# SRI BABU RAM @ DURGA PRASAD v. SRI INDRA PAL SINGH (DEAD) BY LRS

- **Citation:** [1998] 3 S.C.R. 1145
- **Court:** Supreme Court of India
- **Decided:** 1998-08-13
- **Case number:** Civil Appeal No. 2551 of 1977
- **Bench:** S.B. Majmudar, M. Jagannadha Rao
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sri-babu-ram-durga-prasad-v-sri-indra-pal-singh-dead-by-lrs-16254
- **Pages:** 21

## Headnote

B
Provincial Insolvency Act, 1920:
Sections 35, 37, 43,(/)-Annulment of insolvency-Effect of-In suit for
insolVPncy a joint agreement was filed for sale with a clause for re-conveyance C
within 5 years-Plaintiff declared insolvent-Sale deed executed by official
receiver-Plaintiff sent notice for re-purchase-Since creditor refused to reconvey, plaintiff filed suit for specific performance-Subseguently, acfjudication
as insolvent unconditionally annulled-Held-On annulment, property and
rights of plaintiff stand restored to him with retrospective effect-Insolvency D
gets wiped out togehter-Notice sent and suit filed for re-conveyance when
plaintiff was an undischarged insolvent, get retrospectively validated.
Contract Act, 1872 :
Section 55-Held-Time is of essence where contract is for re- E
conveyance of immovable property.
Section 62-Novation-Plea cannot be raised or accepted for the first
time in second appeal under Section 100 CPC.
Code of Civil Procedure, 1908-Section JOO-Contention of creditor F
that there was breach of re-conveyance agreement by plaintiff not pressed
before trial court-However, in second appeal it was held that there was
breach of re-conveyance agreement and sale deed was in pursuance of new
contract-On appeal, held: High Court exceeded its jurisdiction u/s 100
C.P. C in giving a finding on an issue not pressed in trial court-Also, plea G
of novation cannot be accepted for the first time in second appeal.
Limitation Act, 1963-Part II of Article 54-Where agreement does not
specifY period within which vendee is to execute deed of re-purchaseHeld--Time of three years starts to run only from the date vedee refases to
execute re-conveyance deed.
1145
H
1146
SUPREME COURT REPORTS
[1998] 3 S.C.R.
A
The Respondent-defendant instituted an insolvency suit on 19.I 1.1963
against the appellant-Plaintiff since the Plaintiff failed to return Rs. 7 ,000
owed to him. On the same day, the plaintiff and the defendant filed a joint
application before the Insolvency Court, seeking permission for the debtor
to transfer his property to the creditor in full satisfaction of his dues, with
B the condition that. the debtor may repurchase the property, within 5 years,
for Rs. 7,000. In terms of the settlement, the creditor agreed to withdraw the
Insolvency Petition. Accordingly, on 22.I 1.1963 an Order was passed by the
Court permitting the interim receiver to execute the sale deed. However,
neither the sale deed was executed by the interim receiver nor were steps
taken by the creditor to withdraw the Insolvency Petition and on 29.5. 1964,
C the plaintiff was.adjudicated an insolvent and directed to apply for discharge
within one year.
The Official Receiver, however, executed a sale deed on 15. 7.1964,
wherein the plaintiff also joined as vendor, and reported to the insolvency
court that the plaintiff had cleared all his debts. The plaintiff moved for
D discharge and later unsuccessfully moved an application u/s 43(1) of the
Insolvency Act for annulment since all creditors had been paid in full. In
appeal, the adjudication of the plaintiff as an insolvent was annulled,
unconditionally on 22.10.1964. In the meanwhile, before annulment, since
the period of 5 years for seeking re-conveyance was going to expire, the
E plaintiff issued notice on 12.7.1968 to the creditor to reconvey the property
to him on payment of Rs. 7,000 However, the creditor refused to re-convey
the property.
A suit was filed by the Plaintiff seeking specific performance of the
re conveyance agreement entered into between the plaintiff and the creditor
F on 19.I 1.1963 and filed in the insolvency court. The suit was decreed and
the judgement of the trial court was affirmed in first appeal. However, in
second appeal the High Court reversed the judgements of the lower courts.
The High Court held that the agreement contained in the joint application
dated 19.11.1963 was not given effect; the sale deed dated 15.7.1964 executed
by the official receiver was not in pursu

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..
SRI BABU RAM @ DURGA PRASAD
A
v.
SRI INDRA PAL SINGH (DEAD) BY LRS.
AUGUST 13, 1998
[S.B. MAJMUDAR AND M. JAGANNADHA RAO, JJ.]
B
Provincial Insolvency Act, 1920:
Sections 35, 37, 43,(/)-Annulment of insolvency-Effect of-In suit for
insolVPncy a joint agreement was filed for sale with a clause for re-conveyance C
within 5 years-Plaintiff declared insolvent-Sale deed executed by official
receiver-Plaintiff sent notice for re-purchase-Since creditor refused to reconvey, plaintiff filed suit for specific performance-Subseguently, acfjudication
as insolvent unconditionally annulled-Held-On annulment, property and
rights of plaintiff stand restored to him with retrospective effect-Insolvency D
gets wiped out togehter-Notice sent and suit filed for re-conveyance when
plaintiff was an undischarged insolvent, get retrospectively validated.
Contract Act, 1872 :
Section 55-Held-Time is of essence where contract is for re- E
conveyance of immovable property.
Section 62-Novation-Plea cannot be raised or accepted for the first
time in second appeal under Section 100 CPC.
Code of Civil Procedure, 1908-Section JOO-Contention of creditor F
that there was breach of re-conveyance agreement by plaintiff not pressed
before trial court-However, in second appeal it was held that there was
breach of re-conveyance agreement and sale deed was in pursuance of new
contract-On appeal, held: High Court exceeded its jurisdiction u/s 100
C.P. C in giving a finding on an issue not pressed in trial court-Also, plea G
of novation cannot be accepted for the first time in second appeal.
Limitation Act, 1963-Part II of Article 54-Where agreement does not
specifY period within which vendee is to execute deed of re-purchaseHeld--Time of three years starts to run only from the date vedee refases to
execute re-conveyance deed.
1145
H
1146
SUPREME COURT REPORTS
[1998] 3 S.C.R.
A
The Respondent-defendant instituted an insolvency suit on 19.I 1.1963
against the appellant-Plaintiff since the Plaintiff failed to return Rs. 7 ,000
owed to him. On the same day, the plaintiff and the defendant filed a joint
application before the Insolvency Court, seeking permission for the debtor
to transfer his property to the creditor in full satisfaction of his dues, with
B the condition that. the debtor may repurchase the property, within 5 years,
for Rs. 7,000. In terms of the settlement, the creditor agreed to withdraw the
Insolvency Petition. Accordingly, on 22.I 1.1963 an Order was passed by the
Court permitting the interim receiver to execute the sale deed. However,
neither the sale deed was executed by the interim receiver nor were steps
taken by the creditor to withdraw the Insolvency Petition and on 29.5. 1964,
C the plaintiff was.adjudicated an insolvent and directed to apply for discharge
within one year.
The Official Receiver, however, executed a sale deed on 15. 7.1964,
wherein the plaintiff also joined as vendor, and reported to the insolvency
court that the plaintiff had cleared all his debts. The plaintiff moved for
D discharge and later unsuccessfully moved an application u/s 43(1) of the
Insolvency Act for annulment since all creditors had been paid in full. In
appeal, the adjudication of the plaintiff as an insolvent was annulled,
unconditionally on 22.10.1964. In the meanwhile, before annulment, since
the period of 5 years for seeking re-conveyance was going to expire, the
E plaintiff issued notice on 12.7.1968 to the creditor to reconvey the property
to him on payment of Rs. 7,000 However, the creditor refused to re-convey
the property.
A suit was filed by the Plaintiff seeking specific performance of the
re conveyance agreement entered into between the plaintiff and the creditor
F on 19.I 1.1963 and filed in the insolvency court. The suit was decreed and
the judgement of the trial court was affirmed in first appeal. However, in
second appeal the High Court reversed the judgements of the lower courts.
The High Court held that the agreement contained in the joint application
dated 19.11.1963 was not given effect; the sale deed dated 15.7.1964 executed
by the official receiver was not in pursuance of the original agreement dated
G 19.I 1.1963 but in pursuance of a "fresh contract" which did not have a reconveyance clause; the contract dated 19.11.1963 was a conditional contract
and since the conditions laid down by Order dated 22.11.1963 had not been
fulfilled, there was no enforceable contract of re conveyance.
H
In appeal to this Court the plaintiff-appellant contended that the High
SRI B. RAM@ D. PRASAD v. I. P. SINGH
1147
Court erred in holding that the order of insolvency court dated 22.11.1963 A
or sale deed dated 15.7.1964 executed by official receiver did not refer to reconveyance agreement filed before the court and hence, the same was not
enforceable; the High Court under Section 100 CPC, in second appeal, could
not give a finding on an issue not pressed before the trial court and hold that
the plaintiff had committed a breach of contract; that there was no fresh/new B
contract consequent to which the sale deed was executed by official receiver
in favour of the creditor; that the annulment retrospectively validates the
option exercised by the plaintiffvide notice dated 12.7.1968 and the filing of
the suit on 6.10.1969, even though he was an undischarged insolvent on that
date.
The respondent-creditor contended that there was fresh contract at the
time of execution of sale deed by official receiver on 15.7.1964 which was
not traceable to the agreement dated 19.11.1963 which had a clause for reconveyance. The Plaintiff did not implement the first agreement by executing
c
the sale deed in favour of the respondent. The suit was not maintainable since D
the plaintiff was an undischarged insolvent on that date.
Allowing the Appeal, this Court
HELD: I. In case of un-conditional annulment of adjudication as
insolvent under section 37r/w section 43 of the Provincial Insolvency Act, E
the property and rights of the insolvent stand restored to him with
retrospective effect from the date of filing of insolvency petition and the
insolvency gets wiped out altogether. All acts of the undischarged insolvent,
on annulment, get retrospectively validated. However, all acts of the court and
receiver prior to annulment will remain valid. Thus the acts of the plaintiff F
as an undischarged insolvent in issuing the notice for re-conveyance and, on
failure to re-convey by the creditor, filing the suit for specific performance,
stand retrospectively validated upon the unconditional annulment of the
adjudication on 22.10.1963 with effect form the date of filing of the insolvency
petition on 19.ll.1963. (1164-A-D)
Arunachalam v. Naryana Swami, AIR (1951) Mad 63; Ratnannavelu
Chettiyar v. Franciscu Udayar, AIR (1945) Mad 388 and Subbuiah Goudan
v. Ramaswami Goundan, AIR(l954) Mad 604, approved.
Peraya v. Kondayya, AIR (1948) Mad. 430 and Rup Narain Singh and
G
Anr. v. Hargopal Singh, AIR (1933) All 449, referred to.
H
1148
SUPREME COURT REPORTS
(1998] 3 S.C.R.
A
Arora Enterprises Ltd. and Ors. v. Indu Bhushan Obhar and Ors.,
"
(1997) 5 SCC 366; Tukaram Ramachandra Mane (d) by Lrs. v. Rajaram
Babu Lukule, (d) by Lrs. (1998) 2 Scale 719; Parvathi Amma, v. Faso
I=
Yohanan, AIR (1955) TC 241 and A.R. Ghazani v. Official Receiver, AIR 1958
Mad. 486, cited.
B
Bailey v. Johnson, (1872) 7 Ex. 263, referred to.
2.1. The High Court while holding that the sale deed dated 15.7.1964
was traceable to a new agreement, erred in making out a new case for which
there was neither any issue nor evidence. The sale deed dated 15.7.1964 was
c
not the result of a new agreement. The question of novation under section
62 of the Contract Act cannot be raised or accepted for the first time in
second appeal u/s 100 C.P.C. (1156-D-E; 1157-B)
(2.2. The High Court in second appeal exceeded its jurisdiction u/s 100
C.P.C in giving a finding on an issue not pressed in the trial court. The High
Court error in holding that there was a breach by the plaintiff of the reD conveyance agreement dated 19.11.1963 when this aspect was not pressed in
the trial court. In any case, there was no breach of agreement dated
19.11.1963 by the plaintiff inasmuch as, the interim receiver and not the
plaintiff was granted permission to execute the sale deed. (1157-E-DJ
..
E
2.3. The absence of reference to the agreement to reconvey in the
Court Order dated 22.11.1963 and the sale deed dated 15.7.1964 does not
indicate that the original agreement to sell dated 19.11.1963 was superseded.
Since the sale deed dated 15.7.1964 was not the result ofa new agreement,
the agreement for reconveyance dated 19.11.1963 cannot be said to have been
superseded. (1158-E-F; DI
F
3. It was permissible for the plaintiff to move an application u/s 43(1)
of the Provincial Insolvency Act to seek an annulment. Section 43(1) provides
..
that court may annul an adjudication where debtor does not appear on the
~
date of hearing of his discharge application, as in this case. [1159-EJ
G
4. The principle stated in section 55 of the Contract Act, 1872 that in
case of contracts for sale of immovable property time is not of essence, does
not apply to contracts re-conveyance, where time is of essence. In the present
case, the plaintiff exercised on 12.7.1968 his option to repurchase within 5
...
years from date of sale deed dated 15.7.1964 and hence, the vendee was bound
to reconvey the property on receiving Rs. 7 ,000 from the plaintiff as stipulated
H in the agreement. [1164-F-G]
,.
SRI B. RAM@D. PRASADv. l. P. SINGH [M. JAGANNADHA RAO, J.]
1149
Bismi/lah Begum v. Rahmatullah Khan, 119981 2 SCC 226 and A.H. A
Mama v. Flora Sasson, AIR (1928) PC 208, relied upon.
5. Where an agreement does not specify the time within which vandee
is to execute deed of re-conveyance, Part II of Article 54 of the Limitation
Act, 1963 applies i.e. time starts to run only from the date the defendant
refuses to execute re-conveyance deed. The suit was filed on 6.10.1969 B
within 3 years from 22.7.1968, when the creditor refused to execute the deed
of re-conveyance, and hence, is in time. [1165-A-C)
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2551 of
1977.
From the Judgment and Order dated 21.3.77 of the Allahabad High Court
in S.A. No. 175 of 1976.
Pramod Swarup, Praveen Swarup and Ms. Pareena Swarup for the
Appellant.
P. Anshu Mishra for the Respondents.
The Judgment of the Court was delivered by
M. JAG ANN AD HA RAO, J. The appellant is the plaintiff in the original
c
D
suit bearing No.225 of 1969 on the file of the Additional Civil Judge, Aligarh. E
The respondent is the defendant. The suit was filed by the plaintiff appellant
seeking reconveyance of the proper!)' covered by the sale-deed dated 15. 7 .1964
executed by the plaintiff in favour of the defendant and requiring the defendant
to perform the agreement of reconveyance specifically as entered into in the
joint application of the plaintiff and defendant dated 20.11.1963 filed in the F
Insolvency Court and in default praying that the reconveyance deed may be
executed by the Court. The extent of land is 5 Bighas and 7 Bighas in village
Jarothi.
The trial court decreed the suit in favour of the plaintiff on 2.1.1970 on
condition of the plaintiff paying back Rs. 7000 to the defendant. The said G
decree 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 Rs. 5000 H
1150
SUPREME COURT REPORTS
[1998] 3 S.C.R.
A from the defendant-respondent on 6.6.1961 and another sum of Rs. 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
B portion of which (in para 4 to 6) reads as follows:
c
"That the creditor has agreed to accept Rs. 7000 in full satisfaction
of his dues and the debtor applicant is transferring his Byhumichari
property measuring 5 bighas 7 biswas to the creditor for the
consideration of Rs. 7000 with the condition of repurchasing the
same within 5 years from the creditor for Rs. 7000 the creditor has
kindly given his consent to the same settlement and agreed to
purchase same with the above condition and to get the petition of
Insolvency dismissed.
That the debtor has Bhumidhari property measuring 14 bighas 7
D
biswas 5 biswansis is paying Rs. 31.94 N.P. as revenue. Out of this
property the creditor has agreed to purchase 5 bighas for the
consideration of his dues. The details of the same are given below at
the foot of this application.
That the parties in view of the above arrangement settled amongst
E
themselves request humbly that permission be kindly granted to the
debtor applicant to sell his property as noted above and the creditor
to purchase the same in order that the debt may be satisfied and the
parties may not be put to unnecessary litigation and expenses."
Thus, in the said IA., there was an agreement for reconveyance inasmuch as
F it was agreed that the plaintiff could seek reconveyance with in 5 years of the
sale-deed.
G
H
On the said application, the said Court passed the following order on
22.11.1963:
"I hav;: heard the counsel for both the sides as well as Official
Receiver. The Official Receiver has no objection except that he should
be paid his legal fee. The request appears to be quite reasonable. The
interim receiver is under the circumstances permitted to execute the
sale deed in favour of the creditor petitioner of course of receipt of
his legal commission. The present application for further order shall
be put up after the sale deed is executed. Let the record be now put
...
..
SRI B. RAM 1!J D. PRASAD"· I. P SINGH [M. JAGANNADHA RAO, .I]
1151
up on 20.12.1963 for further orders."
It will be noticed that the Insolvency Court's order was that the sale
deed would be executed by the "interim receiver". It appears that for some
reason the sale deed was not executed. Though it is the case of the defendant
that the plaintiff-appellant did not execute the sale-deed., the defendant admitted
A
in his evidence that he neither issued any notice to the plaintiff nor complained B
to the Court that no sale was executed by the plaintiff. The creditor did not
take steps to withdraw the insolvency petition. On 29.5.1964, the plaintiff was
adjudicated as an insolvent and it was directed that he should apply for
discharge within one year. It may be noted that two other sundry creditors
to whom the plaintiff owed Rs. 300 and Rs. 700 respectively , got impleaded
in the insolvency proceedings on 20.11.1963. Thereafter, the Official Receiver C
executed a sale-deed on 15.7. I 964 in favour of the respondent for the suit land
and the plaintiff also joined in the sale-deed as a vendor. It is in 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 Rs. I 000.
Plaintiff stated in his evidence that he paid off the other two sundry creditors D
to whom, in all, he owed Rs. 1000 as referred to above. The Official Receiver
reported to the Insolvency Court on 30. I 0.1964 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 E
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 F
insolvent could not invoke section 43(!) and he should apply for discharge .
However, the appeal by the insolvent to the District Judge, Aligarh in Appeal
No. 62of1968, was allowed on 22.10.1969 on the ground that section 43(1)
was applicable and also on the ground that the insolvent had discharged all
his debts as reported by the Official Receiver in his report dated 30. l 0.1964. G
The adjudication was annulled and an annulment order was passed on
22.10.1969 unconditionally. As the debts were all paid, there was no occasion
for vesting the property in any person under section 37(1) while annulling the
adjudication.
In the meantime, and before the annulment, inasmuch as the period of H
1152
SUPREME COURT REPORTS
[I 998] 3 S.C.R.
A 5 years within which the debtor could seek reconveyance· was expiring, the
debtor (i.e. plaintiff) issued a registered notice on 12.7.1968 to the creditor
(defendant) to reconvey the property on payment ofRs.7000 by the insolvent.
That notice was within 5 years from the date of sale-deed. But the creditor
refused to do so by his reply notice dated 22.7.1968. The debtor then filed
the present suit on 6.10.1969 for specific performance of the reconveyance
B agreement dated 22.11.1963 contained in the joint application of the plaintiff
and defendant dated 19.11.1963. It may be noticed that both on the day when
the debtor gave notice and on the day he filed the suit, he was an undischarged
insolvent and whatever rights he had for reconveyance, they stood vested
in the Official Receiver. Instead of the Official Receiver taking the above
C steps, the insolvent had himself taken up these matters.
The defendant accepted in his written statement dated 8.1.1970 that it
was true that a joint application was made on 19.11.1963 as stated by the
plaintiff before the insolvency Court. He, however, contended that it was
further agreed therein, that the plaintiff should have executed a sale-deed in
D favour of the defendant and that if he had done so, plaintiff would not have
been adjudicated as an insolvent. The plaintiff defaulted and, therefore, the
defendant had no option except to press for adjudication and plaintiff was
adjudicated as insolvent on 29.5.1964 and later the Official Receiver executed
the sale-deed on 15.7.1964. The plaintiff also joined in the sale-deed. The
E plaintiff could not "rely upon the provisional talks of the parties prior to
adjudication of insolvency petition". Plaintiff could not take advantage of his
own 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
F 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
G 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.
H
On these contentions, the trial court framed various issues. On issue 2
,.
SRI B. RAM@D. PRASADv. I. P SINGH [M.JAGANNADHA RAO,J.]
J J53
relating to the alleged default on the part of the plaintiff in executing sale- A
deed as agreed to in the joint application, the Court held that the said issue
was "not argued' by the defendant's counsel. Nor did the counsel say how
there was any breach on the part of the plaintiff. (We have stated earlier that
the Insolvency Court, in its order dated 22.11.1963 asked the "interim
receiver" to execute the sale-deed and that the defendant as PW! admitted
he had neither issued any notice to plaintiff nor moved the Court for a sale- B
deed to be executed). The trial Court held that in any event the sale-deed was
executed and as such 'there was no default' on the part of the plaintiff. On
the question as to the effect of annulment, the trial Court referred to the
Full Bench decision of the Madras High Court in Subbaiah Goundan v.
Ramasami Goundan, AIR (1954) Mad 604 (FB) to the effect that upon C
annulment, the property reverted to the insolvent with retrospective effect
and the insolvency got wiped out altogether except to the extent reserved
under section 4 7 of the Act and all transactions or actions in the interregnum
got validated. The trial Court also referred to Rup Narain Singh and another
v. Hargopal Singh, AIR (1933) Allahabad 449 for holding that an alienation
by an undischarged insolvent was not void but was voidable at the instance D
of the Official Receiver. The trial Court also held that the plaintiff would get
the competency to exercise option to repurchase - in view of the subsequent
..
annulment. The plaintiff exercised the option within 5 years, time being
essence of the contract. The debtor's actions stood validated and even if the
Official Receiver did not exercise the option to purchase within 5 years
from the date of sale, it did not matter. The trial court also held that the suit E
was not barred by time. On these findings, the suit was decreed for specific
performance for reconveyance subject to plaintiff paying Rs. 7000 back to
the defendant. This judgment was confirmed in first appeal by the Additional
District Judge.
In Second Appeal, the High Court of Allahabad reversed the judgments F
of the lower Courts. It held that the earlier agreement contained in the joint
application dated 19.11.1963 made to the insolvency Court did not avail.
Further, in the order dated 22.11.1963 passed on the joint application, the
Court permitted the "interim receiver" to execute the sale-deed while the sale
deed was executed by the Official Receiver and there was no fresh agreement G
for reconveyance between the Official Receiver and the defendant at the time
the sale-deed was executed. The agreement dated I 9.11.1963 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 H
1154
SUPREME COURT REPORTS
[1998) 3 S.C.R.
A 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
B 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 the new contract, there was no reconveyance agreement - either
oral or written. The suit for specific performance of the agreement of
C reconveyance contained in the joint application could not, therefore, be
enforced. The High Court then referred to the judgments in Subbaiah Goundan
v. Ramasami Goundan AIR, (1954) Mad. 604(FB); Rup Narain Singh v.
Hargopal Singh AIR, (1933) Allahabad 449; Arunachalam v. Narayana Swami,
AIR (1951) Mad 63(FB)), Parvathi Ammo v. Easo Yohanan, AIR ( 1955) TC 241
and AR Ghazani v. Official Receiver, AIR (1958) Mad 486 and observed that
D the question of reverter of the debtor's rights to the debtor upon annulment
would have been relevant if the undischarged insolvent had entered into a
contract with the creditor without the intervention of the Court and if the
I
~
contract was not subject to conditions. Here the contract dated 19.11.1963
•
was dependent upon various conditions, execution of sale-deed by the plaintiff
E and the withdrawal of the insolvency petition by the defendant and permission
by Court for a sale-deed. On account of non-fulfilment of the conditions laid
the order dated 22.11.1963, there was no enforceable contract between the
parties. On the above reasoning, the High Court allowed the Second Appeal
and dismissed the suit.
F
In this appeal, it was contended by Sri Pramod Swarup that the High
Court erred in law in thinking that the Court order dated 22.11.1963 or the saledeed dated 15.7.1964 by the Official Receiver did not refer to the reconveyance,
and hence the earlier agreement dated 19.11.1963 for reconveyance was not
enforceable. This plea raised by the defendant in the written agreement was
G not acceptable because the order of the Court dated 22.11.1963 permitting sale
was only in pursuance of the agreement dated 19.11.1963 contained in the
joint application and having got the sale-deed executed in his favour, the
defendant could not blow hot and cold and repudiate the reconveyance
agreement contained in the same joint petition dated 19.11.1963. There was
no need to have a fresh agreement either on 22.11.1963 or on 15.7.1964. There
H was no 'fresh or new' contract on 15.7.1964 of sale between the defendant
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SRI B.RAM@D.PRASAD1'. IP.SINGH [M.JAGANNADHA RAO,J.]
1155
and the Official Receiver as wrongly held by the High Court. The High Court A
could not have given such a finding unless there was a specific plea of
novation between the Official Receiver and the defendant in the written
statement. On the other hand, the evidence of the defendant as OW 1 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 B
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 of3 years had not expired from 22.7.1968, the date of refusal to perform C
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 applicatior. dated D
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
reconveyance dated 19.11.1963 was given a go bye and could not be enforced
any longer. The plaintiff did not also implement the terms of the first agreement
by executing a sale-deed and the defendant did not withdraw the insolvency E
petitian as contemplated by that agreement. The suit was not maintainable
because the plaintiff, being an undischarged insolvent, was not competent to
exercise the option for reconveyance on 12.7.1968 and the plaintiff was not
competent to file the suit on 6.10.1969 since the annulment took place much
later, on22.I0.1969.
On these contentions, the following points arise for consideration:
(1)
Could the High Court in Second Appeal under Section I 00 CPC
give a finding on issue No.2 which was not pressed in the trial
court and hold that the plaintiff and defendant committed breach
F
of the agreement dated 19.11.1963 and that, therefore, the sale G
deed dated 15.7.64 must be held to be traceable to a new contract
entered into between the Official Receiver and the defendant on
15.7.64?
(2)
Whether absence of a reference to the agreement to reconvey
in the Court order dated 22.l 1.63 and in the sale-deed dated H
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[1998] 3 S.C.R.
15.7.1964 implied that the agreement ofreconveyance contained
in the original agreement to sell dated 19.11.1963 was superseded?
(3)
Would the two steps or actions of the plaintiff (i) exercising the
option for renewal on 12.7.1968 and (ii) filing the suit on 6.10.1969
taken when he was an undischarged insolvent get retrospectively
B
validated on account of the subsequent unconditional annulment
of adjudication in view of sections 3 7 and 43 of the Provincial
Insolvency Act, 1930 on 22.10.1969?
(4)
ls time the essence of contract in a reconveyance agreement and
was the option exercised by the plaintiff in this case in time in
C
the context of section 55 Contract Act?
D
(5)
Was the suit filed on 6.10.1969 for specific performance of the
contract ofreconveyance dated 19.11.1963 in time under Article
54 of the Limitation Act, 1963?
Point I:
In our view, the High Court, while holding that the sale-deed dated
15.9.1964 was traceable to a new agreement erred seriously in making out of
a new case for which there was neither any issue nor evidence. In fact, the
defendant specifically admitted in his evidence as DWI that there was no
E fresh agreement between the Official Receiver and the defendant at or before
the execution 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
F Official Receiver and the defendant. The recitals in the sale-deed do not
support such a contention. 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 insolvents' 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
G 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 wa:; 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 "Official
H Receiver" who was one of the executants of the sale deed. It referred only
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SRI B. RAM@D. PRASAD v. I. P. SINGH [M. JAGANNADHA RAO, J.]
1157
to the agreement with the "insolvent, second party", which, in our opinion A
could only be the one entered into on 19.11.63 between the plaintiff and the
defendant before adjudication.
Novation under section 62 of the Contract Act requires a clear plea,
issue and evidence. Such a question cannot be raised or accepted under
section I 00 CPC for the first time in Second Appeal. There was no such issue B
in the courts below and the defendant's evidence was contrary to such a
theory.
The High Court, in our view, also erred in thinking that the plaintiff
committed breach of the agreement dated 19.11.1963 covered by the joint
application when the said aspect covered by issue No.2 was not pressed in C
the trial Court. Further, the permission for sale dated 22.11.1963 granted by
the Court was in favour of the 'interim receiver' and, therefore, the debtor
could not have executed any sale-deed. (We are not on the question whether
the Insolvency Court could have asked the interim receiver to sell the property).
The defendant admitted in his evidence that after 19.11.1963, he did not issue D
any notice to the plaintiff to execute a sale-deed nor did he move the Insolvency
Court to direct the debtor to execute the sale-deed .
For the above reasons, we hold that the High Court in Second Appeal
exceeded its jurisdiction under section I 00 CPC in giving a finding on an issue
which was not pressed in the Trial Court. So far as the finding as to a new E
contract is concerned, there was no issue or evidence. The evidence was to
the contrary. We accordingly set aside these findings. Point I is therefore held
in favour of the plaintiff and against the defendant.
Point 2:
F
The agreement contained in the joint application dated 19.11.1963 filed
in the Insolvency Court not only contemplated that the plaintiff would execute
a sale deed in favour of the defendant but also contemplated an option for
repurchase by the plaintiff within five years of the sale, on repayment of the
amount of Rs. 7000 to the defendant. Later, as stated earlier, the Court G
permitted the sale by the "interim receiver" by its order dated 22.11.1963 and
a sale deed was executed jointly by the Official Receiver and the plaintiff or
15.7.1964. It is true that neither in the Court order nor in the sale-deed there
is any reference 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 H
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[1998] 3 S.C.R.
A 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 saledeed 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 Contraet Act.
B 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
C 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 preceding the sale deed and
that agreement contained such a clause, and a sale-deed was executed
consequent thereto, the absence of a reference to the agreement of
reconveyance in the sale-deed would not, in our opinion, lead to the inference
D that the said right was given up by the plaintiff. Unless there is a detailed
plea and also evidence that before execution of the sale-deed there was
novation and parties expressly agreed to give a go bye to the agreement or
reconveyance, no inference could be drawn that the agreement of
reconveyance contained in the agreement of sale dated 19.11.63 which preceded
E the sale-deed was given a go-bye.
For the reasons given above, it must be held that the absence of a
reference to the agreement for reconveyance in the Court order dated 22.11.1963
or in the sale-deed dated 15 .6 .1964 was not an indication that the said
agreement contained in the original agreement of sale was given a go bye by
F the parties. Point 2 is therefore held in favour of the appellant.
Point 3 :
This point relating to the effect of annulment is more important and as
there is no authority of this Court earlier except Arora Enterprises Ltd. & Ors.
G v. lndu Bhushan Obhar & Ors., [1997] 5 SCC 366 and Tukaram Ramachandra
Mane (d) by Lrs v. Rajaram Bapu Lukule (d) by lrs., [1998] 2 Scale 719 which
deal with 'acts' of Receiver or Insolvency Court during the insolvency, we
shall go into some details.
We have seen that the plaintiff was adjudicated insolvent on 29.5.1964
H and the property vested in the Official Receiver who executed the sale-deed
•
SRI B. RAM@D. PRASADv. IP. SINGH [M. JAGANNADHA RAO, J.]
1159
in favour of the defendant on 15. 7 .1964. The plaintiff also joined in the sale- A
deed. It is true that on the date when the plaintiff exercised the option to
repurchase on 12.7.1968 - within 5 years from the date of sale, i.e. 15.7.1964
- he was an undischarged insolvent. It is also true that on the day when the
plaintiff filed the suit for specific performance of the agreement of
reconveyance, on 6. 10.1969, he continued to be an undischarged insolvent. B
The option to repurchase and the filing of the suit were acts which ought to
have therefore been performed by the Official Receiver. But when later the
annulment order was passed on 22.10.1969, could it be said, as contended for
the debtor, that these acts get retrospectively validated on account of the
subsequent annulment of adjudication?
Section 35 of 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 IO. not entitled to present such
petition.
c
D
It is obvious that, in the present case, in view of the report of the E
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 (I) of section 43 states that if the debtor does not F
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 period specified by the Court, the Court may
annul the order of adjudication or make such other order as it may think fit,
and if the adjudication is annulled, the provisions of section 3 7 shall apply.
As the case of the appellant fell under this section, the application was in
order. But the Insolvency Court dismissed the same on 27.7.1968 and on
appeal, the District Court allowed the application on 22. l 0.1969 unconditionally.
G
On the facts of this case, the debtor had to apply for discharge within one
year of the adjudication. He made an application within that period but that
application was dismissed for default. It was therefore clearly permissible for H
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[ 1998] 3 S. C.R.
A him to invoke section 43(1).
Inasmuch as sub-clause (I) of section 43 requires the Court to apply
section 3 7 of the Act in the event of passing an order of annulment, it is next
necessary to refer to that section. Sub-clause (I) of section 37 states that
where an adjudication is annulled, all sales and dispositions of property and
B payments made, and all acts theretofore done, by the Court or receiver, shall
be valid; but, subject as aforesaid, the property of the debtor who is adjudged
insolvent shall vest in such persons as the Court may appoint, or, in default
of any such appointment, shall revert to the debtor to the extent of his right
or interest therein on such conditions (if any) as the Court may, by order in
C writing, declare.
The case before us is one where, in view of section 3 5 and in view of
the fact that the debtor had cleared all his debts, he was entitled to an order
of annulment of adjudication.