1. The Official Receiver is the appellant, Respondents 1 and 2 are the sons of the 3rd respondent. The 3rd respondent was adjudged insolvent on 7-12-1960 on a creditor's insolvency petition I. P. No. 22 of 1960. His sons had already instituted a suit, O. S. No. 46/60, for partition and allotment of 2/3rd share before the Subordinate Judge's Court, Anantapur. On 13-9-60 an ex parte preliminary decree was passed therein, which is marked as Ex. A-3. On an application, I. A. No. 223/61 filed on behalf of the plaintiffs in that suit, the Official Receiver was impleaded as a party to the final decree proceedings. As soon as he was brought on record, the Official Receiver was impleaded as a party to the final decree proceedings. As soon as he was brought on record, the Official Receiver put forth his plea that there are debts due to the creditors and that all these debts are the pre-partition debts and that provision ought to be made in the decree for the payment of the same as they were not tainted debts.
The learned Subordinate Judge directed the Official Receiver to resort to appropriate remedy in that behalf and passed a final decree on 26-6-1961. As a result, the Official Receiver moved the Insolvency Court by filing an application, I. A. No. 703/61 under Section 4, 53 and 54 of the Provincial Insolvency Act for a declaration that the debts due from the father are binding on the sons to the extent of their shares in the joint family property and that the said shares are liable to be sold for discharge of the debts. This petition was resisted on the ground that a final for partition has already been passed and the sons being third persons, they are not amenable to the jurisdiction of the Insolvency Court and that the petition should be dismissed in limine. They denied the truth and binding nature of the debts and urged that the debts are sham and fictitious. The 3rd respondent, the father disputed the genuineness of the debts and stated that the promissory of the debts and stated that the promissory notes were not supported by consideration. The ground taken by the sons that the Insolvency Court has no jurisdiction to decide under Section 4 the disputes between the creditors and the sons of the insolvent was negatived by the Court of first instance.
On appeal however, the learned District Judge allowed the claim set up by the sons as to the jurisdiction of the Insolvency Court to go into the matter on the basis that the principle laid down in Ramachandra Aiyer v. The Official Assignee of Madras, 61 Mad LJ 66 = (AIR 1931 Mad 317), was not followed in the later decisions of the Madras High Court in Official Receiver v. Devarayan Chettiar, Air 1949 Mad 216 and Thirumaleswara v. Govinda. : AIR1952Mad776 , and that on the other hand in C. Sriramamurthi v. Official Receiver, Air 1957 Andh Pra 692, the principle was clearly laid down that, if a decision were effected between the insolvent and his sons before the Official Receiver exercised the power of the sale, the insolvent leaving the creditors to pursue their remedies, against the sons' shares by means of suits instituted against them invoking pious obligation of the sons to discharge their father's untainted debts.
In the opinion of the learned District Judge, these observations went against the decision in 61 Mad LJ 66 = (AIR 1931 Mad 317)and hence the decision of the Madras High Court is no longer binding on this Court. On this basis, he held that the petition filed by the Official Receiver invoking the jurisdiction under Section 4 is not maintainable and that the remedy of the Official Receiver is to file a separate suit against the sons of the insolvent. Consequently, the order of the learned Subordinate Judge was set aside. Hence the Official Receiver has come up in appeal to this Court.
2. The learned Counsel, Mr. Bhujanga Rao appearing for the appellant contends firstly that the observations in Air 1957 Andh Pra 692 were in no way inconsistent with the principle laid down in 61 Mad LJ 66 = (AIR 1931 Mad 317), secondly that the Court had power to entertain the application under Section 4, and that the judgment in appeal is, therefore, liable to be set aside. As provided under Section 28 of the Provincial Insolvency Act, on the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court in a receiver and shall become divisible among the creditors. Section 28A, which was introduced by reason of the Amendment Act 25 of 1948, provides that the property of the insolvent shall comprise and shall always be deemed to have compromised also the capacity to exercise and to take proceedings for exercising all such powers in or over or in respect of property as might have been exercised by the insolvent for his own benefit at the commencement of his insolvency or before his discharge.
We are concerned with the two provisions to this section. Of course, by reason of adjudication of the father of a joint Hindu family governed by the Mitakshara Law as insolvent, there vests in the Official Receiver, 61 Mad LJ 66 the separate property of the insolvent father; and (2) also the power which the father of a joint family has to alienate the joint family property, including his son's share in the joint family property for paying his antecedent debts not contracted for an immoral purpose. The father's power of disposition over ancestral property including his son's share for the discharge of his untainted debts vested in the Official Receiver, however, could be exercised by him only so long as there was no partition between the father and sons. The result is that on a division between them, the father's power and consequently the power of the Official Receiver, to sell the shares of the sons would come to an end. In this premises, the Official Receiver who was entitled in law to sell the shares of the sons as well for the untainted debts of his father in exercise of the father's power of disposition over ancestral property, had no such power in this case by reason of partition.
In other words, he had no power to sell himself the share of the sons of the insolvent in the hitherto undivided joint family property. That does not mean private measures to make the shares of the sons available for the benefit of the creditors for pre-partition debts, the liability of which would continue as ever on the shares of the sons obtained under partition. What is lost to him by reason of partition is only power of himself selling the share and not his right to bring it to sale through the intervention of the Court. The Official Receiver represents the general body of creditors also and as such, he has to protect their interests as well. In the present proceedings, indeed, the sons had brought their action for partition of joint family property even before the insolvency proceedings were started and obtained a preliminary decree long before the father was adjudged insolvent on 7-12-1960. The Official Receiver was brought on record in the partition action later and that at the instance of the plaintiffs and he had in fact moved the Court to make provision for payment of pre-partition debts in the final decree to be passed. he was however directed to resort to appropriate remedy. It is in consequence thereof that he has filed this petition under Section 4.
3. The contention of the learned Counsel for the respondents, Mr. Balaiah is that, since the sons the third persons, their share cannot be brought up for consideration in the insolvency proceedings and that they themselves are not, amenable to the jurisdiction of the Insolvency Court. To appreciate the argument, it is necessary here to read the provisions of Section 4 to the extent relevant for our purpose: -
'4 (1) Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.'
4. Thus insolvency Court has thus full power to decide question arising in any case of insolvency which is within the cognisance of the Court. The questions may be questions of fact or of law. They may relate to title or priority. They may be of any nature whatsoever. The Court has full plenary powers, subject of Course to the provisions of the Act, to decide them, if it thinks it necessary or expedient in the interest of justice and for the purpose of making a complete distribution of the property. Wide indeed are the powers of the Insolvency Court in this behalf, but they are intended to be exercised at the discretion of the Court. It follows therefore, that should the Court be of the view that the matter involves detailed enquiry or is complicated, it will direct the parties to resort to a regular suit.
Thus, the question whether the shares of the sons in the joint family may be made available for paying of pre-partition debts contracted by the father, is a matter that comes squarely within the ambit of Sec. 4 as that matter has arisen for decision by reason of the insolvency of the father and the decision thereof is expedient for purposes of making a complete distribution of property and doing complete justice in the case. Thus, if there be a liability on the sons in law to pay off the untainted pre partition debts of the father from out of their shares in the joint family property in case of insolvency of the father, the Insolvency Court has power to decide the liability of the sons for purposes of complete distribution of all the available assets amongst the creditors. The obligation of the sons to pay, out of their shares in the joint family property, the pre partition debts, if there has been no arrangement made at the time of partition with regard to the same, is recognised by Hindu Law. That share therefore, may be brought within the reach of the creditors for paying of the debts contracted by the father. So then it cannot be said that this is a matter which is outside the powers of the Insolvency Court or does not arise in insolvency. In Official Assignee v. Ramachandra Aiyar, 55 Mad LJ 175 = (AIR 1928 Mad 735) (FB) the Official Assignee took out a notice of motion praying (1) that it may be declared that the debts mentioned therein are binding upon the insolvent's sons and (2) that he (The Official Assignee) may be authorised to sell the family properties to the extent of the interest of the minor mentioned therein. It was observed by Ramesam, J;
'But all that is contended for the respondent is not that the substantial right of the Official Assignee to proceed against the sons for the father's debts is lost, but only of the several remedies open has been extinguished. Now, the Official Assignee has got several remedies against the sons first, as representing creditors, or associating himself with them, he can file suits against the sons, obtain decrees and sell the son's share also and secondly, in the partition suit now pending at Madura, wherever it may be tried ultimately, at Madura or Madras, he can apply for the creditors to be made parties, so that the findings as to the nature of the debts may bind all and ask for a decree providing for the payment of such debts as are not illegal or immoral see Venku Reddy v. Venku Reddy, 52 Mad LJ 387 = (AIR 1927 Mad 471) (FB). There is possibly a third remedy open. We have held in the connected Full Bench decision that, in garnishee proceedings, a question can be decided by the Insolvency Judge if necessary. This power is subject only to his discretion, but he is not bound to go into all questions that arise before him. In the present case the Judge sitting in insolvency way, if he thinks proper, decide the questions that raised by the Official Assignee as between himself and the sons, provided the sons fill the character of the garnishee. These are matters for him to determine. The Official Assignee can then obtain formal decrees. The only remedy lost to the Official Assignee is the right of selling the sons' share by private sale. The substantial right of the Official Assignee to enforce the debts due to the creditors against the sons remains by reason of our decision in Ramachandra Jagannatha Rao v. Viswesam, 46 Mad LJ 590 = (AIR 1924 Mad 682). One mode of enforcing it, a right which is merely ancillary and auxiliary to the main right, out of several modes, is all that is lost'.
5. It is clear that, on account of partition which was effected by reason of the institution of a suit, only the remedy of the Official Receiver to sell the property privately is lost but the substantial right to enforce the debts due to the creditors against the sons remains and that he can work out by suitable proceedings though nor by private sale, the liabilities of the sons. In 61 Mad LJ 66 = (AIR 1931 Mad 317) it was held that notwithstanding the suit for partition and the consequent division in status, the right of the father to have his just debts paid out of the entire family property subsists, and where the father has been adjudged insolvent, such right vests in the Official Assignee as 'property of the insolvent divisible among his creditors'. It was pointed out that although by reason of the division of status brought about by a suit for partition instituted by the sons after the father's insolvency the father and the official Receiver lose the right of private sale of the family property including the shares of the sons, it is open of the Official Assignee to obtain a declaration against, the sons, and get the family property included in their shares therein sold by or through Court, and that Section 7 gave the widest power to the Insolvency Court to go into such question and to declare the liability of the sons' shares in the family property for the proved and just debts of the father insolvent, and make all necessary orders for their realisation. It is on the basis of this authority that the Court of the first instance had overruled the objections taken under Section 4. But the appellate Court differed from the pronouncement in Air 1957 Andh Pra 692. That was a case where, though a suit for partition was filed, partition was not deemed to be in the interests of the minors and, therefore, was not ordered. Viswanadha Sastri J. who spoke for the Court while summing up the law observed thus:
'Thus law as then understood was that the father's power of disposition over ancestral property, including his sons' shares for the discharge of his untainted debts vested in the official Receiver and could be exercised by him so long as there was no partition between them and the father's power and consequently the power of the Official Receiver, to sell the shares of the sons would come to an end. Sat Narain v. Srikrishan Das. ILR 17 Lah 644 = AIR 1936 PC 277.
If a division were effected between the insolvent and his sons before the Official Receiver exercised the power of sale, the latter could only sell the share of pursue their remedies against the sons' shares by means of suits instituted against them invoking the pious obligation of the sons to discharge their father's untainted debts.'
6. The contention of the learned Counsel for the Respondents, Mr. Balaiah, is that, when the partition has taken place, the only remedy open to the creditors is to file suits against the sons invoking the pious obligation of the sons to discharge their father's untainted debts and that the Official Receiver cannot move the Insolvency Court under Section 4 nor can the creditors do so. I do not think, by making the observations relied upon by the learned Counsel, the Division Bench has intended to lay down exhaustively all the remedies open to the creditors or the Official Receiver for invoking the pious obligation of the sons to discharge their father's untainted debt. The remedy referred to was one of the remedies as pointed by Ramesam J., to which reference has already been made. There can be other remedies as well.
7. The appellate Court was in error in construing the observations to mean that, under law, the remedy of suit was deemed to be the only remedy for the creditors or the Official Receiver. The learned Judges, who decided the case in AIR 1957 Andh Pra 692, in no manner whatsoever, had intended to differ from the view taken by Ramesam J., in 55 Mad 175 = (AIR 1928 Mad 755 FB). In my opinion, as observed by Ramesam J., there can also be a remedy available for the Official Receiver or the creditors under Section 4 though it is left to the discretion of the Insolvency Court to decide the matter itself or direct the parties to resort to a suit. In this view of the matter the finding of the appellate Court as to the application of Section 4 cannot be upheld. The view taken by the Court of first instance must be accepted.
8. But it would appear from the facts of this case that the sons had taken a plea that the debts are not true or genuine. Nevertheless, in spite of the absence of any evidence on behalf of the sons that the debts were contracted by their father for immoral purposes the Court of the first instance held against the sons. It was the duty of the Official Receiver to prove that the father had contracted the debts and that they were true. It is only on proof of the truth or genuineness of the debts that the onus of their being tainted will shift on to the sons. It was the duty of the Court of the first instance to go into the matter and decide on the evidence adduced. It was open to the Court, if it appeared that the matter involved issues of a suit. But if it wanted to exercise its jurisdiction under Section 4, it was incumbent on it to enter into enquiry as to the truth of the debts as well. As no such enquiry was done, the matter has to be remanded to the Court of the first instance.
9. I, therefore, the case to the Court of first instance for enquiry into the question as to the truth and genuineness of the debts and also to their being not tainted in case their truth is proved. It is made clear that, as the exercise of jurisdiction under Section 4 is discretionary the Court is at liberty to refuse to exercise jurisdiction and direct the parties to resort to a remedy of a suit if it comes to the conclusion during the enquiry that the matter requires a detailed enquiry and involves complicated questions of law, and fact.
10. The appeal is allowed accordingly, Costs shall abide the result of the proceedings in the Court of first instance. No leave.
11. Appeal allowed.