Report No. 26
29. After-acquired property.-There is difference between section 52(2)(a) of the Presidency Act and section 28(2) of the Provincial Act as to the character and title of the insolvent over after-acquired property and the rights of transferees from him of such property. In England1, the law is, that it is only when the Official Assignee intervenes that such property vests in him. It follows, that any dealing by the insolvent with the property before the Official Assignee actually intervenes will be valid if it is bona fide and for consideration.
The law in the Presidency Act is the same as in England. Under the Provincial Act, however, such property vests "forthwith" in the Official Receiver2. The Privy Council3 has accordingly held that the doctrine in Cohen v. Mitchell has no application to cases governed by the Provincial Act. The result is that under that Act any dealing with the after-acquired property by the insolvent would confer no title whatsoever on the transferee. The question for consideration is which of these two rules should be adopted. We are of the opinion, that the law as laid down in the Provincial Act should be adopted as it is both logical and just.4
It is conceivable that such law may work hardship in cases where an insolvent who is carrying on business with the knowledge of the Official Assignee transfers property acquired by him in the course of such business to a person who purchases it in good faith and for valuable consideration. It seems that the rule in Cohen v. Mitchell was originally evolved for giving protection to such persons5-6. Though the rule is now applied without limitation to all after-acquired property, in practice it is largely used with reference to transfers of property in the ordinary course of business.
The rule is allied in principle to another rule equally well-established, under which where an insolvent is permitted by the Official Receiver to carry on business, creditors of the insolvent in that business are, as regards the assets of that business, entitled to priority over other creditors7. The Privy Council has applied this principle in a case8 arising under the Indian Insolvency Act, 1848. We are, accordingly, of the opinion that while the law should be enacted in terms of section 28(4) of the Provincial Act, an exception should be made in favour of transferees of after-acquired property in the ordinary course of business.
In this view there is no need to consider the question whether the rule in Cohen v. Mitchell should be applied to immovable property. Before the Bankruptcy Act of 1914, it had been held in England in a series of decision9 that the rule had no application to real property. But this exception was swept away by the Act of 1914, and under section 47 of that Act real property was also brought within the rule. The decisions of the Indian Courts are not uniform on this subject10. The High Court of Madras11 has held that the rule in Cohen v. Mitchell does not apply to immovable property.
The contrary view12 has been taken by the Calcutta, Bombay and Allahabad High Courts. In a later case13 the Calcutta High Court has taken the view that the rule in Cohen v. Mitchell does not apply to immovable property. If after-acquired property vests in the Official Receiver at the time of acquisition and the insolvent has in consequence no title which he could transfer, it would make no difference whether the property transferred is movable or immovable. If the property which is dealt with by the insolvent falls within the exception, as one acquired in the ordinary course of business, then the transfer will be valid whether the property is movable or immovable.
1. Cohen v. Mitchell, (1892) 2 Ch 138. And see sections 38(a) and 47, English Act.
2. Mulla Law of Insolvency in India, (1958), p. 509, para. 29 and p. 520, para. 536.
3. Kala Chand v. Jagannath, 54 IA 190: ILR 54 Cal 595: AIR 1927 PC 108.
4. See App I, clause 48(2).
5. Observations of Kay, L.J. in re New Land Development Association & Gray, (1892) 2 Ch 138; see also Official Receiver v. Cook, (1906) 2 Ch 661.
6. Cf. Williams on Bankruptcy, 17th Edn., p. 381, bottom.
7. Troughton v. Gitley, 25 ER 408; Engelbach v. Nixon, 1875 LR 10 CP 645.
8. Kerakoose v. Brooks, 8 MIA 339; Ah Chone v. Mohomed, AIR 1939 Rang 186.
9. New Land Development Association & Gray (in re:), (1892) 2 Ch 138; Official Receiver v. Cook, (1906) 2 Ch 661.
10. See Mulla Law of Insolvency in India, (1958), pp. 513-514, para. 531.
11. Rowlandson v. Champion, (1804) ILR 17 Mad 21; Ramulu v. Andalammal, 1907 ILR 30 Mad 145.
12. Kristo Comul v. Suresh Chander, (1882) ILR Cal 556; Fatima Bibi v. Fatima Bibi, (1892) ILR 16 Bom 152; Chhote Lal v. Kedar Nath, ILR 46 All 565: AIR 1924 All 703.
13. Kamala Bala Dasi v. Fanindra Chandra De, ILR (1947) 1 Cal 394 (Das J.).