Supreme Court of India

ARORA ENTERPRISES LTD. AND ORS.versusINDUBHUSHAN OBHAN AND ORS.

Citation: 1997 INSC 243
Decided: 10 March 1997
Disposal: Dismissed
Bench: B P JEEVAN REDDY

Holding

Annulment of insolvency restores the insolvent's property retrospectively but does not automatically invalidate prior court orders; the earlier order abating the suit remains valid until expressly set aside, rendering the fresh chamber summons barred.

Summary

Arora Enterprises Ltd. and others sued Indubhushan Obhan, an undischarged insolvent, for declaration that a sale agreement was valid and for recovery of money. After Obhan's death, the plaintiffs sought to implead his legal heirs via a chamber summons, which the trial judge dismissed on the grounds that the agreement was void because the defendant was insolvent and that the amendment was not permissible, resulting in the suit abating against the heirs. The insolvency adjudication was later annulled, restoring the property to the insolvent retrospectively, and the plaintiffs filed a fresh chamber summons five years later seeking to set aside the abatement as a matter of law. The High Court dismissed the fresh summons, holding the earlier abatement order remained valid. The Supreme Court held that while annulment of insolvency wipes out the insolvency and restores the property, it does not automatically nullify independent court orders; the earlier order abating the suit remains effective until expressly set aside, making the fresh chamber summons barred and unsustainable. Consequently, the appeal was dismissed.

Issues considered

The effect of annulment of adjudication in insolvency proceedings on the property and on pending civil suits.
Whether the abatement of a suit caused by failure to implead legal heirs can be set aside as a matter of law following the annulment of insolvency.
Whether a fresh chamber summons can be filed in a suit that has already abated.

Subjects

InsolvencyAnnulment of adjudicationAbatement of suitChamber summonsVoid agreementUndischarged insolventCivil ProcedureAmendment of plaintRetrospective vesting

Judgment

ARORA ENTERPRISES LTD. AND ORS. A
v.
INDUBHUSHAN OBHAN AND ORS.

MARCH 10, 1997
B
[B.P. JEEVAN REDDY AND K.S. PARIPOORNAN, JJ.]

Insolvency Act, 1920 :

Insolvency proceedings-Effect of annulling adjudication of-Suit filed
by plaintiffs for declaration that agreement between them and first defendant, C
an undischarge insolvent, for sale of property was valid and binding and for
a decree for recovery of amount paid by f om1er to later-On death of first
defendant, plaintiff took out chamber summons in said suit to bring on record
LRs of first defendant as defendants in his place-Chamber summons dis-
\ missed by court on two points--Firstly, sale agreement was void and unenfor: D
ceable, therefore, suit not maintainable-Secondly, amendments sought by
plaintiffs to implead LRs of first defendant could not 1Je allowed-Conse-
quently suit stood abated against LRs of first defendant and order of court
attained finality-Meanwhile insolvency proceedings annulled-Five years
afte; dismissal of chamber summons fresh chamber summons filed by plain-
tiffs in the same suit praying for amendment of plaillt by deleting name of E
first defendant from title of suit and to sulistitute names of his Lrs in his
place-No factual plea made to set aside: abatement-Held : Annulling of
insolvency proceedings wiped out insolvency and"its effect-Property of insol-
vent revested in him retrospectively from date of vesting order-But thereby
the suit and judicial orders passed thereon were not rendered null and void F
automatically until set aside or annulled in appropriate proceedings-11ze suit
having become non-existent, fresh chamber summons in such suit was barred
and unmstainable in law.

The appellants filed a suit in the High Court for a declaration that
the agreement between them and the first defendant-respondent, an undis- G
charged insolvent, for sale of property by the latter was valid and binding
and for a decree for recovery of the amount paid by the appellants to the
said first defendant. On the death of the first defendant, the appellants
took out chamber summons in the said suit to bring on record the legal
heirs of the first defendant as defendants in his place. The chamber H
857
858 SUPREME COURT REPORTS [1997) 2 S.C.R.

A summons was dismissed by a Single Judge on two points viz., that the sale
agreement was void and unenforceable and, therefore, suit was not main-
tainable and amendments sought by appellants to implead the legal heirs
of the first defendant could not be allowed. A Division Bench of the High
Court dismissed the appeal filed by the appellants. Consequently, the suit
B stood abated against the legal heirs of the first defendant and the order
of the Court attained finality.

In the meanwhile insolvency proceedings of the first defendant were
annulled. Five year after dismissal of the chamber summons, the appel-
lants took out fresh chamber summons in the same suit praying for
C amendment of the plaint by deleting the name of the first defendant from
the title of the suit and to substitute the names of his legal heirs in his
place. No factual plea made to set aside the abatement. The only plea made
was that the abatement of the suit, if any, required to be set aside as a
matter of law and that the orders made in the earlier summons were non-est
and ineffective. The High Court dismissed the fresh chamber summons.
D Hence this appeal.

Dismissing the appeal, this Court

HELD : 1.1. The effect of annulling the adjudication in insolvency
E proceedings is to wipe out altogether the insolvency and its effect. The
property will revert in the insolvent retrospectively from the date of the
vesting order. [867-B]

1.2. However, the effect of the suit (independently) filed by the appel-
lants and the orders passed therein have to be considered. That is a distinct
p and different matter, which has its own existence and legal impact, unim-
paired by the annulment of the insolvency and wiping out its effect retroac-
tively, 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. This order is valid until set aside or
annulled. It cannot be ignored. It will have legal effect of its own, until ap-
G propriate 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 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 in a non-existent suit. No
H factual plea as such was made to set aside the abatement. The plea in that
ARORA ENTERPRISES LTD. v. INDUBHUSHAN OBHAN 859

regard is that by the annulment of insolvency, the abatement of the suit, if A
any, requires to be set aside as a matter of law. The abatement of the suit (an'
independent proceedings), that ensued, cannot be ignored or the proceed-
ings 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 the fresh chamber summons to bring the
legal heirs of the first defendant on record, is a futile attempt to being back B
to life a suit, which no longer existed. The legal effect of the order passed in
the earlier chamber summons has resulted in the abatement of the suit
against the legal heirs of the first defendant. In such state of affair, the fresh
chamber summons taken in a non-existent suit, is patently barred, unsus-
tainable in law and merits no consideration. [867-C, H, 868-A-C] C

Rup Narain Singh & Anr. v. Har Gopal Tewari & Ors., AIR (1933) All
449; Subbaiah Goundan v. Ramasami Goundan & Ors., AIR (1954) Mad
604 (FB); Bhyradevanhalli Lingappa v. Official Receiver, Bellary, AIR (1937)
Mad. 717; Ratnavelu Chettiar v. Franciscu Udayar & Ors., AII,i (1945) Mad D
388; Ps. Ar. Arunanchalam Chettiar v. Narayanaswami Goundar, AIR
(1951) Mad 63 (FB); Gamoji Venkata Ramakrishnarao v. Gu/lapalli Sam-
bamurti, AIR (1951) Mad 581; C. Jabbarchand & Ors. v. Mrs. C. Oliver &
Anr., AIR (1965) MYS 117; Kumari Rangappa v. Reddi Govinda Reddy &
Ors., AIR AP 228, Gunupudi Subba Rao & Co. v. Boggarapu Guruswamy,
AIR (1966) AP 25; Kisan SitaramAmbekar& Ors. v. Sitram Tulsiram & Ors., E
AIR (1951) Nag 241; lehangir Gursetji Mistri v. Kastur Pannaji Oswal, AIR
(1939) Born 344; Davood Mohindeen Rowther v. Sababdeen Sahib, AIR
(1937) Mad 667; Katragadda Sreeramamma v1 Official Receiver, Guntur &
Anr., AIR (1955) AP 115; Bai Pani Vankar v. Madhabhai Galbhai Patel, AIR
(1953) Born 356; Firm Sarju Prasad Bhagwati Prasad Sah v. Rajendra F
Prasad & Ors., AIR (1937) All 271 and Satyadhyan Ghosal & Ors. v. Smt.
Deorajin Debi & Anr. AIR (1960) SC 941, referred to.

Mulla : "The Law of Insolvency in India", 3rd. Edn. Paras 238, 343
and 344, referred to.
G
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 1844-45
of 1997.

From the Judgment and Order dated 10.7.96 of the Bombay High
Court in C.A. Nos. 464, 513 of 1996. H
860 SUPREME COURT REPORTS [1997] 2 S.C.R.

A Soli J. Sorabjee, R.S. Suri, Rohit K. Aggrawal, Gopal Jain, Jagjit
Singh for the Appellants.

D.R. Dhanuka, Vinod Mistry, Alok Singh and V.B. Joshi for the
Respondent No.l K.K. Venugopal, Alok Singh and Umesh Bhagwat for
the Intervenor.
B
The Judgment of the Court was delivered by

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
C respondent in the appeals, are allowed.

2. There are three appellants in these appeals. Appellant No. 1 is a
firm wherein appellant Nos. 2 and 3 are partners. Appellants were original
plaintiffs in Suit No. 133/89 in the High Court of Bombay. these two
appeals ar preferred against the judgment and orders dated 10.7.1996
D 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. l(a) to l(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).
E 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. lndubhushan was adjudicated
as an insolvent on 29.7.1971. Evidently, this aspect seems to have been
F published in the gazette and also in the Newspapers. On 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
G 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 :

H (a) to declare that there is a valid, subsisting and binding agree-
ARORA ENTERPRISES LTD. v. INDUBHUSHAN OBHAN {PARIPOORNAN, J.J 861

ment between the appellants and the first defendant, as A
contained in the agreement dated 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;
B
(c) that the defendants in ihe suit (Indubhushan and his two
brothers) be ordered to specifically perform the said agree-
ment;

(d) in the alternative, the defendants be ordered to pay a sum of
Rs. 2 crores; c
(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;

(t) that upon failure of the defendants to pay the said amount, D
the property may be sold to the appellants to the extent of
the share owned by 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 E
initiated proceeding by taking notice of motion for annulment of his
insolvency. While so, the first defendant - lndubhushan died on 22.4.1989.
The proceeding initiated for annulment of insolvency proceedings 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
defendants l(a) to l(d) (respondents l(a) to l(d) in. the present appeals), F
in place of deceased 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 prayers was also specified. G
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 that 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 H
862 SUPREME COURT REPORTS [1997) 2 S.C.R.

A 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.
B
Chamber summons dismissed.

No order as to costs."

(emphasis supplied)
c
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
D of the above proceedings is that the suit (No. 133/89) stood abated against
Indubhushan's (estate) legal heirs.

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.
E 5 and 6of1997 to implead them as a party respondent in the appeals. (We
have allowed the same). On 30.5.1994, the insolvency of Indubhushan was
annulled. It is stated that a fresh agreement to sell the property was entered
into between the legal heirs of lndubhushan and M/s. Kamal construction
Co. on 20.9.1995. On 20.11.1995, the appellants took out fresh chamber
F summons No. 1123/95 (in suit No. 133/89), praying to amend the plaint by
deleting the name of defendant No. 1 - lndubhushan - from the title of the
suit and in his place to add the names of defendant Nos. l(a) to l(d) -
respondents herein, as the legal heirs of deceased defendant No.1. Accord-
ing to the appellants, as a result of annulment of insolvency by order dated
G 30.5.1994, the adjudication of insolvency stands wiped out and the agree-
ment 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 to 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
H of the suit and to have the abatement, if any, set aside as a matter of law
ARORA ENTERPRISES LTD. v. INDUBHUSHAN OBHAN [PARIPOORNAN, J.] 863

and so, the proposed amendments to implead the legal heirs of defendant A
No. 1 should be allowed. The legal heirs of the first defendant (respondents
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 B
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 C
into by 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 sum•
mons 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 D
to 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 appellants 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 E
the appellants 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
irnplead M/s. Kamal Construction Co. as 5th respondent was also dis-
missed. The appeals filed by the appellants from the aforesaid common
judgment and order as Appeal No. 513/96 and Appeal No. 464/96 were p
dismissed by a Division Bench of the High Court of Bombay by its
judgments and orders dated 10.7.1966. The original plaintiffs 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.

5. We heard Shri Soli J. Sorabjee, Senior Counsel who appeared for G
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 H
864 SUPREME COURT REPORTS [1997] 2 S.C.R.

A 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 lndubhushan (defendant No. 1)
on 13.1. 1989. Indubhushan died on 22.4.1989. On that day he was an
B undischarged insolvent. The appellants to.ok 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 agree-
ment dated 9.5.1988 between the appellants and lndubhushan is void and
C unenforceable and so, the suit for specific performance of the said agree-
ment 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 l(d) (as respondents 1to4) in place of the deceased defendant No. 1, and
to add the official assignee as a party defendant, were disallowed.

D 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.l and his legal heirs. It is long thereafter, after
E 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-im-
F pleadment of the heirs of the original defendant No. 1, is non-est and
ineffective and the abatement of the suit, if any, requires to be set aside, as
a 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.

G 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
H as on the date of adjudication. In this perspective, the order dated 2.2.1990
ARORA ENTERPRISES LTD."· INDUBHUSHAN OBHAN (PARIPOORNAN, J.J 865
,,.

- passed in chamber summons No. 769/89 declining to implead or bring on A
record the legal heirs of Indubhushan is of no effect. There is no prohibi-
tion 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 proceeding stands wiped out and the original
agreement to sell dated 9.5.1988 entered into by the appellants with B
Indubhushan, 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 summons No.
1123/95 to bring on record the legal representatives of Indubhushan and
for grant of appropriate reliefs. The agreement entered into by the legal
heirs of Indubhushan with respondent No. 4 was also before the annulment C
of the insolvency proceedings and so it is 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 follow- D
ing decisions :

Rup Narain Singh and another v. Har Gopal Tewari and others, AIR (1993)
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. E
717-718; Ratnuvetu Chettiar v. Franciscu Udayar and other, AIR (1945)
Mad. 388; Ps. Ar. Ar. Arunachalam Chettiar v. Narayanaswami Goundar,
AIR (1951) Mad. 63 (FB) at page 65 para 7; Gamoji Venkata Ramakrish-
narao v. Gullapalli Sambamurti, AIR (1951) Mad. 581; C. Jabbarchand and
Others v. Mrs. C. Oliver and another, AIR (1965) Mysore 117; Kumari F
Rangappa v. Reddi Govnda Reddy and others, AIR (1963) Andhra Pradesh
228; Gunupudi Subba Rao & Co. v. Boggarapu Guruswamy, AIR (1966)
Andhra Pradesh 25(26) and Passages from Mulla on The Law of Insolvency
in India (Third Edition) paras 343 and 344.

8. On the other hand Mr. Dhanuka and Mr. Venugopal, Senior G
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 that end of the ~-
··~· - '!' .

There is no pending suit in which the proceedings by way of c~ · lf
866 SUPREME COURT REPORTS [1997] 2 S.C.R.

A 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 there is 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
B of law. This plea is untenable. The suit stated to be 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
-
C abated. 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 lndubhushan had entered into a
D 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 improvements 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
E is inordinate delay in the matter and the rights of third parties have
intervened; and the court below was justified in dismissing chamber sum-
mons No. 1123/95 taking into account the earlier proceedings. Our atten-
tion was invited to the following decisions :

F Kisan Sitarani Ambekar and others v. Sitaram Tulsiram and others, AIR
-
(1951) Nagpur 241; Jehangir Gursetji Mistri v. Kastur Pannaji Oswal, AIR
(1939) Born. 344; Davood Mohid.een Rowther v. Sahabdeen Sahib, AIR ......,;--
(1937) Mad. 667; Katragadda Sreeramamma v. Official Receiver, Guntur &
anr., AIR (1955) Andhra Pradesh 115; Baj Pani Vankar v. Madhabhai
Galabhai Patel, AIR 1953 Born. 356; Finn Sarju Prasad-Bhagwati Prasad
G Sah v. Rajendra Prasad and others, AIR (1937) Allahabad 271; Satyadhyan
Ghosal and others v. Smt. Deorajin Debi and another, AIR (1960) SC 941;
and passages from Mulla on The Law of Insolvency in India (Third
Edition) para 238.
--
H 9: Though the arguments addressed before us covered a wide range,
ARORA ENTERPRISES LTD. v. INDUBHUSHAN OBHAN [PARIPOORNAN, J.] 867

we are of the view that it is unnecessary to pronounce in detail on the A
various aspects involved in the matter at this stage. Suffice it to say that
the pre-ponderance of judici.;11 opinion is in favour of the view 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 order of adjudication is to wipe
out altogether the insolvency and its effect. The property will revest in the B
insolvent retrospectively from the date of the 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. The effect of the suit (independently) filed by
the appellants and the orders passed therein have to be considered. That
is a distinct and different matter, which has its own existence and legal C
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 D
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 appellants 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 E
points -- (1) the agreement dated 9.5.1988 entered between the appellants
and Indubhushan is void and unenforceable and so, the suit is not main-
tainable; (2) the amendments sought by the appellants to implead defen-
dants l(a) to l(d) as respondents 1 to 4 in place of deceased defendant
. No.1 and to add the official assigrlee as a party defendant, were disallowed. F
The legal effect of the said order is that suit No. 133/89 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 early as 2.2.1990. This order is valid until set aside or
annulled, in appropriate proceedings. It cannot be ignored. It will have legal G
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 set aside. So long as the said order
stands, that abatement of the suit has become unassailable in these
proceedings. Nearly five years thereafter, the appellants filed fresh cham-
H
·.'t-

868 SUPREME COURT REPORTS [1997] 2 S.C.R.

A ber 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 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
B 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
C resulted in the abatement of the suit against the legal heirs of the first
defendant Indubhushan. In such state of affairs, the fresh chamber sum-
mons taken (No. 1123/95) in a non-existent suit, is patently barred, unsus-
tainable in law and merits on consideration. In this view of the matter, we
affirm the judgments and orders passed by the High Court and no inter-
ference is called for in these appeals. The appeals are without merit and
D are dismissed. There will be no order as to costs.

v.s.s. Appeals dismissed.

Search Indian case law

Ask in plain English, not just keywords. 25,000 AI words free, no card.

Try "Insolvency"Sign in to search