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Namdeo Vishwanath Vs. Umbaosingh Sadhuram - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai High Court
Decided On
Case Number Civil Revision Application No. 21 of 1965
Judge
Reported in(1968)70BOMLR646; 1968MhLJ611
AppellantNamdeo Vishwanath
RespondentUmbaosingh Sadhuram
DispositionPetition allowed
Excerpt:
.....the debtor's petition on the ground that it was not shown that the debtor was unable to pay his debts. a creditor who was shown in the list of creditors attached to the petition of the debtor but who had not participated in the public examination of the debtor under section 24 of the act, appealed against the order rejecting the petition. on the question whether the creditor was a 'person aggrieved' within the meaning of that expression in section 75(1) of the act :-;that by the dismissal of the petition the judgment-creditor would get the property in satisfaction of his debts and the other creditors would have no property to proceed against, and;that as the creditor would be deprived of his right and remedy to participate in the sale proceeds of the property, the creditor was a..........of section 75 are now looked into, they merely point out that a person aggrieved whether he is the debtor, creditor, receiver or any other person may appeal to the district court, if aggrieved by the order made in the exercise of the insolvency jurisdiction. the order passed by the trial court rejecting the petition is undoubtedly an order in the exercise of the insolvency jurisdiction. it is also an order passed by a court subordinate to a district court. t(sic) question is whether the present revision petitioner, a creditor in the list, is an aggrieved person within the meaning of that expression used in section 75 of the provincial insolvency act.12. the judgment in ex parte sidebotham: in re sidebotham (1880) 14 ch. d. 458, is the leading case on the subject. in fact, the observation.....
Judgment:

Deshmukh, J.

1. This is a creditor's appeal arising out of a petition filed by a debtor for adjudicating himself insolvent under Section 10 of the Provincial Insolvency Act, 1920. At the outset, it must be made clear that this matter is required to be treated as a revision application under law and it is directed that it should be treated as a revision application and an appropriate number be given to it. I would point out that the petitioner had approached this Court by way of a revision application and it is also numbered as such. However, on the view taken by the office, the revision application was renumbered as a second appeal. The present proceeding would be covered by the provisions of Sub-section (1) of Section 75 of the Provincial Insolvency Act, 1920, if at all it should be covered by any provisions of the Provincial Insolvency Act. If the present petitioner-creditor could be held a person aggrieved, then his remedy against the trial Court's order would be in the form of appeal to the District Court and thereafter by way of a revision to this Court under the first proviso to Sub-section (1) of Section 75. Under these circumstances, this matter is directed to be renumbered as a revision application.

2. The facts giving rise to this revision application are these:

The debtor one upraising applied on October 13, 1960, for being adjudicated insolvent. On October 26, 1960 the petition was admitted. On April 26, 1961, the petition came to be dismissed for non-payment of the process fees by the debtor. It was again restored to file on June 14, 1961. While the petition was pending in this manner respondent No. 3 one Shivshankarsing proceeded by way of an execution against the property of the debtor under a decree obtained in Civil Suit No. 87-A of 1959. It was a decree for Rs. 10,000. He attached the house property of the debtor. As the insolvent had put in an application for adjudication, he also informed the executing Court of this fact on December 27, 1960. Inspite of this information being communicated to Shivshankarsing as well as the executing Court, the auction sale was knocked down in favour of the creditor, Shivshankarsing, on December 29, 1960. He paid one-fourth sale price forthwith. On January 6, 1961, Shivshankarsing, as purchaser applied for adjusting the balance of the three-fourth sale price towards his decretal debts. This prayer was granted on January 13, 1961. He also obtained a sale certificate and applied for possession on August 14, 1962.

3. In the insolvency petition, the public examination of the debtor took place on August 22, 1963 under the provisions of Section 24 of the Provincial Insolvency Act. Only one creditor participated in the enquiry, namely Shivshankarsing. He challenged the petition on the ground that the debtor was in a position to pay the debts. The trial Judge by his order dated September 3, 1963 held that the debtor's debt exceeded Rs. 500; that the property of the debtor was under attachment on the date of the petition, but it was not shown to his satisfaction that the debtor was unable to pay his debts. In the circumstances, the petition came to be dismissed.

4. Present revision petitioner was shown as a creditor in the list of creditors attached to the petition of the debtor. He had not participated in the public enquiry though he received a notice. He filed an appeal against the order rejecting the petition of the debtor. It was admitted as an appeal and was heard as such. However, the learned Assistant Judge while making judgment in that appeal held that the appeal itself was incompetent. The creditor who was merely as a creditor in the list but had not participated in the enquiry could not be treated as a person who was aggrieved by the order. He was at best a person who was disappointed with the dismissal of the debtor's petition. Even though he held that no appeal lay, in order to obviate a remand, he also heard the matter on merits, and on facts, and came to a conclusion that the trial Court was justified in its order. The debtor had not made out a prima facie case of his inability to pay the debts. The appeal was, therefore, dismissed. Being aggrieved, this revision application has been filed.

5. The first technical objection raised in this revision application is that no appeal lay in the District Court and, therefore, no revision application, is competent under the first proviso to Sub-section (1) of Section 75 of the Provincial Insolvency Act. The proviso concerned lays down that the High Court, for the purpose of satisfying itself that an order made in any appeal decided by the District Court was according to law, may call for the case and pass such order with respect thereto as it thinks fit, If that order is not according to law then the High Court is given the right to revise that order and to pass such order with respect thereto as it thinks fit. Unless ,therefore, it should be held that the appeal of the present revision petitioner was a proper appeal in the District Court, the question of entertaining this revision application does not arise at all.

6. This raises one of the important questions relating to the rights of appeal. Section 75 of the Provincial Insolvency Act provides for appeals being filed. Sub-section (1) of that section will alone be relevant for the purpose of the present enquiry. Under that section, the debtor, any creditor, the receiver or any other person aggrieved by a decision come to or an order made in the exercise of insolvency jurisdiction by a Court subordinate to a District Court may appeal to the District Court, and the order of the District Court upon such appeal shall be final. Undoubtedly, the present revision petitioner is a creditor. It is not necessary that his debt should have been formally proved. At this stage, the fact that he is a creditor as per the list, and the fact that he asserts to be a creditor is enough to style himself as a creditor. However, every creditor is not given a right of appeal. A Division Bench of this Court analysed the provisions of Section 75, in Lalchand Hirachand v. Tuljaram Raoji : (1941)43BOMLR964 . It is pointed out that the words 'aggrieved by a decision come to in the exercise of insolvency jurisdiction', as used in Section 75(1) of the Provincial Insolvency Act, 1920, qualify not only 'any other person', but also 'the debtor, any creditor, and the receiver' appearing in the sub-section. Simply because the person concerned answers any of these descriptions, he is not given a right of appeal. It must be further shown that such a person is aggrieved by a decision or an order made in the exercise of insolvency jurisdiction. The point, therefore, that must be decided is whether the present revision petitioner could be styled as a person aggrieved or a creditor aggrieved by the trial Court's order, and as such entitled to appeal.

7. On this question of the right of appeal the provisions of the Act which are relevant for our purpose would be those contained in Sections 9, 10, 24, 25 and 75. Section 6 defines what are acts of insolvency. Section 9 speaks of the right of the creditor to file an application for adjudicating the debtor insolvent, What must be alleged and proved by a creditor in such an application is to be found in Section 9. The debtor is also entitled to file an application for adjudication and he must prove the conditions mentioned in Section 10. Sub-section (1) requires that the debtor must show that he was unable to pay his debts and that his debts exceeded Rs. 500 or he was under arrest or imprisonment in execution of the decree of a Court for the payment of money or an order of attachment in execution of such a decree was made and was subsisting, against his property. So far as the provisions of Clauses (a) to (c) are concerned in the present case, there is no dispute that the debts of the debtor exceeded Rs. 500 and further his immoveable property was under attachment of a civil Court in the execution of a money decree. The attachment was subsisting when the petition was presented. What is disputed is that he was not unable to pay his debts.

8. I may now turn to the procedure at hearing of an application by the debtor. Section 24(7) requires the debtor to offer proof of the matters mentioned in Clauses (a) to (c). Clause (a) requires that the petitioner will prove that he was entitled to present the petition. Unless, the conditions mentioned in Section 10 are satisfied a debtor is not entitled to present the petition. The proviso to Clause (a) of Sub-section (1) of Section 24 is important and requires that where the debtor is the petitioner, he shall, for the purpose of proving his inability to pay his debts, be required to furnish only such proof as to satisfy the Court that there are prima facie grounds for believing the same and the Court, if and when so satisfied, shall not be bound to hear any further evidence thereon. This enquiry is known as a public enquiry. The creditors shown in the list are given notices about the petition and they have a right to appear and participate in the proceeding. However, they are not obliged to appear, simply because a notice is received by them. If, however, they appear and participate in the proceedings, they have a right to question the debtor upon the contents of the petition. Sub-section (3) of Section 24 enables the Court to grant time to the debtor or to any creditor for the purpose of producing further evidence in proof of the petition's disposal.

9. Having made such a public enquiry, the Court shall dismiss the petition of a debtor if it is not satisfied of his right to present the petition. If, however, the Court is satisfied about the right to present the petition an adjudication order has to immediately follow and further consequences take place.

10. This being the scheme of the presentation of the petition and the enquiry thereon, when the petitioner is a debtor under the Provincial Insolvency Act, it would be necessary to find out the position of the creditor and his rights if any. A creditor who is shown in the list, and, who receives a notice, is a person who is entitled to appear and participate. I have already pointed out that it is only an enabling provision and there is no compulsion upon the creditor to appear. There is also no compulsion upon the creditor to offer evidence or to put questions. If certain creditor thinks that the petition has been properly presented and the debtor has a right to present that petition under Section 10 and the material produced by the debtor in the public enquiry is enough prima fade evidence of the grounds entitling him to present the petition, it appears to me, that the creditor may remain content and base his right upon that evidence only.

11. If the provisions of Section 75 are now looked into, they merely point out that a person aggrieved whether he is the debtor, creditor, receiver or any other person may appeal to the District Court, if aggrieved by the order made in the exercise of the insolvency jurisdiction. The order passed by the trial Court rejecting the petition is undoubtedly an order in the exercise of the insolvency jurisdiction. It is also an order passed by a Court subordinate to a District Court. T(sic) question is whether the present revision petitioner, a creditor in the list, is an aggrieved person within the meaning of that expression used in Section 75 of the Provincial Insolvency Act.

12. The judgment in Ex parte Sidebotham: In re Sidebotham (1880) 14 Ch. D. 458, is the leading case on the subject. In fact, the observation of James, L.J., on page 465 is the classic passage which has been the basis of the provisions of Section 75 of the Provincial Insolvency Act, 1920. The learned Judge observed that the words, 'person aggrieved' do not really mean a man who is disappointed of a benefit which he might have received if some other order had been made. A 'person aggrieved' must be a man who has suffered a legal grievance, a man against whom a decision has been pronounced which has wrongfully deprived him of something, or wrongfully refused him something, or wrongfully affected his title to something. This, therefore, is the basis for holding a certain person as a person aggrieved or otherwise.

13. A flood of case law was let loose on me by learned counsel on both sides which obviously speaks for their industry, but not one of them deals squarely with the proposition with which I am faced. On facts, most of the judgments cited are of situations arising after the order of adjudication. Some of them deal with the annulment of adjudication orders or discharge; some of them deal with an utter stranger who claims right in the property which is being claimed as the property of the insolvent by the receiver and is dealt with as such. When the third person seeks that his right to appeal is affected by the Insolvency Court, he was undoubtedly accepted as a person aggrieved who has the right to appeal. Since a proposition which cannot be disputed is the subject-matter of the various cases, it is not necessary for me to refer to them as they do not directly consider the proposition under discussion. On the facts and circumstances of this case alone, I will have to infer whether the present revision petitioner, a creditor, could be described as a 'person aggrieved'.

14. It may be remembered that the debtor's petition has been dismissed on the ground that he has not proved to the satisfaction of the Court that he was not in a position to pay off his debts. I will presently deal with the proposition as to when the application of a debtor for adjudication should be rejected. I will then point out that, in the facts and circumstances of this case, both the Courts below have taken a view of facts regarding the requirement of the discharge of burden of proof by the debtor which could not be a correct view to take in such cases. To expect proof much more than is required by the provisions of the law and, therefore, to reject the application, itself would be an approach which is unlawful. On that footing, I will first consider whether the creditor had a right of appeal. If the petition should not have been dismissed and is dismissed, does the creditor become a person aggrieved ?

15. The classic passage of James L. J. has already been quoted above by me. That is repeatedly quoted as the basis for finding out a person aggrieved. As I have already pointed out, no case has been brought to my notice which directly considered the position of a creditor in a petition filed by a debtor. There can be two types of creditors; those who oppose the application and those who accept the application as being a properly filed application. The moment, the debtor is adjudicated insolvent, whatever property he has, becomes available for being distributed pro rata among all his creditors. In the present case, the only visible and traceable property of the debtor is one house which is attached and sold in execution by the creditor Shivshankarsing. The sale was effected pending the hearing of this petition. If the present petition stands dismissed then Shivshankarsing gets the property in satisfaction of his debts. The other creditors have no property to proceed against and they are sufferers to a very large extent. If on the contrary the petition was allowed, the sale proceeds of the house as directed earlier by the Insolvency Court would be available for being distributed pro rat a among all the creditors. The requirement for a person being styled 'a person aggrieved' is that the creditor has suffered a legal grievance; that there is some decision against him which wrongfully deprived him of something or wrongfully refuses him something. If the decision of dismissal of the petition is improper and unlawful, it is a decision which is against the creditor and which deprives the creditor of his right and remedy to participate in the sale proceeds of the house. This effect has been meted out to him wrongfully because the order itself is unlawful. Approaching the proposition on first principles, I think that it must be held that a creditor of this type is a person aggrieved. It may also be remembered that the debtor in this case had undoubtedly committed acts of insolvency. His property was under attachment in a money decree and his debts exceeded Rs. 500. He also applied for being adjudicated insolvent which itself is an act of insolvency. These circumstances immediately create a right in the creditor to apply for adjudicating the debtor insolvent under Section 9 of the Provincial Insolvency Act. In the circumstances, the grievance that the petition is dismissed, is a legal grievance and the order of dismissal amounts to a decision against such a creditor. I would, therefore, hold that the creditor who is a revision petitioner before me had a right of appeal in the District Court. In that case, he has a right of moving this Court by way of a revision application under the first proviso to Sub-section (1) of Section 75 of the Provincial Insolvency Act.

16. The next question is the scope of interference by the High Court in a revision application under Section 75. A judgment of this Court in Laxminarayan v. Narayanrao (1961) Civil Revision Application No. 79 S.C. 19 of 1900, decided by Abhyankar J., on March (Unrep.). (No(sic)) was brought to my notice. It has been pointed out that the scope of the revisional powers of the High Court under Section 75 of the Provincial Insolvency Act, is much wider than its power under Section 115, Civil Procedure Code or Section 25 of the Provincial Small Cause Courts Act, This is obvious from the wording of the first proviso to Section 75(1) of the Provincial Insolvency Act. The High Court is to find out in the first instance whether the order made in the appeal decided by the District Court was according to law. The moment, the High Court comes to the conclusion that it was not according to law, it can pass such order with respect thereto as it thinks fit. If the order is found to be unlawful then the High Court shall proceed to pass any appropriate order in the insolvency proceeding which is necessary for doing justice between the parties. In that manner, powers of the High Court are undoubtedly much wider. What is, therefore, necessary is that the order of the appellate Court ought to be found unlawful by this Court.

17. This would take me to the requirements of the proof that the debtor must offer to satisfy the Court for being adjudicated an insolvent. The leading ease on the subject is the Privy Council decision in Chhatrapat Singh Dugar v. Kharaq Singh Lachmiram I.L.R. (1916) Cal. 535, P.C., Bom. L R. 174, P.C.. This was a decision under Act III of 1907, but the principles laid down and the approach suggested is still good law even under the provisions of Sections 24 and 25 of the present Provincial Insolvency Act. What is laid down is that as soon as conditions laid down by the Act are satisfied, the debtor is entitled to an order of adjudication. It does not depend upon the discretion of the Court, but it is a statutory right of which he could not be deprived by the Court on the ground that the petition amounts to an abuse of the process of the Court, Their Lordships pointed out that, to this effect, there is a current of authority in India and that the stage at which to visit with its due consequences any misconduct of a debtor is when his application for discharge comes before the Court and not on the initial proceedings.

18. Undoubtedly, there has been some change in the law and the present Provincial Insolvency Act requires that the debtor shall satisfy the Court that he is unable to pay his debts. So far as the proof as required for discharging this burden which obviously lies on the debtor, the provisions of Section 24 may be noted: On the date fixed for the hearing of the petition, the Court shall require proof of the facts mentioned in Sub-section (1) of Section 24. The first thing that must be proved by the debtor is that he was entitled to present the petition. The entitlement of the debtor is described in Section 10 of the Act. There is a proviso, however, to this Clause (a) which says that for the purpose of proving his inability to pay his debts, he is required to furnish only such proof as to satisfy the Court that there are prima facie grounds for believing the same. It is thereafter pointed out that as soon as this level of proof is reached, the Court may refuse to continue the further hearing and immediately pass an order of adjudication.

19. It may also be remembered that the debtor's property as it prima facie appears in the petition or as becomes apparent as a result of the public enquiry should be found enough to discharge the debts which are being alleged in the petition. So far as the value of the property is concerned, undoubtedly, the current value at the time of the petition must be taken into account. The property that must be taken into account is that property which is either admitted by the debtor and which is proved to exist as available as a result of the public enquiry. A mere suspicion that there appears to be some mischief behind the application cannot be considered enough to hold that there exists property which is available for satisfying the debts.

20. One of the grounds urged before me was that the account books have not been produced by the debtor though it is one of his duties under Section 22 of the Provincial Insolvency Act. It is true that he should have produced the account books but to refuse adjudication only on that ground could not be considered as a proper procedure to follow. At best it is an irregularity and the debtor could have been compelled to produce the account books. In a judgment of the Patna High Court in Satdeo Narain v. Union of India A.I.R. [1964] Pat. 52 it has been pointed out that the mere allegation that the debtor sold properties and purchased others benami in the name of other persons is not enough to refuse adjudication. A view has also been taken that the expression 'prima facie' used in the proviso to Section 24 would mean that the property of the debtor available for satisfying the debts must become apparent on the record. It may also be accepted as a correct proposition of law that simply because the debtor comes before the Court and makes the statement, the Court is not bound to believe him. However, before the word of the debtor is rejected, there must appear circumstances on the record from which the allegations made by the debtor deserve to be rejected.

21. If the facts and circumstances are viewed in the light of the principle, I find that both the Courts below have expected much more proof of the inability to pay debts, than required by Section 24. The position as it appears from the petition is that the debtor has only one house worth about Rs. 35,000. The list of creditors given by him shows that he is indebted to the extent of Rs. 65,000 and more. When the debtor was examined in Court, he admitted the value of his house to be Rs. 35,000. There is no other property which is visibly available with the debtor. The learned trial Court held that the debtor appears to have borrowed certain debts shortly before the closure of his grocery business. From the replies in the cross-examination it is also held that some of the debts are time-barred. So far as the question of limitation is concerned, there is an obvious error committed by the Court. The application has been filed in 1960, whereas the public enquiry has taken place in 1963. When the debtor says in 1963 that some of the debts, to which pointed reference was made, were borrowed about 4 or 5 years back, or even 6 years back, it means that all these debts were within limitation when the petition was filed. If the petition succeeds and the debtor is declared insolvent the debts concerned would be debts within limitation and the creditors may offer proof to prove those debts, It was, therefore, obviously erroneous to assume that the question of debts being within limitation is to be considered as on the date of the public enquiry. The relevant date is to be the date of application. If this is a bona fide application, the period during which it is being prosecuted would be excluded in counting the period of limitation. In the circumstances, the first error committed was to assume that certain debts were barred by limitation.

22. The second error committed is that the debtor has an amount of cash with him. The debts undoubtedly were borrowed from time to time and a large amount appears to have been borrowed within a period of two years. That would relate the debts to 1958-59. The petition was filed in the year 1960. The business of the debtor was running till 1959. It is, therefore, difficult to assume that all the debts raised by the debtor were merely pooled by him and then the entire amount is suppressed for the purpose of making this application. In a prima facie enquiry about the existence of the debts and the inability to pay thereof, this would amount to entering the realm of assumption and imagination which does not seem to be warranted in such an enquiry. If the application is in the nature of the abuse of the process of Court, the consequences of such misconduct could be visited upon the debtor at the appropriate stage. At the initial stage when there appear to be considerable debts which are prima fade much more than the market value of the visible assets of the debtor, the normal consequences of adjudication should have followed. The trial Court has expected proof much more rigorous than is expected for making a prima facie ground under the proviso to Clause (a) to Section 24 of the Provincial Insolvency Act. The learned Assistant Judge has agreed with that decision precisely on the same footing. Both the Courts below, therefore, have taken an unlawful view of the quantum of proof that must be offered. In that manner, the conclusion arrived at is unlawful and cannot be sustained.

23. Having reached that conclusion, an appropriate order will have to be passed as required by the proviso to Sub-section (1) of Section 75 of the Provincial Insolvency Act. If the debtor has debts which are more than Rs. 65,000 and the only property available is about Rs. 35,000, then obviously he must be adjudicated an insolvent. Even assuming that out of the debts raised by him in 1957-58, a few thousands remained with him till 1960, the total assets would not exceed Rs. 40,000 to Rs. 42,000, whereas the debts are above Rs. 65,000. Even making some allowance for the effect of the cross-examination conducted by the contesting creditor, I do not think that the facts in this case could be placed on a higher footing than I have pointed out. Applying, therefore, normal principles of appreciation of evidence and, bearing in mind that a prima fade case has to be made out, the only conclusion that seems to be possible in this case is that the debtor's application ought to be allowed and he should be adjudicated. Accordingly, I allow the revision petition and hold that the debtor has proved all the requirements of Section 10 of the Provincial Insolvency Act and as such I adjudge him insolvent. In this view, the papers shall be sent down to the trial Court for further disposal of the insolvency case according to law. The revision petitioner-creditor is entitled to his costs in this Court as well as in the appellate Court from the contesting creditor Shivshankarsing.


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