Skip to content

In Re: Ramchandra Ganuji Waikar - Court Judgment

LegalCrystal Citation
Decided On
Case NumberInsolvency Application No. 350 of 1920
Reported in(1927)29BOMLR1167
AppellantIn Re: Ramchandra Ganuji Waikar
.....receiving dividend-omission of a creditor's name from the list of creditors through oversight in official assignee's office-declaration of dividend set aside-fresh declaration ordered-inclusion of the name and claim of the omitted creditor-another creditor then applying for the first time to be included in the list-creditors receiving excess dividend to refund-payment under mistake of fact-indian contract act (ix of 1872), section 72.;on the adjudication of an insolvent his assets were realised by the official assignee, who in due course declared the first and final dividend and notified it to the creditors who had proved their debts. four of the creditors so notified received payment of the dividend allotted to them. the first applicant, who had obtained a decree against the estate of..........paid in full : and this is the main argument which i have listened to today. two of these fully paid creditors have appeared, viz., rajaji lakhmaji & co. and ratna lala & co., and i am indebted to their counsel mr. somji for the assistance he has given to the court in saying what can fairly be said on their behalf.4. but it appears to me that the case made out for claiming a refund from these four respondents and thus supporting mr. justice kanga's order is a very strong one. mr. kemp puts the case as one of mistake of fact. he referred me to two leading english authorities on the subject, viz., standish v. ross (1849) 3 exch rep. 527 and to the general statement of the law which will be found in bullen & leake, 8th edn., and roscoe's evidence in civil actions. thus in bullen & leake,.....

Marten, J.

1. In this case I have two rules nisi before me. The one which 1 will take first is the rule nisi dated August 22, 1922, calling upon the four respondents to show cause why they should not repay to the acting Official Assignee the sums therein mentioned or other the excess amounts of the dividends received by them over the amounts properly payable to them respectively by way of dividend. The other is a rule nisi dated May 2, 1922, taken out by one A. Mahomed Ibrahim calling on the acting. Official Assignee to show cause why the list of creditors as settled by him and the amounts of dividend as declared by him should not be amended and rectified by including therein the name and claim of the applicant, and why the acting Official Assignee should not be authorized and directed to claim reimbursement of the excess if any paid by him to any of the creditors of the insolvent.

2. This latter rule nisi of May 2 came before me on August 1, 1922, and on earlier dates. The main facts are set out in the judgment which I gave on that occasion. I am, accordingly, relieved from the necessity of repeating them at the present time. But to explain shortly the situation, it is this : The Official Assignee Mr. Lang purported to declare a final dividend of sixteen annas in the rupee after taking the necessary steps prescribed by the statute. It was not till after the four respondents named in the first mentioned rule had been paid, that it was ascertained that the Official Assignee had, by some mischance, overlooked entirely a former claim that had been lodged in his office on behalf of one Narayan, who is now represented by Mr. Kemp. Narayan thereupon applied to Mr. Justice Kanga, and obtained an order from him on April 4, 1922, by which it was ordered that the Official Assignee was to amend and rectify the list of creditors of the insolvent as settled by him and the amounts of dividend as declared by him by including therein the name and claim of Narayan. It was further ordered that the Official Assignee was authorized and directed to claim reimbursement of the excess if any paid by him to the four respondents I have mentioned. Almost immediately afterwards another creditor A. Mahomed Ibrahim became aware of what had taken place, and he in his turn issued a rule nisi, viz., the second of May 2 that I have mentioned.

3. The difficulty I felt on August 1 was that the four respondents had not had any opportunity of contesting Mr. Justice Kanga's order. If that order was without jurisdiction then these four respondents could not be ordered to refund, and that would make a substantial difference, so it appeared to me, in the rights of the various creditors. Accordingly, I directed that the Official Assignee should take out a rule nisi against the four respondents who had in fact cashed their dividend warrants and so had been paid in full : and this is the main argument which I have listened to today. Two of these fully paid creditors have appeared, viz., Rajaji Lakhmaji & Co. and Ratna Lala & Co., and I am indebted to their counsel Mr. Somji for the assistance he has given to the Court in saying what can fairly be said on their behalf.

4. But it appears to me that the case made out for claiming a refund from these four respondents and thus supporting Mr. Justice Kanga's order is a very strong one. Mr. Kemp puts the case as one of mistake of fact. He referred me to two leading English authorities on the subject, viz., Standish v. Ross (1849) 3 Exch Rep. 527 and to the general statement of the law which will be found in Bullen & Leake, 8th Edn., and Roscoe's Evidence in Civil Actions. Thus in Bullen & Leake, 8th Edn., p. 268, it is stated:-

Money paid by reason of ignorance or mistake of fact...may be recovered hack.

5. Then at pp. 268, 269 it is stated :-

Whore money is paid under a supposed obligation to pay it and in forget fulness of a fact which put an end to the obligation, it may be recovered back, as when an insurance office paid the amount of a life policy in forgetfulness of a default which had previously caused the policy to lapse; but if the money is paid intentionally, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all inquiry into it, it is a voluntary payment, and cannot be recovered (per Parke, B., in Kelly v. Solari (1841) 9 M. & W. 54 The person paying the money cannot claim it back on the ground that he made a mistake as to a fact, unless the fact which he believed to exist would, if true, have given the person to whom he paid it a right to recover it from him (see per Bramwell, B., in Aiken v. Short (1856) 1 H. & N. 210.

6. Stopping there for a moment I think the facts in the present case would satisfy Lord Bramwell's proposition. Here the Official Assignee was under the impression that the estate amounted to sixteen annas in the rupee, and thought that the respondents were each entitled to a full dividend of sixteen annas in the rupee. If that fact had been true, then the persons receiving the money, viz., the respondents, would have had a right against the Official Assignee to be paid those sixteen annas in the rupee on their debts.

7. Similarly in Roscoe's Evidence in Civil Actions, 19th Edn., Vol. I, p. 496, after saying that 'money paid with a knowledge of all the facts, but under a mistake of the law, cannot in general be recovered back, there being nothing against conscience in the other retaining it' proceeds as follows (p. 497):-

But money paid under a mistake of facts, and which the party receiving it has no claim in conscience to retain, is recoverable as money paid without consideration. Bize v. Dickason (1786) I.T.R. 285 Milnes v. Duncan (1827) 6 B. & C. 671 And money so paid in ignorance may be recovered back, although the defendant cannot be put in statu quo. Standish v. Ross (1849) 3 ER 527.

8. Then other cases are cited, and it proceeds at p. 497 thus: 'Money paid with full knowledge of facts by a person who might have resisted payment cannot be recovered back;' and it refers to cases like Rogers v. Ingham (1876) 3 Ch. D. 351. But that to my mind is quite a different class of case. There is no suggestion here that the parties were at arms length, one claiming a legal right and the other denying that right but eventually submitting to it. In such a case it might be proper that the party who being a judge in his own cause has thus decided against himself cannot afterwards apply to a Court of law to reverse his own decision.

9. I have referred to these English authorities because they were put first in argument. But really we have our own Contract Act in India, and I think that the section on the point is very clear. Section 72 of the Indian Contract Act runs :-

A person to whom money has been paid, or anything delivered, by mistake or under coercion, must repay or return it.

10. On the facts here I think it is perfectly clear that there was a mistake; namely, that when the Official Assignee procured a dividend to be declared and when he paid to these respondents that dividend in full, he was quite unaware of the fact that Narayan, Mr. Kemp's client, had in fact lodged a claim for Rs. 10,000. How precisely the mistake arose in the office is really immaterial. Every body knows that under pressure of business these mistakes are bound to occur whatever care may be taken by those in charge. But it stands to reason that if the Official Assignee had known of this claim he never would have ignored it. For one thing, it may be assumed that no man will willingly incur the risk of personal liability for no reason. But a better and higher ground is that no man in a semi-judicial position will intentionally pass an order or take any steps which will in fact work to the prejudice or injustice of persons whose claim he is aware of.

11. That being so, what reason is there that sitting in Insolvency I should not exercise this jurisdiction for recovery of money paid by mistake Of course I am aware that under one of the English cases cited to me an action for money had and received was dismissed, and that today I am not trying a suit but I am administering an estate in insolvency. But it has been pointed out in one of the cases that it is correct procedure for a creditor to come to the Insolvency Court and ask them to make good the situation. Thus in Ex parte Ogle, Ex parte Smith : In re Pilling (1873) 8 Ch. App. 711 where proceedings had been taken on a mistaken view of the law, Lord Justice James said (p. 716):-

But it would be hard to make the trustee personally responsible for having acted on what was then the common opinion as to the effect of the law. There was no reason of public policy to induce the Court to act thus harshly; for if any creditor found that another creditor had been overpaid, he could summon him to the Court of Bankruptcy and obtain an order that he should refund what he had wrongfully received, without making the trustee liable for not having burdened the estate with the costs of legal proceedings in every case in which there was the least doubt as to the amount of a creditor's claim.

12. Then the general jurisdiction in this respect in bankruptcy was considered in In re McMurdo: Penfield v. McMurdo [1902] 2 Ch. 684. I may here say that if these matters had been considered by the Indian Courts I would naturally have preferred to have the decisions of the Courts of this country cited to me. But, as far as counsel's researches have been brought to my attention, no case in India of any sort or kind appears to bear on the matters of these two rules nisi. I, accordingly, have to turn and see how the matter has been treated under the corresponding jurisdiction in England from which our own Insolvency Act is, to a large degree, borrowed. Now in In re McMurdo the Court was administering the insolvent estate of a deceased person, and that being so, it was being administered in bankruptcy. The question arose as to the rights of a secured creditor and as to whether at a particularly late stage in the proceedings he should be allowed to come in and prove, Mr. Justice Swinfen Eady was of opinion that unless some special circumstances were shown, it would be inequitable to allow that to be done. But on appeal that decision was reversed. Lord Justice Vaughan Williams said at p. 699:-

Now, according to my experience of bankruptcy practice, there never has been any doubt as to the right of a creditor, whether he is a secured creditor or whether he is an unsecured creditor, to come in and prove at any time during the administration, provided only that he does not by his proof interfere with the prior distribution of the estate amongst the creditors, and subject always in cases in which he has to come in and ask for leave to prove, to any terms which the Court may think it just to impose.

13. Lord Justice Romer at p. 706 says:-

And no one could reasonably contend that, by reason of Rule 1, an ordinary creditor, by mere delay in coming in and proving his debt, would thereby altogether lose his right of coming in at all as against undistributed assets in a case where otherwise no injustice would be done. As a rule, no injustice is done when a creditor comes in, for the Bankruptcy Court can always impose terras which will prevent any unnecessary delay in the administration of the estate in bankruptcy being caused by the lateness of the creditor coming in, and, as a rule, subject, as I have said, to care being taken that no injustice is done, by special order the Court of Bankruptcy will undoubtedly, notwithstanding Rule 1, allow a creditor, notwithstanding his delay, to come in and prove and share in undistributed assets. I will not say that there may not be special circumstances that might justify the Bankruptcy Court in refusing to admit a creditor who came in late; but I have stated what I conceive to be the general rule and practice of the Bankruptcy Court.

14. Then in the somewhat analogous case of administration suits the right of parties proving late was considered in Harrison v. Kirk [1904] A.C. 1. The head-note runs thus:-

Where in an administration suit there is a fund in court, a creditor for a debt at law, though the appointed time for coming in has long elapsed, is by well-established practice allowed to prove against the general estate, subject to terms as to costs and as to payments already made.

15. And Lord Davey while referring to the general principles governing the administration of assets by the Court of Chancery said at p. 6:-

Of course in admitting creditors to come in at any time to take the benefit of the decree the Court is entitled to and does impose certain terms-terms indeed not affecting the legal right of the creditor, but affecting the mode in which he shall pursue his remedy. For instance, they require a creditor to pay the costs of the application which has been occasioned through his delay in coming in; and other conditions may be imposed upon the persons coming in at a late hour according to the circumstances of the case.

16. And then at p. 8 he proceeds:-

Therefore, as the result of the principles upon which the Courts of Chancery acted in administration suits, and which are still binding upon the Chancery Division of the High Court, and also as the result of the authorities which have been referred to, my opinion is that where there are general assets in Court applicable to the payment of a creditor's debt, no authority has been or can be quoted in which the Court has refused to allow a legal creditor to come in and share in those assets which still remain, subject of course to conditions and terms such as those which I have already referred to. The only way in which a creditor, with a legal right of action, making that application can be met, is by shewing that he has in some way either released or abandoned his claim against the personal property or general estate of the testator.

17. Then certain cases in bankruptcy were referred to. One was Ex parte Grinwood (1836) 1 Deac. 394. There it would appear that the creditor had by certain representations, namely, that there were sufficient assets, induced the assignee to pay him a larger dividend than he was in fact entitled to. Subsequently the assignee became bankrupt and the case is curious because the creditor became the assignee in the latter's place. But that is really irrelevant. Erskine C.J. at p. 404 while dealing with the application for a refund from the overpaid creditor said :-

This money was received by him as a creditor under the commission, and he has subsequently become an assignee. He would have been liable, as a creditor, to refund what had been improperly received by him to the existing assignee; but as he cannot sue himself, I think he is accountable in this Court.

18. Then Sir G. Rose said (p. 404) :-

My mind is perfectly satisfied, that the monies, charged in this petition to have been received by D.W. Harvey, were the monies of the estate. Put the case of an assignee paying the solicitor, or the messenger, more than what either is entitled to receive,-the Court has always thought it its duty to interfere in such case, on the application of any creditor, and compel the solicitor or messenger to refund. In like manner, the Court orders a party to refund dividends, when his proof has bean expunged; and when an adverse claim is set up by the assignees against the creditor, the Court fastens on the dividend; thus working out substantial relief, to the extent of the dividend on the proof.

19. It will be remembered that this was a case as long ago as 1836.

20. In Figg v. Hegarty (1890) 34 S.J. 214 it was pointed out that the proper course was to apply in bankruptcy and not bring a separate suit. In that case the plaintiff was non-suited because the person who made the payment made it voluntarily knowing that there was a solicitor's bill of costs but thinking that it would not exceed a certain sum. He allowed a sum for costs which he thought adequate and paid away the balance. But in fact the sum proved inadequate. Consequently the Court declined to interfere because it was not a mistake of fact but sheer laziness.

21. Then other cases cited to me were Ex parte Day : In the matter of Fenton (1831) 1 Mon. 212; Ex parte Dilworth (1842) 3 Deac & De 63; and In re Graham (1833) 2 Deac. & Chi 55. These cases would all rather tend to show that the general policy of the Insolvency Court was not to interfere with a distribution already made, supposing a creditor came in late. In Ex parte Day it appears that the dividend had been improperly declared because all the three commissioners were not present when the declaration was made. Consequently the then declared dividend was rescinded and a new dividend was ordered to be declared. The course there adopted has some bearing to what I will say later as regards the present case.

22. If we turn to our Presidency Towns Insolvency Act that practice is to a large degree borne out by Section 72, viz.:-

Any creditor who has not proved his debt before the declaration of any dividend or dividends shall be entitled to be paid out of any money for the time being in the hands of the official assignee any dividend or dividends which he may have failed to receive, before that money is applied to the payment of any future dividend or dividends, but he shall not be entitled to disturb the distribution of any dividend declared before his debt was proved by reason that he has not participated therein.

23. This section, I think, to some degree, bears out what I have referred to as being London practice, viz., that speaking generally the Court ought not to interfere with a past distribution. That I entirely follow when one has a case where the creditor comes in late but everything up to that date has been done quite correctly by the bankruptcy officials. If we had a case where the Court had distributed dividends only amongst the people then known but in fact there is some other person who is to blame for not having made known his claim, then it may be fair to say it is not the fault of anybody except himself that he did not share in the dividend up to that date. The Court in effect says we won't undo the past. But we shall make up the deficit to you as far as we can in the future.

24. But that class of case is very different from the one we have here where the Court itself has made a mistake through its officer in declaring the dividend that it did. No doubt we have here two creditors but as regards the one creditor represented by Mr. Kemp, I cannot personally see that ho has been guilty of any negligence whatever. He sent a solicitors' letter. He asked to be informed about the payment of dividend. Ho naturally expected that he would be given the usual notice under the Act, and he could hardly anticipate that in fact distribution would be made in total disregard of his claim. The other creditor on the other hand had given no notice to the office, and therefore as far as he was concerned the case stands differently. But taking the case of Mr. Kemp's client where the creditor himself has made no mistake, but the mistake was done by the Court through one of its own officials, if one was only to say that he might share in some future dividend he would be given nothing whatever, because ex hypothesi there will be no future dividend to share.

25. After weighing then the various arguments that have been put before me, I am of opinion that Mr. Justice Kanga had jurisdiction to make the order which he did and that he exercised that jurisdiction correctly. In other words, I agree with Mr. Justice Kanga that Mr. Kemp's client was entitled to be admitted as a creditor, and to have a refund of any excess dividend that had been paid in error to the other creditors.

26. Now comes the more difficult part of the case, that is, as regards Mr. Adhiya's client. I recognise, as I have already said, that he is not in such a strong position. But the view I take of Mr. Justice Kanga's order is this that the declaration of dividend of sixteen annas in the rupee was thereby set aside and that though directions were given for another dividend, its amount has not yet been determined, nor have the declarations and advertisements which are required by Section 69 been given. In fact at the present moment even the Official Assignee himself cannot say what the exact dividend will be though it is considered that it will be about eleven annas and eight pies or something of the sort. Mr. Kemp argued that his client ought to be included and Mr. Adhiya's client excluded; but on the true construction of Section 72 of the Act I am of opinion that Mr. Adhiya's client is not excluded, for, in my opinion, there has as yet been no valid declaration of any dividend. As regards the concluding words of that section 'but he shall not be entitled to disturb the distribution of any dividend declared before his debt was proved by reason that he has not participated therein' the only dividend declared, as I have already said, has been set aside, and, in my opinion, it cannot be said that so far there has been any valid distribution of any dividend.

27. Next I come to the question of terms. I do not think that Mr. Adhiya's client, even though not caught by Section 72, is entitled to put other parties to all this expense because his client has not taken the steps or the care which he ought to have taken in these insolvency proceedings. Taking first of all the question of a refund, as I have said, this appears to be a novel case in India and I think the various parties interested were entitled to obtain the opinion of the Court before they gave up certain rights and certain payments which the Court had declared they were entitled to. I think, therefore, that Mr. Somji's client and Mr. Bramhandkar's client must be paid their costs out of the estate as they represent creditors in whose favour dividends were declared in full. Mr. Kemp's client must also have his costs paid out of the estate. If then all these costs come out of the estate, the effect will be that they will be shared to a large degree by the other creditors. That is, I think, fair as the mistake is one that has been made by the Court. To that extent I am afraid the creditors must suffer, but they may bear in mind that it was by the aid of the Court that they have succeeded in getting a dividend, which as far as my experience goes in this Court is unusually large. Mr. Adhiya's client must, I think, pay his own costs.

28. Then as regards the formal order that I have to pass, its precise terms may be considered by counsel, and, if neceesary, I will consider any minutes they may bring in. But they must be in respect of both the rules nisi. On the first there must be an order on respondents Nos. 1 to 4 to repay the excess of the dividend which has been paid to them over and above the amount of dividend which they may be entitled to receive in common with the other creditors. On the second rule nisi there must be an order that the assets are to be applied first in payment of the costs already directed and the proper costs and expenses of the Official Assignee, and then the balance is to be divided amongst all the creditors in proportion to their debts. If some of the respondents to the first rule nisi do not pay the amount directed, then there will be liberty to apply.

Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //