Andhra HC (Pre-Telangana)
Saheli Chit Funds (P) Limited, Hyd. vs N. Chandrakanth Agarwal And Others on 18 February, 2000
Equivalent citations: 2000(2)ALD776, 2000(2)ALT630, AIR 2000 ANDHRA PRADESH 347, 2000 CLC 1424 (AP), (2000) 2 ANDHLD 776, (2000) 2 ANDH LT 630, (2000) 3 CURCC 96
ORDER
1. The plaintiff is the appellant herein, who challenges the dismissal of its suit for recovery of Rs.41,587-50 as per the judgment and decree in OS No.140 of 1984, dated 10-4-1985 on the file of the Additional Chief Judge, City Civil Court, Hyderabad.
2. The suit claim is for recovery of the amount due under a chit with the plaintiff, a registered company doing chit business, wherein the defendant having become a member for the chit of the value of Rs.45,000/- with a duration of 30 months with a monthly subscription of Rs.1,500/-wiih effect from 29-4-1976 and having executed the agreement and subscribed for the same, had lifted the prize money of Rs.24,925/- on 6-8-1976 in the auction held on 26-7-1976 and subsequently, committed default in payment of installments. Defendants 2 to 4 are the guarantors. Defendant No. 1 had also executed a promote dated 24-7-1976 for a sum of Rs.39,000/-vvith the collateral security from defendants 2 to 4, who had executed a separate agreement. Though the plaintiff had issued a notice to the defendant No.1 on 3-2-1977, it was returned unservcd and on receipt of the same notice, defendants 2 to 4 replied on 24-2-1977 and 30-6-1977 denying their guarantorship and execution of documents. Hence the suit.
3. Defendants 1 and 2 were set ex parte. Defendants 3 and 4 only contested the suit through a written statement denying the very nature of transaction and alleging that all the suit documents are forged and fabricated. Further, it was alleged that the very nature of the transaction is penal and unconscionable. It was further pleaded that the defendant No.1 was adjudged insolvent in IP No.33 of 1972 on the file of the Additional Chief Judge, City Small Causes Court, Hyderabad on 21-1-1973 and even the later application filed in IA No.285 of 1976 for passing discharge orders was also dismissed on 20-3-1977 and thus the defendant No. 1 being adjudged as insolvent on the date of the very suit transaction, the transaction is void and the suit claim is not sustainable. Further, it was also pointed out that the suit is only a counter to the suit already filed by them viz., defendant Nos.3 and 4 in OS No.501 of 1977 on the file of the V Additional Judge, City Civil Court, Hyderabad for cancellation of the very guarantee bond dated 26-7-1976.
4. With these and other allegations as made in the respective pleadings, the Court below had framed the issues along with the other suit in OS No.489 of 1977. During the trial, the plaintiff had examined PWs.1 to 3 and marked Exs.A1 to A17 and the defendants examined DWs.1 and 2 and marked Exs.B1 to B13.
5. The Court below on a consideration of the said evidence, though holding on all the other issues in favour of the plaintiff, dismissed the suit only on the 'ground that as the defendant No.1 was adjudged as an insolvent as on the date of the suit transaction, the transaction is hit by the provisions of the Provincial Insolvency Act and the suit amount is not recoverable.
6. Sri M.N. Narasimha Reddy, learned Counsel appearing for the appellant, contended that in view of the findings as arrived at on the main issues in favour of the appellant-plaintiff, the plaintiff cannot be denied of its legitimate dues under the suit documents especially when there is nothing on record to show that the plaintiff was aware or had any notice of such proceedings in the insolvency case wherein the defendant No.1 was adjudged as an insolvent and further that the suit transaction, being a bona fide transaction without the knowledge or notice of the insolvency proceedings, is saved and the suit claim is liable to be sustained.
7. Sri Mohd. Azizullah Khan, Counsel appearing for the respondent, contended that there cannot be any dispute as to the fact that defendant No.1 was adjudged as an insolvent and on such adjudgment, all transactions become void and there cannot be any such transactions which will nullify the insolvency proceedings.
8. In view of the above contentions, the question which falls for consideration in this appeal is as to whether in view of the adjudgment of the defendant No.1 as an insolvent, the suit transaction is sustainable?
9. Though not admitted, but on the face of the findings as arrived at by the Court below in this case, it can be taken that the defendant No. 1 had become a member in the chit of the value of Rs.45,000/-with the plaintiff and having been successful in the auction, he withdrew the prize amount of Rs.24,925/-. Thereupon, he had also executed a pronote in Ex.A7 dated 26-7-1976 for a sum of Rs.39,000/- and subsequently, he committed default in payment of the installments. It is now borne out from the record that the defendant No. 1 was adjudged as an insolvent in IP No.33 of 1972 on the file of the Additional City Small Causes Court, Hyderabad on 21-1-1973. The said judgment was marked as Ex.B3. The later application field in 1A No.285 of 1976 for discharge was dismissed on 28-3-1977, the order of which was marked as Ex.B4. From these, it is quite evident that the defendant No.1 was adjudged as an insolvent on 21-1-1973 itself and even subsequent application as late as 20th March, 1977 for discharge stood rejected. The suit transaction relates on 29-4-1976 and the pronote is dated 26-7-1976, and both these dates fall much after the date of declaring the defendant No.1 as insolvent. A plea was raised that the plaintiff is not aware nor had any notice of the insolvency proceedings and also not being a party thereto, and he being a bona fide transactee, cannot be denied of his legitimate claim.
10. In this connection, it is relevant to notice Section 55 of the Provincial Insolvency Act, which reads as follows:
"55. Protection of bona fide transaction :--Subject to the foregoing provisions of this Act with respect to the effect of insolvency on an execution, and with respect 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."
11. It is evident from the said provision, especially the proviso thereto, that it is only the transactions before the date of the order of adjudication which are sought to be saved as bona fide but not those which are made after the date of adjudication and that too only on the ground of want of notice. Therefore, in view of the said categorical exclusion of the transaction after the date of the order, it cannot be said that the same could be brought to life under the saving provision. Admittedly, in this case, the suit transaction is much after the date of the defendant No.1 being declared as insolvent and it is squarely hit by the provisions of the Provincial Insolvency Act, 1920. In view of the expression "subject to" used in Section 55, both the provisions viz., Section 55 and Section 28 of the Act have to be read together. The protection is extended only to those transactions occurring in between the date of presentation and the date of the order, provided the person had no notice and the relation back as contemplated does not apply to these limited cases. The same is not the case to those transactions made after the date of adjudication. The object is to protect the bona fide transactions provided, however, the person entering into the transaction had no notice. However, as per Section 28(2) of the Act, on such adjudication, the whole of the property of the insolvent vest in the Court and receiver steps in and takes away all remedies against the insolvent. It also contemplates that the property acquired or devolved on the insolvent after adjudication, but before the discharge, vest in the Court or receiver. Under sub-section (7) the effect of the order of adjudication relates back to the date of presentation of petition. Thus, once an adjudication is made, all transactions from the date of petition till that of discharge are vitiated. It only enables the entire estate of the insolvent to vest in the Court or the receiver and make it available for distribution amongst the creditors.
12. In Kalamalla Babakka v. Official Receiver, Cuddapah, 1973 (1) An WR 343, a Division Bench of this Court held:
"There is no purpose in making an order of adjudication if it is not to divest the insolvent of his rights, interest in and title to the whole of his properties as the object and purpose of adjudication is to make the estate of the insolvent available for division among the creditors. Whatever rights the insolvent possessed in the properties prior to the adjudication, he is completely divested of all his rights by the operation of Section 28 and the properties vest in the Court whether a receiver is appointed or not by the Court. We cannot understand what rights the insolvent can have thereafter in the properties that vested in the Court to convey his rights or interest to any other person...... the effect of adjudication, therefore, is that it divests the insolvent of all rights in the properties till then held or possessed by him..... No separate order of vesting is contemplated so far as the Court is concerned for, the vesting is automatic the moment the adjudication order is made. It is open to the Court to simultaneously under the same order vest the properties of the insolvent in the receiver or make an order subsequently vesting the properties in him. Once an order of adjudication is made, no creditor to whom the insolvent is indebted, whatever may be the nature of the debt, can seek remedy against the property of the insolvent by way of suit or other proceedings except with the leave of the Court."
13. In Sumitra v. Laxmi Narayana Rao, AIR 1977 AP 83, it is held that a transfer by an insolvent after an order of adjudication and before discharge is not valid.
14. In view of the clear provisions, all such transactions or transfers effected after the petition was filed and on adjudication therein as insolvent will be null and void unless any such transfer or transaction falls squarely within Section 55 of the Act. Further, no creditor of the insolvent shall have any remedy in respect of such debts and no suit is maintainable and all such proceedings are specifically barred. Even otherwise, there cannot be any justification to extend the argument and bring the transaction entered into even after the date of adjudication within the saving provision test the whole object of the insolvency proceedings and declaring a person as insolvent become nugatory.
15. The Court below has rightly dismissed the suit on this ground and I do not find any reasons to vary the same. The appeal fails and it is accordingly dismissed. In the circumstances, there shall be no order as to costs.