Letters Patent Appeal No. 32 of 1947

14th March, 1950.

Petitioner Counsel: T.N. Walawakar - . M.G. Chitale - for Respondent.

JUDGMENT

CHAGLA, C.J. :-The few facts which give rise to this Letters Patent appeal may be briefly stated. One Hirachand Gandhi was adjudicated insolvent on 25th June 1927. He had sold a property on 26th May 1923, to one Paraswar and Paraswar in his turn sold the property to the appellant on 27th July 1923. The alienation by the insolvent in favour of the appellant was set aside by the Insolvency Court on 17th June 1931. An appeal was preferred to the District Court and the appeal was dismissed on 11th April 1932. There was a second appeal to the High Court which was also dismissed on 22nd February 1935. The receiver obtained possession of the property on 29th October 1933, and on 23rd March 1936, he made an application for mesne profits. The Insolvency Court awarded to him mesne profits from the date when the appellant was in possession, viz., 27th July 1923, till the receiver went into possession, and that amount came to Rs. 3,155. From this order an appeal was preferred to the District Court and that appeal was dismissed. The second appeal came before Bavdekar, J., who took the same view as the two Courts below, and thereupon he dismissed the appeal. Then on an application made to him he gave a certificate for Letters Patent appeal, which appeal has now come before us.

2. The main question that has been argued before us by Mr. Walawalkar on behalf of the appellant is that the application of the receiver for mesne profits is barred except to the extent of about seven months, and the contention urged is that Art. 100 applies to the facts of this case. Article 109 provides for limitation for a suit filed for the profits of the immovable property belonging to the plaintiff which have been wrongfully received by the defendant, and the limitation is three years and limitation begins to run from the date when the profits were received. This application of the receiver was made under S. 4, Provincial Insolvency Act. That section empowers the Insolvency Court to decide all questions, whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the orgnizance of the Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any each case. It is clear that the section is declaratory of the jurisdiction of the Insolvency Court. It does not in any way alter any law, nor does it deprive any party of any rights that it might have under the law. Section 5, Provincial Insolvency Act provides that subject to the previsions of this Act, the Court, in regard to proceedings under this Act, shall have the same powers and shall follow the same procedure as it has and follows in exercise of original civil jurisdiction. It is urged by Mr. Chitale that Art. 109 only applies to suits which are filed

for recovery of mesne profits, and inasmuch as the application of the receiver is not a suit, Art. 109 cannot apply to such application. Mr. Chitale goes further and contends that the application of the receiver can never be barred by the law of limitation as there is no article in the Indian Limitation Act which applies to any application made by the receiver under S. 4, Provincial Insolvency Act. It is perfectly true that although in deciding this application the Court has got to follow the same procedure as it follows in exercise of original civil jurisdiction, the application by the receiver cannot be leaked upon as a suit. It may be in the nature of a suit, the same procedure might be applied to it as might be applied if the receiver had filed a suit, but strictly the Limitation Act would not apply to such an application. But the difficulty in Mr. Chitale's way is this. If the receiver had filed a suit instead of making an application under S. 4, it cannot be disputed that it would have been open to the appellant to plead limitation and to plead it successfully. If the receiver had filed a suit toe recovery of mesne profits, he could not have recovered more than for three years prior to the filing of the suit. Can it be contended that the tight which the appellant had to plead the statute of limitation has been lost to him because an application is made by the receiver under S. 4 instead of a suit having been filed by him ? It is also well settled that S. 4 merely empowers the Insolvency Court to try matters referred to in that section. It does not in any way oust the jurisdiction of the ordinary Court, and the Insolvency Court has always the discretion instead lot trying a matter under S. 4 to refer the receiver to a suit. As I said before, if S. 4 is merely declaratory of the jurisdiction of the Insolvency Court, and does not in any way alter or amend the law not deprives the party of its rights, then it (Cannot be said that merely by reason of the (receiver adopting one procedure rather that the other making an application under S. 4 rather than filing a suit, the appellant could possibly be deprived of his right to plead the statute of limitation. In our opinion, when an application is made under S. 4 by the receiver, the Court is bound to consider all the defences that are open to the party against whom the application is made. Any defence that could be pub forward by the party in a suit would be equally available to him in an application made by the receiver. Therefore, although the Limitation Act does not apply to the application made by the receiver inasmuch as the defence under the Limitation Act was open to the appellant if a suit had been filed by the receiver, that defence is equally available to him in this application of the receiver.

3. Our attention has been drawn to it Full Bench decision of the Madras High Court reported in Mathuswami v. Official Assignee, Madras, 59 Mad 1020 : (AIR (23) 1936 Mad 778 FB). There the application was under S. 7, Presidency Towns Insolvency Act, and the application was similar to the one here, viz., to account for rents and profits, and the Court held that the mortgagee was liable for mesne profits only for a period of three years immediately preceding the Official Assignee's application. The Court relied on a decision of the English Court, to which I shall presently refer Ka Mantell : Ex parte Norton, (1892) 66 LT 245 and the reasoning of the judgment of the Madras Full Bench was that an application in insolvency under S. 9 must be looked upon as equivalent to a suit, and therefore they held that the Indian Limitation Act applied to the application. With very great respect, while entirely agreeing with the conclusion which the Madras Full Bench came to, we do not accept the reasoning, because, as I said before, it cannot be said that the Limitation Act can apply to an application which is a suit by analogy. Limitation Act has got to be construed strictly, and if Art. 109 only applies to suits, it cannot be said that it should be made applicable to proceedings which are other that suits merely by analogy. Turning to the English case, one finds in the judgment of Lord Justice Fry the proposition laid down that when the Legislature by S. 72, Bankruptcy Act, 1869, (which corresponds to S. 7, Presidency-Towns Insolvency Act and S. 4. Provincial Insolvency Act), gave power to the Court of Bankruptcy to decide all questions, whether of law or fact, arising in any case of bankruptcy, that transference of jurisdiction was not intended to alter the liabilities and rights of persons proceeding in the Court of Bankruptcy. With respect we subscribe to that proposition. Therefore, if the appellant; could have successfully pleaded limitation in a suit which might have been filed by the receiver, it would be open to him in these proceedings to plead the same defence.

4. But the question that arises is whether Art. 109 is the proper article which applies to the facts of this case. In setting aside the alienation the Court held that the alienation was nominal and fictitious and the title never passed from the insolvent to the appellant. Therefore, from the date of the alienation the appellant was a constructive trustee foe the insolvent. Now, Art. 103 only applies when profits of a properly have been wrongfully received by the defendant. It cannot be said in this case that the profits of the property were wrongfully received by the appellant. He was in possession of the property with the consent

of the insolvent, and as no title passed to him, he became a constructive trustee for the appellant. Therefore, the proper claim of the receiver against the appellant is not for mesne profits but for accounts against and constructive trustee. In that view of the case, it is not Art. 109 that would apply but Art. 120. The Privy Council in Satgur Prasad v. Har Narain Das, 59 IA 147 : (AIR (19) 1932 PC 89) were dealing with a claim made by the plaintiff for mesne profits against the defendant who had obtained possession of immoveable property under a deed which the Court found has been procured by the defendant by fraud and undue influence. The Court also found that the defendant was in a fiduciary relation to the plaintiff, and the Privy Council held that the plaintiff was entitled to mesne profit a not from the date of the suit but from the date when the deed was executed, and the view that the Privy Council took was that the defendant was a trustee under S. 88, Trusts Act, and he was bound to hold any advantage gained by him for the benefit of the plaintiff. Mr. Chitale has relied on this judgment for the proposition that a trustee is liable to pay profits made by him from the date when the alienation was made in his favour. That is a correct proposition of law, but the Privy Council in this case was not considering any question of limitation. In fact no question of limitation arose because the suit was tiled within three years of the execution of the deed by the plaintiff in favour of the defendant. Therefore, there can be no doubt that the liability to account on the park of the appellant arises from 27th July 1923. The question is whether the right of the receiver to get accounts from the appellant is barred by limitation, and, as I said before, if Art. 120 applies then the limitation would begin to run when the right to sue accrued to the receiver. The Privy Council has laid down in Annamalai Chettiar v. Matkukaruppan Chettiar, 58 IA 1 : (AIR (18) 1931 PC 9) as to when limitation begins to run in suits falling under Art. 120, and their Lordships have held that the right to sue does not accrue so as to cause time to run under Art. 120 until there has been an infringement, or at least an unequivocal threat to infringe, the right asserted in the suit.

5. Therefore, what we have to find is as to when there was as infringement or at least an unequivocal threat to infringe by the appellant of the right of the receiver which he asserted in this application, viz., to recover the profits made by the appellant by possession of the property. It appears that, as I have pointed out, the alienation was set aside on 17th June 1931, but we cannot ascertain from the record as to when the receiver made an application for setting aside the alienation. Presumably, if the application was made, a written statement must have been filed by the appellant denying the right of the receiver to set aside the alienation and denying the title of the insolvent and claiming title in himself. That would be a clear infringement of the right of the insolvent and of the receiver, and therefore limitation would begin to run from that date. If that date is less than six years from the date when the receiver made the present application, viz., 23rd March 1936, then the receiver would be entitled to accounts and those accounts must be given by the appellant from 27th July 1923. If, on the other hand, this denial of the right by the appellant was beyond six years from the date of the filing of the application, then the right of the receiver to obtain accounts would, be barred.

6. We would, therefore, send this appeal back to the Insolvency Court to dispose of it in the light of this judgment. What the Insolvency Court will have to ascertain is when did the appellant for the first time unequivocally deny the right of the receiver to the property which the insolvent had alienated to him. It is from that date that limitation would begin to run, and the trial Court will either confirm the decree passed by it if it finds that the application of the receiver is in time or it will dismiss the application of the receiver if it hands that the application is out of time. Costs of all the Courts will be costs in the application.

Case Sent Back