(1) The Kotkapura Trading Company Limited was ordered to be wound up by the High Court on 30-11-1956, on the application of M/s. Nand Ram Mewa Ram creditor. The Official Liquidator, on 7-1-1957, visit Kotkapura in order to take possession of the assets and records of the Company but none was made available as he was informed by the Directors an employees of the Company that its records had been burnt in the fire that broke out in the office of the Company on 25-3-1952. The Directors of the Company did not furnish any statement of the Company's affairs to the Official Liquidator. Shri Gopal Das Bahl P.W. 2, representative of the Official Liquidator, was sent to Kotkapura to collect some information regarding the affairs of the Company and after contacting some Directors, he learnt that there was a cash book of the Company and some vouchers with the present petitioner Shri Brij Lal Palta. No other records of the Company were recovered.
(2) Shri Brij Lal Palta, the petitioner before me has filed this application purporting to be under S. 529 of the Companies Act, 1956. He has felt aggrieved from the order of the Official Liquidator rejecting his claim for Rs. 3,450/- against the Company. The case of the present petitioner is that he was neither a share-holder of the Company nor in any way concerned with it. It March, 1952, there was a fire in the office of the Company at Kotkapura and a case was registered in the police as foul play was suspected.
The Directors of the Company and some creditors approached him at Faridkot, where he lived to intercede and as a result of his good offices he succeeded in settling the dispute between the Company and its creditors. The Company was not financially sound and though he had no concern with the Company and was not personally interested in any share-holder or creditor, he agreed to advance a sum of Rs. 4,300/- to the Company so that with the amount provided by him and such other funds as the Company could find, the claims of the creditors might be satisfied. He stated that Shri Amin Chand Jain a director of the Company was indebted to it tot he extent of Rs. 15,000/- and the sum advanced by him was agreed to be returned to him from the money that Amin Chand Jain was expected to pay. He stated that an entry with regard to the payment of Rs. 4,300/- by him was made in the cash book of the Company which remained in the personal custody of P.W. 1 Mool Chand, who was employed as Manager, and was not in the office of the Company when the premises caught fire.
The petitioner has stated that this amount of Rs. 4,300/- was advanced by him to the Company through its Manager P.W. 1 Mool Chand, and the Managing Director and other Directors knew all about it. H also stated that from the amount advanced by him, the different creditors of the Company had been paid their dues. In the year 1952 the Company had paid by way of charity Rs. 850/- to the Gandhi Memorial School. According to the petitioner, this payment was wrongful and it had been returned to him. This was in 1956 and he appropriated this sum of Rs. 850/- towards his claim.
(3) The Official Liquidator has not admitted the claim of the petitioner and has maintained that the claim was rightly rejected by him on 17-7-1958.
(4) On the pleadings of the parties, the following issues were framed:
1. Whether the claim is within time ?
2. Whether the petitioner is a creditor and if so, to what amount ?
(5) Besides examining himself, the petitioner has produced two other witnesses. The Official Liquidator has produced Shri Ram Nath Chopra who was the Managing Director of the Company.
(6) The statement of P.W. 2 Shri Gopal Dass Bahl, Superintendent in the office of the Official Liquidator, is not material for purposes of settling the controversy as to the justness and genuineness of the petitioner's claim. He has produced certain documents and has stated that the cash book and some vouchers had been given to him by the petitioner when he had gone to Kotkapura to make inquiries.
(7) P.W. 1 Mool Chand has stated that when the documents of the Company caught fire, he was employed in the Company as Manager. The Company had made payments to the creditors with the help of the petitioner and as far as he could remember, about Rs. 28,000 had been disbursed and the petitioner had advanced Rs. 4,300/- to the Company for meeting the claims of its creditors. He has also proved an entry dated 21-4-1952, in the cash book which had been made by him. It is to the effect that Shri Brij Lal Palta of Faridkot had paid Rs. 4,300/- according to the instruction of the Managing Direction Shri Ramnath Chopra and the sum had been taken for payment to the creditors of the Company.
This amount will be deemed as deposit (amanat) with the Company and would be returned to the petitioner at the time of the final settlement or earlier when the amount is recovered from Amin Chand Jain and others. Besides the cash book mentioned above, there is no other document showing that any advance had been made by the petitioner. It is admitted in this case that no resolution was passed by the Directors regarding this advance said to have been made by the petitioner and he had obtained no receipt from the Managing Director or any other employee or office-bearer of the Company. In cross-examination P.W. 1 Mool Chand has admitted that there was no meeting held of the Board of Directors and no resolution was passed as to the manner in which disbursements had to be made to the creditors.
He stated that after the disbursement of the monies to the creditors, the cash book was made over to the petitioner, and that this was done with the oral consent of the Directors, among whom he mentioned the Managing Director R. W. 1 and Ghasi Ram and Bhag Mal Directors. He stated that no receipt or any other document was executed on behalf of the Company as the petitioner felt satisfied, though he admitted that on behalf of the Company receipts were given to the various parties from whom monies had been received by the Company.
(8) The petitioner, who appeared as P.W. 3, admitted that he was a business man and was Managing Director of the Kotkapura Electric Supply Company and had been a member of the Municipal Committee. He had also been in the service of the Assistant Custodian, Pepsu, and at present was liquidator of two companies. He admitted that there was no resolution of the Board of Director seeking his intervention, and that he had advanced the sum of Rs. 4,300/- as the Company's funds were inadequate. He said that he felt satisfied with the entry made in the cash book regarding Rs. 4,300/- advanced by him and therefore did not feel the necessity of getting separate document executed by way of receipt. After he got the cash book of the Company, in his possession, the petitioner with his own pen made an entry on it at p. 49, vide copy Ex. P.W. 2/2 to the effect that he had advanced Rs. 4,300/-, that he had taken Rs. 850/- which had been returned by the Gandhi Memorial School, and that now he was owed a sum of Rs. 3,450/- only.
But this entry which he had made in the cash book was not made in the presence of any Director and no one has put his signatures on it in token of his approval. He admitted that he had no connection with the Company either in the capacity of a share-holder or dealer. He also submitted that no authority had been given to him by the Company to realise Rs. 850/- which had been paid in charity to the school and all that he stated was that nobody had taken any objection to his having kept this amount. Regarding the entry of Rs. 4,300 made at p. 45 of the cash book (vide copy Ex. P.W. 2/3) the petitioner has stated that it was not made in his presence but he learnt about it subsequently and when he made the advance of Rs. 4,3000/- he had obtained no writing from the Company but the advance had been made with the approval of the Directors.
(9) Ram Nath Chopra who appeared as P.W. 1 stated that he was the Managing Director of the company and he had never asked the petitioner to intercede in the affairs of the Company, that Mool Chand had no authority to borrow on behalf of the Company, and that he was not aware if the petitioner had advanced any money to the Company and had never asked Mul Chand P.W. 1 to borrow any funds from the petitioner. When his attention was drawn to the entries relating to Rs. 4,300/- in the cash book at p. 45, he denied having authorised it and that he was not aware of the transaction. He stated that he learnt about this entry after 1-4-1958, and the cash book which was maintained and kept by Mool Chand was never brought to his notice as the Company had closed down. In cross-examination this witness admitted that the petitioner had been approached to get the matter settled, and that he had spent a month and a half at Kothapura in order to settle the disputes between the different creditors and share-holders of the Company. He said that no payments had been made to the creditors in his presence.
(10) The petitioner is an educated made and argued the case personally. As he was not assisted by any counsel, I heard him fully and gave him considerable latitude. The petitioner has struck me to be a man of considerable education and with more than average intelligence. He stated that he had been doing business and he had also been in service and was at present working as a Liquidator of two companies. He said that he never kept any account of his personal earnings and expenditure and had never kept a bank account. He had brought Rs. 4,300/- from his house and never obtained any receipt or even bothered to find out if Mool Chand, to whom he paid the money, had any authority to obtain advances for the Company.
Admittedly, no resolution of the Board of Directors had been passed regarding this transaction and no authorised person on behalf of the Company, either the Managing Director or any other Director had written to him to advance the money or had acknowledged in writing any advance made by him. He tried to impress me that he was a man of generous temperament who would willingly assist any person or Company in difficulty without troubling to obtain any writing in proof of financial help given by him. He did not succeed in impressing me as a singularly guileless, unsuspecting credulous person who blindly confided in the goodness of mankind and would easily permit himself to be filled or taken in. The good Samaritan managed to get a sum of Rs. 850/-, which had been given as a charity in 1952 by the Company to the Gandhi Memorial School, returned to the donor, was retained by him in the absence of any authority from the Company.
It has not been shown if any demand was made by the Company from the School for calling Rs. 850/- which had been paid to the School as charity. There is nothing oral or in writing to show the circumstances in which the management of the School was persuaded to return this sum in 1956 which they had received in 1952. The entire transaction is enshrouded in mystery and the statement of the petitioner does not help in solving it. Despite the entry in the cash book regarding advance of Rs. 4,300/-, I cannot be persuaded to believe that the petitioner who is a man of business, conversant with the worldly affairs and possessing more than average intelligence, would conduct himself in making advances of money, in the manner he wants to make out.
(11) His mainstay in the case is based on the entry in the cash book in the hands of Mool Chand P.W. 1 who styled himself as the Manager of the Company. To a case like the present when an insolvent Company is being wound up, the same insolvency rules prevail and are observed as in the case of bankruptcy of an individual, vide S. 529 of the Companies Act, 1956, corresponding to S. 229 of the Indian Companies Act, 1913. Even if the entry Ex. P.W. 2/3 in the cash book of the Company made in the hand of P.W. 1 Mool Chand is deemed to amount to admission by the insolvent--which really is not--it is open to this Court to go behind it and refuse to admit a proof founded upon it, if the claim appeared to it to be not bona fide.
It is not only the right but it is also the duty of the Court to go behind any entries or accounts stated or agreements or even judgment in order to ascertain the real character of the transaction and in order to find out whether the debt on which the proof is founded had been really incurred. If the circumstances appear to the Court to be suspicious, it should require the person asking the claim to prove the consideration and on his failure to do so, reject has claim. The power of he Insolvency Court to go behind a judgment and to inquire into the consideration despite the fact that the judgment had been given in default, or by consent or had been affirmed on appeal is unquestionable. In insolvency proceedings, the question is not restricted to one between the petitioning creditor and the judgment-debtor and the rights of other creditors have also to be considered.
This Court must, therefore, independently satisfy itself tot he existence of the debt despite admission by the debtor, if any. The law of estoppel may successfully prevent a debtor from denying the admitted debt but there is no such estoppel as against an Insolvency Court. The reason for this is sound because the bankruptcy laws seek to procure just distribution of the assets of the debtor between the creditors. If it were not so, a debtor might allow any number of judgments to be obtained against him in collusion with his friends or relatives without there being any debt owed by him to them. Scrutiny by this Court cannot, therefore, be avoided by the creditor on the ground that there is any entry relating to such a debt in the account books of the creditor. The Insolvency Court in such cases does not look at the matter from the point of view of the two parties concerned but in a larger context of the entire class of creditors. Any narrower interpretation of the powers of the Court would result in miscarriage of justice in consequence of fraud or collusion.
(12) For the above view, there is ample authority of courts both in Indian and England. Beaumont, C. J., referring to above principles, said:
'However, much the debtor might be estopped by his conduct as against the petitioning creditor the Court must be satisfied about the validity of the debt in the interest of he other creditors.
See Jethmal Narandas v. Mahadeo Anandji, AIR 1941 Bom 62, Reference may also be made to Ram Lal v. Kashi Charan, 26 All LJ 241: (AIR 1928 All 380) and Chockalingam Chettiar v. Palaniappa Chettiar, (1938) 2 Mad LJ 585: (AIR 1938 Mad 947).
(13) In Ex parte Kibble, In re Onslow, (1875) 10 Ch. A. 373 (376), James L. J. said:
'It is the settled rule of the Court of Bankruptcy, on which we have always acted, that the Court of Bankruptcy can inquire into the consideration for a judgment-debt. There are obviously strong reasons for this, because the object of the bankruptcy laws is to procure the distribution of a debtor's goods among his just creditors. If a judgment were conclusive, a man might allow any number of judgments to be obtained by default against him by his friends or relations without any debt being due on them at all; it is therefore necessary that the consideration of the judgment should be liable to investigation.'
(14) In Ex parte Revell, In re Tollemache, (1884) 13 QBD 720, it was held that n admission of a debt, contained in a bankrupt's statement of his affairs made after the commencement of the bankruptcy proceedings, was not evidence as against his creditors of the existence of a debt, even though the statement was verified by his oath and he had since died.
(15) Reference may also be made to Ex parte Lennox, In re Lennox, (1885) 16 QBD 315; and In re Van Laun, Ex parte Chatterton, (1907) 2 KB 23. In the last mentioned case, Buckley, L. J., at p. 31 said:
'It is well settled that the Court can inquire into the consideration for a judgment-debt. * * * Whether the creditor alleges that there has resulted, and that the relies upon an account stated, or a convenient entered into by the debtor, or a judgment which he has obtained, the principle, I apprehend, is exactly the same, and is this--that the trustee is not the person who has stated the account, is not the constant or, is not the judgment-debtor, but is entitled to say, 'it is my business to see that those who seek to rank against this estate are persons who are really creditors of that estate'. If there be a judgment it is not necessary to show fraud or collusion. It is sufficient, in the language of Lord Esher, to shew miscarriage of justice, that is to say, that for some good reason there ought not to have been judgment. Exactly the same, I think, is true of an account stated or of a covenant.'
(16) Having regard to the facts of this case and in view of the principles of law enunciated above, I am satisfied that the Official Liquidator was eminently justified in rejecting the claim of the petitioner Shri Brij Lal Palta. I, therefore, dismiss the petition with costs.
(17) Petition dismissed.