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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

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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.

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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.

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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

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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

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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

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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.