CASE NO.:
Appeal (civil) 176 of 1997
PETITIONER:
Sankar Ram and Co.
RESPONDENT:
Vs.
Kasi Naicker and others
DATE OF JUDGMENT: 30/07/2003
BENCH:
Shivaraj V. Patil &[D.M. Dharmadhikari.
JUDGMENT:
J U D G M E N T
Shivaraj V. Patil,J.
"Whether protection provided in the proviso to
Section 55 of the Provincial Insolvency Act, 1920 is
available to a bonafide transferee for valuable
consideration after the presentation of any insolvency
petition but before the date of passing of the order
for adjudication without notice of the presentation of
the insolvency petition by or against the debtor", is
the short question that arises for consideration and
decision in this appeal.
The appellant filed petition under Section 55 of
the Provincial Insolvency Act, 1920 (for short 'the
Act') for recovery of Rs.25,155.40 with interest from
the Bank (respondent No. 2) on the ground that it had
paid the said amount on 24.8.1978 for purchase of
shares belonging to the insolvent Kasi Naicker
(respondent No. 1). Said Kasi Naiker had filed a
petition to declare him as insolvent in I.P. No. 7/76
in 1976, which was dismissed on 25.10.1977 by the
Subordinate Court, Tuticorin. He filed appeal in
C.M.A. No. 116/77 before the District Court challenging
the order of dismissal, which was allowed on
17.10.1978. The appellant purchased 249 shares of
Rajapalayam Mills belonging to the debtor Kasi Naicker
by depositing the amount to get the shares released in
its favour with the consent of the debtor. When the
bank neither released the share certificates nor
returned the money deposited by it, the appellant filed
IA No. 6/79 in I.P. No. 7/76 under Section 55 of the
Act for declaration that 249 shares of Rajapalayam
Mills belong to it or in the alternative to return the
money with interest paid by it. The said petition was
allowed by order dated 19.10.1984 directing the bank to
pay sum of Rs.25,155.40 with interest at 9% per annum
from 24.8.1978 to the appellant. Kasi Naicker filed
C.M.A. No. 40/84 aggrieved by the said order made in
IA6/79 in I.P. 7/76 in the court of District Judge
Tirunelveli. The appeal was allowed holding that the
order of adjudication dates back to the date of filing
of the petition and, therefore, any transaction by the
insolvent thereafter would not bind the receiver and
the appellant was not entitled to any relief. The
appellant approached the High Court by filing revision
petition in C.R.P. 6/92 in the High Court challenging
the order passed by the learned District Judge. The
High Court dismissed the revision petition. Hence the
appellant has filed this appeal.
In the trial court contentions were raised
opposing IA No. 6/79. It was contended that the
petition itself was not maintainable; that the amount
was not paid by the appellant and the benefit of
Section 55 of the Act was not available to it.
Rejecting the contentions relief was granted to the
appellant. The learned District Judge in the appeal
set forth following three points for determination: -
"1. Whether the amount Rs.25,155.40
remitted by insolvent on 24.8.78
with the bank of Thanjavur
belongs to Srinivas Naicker,
proprietor of Krishna Stores or
belongs to the Petitioner
Shankar Ram and Co.
2. Whether the Insolvency Court has
got jurisdiction to decide this
claim.
3. Whether the petitioner Shankar
Ram & Co. is not entitled to
file this petition under Section
55 of the Provincial Insolvency
Act."
The learned District Judge recorded finding on
points (1) and (2) in favour of the appellant but held
against the appellant on point No. (3). It may be
mentioned here that against the order passed by the
learned District Judge no revision was filed by Kasi
Naicker or others. It was only the appellant, which
filed the revision before the High Court calling in
question the validity of the order passed by the
District Judge in holding that the protection given in
Section 55 of the Act was not available to it. As is
evident from the order passed by the High Court in
revision only point No. (3) was considered and decided.
Thus the findings on point Nos. (1) and (2) have
attained finality. This being the position it is
unnecessary for us to consider the other aspects but to
answer the question set out in the beginning.
It is concluded that the amount was paid by the
appellant to the bank and not by Kasi Naicker for
purchase of shares. It is a matter of record that the
appellant purchased the shares belonging to Kasi
Naicker from the bank on payment of money before
passing the order of adjudication, declaring Kasi
Naicker insolvent on 17.10.1978 in C.M.A. No. 116/77.
It is also found that the appellant had no notice of
the presentation of insolvency petition by the debtor
Kasi Naicker on the date when it purchased the shares.
As already noticed above the trial court had allowed
the claim of the appellant but the District Court in
appeal took a view that although the order of
adjudication was passed on 17.10.1978 it related back
to the date of filing the insolvency petition in IP
7/76 in 1976 in view of Section 28(7) of the Act and as
such the purchase of shares made by the appellant is
not protected under Section 55 of the Act. The answer
to the question depends upon the proper construction
and interpretation of provisions of Sections 28 and 55
of the Act. Sections 28 and 55 read: -
"28. Effect of an order of adjudication
– (1) On the making of an order of
adjudication the insolvent shall aid to
the utmost of his power in the
realization of his property and the
distribution of the proceeds among his
creditors.
(2) On the making of an order of
adjudication, the whole of the property
of the insolvent shall vest in the Court
or in a receiver as hereinafter
provided, and shall become divisible
among the creditors, and thereafter,
except as provided by this Act, no
creditor to whom the insolvent is
indebted in respect of any debt provable
under this Act shall during the pendency
of the insolvency proceedings have any
remedy against the property of the
insolvent in respect of the debt, or
commence any suit or other legal
proceeding, except with the leave of the
Court and on such terms as the Court may
impose.
(3) For the purposes of sub-section
(2), all goods being at the date of the
presentation of the petition on which
the order is made, in the possession,
order or disposition of the insolvent in
his trade or business, by the consent
and permission of the true owner, under
such circumstances that he is the
reputed owner thereof, shall be deemed
to be the property of the insolvent.
(4). All property which is acquired
by or devolves on the insolvent after
the date of an order of adjudication and
before his discharge shall forthwith
vest in the Court or receiver, and the
provisions of sub-section (2) shall
apply in respect thereof.
(5). The property of the insolvent
for the purposes of this section shall
not include any property (not being
books of account) which is exempted by
the Code of Civil Procedure, 1908, or by
any other enactment for the time being
in force from liability to attachment
and sale in execution of a decree.
(6). Nothing in this section shall
affect the power of any secured creditor
to realize or otherwise deal with his
security, in the same manner as he would
have been entitled to realize or deal
with it if this section had not been
passed.
(7). An order of adjudication shall
relate back to, and take effect from the
date of the presentation of the petition
on which it is made."
"55. Protection to bona fide
transactions. – Subject to the foregoing
provisions of this Act with respect to
the effect of insolvency on an
execution, and with regard to the
avoidance of certain transfers and
preferences, nothing in this Act shall
invalidate in the case of an insolvency-
(a) any payment by the insolvent to
any of his creditors;
(b) any payment or delivery to the
insolvent;
(c) any transfer by the insolvent
for valuable consideration; or
(d) any contract or dealing by or
with the insolvent for valuable
consideration:
Provided that any such transaction
takes place before the date of the order
of adjudication, and that the person
with whom such transaction takes place
has not at the time notice of the
presentation of any insolvency petition
by or against the debtor."
The object of Section 28 of the Act is to secure
unrestricted right to dispose of insolvent's property
after an order of adjudication is made. This Section
clearly states that during the pendency of the
insolvency proceedings, the creditor shall not commence
any proceeding against the property of the insolvent in
respect of his debt without the leave of the Insolvency
Court. On making an order of adjudication, the whole
of the property of the insolvent shall vest in the
court or in a receiver, as the case may be, in terms of
sub-section (2). An obligation is placed upon the
insolvent to assist the official receiver to realize
the assets. When sub-section (1) is read alongwith
sub-section (7), the effect would be an order of
adjudication relates back to the date of presentation
of insolvency petition and the order of adjudication
takes effect from the date of the presentation of the
insolvency petition. Consequently, vesting of property
under sub-section (2) also relates back to the date of
presentation of the insolvency petition. Combined
reading of sub-sections (1), (2) and (7) makes the
position clear that the interest of the creditors is
safeguarded, parties are put on notice against attempt
to transfer the property after the date of presentation
of the insolvency petition by the petitioners or others
relating to his property and also to warn the intending
purchasers or transferees that they are taking the risk
of purchasing or getting the property transferred in
their names during the pendency of the insolvency
proceedings from the date of presentation of the
petition itself and even before passing of an order of
adjudication. In the absence of such provisions, by
design, the claims and interests of the creditors could
be defeated by effecting transfer of properties after
filing the insolvency petition and before passing an
order of adjudication. Sections 28 and 55 of the Act
are to be read together. Where the transfer has been
made by the insolvent after presentation of the
insolvency petition, the transfer cannot be held as
void ab initio but its validity or otherwise depends
upon a consideration of the question whether the
conditions specified in Section 55 are or are not
satisfied. If the view of the High court affirming the
view of the district court that the protection of
Section 55 was not available to the appellant even on
satisfying the requirements of Section 55, the said
provision, although is on the statute book, does not
serve any purpose or it is redundant or superfluous.
It is a cardinal rule of construction that
normally no word or provision should be considered
redundant or superfluous in interpreting the provisions
of a statute. In the field of interpretation of
statutes, the courts always presume that the
legislature inserted every part thereof with a purpose
and the legislative intention is that every part of the
statute should have effect. It may not be correct to
say that a word or words used in a statute are either
unnecessary or without any purpose to serve, unless
there are compelling reasons to say so looking to the
scheme of the statute and having regard to the object
and purpose sought to be achieved by it. A Constitution
Bench of this Court in Jaipur Zila Sahakari Bhoomi Bank
Ltd. Vikas vs. Shri Ram Gopal Sharma and Ors. [JT 2002
(1) SC 182] while interpreting and considering the
effect of proviso to Section 33(2)(b) of the Industrial
Disputes Act, 1947 in para 13 observed – "The proviso
to Section 33(2)(b) as can be seen from its very
unambiguous and clear language, is mandatory...........
Taking a contrary view that an order of discharge or
dismissal passed by an employer in contravention of the
mandatory conditions contained in the proviso does not
render such an order inoperative or void, defeats the
very purpose of the proviso and it becomes meaningless.
It is well-settled rule of interpretation that no part
of statute shall be construed as unnecessary or
superfluous. The proviso cannot be diluted or
disobeyed by an employer......... The interpretation of
statute must be such that it should advance the
legislative intent and serve the purpose for which it
is made rather than to frustrate it." Once the
requirements of Section 55 of the Act are satisfied,
the appellant is entitled for the protection of the
said Section as a bona fide transferee. Taking a
contrary view takes away the very protective umbrella
specifically made available to a bona fide transferee
covered by Section 55. Protection provided for bona
fide transfer in Section 55 is in a way exception to
Section 28(7).
Proviso to Section 55 of the Act protects bona
fide transactions mentioned in clauses (a) to (d) of
Section 55. As per the proviso, in order to get
protection to transactions mentioned in the said
Section, two conditions are to be satisfied – (1) that
any such transaction takes place before the date of the
order of adjudication, and (2) that the person with
whom such transaction takes place has not at the time
notice of the presentation of any insolvency petition.
By implication flowing from the said proviso, any
transaction that takes place after the date of the
order of adjudication does not get protection of
proviso to Section 55 whether or not the person with
whom such transaction takes place has any notice of the
insolvency petition by or against the debtor.
In the case on hand on the facts found, it is
clear that the shares were transferred in favour of the
appellant before the date of the order of adjudication
was made on the insolvency petition filed by Kasi
Naickar and the appellant had no knowledge at the time
of purchasing the shares as to the presentation of the
insolvency petition, the transfer of shares was for
valuable consideration and such transfer was bona fide.
In this view, the appellants did satisfy the
requirements of proviso to Section 55 of the Act and
hence they are entitled for the claim made by them. We
may add that Sections 28 and 55 must be read together
harmoniously. As already noticed above, these Sections
are designed and intended to serve different purposes.
In the proviso to Section 55 itself, there is reference
to order of adjudication and the presentation of any
insolvency petition. Order of adjudication and
presentation of insolvency petition are two different
events essentially referring to two different dates
when in the same proviso, legislature consciously made
a clear statement as to two different dates, they
should be given effect to. If the intention of the
proviso to Section 55 of the Act was not to protect
even a bona fide transferee for valuable consideration
without notice of presentation of insolvency petition
before an order of adjudication was made, the
legislature could have simply said any transaction
taking place after the date of presentation of any
insolvency petition by or against the debtor instead of
qualifying the transaction that takes place before the
date of the order of adjudication. In this situation,
the said proviso which is intended to serve a definite
purpose should be given full meaning and effect. It is
not possible to ignore a part of the provision, namely,
"any such transaction takes place before the date of
the order of adjudication". It stands to the reason as
well, that a bona fide transferee for valuable
consideration without the knowledge of the presentation
of insolvency petition on the date of transfer of
property is to be protected.
In view of the facts found, discussion made and
reasons recorded above, we are unable to sustain the
impugned judgment of the High Court affirming the order
of the district court. We answer the question set out
above in the affirmative and in favour of the
appellant. Hence, the appeal is allowed. The impugned
judgment of the High Court affirming the order of the
District Judge is set aside and that of the trial court
is restored. Parties to bear their own costs.
