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Byramji Bomanji Talati Vs. the Official Assignee - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case Number O.C.J. Appeal No. 30 of 1935 and Insolvency No. 760 of 1931
Judge
Reported in(1936)38BOMLR71
AppellantByramji Bomanji Talati
RespondentThe Official Assignee
DispositionAppeal dismissed
Excerpt:
presidency-towns insolvency act (iii of 1909), sections 51, 46 (3), 17 - insolvent-creditor- claim not barred on date of act of insolvency but barred on date of adjudication-claim can be proved.;the creditor of an insolvent can prove his claim for debt which was not barred at the to of the act of solvency which the adjudication sound though it is barred at the date of the order of adjudication. - - it is well settled that debts which are barred by limitation are not provable in insolvency, because the debtor is not subject to such debts; 3. in my opinion, the principle on which this case ought to be determined is well settled. 332) :whatever may be the technical objection, the effect of the commission clearly is to vest the property in the assignees for the benefit of the creditors;.....sub-section fixes an arbitrary date; and the fact that the legislature selected the date of adjudication as the date from which interest was to run incase of a surplus can have no bearing on the question with which we have to deal. mr, engineer has relied also on a decision of the english court of appeal in daintrey, in re: mant, ex parte [1900] 1 q. b. 546, where the court was dealing with the section relating to mutual dealings, viz. section 38 of the english act, which is in the same terms as section 47 of the presidency-towns insolvency act. for the purpose of s.38 of the english act, it was held that the material date at which the question of mutual dealings was to be considered was the date of the receivership order. the reason for selecting that date is given by.....
Judgment:

John Beaumont, Kt., C.J.

1. This appeal raises a short point of insolvency law, on which there appears to be no direct authority. The question is, whether a creditor can prove for a debt which was barred by limitation at the date of the order of adjudication, but was not so barred at the date of the act of insolvency on which the adjudication was founded. The debt in question was incurred by the debtor on November 19, 1928; on August 18, 1931, there was an act of insolvency, on which a petition for adjudication was presented on October 14, 1931; and an order of adjudication was made on March 27,1933. The point is not likely to arise frequently, because, as a rule, adjudication follows promptly, if it follows at all, upon an act of insolvency; but in this case there were special circumstances, which resulted in a delay of nearly two years between the act of insolvency and the order of adjudication. The Official Assignee held that the debt was provable, and his decision was upheld by the Insolvency Judge, from whose judgment this appeal is brought.

2. The case arises under the Presidency-towns Insolvency Act, 1909. Section 17 of the Act provides that-

On the making of an order of adjudication, the property of the insolvent wherever situate shall vest in the official assignee and shall become divisible among his creditors, and thereafter except as directed by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable in insolvency shall, during the pendency of the insolvency proceedings, have any remedy against the property of the insolvent in respect of the debt or shall commence any suit or other legal proceeding except with the leave of the Court and on such terms as the Court may impose.

Then Section 51 deals with the date of the commencement of the insolvency, and provides:

The insolvency of a debtor, whether the same takes place on the debtor's own petition or upon that of a creditor or creditors, shall be deemed to have relation back to and to commence at-

(a) the time of the commission of the act of insolvency on which an order of adjudication is made against him, or

(b) if the insolvent is proved to have committed more acts of insolvency than one, the time of the first of the acts of insolvency proved to have been committed by the insolvent within three months next preceding the date of the presentation of the insolvency petition.

Then the section, under which the question directly arises, is Section 46, Sub-section (3), which provides.-

Save as provided by sub-sections (1) and (2), -(which are not material for the present purpose)- all debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable in insolvency.

It is well settled that debts which are barred by limitation are not provable in insolvency, because the debtor is not subject to such debts; and the question we have to determine is the date at which time ceases to run in favour of the insolvent. If the material date is the date of the order of adjudication, then the claimant's debt is not provable; but if the material date is the date of the commission of the act of insolvency, then the debtor was still subject to the debt at the time at which he was adjudged, and the debt is provable.

3. In my opinion, the principle on which this case ought to be determined is well settled. Under Section 17 and Section 51 of the Presidency-towns Insolvency Act, the insolvency commences on the commission of the act of insolvency, and at that date the property of the insolvent vests in the Official Assignee, whose duty it is to administer it, and distribute it amongst the creditors who prove their debts. As from that date the Indian Limitation Act has no application, and the relationship of debtor and creditor ceases to exist. That principle was laid down as long ago as 1827 in Ex parte Ross : In the matter of Coles (1827) 2 GI. & J. 330, where the Lord Chancellor says (p. 332) :-

Whatever may be the technical objection, the effect of the commission clearly is to vest the property in the assignees for the benefit of the creditors; they are, therefore, in fact, trustees: and it is an admitted rule, that unless debts are already barred by the statute of limitations when the trust is created, they are not afterwards affected by lapse of time.

4. The principle was also stated by Vice-Chancellor Bacon in Ex parte Lancaster Banking Corporation: In re Westby (1878) 10 Ch. D. 776. The material passage in the judgment is at p. 784, and is in these terms:

The Statute of Limitations has nothing to do with the bankruptcy laws. When a bankruptcy ensues, there is an end to the operation of that statute, with reference to debtor and creditor. The debtor's rights are established and the creditor's rights are established in the bankruptcy, and the Statue of Limitations has no application at all to such a case, or to the principles by which it is governed.

5. The case of Ex parte Ross was also referred to in this connection with approval by the Court of Appeal in England in Benson, In re: Bower v. Chetwynd [1914] 2 Ch. 68.

6. Channel J., in delivering the judgment of the Court, at p. 75, says this: '

As to the second point, cases were quoted beginning with Ex parts Ross, which shew that in the bankruptcy a debt does not become barred by lapse of time if it was not so barred at the commencement of the bankruptcy, and of this there can be no doubt, but this is only in the bankruptcy.

7. No doubt that is a dictum only, but it recognizes in clear terms what seems to me the correct principle to apply.

8. Mr. Engineer for the petitioning creditor has relied on other sections of the Presidency-towns Insolvency Act as indicating that the true date for determining the question of limitation is the date of the order of adjudication. He relies particularly on Section 49, Sub-section (6'), which provides that-

Where there is any surplus after payment of the foregoing debts, it shall be applied in payment of interest from the date on which the debtor is adjudged an insolvent....

That sub-section fixes an arbitrary date; and the fact that the legislature selected the date of adjudication as the date from which interest was to run incase of a surplus can have no bearing on the question with which we have to deal. Mr, Engineer has relied also on a decision of the English Court of Appeal in Daintrey, In re: Mant, Ex parte [1900] 1 Q. B. 546, where the Court was dealing with the section relating to mutual dealings, viz. Section 38 of the English Act, which is in the same terms as Section 47 of the Presidency-towns Insolvency Act. For the purpose of s.38 of the English Act, it was held that the material date at which the question of mutual dealings was to be considered was the date of the receivership order. The reason for selecting that date is given by Wright J. at p. 555 in these terms:

If the line were to be drawn at different times for the two purposes of proof and set-off, the result might be unjust. If it were drawn for the purposes of set-off at the 'commencement of the bankruptcy', as defined by Section 43, there would be three months' ( under the Act of 1869, Section 11, it would have been twelve months) during which one side of a cross-account would be growing for purposes of proof, and yet the other side would be cut short for purposes of set-off. If it were not drawn until adjudication, the injustice would be the other way,, but it might be equally great.

The Court of Appeal accepted Wright J.'s view that the material date for the purpose of considering mutual set-off was the date of the receivership order, an intermediate date between the commencement of the bankruptcy and the order of adjudication, which does not exist>under the Presidency-towns Insolvency Act. Whether the principle of Daintrey, In re, would apply to India substituting for the date of the receivership order, the date of the adjudication order, it is not material to consider. The case, in my opinion, has no real, bearing upon the question whether a debt not barred at the date of the act of insolvency should be held to be provable.

9. In my opinion, the principle to be applied is the one to which I have referred, and the decision appealed from is, therefore, right. It is no doubt something of an anomaly that if the petition for adjudication had been dismissed, the 'Claimant's debt would have been time barred. But that arises from the fact that the claim of a creditor against his debtor when not insolvent is of a different character from his claim to share in the distribution of the debtor's estate in insolvency.

10. The appeal must be dismissed with costs.

11. The claimant-creditor to have his costs out of the Rs. 500 deposited by the appellant in Court.

Blackwell, J.

12. I agree, and have nothing to add.


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