1. The petitioner applied under Section 9 of the Mysore Insolvency Act to have one Padasale Channappagowda, now deceased, and who will hereafter be referred to as the respondent declared or adjudged an insolvent. He has since died on 25-5-1953 leaving behind him respondents 1(a), 1(b) and 1(c), his sons as his heirs and legal representatives. The application was made on 1-4-1950. The petitioner alleged that the respondent owed him Rs. 1500/- and interest on a pronote dated 1-2-48 and that in order to defraud him and other creditors he had purported to execute a nominal and fraudulent sale deed for Rs. 2000/- on 10-12-49 of almost all his immoveable properties in favour of his friend and relation, one Sivalingappa. The petitioner wanted that transfer to be annulled among all his creditors.
The respondent pleaded that the pronote was unsupported by consideration and was obtained from him by fraud, his signature being taken to some blank papers and that he was therefore not liable to pay anything to the petitioner. He denied that the sale referred to in the application was nominal, collusive or fraudulent and pleaded that he had conveyed the properties to Sivalingappa as they really belonged to him. In his evidence he has stated that he sold them back to Sivalingapppa for Rs. 2000/- in pursuance of some earlier promise made to re convey it in favour of Sivalingappa's father. He pleaded that he had other assets and was able to pay his creditors and that the petition was belated having been filed more than 3 months after the date of the alienation though within three months of the date of registration of the sale deed.
2. The Subordinate Judge before whom the application was made, and the District Judge who heard the appeal against his order, have both found that the pronote in favour of the petitioner is supported by consideration and that the amount evidenced by it is due and owing to the plaintiff. They have not believed the story of the respondent that the pronote was taken from him under the circumstances pleaded or that the plaintiff is liable to pay any part of the debts due by the quondam firm of the petitioner and the respondent, and that under the terms of the agreement Ex. D dated 1-12-1948 the respondent alone was responsible to discharge these debts.
They have also found that the sale, under Ex. C, of 5 acres 17 guntas of garden land and 19 acres and 5 guntas of dry land which was worth considerably very much more, viz., Rs. 25,000/- to Sivalingappa could not be a real transaction and that the reason given by the respondent for effecting the sale of such valuable properties for a low figure has not been made out. These findings cannot be challenged before me and have not been seriously questioned either.
3. The Courts below have however dismissed the application on two grounds, viz., that the same is barred by time having been filed beyond 3 months of the impugned sale deed, and that the respondent had sufficient assets to pay his debts. As regards the first point the Courts below have referred to and followed the cases reported in -- 'Ramananda Paul v. Pankaj Kumar' : AIR1938Cal417 and -- 'Ratan Chand v. Smail', AIR 1933 Lah 821 (B). The learned District Judge before whom it was urged for the petitioner that the former rulings applied to cases of alienations which were sought to be set aside as being a fraudulent preference under Section 54 of the Insolvency Act has referred to Section 47 of the Registration Act which declares that the title of a person under a registered document operates, not from the date of registration, but from the date from which it would have commenced to operate if no registration thereof was required or made; and he was of the opinion that as the title of the alienee under Ex. C would date back to its date of execution and not the date of its registration the period of three months referred to in Section 9 would begin to run from that date.
There is no decided case in Mysore on the point. But the preponderence of opinion among the other High Courts is that for an application by a creditor under Section 9 of the Insolvency Act, where the act of insolvency alleged against the debtor is the execution of a sale deed or other alienation which requires registration, the period of three months for presenting the petition for adjudication should be computed from the date of registration of the sale deed and not from the date of its execution.
4. The Madras High Court has held so in --'Sarvathada v. Kurubasubbanna' : AIR1934Mad637 and -- 'Muthiah Chettiar v. Official Receiver, Tinnevelly', AIR 1933 Mad 185 (D) and has followed the same principle in -- 'Venkadari Somappa v. Official Receiver, Bellary', AIR 1938 Mad 801 (E) with reference to Section 54 of the Provincial Insolvency Act. To the same effect are the decisions in -- 'Kanhaiya Lal v. Sadashiv Rao' and -- 'G.W. Godbole v. Marotisa Balusa', AIR 1937 Nag 197 (G) and --'District Board, Bijnor v. Md. Abdul Salam', AIR 1947 All 383 (H). The Lahore High Court had taken the opposite view in -- 'AIR 1933 Lah 821 (B)', to which reference has been made by the District Judge. The Transfer of Property Act was not in force in Punjab at the time and the decision is mainly based on the circumstance that the vendor had there, then, the option either to effect a sale orally or in writing.
Even the learned Judge who decided that case has observed that the point was not free from difficulty while coming to his conclusion. But that case has since been overruled by a Full Bench of the Lahore High Court in -- 'Lakhmi Chand v. Kesho Ram', AIR 1935 Lah 565 (I), where it was held that when a petition is presented alleging that a debtor has committed an act of insolvency by a deed registered, the period of limitation prescribed by Section 9 of the Act runs from the date of its registration and not from the date of its execution; and it is somewhat surprising that while the lower Court has noticed -- 'AIR 1933 Lah 821 (B)', it has not referred to this later case. Even the Calcutta High Court has held in -- 'Indo Burma Trader's Bank v. Basada Charan' : AIR1944Cal370 that for purposes of Section 9 of the Provincial Insolvency Act time has to be reckoned from the date of registration of the deed of transfer where the Transfer of Property Act requires a registered instrument for a transfer, which is alleged to constitute the act of insolvency. They have distinguished the earlier Calcutta case in -- ' : AIR1938Cal417 ' on the ground that it was concerned with Section 54 and not with Ss. 9 and 6 of the Provincial Insolvency Act.
In -- U Ba Sein v. Maung San', AIR 1934 Rang 216 (K), which was a case dealing with Section 54 of the Provincial Insolvency Act the same view as the other High Courts referred to above had been taken. But that decision was overruled in -- 'U On Maung v. Maung Shwe Hpaung', AIR 1937 Hang 446 (FB) (Lj. Mr. Justice Baguley who was one of the Judges constituting the Full Bench has expressed the view that different considerations may arise in considering limitation with regard to Section 9 of the Provincial Insolvency Act.
5. It seems tome that if it is held that the period, of three months provided under Section 9 begins to run from the date of execution and not from the date of registration of a sale deed, that section can be easily rendered nugatory by the insolvent or the alienee merely deferring presentation of the document for registration till the last day of the four months within which the document may normally be registered or to the eight months available under some special circumstances referred to in Section 24 of the Registration Act. The petitioning creditor can only base his application on a transfer which is brought to his notice or which may be deemed to have been brought to his notice by the fact of registration. If the registration of the document is absolutely necessary to validate it, and if without registration there can be really no effective transfer at all the act of insolvency, i.e., the transfer contemplated under Section 6 and on which the petition is grounded under Section 9(1)(c) may well be said to have occurred on the date of registration.
Section 47 which provides that the transaction operates or takes effect retrospectively from the date of execution of the deed and not its registration is not really germane to this question. As pointed out in AIR 1947 All 383 (H) at 386
'Care has to be taken to keep the question of the operation of the deed distinct from the question of the point of time when the event which gives it legal effect takes place. Section 47 of the Registration Act is designed to avoid fraud of one kind, viz., to avoid a document executed on a later date to steal a march or prevail as against a document executed earlier and affect legal rights and interests created thereby already, by merely registering it earlier. It would be somewhat strange if that section is to be used to help a fraud by a person making a fraudulent alienation. In the above view the application of the petitioner must be held to be within time.'
6. The Courts below have dismissed the application also on the ground that the assets of the respondent are more than his liabilities. The trial Court has very briefly discussed the value of the assets and has found that though the evidence is inconclusive the value of the assets of the respondent, other than those he has sold under Ex. C, may be just enough to discharge his debts including those of the petitioner. The learned Subordinate Judge has also found that the value of the assets has been exaggerated, but they may be sufficient to meet the liabilities and he appears to base his decision more on the question of limitation. It is urged before me by Mr. Puttaswamy, learned Counsel for the petitioner, that what is required under Section 25(1) of the Act is that the debtor must satisfy the Court that he is able to pay his debts and that the burden of proof is therefore on the debtor to establish that he was able to pay his debts; see -- 'Gadi v. Govindrao Bapuji', AIR 1937 Nag 127 (M).
He has referred to the evidence and has rightly urged that the immoveable properties now remaining not liquidated are easily available assets and are neither so considerable nor so valuable as the trial Court has thought and that the respondent has given absolutely no evidence of any attempt on his part to raise funds by either sale or mortgage of them in order to discharge his debts. In this connection he has relied on a case reported in --'Bhagwan Das v. Md. Nawaz Shah', AIR 1939 Lah 349 (N) where it has been held that the
'Mere presence of unliquidated assets does not necessarily prove that they are capable of being liquidated. Unliquidated assets cannot be sufficient to discharge debts until they are liquidated and until those steps are taken, willingly or unwillingly by the debtor, it cannot be said that, at the time when the petition is put in, praying for his insolvency, he is able to discharge his debts in the ordinary sense of the term.'
Their Lordships have pointed out in that case that the mere fact that the value of the immoveable properties owned by him is in excess of his liabilities is not sufficient to prove a debtor's ability to pay his debts and that it must be shown by him that he has such realizable assets as can within a reasonable time be made available to meet all his liabilities and that from the circumstance that no effort has been made to pay off the creditors though the debts have been due for a considerable time can be presumed that he is unable to pay his debts within the meaning of Section 25. See also --'Tota v. Badri Pershad', AIR 1930 Lah 192 (O); AIR 1937 Nag 127 (M); -- 'Pratapmal v. Chum Lal' : AIR1933Cal417 and -- 'Chidambaram Chettiar v. Daivani Achi', AIR 1936 Mad 275 (Q) where it has been pointed out that the debtor must satisfy the Court that he has present ability to pay creditors and not that he will be able to do so in a more or less distant future.
7. The respondent had a number of minor sons when the application was made and was disputing the creditor's debt itself by pleas which have now been found to be false. The debt due to the petitioner is on a pronote and when the respondent was alive it may not have been easy for him to raise money on the security of the family properties to discharge the petitioner's debt in the light of the law as it stood in Mysore. Far from saying that he was either able or willing to discharge the other debts the respondent was trying to make out that it was the petitioner that should discharge either the whole or part of those debts and that he himself was not liable; and this has been found to be false, and contrary to what he has expressly agreed under Ex. D. Though the insolvency petition has been pending for nearly four years it has not been even suggested that he has discharged any of those debts and the effect of dismissing the creditor's application at this stage would mean that the creditors would have probably no remedy to recover their just dues.
The finding that the alienation effected by the respondent was not bona fide but was nominal and collusive and that it covers a most valuable portion of his property is a further circumstance by which it can reasonably be inferred that he was unable to pay his debts. The petitioner has also sworn that the respondent has, subsequent to his petition, transferred some of his shares and realizable assets without discharging either his debt or the debts of other creditors. The finding therefore of the Courts below that he may have had slightly more assets than liabilities is not only not correct but is not even a very relevant circumstance to be taken into account while deciding whether the debtor is able to pay his debts.
8. The respondent is now dead but under Section 17 the proceedings must be continued so far as may be necessary for the realization and distribution of the property of the debtor. Section 17 authorizes the Court by 'necessary implication' to pass an adjudication order even after the death of the debtor. It has been so held in : AIR1944Cal370 where it has been pointed out that the matter of realization and distribution of the property of the debtor cannot be conducted unless there is a person in whom the property is vested and the property of the debtor will vest in the Receiver only on adjudication following -- 'Ramathai Anni v. Kanniappa Mudaliar', AIR 1928 Mad 480 (R) and -- 'Ramesh Chandra v. Charu Chandra' : AIR1930Cal590 .
9. In the result this revision petition is allowed and the orders of the Courts below are set aside. The respondent is adjudged an insolvent as prayed for in the petitioner's application and the learned Subordinate Judge is directed to dispose of the case in accordance with law in the light of the observations made above. The petitioner will get his costs throughout from the respondent's estate.
10. Revision allowed.