Civil Appeal No 274 of 1959
Appeal by special leave from the judgment and order dated July 271956 of the Madras High Court in CRP No 90 of 1955
N C Chatterjee R Ganapathy Iyer and G Gopalakrishnan for the appellant
K N Rajagopala Sastri R Mahalinga Iyer and M section K Aiyengar for respondent No 1 1960
November 28
The Judgment of the Court was delivered by WANCHOO J
This is an appeal by special leave in an insolvency matter
The brief facts necessary for present purposes are these
SVN Nanappa Naicker and his sons were adjudged insolvents on an application of Smt
Engammal hereinafter referred to as the respondent
They had preferred an appeal before the High Court of Madras but it was dismissed on April 17 1953
Thereafter the official receiver took steps to sell the property of the insolvents which consisted of two lots the first lot comprising 145 acres 10 cents of dry land and masonry house and the second lot 8 acres and odd of dry land
Both these properties were subject to mortgage
The official receiver fixed September 28 1953 for sale of the properties by auction
Fifteen of the creditors were present when the sale by auction took place including the son of the respondent
No request was made on that day by anyone for postponing the sale and consequently bids were made
The highest bid for lot 1 was of 692 Rs 4500 and the highest bid for lot 2 was of Rs 70 
Both these bids were made by the appellant who is a brother in law of Nanappa Naicker
The reason why the two lots were sold for Rs 4570 was that there was an encumbrance on the entire property of Rs 17200 
The official receiver did not close the sale on that day in the hope that some higher offers might be made by the creditors and postponed it to various dates upto October 26 1953
On all these dates the respondent s son was present but no higher offer was made on behalf of the respondent
On October 26 1953 an application was made on behalf of the respondent praying that the sale be postponed for another three months apparently on the ground that there had been drought in that area for some years past and agricultural lands were not fetching good price
The official receiver however saw no reason to postpone the sale particularly when no higher offer was forthcoming from the side of the respondent and decided to knock down the properties in favour of the appellant
Later an application was made on behalf of the respondent on November 18 1953 under section 68 of the  No V of 1920 hereinafter referred to as the Act
The case of the respondent was that the sale had been made for a very inadequate price and there had been drought in the village for several years in the past and there was very great stringency in the money market and it was hoped that if the sale was postponed for three or four months the properties would fetch a good price of not less than Rs 15000  exclusive of the sum due on the encumbrances
The respondent also stated that if the sale was postponed for three months she would be prepared to bid more than Rs 7500 for the properties
There were some other allegations in the petition suggesting collusion between the official receiver on the one side and the 693 insolvent and the appellant on the other
The respondent therefore prayed that the official receiver should be ordered not to sell the properties to the appellant at the price bid by him
The application was opposed by the official receiver as well as by the appellant
The official receiver contended that he had done his best and that no higher bid could be obtained
He also denied the allegation made against him in the nature of collusion and also about the manner of conducting the sale
The Subordinate Judge allowed the application on the ground that the price fetched was low and that the general body of creditors to whom debts to the extent of Rs 30000 were payable would be considerably prejudiced if the sale was allowed to stand
Thus the only ground on which the application under section 68 was allowed was that the price fetched was low
Thereupon there was an appeal to the District Judge under section 75 of the Act
The District Judge allowed the appeal
He pointed out that there was nothing to show that there was any irregularity in the conduct of the sale
He also pointed out that there was no reason to hold that the official receiver was in any way in collusion with the insolvent and the appellant
He also pointed out that the respondent s son was all along present and if he really thought that the price fetched at the auction sale was low he could offer a higher price on behalf of the respondent
Finally the District Judge held that the Subordinate Judge was not right in his view that the property had been sold for a low price and gave various reasons for coming to that conclusion
The matter was then taken in revision under the proviso to section 75 of the Act which lays down that the High Court for the purpose of satisfying itself that an order made in any appeal decided by the District Court was according to law may call for the case and pass such order with respect thereto as it 694 thinks fit
The High Court however did not consider the question whether the order of the District Judge was according to law
It appears that before the High Court an offer was made by the respondent that she was prepared to deposit Rs 9000 if a fresh auction was held and would start the bid at Rs 9000 and also that she would pay Rs 1000 to the appellant for any loss caused to him
The High Court accepted this offer though it was of opinion that it could not be said that the price fetched at the auction was unconscionably low it however held that the price was low considering the extent and nature of the properties and if Rs 9000 or more could be got for the properties the creditors would receive appreciably more as dividend
It therefore allowed the revision on the terms offered by the respondent
It is this order of the High Court which has been brought before us by special leave and the only question that has been urged on behalf of the appellant is that the High Court had no jurisdiction to interfere with the order of the District Judge unless it came to the conclusion that the order was not according to law
It is contended at the High Court s order does not show that it applied its mind to the question whether the order of the District Judge was according to law or not and that the High Court seems to have been carried away by the offer made by the respondent to make minimum bid of Rs 9000 for those properties
It is pointed out however that this offer was made three years after the auction and is no indication that the price fetched in the auction in 1953 was inadequate for prices may have risen during this period of three years
On the other hand it is contended on behalf of the respondent that the court s power under section 68 in appeal from an act of the receiver is much wider than the power of the court in dealing with 695 auction sales in execution proceedings and therefore the Subordinate Judge was right in setting aside the act of the receiver in knowing down the properties to the appellant and the High Court was consequently right in setting aside the order of the District Judge and resorting that of the Subordinate Judge
It may be accepted that the power of the court under section 68 in not hedged in by those considerations which apply in cases of auction sales in execution proceedings
Even so the power under section 68 is a judicial power and must be exercised on well recognised principles justifying interference with an act of the receiver which he is empowered to do under section 59 a of the Act
The fact that the act of the receiver in selling properties under section 59 a is subject to the control of the court under section 68 does not mean that the court can arbitrarily set aside a sale decided upon by the official receiver
It is true that the court has to look in insolvency proceedings to the interest in the first place of the general body of creditors in the second place to the interest of the insolvent and lastly where a sale has been decided upon by the official receiver to the interest of the intending purchaser in that order
Even so the decision of the official receiver in favour of a sale should not be set aside unless there are good grounds for interfering with the discretion exercised by the official receiver
These grounds may be wider than the grounds envisaged in auction sales in execution proceedings
Even so there must be judicial grounds on which the court will act in setting aside the sale decided upon by the official receiver
These grounds may be for example that there was fraud or collusion between the receiver and the insolvent or the intending purchaser the court may be also interfere if it is of opinion that there were irregularities in the conduct of the sale which might have affected the 696 price fetched at the sale again even though there may be no collusion fraud or irregularity the price fetched may still be so low as to justify the court to hold that the property should not be sold at that price
These grounds and similar other grounds depending upon particular circumstances of each case may justify a court in interfering with the act of the official receiver in the case of sale by him under section 59 a of the Act
The High Court had therefore to see whether the Subordinate Judge s order was justified on these grounds and whether the District Judge made any mistake in law in reversing that order
If the Subordinate Judge s order was not justified on these grounds or if the District Judge made no mistake in law in interfering with that order the High Court cannot interfere in revision under the proviso to section 75 for the High Court s jurisdiction to interfere arises only if it is of opinion that the District Judge s order was not according to law
If the High Court comes to that conclusion it can then pass such order as it may think fit
Let us therefore turn first to the order of the Subordinate Judge and see if it is justified on the ground mentioned above
Now both the Subordinate Judge and the District Judge found that there was no reason to hold that there was any fraud or collusion on the part of the official receiver in this case
Further the Subordinate Judge did not find that there was any irregularity committed by the official receiver in conducting the sale and the District Judge has definitely found that there was no such irregularity
The only ground on which the Subordinate Judge held that the sale should be set aside was that the price fetched was low
Now if that ground is justified the Subordinate Judge would have been right in interfering with the sale proposed by the official receiver
That matter has been considered by the District Judge and he has 697 held that there is no reason to hold that the properties were being sold for a low price
The Subordinate Judge in dealing with the question of price has pointed out that the insolvent had valued the properties at Rs 80000  though he was conscious of the fact that this was properly an exaggeration
He therefore did not hold that the properties were worth Rs 80000 
He came to the conclusion that the properties would be worth at least Rs 40000 and the main reason why he said so was that the properties had been mortgaged for over Rs 20000 in 1936
According to him there seems to be some infallible rule that one must double the mortgaged money in order to arrive at the valuation of the properties mortgaged
The District Judge has pointed out and we think rightly that there can be no such rule
Therefore the main basis on which the Subordinate Judge held that the properties were worth Rs 40000 and therefore the bid of the appellant was low falls to the ground as pointed out by the District Judge
The Subordinate Judge also pointed out that the insolvents were in possession of the properties during the pendency of the insolvency appeal and had been depositing Rs 2000 annually on the order of the High Court in order to remain in possession
The Subordinate Judge however did not calculate the value of the properties on the basis that their annual income was Rs 2000 and rightly so because the amount deposited by a litigant on the order of a court in order to retain possession of some property cannot necessarily lead to the inference that was the annual income of the property
It seems therefore that the District Judge was right when he held that there was no evidence on the record which would justify the finding of the Subordinate Judge that the price fetched by the sale in this case was inadequate or unreasonable
We may add that it was open to the respondent to show to the Subordinate Judge by well recognised methods 698 of valuation as to what the value of the properties was
The Subordinate Judge should have then taken into account the total amount of the encumbrance on these properties
The mortgage deed is not on the record and we do not know what interest if any the mortgage money carried
Before the Subordinate Judge could come to the conclusion that the price offered by the appellant was low he had first to find out the price of the properties by some recognised method
He had then to find what was the total amount of encumbrance on the properties
If on finding these things it appeared that the difference between the two was much larger than the price bid by the appellant the Subordinate Judge would have been justified in interfering with the order of the official receiver even if there was no question of fraud collusion or irregularity in the present case
But no such findings have been given by the Subordinate Judge and the District Judge consequently was right when he said that the view of the Subordinate Judge that the price fetched was inadequate and unreasonable is incorrect
Unfortunately the High Court did not address itself to the question whether the order of the District Judge was according to law or not
It seems to have been impressed by the offer made by the respondent overlooking the fact that the offer of Rs 9000 as the minimum bid and Rs 1000 for the appellant was being made three years after the auction during which for all that we know the prices might have risen
Further the High Court has remarked that the price offered by the appellant was not unconscionably low but it felt that it was still low on a comparison with the offer made by the respondent in 1956
As the High Court did not consider the question whether the order of the District Judge was according to law or not and did not come to the conclusion that order was not according to law the High Court would have no jurisdiction to interfere with that order
699 Learned counsel for the respondent urged that even though the High Court may not have considered the matter from this aspect we should not interfere with the order of the High Court if we are satisfied that in fact the price offered by the appellant was low in the circumstances prevailing in 1953
We agree that if it was possible for us to come to the conclusion that the price offered by the appellant was low there would be no reason to interfere with the order of the High Court even though it might not have considered what was necessary for it to do for interfering under the proviso to section 75 but as are have pointed earlier there is no sufficient material on the record on which we can say that the price offered by the appellant is low
As we have already pointed out no attempt was made in the Subordinate Judge s court to value the properties by any of the well recognised methods by which properties are valued
Further no attempt was made to show the total encumbrance on the property
Unless the valuation was properly made and the encumbrance was found out it is not possible to say that the offer made by the appellant was low for that would depend upon the difference between the value of the properties and the amount of encumbrance
In these circumstances it is not possible for us to say that the order of the District Judge when he held that the Subordinate Judge was not right in holding that the price fetched was inadequate or unreasonable is not according to law
We therefore allow the appeal set aside the order of the High Court and restore the order of the District Judge
The appellant will get his costs in this Court from the first respondent
Appeal allowed


Summary:
The official receiver put the properties of the insolvents N and his sons for sale which were subject to mortgage
The properties were ultimately knocked down to the appellant whose bid was the highest
The first respondent made an application under section 68 of the which was allowed by the Subordinate Judge on the ground that the price fetched was very low on appeal under section 75 of the Act the District Judge inter alia held that the price fetched was not low
In revision under the proviso to section 75 of the Act the High Court did not consider whether the order of the District Judge was according to law but accepted an offer made by the first respondent and allowed the revision petition
 Held that the power of the court under section 68 is a judicial power and must be exercised on well recognised principles justifying interference with an act of the receiver which he is empowered to do under section 59a  and the court must not arbitrarily set aside a sale decided upon by the official receiver unless there are good judicial grounds to interfere with the discretion exercised by the official receiver for example that there was fraud or collusion between the receiver and the insolvent or intending purchaser or the court is of the opinion that there were irregularities in the conduct of the sale which might have affected the price fetched at the sale or price was low as to justify the Court to hold that the property should not be sold at that price
691 The High Court had therefore to see whether the Sub Judge s order was justified on these grounds and whether the District Judge made any mistake in law in reversing that order otherwise the High Court cannot interfere in revision under the proviso to section 75 of the  for the High Court s jurisdiction to interfere arises only if it is of opinion that the District Judge s order was not according to law and only then it can pass such order as it may think fit