Skip to content


Pathuri Dharma Rao Vs. Vatluru Co-operative Bank and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAndhra Pradesh High Court
Decided On
Case NumberCivil Revn. Petn. No. 2107 of 1976
Judge
Reported inAIR1978AP197
ActsProvincial Insolvency Act, 1920 - Sections 24
AppellantPathuri Dharma Rao
RespondentVatluru Co-operative Bank and ors.
Advocates:C.V.N. Sastry, Adv.
Excerpt:
.....1920 - appellant filed petition to declare him as an insolvent on grounds of inability to pay his debts - insolvency court dismissed petition on grounds of failure of appellant to fully disclose his assets - possession of assets not a condition necessary for debtor to prove his insolvency - debtor has statutory right of getting himself declared insolvent if provisions of section 10 satisfied - held, petitioner entitled to be adjudicated as an insolvent. - - on the ground that he had failed to fully disclose his assets and his assets were more than his liabilities and he had the capacity to pay the debts, the insolvency court dismissed the petition. he shall, for the purpose of proving his inability to pay his debts, be required to furnish only such proof as to satisfy the court..........his assets and his assets were more than his liabilities and he had the capacity to pay the debts, the insolvency court dismissed the petition. those findings were confirmed in appeal by the district judge, west godavari.3. it is submitted by the learned counsel for the petitioner that there is no clear finding that the value of his assets is more than his debts. i do not agree. if we read the judgment of both the lower courts as a whole, that is the conclusion they have arrived at,4. next it is submitted that in a debtor's petition the debtor has to furnish only prima facie proof of his inability to pay the debts under s. 24 of the provincial insolvency act, and the petitioner had adduced such a proof. it is further stated that in execution of a decree his share in the house was.....
Judgment:
ORDER

1. The petitioner is a debtor. He filed a petition under S. 10 of the Provincial Insolvency Act, to declare him an insolvent on the ground that he was unable to pay his debts. He had borrowed monies from the respondents. The 8th respondent obtained a decree in O. S. No. 339/1970 on the file of the District Munsif's Court, Eluru and in execution of that decree, the petitioner was arrested and produced before the Court on 8-11-1971. He gave an undertaking to the Court that he would file an Insolvency Petition and he was released. The 1st respondent obtained a decree against the petitioner on the foot of a mortgage for a sum of Rs. 10,000/-, and in execution of that decree the lands and the house of the petitioner were attached and the petitioner's share in the house was sold in auction. The second respondent filed O. S. No. 136/1971 in the Court of the Subordinate Judge, Eluru on the basis of a promissory note executed by the petitioner for Rs. 15,000/- and obtained attachment before judgment, of his family properties. The petitioner had shown his debts in the A schedule to the petition. They come to Rs. 56,652/-. He had shown his properties in the B schedule. They are Ac. 4-861/2 cents. He estimated their value at Rs. 5,600/-.

2. The respondents resisted the petition by contending that the petitioner is the manager of the joint family since the death of his father in 1949, and the joint family owns properties of an extent of Ac. 45-76 cents, and most of the debts shown in the A schedule are concocted for the purpose of the petition. The petitioner has admitted in the cross-examination that his family owned Ac. 50-00 of land, and he gave security of Ac. 26-30 cents for the sum of Rs. 10,000/- borrowed from the 1st defendant. He also admitted that his father gave Ac. 80-00 of land to him and to his other three brothers. He admitted that he had got 1/4th share in the property, but he had not shown it in the petition schedule. He contended that he and his brothers had divided the joint family properties in 1956, but that was not believed by both the lower Courts in view of the documents, Exs. B-2 to B-4. Thus, both the Courts held that the petitioner had suppressed to mention all the properties in the petition. The Insolvency Court held that Rs. 30,000/-, out of the debts shown by the petitioner, had to be paid jointly by the petitioner and his brothers. It further observed that even if the petitioner alone has to pay the balance of Rs. 26,652/-, his 1/4th share of Ac. 43-22 cents and 1/4th share in the house property was sufficient to discharge that amount. On the ground that he had failed to fully disclose his assets and his assets were more than his liabilities and he had the capacity to pay the debts, the Insolvency Court dismissed the petition. Those findings were confirmed in appeal by the District Judge, West Godavari.

3. It is submitted by the learned counsel for the petitioner that there is no clear finding that the value of his assets is more than his debts. I do not agree. If we read the judgment of both the lower courts as a whole, that is the conclusion they have arrived at,

4. Next it is submitted that in a debtor's petition the debtor has to furnish only prima facie proof of his inability to pay the debts under S. 24 of the Provincial Insolvency Act, and the petitioner had adduced such a proof. It is further stated that in execution of a decree his share in the house was sold, in another suit his property was attached before judgment, and in a third suit in execution of the decree he was arrested and these are sufficient to show that he had no means to pay the debts.

5. In order to appreciate this question it is necessary to refer to the relevant provisions of the Provincial Insolvency Act. Under S. 6, a debtor commits an act of insolvency, if any of his property has been sold in execution of the decree of any court for the payment of money, or if he petitions to be adjudged an insolvent under the provisions of the Act, or if he is imprisoned in execution of the decree of any court for the payment of money. In this case, admittedly, the property of the petitioner was sold in execution of a decree obtained by the 1st respondent for the payment of money. In addition, he had petitioned to be adjudged as an insolvent. Therefore, the petitioner has committed acts of insolvency. Under S. 10, a debtor shall not be entitled to present an insolvency petition, unless he is unable to pay his debts, and his debts amount to five hundred rupees; or he is under arrest or imprisonment in execution of the decree of any court for the payment of money. In this case, admittedly, the petitioner's debts amount to Rs. 500/-. He was also under arrest in execution of a decree for the payment of money. Still he will not be able to present a petition, unless he is unable to pay his debts. The procedure for enquiring into his petition is laid down in s. 24. Under that Section, the court shall require proof that the debtor is entitled to present the petition. He shall, for the purpose of proving his inability to pay his debts, be required to furnish only such proof as to satisfy the court that there are prima facie grounds for believing the same and the court, if and when so satisfied, shall not be bound to hear any further evidence thereon. Thus, the petitioner has only to make out a prima facie case to satisfy the court that he is unable to pay his debts. These provisions have been the subject matter of interpretation by the Privy Council and the various High Courts. In Chhatrapat Singh Dugar v. Kharag Singh Lachmiram, (1917) ILR 44 Cal 535 : (AIR 1916 PC 64), the Privy Council held that,

'On an application under the Provincial Insolvency Act by a debtor to be declared an insolvent where all the conditions specified in the Act have admittedly been satisfied, he is entitled to an order of adjudication. This does not depend on the discretion of the Court, but is a statutory right of which he cannot be deprived by the Court on the ground that his petition is 'an abuse of the process of the Court'.'

The Privy Council further observed that,

'the stage at which to visit with its due consequences any misconduct of a debtor is when his application for discharge comes before the Court, and not on the initial proceeding'.

In Narayanappa v. Bheemappa, AIR 1926 Mad 494, a Division bench of the madras High Court held that,

'When a person presents a petition to be adjudicated an insolvent that petition itself is treated as an act of bankruptcy under the Insolvency Law. And when he says that his liabilities are ore than his assets, that must be taken as some evidence that he is unable to meet his liabilities. No enquiry need be made as to whether some of the debts mentioned in his petition are real debts. An enquiry into the bona fides of the insolvent should be held when he comes up for discharge and not before'.

The learned Judges observed that, what the Court has to do is to see whether, prima facie, the person applying to be adjudicated insolvent is unable to pay his debts.

6. In Srirangachariar v. Narasimha Iyer, AIR 1928 Mad 1193, Devadoss, j., held that,

'the mere fact that the debtor has large properties is no ground for holding that he is able to pay his debts. A man may have property but he may be unable to raise money to pay his debts and, therefore, the Court is not entitled to come to the conclusion that the man is not unable to pay his debts because he has got properties the value of which is more than that of his debts he had to pay.'

In that case an issue was framed, whether the petitioner had suppressed any other assets. The learned Judge held that 'it was not germane to the enquiry which a Court ought to hold under S. 24, and that the petitioner has not brought to the notice of the court all his property is no ground for holding that he is able to pay his debts.' The learned Judge further observed that,' when a debtor comes forward and says that he is unable to pay his debts, the court has to satisfy itself whether he is unable to pay them and if he has assets or if his property cannot be converted into money, the statement of the debtor that he is unable to pay his debts must be accepted as true unless the Court has reasons to think that all his debts are fictitious debts and that he is making the application with the ulterior motive.' In Doraiswami v. Abdul Suban, AIR 1932 Mad 237, a Division Bench of the Madras High Court held that,

'The possession of assets is not a condition necessary for a debtor to prove before he is adjudicated insolvent. The conditions which should be complied with by a debtor presenting an application for adjudication are mentioned in s. 10. The debtor has a statutory right of getting himself adjudicated an insolvent if he satisfied the provisions of S. 10.'

7. In Krishnappa v. Kasiviswanathan, : AIR1966Mad331 , Natesan, J., held that in a petition filed by a debtor at the time of the initiation of the proceedings, the Court has only to be satisfied that the essential conditions for adjudication as provided under the Act are present. In that case, the decree debt exceeded Rs. 500/- and the debtor had applied for being adjudicated. The learned Judge held that, that will be sufficient leaving aside the further fact that he had been arrested also in execution of the decree. In Lakshminarayana v. Subramania, AIR 1923 Mad 585, it has been held that when the properties are under attachment and presumably would be sold, it is not possible for the debtor to realise the price himself or to use them for the payment of his debts.

8. Bearing these principles in mind, I will now examine the facts of this case. In execution of the decree obtained by the 1st respondent the petitioner's share in the house was sold in public auction. The 2nd respondent filed a suit and got attachment of his properties before judgment. The 8th respondent obtained a decree against him and in execution of that decree he got the petitioner arrested. In addition, the petitioner himself has filed a petition to adjudicate him as an insolvent. These facts go to show that he has committed acts of insolvency. The finding of the lower court is that he has 1/4th share in the joint family properties of Ac. 44-76 cents. Even assuming it is so, it is only an undivided share which he cannot easily sell and immediately realise the proceeds. Further they are under attachment. The fact that he has suppressed some of his assets or that he has shown some bogus debts in his petition are not matters to be taken into consideration while holding the enquiry under s. 24. They are matters to be taken into consideration when an application for discharge comes before the Court. At this stage, what is needed is only prima facie proof of his inability to pay the debts. In these circumstances, I have to hold that the orders passed by both the lower courts are not correct and the petitioner is entitled to be adjudicated as an insolvent. Consequently, the revision petition is allowed and the matter is remitted to the Subordinate Judge, Eluru, for disposal. In the circumstances of the case, I direct each party to bear his costs.

9. Revision allowed.


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