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Regular First Appeal No. 61 of 1955, decided on 28th November 1961.

‑Question of title to property‑Can be gone into by Insolvency Court under S. 4 only‑Application under S. 53 by Receiver challenging a deed of transfer‑Can be treated as application under S. 4 Decislon of Insolvency Court on question of title‑Final and binding even if decided against stranger‑Decision, judgment in rem under S. 41, Evidence Act (I of 1872), and, therefore, res judicata under S. 11, Civil Procedure Code (V of 1908).

A creditor applied in the Court of an Insolvency Judge for the adjudication of his debtor as an insolvent on the ground that he had committed an act of insolvency by selling his land by a registered sale‑deed to D a third person. The application was accepted and the debtor was declared an insolvent and a receiver was appointed for his estate. After taking over charge, the Receiver moved the Insolvency Judge by means of an applica tion under section 53 of the Provincial Insolvency Act, 1920, praying that the sale be set aside. The Insolvency Judge accepted the Receiver's application holding that the sale was fictitious, and without consideration and, therefore, null and void. The vendee filed an appeal, but the appeal was dismissed by the District Judge. A second appeal was filed in the High Court which was also dismiss ed. In spite of the order of the Insolvency Judge the Receiver did not take possession of the land which remained in the possession of D (vendee). Subsequently the insolvency of the debtor was annulled and thereafter the debtor filed a suit for the possession of land which was held, to have been transferred to D fictiti ously and without consideration. D the vendee resisted the suit. It was contended that the order of the Insolvency Court setting aside the sale in his favour was illegal and void and as such he was not bound by the order. It was urged that the decision of the Insolvency Judge was on an application under section 53 of the Provincial Insolvency Act, 1920, and was, therefore, not a final order. It was further urged that the order not being final he was not barred from re‑agitating in the suit that the title of the suit land vested in him as bona fide vendee for consideration. On the question whether the order of the Insolvency Court, setting aside the sale of land in favour of D was illegal and void and that he was not bound by that:

Held, the question for determination before the Insolvency Judge was whether the transfer in question was a mere paper transaction or a genuine one. The question being, one of title could be gone into only under section 4 of the Provincial Insolvency Act, 1920. The Receiver had challenged the transfer on the ground that it was fictitious and without consideration. Therefore, on the allegation of the Receiver no title passed under the deed of transfer to the transferee. The transaction was not voidable but void. The transaction was not valid in its inception and at no time did the sale‑deed transfer any title to the transferee. Transaction which is challenged on the ground of it being fictitious or nominal does not fall within the ambit of section 53 of the Provincial Insolvency Act, 1920. However, if such transaction does not fall within the ambit of section 53 then section 4 of the Act is wide enough to confer upon the Insolvency Courts jurisdiction to decide whether the transaction was in fact nominal or fictitious. In this case an appeal against the order of the Insolvency Judge was filed before the District Judge and when the appeal before the District Judge was dis missed, a second appeal in the High Court was filed. A perusal of section 4 and section 75 of the Provincial Insolvency Act, i 920 would show that a second appeal was competent if the relevant application had been treated by the Insolvency Judge as an appli cation under section 4 of the Act. The application filed by the Receiver under section 53 of the Act was, therefore, treated by the Insolvency Judge as an application under section 4 of the Act. Section 4 of the Act is an enabling section and confers full power on Insolvency Court to decide all questions of title or priority or of any nature whatsoever which arise before it or which it may deem necessary to decide. Sub-clause (2) of section 4 makes "such" decision final and binding for all purposes on all claimants. In reality section 5 of the Act gives to the Insolvency Court the power of a Civil Court. Therefore, under the Provincial Insolvency Act, 1920 if a question of title has been actually raised by a stranger to the insolvency and decided by the Insolvency Court, the decision is final and the question cannot be re‑opened In a regular suit. Section 41 of the Evidence Act, 1872, which deals with judgments in insolvency proceed 1ngs, provides that judgment, order or decree of a competent Court in such matters has the effect of a judgment in rem. Hence if the matter is once decided even against a stranger by the Insolvency Court, the jurisdiction of the Civil Court would be barred under section 11 of the Civil Procedure Code, 1908.

Padamsi Premchand and others v. Laxman Vishnu Deshpande and others A I R 1949 Bom. 129 ; Mst. Mahrana Kunwar v. E. V. David, Official Receiver A I R 1924 All. 40 ; Haji Anwar Khan v. Muhammad Khan and others A I R 1929 All. 105 ; Ram Ditta Mal Bhalla v. Offcial Receiver, Lahore and others A I R 1934 Lah. 365 ; Chella Rangappa v. Yerravenkatagiri Rangappa and others A I R 1933 Mad. 9 ; Ram Kirpal Shukul v. Mst. Rup Kauri 11 I A 37 ; G. H. Hook v. Administrator‑General of Bengal and others A I R 1921 P C 11 ; T. B. Ramchandra Rao and another v. A. N. S. Ramchandra Rao A I R 1922 P C 80 ; Bansiram v. Firm Anandi Ram Mohan and others A I R 1935 Pat. 273 ; Pita Ram v. Jujhar Singh I L R 39 All. 628 ; Irshad Husain v. Gopi Nath I L R 41 All. 378 and Bhai Parsad v. Mr. S. P. Dass Vakil, Receiver 51 I C 113 ref.

proviso second‑Application under S. 53 treated as one under S. 4 Second appeal to High Court competent.

‑Section 11 not exhaustive‑Binding force of judgment depends not upon section but upon general principles of law‑Provincial Insolvency Act (V of 1920).

Section 11 of the Civil Procedure Code, 1908 is not exhaus tive and the binding force of a previous judgment depends not upon the section but upon general principles of law, which apply to proceedings in Insolvency Courts.

Chella Rangappa v. Yerravenkatagiri Rangappa and others A I R 1933 Mad. 9 rel.

Sardar Muhammad Iqbal and Sardar Shah Bukhari for Appellants.

Mian Mahmud Ali Qasuri and Sh. Rafiq Ahmad for Respondent.

‑This first appeal by Ghulam Khawaja and others defendants In a suit for possession of agricultural land has arisen in the following circumstances. Khan Allah Dad Khan plaintiff‑respondent is a resident of Isa Khel, District Mianwali, where he owned considerable area of agricultural land. He also owned 433 kanals and 9 marlas of agricultural land (to be hereinafter referred to as suit land') In Chak No. 561/G.B. in District Lyallpur, which Pir Shah Nawaz Shah managed as his Mukhtar.

2. On the 15th of January 1943, Pir Shah Nawaz sold the suit land managed by him for Rs. 20,500 to Ghulam Khawaja and others defendant‑appellants by means of a registered sale‑deed Exh. P. 1. On the 15th of April 1943, one Diya Ram a creditor of the plaintiff‑respondent applied in the Court of the Insolvency Judge, Mianwali, for the adjudication of the plaintiff- respondent, as an insolvent on the ground that he had committed an act of insolvency in selling the suit land. Diya Ram's application was accepted and the plaintiff was declared an insol vent and a Receiver was appointed for his estate. After taking over charge, the Receiver moved the Insolvency Judge by means of an application under section 53 of the Provincial Insolvency Act, praying that the aforesaid sale of the suit land in favour of the defendant‑appellants be set aside. By his order dated the 10th of December 1945, Mr. Sham Lal, the Senior Sub‑Judge, who was also the Insolvency Judge, accepted the Receiver's application, holding that the sale was fictitious, and without con sideration and, therefore, null and void. The defendant‑appellants (vendees) appealed against this order, but their appeal was dismissed by the District Judge. Feeling aggrieved, they filed a second appeal in the High Court, which was also dismissed on the 1st of March 1948. It is an admitted fact that in spite of the order of the Insolvency Judge, setting aside the sale, the Receiver did not take possession of the suit land which remained in the possession of the defendant‑appellants. In compliance with the order of the Insolvency Judge, setting aside the sale, the suit land was mutated in the name of the plaintiff on the 30th of June 1949, but the defendants continued to be in possession of it. On the 18th of October 1950, the Insolvency Judge, passed an order under section 35 of the Provincial Insolvency Act, annulling the insolvency and directing that the property would remain vested in the Official Receiver for a year.

3. On the basis of the order of the learned Insolvency Judge, dated the 10th of December 1945, Muhammad Allah Dad Khan plaintiff‑respondent moved the Insolvency Judge for being put in possession of the suit land. The Insolvency Judge, Mianwali, in spite of admitting the plaintiff's claim did not proceed further in the matter on the ground that he had no jurisdiction over the suit land, which was situated in Lyallpur District. Thereupon, Muhammad Allah Dad Khan filed the present suit at Lyallpur on the 28th of October 1953, praying for the possession of the suit land which had been transferred to the defendants fictitiously and without consideration, as held by the Insolvency Judge by his order dated the 10th of December 1945.

4. The defendants resisted the suit and pleaded that they were not bound by the order of the Insolvency Judge dated the 10th of December 1945, setting aside the sale of the suit land. They also contended that the sale was a genuine one for consideration and, therefore, the plaintiff was not entitled to its possession in spite of the order of the Insolvency Judge canceling the sale. They further contended that in case it be held that the order of the Insolvency Judge was binding on the defendants, the sale being a genuine one, the plaintiff should be ordered to indemnify them before taking possession of the suit land. In view of the pleadings of the patties, the learned trial Judge framed the follow ing issues: ‑

(1) Whether the order of the Insolvency Court, setting aside the sale of the land in dispute in favour of defendants was Illegal and void and the defendants are not bound by that (On defendants).

(2) In case it is proved that the defendants are not bound by the order of the Insolvency Court setting aside the disputed sale whether the sale of the land in dispute by the Mukhtiar of the plaintiff in favour of defendants was fictitious and without consideration (On plaintiff).

(3) In case it is proved that the order of the Insolvency Judge setting aside the sale is binding on the defendants, or that the sale was fictitious and without consideration, is not plaintiff entitled to the possession of the land in dispute (On defen dants).

(4) Whether the plaintiff admitted during insolvency proceed ings that the sale was not fictitious and was for consideration and what is its effect (On defendants).

(5) Whether the plaintiff is bound to indemnify the defend ants in case the sale is set aside. If so, to what extent

(6) Relief.

5. Issue No. 1 was decided against the defendants, the learned trial Judge holding that "the order of the Insolvency Judge, anulling the transfer for being fictitious and without consideration, is binding on the defendant‑appellants who cannot be allowed to re‑agitate the point that the transfer in their favour was not fictitious or it was for consideration."

6. While deciding issue No. 2, the learned trial Judge held that the sale in question was without consideration and fictitious. Issues Nos. 3, 4 and 5 were also decided against the defendants.

7. After having arrived at the above findings the learned trial Judge decreed the plaintiff's suit in toto. The defendants have come up in appeal.

8. At the very outset, the learned counsel for the appellants stated that in case issue No. 1 is decided against him then he has no further grounds to urge in support of his case. In fact, he confined his arguments solely to issue No. 1. Learned counsel for the appellants urged that the decision of the Insolvency Judge dated the 10th of December 1945, was on an application under section 53 of the Provincial Insolvency Act and was, therefore, not a final order. He further urged that the order in question not being final his clients are not barred from re‑agitating that the title of the suit land vests in them as bona fide vendees for consideration.

9. Learned counsel for the respondents urged that although the application was described to be one under section 53 of the Provincial Insolvency Act, the proceedings in fact were under section 4 of the Act. In order to appreciate the argument, it would be advantageous to reproduce the issue framed in the proceedings referred to above. The issue is: ‑

"Whether the sale, dated the 15th January 1943, on behalf of the insolvent in favour of the respondents is fictitious, collusive and without consideration and whether it is liable to be set aside under section 53 of the Insolvency Act

It would also be useful to reproduce the concluding portion of the order which is as follows: ‑

"I, therefore, hold that the sale of the squares of land by the insolvent in favour of the respondents is fictitious and without consideration and thus null and void as against the creditors and the Official Receiver."

10. A perusal of the issue and the concluding portion of the Insolvency Court's order given above would show that the question for determination before Mr. Sham Lal was whether the transfer in question was a mere paper transaction or a genuine one. The question being, one of title could be gone into only under section 4 of the Provincial Insolvency Act, which is wide enough to cover such questions. Padamsi Premchand and others v. Laxman Vishnu Deshpande and others (A I R 1949 Bom. 129) may be referred to in support of this view, wherein it was observed: ‑‑

"In this particular case the Receiver challenged these three deeds of transfer on the ground that they were nominal and fictitious transactions and that they were not intended to transfer the real interest of the insolvent in the properties. Therefore, on the allegation of the Receiver no title passed under these deeds of transfer to the transferee. These transac tions were not voidable but they were void. These transactions were not valid in their inception and at no time did they transfer any title to the transferee. In our opinion transactions which are challenged on the ground of their being fictitious or nominal do not fall within the ambit of section 53. If they do not fall within the ambit of section 53 then section 4 is wide enough to confer upon the Insolvency Court's jurisdic tion to decide whether these transactions were in fact nominal or fictitious."

11. It is an admitted fact that the defendant‑appellants filed an appeal against the order of the Insolvency Judge, dated the 10th of December 1945, in the Court of the District Judge Mianwali. Their appeal was dismissed. They then went up in second appeal to the High Court, which was also dismissed. A perusal of sections 4 and 75 of the Provincial Insolvency Act would show that a second appeal was competent only if the relevant application had been treated by the Insolvency Judge as an application under section 4 of the Insolvency Act. After carefully considering the material on the record, we are of the opinion that the application of the Receiver was treated by the Insolvency Judge as an application under section 4 of the Insolvency Act. The order of the Insolvency Judge, was, therefore, a final order. It is not open to the defendant‑appellants to re‑agitate the matter which had been finally decided by the Insolvency Judge. Section 11, C. P. C. would debar them from taking up this position. The following observation of Sulaiman, J. in Mst. Mahrana Kunwar v. E. V. David, Official Receiver (A I R 1924 All. 40) may be referred to in support of this view: -

"In my opinion section 4 of the Act is an enabling section and confers full power on the Insolvency Court to decide all questions of title or priority or of an, nature whatsoever which arise before it, or which it may deem necessary to decide Sub-clause (2) makes "such" decision final and binding for all purposes on all claimants against him. In reality section 5 gives to the Insolvency Court the powers of a Civil Court is to be noted that prior to the passing of this Acts there was a conflict of opinion between this Court and the Calcutta High Court, the view prevailing in the latter Court being that questions of title could be disposed of by a regular suit only. Obviously the enactment of section 4 gives effect to the view which prevailed in this Court. I accept the contention of Dr. Katju that under the new Act if a question of title has been actually raised by a stranger to the Insolvency and decided by the Insolvency Court, the decision is final and the question cannot be re‑opened in a separate regular suit."

Sulaiman, J.'s above view was accepted and followed by a Full Bench of the Allahabad High Court in Haji Anwar Khan v. Muhammad Khan and others (1929 All. 105). Dalal and King, JJ., concurred and held that if the matter is once decided even against a stranger by the Insolvency Court, the jurisdiction of the Civil Court would be barred under section 11, C. P. C., Sen, J., however, dissented from this view. The view of the Allahabad Full Bench referred to above was considered and followed by a Division Bench of the Lahore High Court in Ram Ditta Mat Bhalla v. Official Receiver, Lahore and others (A I R 1934 Lah. 365). Agreeing with Agha Haider, J., Tek Chand, J., observed: as follows: -

"I agree in the order proposed by my learned brother. I have no doubt with the view of law taken by the majority in Anwar Khan v. Muhammad Khan 1929 All. 105 and by the Calcutta High Court in Badhakishan v. Official Receiver A I R 1932 Cal. 662."

12. If it be held for the sake of argument that the proceed ings in the Insolvency Court were under section 53 of the Provincial Insolvency Act, even then the defendant‑appellants cannot be allowed to re‑open in this suit the points decided by the Insolvency Judge. [See Chella Rangappa v. Yerravenkatagiri Rangappa and others (A I R 1933 Mad. 9)]. The facts of the case were that the Official Receiver challenged an alienation under section 54 of the Provincial Insolvency Act. His application was rejected by the Insolvency Judge. A creditor then applied under section 4 or the Provincial Insolvency Act and asked for a declaration that the sale was in fraud of other creditors. The Insolvency Judge dismissed the petition holding that the creditor was debarred from doing so. The creditor then went up in appeal. It was argued on his behalf in the High Court that section 11, Civil Procedure Code, does not apply to Insolvency proceedings which are not suits, Relying on Ram Kirpal Shukul v. Mst. Rup Kauri (11 I A 37), G. H. Hook v. Administrator‑General of Bengal and others (A I R1921 P C 11) and T. B. Ramchandra Rao and another v. A. N. S. Ramchandra Rao (A I R 1922 P C 80), Jackson and Mockett, JJ., held that section 11, C. P. C., is not exhaustive and the binding force of a previous judgment depends not upon section 11, C. P. C., but upon general principles of law, which apply to proceedings in Insolvency Courts. The appeal was dismissed.

13. After considering the entire material on the record we are of the opinion that the application of the Receiver was treated as one under section 4 of the Provincial Insolvency Act. The proceedings, therefore, were final. It is not open to the defendant‑appellants to re‑open the matter which had been finally adjudicated upon. The defendant‑appellants are debarred from doing so under section 11 of the C. P. C. They are also debarred from taking up this position under the general law, as held by Jackson and Mockett, JJ. in Chella Rangappa v. Yerravenkata giri Rangappa and others.

14. Let it be assumed for the sake of argument that the proceedings in the Court of the Insolvency Judge were under section 53 of the Provincial Insolvency Act. Even then the defendant‑appellants are debarred from re‑opening the question of the nature of the sale after it had been adjudicated upon by the Insolvency Judge. It is provided in section 41 of the Evidence Act, which deals with judgments in insolvency proceedings, that judgment, order, or decree of a competent Court in such matters has the effect of a judgment in rem. See the following authorities

(1) Bansiram v. Firm Anandi Ram Mohan and others A I R 1935 Pat. 273.

(2) Pita Ram v. Jujhar Singh I L R 39 All. 628.

The following observations on pages 629 and 630 of the report deserve consideration: ‑

"The question for our determination is whether under such circumstances, when a claimant who alleges that his property has been wrongly seized under the jurisdiction conferred upon the Insolvency Courts, and who has two alternative remedies for litigating his grievance, can be allowed, after having adopted one alternative and having failed upon the merits, to begin again and to raise the same Issues in another Court. So stated, the proposition would seem to admit of but one answer.

We have come to the conclusion that the decision of the Munsif was right and that it can be justified on several grounds. In the first place, we think the decision of the Insolvency Court amounts to conclusive proof as to the title fn respect of the specific things claimed by the applicant not merely as against him, but absolutely, within the meaning of section 41 of the Evidence Act."

(3) Irshad Hussain v. Gopi Nath I L R 41 All. 378. The head note may be usefully reproduced: ‑

"Upon certain property, namely, a share in a house having been attached by a receiver in insolvency as the property of the insolvent a claim thereto was preferred by the son and nephew of the Insolvent, who filed an application under section 22 of the Provincial Insolvency Act 1920. Evidence of the title of the applicants was produced before the Insolvency Court; but the application was rejected, and an appeal from the order of rejection was dismissed on the merits. The applicants then filed a regular suit for a declaration of their title to the same property.

"Held, that the suit was barred by reason of the previous order of the Insolvency Court."

(4) Bhai Prasad v. Mr. S. P. Dass Vakil Receiver 51 I C 113.

15. After carefully considering the arguments of the parties, we are of the opinion that Mr. Sham Lal's order dated the Nth of December 1945, is final and the matter decided therein could not be re‑opened in the present suit. We, therefore, dismiss this appeal with costs.

K.B.A

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