1. In this appeal the petitioning creditor in an Insolvency case seeks to set aside the order of the learned District Judge of Moradabad, which, reversing the order of the Insolvency Court, dismissed the appellant's application that his claim against the insolvent partnership should be allowed to rank with the claims of the creditors of the individual partners.
2. On the petition of the appellant firm five connected partnership firms were adjudicated insolvents in insolvency proceedings Nos. 23 and 24 of 1925. One Sahu Bhikari Das or members of his family, were partners in all five firms. The appellant firm proved in the insolvency proceedings a debt of Rs. 45,069 in case No. 23 and a debt of Rs. 51,814 in case No. 24. Besides the various partnerships, there was a set of accounts of what was known as the Bahjoi Kothi, which contained the personal dealings of Sahu Bhikari Das and his family, and a number of debts shown in these accounts were proved by personal creditors of Sahu Bhikari Das. The official receiver has realised the sum of about Rs. 30,000 from the personal property of Sahu Bhikari Das and members of his family, which amount has, by the decision of a Full Bench of this Court, been held applicable in payment of the proved debts in the insolvency proceedings.
3. The official receiver reported to the Insolvency Court that, in accordance with the provisions of Sub-section (4), Section 61, Provincial Insolvency Act, the personal creditors of Sahu Bhikari Das were entitled to have their debts satisfied out of this amount before any of it could be made available to pay the debts of the creditors of the partnership: hence the appeal. To this report the appellant objected, contending that the amount should be distributed pro rata among all the creditors whether of the partnership firms or of the partners personally who had proved their debts. The Insolvency Court allowed this objection. On appeal by some of the personal creditors to the District Judge, the learned District Judge was of opinion that in accordance with the terms of Sub-section (4), Section 61, Provincial Insolvency Act, the personal creditors of Sahu Bhikari Das were entitled to have their debts paid out of the separate property of Sahu Bhikari Das, his sons and grandsons and that only the assets remaining over after the debts of the personal creditors has been paid, could be made available to the creditors of the insolvent firms. Against this order of the learned District Judge the petitioning creditor, namely, the firm Narain Das Dori Lal, has preferred a second appeal to this Court. Sub-section (4), Section 61, Provincial Insolvency Act, is in the following terms:
In the case of partners, the partnership property shall be applicable in the first instance in payment of the partnership debts, and the separate property of each partner shall be applicable In the first instance in payment of his separate debts. Where there is a surplus of the separate property of the partners, it shall be dealt with as part of partnership property; and where there is a surplus of the partnership property it shall be dealt with as part of the respective separate property in proportion to the rights and interests of each partner in the partnership property.
4. Now, it is clear that the order of the Court below is strictly in accordance with the provisions of the law as laid down in the Provincial Insolvency Act. This provision in the Act has been adopted from Section 33, Sub-section (6), English Bankruptcy Act, 1914, which in its turn followed a similar provision contained in Section 40, Sub-section (3), Bankruptcy Act, 1883. It is pointed out by learned Counsel for the appellant that, although the English, Act provides that the joint creditors of partners are not entitled to payment out of the separate assets of the partners in competition with their separate creditors certain exceptions to this rule have been allowed by the Courts. These exceptions are mentioned in Lindley on Partnership, Edn. 9, at p. 895. The learned commentator states that:
The exceptions are four in number. The first exists where there is no joint estate; the second where the property of the firm has been fraudulently converted: the third where there has, been a distinct separate trade in respect of which a separate debt has been contracted; the fourth is in favour of the petitioning creditor himself.
5. It is accordingly contended by learned Counsel for the appellant that as the appellant is the petitioning creditor in the present case, the same exception as is allowed in English law in favour of a petitioning creditor should be allowed in applying the provisions of Sub-section (4), Section 61, Provincial Insolvency Act. Learned Counsel for the appellant has drawn our attention to the following English cases as establishing the said exception : Ex parte Hall (1804) 9 Ves. 349, Ex parte Ackerman (1868) 14 Ves. 604 and Ex parte De Tastet (1810) 1 Rose. 10.
6. We have examined these cases and we are not satisfied that they lay down the exception in favour of the petitioning creditor in such wide terms as the learned Counsel for the appellant would contend. In all these cases it would appear that the petitioning creditor, who was held entitled to prove with the separate creditors, had been the petitioning creditor under a separate Commission of Bankruptcy. Such joint creditor was the only joint creditor who could come in with the separate creditors against the separate estate. It would seem that his position was analogous to that of a creditor who had already obtained a decree against the partners of the insolvent firm with the result that he was, in effect, a separate creditor as well as a joint creditor. To allow a creditor who had already obtained such a decree to prove with the separate creditors would be in accordance with the provisions of Sub-section (4) Section 61, Provincial Insolvency Act, as was held in Jethalal Chhota Lal v. Lallubhai Mulchand A.I.R. 1930 Bom. 380. Even in its restricted application, as laid down in the cases cited above, the learned Judges who decided the cases appear to have questioned the validity of the distinction thus drawn between a petitioning creditor and other joint creditors, but felt themselves bound by ancient precedent. In Ex parte Hall (1804) 9 Ves. 349, Lord Chancellor Eldon observed that:
The reason of Lord Thurlow's orders showed that he could not conceive how one joint creditor could be in a different situtation from all the other joint creditors. But the practice is now settled.
7. In Ex parte Ackerman (1868) 14 Ves. 604, Lord-Chancellor Eldon further observed that;
He had often pressed Lord Eosslyn in vain against the rule laid down in Ex parte Eldon 3 Ves. 238, the consequences of which were very dissatisfactory, but it had for a long time been the settled rule.
8. In Ex parte De Tastet (1810) 1 Rose. 10, the Lord Chancellor remarked:
It has been long settled that a joint creditor may take out a separate commission and take dividends with the separate creditors; but that he is the only joint creditor, who can come in with the separate creditors against the separate estate. The observation, that this is very singular, has frequently been made, but the rule is so settled.
9. No case in which the said rule was enforced since the English Bankruptcy Act, 1883, has been brought to our notice, and we observed that in Lindley on Partnership, while there is a separate discussion of a number of cases dealing with each of the first three exceptions mentioned above, the learned commentator, after mentioning the fourth exception and giving the references to the old cases referred to above, does not discuss it any further.
10. It appears to us that, if the said exception were allowed to be engrafted on to Sub-section (4), Section 61, Provincial Insolvency Act, it would be easy for joint creditors of the insolvent partnership to render the provision nugatory by all joining in the insolvency petition. The Provincial Insolvency Act is an Act to consolidate and amend the law relating to Insolvency in British India, and it must be presumed that the Indian Legislature in passing this Act was aware of the exceptions made by the Courts in England to the English Bankruptcy Act, on which the Indian enactment is based. If it was the intention of the Legislature to allow exceptions to the rule as laid down in the Act, we should expect to find a provision to this effect in the Act itself. It would, in our opinion be contrary to the intention of the Legislature to introduce exceptions to the clear terms of the Act. No single case decided by any Court in India has been brought to our notice in which effect has been given to such exceptions to the law as laid down in the Act.
11. We accordingly hold that the learned District Judge was right in refusing to allow the appellant to compete with the separate creditors. Learned Counsel for the appellant has argued that out of the debts proved by the appellant a sum of Rs. 39,000 is a debt due by Sahu Bhikari Das and the members of his family in their personal capacity and that, at any rate, the appellant should be treated as a separate creditor in respect of this debt. This amount does not find any place in the accounts of the Bahjoi Kothi, which has been held to contain the personal dealings of Sahu Bhikari Das and his family. The insolvency Court came to a clear finding that the appellant was not the personal creditor of Sahu Bhikari Das, but only a creditor of the partnership firm. This finding was not challenged in the Court below and we have not been shown that there is any evidence on the record to support the allegation of the appellant that this large sum is a personal debt of Sahu Bhikari Das and not a business debt due by the partnership.
12. We accordingly see no reason to interfere with the decree of the Court below and dismiss the appeal with costs.