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1927 Supreme(SC) 21
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT DUNEDIN, LORD SALVESEN, AND SIR JOHN WALLIS.
KALA CHAND BANERJEE - Appellant
Versus
JAGANNATH MARWARI (DEFENDANTS) - Respondents
On appeal from the High Court at Calcutta.
Decided On : Mar. 3. 1927.
Solicitors for appellant: W. W. Box & Co.
Solicitors for respondents: Ranken Ford & Chester.
Property devolving on an undischarged insolvent vests in the receiver. A secured creditor must proceed against the receiver to realize the security; a decree obtained against the insolvent is a nullity and does not operate as res judicata against the receiver.
Headnote:(A) Provincial Insolvency Act, 1907 - Section 16(4) and 16(5) - Vesting of property - Property acquired by or devolving on an insolvent after the date of an order of adjudication and before discharge vests in the Court or Receiver - The receiver alone is entitled to deal with the equity of redemption.
(B) Provincial Insolvency Act, 1907 - Section 16(5) - Rights of secured creditors - The provision that nothing in the section shall affect the power of any secured creditor to deal with the security in the same manner as if the Act had not been passed does not imply that an action may proceed in the absence of the person to whom the equity of redemption has been assigned by operation of law - The receiver, and not the insolvent, has the sole interest in the subject-matter of the suit and must be given the opportunity to redeem the property to prevent collusive arrangements and protect unsecured creditors.
(C) Civil Procedure Code - Section 11 - Res Judicata - A decree pronounced in a suit to which a party was not joined does not operate as res judicata against that party - The refusal of a court to make a party to a suit cannot be treated as having the same effect as an order on the merits of the case.
Facts of the case:
A mortgage was executed by a person who subsequently died. The property subject to the mortgage devolved by inheritance upon his son, who had already been adjudicated an insolvent. Under the applicable insolvency law, the property vested in the receiver. Despite this, the secured creditors dealt with the insolvent son, obtaining a ratification of a compromise and subsequently a final decree for foreclosure. The receiver, who had attempted and failed to be joined as a party to those proceedings, later brought a suit to set aside the foreclosure decree and redeem the property.
Findings of Court:
The court found that the moment the inheritance devolved on the undischarged insolvent, it vested in the receiver. The ratification of the compromise by the insolvent was a nullity, and the proceedings by which he was made a party were ineffective to bind the equity of redemption vested in the receiver.
Issues: Whether a secured creditor is entitled to proceed against an insolvent for foreclosure of a mortgage when the equity of redemption has vested in the receiver under Section 16(4) of the Provincial Insolvency Act, 1907, and whether a decree passed against the insolvent operates as res judicata against the receiver.
Ratio Decidendi: Section 16(4) of the Provincial Insolvency Act, 1907, clearly vests property devolving on an undischarged insolvent in the receiver. While Section 16(5) protects the rights of secured creditors to realize their security, it does not permit them to bypass the legal holder of the equity of redemption. Because the receiver was not a party to the foreclosure suit, the resulting decree does not satisfy the requirements of Section 11 of the Civil Procedure Code and cannot operate as res judicata.
Result: Appeal allowed.
Legal Category Hierarchy
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insolvency law
- vesting of property
- rights of secured creditors
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practice and procedure
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civil procedure code
- res judicata
- substitution of parties
- foreclosure proceedings
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civil procedure code
Judgement
Appeal (No. 92 of 1925) from a decree of the High Court (November 25, 1924) reversing a decree of the Subordinate Judge of Asansol, Burdwan.
The appellant as receiver of the estate of one Amulya Krishna Basu, who had been declared an insolvent under the Provincial Insolvency Act, 1907, brought a suit to set aside a decree for foreclosure of a mortgage upon property which had devolved upon the insolvent, and to redeem the property.
The facts, and the terms of the relevant provisions of the above Act, appear from the judgment of the Judicial Committee.
The Subordinate Judge made a decree for redemption.
On appeal to the High Court the decree was set aside and the suit dismissed.
The learned judges (Walmsley and Ghose JJ.) were of opinion that the receiver could not maintain the suit having regard to s. 16, sub-s.5, of the above Act. Ghose J. held further that the final decree of the Subordinate Judge for foreclosure operated as res judicata against the plaintiff. In his view, the receiver, if he wished to challenge the decree, could and should have appealed from it.
1927. Feb. 4. Dunne K.C. and E. B. Raikes for the appellant.
De Gruyther K.C. and Dube for the respondents.
1927. March 3. The judgment of their Lordships was delivered by
LORD SALVESEN. This is an appeal from the decision of the High Court of Judicature at Fort William in Bengal, dated November 25, 1924, by which the judgment of the Subordinate Judge of Asansol in Zillah Burdwan, dated February 5, 1923, was reversed and the suit dismissed with costs. The appellant prays that the decision of the High Court should be reversed and that of the Subordinate Judge restored.
The material facts are as follows — The appellant is the receiver of the estate of Amulya Krishna Bose, who was adjudicated an insolvent on February 21, 1914, by the District Judge of Bankura who, by the same order, appointed a receiver of Amulyas estate. Amulya was the son of Tara Prasanna Bose, who, in February, 1913, had executed a mortgage for the sum of Rs.40,000 in favour of the defendants over certain properties that belonged to him. He failed to pay the mortgage interest, and on January 11, 1913, the mortgagees instituted a suit for foreclosure of the mortgage. After some procedure to which it is unnecessary to refer, a solenamah was executed by the mortgagor and mortgagees under which it was agreed that the time for payment of the mortgage debt should be extended on the undertaking of the mortgagor to pay the interest regularly every year within the month of Chaitra. Failing such payment the mortgagees were to be entitled to foreclose. This solenamah (or deed of compromise) was filed by the mortgagees on March 6, 1915, but before any order was made the mortgagor, Tara Prasanna Bose, died on September 7. On his death it is matter of admission that the properties subject to the mortgage or the equity of redemption therein devolved by inheritance on the insolvent Amulya.
By Act III., of 1907, which contains the law applicable to the facts of the case, it is provided, s. 16, sub-s. 4, as follows " All such property as may be acquired by or devolve on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or Receiver and become divisible among the creditors in accordance with the provisions of sub-s.2, cl. (a)." This provision is perfectly clear. The moment the inheritance devolved on the insolvent Amulya, who was still undischarged, it vested in the receiver already appointed, and he alone was entitled to deal with the equity of redemption. The alternative in the section applicable to vesting in the Court was no doubt inserted to provide for the case of a receiver not being appointed at the same time as the adjudication of insolvency was made and to foreclose an argument that vesting was suspended until the actual appointment of a receiver. The difficulty suggested by Ghose J. is thus entirely unsubstantial. The Court only acts
