Important Points
1. The High Court cannot in second appeal give a finding on an issue which was not perused before the trial Court.
2. In second appeal the High Court cannot for the first time give a finding on an issue which was not raised before the trial Court.
3. Where agreement of reconveyance preceded execution of sale deed, non-mention of agreement in sale deed would not amount to novation of contract in absence of fresh contract of sale.
4. Dismissal of application for discharge under Section 37 of the Provincial Insolvency Act is not a bar to invoke Section 43(1) for annulment of adjudication.
5. On annulment of adjudication of insolvency all properties not vested in any other person by the order of the Court, would stand restored or reverted to the insolvent and all acts done by insolvent between date of insolvency and date of annulment would get validated retrospectively.

Headnote:(i) Civil Procedure Code, 1908 -Section 100-Second appeal-Scope of power of court-Finding on an issue not pressed in trial Court-Not permissible-Finding on an issue for which there was neither any issue nor evidence-Tantamount to making a new case-High Court exceeded its jurisdiction-Findings set aside. (Paras 14, 15, 16 & 17)
       (ii) Contract Act, 1872-Section 62 - Novation of contract - Joint application before insolvency Court by insolvent and creditor-Agreement to sell property by insolvent retaining option to repurchase-Court recorded agreement-Interim receiver permitted to execute sale deed-No sale deed executed no demanded by creditor-Meanwhile adjudication as to insolvency made -Official liquidator and insolvent jointly executed sale deed-Neither sale deed nor Court order directing official liquidator mention about agreement of reconveyance-Whether it could be said there was novation of original agreement?-(No) -No fresh agreement between creditor and official receiver-Sale deed got executed only upon implementation of obligation covered by original agreement between insolvent and creditor-Absence of reference to agreement in sale deed not fatal.
       Held : 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 for which there was neither any issue nor evidence. In fact, the defendant specifically admitted in his evidence as D.W. 1 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 contention. 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 insolvents’ 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. (Para 14)
       Novation under Section 62 of the Contract Act requires 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. (Para 15)
       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. (Para 16)
       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? (Para 18)
       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 of 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 the parties. Point 2 is therefore held in favour of the appellant. (Paras 19 & 20)
       (iii) Provincial Insolvency Act, 1920-Section 43(1) read with Section 37-Annulment of order of adjudication-Insolvent given time of one year to apply for discharge-Application under Section 37 for discharge filed within one year-Same dismissed for default-Subsequent application for annulment under Section 43(1) - Whether maintainable-Held, Yes. (Paras 23, 24 & 25)
       (iv) Provincial Insolvency Act, 1920-Sections 37 and 43-Annulment-Effect of-Property not vested in any other person would stand restored or reverted to insolvent with retrospective effect from date of insolvency petition-All acts done by undischarged insolvent between date of insolvency and date of annulment get retrospectively validated-
       Held : 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. (Para 35)
       Where the insolvent and the creditor filed a joint application before the insolvency Court whereby they agreed that the insolvent would sell his property to the creditor and the insolvent would have option to repurchase the property within five years of sale and sale deed was executed accordingly but during the pendency of the application for annulment of adjudication by the insolvent as the five years period was clearing completion he issued notice seeking reconveyance and filed suit for specific performance and only thereafter annulment order came to be passed it was held that the acts of the plaintiff as undischarged insolvent, in issuing notice thereby exercising option for repurchase and his filing of the suit for specific performance of the agreement of reconveyance stood retrospectively validated upon the unconditional annulment of the adjudication, though he was undischarged insolvent at the time of issuing notice and filing the suit. (Paras 13, 21 to 33)
       (v) Contract Act, 1872-Section 55-Transfer of Property Act, 1882 -Section 55-Argument for sale and reconveyance-Time is essence of contract in a reconveyance agreement-Option must be exercised strictly within time stipulated. (Paras 13, 37 & 38)
       (vi) Limitation Act, 1963-Article 54-Specific performance-Contract of reconveyance-Vendor given five year time to exercise option-Particular period from date of exercise of option not stipulated first part of third column does not apply-Second part applies. (Paras 13 & 39)

Judgment

M. Jagannadha Rao, J.-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 Biswas in village Jarothi.

2. The trial Court decreed the 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.

3. 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 full satisfaction of his dues and the debtor applicant is 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 petition of Insolvency dismissed.

That the debtor has Bhumidhari property measuring 14 bighas 4 biswas 5 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.

4. 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”.

5. 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

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1998 Supreme(SC) 807

Cases Referred (9)