Holding

Section 37(1) of the Provincial Insolvency Act, 1920 embraces judicial orders, so the earlier declaration that the regular sale deed was null and void remains effective, reviving the conditional sale and preserving the debtor‑creditor relationship.

Summary

The appellant, the creditor, claimed that a regular sale deed executed by the debtor was revived after the Insolvency Court annulled its earlier adjudication, thereby extinguishing the debtor‑creditor relationship under the Maharashtra Debt Relief Act, 1975. The debtor‑creditor relationship originated from a deed of mortgage by conditional sale, followed by a regular sale deed later declared a sham by the Insolvency Court and affirmed by the appellate court. The Insolvency Court subsequently annulled the adjudication, and the debtor sought relief under the Debt Relief Act, which was granted by the authorised officer on the basis that the earlier declaration of nullity remained effective. The appellant challenged this, arguing that Section 37(1) of the Provincial Insolvency Act, 1920, did not cover judicial orders, so the annulment should revive the regular sale deed. The Supreme Court held that the phrase "all acts" in Section 37(1) includes orders of the Court or receiver, including the declaration of nullity, so the conditional sale stood revived and the debtor‑creditor relationship persisted. Consequently, the appellant’s relief was denied and the appeal was dismissed.

Issues considered

The meaning of "all acts" in Section 37(1) of the Provincial Insolvency Act, 1920 and whether it includes judicial orders declaring a sale deed null and void.
The effect of an order of annulment of adjudication on prior court orders and on the debtor‑creditor relationship under the Maharashtra Debt Relief Act, 1975.

Legislation cited

Provincial Insolvency Act, 1920s. 37(1)

Subjects

InsolvencyProvincial Insolvency ActSection 37(1)All actsAnnulment of adjudicationDebt reliefMaharashtra Debt Relief ActConditional saleRegular sale deedProperty vesting

Judgment

A TUKARAM RAMCHANDRA MANE (DEAD) BY LRS.
v.
RAJARAM BAPU LAKULE (DEAD) BY LRS.

APRIL 16, 1998

B [K. VENKATASWAMI AND A.P. MISRA, JJ.]

Insolvency :

Provincial Insolvency Act, 1920: Section 37(1).
c Adjudication of debtor as insolvent-Annulment-Effect of-Debtor,
being owner of suit property, transferred to creditor by deed of mortgage by
conditional sale of a certain sum-Subsequently, the debtor executed regular
sale deed in favour of the creditor for an additional amount-Insolvency
Court adjudicated the debtor as an insolvent and appointed official receiver
D in respect of the property-later, the Insolvency Court, on evidence, held the
regular sale deed to be null and void-Appellate court confirmed the
decision-Ultimately, Insolvency Court annulled the adjudication-Held :
The expression "all acts" 1n S.37(1) covered orders of the Court or receiver
including adjudication of title dispute-Therefore, the High Court rightly
E upheld the view of the authorised officer under Debt Relief Act that
notwisthstanding the annulment of adjudication by the Insolvency Court its
earlier order declaring the regular sale deed as null and void remained
effective and that consequently the conditional sale stood revived and the
debtor's relationship with the creditor existed entitling the debtor relief
under the Debt Relief Act-Maharashtra Debt Relief Act, 1975.
F
Words and Phrases :

"All acts "-Meaning of-In the context of S. 37(1) of the Provincial
Insolvency Act, !920.

G The respondent-debtor was the original owner of the suit property. By
a deed of mortgage by conditional sale, the respondent transferred the said
property in favour of the appellant-creditor for a certain sum. Subsequently,
the respondent executed a regular sale deed in favour of the appellant after .,__
receiving an additional amount. The Insolvency Court adjudicated the
~espondent as an insolvent and appointed an official receiver in respect of
H the said property. Later, the Insolvency Court, on evidence, held the regular
784
T.R. MANE v. R.B. LAKULE 785
sale deed to he nuil and void. The a11pellate court confirmed the decision. A
Ultimately, the Insolvency Court annulled the ad.indication.

Thereafter; the rcs11ondent moYed the authority under the Maharashtra
Debt Relief Act, 1975 for a declaration that the debt, which was the suh.iect
matter of the mortgage stood extinguished as the respondent, was a debtor
within the meaning of the Act. The appellant contended that in view of the B
._ order of annulment and in the light of Section 37(1) of the Provincial
-(
lnsolyency Act, 1920 the sale deed in his favour ~1ood re\ived and, therefore,
there was no relationship of dehtor and creditor to move the application
under the Debt Relief Act.

The authorised officer held that the earlier declaration by the Insolvency c
Cou11 and by the appellate comi that the regular sale deed was null and void
remained effective and, therefore, the conditional sale stood revived and the
debtor's relationship with the creditor existed. Accordingly, the application
was allowed with the result that the debt stood wi11ed our.
D
~ The a1111ellant filed a w1it (letition before the High Court challenging
the aforesaid decision on the ground that the words "all acts therefore"
occurring in Section 37(1) of the Act would not included the judicial orders
passed by the Court declaring the re::,'lllar sale deed as null and void. The
High Court rejected this contention and dismissed the petition. Hence this
appeal. E

Dismissing the appeal, this Court

HELD: 1. A plain reading of St.'Ction 37(1) of the Prmincial Insolvency
Act, 1920 would show that he orders passed by the court or receiver including
..... F
adjudication of title dispute would come within the pun<iew of "all acts"
occurring in that Section. Therefore, the High Court rightly upheld the view
of the authorised officer under the Maharashtra Debt Relife Act, 1975
notwithstanding the annulment order passed by the Insolvency Court
annulling its earlier order declaring the regular sale deed as null and void
remained effective and that consequently the conditional sale deed re\·ived G
_,,.. and th debtor's relationship with the creditor existed with the rc~1llt that the
respondent-debtor was entitled to relife under the Debt Relief Act. [789-G)

.frora Enterprises Ltd. v. !nduhhusan Obhan, [1997) 5 SCC 366, relied
OIL
H
786 SUPREME COURT REPORTS [1998] 2 S.C.R.

A Jethaji !'araji Firm \'. Krishanyya, AIR (1930) Mad 278;
Dhar111asa111arajavya \'. Sa11kam11w, AIR 30 (1943) Mad 453; S. Janahai
A111111a/ r. Narasi111halu Naidu, AIR (1956) Mad 341 and Kumaran ''·
Cher1ya111hada111 Al'idru, AIR (1969) Ker 211, referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 14llof
B 1990.

From the Judgment and Order dated 29.9.89 of the Bombay High Court
'r ·-
in W. P. No. 3438 of 1980.

c Wahi VN. Ganpule, Ms. Punam Kumari, Ms. Neithono Rhiko and Ms. Hemantika
for the Appellants.

Uday Umesh Lalit for the Respondents.

The Judgment of the Court was delivered by
D
K VENKATASWAMI, J. A short question that arises for consideration ~
in this appeal is that what is the meaning to be ascribed to the words ''all acts
theretofore, done, by the Court or receiver, shall be valid;" occurring in
Section 37(1) of the Provincial Insolvency Act, 1920 (hereinafter called the
Act). Brief facts are given as hereunder.
E
The deceased respondent Rajaram Bapu Lakule (hereinafter called the
debtor) was the original owner of a suit property, namely C.T.S. No. 926 Peth
Baug, Sangli, Bombay. By a deed of mortage by conditional sale dated 22.1.1962
(Ex.41 J, he transferred the suit property in favour of the appellant (hereinafter
called the creditor) for a sum of Rs. 7, 500. The condition was that on the
F
amount of Rs. 7,500 if repaid within five years of the execution of the document,
,..
the property was to be reconveyed to the debtor. On 8.1.63 within one year
...
from the date of conditional sale, the debtor executed another document
(Ex.42) a regular sale deed after receiving an additional amount of Rs. 500/-
. On 9.4.63 Insolvency Application 5/63 was filed by one of the creditors of
G the debtor to get an adjudication as insolvent against the debtor. In 1964, the
debtor himself filed Insolvency Application 7/64 for being adjudicated as an
insolvent. By proceedings of the court dated 8.1.65, the debtor was adjudicated .1....-
as an insolvent and an official receiver was appointed in respect of the
properties belonging to the insolvent/debtor including the suit property. In
H the year 196 5, the receiver moved the Insolvency Court for a declaration that
T.R. MANF v. R.B. LAKULE [K. VENKATJ\SWAMI, J / 787

the sale deed namely, fa.42 dated 8.1.63 in farnur of the creditor (appellant) A
was a sham and nominal transaction and as such it was null and void. After
taking evidence. the Insolvency Court held that the said sale deed (Ex.-12) was
a sham transaction and that it was the result of the collusion between the
debtor and the creditor. ft was also found by the Insolvency Court that
possession of the suit property was never taken over by the creditor. Against B
that order of the Insolvency Court , an appeal was filed being M.C.A. 50/68
and the same was dismissed by the Extra Assistant Judge, Sangli. By an order
dated 26.6.1971, the Insolvency Court passed an order of annulment.

Thereafter the debtor filed a Civil Suit 62176 for redemption of the
mortgage fa.-11. This suit for redemption was on the footing that the sale deed C
Ex.42 was a sham and bogus document and it was never acted upon.
Simultaneously the debtor moved the authority under the Maharashtra Debt
ReJ:ef Act, 1975 for a declaration that the debt which was the subject matter
of the mortgage stood extinguished as the mortgagor being a debtor within
the meaning of the said Act. The appellant contested the said application D
contending that in view of the order of annulment and in the light of Section
37(1) of the Act, Ex.42 (sat~ deed) in his favour stood revived and therefore,
there was no relationship of debtor and creditor to move the application under
the Debt Relief Act. The authorised officer on a consideration of the documents
overruled the stand taken by the appellant and by order dated 14.4.80 held
that in view of the declaration regarding Ex.42 (sale deed) by the Insolvency E
Court and by the Appellate Court that the sale was void, the earlier document
viz. conditional sale Ex. 41 stood re,~ved and the debtor's relationship existed.
On that basis allowed the application under the Debt Relief Act. The result
was that the debt stood wiped out.
F
Aggrieved by the order of the authorised officer under the Debt Relief
Act, the appellant moved the Bombay High Court by filling WP. 3438/80.

It was contended on behalf of the appellant before the High Court that
the authorised officer was not right in holding that even after the order of
annulment, the declaration made by the Insolvency Court holding Ex.42 (sale G
deed) as null and void. holds the field. In other words, it was the case of the
appellant that the effect of the order of annulment was to wipe out altogether
the insolvency and its effect including the adjudication made on Ex.42 by the
courts and the saving clause in the first part of Section 37(1) shall not keep
the order passed by the Ir.solvency Court, affirmed by the appellant Court, H
788 SUPREME COURT REPORTS [1998] 2 S.C.R.

A declaring Ex.42 (sale deed ) as null and Yoid in force any longer. According
to the cause of the appellant, the words .. all acts theretofore'' occurring in
Section 37(1) of the Act, will not include the judicial orders passed by the
court declaring Ex.42 (sale deed) as sham and nominal. In support of that
judgements from some High Courts were placed before the Bombay High
B Court.
Contending contrary, it was argued on behalf of the debtor that in view
of the declaration by the Insolvency Court, declaring Ex.42 (sale deed) as null
and void, being sham transaction and affirmed by the Appellate Court, the
-
same is saved by the first part of Section 37(1) as it will come within the
C purview of the acts done by the court.

The Division Bench of the Bombay High Court, after referring to several
judgments of different High Courts placed before it, preferred to follow a
judgement of the Kerala High Court reported in Kumaran & Ors. v.
Cheriyambadam Ayidru & Ors., AIR (1969) Kerala 211. Ultimately the Divi&ion
D Bench held that the view taken by the authority under the Debt Relief Act
cannot be faulted and EX.42 (sale deed) was non est in the eye of law and
consequen~ly the position occupied by the parties as debtor and creditor
continued till the appointed date as contemplated by the Debt Relief Act.
Since all other conditions were satisfied, the authority was justified in ordering
E the extinguishment of the debt. On that view, the writ petition filed by the
appellant was dismissed. Hence the present appeal.

Mr. V.N. Ganpule, Senior Counsel appearing for the appellants reiterated
the same argument, namely that the effect of annulment on the facts of this
F case was to revive the validity of regular sale (Ex.42) notwithstanding the
declaration of the Insolvency court and the Appellate Court during the
pendency of the insolvency proceedings. In supp0rt of his contention. he
placed reliance on the following judgments :

(I) Jethaji Peraji Firm v. Krishnayya & Ors., (AIR) 1930 Madras
G 278.

(2) Dharmasamarajay~·a v. Sanka111111a & Ors., AIR 30 (1943) Madras
lli. ~

(3) S. Janabai Ammal v. Narasimhalu Naidu & Ors., AIR (1956)
H Madras 341).
T.R. MANE v. R.B. LAKULE [K. VENKATASWAML .I.] 789

He fairly submitted that the judgment in Ku111aran & Ors. v. A
Cheriya111badam Ayidru & Ors.. AIR (1969) Kerala 211 which is directly on
point is against his contention.

Mr. U.U. Lalit, learned counsel appearing for the respondents submitted
that the judgment of the Kcrala High Court lays down the correct law and
even AIR 1930 (Madras) 278 supports his case and not the case of the B
appellant. Mr. Lalit also pointed out that after the annulment order was
passed, the Insolvency Court did not pass any order regarding the vesting
of the property in any person and in the absence of such direction. the
property shall revert to the debtor to the extent of his right or interest therein
as per Section 37(1) of the Act. He submits that the judicial pronouncement C
declaring Ex.42 (sale deed) as null and void and the outcome of collusion
between the mortgagor and mortgagee is sm·ed by the first part of Section
37(1). The contention to the contrary that the word 'acts' will not include
orders passed by the court, according to the learned counsel, is contrary to
a plain reading of the Section. D
For a proper appreciation of the rival submissions, we give below
Section 37(1) of the Act :-

.. 17(1) Where an adjudication is annulled, all sales and dispositions
of property and payments duly made, and all acts theretofore, done, E
by the Court or receiver, shall be valid; but subject as aforesaid, the
property of the debtor who was adjudged insolvent shall vest in such
person as the Court may appoint, or, in default of any such
appointment, shall r~vert to the debtor to the extent of his right or
interest therein on such conditions (if any) as the Court may, by order F
in writing, declare.,.

(Emphasis added).

A plain reading of the above Section will show that the orders passed
by the court or receiver including adjudication of disputed question on title. G
will come within the purview of "all acts". The Kera/a High Court in Ku111aran
& Ors. v. Cheriya111bada111 Ayidru & Ors., (supra) after referring to a judgment
rendered, construing & corresponding Section of the English Bankruptcy
Act, 1869 held that an order passed by the Insolvency Court or the official
receiver could be an act within the meaning of Section 37 of the Act. H
790 SUPREME COllRT REPORTS I 1998] 2 S.C.R.
A Following the judgment of the Kcrala High Court. the Di,·ision Bench
held as folio\\ s:-

.. At least prima facic and upon the plain reading of said Section 37(1 ).
we find no justification for holding that the Declaration dated 26th
August, 1968 did not answer the Description of the ··acts•· referred to
B in said Section 37(1). After all, the Court acts in a number of ways.
When the Court grants any declaration, it cannot be said not to have
't
performed some "act" . A decree passed by the Court is one of the
acts. An order passed by the Court is another such act. Even a mere
declaration given will be another act. Point is that the expression
C "acts" is wide enough to take in its fold the declaration made by the
Court such as the one dated 26th August, 1968. On the plain reading
of the section. therefore, it is somewhat difficult to accept Mr. Apte's
contention.

Mr. Apte relied upon certain authorities in support of his
D contention that, upon the order of annulment, every order passed by
the Court became non-existent or non est. Mr. Shah, on the other
hand, relied upon quite a few authorities in support of his submission
that the order of annulment had no effect upon the declaration already
given by the Insolvency Court holding the particularly sale-deed to
E be void. We will presently examine those authorities. Here, we are
concerned with the interpretation of the section on the basis of its
plain reading.

In this connection, Mr. Apte also relied upon the subsequent portion
of said Clause ( 1) of Section 37. By the subsequent portion, the effect
F of the order of annulment is provided for. The effect is that the
property which stood vested in the Court or in the Receiver till the
date of the armulment would, from the date of the annuhnent, stand
vested in such person as the Court may appoint and if the court does
not make any appointment of any person for that purpose, the property,
G it is provided. shall revert to the debtor, no doubt, to the extent of his
right and interest therein. On the basis of this provision, the counsel
argued that no order was passed by the Insoh·ency Court appointing
any person in whom the property should vest. He argued that the
property must, therefore, go back to the person to whom it was to
H belong before the date of the adjudication.
T.R. MANE v. R.B. LAKULE [K. VENKATASWAMJ, J] 791

We are afraid, the argument is not quite correct In the instant A
case. the effect of the declaration was that the property vested in the
Receiver because the order of appointment of Receiver was very much
there. If no order was passed by the Court directing the property to
continue to vest in the Recei1·er or if there was no other order passed
by the Court directing the property to vest in any other person, the B
.. third rcsull contemplated by said clause (1) is that it would revert
back to the debtor. That means it would vest back in the debtor. The
incident of vesting is not mentioned in the order because there is no
order passed in that behalf. It could be. therefore, legitimately argued
that it would vest in the debtor entirely. We make it clear that we are
not called upon to decide this question as to whom. in given c
circumstances, the property would revert for certain. Point here is that
it would either vest in the person appointed by the Court or it would
revert back to the debtor. No position is contemplated by the said
clause ( l) that the property would revert back, in the case such as the
present one, to the ostensible purchaser under the sale deed, Ex.42. D
The purchaser under sale deed, Ex. 42, was the mortgagee/creditor.
Said clause (1) does not provide that the property would go to the
mortagee/creditor. If at all it reverts back, it would revert to the
mortagagor/debtor. The argument advanced by Mr. Apte, in fact,
boomerangs against his own contention."
E
We are in full agreement with the view taken by the Division Bench in
the judgment under appeal. We would have considered the authorities cited
by the learned counsel for the appellant, claiming to support his contention
that the effect of annulment was to the effect that the adjudication of the
Insolvency Court holding Ex.42 (sale deed) null and void, would become non
est and ineffective but for the fact that in a recent judgment of this Court in F
Arora Enterprises Ltd & Ors. v. Jnduhhushan Obhan & Ors., [1997] 5 SCC
366, which had escaped the attention of the counsel on both sides settling
the issue. This court in the said case had considered the scope of Section
37(1) and the effect of order of annulment The facts of the case dealt with
by this Court in Arora Enterprises Ltd., (supra) briefly are as follows:- G
One Indubhushan alongwith his two brothers owned certain properties.
The said Indubhushan was adjudicated as an insolvent on 29.7.1971. While
the said Indubhushan was continuing as undischarged insolvent, one Arora
Enterprises entered into an agreement on 9.5. l 988 for sale of the suit property
(Indubhushan's share) and paid a sum of Rs. 7,00,000. As the said Indubhushan H
792 SUPRFME COURT REPORTS [1998] 2 S.C.R

A failed to execute the sale pursuant to agreement, the said Arora Enterprises
filed a suit (No. l 33/89) on the basis of the said agreement. Pending the suit
Jndubhushan died on 22.-L 1989. In order to bring legal heirs of lndubhushan
on record. Arora Enterprises moved a chamber summons before a learned
Single Judge of High Court Bombay. The said chamber summons was disposed
B of by the learned Single Judge holding inter alia that the agreement of sale
was mid and unenforceable as lea1·e of Insolvency Court was not obtained
and, therefore, the suit itself was not maintainable. An appeal was filed
against the learned Single Judge ·s said order which was also dismissed by
the Division Bench on 9. 7 .1991. The result of the above orders was that the
suit filed by Arora Enterprises stood abated against lndubhushan's (estate)
C legal heirs. On 30.5.1994 the insolvency of Indubhushan was annulled.
Thereafter the legal representative of Indubhushan entered into a fresh
agreement to sell the property with one Mis.Kamal Construction Co. Taking
advantage of the order of arumlment. Arora Enterprises, the original agreement
holder, took out fresh chamber summons in an original suit (No.133/89) filed
D by it in the year 1989 praying to amend the plaint by deleting the name of
l ndubhushan and to add his legal heirs. It was the contention of Arora
Enterprises that the order of annulment wipes out the adjudication of
insolvency and the result of that was that his agreement with lndubhushan
dated 9.5.98 automatically revives and binds on his estate. It was also the
E contention that the dismissal of earlier chamber summons declining to imp lead
the legal heirs and the consequent abatement of the suit are of no con
sequence. The said application was opposed by the legal heirs as well as
Mis. Kamal Construction Co. The learned Single Judge as well as the Division
Bench rejecting the contention advanced on behalf of Arora Enterprises,
dismissed the second chamber application. Aggrieved by that, an appeal by
F special leave came to be filed in this Court and this Court after noting as many
as sixteen judgments of various High Courts on the scope of Section 37 of
the Act held as follows:-
10. Though the arguments addressed before us covered a wide range,
we are of the view that it is unnecessary to pronounce in detail on
G the various aspects iUYolved in the matter at this stage. Suffice it to
say that the preponderance of judicial opinion is in favour of the view J....--
that the effect of annulling the adjudication in insolvency proceedings,
is to wipe out the effect of insolvency and to vest the property
retrospectively in the insolvent. The consequence of annulling an
H order of adjudication is to wipe out altogether the insolvency and its
T.R. MANE r. R.B. LAKULE [K. VENKATASWAMJ, J.] 793

effect. The property will revest in the insolvent retrospectively from A
the date of 1he vesting order. We hold that the law is fairly clear to
the above extent. But this does not solve the problem arising in this
case. Thr: effect of the suit (independent(v)Jiled hv the appellant and
the orders passed therein have lo be considered. That is a distinct
and different 111atle1~ irhich has its own existence and legal impact, B
unimpaired by the annulment of the insolvency. In other words by the
annulment of insolvency and 11'iping out its effect retroactivelv, in
law, the suit and the judicial orders passed thereon are not wiped
out, or rendered void or a nullity, automatical(v. The order passed
in the suit is not non est or ineffective. In the ~uit laid by the appellant
(Suit No. 133 of 1989) praying for declaration that the agreement C
between the appellant and lndubhushan dated 9.5.88 is valid and
subsisting, that the property should be property partitioned and that
a decree may be passed against Indubhushan- the first defendant for
recovery of a sum of Rs. 7 lakhs etc.; on the demise oflndubhushan
on 22.4.89, the appellant took out Chamber Summons No. 769of1989 D
in the suit (No.133 of 1989). The court rejected the chamber summons
by a composite order on two different and distinct points - (I) the
agreement dated 9.5.88 entered between the appellant and Indubhushan
is void and unenforceable and so, the suit is not maintainable; (2) the
amendments sought by the appellant to implead Defendants l(a) to E
l(d) as Respondents 1 to 4 in place of deceased Defendant 1 and to
add the official assignee as a party defendant, were disallowed. The
legal effect of the said order is that Suit No. 133 of 1989 stood abated
against the legal heirs of the first defendant, Indubhushan and the
order passed on 2.2.90 reached finality. It so happened, as a result of F
the judicial order passed by the court in a proceeding between the
parties to this proceeding as early as 2-2-90. This order is valid until
set aside or annulled, in appropriate proceedings. It cannot be ignored.
It will have legal effect of its own, until appropriate proceedings are
taken to establish its invalidity and to get it annulled by a person
entitled to avoid it. The said order stands even today: it has not been G
set aside. So long as the said order stands, the abatement of the suit
has become unassailable in these proceedings. Nearly five years
thereafter. the appellant filed fresh Chamber Summons No. 1123 of
1995 in a non-existent suit. No factual plea as such was made to set
aside the abatement. The plea in that regard is that by the annulment H
\

~·

794 SUPREME COURT REPORTS [199812 S.C.R

A of insolvency, the abatement of the suit, if any, requires to be set
aside as a matter of law For reasons stated earlier, the abatement of
the suit (an independent proceeding). that ensued, cannot be ignored
or the proceedings in the suit revived by the annulment of insolvency.
as a matter of law"

B The above judgment of this Court squarely applies to the facts of this
case which are given in the earlier part of this judgment. Therefore, we
observed earlier that the need to go into the matter elaborately does not arise
view of the pronouncement in Arora Enterprises (supra) with which we are
in respectful agreement.
c In the result there is no merit in this appeal and the judgment under
appeal is in conformity with the recent ruling of this Court in Arora Enterprises
case (supra). Accordingly the appeal fails and is dismissed with no order as
to costs.

0 VS.S. Appeal dismissed.

;

I•