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Jivraj Gordhandas and anr. Vs. Gaganmal Ramchand - Court Judgment

LegalCrystal Citation
CourtMumbai High Court
Decided On
Case NumberO.C.J. Appeal No. 8 of 1953
Reported inAIR1953Bom430; (1953)55BOMLR562; ILR1953Bom1168
ActsPresidency Towns Insolvency Act, 1909 - Sections 8, 8(1), 12, 90 and 92; Bankruptcy Act, 1883 - Sections 104; Provincial Insolvency Act - Sections 16
AppellantJivraj Gordhandas and anr.
RespondentGaganmal Ramchand
Appellant AdvocateK.T. Desai, Adv.
Respondent AdvocateP.N. Bhagwati and ;P.R. Vakil, Advs.
.....for adjudicating the debtors insolvents presented on december 3, 1951, was dismissed by the insolvency judge on april 1, 1952. on october 11, 1932, another creditor of the debtor applied to the insolvency judge to set aside the order of dismissal and to substitute him in place of the petitioning' creditor. this application was granted. on the questions whether the court had jurisdiction to grant the application in view of the fact that the application for substitution was made after the petition was dismissed and whether under section 92 of the presidency-towns insolvency act, 1909, the other creditor of the debtors could be substituted in place of the petitioning creditor and avail himself of the act of insolvency on which the petitioning creditor originally relied:-;that the..........petition which had terminated by dismissal. but the court did not consider whether the insolvency judge had jurisdiction to set aside the order of dismissal. it is true that in the provincial insolvency act there is no section corresponding to section 8(1). presidency-towns insolvency act, but apart from section 8(1) the court has inherent jurisdiction to set aside its own order. for this purpose see the view taken by mr. justice rajadhyaksha in -- 'keshav appa v. sitararn'. air 1943 bom 20 (e). then there is the iudgment of ramesam j. in -- 'venkata hanumaatha rao v. gangayya', air 1928 mad 608 (f). the conditions that ramesam and jackson jj. who decided this case laid down for substitution were that the debt of the creditors substituted should not be barred by limitation at the date.....

Chagla, C.J.

1. A creditor's petition was presented for adjudicating the appellants insolvents on 3-12-1951. This petition was dismissed on 1-4-1952. On 11-10-1952, the respondents applied to the Insolvency Judge to set aside the order of dismissal and to substitute them in place o the petitioning creditors. The Insolvency Judge granted that application on 6-1-1953, and from that order this appeal is preferred.

2. The first contention of Mr. Desai is that the Court had no jurisdiction to grant' this application in view of the fact that the application for substitution was made after the petition was dismissed, and reliance is placed on Section 92, Frssidency-towns Insolvency Act. That section provides that 'Whore the petitioner docs not proceed with due diligence on his petition, the Court may substitute as petitioner any other creditor to whom the debtor is indebted in the amount required by this Act in place of a petitioning creditor.' Mr. Desai is right when he contends that Section 92 refers only to a subsisting petition, and that the order of substitution conanplated by that section can only be made in a petition which is pending before the Court. But in our opinion the order made by the learned Judge, in the first instance, falls under Section 8 and not under Section 92. Section 8(1) provides that the Court may review, rescind or vary any order made by it under its insolvency jurisdiction, and it has been laid down both here and in the English Courts that the jurisdiction conferred by this section is a very wide and far reaching jurisdiction. It is also in our opinion a very salutary jurisdiction. It must never be forgotten that when a petitioning creditor files a petition for adjudication of a person insolvent he is not in the same position as a plaintiff in a suit, A plaintiff in a suit is 'dominus lite' and he has every right to proceed with the suit or to withdraw it or to allow it to be dismissed for default, but a petitioning creditor is not a 'dominus lite' in that sense, Once he presents a petition, the order that he seeks is not only for his benefit but for the benefit of the general body of creditors, and the Insolvency Court at all times has juris-diction over that petition and can control it and regulate it. If the Court was satisfied that the order made by it on 1-4-1952, was not a proper order and that it should not have been made,'it had got jurisdiction under Section 8(1) to rescind that order and to restore the petition which was dismissed. Therefore, in substance, what Desai J. did was to exercise jurisdiction under Section 8(1). He rescinded the order made by the insolvency Judge on 1-4-1952, and the petition which was dismissed being revived he allowed the respondents under Section 92 to be substituted as petitioners in place of the petitioning creditors.

3. The other contention raised by Mr. Desai is that the petitioners even under Section 92 cannot be; subsututed as petitioners because they cannot avail the miseves of the act of insolvency on which the petitioning creditors originally relied. Mr. Desai says that uader Section 12, Presidency-towns Insolvency Act, a petition must be grounded on an act of insolvency which has occurred within three months before the presentation of the petition, and if the respondents had desired to file an independent petition of their own on 11-10-19a2, Ihey could have obviously not relied on the act of insolvency on. which the petitioning creditors relied, and therefore Mr. Desai says that the respondents should, not have been substituted in place of the petitioning creditors. For this purpose reliance has been placed on two English decisions. The first is a decision reported in -- In re Maugham Ex parte Maugham', 18381 21 QBD 21 (A). In that case-what was really decided was that the power given to the Court under Section 104, Bankruptcy Act, 1883, which corresponds to Section 8 11) of our Act, could only be exercised by the Court which made the original order. In that particular ease the order-dismissing the petition was mace by the Registrar of the County Court and a County Judge rescinded, that order under Section 104, Bankruptcy Act, and the Court held that that order was without jurisdiction. The other observations of Cave J. at p. 23. in view of this decision are really 'obiter'. The observations are that 'the effect of restoring t_':e petition was to extend the time for filing the petition beyond the statutory period of three months from the date of the act of bankruptcy and a petitioner cannot be permitted by substituting himself in place of the original petitioning, creditor to extend the time laid down in the statute'. Even in making this observation Cave J. was at pains to point out that even if upon such an application fraud is alleged, the Court wou'.d strain its jurisdiction to the utmost. These observations were relied upon in a subsequent decision in -- 'In re Maundi Ex parte Maundi, (1895) 1 QB 193 (B). In that case the petition was presented by a creditor alleging that the debtor was. indebted to him in a certain sum. Then it was discovered that it would be difficult to prove the minimum amount of the debt which was necessary ia order to entitle the creditor to maintain the-petition. An attempt was then made to bring other creditors on the record so that the amount of the debts should be increased. It was on these facts that the English Court of appeal held that the petition could not be allowed to be amended and other petitioning creditors to be brought on the record. What is to be borne in mind is that in this particular case the petition was not maintainable at its inception and what was sought to be done by the amendment was to convert a pstition which was not maintainable into a petition, which was maintainable. It is true that Vaughan Williams J. in his judgment relies on the observations of Cave J. in -- 'In re Maugham (A)', but on the facts the case is clearly distinguishable. Mr. Desai relies on the fact that leading commentators like Halsbury and Williams on Bankruptcy have cited with approval the Observations of Cave J. as representing the correct stato of the law In England. But in our opinion, with great respect, when one looks at the actual decisions it is difficult to take the view that they represent a decision on the point which we are considering. What is more, all the High Courts in India, which had to consider a similar question, iiave taken the view contrary to the view taken by the English Courts.

4. In -- 'L. C. T. R. M. s. Chettyar v. A. Section Chettyar Firm', AIR 1929 Rang 291 (C), Mr. Justice Heald, Officiating Chief Justice, and Mr. Justice Mya Bu, after considering the cases of -- 'In re Maugham (A)' & In re Maund, (B)', distinguished both the cases and refused to accept the position that a substitution could not take place if the party applying to be substituted could not avail himself of the act of insolvency, and they held that the effect of the substitution would be that the party substituted takes tile place of the first petitioner ab initio' and is entitled to prosecute the original petition as if it were his own petition so that no question of the necessity for a fresh act of insolvency could arise. Mr. Desai has relied on a subsequent judgment of that High Court in --'Mating aye v. A. L. K.P. Chet'yar Firm', AIR 1933 Rang 251 (D). That decision laid down that where a petition for the adjudication of a debtor filed by a creditor had been dismissed by the Court, another creditor could not apply under Section 16, Provincial Insolvency Act, which correspond to Section 92, Presidency-towns Insolvency Act, to be substituted in place of the original creditor. It further laid down that that section applied where the proceedings were pending and not where they had terminated by the dismissal of the petition. In that case the Court was only called upon to construe Section 16, Provincial Insolvency Act and as pointed out, there can be no doubt that on a construction of Section 16 or the corresponding Section 92 substitution could only take place in a pending petition and not a petition which had terminated by dismissal. But the Court did not consider whether the insolvency Judge had jurisdiction to set aside the order of dismissal. It is true that in the Provincial Insolvency Act there is no section corresponding to Section 8(1). Presidency-towns Insolvency Act, but apart from Section 8(1) the Court has inherent jurisdiction to set aside its own order. For this purpose see the view taken by Mr. Justice Rajadhyaksha in -- 'Keshav Appa v. Sitararn'. AIR 1943 Bom 20 (E). Then there is the iudgment of Ramesam J. in -- 'Venkata Hanumaatha Rao v. Gangayya', AIR 1928 Mad 608 (F). The conditions that Ramesam and Jackson JJ. who decided this case laid down for substitution were that the debt of the creditors substituted should not be barred by limitation at the date of the original petition even though the debt might be barred by limitation at the date of substitution, provided the creditor applying to be substituted was otherwise qualified to be a petitioning creditor under the Act. This bench of the Madras High Court refused to accept the observations of Cave J. in -- 'In re Maugham (A)', as laying down the correct law on this subject. The same view of the law has been taken, by the Allahabad High Court in -- 'Ganga Nath v. Zalim Singh : AIR1932All147 .

5. Therefore, in our opinion, Desai J. had the jurisdiction under Section 8(1) to set aside the order of dismissal passed on 1-4-1953 and having set aside that order, he was competent to substitute the present respondents in place of the petitioning creditors, even though the respondents could not have availed themselves of the act of insolvency on which the original petitioning creditors relied as the foundation of their petition.

6. Turning to the facts, it has been alleged by the respondents that some lime in March 1952 whilst the petition was still, pending, the debtors settled their claim with the petitioning creditors and paid & sum of Rs. 5.350/- being 8 annas in the rupee towards the petitioning creditors' claim and the balance of attorney's costs. This amount was aid on 2-4-195S, a day after the petition was dismissed. This allegation made by the respondents is completely borne out by the affidavit made by Purshottamdas Chotumal who is the accountant hi the company of the petitioning creditors, and he says on oath that pursuant to this settlement the petitioning creditors allowed the petition to be dismissed on 1-4-1952, for want of prosecution. Therefore, the reason why the advocate for the petitioning creditors was instructed to make a statement before Coyajee J. who dismissed the petition that he had no evidence to lead was not based upon the inability of the petitioning creditors to prosecute the petition, but was based upon, the fact that a settlement had already been arrived at between the petitioning creditors and the debtors and it was agreed that as soon as the petition was dismissed the petitioning creditors were to be paid off. In our opinion it is difficult to imagine a grosser case where an Insolvency Judge has been persuaded to dismiss a petition by keeping back from him the true facts which occasioned the application for the dismissal of the petition. There cannot be the slightest doubt that if the facts which are now put on affidavit were present to the mind of Coyajee J., he would never have dismissed the petition. He would at least have directed the petitioning creditors to give notice of the fact that the petition was going to be put on board for dismissal. That would have given an opportunity to the other creditors, if they were so minded, to come forward and apply to lead evidence to adjudicate the debtors insolvents. But Coyajee J, was persuaded to pass an order of dismissal because he was told that there was no evidence which the petitioning creditors could lead in order to substantiate the allegation that the debtors had committed on act of insolvency.

7. Mr. Desai says that there has been gross delay in this case on the part of the respondents to come before the Court with the application. The petition was dismissed on l-4-952, and the application was made on 11-10-1952. There is considerable force in Mr. Desai's contention that the respondents have nowhere alleged in these proceedings as to when actually they came to know that the petition was dismissed, and Mr. Desai says that his clients alleged that the respondents were also trying to put pressure upon the appellants to settle their claim. Now if this was a case where the respondents were to obtain any benefit solely for themselves by the order that they have obtained, we might have interfered and might have held that laches disentitled the respondents to the order which they have obtained. But the jurisdiction under Section 8(1) is so wide that the Court could exercise that jurisdiction 'suo motu' even without the application of any party. If the attention of the Court was drawn by the respondents that an order had been improperly obtained, it would be sufficient for the Court to exercise its jurisdiction under Section 8(1). and it must be borne in mind that the order that the learned Judge has made is not to enure only for the benefit of the respondents. The order is for the general body of creditors and whatever laches the respondents in any be guilty of the order made by the learned Judge win ultimately enure for the benefit of all the creditors of the appellants in any view of the caw the learned Judge below has thought fit to exercise his discretion under Section 8(1) to set aside the order passed by Coyajcp J. on. 1-4-1952. and there is nothing on the record which makes us take the view that the discretion was not properly or judicially exercised.

8. We should like to suggest to the Judges doing Insolvency work that they might adopt a rule of practice, whereby, if a petitioning creditor does not want to prosecute his petition or when he wants the petition to be dismissed for wantof evidence, before an order of dismissal is madethe petitioning creditors should be directed to advertise the fact that they want to apply for dis-missal of the petition and sufficient time shouldbe given to enable any other creditor to apply tothe Court for substitution. It is not desirable thatany petition preferred by a creditor should bedismissed either for default or for want of evi-dence without proper notice being given to othercreditors of the debtor. If the petitioning creditoris absent, then the Court can direct the OfficialAssignee or the Insolvency Registrar to give thenecessary notice so as to enable other creditorsof the debtor to know that the petition presentedby the petitioning creditor is not being prosecuted.

9. The result is that the appeal fails andmust be dismissed with costs. Liberty to the res-pondents' attorneys to withdraw the sum of Rs.500 deposited by the appellants and to apply thesame in part satisfaction of their costs.

10. Appeal dismissed.

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