Beni Madhab Mahto and Others Vs Ganesh Singh Sardar and Others

Rowland, J.@mdashThese are appeals by a decree-holder whose application to execute a mortgage decree has been refused on an objection by the judgment-debtor (mortgagor''s successor) on two grounds. One is that the application to execute the decree is barred by time, more than twelve years having elapsed since the passing of the decree. The other objection was that the whole claim was barred by the Encumbered Estates Act (6 of 1876). The debt which is the foundation of the claim of the decree-holder was a debt incurred by Kartick Singh Sardar, proprietor of the Mudali estate, and secured by a mortgage executed in the year 1908. The mortgagee brought a suit on this mortgage on 9th April 1915, impleading as defendant first party the mortgagor and as defendants second party persons who have been referred to as the Trigunaits. These were purchasers in 1914 from two pleaders who had bought the property in 1912 in an execution sale on foot of a mortgage decree on a mortgage which admittedly had priority over the mortgage of the plaintiff. The plaintiff, however, had not been impleaded in the earlier mortgage suit and was thus able to obtain, on 11th July 1916, a preliminary decree for sale subject to the lien of defendants second party over the property for the prior encumbrance consisting of the mortgage debt for which the property had been sold up in 1912. The defendant first party allowed the plaintiff''s suit to go uncontested so far as he was concerned, but the Trigunaits defended the suit and appealed to the District Judge who on 12th February 1917 affirmed the decision of the first Court.

2. The Trigunaits presented a second appeal to the High Court, making the plaintiff a first party respondent and the mortgagor second party respondent. While this appeal was pending, the estate of Kartick Singh Sardar, the mortgagor, was taken under management under the Encumbered Estates Act on 19th October 1917. The effect of this would naturally be that the Trigunaits'' appeal was not maintainable against the proprietor of the encumbered estate except through the manager., The manager''s name was substituted for that of the mortgagor as respondent on 19th February 1919, and the appeal was dismissed the same day. The plaintiff on the dismissal of the second appeal against the preliminary decree moved the Court of first instance for preparing final decree which was done on 18th December 1920. Thereafter the question arose whether the decree could be executed against the mortgaged property or not. An execution was taken (No. 160 of 1921), and the manager of the Encumbered Estates objected that it should not be allowed to proceed. But the Court overruled the objection, holding that the village Kinutanr having been sold by auction in 1912 had never vested in the manager, and therefore there was no bar to the execution proceeding. The execution was infructuous as no bidder came forward to purchase the property. This was not surprising as the interest of the judgment-debtor in the property had already been sold. The decree-holder took out executions in 1922, in 1925 and in 1926. All these were infructuous because no bidder was forthcoming or because the decree-holder declined to proceed with the case up to the stage of sale. The last execution taken during the period of management was numbered 221 of 1928. In this the prayer was to put the property to sale and the manager objected pleading the Act. The objection was allowed on 1st December 1928, and the execution dismissed.

3. The present application was presented on 6th June 1934. The application is more than fourteen years from the date of the decree, and it is more than five years from the date of disposal of the last previous application. ''-The application, therefore, is prima facie barred by Section 48, Civil P.C., as well as by Article 182, Limitation Act. It was also held in 1928 by the Subordinate Judge that execution was barred by the Encumbered Estates Act; and that decision whether correct or not has become final and is binding on the parties. The contention of the decree-holder is that the release of the estate from management on 18th July 1931 removed the bar of the Act, and revived the proceedings which terminated in 1928 so that the present application to bring the property to sale may be considered to be in continuation of the earlier proceeding. Mr. Mazumdar argues that the effect of the release of the estate from management in 1931 was to revive his client''s execution proceeding of 1928. The argument involves serious difficulties. The effect of an order under the Encumbered Estates Act Section 2 is considered in Kameshwar Prasad v. Bhikhan Narain Singh (1893) 20 Cal 609 where it is pointed out that all pending proceedings in respect of antecedent debts of the holder are barred by Section 3 and that any new processes, execution and attachments for such debts are null and void in their inception:

Section 7 further expressly declares that every debt or liability other than debts etc., due to Government or rent due to the superior landlord, which is not duly notified to the manager shall be barred.

4. The Judges thought that that section must be read in connexion with Section 3 and indeed in the light of the whole scope of the Act:

The only remedy enjoyed by the creditors is by claiming before the manager and by payment, if he does pay, under the powers given to him. (p. 628).

5. It is conceded that the plaintiff decree-holder did'' not notify either his debt or his decree to the Manager with a view to obtaining satisfaction of his dues in the course of administration of his estate, and it seems to me hopeless to argue in face of the words of the Act that the appellant''s debt was not barred by Section 7. Then it is contended that the release of the estate operated to revive the debt by virtue of Section 12, para. 6. What that paragraph says is that debts and proceedings will be revived if the estate is restored to the proprietor u/s 12, para. 2. Para. 2 provides for the cases in which it is not possible to frame and carry out a scheme by which all the notified debts can be satisfied. In these circumstances, the Act restores to the creditors their ordinary remedies, because the alternative remedy of payment of their claims through administration under the Act has failed. This was recognized to be the object of Section 12, paras. 2 and 6, in Mathura Prasad Singh and Others Vs. Jageswar Prasad Singh, . and the Judges construed and applied Section 12 liberally in order to give effect to that intention. The section which was being construed was the section as it stood before the amendment made in 1922 and to give: effect to the intention of the statute the Judges held that where a scheme had been framed but had proved infructuous, the debt was revived and the creditor could use an acknowledgment of the'' debit in proceedings before the manager as a starting point for limitation. The Full Bench decision in (Tikait) Mahabir Prosad Narayan Deo Vs. Bhupal Ram and Others, approved the decision in Mathura Prasad Singh and Others Vs. Jageswar Prasad Singh, on both points. These two were cases of creditors whose claim was admitted by the manager but not satisfied, and such cases fall within the terms of Section 12, para. 2, as it now stands after the amendment. The case in Khairullah Khan v. Lachmi Ram AIR. 1928 Pat 179, though the facts are not fully stated, appears to be a case in which no claim was presented before the manager, and it was held that the bar against the proceedings was not removed by the release of the estate in circumstances to which S.12, para. 2, did not apply. Now the argument for the appellant is that the decision in Khairullah Khan and Another Vs. Panday Lachmi Ram, having been overruled, there can be revivor even in cases to which Section 12, para. 2, does not apply. The answer is that the law was amended in 1922, and we must now proceed on the assumption that the difficulty of interpretation which was felt regarding the section as it stood previously, was appreciated by the Legislature and that the amendment was designed to remove doubts by expressing what the Act really did mean and had been intending to express all along. Therefore, in applying the Act, as it stands after the amendment, we should be unwilling to apply para. 6 of 3. 12 to any case to which para. 2 does not by its terms as now amended apply. We could only be induced to assent to such an interpretation if it could be shown that on any other view the whole scheme and main object of the Act would be frustrated. In the present case it is otherwise. In fact, to stretch the words of Section 12, as Mr. Mazumdar invites us to do, would defeat rather than aid the objects for which the statute was enacted. These objects were explained in Kameshwar Prasad v. Bhikhan Narain Singh (1893) 20 Cal 609:

The Act creates a sort of administration of the Immovable estate of a debtor, in some respects resembling that pursued in an administration suit, but with some material differences. It primarily aims at the preservation of the estate, which cannot be sold without the consent of the holder and his heir. The Act obviously aims at the complete protection of the estate from litigation by barring the remedies creditors would otherwise have in the civil Courts.

6. The object of the statute is to protect the estate and at the same time do justice to its creditors by administering it in such a manner as to satisfy all claims against it in respect of debts antecedently incurred by the proprietor. For these claims all other remedies are barred except one which is to apply to the manager and get the debt entered on the schedule of debts and paid by the manager; failing recourse to this procedure not only all remedies are barred but the debt itself is barred. The aim of the whole proceedings is to hand back the property to the proprietor unencumbered by any of his old liabilities. These are only revived when the object of the statute itself has failed and the estate has been restored without payment of the notified claims. The wording of Section 12, as it now stands, fully agrees with this view of the intention, and there can be no revivor of any debt or of any proceeding when an estate is handed back under para. 1, Section 12 after satisfaction of all notified debts. The Subordinate Judge was, therefore, justified in allowing the objection on the ground that the debt was barred and had not been revived. The execution was likewise not maintainable on the further ground that the execution proceeding of 1928, according to the finding of the Subordinate Judge in that proceeding was ab initio null and void u/s 3 of the Act. The bar to the execution has never been removed and is still subsisting. With reference to the argument that the execution of 1931 escapes the operation of the Limitation Act as being a continuation of the former execution, it is enough to say that the former execution being null and void no further proceedings can be said to be taken in continuation of it. Therefore, the present application is barred by Article 182, Limitation Act, as well as by Section 48, Civil P.C.

7. Mr. Mazumdar has attempted to found an argument on the decision in W.H. Barton v. Midnapur Zamindari Co. (1921) 61 IC 902 in which a party who had obtained a decree for costs in a litigation against the manager of an estate under the Encumbered Estates Act was held entitled to execute that decree. He has contended that the manager having been made a party to the litigation in 1919, the decree-holder became thereby entitled to pursue his remedy by execution against the manager. One answer to this is that this contention was negatived by the decision in the execution of 1928 which is inter partes and) Operates as res judicata against him. Further in the case cited, the liability sought'' to be enforced had been incurred by the manager by prosecuting an infructuous litigation; we are dealing here with a debt contracted by the proprietor. And in Purnendu Narain Singh Vs. Makhan Lal Marwari and Others, it was made clear that:

On a construction of para, (b), Section 3, it should be held that the Court is incompetent to execute a decree in respect of debts or liabilities of the defaulting proprietor except debts due or liabilities incurred to Government.

8. The arguments adduced before us were on the same lines as those placed before the Courts below where they have been discussed with care and in my judgment effectively answered. I would dismiss the appeals with costs.

Dhavle, J.

9. I agree. The estate was brought under the Chota Nagpur Encumbered Estates Act, during the pendency of the appeal to the High Court in the suit instituted by the present appellants to enforce their mortgage. The manager was brought on the record of that appeal, but the appeal itself which had been preferred by the Trigunaits was dismissed. The preliminary decree thus remained intact; and I am unable to accept the contention that the dismissal operated to make it effective against the manager. u/s 3 of the Act there could in any case be no execution of such a decree. But it is unnecessary to labour the point, because even if the contrary were to be held, the restoration of the estate under para. 1, Section 12, of the Act, as will be presently seen leaves the decree-holders without any means of executing it. It is true that in the execution case of 1921 the decree-holders succeeded in defeating the manager''s objection that execution was barred under the Act. They did so by inducing the Court to hold that the Act had no application on the ground that the mortgaged property had ceased to be a part of the estate before it was brought under the Act. It appears however that the Trigunaits had not taken possession of the property and that the manager came into possession of this property along with the rest of the estate. And in the execution case of 1928 it was held against our appellants that the property was a part of the estate and could therefore not be sold under para, (b), Section 3, of the Act. There was no appeal against that decision, and the matter is now res judicata.

10. It has been argued for the appellants that the estate having since been restored to the heir of the late holder, and the debt being still unpaid, it should be held that there is no bar to execution. But in the first place the final decree of which execution is sought was passed more than 12 years before the application out of which this appeal arises, and the present execution is more than three years later than the attempted execution of 1928 which moreover was ''null and void'' under para. 1, Section 3 of the Act. Upon this it has been argued that since the appellants'' debt has not been paid, the case should be treated as governed by the principles followed in Mathura Prasad Singh and Others Vs. Jageswar Prasad Singh, . This decision was criticised in 7 Pat 109 which was itself however not approved by the majority of the Full Bench in (Tikait) Mahabir Prosad Narayan Deo Vs. Bhupal Ram and Others, . It may be observed at once that the present case differs from the cases in Mathura Prasad Singh and Others Vs. Jageswar Prasad Singh, and (Tikait) Mahabir Prosad Narayan Deo Vs. Bhupal Ram and Others, in a most important respect in that it is a case of restoration under para. 1, Section 12 of the Act. The drafting of the Act has frequently led to difficulty in interpretation with the result that the rulings have not always been uniform and the Act has had to be often amended. The point raised before us is nevertheless perfectly clear both on the letter and on the spirit of the law. The first consequence that ensues u/s 3 of the Act on the publication of a vesting order is described in the margin as ''bar of suits'', and reads:

First, all proceedings which may then be pending in any civil Court in British India, or in any revenue Court in Bengal in respect to such debts or liabilities shall be barred; and all processes, executions and attachments for or in respects of such debts and liabilities shall become null and void.

11. The other consequences given in the section, freedom from arrest (and attachment of moveable property) for prior debts and cessation of power to alienate, &c.--are qualified by the phrase ''so long as such management continues''. It is significant that there is no such qualification in Clause 1. The inference is plain that the bar of suits mentioned in this clause is not limited to the duration of the management. A similar position is created by Section 12. The first three paragraphs of this section describe the three contingencies in which an estate is restored to the holder or his heir, and which may be summarized respectfully as (i) discharge of the debts and liabilities in accordance with the approved scheme, (ii) a decision by the Commissioner before approval of a scheme under S.11- A, that the Act should not continue to apply to the estate, or after such approval, that u/s 11-B the management of the estate should be relinquished, and (iii) a composition with the creditors approved by the Commissioner. Para. 6 provides for the ''revival of barred proceedings and debts'' in these words:

Where the holder of the property or his heir is so restored under the circumstances mentioned in Clause 2 of this section, such restoration shall be notified in the Calcutta Gazette, and thereupon the proceedings, processes, executions and attachments mentioned in Section 3 (so far as they relate to debts and liabilities which the manager has not paid off or compromised), and the debts and liabilities barred by Section 7, shall be revived....

12. The revival being expressly confined to the case dealt with in Clause 2, the plain implication is that there is to be no revival of barred proceedings and debts if the restoration should be under Clause 1 (as in the present case) or under Clause 3 of the section. In arguing against the concurrent implication of this clause and Clause 1, Section 3, the learned advocate for the appellants has relied on the observation of Adami, J., in Mathura Prasad''s case Mathura Prasad Singh and Others Vs. Jageswar Prasad Singh, that when the order u/s 2 is cancelled by a subsequent notification

the effect of Clause 1, Section 3 disappears. It could never have been in the contemplation of the Legislature that the mere approval by the Commissioner of a scheme should for ever deprive all creditors of redress.

13. But, as I have already pointed out, that was not a case of release under Clause 1, Section 12. It is true that it was not a case strictly within 01. ''2 either, as it stood at the relevant time, for the estate had been released after the Commissioner''s approval of a scheme and the clause had yet to be amended to include relinquishment of management after such apparently came to an end because the Board of Revenue had exercised the power conferred by Section 21-A (which was added to the Act by the Amending Act of 1909) to reverse the Commissioner''s proceedings. That is how the vesting order appears to have been "cancelled by a subsequent notification." After such cancellation, the position was as if the Act had never been validly applied to the estate; and as to the interval between the vesting order and the final order of the Board cancelling it, the creditor had in his favour the manager''s acknowledgment of the debt, taken with the circumstance that during the management (invalid as it turned out afterwards to have been) it was not open to him to sue. This was partly recognized in Khairullah''s case Khairullah Khan v. Lachmi Ram AIR. 1928 Pat 179, and fully in the judgment of my learned brother (with whom James, J. concurred) in Mahabir Prasad''s case. (Tikait) Mahabir Prosad Narayan Deo Vs. Bhupal Ram and Others, As was pointed out in Khairullah''s case Khairullah Khan and Another Vs. Panday Lachmi Ram, it was not decided in Mathura Prasad''s case Mathura Prasad Singh and Others Vs. Jageswar Prasad Singh, that 01. 6, Section 12 was applicable; Adami, J.''s reference to Section 3 of the Act and to the intention of the Legislature suggests that in his view the Act had not in effect been applied to the estate. No such consideration can arise when an estate is released under Clause 1 or Clause 3, Section 12, for these clauses imply not the mere approval of a scheme but the discharge of the debts in accordance with the approved scheme or the satisfaction of the creditors in accordance with the approved composition, and the restoration of the estate to the holder does not involve any "cancellation" of the vesting order. Unlike the creditor in Mathura Prasad''s case (Tikait) Mahabir Prosad Narayan Deo Vs. Bhupal Ram and Others, the appellants did not notify their claim to the manager in accordance with the Act, and Section 7 of the Act provides that every debt which is not so notified "shall be barred". Beading this section with Section 3 and in the light of the whole scope of the Act, Pigot, J. held in Kameshwar Prasad v. Bhikhan Narain Singh (1893) 20 Cal 609, that:

The only remedy enjoyed by creditors is by claim before the manager and by a payment, if he does pay, under the powers given to him.

14. The suits in that decision were no doubt brought during the continuance of the management; but the drafting of the Act (which has had to be commented upon in many cases) led the learned Judge to examine the whole scope of the Act. If his view of Section 3 as barring the institution of suits by creditors was disapproved in Khairullah''s case Khairullah Khan and Another Vs. Panday Lachmi Ram, , it was accepted by the majority of the Pull Bench in Mahabir Prasad''s case. And no case has been brought to our notice in which the view the learned Judge took of Section 7 was dissented from. The section does not merely, like Clause 1, Section 3, create a bar not restricted to the continuance of the management, but takes away the very foundation for any proceedings by the creditors after the release of the estate. The Act has been amended several times since Pigot, J.''s decision of 1893, and it seems clearer than ever before that on restoration under Clause 1 or Clause 3, Section 12 the holder or his heir takes the estate free from any liability for prior debts. The Act is headed "An Act to relieve certain landholders in Chutia Nagpur", and was described by Pigot, J. in the decision already referred to as

a law of privilege for the protection of the ''holders of land in Chota Nagpur'' enacted perhaps for reasons of State, applying to that non-regulation district, the state of society in which differs a good deal from that in Bengal.

15. The mode of relief is administration by a manager armed with exceptional powers; the management is vested in him on the application, not of any creditor, but of the holder, or the person who would be his heir in case of intestacy, or the Deputy Commissioner if any part of the estate be attached or advertised for sale in execution or (since the amendment of 1909) if the holder should have "entered upon a course of wasteful extravagance likely to dissipate his property". This read with such provision as para. 5, Section 12, and Section 12-A makes it clear that the object is to preserve the estate not for the holder alone but for his heir as well. Section 23 expressly saves the jurisdiction of the civil Court in respect of suits relating to succession or maintenance; and it appears from this and other provisions that the manager is intended to work without any interference from the civil Courts and subject only to statutory rules and the control or sanction of the Deputy Commissioner and the Commissioner, whose proceedings were in 1909 made subject to the supervision and control of the Board of Revenue. In the exercise of these powers the manager can on the one hand, cancel leases or rent-free or maintenance grants made by the proprietor for insufficient consideration within three years preceding the vesting order (Section 9), and also remove mortgagees and conditional vendees from possession: Section 16. On the other hand the manager is empowered to determine the amount of all principal debts "justly due to the several creditors of the holder of the property" and the interest on them (Section 8)--a power which under the statutory rules and the instructions of the Board enables him to go behind decrees already obtained by creditors in the ordinary Courts and "except where otherwise fixed by statute" to cut down the interest to as little as 4 per cent. simple, "in order to make the estate solvent". Creditors aggrieved by the exercise of such a power may appeal to the Deputy Commissioner and the Commissioner, but cannot obtain any relief from the civil Court: see Thakur Prasad Aurora v. Manager, Barabhum Encumbered Estate, Purulia AIR 1919 Pat 678.

16. After determining the amounts due the manager prepares a schedule of debts and a scheme for their settlement; and the scheme is to be carried into effect as approved by the Commissioner. Since the amendment of Section 18 in 1884 the manager has been empowered, in the execution of the scheme, to sell such part of the estate as may appear expedient, without the consent or concurrence of the holder or his heir. When the scheme-is carried out--the debts "justly due" discharged--or if an arrangement is made for the satisfaction of the debts which is accepted by the creditors and approved by the Commissioner, the estate is restored to the holder or his heir "subject to the leases and mortgages (if any) granted and made by the manager"--a qualification which like Sections 3 and 7 (besides the wording of the sixth paragraph of Section 12) suggests an intention that in such cases the estate should on restoration be free from prior debts. Further light is thrown on this aspect of the matter by the provisions regarding debts contracted by the holder or his heir during the management and also subsequent to the restoration. As regards the former, the third clause of Section 3 places the Holder and his heir under an incapacity to charge or alienate the estate or enter into any contract which may involve either or both of them in pecuniary liability. Section 12-A, which was added to the Act in 1909, completes the protection in respect of debts contracted by the holder during the management under the Act by enacting in Clause 6 that no suit shall be brought to charge the holder, in cases of restoration under Clause 1 or Clause 3, Section 12, upon any promise, made after such restoration, to pay the debt, or upon any ratification, made after such restoration of any promise made during the management. Clauses 1 to 3, Section 12-A render voids any alienation of the estate made by the holder after restoration under Clause 1 or Clause 3., to Section 12, or any charge extending beyond his lifetime, without the previous sanction, of the Commissioner, a provision which has been interpreted to extend to involuntary alienations through Court sales: see Khitnarain Sahi and Others Vs. Surju Seth and Others, . Should the holder make or attempt to make any such alienation (or charge), the estate may under Clause 5 of this section of 1909 be brought again under the Act, in which case it will only be restored to his heir "in due course"--see the proviso added to Section 12 before para. 6 in 1909.

17. In view of these provisions regarding debts contracted by the holder or his heir during the period of management and alienations or charges made or attempted by the holder after restoration under Clause 1 or 01. 3, Section 12, it is impossible to conceive that the Legislature could have intended to leave the restored holder unprotected from such prior debts as the creditors may not have chosen to notify to the manager under the Act. The Act was passed at a time when there was "a germ, but only the germ, of an insolvent law" in the CPC of 1859 applicable to the mofussil, and it was only in 1920 that the Provincial Insolvency Act released the insolvent on his discharge from all debts provable in the insolvency proceedings. But the protection given to the landholder of Chota Nagpur by the Act of 1876 was based on other considerations than those that arise in ordinary insolvencies and was much more thorough.

18. The appellant''s contention, that para. 6, Section 12 of the Act was by a beneficial construction applied in Mathura Prasad''s case Mathura Prasad Singh and Others Vs. Jageswar Prasad Singh, to a case not strictly coming within that paragraph is, in my opinion, untenable. But even if it were otherwise, the intention of the Act, does not seem to be different from its letter in the matter of debts not notified to the manager of an estate released under Clause 1 or Clause 3, Section 12.