Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7
PETITIONER:
ARORA ENTERPRISES LTD. & ORS.
Vs.
RESPONDENT:
INDUBHUSHAN OBHAN & ORS.
DATE OF JUDGMENT: 10/03/1997
BENCH:
B.P. JEEVAN REDDY, K.S. PARIPOORNAN
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
PARIPOORNAN, J.
Special leave granted I.A. Nos. 5 and 6 of 1997 to
implead M/s Kamal Construction Co. (a partnership firm) as
additional respondent in the appeals, are allowed.
2. There are three appellants in these appeals. Appellant
No. 1 is a firm wherein appellant No. 2 and 3 are partners.
Appellants were original plaintiffs in Suit No. 133/89 in
the High Court of Bombay. These two appeals are preferred
against the judgment and orders dated 10.7.1996 passed by a
Division Bench of the Bombay High Court in Civil Appeal Nos.
464/96 and 513/96, dismissing the appeals. The first
respondent was originally the first defendant. Respondent
Nos. 1(a) to 1(d) are his legal heirs. Respondent Nos. 2 and
3 are co-owners of the property in question. Respondent No.4
is M/s Kamal Construction Co. (a firm).
3. Original defendant No.1, Indubhushan M. Obhan, died
pending the suit . He owned and possessed 1/3rd undivided
share in the property measuring 20569.51 sq. mts. situate in
Kanjur village, Kurla Taluk, Bombay. The other two co-owners
are his brothers. Indubhushan was adjudicated as an
insolvent on 29.7.1971. Evidently, this aspect seems to have
been published in the Gazette and also in the Newspapers. PM
9.5.1988, while Indubhushan was still an undischarged
insolvent, an agreement for sale of the suit property was
entered into between the plaintiffs in the suit and the said
Indubhushan. Under the said agreement, the plaintiffs seem
to have been deposited a sum of Rs.7 lacs with Indubhushan,
towards the sale of the share in the property owned by
Indubhushan. Stating that Indubhushan, the first defendant
committed breach of the said agreement and has also started
construction work on the land agreed to be sold to the
plaintiffs, suit No. 133/89 was laid in the High Court of
Bombay by the appellants herein claiming the following
reliefs:
(a) to declare that there is a
valid, subsisting and binding
agreement between the appellants
and the first defendant, as
contained in the agreement dated
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7
9.5.1988;
(b) that the properties be
properly partitioned by metes and
bounds in three separate parts and
one plot marked in red colour be
allotted to the appellants;
(c) that the defendants in the
suit (Indubhushan and his two
brothers) be ordered to
specifically perform the said
agreement;
(d) in the alternative, the
defendants be ordered to pay a sum
of Rs. 2 crores;
(e) in the alternative, a decree
may be passed against the first
defendant for recovery of a sum of
Rs. 7 lacs with 18% interest per
annum;
(f) that upon failure of the
defendants to pay the said amount,
the property may be sold to the
appellants to the extent of the
share owners the first defendant;
etc.
(It may be mentioned that defendant Nos. 2 and 3 are
the brothers of Indubhushan -- the first defendant). It
appears that Indubhushan had initiated proceeding by taking
notice of motion for annulment of this insolvency. While so,
the first defendant -- Indubhushan died on 22.4.1989. The
proceeding initiated for annulment of insolvency proceeding
was withdrawn by his counsel. The appellants took out
chamber summons 769/89 in the suit to bring on record
respondent Nos. 1 to 4 therein, as defendant No. 1 as his
legal heirs and also to appoint guardian for the minors
respondents 2 to 4 and add respondent No.5 - the official
assignee of the High Court of Bombay as party defendant No.4
in the suit. Prayer to amend the plaint in terms of the
draft amendment mentioned in the schedule containing the
above prayer was also specified. The Chamber summons is
dated 21.7.1989. The above chamber summons came up for
hearing and disposal before Variava, J. on 2.2.1990. It
seems the suit was not posted to the day. After hearing
Counsel for the parties, the learned Judge passed the
following order on 2.2.1990:
"Suit to enforce Agreement entered
into by Defendant No. 1, who was an
Insolvent. Till date leave of
Insolvency court not obtained.
Clear that Agreement is void and
unenforceable and suit not
maintainable.
Amendments seek to convert
this suit. In my view, cannot be
allowed to this.
Chamber summons dismissed.
No order as to costs."
(emphasis supplied)
The appellants (plaintiffs in the suit) filed Appeal
No. 413/91 against the aforesaid order of the learned single
Judge of the High Court of Bombay dated 2.2.1990, before a
Division Bench. The Division Bench summarily dismissed the
appeal by its judgment and order dated 9.7.1991. The result
of the above proceedings is that the suit (No. 133/89) stood
abated against Indubhushan’s (estate) legal heirs.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7
4. It appears that the legal heirs of the original first
defendant entered into an agreement with M/s. Kamal
Construction Co. (a firm) for sale of the suit property. M/s
Kamal Construction Co. have filed I.A. Nos. 5 and 3 of 1997
to implead them as a party respondent in the appeals. (We
have allowed the same). On 3.5.1994, the insolvency of
Indubhushan to sell the property was entered into between
the legal heirs of Indubhushan and M/s Kamal Construction
Co. on 2.9.1995. On 20.11.1995, the appellants took out
fresh chamber summons No. 1123/95 (in suit No. 133/89),
praying to amend the plaint by deleting the name of
defendant No.1 - Indubhushan - from the title of the suit
and in his place to add the names of defendant Nos. 1(a) to
1(d) -- respondents herein, as the legal heirs of deceased
defendant No. 1. According to the appellants, as a result of
annulment of insolvency stands wiped out and the agreement
entered into by the appellants with the original first
defendant dated 9.5.1988 revived and binding on his estate,
and the dismissal of the earlier chamber summons declining
to implead the legal heirs and the consequent abatement of
the suit are of no consequence, as they are non est and
ineffective, that the appellants are entitled to have the
said heirs on record of the suit and to have the abatement,
if any set aside as a matter of law and so, the proposed
amendments to implead the legal heirs of defendant No. 1
should be allowed. The legal heirs of the first defendant
(respondent herein) as also M/s. Kamal Construction Co.
opposed the above motion and contended inter alia that the
earlier order passed in chamber summons No. 769/89,
declining to implead the legal heirs and to implead the
official assignee has become final and conclusive and the
suit (No.133/1989) stood dismissed by a learned single Judge
and affirmed by a Division Bench. It was further stated that
the above suit itself has abated by non-impleadment of the
legal heirs within the time allowed by law and, so the
present notice of motion should be rejected. Similarly, the
appellants took out another chamber summons No. 14 of 1996
in the said suit to implead M/s Kamal Construction Co. and
also praying to declare that the agreements entered into the
legal heirs of defendant No. 1 and M/s Kamal Construction
Co. dated 13.4.1994 and 20.9.1995 are invalid. The above two
chamber summons i.e. No.1123/95 and 14/96 were dismissed by
a learned single Judge of the Bombay High Court by his order
dated 8.3.1996. While passing the order in chamber summons
no. 1123/95, the learned single Judge adverted to the
earlier proceeding which resulted in the dismissal the
earlier proceedings which resulted in the dismissal of
chamber summons NO. 769/89 by Variava, J., and held that
there was no change in the circumstances for the appellant
to take fresh chamber summons No. 1123/95 that the order
passed on 2.2.1990 holding (a) that the agreement between
the appellants and the first defendant is void and the suit
is not maintainable, has become final, and (b) that no case
has been made out by the appellant for setting aside the
abatement of the suit, as against the estate of the first
defendant. As a sequel thereto, Chamber summons No. 14/96 to
implead M/s Kamal Construction Co. as 5th respondent was
also dismissed. The appeals filed by the appellants from the
aforesaid common judgment and order as Appeal No.513/96 and
Appeal No.464/96 were dismissed by a Division Bench of the
High Court of Bombay by its judgments and order dated
10.7.1996. The original plaintiff have come up in appeals
against the aforesaid judgments and orders so rendered by
the High Court in Civil Appeal Nos. 464/96 and 513/96 dated
10.7.1996.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7
5. We heard Shri Soli J. Sorabjee, Senior Counsel who
appeared for the appellants, and M/s Dr. Dhanuka and Shri
K.K. Venugopal, Senior Advocates who appeared for the
respondents. The arguments advanced before us covered a wide
range. It may not be necessary to adjudicate the rival
contentions urged before us in detail, in the light of our
conclusion regarding the scope of the order passed in
chamber summons No.769/89 dated 2.2.1990. We shall only
indicate in brief the rival pleas urged before us and our
conclusion thereon.
6. At this juncture, we should bear in mind a crucial
aspect in these cases. The appellants filed the suit against
Indubhushan (defendant No. 1) on 13.1.1989. Indubhushan died
on 22.4.1989. On that day he was an undischarged insolvent.
The appellants took out chamber summons No. 769/89 in suit
No.133/89. After hearing the parties, a learned single Judge
of the Bombay High Court by order dated 2.2.1990, rejected
the chamber summons on two distinct and different grounds.
They are - (1) the agreement dated 9.5.1988 between the
appellants and Indubhushan is void and unenforceable and so,
the suit for specific performance of the said agreement is
not maintainable; (2) the amendments sought by the
appellants to delete the name of the first defendant and to
implead defendant Nos. 1(a) to 1(d) (as respondents 1 to 4 )
in place of the deceased defendant No.1 and to add the
official assignee as a party defendant, were disallowed.
Though, the motion to implead the legal heirs seems to
have been made in time, the prayer to amend the plaint to
bring the legal heirs of defendant No. 1 on record was
declined after hearing the parties, by passing a judicial
order as early as 2.2.1990. Thereby, the suit (No.133/89)
stood abated against defendant No. 1 and his legal heirs. It
is long thereafter, after a lapse of five years, the
appellants initiated proceedings for the issue of another
chamber summons No. 1123/95(in the suit -- which has abated
against the estate of the first defendant), making a fresh
attempt to bring the legal heirs of the first defendant on
record and prayed for appropriate amendment of the pleading
in that regard. According to the appellants, the abatement
of the suit as against defendant No.1 by reason of the non-
impleadment of the heirs of the original defendant No. 1, is
non est and ineffective and the abate of the suit, if any
require to the set aside, as matter of law , in view of the
annulment of insolvency by order dated 30.5.1994. We shall
advert to these aspects, later in our judgment.
7. Shri Soli J. Sorabjee, Senior Counsel for the
appellants, urged the following points:
The adjudication of Indubhushan as insolvent on
29.7.1971 stood wiped out by the order of the annulment of
the same on 30.5.1994. The legal effect of annulment is to
wipe out the insolvency and to restore the state of affairs
as on the date of adjudication. In this perspective, the
order dated 2.2.1990 passed in chamber summons No. 769/89
declining to implead or bring on record the legal heirs of
Indubhushan is of no effect. There is no prohibition in law
to enter into an agreement with an undischarged insolvent.
In view of the annulment of the insolvency, the property
revested in the insolvent and the original agreement to sell
dated 9.5.1988 entered into by the appellants with
Indubhshan, is alive and enforceable. In this view, the High
Court was in error in holding that the earlier order passed
in Chamber summons No. 769/89 is a bar for the present
motion by way of chamber summon NO.1123/95 to bring on
record the legal representative of Indubhushan and for grant
of appropriate reliefs. The agreement entered into by the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7
legal heirs of Indubhshan with respondent No. 4 was also
before the annulment of the insolvency proceeding and so it
also vitiated. According to counsel, the entire matter
requires a fresh look in view of the legal effect of
annulment of insolvency proceedings which is to restore the
state of affairs as on the date of adjudication and to
ignore all subsequent events. To substantiate the above
points counsel brought to our notice the following
decisions:-
Rup Narain Singh and another vs. Har Gopal Tewari and
others [AIR 1933 Allahabad 449]; Subbaiah Goundan v.
Ramasami Goundan and others [AIR 1954 Mad. 604 (FB)] at page
613 para 28 and Page 618 para 40]; Bhyradevanhalli Lingappa
v. Official Receiver, Bellary [AIR 1937 Mad. 717-718;
Ratnavelu Chettiar v. Franciscu Udayar and Others [AIR 1945
Mad. 388; Ps.Ar.Ar. Arunachalam Chettiar v. Narayanaswami
Goundar [AIR 1951 Mad. 63(FB) at page 62 par 7; Gamoji
Venkata Ramakrishnarao v. Gullapalli Sambamurti [AIR 1951
Mad. 581]; C. Jabbarchand and other v. Mrs. c. Oliver and
another [AIR 1965 Mysore 117]; Kumari Rangappa v. Reddi
Govinda Reddy and Other [AIR 1963 Andhra Pradesh 228];
Gunupudi Subba Rao & Co. v. Boggarapu Gurusmany [AIR 1966
Andhra Pradesh 25(26)], Passages from Mulla on The Law of
Insolvency in India (Third Edition) para 343 and 344.
8. On the other hand Mr. Dhanuka and Mr. Venugopal, Senior
Counsel, who appeared for the respondents submitted thus:
The effect of the order passed in chamber summons No.
769/89 dated 2.2.1990 is a dismissal of suit No. 133/89 and
that is the end of the matter. There is no pending suit in
which the proceedings by way of chamber summons No. 1123/95
could be filed. The suit had abated long; ago and the
abatement has not been set aside. There is inordinate delay
in the matter. Even in the present chamber summons
No.1123/95 thereis no prayer factually, as such, to set
aside the abatement of the suit. The only plea is that the
abatement of the suit, if any , requires to be set aside, as
a matter of law. This plea is untenable. The suit stated to
pending, is against a dead person. No proceeding will lie in
the said suit. Suit No. 133/89 itself was filed without
obtaining leave, which is a condition precedent. The defect
is fatal. It has no existence in law. In any view of the
matter, since the earlier order dated 2.2.1990 refusing to
implead or bring on record the legal heirs of Indubhushan,
has become final and conclusive, the suit has abate. By
initiating the present chamber summons No. 1123/95 in a non-
existent suit, the attempt is (to bring on record) to
implead the legal heirs of Indubhushan; such indirect
attempt to implead the legal heirs of Indubhushan, after the
suit has abated and after inordinate delay, is patently
unsustainable. The legal heirs of Indubhushan had entered
into a valid contract with 4th respondent after the
annulment of the insolvency on 20.9.1995. In pursuance
thereto , 4th respondent took possession of the property,
made vast improvement therein and has built 12 flats and has
sold the same. Even though insolvency was annulled on
30.5.1994, the proceeding by way of chamber summons
No.1123/95 was initiated only on 20.11.1995, more than 18
months after the annulment of insolvency. There is
inordinate delay in the matter and the rights of third
parties have intervened; and the court below was justified
in dismissing chamber summons No.1123/95 taking into account
the earlier proceeding. Our attention was invited to the
following decisions :-
Kisan Sitaram Ambekar and others v. Sitaram Tulsiram
and others [AIR 1951 Nagpur 241]; Jehangir Gursetji Mistri
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7
v. Kastur Pannaji Oswal [AIR 1939 Bom. 344]; Davood Mohideen
Rowther v. Sahabdeen Sahib [AIR 1937 Mad. 667]; Katragadda
Sreeramamma v. Official Receiver, Guntur & anr. [AIR 1955
Andhra Pradesh 115]; Bai Pani Vankar v.; Madhabhai Galabhai
Patel [AIR 1953 Bom. 356]; Firm Sarju Prasad-Bhagwati Prasad
Sah v. Rajendra Prasad and others [AIR 1937 Allahabad 271];
Satyadhyan Ghosal and others v. Smt. Deorajin Debi another
[AIR 1960 SC 941]; and passages from Mulla on the law of
Insolvency in India (Third Edition) para 238.
9. Though the arguments addressed before us covered a wide
range, we are of the view that it is unnecessary to
pronounce in detail on the various aspects involved in the
matter at this stage. Suffice it to say that pre-ponderance
of judicial opinion is in favour of the view that the effect
of annulling the adjudication in insolvency proceeding, is
to wipe out the effect of insolvency and to vest the
property retrospectively in the insolvent. The consequence
of annulling an order of adjudication is to wipe out
altogether the insolvency and its effect. The property will
revest in the insolvent retrospectively from the date of the
vesting order. We hold that the law is fairly clear to above
extent. But this does not solve the problem arising in this
case. The effect of the suit (independently) filed by the
appellants and the order passed therein have to be
considered. That is a distinct and different matter, which
has its own existence and legal impact, unimpaired by the
annulment of the insolvency. In other words, by the
annulment of the insolvency and wiping out its effect
retroactively, in law, the suit and the judicial orders
passed thereon are not wiped out, or rendered void or a
nullity, automatically. The order passed in the suit is not
non est or ineffective. In the suit laid by the appellants
(suit No.133/89), praying for declaration that the agreement
between the appellants and Indubhushan dated 9.5.1988 is
valid and subsisting, that the property should be properly
partitioned and that a decree may be passed against
Indubhushan-first defendant for recovery of a sum of Rs. 7
Lacs etc; on the demise of Indubhushan on 22.4.1989, the
appellant took out chamber summons No.769/89 in the suit
(No.133/1989). The court rejected the chamber summons by a
composite order on two different and distinct points -- (1)
the agreement dated 9.5.1988 entered between the appellants
and Indubhushan is void and unenforceable and so, the suit
is not maintainable; (2) the amendments sought by the
appellants to implead defendants 1(a) to 1(d) as respondents
1 to 4 in place of deceased defendant No.1 and to add the
official assignee as a party defendant, were disallowed. The
legal effect of the said order is that Suit No.113/89 stood
abated against the legal heirs of the first defendant,
Indubhushan and the order passed on 2.2.1990 reached
finality. It so happened, as a result of the judicial order
passed by the court in a proceeding between the parties to
this proceeding as earl y an 2.2.1990. 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 proceeding are taken to establish its
invalidity and to get it annulled by a person entitled to
avoid it. The said order stand even today; it has not been
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 appellants filed fresh
chamber summons No. 1123/95 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 of
insolvency, the abatement of the suit, if any, requires to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7
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.
Moreover, there is inordinate delay, even if such prayer
was made in the application. The attempt made in chamber
summons No.1123/95 to bring the legal heirs of the first
defendant on record, is a futile attempt to bring back to
life a suit which no longer existed. The legal effect of the
order passed in chamber summons No. 769/89 dated 2.2.1990
has resulted in the abatement of the suit against the legal
heirs of the first defendant- Indubhushan. In such state of
affairs, the fresh chamber summons taken (No.1123/95) in a
nonexistent suit, is patently barred, unsustainable in law
and merits no consideration. In this view of the matter, we
affirm the judgments and order passed by the High Court and
no interference is called for in these appeals. The appeals
are without merit and are dismissed. There will be no order
as to costs.