1. This is a creditor's petition whereby an adjudication order is sought against the four debtors viz. (1) Bhimji Nanji & Co., a partnership firm, (2) Mauji Arjan Patel, (3) Bhimji Nanji Patel and (4) Manji Mauji Patel, the last three being partners of Bhimji Nanji & Co, The petitioning-creditor has alleged that on February 22, 1962, a sum of Rs. 5,000 was borrowed by the debtors with interest at 8 annas per cent, per mensem, that in respect of the said borrowing a Khata writing was passed by the said firm of Bhimji Nanji & Co. in her favour on the same date and that under the said writing the said amount together -with interest thereon at the agreed rate was payable after 3 months i.e. on May 21, 1962 or earlier, if demanded. The petitioning-creditor has further alleged that the aforesaid debt together with the interest aggregating to Rs. 5,433.33 had become due and payable by the debtors to her at the time of presenting the petition but was not paid inspite of repeated demands. The petitioning-creditor has further alleged that the debtors: have committed two-three acts of insolvency viz. (1) the debtors have with intent to defeat and delay their creditors transferred their property or substantial part thereof viz. the business carried on by them in partnership in the firm name and style of Bhimji Nanji & Co. together with the stock-in-trade, furniture, fixtures, fittings and outstandings thereof as a going concern together with the goodwill thereof and the tenancy rights of the said shop to Chhotalal Gulab-chand Damani and Nanji Mavji Patel and that the said transfer amounted to fraudulent preference, (2) that the debtors had departed from the usual place of business or from their dwelling house and have otherwise absented themselves and (3) that the debtors have secluded themselves so as to deprive their creditors of the means of communication with them and have thereby impliedly given notice to their creditors of suspension of payment of their debts. On these allegations the petitioning-creditor has prayed for an order of adjudication against the debtors.
2. Apart from challenging the allegations pertaining to the several acts of insolvency said to have been committed by them, the debtors have contended that the petition is liable to be dismissed as the debt no longer subsists. Mr. Dhanuka raised the plea that the debt on the basis of which the present petition has been filed by the petitioning-creditor has become barred by the law of limitation to-day i.e. at the date of the hearing of the petition, and, therefore, no adjudication order could be passed against the debtors.
3. It was not disputed before me by Mr. Shah, appearing on behalf of the petitioning-creditor that the debt on the basis of which the present petition has been filed by the petitioning-creditor has become barred by the law of limitation on the date of the hearing. He fairly conceded that there was no acknowledgment nor any part payment which could save the bar of limitation and that no suit had been filed by the petitioning-creditor within the period of limitation to recover the debt. He, however, urged that it was not necessary in law that the debt on the basis of which the debtors were sought to be adjudicated insolvent should be a subsisting debt at the date of the hearing. He pointed out that on August 10, 1963, when the petition Was presented the debt was subsisting and the debtors were truly and justly indebted to the creditor in the sum of Rs. 5,433.33 and that was enough and the Court should pass the adjudication order against the debtors on proof of several acts of insolvency in respect whereof he wanted to lead evidence. Mr. Dhanuka, appearing on behalf of the debtors, however, urged that there would be no occasion for this Court to record evidence on the several alleged acts of insolvency on the part of the debtors, inasmuch as, according to him, the debt should subsist not only at the time of the presentation of the petition but also at the date of hearing and in fact right upto the time of the passing of the order and the present petition was liable to be dismissed solely on the ground that the debt has become time barred and is no longer subsisting.
4. In view of these rival contentions an issue was raised before me in the following terms:
Whether the debt on the basis of which the petition for adjudication is presented and an adjudication order is sought should be a subsisting debt at the date of the hearing of the petition or is it enough that it subsisted at the date of the presentation of the petition?
5. Mr. Shah on behalf of the petitioning-creditor relied upon Section 12 of the Presidency-towns Insolvency Act, 1909, which prescribed the conditions on satisfying which a creditor was entitled to present an insolvency petition against a debtor. He pointed out that three conditions were laid down: (1) that there must be a debt owing by the debtor to the creditor amounting to Rs. 500 or upwards, (2) that the debt must be a liquidated sum payable either immediately or at some future time and (3) the act of insolvency on which the petition was grounded must have occurred within 3 months before the presentation of the petition. Mr. Shah pointed out that at the date when the petition was presented viz. on August 10, 1963, there was a debt much in excess of Ks. 500 owing by the debtors to the creditor and that the debt was obviously a liquidated sum which was payable at a certain date as per the Khata writing and that the debtors had committed the several acts of insolvency mentioned in the petition and he urged that since all these conditions had been satisfied the petitioning-creditor was entitled to present this petition and the Court had the power to pass adjudication order upon satisfactory proof being adduced by the petitioning-creditor that the acts of insolvency alleged in the petition had been committed by the debtors. He relied upon a decision of the Madras High Court reported in Venkatarama Aiyar v. Buran Sheriff I.L.R. (1926) 50 Mad. 390 in support of his contention that it was sufficient if the petitioning-creditor 'a debt existed at the time of presentation of the petition and that it was not necessary that it should continue to exist at the time of the order of adjudication. He further relied upon a passage which occurs at page 159 of Mulla's Insolvency which runs as follows:.In a Bombay case it was held that a creditor can prove a debt which is barred by limitation at the date of the order of adjudication of an insolvent, but is not so barred at the date of the act of insolvency on which the adjudication is founded. That view was based on the fact that the insolvency commences on the commission of the act of insolvency and from that date the property would vest in the Official Assignee.
6. On the other hand, Mr. Dhanuka for the debtors has relied upon the provisions of Section 13 of the Presidency-towns Insolvency Act, 1909, which lay down what factors are required to be proved by a petitioning-creditor at the hearing of his petition before the Court. Section 13(2) runs as follows:
At the hearing the Court shall require proof of-
(a) the debt of the petitioning creditor, and
(b) the act of insolvency or, if more than one act of insolvency is alleged in the petition, some one of the alleged acts of insolvency.
He urged that the aforesaid provision clearly indicates that at the hearing of his petition the creditor is bound to prove 'his debt' before the Court, that is to say, a debt due and payable to him, which must mean the debt 'which is subsisting and payable at the date of such hearing and the creditor must further prove the act of insolvency alleged by him in the petition. According to Mr. Dhanuka the phrase 'the Court shall require proof of the debt of the petitioning creditor' must mean that the Court should require the proof of a subsisting or an existing debt, that is to say, a debt which has not become time barred at such hearing. He contended that it is a serious matter for the 'Court to pass an adjudication order against any person and before such order involving serious consequences is passed by the Court it is but proper that the Court should require all the proof of the debtor's indebtedness right upto the time the adjudication order is made. He, therefore, urged that not only should the debt, on the basis of which the creditor seeks an adjudication order, be subsisting at the date of the hearing, but it should also subsist till the adjudication order is passed by the Court. In support of his contention he relied upon a judgment of the Calcutta High Court in the case of Ahmad Mahomed v. Praphulla Nath : (1988)1CALLT204(HC) where relying upon the two previous English judgments in Ex Parte Hammond; In re Hammond and Nevard (1873) 16 L.R.. 614 and in In re Stables, Ex Parte Smith & Sons (1894) 1 Man 68, the Calcutta High Court has taken the view that the debt must exist not only at the time when the petition is presented but at the time of the hearing of the petition and at the time of making of the order of adjudication. The relevant observations appear at page 36 of the report and run as follows:.The law is that there must be a debt of Rs. 500 or upwards existing not only at the time when the petition was presented, but at the time of the hearing of the petition and at the moment of time immediately prior to the making of an order of adjudication. That is the law, and it is quite clear from two authorities, one of which Mr. Isaacs referred to in course of his argument and the other Panckridge, J. referred to in his judgment. The first is the case in Ex parte Hammond In re Hammond and Nevard and the other is the case in In re Stables, Ex Parte Smith & Sons.
I find considerable substance in the contention urged by Mr. Dhanuka before me.
7. It may be pointed out that the passage in Mulla's Insolvency on which reliance was placed by Mr. Shah is based upon a decision of this Court reported in Byramji Talati v. Official Assignee, Bombay (1935) 38 Bom. L.R. 71 and that case did not deal with the point that has arisen before me. The question that had arisen in that case was whether in insolvency proceedings (i.e. after an order of adjudication had already been passed) a creditor could prove his debt if debt had become barred at the date of the order of adjudication, but had not become so barred at the date of the act of insolvency on which adjudication was founded, and this Court took the view that the creditor could prove his claim for such debt in insolvency. It is true that Chief Justice Sir John Beaumont has observed as follows (p. 75) :.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.
In my view, the principle that the Limitation Act ceases to apply upon the commencement of the insolvency will come into play only after an adjudication order is properly made, for the legal fiction that the adjudication relates back to the act of insolvency arises only upon the passing of the adjudication order and the said principle cannot be invoked in a case, where the question is as to whether an adjudication order itself should be made or not when the debt on the basis of which the petition is presented has become time-barred on the date of the hearing of the petition. The ruling in Byramji Talati v. Official Assignee, Bombay is applicable only to a case where after the passing of an adjudication order proceedings for administration and distribution of the insolvent's property are pending, and in such proceedings the question arises whether a creditor can prove his debt which had become barred at the date of the adjudication order but had not become barred when the act of insolvency had been committed and the decision says, he would be entitled to prove such debt in those proceedings. That decision is no authority for the proposition that the debt need not be a subsisting debt at the time of the hearing of the creditor's petition for an adjudication order.
8. The Madras High Court decision relied upon by Mr. Shah undoubtedly supports his contention; however, it may be pointed out that that was a case under the Provincial Insolvency Act and relying upon the provisions of Section 9 of the Provincial Insolvency Act the Madras High Court took the view that once a creditor had fulfilled three conditions set out in Section 9 at the time when he filed the insolvency petition, there was no question of further fact being proved by the creditor that his debt was subsisting at the hearing of the petition. It would be pertinent to note the difference between the phraseology used in Section 24(I) of the Provincial Insolvency Act and the phraseology used in Section 13(2) of the Presidency-towns Insolvency Act. Both the provisions state what facts are required to be proved before the Court at the hearing of the petition, but whereas under Section 13(2) of the Presidency-towns Insolvency Act the Court requires proof of 'the debt of the petitioning creditor' tinder Section 24(7) of the Provincial Insolvency Act the Court requires proof of the matter 'that the creditor is entitled to present the petition.' In view of these provisions namely, Sections 9 and 24(7), the Madras High Court has taken the view that the debt must be subsisting at the date of the presentation of the petition. Section 13(2) of the Presidency-towns Insolvency Act with which I am concerned requires proof of the debt at the hearing of the petition which must mean proof of a subsisting debt-subsisting at the date of hearing as also upto the time of the passing of the adjudication order. I must, however, point out that in the Madras decision it has been observed that even if the creditor satisfied all three requirements of Section 9 it is within the discretion of the Court acting under Section 25 of the Provincial Insolvency Act, whether to pass the adjudication order or not; in other words, if for any sufficient reason the Court feels that the debtor should not be adjudicated insolvent the Court has the power to refuse the relief sought by the creditor. Similar discretion is vested in the Court under Section 13 (4)(b) of the Presidency-towns Insolvency Act, so that even otherwise, having regard to the fact that the petitioning creditor's debt has become time-barred to-day 1 would refuse to pass the adjudication order. On a proper interpretation of Section 13(2) of the Presidency-towns Insolvency Act, I am inclined to uphold the contention of Mr. Dhanuka, for on first principles, I feel, it would be proper for the Court to insist upon proof of the fact that the debt is due and payable by the debtor to the creditor on the date of the hearing of the petition and the Court should further see that the debt subsists right upto the time of making of the order of adjudication ; it would be preposterous to adjudicate a person insolvent even if at the hearing the Court is apprised of the fact that the debt has already become time-barred or that the debt has in the meantime got reduced to less than Rs. 500-as for instance when the petition is presented on the basis of a decretal debt of say Rs. 1,000 and by the time the petition comes up for hearing the decree is reduced by the Court of Appeal to less than Bs. 500. I am inclined to take the view that the debt on the basis of which a petition has been presented by the creditor must be subsisting not only at the date of the presentation of the petition but also at the date of the hearing as well as at the date when the adjudication Order is proposed to be passed, and I am fortified in my view by the decision of the Calcutta High Court referred to above.
9. Mr. Shah urged that if this view were accepted by the Court it would cause great hardship to the creditor. Once an insolvency petition is presented by a creditor, he normally expects that the adjudication order would be passed at the hearing of his petition and simply because the hearing of the petition is delayed not for any default on his part but say on account of the exigencies of the Court work the creditor will have to meet the fate which he, may not have thought of or contemplated, if in the meantime the debt becomes barred by limitation. I do not see any hardship arising to the creditor as suggested by Mr. Shah, for it would be open to the creditor or rather it would be his duty to see that he keeps the debt alive either by means of an acknowledgment or part payment or by filing a suit in respect thereof in a proper Court well within the period of limitation, but to my mind, it is clear that mere pendency of an insolvency petition without anything more cannot have the effect of saving the limitation prescribed by the Indian Limitation Act.
10. I may observe that several other creditors have also filed their affidavits in support of the creditor's petition and they have appeared through counsel, but it was not disputed before me that in respect of such creditors also their debts have become time barred and these debts have not been kept alive by those creditors when the matter has reached hearing before me. These creditors, therefore, also stand in the same category as the petitioning-creditor.
11. Having regard to the above discussion, I answer the issue in favour of the debtors and against the petitioning-creditor and the petition is accordingly dismissed with costs.
12. The Official Assignee, who is appointed interim Receiver is discharged as Receiver without passing- accounts. The petitioning-creditor to pay costs, charges and expenses of the Official Assignee. The purchasers to continue in possession of the shop in question and the Official Assignee to refund the sum of Rs. 7,000 deposited as security to the purchasers. The other properties of the debtors to be returned by the Official Assignee to the debtors on his costs, charges and expenses being satisfied. If the petitioning-creditor does not pay the costs, charges and expenses, the Official Assignee to recover the same from the amount which is in his hands and if he so recovers it from the amount which is in his hands, the debtors to be at liberty to recover the same from the petitioning-creditor. The sum of Rs. 39,000 deposited with the Official Assignee by Khona and Suryakant, Attorneys for the 1st mortgagees being surplus of the sale-proceeds be returned to Mr. Dhanuka's clients (debtors); however, before withdrawing the said amount the debtors should give notice to Aibara & Co., Attorneys for the alleged 2nd mortgagees.