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Ratnakar Sarangi Vs. Narada Mohapatra and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtOrissa High Court
Decided On
Case NumberA.H.O. No. 14 of 1971
Judge
Reported inAIR1975Ori68
ActsProvincial Insolvency Act, 1920 - Sections 33(3), 44(2) and 67
AppellantRatnakar Sarangi
RespondentNarada Mohapatra and anr.
Appellant AdvocateA.B. Misra and ;D.C. Ray, Advs.
Respondent AdvocateK.M. Swain, ;H.C. Ray and ;D. Dhar, Advs.
DispositionAppeal dismissed
Cases Referred(Parsu Vithoba v. Balaji Vishwanathrao
Excerpt:
.....under section 28 that property clearly vested in the insolvency court. the learned courts below took the correct view in holding that the impugned assets are to be disposed of for discharge of the debts of creditors 1 and 2. 12. both the contentions fail and the appeal is dismissed with costs......deposited in the court of the additional subordinate judge, cuttack. on 5-7-62 the appellant was adjudged insolvent and was directed to apply for discharge within six months under section 27(1) of the act. a conditional order of discharge was passed on 1-4-64. the question of absolute discharge was directed to be considered after one year, and during that period the khata accounts of the insolvent was directed to be scrutinised by a receiver. the nazir was appointed receiver on 10-4-64 to inspect the khata accounts of the insolvent. on 22-11-67 the report of the nazir was put up before the district judge and after hearing the insolvent's advocate an absolute order of discharge was passed on 11-12-67. about two years after creditors 1 and 2 filed a petition on 9-12-69 for distribution of.....
Judgment:

G.K. Misra, C.J.

1. To appreciate the points in controversy facts may be stated in brief.

On 16th of July, 1956, Ratnakar Sarangi (appellant) presented an insolvency petition under Section 7 of the Provincial Insolvency Act (Act V of 1920) (hereinafter to be referred to as the Act). It was registered as Misc. Case No. 6/56 in the Court of the District Judge, Cuttack. On 20th of July, 1956, some immoveable properties belonging to the insolvent were put to sale in execution case No. 11/53 in the Court of the Subordinate Judge, Cuttack. The execution case was from a decree obtained by Narada Mohapatra, creditor No. 1, against the insolvent in M. S. No. 125/ 51 which was a decree on contest for Rs. 7,567.75 paise, on 16-10-52 with future interest as was allowed in F. A. No. 5/53. On 25-7-56 the insolvency case was admitted. On 12th of September, 1956, confirmation of sale in execution case No. 11/53 was stayed on an application made by the insolvent. On 15-11-56 this stay order was vacated and the Nazir was appointed as the interim receiver to take steps for realisation of the assets held in the Subordinate Judge's Court in execution case No. 11 of 1953. Sukadeb Mohapatra is the creditor No. 2. On 17-12-56, creditors 1 and 2 filed an application for appointment of an interim receiver for management of the properties of the insolvent. On 15-12-56 the Nazir was discharged from receivership and Shri B. B. Rath, Advocate, was appointed as receiver. On 20-12-56 the insolvent filed an application for staying execution case No. 5/56 in the Court of the Additional Subordinate Judge, Cuttack, which was started on 2-5-56 by creditors 1 and 2 for recovery of their dues amounting to Rs. 11,2111.98 paise with pendente lite and future interest at 6 per cent per annum. This application was rejected. The executing court was informed to realise the assets and to hold the amount awaiting further orders from the insolvency court. On 16th January, 1967, the interim receiver Sri B. B. Rath filed a report regarding the movable assets of the insolvent that had been taken charge of by him and kept in the custody of one Bhagyarathi Sarangi. On 9-2-57 the interim receiver Sri B. B. Rath was discharged and thereafter no other receiver was appointed. On 22nd of May, 1958, certain properties were sold in execution case No. 5/56 and the entire sale-proceeds amounting to Rs. 1371.00 were deposited in the Court of the Additional Subordinate Judge, Cuttack. On 5-7-62 the appellant was adjudged insolvent and was directed to apply for discharge within six months under Section 27(1) of the Act. A conditional order of discharge was passed on 1-4-64. The question of absolute discharge was directed to be considered after one year, and during that period the khata accounts of the insolvent was directed to be scrutinised by a receiver. The Nazir was appointed receiver on 10-4-64 to inspect the Khata accounts of the insolvent. On 22-11-67 the report of the Nazir was put up before the District Judge and after hearing the insolvent's advocate an absolute order of discharge was passed on 11-12-67. About two years after creditors 1 and 2 filed a petition on 9-12-69 for distribution of assets including the amounts in deposit in execution case No. 11/53 and 5/56 in the Courts' of the Subordinate Judge and Additional Subordinate Judge, Cuttack, respectively and also by sale of 2.06 1/4 acres of land which were judicially determined to be the property of the insolvent. The history of litigation, so far as this property is concerned, shows that on 10-8-56 this land was attached in execution case No. 5/56; but the additional Subordinate Judge released the property from attachment on the application of the daughters of the insolvent under Order XXI, Rule 58 C. P. C., on a finding that the property belonged to them as being inherited from their mother which was her Stridhan property. On 18-7-57, creditors 1 and 2 filed a suit under Order XXI, Rule 63, C. P. C. in T. S. No. 126 of 1957 against the claimants and the insolvent. On 29-1-62 the suit was decreed. Title Appeal No. 13/ 32 of 64/62 at the instance of the claimant was dismissed on 12-3-65 and the second appeal to the High Court (S. A. No. 233/65) was dismissed on 21-1-66'. Thus the 2.06 1/4 acres of land were held in a contested litigation as belonging to the insolvent.

On 23rd of February, 1970, creditors 1 and 2 filed an application, praying that the properties mentioned in Schedules A and B of that petition should be distributed amongst the creditors. Schedule A related to the movable property which were taken delivery of by the receiver Sri B. B. Rath and this had been mentioned in the insolvency petition, and Schedule B property constituted lots 23, 25, 26, 28, 29 and 31 of the insolvency petition. Their case was that as A and B sch. properties had not been disposed of, they should be sold and the sale-proceeds should be made available for distribution amongst the creditors. In an affidavit filed by creditor No. 1, reference was made to the decrees of creditors 1 and 2 under execution in ex. case Nos. 11 of 1953 and 5 of 1956. Creditors 1 and 2 in their application dated 9-12-69 gave details of the litigation wherein the 2.061/4 acres of land were ultimately judicially held to be the property of the insolvent. An affidavit by way of formal proof of the debts was filed in accordance with the provisions of Section 49(1) which lay down that a debt may be proved under the Act by delivering or sending by post in a registered letter, to the Court an affidavit verifying the debt. On 24th of July, 1970, the District Judge passed an order directing that the aforesaid assets should be distributed among the creditors. On 11-8-70 a petition for clarification of the order dated 24-7-70 was filed by creditors 1 and 2. Clarification was sought on account of the fact that in the earlier order, the District Judge appeared to be under the impression that the 2.061/4 acres of land had already been included in the insolvency application. The District Judge, in the clarificatory order dated 22-9-70, stated that the properties left out from the insolvency petition and the new item of property shall be proceeded against for satisfaction of the dues of the creditors. Against the two orders passed by the District Judge on 24-7-70 and 22-9-70 M. A. No. 153/70 was filed in this Court which was dismissed by our learned brother, R. N. Misra, J. on 14-9-71. The A. H. O. has been filed against the judgment of the learned single Judge.

2. Mr. A. B. Misra for the appellant raised two contentions: (i) Creditors 1 and 2 did not prove their debts before the final order of discharge, and their debts were not included in the schedule of creditors as contemplated in Section 33 of the Act, and such debts should not be permitted to be proved after the final order of discharge; and (ii) an order of discharge shall release the insolvent from all debts provable under the Act as prescribed in Section 44(2) save as otherwise provided by Sub-section (1). The debts of creditors 1 and 2 do not fall within the ambit of debts referred: to in Section 44(1) and as such, the properties of the insolvent are not available towards the discharge of the debts of creditors 1 and 2.

Both the contentions require careful examination.

3. Section 33 of the Act runs thus:

'33. Schedule of creditors: (1) When an order of adjudication has been made under this Act, all persons alleging themselves to be creditors of the insolvent in respect of debts provable under this Act shall tender proof of their respective debts by producing evidence of the amount and particulars thereof, and the Court shall, by order, determine the persons who have proved themselves to be creditors of the insolvent in respect of such debts, and the amount of such debts, respectively, and shall frame a schedule of such persons and debts;

Provided that, if, in the opinion of the Court, the value of any debt is incapable of being fairly estimated, the Court may make an order to that effect, and thereupon the debt shall not be included in the schedule.

(2) A copy of every such schedule shall be posted in the Court-house.

(3) Any creditor of the insolvent may, at any time before the discharge of the insolvent, tender proof of his debt and apply to the Court for an order directing his name to be entered in the schedule as a creditor in respect of any debt provable under this Act, and not entered in the schedule, and the Court, after causing notice to be served on the receiver and the other creditors who have proved their debts, and hearing their objection, if any, shall comply with or reject the application.'

4. The object of Section 33 is very clear. In an insolvency proceeding, the assets of the insolvent must be fully ascertained, as far as practicable, before the final order of discharge is passed. In the insolvency petition filed by a debtor many fictitious debts might have been mentioned. The Legislature has accordingly made provision that even if debts have been mentioned in the insolvency petition, those debts must be proved so that the assets may be appropriately distributed amongst the creditor. It is for this reason a schedule of creditors shall be framed on proof of debts. A copy of the schedule is to be posted in the Court house so that everybody would gather information.

Sub-section (3) prescribes that even if a particular creditor failed to prove his debt at the appropriate time when a schedule of the persons and the debts is framed, he shall be given a further opportunity to prove his debt before the final order of discharge is passed. In such a case, a notice is to be served on the receiver and other creditors who have already proved their debts and after hearing objection, the application for inclusion of name of such a creditor in the schedule of persons and debts may either be accepted or rejected.

5. Mr. Misra contends that Section 33(3) is mandatory and the last opportunity for any creditor to prove his debts ends when the final order of discharge is passed, and he is not entitled to a further opportunity thereafter.

There is a divergence of opinion on this point.

The contention is supported by AIR 1936 Rang 393 (Bank of Chettinad Ltd. v. Ko Tip), AIR 1942 All 344 (Jagadamba Pande v. Ram Khelwan); and AIR 1943 Mad., 266 (Chennabassappa v. Official Receiver) The contrary view is to be found in AIR 1924 Mad 163 (Sivasubramanian v. Theethiappa). AIR 1936 Cal 434 (Arjun Das v. Marchia Telini); AIR 1925 Pat 438 (Babulal v. Krishna Prasad).

It is unnecessary to multiply authorities. It is sufficient to say that Section 33(3) is directory and not mandatory. There is no express period of limitation for a creditor, whose debt is provable in an insolvency proceeding, to prove his debt. A debt is to be proved ordinarily before a dividend is declared. This is essential as the officer of the Court administering the insolvent's estate should have in his possession materials which would enable him to make a pro rata and equitable distribution of the assets.

The time of discharge of an insolvent has no relation, in any case, to the time for declaring the dividend. We are clearly of opinion that Section 33(3) is directory.

6. The entire question is, however, academic in this case. The debts of creditors 1 and 2 were mentioned by the insolvent in the insolvency petition itself. The creditors in their counter referred to those very debts. There was thus no dispute regarding the existence of the amount of debts and further proof was not necessary. The debts were decretal dues under execution in Ex. case No. 1.1/53 in the Court of the Subordinate Judge and in Ex. case No. 5/56 in the Court of the Additional Subordinate Judge, Cuttack. The insolvency court itself accepted these two debts and directed that the assets realised by those executing courts would be held on its behalf. Thus, the impugned debts were debts determined through Judicial proceedings and accepted by the insolvency Court. Any assets realised and held by the executing courts were assets to be utilised for discharge of those debts.

Similarly, 2.061/4 acres of land were judicially determined to be the property of the insolvent. Under Section 28 of the Act this property vested in the insolvency court at the time the insolvency petition was presented. Even the judicial determination that the property belonged to the insolvent was prior to the absolute order of discharge. Thus those lands must be disposed of for distribution of the proceeds amongst the creditors.

7. Section 28, so far as relevant, runs thus:

'28. (1)* * * * *

(2) On the making of an order ofadjudication the whole of the propertyof the insolvent shall vest in the Courtor in a receiver as hereinafter provided, and shall become divisible among thecreditors, and thereafter, except as provided by this Act no creditor to whomthe insolvent is indebted in respect ofany debt provable under this Act shallduring the pendency of the insolvencyproceedings have any remedy againstthe property of the insolvent in respectof the debt, or commence any suit orother legal proceeding, except with theleave of the Court and on such terms asthe Court may impose.

* * * * (4) All property which is acquired by or devolves on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or receiver, and the provisions of Sub-section (2) shall apply in respect thereof,

* * * * * (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.'

An analysis of these provisions would show that on making an order of adjudication the whole of the property of an insolvent shall vest in a Court or a receiver. Even a property, which is acquired by or devolves on an isolvent after the date of an order of adjudication and before discharge, shall forthwith vest in the Court. An order of adjudication shall relate back to, and take effect from, the date of presentation of the petition on which it is made.

Mr. Misra does not dispute that the 2.064 acres of land vested in the Court as the property existing at the time the insolvency petition was presented, and was determined as belonging to the insolvent before the absolute, order of discharge was passed.

8. On the aforesaid analysis, we hold that Section 33(3) is directory. The impugned debts of creditors 1 and 2 had been fully proved in the insolvency proceeding itself before the absolute order of discharge was passed. The assets of the insolvent are to be distributed amongst the creditors 1 and 2 for discharge of those debts, even though their names and their debts were not mentioned in a schedule as required under Section 33(1). In fact, it appears that the District Judge did not at all frame a schedule of creditors and their debts, When no schedule of creditors and their debts was at all framed, it would be fantastic to accept an argument that the assets of the insolvent would not be proceeded against for discharge of debt proved in an insolvency proceeding.

9. We would now proceed to examine the contention based on Section 44 of the Act. Section 44 (1) and (2) are extracted herein below:

44. Effect of order of discharge:

'(1) An order of discharge shall not release the insolvent from:

(a) any debt due to the Government;

(b) any debt or liability incurred by means of any fraud or fraudulent breach of trust to which he was a party:

(c) any debt or liability in respect of which he has obtained forbearance by any fraud to which he was a party; or

(d) any liability under an order for maintenance made under Section 458 of the Code of Cr. Procedure, Act V of 1898.

(2) Save as otherwise provided by Sub-section (1), an order of discharge shall release the insolvent from all debts provable under this Act.'

Emphasis is placed by Mr. Misra on Section 44(2) in contending that as the impugned debts of creditors 1 and 2 do not fall within the class of debts referred to in Section 44(1), the assets of the insolvent can no longer be proceeded against to satisfy the impugned debts after the order of discharge.

There was some controversy on the interpretation of this section. It is unnecessary to refer to the decisions of the various High Courts, in view of the fact that the matter is concluded by AIR 1964 9C 234 (Raghunath v. Ganesh).

Their Lordships briefly considered the scheme of the Act and in that connection examined all the relevant sections. They held that the key to the solution of the controversial question is to be found in Section 67 which runs thus:

'The insolvent shall be entitled to any surplus remaining after payment in full of his creditors with interest as provided by this Act, and of the expenses of the proceedings taken thereunder.'

It is unnecessary to cover the same field again. It is sufficient to extract the relevant passage from paragraph 17 of the judgment., which is as under:

xxxxx Though therefore there is no specific provision in terms in Section 44(2) with respect to property that may remain undisposed of by the receiver or by the Court, like the provision in Section 37 on an order of annulment it seems to us that Section 67 by necessary implication provides the answer to case like the present. All the property which remains undisposed of at the time of discharge must be treated as surplus to which the insolvent is entitled. The insolvent would thus get title to all such property, and the vesting in the receiver whether under Section 28(3) or Section 28(4) would come to an end on an order of discharge, subject always to the insolvent complying in full with the conditions of Section 67 in case they have not been complied with before his discharge, for he is entitled only to the surplus after the creditors have been paid in full and the expenses of all proceedings in insolvency have been met. Any other, view of the effect of discharge would result in this startling position that though the insolvent is freed from his debts under Section 44(2) and is a free man, for all purposes the property which was his and which vested in the receiver under Section 28(4) will never come back to him and will always remain vested either in the Court or the receiver. We have no doubt that the Act did not contemplate such a situation.

x x Where, however, the insolvent has been discharged without fully meeting the conditions of Section 67, he would, in our opinion, be still entitled to the surplus, even if it be in the shape of undisposed of property, subject to his fulfilling the conditions of Section 67. It may be added that there is nothing in the Act which takes away the right of the insolvent to sue in Courts after he has been granted a discharge, for he then becomes a freeman. In such a situation, we are of opinion that he would certainly be entitled to sue in Court for recovery of his undisposed of property if it is in the possession of a third party, after his discharge and such property cannot for ever remain vested in Court or receiver. All that justice requires is that in case the conditions of Section 67 have not been fulfilled, such property should be subject to those conditions, viz., that he should be liable to discharge his creditors in full with interest and to meet the expenses of all proceedings taken under the Act. Subject to these conditions the insolvent, in our opinion, would be entitled to undisposed of property on discharge and would be free to deal with it as any other person, and if necessary, to file a suit to recover it.'

It would thus be seen that in unequivocal terms the Supreme Court laid down the law by saying that when absolute order of discharge is passed, the property that vested in the Court before the order of discharge shall vest in another person as directed by the Court for the benefit of the insolvent, or if no such order has been passed in the insolvent itself. Thereby, however, the property does not become free from the obligation of being utilised for the discharge of the debts of the insolvent which are provable under the Act, or the expenses in the insolvency proceedings. In other words, the insolvency proceeding itself does not terminate until those obligations are discharged even though an absolute order of discharge has been passed.

Their Lordships accepted as good law AIR 1936 Cal 434, AIR 1937 Lah 87 (Kanshi Ram v. Hari Ram) and AIR 1944 Nag 28 (Parsu Vithoba v. Balaji Vishwanathrao), wherein on an interpretation of Section 67 of the Act it was clearly held that the insolvent is only entitled to that property or money as surplus which remains after payment of his debts in full and after meeting all expenses of the proceedings under the Act.

10. The examination of the question before the Supreme Court arose in the following facts and circumstances;

During the pendency of an insolvency proceeding, a particular property devolved upon the insolvent by inheritance. The insolvent filed a suit subsequent to the absolute order of discharge for recovery of this property from the alienees of a limited heir. As the devolution was during the pendency of the insolvency proceeding, the insolvency Court was not apprised of that property. Under Section 28 that property clearly vested in the insolvency Court. The short question posed was whether after the absolute order of discharge, the insolvent was entitled to file a suit for recovery of that property. The controversy was whether the property continued to vest in the Court or vested in the insolvent after the absolute order of discharge.

Their Lordships held that after the absolute order of discharge the property vested in the insolvent, and the suit for recovery of possession was maintainable, but that property was liable to be proceeded against by the insolvency Court for discharge of debts provable under the Act.

11. Applying the test laid down by the Supreme Court to the facts of this case, the position is that the 2.061/4 acres of Land and assets held by the executing Courts would vest in the insolvent after the absolute order of discharge, but those properties would be utilised for the discharge of the impugned debts, and the expenses in the insolvency proceeding.

The learned courts below took the correct view in holding that the impugned assets are to be disposed of for discharge of the debts of creditors 1 and 2.

12. Both the contentions fail and the appeal is dismissed with costs. Hearing fee Rs. one hundred.

Mohanti, J.

13. I agree.


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