Official Assignee, High Court, Bombay vs Haradagiri Basavanna Gowd and Others

Rewritten Version Notice: This is a rewritten version of the original judgment.

Court: supreme-court

Case Number: Civil Appeal No. 291 of 1960

Decision Date: 1 November 1962

Coram: P.B. Gajendragadkar, Bhuvneshwar P. Sinha, K.N. Wanchoo, K.C. Das Gupta, J.C. Shah

In the matter titled Official Assignee, High Court, Bombay versus Haradagiri Basavanna Gowd and others, the Supreme Court of India delivered its judgment on 1 November 1962. The opinion was authored by Justice P. B. Gajendragadkar and the bench comprised Justices P. B. Gajendragadkar, Bhuvneshwar P. Sinha, K. N. Wanchoo, K. C. Das Gupta and J. C. Shah. The case is reported in 1963 AIR 754 and 1963 SCR Supl. (1) 809. The statutory provisions considered included sections 17 and 51 of the Presidency Towns Insolvency Act, and sections 28 and 77 of the Provincial Insolvency Act, 1920 (Act 5 of 1920).

The Court explained that a set of adjudication proceedings had been initiated on 25 January 1950 in the District Court of Bellary. During those proceedings the respondent was allowed to take possession of certain goods which he claimed as his own and to sell them, subject to the condition that should his claim be rejected he would have to redeposit the sale proceeds together with interest in the Court. Subsequently, on the petition of other creditors, the Bombay High Court issued an adjudication order on 17 April 1950 whereby all property of the insolvent was vested in the Official Assignee of Bombay. On 13 December 1950, while making the adjudication order, the District Court of Bellary, on an application made by the Official Assignee, directed the Official Receiver of Bellary to move the Bombay High Court to have that adjudication order set aside. The respondent was a party to the Official Assignee’s application. Because the Official Receiver failed to take any steps, the Official Assignee brought the matter to the attention of the Bellary Court. The Official Receiver later approached the Bombay High Court, which refused to annul its own adjudication order. The Bellary Court then ordered the Official Receiver to forward all sums deposited in its custody to Bombay and directed the respondent to redeposit those amounts so that they could be transferred to Bombay. On appeal by the respondent, the High Court of Andhra Pradesh held that the Official Assignee’s application did not comply with section 77 of the Provincial Insolvency Act and that it would be more convenient for the estate of the insolvent to be administered by the District Court at Kurnool, the successor to the District Court at Bellary after the re‑organisation of the States. On further appeal by the Official Assignee, the Supreme Court held that the combined effect of sections 17 and 51 of the Presidency Towns Insolvency Act was to vest the estate of the insolvent in the Official Assignee, and that this vesting was not undone by section 28(7) of the Provincial Insolvency Act even though the vesting was related back to the date of presentation of the petition in the Bellary Court. The judgment also referenced the earlier case of Official Assignee of Madras v. Official Assignee of Rangoon by his Agent Subramania Aiyar.

The Court noted the citation of L.R. 42 Mad. 121 and held that the application presented by the Official Assignee to the Bellary Court could not be interpreted as an application pursuant to section 77 of the Provincial Insolvency Act. The Court also referred to the authority of L. King & Co., reported at 38 Cal. 542. The matter before the Court was a civil appeal, numbered 291 of 1960, filed under special leave from the judgment and decree dated 21 October 1955 of the Andhra High Court at Guntur, which itself was an appeal against order number 94 of 1952. Counsel for the appellant was identified as I. N. Shroff and counsel for the respondents as P. Ram Reddy. The judgment was delivered on 1 November 1962 by Justice Gajendragadkar. This appeal arose from insolvency proceedings initiated against the firm of T. A. Doshi, Bombay—hereinafter referred to as “the firm”—by its creditors both before the original side of the Bombay High Court and before the District Court at Bellary. Orders of adjudication issued by the two courts had produced avoidable complications and delays, resulting in the fact that a claim asserted by the respondents concerning a portion of the insolvent’s property before the Bellary District Court remained untried even though adjudication orders had been passed as early as 1950. On 25 January 1950 a replication identified as Interpleader Petition No. 2 of 1950 was filed in the Bellary District Court by certain creditors of the firm seeking adjudication of the firm as insolvent, and on 13 December 1950 an order of adjudication was made. During the pendency of those proceedings, the District Court appointed the Official Receiver as interim receiver at the request of the petitioning creditors. The Receiver was empowered to take possession of specific goods alleged to belong to the insolvent that were then in transit to Bombay. Acting under the Court’s directions, the Receiver seized the goods and disposed of them, with the proceeds of the sale being deposited in the court. Thereafter the respondents approached the District Court asserting that they were entitled to a share of the monies deposited by the Official Receiver because the Railway Receipt for the sold goods had been transferred by the insolvent to them as consideration. They prayed that, as an interim measure, the sale proceeds should be paid to them, explaining that they had borrowed money from a bank secured by the Railway Receipt and that, following the Receiver’s seizure of the goods, the bank demanded immediate repayment. The Court allowed this application, permitting the respondents to withdraw the amount on condition that they provide security and give an undertaking to redeposit the sum in court with interest at six per cent per annum when required. In compliance with the order, the respondents withdrew the money on 6 April 1950, while their substantive claim regarding that amount remained pending.

The respondents’ claim remained unresolved even though they had taken back the withdrawn amount on 6‑4‑50. While the insolvency case was proceeding before the District Court, other creditors had already instituted parallel proceedings against the firm in the original jurisdiction of the Bombay High Court on 14 April 1950 (Insolvency Petition No. 52 of 1950). That petition led to an adjudication order on 17 April 1950, by which all property of the insolvent was vested in the Official Assignee of Bombay. Subsequently, the Official Assignee filed an application in the District Court at Bellary (Insolvency Application No. 183 of 1950) seeking a stay of the insolvency proceedings pending in that court and requesting that every asset and book of account belonging to the insolvent be transferred to Bombay. The respondents were made parties to this application. On 13 December 1950, while adjudicating the case, the District Court issued an order in response to the Official Assignee’s request. The order directed the Official Receiver to approach the Bombay High Court for the annulment of the adjudication order dated 17 April 1950. The court observed that the High Court, on receiving such a application, would examine all relevant facts and circumstances and determine whether it would be more convenient for the parties to have the insolvent’s assets administered at Bellary or at Bombay. After issuing this direction, the District Court instructed the Official Receiver not to part with any part of the insolvent’s assets or effects until the Bombay High Court was approached and final orders were rendered on that application. The court further clarified that, should the High Court decide that administration should be carried out from Bombay, all assets, documents and account books would be handed over to the Official Assignee in Bombay. In the meantime, the status quo was to be maintained pending the High Court’s decision. The respondents did not challenge this order by filing an appeal. Although the District Court had ordered the Official Receiver to move before the Bombay High Court, the Receiver failed to act for a considerable period. Consequently, the Official Assignee filed another application in the District Court (Insolvency Application No. 171 of 1951) on 15 October 1951, drawing the court’s attention to the Receiver’s inaction and arguing that, in the interest of justice, the court should direct the respondents to deposit all amounts they had drawn, upon furnishing security, and to transfer those sums together with any other monies held in court and all the assets of the insolvent.

The Official Assignee sought the transfer of all movable property and the books of account of the insolvent’s firm, together with the file of Insolvency Case No. 1‑P‑53/1950, to the Bombay High Court. It was submitted that, if these measures were not taken, the estate would suffer irreparable loss and injury. At the same time, the Official Receiver applied to the Bombay High Court requesting that the adjudication order previously issued by that court be set aside. The High Court refused to annul its adjudication order and ordered that the insolvency proceedings continue before it, holding that the estate could be administered more conveniently in Bombay than in Bellary. When the District Court later heard the Official Assignee’s application (No. 171/1951), it was informed of the Bombay High Court’s decision on the Official Receiver’s application. Noting that the Bombay High Court had declined to overturn its adjudication order, the District Court concluded that the Official Assignee’s application should be granted. Accordingly, it directed the Official Receiver to forward all accounts and deposits held by the court and ordered the respondents to repay the sums they had drawn, subject to the provision of security and payment of interest at six percent per annum, so that those amounts could also be transferred to Bombay. The respondents challenged this order by filing an appeal before the High Court of Andhra Pradesh. The appellate court allowed the appeal, holding that the Official Assignee’s application did not satisfy the requirements of section 77 of the Provincial Insolvency Act and that, in the overall interest of convenience, the estate should be administered by the District Court at Kurnool, which had acquired jurisdiction over the proceedings following the reorganisation of the States. The Official Assignee, here referred to as the appellant, appealed this High Court decision to the Supreme Court. The principal issue for determination in this appeal is the question of to whom the property of the insolvent vests. To resolve this issue, the Court must examine the relevant provisions of both the Provincial Insolvency Act and the Presidency Towns Insolvency Act. Section 17 of the Presidency Act states, inter alia, that when an adjudication order is made, the property of the insolvent, wherever situated, vests in the Official Assignee and becomes divisible among his creditors. Section 51 of the same Act provides, inter alia, that the insolvency of a debtor is deemed to relate back to, and to commence at, (a) the time of the act of insolvency on which the adjudication order is based, or (b) where the insolvent has committed multiple acts of insolvency, the time of the earliest such act that is proved.

It was explained that an act of insolvency is required to have been carried out by the debtor within the three months immediately preceding the date on which the insolvency petition was presented. Consequently, when an adjudication order is issued under section 17 of the Presidency Act, that order is deemed to relate back to the date specified in section 51. The effect of the combined operation of these two provisions is that the insolvency, as defined by the Presidency Act, is considered to have commenced at the moment the debtor committed the first proved act of insolvency within the three‑month period before the petition was filed, and it is on that very date that the debtor’s property vests in the Official Assignee. Section 51 makes clear that the commencement of insolvency is traced back to the earliest proved act of insolvency occurring within three months before the presentation of the petition, and that petition may be filed either by the debtor himself or by any of his creditors. This principle concerning the doctrine of “relation back” was not contested. Applying the principle, the Court observed that the adjudication order issued by the Bombay High Court on 17 April 1950, in the insolvency petition before it, does not only relate back to the date the petition was filed, namely 14 April 1950, but also to the earliest act of insolvency within the preceding three‑month period, which was on 14 March 1950. In other words, the adjudication order of the Bombay High Court is deemed to take effect as of 14 March 1950. The Court then turned to consider the effect of the adjudication order issued by the District Court at Bellary. Section 28(2) of the Provincial Insolvency Act provides that, upon the making of an adjudication order, the entire property of the insolvent vests in the Court or in a Receiver as provided, and becomes divisible among the creditors; this provision corresponds to section 17 of the Presidency Act. Section 28(7) of the Provincial Act, which governs the relation‑back of the adjudication order, stipulates that such an order shall relate back to, and take effect from, the date of presentation of the petition on which it is made. Unlike section 51 of the Presidency Act, which relates back to the earliest act of insolvency within three months before the petition, section 28(7) merely relates back to the date the petition was presented. Accordingly, the adjudication order handed down by the District Court on 13 December 1950 is deemed to relate back to 25 January 1950, the date on which the petition was presented in that Court. This position was also undisputed. The remaining question, therefore, was to determine in whose favour the insolvent’s estate vested: whether it vested in the Official Assignee because the Bombay High Court had issued its adjudication order before the District Court issued a similar order, or whether it vested in the Official Receiver appointed by the District Court because the District Court’s adjudication order related back to an earlier date than that to which the Bombay High Court’s order related.

The Court examined the question of whether the insolvent’s property might vest in the Official Receiver of the District Court on the ground that the adjudication order issued by the District Court was deemed, under its own provision, to relate back to a date earlier than the date to which the adjudication order of the Bombay High Court related. In the Court’s view, the property of the insolvent in fact vested in the Official Assignee because of the operation of section 17 of the Presidency Act. Section 17 expressly provides that the property of the insolvent vests in the Official Assignee at the moment an order of adjudication is made. Consequently, when the District Court at Bellary passed an adjudication order in the insolvency proceedings that were pending before it, the effect of section 28(2) of the Provincial Act could not, in law, operate upon the insolvent’s property, since that property had already, by virtue of the statutory mandate contained in section 17 of the Presidency Act, vested in the Official Assignee. The Court further observed that the doctrine of relating back, which underlies section 28(7) of the Provincial Act and section 51 of the Presidency Act, could not be applied in the present circumstances because the vesting in the Official Assignee was the result of a specific statutory provision. Moreover, the Provincial Act contains no provision that would divest property which has already vested in the Official Assignee; therefore, the doctrine of relating back could not be used to achieve such a divestment. The Court explained that the purpose of vesting the insolvent’s property in the Court Officer is plainly to protect that property in the interests of the creditors and to facilitate a fair and just administration of the estate. If, by virtue of an adjudication order passed by the Bombay High Court under its jurisdiction granted by section 17, the property has already vested in the Official Assignee, there is no reason to subsequently divest that property and transfer it to the Official Receiver of the District Court. The Court acknowledged that where two different courts make adjudication orders, the appropriate procedure may be guided by considerations of convenience, fair play and justice, but it rejected the argument that because section 28(7) back‑dates the District Court’s adjudication order, the property which had vested in the Official Assignee should be divested and deemed to vest in the Official Receiver. The Court held that a reasonable way to reconcile section 28(2) read with section 28(7) of the Provincial Act, together with sections 17 and 51 of the Presidency Act, is to conclude that the relation‑back doctrine prescribed by section 28(7) does not apply where the insolvent’s property has already vested in the Official Assignee. Accordingly, the Court held that the property of the firm had validly vested in the Official Assignee. The Court noted that a similar issue had been considered by the Madras High Court in The Official Assignee of Madras v. The Official Assignee of Rangoon by his Agent Subramania Aiyar (1), a decision delivered by Justice Wallis, C.

The judge who delivered the judgment of the Court held that when two courts make successive adjudication orders in insolvency, all of the insolvent’s property remains vested in the Official Assignee appointed by the court that made the earlier adjudication. The later adjudication, even if it is based on acts of insolvency that occurred earlier in time than the acts considered by the earlier adjudication, does not divest the property from that first Official Assignee. In the earlier case reported in I.L.R. 42 Mad. 121, both competing adjudication orders had been issued by High Courts under the Presidency Act. Nevertheless, the principle articulated by Wallis, C. J. in that case applies equally to the present matter, where the competing adjudication orders arise under the Presidency Act and the Provincial Acts respectively. Wallis, C. J. observed that the provision in section 17 is clear that upon the making of an adjudication order the property vests in the Official Assignee, and that the Act contains no provision for divesting that property and transferring it to another Official Assignee under a later adjudication. Section 51, like section 28(7), is intended to enable the Official Assignee or the Official Receiver to recover property from third parties, and the doctrine of relation back embodied in those provisions serves that purpose. The doctrine is not meant to strip property that has already vested in an Official Assignee and to vest it in a different Official Assignee or Official Receiver. Dicey has noted that property to be vested in the court officer under insolvency law must be strictly the bankrupt’s property; property that, before bankruptcy began, had already vested in another person, such as a Scottish trustee, is not the bankrupt’s property and therefore does not vest in the English bankruptcy trustee.

Accordingly, in the present dispute the Court must proceed on the basis that the firm’s property vested in the Official Assignee in Bombay, and that the Bombay High Court is therefore empowered to deal with all matters arising from the firm’s insolvency. The High Court of Andhra Pradesh held that the application made by the Official Assignee did not satisfy the requirements of section 77 of the Provincial Act, and consequently set aside the District Court’s order directing the transfer of the assets and account‑books to Bombay. Section 77 of that Act provides that courts should act as auxiliaries to one another and that an order of one court requesting assistance from another is sufficient to confer on the latter court the jurisdiction it could exercise in similar matters within its own jurisdiction. A similar provision appears in section 126 of the Presidency Act. The Andhra Pradesh High Court concluded that the application by the Official Assignee could not be treated as a request from the Bombay High Court to the Bellary District Court, and that, absent a request made in accordance with section 77, the Bellary Court should not have acted upon the Official Assignee’s application. In our view this interpretation of section 77 is substantially correct.

Section 77 of the Provincial Act provided that courts possessing jurisdiction in insolvency and the officers of those courts were to act jointly and support one another in all insolvency matters. The provision further stated that an order issued by one court requesting assistance from another court would be sufficient to enable the latter court to exercise, with respect to the matters specified in the order, the same jurisdiction that either court could exercise in similar matters within its own jurisdiction. A similar rule was found in section 126 of the Presidency Act. The Andhra Pradesh High Court held that the application filed by the Official Assignee could not be considered a request from the Bombay High Court to the District Court at Bellary, and consequently, in the absence of a request made in accordance with section 77, the Bellary court should not have entertained the Official Assignee’s application. The Supreme Court agreed with this interpretation of section 77. It observed that the section prescribed the procedure for one court to make a request to another court and that, for reasons of decorum and courtesy, such a request had to be made by the court itself rather than by its officers. Hence, if the Bombay High Court had needed to petition the Bellary court under section 77, it should have issued an order to that effect and then sent a letter of request to the District Court at Bellary, as illustrated in the case of In re L. King & Co. (30 Cal. 542). A difficulty arose, however, because the Official Assignee’s application was not presented as a request made under section 77. The record showed that the District Court at Bellary had issued an order on 15 December 1950 directing the Official Receiver to approach the Bombay High Court for annulment of its adjudication order. The Official Receiver failed to comply with that directive. The Official Assignee’s later application sought to bring the Bellary court’s attention to the Receiver’s non‑compliance and to request that the assets and account books of the firm be transferred to Bombay. In substance, the Official Assignee argued that, since the earlier order remained unfulfilled, its operative portion should be enforced and the requested transfer should be granted. It was also noted that the Official Receiver had previously approached the Bombay High Court without success before the District Court finally considered the Official Assignee’s application.

The Court observed that the earlier order had become fully operative, and consequently the order issued by the District Court directing that the assets and the account books of the firm be transferred to Bombay functioned as a logical consequence of the order dated 13 December 1950. Because the proceedings before the District Court were initiated by the Official Assignee, the Court held that section 77 of the Provincial Act was attracted and that its requirements had not been fulfilled. In dealing with this point, the High Court had taken the position that the earlier order was not a final decree and therefore could not give rise to res judicata between the parties. The Court rejected that view as mistaken. It noted that the order in question had been passed in proceedings to which the respondents were parties, and that, as far as the District Court was concerned, it resolved the entire dispute then pending between the Official Assignee and the respondents.

Accordingly, the order provided that, if the Bombay High Court were to decide that the assets and the effects of the insolvent should be administered from Bombay, those assets and the account books should be handed over to the Official Assignee at Bombay. There was therefore no doubt that the order was complete and final. Subsequent events rendered the order effective, and the Official Assignee was therefore entitled to request the District Court to give effect to the order and to send the assets, the account books and the related documents to Bombay. The Court therefore held that the High Court erred in overturning the District Court’s order and in directing that the portion of the insolvency proceedings concerning the dispute between the Official Assignee and the respondents be tried at Kurnool.

The Court further noted that, when the Official Assignee filed his second application before the District Court, he was essentially seeking the transfer of the insolvent’s assets to himself on the ground that those assets had already vested in him, and he also sought that the claim made by the respondents be tried between himself and the respondents before the Bombay High Court, which had previously passed an adjudication order under section 17 of the Presidency Act. The Court observed that this aspect of the matter had not been properly placed before the High Court.

Counsel for the respondents, however, argued that although the Bombay High Court was the principal court competent to deal with the insolvency proceedings against the firm, the subsidiary question raised by the respondents could nevertheless be tried by the District Court at Bellary. That argument was based chiefly on the convenience of the parties. The Court indicated that it would not express an opinion on that convenience issue in the present appeal. Finally, the Court was satisfied that the assets ordered by the District Court to be transferred to Bombay included the amounts that had been allowed to be withdrawn by the respondents under the conditions imposed by the District Court.

The District Court had permitted the respondents to withdraw the amounts, subject to conditions that it imposed. The respondents may, if they wish, have their claim to that amount adjudicated by the Bellary Court on the ground of convenience. To obtain such a trial, they are required to file an application before the Bombay High Court seeking that the dispute be transferred. Although the whole insolvency proceeding against the firm is required to be conducted by the Bombay High Court, that court retains the power to permit the specific controversy between the respondents and the Official Assignee to be heard by the Bellary Court, provided it is satisfied that such a transfer would be convenient, fair and just. Consequently, the Court will not order the respondents to redeposit the withdrawn sum, together with any interest that may have accrued, at this stage. Instead, the respondents are given liberty to move an application to the Bombay High Court within two months from the date of this order. Should the Bombay High Court accept the application and direct that the dispute be heard at Bellary, it may also determine whether the sum already withdrawn should be returned to the court before the dispute is finally decided, or whether the return should occur only after a decision adverse to the respondents. That question will lie within the discretionary jurisdiction of the Bombay High Court.

If the respondents fail to lodge an application with the Bombay High Court within the prescribed two‑month period, they will be required to redeposit the entire withdrawn amount in the Bellary Court. Upon such redeposit, the Bellary Court will forward the amount to the Bombay High Court for further determination in accordance with the provisions governing insolvency proceedings. The transfer of the amount to the High Court will be made pursuant to the statutory framework that directs how assets in insolvency cases are to be handled. It is also noted that counsel for the respondents has conceded, and the Court agrees, that in the event the Bombay High Court permits the dispute to be tried by a district court, the appropriate venue is the District Court of Bellary and not the District Court of Kurnool. Accordingly, the appeal is allowed. The order previously issued by the Bombay High Court is therefore set aside, and the order of the District Court is restored, subject to the modification concerning the amount withdrawn by the respondents as described above. The restoration of the District Court’s order means that the procedural steps taken by that court before the High Court’s interference will again govern the case, except for the alteration relating to the withdrawn sum. The appellant is awarded costs against the respondents for the entire proceeding, reflecting the principle that the losing party should bear the expenses incurred by the successful party. Consequently, the appeal is allowed in its entirety.