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Judgment
Venkatadri, J.—This Letters Patent Appeal is preferred against the judgment of Kailasam, J, in A.A.A.O. No. 1 of 1960, arising out of an application made by the Official Receiver of West Tanjore in I.P. No. 7 of 1956 questioning a sale deed dated 27th August 1956, executed by the insolvent Balakrishna Naidu. The Official Receiver in his petition asked for the annulment of the said sale deed in favour of the appellant herein (purchaser) in respect of the property described in the schedule to the petition. The contentions of the Official Receiver were the following. The property was easily worth Rs. 40.000, but it was sold for Rs. 32,000. The purchaser knew fully the involved circumstances of Balakrishna Naidu. The transaction is liable to be impugned and set aside under Ss. 53 and 54 of the Provincial Insolvency Act. The appellant opposed this petition by alleging that when he purchased this property the proceedings in insolvency were closed and contending that the petition was barred by res judicata by virtue of the decision in O.S. No. 140 of 1957, which arose out of execution proceedings in E.P. No. 107 of 1956 and that the sale was bona fide, made in good faith and for valuable consideration and it was not open to question. The learned Subordinate Judge who tried this interlocutory application (I.A. No. 178 of 1958) and the learned District Judge and Kailasam J. who heard the appeals C.M.A. No. 15 of 1959 and C.M.S.A. No. 1 of 1960. respectively, gave concurrent findings that the property is admittedly worth over Rs. 40,000 and in fact one of the creditors P.W. 3 offered to purchase the property for Rs. 45000 and that the property was not sold for proper consideration. They further held that it was not a bona fide transaction as it was brought about with a view to defeat and delay the creditors of Balakrishna Naidu, the insolvent, that the petition of the Official Receiver is maintainable as the proceedings in insolvency had not terminated and that the petition is not barred by res judicata as in the previous proceedings the Official Receiver was neither represented nor given any notice of the same. Kailasam J., agreeing with the findings of the Courts below confirmed the order setting aside the sale in favour of the appellant. It is against this judgment the purchaser has preferred this Letters Patent Appeal. Learned Counsel for the appellant advanced before us the same arguments that were addressed before Kailasam, J. Taking the first question about the value of the property, admittedly, the property is situate in the heart of Kumbakonam opposite to Gandhi Park and the Town High School. It has been established that the value of the property would be much more than the price mentioned in the sale deed. Oralevidence of P.Ws. 1 to 3 has been let in to prove that the property could be sold for Rs. 45,000. The Subordinate Judge of Kumbakonam who tried the petition of the Official Receiver observed that these witnesses were men of substantial worth and one of them offered to pay Rs. 45,000. Kailasam, J. accepted their evidence and confirmed the finding that the property was worth over Rs. 45,000.
In regard to the transaction itself before deciding whether it is bona fide or not, we have to consider in detail the circumstances under which the sale deed was executed in favour of the appellant. The insolvent Balakrishna Naidu and his minor brother Kannan were running a coffee hotel in the property that was sold. The transaction was brought about through a broker and erstwhile vakil gumastha. He was examined as R.W. 1 in the application and he gave the necessary details connected with the sale. His evidence was not believed by the learned Subordinate Judge. The intrinsic evidence furnished by the sale deed itself, throws some doubt about the consideration for the sale deed. In the deed the purchaser was directed to discharge several mortgage debts and decree debts. It has been found by all the Courts that the purchaser paid about Rs. 8000, towards these decrees and mortgage debts and the other debts mentioned in the sale were not at all discharged. The purchaser was also directed to return the advance taken by the insolvent from the tenants in the house. But the purchaser did not return the amounts and the receipts obtained by him, namely, Exs. B-8 to B. 10, only show that he had appropriated the amounts by way of advance. The balance of Rs. 3235 is said to have been paid in cash to the insolvent Balakrishna Naidu, but it was observed by the Subordinate Judge that the evidence adduced on this aspect of the case is so flimsy and meagre that it is not worthwhile to act upon it. Another direction given in the sale deed is that a sum of Rs. 15,000 should be deposited in the Indian Batik in the name of the minor Kannan as representing his share. Admittedly, the purchaser did not deposit this sum in the name of the minor. But it is seen from Ex. B-17 that the deposit was made in the name of his power agent Mohammed Mustafa, "Rahman House" Vadakkari, Post, in the Indian Bank Ltd., Mayuram:
Though the consideration for the sale deed is Rs. 32,000, the actual amounts the purchaser parted with were only the following, namely, Rs. 4000 deposited by him to the credit of O.S. No. 59 of 1956 as per orders of the High Court, Rs. 2175, paid for discharging a Small Cause Court decree debt and another sum of Rs. 1650 paid in discharge of the decree in O.S. No. 192 of 1954, on the file of the District Munsif''s Court, Kumbakonam. The rest of the sale price was not paid by the purchaser, but on the other hand, directly or indirectly the purchaser, retained the balance of the sale price with himself. Therefore, the finding that not only the sale is for an inadequate price, but the transaction is not bona fide finds ample support for the evidence and the circumstances. It has also been found that the property was sold when Balakrishna Naidu, the vendor, was heavily indebted.
The next contention of Mr. R. Gopalaswami Aiyangar is that when once the insolvency proceedings have terminated, the Official Receiver has no locus standi to file the petition. It is an admitted fact that in the insolvency proceedings the insolvent was not discharged. After adjudication he was given time for discharge till 3rd December, 1957, and thereafter time was extended from time to time to enable the insolvent to apply for discharge. On 8th July, 1958, the Official Receiver submitted a report to the Subordinate Judge, Kumbakonam, that one creditor Lakshmanan Pillai was willing to finance the Official Receiver for taking steps to set aside the alienation of the insolvent and that he had also deposited a sum of Rs. 1000 and executed an indemnity bond for Rs. 1000 praying for steps being taken for setting aside the said alienation. This was accordingly extended at the instance of the Official Receiver by one year, that is, till 3rd June 1959. We are, therefore, unable to see how the insolvency proceedings can be said to have terminated. Proceedings in insolvency can be terminated by any one of the following modes, namely, (i) by discharging the receiver; (ii) by the insolvent applying for discharge and (iii) by annulment of adjudication. None of these things had happened with regard to the insolvency proceedings. On the other hand, the proceedings were kept pending. We are, therefore, not inclined to agree with the contention of Mr. Gopalaswami Aiyangar that the Official Receiver has no locus standi to maintain the present application questioning the sale deed in favour of the appellant.
In regard to the last contention raised by Mr. Gopalaswami Aiyangar, that the petition filed by the Official Receiver is barred by res judicata in view of the decision in O.S. No. 140 of 1957, on the file of the District Munsif''s Court, Kumbakonam, it is necessary to state a few facts before deciding whether really the petition is barred by res judicata. One creditor obtained a decree against Balakrishna Naidu in S.C. No. 67 of 1956, on the file of the Subordinate Judge''s Court, Kumbakonam, and the decreeholder attached this property and brought it to sale In E.P. No. 107 of 1956. By that time the appellant had purchased this property from the said Balakrishna Naidu. The appellant preferred a claim petition and there was an enquiry after which the petition was allowed by the learned Subordinate Judge of Kumbakonam. Thereupon the decreeholder in S.C. No. 67 of 1956 filed O.S. No. 140 of 1957, on the file of the District Munsif''s Court, Kumbakonam, to set aside the claim order. But finally the suit itself was dismissed. It is now argued by Mr. Gopalaswami Aiyangar that the suit O.S. No. 140 of 1957 was filed in a representative capacity and the judgment and decree passed therein would constitute res judicata and would effectively bar the maintainability of the present petition by the Official Receiver. But the learned Counsel forgets the fact that the Official Receiver was not a party to O.S. No. 140 of 1957. There is no evidence on record to show that any notice of these proceedings was served on the Official Receiver or any attempt was made to implead him as a party to the suit. It is true that if the Official Receiver had been made a party or if notice had been served on him and yet he did not take any steps to defend the suit, the decision in that suit would bind him and would operate as res judicata. The cases cited by the learned Counsel, namely, Gannamani Ramanna as representing the General Body of Creditors in I.P. No. 20 of 1936, District Munsif Court Vs. Donga Suramma, and AIR 1937 4 (Lahore) , will not be of any help to him. The facts in these cases clearly disclose that notice of the suits was served on the Official Receiver and he was made a party to the suit but he did not participate in the proceedings. In those circumstances, it was held that once the title to the property of the insolvent was under litigation, the Official Receiver should be vigilant, active and alert and if he had allowed the proceedings to result in adverse finding, subsequently he cannot himself file an application once again re-agitating the title of the insolvent. Therefore, there is no substance in the contention that the petition filed by the Official Receiver is barred by res judicata by virtue of the decision in O.S. No. 140 of 1957, since he was not a party to that suit. It has been held in Kunaravan v. Rama-swami 65 M.L.J. 87 = 38 L.W. 16 (P.C.), that for applying the principle of res judicata, especially Explanation VI to S. 11, C.P.C., the observance of all the requirements of the rule is essential, and unless its provisions are strictly complied with, the rule will not be applicable and that persons interested in the right will not be bound unless they are on the record.
The sale has been set aside only in respect of the half share of Balakrishna Naidu. There is no cross-appeal preferred by the Official Receiver.
For the reasons stated we are in entire agreement with the conclusion reached by Kailasam J., that the sale deed executed by Balakrishna Naidu in favour of Jakiria Sahib is not valid and binding on the Official Receiver as lacking good faith and on the ground of inadequacy of consideration. The appeal is accordingly dismissed with costs.