Skip to content


Ghanchi Amthalal Magnalal ors. Vs. Mehta Popatlal Mangalji ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtGujarat High Court
Decided On
Judge
Reported in(1974)15GLR591
AppellantGhanchi Amthalal Magnalal ors.
RespondentMehta Popatlal Mangalji ors.
Cases ReferredHari Shankar and Ors. v. Rao Girdhari Lal Chowdhury A.I.R.
Excerpt:
.....(act no. order under sections 41 and 42 are clearly covered by this clause and the decision of the district judge in appeal from such order must, therefore, be final and not appealable to the high court, to hold that the second proviso to section 75 which allows appeals in the case of decisions of a district court on appeal under section 4 covers also decisions of the district court on appeal under sections 41 and 42 would render the provisions of sub-section (1) of section 75 nugatory and would, in effect, mean that every order made by a district court on appeal under section 4'2 would, in spite of the express provisions of section 75(1), be subject to a second appeal. 1940 bombay 51, wherein the question was whether sections 53 and 54 were intended to be taken out of the purview of..........directed against the order of the district judge of banaskantha at palanpur in miscellaneous civil appeal no. 4 of 1967 confirming the decision of the court of the civil judge (senior division), palanpur, in miscellaneous petition no. 3 of 1960 holding that the present three appellants who were the applicants before the learned civil judge and who bad made an application for order of discharge under section 41 of the provincial insolvency act, 1920 (act no. 5 of 1920), which will hereafter be referred to as 'the act', were not entitled to have an absolute discharge, nor any other kind of discharge and thus dismissing the application for an order of discharge. the appellants have been adjudged insolvents in insolvency petition no. 3 of 1967 which was a debtors' application made on.....
Judgment:

M.U. Shah, J.

1. This is second appeal directed against the order of the District Judge of Banaskantha at Palanpur in Miscellaneous Civil Appeal No. 4 of 1967 confirming the decision of the Court of the Civil Judge (Senior Division), Palanpur, in Miscellaneous Petition No. 3 of 1960 holding that the present three appellants who were the applicants before the learned Civil Judge and who bad made an application for order of discharge under Section 41 of the Provincial Insolvency Act, 1920 (Act No. 5 of 1920), which will hereafter be referred to as 'the Act', were not entitled to have an absolute discharge, nor any other kind of discharge and thus dismissing the application for an order of discharge. The appellants have been adjudged insolvents in Insolvency Petition No. 3 of 1967 which was a debtors' application made on 29th December 1960 under Section 10 of the Act by adjudication order passed by the learned Civil Judge (Senior Division), Palanpur, on November '27, 1963. In the said order, the Court had directed the insolvents to apply for a final discharge within six months from the date of the said order. The appellants' application for discharge has been dismissed in the aforesaid terms by the learned Civil Judge (Senior Division), Palanpur, on the ground that the assets of the insolvents were not of a value equal to 8 annas in a rupee of their unsecured liabilities, that the insolvents had omitted to keep of accounts as are usual and proper in the business carried on by them, and that the insolvents have concealed a part of their property and thus have been guilty of fraud, the grounds which are covered under Clauses (a), (b) and (i) of Sub-section (1) of Section 42 of the Act. The order refusing an absolute order of discharge passed by the Civil Judge has been maintained by the learned District Judge in appeal. It is against this order of the District Judge that the present second appeal is directed.

2. The first question that falls for my consideration in this appeal is as to whether a second appeal lies under the Act. Part VI of the Act which contains Section 75 makes provision for the appeals. Sub-section (1) of Section 75 of the Act provides:

75. Appeals.--(1) The debtor, any creditor, the receiver or any other person aggrieved by a decision come to or an order made in the exercise of insolvency jurisdiction by a Court subordinate to a District Court may appeal to the District Court upon such appeal shall be final:

Provided that the High Court, for the purpose of satisfying itself that an order made in an appeal decided by the District Court was according to law, may call for the case and pass such order with respect thereto as it thinks fit:

Provided further, that any person aggrieved by a decision of the District Court on appeal from a decision of a subordinate Court under Section 4 may appeal to the High Court on any of the grounds mentioned in Sub-section (1) of Section 100 of the Code of Civil Procedure, 1908 (5 of 1908).

Sub-section (1) of Section 75 thus makes the order passed by the District Court in appeal against a decision come to or an order made by a Court subordinate to the District Court in the exercise of insolvency jurisdiction final. The appeal in the present case is directed against the order passed by the District Court in an appeal from an order made by its subordinate Court in the exercise of insolvency jurisdiction under Section 42(1) of the Act. The order of the District Court is thus rendered final. Second proviso to Sub-section (1) is attracted when the order of the District Court is on an appeal from a decision of a subordinate Court under Section 4 and when any of the grounds mentioned in Sub-section (1) of Section 100 of the Civil Procedure Code, 1908, is made out. A second appeal in insolvency matters can lie only under this second proviso, and provided the decision appealed from falls under Section 4 of the Act and grounds mentioned in Sub-section (1) of sec, 100, Civil Procedure Code, 1908, exist. The first question to which I must, therefore, address myself is whether the subordinate Court falls under Section 4 of the Act. Now, Sub-section (1) Section 4 which is material for the purpose provides: 'Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case-' The powers exercisable by the Court under Sub-section (1) of Section 4 of the Act are subject to the provisions of the Act. The opening words of Sub-section (1) of Section 4 of the Act, viz. 'subject to the provisions of this Act,' are intended to take out of the purview of that section cases which are provided by other sections of the Act such as Sections 53, 54 and 41 and 42 of the Act. It was argued that cases falling under these sections, to some extent, fall within the purview of Sub-section (1) of Section 4 of the Act. But the difficulty in this approach is created by the language of Section 75 of the Act. Sub-section (1) of Section 75 expressly deals with the orders made by the District Court in appeal from orders made in the exercise of insolvency jurisdiction by a Court subordinate to District Court. Order under Sections 41 and 42 are clearly covered by this clause and the decision of the District Judge in appeal from such order must, therefore, be final and not appealable to the High Court, To hold that the second proviso to Section 75 which allows appeals in the case of decisions of a District Court on appeal under Section 4 covers also decisions of the District Court on appeal under Sections 41 and 42 would render the provisions of Sub-section (1) of Section 75 nugatory and would, in effect, mean that every order made by a District Court on appeal under Section 4'2 would, in spite of the express provisions of Section 75(1), be subject to a second appeal. I am supported in this view by the decision of a Division Bench of the Bombay High Court in Dattaraya Chandraya Bachuwar v. K.L. Bawachekar A.I.R. 1940 Bombay 51, wherein the question was whether Sections 53 and 54 were intended to be taken out of the purview of Section 4, and the view taken is that Sub-section (1) of Section 75 clearly covers the orders made under Sections 53 and 54 of the Act by the subordinate Courts and the decision of the District Judge in appeal from such orders is final, and not appealable to the High Court. A Full Bench of the Allahabad High Court has in L. Kedar Nath and Anr. v. H. Ali Ahmad and Anr. A.I.R. 1942 Allahabad 219, taken the view that 'An order by the trial Court granting conditional discharge to the insolvent does not come within Section 4 and hence no appeal lies from the appellate order of the District Judge passed thereon. The appellate order can be challenged only by way of revision to the High Court under proviso to Section 75(1).' The Lahore High Court has in Gopaldas v. Official Receiver, Sialkot and Ors. A.I.R. 1931 Lahore 647, and in Gokal Singh and Anr. v. Krishnan Lal A.I.R. 1234 Lahore 198, taken the view that an order refusing to grant an absolute discharge to an insolvent passed by the District Court in appeal cannot be challenged by way of second appeal. Mr. S.K. Zaveri appearing for the appellants tried to rely upon the observation of a single Judge of the Bombay High Court in Gopikabai Mahadev Bavdekar v. Chapsi Purshottam Luhana and Ors. A.I.R. 1935 Bom. 80, wherein it has been observed that for application of Section 4 of the Act, there must be contest between debtors' estate and general body of creditors. He tried to contend that in a case of discharge, such a contest is involved and, therefore, Section 4 of the Act is attracted and an appeal is competent. Now, in an application for discharge made by an insolvent, there is no contest between the debtors' estate and the general body of creditors. The scope of enquiry under Section 41 when a debtor makes an application for discharge is whether the Court should pass any one of the orders contemplated in Clauses (a), (b) or (c) of Sub-section (2) of Section 41 of the Act and for the purpose, the Court has to take into account the facts enumerated in Clauses (a) to (i) of Sub-section (1) of Section 42 of the Act. In such a case, it may be said that to an extent the case falls within the purview of Sub-section (1) of Section 4. But, as aforesaid, the difficulty is created by the language employed in Sub-section (1) of Section 75 which makes the order of the District Court in appeal final. As aforesaid, Section 4 has to be read subject to the provisions of the Act. Section 41 makes a provision for an order of discharge and Section 75(1) makes a provision for a first appeal and bars the second appeal except when the case falls under the second proviso of Sub-section (1) of Section 75 of the Act. In my opinion, this cannot be said to be a case falling within the purview of Sub-section (1) of Section 4 of the Act and no real contest is involved as between the debtors, estate and the general body of creditors. The question is only one of the grant of an order of discharge. The second appeal does not lie in such a case. Mr. S.K. Zaveri tried to read in the expression 'of any nature whatsoever' occurring in Sub-section (1) of Section 4 of the Act as including a question 'of any nature whatsoever' arising. It is true that this expression is incompatible with the ejusdem generis rule of interpretation. But, Section 4(1) is to be taken to give the Court power, subject to provisions of the Act, to decide all questions which may arise in any case of insolvency coming within the cognizance of the Court or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in such a case. The section is not intended to cover order made under Section 41 read with Section 42 of the Act. in my opinion, therefore, no second appeal lies from the order made by a Civil Judge under Section 42 of the Act. However, I would convert this appeal into a revision application and treat it as such.

3. The next question that then falls for my consideration is what is the extent of the revisional power of the Court in such a revision application. For the purpose, one has to refer to the first proviso of Sub-section (1) of Section 75 of the Act which provides that the High Court, for the purpose of satisfying itself that an order made in any appeal decided by the District Court was according to law, may call for the case and pass such order with respect thereto as it thinks fit. Thus, a Court exercising revisional powers has to examine the decision under revision as a whole and to find out whether the decision is according to law. In such a case, the High Court must refer to the overall decision which must be according to law which it would not be if there is miscarriage of justice due to a mistake of law. The revisional powers under Sub-section (1) of Section 75 and first proviso of the Act are not the powers exercisable under Section 115 of the Code of Civil Procedure. But, there are wider powers under the first proviso where the language used is 'according to law.' A similar provision is to be found in Section 25 of the Provincial Small Cause Courts Act which had been a subject of interpretation by Chief Justice Beaumont in Bell Co. Ltd. v. Woman Hemraj 40 Bom. L.R. 125, where the learned Chief Justice has observed:

The object of Section 25 of the Provincial Small Cause Courts Act, 1887, is to enable the High Court to see that there has been no miscarriage of justice and the decision was given according to law. The section ought not to be construed as giving the parties a right of appeal on points of law.

Wherever the Court comes to the conclusion that the unsuccessful party has no had a proper trial according to law, then the Court can interfere. But the Court ought not to interfere merely because it thinks that possibly the Judge who heard the case may have arrived at a conclusion which the High Court would not have arrived at.

The aforesaid observations of Beaumont C.J., have been referred with approval by the Supreme Court in Hari Shankar and Ors. v. Rao Girdhari Lal Chowdhury A.I.R. 1963 S.C. 698, where the Supreme Court was dealing with the scope of the revisional powers under Section 35 of Delhi and Ajmer Rent (Control) Act (38 of 1952), where the phrase used is 'according to law.' The Supreme Court has therein taken the view that the phrase 'according to law' refers to the decision as a whole, and is not to be equated to errors of law or of fact simpliciter. It refers to the overall decision, which must be according to law which it would not be, if there is a miscarriage of justice due to a mistake of law. Thus, the scope of the revisional powers is wider than that under Section 115 of the Code of Civil Procedure and the Court has to refer to overall decision and ascertain whether it is according to law which it would not be, if there is a miscarriage of justice due to a mistake of law. It is on this settled principle that I must proceed to examine the decision now under revision.

4. Now, the present revision application arises out of an application for discharge made by the three insolvents who are the appellants herein and who are members of a joint undivided Hindu family of Ghanchi Amtharam Maganlal and who have been adjudged insolvents by the learned Civil Judge (Senior Division) at Palanpur in Insolvency Petition No. 3 of 1960 on November 27, 1963. It was on a debtors' application that the order was passed by the Civil Judge in exercise of his insolvency jurisdiction. The order of adjudication directed the insolvents to apply for a final discharge within six months from the date of the said order. The application for discharge was made within the period so provided. The appellants-insolvents were carrying on business in village Meta in Taluka Palanpur in Banaskantha District. They appear to have been also doing some 'Vayda' transactions in ground-nut oil seeds. They own two small houses in village Meta. They appear to have incurred debts in some 'Vayda' transactions. Two decrees were passed by the Civil Court against the appellants, one in the year 1959 and the other in the year 1960 and these were respectively for a sum of Rs. 3,035.45 P. and Rs. 734.10 P. Another debt of Rs. 2,439.37 P. was due and in this respect, the claimants had obtained a decree in a suit which was instituted before the appellants made an application to be adjudged insolvents, but which was decreed some time after the application was made. The total debts as stated by the appellants came to Rs. 29,002.70 P. and are found to be of Rs. 20,000/-, there being 22 creditors. At the date of the debtors' application, they had no immoveable property, but they had moveable property worth only Rs. 224/-. They had two houses situated in village Meta which they sold some time in August 1958 for a sum of Rs. 7,500/-. The debts appears to have been incurred during 1958-59-60. The civil Court adjudged them as insolvents. Now, in the application which the appellants made for obtaining an order of discharge, it was contended on behalf of the creditors that the debtors' estates were not of value equal to eight annas in a rupee on the amount of the unsecured liability; that they did not maintain regular books of accounts; that they had concealed some income and have been thus guilty of fraud, the case thus falling within the purview on Clauses (a), (b) and (1) of Sub-section (1) of Section 42 of the Act. The learned Civil Judge found that the appellants did not produce the account-books at the time when the mode the application for being adjudged as insolvents and that in the list of assets, they did not include seven tolas of gold which they had pledged with one Dharamchand Shivajt Jogani and this amounted to a non-disclosure of transaction, amounting to fraud and thus falling within the purview of Clause (i) of Sub-section (1) of Section 42 of the Act which would entitle the Court to refuse an absolute discharge. Now, the finding here is that the appellants had taken a loan of Rs. 700/- from said Dharamchand Jogani on November 1, 1960 by pledging their gold ornaments weighing seven tolas and that an account was made in this respect on March 16, 1961 and, at that time, said Dharamchand credited the value of the ornaments against the said loan of Rs. 700/- and the amount of accrued interest and paid the balance of Rs. 6.68 to the appellants. These facts are not mentioned in Schedule 'B' to the petition, nor was the name of said Dharamchand shown in the list of creditors. It is true that Dharamchand's name is not shown in the list of creditors and this transaction is not shown in Schedule 'B'. But these facts do not lead to an inference of the appellants having committed fraud in not disclosing this transaction The ornaments were pledged and pledgee was entitled to recover his loan amount with interest from the pledged ornaments. No doubt, the appellants should have shown this debt in the Schedule. But, such a nondisclosure cannot bring the case within the purview of Clause (i) of Sub-section (1) of Section 42. The decision of the learned District Judge maintaining the finding of the learned Civil Judge that such a non-disclosure amounts to fraud is not according to law.

5. The second count on which the order of absolute discharge has been refused is that the appellant had sold away the two houses for Rs. 7,500/-some years before the presentation of the petition. But the disposal of these two small houses situated in village Meta was made in August 1958. The debts were incurred during 1957, 1958, 1959 and 1960. The three suits were filed in the year 1959 and the decrees were obtained in the years 1959 and 1960. In this situation, the disposal of the property in August 1958 cannot be said to have been such as to disentitle the appellant to obtain the order of discharge. The learned District Judge has observed that it was doubtful whether these were genuine transactions or not. No doubt, the properties were sold to some relations. But the sale was for consideration and there is nothing on record to show that they were not genuine transactions. In any event, such transactions cannot be said to be fraudulent. The third count on which the order of absolute discharge has been refused is that the appellants did not maintain proper account-books as in regular course of business. It is true that the account-books were not produced along with the insolvency application, but they were produced after the order was made by the trial Court. The account-books have not been found to have been kept in the regular course of business and sotue entries are found to be doubtful entries. The Court was, therefore, entitled in such a case to refuse an absolute order of discharge. The fourth count on which the order is passed is that the insolvents' assets were not of a value equal to eight annas in a rupee on the amount of unsecured liabilities and that is a finding of both the Courts which must be accepted by me. This would also entitle the Court to refuse to an absolute order of discharge.

6. Thus, as aforesaid, the learned District Judge was right in finding that the facts covered by Clauses (a) and (b) of Sub-section (1) of Section 42 of the Act have been proved. This would entitle the Court to refuse an order of absolute discharge. But, it must be remembered that the object of adjudication in an insolvency is to free the debtor from the claims of the existing creditors which are to be satisfied out of the property of the debtor which the Court takes possession of and distributes amongst his creditors and the Court has to discharge the debtor. But to leave him liable to debts incurred before insolvency defeats the object of the adjudication. Having regard to the facts of the case which are proved, the order refusing an absolute discharge and any other kind of discharge would frustrate the very object of the adjudication in insolvency and destroy the whole effect of the insolvency. The order refusing the grant of an absolute order of discharge and any other kind of discharge is thus not according to law and there is an apparent miscarriage of justice. But the facts proved do disclose that the appellants are not entitled to an immediate unconditional discharge. However, in absence of any material on record, I feel myself unable to fix a period of suspension. In the circumstances of the case, I would grant liberty to the insolvents to apply again for an order of discharge after two years.

7. Accordingly, I maintain the order of the District Court refusing to grant an order of discharge. But I reserve liberty to the appellants-insolvents to apply again for an order of discharge after a period of two years from to-day and within a period of six months thereafter. The order of the District Court is modified accordingly. There will be no order as to costs of this converted revision petition.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //