Case: Ram Prasad Narayan Sahi And Another Vs. The State Of Bihar And Others

Encumbered Estates Act, though they may be given notice of those proceedings and afforded opportunity to watch those proceedings in order to see that no property is secreted from them and it is preserved for satisfaction of decrees that may eventually be passed in their favour.14. In his judgment Pathak, J. proceeded to observe that though the landlord is a party to the dispute under S. 11, it is obvious that the main party who is vitally interested in that dispute is the entire body of creditors, because the issue that arises out of such a claim is whether the property which is the subject matter of the claim is liable for the satisfaction of the debts due to the entire body of creditors. This statement also, in our opinion, is not very precise. It is not correct to say that the result of a decision in such a claim makes the property liable for satisfaction of debts due to the entire body of creditors who had made claims at that stage. The property is only liable for satisfaction of decrees that may be passed subsequently under S.14.It may well be that of the persons who have been disclosed as creditors under Section 8, a number of them may not at all be interested in the result of the decision of the claim under Section 11. It is an overstatement to make that the main party who is vitally interested in the dispute is the entire body of creditors. The dispute relates to title to property and according to all principles of impleading of parties it is not the eventual benefit that a person may derive from a certain decision that is the crucial test in deciding whether a party is a necessary party or merely a proper party.Pathak, J. proceeded to observe as follows:"Could it be suggested that in a suit under Order 21, Rule 63, C.P.C. the decree-holders who desire to seize the property belonging to the judgment debtor are not necessary parties?"With great respect again, this analogy is not very happy or apposite.Under Order 21 Rule 63, it is only the attaching creditor who has the right to file a suit or of being impleaded as defendant in a suit by the judgment-debtor. All the creditors of the judgment debtor who have not attached the property are not necessary parties in a suit under Order 21 Rule 63, though after the decision is that suit they may be entitled to share in the rateable distribution of the property if they make an application for that purpose. In a way it is true to say that in all suits by a creditor against a debtor where the debtor owes to a number of creditors, every other creditor is interested in seeing that that creditors suit is dismissed or his debt is considerably cut down; but from that it does not follow that in a suit on a promissory note by a creditor against the debtor all the other creditors are necessary parties.The eventual interest of a party in the fruits of a litigation cannot be held to be the true test of impleading parties under the Code of Civil Procedure and it is rather difficult to hold that where that is not the true test under the Code, that should be adopted as a test in proceedings of an administrative character under the U. P. Encumbered Estates Act. It cannot be forgotten that under the provisions of section 11 no provision has been made for issuing notice to all the creditors. Reference may also be made to Rule 6 framed under the Encumbered Estates Act. This rule provides that the proceedings under this Act shall be governed by the Code of Civil Procedure so far as they are applicable. As already pointed out, the provisions of Order 1, Rules 1 and 3 cannot aptly be held applicable in such proceedings.We cannot uphold the view of Pathak J., that all creditors become parties to the proceedings under the Act in the technical sense of the term after a notice has been served upon them and in any event after they have filed the written statements, that they continue to remain as parties until the debts are liquidated or proceedings terminated in accordance with the provisions of the Act. This seems to be too wide a statement of the law on the point. Can it be said that after each individual creditor obtains a decree in respect of his claim under S. 14, each one of these creditors has to be impleaded as a party in an appeal preferred by that creditor or by the debtor. It is not possible to give an answer in the affirmative to such a proposition.We have therefore no hesitation in saying that Mr. Justice Braund, though he ultimately abandoned his view, was right in thinking that in these administrative proceedings technical rules of the First Schedule of the Code of Civil Procedure regarding impleading of parties should not be invoked and that the matter should be viewed in a more liberal way, regard always being had to the fact that there is no collusion between the debtor and the claimant and that there are persons who are bona fide litigating in respect of the title of the claimant under Section 11, and if there has been such a bona fide fight which results in a decree, in an appeal against that decree it is sufficient that those who took an active part in the proceedings under Section 11 are impleaded. It is not necessary to implead each and every creditor who either did not appear or put forward a written statement under Section 10 or took no active part in the proceedings under Section 11 (2).In the view that we have taken it is not necessary to decide the question whether the High Court was right in not exercising powers under Order 41 Rule 20 in impleading the creditors as respondents to the appeal.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It is no doubt true that costs are not taken into consideration and are treated as extraneous to the subject-matter of a suit, and variation in the matter of costs does not make the decree of the appellate court a decree of variance; but as already stated the appellant did not pray for the certificate on that ground. He had expressly alleged that the decree being one of affirmance he was entitled to a certificate, because the subject of the suit as well as of the appeal was a sum of over Rs. 10,000 and the case involved a substantial question of law. It is obvious that the ground on which the appeal was dismissed by the High Court raises a question of law of importance to the parties and that being so, on that ground alone the appellant was entitled to a certificate under S. 110, C. P. C. The certificate therefore is good, though the ground on which it was granted is erroneous. It is always open to an appellant to support the Certificate on grounds other than those on which it has been actually ordered to be given. The preliminary objection thereforelaw was enacted for giving relief to encumbered estates in the U. P. Section 4 provides that any landlord who is subject to or whose immoveable property or any part thereof is encumbered with private debts, may make an application in writing to the Collector of the district, stating the amount of such private debts and also of his public debts both decreed and undeterred and requesting that the provisions of this Act be applied to him. The section gives an option to the landlord who is subject to private debts to make, an application for obtaining relief under the provisions of the Act. The Collector then transmits the application to the special judge appointed under the Act.The direct consequence of the acceptance of such an application by the collector is that the creditors are deprived of their rights of proceeding against such a landlord in civil or revenue courts in respect of their debts and all attachments made in execution of decrees become null and void and no process in execution can issue after that date. The provisions of the Act are clearly detrimental to the contractual rights of the creditors and to their remedies in civil law and such a statute can by no stretch of imagination be described to have been enacted for the benefit of creditors. Section 8 of the Act confers power on the special judge of calling upon the applicant to submit to him within a period to be fixed by him in this behalf, a written statement containing full particulars respecting the public and private debts to which he is subject or with which his immoveable property is encumbered; of the nature and extent of his proprietary rights in land; of the nature and extent of his property which is liable to attachment and sale; and lastly, of the names and addresses of the creditors, so far as can be ascertained by him.It is apparent from the provisions of the Act cited above that the U. P. Encumbered Estates Act is no more, nor less than, a code for the administration of the assets of the landlord-debtor and for giving relief to him in a number of ways against the contractual rights of his creditors. It clearly deprives the creditors of any remedies that they would ordinarily have in ordinary civil courts and extinguishes the mortgages held by them. Section 11 (2) deals with claims of third parties to the property alleged by the landlord is belonging to him and the judge is required to determine whether such property is liable to attachment or sale.It isapparent that strictly speaking the provisions of these rules cannot be applied to the proceedings contemplated by the U. P. Encumbered Estates Act. These proceedings cannot be described as suits. It was conceded at the Bar that an inquiry into third party claims under Section 11 (2) cannot be described as a suit. Neither Section 8 nor Section 11 provides that the creditors have to be impleaded as parties respondents in such an objection application. As already said, the section provides that the applicant has to give information about the names of the creditors and the amounts due to them. Till the time that a decree is passed under Section 14 in favour of any of the creditors it cannot be said that any one of them is entitled to share in the property of the debtor.It is only when a claim has been made under S. 10 by a creditor and it has ripened into a decree that he is entitled to share in the assets of the landlord. But it be commits a default in submitting a written statement of the claim under Section 10, the claim stands discharged under SectionIn this particular case it is not clear whether any of the creditors except the Unao Commercial Bank had Trade a claim underIt is also not clear whether any decree under Section 14 has been passed in favour of any of the creditors. An inquiry for the determination of the quantum of the debts of the landlord can only be made after third party claims have been settled under the provisions of Section 11 (2).In view of these provisions it seems difficult to hold that the technical and strict rules as to impleading of parties can have application to proceedings under Section 11, U. P. Encumbered Estates Act. It is true that the creditors must be given notice and opportunity to say whether the landlord has secreted any property, but if they do not do so and are content with the disclosures made by the landlord they cannot be said to have any further interest in the quantum of the property which the landlord has mentioned under the provisions of section 8 in his written statement.In that situation, if a third party claims any item of property mentioned by the landlord in the written statement, the controversy at that stage lies only between the landlord and the claimant, though in the result the creditors may either be benefited or deprived of some of the assets which the landlord discloses in the application as liable to attachment and sale towards payment of decrees that may be passed in favour of the creditors.We are fully conscious of the fact that the view that we have expressed above is not in conformity with a number of decisions of the Oudh Chief Court and the Allahabad Highcreditors are allowed to prove their debts and obtain decrees from the special judge according to the provisions of and to the extent allowed by the Act and they lose all their rights on securities held by them. Coming to the application of the rests laid down by the learned Judge, it is not possible to hold that any right of relief exists in an objector under section 11 as against the creditors. It is also difficult to see how an effective decree cannot be passed as regards title to the property in the absence ofOrder 21 Rule 63, it is only the attaching creditor who has the right to file a suit or of being impleaded as defendant in a suit by the judgment-debtor. All the creditors of the judgment debtor who have not attached the property are not necessary parties in a suit under Order 21 Rule 63, though after the decision is that suit they may be entitled to share in the rateable distribution of the property if they make an application for that purpose. In a way it is true to say that in all suits by a creditor against a debtor where the debtor owes to a number of creditors, every other creditor is interested in seeing that that creditors suit is dismissed or his debt is considerably cut down; but from that it does not follow that in a suit on a promissory note by a creditor against the debtor all the other creditors are necessaryhave therefore no hesitation in saying that Mr. Justice Braund, though he ultimately abandoned his view, was right in thinking that in these administrative proceedings technical rules of the First Schedule of the Code of Civil Procedure regarding impleading of parties should not be invoked and that the matter should be viewed in a more liberal way, regard always being had to the fact that there is no collusion between the debtor and the claimant and that there are persons who are bona fide litigating in respect of the title of the claimant under Section 11, and if there has been such a bona fide fight which results in a decree, in an appeal against that decree it is sufficient that those who took an active part in the proceedings under Section 11 are impleaded. It is not necessary to implead each and every creditor who either did not appear or put forward a written statement under Section 10 or took no active part in the proceedings under Section 11 (2).In the view that we have taken it is not necessary to decide the question whether the High Court was right in not exercising powers under Order 41 Rule 20 in impleading the creditors as respondents to the appeal.