SANKAR RAM AND CO.versusKASI NAICKER AND ORS.

A                            SANKAR RAM AND CO.
                                          v.
                            KASI NAICKER AND ORS.

                                  JULY 30, 2003

B
         [SHIVARAJ V. PATIL AND D.M. DHARMADHIKARI, JJ.]


          Provincial Insolvency Act, 1920:

C          Ss. 28, 55 and its Proviso:

          Insolvency Petition by the debtor/transferor--Bonafide transferee for
    valuable consideration-Protection to-Held: When transfer of shares to the
    transferee was for valuable consideration without any notice as to the
    presentation of the Insolvency Petition by the debtor, requirements of Proviso
D   to Section 55 satisfied-Hence, entitled to protection/claim.

          Section 218/Proviso to Section 55--Protection to creditor vis-a-vis--
    Protection to bona fide transferee-Interpretation of-Held, An order of
    adjudication in an Insolvency Petition relates back to the date of its
    presentation-No word or Provision of Law could be left redundant/
E   superjluous--Boih must be given effect to by harmoniously construing-On
    construing so the bonafide transferee could be protected under the provisions
    when the conditions of Proviso to Section 55 are complied with.

          The question which arose for consideration and decision in the appeal
F was as to whether protection under Section 55 of the Provincial Insolvency
    Act is available to a bonafide transferee for valuable consideration after
    presentation of the Insolvency Petition by or against the debtor but without
    notice and before passing an order of adjudication.

          Answering the question in the affirmative and allowing the appeal,
G the Court
           HELD: I.I. The object of Section 28 of the Provincial Insolvency Act
    is to secure unrestricted right to dispose of insolvent's property after an
    order of adjudication is made. On making an order of adjudication, the
    whole of the property of the insolvent shall vest in the Court or in a
H                                        930
                SANKAR RAM AND CO. '" KASI NAICKER                      931
Receiver, as the case may be. When sub-section (I) is read along with sub-      A
section (7) of the Act, the effect would be an order of adjudication relates
back to the date of presentation of Insolvency Petition and the order of
adjudication takes effect from the date of the presentation of the
lnsolvency Petition. Consequently, vesting of property under sub-section
(2) also relates back to the date of presentation of the Insolvency Petition.   B
Combined reading of sub-sections (I), (2) and (7) makes the position clear
that the interest of the creditors is safeguarded, parties are put on notice
against attempt to transfer the property after the date of presentation of
the Insolvency Petition by the petitioners or others relating to his property
and also to warn the intending purchasers or transferees that they are
taking the risk of purchasing or getting the property transferred in their      C
names during the pendency of the insolvency proceedings from the date
of presentation of the petition itself and even before passing of an order
of adjudication. (936-D-GI

      1.2. Sections 28 and 55 of the Act are to be read together. Where
the transfer has been made by the insolvent after presentation of the           D
Insolvency Petition, the transfer cannot be held as void ab initio but its
validity or otherwise depends upon a consideration as to whether the
conditions specified under Section 55 are or are not satisfied.
                                                           [936-H; 937-AJ
                                                                                E
      1.3. It is cardinal rule of construction that normally no word or
provision should be considered redundant or superfluous in interpreting
the provisions of a statute. The Courts always presume that the legislature
inserted every part thereof with a purpose and the legislative intention is
that every part of the statute should have effect. It may not be correct to
say that a word or words used in a statute are either unnecessary or            F
without any purpose to serve, unless there are compelling reasons to say
so looking to the scheme of the statute and having regard to the object
and purpose sought to be achieved by it. Once the requirements of Section
55 of the Act are satisfied,. the appellant is entitled for the protection of
the said Section as a bona fide transferee. A contrary view takes away          G
the very protectivP. umbrella specifically made available to a bona fide
transferee covered by Section 55. Protection provided for bona fide
transfer in Section 55 is in a way exception to Section 28(7) of the Act.
Proviso to Section 55 of the Act protects bona fide transactions mentioned
in clauses (a) to (d) of Section 55. (937-C, D, F, HI
                                                                                H
    932                    SUPREME COURT REPORTS (2003] SUPP. I S.C.R.

A        Jaipur Zita Sahakari Bhoomi Bank ltd Vikas v. Shri Ram Gopal Sharma
    and Ors., JT (2002) l SC 182, followed.

          l.4. It is clear that the shares were transferred in favour of the
    appellant before the order of adjudication was made on the Insolvency
    Petition filed by the respondent and the appellant had no knowledge at
B   the time of purchasing the shares as to the presentation of the Insolvency
    Petition, the transfer of shares was for valuable consideration and such
    transfer was bona fide. In this view, the appellants did satisfy the
    requirements of proviso to Section SS of the Act and hence they are entitled
    for the claim made by them. [938-B-DJ
c         l.S. If the intention of the proviso to Section SS of the Act was not
    to proto:ct even a bona fide transferee for valuable consideration without
    notice of presentation of Insolvency Petition before an order of
    adjudication was made, the legislature could have simply said any
    transaction taking place after the date of presentation of any Insolvency
D   Petition by or against the debtor instead of qualifying the transaction that
    takes place before the date of the order of adjudication. In this situation,
    the proviso which is intended to serve a definite purpose should be given
    full meaning and effect. It is not possible to ignore a part of the provision,
    namely, "any such transaction takes place before the date of the order of
E   adjudication". It stands to reason as well, that a bona fide transferee for
    valuable consideration without the knowledge of the presentation of
    Insolvency Petition on the date of transfer of property is to be protected.
                                                                        [938-E-Gl

          CIVIL APPELLATE JURISDICTION: Civil Appeal No. 176of1997.
F
         From the Judgment and Order dated 27.9.1995 of the Chennai High
    Court in C.R.P. No. 6 of 1992.

        T.L.V. Iyer, S. Prasad, R., Gopalakrishnan and Abhay Kumar, for
    M.K.D. Namboodiri for the Appellant.
G
          Dr. A. Francis Julian (NP), Sumit Kumar and Ms. Pumima Bhat Kak
    (NP), for the Respondents.

          The Judgment of the Court was delivered by

H         SHIVARAJ V. PATIL, J. "Whether protection provided in the proviso
           SANKAR RAM AND CO. v. KASI NA!CKER [PATIL, J.]                   933
to Section 55 of the Provincial Insolvency Act, 1920 is available to a bona         A
fide transferee for valuable consideration after the presentation of any
 insolvency petition but before the date of passing of the order for adjudication
 without notice of the presentation of the insolvency petition by or against the
debtor", is the short question that arises for consideration and decision in this
appeal.
                                                                                    B
      The appellant filed petition under Section 55 of the Provincial Insolvency
Act, 1920 (for short 'the Act') for recovery of Rs.25, 155.40 with interest
from the Bank (respondent No. 2) on the ground that it had paid the said
amount on 24.8.1978 for purchase of shares belonging to the insolvent Kasi
Naicker (respondent No. I). Said Kasi Naiker had filed a petition to declare C
him as insolvent in LP. No. 7176 in 1976, which was dismissed on 25.10.1977
by the Subordinate Court, Tuticorin. He filed appeal in C.M.A. No. 116177
before the District Court challenging the order of dismissal, which was allowed
on 17.10.1978. The appellant purchased 249 shares of Rajapalayam Mills
belonging to the debtor Kasi Naicker by depositing the amount to get the
shares released in its favour with the consent of the debtor. When the bank D
neither released the share certificates nor returned the money deposited by it,
the appellant filed IA No. 6179 in LP. No. 7176 under Section 55 of the Act
for declaration that 249 shares of Rajapalayam Mills belong to it or in the
alternative to return the money with interest paid by it. The said petition was
allowed by order dated 19.10.1984 directing the bank to pay a sum of E
Rs.25, 155.40 with interest at 9% per annum from 24.8.1978 to the appellant.
Kasi Naicker filed C.M.A. No. 40/84 aggrieved by the said order made in IA
6179 in LP. 7/76 in the court of District Judge Tirunelveli. The appeal was
allowed holding that the order of adjudication dates back to the date of filing
of the petition and, therefore, any transaction by the insolvent there?fter
would n·ot birid the receiver and the appellant was not entitled to any relief. F
The appellant approached the High Court by filing revision petition in C.R.P.
6/92 in the High Court challenging the order passed by the learned District
Judge. The High Court dismissed the revision petition. Hence the appellant
has filed this appeal.

      In the trial court contentions were raised opposing IA No. 6179. It was       G
contended that the petition itself was not maintainable; that the amount was
not paid by the appellant and the benefit of Section 55 of the Act was not
available to it. Rejecting the contentions relief was granted to the appellant.
The learned District Judge in the appeal set forth following three points for
determination:-                                                                     H
    934                     SUPREME COURT REPORTS (2003] SUPP. I S.C.R.

A           ·1.   Whether the amount Rs.25, 155.40 remitted by insolvent on
                  24.8.78 with the bank ofThanjavur belongs to Srinivas Naicker,
                  proprietor of Krishna Stores or belongs to the Petitioner Shankar
                  Ram and Co.

           2.     Whether the Insolvency Court has got jurisdiction to aecide this
B                 claim.

           3.     Whether the petitioner Shankar Ram & Co. is not entitled to file
                  this petition under Section 55 of the Provincial Insolvency Act."

          The learned District Judge recorded finding on points (I) and (2) in
    favour of the appellant but held against the appellant on point No. (3). It may
C   be mentioned here that against the order passed by the learned District Judge
    no revision was filed by Kasi Naicker or others. It was only the appellant,
    which filed the revision before the High Court calling in question the validity
    of the order passed by the District Judge in holding that the protection given
    in Section 55 of the Act was not available to it. As is evident from the order
D   passed by the High Court in revision only point No. (3) was considered and
    decided. Thus the findings on point Nos. (!)and (2) have attained finality.
    This being the position it is unnecessary for us to consider the other aspects
    but to answer the question set out in the heginning.

           It is concluded that the amount was paid by the appellant to the bank
E   and not by Kasi Naicker for purchase of shares. It is a matter of record that
    the appellant purchased the shares belonging to Kasi Naicker from the bank
    on payment of money before passing the order of adjudication, declaring
    Kasi Naicker insolvent on 17.10.1978 in C.M.A. No. 116/77. It is also found
    that the appellant had no notice of the presentation of insolvency petition by
F   the debtor Kasi Naicker on the date when it purchased the shares. As already
    noticed above the trial court had allowed the claim of the appellant but the
    District Court in appeal took a view that although the order of adjudication
    was passed on 17. I 0.1978 it related back to the date of filing the insolvency
    petition in JP 7/76 in 1976 in view of Section 28(7) of the Act and as such
    the purchase of shares made by the appellant is not protected under Section
G   55 of the Act. The answer to the question depends upon the proper construction
    and interpretation of provisions of Sections 28 and 55 of the Act. Sections
    28 and 55 read: -

            "28. Effect of an order of adjudication - (I) On the making of an
            order of adjudication the insolvent shall aid to the utmost of his
H
   SANKAR RAM AND CO. v. KASI NAICKER [PATIL, J.]                     935
power in the realization of his property and the distribution of the          A
proceeds among his creditors.

(2) On the making of an order of adjudication, the whole of the
property of the insolvent shall vest in the Court or in a receiver as
hereinafter provided, and shall become divisible among the creditors,
and thereafter, except as provided by this Act, no creditor to whom           B
the insolvent is indebted in respect of any debt provable under this
Act shall during the pendency of the insolvency proceedings have
any remedy against the property of the insolvent in respect of the
debt, or commence any suit or other legal proceeding, except with the
leave of the Court and on such terms as the Court may impose.
                                                                              c
(3) For the purposes of sub-section (2), all goods being at the date of
the presentation of the petition on which the order is made, in the
possession, order or disposition of the insolvent in his trade or business,
by the consent and permission of the true owner, under such
circumstances that he is the reputed owner thereof, shall be deemed           D
to be the property of the insolvent.

(4) All property which is acquired by or devolves on the insolvent
after the date of an order of adjudication and before his discharge
shall forthwith vest in the Court or receiver, and the provisions of
sub-section (2) shall apply in respect thereof.                               E
(5) The property of the insolvent for the purposes of this section shall
not include any property (not being books of account) which is
exempted by the Code of Civil Procedure, 1908, or by any other
enactment for the time being in force from liability to attac'tment and
sale in execution of a decree.                                                p
(6) Nothing in this section shall affect the power of any secured
creditor to realize or otherwise deal with his security, in the same
manner as he would have been entitled to realize or deal with it if this
section had not been passed.

(7) An order of adjudication shall relate back to, and take effect from       G
the date of the presentation of the petition on which it is made."

"55. Protection to bona fide transactions. - Subject to the foregoing
provisions of this Act with respect to the effect of insolvency on an
execution, and with regard to the avoidance of certain transfers and          H
    936                    SUPREME COURT REPORTS (2003] SUPP. I S.C.R.

A           preferences, nothing in this Act shall invalidate in the case of an
            insolvency-

           (a) any payment by the insolvent to any of his creditors;

           (b) any payment or delivery to the insolvent;

B          (c)   any transfer by the insolvent for valuable consideration; or

           (d) any contract or dealing by or with the insolvent for valuable
               consideration:

                Provided that any such transaction takes place before the date of
            the order of adjudication, and that the person with whom such
c           transaction takes place has not at the time notice of the presentation
            of any insolvency petition by or against the debtor."

           The object of Section 28 of the Act is to secure unrestricted right to
    dispose of insolvent's property after an order of adjudication is made. This
D   Section clearly states that during the pendency of the insolvency proceedings,
    the creditor shall not commence any proceeding against the property of the
    insolvent in respect of his debt without the leave of the Insolvency Court. On
    making an order of adjudication, the whole of the property of the insolvent
    shall vest in the court or in a receiver, as the case may be, in terms of sub-
    section (2). An obligation is placed upon the insolvent to assist the Official
E   Receiver to realize the assets. Whe'n sub-section (I) is read alongwith sub-
    section (7), the effect would be an order of adjudication relates back to the
    date of presentation of insolvency petition and the order of adjudication takes
    effect from the date of the presentation of the insolvency petition.
    Consequently, vesting of property under sub-section (2) also relates back to
F   the date of presentation of the insolvency petition. Combined reading of sub-
    sections (1), (2) and (7) makes the position clear that the interest of the
    creditors is safeguarded, parties are put on notice against attempt to transfer
    the property after the date of presentation of the insolvency petition by the
    petitioners or others relating to his property and also to warn the intending
    purchasers or transferees that they are taking the risk of purchasing or getting
G   the property transferred in their names during the pendency of the insolvency
    proceedings from the date of presentation of the petition itself and even
    before passing of an order of adjudication. In the absence of such provisions,
    by design, the claims and interests of the creditors could be defeated by
    effecting transfer of properties after filing the insolvency petition and before
    passing an order of adjudication. Sections 28 and 55 of the Act are to be read
H
           SANKAR RAM AND CO. v. KASI NAICKER [PATIL, J.]                     937

together. Where the transfer has been made by the insolvent after presentation        A
of the insolvency petition, the transfer cannot be held as void ab initio but
its validity or otherwise depends upon a consideration of the question whether
the conditions specified in Section 55 are or are not satisfied. If the view of
the High Court affirming the view of the District Court that the protection of
Section 55 was not available to the appellant even on satisfying the
requirements of Section 55, the said provision, although is on the statute            B
book, does not serve any purpose or it is redundant or superfluous.

       It is a cardinal rule of construction that normally no word or provision
should be considered redundant or superfluous in interpreting the provisions
of a statute. In the field of interpretation of statutes, the courts always presume   C
that the legislature inserted every part thereof with a purpose and the legislative
intention is that every part of the statute should have effect. It may not be
correct to say that a word or words used in a statute are either unnecessary
or without any purpose to serve, unless there are compelling reasons to say
so looking to the scheme of the statute and having regard to the object and
purpose sought to be achieved by it. A Constitution Bench of this Court in            D
Jaipur Zila Sahakari Bhoomi Bank Ltd. Vikas v. Shri Ram Gopal Sharma
and Ors., JT [2002] I SC 182 while interpreting and considering the effect
of proviso to Section 33(2)(b) of the Industrial Disputes Act, 1947 in para 13
observed - "The proviso to Section 33(2)(b) as can be seen from· its very
unambiguous and clear language, is mandatory ........... Taking a contrary view       E
that an order of discharge or dismissal passed by an employer in contravention
of the mandatory conditions contained in the proviso does not render such an
order inoperative or void, defeats the very purpose of the proviso and it
becomes meaningless. It is well-settled rule of interpretation that no part of
statute shall be construed as unnecessary or superfluous. The proviso cannot
be diluted or disobeyed by an employer......... The interpretation' of statute        F
must be such that it should advance the legislative intent and ser¥e' the purpose
for which it is made rather than to frustrate it." Once the requirements of
Section 55 of the Act are satisfied, the appellant is entitled for the protection
of the said Section as a bona fide transferee. Taking a contrary view takes
away the very protective umbrella specifically made available to a bona fide          G
transferee covered by Section 55. Protection provided for bona fide transfer
in Section 55 is in a way exception to Section 28(7).

      Proviso to Section 55 of the Act protects bona fide transactions
mentioned in clauses (a) to (d) of Section 55. As per the proviso, in order to
get protection to transactions mentioned in the said Section, two conditions          H
    938                     SUPREME COURT REPORTS [2003] SUPP. I S.C.R.

A are to be satisfied - (I) that any such transaction takes place before the date
    of the order of adjudication, and (2) that the person with whom such transaction
    takes place has not at the time notice of the presentation of any insolvency
    petition. By implication flowing from the said proviso, any transaction that
    takes place after the date of the order of adjudication does not get protection
    of proviso to Section 55 whether or not the person with whom such transaction
B   takes place has any notice of the insolvency petition by or against the debtor.

           Jn the case on hand on the facts found, it is clear that the shares were
    transferred in favour of the appellant before the date of the order of adjudication
    was made on the insolvency petition filed by Kasi Naickar and the appeilant
C   had no knowledge at the time of purchasing the shares as to the presentation
    of the insolvency petition, the transfer of shares was for valuable consideration
    and such transfer was bona fide.

           Jn this view, the appellants did satisfy the requirements of proviso to
    Section 55 of the Act and hence they are entitled for the claim made by them.
D   We may add that Sections 28 and 55 must be read together harmoniously. As
    already noticed above, these Sections are designed and intended to serve
    different purposes. In the proviso to Section 55 itself, there is reference to
    order of adjudication and the presentation of any insolvency petition. Order
    of adjudication and presentation of insolvency petition are two different events
    essentially referring to two different dates when in the same proviso, legislature
E   consciously made a clear statement as to two different dates, they should be
    given effect to. If the intention of the proviso to Section 55 of the Act was
    not to protect even a bona fide transferee for valuable consideration without
    notice of presentation of insolvency petition before an order of adjudication
    was made, the legislature could have simply said any transaction taking place
F   after the date of presentation of any insolvency petition by or against the
    debtor instead of qualifying the transaction that takes place before the date
    of the order of adjudication. In this situation, the said proviso which is intended
    to serve a definite purpose should be given full meaning and effect. It is not
    possible to ignore a part of the provision, namely, "any such transaction takes
    place before the date of the order of adjudication". It stands to the reason as
G   well, that a bona fide transferee for valuable consideration without the
    knowledge of the presentation of insolvency petition on the date of transfer
    of property is to be protected.

          In view of the facts found, discussion made and reasons recorded above,
H we are unable to sustain the impugned judgment of the High Court affirming
           SANKAR RAM AND CO. v. KASI NAICKER (PATIL. l.)                   939

the order of the District Court. We answer the question set out above in the        A
affirmative and in favour of the appellant. Hence, the appeal is allowed. The
impugned judgment of the High Court affirming the order of the District
Judge is set aside and that of the trial court is restored. Parties to bear their
own costs.

S.K.S.                                                         Appeal allowed.      B