It will be useful to set out the facts which have led up to the present reference of the Official Assignee which is dated 21st June 1973.
2. In this case one Anwar H. Pir Bhai was on his own application adjudicated an insolvent and immediately prior to his adjudication was the owner of two properties, namely, (1) a plot of land which is a bungalow constructed thereon bearing No. 43/6-A, Block VI, P. E. C. H. Society, Karachi and (2) two plots of lands bearing Nos. 308 and 514 at Dhoro Maro, Taluka Umer Kot, District Tharparkar, upon which there were constructions in which the insolvent was carrying on a business called the Anwar Cotton Ginning & Pressing Factory. These two properties I shall refer to as the bungalow and the factory respectively, though, as will be seen, I am concerned now only with the bungalow. In the course of his business, the insolvent had taken several overdrafts and loans from the Standard Bank Ltd. Hereinafter called the Bank, and as security therefore had deposited with the bank the title deeds relating to the two properties and executed a memorandum which shows that these deeds were deposited with the bank by way of equitable mortgage. . The total liabi--lity to the bank according to the insolvent himself came to Rs. 59,79,213.83 though the insolvent claims that the bank in turn owed him Rs. 1,80,000.00 by way of rent for a godown; the precise figure of his liability is immaterial because it is in any case greatly in excess of what the properties of the insolvent are worth. In due course the insolvent was adjudi--cated as such and thereafter, on the 8th of April 1971, the Official Assignee reported these facts to the Court which on the 19th of April 1971, ordered that the property be sold and the sale proceeds, less expenses, be paid to the bank. On the 31st of July 1971, the official Assignee again reported that an offer had been received from Idris Ibrahim and Yusuf Ibrahim, hereinafter called the purchasers, of a sum of Rs. 3,50,000.00 for the bungalow and that, this price being adequate and the bank having given their consent, the offer be accepted. Upon this application the Court ordered notice to the other creditors but the Official Assignee made a reference again stating that the Bank was the only creditor entitled to receive payment of the entire sale proceeds since it was a secured creditor and the bank had already accepted offer and again requested an order of the Court accepting the offer made. Upon this application the Advocate for the Bank, namely, Mr. G. Raymond also endorsed his lack of objection to the acceptance of the offer. By an order dated 23rd of August 1971, the Court accepted this offer; by the same order it dealt with another offer made for the factory and it is unnecessary to go into the details of this order or the subsequent orders in regard to this factory for it should suffice to say, for the purpose of the present reference, that eventually that property was ordered to be sold for a consideration not less than Rs. 2,41,000.00 out of which the taxes were to be paid in the first instance but that the Official Assignee, if he came into other assets sufficient to defray these taxes, was to reimburse the Standard Bank to the extent of the amount deducted from the sale proceeds of the factory. As to the bungalow, however, the Court ordered the offer to be accepted.
3. On 21st June 1973, the Official Assignee made a reference, which is No. Misc. 376/1973 and which is now before me for decision in which such of the facts as I have mentioned above as were material are stated and it is further stated that the purchase money having been received the possession of the bungalow has been handed over to the purchaser; although the reference itself does not so state, the money has also been handed over to the bank. It then recites the fact that the insolvent was according to the Income-tax Department liable to pay a sum of Rs. 4,44,484.00 towards his income-tax arrears and that, unless that money is paid, a certificate cannot be obtained from the Income-tax Officer as is required before a document can be registered which transfers, assigns, limits or extinguishes the right, title or interest of a person in the property by section 3 of the Transfer of Property (Pakistan) Ordinance, 1947 (Ordinance IV of 1947), hereinafter called the Ordinance. The Official Assignee, therefore, asked for directions since he had received a letter from Mr. G. Raymond, acting as an Advocate for the purchasers, requesting that the Official Assignee to obtain such a certificate at an early date so that the document be executed and registered. These matters are, thus stated in the reference :- "6. The Official Assignee has received a letter from Mr. G. Raymond, Advocate for the prospective purchaser requesting the Official Assignee to obtain income-tax clearance certificate at an early date so that the necessary document is executed and registered in favour of his client.
7. That according to the income-tax assessment so far made the insolvent is required to pay Rs.
4,44,484.00 towards his income-tax arrears and unless he pays that amount the certificate in question cannot be obtained. The Official Assignee, however, feel that the income-tax being a crown debt gets priority in payment over the other ordinary creditors and it ranks equally among the other debts of the crown over which it cannot get preference. In no case it would be possible for the Official Assignee to pay the entire amount of arrears of income-tax in order to obtain the income-tax clearance certificate because that would amount to giving preference to one creditor over the other preferential creditors and also that the entire scheme of the insolvency law will be at the mercy of the Income-tax Department vis-a-vis income tax clearance certificate.
8. The Official Assignee therefore, humbly seeks directions of the Hon'ble Court whether it would be necessary for him in each case where property of the insolvents are sold by him under the orders of the Hon'ble Court to apply for and obtain clearance certificate which would not be issued by the department unless entire amount of the income-tax are paid."
4. This application came up before my learned brother Mahmud, J. On 2nd July 1973 who felt that it was necessary that the Income-tax Commissioner be heard before the reference was decided and notice was accordingly issued to that Authority. After notice was duly served the matter came up before me on 30th of July 1973, when the Official Assignee appeared in person and the purchasers and the Income-tax Commissioner were represented by Mr. G. Raymond and Mr. S. A. Nusrat, respectively. Finding it difficult upon that date to accept the contention put forward by Mr. Raymond that I could and should direct the Income-tax Officer to issue the certificate required by the Ordinance and realising also that the assets of the insolvent were entirely inadequate to meet the claims both of the bank and the income-tax authorities or indeed even one of them I adjourned the case to the following day with the purpose of giving counsel time to see whether a method could not have been evolved which would sufficiently safeguard the interest of all the parties concerned. No such arrangement, however, could be arrived at and accordingly the next day I heard arguments upon merits. Upon that day in the main it was argued by Mr. Raymond that I had the power, in spite of the facts stated, to direct the Income-tax Officer to issue a certificate and that in the circumstances of the case, I should do so. Accordingly, after hearing arguments I reserved orders but upon further consideration I realised that, if I did not accept the arguments of Mr. Raymond, which were opposed by Mr. Nusrat, this would necessarily have an adverse interest upon the bank and, therefore, directed that notices should issue to the bank before I pass final orders. A notice was accordingly issued to the bank and I re-heard the matter upon the 24th August 1973, when Mr. M. A. Namazi appeared for the Bank. The learned counsel for the Bank, however, did not address any arguments in detail before me contenting himself with adopting what had been said by Mr. Raymond.
5. Mr. Raymond's main argument for the purchasers was that the Bank being a secured creditor was really outside the ambit of the Insolvency Act and he pointed out that in my earlier order I had wrongly said that the Government as a preferential creditor and the bank as a secured creditor were both entitled to priority but no priority as between each other. Under section 49 of the Insolvency (Karachi Division and Dacca) Act (III of 1909), to which I shall hereinafter refer to as the Insolvency Act, certain debts are to be paid in priority to all other debts and among these is mentioned the debts due to the Government which would of course include income-tax liability.
The other dues mentioned in section 49 are not the debts of secured creditors and I was, I think, in error in stating that the Government is a preferential creditor entitled to rank with secured creditors.
Secured creditors are indeed placed in an entirely different category as various provisions of the Insolvency Act clearly show. Attention might particularly be paid to section 17 of Insolvency Act which expressly provides that despite the fact that upon the making of an order of adjudication the property of the insolvent vests in the Official Assignee and becomes divisible amongst his ereditors, this provision is not to affect the power of any secured creditor to realise or otherwise deal with the security. When a petition for adjudication is made by a secured creditor then under subsection (2) of section 12 of the Insolvency Act the secured creditor has the option either to give up his security for the benefit of all the creditors and, in that case, to be treated in the same fashion as any other creditor or to state the value of his security and to be treated as an unsecured creditor for the balance. Due provision is made for this by rules 9 and 10 of the Second Schedule made under section 48 of the Insolvency Act which relate to the mode of proof by the secured creditor either for the entire sum if he had surrendered his security or for the balance after deducting the value of the security. I am, therefore, in agreement with Mr. Raymond so far as the proposition goes that the secured creditor may stand upon the security and that he ranks not with the preferential creditors mentioned in section 49 but may realise his security as if there was no insolvency. I am, however, quite unable to see how that helps me in deciding the main question before me, namely, whether I have the power to direct the Income-tax Officer to issue a certificate under the Ordinance and, if so, whether it would be proper to do so in the present case.
6. Now section 3 of the Ordinance reads as follows :- "No Registering Officer, Revenue Officer, Custodian or any other officer appointed to deal with property shall register any document, relating to property other than agricultural land, which is required to be registered under the provisions of clause (a), (b), (c) or (e) of subsection (1) of section 17 of the Registration Act, 1908 unless it is certified by an Income-tax Officer, in respect of every person whose right, title or interest in the property is or will be transferred, assigned, limited or extinguished under the terms of the document, either that such person is not liable to taxation under the Income-tax Act, 1922, the Excess Profits Tax Act, 1940 or the Business Profits Tax Act, 1947 or that he has either paid or made satisfactory provision for the payment of all existing or anticipated liabilities under any of the said Acts: Provided that no such certification shall be necessary in respect of sale by a bank as a mortgage empowered to sell."
7. It will be seen that section 3 prohibits a registering officer among other authorities from registering any document unless the certificate of the Income-tax Officer is available that the person whose right, title or interest in the property is being transferred, assigned, limited or extinguished; is not liable to taxation under the Income-tax Act and other Acts or he' has paid or made satisfactory provision for the payment of all existing or anticipated liabilities. Assuming for the time being, since it is controverted by Mr. Raymond, that in relation to the facts of the instant case the person mentioned in section 3 is the insolvent. It is an admitted position that he was liable to taxation and that he has neither paid nor made satisfactory provision as required by this section. In the ordinary way, therefore, it is impossible that the Income-tax Officer should give such a certificate as is mentioned in section 3. I am entirely unable to see what authority the Insolvency Act gives to me to require the Income-tax Officer to give such a certificate or that, if I had that authority, how I could ask him to certify something which is palpably false.
8. A variety of arguments have been canvassed tending to show that section 3 should be disregarded but, before I consider these, it might be pointed out that the reference before me is for directions to the Official Assignee asking whether it would be necessary for me to obtain such a certificate and in paragraph 8 of the reference, which is part of the quotation that I have already reproduced, the official Assignee himself says that such a certificate would not be issued by the Department unless the entire amount of the income-tax is paid. Naturally Mr. Nusrat also says that such a certificate cannot be properly issued unless section 3 of the Ordinance is complied with.
This reference, which the Official Assignee could in any case have made, was in fact occasioned by a request of Mr. Raymond himself which is referred to in paragraph 6 to the effect that the Official Assignee obtain an income-tax clearance certificate. Clearly Mr. Raymond was himself of the view that an income-tax clearance certificate would be necessary and the reference to a clearance certificate is obviously to a certificate issued under the Ordinance. I am not, of course, suggesting that Mr. Raymond is, therefore, bound by this admission of law but I am pointing out that what was his own case.
9. To support the contention, however, it was then argued that the Ordinance really has no application because upon an adjudication the property of the insolvent vests in the Official Assignee and section 3 comes into play only when there is, to put it shortly, a tax liability against the person whose title is being transferred or extinguished an only then is a certificate necessary at all; in the alternative that the certificate that the Income-tax Officer is required to give relates to the liability of the person in whom the property vests. That person is the Official Assignee. Now it is true of course that the property of the insolvent vests in the Official Assignee but I cannot, upon any reasonable C construction, hold that the property vests in the Official Assignee in an but a legal sense; certainly he is not entitled to the beneficial interest in the property. Section 17 of the Insolvency Act which vests the property in the insolvent, after having so provided, expressly says that the property shall become divisible among the creditors. If the property, were to vest beneficially in the Official Assignee personally there could be no question of its being divisible among the creditors. It vests in the Official Assignee for the benefit of the creditors. I was, however, referred to a decision of the Privy Council reported in Sooniram Ramniranjandass v. Alagu Nachiyar Koil (AIR 1938 P C 259) for the proposition that the Official Assignee is the owner of the property.
What their Lordships actually said, however at page 260, Col. 2 was that--- "The Official Assignee is the person in whom the insolvent's property vests as owner, though only for the benefit of others."
The legal vesting, notwithstanding, therefore, is not for the personal benefit of the Official Assignee but for that of the creditors. It would be remarkable consequence that for the purpose of section 3 of the Ordinance the Income-tax Officer is to have regard to the personal tax liability of the Official Assignee in matters of this kind. It so happens in this case that the Official Assignee has no such liability but surely cases can be envisaged when he has and I am wholly unable to agree that the estate of an insolvent can be made liable, as would be the effect, for his tax liabilities. I cannot, therefore, agree with Mr. Raymond that the Income-tax Officer should have no regard whatever to the liability of the insolvent but only to that of Official Assignee personally.
10. It is then said that the bank could have realised its security and could then have got title in the property by means of a decree of the Court for which no certificate would have been necessary.
Assuming., without holding that is so in law it is wholly unnecessary I think to consider this argument because the fact remains that we are dealing with an equitable mortgage and there is no decree of the Court.
11. It was next argued that the Insolvency Act and the Ordinance should be read in such a fashion as to reconcile the provisions of one with the other. I wholly agree; it is the duty of the Court to give effect to the intention of the Legislature and if it is possible to do so in regard to two separate enactments at the same time certainly it should be done. But in reading the two enactments, one of which is prior in point of time, it is well settled that if there is conflict the second must prevail. I should like to add that, in my view, a question of such conflict ought not to be determined by merely theoretical considerations but that in each case it must be seen whether it is possible to give effect to both the statutes and if it is not then, to the extent that it is not so possible, the earlier Act must yield. It is necessary, therefore, to consider the effect of the statutes in the light of the facts before me. The bank is no doubt a secured creditor and were it a conflict between a bank and another creditor who has obtained a subsequent mortgage then clearly of course the bank would have to be preferred to the second mortgage. In terms the Ordinance does not make tax liability a charge upon the property. It only prohibits the registration of a document which transfers the title of a person who is liable for tax unless the tax Authorities certify that the, provisions of section 3 of the Ordinance have been complied with. In effect, therefore, it makes it impossible for alienation of the property to~ take place by registration without the tax liability of the owner having been satisfied and, although this does not amount to a charge upon the property in the strict technical sense of the term, the practical effect is, much the same. This being the clear intention of the Legislature in the Ordinance I am unable to see how it can be said that there is no conflict in the application of the two statutes in the instant case. I am not saying that the two statutes are necessarily and in all circumstances in conflict; I have already said that in my view this is not to be decided with reference to purely theoretical considerations. It is possible of course, though I am not so deciding because it is unnecessary and because I have not heard arguments upon that point, that title might pass by operation of law as for instance in the case of the devolution of the property upon the death of the owner and it is possible that in those circumstances it might be held that the successors are not liable for the tax liability of the deceased proprietor. In such a case, however, there may be other complications. And I instance the example only for the purpose of showing that I am not proceeding upon any conflict in' language between the Insolvency Act and the Ordinance but considering the effect in the instant case and in the instant case only. In that context it might be useful to consider what would have been the position if the insolvent had not been so adjudicated and wished to convey in satisfaction, full or partial, of his debt to the bank.
A conveyance for this purpose would undoubtedly have needed the certificate under the Ordinance and I am quite unable to see how the position of the bank can be improved by the adjudication.
12. It is finally argued that a very str.Ct construction should be placed upon the Ordinance since it encroaches upon rights already existing. I have not the slightest hesitation in accepting this proposition of law but this maxim, as any other maxim of construction, comes into play when there is any ambiguity. I am entirely unable to see any ambiguity whatever in the Ordinance.
13. In the result I have not been able to agree that I have any power in these proceedings to direct the Income-tax Officer to give a certificate such as is required by the Ordinance. Whether, it would be right for me to give such a direction if I had the power, is yet another question and upon this I wish to comment not at all as this question might appro--priately arise with reference to this very case in any other proceedings that the bank or the purchasers might consider advisable to institute. Mr. G. Raymond did indeed argue, that if I did not feel persuaded to give directions to the Income-tax Department, I should explain the law in the hope that the Income-tax Department would then, respecting my view of the law, act appropriately. Now in the first instance Courts do not and should not attempt to explain the law except for passing of orders and, secondly, I have in any case had to go into the questions of law debated and stated my view.
14. As a result of what I have said, therefore, the only proper direction which I can make and which I do make is that the Official Assignee apply to the Income-tax Officer for a certificate, and if the Income-tax Officer does grant it, to proceed to a conveyance of the property by registered document. If, however, the Income-tax Officer refuses to grant such a certificate the Official Assignee will have to make another reference to this Court for directions as to what is now to be done about a contract entered into with the purchasers which cannot be given effect to by registration.
K. B. A.