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In Re: Mahomed Hasham and Co. - Court Judgment

LegalCrystal Citation
Decided On
Case NumberO.C.J. Insolvency Petition No. 282 of 1922
Reported inAIR1923Bom107; (1922)24BOMLR861; 75Ind.Cas.203
AppellantIn Re: Mahomed Hasham and Co.
.....of one partner of the firm from ms place of business-intent to defeat and delay creditors of the firm-adjudication order against the partner who has departed.;where one of the partners of a firm consisting of two partners departs from his usual place of business with intent to delay and defeat the creditors of the firm, an adjudication order cannot be made against the firm, under section 9(d)(ii) of the presidency towns insolvency act, unless the other partner has also departed with like intent.;semble.-the definition of the word 'transfer' in section 5 of transfer of property act, 1882, does not necessarily apply to the presidency towns insolvency act, 1909. - - , (1) 'that in british india the said debtors have made a transfer of their property or a substantial portion thereof with..........(2) 'that with like intent the partners of the said debtors' firm have departed from their usual place of business or otherwise absenting themselves.'2. the petitioning creditor padamsey munji obtained a decree, on the 27th february 1922, for rs. 51,000 odd, of which after giving credit for certain sales of goods, a sum of rs. 34,650 still remains due.3. as regards the first point under the adjudication order, viz., the alleged statutory transfer, the ground of objection raised by the present applicant is that this transfer was not executed within three mouths before the presentation of the petition as required by section 12(1)(c) of the presidency towns insolvency act 1909.4. the petition was presented on the 30th march 1922 and it is common ground that the mortgage relied upon is.....

Marten, J.

1. This is an application by one Abdul Sakoor Ismail a partner in the firm of Mahomed Hasham & Co. and M.H. Madden & Co., to set aside an adjudication order made against the firm of Mahomed Hasham & Co , on the 31st of March 1922, by Mr. Justice Kanga. The grounds on which the adjudication order was made were two, viz., (1) 'That in British India the said debtors have made a transfer of their property or a substantial portion thereof with intent to defeat or delay their creditors' and (2) 'that with like intent the partners of the said debtors' firm have departed from their usual place of business or otherwise absenting themselves.'

2. The petitioning creditor Padamsey Munji obtained a decree, on the 27th February 1922, for Rs. 51,000 odd, of which after giving credit for certain sales of goods, a sum of Rs. 34,650 still remains due.

3. As regards the first point under the adjudication order, viz., the alleged statutory transfer, the ground of objection raised by the present applicant is that this transfer was not executed within three mouths before the presentation of the petition as required by Section 12(1)(c) of the Presidency Towns Insolvency Act 1909.

4. The petition was presented on the 30th March 1922 and it is common ground that the mortgage relied upon is dated the 10th of October 1921. It is, however, alleged by the petitioning creditors that in effect the mortgage amounted to a statutory transfer because the mortgagee did not take possession until some date within three months before the presentation of the insolvency petition. 1 have not got the original of this mortgage before me but I have a copy or what purports to be a copy, and though it seems to be inaccurate in several places, I think it will suffice for the purpose of my present decision.

5. Before turning to the mortgage, I should explain that there are two partners in this firm of Mahomed Hasham & Co., viz., Abdul Sakoor Ismail and Premchand Nandlal. It is common ground that Premchand Nandlal has absconded, and it is not disputed that he has absconded with intent inter alia to defeat and defraud and delay the creditors of this particular firm. But it is the other partner who denies all intention to defeat or delay the creditors of the firm with which we are concerned. I may also say that the two firms of Mahomed Hasham & Co. and M.H. Madden & Co. appear to be the same, although M.H. Madden & Co. are not named in the adjudication order. I mention this because the applicant Abdul Sakoor in his first affidavit does not refer to Mahomed Hasham & Co. at all but refers to M.H. Madden & Co. That is explained afterwards in another affidavit to be merely an error, and that the two firms are substantially the same.

6. Now this mortgage of the 10th of October 1921 is interesting to this extent. The draftsman seems to have copied some of the English forms relating to limited liability companies and used them for the affairs of an ordinary partnership firm. The result is that at any rate to an English conveyancer some of the conveyancing is most extraordinary. We are introduced to some thing which is novel as far as I am concerned, viz., an assignment in one place, and a charge in another place both by way of so-called floating security in connection with the assets of A and B the partners in the firm. Possibly my unfamiliarity with a floating charge over partnership assets arises from the fact that any such charge in England would probably be void under the Bills of Sale Acts. On the other hand a floating charge contained in a debenture of a limited liability company is excepted from the operation of those Acts.

7. However I find that there are certain clauses in this mortgage which purport at any rate to assign absolutely substantia portions of the alleged insolvent's property. In Clause 2 the borrowers assign unto the lender '(1) all the several debts or sums of money specified in the second column of the said schedule hereto due owing to the borrowers as aforesaid from the several persons whose names are set opposite to such respective sums in the first column of the said schedule'. Then in Sub-clause (3) they assign 'all capital profits other moneys' (there may be some mistake in the copy here)' belonging to or to be received by the borrowers in respect of the said business. ' Now the debts mentioned in the Schedule amount to a substantial sum, some Rs. 57,000, and they represent book debts due to the firm. This Sub-clause (3) is certainly in very wide terms 'All capital profits other moneys belonging to or to be received by the borrowers.'

8. In Sub-clause (2) they assign 'by way of floating security all beneficial interest and good will of the borrowers in said business and the exclusive right to use or confer on others the right to use the said style or true name of Mahomed Hasham & Co. and also the full benefit of all contracts and engrossments entered into by or with the borrowers in respect of the said business. If one is to construe the words strictly I do not know how you assign by way of floating security. If, however, a charge is intended the wording should be 'charge by way of floating security' and not assign. However that may be,I do not suppose that the good will of this particular firm is worth very serious consideration.

9. Then in Clause 3 they purport to ' charge the payment of the principal sum and interest thereon by way of floating security (not hindering any sale or other dealing in the ordinary course of business of the said firm) on the borrowers' shop in the Jakeria Musjid at the approximate value of Rs. 60,000 (but not the borrowers' goods which have been already pledged by them to the Central Bank of India Ltd.) and all papers, documents and vouchers relating to the stock-in-trade, goods, cattels (I suppose that means chattels) 'merchandise, as are ordered out by the borrowers and as may be received by them at said shop and payment of the moneys due thereon including the goods now pledged with the said Central Bank of India Ltd. as may hereafter come into their possession and all the documents of title relating thereto or which may be purchased by or assigned to them.'

10. I suppose that means that it is to be a floating charge on the stock-in-trade at the shop exclusive of certain goods already pledged to a third party. Possibly the charge also extends to the shop itself.

11. Then in Clause 4 there are certain covenants by the borrowers: '(d) That the borrowers shall forthwith cause the lease if any of the shop and godowns transferred in the name of the lender.' There are also numerous other clauses. In Clause 7 the borrowers appoint the lender their attorney to do a large number of things. In Clause 9 there is a power of sale. Clause 11 provides for the security becoming immediately enforceable in certain events. Clause 12 provides: 'This security shall extend to all stock-in-trade, goods and chattels which the borrowers may hereafter acquire for the purpose of their business and all book debts which may accrue due in the course of the said business.'

12. Let me assume for the sake of argument that this document amounts to this: that there are certain properties of the insolvent which were assigned absolutely by way of mortgage and certain other properties which were charged by way of floating security. How does the fact that these other properties are charged by way of floating security (whatever that means as regards the assets of private individuals) prevent there being any 'transfer' of their property until the mortgagee takes possession? On the facts of this particular case I do not think it does. If one applies the analogy of floating securities on the assets of a company, one knows that a floating security does not actually fasten specifically on any particular asset until it has what we call crystallised, but it will nevertheless take priority over certain rights of certain unsecured creditors. For instance it is Stated in Buckley on Companies, 9th Edn., p. 233:

As between execution creditor of the Company and debenture-holder by way of floating security, the former takes subject to the equity of the latter, even if the equity arises not from an actual issue of debentures but from a mere agreement for value to issue them; and the rights of the debenture-holder prevail, at any rate until the sheriff has sold, whether a receiver has been appointed or not; and also notwithstanding sale if before sale a receiver has been appointed.

13. There is one further matter in this particular case. There was a partnership suit brought by the applicant Abdul Sakoor against his partner Premchand alleging in effect that he had been grossly defrauded by Premchand. On the 19th December 1921 this mortgagee that I have referred to was by agreement between the parties appointed by Mr. Justice Kajiji Receiver of the partnership assets and there was a clause providing that the Receiver was to collect the partnership outstandings but he was not to pay any creditor without the leave of the Court.

14. Then on the 23rd March 1922, this mortgagee Receiver resigned and Mr. Moos was appointed in his place

15. It seems to me that in the face of these orders it is practically impossible to construe the mortgagee taking possession in January or February 1922 as being a transfer of that date by the insolvents. The only document the insolvents ever entered into was in the preceding October, and by the time they came to January or February 1922 a Receiver had been appointed by the Court and they had no right to put anybody in possession of anything. Further, the person who was appointed Receiver was the mortgagee, and ho had no right as mortgagee to take possession from himself the Receiver without obtaining the leave of the Court which at any rate he did not do until the 23rd of March.

16. On these facts I utterly decline to hold that there was a transfer by these insolvents in law or in equity within the meaning of the Presidency Towns Insolvency Act at any time within three months before the presentation of this insolvency petition. Consequently the first ground on which the adjudication order was made is, in my opinion, unfounded and to that extent the order is, in my opinion, bad.

17. Now we come to point No. 2. It will be remembered that it depends on whether the partners departed from their usual place of business or otherwise absented themselves. One argument that has been submitted to me on behalf of the petitioning creditors is this that it is sufficient for one partner to absent himself and that it does not matter whether the other one does. That seems to me to be an impossible view to take of the presidency Towns Insolvency Act. I am not going to lay down any general rule as to what acts of a partner may in certain circumstances bind the firm so as to amount to an insolvency of the firm. The explanation to Section 9 of the Presidency Towns Insolvency Act says:

For the purposes of this section, the act of an agent may be the act of the principal, even though the agent have no specific authority to commit the not.

18. But it seems to be only common sense that where you put forward as an alleged act of bankruptcy that the partners of a firm have departed from their usual place of business or otherwise absented themselves, that must refer to the individual partners A, B, C and D. One man cannot as an agent for another depart from his usual place of business. It seems to me, in other words, to be a personal matter and there is no question of any agent acting for him. Accordingly, I decline to hold that because Premchand Nandlal departed in this manner that that amounted to a constructive departure of the other partner Abdul Sakoor.

19. I was not given much assistance by way of authority on this point during the course of the argument. And I can quite understand that where a case is based on its particular facts, although it is of legal interest to consider points of law, it may be unnecessary to do so where the Judge has not got to lay down any particular rule. But I wish to draw attention to two points.

20. In India, unlike in England, it is not an act of insolvency to fail to comply with a bankruptcy notice to pay a liquidated debt. Also as a small matter of procedure an adjudication order can be made against a firm in the firm's name. In England a receiving order can be made against a firm, but the adjudication order is made out in the names of individual partners. But because we have that different procedure in India one must not think that an ordinary partnership firm is a legal entity. We only sue a firm on the Original Side in the firm's name for the purpose of convenience and because it is often difficult to know who the precise members of the partnership are. But whether we sue them in the firm's name or whether we do not, in India it is the individual partners in the firm who are in law liable and they and they only.

21. I may refer to Ex parte Blain: In re Sawers (1879) 12 Ch. D. 522 Brett L. J. says:

He says it is an act of bankruptcy by the firm. He is met and challenged by being asked whether a firm as such can commit an act of bankruptcy, He assumes that it can. I beg leave to doubt it. Nay, more, I am of opinion that a firm as such cannot commit an act of bankruptcy. An act of bankruptcy must be the personal act or the personal default of the person who is to be made a bankrupt.

22. Then in Wace on Bankruptcy, p. 38, there is a reference to the cases of Ex parte Mavor (1816) 19 Ves. 539 and Mills v. Bennett (1814) 2 M. 556 in these terms:-

The act of a firm of bankers in shutting up the bank is not necessarily an act of bankruptcy on the part of each individual partner. Thus where one partner who resided at the place of business, and was the only partner transacting the business (the others residing at a distance), shut up the banking-house and absented himself from it and stopped payment, it was not evidence of a joint act of bankruptcy.

23. On the other hand, while I am referring to Wace. I wish to add a guarding word against the possibility of, say, in a firm of eight partners, seven partners absconding and leaving the eighth partner detained in Bombay on the ground of serious ill-health, and it being then said that no bankruptcy order can be made against the firm. That case I will deal with when it arises. But it seems to me to be a question of fact in each case to determine the grounds for abstention from business, and whether on all the facts an act of bankruptcy has been committed. I may refer to the authorities cited in Wace at pp. 38-39.

24. In the present case, viz., of a firm with two partners I hold that on the true construction of our Indian Insolvency Act the departing from the usual place of business, with intent to delay and defeat the creditors, must be a departure of both the partners and not merely the departure of one of them.

25. I next come to this point. It is said that the applicant Abdul Sakoor in fact did depart with intent to delay and defeat his creditors. That he departed is admitted, but that he did it with any intention of defeating his creditors is denied, and the reason he puts forward for his absence from business, viz., that of ill-health, is supported by medical evidence of a strength which is unusual in these Courts. I have medical certificates from in all five doctors for a period between the 23rd of January and the 13th of May. They are couched in the strongest terms and they show that Abdul Sakoor was suffering from chronic dysentery with inflamed liver and a weak heart. The certificates are given not only in Bombay but also in Mysore and they are by medical gentlemen whose position and character makes it quite impossible to suggest that they are unfounded or that they are in any way exaggerated or untrue.

26. Further than that, we have this: that in one suit on the Original Side a commission to examine the applicant de bene ease was ordered. The Court's Commissioner went to take his evidence but found the applicant so weak that he did not feel justified in taking the examination and accordingly he returned without that examination being held.

27. As regards the medical certificates I will take as an instance the certificate of Lieut.-Col. Markham Carter of the 25th of January 1922 where he says:-

I understand his presence is required at the High Court on 26th January 1922. I certify that he is totally unfitted to attend, being physically incapable of undergoing the strain of a journey to the Court and of examination therein. His mental state is apathetic and his intellect somewhat clouded by his state of low toxaeima. In my opinion his convalescence will be a slow one. His chances of recovery depend on his having complete rest, and suitable treatment for his conditions. I do not think be will be fit for Court purposes for at least two months.

28. Then Dr. Naidu, Civil Surgeon of the Mysore Government, on the 15th of April certified that he was 'now bedridden and not at all able to undertake any journey. He may require at least three months to recover his health.'

29. Then Col. Standage on the same day certified that 'he will require proper treatment and mental and physical rest and diet for some months. He is at present quite unfit to travel to Bombay, and to attend lengthy legal proceedings in Court in Bombay.'

30. Then the last certificate dated the 13th of May states that he 'is still Buffering from amoebic dysentery and is too weak to travel for three months more.'

31. Now with a man in that condition how can it possibly be said that his keeping away from his place of business was done with intent to delay and defraud his creditors It will be remembered in the first place that his business was already in the hands of the Court's Receiver who had been appointed on the 19th December, and obviously if a man was not even fit to be examined at his house by the Court's Commissioner, he was not fit to attend to his business,

32. Then it was said that the applicant went first of all to Versova and that he went to Bangalore a day before his warrant of arrest so as to get outside the jurisdiction of this Court. The answer is that he did first go to Versova for a change of air but was told by his medical advisers that he must go to a much drier climate, and it was on that advice that he was taken to his brother's house at Bangalore. It was suggested that he could have gone to Poona or some other place in the Bombay mofussil having a dry climate, but I cannot see anything un reasonable in a man in such a serious condition as I am satisfied this alleged insolvent was, going to the house of his brother in Bangalore which has presumably a better climate than Poona.

33. Then as regards the warrant of arrest, I cannot conceive that any Chamber Judge, if he had had brought to his attention the state of health of this unfortunate gentleman, would ever have dreamt of making a warrant for his arrest. I do not suppose for a moment that the matter was brought to the Judge's attention, and I say this partly because in Chambers during this vacation I myself was asked to grant a warrant on the Original Side for the arrest of this particular man, I raised certain queries because it appeared that he was already insolvent, and I did not understand why I was being asked to exercise the Original Side jurisdiction which was doubtful, as opposed to the insolvency jurisdiction which in certain cases is clear. Eventually I was told the real reason was that the man was ill and therefore they wanted to get hold of him. I pointed out there and then that that should have been so stated in the application to the Court and that the true ground should not have been suppressed. I heard no more of the application. But I have very little doubt that if the matter was investigated, it would be found that the Chamber Judge who granted this warrant of arrest was not told of the condition in which this applicant was and that if he had been he would not have made this order.

34. The result, in my opinion, is that the applicant did not absent himself from his ordinary place of business or otherwise with a view to defeat or delay his creditors. He absented himself from his place of business because he was in a very serious state of health and totally unfit to attend to his business at all.

35. That being so, the grounds on which the order for adjudication was made are both of them wrong and accordingly the order must be discharged.

36. There have been certain other matters put forward in the affidavits as a possible ground for making the adjudication order, but I can only deal with the grounds on which the original adjudication order was made.

37. But there is this further point that arises, viz., that subject to anything that counsel may say I do not see why the whole of this order should be discharged. I do not see why it should not stand as an adjudication order against the other partner Premchand Nandlal. What I suggest may be a convenient way of protecting the interests of creditors will be for the Official Assignee promptly to be made a party to the partnership suit, and that in that partnership suit or in the insolvency he can take such proceedings as he may be advised to set aside, if he can, this mortgage of 1st October 1921 and he may also take such other proceedings in the partnership suit as may be necessary. Further, if the present applicant Abdul Sakoor gets in a fit condition to give evidence, it will be quite easy under the insolvency jurisdiction to direct him to be examined in the insolvency of his partner. If, again, the petitioning creditors consider they have other grounds for making Abdul Sakoor also an insolvent, of course they will be at liberty to do so. They make a considerable number of charges of general insolvency against this firm which are more or less denied. But if there is anything substantial in them and if they can bring their case within the Indian Insolvency Act by some future application, they will of course be at liberty to do so notwithstanding my present order for annulment of the adjudication order.

38. In dealing with the first point, viz., as to whether there had been a fraudulent transfer, I had intended to refer to one section in the Transfer of Property Act about the meaning of the word 'transfer'. That is Section 5 and it says:

In the following sections 'transfer of property' means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persona; and 'to transfer property' is to perform such act.

39. I do not see that that definition applies to the Presidency Towns Insolvency Act, and I am not absolutely sure what the words 'in present or in future' refer to. I should have thought that grammatically they referred to property. There, again, I take it that a conveyancer would say that you cannot transfer future property. Such a purported transfer can only operate as an agreement to transfer and that when the future asset comes into existence it is seized on in equity by reason of such agreement. But all this is English equity, and how far that applies to India, particularly to the Transfer of Property Act and its special provisions such as the concluding portion of Clause 54, I do not propose to discuss and much less to decide. I only mention this to show that I have not overlooked that particular definition in the Transfer of Property Act.

40. One remaining matter about costs. In the petition on which this adjudication order was founded there is not one word there said about the illness of Abdul Sakoor. The parties must have known it, and I think in such cases where parties apply for ex parte orders, it is incumbent on them to tell the Court all the material facts. They have not disclosed a word about this in the petition on which this order was made. I accordingly direct that the petitioning creditors pay the costs of the present application. If any difficulty arises as regards the precise form of the order, it should be mentioned to me.

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