Indersain etc. vs Insolvency Judge etc.

D.B. Lal, J.—This is a petition by Indersain and seven other creditors, in an insolvency case, under Article 227 of the Constitution, with a prayer that the sale sanctioned by the Insolvency Judge, Simla (Respondent No. 1) at the instance of the Official Receiver (Respondent No. 2) which was held on 10th January, 1973, be set aside and cancelled, being arbitrary, unwarranted and vitiated by fraud and collusion.

The facts giving rise to the petition are these. Insolvency case No. 1 of 1967 was instituted for adjudication of the Respondents 4 to 6 as insolvents on 23rd March, 1967. The order regarding adjudication was made by the Insolvency Judge on 8th March, 1968. The insolvents owned land measuring 98 kanals jointly in Tikka Dhanot, village Ghengesh, Chak Balihar, Tehsil Dehra Gopipur (District Kangra). After the order of adjudication, this landed property vested in the Respondent No. 2 who was appointed Official Receiver. Besides the aforesaid landed property, the insolvents also possessed a shop in the bazar area of Jawalamukhi and that too vested in the Official Receiver. The Respondent No. 3 Amar Chand Sood who is a step brother to insolvent-Respondents 4 and 5, made an application before the Official Receiver (Respondent No. 2) that they being step-brothers of the applicant, he was eager to retain the property in the family. As such he offered to purchase the said landed property along with the shop at a price of Rs. 18,000/- (Rs. 16,000/- for the landed property and Rs. 2,000/- for the shop). This application was moved on 3rd January, 1973. The Official Receiver (Respondent No. 2) forwarded the application to the Respondent No. 1 the Insolvency Judge on 9th January, 1973, and the order was made on 10th January, 1973, that the two properties should be sold to Respondent No. 3 at a cost of Rs. 21,000/- (Rs. 19,000/- for the landed property and Rs. 2,000/- for the shop). According to the Petitioner-creditors, the order regarding sale is vitiated being illegal, void and without jurisdiction. It is also vitiated by fraud and collusion between the insolvents and the Official Receiver. The usual method of sale was by public auction. The creditors were deliberately avoided to participate in the sale. No publicity was at all given and the properties were surreptitiously purchased by Amar Chand Sood. The whole procedure was to defraud the creditors. On 8th May, 1973, one Prem Chand offered Rs. 35,000/-for the same property. Similarly one Dr. Kirpa Ram Sood offered to purchase them at a cost of Rs. 40,000/- and even more. These creditors, however, contended that the sale was sanctioned without their knowledge and as no public auction took place, the bidders could not be attracted. In fact the Petitioners came to know about the sale on 26th of April, 1973, when it was much too late to take any proceeding in the court, and accordingly they filed the present petition to set aside the sale.

The Official Receiver gave his affidavit in reply to the petition. He denied that any fraud or collusion existed between him and the insolvents. According to him, the property was sold in pursuance of the order of the Insolvency Judge and the price was also fixed by him. Thus, according to him, the petition is not maintainable.

The affidavit dated 10-6-1974 of Dr. Kripa Ram Sood, who is one of the creditors, discloses that one Prem Chand Sood made an application to the Insolvency Judge that he was prepared to purchase the properties at a price of Rs. 35,000/-. The deponent himself, however, was prepared to purchase it at Rs. 40,000/-. He also alleged fraud and collusion between the parties to defeat the creditors. According to him, the property should have been put to public auction. In fact, the deponent had made a request to the Official Receiver that a date for public auction should be fixed. Despite that request the Official Receiver submitted his report and obtained the order of the Insolvency Judge.

There are also two applications by Dilbagh Singh and Siddhu Ram who appear to be cultivators within the landed property and they are prepared to purchase it at Rs. 500/- per kanal. According to the order of the Insolvency Judge, the property was sold at Rs. 212.40 np. per kanal which-appears to be inordinately low. The report of the Official Receiver dated 9-1-1973 indicated that 5 years average worked out by the Patwari was Rs. 212.40 np.. per kanal. But no document is to be found on the record disclosing that 5 years average. Rather there are three reports of the Patwari of that area and these reports are filed by the Petitioners, According to one report dated 23-3-1974, the 5 years average per kanal was Rs. 696.40 np, while the other two reports indicated it to be Rs. 477.40 np. (dated 15-2-1974) or Rs. 26,500/- (dated 12-6-1961) for the landed property in dispute belonging to the 2 insolvents Rattan Chand and Chhangan Mal (Respondents 4 and 5). It is, therefore, evident that the report of the Official Receiver that the 5 years average was merely Rs. 212.40 np. was based on no evidence. The Insolvency Judge naturally relied upon that report and fixed the price at Rs. 19,000/- for the landed property. It is more than clear that the properties were sold at an inordinately low price.

As observed by their Lordships in P. Srinivasa Naicker Vs. Smt. Engammal and Another, the grounds for setting aside a sale may be the fraud or collusion between the receiver and the insolvent, besides gross irregularity committed in the conduct of sale which have affected the price fetched, and the inordinately low price thus received will give an additional ground to indicate the said fraud and collusion. Therefore, from the material on record sufficient grounds existed for setting aside the sale which would ordinarily have been set aside by the Insolvency Judge himself had the facts been brought to his notice.

The learned Counsel however contended that the sale by the Receiver is not a Court sale but a private sale. From this, he infers that a sale by a private negotiation was not illegal. It may not be so. But the circumstances made out definitely indicated that a deviation was made from public auction to facilitate the purchaser. The price received was inordinately low. A hurried attempt was made to get the sale approved. The entire body of creditors has, of course, suffered and in public interest the sale must be set aside. In this connection, it was strenuously argued on behalf of the Respondents that the power of superintendence by the Court under Article 227 cannot be invoked and whatever order was made by the insolvency Judge cannot be set aside. In the alternative, it is pleaded that the sale by the Receiver u/s 59(a) of the Provincial Insolvency Act could be appealed to court u/s 68 within 21 days from the date of the sale. Thereafter from the decision of the court, a revision or appeal could be laid before the High Court or before the District Judge. Instead of following that remedy the Petitioners have come up under Article 227.

It is true that Article 227 is an extraordinary remedy by way of superintendence given by the Constitution and the Court will only interfere in cases disclosing jurisdictional or serious legal infirmity causing injustice and not remediable by any alternative legal proceeding. Reliance is placed on Prithi Singh Jain Vs. Hema Chand Jain and Another, Dhian Singh and Another Vs. Collector, But in the present case, the finding of the learned Insolvency Judge was based on no material because the 5 years average was not Rs. 212.40 np. but rather it was much more, The Official Receiver submitted a wrong report and this resulted in miscarriage of Justice. In fact Prem Chand and Dr. Kripa Ram Sood had both asked the Official Receiver to sell the property by public auction. They were prepared to offer nearabout Rs. 40,000/-. The Official Receiver could have brought these facts to the notice of the Insolvency Judge. Inference can be drawn against him in the circumstances. He may not have committed fraud in person, but a fraud did creep in within the proceedings. He may have given his report with the best of intention, but he committed a serious error and did not take note of the offer of Prem Chand and Dr. Kirpa Ram Sood. As a man of prudence he should have at once thought of a public auction rather than a sale by private negotiation. The report was submitted on 9-1-1973 and the decision of the court was obtained on 10-1-1973. Thus a jurisdictional error was even committed by the Insolvency Judge as the required precaution was not observed. There is indication of fraud and collusion from the record, although there may not be anything personal so far as the Receiver or the Insolvency Judge were concerned. In fact the order of the Insolvency Judge was based on no evidence in the eye of law.

The order regarding sale was brought to the notice of the Petitioners on 26-4-1973 and they have testified this fact on their affidavit. As such the period of 21 days long expired and no appeal could be filed before the court u/s 68. When that appeal was barred, no appeal was to be laid before the District Judge. Similarly a revision could not be filed as a revision could only be directed against a decision of the District Judge. Thus the Petitioners were left without any remedy. In fact it is wrong to submit that any alternative remedy was at all amenable to the Petitioners.

For these reasons, I am contident to say that the sale effected by the Insolvency Judge on 10-1-1973 need be set aside. The petition is allowed and the sale of the disputed property effected by the Insolvency Judge on 10-1-1973 set aside. The Official Receiver as well as the Insolvency Judge are directed to proceed with re-sale of the property in accordance with law.

However, in the special circumstance of this case no order is made as to costs.