Very Important Point
The effect of annulling the adjudication in insolvency proceedings is to wipe out the effect of insolvency and to vest the property retro­spectively in the insolvent. Further, by the annulment of insolvency and wiping out its effect retrospectively in law, the suit filed inde­pendently by the creditor and the judicial orders passed thereon are not wiped out or rendered null and void automatically. The order passed in the suit is not non est. as it comes within the purview of “acts theretofore done by the Court” and is therefore saved by 1st part of Section 37(1) of Provincial Insolvency Act, 1920.

Judgment

K. Venkataswami, J.-A short question that arises for consideration in this appeal is that what is the meaning to be ascribed to the words “all acts theretofore, done, by the Court or receiver, shall be valid;” occurring in Section 37(1) of the Provincial Insolvency Act, 1920 (hereinafter called the Act). Brief facts are given as hereunder.

2. The deceased respondent Rajaram Bapu Lakule (hereinafter called the debtor) was the original owner of a suit property, namely C.T.S. No. 926 Peth Baug, Sangli, Bombay. By a deed of mortgage by conditional sale dated 22.1.1962 (Ex. 41), he transferred the suit property in favour of the appellant (hereinafter called the creditor) for a sum of Rs. 7,500. The condition was that on the amount of Rs. 7,500/- if repaid within five years of the execution of the document, the proper­ty was to be reconveyed to the debtor. On 8.1.63 within one year from the date of conditional sale, the debtor executed another document (Ex. 42) a regular sale deed after receiving an additional amount of Rs. 500/-. On 9.4.63 Insolvency Application 5/63 was filed by one of the creditors of the debtor to get an adjudication as insolvent against the debtor. In 1964, the debtor himself filed Insolvency Application 7/64 for being adjudicated as an insolvent. By proceedings of the court dated 8.1.65, the debtor was adjudicated as an insolvent and an official receiver was appointed in respect of the properties belonging to the insolvent/debtor including the suit property. In the year 1965, the receiver moved the Insolvency Court for a declaration that the sale deed namely, Ex. 42 dated 8.1.63 in favour of the credi­tor (appellant) was a sham and nominal transaction and as such it was null and void. After taking evidence, the Insolvency Court held that the said sale deed (Ex. 42) was a sham transaction and that it was the result of the collusion between the debtor and the creditor. It was also found by the Insolvency Court that possession of the suit proper­ty was never taken over by the creditor. Against that order of the Insolvency Court, an appeal was filed being M.C.A. 50/68 and the same was dismissed by the Extra Assistant Judge, Sangli. By an order dated 26.6.1971, the Insolvency Court passed an order of annulment.

3. Thereafter the debtor filed a Civil Suit 62/76 for redemption of the mortgage Ex. 41. This suit for redemption was on the footing that the sale deed Ex. 42 was a sham and bogus document and it was never acted upon. Simultaneously the debtor moved the authority under the Maha­rashtra Debt Relief Act, 1975 for a declaration that the debt which was the subject matter of the mortgage stood extinguished as the mortgagor being a debtor within the meaning of the said Act. The appellant contested the said application contending that in view of the order of annulment and in the light of Section 37(1) of the Act, Ex. 42 (sale deed) in his favour stood revived and therefore, there was no relationship of debtor and creditor to move the application under the Debt Relief Act. The authorised officer on a consideration of the documents overruled the stand taken by the appellant and by order dated 14.4.80 held that in view of the declaration regarding Ex. 42 (sale deed) by the Insolvency Court and by the Appellate Court that the sale was void, the earlier document viz. conditional sale Ex. 41 stood revived and the debtor’s relationship existed. On that basis allowed the application under the Debt Relief Act. The result was that the debt stood wiped out.

4. Aggrieved by the order of the authorised officer under the Debt Relief Act, the appellant moved the Bombay High Court by filing W.P. 3438/80.

5. It was contended on behalf of the appellant before the High Court that the authorised officer was not right in holding that even after the order of annulment, the declaration made by the Insolvency Court holding Ex. 42 (sale deed) as null and void, holds the field. In other words, it was the case of the appellant that the e