Supreme Court of India
KOTAK & CO.versusSTATE OF U.P.
- Citation
- 1987 INSC 3
- Decided
- 8 January 1987
- Disposal
- Disposed off
- Bench
- M P THAKKAR
Holding
An order for rateable distribution under CPC s.73 vests the monies in the decree‑holder at the moment of the order, rendering any subsequent State claim for priority ineffective.
Summary
The appeal concerned whether, under Order 73 of the Civil Procedure Code, the monies earmarked for rateable distribution become the property of the decree‑holder as soon as the executing court issues its distribution order, irrespective of actual payment, and whether the State can assert a statutory priority thereafter. The Supreme Court held that the moment the court determines the allocation and passes the order, the rights of the parties crystallise; the money ceases to belong to the judgment‑debtor and vests in the decree‑holder. Consequently, the State’s claim made after the order is ineffective. The Court affirmed the view of the Madras, Calcutta and Bombay High Courts and set aside the Allahabad High Court’s reversal of the executing court’s order, restoring that order in favour of the appellant. The appeal was allowed and the High Court order was set aside.
Issues considered
- Does an order for rateable distribution under CPC s.73 transfer ownership of the monies from the judgment‑debtor to the decree‑holder even before actual disbursement?
- Can the State claim statutory priority over the decree‑holder after such an order has been made?
- Whether the High Court erred in reversing the executing court’s order of rateable distribution.
Legislation cited
Subjects
rateable distributionCivil Procedure Codeownership of proceedsdecree‑holder rightsstatutory priorityState claimjudgment‑debtorSupreme Court interpretation
Judgment
KOTAK & CO.
A v.
STATE OF U.P. A
JANUARY 8, 1987
[M.P. THAKKAR AND B.C. RAY, JJ.)
B
Civil Procedure Code, 1908-s. 73-Rateable distribution-Order 'r
passed by Court~Rights of parties are crystalized-State cannot claim
statutory priority after Court has made its order.
On the question whether from the point of time an order for 1
c rateable distribntion is paMed by the executing Court the monies in
question cease to be the property of the judgment-debtor and become
the property of the decree-holder, regardless of whether or not actual )"
payment pursuant to the said order is made:
Allowing the Appeal,
D
HELD: I. As soon as the question of rateable distribution bet-
ween the decree-holders and the State having statutory priority is
determined, and the Court passes an order as to how to appropriate the
assets of the judgment-debtor, the rights of the parties become crys-
talized and the monies in question cease to be the .property of the ---\
E
judgment-debtor and becomes the property of the decree-holder,
regardless of whether or not actual payment pursuant to the said order
is made. [930A-B)
Official Receiver of Tanjorn. M.R. Venkatarama Iyer, AIR 1922
Madras p. 31, Murli Tahilram v. T. Asoomal & Co., AIR 1955 '
F
Calcutta p. 423, Basanta Kumar Bhattacharjee v. Panchu Gopal Dutta
~
& Ors., AIR 1956 Cakuttap. 23and Income-tax Officer, Ward C. Sangli
& Anr. v. Chandanbai Balaram Doshi & Ors., AIR 1957 Bombay p.
91, approved.
2.1 The rights of the respective decree-holders or claimants are
G governed by the order for rateable distribution passed by the Court as a
result of the adjudication and determination made by the Court.
Nothing further remains to be done by the Court, in the judicial sphere
thereafter. The order partakes of the character of a judgment and
decree passed by the Court. [930B-C)
H
926
KOTAK & CO. v. STATE OF U.P. (THAKKAR, J.) 927
2.2 Thereafter the officials of the Accounts and Cash department A
are only required to carry out the command of the Court by implement-
ing or giving effect to the order. [930C-D]
2.3 The test which is to be applied is whether the said officials can
refuse to implement the order by refusing to make payment once the
Court has passed the order. Obviously and undoubtedly they c8llllot. ~
Therefore, nothing turns on whether or not actual payment pursuant to
the order of the Court is made. The Court officials make payment to the
decree-holder because the property in the said monies has vested unto
them by virtue of the order of distribution passed by the Court. What is
being paid by the officials of Accounts and Cash Sections will be the
decree-holder's money, it having ceased to belong to the judgment- C
debtor the moment the order for distribution was made, even though
actual disbursement was made later. [930D-F]
3. If the State lays its claim after the order for distribution is
made by the Court, it will be or no avail, as the property would have
gone beyond the reach or the State, it having cewd to be the prnpa ty al D
the debtor against whom the State had a claim. No question of priority
can arise in that situation-the state having missed the bus. [930F-G]
~-. 4. In the present case, the High Court was in error in reversilig
the order passed by the executing Court. The order of the High Court is
set aside and that of the executing Court restored in so far as the E
appellant is concerned. [930H]
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1295
of 1973
From the Judgment and Order dated 14.12. 1972 of the Allaha- F
bad High Court in Civil Revn. Petition No. 1572 of 1969.
P.H. Parekh and Suhail Dutt for the Appellant.
Prithvi Raj, Mrs. Shobha Dikshit and Sudhir Kulshreshta for the
Respondent. G
The Judgment of the Court was delivered by
THAKKAR, J, The proposition canvassed by the appellant,
namely, that from the point of time that an order for rateable distribu-
tion is passed by the executing court the monies in question cease Jo be -~
•
928 SUPREME COURT REPORTS [1987] 1 S.C.R.
the property of the judgment-debtor and ·become the property of the
A decree-holder, regardless of whether or not actual payment pursuant
to the said order is made, is supported by the decisions of three High
Courts namely, Madras, Calcutta and Bombay: As early as in 1922 the
Madras High Court in Official Receiver of Tanjore v. M.R. Venkata-
rama Iyer, AIR 1922 Madras p. 31 has taken the view canvassed by the
B appellant as is evident from the passage quoted hereunder:-
"It seems to me that from the time of the order of rateable
distribution the money must be treated as belonging, not
to the judgment-debtor, Nataraja Iyer, but to the decree-
holder in whose favour the order was passed. Mr.
Devadoss for appellant contended that the effect of a
c rateable distribution order is merely to allocate the money
to the different suits without affecting its ownership. The
latter, he says, still rests in the judgment-debtor by the
sale of whose property it was allocated. I do not think this
is so. The section does not. speak of distribution among
D the decree-holders. The latter are entitled to dr~w it out
at will; and the judgment-debtor most certainly is not. I
think the money in this case must be treated as the pro-
perty of the decree-holder, 'the present respondent and
that the Official Receiver could no more recover it from
the respondent if it had actually been paid out to him by
E
court. Mr. Devadoss eventually admitted that he could
not recover the money in the circumstances of the present
case if it had passed into respondent's possession. I would
dismiss the appeal with costs."
A learned Single Judge of the Calcutta High Court has expressed
F the same view in Murli Tahilram v. T. Asoomal & Co., AIR 1955
Calcutta p. 423, wherein it is observed:- ~
"But where a private citizen has sued another .to judgment
and has in fact got by an order of Court a Receiver ap-
pointed of his goods and such goods have been sold by the
G
Receiver under orders of the Court and where there has
been a prior direction in the Court's order to pay the sale
proceeds to the private judgment-creditor, a subsequent
claim by the State for arrears of sales-tax cannot defeat the
judgment-creditor or deprive hirri of the fruits of his decree
which is regarded as property."
H
•
KOTAK & CO. v. STATE OF U.P. [THAKKAR, J.l 929
>.. And the same view has been reiterated by a Division Bench of the
Calcutta High Court in Basanta Kumar Bhattacharjee v. Panchu Gopal A
Dutta & Ors., AIR 1956 Calcutta p. 23 where in the Court has made
recourse to the following reasoning to support the proposition:
'This contention, we think, should prevail. The order
allowing the application for rateable distribution that was B
passed on 2-12-1953 should, we think, be reasonably read
as deciding that the decree-holders had title to the money.
What remained to be done was the ascertainment of the
exact amount which each decree-holder was entitled to
and payment of the same. The decision as regards title
had already been made and with the decision that the
money was the decree-holder's money, the position, in c
our opinion, was that it could no longer be considered in
law to be the judgment-debtor's money. The question of
priority of the State's claim does not, therefore, fall to be
decided. On the date the letter of attachment of the
Certificate Officer w~s received, there was no money be- D
longing to the ju<lgment-debtors in the hands of the
Court."
f- The High Court of ,Allahabad which has differed from the aforesaid
High Courts by the judgment under appeal has proceeded on the
assumption that the High Court of Bombay has taken a contrary view E
in Income-tax Officer, Ward C, SangIi & Anr. v. Chandanbai Balaram
Doshi & Ors., AIR 1957 Bomb'l.y p. 91. We are afraid, by the High
Court of Bombay in the said case the principle enunciated has been
t{ misunderstood. No order for rateable distribution had been passed by
the executing court in the said case. Even, so, while discussing the law
on the subject in the context of the scheme of the C.P.C., the High
\I
Court of Bombay has articulated the principle thus:-
F
"The scheme clearly indicates that until the Court has
directed appropriation of the amount to the claim made by
the decree-holder or of creditors entitled to rateable
distribution, the amount received in Court continues to G
remain as of the judgment-debtor."
(Emphasis added)
By necessary implication it means that as soon as an order for rateaple
distribution is made, the amount ordered to be distributed will cease to H
930 SUPREME COURT REPORTS [1987] 1 S.C.R.
A be the property of the judgment-debtor. We are of the same opinion as
that of the High Courts of Madras, Calcutta and Bombay. As soon as
the question of rateable distribution between the decree-holders and
the State having statutory priority is determined, and the Court passes
an order as to how to appropriate the assets of the judgment-debtor,
B the rights of the parties become crystalized. What then remains is to
give effect to the determination made by tbe court by officials in
charge of concerned departments dealing with Accounts and Cash
which is a ministerial act. The rights of the respective decree-holders
or claimants are governed by the order for rateable distribution passed
by the Court as a result of the adjudication and determination made by
the Court. Nothing further remains to be done by the Court in the
c judicial sphere thereafter. The order partakes of the character of a
y
judgment and decree passed by the Court. What the officials of the
Accounts and Cash department are required to do thereafter is to
carry out the command of the Court by implementing or giving effect
to the order. The test which can be usefully applied is to pose the
D question whether the said officials can refuse to implement the order
by refusing to make payment once the Court has passed the order.
Obviously and undoudtedly they cannot. Therefore it is evident that
nothing turns on whether or not actual payment pursuant to the order
of the Court is made. And when the Court officials make payment to
the decree-holder, they make payment because the property in the
E said monies has vested unto them by virtue of the order of distribution
passed by the Court. What is being paid by the officials of Accounts
and Cash Sections will be the decree-holder's money, it having ceased
to belong to the judgment-debtor the moment the order for distribu-
tion was made, even,though actual disbursement was made later. If the
State lays its claim after the order for distribution is made by the
F Court, it will be of no avail as the property would have gone beyond
the reach of the State, it having ceased to be the property of the debtor
against whom the State had a claim. No question of priority can arise
in that situation-the State having missed the bus. In the present case,
the amount had ceased to be the property of the judgment-debtor from
the point of time that the order for rateable distribution was passed by ·
G the executing court. There was no question therefore of the State
being entitled to claim priority in respect of the claims lodged by it
subsequent to the order for rateable distribution. The High Court was
thus in error in reversing the order passed by the executing court.
We, therefore, allow the appeal, set aside the order of the High
H Cout in so far as the appellant is concerned, and restore the order of
KOTAK & CO. v. STATE OF U.P. [THAKKAR, J.) 931
'A the executing court in so far as the appellant is concerned. A
The appeal is disposed of accordingly. There will be no order as
to costs.
A.P.J. Appeal disposed of.
ll
- -y·
•
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