Sahu Chetan Swarup v. Raghupati Rikh — 1970 DIGILAW 360 (ALL)

JUDGMENT H. N. Seth, J. - This application in revision has been filed by the legal representatives of one Kr. Gajpati Rikh, deceased insolvent, against the order of the District Judge dated December 19, 1967. 2. Sri Gajpati Rikh was declared insolvent under the provisions of the Provincial Insolvency Act. After his death, insolvency proceedings for the realisation and distribution of his properties continued as provided in Section 17 of the Act. During the course of these proceedings, the Official Receiver sold some of the compensation bonds belonging to the deceased insolvent along with certain other properties. Sri Raghupati Rikh and seven others, heirs of Gajpati Rikh, moved an application under Section 35 of the Provincial Insolvency Act, praying that the adjudication proceedings be annulled as the Official Receiver had realised sufficient property so as to pay off the creditors of Kr. Gajpati Rikh. According to these applicants since the official Receiver, had sold some Zamindari compensation bonds, the provisions of Section 9 of the U. P. Zamindars Debt Reduction Act became applicable. It was alleged that in case the debt of Sri Gajpati Rikii is reduced in accordance with the formula given in Schedule II to Zamindars'. Debt Reduction Act, it will be found that the entire debt of the deceased insolvent stands paid up and the applicants were entitled to an order of annulment under Section 35 of the Provincial Insolvency Act. The application moved by We heirs of the deceased insolvent was opposed by the Official Receiver and some creditors.. The Official Receiver submitted a report according to which debts amounting to Rs. 32,585-35 had been proved against the insolvent, whereas property worth Rs. 14,548.51 only had been realised. The objectors also contended, that the debts- of the insolvent not be reduced in accordance with the provisions of Section 9 of the U. P. Zamindars' Debt Reduction Act, in proceedings under the Provincial Insolvency Act. It will thus be seen that the main controversy, that arose for determination in the case, whether or not in proceedings under Provincial Insolvency Act, the debt proved against the Insolvent can be reduced in accordance with the provisions of the U. P. Zamindars Debt Reduction Act. It will thus be seen that the main controversy, that arose for determination in the case, whether or not in proceedings under Provincial Insolvency Act, the debt proved against the Insolvent can be reduced in accordance with the provisions of the U. P. Zamindars Debt Reduction Act. According to the Insolvency Judge Section 60 (2) of the Provincial Insolvency Act did not apply to the facts of the present case, and that the order of adjudication could not be treated to be a decree for the purposes of Section 9 of the U. P. Zamindars' Debt Reduction .Act-In this view of the matter the Insolvency Judge camp to the conclusion that the adjudication could not be annulled as prayed by the heirs of the insolvent. 3. In appeal, the learned District Judge, relying upon the decision of a learned single judge of this Court in Santosh Kumar v. Digvijay Singh, S.A.F.O. No. 11 of 1963 decided on 7.07.1965 held that after a person has been adjudged as insolvent, Section 9 of the U. P. Zamindars Debt Reduction Act would apply to the proceedings taken in the court of the insolvency judge. As the provisions of Section 9 were applicable to the facts of the present case and the satisfaction of the debts of the insolvent has to be recorded in accordance with the formula given in Schedule II, the District judge remanded the case to the Insolvency judge for hearing the case on merits and deciding whether after recording satisfaction of the debts of the insolvent in accordance with Schedule II to the Zamindars Debt Reduction Act, the debts stood paid up. If they stood paid up, order of annulment under Section 35 could be passed. 4. Some of the creditors have come up in revision before this Court against the aforesaid order of remand. Learned counsel for the creditors-applicants urged that the view taken by the District Judge and also by a learned Single Judge of this Court in Santosh Kumar's case, that provisions of Section 9 of the U. P. Zamindars' Debt Reduction Act would apply to Insolvency Proceedings after an order of adjudication has been made, is incorrect. According to him, the provisions of Section 9 of the U. P. Zamindars' Debt Reduction Act are in pali materia with the provisions of Section 17 of the U. P. Debt Redemption Act. According to him, the provisions of Section 9 of the U. P. Zamindars' Debt Reduction Act are in pali materia with the provisions of Section 17 of the U. P. Debt Redemption Act. A division Bench of this Court, in the case of Samandar Lal v. Prakash Chand, A.I.R. 1946 Allahabad 444 held that the provisions of Section 17 (1) (a) of the U. P. Debt Redemption Act cannot be applied to insolvency and Section 60(2) of the Provincial Insolvency Act does not incorporate the provisions of Section 17 (1) (a) of the U. P. Debt Redemption Act so as to prevent the receiver administering the estate of an agriculturist insolvent from selling his property. He contends, that on the same reasoning, the provisions of Section 9 of the Zamindars Debt Reduction Act cannot be availed of in or during insolvency proceeding. Learned counsel for the heirs of the deceased insolvent, however, did not dispute that the provisions of Section 17 of the U. P. Debt Redemption Act are in pari materia with the provisions of Zamindars Debt Reduction Act. He however invited our attention to a subsequent Division Bench case of this Court in Umrao Singh v. Kunwar Man Singh, A.I.R. 1948 Allahabad 297 wherein it has been held that in view of Section 69 (2) of the Provincial Insolvency Act, Section 17 of the U. P. Debt Redemption Act applied to insolvency proceedings also. In view of this authority, he urged that, it should be held that Section 9 of the Zamindars Debt Reduction Act is applicable in Insolvency proceedings as well. He also relied on the decision of a learned single judge of this Court in the case of Santosh Kumar v. Digvijay Singh in which it has been held that provisions of Section 9 of the U. P. Zamindars' Debt Reduction Act can be made use of during the insolvency proceedings. 5. Before dealing with the authorities cited at the Bar, it would be convenient to discuss the provisions of the Provincial Insolvency Act, U. P. Debt .Redemption Act and the U. P. Zamindars Debt Reduction Act, and to see if there is anything in these Acts which has the effect of incorporating the provision, of the U. P. Zamindars Debt Reduction Act in the Provincial Insolvency Act. It will also have to be seen whether there is anything in the U. P. Zamindars Debt Reduction Act to show that the provisions-of this Act would apply to Insolvency Proceedings as well. 6. Our attention was invited to the provisions of Section 60 (2) of the provincial Insolvency Act which runs as follows : "Nothing in this Act shall be deemed to affect any provisions of any enactment for the time being in force prohibiting or restricting the execution of decrees or orders against immovable property and any such provision shall be deemed to apply to the enforcement of an order of adjudication made under this Act as if it were such a decree or order." According to this section, if there is an enactment which prohibits or restricts' the execution of a decree or order against an immovable property, the restrictions contained against such execution will also apply to the enforcement of an order of adjudication made under the Provincial Insolvency Act; in other words, if there is a law laying down that certain immovable property cannot be sold or that it can be sold in certain conditions only, it will not be possible to sell or to avoid the restrictions contained in that law in proceedings for the enforcement of an adjudication order made under the Insolvency Act. This section creates a fiction to the effect that for purposes of law prohibiting or restricting execution of decrees or orders against immovable property, the order of adjudication will have the same effect as if it were a decree or order made under that Act. Section 17 of the U. P. Debt Redemption Act, 1940 is a law which prohibits and provides for restrictions on sale of certain types of properties mentioned therein, in execution of certain types of decrees. If for the purposes of enforcement of an order of adjudication made in the Provincial Insolvency Act, properties of the nature specified in Section 17 of the U. P. Debt Redemption Act are sought to be sold, the prohibition or restriction contained in that section may equally apply and it may be possible to urge that it is not possible to sell the property in derogation of the Prohibition or restriction contained in Section 17 of the Debt Redemption Act. 7. 7. One thing however, is clear that before the provisions of Section 60 (2) of the Provincial Insolvency Act can become applicable, it is necessary that the property sought to be sold should be an immovable property and that there should be a law, other than the Provincial Insolvency Act, which prohibits or restricts the execution of decrees or orders against that immovable property. If there is such a law the order of adjudication, may also be treated to be a decree or order under that law and it may not be enforced against the immovable property in the manner prohibited or restricted by that Act. The Legislatures did not intend the creation of the same fiction in a case where the order of adjudication is sought to be enforced against any movable property. 8. Section 9 of the U. P. Zamindars Debt Reduction Act which runs as follows : "Where a decree to which this Act applied relating to other than as secured debt is executed by attachment and sale of bonds granted to the judgment-debtor on account of compensation or rehabilitation grant for his estate, the Court executing his decree shall notwithstanding anything in any law enter satisfaction in accordance with formula given in Schedule II to this provision." Is not a provision which provides for a prohibition or restriction on the sale of any immovable property. This section while providing for scaling down the debts of a Zamindar in certain circumstances, does not prohibit or place any restriction on the sale of either movable or immovable property in any manner, It is, therefore, not be possible to urge that the order of adjudication made under the Provincial Insolvency Act should be treated as if it were a decree or an order which has to be enforced in the manner contemplated by Section 9 of the U. P. Zamindars Debt Reduction Act. 9. He will now consider the two Division Bench cases cited at the Bar. In the case of Samandar Lal v. Prakash Chand it was observed that : "There are two conditions to be observed in applying a restrictive enactment under Section 60 (2) of the Provincial Insolvency Act against the Receiver in the Insolvency. 9. He will now consider the two Division Bench cases cited at the Bar. In the case of Samandar Lal v. Prakash Chand it was observed that : "There are two conditions to be observed in applying a restrictive enactment under Section 60 (2) of the Provincial Insolvency Act against the Receiver in the Insolvency. Firstly, the restrictive enactment must only be applied in the insolvency to the same extent that it could operate in favour of the judgment debtor outside insolvency; and secondly, it must always be a condition precedent to its application in insolvency at all that it can be so applied without departing from its substantial purpose. The decree contemplated by Section 17 (1) (a) of the U. P. Debt Redemption Act must be a decree in favour of a particular person or persons in respect of particular loan or loans, while an adjudication order is made not for the benefit of one debt but of many some of which may be and the other of which may not be in respect of 'loans' as defined by U. P. Debt Redemption Act. The provisions of Section 17 (1) (a) , U. P. Debt Redemption Act therefore cannot be applied to Insolvency and hence Section 60 (2) of Provincial Insolvency Act, does not incorporate provisions of Section 17 (1) (a) of the U. P. Debt Redemption Act so as to prevent the Receiver in administering the estate of an agriculturist insolvent in insolvency from selling his property." A perusal of this authority shows that what was being considered by the court was the combined effect of the provisions of Section 60 (2) of the Provincial Insolvency Act and that of Section 17 (1) (a) of the U. P. Debt Redemption Act. It goes without saying that in Section 17 (1) (a) of the U. P. Debt Redemption Act certain restrictions have been imposed upon the sale of immovable property and therefore the applicability of Section 60 (2) became a relevant question. However this Court came to the conclusion that a decree contemplated by Section 17 (1) (a) of the U. P. Debt Redemption Act must be a decree in favour of a particular person or persons, in respect of particular loan or loans. However this Court came to the conclusion that a decree contemplated by Section 17 (1) (a) of the U. P. Debt Redemption Act must be a decree in favour of a particular person or persons, in respect of particular loan or loans. Since the adjudication proceedings could not he described to be a proceeding in respect of loan or loans in favour of a particular 'person or persons, even if the order of adjudication could be treated as a decree within the meaning of U. P. Debt Redemption Act, it could not be a decree in.respect of a loan or loans as contemplated therein and therefore Section 17 (1) (a) of the U. P. Debt Redemption Act could not possibly effect tile insolvency proceedings. 10. So far as first contention laid down by the Division Bench is concerned, namely, that there should be a restrictive enactment as contemplated by Section 60 (2) of the Provincial Insolvency Act and that such an enactment can be applied in insolvency proceedings to the same extent as it would operate in favour of the judgment debtor outside the insolvency is concerned, we entirely agree with the observations made by the Division Bench. Since in the case before us there is no restrictive enactment of the nature contemplated by Section 60 (2) of the Provincial Insolvency Act, it is not necessary for us to go into the second proposition discussed by the learned Judges. In the case of Umrao Singh v. Kunwar Man Singh the learned Judges were again concerned with the effect of the applicability of the provisions of section of the U. P. Debt Redemption Act on the Insolvency Proceedings and they held that since Section 17 of the U. P. Debt Redemption Act contained provisions relating to prohibition or restriction on the execution of a decree against an immovable property, provisions of Section 60 (2) were attracted. The learned Judges did not lay down that by virtue of Section 60(2), the order of adjudication will have the effect of a decree or order within the meaning of an enactment which does not deal with a prohibition or restriction of the sale of it property or which prohibits or restricts the sale of property other than immovable property. The learned Judges did not lay down that by virtue of Section 60(2), the order of adjudication will have the effect of a decree or order within the meaning of an enactment which does not deal with a prohibition or restriction of the sale of it property or which prohibits or restricts the sale of property other than immovable property. In this case the attention of the learned judges was not invited to the earlier Division Bench decision of this Court in the case of Samandar Lal v. Prakash Chand. Since, in this case, Section 9 of the U. P. Zamindars Debt Reduction Act is not a section laying down any prohibition or restriction on the sale of immovable property, the question of the effect of Section 60 (2) does not arise and the discussion in the two Division Bench cases cited above is not at all relevant for our purposes. We therefore hold that the heirs of the deceased insolvent cannot claim that Section 9 of the U. P. Zamindars Debt Reduction Act becomes applicable to the proceedings in insolvency because of their provisions contained in Section 60 (2) of the Insolvency Act. 11. We will now consider whether independently of Section 60 (2) of the provincial Insolvency Act there is any thing in Section 9 of the U. P. Zamindars Debt Reduction Act which provides for the scaling down of the debts of a Zamindar in proceedings under the Insolvency Act. According to Section 9, the debt is to be scaled down in accordance with Schedule 11 where a decree to which that Act applies relating to a debt other than secured debt is executed by attachment and sale of the bonds granted to the judgment-debtor on account of compensation or rehabilitation grant for his estate. For applying the provisions of this section following conditions must co-exist. (1) There should be a decree to which the Zamindar Debt Reduction Act applies. (2) The decree should be in respect of a debt other then a secured debt. (3) the decree should be sought to be executed by attachment and sale of the' bonds granted to the judgment-debtor on account of compensation or rehabilitation grant for his estate. 12. In this case it is not disputed that the debts of the insolvents were unsecured debts and therefore condition No. 2 may be taken to be present. (3) the decree should be sought to be executed by attachment and sale of the' bonds granted to the judgment-debtor on account of compensation or rehabilitation grant for his estate. 12. In this case it is not disputed that the debts of the insolvents were unsecured debts and therefore condition No. 2 may be taken to be present. What we have to see is whether conditions Nos. 1 and 3 enumerated above are also fulfilled. 13. The words "decree to which this Act applies" have been defined in Section 2 (e) of the U. P. Zamindars Debt Reduction Act, according to which it means a decree passed either before or after the commencement of this Act in a suit to which the Act applies. The expression "Suit to which the Act applies" has been defined in Sec. (2) as meaning any suit or proceeding relating to a debt whether secured or otherwise. The expression "debt has also been defined in clause 2 (f) as meaning an advance in cash or in kind and including any transaction which is in substance a debt but does not include any advance as aforesaid made on or after the first of July, 1952. Learned counsel for the applicant urged that all the debts of the insolvent were such which were taken after 1st July 1952, and, therefore, there was absolutely no scope for the applicability of the U. P. Zamindars Debt Redemption Act. This fact is not admitted by the opposite party. The question, whether all the debts proved against the insolvent were incurred after 1st July, 1952 has not been gone into by any of the courts,below. It is however, clear that according to the provisions of Section 9 of the U. P. Zamindars Debt Reduction Act no question of scaling down such debts which were contracted after 1-7-1952 and proved during insolvency proceedings can arise. Since the necessary finding is not before its, we are proceeding to decide the legal issue on the footing that some of the debts proved before the Official Receiver may have been such which were. contracted before 1st July 1952. We should not be understood to have recorded and finding about the time when any of the debts were contracted by the insolvent. contracted before 1st July 1952. We should not be understood to have recorded and finding about the time when any of the debts were contracted by the insolvent. The word "decree" has been defined in Section 2 (d) of the Act as having the same meaning as is assigned to it in the Code of Civil Procedure. According to the Code of Civil Procedure, "Decree" means "a formal expression of an adjudication which so far as regards the court expressing it conclusively determines the rights of the parties with regard to all or any of the matters in controversy in the suit. "Since in Section 2 (o) of the U. P. Zamindars Debt Reduction Act, the expression "suit" to which this Act applies "has been defined as" a suit or proceeding relating to a debt", the expression "decree" would also "include" a formal adjudication in a proceeding other than a suit. In other words, if in a suit or proceeding relating to a debt there has been a formal expression of an adjudication, which so far as regards the courts expressing it conclusively determines the rights of the parties with regard to the matter in controversy, there would be a decree to which the Act applies and condition no. 1 would be fulfilled. 14. Reverting now to the scheme underlying the provisions of the Provincial Insolvency Act, we find that after an order of adjudication is made under Section 27 of the Act, the effects set forth in Section 28 of the Act follow. According to Section 28 whole of the property of the insolvent vests in the court or a Receiver and becomes divisible amongst the creditors as provided in the Act. No creditor to them the debtor is indebted, in respect of any debt preferable under the Act can during the pendency of the Insolvency proceedings have any remedy against the property of the insolvent in respect of the debt. He can also hot commence any suit or legal proceeding except with the leave of the court and on such terms as the court may impose. He can also hot commence any suit or legal proceeding except with the leave of the court and on such terms as the court may impose. ' Sec, 33 of the Provincial Insolvency Act requires' that after an order of adjudication has been made, every person alleging himself to be a creditor of the insolvent in respect of a debt preferable under the Act, is to tender proof of the debt by producing evidence of the amount and particulars thereof and the court has to determine the persons who have proved themselves to be the creditors of the insolvent in respect of such debts, the amount of such debts and then it has to frame a schedule of such persons and debts. In the case before us, the debts for the realisation of which the compensation bonds were sold, were such debts as had been proved as required by Section 33 of the Provincial Insolvency Act. It is therefore clear that there has been a formal expression of an adjudication by a court which conclusively determines the rights of the parties in respect of a debt. This adjudication will be a decree within the meaning of Section 9. Since this decree has been passed in a proceeding relating to a debt it becomes a decree to which the Zamindars Debt Reduction Act applies and condition no, I for the applicability of the Section is therefore also fulfilled. 15. Coming now to the third contention for the applicability of the section, we find that according to Section 51 of the Code of Civil Procedure, a decree may be executed in any of the five manners mentioned below (a) By delivery of any property specifically decreed. (b) By attachment and sale; or, By sale without attachment of any property. (c) By arrest and detention of any person. (d) By appointing a Receiver. (e) In such other manner as the nature of the relief granted by may require. It will be seen that Section 9 of the U. P. Zamindars Debt Reduction Act, requires the scaling down of the debt in accordance with the formula, mentioned in Schedule II, only in cases where the decrees to which the Act applies is going to be executed by attachment and sale of the Compensation or rehabilitation grant bonds. It will be seen that Section 9 of the U. P. Zamindars Debt Reduction Act, requires the scaling down of the debt in accordance with the formula, mentioned in Schedule II, only in cases where the decrees to which the Act applies is going to be executed by attachment and sale of the Compensation or rehabilitation grant bonds. This section does not contemplate scaling down of the debt where the decree is being executed in any other form including the sale of the bonds Without their being attached. Question that arises for consideration is whether in the circumstances of this case, it can be said that the order made under Section 33 of the Provincial Insolvency Act has been enforced by the Official Receiver by attachment and sale of the compensation bonds and whether any decree has been executed. 16. The Scheme of the Provincial Insolvency Act, as pointed out above, is that after adjudication the entire property belonging to the insolvent vests in the court or if so directed by it in the Official Receiver. According to Section 56 of the Act, the Court may at any time of the order of adjudication, or at any time afterwards, appoint a receiver for the property of the insolvent and such property shall thereupon vest in the Receiver. The Receiver is thereafter expected to take into his possession all the property belonging to the insolvent. Section 59 of the Act requires.the Receiver to administer the estate of the insolvent and provides that the Receiver shall with all convenient speed, realise the property of the debtor and distribute dividends amongst creditors entitled thereto. The Official Receiver therefore become entitled to receive the compensation bonds prepared in the name of the insolvent, from the authorities as property vesting in him and not because he is executing any decree or order Section 59 (a) of the Insolvency Act authorises a Receiver initiate, defend of continue any suit or legal proceeding relation to the property of the insolvent. He has been authorised to obtain decree in respect of insolvents properties and to execute the same. During such execution proceedings he can get any property attached under order of the court, but this to be what has not been done by the Receiver in this case. The Receiver has not executed any decree and has not got any property attached- for getting it sold. During such execution proceedings he can get any property attached under order of the court, but this to be what has not been done by the Receiver in this case. The Receiver has not executed any decree and has not got any property attached- for getting it sold. Realisation of the compensation bonds, by the Official Receiver during the administration of the estate of the Insolvent, cannot be 'equated with attachment of the insolvent's property. In the circumstances, it cannot be said, that when the Official Receiver sold the bonds belonging to the insolvent during the course of administration of the insolvent's estate, he executed any decree or that he attached the bonds belonging to the insolvent. 17. It was vehemently argued by the learned counsel for the insolvents heirs that in substance, the action of the Receiver in realising the bonds and selling them in enforcement of the adjudication order amounts to attachment and sale of the insolvent's properties. Even if we assume that the action of the Official Receiver in selling the bonds can be described as an action for execution of a decree or a formal adjudication order made under Section 33, the whole process, in substance, is more akin to execution of a decree by appointment of a ,receiver as described in Section 51 of the Code of Civil Procedure rather than an action by attachment and sale of the compensation bonds. We are therefore of opinion that by realising the Zamindari compensation bond and in selling them while administering the estate of the insolvent, the official receiver did not take any action for the execution of a decree by attachment and sale of the compensation bonds granted to the insolvent on account of compensation or rehabilitation grant for his estate. The condition no. 3 was, therefore, not satisfied. 18. In the case of Santosh Kumar v. Digvijai Singh, it was held that a decree obtained by two of the creditors of the insolvent was one contemplated by the Code of Civil Procedure and was in respect of a debt as contemplated by Section 2 (f) of the U. P. Zamindars Debt Reduction Act, and that the steps taken by the official Receiver for distribution of assets amongst creditors is in effect a step in execution by attachment and sale of bonds and therefore Section 9 of the U. P. Zamindars Debt Reduction Act were applicable. 19. For the reasons given above, we are unable to agree with the learned single Judge 'that action of the Official Receiver in distributing the assets amongst creditors, is in effect a step in execution of a decree or order. Even if the action taken by the Receiver amounts to an action for execution of a decree in respect of a debt his action would be more akin to the execution of a decree by appointment of a Receiver rather than to the execution of a decree by attachment and sale of the property. 20. In view of the aforesaid discussions we are of opinion that as no decree has been executed against the insolvent by attachment and sale of the bonds granted to him, his debts are not required to be scaled clown under Section 9 of the U. P. Zamindars Debt Reduction Act. It has not been disputed before us that if the debts of the insolvent are not scaled down as provided in Schedule II to the Zamindars Debt Reduction Act, the debts of the insolvent do not stand fully paid up. The application for annulment under Section 35 has, therefore, to be rejected. 21. In the circumstances we allow this revision with costs, set aside the order of the District judge remanding the case to the Insolvency judge for a fresh hearing and confirm the order of the Insolvency judge rejecting the application moved under Section 35 of the Provincial Insolvency Act.