Judgment:
G. Radhakrisha Rao, J.
1. Datla Venkata Narasimha Raju, the debtor, a resident of Rajahmundry, filed an insolvency petition under section 10 and 13 of the Provincial Insolvency Act on April 20, 1976. The learned Subordinate Judge, Rajahmundry, by his order dated April 23, 1977, adjudged Venkata Narasimha Raju as an insolvent. No evidence was adduced on behalf of the Income-tax Officer to substantiate the plea that the insolvent has some more properties which were secreted and that he has not valued his assets. According to the 1st respondent-Income-tax Officer, the petitioner himself valued item No. 2 at Rs. 1,25,000 for wealth-tax purposes and they have got a charge over the assets of the petitioner, respondents Nos. 2 and 3 remained ex parte. Items Nos. 1 and 2 of the schedule were brought to sale by means of a public auction by the Official Receiver. The wife of Venkata Narasimha Raju participated in the auction and she was found to be the highest bidder of the 'B' schedule property building bearing No. 6-2-26/1 situated at Innespeta, Rajahmundry, and the Officer Receiver accepted the bid in her favour on September 8, 1977, on the date of the auction, the 1st respondent filed Exhibit A-3. After the auction. The Income-tax Officer, i.e., the 1st respondent in the main I.P. impleaded the Official Receiver, East Godavari District, as the 1st respondent and the auction purchaser as the 2nd respondent and the insolvent as the 3rd respondent. The 1st respondent filed I.A. No. 147 of 1977 in I.P. No. 4 of 1976 on September 28, 1977, under sections 68 and 4 of the Provincial Insolvency Act and section 151 of the Code of Civil Procedure to set aside the sale of the property described as item No. 2 of the B schedule property building bearing No. 6-2-26/1. Innespeta, Rajahmundry, held on September 8, 1977, by the Official Receiver in favour of the wife of Venkata Narasimha Raju. After contest, the learned Subordinate Judge found that the Income-tax Department filed a memo even on the date of sale. The Official Receiver who conducted the auction might have thought over the provisions contained in the income-tax recovery proceedings pending against the 3rd respondent before the Tax Recovery Officer and those facts are suppressed by the 3rd respondent while the proceedings before the Tax Recovery Officer went on till the sale was held and confirmed and the learned Subordinate Judge found that the sale has to be set aside not only on the question of fact regarding the low value fetched but also on account of the legal flaw on account of the provisions contained in the Income-tax Act and Schedule II and rule 16. He also found that, in the peculiar circumstances appearing in the case, the Official Receiver cannot be a representative-in-interest of the 3rd respondent because the property of the 3rd respondent vested in the 1st respondent-official Receiver and in a way he is interested in the property. He also found that it cannot be said that the Official Receiver is not a representative-in-interest of the 3rd respondent herein or his properties. He allowed that petition. Against that order, the auction-purchaser filed A.S. No. 76 of 1980 on the file of the Second Addl. District Judge, Rajahmundry.
2. The Tax Recovery Officer, Income-tax Department, Visakhapatnam, filed I.A. No. 148 of 1977 in I.P. No. 4 of 1976 on September 28, 1977 under sections 68 and 4 of the Provincial Insolvency Act and section 151 of the Code of Civil Procedure, to set aside the sale of property described as item No. 2 of the B schedule, viz., the building bearing No. 6-2-26/1, Innespeta, Rajahmundry, held on September 8, 1977, by the 1st respondent-Official Receiver in favour of the 2nd respondent. This I.A. was tried separately and witnesses were examined and, in this application also, a detailed order was passed by the learned Subordinate Judge, allowing the application. Against that order, A.S. No. 77 of 1980 was filed before the second Additional District Judge, Rajahmundry. Both A.S. Nos. 76 and 77 of 1980 were heard by the learned Additional Judge who allowed the appeals. C.R.P. No. 1934 of 1984 is against the judgment and decree in A.S. No. 76 of 1980 C.R.P. 1933 of 1984 is against the order passed in A.S. No. 77 of 1980. I.A. No. 149 of 1977 in I.P. No. 4 of 1976 was filed by the Tax Recovery Officer Income-tax Department Visakhapatnam. Under rule 16(1) of Schedule II of the Income-tax Act 1961 and section 151 of the Code of Civil Procedure and section 4 of the Provincial Insolvency Act for permission to the petitioner to proceed with the attachment and sale of all the properties of the 3rd respondent, i.e., insolvent declared and shown in the schedules appended to the insolvency petition in accordance with the procedure laid down in the Second Schedule to the Income-tax Act, 1961. This petition also was contested and the learned Subordinate Judge permitted the Tax Recovery Officer to proceed further with the matter and sell the property and recover the tax arrears due to the Department. Against that order, A.S. No. 86 of 1980 was filed and the learned Second Additional District Judge found that the lower court committed an error in granting permission to the income-tax authorities to proceed with the sale of the property which is already vested in the Official Receiver. He allowed the appeal. Against that, C.R.P. No. 300 of 1983 was filed.
3. The grounds that have been alleged in the revisions by the revision petitioners are one and the same. The contention of the Official Receiver is that he conducted that auction impartially and followed the procedure and rules and the property vested in him and he discharged the duties as entrusted to him under the Act and the Rules. The contention of the auction-purchaser is that the property was sold for a reasonable price and that she happened to be the highest bidder and there are no infirmities in conducting the sale or confirming the sale and the learned Subordinate Judge was not justified in drawing an inference that some suppression of facts have been made and that the Tax Recovery Officer has got a right to proceed under rule 16 of Schedule II. The submission that has been made on behalf of the respondents is that when once the property is vested by means of an adjudication order that has been passed by the competent court, i.e., the Subordinate judge, the question of divesting the estate basing on rule 16(1) of Schedule II of the Income-tax Rules does not arise. The reason for filing the insolvency petition has already been stated by the insolvent in the petition itself and the main reason for filing the insolvency petition is with regard to the steps that are being taken from time to time by the Income-tax Department for the recovery of the amounts that are due from the insolvent.
4. Sri Suryanarayana Murthy, learned counsel for the petitioners, contended that even though a memo was field by the Income-tax Department for fixing the upset price at Rs. 1,50,000, the Official Receiver has proceeded with the auction, fixing the upset price at Rs. 40,000 only and it caused material irregularity in conducting the sale by the Official Receiver, the second contention that has been raised by him is that the registered lease set up by the insolvent is illegal and the purchasers are misled by that and it resulted in knocking down the sale for a nominal amount Rs. 53,000 odd. The third contention raised by him is that a notice under rule 16(2) of Schedule II, i.e., exhibit A-1, was given on March 21, 1975, itself and the provisions of the Income-tax Rules will prevail and it is the income-tax authorities alone who are competent to attach and sell the poperties of the insolvent for the discharge of the dues. Exhibit A-2 notice regarding auction was received in the income-tax office on August 20, 1977, stating that the sale will be held on September 8, 1977. It is admitted that in exhibit A-2 notice, there is mention about the upset price that is going to be fixed. No document has been filed till September 8, 1977, by the income-tax authorities even though they had intimation of the sale nearly 18 days prior to the date of auction. It is only in exhibit A-3 that they mentioned about the price and they have not asked the Official Receiver to stop the sale and the request even according to the income-tax people in exhibit A-3 is that the upset price should be fixed at Rs. 1,50,000 and no reason has been given why the income-tax people did not file any memo to stop the sale. It is not as if the income-tax people have an opportunity to secure bidders or participate in the auction. The officer of the income-tax people that a higher amount could be fetched and that they may also participate subject to the approval of the Central Government cannot be accepted. Even right from 1970, after the raid was conducted in the house of the insolvent, the Department was taking steps for realising the tax and finally the notice was given with regard to the amount of Rs. 74,000 and odd as due under exhibit A-1 but no attachment has been made. As many as 14 bidders participated in the auction and the upset price was fixed at Rs. 40,000 and the sale was held in favour of the wife of the insolvent. The Officer Receiver stated that, till the date of auction, he was not aware that the auction-purchaser is the wife of the insolvent and the counter that has been filed indicates that he followed the procedure. No funds were available and with the available funds, he made beat of tom-tom, etc., and he never mentioned that the insolvent or any other person misled or managed the bidders not to participate or created a terror by his acts in the minds of the participants that even if they were the successful bidders, they will have to face troubles. No doubt, in the wealth-tax returns and the security that has been given to the Department and the estimate report that has been obtained prior to the filing of the insolvency petition, it is shown that the property was worth more than one lakh rupees. If the property was in the possession of a solvent person, definitely the price will be more. When the insolvent was subjected to heavy income-tax and this was known to many people and when the insolvent was not in a position to pay the debts and when the property was going to be sold by the Official Receiver, we cannot expect that the same price which, in the normal course, would have been fetched would be fetched. Normally, the presumption of the parties will be that there will be some litigation in the case of the properties being sold by the Official Receiver in insolvency proceedings, it is for that reason, definitely a low price can be expected but a reasonable price or the market price which was prevailing, cannot be expected. If we view the background of the litigation, we can say that the fixing of the bid at Rs. 40,000 is not a low figure and Rs. 53,000 odd that has been obtained in the auction cannot be said to be a low figure or that it has been made by the insolvent through his wife, the appellate court has given sound reasons, based on the facts and the case law, that the upset price that has been fixed by the Official Receiver and the price which the house would fetch, will be a reasonable one. There is no irregularity in fixing a low figure as contended by the petitioners' counsel. Similarly, the contention that the property was sole for a low sum also cannot be accepted.
5. Learned counsel for the petitioners also contended that the lease has been created contrary to rule 16(2) of Schedule II to the Act. The lease is a registered one. The same has been mentioned in the insolvency petition. No steps have been taken by the Income-tax Department for setting aside the sale or no steps have been taken for filing an application even before the auction to stop the sale on the ground that the lease is invalid and the price that is going to be fetched will be very low. The income-tax people have received the auction notice in advance and, for their fault of not moving the Subordinate Judge's court for stay of sale, we cannot find fault with the auction-purchaser who participated in the auction nor can we find fault with the official receiver who conducted the auction and accepted the highest bid and confirmed the sale. No doubt the insolvent has no right to create any charge on the property after the notice has been served, but the hands of the official receiver are tied. When the encumbrance has been shown in the income-tax records, it is the bounden duty of the official receiver to mentioned the same to the bidders who participated in the auction. If the official receiver failed to mentioned the same, we must construe that he failed in discharging his duties. The facts that are available with regard to the nature of the land and with regard to the encumbrances, whether legal or illegal, must be brought to the notice of the court. If the lease is illegal, definitely the successful bidder can file an application for setting aide the lease on the ground of fraud or misrepresentation, etc. But it is not a case where the official receiver failed to mentioned the same. By mentioning the same, the official receiver has discharged his duty completely with regard to the auction of the house in question. PW-3, the witness who has been examined on behalf of the Department, also participated in the auction and it is an admitted case that about 14 bidders participated and the Income-tax Officer was also present when the auction took place, even though he refused to sign the bidders' list. The laches on the part of the Department have resulted in the official receiver taking steps with regard to the sale of the properties. The income-tax authorities have got sufficient notice about the insolvency proceedings and about the vesting of the properties in the official receiver. Petitioner's counsel contended that the official receiver is only a representative-in-interest and he stepped into the shoes of the insolvent and he has no further rights to sell the property. No doubt the rights and liabilities the insolvent has got has to be borne in mind by the official receiver. But there is a clear distinction between an official receiver and a receiver and the vesting of the properties after adjudication by the court is by operation of law. In Official Assignee v. Haradagiri Basavanna Gowd, : AIR1963SC754 , it has been observed that once the property vested, it cannot be divested. Section 28(2) of the Provincial Insolvency Act makes it very clear that, on the making of an order of adjudication, the whole of the property of the insolvent shall vest in the receiver. Under section 59, the official receiver has got the power to sell all or any part of the property of the insolvent or accept the consideration for the sale of any property of the insolvent or mortgage or pledge any part of the property. In the case on hand, as per the vesting that has taken place in pursuance of the order passed by the learned Subordinate Judge, the official receiver sole the house of the insolvent by holding a public auction, after observing all the formalities and following the procedure prescribed on September 8, 1977, and the sale was confirmed on September 21, 1976. Counsel for the petitioners contended that it is only subject to rule 16(1) or (2) of Schedule II of the Income-tax Act. I am unable to agree with the contention of learned counsel and there is no separate rule in the Income-tax Act providing safeguards in the case of property vested in the official receiver or in the case of property sold by the official receiver Appeal from the judgment the same was vested in him by a competent court. When a competent court dealing with the provisions of the Insolvency Act entrusted the property to the official receiver and when there is no provision in the Income-tax Act for taking away the right of the official receiver which accrued by virtue of section 59 and other provisions of the Insolvency Act, I fail to understand how the petitioner was able to succeed on the grounds that the official receiver was a representative-in-interest and so the official receiver is liable to surrender possession to the Income-tax Officer to facilitate him to make the sale as contemplated under rule 16, the lower court has considered the legal principles enunciated on different aspects contended by the parties and the same has been stated before me.
6. The main aspect that has been placed before me is about the vesting and the limited right of the official receiver. With regard to the contention of the limited right of the official receiver that has been raised by counsel for the petitioners, I feel that there is no force. The income-tax authorities being a party to the I.P., cannot now be permitted to raise the legal plea on the ground that at any stage they are entitled to take the plea. It is no doubt true that legal pleas can be taken, but when an opportunity has been given to them in the main I.P. and time has been given before the sale, they have not taken steps for stopping the sale or for obtaining permission from the Subordinate Judge. I fail to understand how they are able to contend that they have a legal right and that right has been ignored or has been taken away by virtue of the auction that has been conducted by the official receiver, in spite of the fact of giving exhibit A-3 notice. Exhibit A-3 was given at a late stage. Nothing prevented the income-tax authorities from seeing that some more bidders participated. It is also seen from the order of the lower court that there is no attachment effected by the Tax Recovery Office. For limited purposes the official receiver must be a representative-in-interest of the insolvent. But, for the purposes of rule 16(1) of Schedule II of the Income-tax Act, it cannot be said that he is a representative-in-interest and he cannot be expected to surrender his rights and duties that have been conferred on him by the statute under the provisions of the Insolvency Act. A property once vested cannot be divested in the absence of a specific provisions in the Act. In Official Assignee v. Haradagiri Basavanna Gowd, : AIR1963SC754 , the effect of adjudication and the doctrine of relating back and vesting the insolvent's property was considered. In that case, it has been observed that where adjudication orders are passed by two different courts, the procedure to be followed may depend upon considerations of convenience, fair play and justice, but there is no justification for the argument that because section 28(7) of the Provincial Insolvency Act, 1920, takes the adjudication order of the District Court to an earlier date. The property which has vested in the official assignee under the Presidency Towns Insolvency Act, 1909, should be divested and should be deemed to be vested in the official receiver appointed under the Provincial Insolvency Act, 1920. Admittedly, by operation of law by passing the adjudication order, there is a vesting and the question of divesting the property under the guise of the notice that has been served in the year 1975 does not arise. It must be noted that there is not attachment by the income-tax people. It is only a notice and by their conduct, they allowed the property being vested in the official receiver and the vesting has taken effect by correctly implementing the provisions and by sale of the property for a reasonable amount. With regard to the upset price, the consistent finding of the two courts below is sound and it is not necessary for this court to repeat the same once again. In Sathar v. Official Assignee, [1972] 1 MLJ 393, the effect of rule 16(1) and (2) has been discussed. But once it has been found that, by operation of law, the vesting has taken place in the official receiver, I hold that the question of divesting the estate for purposes of sale under the Income-tax Act cannot be given effect, to particularly when the income-tax people themselves, by their conduct, allowed the auction to go on, in spite of the advance notice of 18 days given to them. It must be noted here that after the vesting the official receiver is bound by the orders of the Subordinate Judge who passed the adjudication order. But not by the orders or directions of the Income-tax Department. If at all the Income-tax Department has got any right, they have to approach the Subordinate Judge for directions and, in this case, admittedly, before the auction, i.e., September 8, 1976, neither the Income-tax Officer nor the Tax Recovers Officer approached the court and raised the legal pleas that are available to them under the Income-tax Act or the Rules. It is only after the auction has been completed and the confirmation took place that the Income-tax Officer and the Tax Recovery Officer simultaneously filed petitions for setting aside the sale and the Tax Recovery Officer filed a petition before the Subordinate Judge for granting permission. Nothing prevented the Tax Recovery Officer from filing an application before September 8, 1977, for permitting him to sell the same. Then, definitely, some order would have been passed, but the Tax Recovery Officer has chosen to remain silent till the auction was completed and it is only after the auction was held that they raised their fingers and pointed out that they are having a statutory right. The statutory right, if any, they have got on the basis of exhibit A-1 that has been served on March 21, 1975, must be only subject to obtaining orders from a competent court, i.e., the Subordinate Judge's Court, Rajahmundry. It is the Subordinate Judge who has passed the adjudication order and he is the competent authority pass the order, either granting permission or refusing permission based on the pleas that have been set up by the parties concerned. Taking all the legal pleas and the decisions that have been cited before me, I feel that the learned Additional District Judge was justified in setting aside the orders of the Subordinate Judge. No ground shave been made out for setting aside the sale held on September 8, 1977, and no grounds have been made out for granting permission for sale of the property which has already been sold in public auction, following the procedure as contemplated under the Rules.
7. All the three revisions fail and are dismissed accordingly, No costs.