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Kaikhushroo Pirojsha Ghiara Vs. the C.P. Syndicate Ltd. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case NumberCivil Appeal No. 5 of 1949
Judge
Reported inAIR1949Bom134; (1950)52BOMLR189
AppellantKaikhushroo Pirojsha Ghiara
RespondentThe C.P. Syndicate Ltd.
DispositionAppeal dismissed
Excerpt:
bombay insolvency rules, 1910, rule 52-b-presidency towns insolvency act (iii of 1909 asamended by bom. act xv of 1939), sections 9(1), 90(5)-bombay ordinance iii of 1948-insolvency notice-period for filing affidavit of counter-clain shorter than period for satisfying court about counter-claim-debtor securing counter-claim after period provided for filing affidavit of counterclaim-whether debtor debarred from putting forward counter-claim.;rule 52-b(3) of the bombay insolvency rules, 1910, is a mere procedural rule, and it does hot debar a debtor against whom an insolvency notice has been issued, in those cases where he secures a counter-claim after the expiry of seven days, from putting it forward within the period within which he is required to satisfy the court in regard to the.....fazl ali, j.1. this appeal has been filed by the appellant after obtaining special leave of this court and it is directed against a judgment and order of a division bench of the bombay high court confirming the judgment and order of a single judge of that court by which he dismissed the appellant's motion for setting aside an insolvency notice taken out by the respondent-company.2. the respondent-company is a private limited liability company in which there are only four shareholders, viz. mrs. byramji, mr. and mrs. cassad and the appellant. in november, 1945, the company filed a suit (no. 1726 of 1945) in the high court at bombay against the appellant claiming a number of reliefs, which need not be set out here. subsequently, mrs. byramji and mr. and mrs. cassad applied to be made.....
Judgment:

Fazl Ali, J.

1. This appeal has been filed by the appellant after obtaining special leave of this Court and it is directed against a judgment and order of a division bench of the Bombay High Court confirming the judgment and order of a single Judge of that Court by which he dismissed the appellant's motion for setting aside an insolvency notice taken out by the respondent-company.

2. The respondent-company is a private limited liability company in which there are only four shareholders, viz. Mrs. Byramji, Mr. and Mrs. Cassad and the appellant. In November, 1945, the company filed a suit (No. 1726 of 1945) in the High Court at Bombay against the appellant claiming a number of reliefs, which need not be set out here. Subsequently, Mrs. Byramji and Mr. and Mrs. Cassad applied to be made parties to the suit and they were joined as plaintiffs Nos. 2, 3 and 4 respectively. After the suit had been heard for some time, a settlement was arrived at between the parties and a consent decree was passed on July 15, 1947, in which the terms which are material to the decision of this appeal were these :

3. Clause 1(f) of the decree provided for payment of Rs. 12,50,000 by the appellant to the respondent in certain instalments. The first instalment of Rs. 2,50,000 was payable on or before October 15, 1947; the second instalment of like amount was payable on or before July 15, 1948; and the balance of Rs. 7,50,000 was payable in five subsequent equal annual instilments. It was further'' provided that if default was committed in the payment of any of the instalments for a period of one month after the due date fixed under the decree, the full amount then outstanding would forthwith become due and payable.

4. Clause 2(i) provided that on payment of the first instalment, the respondent would assign in favour of the appellant certain debentures of the Western India Oil Distributing Co. Ltd. The other clauses of para. 2 provided for the assignment and transfer by the respondent in favour of the appellant of (1) certain shares, (2) chief agency of the Western India Oil Distributing Co. Ltd., held by the respondent for C.P. & Berar, and (3) the right, title and interest of the respondent in the firm of Messrs. Syndicate and Gocoola Doss carrying on business as managing agents of the Western India Oil Distributing Co. Ltd.

5. The appellant failed to pay Rs. 2,50,000 on or before October 15, 1947, and thereupon the respondent applied to the High Court at Bombay for the issue of an insolvency notice against the appellant under Section 9, Clause (i), of the Presidency-towns Insolvency Act. This provision was inserted in the Act in so far as it is applicable to Bombay Presidency by Bombay Act XV of 1039, and reads as follows :

9. A debtor commits an act of insolvency....

(i) if after a creditor has served an insolvency notice on him in respect of a decree or an order for the payment of any amount due to such creditor, the execution of which is not stayed, he does not within the period specified in the notice which shall not be less than one month comply with the requirements of the notice.

Provided that the debtor shall not be deemed to have committed an act of insolvency for not complying with the requirements of the notice, if he has a counter-claim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him.

As a result of the respondent's application, the Insolvency Registrar issued a notice dated November 21, 1917, which was served on the appellant on November 26, 1947. Thereafter, on December 17, 1947, the appellant took out a notice of motion to set aside the notice on a number of grounds, the principal grounds being: (1) that the amount for which the notice had been served had not become payable, and (2) that the notice was invalid and bad in law. On January 14, 1948, a single Judge of the Bombay High Court after hearing the parties and considering the objections raised by the appellant dismissed the notice of motion with costs. The decision of the learned single Judge was upheld on appeal by a division bench on July 22, 1948. It appears from the judgments of the learned Judges who heard the appeal that they were at first of the view that certain parts of the notice were ultra vires inasmuch as they were not authorised by the Insolvency Act. But before the judgment in the case was delivered, an Ordinance was passed by the Government of Bombay, being Ordinance III of 1948, which amended the Presidency-towns Insolvency Act in certain respects and validated :

(a) the rules including the forms relating to insolvency notices made by the High Court under the Presidency-towns Insolvency Act, 1903....

(b) all insolvency notices issued under any of the rules so as to prevent their being called in question on the ground merely that any of the rules under which or the form in which the notice was issued was not authorised by the provisions of the said Act.

The learned Judges accordingly held that the defects in the notice had been cured by the Ordinance which had been expressly made retrospective and in that view they dismissed the appeal.

6. The appellant then applied to the High Court for leave to appeal, and failing to obtain such leave came up to this Court for special leave, which being granted, this appeal was preferred.

7. In this Court, three main points were urged by Mr. H.M. Seervai, the learned Counsel for the appellant, who argued the case very ably. The first point urged by him was that in law there was no default on the part of the appellant in complying with the terms of the consent decree and therefore no notice of insolvency could be validly issued in respect of the whole amount of Rs. 12,50,000. In order to understand the grounds on which this contention is based, it is neeessary to refer to certain events which happened after the consent decree was passed. It; appears that on October 9, 1947, a petition for winding up the C.P. Syndicate Ltd. (the respondent-company) was presented before the District Court at Nagpur. On October 11, the person who had presented the petition withdrew it, but, on October 13, other creditors appeared before the Court and urged that they should be allowed to proceed with the petition. On November 19, the petition was dismissed, but an appeal was immediately preferred to the High Court from the order dismissing the petition, and, on November 20, 1947, a petition for winding up the company was presented to the District Court at Nagpur by another creditor. The appellant's contention is that on a proper construction of the consent decree what must be held is : first, that there were two reciprocal promises to be simultaneously performed, viz, the payment of Rs. 2,50,000 by the appellant to the respondent on July 15, 1947, and the assignment by the respondent in favour of the appellant for his absolute use of the debentures issued by the Western India Oil Distributing Co. Ltd. and held by the respondent together with all accrued interest, rights, privileges and benefits thereon, and, secondly, that it was not incumbent upon the appellant to perform his promise unless the respondent was ready and willing to perform his reciprocal promise which depended on the respondent's ability to convey an absolute and indefeasible title in respect of the debentures to the appellant. It was contended that in view of the proceedings for the winding up of the respondent-company, which were pending on July 15, the respondent-company was not in a position to assign the debentures held by them to the appellant so as to confer on him an absolute title in those debentures, because if ultimately the order for liquidation was made, it would under the existing law relate back to the date of the petition and the appellant's right to the debentures, even if assigned to him, would be defeated. Hence it was urged that in the situation created by the presentation of the petition for winding up the respondent-company, the appellant was protected by Section 51 of the Indian Contract Act which lays down that if one of the reciprocal promises cannot be performed the other promise need not be performed. There having been thus no default in the payment of Rs. 2,50,000, the entire sum of Rs. 12,50,000 had not become due.

8. This contention has been examined and rejected by both the Courts below and it seems to me that they were right in rejecting it. In my view, the very assumption on which the appellant's argument is based, viz. that the contract in the present case consisted of reciprocal promises to be simultaneously performed, is not correct. This becomes clear on a proper examination of the consent decree.

9. The scheme of the consent decree, as has been pointed out by the High Court, was to divide as between the parties their zones of interest in respect to several concerns in which they were interested. Broadly speaking, Mrs. Byramji and Mr. and Mrs. Cassad were under the decree to be interested only in the C, P. Syndicate Ltd., and the appellant was to be interested in the Western India Oil Distributing Co. Ltd. and Messrs. Syndicate and Gocoola Doss. For the purpose of achieving this object, the parties had to discharge certain obligations cast upon them respectively by the decree, and one of the obligations which the appellant had to discharge was the payment of Rs. 12,50,000 to the respondents in certain fixed instalments as specified in the decree. It is common ground that the respondent has carried out most of the terms of the consent decree, and the question is whether having regard to the general scheme of the decree the appellant can be heard to say that his payment of Rs. 2,50,000 was bound up solely with the assignment of debentures by the respondent to him and was wholly independent of the other obligations which had been cast on the respondent by the decree. In my opinion, the answer to this question must be in the negative. One of the facts which supports this view is that the default clause expressly states that if default is committed in payment of any of the instalments, the full amount outstanding shall forthwith become due and payable. There is nothing in this clause to suggest that its operation was dependent on the fulfilment of the obligations cast on the respondent, or that default in the payment of the money due on October 15, 1947, stood on a different footing from default in the payment of the other instalments. In fact while the decree provides a penalty for non-payment of the money due on October 15, it does not provide any penalty for failure to assign the debentures. Mr. Seervai tried to contend at one stage of his arguments that the first instalment virtually represented the price of the debentures and therefore he was not obliged to make the payment unless he got a good title to the debentures. The learned single Judge of the Bombay High Court, who heard the matter in the first instance, has, however, fully met this contention in these words:

I am not prepared to say from a reading of this decree that the sum of Rs. 2,50,000 is the consideration for the assignment of these debentures. The judgment debtor in his own affidavit, states that the debentures are of a higher value than Rs. 2,50,000 a fact which is not denied in the affidavit of the judgment creditors. The transfer of these debentures to the judgment debtor is only a part of the consideration proceeding from the judgment creditors; and the payment of Rs. 2,50,000 is also a part and indeed the first instalment of the monetary consideration from the judgment debtor.

Another view put forward before us was that the debentures remained with thee respondents as security for payment of Rs. 2,50,000, On this supposition, however, no question of their assignment would arise unless the sum of Rs. 2,50,000 was first paid by the appellant to the respondent.

10. Another wrong assumptoin in the argument of the appellant was that the clause relating to the debentures contained an express warranty of good title with the result that unless the respondent was in a position to convey an absolute and indefeasible title in the debentures to the appellant, the appellant was not under an obligation to pay the first instalment. The actual words used in the decree upon which this argument is based are : 'the plaintiff will assign in favour of the defendant for his absolute use all the debentures etc. etc.' The words 'for his absolute use' in my opinion simply mean that what was contemplated was a complete or out and out assignment and not a partial assignment or assignment of a part of the interest. The words in question do not necessarily show that it was within the contemplation of the parties that in the event of any challenge being thrown on the title to the debentures in future, no matter how futile it may be, the appellant was relieved of the payment of the first instalment. Bhagwati J. in his judgment has pointed Out that even on July 15, 1947, when the consent decree was obtained there was a liquidation petition pending in the District Court at Nagpur against the respondents and the appellant knew about that proceeding and he also knew that if the liquidation petition succeeded his title to the debenture would be a defeasible title. Notwithstanding this fact he accepted the terms of the consent decree. If, therefore, he was prepared to take the debentures subject to the risk involved in the former proceeding, he could not very well object to take the assignment simply because another creditor had in the meantime filed a petition for the winding up of the company. It seems to me that the contention of the appellant is wholly unsound and must fail. The natural meaning of the specific provision of the consent decree with which we have to deal is that it was for the appellant to pay Rs. 2,50,000 in the first instance and it was only after such payment was made that the respondent was to assign the debentures to him.

11. The next contention put forward on behalf of the appellant related to the competency of the respondents to take out the notice and the line of reasoning put forward to support it may be reproduced as follows : (1) that unless the judgment creditor is immediately entitled to the execution of the decree, he is not entitled to take out an insolvency notice and that if a notice is so taken out, it is bad and inoperative in law; (2) that the consent decree in the present case was a joint decree and could not be executed by one of the decree holders only, unless leave of the Court was obtained by him under Order XXI, Rule 15, of the Civil Procedure Code, and since no such leave had been obtained in this case, the respondent who is only one of the several decree-holders could not take out the insolvency notice; (3) the fact that the insolvency notice has been taken out by one of the decree-holders has greatly embarrassed the appellant, because he does not know whether he can avail himself in the present proceeding of a counter-claim against the respondent only or against all the decree-holders.

12. Here again the whole argument is based on an obvious misconception. It is true that the other three plaintiffs were also parties to the consent decree, but by Clause 1(f) of the decree, the appellant is required to pay Rs. 12,50,000 to the respondent company only and to no other plaintiff. The consent decree is a composite decree under which, generally speaking, several plain tiffs have acquired rights in respect of different subject-matters. So far as the sum of Rs. 12,50,000 is concerned, the respondent alone is entitled to receive payment, and therefore this respondent only is entitled to execute the decree in regard to that sum. In this view, the competency of the respondent to takeout an insolvency notice cannot be challenged, and there was also no embarrassment to the appellant, because the appellant could in the circumstances of the case avail himself only of such a counter-claim as would be effective against the respondent company.

13. The last contention put forward on behalf of the appellant is a more serious one and needs careful consideration. The contention is that the notice taken out by the respondent is invalid and bad in law. This notice may be divided in several parts. The first part sets out three requirements or 'requisitions' which are as follows :

1. You must, pay to the O.P. Syndicate Ltd...the sum of Rs. 12,50,000 and interest thereon...as being the amount due on a consent decree dated July 15, 1047 in suit No. 1726 of

2. You must furnish security for the payment of the said sum to their satisfaction; and

3. You must satisfy this Court that you have a counter-claim or set off against them which equals or exceeds the sum claimed by them and which you could not set up in the suit in which the said consent decree was obtained.

It is stated in the notice that these requisitions are to be complied with within one month after the service of the notice excluding the day of such service, and it is also stated:

that the consequences of not complying with the requisitions of this notice are that you will have committed an act of insolvency on which insolvency proceedings may be taken against you.

Then follow these words :

If, however, you have a counter-claim or set off which equals or exceeds the amount claimed by the said C.P. Syndicate Ltd., in respect of the said consent decree dated 15th day of July, 1947 and which you could not set up in the suit in which the said consent decree was obtained you must within seven days apply to the Court to set aside this Notice by filing with the Insolvency Registrar an affidavit to the above effect.

Lastly, it is stated that-

If you comply with the requirements of this notice, you must forthwith thereafter apply to the Court to set aside by filing with the Insolvency Registrar an affidavit to that effect.

14. The notice was issued under the Presidency-towns Insolvency Act as amended by the Bombay Act XV of 1939, and, as I have already said, the learned Judges, who heard this appeal were at first of the opinion that certain provisions of this notice w-ere ultra vires. It is, however, conceded now that Ordinance III of 1948 which was promulgated by the Bombay Government on June 14, 1948, and which was retrospective in operation, was passed to set at rest such doubts and difficulties as had arisen under the Act as it stood prior to the promulgation of the Ordinance. The whole matter has therefore to be examined now with reference to the Act as amended by the Ordinance.

15. It is not disputed that the notice strictly conforms to the rules of the Bombay High Court which were validated by the Ordinance, and that it was drawn up in the form prescribed in the Act which also has been validated. The controversy before us was confined to only one of the provisions of the notice which required the judgment debtor to file an affidavit within seven days in regard to a counterclaim, set-off or cross-demand which he intended to avail himself of against the creditor. The appellant's contention is that the provision to which reference lias been made invalidates the notice in spite of the Ordinance. The provision is attacked on the grounds that it is calculated to puzzle and embarrass the judgment-debtor, and that it conflicts with and is repugnant to one of the requisitions of the notice under which the debtor is allowed to satisfy the Court within one month after the service of the notice that he has a counter-claim, set-off or cross-demand against the creditor of the nature described in the notice. It is said that if it is open to the debtor to satisfy the Court within thirty days about the counter-claim, it is a curtailment of his right to require him to file an affidavit with regard to the counter-claim within a period of seven days. It is pointed out that such an affidavit is, as is stated in the notice, tantamount to an application to set aside the notice, and the provision requiring an affidavit to be filed within seven days really prevents the judgment debtor from securing the assignment of or buying a counter-claim after the period of seven days, though he is entitled to do so in law.

16. The relevant insolvency rules of the Bombay High Court are Rules 52-B(2) and (3) which read as follows:

52-B (2). There shall be inserted in every insolvency notice an intimation to the debtor that if he has a counter-claim or set-oft1, which equals or exceeds the amount of the decree or order claimed by the notice and which he could not have set up in the suit or proceedings in which the decree or order was obtained, he must within the time specified in the notice file an affidavit to that effect with the Insolvency Registrar.

(3) In the case of a notice served within the limits of the Ordinary Original Civil Jurisdiction of the Court, the time for filing such affidavit shall be seven days. In the case of a notice served elsewhere the Insolvency Registrar, when issuing the notice, shall fix the time.

These rules were framed on the same lines as the corresponding rules framed under the English Bankruptcy Act, the difference being this only that under the English Act the period for satisfying the Court about the counter-claim etc. is seven days and the period for filing the affidavit is three days; whereas under the Bombay Act these periods are thirty days and seven days respectively. It is clear that the argument which has been put forward against the present notice could be put forward with equal force against a similar notice issued under the Bankruptcy Act in England. Nevertheless, as has been pointed out by the learned Counsel for the respondent, neither the rule nor any bankruptcy notice issued in conformity therewith has ever been challenged in England though the rule has been in force there for a very long period and numerous bankruptcy notices must have been issued thereunder. The answer suggested on behalf of the respondent to the appellant's contention is that the conflict in the provisions of the notice to which reference is made is more apparent than real. The rule about filing the affidavit is evidently a mere procedural rule which was framed to enable the parties to take all steps necessary for a speedy adjudication of the matter. It is argued that the provision in question is based on the supposition that normally a debtor would be armed with a counter-claim within seven days of the notice; but it does not debar him, in those cases where he secures such a claim after the expiry of seven days, from putting it forward within, the period within which he is required to satisfy the Court in regard to the counter-claim. It is pointed out that this view is supported by the fact that no penalty is prescribed for not filing the affidavit within seven days and Section 90(3) of the Presidency-towns Insolvency Act gives the Court sufficient 'power to grant adjournment in a suitable case by providing that-

Where by this Act or by rules the time for doing any act or thing is limited, the Court may extend the time either before or after the expiration thereof, upon such terms, if any, as the Court thinks fit to impose.

It seems to me that the view put forward on behalf of the respondent represents what is the correct 'position in law.

17. In G.E.B. In re [1903] 2 K.B. 340 Vaughan Williams h. J. has expressed the view that a counter-claim, set-off or cross-demand referred to in the bankruptcy notice must be one which is effective at the time of the hearing of the application to set aside the bankruptcy notice.

18. Again, in A Debtor, In re [1914] 2 K.B. 726 it was held that it is open to a debtor to have an assignment of a claim after the service of the bankruptcy notice and to set it up as a counter-claim in answer to the notice.

19. These rights which the debtor has in law could not be curtailed by the terms of any notice and they have not really been curtailed by the notice with which we are concerned. That notice merely requires the debtor to prefer his counterclaim within seven days, if he has such a counter-claim. It does not say that if the debtor acquires a right to a counter-claim subsequently, but before the expiry of thirty days, he shall not be allowed to rely on such a counter-claim in the proceeding. Rule 52-B(3) being evidently a procedural rule cannot override the rights of the debtor which are recognized in the notice itself and should be so. construed as to be consistent with the recognition of those rights. When that rule is read with Section 90(5) of the Insolvency Act and it is realised that it is not intended to take away any rights conferred by the Act, such objections as it might seem open to at first sight lose much of their force.

20. Turning now to the facts of the present case. We find that the contention put forward on behalf of the appellant becomes somewhat academic when we look at what he himself has said and done in the present proceeding. As has been already stated, the notice was issued on November 21, 1947, and the affidavit of the appellant, which amounts to his application to the Court to set aside the notice, was made on December 17, 1947, i. e., long after the expiry of seven days. In para 10 of the affidavit, the appellant makes the following statement among others:

I further say that the Syndicate is bound to transfer and deliver to me the said debentures of W.I.O.D. Co, Ltd., which, are of very much more value than Rs. 2,50,000 and since the Syndicate is unable to deliver the same to me 1 have also in respect of the said debentures a counter-claim or set-off, effective and capable of being enforced by the action, which would exceed the amount due by me to the Syndicate which counter-claim or set-off I could not set Up in the said suit in which the consent decree was obtained. On this ground also I submit that the said insolvency notice is bad in law.

Thus the appellant did attempt to set up a counter-claim and he did so after the expiry of seven days provided in the notice. That shows that his reading of the notice was the same as that which has been suggested on behalf of the respondent, viz. that the provision with regard to seven days was not a curtailment of his right to satisfy the Court within thirty days in respect of the counter-claim but merely a step intended to speed up adjudication. There is no suggestion in the appellants affidavit that he was embarrassed or prejudiced in any way, or that by reason of the provision in question he was prevented from putting forward any counterclaim which he might have otherwise put forward. On the other hand, the following statement in the judgment of Bhagwati J. clearly shows that he did not seriously intend to set up a counter-claim.

It is conceded that the judgment-debtor had no counter-claim or set-off against the judgment creditors which equalled or exceeded the sum claimed by the judgment-creditors' and which the judgment-debtor could not set up in the suit in which the consent decree was obtained.

21. It may be stated here that Section 3 of the Ordinance (III of 1948) provides among other things that

the rules including the forms relating to insolvency notices made by the High Court under the Presidency Towns Insolvency Act, 1909, before the coming into operation of this Ordinance, shall be deemed to have been made under the said Act as amended by this Ordinance.

The effect of this provision is to validate among other Rule 52-B(3) requiring the debtor to file an affidavit in regard to a counter-claim within seven, days of the service of the notice. The only question is whether the rule is really repugnant to one of the main provisions of the notice which is to the effect that the Court is to' be satisfied in regard to la counter-claim within thirty days. This matter has, however, already been considered and need not be pursued further. It may be that the Legislature has not been liberal enough infixing the time for filing an affidavit and that there should have been in the rules a clear provision stating that the debtor was not prevented by reason of the rule in question from setting up a counter-claim within thirty days if he acquired a right to any such claim after the expiry of seven days. But from this it does not follow that the present notice is invalid or illegal and therefore should be set aside.

22. In my opinion therefore this appeal must fail, and it is accordingly dismissed with costs throughout.

Patanjali Sastri, J.

23. I agree that this appeal should be dismissed. I should, however, reserve my opinion on the question as to the validity of Rule 52-B(3) of the Bombay Insolvency Rules which has been impugned before us as being ultra vires in so far as it purports to prescribe a period of seven days for filing an affidavit of counterclaim in certain cases and thereby cuts down in effect the period of 'not less than one month' which the debtor has under Clause (i) of Section 9 of the Presidency-towns Insolvency Act as amended in its application to the Province of Bombay for satisfying the Court that he has a counter-claim. In my opinion, the question does not arise directly in this case and it is not altogether free from difficulty. I cannot agree with the suggestion of the respondent's' learned Counsel that after the passing of the Bombay Ordinance No. III of 1948 validating certain rules and notices, the point now raised as to the validity of Rule 52-B (3) can never arise. That Ordinance was designed to cure the defect in insolvency notices issued in the prescribed form which requires a debtor within thirty days not only to pay the judgment debt or to furnish security there for but also to satisfy the Court that the debtor had a counter-claim equal to or in excess of the amount of the judgment debt. The last mentioned requisition was not among the requirements, non-compliance with which was declared to be an act of insolvency by Section 9, Clause (i). It was, therefore, considered that such a requisition in the notice was not warranted by the provisions of the Act and might be held to vitiate the notice. The Ordinance was accordingly passed substituting for Clause (i) of Section 9 a new clause which requires the debtor, within the specified time, also to satisfy the Court that he has a counter-claim, with certain consequential amendments, and providing that the amendments should have retrospective operation. But these amendments, while purporting to remove the defect referred to above, have given rise to the objection now raised that Rule 52-B(3) is inconsistent with Section 9, Clause (i), and is therefore ultra vires and void. Before the Ordinance was passed there was no conflict between Section 9, Clause (i), and Rule 52-B(3) as the former did not require the debtor to satisfy the Court within any particular period that he had a counter-claim, though the prescribed form of the notice included also such a requisition. Now that the Ordinance has introduced this additional requisition into Clause (i), the question will arise whether Rule 52-B(3) is repugnant to that provision and is in consequence ultra vires and void.

24. It would have arisen for determination in this appeal if the appellant had sought to put forward a counter-claim by filing an affidavit after the expiry of seven days from the service of the notice but within thirty days and insisted that it was filed in time. That, howerever, is not the position here. Although the appellant did file such an affidavit counter-claiming in respect of the debentures which the respondent company undertook to transfer under the consent decree, it was abandoned as untenable, and it was conceded on behalf of the appellant before Bhagwati J. that he had no counter-claim or set-off against the respondent company.

25. What the appellant contends is that, Rule 52-B(3) being ultra vires and void, the respondent ought to have inserted '80 days' in the blank space left in the relative paragraph of the prescribed form notice to be filledin, conformably to Section 9, Clause (i), of the Act, instead of '7 days', the period prescribed by the Rule in cases like the present. The respondent's failure to do so, it was urged, was calculated to perplex and embarrass the appellant, as the first paragraph of the notice gave him thirty days to satisfy the Court about his having a counter-claim while the later paragraph virtually cut down the period to seven days. Assuming for the purpose of this argument that Rule 52-B(3) is ultra vires, I am unable to accede to the appellant's contention. It is true that great strictness has always been insisted on in the framing of bankruptcy notices as bankruptcy is attended with penal consequences, and it has been repeatedly held that in determining the validity or invalidity of a bankruptcy notice it is immaterial to consider whether the debtor has in fact been misled or perplexed or embarrassed, the probability or even the possibility of his being so affected being regarded as sufficient to vitiate the notice see Judgment Debtor, In re [1908] 2 K.B. 474 But such perplexity or embarrasment as might arise out of compliance with Rule 52-B(3) is not of the respondents making. If such compliance resulted in any inconsistency or incongruity likely to puzzle or embarrass the debtor, difficulty is inherent in the situation created by the statutory provisions and the creditor cannot be blamed for the result. He could not, in framing the insolvency notice, reasonably be required to ignore or deviate from, those provisions on pain of his notice being held bad if he did not. Indeed, if he decided for himself that the Rule was ultra vires and void and mentioned thirty days instead of seven days as the time-limit for filing the affidavit of counterclaim, it may well be open to the appellant to contend that the notice, by departing from a statutory rule made by competent authority and prima facie valid, was calculated to mislead him and so was bad. It would be an inconvenient state of the law if a judgment creditor seeking to take out an insolvency notice were thus to be confronted with a dilemma.

26. Learned counsel for the appellant relied on certain cases where an insolvency notice was held to be bad for defects tending to perplex or embarrass the debtor, but they were cases where such defects were due to the non-observance by the creditor of the relative statutory provisions and not to the strict observance thereof. Those cases, therefore, afford no support to what appears to me to be a curious perversion of the argument of embarrassment.

Mahajan, J.

27. In this appeal we are asked to decide the question of the validity of an insolvency notice, No. N/264 of 1947 of the High Court of Judicature at Bombay, issued against the appellant, Kaikhushroo Pirojsha Ghiara, at the instance of the C.P. Syndicate Limited, Nagpur, the respondent.

28. The notice was grounded one consent decree passed in suit No. 1726 of 1945 on July 15, 1947. The suit was originally filed by the Syndicate alone against K.P. Ghiara but later on Mrs. Shirinbai B.P. Byramji, Mrs. Kamalrukh D. Cassad and Dhanjishaw P.R. Cassad were added as co-plaintiffs. Clause 1(f) of the decree provided that the defendant shall pay to the plaintiff-company a sum of Rs. 12,30,000 in the manner following:

(i) Rs. 2,50,000 on or before 15th October 1947;

(ii) (ii) Rs. 2,50,000 on or before 15th July 1948;

(iii) Balance of Ra. 7,50,000 in five equal instalments to be paid on or before 15th July 1949 and the subsequent instalments of Rs. 1,50,000 each on or before the 15th July of every subsequent year;

(iv) if default is committed in payment of any of the above instalments for a period of one month after the due dates, the defendant to pay interest on the unpaid amount for the time being due at 4 per cent, per annum from the date of default.

29. Clause 2(1) provided that on payment by the defendant of the first instalment of Rs. 2,50,000/- as aforesaid the plaintiffs shall assign in favour of the defendant for his absolute use all the debentures issued by the Western India Oil Distributing Co, Ltd. in favour of the plaintiff-company together with all accrued interest, rights, privileges and benefits thereon, the plaintiff agreeing not to realize any such accrued interest or benefits till such dates.

30. The defendant, K.P. Ghiara, committed default in the payment of the first instalment of Rs. 2,50,000/-. The C.P. Syndicate, taking advantage of this default, got an insolvency notice issued against him on November 21, 1947. The notice required him to pay the sum of Rs. 12,50,000/- with interest thereon at four per cent, per annum from November 15, 1947 till payment. On December 17, 1947, the defendant took out a notice of motion for setting aside the insolvency notice. The notice of motion was dismissed by the learned Insolvency Judge and on appeal his order was confirmed. An application was made to the High Court for leave to appeal to this Court but it was refused. This appeal is before us by special leave.

31. The insolvency notice is in these terms :

Take notice that within one month after service of this notice on you, excluding the day of such service, you must pay to the C. P, Syndicate Ltd. of Nagpur the judgment creditors above-named the sum of Rs. 12,50,000 and interest thereon at the rate of 4 per cent, annum from 15th day of November 1947 till payment claimed by them as being the amount due on a consent decree dated 15th day of July 1947 in Suit No. 1726 of 1945 in the High Court of Judicature at Bombay, whereon execution has been but is not now stayed you having failed to pay the amount of the instalments as provided in the said consent decree or you trust furnish security for the payment of the said sum to their satisfaction or you must satisfy this Court that you have a counter-claim or set off against them which equals or exceeds the sum claimed by them and which you could not set up in the suit in which the said consent decree was obtained.

And take notice

1. That the consequences of not complying with the requisitions of this notice are that you will have committed an act of insolvency on which insolvency proceedings may be taken against you.

If, however, you have a counter-claim or set off which equals or exceeds the amount claimed by the said C.P. Syndicate Ltd. in respect of the said consent decree dated 15th day of July 1947, and which you could not set up in the suit in which the said consent decree was obtained you must within seven days apply to the Court to set aside this notice by filing with the Insolvency Registrar an affidavit to the above effect.

2. That if you comply with the requirements of this notice, you must forthwith thereafter apply to the Court to set it aside by filing with the Insolvency Registrar an affidavit to that effect.

32. This notice was impugned inter aha on the following grounds:

(1) That on a true construction of the consent decree the words 'on payment' in Clause 2(1) would mean 'against payment'' or 'contemporaneous with payment,' i.e., the defendant was not to make the payment of the first instalment except against assignment in his favour of the debentures of the Western India Oil Distributing Co. Ltd.; that as the Company was not in a position to assign the debentures owing to the pendency of a winding up petition made against it on October 9, 1947, the appellant could not be held in default in not making the payment of Rs. 2,50,000/-;

(2)(a) That the consent decree was in favour of four plaintiffs, while the notice was taken out by a single creditor, the C.P. Syndicate;

(b) That the statement in the notice 'or you must satisfy the Court that you have a counter-claim or set off against-which equals or exceeds the sum claimed by-and which you could not set up in the suit...' is an additional requirement to be fulfilled by the debtor and is not warranted by Act XV of 1939 and vitiates the notice;

(c) That Act XV of 1939 allows a period of thirty days within which the judgment-debtor can comply with the requirements of the notice. The provision in the notice intimating the judgment-debtor that he should apply with in seven days by an affidavit to the Registrar if he has a counterclaim which exceeds the amount claimed conflicts with the statute as it in effect curtails the period of thirty days provided for in the section.

(d) That the notice is so drafted that it perplexes and embarrasses the judgment-debtor.

For a proper determination of the points raised it is necessary to set out the provisions both of the English law and of the relevent Indian statute on the subject. The Indian statute has been drafted on the lines of the Bankruptcy Act of 1914. The relevant part of Section 1 of the Bankruptcy Act of 1914 runs thus:

A debtor commits an act of bankruptcy

(a) ....

(b) ....

(c)....

(d)....

(e)....

(f)....

(g) If a creditor has obtained a final judgment or final order against him for any amount, and execution thereon not having been stayed, has served on him in England, or, by leave of the' court, elsewhere, a bankruptcy notice under this Act, and he does not within seven days after service of the notice, in case the service is effected in England, and in case the service is effected elsewhere, then within the time limited in that behalf by the order giving leave to effect the service, either comply with the requirements of the notice or satisfy the court that he has a counter-claim, set-on' or cross demand which equals or exceeds the amount of the judgment debts or sum ordered to be paid, and which he could not set up in the action in which the judgment was obtained, or the proceedings in which the order was obtained.

2. A bankruptcy notice under this Act shall be in the prescribed form, and shall require the debtor to pay the judgment debt or sum ordered to be paid in accordance with the terms of the judgment or order, or to secure or compound for it to the satisfaction of the creditor of the court, and shall state the consequences of non-compliance with the notice, and shall be served in the prescribed manner....

The rules framed under the said Act lay down the form of the notice and the mode of its service. The relevant rules are 140 and 141 and they are in these terms:

140(1) Every bankruptcy notice shall be indorsed with the name and place of business of the solicitor actually suing out the same, or if no solicitor be employed, with a memorandum that it is sued out by the creditor in person.

(2) There shall also be indorsed on every bankruptcy notice an intimation to the debtor that if he has a counter-claim, set-off, or cross demand which equals or exceeds the amount of the judgment debt, and which he could not have set up in the action in which the judgment or order was obtained, he must within the time specified in the notice file an affidavit to that effect with the Registrar.

(3) In the case of a notice served in England the time shall be three days. In the case of a notice served elsewhere the Registrar, when issuing the notice, shall fix the time.

141. The filing of such an affidavit shall operate as an application to set aside the bankruptcy notice, and thereupon the Registrar shall fix a day for hearing the application, and not less than three days before the day so fixed shall give notice thereof both to the debtor and creditor, arid their respective solicitors, if known. If the application cannot be heard until after the expiration of the time specified in the notice as the day -on which the act of bankruptcy will be complete, the Registrar shall extend the time, and no act of bankruptcy shall be deemed to have been committed under the notice until the application has been heard and determined.

Up till the year 1939 there was no provision in the Presidency-towns Insolvency Act corresponding to the above provisions of the Bankruptcy Act, 1914. By Bombay Act XV of 1939 in Sub-section 2 it was enacted as under:

(a) In section after Clause (h) the following new clause shall be inserted, namely :

(i) if after a creditor has served an insolvency notice on him in respect of a decree or an order for the payment of any amount due to such creditor, the execution of which is not stayed, he does not within the period specified in the notice which shall not be less than one month comply with the requirements of the notice.

Provided that the debtor shall not be deemed to have committed an act of insolvency for not complying with the requirements of the notice, if he has a counterclaim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him';

(b) after Section 9 the following new section shall be inserted, namely: 9-A, (1) An insolvency notice under this Act shall be in the prescribed form and shall be served in the prescribed manner. It shall require the debtor to pay the amount due under the decree or order, or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent and shall state the consequences of non-compliance with the notice....

Rules were framed by the High Court under the statutory provisions and on the lines of English Bankruptcy rules. These rules are Rules 52-A, 52-B, 52-C, and 52-D, and they run thus :

52-A. (1) A creditor, desirous that an insolvency notice may be issued, shall produce to the Insolvency Registrar a certified copy of the decree or order on which the notice is founded and file the notice, together with a request for issue. The creditor shall at the same time lodge with the Insolvency Registrar two copies of the insolvency notice to be sealed and issued for service.

(2) An insolvency notice shall be in form No. 1-B with such variations as circumstances may require.

52-B. (1) Every insolvency notice shall be endorsed with the name and place of business of the attorney actually suing out the same, or if no attorney be employed, with a memorandum that it is sued out by the creditor in person.

(2) There shall be inserted in every insolvency notice an intimation to the debtor that if he has a counter-claim or set-off, which equals or exceeds the amount of the decree or order claimed by the notice and which he could not have set up in the suit or proceedings in which the decree or order was obtained, he must within the time specified in the notice file an affidavit to that effect with the Insolvency Registrar.

(3) In the case of a notice served within the limits of the ordinary Original Civil Jurisdiction of the Court the time for filing such affidavit shall be seven days. In the case of a notice served elsewhere the Insolvency Registrar, when issuing the notice, shall fix the time,

(4) There shall also be inserted in the insolvency notice an intimation to the debtor that if he complies with the requirements of the notice, he must forthwith thereafter file an affidavit to that effect with the Insolvency Registrar.

52-C. The filing of an affidavit under Rule 52-B(2) or (4) shall operate as an application to set aside the insolvency notice, and thereupon the Insolvency Registrar shall fix a day for hearing the application. The debtor shall, not less than four days before the day so fixed, give notice thereof to the creditor or his attorneys, if known. If the application cannot be heard until after the expiration of the time specified in the notice as the day on which the act of insolvency will be complete, the Insolvency Registrar shall extend the time, and no act of insolvency shall be deemed to have been committed under the notice until the application has been heard and determined.

52-D. Subject to the power of the Court to extend the time, an insolvency notice to be served in British India shall be served within one month from the issue thereof. A notice not so served shall be set down on Board by the Insolvency Registrar for dismissal.

The Judges of the Division Bench, who heard the appeal, were atone time inclined to hold that the clause ill the notice about the counter-claim was an additional requirement from the debtor and not required by law and that its inclusion in it was fatal to its validity. Before however the judgment was pronounced, Ordinance No. Ill of 1948 amending the Presidency-towns Insolvency Act retrospectively was issued by the Government of Bombay. For Clause (2) of Section 9 the following was substituted:

If after a creditor has served an insolvency notice on him under this Act in respect of a decree or an order for the payment of any amount due to such creditor, the execution of which is not stayed he does not within the period specified in the notice which shall not be less than one month either comply with the requirements of the notice or satisfy the Court that he has a counterclaim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceding in which the decree or order was made against him.

Section 3 is in these terms :

Validation of certain rules and notices-The amendments made by this Ordinance shall be deemed to have been with effect from the 19th day of June 1939 and notwithstanding any judgment of any Court or anything contained in any law,

(a) the rules including the forms relating to insolvency notices made by the High Court under the Presidency-towns Insolvency Act, 1909, before the coming into operation of this Ordinance, III of 1948 deemed to have been made under the said Act as amended by this Ordinance, and

(b) no insolvency notice issued under any of the said rules and no order of adjudication made for non-compliance with any such notice made before the coming into operation of this Ordinance shall be called in question in any court on the ground merely that any of the rules under which or the form in which the notice was issued was not authorized by the provisions of the said Act.

In the statement of objects it is said that it was the intention of the legislature at the time of effecting the amendments to the Presidency-towns Insolvency Act by Act XV of 1939 to bring the provisions of the Indian law in line with those of the English law contained in the Bankruptcy Acts of 1914 and 1926 and that while making the rules and prescribing the forms there for the provisions of f he rules and the form prescribed under the English Bankruptcy Acts were adopted that in certian proceedings before the High Court, however, it was held that some of the provisions of these rules and of the insolvency notice form fell beyond the scope of the provisions of the Presidency-towns Insolvency Act as amended in 1939 and the same question was being canvassed in other proceedings in the High Court, that with a view to saving adjudication orders made so far for non-compliance with insolvency notice which are being challenged as bad on the above grounds it is considered necessary further to amend the Presidency-towns Insolvency Act so as to validate the aforesaid provisions of the rules and of the insolvency notice forms and these amendments are also on the lines of the provisions in the English Bankruptcy Acts.

33. In view of the provisions of the Ordinance the High Court held that the notice was valid. It was argued in this Court that the notice was bad in spite of the Ordinance inasmuch as the Ordinance had provided for a period of thirty days for satisfying the Court about the requirements of the notice, while the rule required the debtor to file an affidavit about a counter-claim within seven days and was in conflict with the amended section of the Presidency-towns Insolvency Act.

34. I am not impressed with the first contention of the learned Counsel for the appellant that the appellant had not committed any default in not making the payment of the first instalment of Rs. 2,50,000/- on the due date because of the fact that the respondent was not in a position to assign the debentures or to give him an absolute title in them by reason of the pendency of the winding up petition. When Clause 2(1) was entered in the consent decree, admittedly a winding up petition was pending in the Court of the District Judge of Nagpur against the C.P. Syndicate. The appellant was thus prepared to take the assignment of the debentures on payment of Rs. 2,50,000/- on October 15, 1947, in spite of this alleged cloud on the title of the C.P. Syndicate. The withdrawal of that petition and its being followed Up by another petition for winding up made on October 9, 1947, does not, in my opinion, materially alter the appellant's position to his detriment in any way. The respondent was ready and willing to assign the debentures to the appellant, Mr. Justice Bhagwati rightly held that if the appellant wanted to have an absolute and indefeasible title in the debentures, there was nothing easier for him than to make a provision in the consent decree to the effect that he will have the assignment of the debentures in case the winding up petition was dismissed. In the absence of such a clause the only1 inference which could be drawn was that the judgment-debtor agreed unconditionally to pay the first instalment and to take an assignment of such title as the judgment-debtor could give in the said debentures. The use of the word 'absolute' on which emphasis was laid during the arguments does not in any way help the appellant's case because the transferee will certainly have for his absolute use the debentures, but he cannot have a larger title than possessed by the transferor in any event.

35. Moreover the consent decree lays down the respective obligations and duties of the parties to it in such a way that each party has to fulfil its own part as provided therein without reference to the obligations and duties of the other party. These obligations were not reciprocal in the sense in which this word has been used in Section 51 of the Indian Contract Act. The obligation of the judgment-debtor to pay a sum of Rs. 12,50,000/- in the manner provided in the consent decree was absolute and unconditional and similar was the nature of the respondent's obligation. The nature and terms of the consent decree are such that the appellant had to make the deposit of the first instalment on October 15, 1947, before his right to demand an assignment of the debentures could possibly arise. The default clause unerringly points to that conclusion. It automatically was to come into operation if the payment was not made on the due date. It would not wait in its operation till the Syndicate had fulfilled its obligations qua the assignment of the debentures. The appellant, in my view, could not take Up the attitude that he would not pay the first instalment as provided for in the consent decree till the debentures were within his sight. If that were so, the operation of the default clause would also have to wait and it would then have been drafted differently. The contention that the decree in effect directed sale of the debentures in lieu of the price of Rs. 2,50,000/- again is void of force. This situation was not in the contemplation of the parties at all; on the other hand, as it will be shown later, the debentures were left as security with the Syndicate against the payment of the first instalment and not as for purposes of a vendor's lien.

36. The true state of affairs regarding the debentures and the payment of Rs. 12,50,000/- is disclosed by Clause 2(6) of the consent decree. This clause runs thus:

It is agreed that on the defendant paying the aforesaid sum of rupees twelve lacs and fifty thousand or any instalment thereof the same shall be treated by the first plaintiffs company as a repayment to them by the Western India Oil Distributing Co. Ltd. of the capital amount lent or deposited by the first plaintiffs company with the Western India Oil Distributing Co. Ltd.

It is clear that the whole amount of Rs. 12,50,000/- was due by the Oil Distributing Company to the C.P. Syndicate and to secure a part of it debentures had been issued by the Company and were being held by the Syndicate. The appellant's payment of this amount was to be regarded as payment on behalf of the Oil Company and would amount to a discharge in regard to its indebtedness to the C.P. Syndicate. As a corollary to this provision the debentures which were security for the indebtedness of the Oil Company with the C.P. Syndicate were to be made over to the appellant who was to acually make this payment; in other words, the appellant was in the position of a subrogee. He was to be substituted qua the debentures in the place of the C.P. Syndicate and as a creditor of the Oil Company. He has a right by reason of the application of the rule of subrogation higher than that of a mere assignee. The assignment of the debentures by the C.P. Syndicate was a mere formality in favour of the person from whom it had recovered its secured debt. Once the debt due to the Syndicate was paid, the creditors of the Syndicate or its liquidator could not retain the debentures and they had perforce to hand them over to the debtor or his nominee. The Syndicate could not both realize the debt and retain the debentures. Being in the position of secured creditors, once their debt was paid, they had no right or claim against the debentures. In these circumstances the winding up petition did not in any way affect the power of the C.P. Syndicate to assign the debentures in favour of the appellant once he paid the first instalment of Rs. 2,50,000/-. The provisions of Section 227 of the Indian Companies Act and of Section 168 of the same Act to which reference was made by Mr. Seervai, in my opinion, have no bearing whatsoever on the true situation as disclosed by the arrangement arrived at by the consent decree. I am satisfied that the defence set up by the appellant under cover of the winding up petition for the default in the payment of the first instalment was a mere lame excuse for not making it and had absolutely no justification on the 'terms of the decree.

37. The other grounds on which the validity of the insolvency notice has been questioned again, so far as I can see, cannot bear scrutiny, though the learned Judges of the High Court were much impressed with one of them. The statute provides that the debtor will have committed an act of insolvency if he does not comply within a month with the requirements of the notice. It further provides that even if he fails to comply with the requirements of the notice, he can avoid its effect by proving in defence the proviso. The proviso enacts that the debtor shall not be deemed to have committed an act of insolvency for not complying with the requirements of the notice if he has a counter-claim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him. The words of the proviso 'for not complying with the requirements of the notice' indicate that even if the debtor has failed to comply with the requirements of the notice, he can yet escape the consequences which would result from such non-compliance if he can prove that he has a counter-claim or set off; in other, words, the proviso is not a requirement of the notice but gives to the debtor a defence to the notice. Section 9-A mentions the requirement of the insolvency notice and it enacts that an insolvency notice under this Act shall be in the prescribed form and shall be served in the prescribed manner and that it shall require the debtor to pay the amount due Under the decree or order or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent and shall state the consequences of non-compliance with the notice. It is obvious that there are only two requirements of the notice, the first requirement being the demand against the debtor for payment of the amount due under the decree or order and the second requirement being that in case he cannot pay, he can furnish security for the payment of the amount to the satisfaction of the creditor or the agent. The proviso to Section 9(1) is not a requirement of the notice. The form prescribed by the rules and cited above after stating the first two requirements proceeds to say-

Or you must satisfy the Court that you have a counter-claim pr set off against...which equals or exceeds the sum claimed...and 'which you could not setup in the suit or other proceeding in which the decree or order was obtained.

38. It was argued that this clause in the notice added to the requirements of that notice as provided for in Section 9(a). In my view, this contention is unsound. The part of the notice above cited only draws the attention of the debtor to the defence by taking which he can escape from the consequences of the notice. It has not been stated as a requirement of the notice. Drawing the attention of a debtor to a defence available to him can by no stretch of imagination be described as a matter which would embarrass or perplex him. It cannot be held to be a trap laid out for catching him by the creditor, The words 'requirements of the notice' in the section only mean the things demanded from the debtor by the creditor. These demands are 'pay the amount or furnish security.' It is not a demand of the creditor against the debtor that he should take a defence of a counter-claim or set-off. He is not interested in it. It is only the debtor who is interested in the counter-claim or set off and his attention is drawn to the defence which he may take and which the law has provided for him. The contention of Mr. Seervai was based on a fallacy that this part of the notice cast an additional burden on the debtor to satisfy the Court about an extra requirement which the law had not provided for. Telling the man that he can benefit by a certain defence is not casting any burden or extra weight on him.

39. The notice further proceeds to say that 'the consequence of not complying with the requisitions of this notice are that you will have committed an act of insolvency.' The words 'requisitions of the notice' has reference only to the two requirements of the notice. It will be straining the language to say 'that telling him that he can raise the defence of a counter-claim' is a requisition of the notice. On the other hand, the notice after stating that 'the consequences of not complying with the requisition in the notice are that you will have committed- an act of insolvency', proceeds to say that 'if you have a counter-claim or set-off..., you must within seven days apply to the Court to set aside this notice by filing with the Insolvency Registrar an affidavit to the above effect.' It was argued that though tinder the law the defence of set-off or counter-claim was available to the debtor within thirty days, this notice curtailed the period of thirty days to seven days and therefore it has taken away a very valuable right possessed by the debtor. In my opinion, this arguement again is void of force. The statement in the notice that if a counter-claim exists he can disclose it by putting an affidavit within seven days does not in any way cut down the period of thirty days for putting in a counterclaim. On the other hand, in the first part of the notice it has been clearly stated that he can put in the counter-claim within a period of one month.' The last portion of the notice only draws his attention to the rule made by the High Court which requires that in the case of a counter-claim or set off existing on the date of the notice such counter-claim may be disclosed by an affidavit within seven days of the service of the notice and in such a case the affidavit is treated as a petition by a debtor to set aside the notice of insolvency. Where, however, no counter-claim or set-off exists on the date of the service of the notice or within seven days of it, no affidavit is necessary and no petition is necessary to set aside the notice of insolvency. That however does not mean that by the date of the hearing if a counter-claim is available to the debtor, he cannot disclose it at that moment at all. As pointed out in G.E.B., In re [1903] 2 K.B. 340 by Lord Justice Williams., a set-off or a counterclaim can be raised up to the date of the hearing in spite of the procedural rule under the English Bankruptcy Act which requires an affidavit to be made within three days of the service of the notice though seven days are provided for the satisfaction of the Court about the set-off or the counter claim.

40. The only true interpretation of the procedural rule which requires the filing of an affidavit in England within three days of the service of the bankruptcy notice and in India within seven days from the service of the insolvency notice is that if a counter-claim exists up to that stage, it should be disclosed by an affidavit so that the trial of the matter may be conveniently proceeded with all speed; but if he has not an existing claim at that moment, he is Under no necessity to file any affidavit. From that circumstance it does not follow that he is debarred by any rule of procedure or under any provision in law from raising the matter of the counter-claim if he has subsequently acquired one and which gives him a good defence to meet 'the notice. The period of thirty days provided by statute for raising the defence has not been cut down by this rule. On the other hand, the rule only prescribes the procedure for facilitating the hearing of the defence of counter-claim if up to a particular stage that defence is available to the debtor. If, however, up to that stage the defence is not available to him, he can raise it later on. It is nowhere laid down in the rule that a petition for setting aside an insolvency notice cannot be made after seven days or that the filing of an affidavit in any way bars the right of the judgment-debtor. The debtor in this case after three weeks put forward a counter claim in spite of the rule and without objection. On this view of the law it seems to me that the notice as issued under the law prevailing at the time it was issued was a good notice and did not suffer from any defects. whatsoever. The learned Judges of the Division Bench of the High Court when they expressed the view -that the mention of the counter-claim in the notice was fatal to its validity seems to be under am is apprehension as to the English law on the subject. They thought the English law on the point was materially different. That however is not the case. Their attention was not drawn to the rule prevailing in England that an affidavit has to be filed within three days of the issue of the notice disclosing the counterclaim though seven days are provided by the statute for satisfying the Court as to the requirement of the notice. Mr. Seervai argued the same point before Us, but when his attention was drawn to the English rule, he had to abandon it. The rule regarding the filing of an affidavit within three days of the service of the notice disclosing the counterclaim is prevailing in England for a long period and its validity has never been questioned, and rightly so because the rule does not in any way contact with the right of the debtor. The learned Judges of the Division Bench thought that the notice would be clearly a trap for the debtor because he would be led to believe that he was bound to satisfy the Court by putting in an affidavit within seven days that he has a counter-claim or set-off, otherwise he will have committed an act of insolvency and be liable to be adjudicated an insolvent. It seems to me that what is a defence to an action has been construed as a requirement of the notice or a demand on the debtor by the creditor to do something In my opinion, therefore, even without the help of the Ordinance a decision should have been given in favour of the validity of the notice. The Ordinance however cures any defects, if any, exist in the notice. Section 3(a) 'validates all notices issued under the old Act and so does Clause (b) of Section 3. Mr. Seervai however argues that the Ordinance also provides a period of thirty days for the defence of a counter-claim but the notice reduces it to seven days. As already pointed out, this contention is void of force, and even if the clause regarding the counter-claim in the original notice was not a surplusage but was something which would embarrass the debtor and makes the notice defective, the defect stands cured by the Ordinance.

41. The last contention raised by Mr. Seervai was that the decree regarding the payment of Rs. 12,50,000 was a joint decree in favour of four persons, and as the permission of the Court had not been obtained for its execution by one of the plaintiffs, there was no executable decree existing forthwith on which could be founded an insolvency notice. That contention would have force provided the premises on which it is based are correct. If the decree were a joint decree, the matter would require serious consideration, but the decree on the face of it, so far as the payment of Rs. 12,50,000 is concerned, is a decree in favour of the C.P. Syndicate only. The other plaintiffs have not been given a decree for this amount. In clear and Unambiguous terms the decree commands that the sum of Rs. 12,50,000 should be paid by the defendant to the plaintiff-company. In view of the clear language of the decree it is unarguable that this decree should be construed as a decree in favour of several persons because those persons also were co-plaintiffs.

42. Some other technical objections of a not-very serious character were raised on the language of the notice. It was said that the notice omitted to state the names of the decree holder and judgment dabtor. This objection has only to be stated to be rejected. The number of the suit in which the decree was passed was mentioned and its date was given. The defendant was a party to the decree and he well knew who was the plaintiff and who was the judgment debtor. No embarrassment could be caused to him by omission of the mention of their names.

43. All the defences taken to the notice are without force and the two Courts below rightly dismissed the petition for setting it aside: It is interesting to observe that admittedly even up to this date the defendant has not got a counter-claim or a set-off. His counter-claim only consisted about the debentures and he put it forward as a defence to the notice and he thus suffered no prejudice in any manner whatsoever. It was argued that if the notice had not mentioned seven days, the debtor would have purchased a counterclaim or a set-off from some of the creditors of the C.P. Syndicate. It is inconceivable that a person who could not pay the first instalment of Rs. 2,50,000, could buy a counter-claim of Rs. 12,50,000 within three weeks.

44. The result is that the appeal fails and is dismissed with costs throughout.

Mukherjea, J.

45. I agree that the appeal should be dismissed with costs throughout and I concur substantially in the reasons given by my learned brother Fazl Ali J. in his judgment.


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