Arora
Enterprises Ltd. & Ors Vs. Indubhushan Obhan & Ors [1997] INSC 273 (10
March 1997)
B.P.
JEEVAN REDDY, K.S. PARIPOORNAN
ACT:
HEADNOTE:
PARIPOORNAN,
J.
Special
leave granted I.A. Nos. 5 and 6 of 1997 to implead M/s Kamal Construction Co.
(a partnership firm) as additional respondent in the appeals, are allowed.
2.
There are three appellants in these appeals. Appellant No. 1 is a firm wherein
appellant No. 2 and 3 are partners.
Appellants
were original plaintiffs in Suit No. 133/89 in the High Court of Bombay. These
two appeals are preferred against the judgment and orders dated 10.7.1996
passed by a Division Bench of the Bombay High Court in Civil Appeal Nos. 464/96
and 513/96, dismissing the appeals. The first respondent was originally the
first defendant. Respondent Nos. 1(a) to 1(d) are his legal heirs. Respondent
Nos. 2 and 3 are co-owners of the property in question. Respondent No.4 is M/s Kamal
Construction Co. (a firm).
3.
Original defendant No.1, Indubhushan M. Obhan, died pending the suit . He owned
and possessed 1/3rd undivided share in the property measuring 20569.51 sq. mts.
situate in Kanjur village, Kurla Taluk, Bombay. The other two co-owners are his brothers. Indubhushan was adjudicated
as an insolvent on 29.7.1971. Evidently, this aspect seems to have been
published in the Gazette and also in the Newspapers. PM 9.5.1988, while Indubhushan
was still an undischarged insolvent, an agreement for sale of the suit property
was entered into between the plaintiffs in the suit and the said Indubhushan.
Under the said agreement, the plaintiffs seem to have been deposited a sum of
Rs.7 lacs with Indubhushan, towards the sale of the share in the property owned
by Indubhushan. Stating that Indubhushan, the first defendant committed breach
of the said agreement and has also started construction work on the land agreed
to be sold to the plaintiffs, suit No. 133/89 was laid in the High Court of
Bombay by the appellants herein claiming the following reliefs:
(a) to
declare that there is a valid, subsisting and binding agreement between the
appellants and the first defendant, as contained in the agreement dated
9.5.1988;
(b) that
the properties be properly partitioned by metes and bounds in three separate
parts and one plot marked in red colour be allotted to the appellants;
(c) that
the defendants in the suit (Indubhushan and his two brothers) be ordered to
specifically perform the said agreement;
(d) in
the alternative, the defendants be ordered to pay a sum of Rs. 2 crores;
(e) in
the alternative, a decree may be passed against the first defendant for
recovery of a sum of Rs. 7 lacs with 18% interest per annum;
(f) that
upon failure of the defendants to pay the said amount, the property may be sold
to the appellants to the extent of the share owners the first defendant; etc.
(It
may be mentioned that defendant Nos. 2 and 3 are the brothers of Indubhushan --
the first defendant). It appears that Indubhushan had initiated proceeding by
taking notice of motion for annulment of this insolvency. While so, the first
defendant -- Indubhushan died on 22.4.1989. The proceeding initiated for
annulment of insolvency proceeding was withdrawn by his counsel. The appellants
took out chamber summons 769/89 in the suit to bring on record respondent Nos.
1 to 4 therein, as defendant No. 1 as his legal heirs and also to appoint
guardian for the minors respondents 2 to 4 and add respondent No.5 - the
official assignee of the High Court of Bombay as party defendant No.4 in the
suit. Prayer to amend the plaint in terms of the draft amendment mentioned in
the schedule containing the above prayer was also specified. The Chamber
summons is dated 21.7.1989. The above chamber summons came up for hearing and
disposal before Variava, J. on 2.2.1990. It seems the suit was not posted to
the day. After hearing Counsel for the parties, the learned Judge passed the
following order on 2.2.1990:
"Suit
to enforce Agreement entered into by Defendant No. 1, who was an Insolvent.
Till date leave of Insolvency court not obtained.
Clear
that Agreement is void and unenforceable and suit not maintainable.
Amendments
seek to convert this suit. In my view, cannot be allowed to this.
Chamber
summons dismissed.
No
order as to costs." (emphasis supplied) The appellants (plaintiffs in the
suit) filed Appeal No. 413/91 against the aforesaid order of the learned single
Judge of the High Court of Bombay dated 2.2.1990, before a Division Bench. The
Division Bench summarily dismissed the appeal by its judgment and order dated
9.7.1991. The result of the above proceedings is that the suit (No. 133/89)
stood abated against Indubhushan's (estate) legal heirs.
4. It
appears that the legal heirs of the original first defendant entered into an
agreement with M/s. Kamal Construction Co. (a firm) for sale of the suit
property. M/s Kamal Construction Co. have filed I.A. Nos. 5 and 3 of 1997 to implead
them as a party respondent in the appeals. (We have allowed the same). On
3.5.1994, the insolvency of Indubhushan to sell the property was entered into
between the legal heirs of Indubhushan and M/s Kamal Construction Co. on
2.9.1995. On 20.11.1995, the appellants took out fresh chamber summons No.
1123/95 (in suit No. 133/89), praying to amend the plaint by deleting the name
of defendant No.1 - Indubhushan - from the title of the suit and in his place
to add the names of defendant Nos. 1(a) to 1(d) -- respondents herein, as the
legal heirs of deceased defendant No. 1. According to the appellants, as a
result of annulment of insolvency stands wiped out and the agreement entered
into by the appellants with the original first defendant dated 9.5.1988 revived
and binding on his estate, and the dismissal of the earlier chamber summons
declining to implead the legal heirs and the consequent abatement of the suit
are of no consequence, as they are non est and ineffective, that the appellants
are entitled to have the said heirs on record of the suit and to have the
abatement, if any set aside as a matter of law and so, the proposed amendments
to implead the legal heirs of defendant No. 1 should be allowed. The legal
heirs of the first defendant (respondent herein) as also M/s. Kamal
Construction Co.
opposed
the above motion and contended inter alia that the earlier order passed in
chamber summons No. 769/89, declining to implead the legal heirs and to implead
the official assignee has become final and conclusive and the suit
(No.133/1989) stood dismissed by a learned single Judge and affirmed by a
Division Bench. It was further stated that the above suit itself has abated by
non-impleadment of the legal heirs within the time allowed by law and, so the
present notice of motion should be rejected. Similarly, the appellants took out
another chamber summons No. 14 of 1996 in the said suit to implead M/s Kamal
Construction Co. and also praying to declare that the agreements entered into
the legal heirs of defendant No. 1 and M/s Kamal Construction Co. dated
13.4.1994 and 20.9.1995 are invalid. The above two chamber summons i.e.
No.1123/95 and 14/96 were dismissed by a learned single Judge of the Bombay
High Court by his order dated 8.3.1996. While passing the order in chamber
summons no. 1123/95, the learned single Judge adverted to the earlier
proceeding which resulted in the dismissal the earlier proceedings which
resulted in the dismissal of chamber summons NO. 769/89 by Variava, J., and
held that there was no change in the circumstances for the appellant to take
fresh chamber summons No. 1123/95 that the order passed on 2.2.1990 holding (a)
that the agreement between the appellants and the first defendant is void and
the suit is not maintainable, has become final, and (b) that no case has been
made out by the appellant for setting aside the abatement of the suit, as
against the estate of the first defendant. As a sequel thereto, Chamber summons
No. 14/96 to implead M/s Kamal Construction Co. as 5th respondent was also
dismissed. The appeals filed by the appellants from the aforesaid common
judgment and order as Appeal No.513/96 and Appeal No.464/96 were dismissed by a
Division Bench of the High Court of Bombay by its judgments and order dated
10.7.1996. The original plaintiff have come up in appeals against the aforesaid
judgments and orders so rendered by the High Court in Civil Appeal Nos. 464/96
and 513/96 dated 10.7.1996.
5. We
heard Shri Soli J. Sorabjee, Senior Counsel who appeared for the appellants,
and M/s Dr. Dhanuka and Shri K.K. Venugopal, Senior Advocates who appeared for
the respondents. The arguments advanced before us covered a wide range. It may
not be necessary to adjudicate the rival contentions urged before us in detail,
in the light of our conclusion regarding the scope of the order passed in
chamber summons No.769/89 dated 2.2.1990. We shall only indicate in brief the
rival pleas urged before us and our conclusion thereon.
6. At
this juncture, we should bear in mind a crucial aspect in these cases. The
appellants filed the suit against Indubhushan (defendant No. 1) on 13.1.1989. Indubhushan
died on 22.4.1989. On that day he was an undischarged insolvent.
The
appellants took out chamber summons No. 769/89 in suit No.133/89. After hearing
the parties, a learned single Judge of the Bombay High Court by order dated
2.2.1990, rejected the chamber summons on two distinct and different grounds.
They
are - (1) the agreement dated 9.5.1988 between the appellants and Indubhushan
is void and unenforceable and so, the suit for specific performance of the said
agreement is not maintainable; (2) the amendments sought by the appellants to
delete the name of the first defendant and to implead defendant Nos. 1(a) to
1(d) (as respondents 1 to 4 ) in place of the deceased defendant No.1 and to
add the official assignee as a party defendant, were disallowed.
Though,
the motion to implead the legal heirs seems to have been made in time, the
prayer to amend the plaint to bring the legal heirs of defendant No. 1 on
record was declined after hearing the parties, by passing a judicial order as
early as 2.2.1990. Thereby, the suit (No.133/89) stood abated against defendant
No. 1 and his legal heirs. It is long thereafter, after a lapse of five years,
the appellants initiated proceedings for the issue of another chamber summons
No. 1123/95(in the suit -- which has abated against the estate of the first
defendant), making a fresh attempt to bring the legal heirs of the first
defendant on record and prayed for appropriate amendment of the pleading in
that regard. According to the appellants, the abatement of the suit as against
defendant No.1 by reason of the non- impleadment of the heirs of the original
defendant No. 1, is non est and ineffective and the abate of the suit, if any
require to the set aside, as matter of law , in view of the annulment of
insolvency by order dated 30.5.1994. We shall advert to these aspects, later in
our judgment.
7. Shri
Soli J. Sorabjee, Senior Counsel for the appellants, urged the following
points:
The
adjudication of Indubhushan as insolvent on 29.7.1971 stood wiped out by the
order of the annulment of the same on 30.5.1994. The legal effect of annulment
is to wipe out the insolvency and to restore the state of affairs as on the
date of adjudication. In this perspective, the order dated 2.2.1990 passed in
chamber summons No. 769/89 declining to implead or bring on record the legal
heirs of Indubhushan is of no effect. There is no prohibition in law to enter
into an agreement with an undischarged insolvent.
In
view of the annulment of the insolvency, the property revested in the insolvent
and the original agreement to sell dated 9.5.1988 entered into by the
appellants with Indubhshan, is alive and enforceable. In this view, the High
Court was in error in holding that the earlier order passed in Chamber summons
No. 769/89 is a bar for the present motion by way of chamber summon NO.1123/95
to bring on record the legal representative of Indubhushan and for grant of
appropriate reliefs. The agreement entered into by the legal heirs of Indubhshan
with respondent No. 4 was also before the annulment of the insolvency
proceeding and so it also vitiated. According to counsel, the entire matter
requires a fresh look in view of the legal effect of annulment of insolvency
proceedings which is to restore the state of affairs as on the date of
adjudication and to ignore all subsequent events. To substantiate the above
points counsel brought to our notice the following decisions:- Rup Narain Singh
and another vs. Har Gopal Tewari and others [AIR 1933 Allahabad 449]; Subbaiah Goundan
v. Ramasami Goundan and others [AIR 1954 Mad. 604 (FB)] at page 613 para 28 and
Page 618 para 40]; Bhyradevanhalli Lingappa v. Official Receiver, Bellary [AIR
1937 Mad. 717-718;
Ratnavelu
Chettiar v. Franciscu Udayar and Others [AIR 1945 Mad. 388; Ps.Ar.Ar. Arunachalam Chettiar v. Narayanaswami
Goundar [AIR 1951 Mad. 63(FB) at page 62 par 7; Gamoji Venkata Ramakrishnarao
v. Gullapalli Sambamurti [AIR 1951 Mad. 581]; C. Jabbarchand and other v. Mrs.
c. Oliver and another [AIR 1965 Mysore 117]; Kumari Rangappa v. Reddi Govinda
Reddy and Other [AIR 1963 Andhra Pradesh 228];
Gunupudi
Subba Rao & Co. v. Boggarapu Gurusmany [AIR 1966 Andhra Pradesh 25(26)],
Passages from Mulla on The Law of Insolvency in India (Third Edition) para 343 and 344.
8. On
the other hand Mr. Dhanuka and Mr. Venugopal, Senior Counsel, who appeared for
the respondents submitted thus:
The
effect of the order passed in chamber summons No. 769/89 dated 2.2.1990 is a
dismissal of suit No. 133/89 and that is the end of the matter. There is no
pending suit in which the proceedings by way of chamber summons No. 1123/95
could be filed. The suit had abated long; ago and the abatement has not been
set aside. There is inordinate delay in the matter. Even in the present chamber
summons No.1123/95 thereis no prayer factually, as such, to set aside the
abatement of the suit. The only plea is that the abatement of the suit, if any
, requires to be set aside, as a matter of law. This plea is untenable. The
suit stated to pending, is against a dead person. No proceeding will lie in the
said suit. Suit No. 133/89 itself was filed without obtaining leave, which is a
condition precedent. The defect is fatal. It has no existence in law. In any
view of the matter, since the earlier order dated 2.2.1990 refusing to implead
or bring on record the legal heirs of Indubhushan, has become final and
conclusive, the suit has abate. By initiating the present chamber summons No.
1123/95 in a non- existent suit, the attempt is (to bring on record) to implead
the legal heirs of Indubhushan; such indirect attempt to implead the legal
heirs of Indubhushan, after the suit has abated and after inordinate delay, is
patently unsustainable. The legal heirs of Indubhushan had entered into a valid
contract with 4th respondent after the annulment of the insolvency on
20.9.1995. In pursuance thereto , 4th respondent took possession of the
property, made vast improvement therein and has built 12 flats and has sold the
same. Even though insolvency was annulled on 30.5.1994, the proceeding by way
of chamber summons No.1123/95 was initiated only on 20.11.1995, more than 18
months after the annulment of insolvency. There is inordinate delay in the
matter and the rights of third parties have intervened; and the court below was
justified in dismissing chamber summons No.1123/95 taking into account the
earlier proceeding. Our attention was invited to the following decisions :- Kisan
Sitaram Ambekar and others v. Sitaram Tulsiram and others [AIR 1951 Nagpur
241]; Jehangir Gursetji Mistri v. Kastur Pannaji Oswal [AIR 1939 Bom. 344]; Davood
Mohideen Rowther v. Sahabdeen Sahib [AIR 1937 Mad. 667]; Katragadda Sreeramamma
v. Official Receiver, Guntur & anr. [AIR 1955 Andhra Pradesh 115]; Bai Pani
Vankar v.; Madhabhai Galabhai Patel [AIR 1953 Bom. 356]; Firm Sarju Prasad-Bhagwati
Prasad Sah v. Rajendra Prasad and others [AIR 1937 Allahabad 271];
Satyadhyan
Ghosal and others v. Smt. Deorajin Debi another [AIR 1960 SC 941]; and passages
from Mulla on the law of Insolvency in India (Third Edition) para 238.
9.
Though the arguments addressed before us covered a wide range, we are of the
view that it is unnecessary to pronounce in detail on the various aspects
involved in the matter at this stage. Suffice it to say that pre-ponderance of
judicial opinion is in favour of the view that the effect of annulling the
adjudication in insolvency proceeding, is to wipe out the effect of insolvency
and to vest the property retrospectively in the insolvent. The consequence of
annulling an order of adjudication is to wipe out altogether the insolvency and
its effect. The property will revest in the insolvent retrospectively from the
date of the vesting order. We hold that the law is fairly clear to above
extent. But this does not solve the problem arising in this case. The effect of
the suit (independently) filed by the appellants and the order passed therein
have to be considered. That is a distinct and different matter, which has its
own existence and legal impact, unimpaired by the annulment of the insolvency.
In other words, by the annulment of the insolvency and wiping out its effect
retroactively, in law, the suit and the judicial orders passed thereon are not
wiped out, or rendered void or a nullity, automatically. The order passed in
the suit is not non est or ineffective. In the suit laid by the appellants
(suit No.133/89), praying for declaration that the agreement between the
appellants and Indubhushan dated 9.5.1988 is valid and subsisting, that the
property should be properly partitioned and that a decree may be passed against
Indubhushan-first defendant for recovery of a sum of Rs. 7 Lacs etc; on the
demise of Indubhushan on 22.4.1989, the appellant took out chamber summons
No.769/89 in the suit (No.133/1989). The court rejected the chamber summons by
a composite order on two different and distinct points -- (1) the agreement
dated 9.5.1988 entered between the appellants and Indubhushan is void and
unenforceable and so, the suit is not maintainable; (2) the amendments sought
by the appellants to implead defendants 1(a) to 1(d) as respondents 1 to 4 in
place of deceased defendant No.1 and to add the official assignee as a party
defendant, were disallowed. The legal effect of the said order is that Suit
No.113/89 stood abated against the legal heirs of the first defendant, Indubhushan
and the order passed on 2.2.1990 reached finality. It so happened, as a result
of the judicial order passed by the court in a proceeding between the parties
to this proceeding as earl y an 2.2.1990. This order is valid until set aside
or annulled, in appropriate proceedings. It cannot be ignored. It will have
legal effect of its own, until appropriate proceeding are taken to establish
its invalidity and to get it annulled by a person entitled to avoid it. The
said order stand even today; it has not been set aside. So long as the said
order stands the abatement of the suit has become unassailable in these
proceedings.
Nearly
five years thereafter, the appellants filed fresh chamber summons No. 1123/95
in a non-existent suit. No factual plea as such was made to set aside the
abatement.
The
plea in that regard is that by the annulment of insolvency, the abatement of
the suit, if any, requires to be set aside as a matter of law. For reasons
stated earlier, the abatement of the suit (an independent proceeding), that
ensued, cannot be ignored or the proceedings in the suit revived, by the
annulment of insolvency, as a matter of law.
Moreover,
there is inordinate delay, even if such prayer was made in the application. The
attempt made in chamber summons No.1123/95 to bring the legal heirs of the
first defendant on record, is a futile attempt to bring back to life a suit
which no longer existed. The legal effect of the order passed in chamber
summons No. 769/89 dated 2.2.1990 has resulted in the abatement of the suit
against the legal heirs of the first defendant- Indubhushan. In such state of
affairs, the fresh chamber summons taken (No.1123/95) in a nonexistent suit, is
patently barred, unsustainable in law and merits no consideration. In this view
of the matter, we affirm the judgments and order passed by the High Court and
no interference is called for in these appeals. The appeals are without merit
and are dismissed. There will be no order as to costs.
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