PALETI CHANDRAYYA Vs. YERUVA CHINNAPPA REDDI

JUDGEMENT

(1.) This civil miscellaneous second appeal is from the order of the learned District Judge of Guntur confirming the order of the Additional Subordinate Judge of Guntur dismissing the petition filed by five creditors of an insolvent Thomas Reddi in I. p. No. 42 of 1923 on the file of the District Court of Guntur for the grant of certain reliefs against respondents 1 and 2 in the appeal. Respondent 1 is another creditor of the insolvent and respondent 2, P.V.S. Rao, is the special receiver, Guntur. Several questions of law were argued during the hearing of the appeal. In order to appreciate them, a statement of facts is necessary. Thomas Reddi was adjudicated insolvent on 8 January 1924. The adjudication was annulled on 7th December 1927, by reason of the insolvent failing to apply for his discharge in time. While annulling the adjudication, the District Judge of Guntur passed the following order: I think that in the interest of the general body of creditors the property should vest in Mr. P.V.S. Rao, Official Receiver and order accordingly.

(2.) On 17 March 1928 one Yeruva chinnappa Reddi, respondent 1 herein, as assignee of a promissory note dated 10 May 1922 executed by Thomas Reddi instituted a suit in the Court of the Subordinate Judge of Guntur for recovery of a sum of Rs. 11,466-10-0 against the Official Receiver, Guntur, and Thomas Reddi. The debt due under the said promissory note was included in the schedule of debts filed by the insolvent. Both the defendants were ex parte and the following decree was passed: Suit decreed for the plaintiff against defendant 2 (Thomas Reddi) and his properties in the hands of defendant 1 (Official Receiver) for the suit amount, costs and interest (further interest at six per cent, per annum) as prayed for.

(3.) This decree was passed on 31 March 1928. During the pendency of the suit, Chinnappa Reddy got an order for attachment before-judgment of the moneys in the hands of the Official Receiver. Within four days of the obtaining of the decree Chinnappa Reddi filed an execution petition (E. p. No. 25 of 1928) for recovery of a sum of Rs. 7415 in the hands of the Official Receiver to the credit of the estate of the insolvent. The Official Receiver opposed the application on the ground that in spite of the annulment the insolvency must be deemed to continue, that the petition for execution was incompetent and that the amount in his hands was liable to be distributed among all the creditors of Thomas Reddi. His contentions were negatived and he was directed to deposit the money into Court. Accordingly the said money was deposited into Court and was drawn by the decree-holder, Chinnappareddi. No appeal was preferred against the said order and it became final. It was incumbent on the Official Receiver to have obtained the directions of the insolvency Court before-the payment of the money into the executing Court. He should have also carried the matter in appeal having regard to the form-of the order passed by the District Judge in vesting the property in him. His explanation is that on legal advice he dropped further proceedings and the advice was not to prefer an appeal in view of the decision in Arunagiri Mudaliar V/s. Official Reciver of North Arcot ( 26) 1926 M.W.N. 950. After drawing the said money from Court, Chinnappa Eeddi filed a second execution petition (E. P. NO. 42 of 1929) for attachment of certain decrees obtained by the Official Receiver against the debtors to the estate of the insolvent. The Official Receiver opposed the application urging the contentions which he raised in the prior execution petition. The learned Subordinate Judge upheld the objections of the Official Receiver and dismissed the petition. C.M.A. No. 182 of 1931 was filed against the said decision and the order of the learned Subordinate Judge was reversed on the ground that the Official Receiver was bound by the rule of res judicata by reason of the order in the prior E.P. No. 25 of 1928 and the decree-holder was competent to proceed with the execution. One of the points in controversy was as to the effect and scope of the said decision which was delivered by the learned Judges Curgenven and King, and reported in Chinnapareddi V/s. Official Receiver, Guntur ( 35) 22 A.I.R. 1935 Mad. 835. The Official Receiver seems to have learnt subsequently that the said Chinnappa Reddi with a view to help Thomas Reddi and as benamidar for him got an assignment of certain debts subsequent to the date of the annulment from various creditors who proved their debts in insolvency, and they were fictitious. He therefore sought to expunge the said debts from the schedule of the creditors filed by Thomas Reddi in insolvency and get appropriate reliefs in consequence thereof. He filed an application (C.P. No. 11 of 1932) in the said I.P. No. 42 of 1928 praying for the following reliefs: (1) To order the entries relating to the respondent to be expunged from the schedule of creditors and (2) to direct the respondent to refund the sum of Rs. 7415 improperly received by him; or in the alternative to declare that in any case the respondent is not entitled to participate in the assets now realised and available for distribution or in any future distribution unless and until all the other creditors are paid an equal amount of percentage as the respondent has already received, and order necessary amendments to be made in the schedule.