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Bai Rukhiabai Vs. Vadilal Purshottamdas and Co. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai
Decided On
Case Number O.C.J. Appeal No. 37 of 1928 and Suit No. 5384 of 1922
Judge
Reported inAIR1930Bom451
AppellantBai Rukhiabai
RespondentVadilal Purshottamdas and Co.
Excerpt:
charging order - execution-discretionary power of original side to make such order-effect of order-priority over unsecured creditors-application therefor to be made in the suit wherein the receiver holding the property to be attached has been appointed-practice-procedure-civil procedure code (act v of 1908), order xxi, rules 11(2) and 52.;the original side of the high court has in an appropriate case a discretion to grant a charging order, but it will depend on the facts of each case as to whether the court will grant it or not, or on the other hand give leave to the creditor to pursue his normal remedy in execution, or to adopt some other course which may seem fair under the circumstances.;after the passing of a preliminary decree in a partnership suit and the appointment of a receiver.....amberson marten, kt., c.j.1. this is an appeal by the plaintiff in this partnership suit against the order made by mr. justice mirza on a summons dated july 9, 1928, in this suit directing payment to the applicants vadilal purshotamdas and company, of the sum of rs. 1,762-4-8 out of the moneys in the hands of the receiver in the present suit in priority over all other creditors of the firm of haji kahimtulla abdul rahim. these applicants had obtained is suit no. 181 of 1920 an order for payment of this sum for costs against the above firm. the present suit no. 5384 of 1922 is a partnership suit for the winding up of the firm after its dissolution.2. the main point we have to determine is whether the charging order made by the learned judge on september 16, 1925, in the present suit in.....
Judgment:

Amberson Marten, Kt., C.J.

1. This is an appeal by the plaintiff in this partnership suit against the order made by Mr. Justice Mirza on a summons dated July 9, 1928, in this suit directing payment to the applicants Vadilal Purshotamdas and Company, of the sum of Rs. 1,762-4-8 out of the moneys in the hands of the receiver in the present suit in priority over all other creditors of the firm of Haji Kahimtulla Abdul Rahim. These applicants had obtained is Suit No. 181 of 1920 an order for payment of this sum for costs against the above firm. The present suit No. 5384 of 1922 is a partnership suit for the winding up of the firm after its dissolution.

2. The main point we have to determine is whether the charging order made by the learned Judge on September 16, 1925, in the present suit in favour of the applicants is valid, and, if so, whether they thereby obtained priority for their judgment debt in Suit No. 181 of 1920 over other creditors of the partnership firm.

3. This point raises interesting and important questions of practice, during the discussion of which the arguments have travelled over a wide field. But it is particularly desirable to confine our decision to the facts of this particular case and to emphasise what those facts are. We have to deal with a partnership suit where after a receiver had been appointed and a preliminary decree passed for taking accounts etc, the applicants obtained the above charging order in their suit No. 181 of 1920 by reason of the fact that prior to the date of this partnership suit they had obtained the above order for coats against the partnership firm in suit No. 181 of 1920. It should also be noted that this charging order was obtained prior to the date of the final decree in the partnership suit, but that the application in suit No. 181 for execution under Order XXI, Rule 11, was not made until after the preliminary decree in the partnership suit, and that no notice was given under Order XXI, Rule 52, until after the final decree in the partnership suit which ordered payment of the balance in the hands of the receiver amongst certain creditors, not including the plaintiff No. 1.

4. Unfortunately the learned Judge gave no judgment, and the note which he has been good enough to furnish for the use of the appellate Court contains no reasons beyond the following sentence, viz., ' the equities in my opinion are in favour of the applicants receiving their amount in priority to the other creditors of the partnership.

5. But in two previous cases, viz., Kesserbai v. Kaku : Bilasrai v. Karsondas (1926) 29 Bom. L.R. 665 and Nensukhgavri v. Rajabally : AIR1927Bom405 , the learned Judge has dealt in detail with the law and practice on the point, and accordingly we may take it that in the present case he followed his previous decisions. Now in those two cases the learned Judge in the first place held that these so-called charging orders are invalid in Bombay. With all respect to the learned Judge that finding, in my opinion, is incorrect and must be overruled. We are here dealing with litigation on the Original Side and by the Supreme Court Charter of 1823 and subsequent Acts the Original Side has inherited the old jurisdiction of the Court of Chancery. It is quite clear from Kewney v. Attrill (1886) 34 Ch. D. 345 and Ridd v. Thorne [1902] 2 Ch. 344 that the Chancery Division has jurisdiction to grant these orders and does so in fact. Moreover, their validity has been expressly recognised in our Court. This jurisdiction was referred to in the judgment of Mr. Justice Chandavarkar on the Appellate Side in Shidlingappa v. Shankarappa 6 Bom. L.R. 529, and was expressly relied, on by Mr. Justice Macleod in A. Haji Ismail & Co. v. Rabiabai I.L.R. (1909) 34 Bom. 484. And at any rate since the last mentioned case, it has been the practice on the Original Side to make these charging orders, as indeed the learned Judge points out in the above two decisions in 29 Bom. L.R. In fact it was the learned Judge himself who granted the charging order in dispute in the present case. Why then should this settled authority and practice be upset The learned Judge's view is that in a case like the present an attaching creditor can only proceed under Order XXI, Rules 11 and 52; that there is no provision in the Civil Procedure Code for charging orders, and that their introduction only causes unnecessary complications and confusion.

6. Now it is quite correct that the Civil Procedure Code does not provide for charging orders. But that does not necessarily invalidate them on the Original Side. Nor do I see that their use need cause any unnecessary complication or confusion. On the contrary in proper cases they may be beneficial to all parties. Let us consider, for instance, the situation in the present case at the date of the charging order in question. The applicants were then decree-holders for costs against a firm and had applied for execution under Order XXI, Rule 11, in their own action. Why then should they not either be paid at once, or else be given leave in the partnership suit to levy execution against the partnership property under Rule 51, notwithstanding the appointment of a receiver. If, for instance, the partnership had been solvent and had ample cash in the hands of the receiver, I take it that the Judge in a partnership suit would have ordered immediate payment by the receiver and thus have saved the costs of an execution. If, on the other hand, the assets merely required nursing, e. g., where the sale is of a partnership business and house as a going concern, then a charging order might be highly beneficial, for the partners would gain time to sell the property to advantage while the attaching creditor would be secured by this charge. In this connection it is very material to see how Mr. Justice Kay came to make his order in Kewney v. Attrill, What had happened there was that the attaching creditors applied by summons in chambers for leave to issue execution under the; judgment obtained against the partnership assets in the hands of 1 the receiver, but the application was ordered to stand over until; the partnership assets had been ascertained. Then under the ordinary Chancery practice the applicants moved in Court to discharge the order made in chambers, and as is shown at the top of p. 346 their application was that they might be at liberty to issue execution against the partnership assets in the hands of the receiver, or that the receiver should pay them their judgment debt and costs out of the assets. In argument they pointed out that the attaching creditors' rights were endangered owing to the possibility of bankruptcy, and contended that a judgment in a partnership action is not, like a judgment in an administration action, a judgment for all the creditors. Then after counsel for the partners had said, ' It would save expense if the Applicants took a charge on the assets instead of leave to issue execution,' Mr. Justice Kay said (p. 346) :-

Very well-if there is a bankruptcy the trustee in bankruptcy will take subject to prior equities and therefore subject to a charge. I give the Applicants, the judgment creditors, a charge now on the moneys which are in the hands of or may be taken possession of by the receiver, and they must undertake to deal with the charge according to the order of the Court...The intention of the Court is to preserve to the Applicants all the rights which they would have had if they had issued execution and the sheriff had seized and sold the assests to-day.

Accordingly, the learned Judge discharged the order that he ' made in chambers postponing this application, and he gave the attaching creditors a charge by which he intended them to be put in exactly the same legal position as if they had attached and sold the assets.

7. As pointed out by Mr. Justice Mirza in 29 Bom. L.R. 668, that express intention of the Court is inserted as part of the order passed in the Chancery Division as shown in Seton on Judgments and Orders, 7th Edn., Vol. I, p. 471.

8. Now, as pointed out by Mr. Justice Joyce in Ridd v. Thorne, it may be that these charging orders are subject to any existing lien, as for instance a solicitors' lien or any existing prior charge. And it may be that they are not intended to give any charge except as among the creditors of the partnership themselves, or as against the several partners of the firm. (See p. 348).

9. Let that be so. That qualification does not, I think, materially affect the general proposition which I am considering. Further, in Gershon and Levy, In re [1913] 2 K.B. 627 where the attaching creditors had obtained similar charging orders in a partnership suit and both partners had subsequently become bankrupt, and the Chancery action was transferred to the Insolvency Court, Mr. Justice Horridge held that those charges purporting to be effected by the charging orders were operative against the trustee in bankruptcy, and that they accordingly must be paid first except in one case where a bankruptcy petition was pending and so the charge was defeated by the doctrine of relation back. Indeed that priority was only what Mr. Justice Kay contemplated in Kewney v. Attrill as being the result. And it must be borne in mind that the trustee in bankruptcy, speaking generally, represents the general body of creditors. Therefore Mr. Justice Horridge's decision amounted to this that at any rate when a bankruptcy was not pending at the time of a charging order the holder of such an order would obtain priority over the general body of creditors. In other words, the charging order meant what it said, viz., that the creditor was put in the position of a secured creditor.

10. Now in considering the general question, I have not yet considered what the Judge ought to do if there are other creditors, either simple or judgment creditors, or on the other hand if the partnership estate is insolvent. I do not propose to attempt to lay down any general rule which will apply to all circumstances, or which will attempt to fetter the discretion of any learned Judge before whom any particular case may come. I think it particularly undesirable in administering equity to lay down too rigid rules. In my judgment the true principle is that the Court in an appropriate case has a discretion to grant a charging order, and that it must be left to the facts of each particular case as to whether the Court will grant it or not grant it, or on the other hand give leave to the creditor to pursue his normal remedy, or to adopt some other course which may seem to the learned Judge to be the fair one under the circumstances.

11. And it seems to me with all respect to those who have to administer this difficult chamber practice that the practice in Bombay has become too rigid over these charging orders. It is not right to grant them in every case, and thereby to postpone the payment of the attaching creditors. In some cases they may fairly ask to be paid at once. In this respect I am unable, to agree with the observations of Mr. Justice Pratt in an unreported lease of Kahubhai v. Hargovan Kanji, where he is said to have observed that 'no creditor is entitled to payment except under the directions of the Court, and the Court will not direct payment until all the assets have been realized.

12. Similarly, I am unable to agree with what is stated by Mr. Justice Macleod in A. Haji Ismail & Co. v. Rabiabai that it is wrong for the. attaching creditor to apply for payment or for leave to execute judgment against the assets in the hands of the receiver, and that he should only have applied for a charging order. On the contrary I think the proper procedure is for the attaching creditor first to take out the execution proceedings contemplated by Order XXI, Rule 11, and then in a case like the present to make the attachment by obtaining the notice contemplated by Order XXI, Rule 52. Then if necessary he can apply in the partnership suit either for payment or for leave to levy execution against the partnership assets under Order XXI, Rule 50, or alternatively for a charging order.

13. As I have already indicated, I take it that in a clear case of a solvent partnership where there are ample assets in the hands of the receiver, the Judge would at once direct the receiver to pay the claim in question so as to avoid the payment of further costs. That will also prevent the evil which has been suggested to us in the course of the argument, viz., that these charging orders have the effect of postponing all legitimate debts until the partners have settled their disputes over the taking of accounts which in many cases in, no way concern the creditors, and that in consequence many collusive actions are filed which have the tendency of postponing the payment of debts. The course I have suggested is one by which that particular evil can be stopped by appropriate applications and appropriate orders.

14. There is one further point of practice, and that is whether the charging order should be made, as here, in the partnership suit or in the attaching creditors' suit. In my judgment it is clear that the order in question should be made by the Judge having seisin of the partnership suit and control over the partnership assets. That was the course followed in Kewney v. Attrill. Indeed in the Chancery Division the point would not admit of argument. But in the course of looking up the file of the suit No. 523 of 1907, A. Haji Ismail & Co., v. Rabiabai I.L.R. (1909) 34 Bom. 484 and the file of the partnership suit No. 69 of 1907, which is referred to at p. 485 of the Report, I find these circumstances. In the partnership suit a receiver was appointed in 1907. Subsequently in suit No. 523 the plaintiffs obtained a decree, And as I road the judgment at p. 485 Mr. Justice Macleod made the charging order in their favour not in the partnership suit, but in their own suit No. 523. As I have already indicated, that, in my opinion, was a wrong course to adopt, if that is what actually happened; But, unfortunately, the office has burnt all the later papers in these two suits containing the proceedings in execution, and accordingly, apart from the notes on the wrappers, I am not! able to verify the exact suit in which this charging order was made.

15. I, however, mention this point of practice because in this very matter the applicants originally applied to me in chambers, not in the partnership suit but in the attaching creditors' suit, for a garnishee notice and so on. I then held that that was a wrong procedure and that they must apply in the partnership suit itself, and I accordingly adjourned the application for that particular purpose. I should mention that at the outset of the present appeal. I enquired of both counsel if either party contended that that particular order was wrong. Otherwise I could direct this appeal to be heard by some other bench. But as counsel replied that they considered the decision correct and in no way challenged it, this appeal has proceeded before this bench.

16. It follows then from what I have already stated that in my judgment, the charging order made by Mr. Justice Mirza was a valid charging order.

17. The next question is whether it gave any priority over other creditors of the partnership. In my opinion it did. In other words, the order should be treated as meaning what it says. There is no other charging order in the present case. Indeed there is no other attaching creditor. So we have not any complication of that sort to consider, although there are other creditors. The main objection which, I think, can be urged against that view is that apparently it has hitherto been considered on the Original Side that these charging orders do not give priority and that all the assets are to be distributed pari paasu. It is accordingly urged that it must have been on that understanding that the learned Judge himself passed the charging order in question. But that really means that although a creditor gets a charging order and becomes a secured creditor, he really is not to be a secured creditor at all. I appreciate that he gives an undertaking to deal with the charge according to the order of the Court, but one object of that I take it is for the Court to keep control amongst other things as to the time at which he will enforce the charge. It is no good, for instance, giving a charge one day, if the next day he is to take proceedings to enforce it, for one maim object of the charging order is to gain time.

18. I think the that under their charging order the applicants were entitled to priority over the ordinary creditors, and that accordingly the actual order which the learned Judge made giving (them this priority was correct. I should add that this need not result in every creditor at once proceeding to bring separate! suits and separate applications for fear of being custed by some charging order. It will lie in the discretion of the Judge having regard to the facts of the case whether in any particular case a charging order of this nature which gives priority should be granted. And it may be that the other creditors should first be given the chance of being heard on the point. But the other point of view which is the one that prevails with me is that here the applicants had obtained a decree and had followed it up by attachment proceedings. I fail to see, therefore, why some credit should not be given to them for their extra diligence over other creditors who had either taken no steps whatever, or no effective steps to enforce payment of their debts.

19. We have been referred to the general observations of Sir Charles Farran in J. Kahn v. Alii Mahomed Haji Umer I.L.R. (1892) 18 Bom. 577 and to Mr. Justice Chandavarkar's judgment in Shidlingapa v. Shankarappa, already mentioned, to show that speaking generally I equality is equity, and that where you find assets in the hands of I the Court's receiver, the Court will distribute them amongst the! creditors pan passu. There is also a decision in Calcutta in Thakurdas Motilal v. Joseph Islander I.L.R. (1917) Cal. 1072 which is based on that principle. I refer in particular to the judgment of Mr. Justice Mookerjee at p. 1090, That point of view may weigh with the Chamber Judge when deciding whether he should grant the order. But we have to deal with a case where rightly or wrongly the order creating a charge has in fact been made, and where we have only to consider whether it ought to be enforced.

20. One other section of the Civil Procedure Code was referred to, viz., i3. 73, dealing with rateable distribution. But the appellant seems to be in this difficulty. Either that section only applies to assets in the hands of the Court as the result of an execution, in which case it may on certain authorities not apply at all here; or if it does apply then the applicants were the only attaching creditors. If, on the other hand, Section IS doss not apply at all in the present case, then clearly we need not consider it.

21. Nor again in my judgment does the decision of the Madras full bench in Visvanadhan Chetty v. Arunachelam, Chetti I.L.R. (1920) Mad. 100 apply here. In the full bench case the Court was dealing with money standing to the credit of a minor in an Original Side suit. The money there belonged to the minor absolutely subject to his attaining the age of twenty one, and there was no question of the Court administering the fund, or of the appointment of a receiver, or anything of that nature. Nor do I think were the judgments directed to a case like the one we have at present, viz., a partnership suit and the appointment of a receiver. Therefore it is unnecessary for me in the present case to consider what the learned Judges decided in that case.

22. I would only observe that in the subsequent case of Nachiappa Chettiar v. Subbier I.L.R. (1923) Mad. 306 Sir Walter Schwabe appears to have contemplated that in certain cases it may be that the solution of the difficulty is to be found in the exercise of the discretion of the Custody Court, but he thought it unnecessary to express an opinion on the point. That in effect is the solution I have endeavoured to adopt here, viz., to give in general a discretion to the ' Custody Court as to the appropriate order to pass. I would also draw express attention to the fact that Order XXI, Rule 52, on which so much reliance has been placed, only at the most amounts to this that the attaching Court requests the Custody Court or its receiver to hold the partnership property subject to the further orders of the attaching Court. But the proviso expressly directs that where the property is in the custody of a Court, all questions of priority are to be decided by the Custody Court. It does not however, go on to provide, as does Rule 53, that the Custody Court is bound to take certain steps after the receipt of a notice from the attaching creditors Court.

23. In my judgment no such imperative directions should be read into Rule 52, I think they have been deliberately omitted from that rule, and that it would be entirely contrary to principle if an attaching Court, say in Calcutta, should purport to give directions to the Bombay Court as to how the Bombay Court should administer the assets in a Bombay suit or direct payment by its receiver. The attaching Court may make requests but cannot issue orders to another Court. In my opinion the same observations hold good in the case of Judge X having seisin of suit A as compared with the Judge Y having seisin of suit B in the same High Court.

24. I may here observe that in the present suit before any notice had been issued under Rule 52 the final decree in the partnership suit had been passed, and that by that decree Mr. Justice Kajiji directed the receiver to pay the balance in his hands after payment of certain costs amongst certain creditors but not including the present plaintiff. That order amounted, I think, to an equitable charge in favour of those other creditors, and it could not be disturbed by a subsequent order, say, from Calcutta. It would not, however, prevent in a case like the present the applicants coming to the Court and asking that notwithstanding the final decree, they might be paid in priority. In the present case there was a very good reason for that under the peculiar circumstances of this case. There had actually been an application by the plaintiffs as long ago as July 1923, supported by an affidavit which set out the applicants' decree as one of the liabilities of the partnership firm and stated that the partnership was not in a solvent condition to pay off the debts in full, and asked further' that the receiver be authorized to invite claims and to pay them pro rata, and that the suit be placed on daily board for taking! accounts.

25. The order made by Mr. Justice Mulla on that summons on July 13,1923, was that the suit be peremptorily fixed for September 4 to be on one of the daily boards that day. But unfortunately it was not till August 27, 1924, that Mr. Justice Kajiji made the preliminary decree in question. Further, after the preliminary report of the Commissioner as to debts, which was confirmed by the Court, the final decree was passed on November 30, 1926. But prior to that date the applicants' solicitors had written to the plaintiff's solicitors on September 16,1926, referring to their charge and saying that in August 1925 at a meeting in the office of the receiver it had been agreed that the applicants were to apply for a charging order, that accordingly they obtained the charging order and had served the same upon the receiver, and that they wanted payment. The reply was :-

Your claim has been noted by the Receiver, and you will be paid proportionately at the time of the distribution of the assets. A final order in the suit will be obtained in the course of the next month and the matter stands adjourned. If after this intimation you take further steps as threatened you will do so at your own risk as to costs and consequences thereof.

26. Notwithstanding that letter these applicants were omitted from the final order that was passed. And the only explanation that has been tendered to us is that it was an oversight-a most regrettable oversight. But we think that although a mere notice under Order XXI, Rule 52, given after the date of that final decree would not of itself operate in favour of the applicants, they are nevertheless entitled to rely on the charging order which they obtained before the date of the final decree, and that under the circumstances of this case they are entitled to retain their priority notwithstanding that the final decree was improperly obtained behind their backs.

27. In the result, therefore, I would dismiss this appeal with costs.

Blackwell, J.

28. The questions arising for determination on this appeal are whether, after the passing of a preliminary decree in a partnership suit and the appointment of a receiver therein, it is competent to this Court on the Original Side to make a charging order at the instance of creditors of the partnership firm, and if it is competent to the Court to make such an order, what is the effect of that charging order.

29. It appears to have been the practice of this Court to grant such charging orders until a decision of Mr. Justice Mirza in 1926 in Kesserbai v. Kaku: Bilasrai v. Karsondas (1926) 29 Bom. L.R. 665 to which I will refer later. But it also appears to have been the practice notwithstanding the making of such charging orders to treat creditors who obtained such orders as upon the same footing as unsecured creditors, directing payment to be made to them pari passu. One of the questions arising in this appeal is whether that practice is correct or not,

30. I think it desirable to refer to a few facts and dates. The partnership firm brought a suit No. 181 of 1920 against the present applicants Messrs. Vadilal Purshotamdas & Co. That suit was dismissed with costs on November 25, 1921. On December 13, 1922, an allocatur for costs was made, the costs being taxed in the sum of Rs. 1,760-4-8. A partnership suit for dissolution of the partnership was instituted on November 22, 1922, and a preliminary decree was passed in that suit on August 27, 1924, whereby it was declared that the partnership was dissolved on October 9, 1922, and the Court referred the matter to the Commissioner for taking accounts to take an account of the dealings and transactions between the plaintiffs and the defendants and to report to the Court. The Commissioner made a preliminary report on March 12, 1926, and he appended to that report a schedule of debts of the partnership. The respondents' name was not included in that schedule, and it has been stated by counsel at the bar that it was omitted by error. That report was confirmed by the Court. On September 30, 1926, the Commissioner presented a final report which showed that the partnership had incurred a loss of over Rs. 80,000. The final decree in that suit was passed on November 30, 1926. It made no mention of the debt of the respondents, and it directed the receiver to distribute, after making certain payments therein mentioned, the balance in his hands pro rata amongst the creditors mentioned in an order therein referred to dated September 17,1926, and another creditor in a suit then pending if his claim was ultimately decreed.

31. It appears from a letter dated September 16, 1926, appearing in the appeal paper book at page 63 that there had been on August 24, 1925, a meeting in the office of Mr. Moos, the receiver appointed in the partnership suit No. 5384 of 1922, and that at the said g meeting the respondents were asked to obtain a charging order , on the moneys belonging to the firm in the hands of the receiver. Accordingly, on September 11, 1925, an application was made by the applicants entitled in their suit No. 181 of 1920 for execution under Order XXI, Rule 11 (ii), of the Code of Civil Procedure, and the mode in which the assistance of the Court was required by that application was by attaching moneys in the hands of Mr. Moos, the receiver of the plaintiff firm therein appointed by an order dated December 4, 1922, made in suit No. 5384 of 1922. An affidavit had been filed in support of that application dated July 21,1925. In para. 4 of that affidavit, which was also headed in suit No. 181 of 1920, the prayer was 'that this Honourable Court will be pleased to grant leave to the 1st defendants under Order XXI, Rule 52, to attach the moneys in the hands of the receiver Mr. Moos in execution of the decree passed against the plaintiff firm abovenamed regarding the costs.

32. It must, however, be observed that the applicants had not taken steps to obtain at that stage the proper notice required by Order XXI, Rule 52, Civil Procedure Code, Nevertheless a charging order was in fact made by Mr. Justice Mirza on September 16, 1925, and it is to be noticed that that charging order was in fact made in suit No. 5384 of 1922. It is true that it was made in that suit 'upon reading the affidavit and application for execution' to which I have already referred, both of them being headed in suit No. 181 of 1920. But notwithstanding that the application and the affidavit were headed in suit No. 181 of 1820, the charging order was made in the suit in which alone it could properly be made, viz., the suit which had seisin of the partnership assets, and the charging order gave the applicants a charge on the moneys of the firm in the hands of the receiver, the applicants undertaking to deal with the charge according to the order of the Court.

33. In August of 1926 Mr. Justice Mirza decided the case of Keaaerbai v. Kaku, to which I will refer later. In that case he laid down that it was not competent to this Court on the Original Side to make a charging order under circumstances similar to those in the present case. Accordingly, the applicants applied for a notice under Order XXI, Rule 52, and Mr. Justice Mirza ordered such a notice to issue on December 2, 1926. On December 20, 1926, a garnishee notice was then taken out by the applicants, and served upon Mr. Moos the receiver, requiring him to pay to the Sheriff of Bombay the moneys attached in his hands by an order dated December 20, 1926. That notice came before the present learned Chief Justice, and he on March 7, 1927, referred that notice to the Judge who had seisin of the partnership suit. As the result of the directions given by the learned Chief Justice in his judgment of March 7, 1927, the summons with which we are concerned in this appeal was taken out on July 9, 1928, asking for an order for payment of the taxed costs of Rs. 1,762 odd out of the moneys in the hands of the receiver Mr. Moos in priority over all the other creditors of the partnership firm.

34. Before considering the question whether it is competent to this Court on the Original Side to make a charging order of the character made in the present case, I think it will be useful to refer to the English practice. The position arising in such circumstances as the present is referred to in Lindley on Partnership, 9th Edn., p. 654, in these terms:-

If a judgment creditor desires to levy execution on property in the custody' of the receiver, special application should be made to the Court in the action in which the receiver was appointed, and the Court will direct the receiver to pay the judgment debt or make such other order as may be just.

35. In support of that proposition the learned author cited Kewney v. Attrill (1886) 34 Ch. D. 345 and Ridd v. Thorne [1902] 2 Ch. 344. I think it desirable to refer to the practice there enunciated having regard to the fact that in the past in this Court it appears to have been sometimes the practice to apply for leave to issue execution against the assets in the hands of the receiver, not in the partnership suit, but in the suit in which the judgment creditor obtained his decree. I desire to say that, in my opinion, such a practice is completely erroneous, and that any such application must be made to the Court in the action in which the receiver was appointed.

36. I would also refer to a statement which appears in Halsbury's Laws of England, Vol. XXIV, under the subject of receivers at page 383, Section 719, which is in these terms:-.When a receiver has been appointed in a partnership action, a judgment creditor of the firm is generally given a charge on the assets, on his undertaking to deal with the charge according to the direction of the court. This protects his rights and renders immediate execration unnecessary.

37. In support of that proposition the cases of Kewney v. Attrill and Brand v. Sandground (1901) 85 L.T. 517 are referred to. In my judgment that passage accurately seta out what is the law in such a case as the present. The Judge in the partnership suit, in my opinion, for reasons which I will presently mention, had a complete discretion as to whether he would grant leave to issue execution, or make a charging order, or otherwise deal with the application coming before him.

38. I will only refer briefly to the English authorities. The ' practice of granting a charging order in such cases as the present is founded upon a decision of Mr. Justice Kay in Kewney v. Attrill. It is, I think, important to observe that Mr. Alexander, who was arguing for the judgment creditors in that case, submitted that 'the appointment of a receiver only means that you cannot touch the assets without leave of the Court. A judgment in a partnership action is not, like a judgment in an administration action, a judgment for all the creditors'. I desire to say that, in my opinion, that submission accurately represents the law on the subject, and as far as I have been able to ascertain, it has not been challenged in any of the English authorities.

39. I next refer to the fact that in the course of the argument in that case Mr. Justice Kay is reported to have said as follows (p. 346):-

By the appointment of a receiver the Court aims at equality amongst the creditors. If I give you leave it must be on your undertaking to hold the pro-coeds and deal with them in accordance with any order the Court may make.

40. An argument has been founded by Mr. Coltman in the course of the discussion on this appeal that the meaning of that observation of the learned Judge was that although a charge was given, it was not to be given effect to as a charge at all, that the creditor who obtained the charge was not in fact to be a secured creditor, and that notwithstanding the charge he was to hold it subject to any order that the Court as a Court of equity might subsequently be pleased to make. Mr. Coltman submitted that if this argument was sound, a Court of equity would direct all the creditors to be paid pari passu, notwithstanding the charging order which had been made. When, however, one turns to the judgment actually delivered by Mr. Justice Kay, what he said was as follows (p. 347):-

The intention of the Courtis to preserve to the Applicants all the rights which they would have had if they had issued execution and the sheriff had seized and sold the assets to-day.

41. I am unable to agree with Mr. Coltman's argument. It seems to me that Mr. Justice Kay in that case intended to constitute the judgment creditors secured creditors with any rights which they would have had if they had issued execution and had actually sold the assets. The effect of the undertaking imposed upon them in my judgment was merely that they were not to take steps to realise their charge except in accordance with the permission of the Court which had seisin of the partnership suit.

42. It is to be noted that the validity of charging orders which are made in such cases as the present according to the English practice was recognised by Mr. Justice Farwell in the course of his judgment in Brand v. Sandground (1901) 18 T.L.R. 96.

43. I turn next to refer briefly to the case of Gershon and Levy, In re [1915] 2 K.B. 527. In that case two motions came before Mr. Justice Horridge sitting in bankruptcy, and they raised questions of priorities and also questions whether the applicants were secured creditors of the partners against whom judgment had been obtained. It appears from the report that on April 22 Messrs. Coote and Richards, who were judgment creditors of the debtors, obtained an order in the Chancery partnership action giving them a charge on the partnership assets. That charge was in the common form based on Kewney v. Attrill. When the matter came before Mr. Justice Horridge, all counsel who appeared before him admitted that by virtue of the charging order Messrs, Coote and Richards and another judgment creditor one Mr. Hill, who had also obtained a charging order, were entitled to priority. Mr. Justice Horridge in the course of his judgment said this (p.531) :-

I come now to the two cases in which judgment creditors of the partnership asked for leave to levy execution on the partnership assets after the receiver was appointed in the Chancery action, and the Court made the usual orders giving them a charge and putting them in the same position as if they had levied execution;

and he therefore directed the trustee in bankruptcy to pay those judgment creditors out of the assets in his hands in priority to any other payments.

44. Accordingly, on these authorities, it seems to me clear that according to the English practice where a charging order is made at the instance of judgment creditors of a partnership in circumstances such as those arising in the present case, the charging order is a valid charge and constitutes the judgment creditor a secured creditor entitled to priority over other creditors who have no charge.

45. I turn now to the Indian authorities. The first case which I desire to refer to is a decision of Mr. Justice Farran in J. Kahn v. Alii Mahomed Haji Umer I.L.R. (1892) 16 Bom. 577 That case related to an attachment of funds in the hands of a receiver appointed in a partnership suit. The learned Judge in the course of his judgment said (p. 579):-

The partnership funds are in the hands of the Court, through its officer, the receiver. ft cannot be that, in this state of things, a Court of Equity will allow one out of the whole body of creditors to gain priority over the remainder by the simple expedient of attaching the moneys in the Court's hands. Hence, no doubt, one reason for the rule that, before any one can interfere with the possession of a receiver, the leave of the Court must first be obtained. That leave would never be given but on equitable terms, i. e,, such terms as would insure equality between the creditors. No Court of Equity would render any assistance to a creditor seeking by a aide wind, such as this, to gain an advantage over his fellow creditors.

46. I desire very respectfully to dissent from the principle there laid down by the learned Judge. In my opinion, where an application is made by a creditor of a partnership firm in the partnership suit for attachment or for leave to levy execution, or for a charging order, the Court has a discretion whether to make the particular order asked for, or not, which it must exercise judicially according to the circumstances arising in each particular case.

47. The nest case to which I desire briefly to refer is a decision of the appellate side bench of this High Court in Shidlingappa v. Shankarappa I.L.R. (1903) 28 Bom. 176. The decision of the Court was given by Mr. Justice Chandavarkar. In the course of his judgment he said (p. 179):-

The mutual rights and liabilities of the parties to this action for contribution must, therefore, be decided with reference to that decree (i.e., a decree in the partnership suit). By it not only was the partnership declared dissolved, and accounts directed to be taken, but a Receiver was appointed to recover outstandings, pay debts, and do all that might be necessary, By the appointment of a Receiver the Court must be taken to have aimed at equality amongst the creditors. It was open, of course, to any creditor of the partner ship to sue the partners and obtain a decree for the recovery of his debt; but no creditor, after the appointment of a Receiver, could execute any decree, obtained after that appointment, to the prejudice of other creditors of the partnership.

48. In my opinion the latter portion of the observations there made by the learned Judge in that case were obiter having regard to the actual point that was before the Court. I desire, however, respectfully to express my dissent from the opinion that 'by the: appointment of a Receiver the Court muse be taken to have aimed at equality amongst the creditors'. As I have already observed, it is, in my opinion, a matter entirely within the discretion of the Judge before whom in the partnership suit the application is made.

49. Turning next to a decision of Mr. Justice Macleod, as he then was, in A. Haji Ismail & Co. v. Rabiabaia I.L.R. (1909) 34 Bom. 484 I feel bound with great respect to, dissent, from the opinion expressed in his judgment by that learned Judge that the procedure adopted by the plaintiffs in that suit was wrong, that they should not have issued execution against the assets in the hands of the receiver, and that their proper course was to ask for a charging order in the form granted by Mr. Justice Kay in Kewney v. Attrill. It will be seen from the report of A. Haji Ismail's case that the plaintiffs had in fact applied for leave to issue execution, and that leave had been granted to them in accordance with their application. That was the form of application made in the case of Kewney v. Attrill above referred to. In my opinion it is open, to judgment creditors of a partneship firm to apply in the partner! ^ ship suit for leave to issue execution, or for a charging order, and it is a matter purely for the discretion of the Court as to the form of the order which in the circumstances of each particular case the Court thinks proper to make.

50. I turn next to a decision of Mr. Justice Mirza in Kesserbai v. Kaku, to which I have already briefly referred. It is unnecessary, I think, to go into the facts of that case in any detail. I desire to express my concurrence with the view taken by the learned Judge as to the judgment of Mr. Justice Kay in Kewney v. Attrill, viz., that it was not the intention of that learned Judge to deprive the judgment creditor of the fruits of his execution. I also agree with Mr. Justice Mirza that the effect of the charging order made in Kewney v. Attrill and the charging orders subsequently made according to the English practice, is accurately stated in the concluding words of the form of charging order in Seton on Judgments and Orders, 7th Edna, Vol. I, p. 471, as follows: '...the intention of this Court being to preserve to the said A. B. such legal rights as he would have had if the sheriff had seized under the execution and sold on this day.' I further desire to express my concurrence with Mr. Justice Mirza in the view taken by him that the observations of Mr. Justice Chandavarkar in the case to which I have already referred were obiter dicta. I further agree with the learned Judge that there is nothing in Mr. Justice Macleod's judgment in A, Haji Ismail's case to warrant the conclusion that by giving a charging order in a partnership suit the Court aims at equality among the creditors irrespective of their rights as attaching creditors. I must, however, with great respect, express my dissent from the opinion of Mr. Justice Mirza expressed by him at p. 671 of hie judgment that 'there is no need for our Courts to complicate the procedure in execution by inventing a form of charging order for which there is no warrant under the Code of Civil Procedure'. In my opinion, although of course it is necessary for a judgment creditor to make application for execution required in all cases by Order XXI, Rule 11, there is nothing whatever to prevent him on the Original Side from making an appropriate application in the partnership suit for leave to issue execution or for a charging order. Doubtless before he takes that step, he should also take proper steps to secure the issue of a notice contemplated by Order XXI, Rule 52.

51. In the same volume (29) Bom. L R. 690 Mr. Justice Mirza again expressed an opinion that 'where assets are held by a receiver appointed in a partnership action, it is not permissible to a creditor of the firm to take out a charging order against the receiver in respect of his claim.' I am unable to agree with him, and, in my opinion, the judgment in that case to that extent is wrong.

52. Coming to the facts of the present case with which we have to deal, it will be seen that the charging order was in fact made on September 16, 1925, that is, after the preliminary decree in the partnerihip suit and the appointment of a receiver, but before the final decree in the partnership suit which was not passed until September 16, 1926. It is that charging order with which we have to deal in the present case. It is quite true that after the passing of the final decree in the partnership suit, and after the decision given by Mr. Justice Mirza in 29 Bom. L.R. 1926 the applicants took steps under Order XXI, Rule 52, and subsequently under Rule 807 of the High Court Rules. Any orders, however, obtained by them pursuant to those applications were after the date of the final decree, and by that final decree, as the learned Chief Justice has pointed out in the course of his judgment, certain creditors of the partnership therein referred to were directed to be paid pro rata. No doubt that constituted those creditors secured creditors upon the footing of an equitable charge, and if the applicants in the present case had been compelled to rely on any orders passed after the making of the final decree in the partnership suit, then no doubt they would have been in a serious difficulty. In my opinion, however, under the circumstances of this case they are entitled to rely on the charging order made on September 16, 1925, that charging order having, as I have already pointed out, been made in the partnership suit. Inasmuch as the powers of the Courts of Equity, as the learned Chief Justice has pointed out in his judgment, were preserved to this Court on the Original Side by the Charter and Acts to which he has referred, it is, in my opinion, competent to this Court on the Original Side, although no provision is made in the Civil Procedure Code for charging orders of this character, to make a charging order in circumstances such as those existing in the present case. Accordingly, in my judgment, the charging order was properly made, and constituted the applicants secured creditors against the partnership assets.

53. A number of authorities have been referred to by counsel in the course of the argument dealing with questions of rateable distribution arising under Section 73 of the Civil Procedure Code. The applicants in the case before us are the only creditors of the firm who had attached, and are the only creditors who have obtained a charging order. No question of rateable distribution, therefore, arises. I desire, therefore, to say nothing upon the question of rateable distribution, or the authorities which have been cited. I prefer to reserve my opinion on the very complicated and difficult questions that may arise on rateable distribution until that question comes before me for decision. It is in my view unnecessary in this particular case to express any opinion on those questions.

54. I agree that the appeal in the present case must be dismissed with costs.

Marten, C.J.

55. As regards the question of costs, the applicants ask that their costs of this appeal be tacked on to their debt to be paid out of the partnership assets. We think we may properly make that order, and we accordingly do so.

56. As regards the costs of the unsuccessful plaintiff No. 1, in effect she has brought this appeal not in her capacity as one of the partners but in her capacity as one of the creditors. Consequently, she has been fighting this appeal on behalf of the general body of creditors. Accordingly, we will direct that her costs do come out of the assets of the partnership. But it will be without prejudice to any application that any of the other creditors of the partnership may make, that their debts should be paid in priority to such costs.

57. In this respect we note that the order on the final decree of November 30, 1926, shows that the partnership was insolvent to the extent of Rs. 80,000, and yet directed the costs of all parties including the defendants to be paid out of the assets in priority to the claims of any of the creditors. That was a consent decree. The creditors were not at any rate formally before the Court, and whatever justification there might be for making such an order in favour of the plaintiff who by her exertions had obtained certain funds for the benefit of the creditors, it is not easy why the costs of the defendant should necessarily be given priority. But the defendants are not before us on this appeal, and, accordingly, our order as to costs with regard to the parties actually before us will be as above mentioned.

58. The stay order will be vacated. There will be liberty for the appellant to withdraw her deposit of Rs. 500 subject to the respondents having been first paid their debt and costs by the receiver as directed by the order of Mr. Justice Mirza now under appeal.


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