1. This is an application against the conviction and sentence under the Insolvency Act by the District Judge of Budaun for offences committed under Section 69 of that Act. It is really a criminal case, pure and simple, relating to special offences created by special legislation, and it has been quite rightly expedited on that ground by an order of a Judge of this Court. The charges were of three kinds, but also included general conduct, indicating a fraudulent attempt by a father, now deceased, and his two sons, who carried on business together, to defeat and delay their creditors. The District Judge was obviously very angry with them, and discussed their conduct as having been scandalous. We agree with that description.
2. But some of these offences under the Insolvency Act are in their nature special, and directed against offences specially committed with a view to defeat the objects of the Act, and require to be dealt with some care.
3. The first charge is that these insolvents, in December 1921, removed cloth worth Rs. 20,000 to their relations in Bisauli, with a view to take it out of the reach of their creditors.
4. The second charge is that, on the 8th of January 1922, they wilfully withheld production of their accounts.
5. The third charge is that generally, during the conduct of their business, they wilfully kept false accounts.
6. If we may say so, it would be an assistance to Judges, who have to deal with these matters if they were to frame the charges strictly in the language of the section, which defines the offence, together with the particulars of the conduct of the insolvent relied upon to establish the charges, just as is done in a formal charge of an offence, particularly an offence of embezzlement or falsification of books under the Penal Code.
7. The petition in this case was filed by creditors. That is not only unusual but makes a slight difference where conduct has to be investigated earlier in date than the petition, because where the insolvent himself files his petition it is not difficult to attribute to him an intention to go through the Insolvency Court, and, therefore, to imply, from his compromising acts, a desire to defeat his creditors when he chooses to create his own insolvency. But the special circumstances in this case show that although it was a creditor's petition, the debtors had every reason to expect, indeed to anticipate that such would be the inevitable result of the proceedings, which were pending against them in 1921. It is clearly shown that they were in serious trouble as far back as in 1919. It has been decided against them that, just about the same time as the act complained of in charge (1), they executed a mortgage, which has been held by the Insolvency Court and the High Court to have been void under Section 53 of the Insolvency Act. A suit had been started against them in Bombay on the 8th of December for Rs. 14,000. An attachment was obtained before judgment on the 23rd of December 1921, and was communicated to them some time in January. The charge is that they removed a very valuable quantity of cloth in 5 or 6 carts on the 22nd of December the day before the attachment was obtained, and the day before they entered into a fraudulent transaction in respect of the mortgage in question. Conduct of this kind leads to only one inference. They had every reason to anticipate that proceedings would be taken against them to realise their asset and distribute it amongst their creditors.
8. At this point Mr. Nihal Chand has rightly drawn attentions to the fact that evidence depends upon the testimony of one witness. In the case of an honest trader, who is able to give a clear answer, and who is charged with wicked concealment of this kind, the evidence of one witness might naturally be considered wholly insufficient. But the evidence of the witness derives corroboration from the circumstances which have been relied upon in the other charges, with which we will deal in a moment, and from their contemporaneous conduct in regard to the execution of the mortgage. For example, before the petition, namely in January 1922, a decree had been obtained against them in the Court of the Munsif, and a Vakil, as an officer of the Court, was sent down to take possession of certain account-books. This incident is the subject of charge (2). Whether their conduct amounted to an offence, or not, it is clear from the findings of the District Judge that it reflects very gravely upon their credibility and throws a light upon their general conduct. It also appears from the judgment of the High Court, delivered in October 1925, that an interim Receiver was appointed after the presentation of the petition, and that he went down and found the insolvent absent and their house locked, that he failed to obtain their books, and that Ganga Prasad, one of the partners, said that his father had gone on a pilgrimage. Mr. Nihal Chand also contended that very observation, to which we have just referred, indicates that the conduct of the father in keeping back the books, and the conduct of the insolvents in removing the cloth, was really the act of the father, who is now dead. He died during these insolvency proceedings. We are not going to say that would not be a good defence on the merits. Sons are sometimes responsible for the acts of their fathers, and partners are often responsible in law and even on the criminal side, and certainly under the Insolvency Act, for acts of other members of the partnership. But as Mr. Justice Banerji pointed out during the argument, the real answer to this point is that it was not the defence raised by the insolvents, who preferred to deny the whole transaction and claimed that their conduct throughout had been honest. We hold with regard to this charge that it is established, and that the sentence of six months awarded by him must be upheld.
9. So far as we know this is the firsts case which has come before this Court, where the conduct, amounting to an offence under Section 69, has been conduct before the insolvency proceedings have commenced. Section 69, which deals with penalties, is peculiar to India, inasmuch as it embraces acts 'whether before or after making an order of adjudication.' Under the English legislation, from which much of this legislation is derived, these penalties are confined to conduct after the presentation of the petition. But a comparison of the language of the two sections shows that the provision in the Indian Act is a special provision for cases in this country. If it were intended to confine the conduct entirely to conduct in the insolvency proceedings, the Legislature must have said 'after the presentation of the petition. But, while the general language, namely, 'before the making of an order', is sufficiently wide to cover almost any distance of time, the definition of the specific acts complained of narrows down the generality of the foregoing provisions, so as to confine the offences strictly to matters affecting the investigation of the insolvent's affairs under the Act, the duties to be performed by him under the Act, the distribution of his property, or money, between the creditors, and the concealment or making away with property, or falsification of his books with the intention of defeating the objects of: the Act. We are quite satisfied that the making away with the cloth before i the order of adjudication, was in this case done fraudulently with intent to diminish the sums to be divided amongst the general body of creditors.
10. With regard to the other charges, we are of opinion that they do not come within Section 69 at all. The second charge is really one of disobedience, or resistance to the enforcement of a decree in the munsif's Court. This was before the adjudication, but, in our opinion, it had nothing to do with the investigation of their affairs, or with defeating the Objects of the Insolvency Act. Even if they had produced their accounts in consequence of that order, there is nothing to show that the investigation of their affairs would have been any more complete, or simpler than it has been, and there is no finding, and no evidence to justify the inference that refusal had any effect upon the investigation of their affairs which has taken place during the insolvency proceedings.
11. The third charge is even more difficult to sustain under the circumstances, as we understand, it relates to conduct with reference to a bale of English cloth on the 21st May 1921, and to the allegation that in reference to this bale, they kept false accounts. It might be true that some body in this firm did. We do not decide it. We assume it for the purpose of our decision. It was a very long time before the creditors began exercising pressure which resulted in the insolvency petition, and we are unable to infer, and we do not think the Judge himself inferred, or had any evidence from which he could infer a knowledge in May 1921, by the debtors that they were going to be insolvent within a short time, or that they had any intention, whatever else their intention was, to defeat, delay or obstruct the insolvency proceedings.
12. The same difficulty arises over a transaction of one thousand rupee hundi. That transaction does not strike us as necessarily fraudulent, or indeed as particularly unusual. No doubt, the learned Judge did not believe the story of the re-sale. He obviously thought that, if there had been a re-sale, there ought to have been entries in the ledger, but that omission would be mere negligence, and if there was a re-sale the failure to enter either debit or credit entry would not in the least render the investigation of their affairs more difficult. Whereas the failure to enter the Rs. 1,000, even if there was no re-sale according to the experience of one member of the Bench, at any rate would be nothing very much out of the common. It is possible that too much has been made of this incident; but there is another answer to it, which the learned Judge overlooked.
13. You may prove, as we think it was proved, that in spite of the fact that business is carried on by the head of the firm, and that he is dead, nonetheless the other partners were so deeply involved, that they must be held equally responsible for his acts, even though he was the moving spirit. That is our view of the removal of the cloth covered by the first charge, and it may be that circumstances could be proved in a business concern, where the method of keeping the books was such that even though the absence of the principal person was shown, the subordinate might be equally guilty but in this case there is no evidence as to who in fact kept the books, what actual system was adopted of making entries, and who was actually responsible, whether individually or collectively, according to the ordinary course of business. It is suggested that it was the father. If he was solely responsible, it would be clearly wrong to punish the sons criminally for his fault. All we can say is that, where there are three partners, and it is sought to establish this charge against any one or two of them, it must be proved as a fact who were the person, or persons, actually responsible for keeping such books. On this ground we think this charge also breaks down, and that with reference to charges 2 and 3 we must allow the appeal, set aside the convictions and cancel the sentences.
14. We cannot interfere with the sentence but we will make this exceptional direction that, if the accused feel disposed, they may, in spite of the District Judge's previous order, and our present order, apply to the learned Judge to ameliorate the sentence by reducing it to simple imprisonment. We leave it to him, because he is more familiar with the conditions of the people and the two forms of imprisonment than we are. At any rate the learned Judge may consider himself free to consider any application of that sort, if made to him, on the merits.
15. It is to be borne in mind, and must always be borne in mind, in dealing with these questions of books even where they are false, or so badly kept, as to amount not merely to negligence, but to a suggestion of dishonesty, that Section 42 itself provides and defines a quasi offence, with regard to the keeping of books, which, if established, is a ground for a kind of penal order, postponing the absolute discharge of the insolvent when he applies for it.