Madras High Court
Chennappa Chetty vs Official Receiver, Salem And Ors. on 19 July, 1954
Equivalent citations: AIR1955MAD51, (1954)IIMLJ755, AIR 1955 MADRAS 51, 1967 MADLW 1064
ORDER Rajagopala Aiyangar, J.
1. There was a Joint family consisting of a father and two sons. The father had incurred debts and was adjudicated an insolvent on a- creditor's petition filed on 11-3-1946. On 12-2-1946 the insolvent had executed in favour of one Chinnappa Chetti a deed of sale of all the lands belonging to him. This deed was executed by the insolvent on his own behalf and as the guardian of his two minor sons for a consideration of Rs. 3000. The consideration for this sale was made up in part of amounts due to the vendee himself under two antecedent mortgage deeds, and in part of amounts due to him and his deceased elder brother on promissory notes.
2. After the adjudication, the Official Receiver filed a petition to set aside the sale deed dated 12-2-1946 under Sections 53 and 64, Provincial Insolvency Act. The learned Subordinate Judge came to the conclusion on a review of the evidence that the vendee had not purchased the property in "good faith and for valuable consideration" and that it was clear that the object of the insolvent in executing the sale was with a view to giving the vendee a preference over other creditors without any pressure from him. On these findings the application by the Official Receiver was ordered.
3. The purchaser took the matter in appeal to the District Court in C. M. A. No. 87 of 1950. The learned Additional District Judge agreed with the first Court that the transaction of sale fell within Section 54 as a fraudulent preference. A fresh point however was raised in the appellate Court that since the Insolvent had conveyed to the purchaser not merely his interest in the family properties but also the interest of his two sons as their guardian, and as these two coparceners had not been adjudicated, the insolvency court had no jurisdiction to set aside the sale in full, but could only set it aside as regards the one-third share of the insolvent, and that, the purchaser's rights to the two-third share of the sons could not be affected by any order under Section 54.
4. The learned Additional District Judge has dealt with this point in paragraph 7 of his judgment and holding that as the debt for the discharge of which the sale was executed was binding on the sons and as the insolvent must be taken to have executed the sale in his capacity as father, the sons' share also passed to the purchaser, and if that were so, the entire alienation could be set aside under Section 54, Provincial Insolvency Act. He accordingly confirmed the order of the first court and dismissed the transferee's appeal.
5. This revision petition is preferred by the transferee against this order in C. M. A. No. 87 of 1950. Mr. N.R. Raghavachari does not contest the finding of the courts below as regards the transaction falling within Section 54 as a fraudulent preference, but has urged before me only the last point set out above and contends that the court had no jurisdiction to set aside the sale 'quoad' the shares of the non-insolvent vendors, i.e. the two minor sons.
6. There is such a considerable conflict in the decisions touching this point that I think it proper that the question raised should go before a Bench for an authoritative ruling. The earliest case on the point seems to be a decision of Sundaram Chetti J. in -- 'Subramanian Chettiar v. Subbaraya Goundan', AIR 1935 Mad 246 (A). The mortgage deed attacked in that case as a fraudulent preference was executed by the insolvent for himself and as father and guardian of his two minor sons. The learned Judge held that the deed was in effect a composite deed--executed by three persons having distinct interests in the property transferred, and that therefore on the insolvency of one, the transfer could be set aside by the insolvency court only In regard to his share, Consequently the order setting aside the sale as fraudulent was confined to the share of the insolvent transferor.
This decision, however, was dissented from by Pandrang Row J. in -- Talanlappa Chettiar v. Official Receiver, Madura', AIR 1637 Mad 791 (B), on the footing that the result achieved in the earlier case was inconsistent with the principle that a transfer by the father in the circumstances conveyed the interest of sons also. Panckridge J. of the Calcutta High Court reached a conclusion similar to Sundaram Chetti J. in --"Tilak Chand, In re', AIR 1942 Cal 342 (2) (C). The judgment is short and does not contain much reasoning. Abdur Rahman J., however, in -- 'Murugappa Mudali v. Official Receiver, Chittoor', AIR 1943 Mad 303 (D) dissented from Sundaram Chetti J's. reasoning and expressed his concurrence with Pandrang Row J. In --'Parvatavardhanamma v. Venkataramiah', AIR 1944 Mad 235 (E), Kuppuswami Aiyar J. was inclined to agree with Sundaram Chetti J. and so was Horwili J. in -- 'Official Receiver, West Tanjore V. Neminadha Mudaliar', AIR 1945 Mad 253 (F). There is also a decision of a Bench of the Nagpur High Court in -- 'Dattatraya Laxman v. Yashodabai', AIR 1949 Nag 223 (G), in support of the same view.
Thus there is a clear conflict in the decisions of this Court on the point, the preponderance of authority being clearly in favour of Sundaram Chetti J's. view that the jurisdiction of an insolvency Court when setting aside a transfer under Section 53 or 54 of the Provincial Insolvency Act-where the transaction is not sham and nominal--is confined to doing so in respect of the insolvent's share. In view of the course which I propose to adopt, I do not find it necessary to express my own views on the question. I wish only to add that the point would have to be considered in the light of the amendment effected by the introduction of Section 28-A of the Provincial Insolvency Act by Section 2 of Act 25 of 1948.
7. The papers will accordingly be placed before the Honourable the Chief Justice for orders.
(Pursuant to the aforesaid order, this petition coming on for hearing the Court delivered the following:) Case Note:
Civil sale deed Sections 28A,53 and 54 of Provincial Insolvency Act, 1920 insolvent executed sale deed on his own behalf and as father on behalf of minor sons Lower Court (LC) invalidated sale deed on ground of Section 54 decision of LC challenged adjudication of insolvent vests in official receiver in interest of insolvent transaction entered into by father not on his own behalf but on behalf of other who are not adjudicated and whose property not vested with official receiver official receiver vested with interest of insolvent not interest of no-insolvent in present case sale deed on behalf of minor sons cannot be invalidated on ground of insolvency of father Order of LC to affect interest of insolvent not of minor sons.
JUDGMENT Rajagopala Aiyangar, J.
8. The facts of this case have been fully set out in the order of reference to a Bench and it is unnecessary to set them out afresh.
9. The question arising for our consideration is whether when an alienation by a father is set aside under Section 54, Provincial Insolvency Act, the setting aside of this alienation affects merely the interest of the Insolvent, or whether the interest of the sons also is divested from the vendee. In the present case, a father executed the impugned deed of sale on his own behalf and as the guardian of his two minorsons for a consideration of Rs. 3000. The father alone was adjudicated an insolvent and after the adjudication the Official Receiver filed a petition to set aside the sale under Section 54, Provincial Insolvency Act. The learned Subordinate Judge who tried the petition In the first instance found the sale voidable under Section 54, Insolvency Act, and set it aside not merely in respect of the share of the father, but also in respect of the share of the two sons on whose behalf the father purported to effect the alienation.
The question as to the quantum of the interest which could be the subject-matter of adjudicatloa In the insolvency proceedings was raised before the learned District Judge in the appeal to that court by the vendee. But the learned District Judge agreeing with the trial court that the transaction in question was a fraudulent preference, set aside the sale in full and not merely as regards the one-third share of the insolvent. The matter was brought up to this Court in this civil revision petition by the vendee.
10. The question raised by the petitioner was the subject of several decisions of this Court, the earliest of which is that of Sundaram Chetti J. In -- 'AIR 1935 Mad 246 (A)'. The deed which was attacked in that case as a fraudulent preference had been executed by the Insolvent for himself and as father and guardian of his two minor sons. The learned Judge held that the deed should be treated as a composite deed executed by three persons having distinct interests and, on the insolvency of one, the transfer could be set aside by the Insolvency Court in regard to his own share and not as regards the share of the non-insolvent vendors. This decision has received support in subsequent decisions of this court in -- 'AIR 1944 Mad 235 (E)' and -- 'AIR 1945 Mad 253 (F)' as well as in the recent decision of this Court in -- 'Sathi Reddi v. Anasuya', (H).
The Calcutta High Court has taken a similar view as regards the effect of an order under Section 54 of the Act in -- 'AIR 1942 Cal 342 (2) (C)' and Similarly a Bench of the Nagpur High Court in -- 'AIR 1949 Nag 223 (G)'. The only dissent from this point of view is to be found in two judgments of single Judges of this Court in -- 'AIR 1937 Mad 791 (B)' by Pandrang Row J. and -- 'AIR 1943 Mad 303 (D)' by Abdur Rahman J.
Viewing the case apart from authority, it is clear to us that on the adjudication of an insolvent what vests in the Official Receiver is the interest of the insolvent and when a transaction entered into by the father not merely on his own behalf, but on behalf of others, who are not adjudicated and whose property does not vest in the Official Receiver is set aside, what vests in the Official Receiver as the result of such setting aside is merely the interest of the insolvent father and not that of the non-insolvents.
The question as to the father's power to allegate family property for the discharge of antecedent debts and the provision enacted in Section 28-A, Provincial Insolvency Act, vesting such a power in the Official Receiver is wholly irrelevant for the consideration of the present question; for we are not here concerned with any alienation by the Official Receiver in which event alone the question of Section 28-A, Insolvency Act, will arise, but we are concerned with the effect of an alienation effected by the insolvent.
In so far as the insolvent's share of property is fnvolved in the alienation, the Official Receiver would get it back when the alienation is set aside, but if under the powers vested in the insolvent father under the general law he has alienated the interests of his sons who are not insolvents, no order of the Insolvency Court under Section 54 can get back from the alience and vest in the Official Receiver the interests of persons, who have not been adjudicated. The fact that the purpose for which the alienation has been effected is one binding on the sons either because it is for necessity or for the discharge of antecedent debts goes to confirm the title of the vendee quoad the sons, hut is certainly not a ground for holding that on the transaction of sale being set aside under Section 54, Provincial Insolvency Act, the title of the alienee to the sons' share which 'ex concessis' was good under the general law is impaired and avoided. Of course we are not here concerned with the alienation which is sham and nominal to which different considerations would apply.
11. We, therefore, consider that the view of Sundaram Chetti J. in the case referred to above and which has been followed almost consistently by this Court and the other Courts is the correct one. The result is that the Civil Revision Petition is allowed and the order of the Court below will be modified by making the order under Section 54 apply only to the share of the insolvent in the suit property. There will be no order as to costs.