1. This is a rule directed against an order of the Additional District Judge of Rohtak reversing an order of the Insolvency Court and thus declaring the present petitioners insolvents.
2. The following pedigree-table will help in understanding the facts of the case :
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Bhola Shanker Shiv Shankar Rama Shankar
Alias Nanhe Mal R. 2 R. 3
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Kaushal Kishore Kanwar Kishore Brij Kishore
R. 4 R. 5 R. 6
3. Firm Bhawani Prashad-Nanhe Mal was carrying on business of cloth-merchants. Firm Bhawani Prashad-Shiv Shankar was carrying on business of utensils and another firm Rama Electric Works was carrying on business of electrical goods and repairs.
4. On 20-7-1949 a registered deed of partition was executed between Bhawani Prashad his two sons, who were alive, and his three grandsons, sons of Nanhe Mal deceased, which recited :
'* * that we the parties are members of a joint Hindu family and are carrying on joint business, that party No. 2 is carrying on business in the name of Bhawani Prashad-Nanhe Mal, party No. 3 under the name of Bhawani Prashad-Shiv Shankar and the fourth party is carrying on business in his own name, but the property mentioned above is their joint property and the parties, therefore, in order to put an end to the disputes between themselves, partition the property as follows:'
Properties falling to the share of each one of them are then mentioned. This deed then proceeds as under, and I give the translation :
'Whatever property will fall to the share of any of the parties, that party will be the sole owner in possession and he will have full rights in that portion which falls to his share. No question of whether the property is more or less remains between the parties, nor will it be raised in future. Now the parties have got no joint property, nor any joint business. The joint Hindu family has disrupted and every party has absolutely separated from the other.
Party No. 2 has his separate business under the name of Bhawani Parshad-Nanhe Mal. Party No. 3 has his separate business under the name of Bhawani Parshad-Shiv Shanker and party No. 4 is carrying on business in a separate name; hence these few words have been written as a partition deed.'
In this deed of partition no debts due from the joint 'Hindu family have been mentioned, nor is there anything to show as to what property has fallen to the share of the father Bhawani Parshad.
I have been informed and Bhawani Parshad has deposed that eighteen bighas of agricultural land winch was owned by the joint Hindu family was kept by the father, but that is not mentioned, nor is the value of this property mentioned. The value of the property partitioned is given as Rs. Rs. 40,000/- in the deed of partition.
5. A large number of creditors, about sixteen in number, it appears originally they were only seven, brought an application, against Bhawani Parshad and his sons and grandsons alleging that the original respondents were members of a joint Hindu family carrying on joint business and residing jointly, that the respondents, members of the joint Hindu family owed Rs. 86,900/- to the creditors and the assets were Rs. 42,000/- and five acts of insolvency were alleged out of which only one is now in controversy, - whether the respondents had suspended payment of their debts within three months of the petition which fell under Section 6(g), Provincial Insolvency Act.
I may repeat that three businesses were carried on by the members of the family, Bhawani Parshad-Nanhe Mal dealing in cloth, Bhawani Parshad-Shiv Shankar dealing in brassware and utensils and Rama Electric Works which dealt in electrical goods and repairs.
6. The defence was that the respondents did not form a joint Hindu family and that the three different businesses were owned by different parties, Bhawani Parshad-Nanhe Mal by the sons of Nanhe Mal, Bhawani Parshad-Shiv Shankar by Shiv Shankar and Rama Electric Works by Rama Shankar and that original respondent I had nothing to do with these businesses and had separated from them long before the application was made.
The extent of the debts was denied and they pleaded that the value of their property was about five lacs and that no act of insolvency had been committed.
7. The insolvency Court held that there was no oral partition between the original respondents, that the deed of partition did represent a genuine partition and whether the object was to defeat or delay the creditors was irrelevant and that the act of insolvency under Section 6(g) alleged, by the creditors had not been made out. The application was therefore dismissed.
8. On appeal being taken to the District Judge, it was held that an act of insolvency was committed by Bhawani Parshad and Shiv Shankar and the learned Judge was also of the opinion that there was no severance of the joint Hindu family and therefore all the respondents were declared insolvents. They have come up in revision to this Court.
9. The first question to be determined is whether there was an act of insolvency and then it will have to be determined whether that is the! act of Shiv Shankar and his father only or it is sufficient for the purpose of declaring all the original respondents insolvents and for that purpose it will be necessary to adjudicate on the genuineness of the deed of partition.
10. In the original application for insolvency in para 5 (jim) the allegation by the applicants was that the respondents had stopped the payment of debts a month before the application and had intimated that fact to the creditors severally and collectively. In support of this the original applicants produced some witnesses. Phul Chand P.W. 3 stated that he asked the respondents a year before for the debt which was due to his brother-in-law Umrao Singh resident of Narnaul and in reply he was told that now the respondents were not making payments to their creditors.
No cross-examination was directed in regard to this statement. The next witness is another Phul Chand P.W. 4 who is a Chaudhury of the Anaj Mandi and is a neighbour of the respondents. He stated that the respondents had a joint residence and business. In April, 1950 Mohan Lal, Gujar Mal, Nand Kishore, Ramdev and others came to him and asked him to get the payment of debts due from Bhawani Parshad Shiv Shankar settled, and he went with them to the shop of Bhawani Parshad Shiv Shankar and asked Shiv Shankar to settle the matter.
He replied that he had no money and 'you can do what you like (jo dil men awe karo).' P. W. 5 is Balmukand who stated that 12 or 13 months ago Ramdev, Umrao Singh, Gujar Mal, Phul Chand and others went to demand money. Bhawani Parshad Shiv Shankar refused to pay money and Shiv Shankar said 'we have no money; do what yon like (jo ji awe karo).' Bhawani Parshad was present at the time.
P.W. 6 is Gujar Mal who stated that on 18-4-1950 he along with Mohan Lal, Nand Kishore, Ramdev, Ganesh Lal, Mata Din etc., went to demand money from the respondents. There Bhawani Parshad and Shiv Shankar were present and they said that they had no money, and they closed the shop and went away. P.W. 7 Budh Ram stated that in his presence Mohan Lal, Phul Chand, Gujar Mal, Ganeshi Lal and Mata Din went to demand money from the respondents on 18-4-1950 and the respondents refused to pay money. Ramdev P.W. 8 also stated that they went on 18-4-1950 and the respondents refused to pay the debts.
11. Three of the respondents have gone into the witness box. R.W. 10 is Bhawani Parshad. He stated that he had separated from his sons and they had separate businesses, that he owed no money to any one of those men and was living separately in a garden and possessed 18 bighas pukhta of land which was valued at Rs. 1,50,000/-.
He did not deny the statement of any one of the witnesses for the applicants that in his presence Shiv Shankar stated that they would not pay money, 'Do what you like.'
12. The next witness is R.W. 11 Shiv Shankar. He deposed as to the separation of the family and the taking possession of the properties by the individual member and that he had not closed his shop, i.e., in his shop there was property worth Rs. 20,000/- and in the cloth shop property worth Rs. 15,000/- and in the electric shop Rs. 10,000/-. He also stated that his property was worth Rs. 4,00,000/-. He admitted that against him there were decrees Rs. 4,000/- of Chandrawati, Rs. 6,500/- of Umrao Singh and a decree of Bansi Dhar Devinder Kumar the amount of which he did not know.
He also admitted that one of his shops had been sold in execution of a decree and that he did not know if he had put in any objections. There was a decree of Rs. 13,000/- against him of Hira Singh Mul Chand. He admitted attachment of his properties in execution of decree but expressed ignorance of the fact whether any shop had been attached.
Although he stated in examination-in-chief that he paid off the decree of Chandrawati, in cross-examination he stated that he had not paid a penny but in his books it was shown that the amount had been paid. There were several other decrees which he admitted in cross-examination, and the most significant part of his statement was that he had not paid Rs. 3,800/- as sale-tax but had obtained instalments for the payment of the sum.
He admitted that they were all living in one house but had separate mess. The most significant part of his statement was that ho was prepared to pay eight annas in the rupee provided he was given time, but if he was asked to pay at once he could not pay. He would be able to pay in about a year's time and had not even one rupee with him.
13. Kaushal Kishore appeared as R.W. 12 and stated that he had not borrowed any money and that Shiv Shankar was not authorised to borrow any money on their behalf. He also deposed that the joint property had been separated.
14. The Insolvency Court held that the words used by these respondents did not amount to an act of insolvency and that mere inability to pay or refusal to buy was not an act of insolvency. The appellate Court on the other hand was of the opinion that the evidence proved that the creditors did go to the shop of the respondents and that what was said by Bhawani Parshad and Shiv Shankar amounts to a notice of suspension of payment of debts' within Section 6(g), Provincial Insolvency Act.
15. Now a notice may be oral or it may be in writing. What has to be found in the present case whether the words which the applicants alleged and which their witnesses state were used by Shiv Shankar in the presence of Bhawani Parshad amount to an act of insolvency or not. I agree with the finding of the learned District Judge that the creditors did go to the shop of Bhawani Parshad Shiv Shankar and that in the presence of Bhawani Parshad demand for payment of money was made and that it was then stated that they had no money and the 'creditors could do what they liked.
This it is submitted by Mr. Tek Chand does not amount to an act of insolvency. He has referred to several cases; first to -- 'Crook v. Morley', 1891 AC 316 (A). In that case a debtor sent to his creditors a letter: 'Being unable to meet my engagements as they fall due I invite your attendance at' (a specified place and time) 'when f will submit a statement or my position for your consideration and decision', and it was held that this would naturally induce the creditors to believe that the debtor intended to suspend payment of his debts and amounted to a notice that he was about to suspend payment of his debts within the meaning of the Bankruptcy Act, Section 4 Sub-section (1), and was an act of bankruptcy.
The words of this section are similar to the ones used in Section 6(g), Provincial Insolvency Act. Lord Selborne adopted the words of Bowen L. J. in the case of Lamb, 4 Morroll, Bkcy. Rule 25, at p. 28 (B), to be the true test. The Lord Justice had asked the following question : 'What effect would the circular produce on the mind of a creditor receiving it as to the intention of the debtor with regard to his creditors?' Lord Watson at page 324 said
'A declaration of his inability to pay his debts may be made by a debtor to one or more of his creditors, in terms and under circumstances which do not suggest that he means to stop payment of his debts as they fall due. But that such a declaration may be couched in language which clearly implies that the debtor means to pay nobody in full, and to place his assets at the disposal of his creditors, does not appear to me to be doubtful.'
16. In In re Reis., (1934) 2 KB 769 (C), an intimation was given by Reis that he would be unable to pay in full his Stock Exchange liabilities which would fall duo at the ensuing settlement, and gave leave to each of them individually to close his account immediately. This was held not to be an act of bankruptcy within Sub-section 1 (h) of Section 4, Bankruptcy Act. At page 776 Cozens-Hardy L. J. said that the result of the authorities was that a settlement by the debtor that he is unable to pay his debts in full is not by itself an act of bankruptcy, although it may be such if it amounts to a statement that he intends to deal with his creditors as a body.
17. The next case relied upon by Mr. Tek Chand was -- 'Clough v. Samuel', 1905 AC 442(D), which is the decision of the House of Lords In the same case which I have quoted above. In this case it was said in the speech of Lord Macnaghten at page 446
'The notice need not be in writing. It is enough if notice is given to any one of the creditors. No particular form is required. There is nothing said in the Act about the debtor's intention. The question is what effect would the communication have on the minds of the persons to whom it is addressed. That is the test as laid down in this house. It is only a matter of common sense, as A. L. Smith L. J. observed. All that is required is that a communication proceeding from the debtor, made seriously, should give the creditors or any of the creditors to understand from the state of circumstances as disclosed at the time that the debtor has suspended or that he is about to suspend payment.'
18. The effect of these English cases is really what is laid down in the speech of Lord Macnaughten which I have quoted above. The test is what effect would the statement of the debtor produced en the mind of the creditor receiving it as to the intention of the debtor with regard to the creditors taking into account the circumstances disclosed at the time. If the effect is that the debtor has suspended or is about to suspend payment, it will amount to an act of insolvency.
19. In India Section 6(g) has been the subject-matter of controversy. In -- 'Piare Lal v. Salamatullah Khan', AIR 1937 All 435 (E), the debtor wrote to one of the creditors: 'Be it known to you that your dunning me over and over for your money is entirely useless. I am now so much indebted that I cannot pay off my debts. You do what you like', and it was held that this amounted to an act of insolvency within the meaning of Section 6(g). Provincial Insolvency Act, and in this case 1891 AC 316 (A), was relied on.
20. In -- 'Chanahalu Siva Reddi v. Official Receiver Bellary', AIR 1937 Mad 13 (F), the eldest brother was in complete charge of and had the full and exclusive control over the business of the firm. He gave notice to the petitioning creditors that he was unable to pay his debts. The words used wore: 'I cannot pay your debts. You can do what you like.' These words held to be sufficient to indicate the intention of the debtor of suspension of payment of debts. '
21. In -- 'Lakhi Prasad v. Ugrah Misra', AIR 1933 Pat 461 (G), three principles to determine whether debtor's statement amounts to suspension of payment or not were laid down by a Division Bench. (1) that it should not be merely a Statement that the debtor is unable to pay his debts, (2) one has to ascertain what the words used by the debtor would reasonably and ordinarily mean to the mind of a creditor, and (3) that he is not going to pay a particular creditor but he intends to deal with his creditors collectively.
In a later case -- 'Hardavan Dass v. Jagarnath', AIR 1934 Pat 526 (fl), it was held that in order to bring a case within Section 6(g), Provincial Insolvency Act, it is necessary to establish facts which indicate that the debtors are not merely refusing to pay particular creditors but they have declined to pay any creditor or will deal with their creditors as a body.
22. The last two cases which were quoted by Mr. Tek Chand do not seem to carry the case any farther than that was held by the English Courts. From the words that have been used by Shiv Shankar in the presence of Bhawani Parshad it is quite clear that he communicated to the creditors that the respondents would not pay their debts and they could do what they liked which is exactly what happened in the Madras case which I have quoted above.
It was not as if Shiv Shankar was saying that he would not pay any particular debts but that he would not pay any of his debts and that the creditors could do whatever they liked. His statement in Court no doubt of a much later date indicates that a large number of debts are payable by Bhawani Parshad Shiv Shankar, that their properties are being sold in execution of decrees and they are unable to pay even eight annas in the rupee at once.
As a matter of fact, an offer was made in this Court by counsel for the present respondents that they would be satisfied if they wore paid twelve annas in the rupee now, an offer which was not accepted by the present petitioners. On a review of the evidence I am, of the opinion that the statement made by Shiv Shankar in the presence of Bhawani Parshad does fall within Section 6(g) and is an act of insolvency. I may conveniently quote here Section 6(g) which provides
'6. A debtor commits an act of insolvency in each of the following cases, namely:
* * * * * * (g) if be gives, notice to any of his creditors that he has suspended or that he is about to suspend, payment of his debts; or
(h) * * * * * * * Explanation : For the purposes of this section the act of an agent may be the act of the principal.'
23. The next question for decision is whether the statement would bind Bhawani Parshad Shiv Shankur only or all the members of the family. For this purpose it is necessary to decide as to whether the family is a joint Hindu family or they have separated. The Courts below have found that the oral partition set up of the year 1946 has not been established but in regard to the deed of partition of the year 1949 the Insolvency Court was of the opinion that it was genuine document and disrupted the family.
The appellate Court did not seem to be of that opinion and he found that the partition was not a genuine one and that as Bhawani Parshad and Shiv Shankar acting on behalf of the family had committed an act of insolvency by giving notice of suspension of payment within Section 6(g), Provincial Insolvency Act, all the members of the family were declared insolvents,
24. As I have said above the partition deed dated 20-7-1949, only related to the shops and houses owned by the family. There is no mention in this document of the agricultural land which I am now informed is in the possession of the father, Bhawani Parshad. Besides this all the members of the family arc living in one Haveli although they have separate mess. It is submitted by Mr. Faqir Chand Mittal for the opposite party that the partition was not acted upon.
No application was made for the shops being put in the name of the sons in accordance with the terms of the partition. P.W. 2 Chander Bhan is a House-tax Clerk and he staled that up to 1950 the properties, the members of which he has given stood in the name of Bhawani Parshad and there was no application made for the transfer of these shops in the names of the sons.
Petitioners' counsel has referred to Exhs. Rule 1 and Rule 2 which are acknowledgment receipts and which have been proved by this witness but there is nothing to show what letters they are acknowledgments of Petitioners' counsel has then referred to the payments made into the Treasury on account of House-tax by Shiv Shankar. This is dated 30-6-1951, which was after the petition for insolvency was brought.
All these documents which have been relied upon whether they deal with the house properly or they deal with payment of Sales-Tax are of the period after the insolvency petition which was brought on 19-5-1950. It is significant that in documents Rule 22 and Rule 23 which seem to deal with House-Tax of Kaushal Kishore a note is given that for the last three years no tax has been paid. These bear the date 7-6-1952.
25. Counsel for the opposite party has then submitted that there were debts which were due from different firms before the partition was made and no provision was made for them. There is a debt of Rs. 5,000/- which is based on document, Exh. P. 2, which is due to Ram Dev dated 23-12-1948. This is a debt due from Bhawani Parshad Shiv Shankar and is executed by Bhawani Parshad. There is another one for Rs. 2,000/- which is shown in the books of Shiv Shankar P. 2/C dated 4-11-1948, and this was due from Bhawani Par-shad Nanhe Mal and was incurred by Bhawani Parshad.
This is the same amount which is also shown by a ruqqa signed by Bhawani Parshad, P. 1 Another sum of Rs. 1,200/- was due to Karori Mal and is of April, 1949. This was due from Bhawani Parshad Nanhe Mal and this was also executed by Bhawani Parshad. A sum of Rs. 5,000/-is due to Umrao Singh (at page 103 of the record) and this was due from Bhawani Parshad Shiv Shankar and is signed by Shiv Shankar.
Another sum of Rs. 3,000/-. was due to Umrao Singh and is dated 7-4-1949, and this was executed by Shiv Shankar. These debts were due before the partition took place. No provision seems to have been made in the deed of partition for the purpose of payment of these debts. The evidence also shows that Bhawani Parshad was executing documents for and on behalf of at least two businesses, Bhawani Parshad Nanhe Mal and Bhawani Parshad Shiv Shankar.
Two documents P. 1 and P. 2 which I have referred to above were denied by the present petitioners to have been executed by Bhawani Parshad. As a matter of fact they said that they were not genuine documents.
The learned District Judge has come to the conclusion that they are genuine and even though suits for recovery of debts due on the basis of these two ruqqas may have failed for good reasons or bad the fact remains that Bhawani Parshad was signing certain documents before the partition for and on behalf of these two businesses and the significant part is that a sum of Rs. 2,000/-due from Bhawani Parshad Nanhemal which is evidenced by P. 1 is entered in the books of Bhawani Parshad Shiv Shankar.
At page 403 in para 304 of Mulla's Hindu Law (11th Edition) it is stated as to how normally the partition should be done and I reproduce the relevant portions of. that paragraph below :
'In order to determine what property is available for partition, provision must first be made for joint family debts which are payable out of the joint family property, personal debts of the father not tainted with immorality, ******* and after providing for maintenance of various persons it is stated : 'After this is done, an account must be taken of the joint family property in the hands of the manager and other members of the family, according to the rule laid down in the next following section.'
At page 364 of this book it is stated that partition is not bona fide and may be made with intent to defraud creditors if it does not provide for the payment of the father's debts. In my opinion the circumstances that (1) no provision was made for the debts which were then due from the family, (2) the whole of the property was not mentioned, (3) the father got nothing in the partition, and (4) the partition was not acted upon and parties are still living in the same house, show quite clearly that there was no partition in this family and the document was only a colourable transaction.
26. Bhawani Parshad and Shiv Shankar who made the statements in regard to suspension of payment of debts would bind the family and the case falls within AIR 1937 Mad 13 (F), and I am of the opinion that they were acting as agents of the whole family. The matter would also fall under Explanation to Section 6 which I have quoted already.
27. There is no proof that debtors are able to pay their debts. On the other hand the statement of Shiv Shankar shows clearly that they are in embarrassed circumstances. The report of the Receiver shows that in the shop of Bhawani Parshad Nanhe Mal there was property worth Rs. 4,084-1-3, in the shop which is run in the name of Bhawani Parshad-Shiv Shankar the only things found were a few pictures and Rama Shankar's shop was found to be empty.
28. I am of the opinion therefore that the learned District Judge has rightly allowed the petition for insolvency and I would, therefore, dismiss this petition and discharge the rule. The opposite party will have their costs in this Court and in the Courts below.
29. This Judgment will also dispose of CivilRevision No. 396 of 1953 which has been broughtby Shiv Shankar.