Venkata Reddi And Others vs Pothi Reddi

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

Court: Supreme Court of India

Case Number: Civil Appeal No. 199 of 1960

Decision Date: 30 November 1962

Coram: J.R. Mudholkar, Syed Jaffer Imam, N. Rajagopala Ayyangar

In this matter, the Supreme Court of India delivered its judgment on 30 November 1962. The case was titled Venkata Reddi and Others versus Pothi Reddi. The opinion was authored by Justice J. R. Mudholkar, and the bench comprised Justices J. R. Mudholkar, Syed Jaffer Imam and N. Rajagopala Ayyangar.

The petitioners were identified as Venkata Reddi and several others, while the respondent was named Pothi Reddi. The judgment was recorded on the date mentioned above and the decision was reported in the official law reports as 1963 AIR 992 and 1963 SCR Supl. (2) 616. The citation information also included references such as R 1965 SC1055 (6).

The factual backdrop involved the adjudication of the petitioners’ father as an insolvent. Following his insolvency, the Official Receiver placed for sale the property that formed part of the undivided family estate, which included the two‑thirds share owned by the petitioners. On 1 February 1943, the petitioners instituted a suit seeking partition of the joint family property. They impleaded the respondent, who had purchased the property, and contended that the Official Receiver’s authority extended only to the father’s own share, not to the petitioners’ two‑thirds share. The trial court accepted this contention and issued a preliminary decree granting partition in favour of the petitioners. This decree was subsequently affirmed by the High Court of Madras on 18 November 1946. The petitioners later applied for a final decree, which the court passed ex‑parte on 17 August 1946; however, that ex‑parte final decree was set aside after the respondent intervened.

While these proceedings were ongoing, Section 28A of the Provincial Insolvency Act, 1920, was amended by the Provincial Insolvency (Amendment) Act, 1948 (Act 25 of 1948). The amendment provided that the disposing power of a father over the interest of his undivided sons would also vest in the Official Receiver. The first proviso to Section 28A expressly stated that “nothing in this section shall affect any transfer of the property of the insolvent by… a Receiver… made before the Commencement of the Provincial Insolvency (Amendment) Act, 1948, which has been the subject of a final decision by a competent court.” The District Munsif considered that the Amending Act did not disturb the preliminary decree and consequently restored the ex‑parte final decree. The principal question before the Supreme Court was whether the preliminary decree for partition, which had been affirmed finally on second appeal by the High Court, qualified as a “final decision” under Section 28A of the Act.

The Court held that a preliminary decree, whether issued in a mortgage suit or a partition suit, was not a tentative decree. The decree, to the extent of the matters it adjudicated, must be regarded as embodying the final decision of the court that passed it, within the meaning of the first proviso to Section 28A of the Provincial Insolvency Act, 1920. In other words, once a preliminary decree addresses the issues it was intended to resolve, it operates as a final decision for the purposes of the statutory provision.

The Court further explained that a “final decision” denotes a decision that would have the effect of res judicata between the parties, provided that the decision is not sought to be modified, reversed, or reviewed through an appeal, revision or review application permitted under the Code of Civil Procedure, 1908. The judgment concluded that the preliminary decree in this case satisfied the criteria of a final decision within the meaning of the first proviso to Section 28A, and therefore the provisions of the amendment did not affect the decree. The Court’s reasoning stopped at the point where it described the operative nature of a final decision, ending the passage with the words “…if it is not sought to”.

The Court explained that a decision could not be altered or undone by filing an appeal, a revision, or a review under the provisions of the Code of Civil Procedure, 1908. The principle was illustrated by reference to the earlier case In re A Debtor, reported in the 1929 volume of the Chancery Law Reports at page 146. The judgment under consideration was a civil appeal filed under special leave, identified as Civil Appeal No. 199 of 1960. The appeal challenged the judgment and decree dated 1 December 1955 issued by the Madras High Court in the second appeal numbered 736 of 1953. Counsel for the appellants were listed, followed by counsel for the respondent. The judgment was delivered on 30 November 1962 by Justice Mudholkar. The sole issue for determination was the interpretation of the term “final decision” appearing in the first proviso to section 28A of the Provincial Insolvency Act, 1920, which had been introduced by Act 25 of 1948. To evaluate the arguments presented, the Court set out the factual background pertinent to the dispute.

Venkata Reddy, the father of the appellants, had been declared insolvent by the Sub‑Court in Salem in insolvency proceedings numbered I‑P 73 of 1935. At that time only the first two appellants had been born; the third appellant was born later. The Official Receiver auctioned the father’s one‑third share of the family property, which was purchased by Karuppan Pillai for a sum of Rs 80. Subsequently, the Receiver auctioned the remaining two‑thirds share belonging to the first two appellants on 27 July 1936, and the same purchaser acquired it for Rs 341. Karuppan Pillai later sold the entire property to the respondent, Pethi Reddy, on 25 May 1939 for Rs 300. The appellants commenced a partition suit on 1 February 1943 seeking division of the joint family property, naming Pethi Reddy as a party and claiming the two‑thirds share that he had bought. The respondent argued that, because of the father’s insolvency, the appellants’ interest in the family property had vested in the Official Receiver, who possessed the authority to sell it. The trial court rejected this contention and issued a preliminary decree granting partition in favour of the appellants. This decree was upheld by the District Judge on appeal and later affirmed by the High Court in a second appeal, with only a minor alteration regarding mesne profits. The High Court’s decision bore the date 18 November 1946. On 18 January 1946 the appellants applied for a final decree, which was granted ex parte on 17 August 1946. The respondent subsequently succeeded in having that decree set aside. By that time, the newly enacted provision, section 28A of the Provincial Insolvency Act, had come into force, and the respondent contended that under this provision the appellants were not entitled to the two‑thirds share because that share also vested in the Official Receiver.

The respondent argued that the appellants were not entitled to the two‑thirds share in the property that had been purchased by the father because that share, like the rest of the family interest, had vested in the Official Receiver upon the father’s insolvency. The District Munsif examined the effect of Act 25 of 1948, which introduced section 28A of the Provincial Insolvency Act, and held that the enactment could not disturb the preliminary decree for partition that had been issued on 20 August 1943. Consequently, the Munsif reinstated the ex‑parte final decree that had previously been set aside on 17 December 1950. The respondent appealed this decision, but the appeal was dismissed by the Principal Subordinate Judge of Salem. Undeterred, the respondent then filed a second appeal before the High Court. The High Court permitted the second appeal and rejected the appellant’s request for a final decree. The Court then set out the language of section 28A, which provides that the property of an insolvent shall be deemed to include the capacity to exercise all powers that the insolvent could have exercised over his property at the commencement of insolvency or before discharge. The provision further stipulates that nothing in the section shall affect any sale, mortgage or other transfer of the insolvent’s property made by a Court, Receiver or Collector under section 60 before the Provincial Insolvency (Amendment) Act 1948, provided that such a transaction has already been the subject of a final decision by a competent court. Additionally, the section clarifies that the property of the insolvent shall not be deemed, by virtue of this provision, to include the capacity referred to for any sale, mortgage or other transfer of property made in the State of Madras after 28 July 1942 and before the commencement of the 1948 amendment. The legislative purpose of introducing section 28A was to align the Provincial Insolvency Act with the Presidency Towns Insolvency Act concerning the vesting of joint‑family property in the Official Receiver upon a father’s insolvency. Under the Presidency Towns Insolvency Act, the father’s power to dispose of his undivided sons’ interest in the joint‑family property also passes to the Official Receiver, not merely the father’s personal interest. However, the High Courts in India were divided on whether the same principle applied under the Provincial Insolvency Act. A Full Bench of the Madras High Court, in Ramasastrulu v. Balakrishna Rao, held that the father’s disposing power over the undivided sons’ interest does not vest in the Official Receiver under the Provincial Act. In view of that decision, the trial court had earlier passed a preliminary decree granting the appellants their two‑thirds interest in the joint‑family property, which had subsequently been sold by the Official Receiver.

During the Full Bench decision, it was suggested that the legislature should intervene and amend the Provincial Insolvency Act so that its provisions would align with those of the Presidency Towns Insolvency Act. The amendment that was subsequently enacted expressly declares that, from the moment a father becomes insolvent, his authority to dispose of his undivided sons’ interests in the joint family property passes to the Official Receiver, thereby giving the Receiver the power to sell that interest. The amendment is therefore declaratory of existing law and is intended to apply to all cases except those covered by two specific provisos. The present discussion is limited to the first proviso, which excludes from the Act’s operation any transaction, such as a sale by the Official Receiver, that has already been the subject of a final decision rendered by a competent court.

The principal issue for consideration, then, is whether the preliminary decree for partition issued in the present case— a decree that was ultimately affirmed on appeal by the High Court of Madras as reported in I.L.R. [1943] Mad. 83—constitutes a “final decision.” The jurisdiction of the court that passed the decree is not contested. The contention raised by the respondents is that, in a partition suit, only the final decree can be regarded as a final decision, and because the final decree proceedings were still pending when the amending statute came into force, the first proviso should not be available to the appellants.

The appellants argue that the rights of the parties are already adjudicated by the court before a preliminary decree is issued; consequently, that decree should be treated, at least with respect to the adjudicated rights, as a final decision. They cite the definition that “decision,” even in its ordinary sense, means a concluded opinion, as stated in Stroud’s Judicial Dictionary (3rd ed., vol. 1, p. 743). Accordingly, when a judgment is followed by a decree, finality attaches to it, rendering the decision beyond further question except through an appeal, review, or revision as provided by law.

The High Court, however, observed that “the mere declaration of the rights of the plaintiff by the preliminary decree would, in our opinion, not amount to a final decision, for it is well known that even if a preliminary decree is passed either in a mortgage suit or in a partition suit, there are certain contingencies in which such a preliminary decree can be modified or amended and therefore would not become final.” The judgment does not specify the contingencies that the High Court referred to, unless the learned judges meant that modification or amendment could occur only through appeal, review, or revision proceedings.

In the judgment the Court observed that, only in exceptional circumstances, a Court may use the powers granted by sections 151 and 152 of the Code of Civil Procedure to alter a decree. The Court explained that if the High Court’s statement were accepted as meaning that any decree—whether it was issued in a case that contemplated a preliminary decree or not—could be modified and amended, then the consequence would be that no decree would ever acquire finality. The Court rejected this proposition as contrary to law. It clarified that a decision is regarded as final when, as far as the Court that rendered it is concerned, it cannot be changed except by invoking the specific provisions of the Code of Civil Procedure that allow reversal, modification, or amendment. In the same vein, a final decision is one that operates as res judicata between the parties unless an appeal, revision or review permitted by the Code is filed to modify or set aside the decision. The Court further stressed that a preliminary decree, whether issued in a mortgage suit or a partition suit, is not a tentative order; for the issues it decides it must be treated as conclusive. It is true that in suits which envisage the issuance of two decrees—a preliminary decree followed by a final decree—the decree that is enforceable is the final decree. However, the Court held that the finality of a decree does not depend on its enforceability. The legislature, acting wisely, provided that certain types of suits be decided in stages, and although such suits are considered completely resolved only after the final decree, the decision made at the earlier stage also possesses finality. The Court pointed to section 97 of the Code of Civil Procedure, which states that a party who is aggrieved by a preliminary decree and does not appeal against it is barred from challenging its correctness in any appeal that may be filed from the final decree. This provision clearly shows that, with respect to the matters covered by it, a preliminary decree embodies the final decision of the Court that passed it. The High Court, however, maintained that a decision cannot be regarded as final if further steps are required to obtain the relief to which a party is entitled by that decision. To support this view, the High Court cited the observations in in re A Debtor, noting that “it is clear, therefore, that further proceedings will be necessary to get the money out of court and I think it is also clear that the order of October 24, in its own terms, did not finally determine the right of the petitioner, or anyone else, in respect of the sum to be paid. In my opinion, therefore, the order is …”.

In the divorce proceeding the court initially issued an order directing that the co‑respondent, within seven days after service of the order, should pay into the court the sum of £67 1s 9d, being the petitioner’s costs as taxed and certified by a registrar of that division. That form of order was adopted because at the time the ultimate disposition of the petition remained undecided; although a decree nisi had been granted, it had not yet become absolute and the petitioner’s entitlement to recover costs might never have materialised. Consequently the money was required to be paid into the court.

Subsequently the President of the Divorce Court made a further order after hearing the petitioner’s solicitors. The President varied the earlier order and directed that the co‑respondent, within seven days after service of the variation, should pay the sum of £67 1s 9d directly to Messrs H. L. Lumley & Co., solicitors for the petitioner, and that those solicitors would lodge in court any sums recovered under the order. The solicitors gave the required undertaking to the registrar on 26 October. On 5 November the decree nisi was made absolute. On 2 January 1929 the solicitors issued a bankruptcy notice against the debtor for the amount of £67 1s 9d. The co‑respondent failed to comply with the notice, and on 27 January the solicitors presented a bankruptcy petition. The registrar, over the debtor’s objection that the second order was not a final order within subsection 1(g) of section 1 of the Bankruptcy Act, 1914, issued a receiving order.

On appeal it was contended that the receiving order was erroneous because the solicitors were not creditors of the debtor and because the order for payment of costs to them did not constitute a final order. Lord Hanworth, Master of the Rolls, upheld the latter contention, quoting the earlier observations relied upon by the High Court. He held that, on the particular facts, the order was clearly not a final order and observed that the Master of Rolls had not formulated a universal test for determining finality in every case. He stressed that the observations must be read in the factual context of the case decided.

In this case the Court observed that the remarks made by the Master of Rolls must be read in the factual context of the case that was before him, and when they are read in that way they do not provide any assistance to the respondents. The Court further explained that the short answer to the ground raised by the High Court is that even a money decree issued in a suit does not remain a final decision for the purpose of the statutory provision once the judgment‑debtor fails to pay the amount voluntarily. In such a situation execution proceedings must be instituted in order to recover the sum from the debtor. To accept the test suggested by the High Court would therefore lead to an absurd result, because a decree that initially appears to be final would cease to be final as soon as enforcement becomes necessary. The High Court had cited several authorities in support of its view, but the Court found that those authorities did not assist the argument and therefore it did not feel it necessary to refer to them.

The Court, however, referred to a decision of this Court that the respondents had relied upon, namely Vakalapudi Sri Ranga Rao and others v. Mutyala Ammanna, Civil Appeal No 634 of 1957, decided on 29 March 1961. In that precedent the Court held that an order was not a “final decision” within the meaning of the first proviso to section 28‑A of the Bankruptcy Act. The factual backdrop involved two suits: one for partition of joint‑family property and another for possession of the suit property together with arrears of rent. The issue before the courts was whether, on the insolvency of the father, the Official Receiver possessed the authority to sell the son’s interest in the joint‑family property. The trial court rejected the contention, but the Subordinate Judge, on appeal, upheld the contention and remanded the suits to the trial court with specific directions. Appeals against the Subordinate Judge’s decision were dismissed by the High Court.

Subsequently, before the remanded suits were finally decided, the Amending Act XXV of 1948 came into force. The trial court was then asked to consider whether, in light of the new provision, the sale effected by the Official Receiver should be regarded as valid even with respect to the son’s interest. The trial court rejected that argument, reasoning that the High Court’s earlier decision on the point constituted a “final order” within the meaning of the proviso. The District Judge, before whom further appeals were filed, disagreed and held that there was no final order concerning the Official Receiver’s sale. The High Court reversed the District Judge’s finding, but this Court concluded that both the orders of remand made by the Subordinate Judge and the subsequent orders of the High Court were interlocutory in nature. As interlocutory orders, they could be challenged in the appeal that was then pending before this Court against the High Court’s decision on the final decree.

In the matter presently before the Court, the preliminary decree that had been passed was never subjected to any appeal. Consequently, the issues that were finally settled by that preliminary decree are not open to challenge in the appeal that is directed against the final decree. The Court therefore held that the earlier reasoning concerning preliminary decrees and interlocutory orders does not apply to the facts of this case.

The Court observed that a preliminary decree could not be treated as an interlocutory order within the meaning of section 105 of the Code of Civil Procedure. Accordingly, the Court found that the earlier decision invoked by the parties had no relevance to the factual matrix presented in the present dispute. The Court therefore concluded that the sale effected by the Official Receiver during the insolvency of the appellants’ father had already been the subject of a final determination by a court of competent jurisdiction. That earlier court had expressly held that the sale could not benefit the purchaser because the Official Receiver possessed no authority to consummate such a transaction. Because the competent court had finally decided the issue of the Receiver’s power, the appellants were not required to prove any additional fact in order to invoke the protection granted by the first proviso to section 28A. Having satisfied the statutory requirement, the appellants were therefore entitled to obtain a final decree in their favour. The Court held that the High Court had erred in rejecting the appellants’ application for such relief. Consequently, the Court allowed the appeal, set aside both the judgment and the decree passed by the High Court, and restored the decree of the trial court as it had been affirmed by the learned Subordinate Judge on appeal. The Court ordered that the costs of these proceedings in this Court as well as in the High Court be borne by the present respondent. The balance of the costs was to be paid in accordance with the order previously made by the first appellate court. The appeal was thereby allowed.