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Report No. 26

Clause 22

General.-This is based on section 30 of the Provincial Act and sections 20 and 116(2) of the Presidency Act.

Conclusiveness of order.-(a) Section 116(2) of the Presidency Act contains a special provision that "a copy of the Official Gazette containing any notice of an order of adjudication shall be conclusive evidence of the order having been duly made and of its date". This is based on section 132 of the (English) Bankruptcy Act, 1883, replaced by section 137 of the Act of 1914. There is no similar provision in the Provincial Act1-2. The reason behind the English provision has been very lucidly explained by James L.J. in Learoyd's case..3 A man cannot be duly adjudged a bankrupt unless he has committed an act of bankruptcy. That is the "great requisite of all", and that is why the determination is "conclusive".

(b) The provision gives rise to a serious question as regards the rights of transferees from the insolvent, where those transfers from the foundation on which an order of adjudication is made. It has been held by the English courts on a construction of the corresponding provision of the English statutes, that if a debtor is adjudged insolvent on a finding that a transfer by him is an act of insolvency as for example, a fraudulent preference, that finding will be conclusive and binding on the transferee, and that he will thereafter be precluded for ever from raising the question as to whether in fact the transfer is an act or insolvency, vide ex parte Learoyd4-5-6.

This view must clearly entail great hardship on the transferee who is not a party to the insolvency petition, and who has no opportunity of being heard on the merits of his transfer. It has been stated in justification of the law as laid down in ex parte Learoyd7 that a transferee is not without a remedy as he can appeal against the order of adjudication, he being undoubtedly a person "aggrieved" by it, but an appeal, having regard to its scope, cannot be substituted for a right to take part in proceedings and adduce evidence. Nor is the right to move for annulment of adjudication on the ground that the debtor should not have been adjudged insolvent an effective substitute for the right to take part in the trial, as the order of adjudication might be founded on several acts of insolvency.

In Official Assignee of Madras v. O.R.M.O.R.S. Firm, 1927 ILR 50 Mad 541, it was held by the Madras High Court that a finding that the insolvent has committed a fraudulent preference would not be binding on the transferee if he was not a party to the order of adjudication, and that when the proceedings were taken by the Official Assignee to impugn the transfer as a fraudulent preference, it was open to the transferee to plead that the transaction was not hit by the section. The court declined to follow the decision in ex parte Learoyd.

However, the point came up for consideration before the Privy Council in Mahomed Siddique Yousuf v. Official Assignee, Calcutta, 70 IA 93: ILR (1943) 2 Cal 517 PC: AIR 1943 PC 130, and therein the decision in ex parte Learoyd was followed, and it was held that a third person was bound by the finding in the adjudication order. The Madras High Court had again occasion to consider the same question in Official Receiver v. Gopala Krishniah, ILR 1945 Mad 541: AIR 1945 Mad 66. It reaffirmed the decision in Official Assignee of Madras v. O.R.M.O.R.S. Firm, and distinguished the decision in Mahomed Siddique Yousuf v. Official Assignee, Calcutta, on the ground that it arose under the Presidency Act and that there being no provision in the Provincial Act similar to section 116(2) of the Presidency Act, the order of adjudication was not conclusive so far as the transferee is concerned on the question whether the transfer was hit by the Act.

(c) Notice to transferee.-It cannot be denied that transferees would be put to a hardship if they are barred by an order passed without hearing them. To avoid this hardship, a provision has been made elsewhere8 for giving notice to the transferee. With this safeguard, there does not appear to be any objection to the adoption of section 116(2) of the Presidency Act.9

Sub-clause (1).-The words "every order of adjudication" used in the Presidency Act, are better than the words "an order of adjudication" in the Provincial Act, and have been adopted.

The Presidency Act requires the date of presentation of the petition also to be mentioned. This is a useful provision, and has been adopted.

Sub-clause (2).-Needs no further comments.

1. The Supreme Court has in Ramaswami v. Official Receiver, (1960) 1 SCR 616 (641) decided that the English Rule does not apply in the mofussil.

2. See also discussion in Kehar Singh v. Raghbir, AIR 1960 Punj 24.

3. Cf. Mulla, (1958), p. 743.

4. Ex. parte Learoyd, (1878) 10 Ch D 3.

5. See discussion in Mulla, (1958), p. 743-746, and p. 178, para. 180.

6. Also see Williams, pp. 239 (485).

7. (1878) 10 Ch D 3.

8. See clause 10.

9. Mulla has suggested adoption of the English rule. See Mulla, (1958), p. (viii) and discussion p. 179, para. 180, p. 195, para. 207 and pp. 743-749, para. 788.

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