{1} IN THE HIGH COURT OF JUDICATURE OF BOMBAY BENCH AT AURANGABAD WRIT PETITION NO. 6688 OF 2010 Chandrakant Ratilal Mehta, age: 73 years, Occ: Business, R/o Gowarhan Ghat Road, Wajirabad, Nanded. Petitioner Versus Chandrakant Kerba Ganjewar, age: 65 years, Occ: Business, R/o C/o Dr.Pandurang Gangewar, Near Ashiyana Park, Dr.Lane, Ghamodiya, District Nanded. Respondent Mr.P.M.Shah, Senior Counsel holding for Mr.S.P.Shah, advocate for the petitioner. Mr.R.N.Dhorde, advocate holding for Mr.V.R.Dhorde, advocate for the respondent. CORAM : R.M.BORDE, J. Reserved on: 9 th September, 2010. Pronounced on: 28 th October, 2010. JUDGMENT: 1 Heard Shri P.M.Shah, learned Senior Counsel holding for Shri S.P.Shah, advocate for the petitioner and Shri R.N.Dhorde, learned Counsel holding for Mr.V.R.Dhorde, advocate for the respondent. Rule. Rule made returnable forthwith and heard finally by consent of learned Counsel for respective parties. {2} 2 Petitioner – original judgment debtor is raising exception to the order passed by learned Civil Judge, Senior Division, Nanded, below application Exhibit-13 in Special Darkhast No.69/1998 decided on 12.03.2010. 3 Certain facts necessary for deciding the controversy involved in the matter can be summarised in nutshell as below: On 14.08.1982, an agreement was entered into between petitioner and respondent in respect of sale of open plot out of S.No.61/B admeasuring about 22400 square feet situate within municipal limits of Nanded. The creditors of the petitioner had presented insolvency petition bearing no.84/1977 before the High Court Bombay. The property involved in the litigation was admittedly not mentioned in the insolvency proceedings. According to the petitioner – judgment debtor, he was a undischarged insolvent for the period between 07.09.1977 to 16.02.2001. The insolvency proceedings were annulled on 16.02.2001. 4 The decree holders / respondents instituted Special Civil Suit No.50/1985 praying for a decree of specific performance against the petitioner and in the alternative, damages to the tune of Rs.9,40,800/- were claimed by respondents in the suit. On 16th April 1986, parties entered into compromise and decree in terms of {3} compromise was recorded by the trial Court. The possession of disputed property came to be delivered to the decree holder / respondent herein in pursuance to compromise. In terms of the compromise decree, petitioner herein admitted the suit claim to the extent of specific performance of contract subject to respondent herein agreeing to pay value of the plot. As per para 5 of the consent terms, defendant was to get released the property from insolvency proceedings within a period of six months and that he was to take discharge from the said proceeding and thereafter was required to execute registered sale deed in favour of original plaintiff / respondent herein. In the event of failure of defendant - petitioner herein to perform term no.5 within given time, plaintiff – respondent herein was at liberty to apply to official assignee for release of the property from said proceeding by depositing whole consideration amount in the Insolvency Court. It is noted in paragraph 8 of the consent terms that defendant (petitioner herein) has delivered possession of the property in question to the plaintiff and that he (defendant) agreed to execute registered sale deed within one year from the date of compromise. It is also further recorded that if defendant (petitioner herein) fails to register the sale deed, plaintiff (respondent herein) will be at liberty to get it registered through the Court at his expenses. 5 The application seeking execution of the decree is presented by decree holder, being Execution Petition No.69/1998 on 13th April 1998. {4} 6 An objection is raised in the pending execution application by the judgment debtor by way of presenting an application under Section 47 of the Code of Civil Procedure. The application presented by petitioner herein has been turned down by the executing court in view of the order passed on 12th March 2010 and the said order passed by the executing court is subject matter of challenge in this petition. 7 I have heard arguments advanced by Shri P.M.Shah, learned Senior Counsel appearing for petitioner and Shri R.N.Dhorde, learned Counsel appearing for respondent. 8 Following objections are raised in respect of the order passed by executing court: (1) It is contended that Judgment debtor was an undischarged insolvent between 17.09.1977 till 16.02.2001 and by virtue of provisions of Section 17 of the Act, the property stands vested in the official assignee. Thus, it was beyond the competence of the judgment debtor to deal with the property in any manner. It is not disputed that the agreement to sell was entered into on 1st October1982 and compromise decree was drawn on 16th April 1986 during pendency of insolvency proceedings. It is, thus, contended that the transaction stands vitiated by virtue of operation of insolvency law. {5} (2) The decree was conditional and decree holder failed to perform the terms and made default in discharging his obligation under the decree, namely:- (a) He failed to deposit the amount in Insolvency Court in terms of the decree; (b) The decree holder did not raise any funds against that property of the judgment debtor namely share to the extent of 80% in Laxmi Wires. (c) Decree holder did not apply to the official assignee for releasing the property and to get discharge of judgment debtor. (3) The decree holder did not file any application seeking extension of time granted under the decree for deposit of amount. (4) It is contended that the sale deed was agreed to be executed within one year from the date of compromise decree. There is no explanation offered for not depositing the consideration amount within time stipulated under the decree. There was also no explanation tendered for extending time, as such, the compromise decree is not capable of execution. (5) It is contended that the decree imposes mutual obligations on decree holder and the judgment debtor. The performance by judgment debtor is conditional on performance by decree holder. (6) It is contended that the decree holder has not performed his {6} part under the terms of compromise and as such cannot seek execution of the decree unilaterally. (7) It is contended that the property agreed to be sold at the price prevailing some 23 years ago cannot be permitted to be purchased by the decree holders by taking recourse to execution proceedings when there are defaults on his part. (8) It is contended that the compromise decree gives rise to a new agreement and in the event of breach of terms stated therein, the remedy for decree holder is not to file an execution application but he shall have to file substantive suit for specific performance. 9 Learned Counsel appearing for the Respondent has supported the order passed by the executing court. It is contended that the judgment debtor who intentionally did not disclose about initiation of insolvency proceedings against him prior to entering into an agreement to sale with the decree holder, cannot be permitted to take advantage of his own wrong. It is contended that although the proceedings were initiated for declaring the judgment debtor as insolvent, the proceedings were annulled in the year 2001, which has an effect of restoring the position and to bringing about the state of affairs as if there had never been an adjudication and that the property was deemed to have been property of the judgment debtor on the relevant dates. It is contended that there is no violation of terms of decree on the part of decree holder. It is the judgment debtor who failed to observe and carry out his {7} obligations in terms of para 5 of the compromise terms. The option given to the decree holder in terms of paras 6 & 7 of the terms of compromise are optional and non observance thereof does not have an effect of rendering the compromise decree ineffective. 10 It is stated that in terms of para 8 of the compromise decree, it was the responsibility of defendants to register the sale deed within one year from the date of compromise and in the event of failure of defendants / petitioners herein to register the sale deed, it was open for plaintiffs / respondents herein to get it registered through the Court at his expenses. As the plaintiff / petitioner herein failed to carry out his obligation in terms of para 8 of the consent terms, Respondent / decree holder presented an application to the Court seeking execution of the decree. However, the judgment debtor has objected to the execution by presenting an application under Section 47 of the Act, which, according to the decree holder / respondent herein, is not entertainable. It is contended that the terms of decree are required to be interpreted as those are and no inferences are permissible to be drawn, which would amount to making violence to the terms of compromise decree. It is contended that there are no default clauses mentioned in the decree and there is no obligation placed on the decree holder, non observance of which, would disentitle him to secure the specific performance. It is contended that the executing court cannot be permitted to go behind the terms of the decree even if it is erroneous in law or on facts. It cannot be stated that {8} the decree is passed by a Court inherently lacking jurisdiction and as such is nullity. The executing court is obliged to execute terms of the decree as those are and cannot be permitted to travel beyond the terms of the decree nor it is permissible for the executing court to draw any inferences from the terms stated in the decree or on the basis of acts of the parties. It is contended that the executing court has rightly rejected the application tendered by the petitioner – judgment debtor and in exercise of extraordinary jurisdiction under Article 227 of the Constitution of India, it would not be appropriate for this Court to cause any interference in the matter. 11 My attention is invited to provisions of Section 17 of the Presidency Towns Insolvency Act, 1909 and it is contended that on making an order of adjudication, the property of the insolvent, wherever situate, shall vest in the official assignee. Section 17 is quoted below: 17 Effect of order of adjudication:- On making of an order of adjudication, the property of the insolvent wherever situate shall vest in the official assignee and shall become divisible among his creditors, and thereafter, except as directed by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable in insolvency shall, during the pendency of the insolvency proceedings, have any remedy against the property of the insolvent in respect of the debt or shall commence any suit or other legal proceeding except with the leave of the Court and on such {9} terms as the Court may impose: Provided that this section shall not affect the power of any secured creditor to realise or otherwise deal with this security in the same manner as he would have been entitled to realize or deal with it if this section had not been passed. Section 46 of the Act refers to debts provable in insolvency. It reads thus: 46 Debts provable in insolvency:- (1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract of breach of trust shall not be provable in insolvency. (2) A person having notice of the presentation of any insolvency petition by or against the debtor shall not prove for any debtor or liability contracted by the debtor subsequent to the date of his so having notice. (3) Save as provided by sub-sections (1) and (2), all debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable in insolvency. {10} (4) An estimate shall be made by the official assignee of the value of any debt or liability payable as aforesaid which by reason of its being subject to any contingency or contingencies, or for any other reason, does not bear a certain value: Provided that if in his opinion the value of the debt or liability is incapable of being fairly estimated, he shall issue a certificate to that effect, and thereupon the debt or liability shall be deemed to be a debt not provable in insolvency. Explanation:- For the purposes of this section “Liability” includes any compensation for work or labour done, any obligation or possibility of an obligation to pay money or money’s worth on the breach of any express or implied covenant, contract, agreement or undertaking, whether the breach does or does not occur, or is or is not likely to occur or capable of occurring before the discharge of the debtor and generally it includes any express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of, money or money’s worth whether the payment is, as respects amount, fixed or unliquidated; as respects time, present or future, certain or dependent on any contingency or contingencies, as to mode of valuation, capable of being ascertained by fixed rules, or as matter {11} of opinion. 12 Placing reliance on provisions of Section 46(3), it is contended that the debts and liabilities of petitioner herein, present or future, certain or contingent, to which the debtor is subject (petitioner) when he is adjudged as insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication shall be deemed to be debts provable in insolvency. It is, thus, contended that the debts incurred by petitioner herein, as a consequence of pendency of proceedings for declaring him insolvent, are deemed to be debts provable in insolvency. It is further contended that by virtue of provisions of Section 17 of the Act, the property held by the insolvent on making an order of adjudication shall vest in the official assignee. It is, thus, contended that it was not open for the petitioner herein to deal with the property during pendency of insolvency proceedings except with the leave of the Court and on such terms as the Court may impose. 13 In the instant matter, admittedly the agreement is executed as well as the terms of compromise are recorded without leave of the insolvency court and during pendency of insolvency proceedings. Thus, it is contended that the agreement as well as the terms of compromise cannot be given effect to. 14 Reliance is placed on the judgment in the matter of {12} Hira Lal Mandal & others Vs. Shankar Lal Mandal & others, reported in AIR 1939 Cal. 116, wherein it is held thus: “The operation of Section 17 is automatic and if an insolvent has an interest in certain properties, that interest vests in the Official Assignee by operation of law.” 15 It was contended before executing court by decree holder that the pendency of insolvency proceedings initiated against the petitioner herein will have no effect so far as instant transaction is concerned as the subject property was not the part of insolvency proceedings. Relying on the judgment cited supra, it is contended by petitioner – judgment debtor that the provisions of Section 45(3) cannot be construed to mean that any property owned by the insolvent, which is not mentioned in the insolvency proceedings, must be regarded as falling outside their scope. It is contended by the petitioner that whether that property is part of the insolvency proceedings or not is immaterial, but whatever the property owned by insolvent, vests with the Official Assignee as a consequence of provisions of Section 17 of the Act. It is contended that even the suit presented by respondent - decree holder was not entertainable as the same was instituted without obtaining leave of the insolvency Court, as required under Section 17 of the Act. Reliance is placed on the judgment in the matter of Ganpatrao Ramji Patil Vs. Jehangir Bavrihu and others, reported in AIR {13} 1938 Bombay 469 and in the matter of Narsingh Das Vs. Bhairon Dan, reported in AIR 1961 Raj. 81, for the said proposition. 16 It is also contended that the effect of provisions of Section 17 would be that the Respondent herein would occupy the position of a creditor within meaning of that Section and his only remedy was to proceed against the property of the insolvent before the insolvency court and he was under clear disability to commence any suit or other proceedings against insolvent without leave of the insolvency court. It is contended that the objections raised by petitioner – judgment debtor, based on interpretation of provisions of Section 17 and 46 of the Act, were not properly considered by the executing court and the objection application tendered by petitioner herein ought to have been granted. 17 While considering the argument advanced by the petitioner, reference is inevitable to the provisions of Section 23(1) of the Presidency Towns Insolvency Act, 1909. Same is quoted below: 23 Proceedings on annulment :- (1) Where an adjudication is annulled, all sales and dispositions of property and payments duly made, and all acts therefor done by the official assignee or other person acting under his authority, or by the Court, shall be valid, but the property of the debtor who was adjudged insolvent shall vest in such person as the Court {14} 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 terms and subject to such conditions (if any) as the Court may declare by order. 18 It is brought to my notice that on 6th February 2001, a Notice of Motion was moved before the High Court and same was allowed in terms of prayer clauses (A) and (B). By virtue of order passed by the High Court, the order of adjudication passed against the insolvent i.e. petitioner herein on 7th September 1977 is annulled under Section 21(1) of the Act on the ground of full payment. The official assignee was further directed to pay to the insolvent the surplus amount lying to the credit of estate after making provisions of proved as well as pending liability. The effect of the order of annulment of the proceedings is that the parties are relegated to the same status prevailing prior to the initiation of proceedings for adjudication. 19 Reliance can be placed on the judgment in the matter of Gamoji Venkata Ramkrishnarao Vs. Gullapalli Sambamurti, reported in AIR 1951 Madras 581. It is observed by Madras High Court in para 2 of the judgment: “It is now well-settled law that the effect of the annulment of an adjudication is to bring about the same state of affairs as if the adjudication had never taken place. The learned advocate for the appellant has cited to us {15} Ratnavelu Chettiar Vs. Franciscu Udayar, reported in 1945-1 M.L.J. 472 (AIR (32) 1945 Mad. 388), in which, Somayya, J. held that a transaction which had taken place between the date of adjudication and date of annulment without the permission of the Court was valid, because the annulment dated back to the date of adjudication” 20 Considering the ratio laid down by the Madras High Court, it can safely be concluded that as a result of annulment of the proceedings in the year 2001, the transaction, which had taken place between petitioner and respondent as well as the compromise decree, is rendered valid. The petitioner, who admittedly, did not disclose about pendency of insolvency proceedings initiated against him while entering into an agreement to sell the property with the respondent, cannot be permitted to take advantage of his own wrong and to contend that the proceedings are not binding on him including the compromise decree recorded in the suit, in view of provisions of Section 17 of the Act. In view of annulment of proceedings under Section 21(1) of the Act of 1909, the earlier transaction entered into by the petitioner and respondent shall have to be held as valid and the terms of compromise decree entered into between the parties shall have to be given effect as the annulment dated back to the date of adjudication. The objections raised by the petitioner based on applicability of provisions of Section 17 of the Act are without substance and, therefore, ought to be rejected. {16} 21 It would be apt to refer to the Full Bench decision of the Madras High Court in the matter of Arunchalam Vs. Narayanswami, reported in 1951 Madras 63. Two questions referred to the Full Bench, were: (i) Whether a debtor who was an insolvent on 01.10.1937 and 22.03.1938, but whose adjudication was subsequently annulled has saleable interest in the property on the two crucial dates? (ii) Would it make any difference if, though the adjudication was annulled, the properties of the insolvent, either in whole or in part, were vested in an appointee of the Court under Section 37, Provincial Insolvency Act and continued to be so vested at the time when the application for scaling down was filed. While answering the first question referred to the Full Bench, in affirmative, it is observed by the Madras High Court, thus: “A debtor who was an insolvent on 01.10.1937 and 22.03.1938 (Crucial dates for determining the applicability of the Madras Agriculturists’ Relief Act, 1938) but whose adjudication is subsequently annulled has saleable interest in the property on those dates even though his property had remained vested in the Official Receiver on those particular dates. The reason is that the effect of the annulment of the adjudication relates back to {17} the date of the adjudication and is as if no adjudication had taken place, except as regards the acts of the Court and the Official Receiver which are validated by Section 37.” 22 Provisions of Section 37 of Provincial Insolvency Act, 1920 was a matter of consideration before the Full Bench. Said provision is pari materia with the provision of Section 23(1) of the Presidency Towns Insolvency Act, 1909. 23 Learned Counsel appearing for the petitioner seeks leave to place reliance on the judgment in the matter of Kisan Sitaram Ambekar & others Vs. Sitaram Tulsiram and others, reported in AIR (38) 1951 Nagpur 241; and contends that the order of annulment does not have effect of validating an alienation made by the insolvent during the pendency of the insolvency. However, in view of the judgment of the Apex Court in the matter of Arora Enterprises Ltd. & others Vs. Indubhushan Obhan & others, reported in (1997) 5 SCC 366, the proposition advanced, cannot be accepted. The decision of the Full Bench of Madras High Court cited supra was also taken into account by the Apex Court. It is observed by the Apex Court: “The effect of annulling adjudication in insolvency proceedings, is to wipe out effect of insolvency and to vest the property retrospectively in the insolvent. The consequence of annulling order of adjudication is to wipe out altogether the insolvency and its {18} effect. The property will re-vest in the insolvent retrospectively from the date of vesting order”. It is further observed that: “However, the effect of the suit (independently) filed by the appellants and the orders passed therein have to be considered. That is a distinct and different matter, which has its own existence and legal impact, unimpaired by the annulment of the insolvency. By the annulment of the insolvency and wiping out its effect retroactively, in law, the suit and the judicial orders passed thereon are not wiped out, or rendered void or a nullity, automatically. The order passed in the suit is not non est or ineffective. This order is valid until set aside or annulled, in appropriate proceedings. It cannot be ignored. It will have legal effect of its own,