Muktilal Agarwalla v. Tinplate Co. Of India Ltd. — 1959 DIGILAW 125 (PAT)

Judgment Choudhary, J. 1. These two appeals arise out of two insolvency proceedings bearing insolvency case Nos. 6 and 13 of 1946, in which Anjabali and Mohibulla, two employees of the Tinplate Company of India Limited, respondent No. 1, hereafter to be referred to as the respondent, had been adjudged insolvents. They had to their credit certain amounts of money in the provident fund of that company. Their creditor, Muktilal Agarwalla, the appellant in these appeals, made applications under Sec. 4 of the Provincial Insolvency Act for directing the respondent and the Trustees of the Provident Fund, respondent No. 2, to place the said sums of money in the hands of the Court for being distributed amongst the creditors, as, according to him, they had vested in the Court as being properties of the insolvents. The two respondents objected to bring the moneys in Court and pleaded that they appertained to a trust fund in the bands of respondent No. 2. It was further pleaded that the amount standing to the credit of the insolvents in the provident fund represented contributions of the respondent and the employees, and they were not the properties of the insolvents over which they had any disposing power, nor were they debts due to the insolvents. 2. The Insolvency Court overruled the objections raised by the respondents by its order dated 26-6-1948 and held that the moneys standing to the credit of the insolvents in A and C accounts of the provident fund were their properties over which they had disposing power and that they were available for distribution amongst the creditors under the Insolvency Act. The above two respondents came up in appeal to this Court, and this Court, on 12th of May, 1950, allowed the appeals and reversed the decisions of the Insolvency Court. The appellant then carried the matter in appeal to the Supreme Court, and that Court, on 14-2-1956, set aside the decision of this Court on the above point and held that the right, title and interest of the insolvents in the moneys standing to their credit in A and C accounts, respectively, will vest in the Official Receiver. 3. The appellant then carried the matter in appeal to the Supreme Court, and that Court, on 14-2-1956, set aside the decision of this Court on the above point and held that the right, title and interest of the insolvents in the moneys standing to their credit in A and C accounts, respectively, will vest in the Official Receiver. 3. It appears that, during the pendency of the appeals in this Court the Insolvency Court passed an order directing the respondent to remit to that Court the provident fund amounts in A and C accounts for distribution to the creditors, but it failed to comply with the above order. On 12-11-1949, in Case No. 13/46 (M.A. 346/56) and on 29-7-1950 in Case No. 6/46 (M.A. 345/56), however, the adjudications were annulled by the Insolvency Court under Section 43 of the Provincial Insolvency Act, as the insolvents did not apply for their discharge within the period specified by the Court, and it Further passed orders purporting to be under Sec.37 of the. Act directing that the assets realised in these cases will remain vested in that Court for payment to the creditors of the insolvents who had proved their debts. It also appears that, during the pendency of the appeals, the insolvents resigned and left the services of the respondent. 4. After the decision of the Supreme Court, the appellant made applications in both the cases on 7-5-1956 for an order directing the respondent to remit to the Insolvency Court the provident fund amounts in A and C accounts of the two insolvents, but the Insolvency Court rejected the applications on 7-7-1956 on the ground that there was no specific order regarding vesting of insolvents A and C accounts of provident fund in that Court nor was there any special direction for continuance of the proceedings in that matter at the time the annulment orders were passed, Being thus aggrieved, the creditor, Muktilal Agarwalla, presented these two appeals in this Court. 5. 5. In support of the appeals, Counsel for the appellant has raised a point that the order of the Insolvency Court, namely, the District Judge of Manbhum-Singhbhum, dated 7-7-1956, rejecting the prayer of the appellant for a direction to the respondent for remitting the amounts in A and C accounts of the provident fund of the insolvents, is bad in law, as being contrary to the provisions of the Provincial Insolvency Act. It is contended that under Section 43 of the Act, on the annulment of an adjudication, the provisions of Sec.37 of the Act automatically apply, and, according to Sec.37, the property of the insolvent vests in such person as the Court may appoint even after the annulment. It has, therefore, been urged that the amounts standing to the credit of the insolvents in A and C accounts which, according to the decision of the Supreme Court, referred to above, vested in the Insolvency Court after the adjudications, should have been directed to be brought in Court for distribution amongst the creditors who had proved their debts. 6. Sub-section (1) of Sec. 43 of the Act provides that if the debtor does not appear on the day fixed for hearing his application for discharge or on such subsequent day as the Court may direct, or if the debtor does not apply for an order of discharge within the period specified by the Court, the Court may annul the order of adjudication or make such other order as it may think fit, and if the adjudication is so annulled, the provisions of Sec.37 shall apply. Sub-section (1) of Sec.37 lays down that where an adjudication is annulled all sales and dispositions of property and payments duly made and all acts, theretofore done by the Court or Receiver, shall be valid, but subject as aforesaid, the property of the debtor who was adjudged insolvent shall vest in such person as the Court may appoint or in default of any such appointment, shall revert to the debtor to the extent of his right or interest therein on such conditions (if any) as the Court may by order in writing declare. 7. 7. In the cases before us the adjudications have been annulled on account of the failure of the insolvents to apply for an order of discharge, as required by Section 43 of the Act, and, as a result of the annulments, the provisions of Sec.37 became applicable. Under the later section, the Court could pass an order directing that the property of an insolvent shall vest in a person as the Court may appoint and, in default of any such appointment the property was to revert to the insolvent to the extent of his right or interest therein on any condition as the Court may by order in writing declare. On the basis of the above provisions, an argument has been pressed on behalf of the appellant that the amounts standing to the credit of the insolvents in A and C accounts of the provident fund, which vested in the Insolvency Court, were available for distribution amongst the creditors, and the Court below should not have refused to direct the respondent to remit the same to that Court. 8. The orders of the Insolvency Court in this regard as passed at the time of the annulments in each case run thus: Insolvency Case No. 6 of 1946 (M. A. 345/56) "The order of adjudication dated 17-4-46 is hereby annulled. Let a notice of this order be published in the Bihar Gazette. Assets realised will remain vested in this court for the benefit of the creditors who have proved their debts." Insolvency Case No. 13 of 1946) (M. A. 346/56) "Case put up. Neither the insolvent nor his pleader present. It appears that the insolvent has failed to apply for his discharge within the period granted to him for the purpose. He ought to have applied for his discharge by 11-1-1948. The order of adjudication is therefore annulled under Sec. 43 of the Act. The assets realised in this case will remain vested in this court for payment to the creditors who have proved, their debts. He ought to have applied for his discharge by 11-1-1948. The order of adjudication is therefore annulled under Sec. 43 of the Act. The assets realised in this case will remain vested in this court for payment to the creditors who have proved, their debts. Let a notice of this order be published in the Bihar Gazette." It is contended on behalf of the respondent that the Insolvency Court did not pass any order at the time of the annulments with regard to all the properties of the insolvents and its order was confined only to the "assets realised" which were directed to remain vested in that Court for payment to the creditors. It has been submitted that the amounts in accounts A and C of the provident fund, though were the properties of the insolvents, as held by the Supreme Court, were not the "assets realised" in these cases, and, therefore the Court below rightly refused to pass any order directing the respondent to remit the same. It has also been contended on behalf of the respondent that, under the provisions of Sec.37 (1) of the Act, in the absence of any appointment as regards the vesting of the properties, apart from those which amounted to assets realised, they reverted to the insolvents, and, therefore, they could not be available for distribution amongst the creditors after the annulment of the adjudications. In reply to this argument, Counsel for the appellant has urged that the unrealised assets would revert to the insolvents only on conditions which might be imposed by the Court in writing, and, as no such conditions have been imposed in writing, the same could not revert to the insolvents. 9. After considering the arguments of the parties and the provisions made in Sections 37 and 43 of the Act, I feel inclined to accept the contention raised on behalf of the respondent. No doubt, the amounts standing to the credit of the insolvents in the provident fund in A and C accounts vested in the Insolvency Court under the provisions of the Act, at the time of the annulments of the adjudications. They remained unrealised and they, therefore, could not be available for distribution amongst the creditors under the orders passed by the Court as referred to above. Undisputedly there is a difference between the "assets realised" and "assets vested in the Court". They remained unrealised and they, therefore, could not be available for distribution amongst the creditors under the orders passed by the Court as referred to above. Undisputedly there is a difference between the "assets realised" and "assets vested in the Court". Though all the properties of the insolvents vested in the Insolvency Court, they could not be said to be assets realised unless the same had been actually realised. The reservation of the Insolvents properties for being paid to the creditors under the above orders was confined only to the assets realised, and did not include the assets which, on the dates of the annulments remained unrealised. In that view of the matter, it is not possible to accept the contention raised on behalf of the appellant that the above provident fund amounts came within the purview of "assets realised" and should have been made available for distribution amongst the creditors. I am also not prepared to accept the contention raised on behalf of the appellant that if no condition has been imposed by the Court in writing with regard to the reversion of the properties to the insolvents, there was no legal reversion. It was for the Court to consider whether any condition should be imposed or not, and, if no condition has been imposed, it must be legally taken that the unrealised assets of the insolvents reverted to them after the annulments. 10. It has then been contended that the orders passed by the Insolvency Court directing only the assets realised to remain vested in the Court for payment to the creditors are against the provisions of Sec.37 itself and are bad in law, and the appropriate order should have been that the properties of the insolvents remained vested in the Court for the purpose referred to above. Those orders were passed in November, 1949 and in July, 1950, and the appellant did not move the higher Courts against them. They have now, therefore, become final and are binding on the Parties. The appellant, therefore, cannot challenge their validity. Those orders, as they stand, leave no room for doubt that the amounts standing to the credit of the insolvents in A and C accounts of the provident fund did not remain vested in the Court after the annulments for payment to the creditors, and reverted to the insolvents. 11. The appellant, therefore, cannot challenge their validity. Those orders, as they stand, leave no room for doubt that the amounts standing to the credit of the insolvents in A and C accounts of the provident fund did not remain vested in the Court after the annulments for payment to the creditors, and reverted to the insolvents. 11. Counsel for the appellant submitted that this Court should pass a proper order under Sec.37 of the Act in substitution of the orders passed by the Insolvency Court, as was done in the case of Shop Idan Lachhmi Narain V/s. Bahadur Chand, AIR 1927 Lah 914. In that case, after the annulment of adjudication the Insolvency Court passed an order under Sec.37 of the Act for restoration of the properties vested in the Receiver to the insolvent. The petitioning creditor preferred an appeal against that order, and the High Court set aside the order passed by the Insolvency Court and made an order in terms of Sec.37, directing that the properties of the insolvent will vest in the Receiver for the benefit of the creditors. Thus, the above order was made by the High Court sitting in appeal against the order of the Insolvency Court. In the present case, as already observed, the appellant did not take any steps to carry the matter further to the higher Courts, and the present appeals are not against the orders passed under Sections 43 and 37 of the Act, but against the orders passed by the Insolvency Court refusing to direct the respondent to remit the moneys to that Court after the decision of the Supreme Court. The principle of that case, therefore, cannot be applied, to the facts of the present case. It is not, therefore, within the jurisdiction of this Court to pass an order under Sec.37 of the Act in substitution of the orders passed by the Insolvency Court, which, as already stated, have become final. 12. Counsel for the appellant, however, has urged that in similar circumstances a Bench of this Court held that the properties of the insolvent remained vested in the Court for being distributed amongst the creditors, and in that connection has referred to the case of Chouthmal Bhagirath V/s. Jokhi Ram Suraj Mal, AIR 1933 Pat 84. In that case a certain creditor made an application for adjudging a debtor insolvent, but the Insolvency Court rejected it. In that case a certain creditor made an application for adjudging a debtor insolvent, but the Insolvency Court rejected it. On appeal, this Court made an order of adjudication. Subsequently, the adjudication was annulled, as the insolvent failed to apply for his discharge within the time fixed by the Court. About six weeks after, the Insolvency Court passed an order under Sec.37 of the Act directing the assets realised to vest in the Receiver on behalf of the creditors. One of the creditors, namely, creditor No. 4, made an application before the Insolvency Court to take steps for realisation of a certain amount of money which had been taken away by creditors Nos. 1 and 2. This application was rejected as, in the opinion of the Insolvency Court, no proceeding was pending before it on account of the annulment of the adjudication. It was contended in the High Court on behalf of creditors Nos. 1 and 2 that, after the order of annulment, the property ipso facto reverted to the insolvent, and he could not be divested of it by any subsequent order made under Sec.37 directing the same to vest in the Court. The argument was that the order of annulment under Sec. 43 and the order of vesting of the property in Court under Sec.37 must be passed simultaneously. On behalf of creditor No. 4 it was contended that the property could not revert to the debtor unless an order in writing was made to that effect. This contention was overruled, and it was held, as I also have held above that, in the absence of any declaration of condition, the property vested in the debtor unconditionally. The contention of creditors Nos. 1 and 2, referred to above, was also rejected, and it was held that the Court had inherent jurisdiction to pass a supplementary order making the previous order in conformity with the provisions of Sec.37. The question whether unrealised assets could also remain vested in the Court, even though the specific order of vesting was only with regard to realised assets, was not raised by any party in that case, and thus that was not the subject-matter of decision in the High Court. This case, therefore, can have no application to the facts of the present case. This case, therefore, can have no application to the facts of the present case. An observation made by this Court in that case, however, is very pertinent, and it runs as follows: "No doubt, different considerations may arise if subsequent to the order of annulment and before the order vesting the property in some other person than the insolvent the latter has made transfers of properties to a bona fide purchaser. Such a purchaser perhaps may not be affected. But the insolvent and all those persons who were party to the insolvency proceeding are bound by the order." In the case before us, the insolvents left the services of the respondent, and it is contended on behalf of the respondent that they have received the moneys standing to their credit in the provident fund accounts under the rules of the company. There is, however, nothing on the record to show that the moneys have been realised by the insolvents, and it is not necessary to pursue that point any further, because, as already held, the unrealised assets did not vest in the Court under the orders passed under Sec.37 of the Act. 13. Reliance has been placed by Counsel for the appellant on a Full Bench decision of the Madras High Court in Moturi Veerayya V/s. P.V. Sreenivasa Rao, AIR 1935 Mad 826. It was held in that case that when an Insolvency Court annuls an adjudication under Sec. 43 and also vests the insolvents property in an appointee under Sec.37, the Insolvency Court retains full power to give directions under Sec.37 as to the realisation and disposed of the debtors assets, and an order under Sec.37 does not continue the insolvency proceedings for all purposes. It was further held that the person appointed under Sec.37 has no longer, by the mere fact of his appointment, the powers which a receiver has under the Act, and that he has such powers as are necessarily implied by the vesting order which are to carry out the directions of the Court and those directions should, so far as the realisation and distribution of the debtors property are concerned, be in accordance with the provisions of the Insolvency Act. I do not see how this case can be of any assistance to the appellant, and, in my opinion, it lends support to the contention raised on behalf of the respondent. I do not see how this case can be of any assistance to the appellant, and, in my opinion, it lends support to the contention raised on behalf of the respondent. Here, in the present case, by the orders passed under Sec.37, only the realised assets vested in the Court, and, therefore, the Court could deal with only those properties, and not with any other property of the insolvents with respect to which there was no direction in the orders. 14. In Ps. Ar. Arunachalam Chettiar V/s. Narayanaswami Goundar, AIR 1951 Mad 63 (FB), an argument was advanced before a Full Bench of that Court that, when an adjudication is annulled and no vesting order is made under Sec.37 the property merely reverts in the insolvent and does not revert to him. In other words, the argument was that, though the property goes back to the insolvent, it goes back only with effect from the date of annulment and not with effect from any anterior date. This argument was not accepted by that Court. On the above principle of law, with which I perfectly agree, the amounts sending to the credit of the insolvents in the provident fund in these cases reverted to the insolvents from before the dates of annulments, as if they had never been adjudged insolvents, and the same could not be available for distribution amongst the creditors. 15. On a consideration of the law on the subject and the facts of the two cases, my concluded opinion is that, where at the time of annulment of an adjudication, the Court has not passed an order under Sec.37 of the Act vesting certain property of the insolvent in the Court for distribution amongst the creditors, that property cannot be available to that Court for such distribution. Applying this principle to the facts of the present case, it is apparent that the unrealised assets of the insolvents, which were never directed to remain vested in the Court under Sec.37 of the Act, could not be available for distribution amongst the creditors, and the Court, therefore, could not compel the respondent to remit the same to it. That being so, the contention raised on behalf of the appellant fails. 16. There is thus no merit in these appeals, which are accordingly, dismissed with costs. Ramaswami, J. 17 I agree.