1. This is a miscellaneous appeal by Kishan Gopal and four others against an order of adjudication passed by the District Judge, Kotah, dated the 20th August, 1960, in an insolvency matter, and raised an interesting question of law as to whether all the members of a joint Hindu trading family can be adjudicated as insolvents irrespective of the consideration whether their liability to discharge the family debts is personal or not.
2. The material facts may be shortly stated as follows : Appellants Nos. 1 to 3 are the sons of one Bhanwarlal, and the letter's remaining son Kunwar Lal has been impleaded as respondent No. 18 in this appeal. Appellants Nos. 4 and 5 are the sons of Kunwar Lal. Bhanwarlal died during the pendency of this litigation in the trial Court. Respondent Surajmal and certain others moved an application against the appellants and Kunwar Lal and Bhanwarlal in the Court of the District Judge, Kotah, alleging that the latter carried on a joint Hindu family business in the name of M/s. Ganeshram Bhanwarlal in the town of Kotah, that the said Kunwar LaI was the managing member thereof, that they were indebted to the respondents and certain other creditors, the total indebtedness amounting to Rs. 1,85,000/-, that they were unable to pay their debts and had committed certain acts of insolvency which were set forth in paragraph 4 of the application, and consequently, they prayed that the appellants here and Kunwar Lal and Bhanwarlal, be adjudicated as insolvents. Among certain alleged acts of insolvency reference may be made to the allegation that the debtors finding themselves unable to pay their debts and in order to make a settlement with their creditors, entered into a so-called composition deed (Ex. 4) on 8th June, 1956, by which they agreed to hand over to a board of trustees all the family properties which were set out in a schedule annexed to the deed and it was further agreed between the parties thereto that the said trustees would collect all the assets due to the joint family and distribute them among the various creditors in complete satisfaction of their debts and the latter would so accept them. It was, however, alleged that this arrangement fell through and was not given effect to by the debtors.
3. This application was opposed on behalf of the debtors and the principal contention raised was that there were two shops of the name Ganeshram Bhanwarlal one of which was situate in mohalla Nayapura in the town of Kotah and respondent Bhanwarlal was the sole proprietor of that business, while the other shop was situate in mohalla Rampura and respondent Kanwar Lal was its sole proprietor, and that the remaining members of the family had no connection with the family debts. It was also, contended that the debtors had not committed any act of insolvency, and that the composition deed referred to above had been procured from them by coercion. The learned District Judge gave his findings on all the aforesaid points raised on behalf of the appellants adversely to them and passed his order dated the 20th of August, 1960, allowing the application of the respondent-creditors and adjudicated the appellants and Kanwar Lal as insolvents. So far as Bhanwarlal was concerned, as he had died during the pendency of the proceedings before the trial Court, no order was passed against him. The learned Judge also appointed a Receiver for collecting the entire assets of the insolvents.
4. The present appeal has been filed against this order, and the main contention raised before us is that the learned Judge below had fallen into an error of law in declaring the appellants as insolvents. The principal ground which has been raised before us in this connection is that the learned Judge had not come to any finding as to the personal liability of the appellants to discharge the various family debts in question, and consequently his order adjudicating them as insolvents could not be sustained in law.
5. At the very outset we should like to point cut that this question does not appear to have been raised in so many words before the Court below and, therefore, the learned Judge does not seem to have addressed himself to this aspect of the case. The question, however, is one which, in our opinion, goes to the root of the matter so far as the adjudication of the appellants is concerned, and, therefore, we have thought it fit to allow it to be raised before us in the present appeal.
6. Now, Section 7 of the Provincial insolvency Act, 1920, lays down that subject to the conditions specified in this Act, if a debtor commits an act of insolvency, an insolvency petition may be presented either by a creditor or by the debtor, and the Court may on such petition make an order adjudicating him an insolvent. The next question that arises is: what is the precise connotation, of the expression 'debtor' and whether a joint Hindu trading family can fall within the ambit of that term. Unfortunately, no precise definition of the expression 'debt' or 'debtor' is to be found in the Insolvency Act, and all that is to be found in Section 2(1)(a), of the Insolvency Act is that the expression 'debt' includes a judgment-debt, and 'debtor' includes a judgment-debtor. It has, however, been held in a series of judicial decisions that for purposes of the Insolvency Act nobody is a debtor unless he is personally liable for the debt; or, in other words, whether his separate or self-acquired property can be sold out to satisfy the debt; for if that cannot be done, then, the necessary foundation for adjudication would be lacking. Thus it was held in Nagasubramania Mudali v. Narasimhachariar, AIR 1927 Mad 922, that where a Hindu had incurred certain liabilities and died, and his son succeeded to the assets of his father, and the petitioner creditor had obtained a decree against the son as representing his father and applied to have him adjudicated as insolvent, the debt was not personally enforceable, and so the son could not be adjudicated an insolvent. In coming to this conclusion, reliance was placed on an earlier decision of the same High Court in the Official Assignee of Madras v. Palaniappa Chetty, ILR 41 Mad 824 : [AIR 1919 Mad 690). In that case 3 Hindu father carried on a trade and his son took an active part in the business both while he was a minor and after he became a major, and the question arose whether the son was liable to be adjudicated an insolvent in respect of the debts incurred in the course of the trade while he was a minor. The test employed to decide this question was laid down to be whether the son was personally liable, and it was held that if he was so liable he could be adjudicated an insolvent, and if he was not, he could not be. It may be pointed out that some of the Judges who decided the case took the view that the son was personally liable, while certain others were of the view that he was not; but notwithstanding that all the Judges were agreed in the view that if the debts were not personally enforceable, the debtor could not be adjudicated an insolvent.
7. Again, in N.C. Krishna Ayyar v. Pierce Leslie and Co., AIR 1936 Mad 64, the question arose whether certain respondents other than the manager of a joint Hindu family business were rightly adjudicated as insolvents by the Insolvency Court. The same test to which we have referred above, was riled upon, and it was laid down that an act of insolvency, to serve as the basis of an adjudication upon a creditor's petition, must be an act committed, by his debtor, and unless there is a personal liability in respect of the debt, there is no such relation of debtor, as will serve to support an order of adjudication, and as it was found that there was no sufficient evidence to hold that the other coparceners were in reality parties to the debts, or that they had subsequently ratified the same, or they could otherwise be treated as parties to the contract, they were not personally liable to satisfy the debts incurned in the family business, and consequently their adjudication was set aside.
8. Again, in Chennana Gowd v. Official Receiver, Bellary, AIR 1940 Mad 241, it was laid down that in a joint Hindu family business those members who do not partake in the direction of a joint family business will not be personally liable for the debts of those members who actually conduct the business, and that only those members would be personally liable who are in control and management of it or who have acquiesced in the course of the business in which the particular contract was entered into, so as to warrant their being treated as parties to the contract. It was therefore, held that where a manager of an undivided family business commits an act of insolvency, the other coparceners cannot be deemed to have committed that act.
9. Reference may also be made to V. R. C. T. V. R. Chidambaram Chettyar v. Mutaya Chettyar, AIR 1936 Rang 160, which throws a flood of light on the position of a joint Hindu family as contradistinguished from an ordinary partnership firm in this connection. Put in a nutshell, that difference is that while a partnership firm arises from contract, a joint Hindu family business arises from status. Thus the interest of partners in a firm, property so-called, is determined by contract, while the rights and obligations of coparceners in a joint Hindu family business are not governed by any contract into which they might have entered as such, but by the personal law to which they are subject. Again, a partnership is ordinarily dissolved by the death of a partner, but the death of a member of a joint Hindu family cannot dissolve a joint Hindu family business, and the result of such an event would be that an accession is made to the share of the surviving members. These are some but, by no means all the characteristics, in which a partnership differs from a Hindu joint family which owns and carries on a business, but they are enough to show how inapposite and misleading it would be to apply the term 'partnership' or 'firm' to the relations inter se of the members of a joint Hindu family which owns and carries on a family business.
10. From what we have discussed above, the following conclusions clearly emerge: first, that a joint Hindu family as such, as contradistinguished from a partnership firm, cannot be adjudicated insolvent and it is the individual members thereof who could be so declared second, that in order that members of a joint Hindu trading family other than the managing member may be lawfully adjudicated as insolvents it must be proved not merely that the debts are owned by the family but that such other members have actively participated in the business of the family by actual conduct or otherwise so that they may be held liable to personally satisfy the debts; and, therefore, where these conditions are not satisfied it cannot but follow that the order adjudicating the members of such a family other than the managing member could not be sustained in law. We hold accordingly.
11. How do these principles apply to the case before us? As already stated, this point was not specifically raised before the learned Insolvency Judge, and consequently we are inclined to think that there is extremely insufficient material on the record of the case to hold whether the appellants' liability to discharge the debts of the family, with which we are concerned, was really personal. The first three of these appellants are the sons of Bhanwarlal and the remaining two are the sons of Kanwar Lal. So far as Kanwar Lal's own liability is concerned, there is ample material on this record to show that he was the karta of this joint Hindu trading family business and there can therefore be no doubt as to his personal liability in the matter. But, for the reasons which we have already stated, the same cannot be predicated? so far as the appellants are concerned. In this view of the matter, we have no alternative but to hold that the order of adjudication, so far as the appellants are concerned, cannot be sustained on the material which exists on the record. In order, however, to do complete justice between the parties we think that the proper course to adopt under the circumstances would be to frame a specific issue on the point of their personal liability and to remit it to the trial Court for a decision. That issue would be this :-
'Whether the liability of the appellants Kishan Gopal, Ram Pal, Ram Kishan, Badri Lai and Chanda Lal to satisfy the debts of the family business conducted in the name of Ganeshram Bhanwarlal is personal?'
If the learned Judge comes to the conclusion that that is personal, we have no doubt that these persons could also be adjudicated as insolvents. But, if he comes to a contrary conclusion, then they could not be so adjudicated.
12. Before this issue can be properly decided we think that opportunity should be allowed to both parties to lead evidence on it. The contesting respondents will lead their evidence first and thereafter the appellants will lead their rebuttal evidence. The learned Judge will then hear arguments and dispose of the case afresh, so far as the appellants are concerned, in the light of the observations made above.
13. In the result, we allow this appeal, set aside the order of adjudication of the learned District Judge so far as the appellants are concerned and send the case back to him for a fresh decision on the lines indicated above. Costs here and hereafter shall abide the result.