IMPORTANT POINT
Protection provided in the proviso to Section 55 of the Provincial Insolvency Act is available to a bona fide transferee for valuable consideration after the presentation of any insolvency petition but before the date of passing of the order for adjudication without notice of the presentation of the insolvency petition by or against the debtor.

Headnote:(i) Provincial Insolvency Act, 1920 -Sections 28 and 55-Insolvency petition-Effect of adjudication-Protection provided in proviso to Section 55 of the Act-Conditions to be satisfied-Shares belonging to debtor transferred in favour of appellant before date of order of adjudication was made on insolvency petition-Appellant had no knowledge as to presentation of insolvency petition-Transfer of shares made for valuable consideration-Whether protection provided in proviso to Section 55 of the Act is available to bona fide transferee for valuable consideration after presentation of any insolvency petition but before the date of passing of order for adjudication without notice of presentation of insolvency petition by or against the debtor-(Yes).
       Held : The object of Section 28 of the Act is to secure unrestricted right to dispose of insolvent s property after an order of adjudication is made. This Section clearly states that during the pendency of the insolvency proceedings, the creditor shall not commence any proceeding against the property of the insolvent in respect of his debt without the leave of the Insolvency Court. On making an order of adjudication, the whole of the property of the insolvent shall vest in the court or in a receiver, as the case may be, in terms of sub-section (2). An obligation is placed upon the insolvent to assist the official receiver to realize the assets. When sub-section (1) is read alongwith sub-section (7), the effect would be an order of adjudication relates back to the date of presentation of insolvency petition and the order of adjudication takes effect from the date of the presentation of the insolvency petition. Consequently, vesting of property under sub-section (2) also relates back to the date of presentation of the insolvency petition. Combined reading of sub-sections (1), (2) and (7) makes the position clear that the interest of the creditors is safeguarded, parties are put on notice against attempt to transfer the property after the date of presentation of the insolvency petition by the petitioners or others relating to his property and also to warn the intending purchasers or transferees that they are taking the risk of purchasing or getting the property transferred in their names during the pendency of the insolvency proceedings from the date of presentation of the petition itself and even before passing of an order of adjudication. In the absence of such provisions, by design, the claims and interests of the creditors could be defeated by effecting transfer of properties after filing the insolvency petition and before passing an order of adjudication. Sections 28 and 55 of the Act are to be read together. Where the transfer has been made by the insolvent after presentation of the insolvency petition, the transfer cannot be held as void ab initio but its validity or otherwise depends upon a consideration of the question whether the conditions specified in Section 55 are or are not satisfied. If the view of the High Court affirming the view of the district court that the protection of Section 55 was not available to the appellant even on satisfying the requirements of Section 55, the said provision, although is on the statute book, does not serve any purpose or it is redundant or superfluous. (Para 6)
       Proviso to Section 55 of the Act protects bona fide transactions mentioned in clauses (a) to (d) of Section 55. As per the proviso, in order to get protection to transactions mentioned in the said Section, two conditions are to be satisfied - (1) that any such transaction takes place before the date of the order of adjudication, and (2) that the person with whom such transaction takes place has not at the time notice of the presentation of any insolvency petition. By implication flowing from the said proviso, any transaction that takes place after the date of the order of adjudication does not get protection of proviso to Section 55 whether or not the person with whom such transaction takes place has any notice of the insolvency petition by or against the debtor. In the case on hand on the facts found, it is clear that the shares were transferred in favour of the appellant before the date of the order of adjudication was made on the insolvency petition filed by Kasi Naickar and the appellant had no knowledge at the time of purchasing the shares as to the presentation of the insolvency petition, the transfer of shares was for valuable consideration and such transfer was bona fide. In this view, the appellants did satisfy the requirements of proviso to Section 55 of the Act and hence they are entitled for the claim made by them. We may add that Sections 28 and 55 must be read together harmoniously. As already noticed above, these Sections are designed and intended to serve different purposes. In the proviso to Section 55 itself, there is reference to order of adjudication and the presentation of any insolvency petition. Order of adjudication and presentation of insolvency petition are two different events essentially referring to two different dates when in the same proviso, legislature consciously made a clear statement as to two different dates, they should be given effect to. If the intention of the proviso to Section 55 of the Act was not to protect even a bona fide transferee for valuable consideration without notice of presentation of insolvency petition before an order of adjudication was made, the legislature could have simply said any transaction taking place after the date of presentation of any insolvency petition by or against the debtor instead of qualifying the transaction that takes place before the date of the order of adjudication. In this situation, the said proviso which is intended to serve a definite purpose should be given full meaning and effect. It is not possible to ignore a part of the provision, namely, "any such transaction takes place before the date of the order of adjudication". It stands to the reason as well, that a bona fide transferee for valuable consideration without the knowledge of the presentation of insolvency petition on the date of transfer of property is to be protected. (Paras 8 and 9)
       (ii) Interpretation of Statutes-No word or provision should be considered redundant or superfluous in interpreting provisions of a statute-Courts always presume that legislature inserted every part thereof with a purpose-Legislative intention is that every part of the statute should have effect. (Para 7)

JUDGMENT

Shivaraj V. Patil, J.-"Whether protection provided in the proviso to Section 55 of the Provincial Insolvency Act, 1920 is available to a bona fide transferee for valuable consideration after the presentation of any insolvency petition but before the date of passing of the order for adjudication without notice of the presentation of the insolvency petition by or against the debtor", is the short question that arises for consideration and decision in this appeal.

2. The appellant filed petition under Section 55 of the Provincial Insolvency Act, 1920 (for short the Act ) for recovery of Rs. 25,155.40 with interest from the Bank (respondent No. 2) on the ground that it had paid the said amount on 24.8.1978 for purchase of shares belonging to the insolvent Kasi Naicker (respondent No. 1). Said Kasi Naicker had filed a petition to declare him as insolvent in I.P. No. 7/76 in 1976, which was dismissed on 25.10.1977 by the Subordinate Court, Tuticorin. He filed appeal in C.M.A. No. 116/77 before the District Court challenging the order of dismissal, which was allowed on 17.10.1978. The appellant purchased 249 shares of Rajapalayam Mills belonging to the debtor Kasi Naicker by depositing the amount to get the shares released in its favour with the consent of the debtor. When the bank neither released the share certificates nor returned the money deposited by it, the appellant filed IA No. 6/79 in I.P.No. 7/76 under Section 55 of the Act for declaration that 249 shares of Rajapalayam Mills belong to it or in the alternative to return the money with interest paid by it. The said petition was allowed by order dated 19.10.1984 directing the bank to pay sum of Rs. 25,155.40 with interest at 9% per annum from 24.8.1978 to the appellant. Kasi Naicker filed C.M.A. No. 40/84 aggrieved by the said order made in IA 6/79 in I.P. 7/76 in the court of District Judge Tirunelveli. The appeal was allowed holding that the order of adjudication dates back to the date of filing of the petition and, therefore, any transaction by the insolvent thereafter would not bind the receiver and the appellant was not entitled to any relief. The appellant approached the High Court by filing revision petition in C.R.P. 6/92 in the High Court challenging the order passed by the learned District Judge. The High Court dismissed the revision petition. Hence the appellant has filed this appeal.

3. In the trial court contentions were raised opposing IA No. 6/79. It was contended that the petition itself was not maintainable; that the amount was not paid by the appellant and the benefit of Section 55 of the Act was not available to it. Rejecting the contentions relief was granted to the appellant. The learned District Judge in the appeal set forth following three points for determination:-

"1. Whether the amount of Rs. 25,155.40 remitted by insolvent on 24.8.78 with the bank of Thanjavur belongs to Srinivas Naicker, proprietor of Krishna Stores or belongs to the Petitioner Shankar Ram and Co.

2. Whether the Insolvency Court has got jurisdiction to decide this claim.

3. Whether the petitioner Shankar Ram & Co. is not entitled to file this petition under Section 55 of the Provincial Insolvency Act."

4. The learned District Judge recorded finding on points (1) and (2) in favour of the appellant but held against the appellant on point No. (3). It may be mentioned here that against the order passed by the learned District Judge no revision was filed by Kasi Naicker or others. It was only the appellant, which filed the revision before the High Court called in question the validity of the order passed by the District Judge in holding that the protection given in Section 55 of the Act was not available to it. As is evident from the order passed by the High Court in revision only point No. (3) was considered and decided. Thus the findings on point Nos. (1) and (2) have attained finality. This being the position it is unnecessa

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2003 Supreme(SC) 673

Cases Referred (1)