Case: Hans Raj Vs. Rattan Chand, Etc

2. The facts necessary for the disposal of this appeal are as follows:- Brijlal and Hans Raj were two brothers. On an application having been made by the creditors of Brij Lal in the year 1949, the insolvency Judge, Barnala adjudicated him as an insolvent, on 23rd November 1954. Two day thereafter, one Mohinder Lal was appointed as a receiver in insolvency by the order of the Court and he was directed to take possession of the property of the insolvent. On 26th and 27th November 1954 the receiver took possession of various properties of the insolvent and attached some urban property and agricultural land which are the subject-matter of the present litigation Hans Raj filed an objection application on 21st December 1954 alleging that the property detailed therein belonged to him and was exclusively in his possession. He prayed for release of the property from attachment and restoration of possession to him. The receiver pleaded that he had taken possession thereafter at the instance of two creditors. The insolvency Judge framed two issues namely, (1) Is the objector owner of the suit property and in possession thereof and is it accordingly not liable to be attached by the receiver? and (2) whether the objection petition was time-barred ? The learned Judge decided the first issue against the objector but held that the application was not covered by S. 68 of the Act. In appeal, the District Judge differed from both the findings. He held that there had been no partition of the joint Hindu family of the insolvent and his brother, but, on the point of limitation he found against the objector. In the result, he accepted the appeal and dismissed the objection petition. Hans Raj: went up in Second Appeal to the Punjab High Court. The learned single Judge of the High Court came to the conclusion that the property in dispute must be deemed to be the separate property of Hans Raj and held that the application was within time. Rattan Lal who replaced the original receiver on the latters death filed a Letters Patent Appeal to the High Court. The High Court, as already noted, held that the application of Hans Raj was not within time resulting in the dismissal of the objection petition.

Court's reasoning:
5. It will be noted from the above that S. 4. sub-s. (1) lays down the ambit of the powers of the court exercising insolvency jurisdiction. Its primary object is to empower such courts to decide all questions whether of title or priority or of any nature whatsoever and whether involving matters of law or fact which may arise in any case of insolvency coming within the cognizance of the court. In other words, the aim of this provision is that all questions of title or priority arising in insolvency should primarily be disposed of by the insolvency courts so as to achieve expedition. It will be noted at once that resort to ordinary courts of law is not proscribed and at the same time the legislature provided that a person could resort to the insolvency court if the matter arose in insolvency proceedings. Under sub s. (2) however every such decision arrived at by the insolvency court was to be final and binding for all purposes as between on the one hand, the debtor and the debtors estate and, on the other hand, all claimants against him or it and all persons claiming through or under them or any of them. This provision is however subject to the other provisions of the Act and notwithstanding anything contained in any other law for the time being in force.It is also to be noted that this section does not lay down what procedure or what steps should be taken by any person who is aggrieved by any order of the insolvency court or of any act of omission or commission of the receiver7. Leaving aside the decisions which were cited at the Bar, it appears to us, on a plain reading of the sections mentioned above and in particular, Ss. 4 and 68, that there can be no doubt that a person (like the appellant before us) complaining of the receiver taking possession of or attaching property in which the insolvent has no interest, must apply for relief within 21 days of the wrongful act of the receiver. He cannot be heard to say that his application is not under S. 68 but under S. 4 and thus seek to avoid the short period of limitation prescribed under S. 68.Moreover, sub-s. (1) and sub-s. (2) of S. 4 both start with the phrase "subject to the provisions of this Act" and even if it was possible to construe that S. 4 envisaged the making of an application for relief, such application would be subject to S. 68 of the Act11. These decisions, in our opinion, do not assist the appellant on whose behalf it was argued that an application might be made either under S. 68 or under S. 4 of the Act. It is clear from the above decisions that a person complaining of the act of the receiver may either apply under S. 68 or proceed under the ordinary law of the land. Section 4 does not prescribe any application for relief under that section. Its object is to define the limits of jurisdiction of the Courts exercising powers in insolvency. It is not correct to say that a person aggrieved by an act of the receiver has the choice of making an applications under S. 4 or under S. 68. Section 4 comes into operation whenever any question of the nature mentioned therein is sought to be canvassed before a Court exercising insolvency jurisdiction. Such questions may arise because of acts or decisions of the receiver complained of. A question as to whether an insolvent has any Interest in the property attached by the receiver would fall within the purview of S. 4, but the application for the adjudication of such a question when the receiver acts otherwise than under the order of a Court would be covered by S. 68 and as such the period of limitation of twenty-one days would be attracted to any such applicationThe last portion of the above paragraph was quoted as supporting the proposition that an application lay under S. 4 of the Act. That is not what the learned Judges of the Madras High Court meant. In our view, what was meant was that the claimant might make an application to the District Judge who would under S. 4 of the Act have jurisdiction to pass a proper order thereonIt is difficult to accept the soundness of some of the dicta in the above judgment. The Official Receivers act in selling the property on 16th April 1960 may have been wholly wrong? but if the petitioner wanted the same to be set aside, she could either have made an application under S. 68 to the Court or she could have filed a suit for relief under the ordinary law of the land. She could not, after a period of 21 days, start a proceeding in the insolvency Court describing it as one under S. 4 so as to get out of the bar of limitation imposed by S. 68. She need not have waited till the sale of property. She might have applied to the Court as soon as the receiver took the first step by attaching the property15. In our opinion, Jai Lal, J. correctly pointed out the correlation between Ss. 4 and 68 in Daulat Ram v. Bansilal, AIR 1937 Lah 2The appellant had a money decree against the insolvents which he executed by attachment of a moiety of a share in a house which he alleged belonged to the. This was before the order of adjudication. An objection was raised by the respondent, Bansilal that he was a purchaser for consideration of the attached property. The objection having been allowed, a suit was filed under O. 21, R. 63, C. P. C. by the attachingr and ultimately decreed, it having been held that the sale by thes was fraudulent as against the creditors. The receivers in insolvency then took possession of the property attached by the appellant and sold the same in the insolvency proceedings. Bansilal thereupon made an application under S. 63 on the ground that the action of the receivers was illegal. The District Judge allowed the application holding that the decree passed in the suit under O. 21, R. 63 was operative only so far as the execution proceedings were concerned and that it did not enure for the benefit of the other creditors. He, therefore, set aside the sale by the receivers. The creditors including the appellant came up in appeal from the order of the District Judge. An objection was raised by the respondents that no appeal lay without the leave either of the District Judge or of the High Court. In disposing of this, Jai Lal, J. observed"I am inclined to think that though the District Judge was moved under S. 68 which is not one of the sections mentioned in Sch. 1, the investigation, which he is expected to make in a case like the present, should be under S. 4, Provincial Insolvency Act, and any order passed by him under S. 4 is appealable as of right to this Court."An observation similar to the above was made by the same learned Judge in Mul Raj v. Official Receiver, AIR 1937 Lah 297. This point was also brought out in Ganda Ram v. Shiv Nand Ganesh Das, AIR 1937 Lah 757. The scope of the two sections was brought out even more clearly in a judgment of the Rangoon High Court in Ma Sein v. U Mg. Mg., AIR 1934 Rang 97, where it was said:"Now, S. 4 defines the powers of the Insolvency Court to decide questions of law and fact arising in insolvency proceedings, but it does not lay down how the Court is to be moved to exercise those powers.......Of course, the powers of the Court in deciding such an application are defined in S. 4 but this does not mean that the application itself is made under S. 4, and clearly it cannot be for S. 4 contains no provision as to how the Court is, to be moved to exercise its powers, and for the mode of invoking the authority of the Court other provisions of the Act, such as Ss. 53, 54 and 68, have to be consulted."