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High Court of Judicature at Madras
THE HONOURABLE MR. JUSTICE RAMAPRASADA RAO & THE HONOURABLE MR. JUSTICE SURYAMURTHY
Income Tax Officer, Hundi Circle I, Madras - Appellant
Versus
K. A. Govindaswamy and Others - Respondent
Case No : OSA No. 77 of 1974
Decided On : 17 June 1977
INSOLVENCY - PROPERTY OF INSOLVENT - LEASE-CUM-SALE AGREEMENT - RIGHTS OF INSOLVENT - CHARGE UNDER SECTION 55(6)(B) OF THE TRANSFER OF PROPERTY ACT - PRIORITY OF GOVERNMENT DUES.
Fact of the Case:
An insolvent entered into an agreement with the State Housing Board for the purchase of a property under a lease-cum-sale agreement. Prior to the adjudication of insolvency, the insolvent entered into an agreement with a third party for the sale of the property and received a part of the purchase price. The official assignee sought to bring the property to sale, and the third party claimed a charge over the property under section 55(6)(b) of the Transfer of Property Act. The Income-tax Officer, representing the State, claimed priority over the third party's charge for arrears of income-tax due from the insolvent.
Finding of the Court:
The court held that the insolvent had an interest in the property under the lease-cum-sale agreement, which vested in the official assignee upon adjudication of insolvency. The court also held that the third party was entitled to a charge over the property under section 55(6)(b) of the Transfer of Property Act, as he had paid a part of the purchase price in anticipation of the delivery of the property. The court further held that the Government's claim for priority over the third party's charge could not be sustained, as the third party was a secured creditor and the Government's priority only applied to unsecured creditors.
Issues: 1. Whether the insolvent had an interest in the property under the lease-cum-sale agreement, which vested in the official assignee upon adjudication of insolvency. 2. Whether the third party was entitled to a charge over the property under section 55(6)(b) of the Transfer of Property Act. 3. Whether the Government's claim for priority over the third party's charge could be sustained.
Ratio Decidendi: 1. The court held that the insolvent had an interest in the property under the lease-cum-sale agreement, which vested in the official assignee upon adjudication of insolvency, based on the following reasoning: - The lease-cum-sale agreement created a saleable interest in the property, subject to the fulfillment of certain conditions by the insolvent. - The insolvent had the right to occupy the property and to purchase it from the Housing Board at a fixed price. - The agreement did not provide for the termination of the insolvent's rights in the event of insolvency. - The insolvent's rights under the agreement were property rights that could be transmitted to the official assignee under section 52 of the Presidency Towns Insolvency Act. 2. The court held that the third party was entitled to a charge over the property under section 55(6)(b) of the Transfer of Property Act, based on the following reasoning: - The third party had paid a part of the purchase price in anticipation of the delivery of the property. - The third party was willing to complete the sale but was prevented from doing so by the official assignee's decision to sell the property. - The third party's charge was a statutory charge that arose by operation of law and was not dependent on the consent of the official assignee. 3. The court held that the Government's claim for priority over the third party's charge could not be sustained, based on the following reasoning: - The Government's priority only applied to unsecured creditors. - The third party was a secured creditor by virtue of his charge over the property. - The Government's claim for priority would have deprived the third party of his security and injured his rights as a secured creditor.
Final Decision: The court dismissed the appeal filed by the Income-tax Officer, upholding the decision of the lower court that the third party was entitled to a charge over the property and that the Government's claim for priority could not be sustained.
RAMAPRASADA RAO J.
This appeal is directed against the judgment of Paul J., in Application No. 173 of 1973, in I.P. No. 39 of 1970. A petitioning creditor filed a petition in insolvency against his debtor, one P. Vasudevan, on the ground that the debtor committed acts of insolvency under sections 9(d)(ii) and 9(d)(iii) and 9(g) of the Presidency Towns Insolvency Act. This petition was presented on May 4, 1970. Prior to the presentation of this petition, to wit, on January 15, 1970, Vasudevan (the debtor) entered into an agreement with one Govindaswamy, the first respondent for the sale of his house and ground bearing plot No. 113, 12th Cross Street, Indra Nagar, for a sum of Rs. 83, 000 and in pursuance of that agreement, the first respondent, Govindaswamy, had paid Rs. 43, 000 and it was agreed that the balance should be paid after Vasudevan gets clearance from the State Housing Board with whom Vasudevan had a lease-cum-sale agreement entered into between him and the board in or about July 15, 1965. We shall presently refer to the terms of the said agreement. The insolvency petition filed as above by the petitioning creditor was heard and by an order dated March 23, 1971, Vasudevan was adjudicated as an insolvent. Whilst these proceedings were pending, Govindaswamy, on the strength of the agreement for sale dated January 15, 1970, which was indeed oral and further on the footing that he has paid a sum of Rs. 43, 000 to the insolvent pursuant to the said agreement of sale desired to bring himself on record in the insolvency proceedings so as to secure his rights as intending purchaser who parted with a part of the purchase price to the vendor. Fearing that Govindaswamy was likely to claim an interest as a secured creditor pursuant to the payment of the part of the agreed purchase price in furtherance of the agreement of sale referred to above, the insolvent filed Application No. 589 of 1971, and sought for a declaration that Indra Nagar house as above did not vest in the official assignee, as he had no transferable or assignable interest therein. The application of Vasudevan (Application No. 589 of 1971) was rejected by Palaniswamy J., who held that Vasudevan under the lease-cum-sale agreement with the State Housing Board acquired an interest in the property and was entitled to get a conveyance from, the Housing Board on his fulfilment of the obligation undertaken by him under the lease-cum-sale agreement and that that right was in the nature of a right to get a sale and that such a right was property which on adjudication of Vasudevan as lessee-allottee vested in the official assignee. This matter was taken up in appeal to the First Bench in O.S.A. No. 2 of 1972. Veeraswami C.J. agreed with Palaniswamy J., and observed that Vasudevan before his adjudication did possess certain rights over the Indra Nagar house property, hereinafter referred to as "the property", which included continuance in possession till the end and asking for a conveyance to be made in his favour by the board. The Division Bench also observed that Vasudevan's rights were valuable rights which could well be treated as property, which on adjudication would vest in the official assignee. Whilst this was the position and when the official assignee sought to bring the property to sale as a statutory functionary representing the body of creditors, Govindaswamy, who was anxious to get a sale deed but for the intervening of insolvency, and who, it appears, has also prepared a draft sale deed for the purpose, could not proceed with it ; but he was, on the other hand, willing to permit the official assignee to sell the property publicly, provided the statutory charge to which he was entitled under section 55(6)(b) of the Transfer of Property Act, was declared in his favour. The official assignee with the concurrence of the court (vide order in Application No. 338 of 1970), accepted the stand of Govindaswamy and brought the property to sale, after admitti
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