Holding

An unconditional annulment of insolvency restores the insolvent’s rights retrospectively, validating his notice and suit, and the original reconveyance agreement remains enforceable; the High Court erred in deciding issues not raised and in finding a fresh contract.

Summary

The plaintiff, an undischarged insolvent, entered into a joint application with the creditor to sell his land for the debt amount, with a clause allowing repurchase within five years. After the sale deed was executed by the Official Receiver, the plaintiff was adjudicated insolvent, but later obtained an unconditional annulment of the adjudication under sections 35, 37 and 43 of the Provincial Insolvency Act. While still an undischarged insolvent, he exercised his repurchase option and sued for specific performance of the reconveyance agreement. The Supreme Court held that the annulment restores the plaintiff’s rights retrospectively, validating his notice and suit; the original reconveyance agreement was not superseded by any fresh contract, and the High Court erred in deciding issues not raised and in treating the contract as novated. Time was held to be of the essence in the reconveyance, and the suit was within the limitation period under Article 54 of the Limitation Act.

Issues considered

Whether the High Court could decide on a matter not raised in the trial court under Section 100 CPC, including the existence of a fresh contract or novation.
Whether the absence of a reference to the reconveyance agreement in the court order and sale deed implies that the original agreement was superseded.
Whether the plaintiff’s notice of repurchase and the specific performance suit, filed while he was an undischarged insolvent, are retrospectively validated by the unconditional annulment of adjudication under the Provincial Insolvency Act.
Whether time is of the essence in a reconveyance agreement under Section 55 of the Contract Act.
Whether the suit filed on 6 October 1969 is within the limitation period prescribed by Article 54 of the Limitation Act, 1963.

Legislation cited

Code of Civil Procedure, 1908s. 100
Indian Contract Act, 1872s. 55, s. 62
Limitation Act, 1963s. Article 54
Provincial Insolvency Act, 1920s. 35, s. 37, s. 43

Subjects

Provincial Insolvency ActContract ActSpecific performanceAnnulment of insolvencyNovationLimitation ActTime of essenceSection 100 CPCRe-conveyanceUndischarged insolventRetrospective effect

Judgment

SRI BABU RAM @ DURGA PRASAD A
v.
SRI INDRA PAL SINGH (DEAD) BY LRS.

AUGUST 13, 1998

[S.B. MAJMUDAR AND M. JAGANNADHA RAO, JJ.] B

Provincial Insolvency Act, 1920:

Sections 35, 37, 43,(/)-Annulment of insolvency-Effect of-In suit for
insolVPncy a joint agreement was filed for sale with a clause for re-conveyance C
within 5 years-Plaintiff declared insolvent-Sale deed executed by official
receiver-Plaintiff sent notice for re-purchase-Since creditor refused to re-
convey, plaintifffiled suit for specific performance-Subseguently, acfjudication
j as insolvent unconditionally annulled-Held-On annulment, property and
rights of plaintiff stand restored to him with retrospective effect-Insolvency D
gets wiped out togehter-Notice sent and suit filed for re-conveyance when
plaintiff was an undischarged insolvent, get retrospectively validated.

Contract Act, 1872 :

Section 55-Held-Time is of essence where contract is for re- E
conveyance of immovable property.

Section 62-Novation-Plea cannot be raised or accepted for the first
time in second appeal under Section 100 CPC.

Code of Civil Procedure, 1908-Section JOO-Contention of creditor F
that there was breach of re-conveyance agreement by plaintiff not pressed
before trial court-However, in second appeal it was held that there was
breach of re-conveyance agreement and sale deed was in pursuance of new
contract-On appeal, held: High Court exceeded its jurisdiction u/s 100
C.P. C in giving a finding on an issue not pressed in trial court-Also, plea G
of novation cannot be accepted for the first time in second appeal.

Limitation Act, 1963-Part II of Article 54-Where agreement does not
. specifY period within which vendee is to execute deed of re-purchase-
Held--Time of three years starts to run only from the date vedee refases to
execute re-conveyance deed. H
1145
1146 SUPREME COURT REPORTS [1998] 3 S.C.R.

A The Respondent-defendant instituted an insolvency suit on 19.I 1.1963
against the appellant-Plaintiff since the Plaintiff failed to return Rs. 7,000
owed to him. On the same day, the plaintiff and the defendant filed a joint
application before the Insolvency Court, seeking permission for the debtor
to transfer his property to the creditor in full satisfaction of his dues, with
B the condition that. the debtor may repurchase the property, within 5 years,
for Rs. 7,000. In terms of the settlement, the creditor agreed to withdraw the
Insolvency Petition. Accordingly, on 22.I 1.1963 an Order was passed by the
Court permitting the interim receiver to execute the sale deed. However,
neither the sale deed was executed by the interim receiver nor were steps
taken by the creditor to withdraw the Insolvency Petition and on 29.5. 1964,
C the plaintiff was.adjudicated an insolvent and directed to apply for discharge
within one year.

The Official Receiver, however, executed a sale deed on 15. 7.1964,
wherein the plaintiff also joined as vendor, and reported to the insolvency
court that the plaintiff had cleared all his debts. The plaintiff moved for
D discharge and later unsuccessfully moved an application u/s 43(1) of the
Insolvency Act for annulment since all creditors had been paid in full. In
appeal, the adjudication of the plaintiff as an insolvent was annulled,
unconditionally on 22.10.1964. In the meanwhile, before annulment, since
the period of 5 years for seeking re-conveyance was going to expire, the
E plaintiff issued notice on 12.7.1968 to the creditor to reconvey the property
to him on payment of Rs. 7,000 However, the creditor refused to re-convey
the property.

A suit was filed by the Plaintiff seeking specific performance of the
re conveyance agreement entered into between the plaintiff and the creditor
F on 19.I 1.1963 and filed in the insolvency court. The suit was decreed and
the judgement of the trial court was affirmed in first appeal. However, in
second appeal the High Court reversed the judgements of the lower courts.
The High Court held that the agreement contained in the joint application
dated 19.11.1963 was not given effect; the sale deed dated 15.7.1964 executed
by the official receiver was not in pursuance of the original agreement dated
G 19.I 1.1963 but in pursuance of a "fresh contract" which did not have a re-
conveyance clause; the contract dated 19.11.1963 was a conditional contract
and since the conditions laid down by Order dated 22.11.1963 had not been
fulfilled, there was no enforceable contract of re conveyance.

H In appeal to this Court the plaintiff-appellant contended that the High
SRI B. RAM@ D. PRASAD v. I. P. SINGH 1147
Court erred in holding that the order of insolvency court dated 22.11.1963 A
or sale deed dated 15.7.1964 executed by official receiver did not refer to re-
conveyance agreement filed before the court and hence, the same was not
enforceable; the High Court under Section 100 CPC, in second appeal, could
not give a finding on an issue not pressed before the trial court and hold that
the plaintiff had committed a breach of contract; that there was no fresh/new B
contract consequent to which the sale deed was executed by official receiver
in favour of the creditor; that the annulment retrospectively validates the
option exercised by the plaintiffvide notice dated 12.7.1968 and the filing of
the suit on 6.10.1969, even though he was an undischarged insolvent on that
date.
c
The respondent-creditor contended that there was fresh contract at the
time of execution of sale deed by official receiver on 15.7.1964 which was
not traceable to the agreement dated 19.11.1963 which had a clause for re-
conveyance. The Plaintiff did not implement the first agreement by executing
the sale deed in favour of the respondent. The suit was not maintainable since D
the plaintiff was an undischarged insolvent on that date.

Allowing the Appeal, this Court

HELD: I. In case of un-conditional annulment of adjudication as
insolvent under section 37r/w section 43 of the Provincial Insolvency Act, E
the property and rights of the insolvent stand restored to him with
retrospective effect from the date of filing of insolvency petition and the
insolvency gets wiped out altogether. All acts of the undischarged insolvent,
on annulment, get retrospectively validated. However, all acts of the court and
receiver prior to annulment will remain valid. Thus the acts of the plaintiff F
as an undischarged insolvent in issuing the notice for re-conveyance and, on
failure to re-convey by the creditor, filing the suit for specific performance,
stand retrospectively validated upon the unconditional annulment of the
adjudication on 22.10.1963 with effect form the date of filing of the insolvency
petition on 19.ll.1963. (1164-A-D)
G
Arunachalam v. Naryana Swami, AIR (1951) Mad 63; Ratnannavelu
Chettiyar v. Franciscu Udayar, AIR (1945) Mad 388 and Subbuiah Goudan
v. Ramaswami Goundan, AIR(l954) Mad 604, approved.

Peraya v. Kondayya, AIR (1948) Mad. 430 and Rup Narain Singh and
Anr. v. Hargopal Singh, AIR (1933) All 449, referred to. H
1148 SUPREME COURT REPORTS (1998] 3 S.C.R.

A Arora Enterprises Ltd. and Ors. v. Indu Bhushan Obhar and Ors.,
(1997) 5 SCC 366; Tukaram Ramachandra Mane (d) by Lrs. v. Rajaram "
I=-
Babu Lukule, (d) by Lrs. (1998) 2 Scale 719; Parvathi Amma, v. Faso
Yohanan, AIR (1955) TC 241 and A.R. Ghazani v. Official Receiver, AIR 1958
Mad. 486, cited.

B Bailey v. Johnson, (1872) 7 Ex. 263, referred to.

2.1. The High Court while holding that the sale deed dated 15.7.1964
was traceable to a new agreement, erred in making out a new case for which
there was neither any issue nor evidence. The sale deed dated 15.7.1964 was
not the result of a new agreement. The question of novation under section
c 62 of the Contract Act cannot be raised or accepted for the first time in
second appeal u/s 100 C.P.C. (1156-D-E; 1157-B)
(2.2. The High Court in second appeal exceeded its jurisdiction u/s 100
C.P.C in giving a finding on an issue not pressed in the trial court. The High
Court error in holding that there was a breach by the plaintiff of the re-
D conveyance agreement dated 19.11.1963 when this aspect was not pressed in
the trial court. In any case, there was no breach of agreement dated
19.11.1963 by the plaintiff inasmuch as, the interim receiver and not the
plaintiff was granted permission to execute the sale deed. (1157-E-DJ
.
2.3. The absence of reference to the agreement to reconvey in the
E Court Order dated 22.11.1963 and the sale deed dated 15.7.1964 does not
indicate that the original agreement to sell dated 19.11.1963 was superseded.
Since the sale deed dated 15.7.1964 was not the result ofa new agreement,
the agreement for reconveyance dated 19.11.1963 cannot be said to have been
superseded. (1158-E-F; DI

F 3. It was permissible for the plaintiff to move an application u/s 43(1)
of the Provincial Insolvency Act to seek an annulment. Section 43(1) provides
that court may annul an adjudication where debtor does not appear on the
.
~

date of hearing of his discharge application, as in this case. [1159-EJ

4. The principle stated in section 55 of the Contract Act, 1872 that in
G
case of contracts for sale of immovable property time is not of essence, does
not apply to contracts re-conveyance, where time is of essence. In the present
case, the plaintiff exercised on 12.7.1968 his option to repurchase within 5 ...
years from date of sale deed dated 15.7.1964 and hence, the vendee was bound
to reconvey the property on receiving Rs. 7,000 from the plaintiff as stipulated
H in the agreement. [1164-F-G]
SRI B. RAM@D. PRASADv. l. P. SINGH [M. JAGANNADHA RAO, J.] 1149
Bismi/lah Begum v. Rahmatullah Khan, 119981 2 SCC 226 and A.H. A
Mama v. Flora Sasson, AIR (1928) PC 208, relied upon.

5. Where an agreement does not specify the time within which vandee
is to execute deed of re-conveyance, Part II of Article 54 of the Limitation
Act, 1963 applies i.e. time starts to run only from the date the defendant
refuses to execute re-conveyance deed. The suit was filed on 6.10.1969 B
within 3 years from 22.7.1968, when the creditor refused to execute the deed
of re-conveyance, and hence, is in time. [1165-A-C)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2551 of
1977.
c
From the Judgment and Order dated 21.3.77 of the Allahabad High Court
in S.A. No. 175 of 1976.

Pramod Swarup, Praveen Swarup and Ms. Pareena Swarup for the
Appellant.
D
P. Anshu Mishra for the Respondents.

The Judgment of the Court was delivered by

M. JAG ANN ADHA RAO, J. The appellant is the plaintiff in the original
suit bearing No.225 of 1969 on the file of the Additional Civil Judge, Aligarh. E
The respondent is the defendant. The suit was filed by the plaintiff appellant
seeking reconveyance of the proper!)' covered by the sale-deed dated 15. 7 .1964
executed by the plaintiff in favour of the defendant and requiring the defendant
to perform the agreement of reconveyance specifically as entered into in the
joint application of the plaintiff and defendant dated 20.11.1963 filed in the F
Insolvency Court and in default praying that the reconveyance deed may be
,. executed by the Court. The extent of land is 5 Bighas and 7 Bighas in village
Jarothi.

The trial court decreed the suit in favour of the plaintiff on 2.1.1970 on
condition of the plaintiff paying back Rs. 7000 to the defendant. The said G
decree was affirmed by the first appellate court on 10.12.1975. However, the
Second Appeal 175 of 1976 preferred by the defendant was allowed and the
suit was dismissed on 21.3.1977 by the High Court of Allahabad. Against the
said judgment, the plaintiff has preferred this appeal by special leave.

The following are the facts : The plaintiff-appellant borrowed Rs. 5000 H
1150 SUPREME COURT REPORTS [1998] 3 S.C.R.

A from the defendant-respondent on 6.6.1961 and another sum of Rs. 2000 on
27.1.1962. On the ground that the plaintiff did not repay the said amount, the
defendant filed Misc. Case 27 of 1963 before the Insolvency Court, Aligarh
on 19.11.1963 (Lower Court described it.as application dated 20.11.1963) for
declaring the plaintiff as an insolvent. On the same day the plaintiff and
defendant signed joint application before the Insolvency Court the material
B portion of which (in para 4 to 6) reads as follows:

"That the creditor has agreed to accept Rs. 7000 in full satisfaction
of his dues and the debtor applicant is transferring his Byhumichari
property measuring 5 bighas 7 biswas to the creditor for the
consideration of Rs. 7000 with the condition of repurchasing the
c same within 5 years from the creditor for Rs. 7000 the creditor has
kindly given his consent to the same settlement and agreed to
purchase same with the above condition and to get the petition of
Insolvency dismissed.

That the debtor has Bhumidhari property measuring 14 bighas 7
D biswas 5 biswansis is paying Rs. 31.94 N.P. as revenue. Out of this
property the creditor has agreed to purchase 5 bighas for the
consideration of his dues. The details of the same are given below at
the foot of this application.

That the parties in view of the above arrangement settled amongst
E themselves request humbly that permission be kindly granted to the
debtor applicant to sell his property as noted above and the creditor
to purchase the same in order that the debt may be satisfied and the
parties may not be put to unnecessary litigation and expenses."

Thus, in the said IA., there was an agreement for reconveyance inasmuch as
F it was agreed that the plaintiff could seek reconveyance with in 5 years of the
sale-deed.

On the said application, the said Court passed the following order on
22.11.1963:

G "I hav;: heard the counsel for both the sides as well as Official
Receiver. The Official Receiver has no objection except that he should
be paid his legal fee. The request appears to be quite reasonable. The
interim receiver is under the circumstances permitted to execute the
sale deed in favour of the creditor petitioner of course of receipt of ...
his legal commission. The present application for further order shall
H be put up after the sale deed is executed. Let the record be now put
SRI B. RAM 1!J D. PRASAD"· I. P SINGH [M. JAGANNADHA RAO, .I] 1151
up on 20.12.1963 for further orders." A
It will be noticed that the Insolvency Court's order was that the sale
deed would be executed by the "interim receiver". It appears that for some
reason the sale deed was not executed. Though it is the case of the defendant
that the plaintiff-appellant did not execute the sale-deed., the defendant admitted
in his evidence that he neither issued any notice to the plaintiff nor complained B
to the Court that no sale was executed by the plaintiff. The creditor did not
take steps to withdraw the insolvency petition. On 29.5.1964, the plaintiff was
adjudicated as an insolvent and it was directed that he should apply for
discharge within one year. It may be noted that two other sundry creditors
to whom the plaintiff owed Rs. 300 and Rs. 700 respectively , got impleaded
in the insolvency proceedings on 20.11.1963. Thereafter, the Official Receiver C
executed a sale-deed on 15.7. I964 in favour of the respondent for the suit land
and the plaintiff also joined in the sale-deed as a vendor. It is in the plaintiff's
evidence that on the same day, another sale-deed of some other property was
executed by the Official Receiver in favour of one Shamlal for Rs. I 000.
Plaintiff stated in his evidence that he paid off the other two sundry creditors D
to whom, in all, he owed Rs. 1000 as referred to above. The Official Receiver
reported to the Insolvency Court on 30. I 0.1964 that the plaintiff had cleared
all his debts.
The plaintiff-appellant moved for discharge on 7.9.1964, i.e. within 1
year of the order of adjudication dated 29.5.1964. Unfortunately, the said E
application stood dismissed for default. On 9.7.1968, the plaintiff applied
under Section 43(1) after Provincial Insolvency Act, 1920 (hereinafter called
the 'Act') for an order of annulment alleging that all the creditors had been
paid fully. That section permits such an application in cases where the debtor
has not applied for discharge within the period fixed earlier. But the Insolvency
Court dismissed the said application on 27.7.1968 on the ground that the F
.. insolvent could not invoke section 43(!) and he should apply for discharge .
However, the appeal by the insolvent to the District Judge, Aligarh in Appeal
No. 62of1968, was allowed on 22.10.1969 on the ground that section 43(1)
was applicable and also on the ground that the insolvent had discharged all
his debts as reported by the Official Receiver in his report dated 30. l 0.1964. G
The adjudication was annulled and an annulment order was passed on
22.10.1969 unconditionally. As the debts were all paid, there was no occasion
for vesting the property in any person under section 37(1) while annulling the
adjudication.

In the meantime, and before the annulment, inasmuch as the period of H
1152 SUPREME COURT REPORTS [I 998] 3 S.C.R.

A 5 years within which the debtor could seek reconveyance· was expiring, the
debtor (i.e. plaintiff) issued a registered notice on 12.7.1968 to the creditor
(defendant) to reconvey the property on payment ofRs.7000 by the insolvent.
That notice was within 5 years from the date of sale-deed. But the creditor
refused to do so by his reply notice dated 22.7.1968. The debtor then filed
the present suit on 6.10.1969 for specific performance of the reconveyance
B agreement dated 22.11.1963 contained in the joint application of the plaintiff
and defendant dated 19.11.1963. It may be noticed that both on the day when
the debtor gave notice and on the day he filed the suit, he was an undischarged
insolvent and whatever rights he had for reconveyance, they stood vested
in the Official Receiver. Instead of the Official Receiver taking the above
C steps, the insolvent had himself taken up these matters.

The defendant accepted in his written statement dated 8.1.1970 that it
was true that a joint application was made on 19.11.1963 as stated by the
plaintiff before the insolvency Court. He, however, contended that it was
further agreed therein, that the plaintiff should have executed a sale-deed in
D favour of the defendant and that if he had done so, plaintiff would not have
been adjudicated as an insolvent. The plaintiff defaulted and, therefore, the
defendant had no option except to press for adjudication and plaintiff was ,.
adjudicated as insolvent on 29.5.1964 and later the Official Receiver executed
the sale-deed on 15.7.1964. The plaintiff also joined in the sale-deed. The
E plaintiff could not "rely upon the provisional talks of the parties prior to
adjudication of insolvency petition". Plaintiff could not take advantage of his
own default. It was also contended that the "previous agreement between the
parties fell to the ground owing to non fulfilment thereof by the plaintiff
himself'. It was contended that there "never was any contract of repurchase
with the Official Receiver" who was the vendor and in whom title to the
F property stood vested. After the adjudication, or after the sale, there was no
agreement by the defendant to reconvey the property. The plaintiff was
legally incompetent to seek reconveyance by notice dated 12.7.1968 as he was
an undischarged insolvent on that date and the property remained wholly
vested in the Official Receiver. The Official Receiver never exercised any
G option to repurchase within 5 years of the sale deed. Time was the essence
of the contract. The plaintiff was also not competent to file the suit on
6.10.1969 as he was, even on that date, an undischarged insolvent and all
rights including the right to seek reconveyance stood vested in the Official
Receiver.

H On these contentions, the trial court framed various issues. On issue 2
SRI B. RAM@D. PRASADv. I. P SINGH [M.JAGANNADHA RAO,J.] J J53

relating to the alleged default on the part of the plaintiff in executing sale- A
deed as agreed to in the joint application, the Court held that the said issue
was "not argued' by the defendant's counsel. Nor did the counsel say how
there was any breach on the part of the plaintiff. (We have stated earlier that
the Insolvency Court, in its order dated 22.11.1963 asked the "interim
receiver" to execute the sale-deed and that the defendant as PW! admitted
he had neither issued any notice to plaintiff nor moved the Court for a sale- B
deed to be executed). The trial Court held that in any event the sale-deed was
executed and as such 'there was no default' on the part of the plaintiff. On
the question as to the effect of annulment, the trial Court referred to the
Full Bench decision of the Madras High Court in Subbaiah Goundan v.
Ramasami Goundan, AIR (1954) Mad 604 (FB) to the effect that upon C
annulment, the property reverted to the insolvent with retrospective effect
and the insolvency got wiped out altogether except to the extent reserved
under section 4 7 of the Act and all transactions or actions in the interregnum
got validated. The trial Court also referred to Rup Narain Singh and another
v. Hargopal Singh, AIR (1933) Allahabad 449 for holding that an alienation
by an undischarged insolvent was not void but was voidable at the instance D
of the Official Receiver. The trial Court also held that the plaintiff would get
the competency to exercise option to repurchase - in view of the subsequent
.. annulment. The plaintiff exercised the option within 5 years, time being
essence of the contract. The debtor's actions stood validated and even if the
Official Receiver did not exercise the option to purchase within 5 years
from the date of sale, it did not matter. The trial court also held that the suit E
was not barred by time. On these findings, the suit was decreed for specific
performance for reconveyance subject to plaintiff paying Rs. 7000 back to
the defendant. This judgment was confirmed in first appeal by the Additional
District Judge.

In Second Appeal, the High Court of Allahabad reversed the judgments F
of the lower Courts. It held that the earlier agreement contained in the joint
application dated 19.11.1963 made to the insolvency Court did not avail.
Further, in the order dated 22.11.1963 passed on the joint application, the
Court permitted the "interim receiver" to execute the sale-deed while the sale
deed was executed by the Official Receiver and there was no fresh agreement G
for reconveyance between the Official Receiver and the defendant at the time
the sale-deed was executed. The agreement dated I 9.11.1963 contained in the
joint application was, in fact, not given effect to as plaintiff did not execute
the sale-deed and defendant did not have the insolvency petition dismissed.
The facts showed that the sale-deed dated 15.7.1964 executed jointly by the
Official Receiver and the plaintiff was not in pursuance of the original agreement H
I

~

1154 SUPREME COURT REPORTS [1998) 3 S.C.R.

A dated 19.11.1963. The said agreement dated 19.11.1963 was a contingent one
and was executed even before the Court directed sale of the property to the
defendant. As the directions of the Insolvency Court dated 22.11.1963 directing
execution of sale-deed by the plaintiff and also withdrawal of insolvency
petition by the defendant, were not complied with by either party, the "execution
B of the sale-deed after adjudication must be held to be in pursuance of a fresh
contract between the parties". It might be that the substance of the sale-deed
was the same as contained in the joint application but this was not relevant.
The contract was still a "new one" upon which the sale deed was executed.
At the time of the new contract, there was no reconveyance agreement - either
oral or written. The suit for specific performance of the agreement of
C reconveyance contained in the joint application could not, therefore, be
enforced. The High Court then referred to the judgments in Subbaiah Goundan
v. Ramasami Goundan AIR, (1954) Mad. 604(FB); Rup Narain Singh v.
Hargopal Singh AIR, (1933) Allahabad 449; Arunachalam v. Narayana Swami,
AIR (1951) Mad 63(FB)), Parvathi Ammo v. Easo Yohanan, AIR ( 1955) TC 241
and AR Ghazani v. Official Receiver, AIR (1958) Mad 486 and observed that
D the question of reverter of the debtor's rights to the debtor upon annulment
would have been relevant if the undischarged insolvent had entered into a
contract with the creditor without the intervention of the Court and if the
contract was not subject to conditions. Here the contract dated 19.11.1963 •
was dependent upon various conditions, execution of sale-deed by the plaintiff
E and the withdrawal of the insolvency petition by the defendant and permission
by Court for a sale-deed. On account of non-fulfilment of the conditions laid
the order dated 22.11.1963, there was no enforceable contract between the
parties. On the above reasoning, the High Court allowed the Second Appeal
and dismissed the suit.

F In this appeal, it was contended by Sri Pramod Swarup that the High
Court erred in law in thinking that the Court order dated 22.11.1963 or the sale-
deed dated 15.7.1964 by the Official Receiver did not refer to the reconveyance,
and hence the earlier agreement dated 19.11.1963 for reconveyance was not
enforceable. This plea raised by the defendant in the written agreement was
G not acceptable because the order of the Court dated 22.11.1963 permitting sale
was only in pursuance of the agreement dated 19.11.1963 contained in the
joint application and having got the sale-deed executed in his favour, the
defendant could not blow hot and cold and repudiate the reconveyance
agreement contained in the same joint petition dated 19.11.1963. There was ...
no need to have a fresh agreement either on 22.11.1963 or on 15.7.1964. There
H was no 'fresh or new' contract on 15.7.1964 of sale between the defendant
SRI B.RAM@D.PRASAD1'. IP.SINGH [M.JAGANNADHA RAO,J.] 1155
and the Official Receiver as wrongly held by the High Court. The High Court A
could not have given such a finding unless there was a specific plea of
novation between the Official Receiver and the defendant in the written
statement. On the other hand, the evidence of the defendant as OW 1 was that
there was no fresh contract before 15. 7.1964 when the sale-deed was executed.
The finding of the High Court was, therefore, contrary to the defendant's B
evidence. The Trial Court and the first appellate Court were right in holding
that the annulment retrospectively validated the option exercised by the
plaintiff on 12.7.1968 in his notice and the filing of the suit on 6.10.1969,
though on those dates, the plaintiff was an undischarged insolvent. In fact,
even on the date of annulment dated 22.10.1969, the suit was in time as the
period of3 years had not expired from 22.7.1968, the date of refusal to perform C
the contract of reconveyance.

On the other hand, learned counsel for the defendant Sri P. Anshu
Misra contended that there was a fresh or new contract at the time of the sale
by the Official Receiver on 15.7.1964 and the sale-deed was traceable to that
agreement and not to the agreement contained in the joint applicatior. dated D
22.11.1963. At the time of the fresh agreement for sale on 15.7.64, there was
no further agreement for a reconveyance. The original agreement of
reconveyance dated 19.11.1963 was given a go bye and could not be enforced
any longer. The plaintiff did not also implement the terms of the first agreement
by executing a sale-deed and the defendant did not withdraw the insolvency E
petitian as contemplated by that agreement. The suit was not maintainable
because the plaintiff, being an undischarged insolvent, was not competent to
exercise the option for reconveyance on 12.7.1968 and the plaintiff was not
competent to file the suit on 6.10.1969 since the annulment took place much
later, on22.I0.1969.
F
On these contentions, the following points arise for consideration:

(1) Could the High Court in Second Appeal under Section I 00 CPC
give a finding on issue No.2 which was not pressed in the trial
court and hold that the plaintiff and defendant committed breach
of the agreement dated 19.11.1963 and that, therefore, the sale G
deed dated 15.7.64 must be held to be traceable to a new contract
entered into between the Official Receiver and the defendant on
15.7.64?

(2) Whether absence of a reference to the agreement to reconvey
in the Court order dated 22.l 1.63 and in the sale-deed dated H
1156 SUPREME COURT REPORTS [1998] 3 S.C.R.

A 15.7.1964 implied that the agreement ofreconveyance contained
in the original agreement to sell dated 19.11.1963 was superseded? •
(3) Would the two steps or actions of the plaintiff (i) exercising the
option for renewal on 12.7.1968 and (ii) filing the suit on 6.10.1969
taken when he was an undischarged insolvent get retrospectively
B validated on account of the subsequent unconditional annulment
of adjudication in view of sections 3 7 and 43 of the Provincial
Insolvency Act, 1930 on 22.10.1969?

(4) ls time the essence of contract in a reconveyance agreement and
was the option exercised by the plaintiff in this case in time in
C the context of section 55 Contract Act?

(5) Was the suit filed on 6.10.1969 for specific performance of the
contract ofreconveyance dated 19.11.1963 in time under Article
54 of the Limitation Act, 1963?

Point I:
D
In our view, the High Court, while holding that the sale-deed dated
15.9.1964 was traceable to a new agreement erred seriously in making out of
a new case for which there was neither any issue nor evidence. In fact, the
defendant specifically admitted in his evidence as DWI that there was no
•
E fresh agreement between the Official Receiver and the defendant at or before
the execution of the sale-deed dated 15.9.1964. The defendant, no doubt, came
forward with such a statement to negative any fresh agreement of reconveyance
entered into by and between the Official Receiver and the defendant. But that
evidence equally negatives the theory that the sale-deed dated 15.9.1964 was
executed pursuant to a fresh or new agreement entered into between the
F Official Receiver and the defendant. The recitals in the sale-deed do not
support such a contention. Further , the sale by the Official Receiver was one
made pursuant to the Court order dated 22.11.63 and was not a sale in exercise
of his normal powers to sell the insolvents' property nor was it a sale for
distributing the sale proceeds to the creditors. No doubt, the Court's order
permitted the "interim receiver" to sell but in view of the subsequent
G adjudication of the debtor as insolvent on 29.5.1964, the sale-deed had to be
executed by the Official Receiver. A reading of the sale-deed dated 15.7.1964
which is in Hindi and wa:; read out in Court showed that it was executed in
pursuance of the agreement between the creditor and the "insolvent, second .
party". The sale deed did not refer to any agreement with the "Official
H Receiver" who was one of the executants of the sale deed. It referred only
SRI B. RAM@D. PRASAD v. I. P. SINGH [M. JAGANNADHA RAO, J.] 1157

to the agreement with the "insolvent, second party", which, in our opinion A
could only be the one entered into on 19.11.63 between the plaintiff and the
defendant before adjudication.

Novation under section 62 of the Contract Act requires a clear plea,
issue and evidence. Such a question cannot be raised or accepted under
section I 00 CPC for the first time in Second Appeal. There was no such issue B
in the courts below and the defendant's evidence was contrary to such a
theory.

The High Court, in our view, also erred in thinking that the plaintiff
committed breach of the agreement dated 19.11.1963 covered by the joint
application when the said aspect covered by issue No.2 was not pressed in C
the trial Court. Further, the permission for sale dated 22.11.1963 granted by
the Court was in favour of the 'interim receiver' and, therefore, the debtor
could not have executed any sale-deed. (We are not on the question whether
the Insolvency Court could have asked the interim receiver to sell the property).
The defendant admitted in his evidence that after 19.11.1963, he did not issue D
any notice to the plaintiff to execute a sale-deed nor did he move the Insolvency
Court to direct the debtor to execute the sale-deed .
.
For the above reasons, we hold that the High Court in Second Appeal
exceeded its jurisdiction under section I 00 CPC in giving a finding on an issue
which was not pressed in the Trial Court. So far as the finding as to a new E
contract is concerned, there was no issue or evidence. The evidence was to
the contrary. We accordingly set aside these findings. Point I is therefore held
in favour of the plaintiff and against the defendant.

Point 2:
F
• The agreement contained in the joint application dated 19.11.1963 filed
in the Insolvency Court not only contemplated that the plaintiff would execute
a sale deed in favour of the defendant but also contemplated an option for
repurchase by the plaintiff within five years of the sale, on repayment of the
amount of Rs. 7000 to the defendant. Later, as stated earlier, the Court G
permitted the sale by the "interim receiver" by its order dated 22.11.1963 and
a sale deed was executed jointly by the Official Receiver and the plaintiff or
15.7.1964. It is true that neither in the Court order nor in the sale-deed there
is any reference to an agreement of reconveyance. Question is whether on
that account the obligation to reconvey, in the event of the plaintiff exercising,
within 5 years his option to repurchase contained in the a joint application H
1158 SUPREME COURT REPORTS [1998] 3 S.C.R.

A dated 19.11.1963 could be said to have been given up by the plaintiff?

We have already held under Point 1 that the Court order and the sale-
deed were not the result of any fresh or new agreement between the Official
Receiver and the defendant at or before the date of sale on 15.7 .1964. We have
also held that there was no novation within section 62 of the Contraet Act.
B If that be so, it is clear that the agreement for reconveyance contained in the
original contract dated 19 .11.1963 cannot be said to have been superseded.
The defendant, having got the sale-deed only upon implementation of the
obligation covered by the agreement of sale dated 19 .11.1963 cannot approbate
and reprobate and contend that the other part of the agreement dated 19 .11.1963
C regarding reconveyance need not be implemented. It is true that it is customary
to include a recital regarding the agreement of reconveyance in the sale-deed
itself. But where, as here, there was an agreement preceding the sale deed and
that agreement contained such a clause, and a sale-deed was executed
consequent thereto, the absence of a reference to the agreement of
reconveyance in the sale-deed would not, in our opinion, lead to the inference
D that the said right was given up by the plaintiff. Unless there is a detailed
plea and also evidence that before execution of the sale-deed there was
novation and parties expressly agreed to give a go bye to the agreement or
reconveyance, no inference could be drawn that the agreement of
reconveyance contained in the agreement of sale dated 19.11.63 which preceded
E the sale-deed was given a go-bye.

For the reasons given above, it must be held that the absence of a
reference to the agreement for reconveyance in the Court order dated 22.11.1963
or in the sale-deed dated 15 .6 .1964 was not an indication that the said
agreement contained in the original agreement of sale was given a go bye by
F the parties. Point 2 is therefore held in favour of the appellant.
•
Point 3 :

This point relating to the effect of annulment is more important and as
there is no authority of this Court earlier except Arora Enterprises Ltd. & Ors.
G v. lndu Bhushan Obhar & Ors., [1997] 5 SCC 366 and Tukaram Ramachandra
Mane (d) by Lrs v. Rajaram Bapu Lukule (d) by lrs., [1998] 2 Scale 719 which
deal with 'acts' of Receiver or Insolvency Court during the insolvency, we
shall go into some details.

We have seen that the plaintiff was adjudicated insolvent on 29.5.1964
H and the property vested in the Official Receiver who executed the sale-deed
SRI B. RAM@D. PRASADv. IP. SINGH [M. JAGANNADHA RAO, J.] 1159
in favour of the defendant on 15. 7.1964. The plaintiff also joined in the sale- A
deed. It is true that on the date when the plaintiff exercised the option to
repurchase on 12.7.1968 - within 5 years from the date of sale, i.e. 15.7.1964
- he was an undischarged insolvent. It is also true that on the day when the
plaintiff filed the suit for specific performance of the agreement of
reconveyance, on 6. 10.1969, he continued to be an undischarged insolvent. B
The option to repurchase and the filing of the suit were acts which ought to
have therefore been performed by the Official Receiver. But when later the
annulment order was passed on 22.10.1969, could it be said, as contended for
the debtor, that these acts get retrospectively validated on account of the
subsequent annulment of adjudication?
c
Section 35 of the Act states if, in the opinion of the Insolvency Court,
a debtor ought not to have been adjudged insolvent, or where it is proved to
the satisfaction of the Court that the debts of the insolvent have been paid
in full, the Court shall, on the application of the debtor, or any other person
interested, by order in writing, annul the adjudication and the Court may, of
its own notice or on application made by the receiver or any creditor, annul D
any adjudication made on the petition of a debtor who was, by reason of the
provisions or sub-section (2) of section IO. not entitled to present such
petition.

It is obvious that, in the present case, in view of the report of the E
Official Receiver dated 30.10.1964 that all the debts had been cleared by the
insolvent, the Court was bound to annul the adjudication. It did so on
22.10.1969. It cannot be said that the debtor-plaintiff could not have applied
for annulment under section 43(1 ).

Now sub-clause (I) of section 43 states that if the debtor does not F
appear on the day fixed for hearing his application for discharge or on such
subsequent day as the Court may direct, or if the debtor does not apply for
an order of discharge within the period specified by the Court, the Court may
annul the order of adjudication or make such other order as it may think fit,
and if the adjudication is annulled, the provisions of section 37 shall apply.
As the case of the appellant fell under this section, the application was in
G
order. But the Insolvency Court dismissed the same on 27.7.1968 and on
appeal, the District Court allowed the application on 22. l 0.1969 unconditionally.
On the facts of this case, the debtor had to apply for discharge within one
year of the adjudication. He made an application within that period but that
application was dismissed for default. It was therefore clearly permissible for H
1160 SUPREME COURT REPORTS [1998] 3 S. C.R.

A him to invoke section 43(1).

Inasmuch as sub-clause (I) of section 43 requires the Court to apply
section 37 of the Act in the event of passing an order of annulment, it is next
necessary to refer to that section. Sub-clause (I) of section 37 states that
where an adjudication is annulled, all sales and dispositions of property and
B payments made, and all acts theretofore done, by the Court or receiver, shall
be valid; but, subject as aforesaid, the property of the debtor who is adjudged
insolvent shall vest in such persons as the Court may appoint, or, in default
of any such appointment, shall revert to the debtor to the extent of his right
or interest therein on such conditions (if any) as the Court may, by order in
C writing, declare.

The case before us is one where, in view of section 35 and in view of
the fact that the debtor had cleared all his debts, he was entitled to an order
of annulment of adjudication. As there was nothing to administer qua his
property, the Court did not think of vesting his property in the Official
D Receiver or any other person. In fact, sub-clause (I) of section 37 itself says
that in default of the appointment of any person, the "property" of the debtor
shall revert to the debtor to the extent of his right or interest therein. This
is, however, subject to the condition that the sales, dispositions of property
and payments made and all acts theretofore done by the Court or receiver,
E shall remain valid. Inasmuch a~ the sale of the suit property on 15.7 .1964 was
one made after the adjudication order on 29.5.1964, and before annulment, the
said sale would remain valid, even after annulment of adjudication, unless the
sale was subject to any further conditions.

Before the adjudication order, the debtor had a right of reconveyance
F qua the property purchased by the defendant from the receiver on 15.7.1964.
That right in relation to the property continued to burden the sale. After
adjudication that limited right stood vested in the Official Receiver. On
annulment that right would, therefore, clearly revert back to the debtor from
the Official Receiver. Sub-section (I) of section 37 uses the words, "the
G property of the debtor to the extent of his rights and interests therein" shall
revert to him. For example, if he was a full owner or a mortgagee or a lessee
of the property in question on the date of adjudication, those rights would
revert back to him on annulment though during the pendency of the insolvency
those rights stood vested in the Official Receiver. Likewise the right to obtain
a reconveyance from the vendee which was vested in the Official Receiver
H would in our opinion also revert back to the debtor, upon annulment of the
SRI B.RAM@D. PRASADv. I. P. SINGHfM.JAGANNADHARAO,J.l 1161

adjudication. In the present case, the debtor had exercised the option and A
filed the suit even before annulment.

Therefore, the more important question will be whether the reverter of
the property or rights on annulment is retrospective or prospective? In other
words, assuming that the debtor being an undischarged insolven.t ought not
to have exercised the option or filed the suit, inasmuch as these actions ought B
to have been taken by the Officiai Receiver, will the subsequent annulment
of the adjudication retrospectively validate these actions of the undischarged
insolvent?

Before we go into the above aspect, we shall refer briefly to the legislative
history behind section 37 of the Provincial Insolvency Act, 1920. In the earlier C
Indian Insolvency Act, 1848, it was stated in section 7 that "in case, after the
making of any such vesting order, the petition of any such petitioner shall
be dismissed by the said Court, such vesting order made in pursuance of
such petition shall from and after such dismissal be null and void to all
interests and purposes: provided also that in the case of any such vesting D
orders as aforesaid, shall become null and void by the dismissal of such
petition, all acts theretofore done by any Assignee or other person acting
under his authority according to the provisions of this Act shall be good and
valid and no action or suit shall he commenced against the assignee, nor
against any persons duly acting under his authority, except to recover any
property of such petitioner detained after an order made by the said Court E
for delivery thereof, and demand made thereupon". The above language was
similar to the language in the earlier Bankruptcy Acts of England. By virtue
of the Consolidating and Amending Bankruptcy Act, 1869 the language was
altered and instead of the words 'null and void' the word 'revert' was used.
That language was repeated in the English Act of 1914. The legislature F
.. adopted the word 'revert' in section 37 of the Provincial Insolvency Act, 1920.
The word 'revert', according to Shorter Oxford Dictionary means 'to return
to the former position, to go back to the former state'.

We shall initially refer to the leading decision of the English Court on
the question as to whether the reverter is retrospective. In Bailey v. Johnson G
(1872) 7 Ex. 263 decided under section 81 of the English Bankruptcy Act,
1869, it was held by Cockburn, CJ as follows:
.....
"The effect of section 81 is, subject to any bonafide dispositions
lawfully made by the trustee prior to the annulling of the bankruptcy,
and subject to any condition which the Court annulling the bankruptcy H
1162 SUPREME COURT REPORTS (1998] 3 S.C.R.

A may by its order impose, to remit the party whose bankruptcy is set
aside to his original situation."

Adverting to the effect of an unconditional order of annulment it was
stated by the learned Chief Justice:

B "Here the Court of Bankruptcy has imposed no condition; the general
provision of the section has therefore its full effect, and that effect
is to remit the bankrupt, at the moment the decree annulling his
bankruptcy is pronounced, to his original powers and rights in respect >
of the property."

C In the same case, Kelly CB observed:

" ... the only sensible meaning which can be attached the word 'revert'
is, that what was apparently the property of the trustees at the time
of annulling of the bankruptcy shall thereupon become the property
of the person whose bankruptcy has been annulled, as if it had
D always been his".

It was pointed out in Peraya v. Kondayya, AIR (1948) Mad. 430 that though
the words 'null and void' used in the Indian Insolvency Act, 1848 were not
used in section 37 of the Provincial Insolvency Act, 1920, there was no reason
to think that the effect of the later statute was any different from the former
E statute.

A Full Bench of the Madras High Court in Arunachalam v. Narayana
Swami AIR (1951) Mad 63 consisting of Subba Rao, J. (as he then was),
Panchapakesa Ayyar and Balakrishna Ayyar, JJ reviewed the case law on the
subject. In that case the question was whether the debtors could be treated
F as agriculturists having saleable interest in agricultural land on the crucial
dates 1.10.1937 or 22.3.1938 for obtaining scaling down of the interest under
the Madras Agriculturists Debt Relief Act, 1938. On those dates, being
• -
undischarged insolvents, they had no saleable interest in agricultural land.
Much later, their adjudication was annulled by an unconditional order. The
G debtor's representatives contended that the debtors should get the benefit of
the debt relief Act, and that though on the above dates, the debtors did not,
as a fact, have saleable interest in agricultural land as that interest stood
vested in the Official Receiver, still they must be deemed to have acquired
such interest with retrospective effect once there was a subsequent annulment
...
of adjudication. This contention was accepted. Speaking for the Full Bench
H Balakrishna Ayyar, J. held that the annulment related back to the date of
SRI B. RAM@D. PRASADv.1.P.SINGH[M.JAGANNADHARAO,J.] 1163
adjudication in September 1928 and that the benefit of the debt relief Act must A
be extended to the debtors with retrospective effect,-ignoring the insolvency
proceedings.

We may here also refer to two other cases. In Ratna Navelu Chettiyar
v. Franciscu Udayar, AIR (1945) Mad 388 Somayya, J. pointed out that it was
clear that the legislature wanted the annulment to be retrospective. Otherwise, B
there was no need for the clause validating acts done by the Court or by the
Receiver, as they would have in any event been valid because they were done
• at a time when the insolvent had been adjudicated and before the adjudication
was annulled.

The question again arose before another Full Bench in Subbaiah
c
Goundan v. Ramaswami Goundan, AIR (1954) Mad 604. That was a case
where the undischarged insolvent made alienations during the pendency of
the insolvency. His status as an 'agriculturist' during insolvency was also
material. It was held that section 7 of the 1848 Act and section 37 of the
1920 Act meant the same thing notwithstanding the difference in language. D
Satyanarayana Rao, J. after referring to the history of legislation under this
section and also the dictionary meaning of the word 'reversion' and after
referring to the English cases to which we have referred above, observed as
follows:

"It has therefore been uniformly held in this Court.... that the effect E
of annulment is to vest the property retrospectively in the insolvent,
in other words' the consequence of annulling an order of adjudication
is to wipe out altogether the insolvency and its effect except to the
limited extent reserved under section. The Legislature introduced the
fiction of vesting the title retrospectively in the insolvent". F
On facts, it was held:

"In view of this, the alienations made of property, moveable and
immovable, by the insolvent after adjudication, the decrees and
execution proceedings suffered by him; during such insolvency, the G
status of an agriculturist, notwithstanding the property is taken away
and transferred from him, are all restored and validated from the date
on which the insolvency petition was filed".

We are of the view that the law stated in the above cases correctly represents
the legal effect of annulment of adjudication. H
1164 SUPREME COURT REPORTS (1998) 3 S.C.R.

A Summarising the legal position, the position is as follows. In the case
of an annulment under sections 37 read with section 43 of the Act, where the
property is not vested in any other person and no conditions are imposed
• c
by the Insolvency Court, the property and rights of the insolvent stand
restored or reverted to him with retrospective effect from the date of the filing
of the insolvency petition and the insolvency gets wiped out altogether. All
B acts done by the undischarged insolvent between the date of the insolvency
petition and the date of annulment get retrospectively validated. However, all
sales and dispositions of property and payments duly made and all acts
theretofore done by the Court or Receiver, will remain valid. •

c that theApplying the above principles to the facts of the case, it must be held
acts of the plaintiff, as an undischarged insolvent, in issuing the
notice dated 12.7.1968 thereby exercising option for repurchase and his filing
of the present suit on 6.10.1969 for specific performance of the agreement
of reconveyance - all stand retrospectively validated upon the unconditional
annulment of the adjudication on 22.10.1969 , with effect from the date of filing
D of the insolvency petition on 19.11.1963. The contention of the respondent
to the contrary is accordingly rejected. Point 3 is decided accordingly.

Point 4

This Court has recently held in Bismillah Begum v. Rahmatullah Khan,
E [1998] 2 SCC 226 that time is the essence of contract in a contract of
reconveyance. If a vendor, who agrees to sell his immovable property under
an agreement of sale or who executes a sale deed, is given the option to
repurchase the property within a particular period, then such an option must
be exercised strictly within the said period. The principle stated under section
55 of the Contract Act that in regard to contracts of sales of immovable
F property time is not the essence of contract as stated by the Privy Council
in A.H Mama v. Flora Sassoon AIR (1928) PC 208 = 55 I.A. 260 (PC) .
does not apply to contracts of reconveyance.

On the facts of the case, it will be seen that the plaintiff exercised his
option on 12.7.1968 within five years from the date of sale deed 15.7.1964
G and hence the defendant - vendee was bound to reconvey the property by
receiving Rs. 7000 from the plaintiff as stipulated in the contract. This point
is held in favour of the plaintiff.

Point 5 :
H Under Articles 54 of the Limitation Act, 1963, it is stated in the third
SRI B. RAM@D. PRASADv. l. P. SINGH [M. JAGANNADHA RAO, J.l 1165
column that the suit for specific performance has to be filed within 3 years A
• from the date stipulated in the contract or from the date of refusal to perform
the contract. In the present case, even though a period of 5 years is fixed for
exercising the option to repurchase, it is not specified in the agreement that
the vendee shall execute the deed of repurchase within a particular period
from the date of exercise of option. Hence the first part of the third column B
of Article 54 does not apply. The second part applies. Time therefore starts
to run only from the 22.7.1968, the date when the defendant refused to
execute the deed of reconveyance. The suit was filed on 6.10.1969 within
3 years from 22.7.1968. Suit is in time as held by the trial Court. Point 5
is held in favour of the plaintiff.

In the result, the Civil Appeal is allowed. The judgment and decree C
passed by the High Court are set aside and judgment and decree passed by
the trial Court as affirmed by the first appellate Court are restored. There will
be no order as to costs.

S.K. Appeal dismissed. D