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Nensukhgavri Vs. Rajabally Mulla Abdul Kadar - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtMumbai
Decided On
Case NumberO.C.J. Suit No. 613 of 1925
Judge
Reported inAIR1927Bom405; (1927)29BOMLR689
AppellantNensukhgavri
RespondentRajabally Mulla Abdul Kadar
Excerpt:
.....73 of the civil procedure code. no pro rata distribution of such moneys can take place among the attaching creditors at that stage. where notices under order xxi, rule 52, are served on the receiver and in pursuance of a garnishee or other order of the court he pays in the amount in respect of any such notice into the sheriff's office, all execution creditors whose attachments are registered in the negative book of the prothonotary before the realization of the assets by the sheriff' would be entitled to pro rata, distribution.;where the property in the custody court has been attached at the instance of different courts the custody court would satisfy such attachments not pro rata, but in order of time.;charging orders obtained by creditors in the bombay high court do not amount to..........creditor of the assets in the hands of the receiver would have priority against the subsequent attaching creditors.3. the summons is opposed by the remaining creditors of the partnership-both those who have obtained charging orders or notices under order xxi, rule 52, and those who have not obtained any such as well as those who have not yet obtained any decrees in respect of their claims they all contend that in the events that have happened the court should distribute the assets of the partnership among the creditors rateably.4. in j. kahn v. alli mahomed haji umer i.l.r. (1892) 16 bom. 577 farran j. laid down a proposition the application of which in matters subsequent to it has led to some difficulty. the principle there enunciated was that, where a fund, such as the assets of a.....
Judgment:

Mirza, J.

1. [His Lordship after stating the facts of the case as above continued :] This is a chamber summons taken out by the plaintiff in Suit No. 613 of 1925 for an order that the receiver appointed in Suit No. 440 of 1925 do pay to the plaintiffs the sum of Rs. 23,406-3-0 and costs of the suit when taxed and further interest on judgment till payment out of the funds in the hands of the receiver belonging to the partnership firm of Mulla Abdulla Kadar Mulla Ebrahim Kachwalla in priority to the claims of the other creditors of the said partnership firm and for costs of the summons.

2. It appears that the charging order in favour of the plaintiffs is prior in date to the other charging orders obtained herein. In the course of these proceedings the plaintiffs, after they had proved their claim before the Commissioner, seem to have acted on the assumption that in respect of their claim they were entitled to rank pro rata only along with the other creditors of the partnership. The change in their attitude was probably due to the fact that recently I have had to consider the nature and effect of such charging orders against partnership assets, and have held, in my judgment, that such charging orders were not justified, but could only be regarded as substitutes for notices under Order XXI, Rule 52, and that if they came under that description the first attaching creditor of the assets in the hands of the receiver would have priority against the subsequent attaching creditors.

3. The summons is opposed by the remaining creditors of the partnership-both those who have obtained charging orders or notices under Order XXI, Rule 52, and those who have not obtained any such as well as those who have not yet obtained any decrees in respect of their claims They all contend that in the events that have happened the Court should distribute the assets of the partnership among the creditors rateably.

4. In J. Kahn v. Alli Mahomed Haji Umer I.L.R. (1892) 16 Bom. 577 Farran J. laid down a proposition the application of which in matters subsequent to it has led to some difficulty. The principle there enunciated was that, where a fund, such as the assets of a partnership, is in the hands of the Court through its officer, the receiver, one out of the whole body of creditors against the fund will not be allowed to gain priority over the rest by the expedient of attaching the moneys in the hands of the receiver. Such an attachment would be an interference with the Court's possession through its officer, the receiver, and may not, therefore, be made without the Court's leave first obtained; which leave will not be granted except on such terms as will ensure equality between the creditors. The plaintiffs, in that case, had obtained a decree against the defendant and had attached moneys in the hands of the receiver appointed in a suit which was filed in the High Court by certain creditors of the defendant, who were receivers of his share in a certain partnership business against the partners of the defendant in that business for dissolution and winding up of the partnership. The decree in that suit dissolved the partnership, appointed a receiver and referred the suit to the Commissioner for taking accounts of the partnership and to ascertain the share due to the plaintiffs. The plaintiff's in the partnership action before Farran J. were probably the receivers in execution proceedings against the share of the defendant in the partnership business. Such assets, when realised, would be realised in execution and the principle of the pro rata, distribution would apply to them in so far as the then pending attachments were concerned. The creditor in the suit before Farran J. had sought to attach the assets realised by the exertion of the receivers in execution to the detriment of the attaching creditors on whose behalf the receivers were acting. The attaching creditor had not obtained leave of the Court before attaching' the assets and the attachment was clearly on that account wrong. The remarks of the learned Judge regarding the principle to be applied, in my opinion, are only obiter dicta and do not form the ratio decidendi of his decision. The learned Judge remarks (p. 579):-

No Court of Equity would render any assistance to a creditor seeking by a side wind, such as this, to gain an advantage over his fellow creditors. A fortiori must, that be the case where, as here, the creditor has obtained no leave before he took steps to interfere with the receiver's possession, for such an interference the taking out of a prohibitory order clearly amounted to.

5. The decree with which Farran J. was dealing contained no direction to take the accounts of the debts and liabilities of the partnership. The learned Judge remarked that if it were an ordinary partnership decree for winding up the partnership, it would contain such a direction, and that although in form it did not contain that direction, it was probably intended to contain it, and for the purposes of the application before him, he must treat it as such. He, therefore, treated the decree as one under which the Commissioner would ascertain the debts due by the partnership and pay them rateably. With great respect it seems to me that the opinion expressed by the learned Judge on this point is not correct. Form 22, Appendix D, to the first Schedule of the Code provides the form in which a final decree in a suit for dissolution of partnership and the taking of partnership accounts is drawn up. The form is as follows:-

It is ordered that the fund now in Court, amounting to the sum of Rs. , be applied as follows:-

1. In payment of the debts due by the partnership set forth in the certificate of the (Commissioner) amounting in the whole to Rs.

2. In payment of the costs of all parties in this suit, amounting to Rs.

3. In payment of the sum of Rs. to the plaintiff as his share of the partnership-assets, of the sum of Rs. , being the residue of the said sum of Rs. now in Court, to the defendant as his share of the partnership-assets...

6. It is clear from this form that what is contemplated is not a payment by the Commissioner pro rata to the creditors of the partnership, but what is contemplated is that in order to enable the partners to obtain the fruit of the dissolution of the partnership, all its liabilities should be first paid off in full, secondly, costs of all parties should be paid off in full and then the division should take place. The form in an administration suit is necessarily different. In an administration suit, the Court is invited to administer the estate of the deceased and is in possession of all the assets of the deceased. In the case of a partnership the liability of the partners is unlimited. It cannot be restricted to the partnership assets and there is no reason why creditors should be compelled to await the result of a partnership account between the partners before they are allowed to obtain satisfaction of their decree out of the partnership assets.

7. In Sidlingappa v. Shankarappa I.L.R. (1903) 27 Bom. 556, our Appeal Court, consisting of Candy Ag. C.J. and Chandavarkar J., have referred to J. Kahn v. Alli Mahomed Haji Umer with approval. They state (p. 559):-

We think, having regard to the principle laid down by Mr. Justice Farran in the case of J. Kahn v. Alli Mahomed Haji Umer, followed in the case of Mahommed Zohuruddeen v. Mohammed Noorooddeen I.L.R. (1893) 21 Cal. 85 it is very doubtful whether such an execution can be allowed, An officer of the Court is now executing that decree, and collecting the assets of the late firm and paying the debts of the firm, the decree-holders in the latter suit ranking as creditors of that firm.

8. I had occasion to point out in Keserbai v. Kaku : Bilasrai v. Karsondas (1926) 29 Bom. L.R. 665 that the statement made by the Appeal Court as above quoted was not necessary for the decision of the appeal which was before them, and is only in the nature of obiter dicta.

9. In Visvanadhan Chetty v. Arunachelam Chetti I.L.R. (1920) Mad. 100 a Full Bench of the Madras High Court considered the effect of Order XXI, Rule 52, and held that where the property attached was in the custody of the Court, it was the duty of such Court to hold it at the disposal of the attaching Court and it was the duty of the attaching Court, if the property attached was money, to call upon the custody Court to pay it into the attaching Court and, in other cases, to provide for the realization of the property, and to divide the money or proceeds rateably between the attaching decree-holder and the other decree-holders who are entitled to distribution under Section 73, Civil Procedure Code, viz., those who have applied to it for execution before the receipt of such assets. Where the property in the custody Court is the subject of several attachments in execution of several decrees the custody Court must award priority to the first in point of time. If the other decree-holders want to share in the rateable distribution they must apply in time to the first attaching Court. The power conferred on the custody Court by the proviso to Order XXI, Rule 52, Civil Procedure Code, to determine claims to priority, etc., does not entitle the custody Court itself to distribute the assets rateably among the attaching decree-holders. Where the attaching Court and the custody Court are the same, there is a receipt of assets within the meaning of Section 73, Civil Procedure Code, only when so much of the money standing to the credit of the judgment-debtor as is necessary to satisfy the decree-holders who have applied to it for execution, is ordered to be transferred to the credit of the first attaching creditor's suit. Order XXI, Rule 52, requires that, where the property to be attached is in the custody of any Court or public officer, the attachment shall be made by a notice to such Court or officer, requesting that such property may be held subject to the further orders of the Court from which the notice is issued : provided that, where such property is in the custody of a Court, any question of title or priority arising between the decree-holder and any other person, not being the judgment-debtor, claiming to be interested in such property by virtue of any assignment, attachment or otherwise, shall be determined by such Court. Wallis C.J., commenting on the proviso to Order XXI, Rule 52, says (p. 107):-

This will include claims questioning the title of the judgment-debtor and other cases, but taking the present case of the property in the custody Court being made the subject of several attachments in execution of several decrees, the custody Court is then in my opinion required by the proviso to determine which of these attachments is entitled to priority, and in the absence of any legislative provision...to award such priority to the first attachment in date because that attachment became complete on the service of the notice on the custody Court and subsequent attachments cannot, in the absence of express legislative provision, affect the right of the first attaching creditor to have the attached property realised in execution of his decree and distributed rateably among the decree-holders entitled under Section 295, now 73, in satisfaction of their decrees. If the other decree-holders want to share in the rateable distribution, their proper course is to apply in time, if they can, to the attaching or executing Court; and if, instead of doing so, they choose to attach the property in the custody Court, the result will be that the attaching decree-holder who is second in point of time will be entitled to proceed in execution against any balance that may be left in the hands of the custody Court after the full satisfaction of the decree of the first attaching decree-holder and of the other decree-holders who have entitled themselves to rateable distribution under Section 295, now 73, in executing his decree.

10. This Full Bench judgment is referred to in Nachiappa Chettiar v. Subbier I.L.R. (1923) Mad. 506. Schwabe C.J. thus summarizes the effect of the Full Bench decision (p. 513):-

The whole matter was however reconsidered in Visvanadhan Chetty v. Arunachelam Chetti, by a Full Bench of this Court and the proper interpretation of Section 73 was laid down. The Court was unanimous. It was held that 'assets held by a Court' did not include all money lying in Court to the credit of the judgment-debtor but only the assets levied in execution or paid into Court in satisfaction of the decree under execution, and that there is no receipt of assets within the meaning of Section 73 until the Court holding the money comes to the conclusion that no objection exists, and orders the money to be transferred to the credit of the first attaching creditor's suit, the decree in which it is engaged in executing.

11. It is clear from Order XXI, Rule 52, that the moneys in the hands of the custody Court are not moneys which are realised within the meaning of Section 73 and therefore no pro rata distribution of such moneys can take place among the attaching creditors at that stage. Rule 307 of our High Court Rules would enable the judgment-creditor who has obtained an order under Order XXI, Rule 52, to have a garnishee notice issued to the receiver.

12. Where notices under Order XXI, Rule 52, are served on the receiver and in pursuance of a garnishee or other order of the Court he pays in the amount in respect of any such notice into the Sheriff's office, all execution creditors whose attachments are registered in the Negative Book of the Prothonotary before the realization of the assets by the Sheriff would be entitled to pro rata distribution. In case the property in the custody Court has been attached at the instance of different Courts the custody Court would seek to satisfy such attachments not pro rata, but in order of time, sending the moneys to the first attaching Court first, the balance to the second and so on.

13. I must now consider whether the charging orders obtained by the plaintiffs and other decree-holders amount to attachment proceedings. The Prothonotary has not recognized them as such. They are not entered in his Negative Book The history of these charging orders in our Courts shows that they are a misapplication of a certain practice, which prevails on the point, in England. Macleod J. is said to have started the practice and his judgment in A. Haji Ismail & Co. v. Rabiabai I.L.R. (1909) 34 Bom. 48411 Bom. L.R. 1062 is generally relied upon. Prior to this case a mention of the practice is to be found in the Appeal Court judgment in Shidlingappa v. Shankarappa I.L.R. (1905) 28 Bom. 176 5 Bom. L.R. 912. The judgment of Macleod J. was based upon certain remarks contained in Kewney v. Attrill (1886) 34 Ch. D. 345. The effect of such charging orders in England on assets of a partnership in a partnership suit, where the assets are held by the Court, through its receiver is that the charging order gives priority to the person who obtains it as against every subsequent creditor as well as the trustee in bankruptcy of the debtor. An exception is made in favour of the attorneys' lien for costs under the Solicitors' Act 1860. The charging order under the Solicitors' Act is held in England to have a retrospective effect and whether that charging order is obtained by the solicitors in England prior to or subsequent to the charging order contemplated in Kewney v. Attrill, the solicitors' charging order will prevail. That was recognized in Ridd v. Thorne [1902] 2 Ch. 344. The Annual Practice for 1926, at p. 807, in considering this matter states that orders similar to the one made in Kewney v. Attrill are frequently made being substitutes for leave to issue execution notwithstanding the possession of a receiver, though they are not strictly speaking charging orders; they are valid against the trustee in bankruptcy of the partners but do not override the right of the solicitor for the plaintiff to a charging order for costs under Section 28 of the Solicitors' Act 1860.

14. In Shidlingappa v. Shankarappa I.L.R. (1903) 28 Bom. 176 5 Bom. L.R. 912 Chandavarkar J. refers to Kewney v. Attrill with approval. The remarks made by the learned Judge, however do not form the ratio decidendi of the Appeal Court's decision and must be regarded as obiter dicta. The learned Judge states (p. 179):-

By the appointment of a Receiver the Court must be taken to have aimed at equality amongst the creditors. It was open, of course, to any creditor of the partnership to sue the partners and obtain a decree for the recovery of his debt; but no creditor, after the appointment of a Receiver, could execute any decree, obtained after that appointment, to the prejudice of other creditors of the partnership. To obtain satisfaction of it he was bound to go to the Court which had appointed the Receiver and take its directions. That was recognized as the law in such cases in Kewney v. Attrill.

15. In A. Haji Ismail & Co. v. Rabiabai Macleod J. gave priority to the attorneys' lien for costs against the claims of attaching creditors on partnership assets in the hands of a receiver. The learned Judge also remarked that in a case relating to partnership assets in the hands of a receiver appointed by the Court judgment-creditors of the partnership should not attach the assets but obtain charging orders in the form proposed in Kewney v. Attrill. The remarks in Shidlingappa v. Shankarappa were, however, understood to mean that what Kewney v. Attrill decided was that in spite of the charging order in favour of the judgment-creditor all creditors of the partnership irrespective of their being attaching creditors or having obtained charging orders were to share rateably if the assets of the partnership were held by a receiver. A somewhat anomalous position was created by the practice whereby charging orders were made for the asking but were valueless to give priority against any class of creditors. That practice led to a great deal of difficulty and hardship in the case of genuine judgment-creditors, anxious to have their decrees satisfied out of the partnership assets of their judgment-debtors. Collusive partnership suits were filed and bogus receivers appointed in them in order to delay and defeat the creditors. I see no warrant in the Code of Civil Procedure for the practice introduced in the form of these charging orders. In my judgment the provisions of Order XXI, Rule 52, should be given effect to. I am not prepared to regard the charging orders obtained in these proceedings as equivalent to notices under Order XXI, Rule 52. Those charging orders will be discharged. To serve the ends of justice I shall, however, give a direction to the receiver not to pay any moneys into the sheriff's office in pursuance of any garnishee notice served upon him or otherwise, for one month from to-day. It is open to all decree-holders who may so wish it in the meanwhile to obtain leave to attach the moneys in the hands of the receiver and to have their claims in attachment registered with the Prothonotary under Order XXI, Rule 52. When these moneys are paid into the sheriff's office such creditors, in my opinion, will be entitled to rank pro rata. All creditors, who have not obtained decrees and have been misled by the notice of the Commissioner in inviting them to prove their claims before him, may, if so advised, file their suits, obtain decrees and attach. It may be open to them in case the partners have committed any act of insolvency to have them adjudicated insolvents and then all creditors will share rateably in the insolvency proceedings. I think this is a fit matter in which I should allow every creditor appearing before me to tack on the costs of the summons to his claim. Counsel certified. The directions I have already given on the priority of certain claims relating to the payment of taxes etc. will stand.


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