1. This is an appeal against an order of the District Judge of Mainpuri, dismissing an insolvency petition presented by the appellants under the Provincial Insolvency Act (III of 1907).
2. The learned Judge appears to have been under the impression that the proceedings were governed by the Code of Civil Procedure, 1882, for in dismissing the petition he refers to Section 351 of that Code. We must, however, consider whether the dismissal of the petition can be supported under the Provincial Insolvency Act. The grounds stated for dismissing the petition are that the appellant Girwardhari Lal feigned ignorance about the existence of his account-books and prevaricated on other matters.
3. Section 12 of the Provincial Insolvency Act provides that when an insolvency petition is admitted, the Court shall make an order fixing a date for hearing the petition and notice of the order shall be given to the creditors by publication in the local Official Gazette and in such other manner as may be prescribed. The learned District Judge fixed a date for the hearing of the petition bat failed to give notice in the manner directed by that section. No objection having been made on this account, we may disregard this irregularity.
4. Section 14 provides that on the day fixed for the hearing of the petition, the Court shall require proof that the creditor or the debtor, as the case may be, is entitled to present the petition, that in case the petition has been presented by a creditor, the debtor has been served with notice of the order referred to in Section 12, and that the debtor has committed the act of insolvency alleged in the petition. The section provides also that the Court shall examine the debtor, if he is present, as to his conduct in dealing with the property in the presence of such creditors as appear at the hearing, and the creditors shall have the right to question the debtor thereon. The provisions of this section seem to have been complied with by the Court.
5. Section 15 Sub-section (1) provides that where the Court is not satisfied with the proof of the right to present the petition or of the service of notice on the debtor as required by Section 12 Sub-section (3) or of the alleged act of insolvency or is satisfied by the debtor that ho is able to pay his debts or that for any other sufficient reason no order ought to be made, the Court shall dismiss the petition.
6. Sub-sections (2) and (3) have no bearing upon the present case. Section 16 provides that where a petition is not dismissed under the preceding section and the debtor is unable to propose any composition or scheme, which shall be accepted by the creditors and approved by the Court in the manner thereinafter provided, the Court shall make an order of adjudication.
7. In the present case there is no question about the right of the debtors to present the petition or of the alleged act of insolvency or of service of the notice on debtors for they were the petitioners. If, therefore, Section 15 exhausts the grounds on which the Court can dismiss an insolvency petition, which has been admitted, and can refuse to make an order of adjudication, the Court cannot dismiss an insolvency petition by a debtor on the ground that he has suppressed his accounts or contracted debts recklessly or continued to trade after knowing himself to be insolvent or on any similar ground. In Nathu Mal v. District Judge of Benares 7 A.L.J. 602 : 6 Ind. Cas. 870, Richards and Griffin, JJ., expressed the opinion that a Court should dismiss an insolvency petition by a debtor on proof that he has fraudulently transferred part of his property, so as to put it out of their reach of his creditors, destroyed his books of account or committed other similar acts of bad faith. They observed as follows: 'We wish to clearly express our opinion that the learned Judge was clearly wrong in granting the petition of Nathu Mal and declaring him an insolvent. Section 15 of Act III of 1907 provides amongst other things that if the Court is of opinion for any sufficient reason that an order of adjudication should not be made, the Court should dismiss the petition'. As they were dealing with an appeal against conviction under Section 43 of the Act, the remarks which I have quoted were not necessary for the disposal of the appeal. In these circumstances, I understand that we are not bound to adopt the view expressed by them. After careful consideration I find myself unable to accept the construction which they put upon the Act. It appears to me that the last words of Sub-section (1) of Section 16 refer only to the case of an insolvency petition presented by a creditor. The words that for any sufficient cause, 'appear to me to be governed by the words satisfied by the debtor, that is to say, the cause referred to is a cause to be shown by the debtor. In my opinion, the words' satisfied by the debtor govern the whole of the remainder of the Sub-section. The scheme of the Act differs entirely from the scheme of the sections of the Code of Civil Procedure, 1882, which relate to insolvency matters. Under Section 351 of that Code, the Court could grant an insolvency application only on being satisfied that the debtor had not transferred any part of his property with intent to defraud his creditors, and had not recklessly contracted debts or given an unfair preference to any of his creditors and had not committed any other act of bad faith regarding the matter of the application. Under the Insolvency Act, 1907, these appear to be grounds for refusing an absolute order of discharge (see Section 44) but not grounds for refusing to make an order of adjudication. The latter part of Sub-Section (1) of Section 15 of the Act of 1907 re-produces almost word for word Section 7 Sub-Section (3) of the English Bankruptcy Act of 1883, which plainly refers to an insolvency petition presented by a creditor. In my opinion, the latter part of Sub-Section (1) of Section 15 of the Indian Act has no reference to an insolvency petition presented by debtor. Authority for dismissing a debtor's petition for any sufficient cause must be found, if at all, elsewhere. It has been held in England, both under the Act of 1869 and under the Act of 1883, that an insolvency petition, whether presented by a debtor or by a creditor, may be dismissed if it has been presented not with the bona fide view of obtaining an adjudication but for an inequitable or collateral purpose. For example, in Ex parte King, Re Davies L.R : 3 Ch. D. 461 : 45 L.J. Bk. 159 : 25 W.R. 239 a creditor's petition was rejected which has been put in for the purpose of extorting money from debtor. In Ex parte Griffin, Re Adams L.R. 12 Ch. D. 480 : 48 L.J. Bk. 107 : 41 L.T. 515 : 28 W.R. 208, a similar petition was rejected, the object of which was to pat unfair pressure on the debtor. In Ex parte Tyuti L.R. 15 Ch. D. 125, the petitioning creditor had exhausted all his remedies under a decree obtained against the debtor and the Court declined to allow him to take proceedings against the debtor under the Bankruptcy Act. There are also other cases in which insolvency petitions have been dismissed as an abuse of the process of the Court. In England the power to dismiss such petitions has been regarded as inherent in the Court. It may be that the Indian Courts have similar authority under Section 47 of the Act of 1907 read with Section 151 of the Code of Civil Procedure, 1908, or otherwise. But assuming that the Indian Courts have such authority, I do not think that the petition of the present appellants can be dismissed on the ground that it was presented for an inequitable or collateral purpose or can be dismissed as an abuse of the process of the Court. It is quite clear that the operation of the Act of 1907 is not intended to be confined to those cases in which a person has become insolvent through no fault of his own or has been guilty of no act of bad faith. The object of the Legislature seems to have been to make it easier than before for a debtor or creditor to obtain an order of adjudication but to confer upon the Courts larger power of control over a person who has been adjudicated an insolvent and to authorise them to refuse to grant an absolute order of discharge in many cases in which the debtor could under the Code of 1882 have claimed an order of discharge as of right: I would allow this appeal, set aside the order of the Court below and make an order of adjudication under Section 16 of the Insolvency Act against both the appellants. I would give the appellant their costs in this Court.
Karamat Husain, J.
8. I agree.
9. The order of the Court is that the appeal is allowed, the order of the Court below is set aside with costs and the appellants are adjudicated insolvents under Section 16 of the Insolvency Act.