudicated and the properties were already kept in the custody of the Receiver. Therefore, it was contended inter alia by the judgment-debtor that the properties mentioned in the Execution Petition schedule, which were under attachment by virtue of the orders passed by the decreeing Court under Order-38 Rule-5 of Code of Civil Procedure, cannot be put to sale. The Court below relying on the judgment reported in "SARDAR GOVINDRAO MAHADIK AND ANOTHER V. DEVI SAHAI AND OTHERS", and in "VASAVI AND COMPANY V. NAMPALLY PADMA AND OTHERS", held that filing of Insolvency Petition and pendency of the same was not a bar to proceed with the Execution Petition. Hence, the present Civil Revision Petition.
6. In this connection, it is contended by the learned counsel appearing for the judgment-debtor that as per the established law, particularly even according to the judgment rendered by the Supreme Court in "SARDAR GOVINDRAO MAHADIK AND ANOTHER v. DEVI SAHAI AND OTHERS" (1 supra), the property under attachment in the suit, by virtue of the operation of Order 38 Rule 5 of Code of Civil Procedure, cannot be put to sale inasmuch as the same property had already been kept under the custody of the Receiver by the Court adjudicating the Insolvency Petition filed by the judgment-debtor.
7. At the outset, and, in the present context, it is relevant to have a glance at Section 55 of the Code of Civil Procedure, which deals with arrest and detention. Sub Rule (3) of Section 55, which is relevant is, as under:
" Where a judgment-debtor is arrested in execution of a decree for the payment of money and brought before the Court, the Court shall inform him that he may apply to be declared an insolvent, and that he (may be discharged) if he has not committed any act of bad faith regarding the subject of the application and if he complies with the provisions of the law of insolvency for the time being in force."
8. From the above, it could be seen that the judgment-debtor has the right of information from the Court that he may apply to be declared as an insolvent.
9. Further, from a plain reading of Sub Rule (3) of Section 55 of C.P.C., it appears that the said provision is mandatory in nature.
10. The Supreme Court in "SARDAR GOVINDRAO MAHADIK AND ANOTHER v. DEVI SAHAI AND OTHERS" (1 supra), dealt elaborately about the effect of attachment before judgment, in para 58 of the said judgment, which is as under:
"What is the effect of attachment before judgment? Attachment before judgment is levied where the Court on an application of the plaintiff is satisfied that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him (a) is about to dispose of the whole or any part of his property, or (b) is about the remove the whole or any part of his property from the local limits of the jurisdiction of the Court. The sole object behind the order levying attachment before judgment is to give an assurance to the plaintiff that his decree if made would be satisfied. It is a sort of guarantee against decree becoming infructuous for want of property available from which the plaintiff can satisfy the decree."
11. But, it is noticed the Supreme Court had no occasion to deal with the effect of the order passed under Order-38 Rule 5 of the Code of Civil Procedure in the context of the provisions of the Act.
12. However, the view taken by the Supreme Court is clear to the extent that the property under attachment by virtue of the orders passed under Order-38 Rule-5 of Code of Civil Procedure is only for the purpose of guarantee to the decree-holder in anticipation of certain adverse contingencies, which the decree-holder may have to face, at a later point of time.
13. This issue had fallen for consideration in "VASAVI AND COMPANY v. NAMPALLY PADMA AND OTHERS"(2 supra), wherein a learned single Judge of this Court held that in view of Section 28(6) of the Act, the order obtained by the plaintiff attaching the properties of the defendant under Order-38 Rule-5 Code of Civil Procedure continues to exist even after passing of the decree. This view was taken relying on the judgment of Punjab and Haryana High Court reported in "SMT. PUSHPAMALA JAIN V. BANK OF BARODA AND OTHERS", . The learned Judge also relied on the judgment of the Supreme court reported in "SARDAR GOVINDRAO MAHADIK AND ANOTHER v. DEVI SAHAI AND OTHERS" (1 supra).
14. The learned counsel appearing for the judgment-debtor also relies on the judgment rendered by this Court in "VASAVI AND COMPANY v. NAMPALLY PADMA AND OTHERS" (2 supra).
15. It is very relevant to note in this context that the learned Judge took the view that the plaintiff, who obtained an order of attachment under Order-38 Rule-5 of the Code of Civil Procedure, and eventually obtained a decree in his favour, should be treated as a secured creditor as envisaged under sub-section(6) of Section-28 of the Act.
16. Now, the present controversy starts from the expression 'secured creditor'.
17. The expression 'secured creditor' is defined in sub-section (e) of Section-2, which is as under:
" 'Secured creditor' means a person holding a mortgage, charge or lien on the property of the debtor or any part there of as a security for a debt due to him from the debtor."
18. The above provision envisages that only three categories of persons would and could be treated as secured creditors, (1) Person holding a mortgage, (2) charge or (3) lien.
19. Now, the further question that arises is, as to whether the decree- holder falls within those three categories or not?
20. As already noticed, the learned single Judge of this Court, in "VASAVI AND COMPANY v. NAMPALLY PADMA AND OTHERS" (2 supra), held that a person, who obtained an order under Order-38 Rule-5 of the Code of Civil Procedure before judgment and obtained a decree, should be treated as a 'secured creditor'.
21. The very same issue had already fallen for consideration before this Court in "MUTHA SUBBA RAO AND OTHERS V. THE OFFICIAL RECEIVER, WEST GODAVARI OF ELURU AND OTHERS", (V 52 C 17) and the words of Venkatesam, J, are as under:
" The law on the points raised on behalf of the appellants may now be considered. It is well settled that an attachment, whether before or after judgment, does not create any charge on the attached property. An attaching creditor, is not a secured creditor. Hence, if an order of adjudication is made after attachment but before sale, the property vests in the Official Assignee or Receiver for the benefit of the general body of creditors and the attaching creditor is not entitled to obtain satisfaction of his decree by sale of the attached property. The order of adjudication divests the rights of the attaching creditor and remits him to the position of an ordinary creditor: (vide page 589, "Law of Insolvency in India" by Mulla, 1958 Edition). This is the position with respect to an attachment of an insolvent's property."
22. From the above, it is clear that way back in the year 1965 this Court held that the 'attaching creditor' cannot be treated as a 'secured creditor'.
23. The above view taken, by this Court earlier, appears to be diverging with the view taken by the learned Judge of this Court in "VASAVI AND COMPANY v. NAMPALLY PADMA AND OTHERS"(2 supra).
24. In view of the apparent divergent views, in normal course, this Court should have referred the matter to a Division Bench for the purpose of laying an authentic principle of law on this subject. But, I feel that it is not necessary in view of the other circumstances, which will be dealt with in the following paragraphs:
25. It is to be noted from the judgment of "MUTHA SUBBA RAO AND OTHERS vs. THE OFFICIAL RECEIVER, WEST GODAVARI OF ELURU AND OTHERS"(4 supra) that the principle, extracted above already, was laid down basing on the Division bench judgment rendered in "SIVASAMI ODAYAR V. C.R.SUBRAMANIA AIYAR", AIR 1932 MADRAS 95 wherein it was observed as under:
"There is however plenty of authority, for example Haranchandra Chakravarthi V. Jay Chand(3), for the view that the section applies to all kinds of property under attachment by a Court and we do not propose to dissent from it. The result, then, is that, on the application of the interim receiver, the executing Court should at once have stayed the sale and directed delivery of possession to him, the section being peremptory in its terms. The sale, has however been confirmed by a Bench of this Court and, even if it could be set aside, no one is asking for it to be set aside. But, it is important to define the true legal position, which has some bearing on the appellant's plea of bona fides."
26. The facts of the said case are also very relevant to be noted, and in brief, they are as under:
"In Insolvency Proceedings, the property of the insolvent was kept under the custody of the Official Receiver. After the decree was passed, the property was put to sale in the Execution proceedings, and the auction purchaser took possession of the property also. The respondent therein purchased the land in execution of a decree passed against the insolvent. Subsequent to the decree, the judgment-debtor/insolvent applied to be adjudicated as an insolvent, an Official Receiver was appointed and the property was taken on lease by a third party. When it was brought to the notice of the official receiver, the Official Receiver made an application objecting the delivery of possession to the auction-purchaser. The application filed by the official receiver was not accepted. In such circumstances, it was held in "SIVASAMI ODAYAR's case ( 5 supra) that:
"The Official Receiver was quite justified in declining to recognize the title of the auction-purchaser under a sale that should not have taken place or been confirmed by a Court, which was required peremptorily by the statute to stay its hand and to transfer the attached property to the receiver."
27. It is to be noted that the view of the Division Bench of Madras High Court in the said case was taken with reference to all kinds of attachments.
28. The expression, employed in the above extract, "applies to all attachments" denotes and implies that it has a sweeping application as to the orders of attachment, including the orders passed under Order 38 Rule 5 of the Code of Civil Procedure. It further implies that the Receiver, in whose custody the properties were kept has exclusive, and unfettered control over the property and the attachment made under Order-38 Rule-5 of the Code of Civil Procedure is not an exception.
29. It is to be further seen that the Division Bench of Madras High Court again relied on a judgment rendered in "HARAN CHANDRA CHAKRAVARTI V. JOYCHAND AND OTHERS", AIR 1929 CALCUTTA 524 to the extent that Section-52 applies to all kinds of attachments.
30. It is to be noted in this regard that the judgments rendered in "Kamala Bala Dasi V. Surendra Nath Ganguly And Others", AIR 1937 CALCUTTA 517 "GOURANGA BEHARI BASAK AND ANOTHER V. MANINDRA NATH DAS GUPTA", AIR 1933 CALCUTTA 625 and "(SETH) BANSILAL AND ANOTHER V. (PANDIT) KASHINATH AND OTHERS", AIR 1933 NAGPUR 229 are also to the effect that the order of attachment before judgment does not confer any right on the decree-holder in order to attach him the status of secured creditor and further the very purpose of passing an order under Order 38 Rule 5 of Code of Civil Procedure is limited.
31. It is to be further noted that this Court in "MUTHA SUBBA RAO AND OTHERS v. THE OFFICIAL RECEIVER, WEST GODAVARI OF ELURU AND OTHERS"(4 supra), had referred the Division Bench judgment of Madras High Court in "KRISHNAMURTHY PILLAI V. SUNDARAMURTHY PILLAI", AIR 1932 MADRAS 381 (V 19).
32. Therefore, a conjoint reading of the judgments rendered by Madras High Court in "SIVASAMI ODAYAR v. C.R.SUBRAMANIA AIYAR"(5 supra) and Andhra Pradesh High Court in "MUTHA SUBBA RAO AND OTHERS v. THE OFFICIAL RECEIVER, WEST GODAVARI OF ELURU AND OTHERS" (4 supra) would only make the situation and the subject abundantly clear and the following would emerge:
(1) The order of attachment before judgment obtained by the plaintiff/decree-holder does not confer him the status of 'secured creditor'.
(2) The interim receiver appointed by the Court adjudicating a person as an insolvent has complete control over the properties kept under his custody notwithstanding the subsistence of any order of attachment including attachment made under Order-38 of Rule-5 of Code of Civil Procedure.
33. The judgment and the principle laid down by the Division Bench of Madras High Court in "SIVASAMI ODAYAR's case (5 supra), which was followed by the A.P High Court in "MUTHA SUBBA RAO AND OTHERS v. THE OFFICIAL RECEIVER, WEST GODAVARI OF ELURU AND OTHERS"(4 supra), is binding on this Court, which unfortunately was not brought to the notice of the learned single Judge of this court in "VASAVI AND COMPANY v. NAMPALLY PADMA AND OTHERS" (2 supra).
34. Hence, in view of the binding principle rendered by the Division Bench of Madras High Court in "SIVASAMI ODAYAR v. C.R.SUBRAMANIA AIYAR"(5 supra), which was followed by the A.P High Court in "MUTHA SUBBA RAO AND OTHERS v. THE OFFICIAL RECEIVER, WEST GODAVARI OF ELURU AND OTHERS"(4 supra), this Court has no option except to opine that the view taken by the learned Single Judge in "VASAVI AND COMPANY v. NAMPALLY PADMA AND OTHERS"(2 supra) is not correct.
35. For the foregoing reasons, being bound by the judgment of the Division Bench of Madras High Court in "SIVASAMI ODAYAR v. C.R.SUBRAMANIA AIYAR"(5 supra), as followed by the A.P High Court in "MUTHA SUBBA RAO AND OTHERS v. THE OFFICIAL RECEIVER, WEST GODAVARI OF ELURU AND OTHERS"(4 supra), the Civil Revision Petition is liable to be allowed and the impugned order, is liable to be set aside.
36. In the result, the Civil Revision Petition is allowed and the impugned order is set aside. In the circumstances, there shall be no order as to costs.