TMI Blog1998 (8) TMI 605X X X X Extracts X X X X X X X X Extracts X X X X ..... was affirmed by the first appellate court on 10.12.1975. However, the Second Appeal 175 of 1976 preferred by the defendant was allowed and the suit was dismissed on 21.3.1977 by the High Court of Allahabad. Against the said judgment, the plaintiff has preferred this appeal by special leave. The following are the facts : The plaintiff- appellant borrowed ₹ 5000/- from the defendant-respondent on 6.6.1961 and another sum of ₹ 2000/- on 27.1.1962. On the ground that the plaintiff did not repay the said amount, the defendant filed Misc. Case 27 of 1963 before the Insolvency Court, Aligarh on 19.11.1963 (Lower Court described it as application dated 20.11.1963) for declaring the plaintiff as an insolvent. On the same day the plaintiff and defendant signed joint application before the Insolvency Court the material portion of which (in para 4 to 6) reads as follows: That the creditor has agreed to accept ₹ 7000/- in fill satisfaction of his transferring his Byhumichari Property measuring 5 bighas 7 biswas to the creditor for the consideration of ₹ 7000/- with the condition of repurchasing the same within 5 years from the creditor for ₹ 7000/-. the cred ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3. Thereafter, the Official Receiver executed a sale-deed on 15.7.1964 in favour of the respondent for the suit land and the plaintiff's evidence that on the same day, another sale- deed of some other property was executed by the Official Receiver in favour of one Shamlal for ₹ 1000/-. Plaintiff stated in his evidence that he paid off the other two sundry creditors to whom, in all, he owned ₹ 1000/- as referred to above. The Official Receiver reported to the Insolvency Court on 30.10.0964 that the plaintiff had cleared all his debts. The plaintiff-appellant moved for discharge on 7.9.1964, i.e. within 1 year of the order of adjudication dated 29.5.1964. Unfortunately, the said application stood dismissed for default. On 9.7.1968, the plaintiff applied under Section 43(1) after Provincial Insolvency Act, 1920 (hereinafter called the 'Act') for an order of annulment alleging that all the creditors had been paid fully. That section permits such an application in cases where the debtor has not applied for discharge within the period fixed earlier. But the Insolvency Court dismissed the said application on 27.7.1968 on the ground that the insolvent could not i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... take advantage of his default. It was also contended that the previous agreement between the parties fell to the ground owing to non fulfilment thereof by the plaintiff himself . It was contended that there never was any contract of repurchase with the Official Receiver who was the vendor and in whom title to the property stood vested. After the adjudication, or after the sale, there was no agreement by the defendant to reconvey the property. The plaintiff was legally incompetent to seek reconveyance by notice dated 12.7.1968 as he was an undischarged insolvent on that date and the property remained wholly vested in the Official Receiver. The Official Receiver never exercised any option to repurchase within 5 years of the sale deed. Time was the essence of the contract. The Plaintiff was also not competent to file the suit on 6.10.1969 as he was, even on that date, an undischarged insolvent and all rights including the right to seek reconveyance stood vested in the Official Receiver. On these contentions, the trial Court framed various issues. On issue 2 relating to the alleged default on the part of the plaintiff in executing sale-deed as agreed to in the joint applicatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh agreement for reconveyance between the Official Receiver and the defendant at the time the sale-deed was executed. The agreement dated 19.11.1963 contained in the joint application was, in fact, not given effect to as plaintiff did not execute the sale- deed and defendant did not have the insolvency petition dismissed. The facts showed that the sale-deed dated 15.7.1964 executed jointly by the Official Receiver and the plaintiff was not in pursuance of the original agreement dated 19.11.1963. The said agreement dated 19.11.1963 was a contingent one and was executed even before the Court directed sale of the property to the defendant. As the directions of the Insolvency Court dated 22.11.1963 directing execution of sale-deed by the plaintiff and also withdrawal of insolvency petition by the defendant, were not complied with by either party, the execution of the sale- deed after adjudication must be held to be in pursuance of a fresh contract between the parties . It might be that the substance of the sale-deed was the same as contained in the joint application but this was not relevant. The contract was still a new one upon which the sale deed was executed. At the time of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt in the written statement. On the other hand, the evidence of the defendant as DW1 was that there was no fresh contract before 15.7.1964 when the sale-deed was executed. The finding of the High Court was, therefore, contrary to the defendant's evidence. The trial Court and the first appellate Court were right in holding that the annulment retrospectively validated the option exercised by the plaintiff on 12.7.1968 in his notice and the filing of the suit on 6.10.1969, though on those dates, the plaintiff was an undischarged insolvent. In fact, even on the date of annulment dated 22.10.1969, the suit was in time as the period of 3 years had not expired from 22.7.1968, the date of refusal to perform the contract of reconveyance. On the other hand, learned counsel for the defendant Sri P. Anshu Misra contended that there was a fresh or new contract at the time of the sale by the Official Receiver on 15.7.1964 and the sale-deed was traceable to that agreement and not to the agreement contained in the joint application dated 22.11.1963. At the time of the fresh agreement for sale on 15.7.64, there was no further agreement for a reconveyance. The original agreement of reconveyan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sale-deed dated 15.9.1964. The defendant, no doubt, came forward with such a statement to negative any fresh agreement of reconveyance entered into by and between the Official Receiver and the defendant. But that evidence equally negatives the theory that the sale-deed dated 15.9.1964 was executed pursuant to a fresh or new agreement entered into between the Official Receiver and the defendant. The recitals in the sale-deed do not support such a condition. Further , the sale by the Official Receiver was one made pursuant to the Court order dated 22.11.63 and was not a sale in exercise of his normal powers to sell the insolvent property nor was it a sale for distributing the sale proceeds to the creditors. No doubt, the Court's order permitted the interim receiver to sell but in view of the subsequent adjudication of the debtor as insolvent on 29.5.1964, the sale-deed had to be executed by the Official Receiver. A reading of the sale-deed dated 15.7.1964 which is in Hindi and was read out in Court showed that it was executed in pursuance of the agreement between the creditor and the insolvent, second party . The sale deed did not refer to any agreement with the Offici ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to an agreement of reconveyance. Question is whether on that account the obligation to reconvey, in the event of the plaintiff exercising, within 5 years his option to repurchase contained in the a joint application dated 19.11.1963 could be said to have been given up by the plaintiff? We have already held under Point 1 that the Court order and the sale-deed were not the result of any fresh or new agreement between the Official Receiver and the defendant at or before the date of sale on 15.7.1964. We have also held that there was no novation within section 62 of the Contract Act. If that be so, it is clear that the agreement for reconveyance contained in the original contract dated 19.11.1963 cannot be said to have been superseded. The defendant, having got the sale-deed only upon implementation of the obligation covered by the agreement of sale dated 19.11.1963 cannot approbate and reprobate and contend that the other part of the agreement dated 19.11.1963 regarding reconveyance need not be implemented. It is true that it is customary to include a recital regarding the agreement of reconveyance in the sale-deed itself. But where, as here, there was an agreement precedi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act states if, in the opinion of the Insolvency Court, a debtor ought not to have been adjudged insolvent, or where it is proved to the satisfaction of the Court that the debts of the insolvent have been paid in full, the Court shall, on the application of the debtor, or any other person interested, by order in writing, annul the adjudication and the Court may, of its own notice or on application made by the receiver or any creditor, annul any adjudication made on the petition of a debtor who was, by reason of the provisions or sub-section (2) of section 10. not entitled to present such petition. It is obvious that, in the present case, in view of the report of the Official Receiver dated 30.10.1964 that all the debts had been cleared by the insolvent, the Court was bound to annul the adjudication. It did so on 22.10.1969. It cannot be said that the debtor plaintiff could not have applied for annulment under section 43(1). Now sub-clause (1) of section 43 states that if the debtor does not appear on the day fixed for hearing his application for discharge or on such subsequent day as the Court may direct, or if the debtor does not apply for an order of discharge within the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjudication order, the debtor had a right of reconveyance qua the property purchased by the defendant from the receiver on 15.7.1964. That right in relation t the property continued to burden the sale. After adjudication that limited right stood vested in the Official Receiver. On annulment that right would, therefore, clearly revert back to the debtor from the Official Receiver. Sub-section (1) of section 37 uses the words, the property of the debtor to the extent of his rights and interests therein shall revert to him. For example, if he was a full owner or a mortgagee or a lessee of the property in question on the date of adjudication, those rights would revert back to him on annulment though during the pendency of the insolvency those rights stood vested in the Official Receiver. Likewise the right to obtain a reconveyance from the vendee which was vested in the Official Receiver would in our opinion also revert back to the debtor. Upon annulment of the adjudication. In the present case, the debtor had exercised the opinion and filed the suit even before annulment. Therefore, the more important question will be whether the reverter of the property or rights on annulment i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndition which the Court annulling the bankruptcy may by its order impose, to remit the party whose bankruptcy is set aside to his original situation. Adverting to the effect of an unconditional order of annulment it was stated by the learned Chief Justice: Here the Court of Bankruptcy has imposed no condition; the general provision of the section has therefore its full effect, and that effect is to remit the bankrupt at the moment the decree annulling his bankruptcy is pronounced, to his original powers and rights in respect of the property. In the same case, Kelly CB observed: ...the only sensible meaning which can be attached t the word 'revert' is, that what was apparently the property of the trustees at the time of annulling of the bankruptcy shall thereupon become the property of the person whose bankruptcy has been annulled, as if it had always been his . It was pointed out in Peraya vs. Kondayya [AIR 1948 Mad. 430] that though the words 'null and void' used in the Indian Insolvency Act, 1848 were not used in section 37 of the Provincial Insolvency Act, 1920, there was no reason to think that the effect of the later statute was any different ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his section and also the dictionary meaning of the word 'reversion' and after referring to the English cases to which we have referred above, observed as follows: It has therefore been uniformly held in this Court....that the effect of annulment is to vest the property retrospectively in the insolvent, in other words' the consequence of annulling an order of adjudication is to wipe out altogether the insolvency and its effect except to the limited extent reserved under section. The Legislature introduced the fiction of vesting the title retrospectively in the insolvent . On facts, it was held: In view of this, the alienations made of property, moveable and immovable, by the insolvent after adjudication, the decrees and execution proceedings suffered by him, during such insolvency, the status of an agriculturist, notwithstanding the property is taken away and transferred from him, are all restored and validated from the date on which the insolvency petition was filed . We are of the view that the law stated in the above cases correctly represents the legal effect of annulment of adjudication. Summarising the legal position, the position is as follows. In ..... X X X X Extracts X X X X X X X X Extracts X X X X
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