# May2, 520 SUPRENIE COURT REPORTS (1964] VOL. RAGHUNATH KESHAVA KHARKAR v. GANESH AND OTHERS

- **Citation:** [1964] 3 S.C.R. 520
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, K. C. Das Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/may2-520-suprenie-court-reports-1964-vol-raghunath-keshava-kharkar-v-ganesh-and-3003
- **Pages:** 29

## Headnote

l11aolvency-Devolutio11
of property
on UMiBcharged
i11Boluent-8uit for poaseaaion after absolute diBakarge-Mai11tai11ability-Provincial Insolvency Act, 1920( 5 of 1920), ... 28
(4),37,42,44,67 will-Oonatruction-Appeal when ca1111ot
as a whole.
The appellant, a Hindu reversioner, brought the suit out
of which the appeal arose for recove,ry of certain properties
alienated by two widows having widow's estates under the
will of their husband. The respondents resisted the suit mainly
on the grounds that the appellant, who was an undischarged
insolvent at the time the succession opened, could not maintain
the suit even after his absolute discharge as the properties must
be taken to have vested in the official receiver and that under
the will of their husband the widows got not
a widow's
estate but an absolute estate and had the right to alienate the
properties which they did. The trial court found in favour of
the appellant and directed delivery of possession of the properties to him. On appeal the High Court took the contrary
view on both the points and dismissed the suit. The appellant came up to this Court on the certificate granted by the
High Court.
Held that the High Court was in error in holding that the
appellant could not maintain the suit. There is nothing in the
Provincial Insolvency Act that takes away the right of the insol·
vent to sue in courts after he is granted a discharge for he then
becomes a free man. Though there is no specific provision in
the Act with respect to the property that may remain undisposed of by the court or by the receiver, the provisions in s. 67
. by necessary implication read in the light of the general
scheme of the Act provides an answer to this and all such
property must be treated as surplus to which an insolvent is
entitled, after an absolute order of discharge is made in his
favour, subject always to the condition that if any debts provable under the Act have not been discharged before such order1
3 S.C.R.
SUPREME COURT REPORTS 521
the property will remain liable for such discharge as also the
expenses of all proceedings under the Act till they are fully met.
Gol..,1 v. Mitchel, (1890) 25 Q. B. D. 262; Sayad Daud
Sayed Mahomed v. Mulna Mahomed Sayad, (1926) 28 Bom.
L. R. 554; Yellavajjhula Suraya v. Tummalapali Mangayya,
A.I.R. (1941) Mad. 345, Rup Nar.,in Singh v. Har Gopal
Tewari, I. L. R. (1933), 55 All. 503; Diwan Ohand v. Ma11ak
Ohand, A.LR. (1934) Lah. 809; Arjun Das Kundu v. March·
hiya T•line•, I.L;R. (1937) I Cal. 127; Kanshi Ram v. Hari
Ram, A.I.R. (1937) Lah. 87 and Parsu v. Balaji, I.L.R.
(1944) Nag. 14, discussed.
In order to determine the true intention of a testator, the
clauses of the will should be read as a whole in the light of the
surrounding circumstances as also in contrast to the other clau·
ses and where the testator, as in the instant case, having used
the word 'owner' in the previous clause, follows up by using the
words "during her lifetime enjoy as owner the income in any
manner she likes" the latter words clearly limit the bequest
and indicate that what is given is no more than a life estate.
Where the interests of the various defendants in possession
of various properties are independent, the appeal cannot abate
as a whole by reason of the heirs of a deceased defendant in
possession of a property not having been brought on the
record within the prescribed time.
CIVIL APPELLATE JuRrBDIOTION: Civil Appeal
No. 98 of 1962.
Appeal from the judgment and decree dated
March 7, 1957, of the Bombay High Court in First
Appeals Nos. 897of1951 and 66 of 1952.
S. S. Shukla, for the appellant.
G. B. Pai, J.B. Dadachanji, 0. 0. Mathur and
Ravinder Narain, for respondents Nos. 1, 3 and 7.
A. V. Viswanatha Sastri and Sardar Bahadur
for respondent No.
.
1
t
R.,6 ... lh KuharNJ
n"'"'
..
Ga111sh
114lhuuth Jr 1Sh,.a
Ii h4rk<T
v.
Gone•A
Wan<hao /.
522 SUPREME COURT REPORTS[l964]VOL.
1963. May 2. . The Judgment of the Court
was delivered by
W ANCHOO ].-This is an appeal on a certi

## Text

_Characters 0–39,984 of 57,504. This is a partial read: ask again with offset=39984 for what follows._

1963
May2,
520 SUPRENIE COURT REPORTS (1964] VOL.
RAGHUNATH KESHAVA KHARKAR
v.
GANESH AND OTHERS
(P. B. GAJENDRAGADKAR, K. N. WANCHOO,
and K. C. DAS GUPTA JJ.)
l11aolvency-Devolutio11
of property
on UMiBcharged
i11Boluent-8uit for poaseaaion after absolute diBakarge-Mai11tai11ability-Provincial Insolvency Act, 1920( 5 of 1920), ... 28
(4),37,42,44,67 will-Oonatruction-Appeal when ca1111ot
as a whole.
The appellant, a Hindu reversioner, brought the suit out
of which the appeal arose for recove,ry of certain properties
alienated by two widows having widow's estates under the
will of their husband. The respondents resisted the suit mainly
on the grounds that the appellant, who was an undischarged
insolvent at the time the succession opened, could not maintain
the suit even after his absolute discharge as the properties must
be taken to have vested in the official receiver and that under
the will of their husband the widows got not
a widow's
estate but an absolute estate and had the right to alienate the
properties which they did. The trial court found in favour of
the appellant and directed delivery of possession of the properties to him. On appeal the High Court took the contrary
view on both the points and dismissed the suit. The appellant came up to this Court on the certificate granted by the
High Court.
Held that the High Court was in error in holding that the
appellant could not maintain the suit. There is nothing in the
Provincial Insolvency Act that takes away the right of the insol·
vent to sue in courts after he is granted a discharge for he then
becomes a free man. Though there is no specific provision in
the Act with respect to the property that may remain undisposed of by the court or by the receiver, the provisions in s. 67
. by necessary implication read in the light of the general
scheme of the Act provides an answer to this and all such
property must be treated as surplus to which an insolvent is
entitled, after an absolute order of discharge is made in his
favour, subject always to the condition that if any debts provable under the Act have not been discharged before such order1
3 S.C.R.
SUPREME COURT REPORTS 521
the property will remain liable for such discharge as also the
expenses of all proceedings under the Act till they are fully met.
Gol..,1 v. Mitchel, (1890) 25 Q. B. D. 262; Sayad Daud
Sayed Mahomed v. Mulna Mahomed Sayad, (1926) 28 Bom.
L. R. 554; Yellavajjhula Suraya v. Tummalapali Mangayya,
A.I.R. (1941) Mad. 345, Rup Nar.,in Singh v. Har Gopal
Tewari, I. L. R. (1933), 55 All. 503; Diwan Ohand v. Ma11ak
Ohand, A.LR. (1934) Lah. 809; Arjun Das Kundu v. March·
hiya T•line•, I.L;R. (1937) I Cal. 127; Kanshi Ram v. Hari
Ram, A.I.R. (1937) Lah. 87 and Parsu v. Balaji, I.L.R.
(1944) Nag. 14, discussed.
In order to determine the true intention of a testator, the
clauses of the will should be read as a whole in the light of the
surrounding circumstances as also in contrast to the other clau·
ses and where the testator, as in the instant case, having used
the word 'owner' in the previous clause, follows up by using the
words "during her lifetime enjoy as owner the income in any
manner she likes" the latter words clearly limit the bequest
and indicate that what is given is no more than a life estate.
Where the interests of the various defendants in possession
of various properties are independent, the appeal cannot abate
as a whole by reason of the heirs of a deceased defendant in
possession of a property not having been brought on the
record within the prescribed time.
CIVIL APPELLATE JuRrBDIOTION: Civil Appeal
No. 98 of 1962.
Appeal from the judgment and decree dated
March 7, 1957, of the Bombay High Court in First
Appeals Nos. 897of1951 and 66 of 1952.
S. S. Shukla, for the appellant.
G. B. Pai, J.B. Dadachanji, 0. 0. Mathur and
Ravinder Narain, for respondents Nos. 1, 3 and 7.
A. V. Viswanatha Sastri and Sardar Bahadur
for respondent No.
.
1
t
R.,6 ... lh KuharNJ
n"'"'
..
Ga111sh
114lhuuth Jr 1Sh,.a
Ii h4rk<T
v.
Gone•A
Wan<hao /.
522 SUPREME COURT REPORTS[l964]VOL.
1963. May 2. . The Judgment of the Court
was delivered by
W ANCHOO ].-This is an appeal on a certificate
granted by the Bombay High Court and arises out
of a suit filed by the appellant as a Hindu rever·
sioner to recover possession of properties alienated
by a Hindu widow. The property in suit was the
self-acquired property of one GanpatraoJairam who
died in 1894 leaving behind two widows, Annapurna·
bai and Sarswatibai. Ganpatrao had executed a
will by which property in village. Dahisar was given
to Annapurnabai and property in village Nagaon
was given to Sarswatibai. The will further provided
that a dwelling house together with structures and
open land situate at Thana would remain with his
two wives who would enjoy the same. There were
other dispositions in the will with which we are
however not concerned now. Annapurnabai was
also authorised to make an adoption on the advice
of the executors appointed under the will; but the
adopted son was to have no right or connection with
the movable and immovable property devised to
Annapurnabai during her life-time and was to take
the property devised to her only after her death.
The adopted son was also to take the immovable
property bequeathed to Saraswatibai after her death.
It may be added that no son was adopted by
Annapurnabai and this aspect of the matter therefore need not be considered further.
Annapurnabai
died on September 17, 1915, and she. had executed
a will before her death.
After Annapurnabai's
death, Saraswatibai began to manage the property.
It may be added
that
Sarswatibai had adopted
a
son, but this
was
to be
against
the provision
in
the will of her
husband
which
specifically directed that she could only
adopt if
Annapurnabai jied without
making
an adoption
from
amongst
the
family . on
the advice of the executors. There was therefore
3 S.C.R.
COURT REPORTS
523
.
litigation in connection with the adoption between
Saraswatibai and Balkrishna Waman, one of the
legatees under the will of Ganpatrao, which ended
in favour of Balkrishna Waman. Saraswatibai died
m 1943.
The case of the appellant was that the will
of Ganpatrao merely
gave widow's
estate
to
Annapurnabai
and
Saraswatibai. Consequently
Annapurnabai could not dispose of the property
given to her by will and the bequests made by her
were not binding on the appellant as the next
reversioner. It was al so alleged that the will made
by Annapurnabai was vitiated by the exercise
of undue influence brought to bear on her by
Balkrishna Waman, who was the husband of her
niece. Saraswatibai also made certain alienations
and the
appellant contended that the sale by
Saraswatibai was due to the
undue
influence
exercised on her by Balkrishna Waman, and in any
case there was no legal necessity for transfer and
therefore the transfer was not binding on the appellant. The main defendant in the suit was Ganesh,
a son .of Balkrishna Waman. In addition there were
twelve other defendants who were alienees in posse·
ssion of the property and were joined in the suit as
the appellant prayed for recovery of possession from
them also.
The suit was resisted by the main defendant
Ganesh for two main reasons. It was first contended
that the appellant was an undischarged insolvent at
the time succession opened in 1943 and therefore
whatever property might come to him as a reversioner vested in the official receiver.
Therefore, the
appellant had no right to bring a suit to recover
possession even after his absolute discharge because
the property never vested in him.
Secondly, it was
·contended that by his will Ganpatrao had granted
estate to the two widows and therefQre
Rathun1dh lf1Jh11a
1{/UJTkot
v.
Gouslt
Wan&U.J.
196J
. R111hun•lh lreshllN
K/uzrkar
v.
Ganesh
Wanchoo l.
824
SUPRENIE COURT REPORTS [l!l64]VOL.
Annapurnabai had full right to make a will with
respect to the property given to her and Sarswatibai
had the right to make alienations if she thought. fit.
Besides these two main defences, it was also contended that the appellant was not the nearest reversioner
and the alienations made by Sarswatibai wer.e for
legal necessity. The same defence was raised by the
other defendants.
In addition the alienees from
Sarswatibai contended that they were bona fide · purchasers for value without notice of the defect in their
vendor's title and therefore the alienations made in
their favour could not be set aside.
They further
pleaded that they had made substantial improvements
on the properties purchased by them.
·
On these pleadings as many as eighteen issues
were framed by the trial court. Two of these issues
covered the two main defences which were raised,
namely,
(1) Is the plaintiff eatitled to maintain the
suit due to his insolvency as alleged by the
defendants?
(3) Had Annapurnabai no authority to will
away the properties in her possession?
The trial court held that the plaintiff was entitled to
maintain the suit. The third issue obviously raised
the question whether the bequest to Annapurnabai
was that of widow's estate or an absolute bequest,
and the trial court held in that connection that the
·bequest to Annapurnabai was that of widow's estate
and therefore she had no right to will away the properties in her possession.
The trial court also gave
on the remaining issues and finally declared
that the alienations made by Saraswatibai on March
29, 1930 and April 16, 1935 were not for legal necesssity and therefore were not binding on the appellant
and the defendants of the suit were directed to deliver
3 S.C.R.
SUPREME COURT REPORTS
525
possession of the suit properties to the appellant.
Inquiry as tb mesne profits was also directed and
finally the trial court ordered that notice be given to
the receiver in the insolvency application No. 48 of
1939 to consider if he wanted the property to be
niade available for distribution amongst creditors in
the aforementioned application.
The defendants then went in appeal to tll.e
High Court and two separate appeals were filed one
by original defendant No. 3 and the other by 19riii·
nal defendant No. l and some others. The twl9
appeals were heard together by the High Court aad
the two principal questions which arose, accerding
to the High Court, were as to-
(i) the effect of the dispositions made by
Ganpatrao under his will, and
(ii) the right of the plaintiff to maintain the
suit when he was, at the date when the
succession
opened,
an
undischarged
insolvent,
These two questions, it will be seen, correspond to
the two lSSues raised by the trial court, which we
have set out above. The High Court
considered
· the right of the plaintiff to maintain the suit and
held that the plaintiff had no right to maintain the
suit, as he was an undischarged insolvent at the time
the succession opened and he could not maintain the
suit even after his absolute discharge. The High
Court further held that the disposition in favour of
Annapurnabai ot the property in Dahisar amounted
to conferment of absolute estate on her and further
that the disposition in favour of Saraswatibai of the
property in Nagaon amounted to conferment of
absolute estate on her. On these findings the
High Court dismissed the suit. Thereupon the
appellant. applied for a certificate.which was granted;
and that 1s how the matter has come up before us.
R•ghw..,,, Kuh,.• .
!Lhrk•r
y,
Gan11h
Wcno\H /.
/963
R•tluuwlt G.uA1N
Khorkar
v.
Gan1slt
526
SUPREltfB COURT REPOR.ts [1964] VOL.
The first question that falls for consideration
is whether the appellant can maintain the suit.
It
is necessary in that connection to see what the facts
are with respect to the insolvency of the appellant.
The appellant had filed an insolvency application
in 1939 and was adjudged insolvent on March II,
1940 and two years time was granted to him to
apply for discharge. The appellant applied for
discharge on July 6, 1942 and he was granted an
absolute discharge in January, 1944. The succession
to the estate of Ganpatrao had however opened on
May 4, 1943
when the appellant was still an
undischarged insolvent. Consequently, the case of
the defendants-respondents was that under s. 28 (4)
of the Provincial Insolvency Act, No. 5 of 1920,
(hereinafter referred to as the Act), the property
which devolved on the insolvent after the date of
the order of adjudication and before his discharge
forthwith vestied in the court or receiver. It is
further urged that the property having vested in the
court or receiver it must remain so vested even after
the absolute discharge of the appellant for the order
of absolute discharge merely absolved the insolvent
from liability from payment of debts other than
those mentioned in s. 44 of the Act. Therefore
when the suit was brought in 194 7 after the discharge
the appellant had no title in the property as the
title still vested in the court or receiver, and conse·
quently the appellant could not maintain' the suit
for
ejectment against those in possession of the
property as he had no title on which he could base
his right to sue for ejectment.
The question therefore that arises for determination is whether an insolvent on whom property
devolves when he is an undischarged insolvent can
maintain a suit for the recovery of the property
after his absolute discharge. The decision of that
depends on what effect the
order of absolute
discharge has on the insolvent's title to the property
3 S.C.R.
SUPREME COURT REPORTS
527
which develoved on him when he was still an
undischarged
insolvent. It is to this
narrow
question, (namely, whether a suit brought by an
insolvent after his absolute discharge with respect
· to property which devolved on him when he was
an undischarged insolvent can be maintained by
him), that we address ourselves hereafter. In view
of this narrow question it is in our opinion unnecessary to consider those cases on some of which the
High Court has relied which deal with the right of
the imsolvent to maintain a suit while he is still an
insolvent. What we say hereafter will only apply
to a case where the suit is brought by an insolvent
after his absolute discharge, though the right to
property which is in suit devolved on him when
he was an undischarged insolvent.
It will be necessary in this connection to
consider briefly the scheme of the Act, to decide
exactly what the consequences are whe.; an absolute
discharge is granted to an insolvent. Section 6 of
the Act defines what are acts of
insolvency.
Section 7 gives power to a debtor or a creditor to
make an application for insolvency, if the debtor
has committed an act of insolvency. Section 9
deals with applications made by creditors and
section 10 by debtors. Section 19 provides for the
procedure for hearing an insolvency
petition.
Sections 20 and 21 provide for interim proceedings
against the debtor and appointment of an interim
receiver. Section 25 provides for dismissal of the
petition on grounds mentioned therein. Section 27
gives power to the court to make an order of adjudication and the Court also has to fix a time therein
within which the debtor shall apply for his discharge.
Section 28 with which we are mainly concerned
lays down the effect of an order of adjudication.
Sub-section (2) thereof provides that on the making
of an order of adjudication, the whole of the property
190
Ratlnmlll/J KuluJH
1.hak•
••
Gau•
w .... J.
1963
RozltutJ.th. Kfsluwa
Eurk#r
v.
G•neJlt
w """"' J •
I
528
SUPREME COURT REPORTS [1964] VOL.
of the insolvent shall vest in the court or in a
receiver and shall become divisible among the
creditors. Under sub·s. (7) this vesting will relate
back to and take effect from the date of the presentation of the petition on which the order of adjudi·
cation is made.
Sub-section ( 4) which is also
material lays down that "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-s. (2) shall
apply
in
respect
thereof."
This
sub-section
undoubtedly
vests
in] the court
or
receiver
any property which the insolvent acquires after the
order of adjudication and before his discharge or
which devolves on him in any manner, and such
vesting takes place forthwith. Section 33 provides
for the making of a schedule of creditors . after the
order of adjudication and s. 34 lays down what
debts are provable under the Act. Section 56 provides for the appointment of a receiver and s. 511 lays·
down the duties and powers of the receiver. Sec·
tion 61 provides for priority of debts and s. 62 for
calculation of dividends. Section 64 lays down that
when the receiver has realised all the property of
the insolvent or so much thereof as can, in the opinion of the court, be realised without needlessly
protracting the receivership, he shall
a final
dividend. But before doing so, the receiver has to
give notice to persons whose claims as creditors have
been notified but not proved, that if they do not
prove their claims within the time limited by the
notice, he will proceed to make a final dividend
without regard to their claims. After the expiration
of such time, the property of the insolvent shall be
divided amongst the creditors entered in the schedule
without regard to the claims of any other persons.
Then comes s. 67, which lays down that "the insolvent shall be entitled to any surplus remaining after
payment in full of his creditors with interest as
I.,
3 S.C.R.
SUPREME COURT REPORTS
529
provided by this Act, and of the expenses of the
proceedings taken thereunaer."
It is clear from this scheme of the Act that the
entire property of the insolvent belonging to him
on the date the petition for insolvency is made vests in
the receiver under s. 28 (2).
Further under s. 28 ( 4)
if any property is acquired by the insolvent or devolves on him after the order of adjudication and
before he is discharged, that property also vests in
the court or receiver forthwith. The receiver has to
administer the pr<:>perty so vested in him and he has
the power to sell the property and do various nther
acts provided in s. 59 for the purpose of the administration of the property. Geaerally speaking the
receiver sells the property which vests in him and
then distributes the money amongst the creditors
who have proved their debts. But before the receiver
declares the final dividend he has to give one more
0pportunity under s. 64 to creditors who might not
have proved their debts at the earlier stage, to come
and prove their debts. This will generally happen
when all the property of the insolvent has been disposed of by the receiver, though s. 64 contemplates
that the final dividend may be declared even if some
property has not been disposed of when in the opinion of the court it will needlessly protract the receivership. Section 67 then finally provides that if any
surplus is left in the hands of the receiver after
payment in full to the creditors with interest and of
the expenses of the proceedings under the Act, the
surplus is to be paid to the insolvent. As we have
said already, the final dividend is generally declared
after all the property of the insolvent is disposed of
but there may be cases when a final dividend may
be declared without the disposition of all the property of the insolvent if in the opinion of the court
that would result in needlessly protracting the receivership. But it is clear that under s. 67 if there is
1•63
lf1ghunath lr1Jluwa
KharklW
••
Can1sh
W81ichoo J.
196J
· «•th""•th K11.U..
Khark•r
v •
. ..,,,.
w .. w. /.
530
SUPREME COURT REPORTS [1964) VOL.
any surplus remaining in the !.ands of the receiver
that surplus has to go to the insolvent.
•
Though this is the general scheme of the Act
with reference to administration of property which
vests in the receiver after an order of adjudication,
there are two exceptions which may be noticed.
Section 35 provides that where, in the opinion of the
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 of any other person interested, by
order in writing, annul the adjudication. Section 37
then provides that "where an adjudication is annul·
led, all sales and dispositions of ·property and
payments duly made, and all acts therefore done,
by the court or receiver, shall be valid ; but, subject
as aforesaid, the property of the debtor who was
a<ljudged insolvent shall vest in such person as the
court may appoint, or, in default 'of such appoint·
ment, shall revert to the debtor to the extent of his
right or interest therein on sur.h conditions (if any)
as the court may, by order in writing, declare."
Special stress has been laid on behalf of the respondents on the provision ins. 37 which specifically
lays down that the property of the debtor in case of
annulment shall vest in such person as the court may
appoint or in default of such appointment' shall
revert to the debtor, thus divesting the court or
the receiver of the property which had vested in
them under s. 28 (2) ors. 28 (4).
The second exception is to be found in s. 38
which al'lows compositions and schemes ofarrange·
ment. Section 3!1 then provides that if the court
approves the composition or the
of arrangement, the terms shall be em bodied in the order of
the court and the order of adjudication shall be
annulled and the provisions of s. 37 shall apply to
such annulment.
3 S.C.R.
SUPREME COURT REPORTS
531
Lastly, we come to what "happens where the
estate of the insolvent has been administered in the
usual way which we have set out already. Section
41 authorises the debtor to apply for an order of
discharge. On such an application the court has to
consider the objection, if any, made by any creditor
and also the report of the receiver in case a rccei ver
has been appointed and thereafter the court may-
{ a) grant or refuse an absolute order of dis·
charge; or
(b) suspend the operation of the order for a
specified time ; or
(c) grant an order of discharge subject to any
conditions with respect to any earnings or
income which may afterwards become
due to the insolvent, or with respect to his
after-acquired property.
Section 42 then lays down in what circumstances
the court shall refuse to grant an absolute order of
discharge; and we may refer to only cl. {a) ofs. 42
{I) in that connection which gives power to the
court to refuse to grant an absolute order of discharge ·
if it finds that the insolvent's assets are not of a
value equal to eight annas in the rupee on the
amount of his unsecured liabilities, unless the insolvent satisfies the court that the fact that the
assets are not of a value equal.to eight annas in the
rupee on the amount of his unsecured liabilities has
arisen from circumstances for which he cannot
justly be held respansible. Section 43 provides
that if the debtor does not apply for discharge within
the period fixed by the court, or does not appear on
the day fixed for hearing his application for discharge, the court may annul the order of adjudica·
tion or . make such other order as it may think fit,
and if the adjudication is so annulled, the provisions
196'
Raihua•tb X •1'-<1••
Ghorkor
••
c .. ,,,,
Wnchoo I.
196J
· 'Ir•thU11ae/1 KisMta
U.ark.,
••
Gaush
. w .,...\DO J,
IS32 SUPREME COURT REPORTS [1964] VOL.
of s. 37 shall apply. Section 44 thl"n provides for the
effect of the order of discharge. Sub-section (l)
thereof mentions the debts from which the insolvent
will not be released on an order of discharge. Subsection (2) then provides that "save as otherwise
provided by sub·section (l), an order of discharge
shall release the insolvent from all debts provable
under this Act." Stress is laid on behalf of the
respondents on this provision and it is urged that
though sub-s. (2) provides that the insolvent shall
be released from all debts provable under the Act,
it does not provide for revesting any property in the
insolvent on. an order of discharge.
It is thus clear from the above analysis of the
provisions of the Act that if there is no annulment
of the adjudication and no sanction of a composition
or scheme of arrangement resulting in an order of
annulment, insolvency proceedings terminate gener·
ally after the administration of the properties is
complete and a discharge is granted. The discharge
may be absolute in which case the consequences
mentioned in s. 44 (2) apply. On the other hand
discharge may be conditional in which case also
the consequences of s. 44 (2) apply subject to the
conditions attached to the discharge in accordance
with snb-s. 41 (2) (c).
Further in considering whether an absolute order of discharge should be granted
or not. the court has to consider whether the in·
solvent's assets are of a value equal to eight annas
in the rupee on the amount of his unsecured liabi ·
lities.
Further before granting a discharge
the
court has to consider the report of the receiver if one
I is appointed. It is therefore reasonable to think
that generally speaking an order of discharge will
only be made after the court has considered the
report of the receiver and has also considered
that the assets of the
are of a value
equal to eight annas in the rupee on the.amount of
his unsecured liabilities. It is also not unreasonable
3 S.C.R.
SUPREME COURT REPORTS
533
to think in view of all the provisions
that
no order of
discharge will generally be made
till all the
assets of the insolvent are realised,
\sees. 64), though, as we have already pointed out,
it is possible to declare a final dividend even though
all the property of the insolvent has not been realiied
if in the opinion of the court such realisation would·
needlessly protract the receivership. In such a case
however the court would generally pass an order protecting the interests of the creditors with respect to
the property which has not been realised before the
order of discharge.
Finally there is s. 61, which
provides that if there is any surplus remaining after
payment in full of his creditors with interest and of
the expenses of the proceedings taken under the Act,
it shall go to the insolvent.
The key to the solution of the narrow question
posed before us is in our opinion to be found in s. 67.
It is true thats. 44 when it provides for the consequences of an order of discharge does not lay down
that any property of the insolvent remaining undisposed of will revest in him and to that extent it is in
contrast to s. 37, which provides for the effect of an
order of annulment and in effect lays down that all
sales and dispositions of property made by the receiver shall be valid, but if any propen v remains
undisposed of it shall vest in such person a8 the court
may appoint or in default of any appointment shall
revert to the debtor-insolvent. The reason why•· 44
has not provided specifically for the reversion of
undisposed property to the insolvent obviou&ly is that
the scheme of the Act does not contemplate where
there is no annulment that any property which vested
in the receiver would remain und1sposed of. If as s.74
shows the final dividend is generally declared when
he receiver has realised all the property of the insolvent there· would be no property left unadministered
usually when an order of discharge comes to be passed.
It
however urged on be:half of the respondents
lffJ
RdthunGth K1sh••a
Kharletir
v.
W•"'"" /.
J96J .
v.
G&'ttUli
W.rnmoo J.
534 SUPREME COURT REPORTS (1964] VOL.
that there is nothing in ss. 41 and 42 to suggest
that a discharge can only be granted after a final
dividend is declared and therefore there may be cases
where administration by the receiver may still go on
after discharge has been ordered. This argument, in
our opinion, is not quite correct, for cl. (a) to s. 42 (l}
definitely requires the court to consider whether the
assets are of a value equal to eight annas in the rupee
on the amount of his unsecured liabilities, and this
the Court generally speaking can only find out after
all the property has been realised and final dividend
has been declared. But, as we have pointed out, it
is possible to declare a final dividend and thereafter
to get an order of discharge even though some
property may not have been disposed of where in the
opinion of the court the realisation of such property
would needlessly protract the receivership. Therefore
it may be possible in some cases that all the property
of the insolvent may not be disposed of before an
order of discharge is made. But in such a case the
court will generally pass orders with respect to the
property not disposed of when granting an ori' er of
discharge. It is true that the Act doqs not content·
plate that an insolvent might get an order of discharge and yet retain part of his property free from
the liability to pay debts provable under the f\ct, in
case all the debts have not been paid off. But it is
here that we have to look to the effect of s. 67 of the
Act. That section lays down that the insolvent shall
be entitled to any surplus remaining after payment in
full of his creditors with interest as provided by the
Act and of the expenses .of the proceedings taken
thereunder. Now, often this surplus would be in the
form of money. But take a case where an insolvent
has come into property by devolution after he became
insolvent and before his discharge; and suppose that
the property which was devolved on him is worth a
few lacs while his debts are only. a few thousands. In
'such a case the receiver would not proceed to sell
aJJ the property; he would only sell so much of the
3 s.c.R.
SUPREME COURT REPORTS
53ti
property as would satisfy the debts in full and meet
the expenses of the proceedings in insolvency; the rest
of the property whether movable or immovable
would not be converted into money.
It. seems to us
that it would not be wrong in such a case to call such
property whether movable or immovable which
remains after payment in full to the creditors with
interest and of the expenses of the proceedings in
insolvency as "surplus". To this surplus the insolvent is entitled.
In such a case therefore it
would be proper to hold that if any property
remains undisposed of in the shape of surplus that
vests back in the
insolvent, just as
surplus
in the shape . of money would.
It is true that
cases may arise where what devolves on the insolvent after the order of adjudication and before
his discharge may not be easily realisable or may be
a matter of dispute which may lead to litigation
lasting for many years. In such a case the receiver
would be entitled to declare a final dividend if the
court is of opinion that the property which has devolved on the insolvent is subject of protracted litigation and it cannot be realised without needlessly
protracting the receivership. Such property would
also in our opinion be surplus to which the insolvent
would be entitled under s. 67 subject to his complying in full with the provisions of that section i.e.
paying his creditors in full with interest and meeting
the expenses of the proceedings taken under the Act.,
A third class of cases may arise where the court may
not come to know of the property which devolves on
the insolvent and grants a discharge in ignorance of
such devolution, may be because the insolvent did
not bring it to the notice of the court. In such a
case also in principle we see no difficulty in holding
that the property which vested in the receiver under
s. 28 ( 4) and which remained undisposed of by him
before the discharge of the insolvent would still be
surplus to which the insolvent would be entitled,
though he may not be permitted to make full use of
Q•1/JJtnath Jr1ShlN
lr/whr
••
G8Msb
w.....u.1.
J91i3
h-1na 1h Kdjhava
.EhatkM
v.
Grn1th
Waneho-1 i.
536
SUPREME COURT REPORTS [1964] VOL.
it until he complies with the conditions in s. 67, namely, until payment in full is made to his creditors
and the expenses of the proceedings in insolvency are
met by him out of the property so remaining undisposed of. Though therefore there is. no specific
provision in terms ins. 44 (2) with respect to property
that may remain undisposed of by the receiver or by
the court. like the provision in s." 37 on an order of
annulment, it seems to us that s. 67 by necessary
implication provides the answer to a case like the
present.
All the property which remains undisposed
of at the time of discharge must be treated as surplus
to which the insolvent is entitled. The insolvent
will thus get title to all such property and the vesting in the receiver whether under s. 28 (2) ors. 28(4)
would come to an end on an order of discharge subject always to the insolvent complying in full with
the conditions of s. 67 in case they have not been
complied with before his discharge for he is entitled
only to the surplus after the creditors have been paid
in full and the expenses of all proceedings in insolvency have been met.
Any other view of the effect
of discharge would result in this startling position
that though the insolvent is freed from his debts
under s. 44 (2) and is a freeman for all purposes the
property which was his and which vested in the
receiver under s. 28 (4) will never CO!l)e back to him
and will always remain vested either in the court or
. the receiver. We have no doubt that the Act did
not contemplate such a situation. We have already
indicated the reason why s. 44 does not provide for
revesting of property in the insolvent in
to
the provision therefor in s. 37. Generally speaking
it is not expected that there would be any property
left to revest in the insolvent after the administration
in insolvency is over. We have therefore to look
to s. 67 which provides that the insolvent is entitled
to any surplus remaining after payment in full of
his creditors and after meeting the expenses of the
proceedings taken under the Act; and it is that
3 S.C.R.
SUPREME COURT REPORTS
537
section which gives title to the insolvent in the property
which remains undisposed of for any reason before
his discharge subject to the conditions of that section
bein,; fulfilled even after the discharge. Just as the
Act does not contemplate that an insolvent would
get an order of discharge and yet retain part of his
property without meeting the debts provable under
the Act in full, it is to our mind equally clear that the
Act does not' contemplate that after an insolvent has
been discharged his undisposed of property, if any,
should for ever remain in the possession of the court
or receiver, even though in a particular case the
creditors may have been paid in full out of the property disposed of and all the expenses of the proceedings under the Act have been met. In such a case it
seems to us that it is s. 67 which must come to the
aid of the insolvent and the property which remains
undisp0sed of must be treated as surplus and he gets
title to it, Where however the insolvent has been
discharged without fully meeting the conditions of
s. 67, he would in our opinion be still entitled to the
surplus, even , if it be in the shape of undisposed
property, subject to his fulfilling the conditions of
s. 67. It may be added that there is nothing in the
Act which takes away the right of the insolvent to sue in courts after he has been granted a
discharge, for he then becomes a free man. In such
a situation we are of opinion that he would certainly be entitled to sue in court for recovery of his
undisposed of property, if it is in the possession of a
third party, after his discharge and such property
cannot for ever remain vested in the court or receiver.
·All that justice requires is that in case the conditions
of s. 67 have not been fulfilled such property should
be subject to those conditions, namely, that he should
be liable to discharge his creditors in full with
interest and to meet the expenses of all proceedings
taken under the Act.
Subject to these conditions
the insolvent in our opinion would be entitled to
undisposed of property on discharge and would be
196J
Riiihurt1th
Kha'ikar
••
G1u""h
Wandio• J.
1959
ll•thtlllCln K1slto•
Kll•lur
••
C-sli
538 SUPREME COURT REPORTS [1964] VOL.
free to deal with it as any other person and, if necessary, to file a suit to recover it.
It remains now to consider some of the cases
which were cited at the bar.
We have already
pointed out that it is unnecessary to consider those
cases which deal with the ·right of the insolvent to
file a suit while he is still undischarged, though even'
on this point there seems to be difference of opinion
in various High Courts as to the power of the insolvent; nor is it necessary to refer to the rule in Cohen
v. Mitchel (1), which has found statutory expression
ins. 47 of the Bankruptcy Act, 1914, (4 & 5 Geo.5,
ch. 59).
Section 4 7 of the
English
Bank·
ruptcy
Act
deals
with
transactions
by
a
bankrupt with any person dealing with him bona fide
and for value, in respect of property, whether real
or personal,
acquired by the bankrupt after the
adjudication, and provides that all such transactions
shall be valid if completed before intervention by
the trustee ( i. e. the receiver). In England, therefore
intervention by the trustee (i.e. the receiver) is
required before completion of the
transaction and
if the trustee does not intervene the transactions are
generally speaking good. That position of law
however does not apply in India because of s. 28
(4), which specifically lays down that all the property
which is acquired by or devolves on an insolvent
after the date of an order of adjudication and
before his discharge shall forthwith vest
in the
court or receiver.
Learned counsel for the parties have not been
able to
cite any
case which deals exactly
with a case like the one before us.
We may
however
refer
to
certain
observations
of
learned Judges which may be helpful to show how
the position has been understood by some High
Courts with respect to surplus and also with respect
to what happens to undisposed of property after a
(IJ {1890/ 25 Q.. B. D. 262.
.
3 S.C.R. SUPREME COURT REPORTS
539
discharge, though there is no discussion
oR the
/96J
subject in the cases cited.
R.,1t .. 11A r;,.-,
In Sayad Daud Sayad Mohd. v. Mulna Mohd.
Sayad ('), the Bombay High Court was dealing
with a case where an insolvent had filed a suit to
recover property four
days after he had been
adjudicated insolvent. Later the official assignee
wanted to join as a new plaintiff when he came to
know of the suit; but by that time it appears that
limitation had expired, and the question
arose
whether the suit would be said to have been filed
afresh on the date the official assignee intervened.
It was held that that was so, for the insolvent could .
not maintain a suit after he had been adjudicated
insolvent and so far as the official assignee was
concerned the suit must be held to have been filed
on the date he
for intervention and would
therefore be barred by time. It will be seen that
the case deals with a suit brought by an undischarged
insolvent and not with a suit as in the present case
brought by a discharged insolvent. But the learned
Judges observed that the vesting order for the time
being was paramount, even though an insolvent
might eventually be entitled to what might remain
as surplus after satisfying his creditors, thus showing
that what remains as surplus becomes the property
of the insolvent.
Y ellavajjhula
Surayya
v.
Tummalapalli
Mangayya ('), is a case more directly in point, In
that case the plaintiff was declared an insolvent
in 1919. He was still an insolvent in 1929 when
certain property devolved on him as reversioner.
He was granted an absolute discharge in August 1931.
. No creditors had come to prove their debts or to take
steps between 1919 and 1929; nor did the official
receiver take any step prior to 1929 or between 1929
to 1931.
Aft,,r his absolute discharge, the plaintiff
. instituted a suit for recovering the property: In that
(1) (1926) 82 Bom.