Grant of injunction against secured Creditor.

In this appeal a point of some significance on which there is divergence in the views expressed in judicial pronouncements has to be considered, and as the matter relates to the jurisdiction of Courts we shall discuss it with some fulness of detail.

The appellant before us is the Ramnad District Central Co-operative Bank and the respondent is the Official Receiver of Ramnad District. The contest is between an official on the one side and a quasi-Government department on the other. One Syed Mohammad Rowther was adjudged an insolvent in I.P.No.1 of 1947 on the file of the District Court of Ramnad and all his estates became vested in the Official Receiver of Ramnad. The insolvent was the President of a certain Co-operative Society as well as a Director of the Ramnad District Central Co-operative Bank. The Co-opertative Society was a debtor to the Co-operative Bank in a large sum of money and the insolvent executed a security bond to the Bank for that sum. The Bank later on applied to the Deputy Registrar of Co-operative Societies to pass an award, A.R.C.No.87/1947-48 for a sum of Rs.83,000/-and odd against the insolvent, to be recovered by the sale of the properties hypothecated by him under the security bond and after getting that award the Bank filed E.P.No.95/1947-48 before the same Deputy Registrar for execution of the award and realisation of the amounts due by sale of the mortgaged property and that application is now pending. The Official Receiver in whom the equity of redemption has vested filed I.A.No.47 of 1949 to annul the security bond under Section 53 of the Provincial Insolvency Act on the ground that it is a voluntary transfer and as such not valid and binding so far as the Official Receiver was concerned Pending that application, the Official Receiver has also filed I.A.No.48 of 1949 for a temporary injunction restraining the Bank from proceeding with the execution of the award before the Deputy Registrar. The learned District Judge of Ramnad issued the injunction prayed for and against that order the present appeal has been filed.

Mr.M. Chockalingam for the appellant contests the jurisdiction of the Insolvency Court to issue an injunction restraining the proceedings taken by a secured creditor in due furtherance of his rights and states that in view of section 28, sub-section (6) of the Provincial Insolvency Act, the secured creditor has an unfettered right of exercising his rights for the realisation of the amount due to him. Section 28, sub-section (6) reads as follows:

"Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if ‘this section had not been passed’."

On the very wide terms of this section the argument is put forward that if a secured creditor has taken steps to realise the money due under his security, or otherwise dealt with it, then it is in no way affected by the insolvency of the debtor and that the secured creditor could proceed as if section 28 had not been in force. In other words, an Insolvency Court can issue no process against a secured creditor curtailing his unrestricted right of enforcement of a security. In such circumstances when the Bank has taken steps to realise the security, the order of injunction issued by the Insolvency Court is ultra vires and without jurisdiction. We have therefore to see how far this argument is well founded.

Great reliance is placed upon a judgment of this Court in The Official Receiver, Coimbatore v. Palaniswami Chetti1, where it is held that an Insolvency Court has no jurisdiction to stay a mortgage suit pending in another court under section 10 of the Civil Procedure Code in a case where the Insolvency Court is seized of an application under section 53 of the Provincial Insolvency Act to set aside a mortgage as void against the creditors, which mortgage is itself the subject of adjudication in another