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S.A. Ramalinga Mudaliar Vs. T.K. Ratna Mudaliar and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Case NumberO.S. App. Nos. 44 and 51 of 1960
Judge
Reported inAIR1963Mad181; (1963)1MLJ37
ActsPresidency-Towns Insolvency Act, 1909 - Sections 12, 13 and 13(4)
AppellantS.A. Ramalinga Mudaliar
RespondentT.K. Ratna Mudaliar and anr.
Appellant AdvocateK.N. Subramanian and ;Ananthakrishnan, Advs.
Respondent AdvocateS.G. Rangaramanujam, Adv.
DispositionAppeals allowed
Cases ReferredIn Nagiah v. Satyanarayana
Excerpt:
.....adjudication - sections 12, 13 and 13 (4) of presidency-towns insolvency act, 1909 - petition for adjudication as insolvent by creditor - petition opposed on ground that debtor had sufficient means to pay debts - petition can be dismissed for reasons mentioned in section 13 - petition was to bring disgrace to man in apparently good circumstances - petition was not bona fide - petition dismissed. - - the short question before us is whether the debtors are well founded in their contention that the petition for adjudication should be dismissed under section 13(4)(b) of the presidency-towns insolvency act. satyanarayana, ilr (1944) mad 21 :air 1943 mad 355, a bench of this court has held that where an insolvency petition was presented by a creditor not bona fide with a view that the..........perspective namely, whether the petition to adjudicate is a bona fide one. in the petition filed for adjudication, the first respondent stated that 'these minor suits have rendered the petitioning creditor's task more difficult in realising his dues by proceeding with the execution against the immoveable properties, and so, it has become necessary for the petitioning creditor to adjudicate the debtors as insolvents and for this purpose he gave up his rights against the immoveable properties in respect of which the first dedtor had given an undertaking in the high court not to alienate them.' we are unable to appreciate how the suits for partition by the minor sons of the debtor could at all have any effect upon the first respondent realising his dues. it is not stated that the.....
Judgment:

S. Ramachandra Iyer, C. J.

1. These appeals are filed under Clause 15 of the letters Patent against the judgment of Ganapatia Pillai J. adjudicating the appellants in the appeals as insolvents on a petition presented by one of their creditors, namely, the first respondent. There is no dispute now that the debtorshad committed an act of insolvency. But the petition tor adjudication was resisted on the ground that the debtors were in a position to pay their debts, and, even otherwise, the petition was liable to be dismissed as an abuse of process of court. The learned judge has overruled the objections. The short question before us is whether the debtors are well founded in their contention that the petition for adjudication should be dismissed under Section 13(4)(b) of the Presidency-Towns Insolvency Act. The material por-portion of the section runs :

'The Court shall dismiss the petition (a) ..........(b) if the debtor appears and satisfies the court that he is able to pay his debts or that he has not committed an act of insolvency or that for other sufficient cause no order ought to be made.'

In Nagiah v. Satyanarayana, ILR (1944) Mad 21 : AIR 1943 Mad 355, a Bench of this Court has held that where an insolvency petition was presented by a creditor not bona fide with a view that the debtor's assets should be distributed proportionately amongst his creditors, but with the object of bringing the latter to insolvency court, the petition will amount to an abuse of the process of the court and the court will have the power to refuse to make an order of adjudication notwithstanding the fact that the petition was well-founded. There can be little doubt that the words 'other sufficient cause' in Section 13(4)(b) should be interpreted in the widest possible manner and not ejusdem generis in relation to the earlier clauses in section. Adjudication of a debtor as insolvent changes his status, vests his entire property in the Official Assignee and limits his capacity to do business or even acquire property. Under Section 12 of the Presidency Towns Insolvency Act a debtor would be liable to be adjudicated insolvent by an unsecured creditor having a claim for more than Rs. 500, if the former had committed an act of insolvency within three months of the petition. But the right of such a creditor to adjudicate the debtor a bankrupt is not a weapon available to him to be used to serve any ulterior purpose or to be used vindictively. If the object of the adjudication is not the result of a genuine desire to have the property of the debtor administered in insolvency,but one solely with a view to disgrace him or to utilise the machinery of court for other purposes, the petitioncannot be said to be a bona fide one. Section 13 gives power to the court in those cases to dismiss it.

2. Now, what are the facts which led up to the filing of the petition in the present case? Ramalinga and Nataraja along with another were liable to the first respondent in a sum of Rs. 24,000 under a compromise decree passed on 4-11-1955 in C. S. No. 1572 of 1955 on the file of the City Civil Court, Madras. The decree provided that, while the immoveable properties of the debtors could be attached forthwith, the properties of Ramalinga should not be brought to sale before 4-5-1955. But that restriction has no significance to the question that arises in this case, as the period had expired before the decree-holder began to take steps. The first respondent and Ramalinga, the first debtor, were trustees of the Sandana Vinayagar Temple, Saidapet. The former appears to have improperly sold some of the granite stones purchased for the temple, but, before he could effect any delivery to the purchaser, Ramalinga and certain other residents of the locality moved in the matter and prevented the diversion of temple property. This unworthy conduct of the first respondent has been referred to in the counter affidavit filed in opposition to the application for adjudication and the same has not been con-troverted in the reply affidavit filed by the first respondent. But the action taken by Ramalinga did not please his creditor and it evidently congendered bitter feelings. It was natural for the respondent to hit back. An opportunity presented itself when one of the creditors of Ramalinga applied in I. P. No. 42 of 1956 to adjudge him an insolvent. The first respondent immediately applied to come on record and to prosecute the petition.

Balakrishna Iyer J. before whom the matter came up, found that Ramalinga had ample means to pay his debts, and, by his order, dated 6-8-1956, dismissed both the petitions. Ramalinga owns about 40 houses in Saidapet. It is said that 34 of them have been mortgaged; but the equity of redemption in those properties must be worth a substantial sum of money. The six unencumbered houses of the debtor are undoubtedly worth more than what was due by Ramalinga to his unsecured creditors. Under these circumstances, one would normally expect any creditor if his object was to. secure what was due to him to proceed against those properties. But that is not what the first respondent did. He filed E. P. No. 1038 of 1956 in the City Civil Court, Madras, for attachment of certain specified moveables in the house of the debtor. The value of the moveables sought to be attached was said to be Rupees 600. This conduct of the first respondent would be un-understandable except for the reason that he was more intent upon humiliating his debtor by attaching the moveables in his house than of collecting the amount due under the decree which came to more than Rs. 24,000. The Court ordered the attachment of the moveables. The debtor who paid a sum of Rs. 1000 which was over and above the value of the moveables attached, was told that, unless he were to pay the entire decree amount, the attachment would not be raised. The debtor therefore appealed to this Court in C. C. C. A. No. 62 of 1956. Ramaswami J. before whom the appeal came up for hearing, allowed it and vacated the attachment of the moveables. The learned Judge recorded an undertaking from the debtor not to alienate four specified items of properties and directed the decree-holder to proceed forthwith against the immoveable properties of the debtor.

3. The first respondent then filed E. P. No. 304 of 1958 for attachment of a number of houses belonging to the debtor. He also prayed for the appointment of a receiver to collect rent from those properties. That petition was closed on the debtor undertaking to pay Rs. 60 per month, the debtor paid the amount for a few months and defaulted. Shortly thereafter the first respondent filed E. P. No. 1198 of 1958 for attachment ot eight items of immoveable properties, five of them belonging to Ramalinga and the other three to Nataraja, the other debtor. The order of attachment which was made on 11-2-1959 was effected only on 7-3-1959. Just three weeks after the effectuation of the attachment, the first respondent filed a petition, out of which these appeals arise, for adjudication of the two debtors as insolvents.

4. It is clear on the facts set out above and from the probabilities of the case that the first respondent filed the application for attachment only with a view to take advantage of subsistence of attachment as an act of insolvency. Realisation of the amount due under the decree appears to have been of secondary importance. This is made clear by what happened subsequent to the filing of the petition when the first debtor made an attempt to discharge his liability by selling his proper-ties. Towards that end, with the permission of the Court he entered into three agreements for sale of his properties for a total consideration of Rs. 24,000. Rs. 4000 was received as advance under those agreements and the same was paid into the hands of the first respondent. The learned Judge permitted the first respondent to retain the sum, in case his application for adjudication were to fall; but, if it were to succeed, it was agreed that the amount should be paid over to the Official Assignee. But the Official Assignee who appeared before us disowned any intention of accepting the agreements and stated that, in case the adjudication orders were to be sustained he would not stand by them, but would sell the property in the usual course. There can be no doubt, therefore, that the first respondent was not motivated by any genuine desire to have an administration in insolvency for the benefit of the creditors or even of himself but he wanted to utilise the machinery of law for a wholly different object. He was helped in his attempts bay the first debtor who never made bona fide attempts to pay. On the other hand, he set up his sons to file a suit for partition of the family properties. Chagrin at such a conduct on the part of a debtor is natural to a creditor; but the latter could have pursued the execution proceedings if he wanted only to realise his dues.

5. There can be no doubt, and we agree with the learned Judge, on this point, that there was an act ot insolvency committed by the debtor. The attachment ordered in E. P. No. 1198 of 1958 was subsisting for more than 21 days before the petition for adjudication was filed and that would constitute an act of insolvency.

6. The only question then is whether the petition is liable to be dismissed under Section 13. The debtors say that they are able to pay their debts. In I. P. No. 42 of 1956 Balakrishna Iyer J. had held that the debtor was possessed of sufficient assets to discharge his debts. It is not stated that, since then, the position of the debtor had in any way become worse. On the other hand, the properties owned by the debtor have appreciated in value. At the same time, it is clear that the debtors have no available liquid assets to discharge their liability. Rama-iinga was unable even to keep up his undertaking to pay the sum of Rs. 60 per month which he undertook to do in E. P. No. 304 of 1958. We agree with Gana-patia Pillai J. that the appellants should be regarded as unable to pay their debts.

7. But the more important question that remains to be considered is whether the application for adjudication is a bona fide one. The learned Judge has held that, as the debtor agreed to pay the sum of Rs. 24000 only it full satisfaction were entered, the case was not one for taking action under Section 13(4)(b). With great respect to the learned Judge, we are of opinion that the matter has got to be looked at from a different perspective namely, whether the petition to adjudicate is a bona fide one. In the petition filed for adjudication, the first respondent stated that

'these minor suits have rendered the petitioning creditor's task more difficult in realising his dues by proceeding with the execution against the immoveable properties, and so, it has become necessary for the petitioning creditor to adjudicate the debtors as insolvents and for this purpose he gave up his rights against the immoveable properties in respect of which the first dedtor had given an undertaking in the High Court not to alienate them.'

We are unable to appreciate how the suits for partition by the minor sons of the debtor could at all have any effect upon the first respondent realising his dues. It is not stated that the debts due were avyavahanka. Admittedly, the decree in favour, of the first respondent was prior to the suit for partition. It would be a pre-partition debt. for which the entire properties of the family would be liable. Even so, how can the adjudication improve the position of the creditor (first respondent)? The Official Assignee in the event of an adjudication will be under the same position as the appellant himself in view of the fact that the suit for partition had been filed even prior to the filing of the insolvency petition.

8. Mr. Rangaramanujam who appeared for the firstrespondent adopted before us a different line of argument. He contended that adjudication of a debtor asinsolvent is one of the remedies open to a creditor andit will be for him to choose whether he is to take thethorny path of execution of the decree or adopt a shortcut of adjudicating the debtor an insolvent. This iswholly an inaccurate approach to the case. An adjudication of a debtor as a bankrupt is not a method of collecting a debt, though, as a result of it, the creditormay get paid. Essentially, an adjudication brings abouta change in the status of a debtor and enables the Official Assignee or receiver in whom the property of thedebtor gets vested to administer or sell it to pay offhis creditors. It is only a particular class of creditors(vide Section 12) that can file a petition for adjudication. Andno absolute right is given to them to obtain an adjudication as the Court will dismiss the petition if the conditions laid down in Section 13 are satisfied.

9. Mr. Rangaramanujam then contended that as the debtor had paid certain other creditors without paying the first respondent, the latter had to file the petition. It is not the first respondent's case that the debtor has not assets left to pay off all the subsisting debts; nor even that the payments to other creditors amounted to any undue preference. It is revealed in the affidavit filed by the debtor that his total unsecured liability was only Rs. 34,304. His assets are worth more than two lakhs. The attempt of the first respondent was therefore to bring to disgrace a man in apparently good circumstances. The latter has been a recalcitrant debtor. Indeed he went further; he was not averse to adopt subterfuges to delay payment. But that cannot justify the creditor, purely out of spite and with no other object in view, to adjudge him bankrupt. The application for adjudication cannot, therefore, be regarded as a bona fide one and has therefore to be dismissed. The appeals are accordingly allowed. No order as to costs.


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