1. This is an appeal against an order passed by the learned District Judge of Benares on 25th October 1929 annulling an order of adjudication passed in respect of one Mohan Lal under the Provincial Insolvency Act, 1920.
2. Mohan Lal presented an insolvency petition on 26th November 1924. He showed the debts due from him as about Rs. 32,000, and showed assets, mainly in the shape of debts due to him, amounting to about Rs. 24,000. On 21st November 1925 the District Judge adjudged the applicant an insolvent and ordered him to apply for his discharge within one year. The applicant did apply within the prescribed period. The period was extended from time to time upon the motion of the official receiver and successive applications for discharge were made. The last application was made on 17th September 1929. On 8th April 1929 the official receiver submitted a report recommending; that 'as the actions of the insolvent have-not been very fair and straightforward,' the insolvency should be annulled, or the insolvent should be discharged and permission should be granted to the official receiver to sell the assets ' of the insolvent.
3. The learned District Judge found that the insolvent had been dishonest in his dealings. The insolvent stated that he had sold Rs. 9,000 worth of goods to a, certain State without obtaining any receipt and without making any note of it in his account books, or keeping any memorandum of the transaction, and these omissions showed, in the Judge's. opinion, that the insolvent was dishonest. Moreover the Judge found that an item of Rs. 10,000, which was shown in the schedule as being due from a certain Raja, had been paid by the Raja into the Treasury, but had been refunded in the year 1923. The District Judge remarks that it is not clear to whom the money was paid, but apparently he held that it must have been paid to, the insolvent himself. The District Judge states that either the insolvent has no assets, which shows that he was entering recklessly into transactions with various persons and incurring debts which he never hoped to pay, or that he has realized all the. amounts and has destroyed his account books so that no evidence may be available. Upon these grounds the Judge-annulled the adjudication.
4. It has been urged that the District Judge had no jurisdiction to annul the adjudication upon the grounds stated by him. In our opinion the contention is. well founded. The only section applicable to the case under which the District Judge could have annulled the adjudication is Section 35. Under that section the Judge could have annulled the adjudication if, in the opinion of the Court, the debtor ought not to have been adjudged insolvent. There are no other grounds upon which the Court could, in the circumstances of this case, have legally annulled the adjudication.
5. Even if the facts found by the District Judge are correct, they do not in our opinion furnish any legal ground for annulling the adjudication because they do not show that the debtor ought not to have been adjudged insolvent. It may be accepted that the insolvent was dishonest in his dealings, and that he had no assets and that he destroyed his account books and that he was entering recklessly into transactions and incurring debts which he never hoped to repay. It may further be conceded that he realized certain debts due to him before presenting the insolvency petition, and nevertheless showed these debts as still due to him. None of these facts would have furnished the Court which passed the order of adjudication any grounds for dismissing the insolvency petition. The debtor was entitled under Section 10 to present the petition as he was unable to pay his debts, and his debts amounted to Rs. 500. These facts have never been doubted. The Court therefore could not have dismissed the petition under Section 25(2). The facts found may furnish grounds for refusing an absolute order of discharge, but they furnish no grounds for dismissing an insolvency petition and consequently no grounds for annulling an (adjudication. The ruling of the Judicial Committee in Chhatrapat Singh Dangar v. Kharag Singh Lachmiram A.I.R. 1916 P.C. 64 may be referred to in support of our view.
6. We therefore allow the appeal and set aside the order of the Court below annulling the adjudication. The District Judge should now proceed to pass orders on the application for discharge. The appellant will get his costs of this appeal.