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Mahomed Haji Essack Vs. Shaikh Abdul Rahman - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case NumberO.C.J. Appeal No. 28 of 1915
Judge
Reported inAIR1915Bom278; (1915)17BOMLR989
AppellantMahomed Haji Essack
RespondentShaikh Abdul Rahman
Excerpt:
.....in my opinion, be dangerous as well as unnecessary to adopt any such rule of practice as the learned judge believed to exist. the insolvent on 26th october 1913, a day before he filed his petition in insolvency, assigned over and transferred a good debt due by maneklal panachand to himself to the heirs of esa khalifa of whose estate he was receiver. he has kept books, but he might well have omitted keeping books at all, because the books that he has kept are of no value whatever. ..there can be no question that the insolvent continued to trade when he must have well known that he was in insolvent circumstances. that protection should ordinarily be granted, does not signify here, for this is an extraordinarily bad case; moreover i think that even if his freedom could be shown to be..........and properties worth over two lacs to creditors whom he had defrauded by breaches of trust. the learned judge stated that he would have tried the insolvent in respect of these assignments under the penal section 103, if it had not been for the decision of the house o lords in sharp v. jackson [1899] a. which seemed to render a trial on a charge of fraudulent preference hopeless. nevertheless the learned judge, because he believed that in almost all cases where the discharge was suspended under the present law, the insolvent had, as a matter of course, been granted protection for the period of suspension, granted protection for twelve months out of the period of two years which would elapse between the order refusing discharge and a fresh application for discharge by the insolvent.3......
Judgment:

Basil Scott, C.J.

1. This case comes before us on appeal from an order of Mr. Justice Davar sitting as Judge in Insolvency, dated the 16th of April, 1915, whereby the insolvent after refusal of his discharge and notwithstanding opposition by a judgment-creditor was given an order protecting him from arrest till April, 1916.

2. The order refusing the insolvent's application for discharge was passed on a judgment of the 8th of April in which the reasons for refusing discharge were stated and it was shown that numerous facts falling within the categories (a), (b), (c), (d), (f) and (j) of Section 39(2) of the Presidency Towns Insolvency Act had been proved against the insolvent. It was found inter alia that on the day preceding his petition in insolvency the respondent to make good certain defalcations assigned a debt worth Rs. 29,000 and properties worth over two lacs to creditors whom he had defrauded by breaches of trust. The learned Judge stated that he would have tried the insolvent in respect of these assignments under the penal Section 103, if it had not been for the decision of the House O Lords in Sharp v. Jackson [1899] A. which seemed to render a trial on a charge of fraudulent preference hopeless. Nevertheless the learned Judge, because he believed that in almost all cases where the discharge was suspended under the present law, the insolvent had, as a matter of course, been granted protection for the period of suspension, granted protection for twelve months out of the period of two years which would elapse between the order refusing discharge and a fresh application for discharge by the insolvent.

3. It is clear that the Court has a discretion in the matter. If an application for protection was necessary in April under Section 25 the Court could have refused it for good cause. If ever there can be such good cause, it seems to me to exist in the present case. There is nothing to be said for the insolvent in face of the findings of the learned Judge. We are moreover informed by the Official Assignee that the learned Judge is mistaken in thinking the insolvent's assistance is required for the purpose of realizing assets. All known assets of value had been recorded before the application for discharge. It would, in my opinion, be dangerous as well as unnecessary to adopt any such rule of practice as the learned Judge believed to exist. Each application for protection after refusal or suspension of discharge must be judged on its merits. The Court has no longer power to permit the imprisonment of an insolvent for two years at the suit of a judgment-creditor as it had under Section 51 of the Indian Insolvent Act: the period of six months is the maximum term of civil imprisonment under the Civil Procedure Code. But if the insolvent has acted as here recklessly and dishonestly the fact that he cannot pay is no reason for depriving the creditor of the power of punishing him by attachment and imprisonment to the extent the law allows : compare Morris v. Ingram (1879) 13 Ch. D. 338 and In re Gent; Gent-Davis v. Harris (1888) 40 Ch. D. 190, cases under the English Debtors' Act of 1869. In my opinion the order of protection now under appeal should be set aside.

Batchelor J.

4. This is an appeal in insolvency proceedings from an order made by the learned Commissioner granting the insolvent protection from arrest under Section 25 of the Presidency Towns Insolvency Act, 1909. The appellant before us is the Alliance Bank of Simla, a judgment-creditor in the sum of Rs. 50,000.

5. The respondent was adjudicated insolvent on 27th October 1913. On 10th February following he filed his schedule, showing liabilities amounting to Rs. 29,20,499. The realisable assets are stated to come to Rs. 2,90,000, but the amount recovered up to the time of the Official Assignee's report is only Rs. 1,37,000, and between that date and this the further sum realised is, we are told, the mere driblet of Rs. 4,000.

6. On 8th April 1915 the learned Commissioner refused the insolvent's discharge for reasons which he explained in an exhaustive judgment, in which he animadverted in severe terms on the insolvent's recklessness, extravagance and numerous malpractices. On the 16th April 1915 the same learned Commissioner made the order now under appeal granting the insolvent protection from arrest. The question is whether that order should be affirmed.

7. The order is, under the Act, a discretionary order; in this case it was made by my learned brother, Davar J., whose experience in the administration of the law of insolvency is far greater than mine. It is, therefore, with sincere diffidence that I find myself compelled to take another view; and since we are differing from Davar J., I desire to state my reasons in my own words. The conclusion which I reach is based entirely on Davar J.'s judgment as to the character of this insolvency and on the consequences which seem to me to follow from that character. On this point I rely on the following passages in which the learned Commissioner has given his reasons for refusing the respondent's discharge.

The Official Assignee in his report says that the insolvent mixed up the monies received by him as receiver with his own moneys. The insolvent on 26th October 1913, a day before he filed his petition in insolvency, assigned over and transferred a good debt due by Maneklal Panachand to himself to the heirs of Esa Khalifa of whose estate he was receiver. And by this act a sum of Rs. 29,000 was disposed of a day before his insolvency. It further appears that, during the time the insolvent was carrying on business, he was entrusted by various Arab merchants With their pearls for the purpose of sale. The insolvent pledged those pearls, and used the moneys realised by such hypothecation for his own purposes. Again on 26th October, a day before his insolvency, he executed four writings, whereby he assigned over and transferred all his interest in certain properties at Basra to secure payment of about Rs. 2,10,000 to the Arab merchants whoso pearls he had wrongfully and unjustifiably pledged. Denuded of all extraneous circumstances, the facts which cannot be denied are that the insolvent, during the time he was carrying on business as a merchant, committed offences of criminal breach of trust in respect of property entrusted to him as receiver, and in respect of property entrusted to him for sale as a broker or commission agent. In order to save himself from criminal prosecutions which, he apprehended, would be started against him on its being known that he was insolvent or unable to meet his liabilities, he parted with properties worth approximately Rs. 2,40,000 on the day preceding his insolvency... I have to take into consideration certain facts admitted by the insolvent himself. In addition to doing the pearl business be kept a racing stud. The Official Assignee in his report says that this racing expenses came to seven lacs of rupees spread over a period of six years. The statement as to seven lacs is correct, but the statement as to the period is not correct. To be exact, it appears that he spent a sum of Rs. 6,98,340 from November 1910 to October 1913 on his racing stud... He was living in a style and expending moneys (in a way) which I venture to think very few citizens of Bombay have done, oven though they may be admitted millionaires... His books give no indication as to what his profits were, or whether there were profits at all, and in what year there were profits or losses. He has kept books, but he might well have omitted keeping books at all, because the books that he has kept are of no value whatever. The books are not balanced, balances are not drawn, nor are they carried forward, and quite light-heartedly the insolvent admits that entries in respect of all payments and receipts do not appear in his books. If they do not, the value of those books is absolutely nil... It seems to me that a man who is capable of regarding money in the light in which the insolvent has regarded it, and of dealing with his own and other people's moneys in the reckless manner in which he has done, that such a man as a merchant is a danger to the public. His assets are not equal to four annas in the rupee. The Official Assignee reports that in his opinion the insolvent cannot be held liable for his assets not being equal to four annas in the rupee on his unsecured liabilities. I differ from that conclusion altogether. It seems to me there can be no question whatever that the insolvent is solely and Wholly responsible for his present state of affairs... There can be no question that the insolvent continued to trade when he must have well known that he was in insolvent circumstances. A man does not incur debts to the extent of twenty nine lacs of rupees without realising that he is insolvent, and a debt of this description is not incurred in a day or a month. His indebtedness and insolvency must have been growing and growing continuously as every month of his reckless life progressed, and be must have been conscious, long before he filed his petition, that he was living a riotous and extravagant life at the expense of his creditors. He continued his business right up to the end with the fullest knowledge that he was dissipating his creditors' moneys.

8. The learned Commissioner concluded by finding against the insolvent that there was complete proof of the facts mentioned in Clauses (a), (b), (c), (d), (f) and (j) of Sub.-section 2 of Section 39 of the Act, and by expressing his regret that he could inflict on him no higher punishment than the refusal of his discharge. From this judgment there was no appeal, and this, therefore, is the state of facts in which we have now to decide whether this insolvent is entitled to a protection order.

9. It is, I think, certain from the judgment of Davar J., that the only reason why he felt himself unable to enforce the penal provisions of the Act was that, in view of Sharp v. Jackson [1899] A.C. 419, he reluctantly concluded that criminal proceedings could not succeed as it would be open to the insolvent to plead that his immediate and direct motive in benefiting some creditors at the expense of others was to save himself from the criminal prosecution, to which his own acts had exposed him. I agree with Davar J., that, under the law as it stands, such a plea would suffice to save the insolvent, and, since that is the law, we must give effect to it; whether it is a satisfactory condition of the law must be left to the authorities whose province it is to consider such matters. What concerns us now is to decide whether the character of the insolvency has, or has not, any bearing upon the question whether the insolvent is entitled to protection : if it has, then, I think, it follows without further argument that this insolvent is disentitled. The contention for the insolvent goes, and must necessarily go, to this extent, that when once the Court finds itself for whatever reason, technical or substantial, unable to enforce the penal provisions, it must shut its eyes altogether to the character of the insolvency, and must consider exclusively the financial interests of the general body of the creditors. I can find nothing in the Act to countenance this view, though of course the interests of the creditors must receive some consideration. As I understand Section 25, a protection order, though prima facie the insolvent is entitled to it, is still a privilege, to be granted or withheld as the Court in its discretion may determine, and the proposition on which I found my judgment is merely this, that, in exercising that discretion, it is relevant and proper for the Court to have regard to the character and circumstances of the insolvency. Here the insolvency was, as I have shown, of a flagrantly culpable kind, being the result of gross extravagance accompanied by grave malpractices and a total disregard of the creditors whose money was squandered. That protection should ordinarily be granted, does not signify here, for this is an extraordinarily bad case; and if it is not refused here, it must follow that it could never be refused, a consequence which, in my opinion, would conflict with the provisions of the section. I must add that the recent commercial history of Bombay is not such as to encourage the Courts to interpret the Act in a manner calculated to favour reckless speculation with other people's money; and that, I think, would be the effect of allowing insolvents to suppose that, to whatever lengths they may go in misconduct or dishonesty, they may count on immunity from the one fear that might act as a deterrent, the fear of the stigma of imprisonment. It is, in my opinion, no answer to say that the creditors would be batter off if the insolvent were at large, for I can see no very appreciable difference to the creditors whether he is at large or in jail; nor does it appear that there is any concealed property which the insolvent could produce. Moreover I think that even if his freedom could be shown to be of some advantage in the collection of assets, that advantage might well be sacrificed for the more obvious need of showing the Court's disapproval of the insolvent's conduct. Lastly, I do not feel embarrassed by the contention that the refusal of protection would merely confer a special advantage on the appellant Bank to the possible disadvantage of the general creditors. It seems to me that a creditor who has put himself in a position to invoke and to deserve the exercise of certain powers conferred on the Court is entitled to the Court's order in his favour. In fine, all these possible disadvantages, more or less remote, must be taken to have been within the contemplation of the Legislature, which yet has seen fit to empower the Court to refuse protection in suitable cases; and I can scarcely imagine a more suitable case than this. As to In the matter of Meghraj Gangabux I.L.R. (1910) 35 Bom. 47, 12 Bom. L.R. 517, that being the decision of a single Judge, is not binding on this Bench, and there the only point decided was as to the grant of protection pending the inquiry into the insolvent's conduct prior to the Court's decision on his application for discharge. It is true that certain general observations are to be found in the judgment, but they must, I think, be read as limited by the facts then before the Court, and the case cannot, in my opinion, be properly cited as an authority for any hard and fast rule.

10. For these reasons I agree that the protection order granted in this case should be set aside.


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