1962 Supreme(AP) 196

Andhra Pradesh High Court
Judges : ANANTA NARAYANA AYYAR, SATYANARAYANA RAJU
Kusampudi Sundararama Raju - Appellant
Versus
The Official Receiver, Guntur - Respondent
Decided On : 10-31-62

Insolvency does not determine a contract. Nor does insolvency per se operate as rescission of a contract.

Headnote:

INSOLVENCY - CONTRACT OF SALE - RESCISSION - VALIDITY - VESTING OF PROPERTY IN INTERIM RECEIVER - EFFECT - PROVINCIAL INSOLVENCY ACT (V OF 1920), SECTIONS 20, 28, 37, 43, 53, 54, 56.

Fact of the Case:

The plaintiffs, the sons of one Peda Nagaraju, were the owners of an extent of Ac. 39-90 cents of land, out of which an extent of Ac. 18-95 cents was comprised in the plaint schedule. The plaintiffs executed a mortgage deed in respect of the total extent of Ac. 39-90 cents in favor of Govada Ranganayakulu and two others. The first of them obtained a decree in O.S. No. 78 of 1943, on the foot of the mortgage. Before the hypotheca was brought to sale in execution of the mortgage decree, the plaintiffs and the second defendant entered into a contract of sale on 12th April, 1948, under which the second defendant agreed to purchase the entire extent of Ac. 39-90 cents of land at Rs. 900 per acre. While so, the decree-holder in O.S. No. 78 of 1943 brought the entirety of the extent of Ac. 39-90 cents of land, which was the subject-matter of the contract of sale (Exhibit A-1), to sale in execution of his decree. The second defendant purchased an extent of Ac. 20-25 cents out of the Ac. 39-90 cents in the Court auction sale, with his own monies. Thereafter, the plaintiffs filed a petition to set aside the Court sale, but it was dismissed. During the pendency of the Insolvency Petition, the Official Receiver was appointed as Interim Receiver by an order of the Court of the Subordinate Judge, Bapatla, dated 3rd December, 1956. The second defendant was adjudged an insolvent by the order of the court, dated 29th March, 1957.

Finding of the Court:

1. The contract, dated 12th March, 1957 (Exhibit A-7), was true but that it was not valid and binding on the first defendant. 2. The second defendant committed default in the performance of the contract, Exhibit A-1. 3. The plaintiffs were not entitled to any rendition of accounts. 4. The plaintiffs were in possession of the suit land by the date of the suit but that this fact would not help them in obtaining the reliefs sought for by them. 5. The title to the suit lands did not pass to the Official Receiver.

Issues: 1. Whether the contract, dated 12th March, 1957 is true, valid and binding on the first defendant ? 2. Whether the second defendant has committed default under contract, dated 5th April,. 1948, as pleaded by the plaintiffs ? 3. Whether the suit is barred by resjudicata by virtue of the decision in E. A. No. 706 of 1957 in. I. P. No. 15 of 1956, Sub-Court, Bapatla ? 4. Whether plaintiff is entitled to rendition of accounts ? 5. Whether the first defendant is entitled to rely on the contract, dated 5th April, 1948 and resist the claim of the plaintiffs if necessary by paying any amount that may be found due ? 6. Whether the first defendant cannot get any rights in the suit property unless he files a suit for specific performance ? 7. To what relief? additional issue framed on 22nd February, 1960 : (1) Whether the plaintiff is entitled to declaration and injunction as prayed for ?

Ratio Decidendi: 1. Insolvency does not determine a contract. Nor does insolvency per se operate as rescission of a contract. 2. Conduct on the part of the insolvent or the Official Assignee, which practically amounts to notice to those with whom the insolvent had contracted, that he does not mean to perform any of his contracts, may amount to a refusal of performance entitling the other party to the contract to rescind. 3. A contract by the insolvent to buy property cannot be specifically enforced against the Official receiver. 4. Where, however, the Official Receiver insists on the performance of the contract, he must be ready and willing to perform the insolvent's part of the contract to the same extent to which the insolvent should have done had he remained solvent. 5. Vesting only takes place upon adjudication and under section 29 it is not till then that a Court in which proceedings are pending against a debtor, is bound to stay them. 6. An Interim Receiver has under section 20 only the powers of a receiver appointed under the Code of Civil Procedure and he is not clothed even with those powers till he takes possession of the debtor's properties. 7. The property of the debtor does not vest in an Interim Receiver as it does in a Receiver appointed after adjudication under section 56 of the Act in other words, his appointment has not the same effect as the effect of the appointment of an Official Receiver after adjudication. 8. A transfer by an insolvent is voidable and stands till it is set aside.

Final Decision: Appeal allowed. suit decreed in part.