1. A very interesting question relating to the law of insolvency arises in this appeal. The appellant firm was dissolved on 19-12-1951. The respondent company filed a suit against the appellant firm and obtained a decree on 14-11-1952. The appellant firm consists of several partners, but in the suit filed by the respondent company only one partner was served) viz. Bhagwatiprasad, and he appeared in answer to the summons. On 10-12-1952, the respondent company took out an insolvency notice addressed to the firm calling upon the firm to pay the judgment debt within the time specified in that notice. The appellant firm took out a notice of motion on 8-1-1953, to set aside the insolvency notice. The learned Insolvency Judge dismissed the notice of motion) and it is from that order that this appeal is preferred.
2. The contention of the respondent company is that it has obtained a decree against the appellant firm, that the insolvency notice is addressed to the appellant firm, that there is an obligation upon the appellant firm to satisfy the judgment debt, and that the insolvency notice is in proper form, and the learned Judge below was right in dismissing the notice of motion to set aside the insolvency notice. As against this what is contended on behalf of the appellant firm is that the decree which was obtained by the respondent company could only be executed against the partner Bhagwatiprasad who had been served, it could not be executed against the other partners, and to the extent that the insolvency, notice was addressed to all the partners which constituted the firm the insolvency notice is bad. Now, the position that arises in respect of a decree passed against a firm under the Civil Procedure Code is not and cannot be disputed. Partners can be sued in the firm name under Order 30 and Order 30 provides how service is to be effected. Certain consequences follow upon all the partners of a firm not being served and those consequences are set out in Order 21, Rule 50. Sub-rule (1) of that rule provides that a decree can be executed, which has been passed against a firm, against the property of the partnership and against any person who has appeared in his own name under Rule 6 or Rule 7 of Order 30 or who has admitted on the pleadings that he is, or who has been adjudged to be, a partner, and against any person who has been individually served as a partner with a summons and has failed to appear. There is no dispute that the only person who falls under clause (b) or clause (c) of Order 21, Rule 50(1), is Bhagwatiprasad, and no other partner can fall under either of these two clauses. Then Sub-rule (2) provides :
'Where the decree-holder claims to be entitled to cause the decree to be executed against any person other than such a person as is referred to in Sub-rule (1), clauses. (b) and (c), as being a partner in the firm, he may apply to the Court which passed the decree for leave, and where the liability is not disputed, such Court may grant such leave, or, where such liability is disputed, may order that the liability of such person be tried and determined in any manner in which any issue in a suit may be tried and determined.'
Therefore, in cases of partners who have not been served, the decree cannot be executed against them without leave of the Court, and what is even more important is that it is open to these partners to dispute their liability under the decree, and if they so dispute their liability, their liability has to be determined as if it was an issue in the suit itself. Therefore, looking to these provisions it is clear that the decree which the respondent company obtained against the appellant firm on 14-11-1952, could not have been executed against any partner other than Bhagwatiprasad. It is equally clear that the insolvency notice which has been taken out by the respondent company calls upon not only Bhagwatiprasad but all the partners to satisfy the judgment debt. The notice is addressed to the firm which can only mean that it is addressed by a compendious name to all the partners constituting the firm.
3. Therefore, the short position that arises for our consideration is whether, although a decree could not have been executed without the leave of the Court against all the partners, it is open to a judgment-creditor to call upon ail the partners to satisfy the judgment debt. If the judgment-creditor had attempted to execute the decree against all the partners, he would have been met with the answer that he could not do so unless he had obtained leave under Order 21, Rule 50(2). The question is whether these partners can give a similar answer to a judgment-creditor who takes out an insolvency notice that he cannot take out an insolvency notice against them because they are not liable to discharge the judgment debt unless he has obtained the leave of the Court. Now, the insolvency notice itself mentions that the amount is payable under a decree whereon execution has not been stayed,. Therefore, if there is a decree in favour of a judgment-creditor of which the execution has been stayed, the judgr-ment-creditor is not entitled to take out an insolvency notice in respect of that decree. In our opinion, Order 21, Rule 50(2), constitutes a statutory stay of execution of the decree against partners other than those who have been served. Therefore, when the insolvency notice was taken out by the respondent com-pany against the appellant firm, the execution of the decree was statutorily stayed against all the partners except Bhagwatiprasad, and if that be the true position, it is clear that the insolvency notice is bad to the extent that it is addressed to the judgment-debtors against whom the execution of the decree has been stayed by statute.
4. Mr. Purshottam's contention is that once he has obtained a decree against a firm, there is an obligation under the partnership law upon each partner to discharge the partnership debt. He says that even in the case of a dissolved partnership under Section 49, Indian Partnership Act the obligation of the erstwhile partners to discharge the partnership debt continues, and therefore if a creditor of a firm calls upon the firm to discharge its debt, the liability to discharge that debt is upon each and every partner and the failure to discharge that debt constitutes an act of insolvency on the part of each partner. There is no dispute as to the substantive law embodied in the Partnership Act and nobody suggests that there is no obligation upon a partner even of a dissolved partnership to discharge the debts of the partnership in the winding up. But what is overlooked by Mr. Purshottam is that what we have to consider in this insolvency notice is not a partnership liability but a liability which is crystallised under a decree and a decree which is executable against each and everyone of the partners. The act of insolvency is not failure to pay a partnership debt. The act of insolvency is failure to pay a judgment debt, and before there can be a failure to pay a judgment debt, there must be a liability to pay a judgment debt, and as already pointed out in this particular case, there is no liability to pay the judgment debt till the leave of the Court has been obtained. In a special and peculiar sense a decree against a firm is different from any other decree that may be passed by a Court. If a decree is passed against A, B, C and D, the decree can be executed without leave of the Court and none of the judgment-debtors can Question the decree. But where a decree is passed against a firm which is constituted of partners A, B, C and D, every partner who has not been served with the summons of the suit can question the decree and the judgment-creditor cannot execute the decree against all of them.
That is the fundamental distinction between a decree in a partnership suit against a firm which has been filed under Order 30 and a decree in an ordinary suit where the restriction's imposed upon the plaintiff under Order 30 do not apply. Mr. Purshottam says that even under Order 21, Rule 50, the partnership assets are liable to satisfy the decree and the judgment-creditor can execute the decree against those partnership assets. That is perfectly correct, but what Mr. Purshottam is seeking to do by taking out this insolvency notice is not merely to get thepartnership assets to vest in the Official Assignee, but to get the individual and separate assets of each partner to vest in the Official Assignee and to affect the personal statu's of each of the partners. Therefore, what Mr. Purshottam is seeking to do is to get partners adjudicated insolvents and to get their property to vest in the Official Assignee, although if he had attempted to execute the decree against those very partners he would have been met with a complete answer which is to be found in Order 21, Rule 50, Or, in other words, although -the partners other than Bhagwatiprasad of the appellant firm have a complete answer as far as the execution of the decree is concerned and although the decree cannot be executed against them, yet the respondent company calls upon them to satisfy that very decree and holds out the threat that if that decree is not satisfied they would be adjudicated insolvents.
5. Mr. Purshottam has relied on a decision of the Privy Council reoorted in -- 'Kastur Chand v. Dhanpat Singh', 23 Cal 26 (PC) (A). All that the Privy Council laid down in that case was that an act of insolvency can be committed by an agent. Their Lordships were considering the case of a 'gomashta' who was carrying on the business on behalf of his principal who was the proprietor of the firm, and the. Privy Council expressed the opinion that an act of insolvency could be committed through the 'gomashta' although the act had not been personally committed by his principal. It is difficult to understand how this decision can help us in deciding the question which arises for our determination. The act of insolvency which would be complained of here if the insolvency notice was not complied with would be the failure to pay the judgment debt, and if there is no liability to pay the judgment debt and if there is a statutory stay of execution with regard to that judgment debt in favour of some of the partners, no question of principal and agent can arise in the case.
6. Mr. Purshottam has also relied on Section 99. Insolvency Act. That is a procedural section which does not confer any new rights or impose any new liabilities. All that it says is that
'any two or more persons being partners or any person carrying on business under a partnership name, may take proceedings or be proceeded against under this Act in the name of the firm.'
Therefore, it is open under the Indian law to a creditor to adjudicate a firm insolvent. Instead of proceeding against two or three partners individually, he can proceed against them in the name of the firm. But this section assumes, as it must assume, that before you can adjudicate the firm insolvent each of the partners has committed an act of insolvency. Mr. Purshottam is attempting to convert a procedural section into a section imposing substantive liability. If in this particular case every partner had committed an act of insolvency, undoubtedly under Section 99 Mr. Purshcttam could have proceeded against the firm instead of proceeding against the individual partners. But the question still remains, has each one of the partners become liable to pay the judgment debt in respect of which an insolvency notice can be taken out?
7. The test of a liability to pay a judgment debt was well and pithily put by Wright J. -- 'Wenham In re; Battams Ex parte', (1900) 2 QB 698 (B), and the question that the learned Judge asked was, 'Was execution, when the bankruptcy notice was served, possible against John Wenham?' That was the person upon whom the insolvency notice was served. That is the same question that we have to ask in this case. Was the execution possible against the partners other than Bhagwatiprasad when the insolvency notice was served upon all the partners? To that the answer is clear. By reason of the provisions of Order 21, Rule 50, execution was not possible against any partner other than Bhagwatiprasad. The statement of the law has also been clearly set out in Halsbury, Vol II, p. 39, Article 48 :
'In the case of a judgment against a firm of partners, failure to obtain leave to issue execution against an individual partner, who has not been personally served with a writ of summons in the action, and has not appeared in his own name or admitted that he is, or has been adjudged to be, a partner, operates as a stay of execution preventing the issue of a bankruptcy notice against such partner.'
Mr. Purshottam says that there is some distinction between English law and Indian law on the question of adjudicating the firm insolvent, and therefore this statement of the law does not apply to our Indian statute. In our opinion that contention is erroneous. The principle that Halsbury enunciates is that in certain circumstances a decree against a firm is not executable against all the partners and failure to obtain leave to issue execution operates as a stay of execution. Even under Indian law, if ony fact operates as a stay of execution, insolvency notice cannot be served in respect of a decree where there is such stay of execution, and if Halsbury propounds the law and states that in the case of a decree against a firm the fact that a partner has not been served personally operates as a stay of execution of the decree against him that principle must apply not only to English law but also to our own law.
8. In our opinion, therefore, with respect to the learned Judge below, he was in error when he took the view that the insolvency, notice could be taken out against all the partners of the firm although Summons in the suit, in which the decree was only served upon one of the partners. The result is that the appeal succeeds, and the appeal will be allowed with costs including costs reserved. Notice of motion made absolute with costs. Taxed costs of the notice of motion. Liberty to the appellants to withdraw the sum of Rs. 500 deposited by them.
9. Appeal allowed.