Sri Babu
Ram Alias Prasad Vs. Sri Indra Pal Singh (Dead) by Lrs [1998] INSC 417 (13 August 1998)
S.B.
Majmudar, M. Jagannadha Rao M. Jagannadha Rao, J.
ACT:
HEAD NOTE:
The
appellant is the plaintiff in the original suit bearing No.225 of 1969 on the
file of the Additional Civil Judge, Aligarh. The respondent is the defendant. the suit was filed by the plaintiff
appellant seeking reconveyance of the property covered by the sale-deed dated
15.7.1964 executed by the plaintiff in favour of the defendant and requiring
the defendant to perform the agreement of reconveyance specifically as entered
into in the Joint application of the plaintiff and defendant dated 20.11.1963
filed in the Insolvency Court and in default praying that the reconveyance deed
may be executed by the Court. The extent of land is 5 Bighas and 7 Bighas in
village Jarothi.
The
trial court decreed that suit in favour of the plaintiff on 2.1.1970 on
condition of the plaintiff paying back Rs. 7000/- to the defendant. The said
decree was affirmed by the first appellate court on 10.12.1975.
However,
the Second Appeal 175 of 1976 preferred by the defendant was allowed and the
suit was dismissed on 21.3.1977 by the High Court of Allahabad. Against the
said judgment, the plaintiff has preferred this appeal by special leave.
The
following are the facts : The plaintiff- appellant borrowed Rs. 5000/- from the
defendant-respondent on 6.6.1961 and another sum of Rs. 2000/- on 27.1.1962. On
the ground that the plaintiff did not repay the said amount, the defendant
filed Misc. Case 27 of 1963 before the Insolvency Court, Aligarh on 19.11.1963 (Lower Court described it as application dated
20.11.1963) for declaring the plaintiff as an insolvent. On the same day the
plaintiff and defendant signed joint application before the Insolvency Court
the material portion of which (in para 4 to 6) reads as follows:
"That
the creditor has agreed to accept Rs. 7000/- in fill satisfaction of his
transferring his Byhumichari Property measuring 5 bighas 7 biswas to the
creditor for the consideration of Rs. 7000/- with the condition of repurchasing
the same within 5 years from the creditor for Rs. 7000/-. the creditor has
kindly given his consent to the same settlement and agreed to purchase same
with the above condition and to get the position of Insolvency dismissed.
That
the debtor has Bhumidhari property measuring 14 bighas 7 biswansis is paying Rs.
31.94 N.P. as revenue. Out of this property the creditor has agreed to purchase
5 bighas for the consideration of his dues. The details of the same are given
below at the foot of this application.
That
the parties in view of the above arrangement settled amongst themselves request
humbly that permission be kindly granted to the debtor applicant to sell his
property as noted above and the creditor to purchase the same in order that the
debt may be satisfied and the parties may not be put to unnecessary litigation
and expenses." Thus, in the said I .A., there was an agreement for reconveyance
inasmuch as it was agreed that the plaintiff could seek reconveyance within 5
years of the sale-deed.
On the
said application, the said Court passed the following order on 22.11.1963:
"I
have heard the counsel for both the sides as well as Official Receiver. The
Official Receiver has no objection except that he should be paid his legal fee.
The request appears to be quite reasonable. The interim receiver is under the
circumstances permitted to execute the sale deed in favour of the creditor
petitioner of course of receipt of his legal commission.
The
present application for further order shall be put up after the sale deed is
executed. Let the record be now put up on 20.12.1963 for further orders."
It will be noticed that the Insolvency Court's
order was that the sale deed would be executed by the "interim
receiver". It appears that for some reason the sale deed was not executed.
Though it is the case of the defendant that the plaintiff-appellant did not
execute the sale-deed., the defendant admitted in his evidence that he neither
issued any notice to the plaintiff nor complained to the Court that no sale was
executed by the plaintiff. The creditor did not take steps to withdraw the
insolvency petition. On 29.5.1964, the plaintiff was adjudicated as an
insolvent and it was directed that he should apply for discharge within one
year. It may be noted that two other sundry creditors to whom the plaintiff
owed Rs. 300/- and Rs. 700/- respectively , got impleaded in the insolvency
proceedings on 20.11.1963.
Thereafter,
the Official Receiver executed a sale-deed on 15.7.1964 in favour of the
respondent for the suit land and the plaintiff's evidence that on the same day,
another sale- deed of some other property was executed by the Official Receiver
in favour of one Shamlal for Rs. 1000/-. Plaintiff stated in his evidence that
he paid off the other two sundry creditors to whom, in all, he owned Rs.1000/-
as referred to above. The Official Receiver reported to the Insolvency Court on 30.10.0964 that the plaintiff
had cleared all his debts.
The
plaintiff-appellant moved for discharge on 7.9.1964, i.e. within 1 year of the
order of adjudication dated 29.5.1964. Unfortunately, the said application
stood dismissed for default. On 9.7.1968, the plaintiff applied under Section
43(1) after Provincial Insolvency Act, 1920 (hereinafter called the 'Act') for
an order of annulment alleging that all the creditors had been paid fully. That
section permits such an application in cases where the debtor has not applied
for discharge within the period fixed earlier. But the Insolvency Court dismissed the said application on
27.7.1968 on the ground that the insolvent could not invoke section 43(1) and
he should apply for discharge. However, the appeal by the insolvent to the
District Judge, Aligarh in Appeal No. 62 of 1968, was allowed on 22.10.1969 on
the ground that section 43(1) was applicable and also on the ground that the
insolvent had discharged all his debts as reported by the Official Receiver in
his report dated 30.10.1964. The adjudication was annulled and an annulment order
was passed on 22.10.1969 unconditionally. As the debts were all paid, there was
no occasion for vesting the property in any person under section 37(1) while
annulling the adjudication.
In the
meantime, and before the annulment, inasmuch as the period of 5 years within
which the debtor could seek reconveyance was expiring, the debtor (i.e.
plaintiff) issued a registered notice on 12.7.1968 to the creditor (defendant)
to reconvey the property on payment of Rs.7000/- by the insolvent. That notice
was within 5 years from the date of sale-deed. But the creditor refused to do
so by his reply notice dated 22.7.1968. The debtor then filed the present suit
on 6.10.1969 for specific performance of the reconveyance agreement dated
22.11.1963 contained in the joint application of the plaintiff and defendant
dated 19.11.1963. It may be noticed that both on the day when the debtor gave
notice and on the day he filed the suit, he was an undischarged insolvent and
whatever rights he had for reconveyance, they stood vested in the official
Receiver.
Instead
of the official Receiver taking the above steps, the insolvent had himself
taken up these matters.
The
defendant accepted in his written statement dated 8.1.1970 that it was true
that a joint application was made on 19.11.1963 as stated by the plaintiff
before the insolvency Court. He, however, contended that it was further agreed
therein, that the plaintiff should have executed a sale-deed in favour of the
defendant and that if he had done so, plaintiff would not have been adjudicated
as an insolvent. The plaintiff defaulted and, therefore, the defendant had no
option except to press for adjudication and plaintiff was adjudicated as
insolvent on 29.5.1964 and later the Official Receiver executed the sale-deed
on 15.7.1964. The plaintiff also joined in the sale-deed. The plaintiff could
not "rely upon the provisional talks of the parties prior to adjudication
of insolvency petition".
Plaintiff
could not take advantage of his default. It was also contended that the
"previous agreement between the parties fell to the ground owing to non fulfilment
thereof by the plaintiff himself". It was contended that there "never
was any contract of repurchase with the Official Receiver" who was the
vendor and in whom title to the property stood vested. After the adjudication,
or after the sale, there was no agreement by the defendant to reconvey the
property. The plaintiff was legally incompetent to seek reconveyance by notice
dated 12.7.1968 as he was an undischarged insolvent on that date and the
property remained wholly vested in the Official Receiver. The Official Receiver
never exercised any option to repurchase within 5 years of the sale deed. Time
was the essence of the contract.
The
Plaintiff was also not competent to file the suit on 6.10.1969 as he was, even
on that date, an undischarged insolvent and all rights including the right to
seek reconveyance stood vested in the Official Receiver.
On
these contentions, the trial Court framed various issues. On issue 2 relating
to the alleged default on the part of the plaintiff in executing sale-deed as
agreed to in the joint application, the Court held that the said issue was
"not argued" by the defendant's counsel. Nor did the counsel say how
there was any breach on the part of the plaintiff. (We have stated earlier that
the Insolvency Court, in its order dated 22.11.1963 asked the "interim
receiver" to execute the sale-deed and that the defendant as PW1 admitted
he had neither issued any notice to plaintiff nor moved the Court for a sale-deed
to be executed). The trial Court held that in any event the sale-deed was
executed and as such 'there was no default' on the part of the plaintiff. On
the question as to the effect of annulment, the trial Court referred to the
Full Bench decision of the Madras High Court in Subbaiah Goundan vs. Ramasami Goundan
[AIR 1954 Mad 604 (FB)] to the effect that upon annulment, the property
reverted to the insolvent with retrospective effect and the insolvency got
wiped out altogether except to the extent reserved under section 47 of the Act
and all transaction or sections in the interregnum got validated. The trial
Court also referred to Rup Narain Singh and another vs. Hargopal Singh [AIR
1933 Allahabad 449] for holding that an alienation
by an undischarged insolvent was not void but was voidable at the instance of
the Official Receiver. The trial Court also held that the plaintiff would get
the competency to exercise option to repurchase - in view of the subsequent
annulment. The plaintiff exercised the option within 5 years, time being
essence of the contract. The debtor's actions stood validated and even if the
Official Receiver did not exercise the option to purchase within 5 years from
the date of sale, it did not matter. The trial court also held that the suit
was not barred by time. On these findings, the suit was decreed for specific
performance for reconveyance subject to plaintiff paying Rs. 700/- back to the
defendant. This judgment was confirmed in first appeal by the Additional
District Judge.
In
Second Appeal the High Court of Allahabad reversed the judgments of the lower
Courts. It held that the earlier agreement contained in the Joint application
dated 19.11.1963 made to the insolvency Court did not avail.
Further,
in the order dated 22.11.1963 passed on the joint application, the Court
permitted the "interim receiver" to execute the sale-deed while the
sale deed was executed by the Official Receiver and there was no fresh
agreement for reconveyance between the Official Receiver and the defendant at the
time the sale-deed was executed. The agreement dated 19.11.1963 contained in
the joint application was, in fact, not given effect to as plaintiff did not
execute the sale- deed and defendant did not have the insolvency petition
dismissed. The facts showed that the sale-deed dated 15.7.1964 executed jointly
by the Official Receiver and the plaintiff was not in pursuance of the original
agreement dated 19.11.1963. The said agreement dated 19.11.1963 was a
contingent one and was executed even before the Court directed sale of the
property to the defendant. As the directions of the Insolvency Court dated 22.11.1963 directing
execution of sale-deed by the plaintiff and also withdrawal of insolvency
petition by the defendant, were not complied with by either party, the
"execution of the sale- deed after adjudication must be held to be in
pursuance of a fresh contract between the parties". It might be that the
substance of the sale-deed was the same as contained in the joint application
but this was not relevant. The contract was still a "new one" upon
which the sale deed was executed.
At the
time of the new contract, there was no reconveyance agreement - either oral or
written. The suit for specific performance of the agreement of reconveyance
contained in the joint application could not, therefore, be enforced. The High
Court then referred to the judgments in Subbaiah Parvathi Amma vs. Easo Yohanan
(AIR 1955 TC 241) and AR Ghazani vs. Official Receiver (AIR 1958 Mad 486) and
observed that the question of reverter of the debtor's rights to the debtor
upon annulment would have been relevant if the undischarged insolvent had
entered into a contract with the creditor without the intervention of the Court
and if the contract was not subject to conditions. Here the contract dated
19.11.1963 was dependent upon various conditions, execution of sale-deed by the
plaintiff and the withdrawal of the insolvency petition by the defendant and
permission by Court for a sale-deed. On account of non- fulfilment of the
conditions laid the order dated 22.11.1963, there was no enforceable contract
between the parties. On the above reasoning, the High Court allowed the Second
Appeal and dismissed the suit.
In
this appeal, it was contended by Sri Pramod Swarup that the High Court erred in
law in thinking that the Court order dated 22.11.1963 or the sale-deed dated
15.7.1964 by the Official Receiver did not refer to the reconveyance, and hence
the earlier agreement dated 19.11.1963 for reconveyance was not enforceable.
This plea raised by the defendant in the written agreement was not acceptable
because the order of the Court dated 22.11.1963 permitting sale was only in
pursuance of the agreement dated 19.11.1963 contained in the joint application
and having got the sale- deed executed in his favour, the defendant could not
blow hot and cold and repudiate the reconveyance agreement contained in the
same joint petition dated 19.11.1963. There was no need to have a fresh
agreement either on 22.11.1963 or on 15.7.1964. Theres was no 'fresh or new'
contract on 15.7.1964 of sale between the defendant and the Official Receiver
as wrongly held by the High Court. The High Court could not have given such a
finding unless there was a specific plea of novation between the Official
Receiver and the defendant in the written statement. On the other hand, the
evidence of the defendant as DW1 was that there was no fresh contract before
15.7.1964 when the sale-deed was executed. The finding of the High Court was,
therefore, contrary to the defendant's evidence. The trial Court and the first
appellate Court were right in holding that the annulment retrospectively
validated the option exercised by the plaintiff on 12.7.1968 in his notice and
the filing of the suit on 6.10.1969, though on those dates, the plaintiff was
an undischarged insolvent. In fact, even on the date of annulment dated
22.10.1969, the suit was in time as the period of 3 years had not expired from
22.7.1968, the date of refusal to perform the contract of reconveyance.
On the
other hand, learned counsel for the defendant Sri P. Anshu Misra contended that
there was a fresh or new contract at the time of the sale by the Official
Receiver on 15.7.1964 and the sale-deed was traceable to that agreement and not
to the agreement contained in the joint application dated 22.11.1963. At the
time of the fresh agreement for sale on 15.7.64, there was no further agreement
for a reconveyance. The original agreement of reconveyance dated 19.11.1963 was
given to go bye and could not be enforced any longer. The plaintiff did not
also implement the terms of the first agreement by executing a sale-deed and
the defendant did not withdraw the insolvency petition as contemplated by that
agreement. The suit was not maintainable because the plaintiff, being an undischarged
insolvent, was not competent to exercise the option for reconveyance on
12.7.1968 and the plaintiff was not competent to file the suit on 6.10.1969
since the annulment took place much later, on 22.10.1969.
On
these contentions, the following points arise for consideration:
(1)
Could the High Court in Second Appeal under Section 100 CPC give a finding on
issue No.2 which was not pressed in the trial court and hold that the plaintiff
and defendant committed breach of the agreement dated 19.11.1963 and that, therefore,
the sale deed dated 15.7.64 must be held to be traceable to a new contract
entered into between the Official Receiver and the defendant on 15.7.64?
(2)
Whether absence of a reference to the agreement to reconvey in the Court order
dated 22.11.63 and in the sale-deed dated 15.7.1964 implied that the agreement
of reconveyance contained in the original agreement to sell dated 19.11.1963
was superseded?
(3)
Would the two steps or actions of the plaintiff
(i) exercising
the option for renewal on 12.7.1968 and
(ii) filing
the suit on 6.10.1969 taken when he was an undischarged insolvent get
retrospectively validated on account of the subsequent unconditional annulment
of adjudication in view of sections 37 and 43 of the Provincial Insolvency Act,
1930 on 22.10.1969?
(4) Is
time the essence of contract in a reconveyance agreement and was the option
exercised by the plaintiff in this case in time in the context of section 55
Contract Act?
(5)
Was the suit filed on 6.10.1969 for specific performance of the contract of reconveyance
dated 19.11.1963 in time under Article 54 of the Limitation Act, 1963? Point 1:
In our
view, the High Court , while holding that the sale-deed dated 15.9.1964 was
traceable to a new agreement erred seriously in making out of a new case fro
which there was neither any issue nor evidence. In fact, the defendant
specifically admitted in his evidence as DW1 that there was no fresh agreement
between the Official Receiver and the defendant at or before the execution of
the sale-deed dated 15.9.1964. The defendant, no doubt, came forward with such
a statement to negative any fresh agreement of reconveyance entered into by and
between the Official Receiver and the defendant. But that evidence equally
negatives the theory that the sale-deed dated 15.9.1964 was executed pursuant
to a fresh or new agreement entered into between the Official Receiver and the
defendant. The recitals in the sale-deed do not support such a condition.
Further , the sale by the Official Receiver was one made pursuant to the Court
order dated 22.11.63 and was not a sale in exercise of his normal powers to
sell the insolvent property nor was it a sale for distributing the sale
proceeds to the creditors. No doubt, the Court's order permitted the
"interim receiver" to sell but in view of the subsequent adjudication
of the debtor as insolvent on 29.5.1964, the sale-deed had to be executed by
the Official Receiver. A reading of the sale-deed dated 15.7.1964 which is in
Hindi and was read out in Court showed that it was executed in pursuance of the
agreement between the creditor and the "insolvent, second party". The
sale deed did not refer to any agreement with the "Official Receiver"
who was one of the executants of the sale deed. It referred only to the
agreement with the "insolvent, second party", which, in our opinion
could only be the one entered into on 19.11.63 between the plaintiff and the
defendant before adjudication.
Novation
under section 62 of the Contract Act required a clear plea, issue and evidence.
Such a question cannot be raised or accepted under section 100 CPC for the
first time in Second Appeal. There was no such issue in the courts below and
the defendant's evidence was contrary to such a theory.
The
High Court, in our view, also erred in thinking that the plaintiff committed
breach of the agreement dated 19.11.1963 covered by the joint application when
the said aspect covered by issue No.2 was not pressed in the trial Court.
Further, the permission for sale dated 22.11.1963 granted by the Court was in favour
of the 'interim receiver' and, therefore, the debtor could not have executed
any sale deed. (We are not on the question whether the Insolvency Court could
have asked the interim receiver to sell the property). The defendant admitted
in his evidence that after 19.11.1963, he did not issue any notice to the
plaintiff to execute a sale-deed nor did he move the Insolvency Court to direct
the debtor to execute the sale-deed.
For
the above reasons, we hold that the High Court in Second Appeal exceed its jurisdiction
under section 100 CPC in giving a finding on an issue which was not pressed in
the trial Court. So far as the finding as to a new contract is concerned, there
was no issue or evidence. The evidence was to the contrary. We accordingly set
aside these findings.
Point
1 is therefore held
in favour of the plaintiff and against the defendant.
Point
2:
The
agreement contained in the joint application dated 19.11.1963 filed in the
Insolvency Court not only contemplated that the plaintiff would execute a sale
deed in favour of the defendant but also contemplated an option for repurchase
by the plaintiff within five years of the sale, on repayment of the amount of Rs.
7000/- to the defendant.
Later,
as stated earlier, the Court permitted the sale by the "interim
receiver" by its order dated 22.11.1963 and a sale deed was executed
jointly by the Official Receiver and the plaintiff on 15.7.1964. It is true
that neither in the Court order nor in the sale-deed there is any reference to
an agreement of reconveyance. Question is whether on that account the
obligation to reconvey, in the event of the plaintiff exercising, within 5
years his option to repurchase contained in the a joint application dated
19.11.1963 could be said to have been given up by the plaintiff? We have
already held under Point 1 that the Court order and the sale-deed were not the
result of any fresh or new agreement between the Official Receiver and the
defendant at or before the date of sale on 15.7.1964. We have also held that
there was no novation within section 62 of the Contract Act. If that be so, it
is clear that the agreement for reconveyance contained in the original contract
dated 19.11.1963 cannot be said to have been superseded. The defendant, having
got the sale-deed only upon implementation of the obligation covered by the
agreement of sale dated 19.11.1963 cannot approbate and reprobate and contend
that the other part of the agreement dated 19.11.1963 regarding reconveyance
need not be implemented. It is true that it is customary to include a recital
regarding the agreement of reconveyance in the sale-deed itself. But where, as
here, there was an agreement preceding the sale deed and that agreement
contained such a clause, and a sale-deed was executed consequent thereto, the
absence of a reference to the agreement of reconveyance in the sale-deed would
not, in our opinion, lead to the inference that the said right was given up by
the plaintiff. Unless there is a detailed plea and also evidence that before
execution of the sale-deed there was novation and parties expressly agreed to
give a go bye to the agreement or reconveyance, no inference could be drawn
that the agreement of reconveyance contained in the agreement of sale dated
19.11.63 which preceded the sale- deed was given a go-bye.
For
the reasons given above, it must be held that the absence of a reference to the
agreement for reconveyance in the Court order dated 22.11.1963 or in the
sale-deed dated 15.6.1964 was not an indication that the said agreement
contained in the original agreement of sale was given a go bye by the parties.
Point 2 is therefore held in favour of the appellant.
Point
3:
This
point relating to the effect of annulment is more important and as there is no
authority of this Court earlier except Arora Enterprises Ltd. & Ors. vs. Indu
Bhushan Obhar & Ors. [1997 (5) SCC 366] and Tukaram Ramachandra Mane (d) by
LRs vs. Rajaram Babu Lukule (d) by LRs. [1998 (2) Scale 719] which deal with
'acts' of Receiver or Insolvency Court during the insolvency, we shall go into
some details.
We
have seen that the plaintiff was adjudicated insolvent on 29.5.1964 and the
property vested in the Official Receiver who executed the sale-deed in favour
of the defendant on 15.7.1964. The plaintiff also joined in the sale-deed. It
is true that on the date when the plaintiff exercised the option to repurchase
on 12.7.1968 - within 5 years from the date of sale, i.e. 15.7.1964 - he was an
undischarged insolvent. It is also true that on the day when the plaintiff
filed the suit for specific performance of the agreement of reconveyance, on
6.10.1969, he continued to be an undischarged insolvent. The option to
repurchase and the filing of the suit were acts which ought to have therefore
been performed by the Official Receiver. But when later the annulment order was
passed on 22.10.1969, could it be said, as contended for the debtor, that these
acts get retrospectively validated on account of the subsequent annulment of
adjudication? Section 35 of the Act states if, in the opinion of the Insolvency
Court, a debtor ought not to have been adjudged insolvent, or where it is
proved to the satisfaction of the Court that the debts of the insolvent have
been paid in full, the Court shall, on the application of the debtor, or any
other person interested, by order in writing, annul the adjudication and the
Court may, of its own notice or on application made by the receiver or any
creditor, annul any adjudication made on the petition of a debtor who was, by
reason of the provisions or sub-section (2) of section 10. not entitled to
present such petition.
It is
obvious that, in the present case, in view of the report of the Official
Receiver dated 30.10.1964 that all the debts had been cleared by the insolvent,
the Court was bound to annul the adjudication. It did so on 22.10.1969. It
cannot be said that the debtor plaintiff could not have applied for annulment
under section 43(1).
Now
sub-clause (1) of section 43 states 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 annulled, the provisions of section 37 shall apply. As the case
of the appellant fell under this section, the application was in order. But the
Insolvency Court dismissed the same on 27.7.1968 and on appeal, the District
Court allowed the application on 22.10.1969 unconditionally. On the facts of
this case, the debtor had to apply for discharge within one year of the
adjudication. He made an application within that period but that application
was dismissed for default. It was therefore clearly permissible for him to
invoke section 43(1).
Inasmuch
as sub-clause (1) of section 43 requires the Court to apply section 37 of the
Act in the event of passing an order of annulment, it is next necessary to
refer to that section. Sub-clause (1) of section 37 states that where an
adjudication is annulled, all sales and dispositions of property and payments
made, and all acts theretofore done, by the Court or receiver, shall be valid;
but, subject as aforesaid, the property of the debtor who is adjudged insolvent
shall vest in such persons 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, be order in
writing, declare.
The
case before us is one where, in view of section 35 and in view of the fact that
the debtor had cleared all his debts, he was entitled to an order of annulment
of adjudication. As there was nothing to administer qua his property, the Court
did not think of vesting his property in the Official Receiver or any other
person. In fact, sub- clause (1) of section 37 itself says that in default of
the appointment of any person, the "property" of the debtor shall
revert to the debtor to the extent of his right or interest therein. This is,
however, subject to the condition that the sales, dispositions of property and
payments made and all acts theretofore done by the Court or receiver, shall
remain valid. Inasmuch as the sale of the suit property on 15.7.1964 was one
made after the adjudication order on 29.5.1964, and before annulment the said
sale would remain valid, even after annulment of adjudication, unless the sale
was subject to any further conditions.
Before
the adjudication order, the debtor had a right of reconveyance qua the property
purchased by the defendant from the receiver on 15.7.1964. That right in
relation t the property continued to burden the sale. After adjudication that
limited right stood vested in the Official Receiver. On annulment that right
would, therefore, clearly revert back to the debtor from the Official Receiver.
Sub-section (1) of section 37 uses the words, "the property of the debtor
to the extent of his rights and interests therein" shall revert to him.
For example, if he was a full owner or a mortgagee or a lessee of the property
in question on the date of adjudication, those rights would revert back to him
on annulment though during the pendency of the insolvency those rights stood
vested in the Official Receiver. Likewise the right to obtain a reconveyance
from the vendee which was vested in the Official Receiver would in our opinion
also revert back to the debtor. Upon annulment of the adjudication. In the
present case, the debtor had exercised the opinion and filed the suit even
before annulment.
Therefore,
the more important question will be whether the reverter of the property or
rights on annulment is retrospective or prospective? In other words, assuming
that the debtor being an undischarged insolvent ought not to have exercised the
option or filed the suit, inasmuch as these actions ought to have been taken by
the Official Receiver, will the subsequent annulment of the adjudication
retrospectively validate these actions of the undischarged insolvent? Before we
go into the above aspect, we shall refer briefly to the legislative history
behind section 37 of the Provincial Insolvency Act, 1920. In the earlier Indian
Insolvency Act, 1848, it was stated in section 7 that "in case, after the
making of any such vesting order, the petition of any such petitioner shall be
dismissed by the said Court, such vesting order made in pursuance of such
petition shall from and after such dismissal be null and void to all interests
and purposes: provided also that in the case of any such vesting orders as
aforesaid, shall become null and void by the dismissed of such petition, all
acts theretofore done by any Assignee or other person acting under his
authority according to the provisions of this Act shall be good and valid and
no action or suit shall be commenced against the assignee, nor against any
persons duly acting under his authority, except to recover any property of such
petitioner detained after an order made by the said Court for delivery thereof,
and demand made thereupon". The above language was similar to the language
in the earlier Bankruptcy Acts of England. By virtue of the Consolidating and
Amending Bankruptcy Act, 1869 the language was altered and instead of the words
'null and void' the word 'revert' was used. That language was repeated in the
English Act of 1914. The legislature adopted the word 'revert' in section 37 of
the Provincial Insolvency Act, 1920. The word 'revert', according to Shorter
Oxford Dictionary means 'to return to the former position, to go back to the
former state'.
We
shall refer to the leading decision of the English Court on the question as to
whether the reverter is retrospective. In Bailey vs. Johnson [(1872) 7 Ex. 263]
decided under section 81 of the English Bankruptcy Act, 1869, it was held by
Cockburn, CJ as follows:
"The
effect of section 81 is, subject to any bonafide dispositions lawfully made by
the trustee prior to the annulling of the bankruptcy, and subject to any
condition which the Court annulling the bankruptcy may by its order impose, to
remit the party whose bankruptcy is set aside to his original situation."
Adverting to the effect of an unconditional order of annulment it was stated by
the learned Chief Justice:
"Here
the Court of Bankruptcy has imposed no condition; the general provision of the
section has therefore its full effect, and that effect is to remit the bankrupt
at the moment the decree annulling his bankruptcy is pronounced, to his
original powers and rights in respect of the property." In the same case,
Kelly CB observed:
"...the
only sensible meaning which can be attached t the word 'revert' is, that what
was apparently the property of the trustees at the time of annulling of the
bankruptcy shall thereupon become the property of the person whose bankruptcy
has been annulled, as if it had always been his".
It was
pointed out in Peraya vs. Kondayya [AIR 1948 Mad. 430] that though the words
'null and void' used in the Indian Insolvency Act, 1848 were not used in
section 37 of the Provincial Insolvency Act, 1920, there was no reason to think
that the effect of the later statute was any different from the former statute.
A Full
Bench of the Madras High Court in Arunachalam vs. Narayana Swami [AIR 1951 Mad
63] consisting of Subba Rao, J. (as he then was), Panchapakesa Ayyar and Balakrishna
Ayyar, JJ reviewed the case law on the subject. In that case the question was
whether the debtors could be treated as agriculturists having saleable interest
in agricultural land on the crucial decree 1.10.1937 or 22.3.1938 for obtaining
scaling down of the interest under the Madras Agriculturists Debt Relief Act,
1938. On those dates, being undischarged insolvents, they had no saleable
interest in agricultural land. Much later, their adjudication was annulled by
an unconditional order. The debtor's representatives contended that the debtors
should get the benefit of the debt relief Act, and that though on the above
dates, the debtors did not, as a fact, have saleable interest in agricultural
land as that interest stood vested in the Official Receiver, still they must be
deemed to have acquired such interest with retrospective effect once there was
a subsequent annulment of adjudication . This contention was accepted.
Speaking
for the Full Bench Balakrishna Ayyar. J. held that the annulment related back to
the date of adjudication in September 1928 and that the benefit of the debt
relief Act must be extended to the debtors with retrospective effect, -
ignoring the insolvency proceedings.
We may
here also refer to two other cases. In Ratna navelu Chettiyar vs. Franciscu Udayar
(AIR 1945 Mad 388) Somayya, J. pointed out that it was clear that the
legislature wanted the annulment to be retrospective.
Otherwise,
there was no need for the clause validating acts done by the Court or by the
Receiver, as they would have in any event been valid because they were done at
a time when the insolvent had been adjudicates and before the adjudication was
annulled.
The
question again arose before another Full Bench in Subbaiah Goundan vs. Ramaswami
Goundan (AIR 1954 Mad 604).
That
was a case where the undischarged insolvent made alienations during the pendency
of the insolvency. His status as an 'agriculturist' during insolvency was also
material. It was held that section 7 of the 1848 Act and section 37 of the 1920
Act meant the same thing notwithstanding the difference in language. Satyanarayana
Rao, J. after referring to the history of legislation under this section and
also the dictionary meaning of the word 'reversion' and after referring to the
English cases to which we have referred above, observed as follows:
"It
has therefore been uniformly held in this Court....that the effect of annulment
is to vest the property retrospectively in the insolvent, in other words' the
consequence of annulling an order of adjudication is to wipe out altogether the
insolvency and its effect except to the limited extent reserved under section.
The Legislature introduced the fiction of vesting the title retrospectively in
the insolvent".
On
facts, it was held:
"In
view of this, the alienations made of property, moveable and immovable, by the
insolvent after adjudication, the decrees and execution proceedings suffered by
him, during such insolvency, the status of an agriculturist, notwithstanding
the property is taken away and transferred from him, are all restored and
validated from the date on which the insolvency petition was filed".
We are
of the view that the law stated in the above cases correctly represents the
legal effect of annulment of adjudication.
Summarising
the legal position, the position is as follows. In the case of an annulment
under sections 37 read with section 43 of the Act, where the property is not
vested in any other person and no conditions are imposed by the Insolvency
Court, the property and rights of the insolvent stand restored or reverted to
him with retrospective effect from the date of the filing of the insolvency
petition and the insolvency gets wiped out altogether. All acts done by the undischarged
insolvent between the date of the insolvency petition and the date of annulment
get retrospectively validated. However, all sales and dispositions of property
and payments duly made and all acts theretofore done by the Court or Receiver,
will remain valid.
Applying
the above principles to the facts of the case, it must be held that the acts of
the plaintiff, as an undischarged insolvent, in issuing the notice dated
12.7.1968 thereby exercising option for repurchase and his filing of the
present suit on 6.10.1969 for specific performance of the agreement of reconveyance
- all stand retrospectively validated upon the unconditional annulment of the
adjudication on 22.10.1969 , with effect from the date of filing of the
insolvency petition on 19.11.1963. The condition of the respondent to the
contrary is accordingly rejected. Point 3 is decided accordingly.
Point
4 This Court has
recently held in Bismillah Begum vs. Rahmatullah Khan (1998 (2) SCC 226) that
time is the essence of contract in a contract of reconveyance. If a vendor, who
agrees to sell his immovable property under an agreement of sale or who
executes a sale deed, is given the option to repurchase the property within a
particular period, then such an option must be exercised strictly within the
said period. The principle stated under section 55 of the Contract Act that in
regard to contracts of sales of immovable property time is not the essence of
contract as stated by the Privy Council in A.H. Mama vs. Flora Sasson AIR 1928
PC 208 = 55 I.A. 260 (PC) does not apply to contracts of reconveyance.
On the
facts of the case, it will be seen that the plaintiff exercised his option on
12.7.1968 within five years from the date of sale deed 15.7.1964 and hence the
defendant - vendee was bound to reconvey the property by receiving Rs. 7000/-
from the plaintiff as stipulated in the contract. This point is held in favour
of the plaintiff.
Point
5:
Under
Articles 54 of the Limitation Act, 1963, it is stated in the third column that
the suit for specific performance has to be filed within 3 years from the date
stipulated in the contract or from the date of refusal to perform the contract.
In the present case, even though a period of 5 years is fixed for exercising
the option to repurchase, it is not specified in the agreement that the vendee
shall execute the deed of repurchase within a particular period from the date
of exercise of option. hence the first part of the third column of Articles 54
does not apply. The second part applies. Time therefore starts to run only from
the 22.7.1968, the date when the defendant refused to execute the deed of reconveyance.
The suit was filed on 6.10.1969 within 3 years from 22.7.1968. Suit is in time
as held by the trial Court. Point 5 is held in favour of the plaintiff.
In the
result, the Civil Appeal is allowed. The judgment and decree passed by the High
Court are set aside and judgment and decree passed by the trial Court as
affirmed by the first appellate Court are restored. There will be no order as
to costs.
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