1. In this case the judgment-creditors took out and served upon the judgment-debtor an insolvency notice in respect of the claim which they have had against him by virtue of a decree for Rs. 41,406-8-0 and interest of tained by them on June 18, 1945. The judgment-debtor has filed an affidavit before me stating that he has a counter-claim which exceeds the amount claimed by the judgment-creditors in respect of the decree and which he could not set up in the suit in which the decree was obtained, and claims that the insolvency notice be set aside.
2. The suit which was filed by the judgment-creditors was a summary suit. When the summons for judgment came on for hearing before Mr. Justice Blagden, the learned Judge refused leave to defend the suit and passed the decree for the amount mentioned above on June 18, 1945. The judgment-debtor appealed from this decree of Mr. Justice Blagden. The appeal was heard by the learned Chief Justice and Mr. Justice Chagla on November 8, 1945, and by an order made on that day by the Appeal Court, the judgment-debtor was ordered to deposit in Court Rs. 20,000 as security for the claim of the judgment-creditors in suit on or before December 6, 1945, and on such deposit being made, he was granted leave to defend the suit, and the decree was to be set aside. The judgment-debtor was also by the said order directed to Hie his written statement and counter-claim on or before December 10, 1945. There was an order, in default, that the appeal would stand dismissed if no such deposit was made by the judgment-debtor by, December 10, 1945. The judgment-debtor failed to deposit the amount, and the appeal stood dismissed. The judgment-debtor filed an application for review of the order of November 8, 1945, and that application was also dismissed by the learned Chief Justice and Mr. Justice Lokur on January 28, 1946. It may be observed that in the affidavit which he made on the summons for judgment, the same allegations had been made by way of defence to the suit and for the purpose of counter-claim which he proposed to file if leave to defend was granted to him, as have been;made in the affidavit which he has now filed before me.
3. The question that arises for my consideration is whether the judgment-debtor has a counter-claim which equals or exceeds the amount claimed by the judgment-creditors in respect of the decree and which he could not set up in the suit in which the decree was obtained. This is an insolvency notice and it must be strictly construed, if necessary, in favour of the judgment-debtor. The result of the proceedings is that if the insolvency notice is not set aside, the judgment-debtor would be adjudged to have committed an act of insolvency, and before this result which seriously affects his status is achieved, all the requirements of law should be very strictly complied with. I have to view the facts of this particular case in the light of the above observations and have got to be satisfied that under the circumstances stated by the judgment-debtor in his affidavit, he has a counter-claim which equals or exceeds the amount claimed by the judgment-creditors in respect of the decree and which he could not set up in the suit in which the decree was obtained.
4. As I have already observed above, the judgment-creditors availed themselves of the summary procedure which they were entitled to do under the Code of Civil Procedure and the rules of the High Court. If the judgment-debtor wanted to set up a counter-claim against the claim which was the subject-matter of the summary suit filed by the judgment-creditors against him, it was necessary for him to obtain leave to defend and file his counter-claim, if any, before he could do so. The Court imposed a condition before he could avail himself of the opportunity of filing his defence and counter-claim, if any. That condition he was not in a position to fulfil, with the result that in the summary suit filed by the judgment-creditors, the judgment-debtor could not avail himself of the opportunity which he would have had in an ordinary suit of filing his defence and counter-claim, if any. The summary procedure which has been sanctioned by the Code of Civil Procedure and our High Court Itul's is a special procedure which a judgment-creditor is entitled to avail himself of with a view that defences which are time facie thought by the Court to be frivolous should not be allowed to be taken up unless a deposit for security for the plaintiff's claim was made by the defendant. That does not, however, mean that if the judgment-debtor had a counter-claim which he could have maintained against the judgment-creditors by filing another suit in respect thereof, if he was so advised, that counter-claim would be absolutely barred, or would go by the board if he did not fulfil the conditions imposed upon him before he could maintain the same in that summary suit. The judgment-debtor would be unfortunate if he could not provide the moneys which he was ordered to deposit as a condition precedent to his being allowed to defend the suit and also file his counter-claim, if any, in the summary suit. The inability of the judgment-debtor to provide the moneys by way of deposit would, however, be covered by the expression which is used in Clause 1 of the notice, viz. it would be a counter-claim which he could not set up in the suit in which the decree was obtained. Whatever the circumstance may be by reason of which he could not set up the counter-claim in the suit in which the decree was obtained, whether they be that the counter-claim had not arisen at that time or that he was unable to deposit the moneys which he was asked to deposit by way of security, and therefore could not avail himself of the leave to defend which was thus conditionally given to him, the position would be well within the words which I have quoted above. I am therefore of opinion that, under the circumstances which have been set out in the affidavit of the judgment-debtor, he had a counter-claim which equals or exceeds the amount claimed by the judgment-creditors in respect of the decree and which he could not set up in the suit in which the decree was obtained.
5. It has been urged by Mr. Boovariwalla appearing for the judgment-creditors that as regards the counter-claim also, the Court has got to see that the judgment-debtor has a counter-claim effective and capable of being enforced by action at the time of the application to set aside the notice. He relies upon the observations in Williams on Bankruptcy, 15th edn., p. 34, with regard to set-off and submits that the same principles should apply also in the case of a counter-claim. I agree with this submission of Mr. Boovariwalla. It is necessary for the judgment-debtor to establish that he has a counter-claim effective and capable of being enforced by action at the time when he makes his application before me to set aside the notice in insolvency. For that purpose, my attention has been drawn to a plaint in suit No. 64 of 1946 which he has filed against the judgment-creditors on April 1, 1946, in which he has formulated this counter-claim and claimed to recover from the judgment-creditors a sum of Rs. 56,078-1-1 as and by way of damages and another sum of Rs. 20,000 also by way of damages for the alleged breach by the judgment-creditors of the agreement which was arrived at between the parties. In paragraph 10 of this plaint, he has stated the ground on which he says that his suit is not barred by the law of limitation. The plaint as presented, therefore, is prima facie one which seeks to avoid the bar of limitation which would otherwise have barred ids claim in the suit, and is prima facie in order. If I accede to the contention of Mr. Boovariwalla, it would involve me into investigating at this stage whether the claim was really barred by the law of limitation. I do not think it is the province of the Insolvency Court in considering the application to set aside the insolvency notice to go into the merits of the claim and adjudicate upon the question whether the claim, in spite of its being prima facie shown to be within the period of limitation, is really not so. What I have got to determine is the prima facie nature of the claim which has been put forward by the judgment-debtor. On a perusal of the plaint in suit No. 64 of 1940, as on a demurrer, I have no reason to come to the conclusion that the claim of the judgment-debtor is barred by the law of limitation. If that is so, there is no reason also to come to the conclusion that the counter-claim which the judgment-debtor says he has got against the judgment-creditors is not an effective one and not capable of being enforced by action at the time of the application to set aside the notice Within the meaning of the authority cited by Mr. Boovariwalla, It may be that the counter-claim may have been put forward by the judgment-debtor on the off-chance of success and merely to stave off the insolvency proceedings. On the other hand, as I have already observed above, the remedy by way of the insolvency notice which would result in the adjudication by the Court that an act of insolvency has been committed by the judgment-debtor is a very drastic one, and the Court is not called upon to make any order against the debtor as suggested by Mr. Boovariwalla, unless the hands of The Court are forced into that behalf.
6. Mr. Boovariwalla pointed out before me that the judgment-debtor has transferred all his properties in favour of his near relations and that, if nothing else, would be an act of insolvency itself. The judgment-creditors are welcome to avail themselves of this act of insolvency, if it is an act of insolvency committed by the judgment-debtor. That, however, is not the question before me, and that cannot affect me in my appreciation of the situation as to whether the judgment-debtor has a counter-claim which he could not set up in the suit in which the decree was passed and would be an answer to the insolvency notice taken out by the judgment-creditors.
7. Under the circumstances, I hold that the judgment-debtor has a counter-claim, which equals or exceeds the claim of the judgment-creditors in respect of the decree and which he could not set up in the suit in which the decree was obtained. I, therefore, set aside the insolvency notice.