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Insolvency Case No. 29 of 1947, decided on 27th March, 1950.

‑Ss. 23 and 41‑Insolvent adjudicated upon his own petition -Creditors did not prove their claims‑Annulment‑Court's dis cretion to vest all property, rights and interests of insolvent in Official Assignee.

When an annulment is made under section 41, it is a punitive order against the insolvent for his default, and that he ought not to be allowed the benefit from it. The object of the annulment is that the insolvent should lose the benefit of the insolvency. From the annulment the entire proceedings in insolvency do not come, to an end, because under the provisions of' section 23 all the acts of or authorized by the Official Assignee theretofore are validated and the Court has the discretion to appoint a person in whom the property of the debtor shall vest, and in default of any such vesting order, the property is to revert to the debtor but " on such terms and subject to such conditions, if any, as the Court may declare."

The property is to be withheld from the debtor in the interest of those who may justly claim to be paid out of it; namely, of the general body of creditors.

60 Cal. ‑ 259, 52 Mad. 648, 8 Mad. 908, A. I. R. 1944 Mad. 150 and 58 Mad. 1014 referred to.

(b) Provincial Insolvency Act (V of 1920), Ss. 37 and 54‑A Property of debtor vests in appointee‑Vesting is for benefit of general body of creditors‑ Object and result of appointment under Section 37 stated.

It is the first part of section 37 (1) of the Provincial Insolvency. Act which validates the act of the Official Receiver or creditor under 'section 54‑A in moving prior to the annulment, to avoid under sections 53 and 54 a transfer made by an insolvent, and that the Official Receiver or creditor may continue such an application even though there is another person in whom the property has vested as appointee under section 37. An appointee as such cannot continue it because the right to avoid the transfer is not that of the debtor, but of the Official Receiver or creditor and the appointment vests in the appointee only " the property of‑the debtor."

Upon such an application resulting in avoidance of any such transfer of property by the debtor, property would become available to which the order of appointment would apply. This is an additional reason, therefore, for making an order of appointment under section 37, for such 'an appointment gets in for the benefit of the general body of creditors property screened from them by the fraud of the debtor and correspondingly such an appointment prevents the debtor from gaining an advantage from his own/ wrong in having made the fraudulent transfer. That would be the result if no appointment were made under section 37 and the property of the debtor were allowed to revert to him.

52 Mad. 648 and 58 Mad 908 relied on.

This case comes before me for annulment of the adjudication of the debtor under section 41 of the Presidency Towns . Insolvency Act, 1909, for want of his filing an application for discharge within the period prescribed by rule 665 of the Chief Court Rules.

The insolvent was adjudicated upon his own petition made when he had been arrested in execution of a decree. When examined on his petition he said his liabilities amounted to Rs. 11,400. He has only two creditors neither of whom has proved his claim before the Official Assignee. Nevertheless in his report the Official Assignee submits that in the event of the Court annulling the adjudication of the insolvent, the sum of Rs. 759‑8‑9 presently in his hands and such sum as may be in the hands of the Nazir should be ordered to vest in the Offi cial Assignee under section 23 of the said Act.

For the insolvent exception is taken to this course on the ground that the insolvent would be subject to all processes of law open to his creditors against which he sough' protection in insolvency, and that since no creditor had proved his debt, there was nobody for whose benefit the vesting order should be made. In these circumstances, the contention is, that the Court should not exercise the discretion contained in section 23 to vest the property in any person.

It seems to me beyond doubt that when an annulment is made under section '41; it is a punitive order against the insolvent for his default, and that he ought not to be allowed the benefit from it. The Object of the annulment is that the insolvent should lose the benefit of the insolvency I. L. R. 60 Cal. 259. From the annulment the entire proceedings in insolvency do not come to an end, because under the provisions of section 23 all the acts of or authorized by the Official Assignee thereto fore are validated and the Court has the discretion to appoint a person in whom the property of the debtor shall vest, and in default of any such vesting order, the property is to revert to the debtor but " on such tens and subject to such conditions, if any, as the Court may declare."

In I. L. R. 52 Mad. 648 an' act of the Official Receiver being an application under section 54 of the Provincial Insol vency Act (V/1920), was held to be validated under section 37 of that Act and it was held that the Official Receiver could continue to prosecute it even after the annulment under section 43 of that Act. The Full Bench case reported in I. L. R. 58 Mad. 908, is authority for the proposition that the vesting order is made so that the property may be subject to such directions as the Court may make in relation to it.

King, J. in that case observed at p. 925 :‑‑

" The person appointed under. Section 37 has no longer by the mere fact of his appointment the powers which a Receiver has under the Act. He has only such powers as are neces sarily implied by the vesting orders which, as we understand them, are to carry out directions of the Court, and those directions as we have said, should so far as the realisation and distribution of the debtor's property are concerned be in accordance with the provisions of the Insolvency Act."

There is little assistance to be derived from the terms of section 37 or other relevant sections of that Act as to the application of the property vested in the appointee. But it follows from the terms of that section that the property is to' be withheld from the debtor in the interest of those who may justly claim to be paid out of it, namely, of the general body of creditors. A. I. R. (1944) Madras 150 is a case in which a debt provable in the insolvency was allowed to be proved after annulment under section 43, and a vesting order under section 37 had been made, and indicates that the possibility of debts being proved hereafter in this insolvency, cannot be ruled out and should be envisaged. That after the annulment, the general body of creditors may include a creditor whose debt was not under section 34 (2) of that Act provable in the insolvency, appears from the case in I. L. R. 58 Madras 1014 where a Crown debt in respect of Court‑fees incurred by a debtor after the annulment was held payable out of the property vested in the appointee under section 37. No case has been brought to my notice where such a debt, other than a Crown debt, which has priority, has been held payable out of the property So vested, but it is conceivable that upon such a debt or debts being in existence, a subsequent adjudication might take place upon a creditor's petition or by leave of Court upon the debtor's petition and that the property vested in the appointee may be made‑available for distribution in the subsequent insolvency.

On considering the case in I. L. R. 52 Madras 648 and the observations of King, J. in I. L. R. 58 Madras 908 at 925‑6‑7, it seems to me that it is the first part of section 37 (1) of the Provincial Insolvency Act which validates the Act of the Official Receiver or creditor under section 54‑A in moving prior to the annulment, to avoid under sections 53 and 54 a transfer made by an insolvent, and that the Official Receiver or creditor may continue such an application even though there is another person in whom .the property has vested as appointee under section 37. An appointee as such cannot continue it because the right to avoid the transfer is not that of the debtor, but of the Official Receiver or creditor and the appoint ment vests in the appointee only " the property of the debtor." '

Upon such an application resulting in avoidance of any such transfer of property by the debtor, property would become available to which the order of appointment would apply. This is an additional reason, therefore, for making an order of appointment under section 37, for such an appointment gets in for the benefit of the general body of creditors property screened from them by the fraud of the debtor and correspondingly such an appointment prevents the debtor from gaining an advantage from his own wrong in having made the fraudulent transfer. That would be the result if no appointment were made under section 37 and the property of the debtor were allowed to revert to him.

Although the cases I have referred to are 'cases under the Provincial Insolvency Act, they apply equally to the provisions of sections 41 and 23 of the Presidency Towns Insolvency Act.

I, therefore, annul the adjudication of the insolvent and vest all the property, rights and interests of the debtor hitherto in the' Official Assignee.

K. M. A. Adjudication annulled.

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