The Nedungadi Bank Ltd. vs The Official Assignee of Madras

Kumaraswami Sastri, J.—This is an application by the Nedungadi Bank Ltd. for an order directing the Official Assignee to deliver

possession of five motor cars specified in the application and to pay Rs. 44 which is alleged to be the amount realized by the sale of one motor car

which was sold by the Official Assignee.

The affidavit in support of the application sets out that the insolvent Audisesha Nayudu was the proprietor of the City Taxi Company that he

obtained an over-draft from the bank on the terms set out in a deed dated the 1st of June 1926, by which it was inter alia provided that the bank

should allow accommodation to the insolvent to the extent of Rs. 5,000 on the security of six motor cars described in the schedule to the registered

deed that the bank became the mortgagee of the six cars to the extent of the advances made that the deed also provided that the bank would be

entitled to take possession of the oars whenever desired by it that one Sambamurthi claiming to be a creditor of the insolvent filed C.S. No. 69 of

1928 on the file of this Court for the enforcement of his claim in that suit, and Mr. K.G. Ramaswami Ayyangar Advocate was appointed receiver

of the properties belonging to the insolvent and the receiver took possession of the cars which had been mortgaged to the bank that the bank on

being informed of it wrote to the receiver on the 22nd of June 1928 demanding Rs. 2,225-3-11 due to the bank and asking that it should be paid

on or before the 1st of July 1928, and stating that in default possession would be taken that the receiver applied for further time on the 26th of June

1928 which was refused by the bank, that subsequently Audisesha Nayudu was adjudicated insolvent on the 10th of July 1928, that the Official

Assignee had taken possession of the cars from the receiver that the bank called on the Official Assignee to give possession of the cars that one of

the cars was sold by the Official Assignee for Rs. 44 and that the other cars are still with the Official Assignee.

The Official Assignee states that he is not aware of the claim of the bank, that the insolvent carried on the business of hiring motor cars in this

City under the name of the City Taxi Company and for the purpose of that business he purchased and registered cars in his own name and the cars

remained in his possession till the date of his adjudication that under the deed of mortgage, dated the 1st June 1926, the cars were allowed to

remain in the possession order and disposition of the insolvent with the consent of the bank, the insolvent being the reputed owner there or, that the

receiver was appointed with a view to run the business under the guidance of the insolvent and pay certain creditors specified in the order including

the bank that the appointment of the receiver has not the effect of changing the ownership of the insolvent over the cars that the acts of insolvency

mentioned in the petition began from April 1928 and the adjudication of the 10th of July relates back to April, that the insolvent was the reputed

owner of the cars and that the bank has no claim. He says he did not take possession of one car No. 6118.

The deed of mortgage dated the 1st of June 1926 has been marked as Exhibit A. It provides that the bank shall have a first charge on the motor

cars and that the bank may at any time require possession to be delivered to it. It also empowers the bank to take possession of all the cars in case

the amount due is not paid when demanded. It also provides that if the mortgagor commits any breach of the agreement or if he commits any acts

of insolvency or assigns his estate for the benefit of his creditors the bank is entitled to enter on the premises and take possession of the cars.

It is not disputed that the cars were left in the possession of the insolvent nor is it disputed that on the 12th of April 1928 a receiver was

appointed to manage and run the business. The receiver application was opposed, but ultimately a receiver was appointed. The receiver was to be

in charge of manage and run the business of the City Taxi Company he was to be guided by the advice of the Defendant in the running of the

business and he was directed to make payments from the net earnings of the business to the creditors named in the counter-affidavit. It was also

ordered that all the stock and good will of the company shall vest in the receiver.

This order (Exhibit B) was passed on the 12th of April 1928. The receiver wrote to the bank Exhibit C on the 5th of May 1928 intimating that

he had taken possession. The bank wrote Exhibit D on the 7th of May asking for a copy of the order of Court appointing the receiver. On the 8th

of June, the receiver wrote Exhibit E enclosing a copy of the order. On the 22nd of June, the bank wrote Exhibit F to the receiver sending him a

copy of the mortgage deed (Exhibit A) and asking for payment by the 1st of July and threatening to take possession if the payment was not made

by the 1st of July. On the 26th of June, the receiver wrote Exhibit G stating that the financial position of the company prevented him from making

payment as desired by the bank, that he was running the business under the orders of the Court that he had been directed to pay certain creditors

including the bank and requesting the bank to wait for some time and stating that he would pay the amount in easy installments from the collections.

On the 28th of June the bank wrote Exhibit H stating that it could not wait any longer unless it knew something definite about the date of closing the

loan. On the 3rd of July the receiver wrote Exhibit J stating that he hoped to pay something from the collections every month and that the bank

could not take possession because the goods had vested in him as receiver.

On the 26th of June, the petition for adjudication was filed. On the 10th of July, the debtor was adjudicated. On the 30th of July, notice went to

the bank informing it of the adjudication.

It is contended for the bank that by reason of the vesting of the property in the receiver, the order and disposition clause in Section 52 of the

Act does not apply as the property was in custodia legis that the bank had prior to the insolvency petition given notice that it would take

possession and that any subsequent possession by the receiver being wrongful the property was not with the consent of the bank in the possession

of the Defendant even assuming that the receiver''s possession was the possession of the Defendant.

I am of opinion that Section 52 does not apply as the property was not in the possession order and disposition of the debtor either at the date of

the presentation of the petition or at the date of adjudication. There is no evidence of any acts of insolvency committed before the petition so as to

make the adjudication relate back.

I am of opinion that the appointment of a receiver removes the property from the possession of the insolvent. In Taylor v. Eckersley (1877) 6

Ch.D. 740. it was held that the order and disposition clause did not apply when the property was taken possession of by the receiver appointed by

Court. In Fletcher v. Manning (1844) 12 M. and W. 571. it was held that goods mortgaged before insolvency and which were at the time of

bankruptcy in the hands of the Sheriff under an execution against the bankrupt were not under the order and disposition of the insolvent.

It has been argued by the Respondent that, as the receiver appointed did not give notice to all the debtors the property must be deemed to

have remained in the order and disposition of the insolvent and reference has been made to Butter v. Everett [1895] 2 Ch. 872. and In re Neal,

Expert the Trustee [1914] 2 K.B. 910. In the present case, the property is tangible movable property and unlike debts notice to the debtor is

unnecessary to complete the title of the transferee.

It has also been argued that the Court had no jurisdiction to appoint a receiver in C.S. No. 69 of 1928, which was a simple claim for money

and reference has been made to Chockalingam Pilal v. Pichappa Chettiyar (1925) 22 L.W. 579. I have in C.S. No. 473 of 1928 dealt with all the

authorities on the subject and come to the conclusion that under Order XL, Rule 1 of the CPC the Court has power to appoint a receiver even in

case of simple mortgages. I am also of opinion that when an order has been made by a Court and the receiver takes possession, it is not open to

third parties to question the legality of the possession of the receiver so long as the order appointing the receiver is in force.

It is argued for the bank that the notices sent by the bank to the receiver demanding possession put an end to the right of the mortgagor to

remain in possession and that where notice is given of the determination to take possession conferred by the deed of mortgage it is sufficient to

take the property out of the order and disposition of the insolvent. In view of my decision on the first contention as to the effect of the appointment

of a receiver, I think it unnecessary to decide this question.

I allow the application except as to car No. 6118 of which the Official Assignee did not take possession with taxed costs payable out of the

estate. The assignee will take the taxed costs of the application out of the estate.