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Provincial Insolvency Act, 1920: Ss. 28, 55 and its Proviso: Insolvency Petition by the debtor/transferor-Bonafide transferee for valuable consideration-Protection to-Held: When transfer of shares to the transferee was for valuable consideration without any notice as to the presentation of the Insolvency Petition by the debtor, requirements of Proviso to Section 55 satisfied-Hence, entitled to protection/claim. Section 218/Proviso to Section 55-Protection to creditor vis-a-vis- Protection to bona fide transferee-Interpretation of-Held, An order of adjudication in an Insolvency Petition relates back to the date of its presentation-No word or Provision of Law could be left redundant/ superfluous-Both must be given effect to by harmoniously construing-On construing so the bonafide transferee could be protected under the provisions when the conditions of Proviso to Section 55 are complied with. The question which arose for consideration and decision in the appeal was as to whether protection under Section 55 of the Provincial Insolvency Act is available to a bonafide transferee for valuable consideration after presentation of the Insolvency Petition by or against the debtor but without notice and before passing an order of adjudication. =Answering the question in the affirmative and allowing the appeal, the Court HELD: 1.1. The object of Section 28 of the Provincial Insolvency Act is to secure unrestricted right to dispose of insolvent’s property after an order of adjudication is made. On making an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a Receiver, as the case may be. When sub-section (1) is read along with subsection (7) of the Act, the effect would be an order of adjudication relates back to the date of presentation of Insolvency Petition and the order of adjudication takes effect from the date of the presentation of the Insolvency Petition. Consequently, vesting of property under sub-section (2) also relates back to the date of presentation of the Insolvency Petition. Combined reading of sub-sections (1), (2) and (7) makes the position clear that the interest of the creditors is safeguarded, parties are put on notice against attempt to transfer the property after the date of presentation of the Insolvency Petition by the petitioners or others relating to his property and also to warn the intending purchasers or transferees that they are taking the risk of purchasing or getting the property transferred in their names during the pendency of the insolvency proceedings from the date of presentation of the petition itself and even before passing of an order of adjudication. [936- D-G] 1.2. Sections 28 and 55 of the Act are to be read together. Where the transfer has been made by the insolvent after presentation of the Insolvency Petition, the transfer cannot be held as void ab initio but its validity or otherwise depends upon a consideration as to whether the conditions specified under Section 55 are or are not satisfied. [936-H; 937-A] 1.3. It is cardinal rule of construction that normally no word or provision should be considered redundant or superfluous in interpreting the provisions of a statute. The Courts always presume that the legislature inserted every part thereof with a purpose and the legislative intention is that every part of the statute should have effect. It may not be correct to say that a word or words used in a statute are either unnecessary or without any purpose to serve, unless there are compelling reasons to say so looking to the scheme of the statute and having regard to the object and purpose sought to be achieved by it. Once the requirements of Section 55 of the Act are satisfied, the appellant is entitled for the protection of the said Section as a bona fide transferee. A contrary view takes away the very protective umbrella specifically made available to a bona fide transferee covered by Section 55. Protection provided for bona fide transfer in Section 55 is in a way exception to Section 28(7) of the Act. Proviso to Section 55 of the Act protects bona fide transactions mentioned in clauses (a) to (d) of Section 55. [937-C, D, F, H] Jaipur Zila Sahakari Bhoomi Bank Ltd. Vikas v. Shri Ram Gopal Sharma and Ors., JT (2002) 1 SC 182, followed. 1.4. It is clear that the shares were transferred in favour of the appellant before the order of adjudication was made on the Insolvency Petition filed by the respondent and the appellant had no knowledge at the time of purchasing the shares as to the presentation of the Insolvency Petition, the transfer of shares was for valuable consideration and such transfer was bona fide. In this view, the appellants, did satisfy the requirements of proviso to Section 55 of the Act and hence they are entitled for the claim made by them. [938-B-D] 1.5. If the intention of the proviso to Section 55 of the Act was not to protect even a bona fide transferee for valuable consideration without notice of presentation of Insolvency Petition before an order of adjudication was made, the legislature could have simply said any transaction taking place after the date of presentation of any Insolvency Petition by or against the debtor instead of qualifying the transaction that takes place before the date of the order of adjudication. In this situation, the proviso which is intended to serve a definite purpose should be given full meaning and effect It is not possible to ignore a part of the provision, namely, “any such transaction takes place before the date of the order of adjudication”. It stands to reason as well, that a bona fide transferee for valuable consideration without the knowledge of the presentation of Insolvency Petition on the date of transfer of property is to be protected. [938-E-G] CIVIL APPELLATE JURISDICTION : Civil Appeal No. 176 of 1997.

CASE NO.:
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Appeal (civil) 176 of 1997

PETITIONER:
Sankar Ram and Co. 

RESPONDENT:
Vs.

Kasi Naicker and others 

DATE OF JUDGMENT: 30/07/2003

BENCH:
Shivaraj V. Patil &[D.M. Dharmadhikari. 

JUDGMENT:

J U D G M E N T

Shivaraj V. Patil,J.

 "Whether protection provided in the proviso to 

Section 55 of the Provincial Insolvency Act, 1920 is 

available to a bonafide transferee for valuable 

consideration after the presentation of any insolvency 

petition but before the date of passing of the order 

for adjudication without notice of the presentation of 

the insolvency petition by or against the debtor", is 

the short question that arises for consideration and 

decision in this appeal.

 The appellant filed petition under Section 55 of 

the Provincial Insolvency Act, 1920 (for short 'the 

Act') for recovery of Rs.25,155.40 with interest from 

the Bank (respondent No. 2) on the ground that it had 

paid the said amount on 24.8.1978 for purchase of 

shares belonging to the insolvent Kasi Naicker 

(respondent No. 1). Said Kasi Naiker had filed a 

petition to declare him as insolvent in I.P. No. 7/76 

in 1976, which was dismissed on 25.10.1977 by the 

Subordinate Court, Tuticorin. He filed appeal in 

C.M.A. No. 116/77 before the District Court challenging 

the order of dismissal, which was allowed on 

17.10.1978. The appellant purchased 249 shares of 

Rajapalayam Mills belonging to the debtor Kasi Naicker 

by depositing the amount to get the shares released in 

its favour with the consent of the debtor. When the 

bank neither released the share certificates nor 

returned the money deposited by it, the appellant filed 

IA No. 6/79 in I.P. No. 7/76 under Section 55 of the 

Act for declaration that 249 shares of Rajapalayam 

Mills belong to it or in the alternative to return the 

money with interest paid by it. The said petition was 

allowed by order dated 19.10.1984 directing the bank to 

pay sum of Rs.25,155.40 with interest at 9% per annum 

from 24.8.1978 to the appellant. Kasi Naicker filed 

C.M.A. No. 40/84 aggrieved by the said order made in 

IA6/79 in I.P. 7/76 in the court of District Judge 

Tirunelveli. The appeal was allowed holding that the 

order of adjudication dates back to the date of filing 

of the petition and, therefore, any transaction by the 

insolvent thereafter would not bind the receiver and 

the appellant was not entitled to any relief. The 

appellant approached the High Court by filing revision 

petition in C.R.P. 6/92 in the High Court challenging 

the order passed by the learned District Judge. The 

High Court dismissed the revision petition. Hence the 

appellant has filed this appeal.

 In the trial court contentions were raised 

opposing IA No. 6/79. It was contended that the 

petition itself was not maintainable; that the amount 

was not paid by the appellant and the benefit of 

Section 55 of the Act was not available to it. 

Rejecting the contentions relief was granted to the 

appellant. The learned District Judge in the appeal 

set forth following three points for determination: -

"1. Whether the amount Rs.25,155.40 

remitted by insolvent on 24.8.78 

with the bank of Thanjavur 

belongs to Srinivas Naicker, 

proprietor of Krishna Stores or 

belongs to the Petitioner 

Shankar Ram and Co.

2. Whether the Insolvency Court has 

got jurisdiction to decide this 

claim.

3. Whether the petitioner Shankar 

Ram & Co. is not entitled to 

file this petition under Section 

55 of the Provincial Insolvency 

Act."

 The learned District Judge recorded finding on 

points (1) and (2) in favour of the appellant but held 

against the appellant on point No. (3). It may be 

mentioned here that against the order passed by the 

learned District Judge no revision was filed by Kasi 

Naicker or others. It was only the appellant, which 

filed the revision before the High Court calling in 

question the validity of the order passed by the 

District Judge in holding that the protection given in 

Section 55 of the Act was not available to it. As is 

evident from the order passed by the High Court in 

revision only point No. (3) was considered and decided. 

Thus the findings on point Nos. (1) and (2) have 

attained finality. This being the position it is 

unnecessary for us to consider the other aspects but to 

answer the question set out in the beginning.

 It is concluded that the amount was paid by the 

appellant to the bank and not by Kasi Naicker for 

purchase of shares. It is a matter of record that the 

appellant purchased the shares belonging to Kasi 

Naicker from the bank on payment of money before 

passing the order of adjudication, declaring Kasi 

Naicker insolvent on 17.10.1978 in C.M.A. No. 116/77. 

It is also found that the appellant had no notice of 

the presentation of insolvency petition by the debtor 

Kasi Naicker on the date when it purchased the shares. 

As already noticed above the trial court had allowed 

the claim of the appellant but the District Court in 

appeal took a view that although the order of 

adjudication was passed on 17.10.1978 it related back 

to the date of filing the insolvency petition in IP 

7/76 in 1976 in view of Section 28(7) of the Act and as 

such the purchase of shares made by the appellant is 

not protected under Section 55 of the Act. The answer 

to the question depends upon the proper construction 

and interpretation of provisions of Sections 28 and 55 

of the Act. Sections 28 and 55 read: -

"28. Effect of an order of adjudication 

– (1) On the making of an order of 

adjudication the insolvent shall aid to 

the utmost of his power in the 

realization of his property and the 

distribution of the proceeds among his 

creditors.

(2) On the making of an order of 

adjudication, the whole of the property 

of the insolvent shall vest in the Court 

or in a receiver as hereinafter 

provided, and shall become divisible 

among the creditors, and thereafter, 

except as provided by this Act, no 

creditor to whom the insolvent is 

indebted in respect of any debt provable 

under this Act shall during the pendency 

of the insolvency proceedings have any 

remedy against the property of the 

insolvent in respect of the debt, or 

commence any suit or other legal 

proceeding, except with the leave of the 

Court and on such terms as the Court may 

impose.

(3) For the purposes of sub-section 

(2), all goods being at the date of the 

presentation of the petition on which 

the order is made, in the possession, 

order or disposition of the insolvent in 

his trade or business, by the consent 

and permission of the true owner, under 

such circumstances that he is the 

reputed owner thereof, shall be deemed 

to be the property of the insolvent.

(4). All property which is acquired 

by or devolves on the insolvent after 

the date of an order of adjudication and 

before his discharge shall forthwith 

vest in the Court or receiver, and the 

provisions of sub-section (2) shall 

apply in respect thereof.

(5). The property of the insolvent 

for the purposes of this section shall 

not include any property (not being 

books of account) which is exempted by 

the Code of Civil Procedure, 1908, or by 

any other enactment for the time being 

in force from liability to attachment 

and sale in execution of a decree.

(6). Nothing in this section shall 

affect the power of any secured creditor 

to realize or otherwise deal with his 

security, in the same manner as he would 

have been entitled to realize or deal 

with it if this section had not been 

passed.

(7). An order of adjudication shall 

relate back to, and take effect from the 

date of the presentation of the petition 

on which it is made."

"55. Protection to bona fide 

transactions. – Subject to the foregoing 

provisions of this Act with respect to 

the effect of insolvency on an 

execution, and with regard to the 

avoidance of certain transfers and 

preferences, nothing in this Act shall 

invalidate in the case of an insolvency- 

(a) any payment by the insolvent to 

any of his creditors;

(b) any payment or delivery to the 

insolvent;

(c) any transfer by the insolvent 

for valuable consideration; or

(d) any contract or dealing by or 

with the insolvent for valuable 

consideration:

 Provided that any such transaction 

takes place before the date of the order 

of adjudication, and that the person 

with whom such transaction takes place 

has not at the time notice of the 

presentation of any insolvency petition 

by or against the debtor."

 The object of Section 28 of the Act is to secure 

unrestricted right to dispose of insolvent's property 

after an order of adjudication is made. This Section 

clearly states that during the pendency of the 

insolvency proceedings, the creditor shall not commence 

any proceeding against the property of the insolvent in 

respect of his debt without the leave of the Insolvency 

Court. On making an order of adjudication, the whole 

of the property of the insolvent shall vest in the 

court or in a receiver, as the case may be, in terms of 

sub-section (2). An obligation is placed upon the 

insolvent to assist the official receiver to realize 

the assets. When sub-section (1) is read alongwith 

sub-section (7), the effect would be an order of 

adjudication relates back to the date of presentation 

of insolvency petition and the order of adjudication 

takes effect from the date of the presentation of the 

insolvency petition. Consequently, vesting of property 

under sub-section (2) also relates back to the date of 

presentation of the insolvency petition. Combined 

reading of sub-sections (1), (2) and (7) makes the 

position clear that the interest of the creditors is 

safeguarded, parties are put on notice against attempt 

to transfer the property after the date of presentation 

of the insolvency petition by the petitioners or others 

relating to his property and also to warn the intending 

purchasers or transferees that they are taking the risk 

of purchasing or getting the property transferred in 

their names during the pendency of the insolvency 

proceedings from the date of presentation of the 

petition itself and even before passing of an order of 

adjudication. In the absence of such provisions, by 

design, the claims and interests of the creditors could 

be defeated by effecting transfer of properties after 

filing the insolvency petition and before passing an 

order of adjudication. Sections 28 and 55 of the Act 

are to be read together. Where the transfer has been 

made by the insolvent after presentation of the 

insolvency petition, the transfer cannot be held as 

void ab initio but its validity or otherwise depends 

upon a consideration of the question whether the 

conditions specified in Section 55 are or are not 

satisfied. If the view of the High court affirming the 

view of the district court that the protection of 

Section 55 was not available to the appellant even on 

satisfying the requirements of Section 55, the said 

provision, although is on the statute book, does not 

serve any purpose or it is redundant or superfluous.

 It is a cardinal rule of construction that 

normally no word or provision should be considered 

redundant or superfluous in interpreting the provisions 

of a statute. In the field of interpretation of 

statutes, the courts always presume that the 

legislature inserted every part thereof with a purpose 

and the legislative intention is that every part of the 

statute should have effect. It may not be correct to 

say that a word or words used in a statute are either 

unnecessary or without any purpose to serve, unless 

there are compelling reasons to say so looking to the 

scheme of the statute and having regard to the object 

and purpose sought to be achieved by it. A Constitution 

Bench of this Court in Jaipur Zila Sahakari Bhoomi Bank 

Ltd. Vikas vs. Shri Ram Gopal Sharma and Ors. [JT 2002 

(1) SC 182] while interpreting and considering the 

effect of proviso to Section 33(2)(b) of the Industrial 

Disputes Act, 1947 in para 13 observed – "The proviso 

to Section 33(2)(b) as can be seen from its very 

unambiguous and clear language, is mandatory........... 

Taking a contrary view that an order of discharge or 

dismissal passed by an employer in contravention of the 

mandatory conditions contained in the proviso does not 

render such an order inoperative or void, defeats the 

very purpose of the proviso and it becomes meaningless. 

It is well-settled rule of interpretation that no part 

of statute shall be construed as unnecessary or 

superfluous. The proviso cannot be diluted or 

disobeyed by an employer......... The interpretation of 

statute must be such that it should advance the 

legislative intent and serve the purpose for which it 

is made rather than to frustrate it." Once the 

requirements of Section 55 of the Act are satisfied, 

the appellant is entitled for the protection of the 

said Section as a bona fide transferee. Taking a 

contrary view takes away the very protective umbrella 

specifically made available to a bona fide transferee 

covered by Section 55. Protection provided for bona 

fide transfer in Section 55 is in a way exception to 

Section 28(7).

 Proviso to Section 55 of the Act protects bona 

fide transactions mentioned in clauses (a) to (d) of 

Section 55. As per the proviso, in order to get 

protection to transactions mentioned in the said 

Section, two conditions are to be satisfied – (1) that 

any such transaction takes place before the date of the 

order of adjudication, and (2) that the person with 

whom such transaction takes place has not at the time 

notice of the presentation of any insolvency petition. 

By implication flowing from the said proviso, any 

transaction that takes place after the date of the 

order of adjudication does not get protection of 

proviso to Section 55 whether or not the person with 

whom such transaction takes place has any notice of the 

insolvency petition by or against the debtor. 

 In the case on hand on the facts found, it is 

clear that the shares were transferred in favour of the 

appellant before the date of the order of adjudication 

was made on the insolvency petition filed by Kasi 

Naickar and the appellant had no knowledge at the time 

of purchasing the shares as to the presentation of the 

insolvency petition, the transfer of shares was for 

valuable consideration and such transfer was bona fide. 

In this view, the appellants did satisfy the 

requirements of proviso to Section 55 of the Act and 

hence they are entitled for the claim made by them. We 

may add that Sections 28 and 55 must be read together 

harmoniously. As already noticed above, these Sections 

are designed and intended to serve different purposes. 

In the proviso to Section 55 itself, there is reference 

to order of adjudication and the presentation of any 

insolvency petition. Order of adjudication and 

presentation of insolvency petition are two different 

events essentially referring to two different dates 

when in the same proviso, legislature consciously made 

a clear statement as to two different dates, they 

should be given effect to. If the intention of the 

proviso to Section 55 of the Act was not to protect 

even a bona fide transferee for valuable consideration 

without notice of presentation of insolvency petition 

before an order of adjudication was made, the 

legislature could have simply said any transaction 

taking place after the date of presentation of any 

insolvency petition by or against the debtor instead of 

qualifying the transaction that takes place before the 

date of the order of adjudication. In this situation, 

the said proviso which is intended to serve a definite 

purpose should be given full meaning and effect. It is 

not possible to ignore a part of the provision, namely, 

"any such transaction takes place before the date of 

the order of adjudication". It stands to the reason as 

well, that a bona fide transferee for valuable 

consideration without the knowledge of the presentation 

of insolvency petition on the date of transfer of 

property is to be protected.

 In view of the facts found, discussion made and 

reasons recorded above, we are unable to sustain the 

impugned judgment of the High Court affirming the order 

of the district court. We answer the question set out 

above in the affirmative and in favour of the 

appellant. Hence, the appeal is allowed. The impugned 

judgment of the High Court affirming the order of the 

District Judge is set aside and that of the trial court is restored. Parties to bear their own costs.

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