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Sidick Haji HuseIn Vs. the Official Assignee of Bombay - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case Number O.C.J. Appeal No. 51 of 1934 and Insolvency No. 169 of 1911
Judge
Reported inAIR1935Bom310; (1935)37BOMLR449; 157Ind.Cas.930
AppellantSidick Haji Husein
RespondentThe Official Assignee of Bombay
DispositionAppeal dismissed
Excerpt:
.....to unpaid dividend account by official assignee-annulment of adjudication-order passed in old insolvency-annulment order can be passed by insolvency court alone-conditional order to operate in future not valid-insolvent not entitled, on annulment of his insolvency, to sums transferred to unpaid dividend account.;in cases of old insolvencies the court will be very slow in making orders of annulment. the reason is that an order of annulment is meant to be a penalty imposed upon a debtor who fails to obtain his discharge, the theory being that it will deprive him of the benefit of the insolvency act and render him liable to be attached by his creditors ; but where the insolvency has endured for a long period, an order annulling the insolvency, instead of imposing any penalty upon the..........and subject to such conditions {if any) as the court may declare by order.11. now, the notice of motion for annulment of the adjudication came on for hearing before the insolvency judge on august 7, 1928, and he thereupon ordered-that the hearing of the said notice of motion do stand over until november 6, 1928, to enable the said insolvent to apply for his discharge in the meantime and in default of the insolvent applying for his discharge on or before november 6, 1928, the order of adjudication made herein on may 3 1911, against the said insolvent do stand annulled.12. on november 10; 1928, a certificate was issued by the chief clerk in insolvency to the following effect :.....i hereby certify that the above named insolvent has not yet filed his application for discharge and as such.....
Judgment:

John Beaumont, Kt., C.J.

1. This is an appeal from an order made by Mr. Justice Kania in, Insolvency.

2. The application is by notice of motion made in Insolvency No. 169 of 1911 and asks for an order that the Official Assignee of Bombay do pay to the debtor two sums of Rs. 10,208-5-8 and Rs. 20,854-2-7 appertaining to the estate and transferred by the Official Assignee to the unclaimed dividend capital account on August 13, 1928.

3. The nature of the claim is that the insolvent's adjudication was annulled in the year 1928, that at that time there were certain sums in the insolvency standing to the credit of the unclaimed dividend capital account, that the effect of the order of annulment was that those sums reverted to the debtor, and that he is now entitled, to be paid.

4. The unclaimed dividend capital account arises under Rule 178 of the Presidency-towns Insolvency Rules, Bombay ; and under Section 121A of the Presidency-towns Insolvency Act, which was added by the Amending Act, Bombay Act XX of 1933, it is provided that the sums and securities standing to the credit of the unclaimed dividend capital account and certain other accounts with the High Court of Judicature, Bombay, are transferred to the local Government; and then it is provided that the revenues of the local Government shall be liable to make good all sums required to meet the claims upon the said sums and securities of persons entitled thereto.

5. Then, under Section 123 of the Act, as amended, it is provided that any person claiming to be entitled to any monies paid to the account and credit of the local Government may apply to the Court for an order for payment to him of the same; and the Court, if satisfied that the person claiming is entitled, shall make an order for payment to him of the sum due.

6. Now, the facts giving rise to the application are these : An order of adjudication was made on May 3, 1911 ; and in 1913, 1916 and 1917 dividends were paid in the insolvency, which amounted together to less than two annas in the rupee. In 1923, a sum of Rs. 10,000 and odd, which is the first sum mentioned in the notice of motion, was transferred by the Official Assignee to the unclaimed dividend account. In 1925, a supplementary dividend was declared ; but, as the office of the Official Assignee had mislaid the addresses of creditors,-an episode which reflects little credit on the then management of the offices-, only eight creditors received their shares of the supplementary dividend, and there was a considerable surplus of unclaimed dividends, In 1926, a motion was made to the Court to annul the insolvency; and, in August, 1928, an order was made purporting to annul the insolvency as from November 6, 1928. I will refer to the terms of that order presently. On August 13, 1928, that is, before the annulment became effective the second sum referred to in the notice of motion 'namdy, Rs. 20,000 and odd. was transferred by the Official Assignee to the unclaimed dividend account. In April, 1934, the funds to the credit of the unclaimed dividend account were transferred to the local Government under the terms of the Act to which I have referred.

7. Now, the first question, which arises, is, whether there has been a valid order of annulment, because it is that order which is the foundation of the applicant's case. I would observe in passing, though the observation is not strictly relevant to the question before us, that in cases of old insolvencies like the present, the Court should be very slow in making orders of annulment. An order of annulment is intended to be a penalty imposed upon a debtor who fails to obtain his discharge, the theory being that it will deprive him of the benefit of the Insolvency Act and render him liable to be attached by his creditors ; but, it is plain that, where, as in this case, the insolvency has endured for fifteen years, an order annulling the insolvency confers a privilege upon the debtor, and does not impose any penalty upon him. The creditors are not likely to attach him, even if their debts are not barred, and he is relieved from the stigma of insolvency, though he may have paid only a very small dividend to the creditors, and unless an order is made under Section 23 he may get property returned to him. I should have mentioned that the present debtor has been paid Rs. 1,400 and odd, which was cash in the hands of the Official Assignee and which was considered due to the debtor on the annulment of his insolvency.

8. However, the first question in this application, as I have stated, is whether there has been a valid order of annulment.

9. The section which authorizes the Court to make an order of annulment is Section 41 of the Presidency-towns Insolvency Act, and that section provides that-

If an insolvent does not appear on the day so appointed for hearing his application for discharge or if an insolvent shall not apply to the Court for an order of discharge within such time as may be prescribed, the Court, on the application of the official assignee or of a creditor or of its own motion, may annul the adjudication or make such other order as it may think fit, and the provisions of Section 23 shall apply on such annulment.

10. Section 23 (1) provides that-

Where an adjudication is annulled, all sales and dispositions of property and payments duly made, and all acts theretofore done, by the official assignee or other person acting under his authority, or by the Court, shall be valid, but the property of the debtor who was adjudged insolvent shall vest in such person as the Court may appoint, or, in default of any such appointment, shall revert to the debtor to the extent of his right or interest therein on such terms and subject to such conditions {if any) as the Court may declare by order.

11. Now, the notice of motion for annulment of the adjudication came on for hearing before the Insolvency Judge on August 7, 1928, and he thereupon ordered-

That the hearing of the said notice of motion do stand over until November 6, 1928, to enable the said insolvent to apply for his discharge in the meantime and in default of the insolvent applying for his discharge on or before November 6, 1928, the order of adjudication made herein on May 3 1911, against the said insolvent do stand annulled.

12. On November 10; 1928, a certificate was issued by the Chief Clerk in Insolvency to the following effect :.....

I hereby certify that the above named insolvent has not yet filed his application for discharge and as such the order of adjudication made herein on May 3, 1911, against the said insolvent stands annulled and the notice of motion herein dated April 29, 1926, is made absolute pursuant to the order made herein on August 7, 1928.

13. It is plain that the Chief Clerk had no jurisdiction to make any order of annulment of adjudication, and the applicant's case must stand or fall on the order of the Judge made on August 7, 1928.

14. Now, under Section 41 of the Presidency-towns Insolvency Act, the Court has. jurisdiction to make an order of annulment only after the happening of certain events, namely, (taking the event applicable to this case), if the insolvent shall not apply to the Court for an order of discharge within such time as may be prescribed. So that, the Court has, first, to prescribe the time within which the insolvent must apply for an order of discharge, and then be satisfied that the application for discharge was not made within that period ; and it is only in that event that the Court has jurisdiction to make an order of annulment; and, in exercising that jurisdiction, the Court has. to consider, at the time when it makes the order of annulment, whether it ought to make any order under Section 23. In the present case the learned Judge did not follow that procedure. He made an order in August, the jurisdiction to make which only arose in November, and he did not consider at the time when the jurisdiction arose what order ought to be made. In my opinion the alleged order of annulment was a wholly invalid order ; and, on that ground alone, the application must fail.

15. That being so, it is not necessary to consider a further technical difficulty which would have been in the way of the applicant if the! order of annulment had been valid, namely, that, if the insolvency was annulled in 1928, an application in that insolvency could not be made in the year 1934. It may well be that if the applicant had had any rights, he would have had to enforce them in a suit.

16. It is also not necessary to consider the question, with which the learned Judge dealt, whether these monies, representing dividends declared but not paid, and credited to the unclaimed dividend account, were the property of the debtor at the time of the annulment order, and, therefore, reverted to him under Section 23 of the Presidency-towns Insolvency Act. But, as the point has been argued, and as I do not desire by silence to be supposed to be encouraging applications, or the filing of suits, in cases of this nature where there has been a valid order of annulment, I would say that I see no reason to differ from the view which the learned Judge took. It seems to me that once a dividend has been declared and moneys allocated to the payment of that dividend, those moneys cease to be, in any sense, the property of the debtor. They become the property of the creditor ; and, if for any reason the creditor cannot be paid, they lapse to Government. That view is supported by the decision of Mr. Justice Wright in Higginsm & Dem, In re, Attorney-General, Ex parte [1899] 1 Q.B. 325. That was in fact a much stronger case than the present, because in that case no dividend had been declared, though a creditor had proved his debt. After the proof of his debt, the creditor, a corporation, was dissolved and ceased to exist. Another creditor moved to expunge, the proof of the dissolved corporation, claiming that the money to which the corporation had been entitled as a creditor, and which was then in the hands of the Official Received as trustee, was divisible among the still existing creditors. The Court held that, although no dividend had been declared, nevertheless the debt having been proved, the dividend applicable to that debt was held by the Official Receiver as trustee for the creditor, and that creditor having ceased to exist, the Crown stepped into his shoes and was entitled to the amount as bona vacantia. In the present case, a dividend had been actually declared, and the moneys set aside to meet it; and, even if I had thought that the application was technically in order, I should have held that it must fail on the merits, for the property was not the property of the insolvent at the time of the order of annulment.

17. The appeal, therefore, must be dismissed with costs.

18. If the costs of respondent No. 2 are not recovered from the appellant, they should come out of the unclaimed dividends revenue account.

Rangnekar, J.

19. The appellant applied to the learned Commissioner in Insolvency for an order that certain moneys, admittedly lying with the Crown, should be refunded to him. The claim was based upon the ground that these moneys were part of his estate which had vested in the Official Assignee during his insolvency ; but, as the order of adjudication against him was subsequently annulled, they reverted to him under Section 23 of the Presidency-towns Insolvency Act, and, therefore, he was entitled to recover them under the section from the Crown.

20. The facts which gave rise to the application are set out in the judgment just delivered ; and it is not necessary for me to refer to them in detail. I may, however, briefly refer to the material facts. The adjudication order against the appellant was made in 1911. Three dividends were declared in 1913, 1916, and 1917, and an unclaimed dividend amount of Rs. 10,000 odd was transferred by the Official Assignee to the unclaimed dividend account under the Presidency-towns Insolvency Act and the rules made thereunder. In 1925, a supplementary dividend was declared, and this time the unclaimed amount that remained in the hands of the Official Assignee was Rs. 20,000 odd, which was transferred by him to the unclaimed dividend account in 1928,

21. In 1926, a creditor of the appellant took out a notice of motion for an order that the adjudication order be annulled on the ground that the appellant (insolvent) had failed to apply for his discharge within the time prescribed for it. On that motion, the order made on August 7, 1928, which is at print page 7, was to the effect that, the hearing of the notice of motion should stand over to November 6, 1928, and in the meanwhile if the insolvent failed to apply for his discharge on or before that date, the adjudication order would stand annulled.

22. On November 10, 1928, a certificate was issued over the signature of an officer of the Court, then styled Chief Clerk in Insolvency, by which he certified that the insolvent had not till then filed his application for discharge and the order of adjudication was annulled and the notice of motion was made absolute pursuant to the order of August 7, 1928.

23. In 1933, the insolvent called upon the Official Assignee for the refund of the moneys which the Official Assignee had transferred to the unclaimed dividend account, and, in 1934, made an application to the learned Commissioner. The application was dismissed by my brother Kania, on the ground that the moneys held by the Crown ceased to be part of the estate of the insolvent, having regard to the fact that they represented unclaimed dividends, which belonged to the creditors and not to the insolvent; and it is from that order of dismissal that the present appeal is made.

24. Now, it seems to me that there are at least two fatal answers to the appellant's claim. The first is, that there is no order of annulment as contemplated by Section 41 of the Presidency-towns Insolvency Act. That section clearly provides that, among other things, if an insolvent fails to apply for his discharge within the time prescribed,-which time, it is obvious, it is open to the Court to extend from time to time-, then he exposes himself to the risk of having the order of adjudication annulled. It is clear, therefore, that the jurisdiction which the Judge had under that section to annul an adjudication order is based upon proof of the fact that the insolvent has failed to apply for his discharge within the time, either originally prescribed or later on extended by the Judge on an application by the parties ; and it is difficult to see how, on the terms of that section itself, which confers on the Judge a statutory jurisdiction to proceed in a particular manner, only on the happening of a particular event, that a conditional order, such as was made in this case, could be made. Assuming, however, that it was open to the Judge to make a conditional order, it seems to me that there is a. clear hiatus in the circumstances of this case.

25. The order was made, as I have said, on a notice of motion taken out by a creditor ; and by the order the notice of motion was allowed to stand over. On reading the order as a whole, I think it is clear that the notice of motion, which asked for the annulment of the adjudication order, was not finally disposed of, and clearly contemplated a further act, either on the part of the Judge, or on the part of the parties interested by way of an application to the Court to satisfy the Court that the event prescribed had not taken place and that the insolvent had failed to apply for his discharge within the prescribed time, nor was any vesting order or an order for the disposal of the assets of the insolvent in the hands of the Official Assignee made.

26. The appellant relies on the certificate, to which I have referred. That certificate seems to me to have neither any precedent nor any authority in its favour. There is no rule or any section of the Act which authorizes the Chief Clerk to issue a certificate and take upon himself the burden to say that the notice of motion was made absolute. The notice of motion could only be made absolute by the Judge himself; and a mere certificate by the Chief Clerk that the notice of motion is made absolute, when, admittedly, it was not made absolute, cannot take the place of a proper order on the notice of motion. As stated above, the notice of motion was merely adjourned.

27. I think, therefore, it is clear that there has been no annulment of the order of adjudication against the appellant. That being the foundation of the application made to the Commissioner in Insolvency, the application failed on that ground.

28. It has been said that the order has been acted upon by the appellant in various ways, and that he filed suits and recovered moneys. All I can say is that the subsequent conduct of the appellant cannot make right what is clearly wrong.

29. The second objection is also equally serious. The question is, when the adjudication order was annulled in 1928 and the application was made in 1934, can such an application be made under Section 123 of the Presidency-towns Insolvency Act to the Insolvency Court Section 123, no doubt, provides that, even where monies have been transferred to the Government, a person entitled thereto may apply to the Court for an order that they be refunded to him. The section must be construed reasonably in the light of the Act; and, so construed, it seems to me that such an application can only be made when the Court, which, as denned by the Act, is the Insolvency Court, is seized of any particular matter as such Court. As in England, since the fusion of law and equity, in this country, every Judge of this Court exercises various kinds of jurisdiction. The learned Commissioner in Insolvency has more than one jurisdiction. In one jurisdiction, he acts as the Commissioner in Insolvency ; in , the other, he exercises the ordinary jurisdiction in civil cases. Now, a Judge of this Court can never act as Commissioner in Insolvency unless there is a matter which arises in insolvency, and ex hypothesi there was no insolvency when the application was made, the order of adjudication having been annulled six years before the application.

30. Mr. Setalvad relies on Section 7 of the Presidency-towns Insolvency Act. About the corresponding section of the English Bankruptcy Act, it is said that it has startled the whole world by giving very wide jurisdiction to the Insolvency Court ; and that section says that the Court has power to decide any question of law or fact which may arise in any case of insolvency coming within the cognizance of the Court. How can this application be said to arise in a case of insolvency, when ex hypothesi that insolvency ceased to exist six years prior to the application ?

31. Now, Section 7 of the Presidency-towns Insolvency Act corresponds to Section 72 of the English Act of 1869 and Section 105 of the present Act; and the scope of the jurisdiction of the Bankruptcy Court, under Section 72 of the Act of 1869 is dealt with by James L. J. in Ex parte Lyons, In re Lyons (1872) L.R. 7 Ch. App. 494. In this case, the facts were : that there was a composition effected between the bankrupt and his creditors. After the composition, the bankrupt was induced to execute a deed in favour of one of the creditors which clearly was to his advantage. Subsequently, the composition was approved by the Court, and the order of adjudication was annulled. Upon that, the bankrupt applied to the Court to set aside the deed. It was held that the Court of Bankruptcy had no jurisdiction in this matter, and that the parties must be left to the ordinary remedy ; and the matter is put in this way by the learned Lord Justice (p. 498) :-

The case does not come within section 72, the object of which is to provide a summary remedy in matters relating to the distribution of the estate, or otherwise arising in or really connected with bankruptcy proceedings. I should be sorry to limit the jurisdiction of the Court as to anything which can be said to be a matter incident, to the bankruptcy proceedings, and I do not say that the Court might not have jurisdiction to tax the costs if the receiver were holding the property till they were paid. But it does not follow, because there has been a relation between two parties founded on bankruptcy proceedings, that every dealing between them having any connection with that relation is drawn within the jurisdiction of the Court of Bankruptcy.

32. To the same effect are the observations made in Ellis v. Silber (1872) L.R. 8 Ch. App. 83 with regard to Section 72 by Lord Selborne L.C. This is what he says (p. 86) :--

That which is to be done in bankruptcy is the administration in bankruptcy. The debtor and the creditors, as the parties to the administration in bankruptcy, are subject to that jurisdiction. The trustees or assignees, as the persons intrusted with that administration, are subject to that jurisdiction. The assets which come to their hands and the mode of administering them are subject to that jurisdiction ; and there may be, and I believe are, some special classes of transactions which, under special clauses of the Acts of Parliament, may be specially dealt with as regards, third parties. But the general proposition, that whenever the assignees or trustees in bankruptcy or the trustees under such deeds as these have a demand at law or in equity as against a stranger to the bankruptcy, then that demand is to be prosecuted in the Court of Bankruptcy, appears to me to be a proposition entirely without the warrant of anything in the Acts of Parliament, and wholly unsupported by any trace or vestige whatever of authority.

33. I think, therefore, that the application was not at all competent. It is not necessary for me to express any opinion as to what course was open to the appellant to take ; but' I am clear in my mind that the application was not competent.

34. In this view, it is not necessary for me to consider in detail one other question which has been argued before us. The question is : Whether the dividends, which remained in the hands of the Official Assignee and which, as. they could not be paid over to the creditors in whose favour they were declared, were subsequently, by the operation of Section 122 and the following sections of the Presidency-towns Insolvency Act, transferred to the Crown, reverted to the appellant on the order of adjudication being annulled ; or, whether, as the Crown contends, they either lapsed to the Crown, as the creditors, who were entitled to them, could not be traced or had become extinct, or that they originally belonged to the creditors. But it seems to me that the view which the learned Judge took is correct, and is clearly supported by the decision in Higginson & Dean, In re, Attorney-General, Ex parte [1899] 1 Q.B. 325, which seems to be a stronger case than the present one.

35. Apart from that, it is difficult to see, having regard to the scheme of the Act and the rules made thereunder and the manner in which these dividends are to be dealt with, how it can be contended that, after the declaration of dividends, these dividends did not become earmarked for payment only to the creditors, and if they were not paid over to the creditors, they continued to be part of the estate of the insolvent. I think, therefore, if it had been necessary for me to express an opinion on this point, I should have certainly agreed with the view taken by the learned Judge.

36. I agree, therefore, that the appeal must be dismissed with costs.


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