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Dondapati John Vs. Vaddi Subrahmani and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAndhra Pradesh High Court
Decided On
Case NumberAppeal No. 69 of 1962
Judge
Reported inAIR1965AP260
ActsProvincial Insolvency Act, 1920 - Sections 10, 28(2), 28(7), 29 and 78(2)
AppellantDondapati John
RespondentVaddi Subrahmani and anr.
Appellant AdvocateG. Venkatrama Sastry, Adv.
Respondent AdvocateG. Ramanujulu Naidu, Adv. for T. Anantha Babu, Adv.
Excerpt:
.....case as order of adjudication was made on date of institution of suit - appeal preferred - before date of adjudication action is maintainable without leave of insolvency court but action not maintainable without leave after date of adjudication - section 28 (2) not enabling appellant to file suit without leave of court - such suit filed without leave of court deserves to be dismissed. - cantonments act[c.a. no. 41/2006]. section 346 & cantonment fund (servants rules, 1937, rules 13, 14 & 15: [h.l. gokhale, ag. cj, p.v. hardas, naresh h. patil, r.m. borde & r.m. savant, jj] jurisdiction of school tribunal constituted under maharashtra employees of private schools (conditions of service) regulations act, (3 of 1978) held, school run by the cantonment board is a primary school and it..........on the making of an order of adjudication. it is not an absolute prohibition in the sense that no suit or proceedings could be commenced, but they could be filed only with the leave of the court. if really the prohibition springs into existence the moment an insolvency petition is filed, the validity of the suit and the decree to follow has to depend on the making or refusing to make an order of adjudication subsequently.(11) moreover, if this argument is to be accepted, a suit instituted after the presentation of an insolvency petition cannot be disposed of till an order of adjudication is made, whatever might be the length of time during which the petition may be pending. we are not shown any provision of law in the insolvency act which enables a court to put off the hearing of such.....
Judgment:

Chandra Reddy, C.J.

(1) This is an appeal from the judgment of the Subordinate Judge, Amalapuram dismissing the suit brought by the appellant in forma pauperis for the recovery of Rs. 27,409 - 50 nP.

(2) the material facts of the case lie in a narrow compass and may be briefly stated. The 1st defendant executed a promissory note for Rs. 21,000/- on 7-1-1953. He presented a petition under section 10 of the Provincial Insolvency Act in the District Court, East Godavari on 17-7-1954, That was returned to him for presentation to the proper Court which is the Subordinate Judge's Court, Amalapuram. The 1st defendant accordingly represented it in the subordinate Judge's court, Amalapuram and it was numbered as I. P. No. 5 of 1956. This petition was ultimately dismissed on 23-7-1958. But, on appeal carried by the aggrieved debtor, the District Court, Rajahmundry adjudged him an insolvent on 10-8-1959, and that was affirmed on further appeal by some of the creditors by this court. Meanwhile the appellant brought the suit giving rise to this appeal on 14-2-1959 impleading the debtor as the defendant. After he was adjudged an insolvent, he added the Official Receiver as the 2nd defendant.

(3) Both the defendants remained ex parte.

(4) The trail Court, however, dismissed the suit in the view that it was barred by limitation. While holding that the acknowledgment contained in the petition dated 16-7-1954 served to keep the debt alive he disallowed the contention of the plaintiff that the deposition of the debtor in the insolvency proceedings acknowledging the indebtedness under the suit promissory note on 3-7-1958 helped to save the debt form limitation. The subordinate Judge was not inclined to extend the provisions of Section 29(2) read with Section 78(2) of the Provincial Insolvency Act to this case as requested by the counsel for the plaintiff. He opined that Section 28(2) did not govern the present case since on the date of the institution of the suit, the order of adjudication was made. In the result, he dismissed the suit. It is these conclusions of the learned Subordinate Judge that are now impugned in this appeal again in forma pauperis.

(5) The chief arguments of Sri G. Venkatrama Sastry is that since Section 28(2) of the Provincial Insolvency Act was a bar to the filling of suits, the suit must be deemed to have been in time as the insolvency petition was presented within three years of the execution of the promissory note. This argument is sought to be supported by a judgment of the Madras High Court in Achuta Ramayya Garu v. Official Receiver, East Godavari, ILR 58 Mad 1032 : (AIR 1935 Mad 817). We are not persuaded that this case falls within the concept of section 28(2) of the Provincial Insolvency Act.

(6) As the answer to this appeal turns upon the interpretation of Section 29(2), We may profitably extract that section in so far it is of immediate relevance.

(7) Section 28 :

' (1)

(2) On the making of an order of adjudication the whole of the property of the insolvent shall vest in the court or in a receiver as hereinafter Provided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceedings, except with the leave of the Court on such terms as the court may impose.'

(8) Section 28(7) ;

' An order of adjudication shall relate back to, and take effect from, the date of the presentation of the petition on which it is made.'

(9) Basing himself on sub-section (7) of S. 28, Sri Venkatrama Sastry urges that the expressions ' on the making of an order of adjudication' should be interpreted to mean ' on the date of the presentation of the petition '. We are not impressed by this argument. It is true that sub-section (7) introduces a legal fiction and gives effect to the order of adjudication from the date of the presentation of the petition. But that is only for certain limited purposes.

(10) In this connection, we may look at the marginal note of S. 28, ' effect of an order of adjudication'. It is manifest from sub-section (2) that the prohibition against the commencement of suits or proceedings without the leave of the Court comes into play only on the making of an order of adjudication. It is not an absolute prohibition in the sense that no suit or proceedings could be commenced, but they could be filed only with the leave of the Court. If really the prohibition springs into existence the moment an insolvency petition is filed, the validity of the suit and the decree to follow has to depend on the making or refusing to make an order of adjudication subsequently.

(11) Moreover, if this argument is to be accepted, a suit instituted after the presentation of an insolvency petition cannot be disposed of till an order of adjudication is made, whatever might be the length of time during which the petition may be pending. We are not shown any provision of law in the insolvency Act which enables a Court to put off the hearing of such suit indefinitely.

(12) Further, supposing the creditor does not file a suit because of the presentation of the insolvency petition and later on no order of adjudication is make, his claim would have been barred although with in time at the time of the filing of the insolvency petition, as Section 78 would not come to the rescue of the creditor. In such a situation, the creditor will be deprived of his remedy. We do not think that such a state of affairs would have been contemplated by the Legislature.

(13) Moreover, the question as to whether the suit is barred by time or whether the leave of the Court has to be obtained has to be decided with reference to the time of the filing and not after an order of adjudication is made. What is to happen if the suit was decreed before the order of adjudication is made should the suit be dismissed retrospectively on the ground that no leave of the court was obtained? Again, supposing the suit was dismissed before the adjudication was made on the ground that it was out of time at the time of the institution though it was in time at the time when the insolvency petition was filed. Could the proceedings be reopened and the suit decreed by reason of an order of adjudication having been made? Thus the interpretation suggested by the appellant will lead to all kinds of anomalies.

(14) Further, section 78(2) of the Provincial insolvency act furnishes an effective answer to the contention raised on behalf of the appellant. It reads as follows. ;

(15) Section 78(2) :

' Where an order of adjudication has been annulled under this act, in computing the period of limitation prescribed for any suit for any suit or application for the execution of a decree (other than a suit or application ) in respect of which the leave of the court was obtained under sub-section (2) of S. 28 which might have been brought or made but for the making of an order of adjudication under this Act, the period form the date of the order of adjudication to the date of the order of annulment shall be executed.'

It is plain that this subsection contemplates exclusion of the time only between the date of the order of adjudication and the date of the order of annulment. This does not permit the exclusion of the period between the date of the presentation and the date of adjudication. If authority is needed for this position, it is furnished by the division Bench of the Bombay High court Magandas v. Bhalchandra, : AIR1954Bom436 .

(16) Section 29 of the Provincial Insolvency Act, on which reliance is placed by the learned counsel for the appellant, does not really help him. That envisages stay of pending proceedings only on proof of an order of adjudication has not been made? On the other hand, this section supports the view that section 28(2) comes into operation only when an order of adjudication is made and not otherwise. On a reading of the provisions of the section, the conclusions is inescapable that this section does not govern suits or proceedings instituted before the order of adjudication.

(17) We will now turn to ILR 58 Mad 1032 : (AIR 1935 Mad 817), cited to us by the learned counsel for the appellant. What was held there was that a suit filed and a decree obtained there under after the date of the presentation of the insolvency petition and before the date of adjudication were incompetent because the leave of the insolvency court had not been obtained before the commencement of the suit. There, they were only concerned with the binding nature of the decree on the Official Receiver in whom by reason of the applicability of Sec. 28(7) the estate of the insolvent had vested. They did not consider the question of limitation. We have already said that the retrospective operation of the order of adjudication is only for certain purposes.

(18) There is a catena of decisions which lay down that proceedings presented before an order of adjudication is made are outside the purview of section 28(2) . Sambayya v. Pedda Subbayya, 1937 - 2 Mad L J 703 : (AIR 1938 Mad 19), which dealt with various aspects of section 28(2), decided that section 28(2) was inapplicable to actions commenced before the order of adjudication was made. Venkataramana Rao J., who spoke for the Court, observed :

' The insolvency does not per se bar the maintenance of an action. Before the date of the adjudication the action is maintainable without the leave of the Insolvency court but thereafter, that is, after the date of the order of adjudication, the action is nor maintainable without leave. If an action has been commenced before the date of the order of adjudication, the moment the order of adjudication is passed, the court before which the suit is pending can either stay or continue it. the statue of limitation for the maintenance of an action at law, once it has commenced t o run, will continue to run in spite of the presentation of the petition in insolvency. If the order of adjudication is made, the operation of the statue of limitation is suspended till the date of the annulment and if the adjudication and that of annulment is excluded and the statute begins to run immediately on annulment.'

It was pertinently remarked by the learned Judge, if we may say so, with respect, that if a suit can be filed by a creditor without leave before the date of the order of adjudication and the court before which it was filed had Jurisdiction to entertain it and pass a decree thereon, how could an order passed ex post facto by another court render such a suit incompetent and the decree passed there in void? This is an unanswerable objection to the argument that section 28(2) comes into operation the moment an insolvency petition is filed.

(19) The learned Judge approved the dictum of Ramesam, J. in Kaliaperumal v. Ramachandra Ayyar, 53 Mad LJ 142 : (AIR 1927 Mad 693) that

' once the order (adjudication) is made, the effect created by it is, by legal fiction, taken to relate back to the presentation of the petition or in other words, the commencement of the insolvency. For all purposes of the Insolvency Act, this fiction has to be used and it is a very useful fiction; but outside those purposes, it had no place. the filing of a suit prior to the adjudication may be regarded as being outside these purposes with reference to the provisions of section 28, Cl. (2).'

We feel that the law stated in 1937-2 Mad LJ 703 : (AIR 1938 Mad 19) is sound being in consonance with the language of Section 28(2) of the Provincial Insolvency Act.

(20) In the same trend of thought is Machanjeeri Ahmed v. Govinda Prabhu, ILR 51 Mad 862 : (AIR 1928 Mad 977). The same view was also taken by a Division Bench of this Court in Sriramamurthi v. Official Receiver, 1957-1 Andh W. R. 216 : (AIR 1957 Andh Pra 692). This was followed by one of us (Venkatesam, J.) in Venkatanarayanappa v. Narasimhayya, 1963-2 Andh W r 249. This need not detain us any longer as, in our opinion, the language of Section 28(2) does not tend itself to the interpretation suggested by Sri Venkatrama Sastry.

(21) Even assuming that we accept the contention of the learned counsel for the appellant, it does not enure to his benefit because section 28(2) does not enable him to file a suit without the leave of the Court. Proceedings can be commenced only with the leave of the Court. If the suit was filed without obtaining the leave of the Court it has to be dismissed. In any view of the matter, we have no option but to dismiss the appeal. But, in the circumstances of the case, the only order as to costs we make is that the appellant should pay the court fee due to the government. He need not pay the costs of the respondents.

(22) The dismissal of this appeal does not mean that the appellant is deprived of the right to prove his claim in insolvency if he is so entitled.

B1 / VRB / D. V. C.

(23) Appeal dismissed.


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