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P.S. Ramaswamy Aiyar and anr. Vs. Al.Sp.Pl. Subramanian Chettiar by Agent, Lakshmanan Chettiar Banker - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1938Mad267; (1938)2MLJ179
AppellantP.S. Ramaswamy Aiyar and anr.
RespondentAl.Sp.Pl. Subramanian Chettiar by Agent, Lakshmanan Chettiar Banker
Cases ReferredKrishna Aiyar v. Pierce Leslie and Co.
Excerpt:
.....a portion of the properties had been reserved for the petitioner in discharge in full of his debt and that the property so reserved was sufficient to the petitioner's knowledge to fully discharge his debt. and clearly the financial position of the family was such that its debts could not be discharged without such alienations. i am satisfied that there was quite sufficient ground on the facts for the lower court's refusal to award compensation......position with regard to the liability of sons in a hindu undivided family in respect of a binding family debt incurred by their father to be adjudicated insolvents is even to-day none too clear though in purnayya v. basava kottayya : air1931mad788 krishnan pandalai, j., held that the son of a hindu father who died after incurring debts upon promissory notes apart from some special circumstances which would make him personally liable for the family debt cannot be adjudged insolvent on account of his liability as a member of the family to pay those debts out of the family properties. in the course of his judgment he refers to an unreported decision in c.m.a. no. 47 of 1916 where it was held that members of joint families liable as such for a family debt but not otherwise are debtors.....
Judgment:

Horace Owen Compton Beasley, Kt., C.J.

1. The respondent presented a petition in insolvency against a Hindu father and his two sons to have them declared insolvents. The two sons are the petitioners. Their father executed a promissory note in favour of the respondent for Rs. 1,500 on 6th June, 1931. On 4th March, 1932, the respondent made a demand upon the father for payment of the promissory note debt. Between that date and 14th March, 1932, there were a series of alienations of joint family property, the petitioners with their father being parties to these alienations. On 27th June, 1932, the respondent presented the insolvency petition already referred to on the ground that the father in his capacity as family manager had executed the promissory note in question and alleging that the debt was binding on all the members of the family and that the debt had not been discharged in spite of repeated demands. He alleged that the three respondents to the insolvency petition had brought about a number of sales in favour of their relations, friends and others quoting fictitious debts. This petition was returned on the ground inter alia that the creditor must state how the respondents 2 and 3 to the petition were liable to be adjudged insolvents. It was re-presented with the following endorsement:

The first respondent is the family manager. Respondents 2 and 3 are liable for the debt and they have joined the first respondent in fraudulently dealing 'with the properly. They are therefore liable to be adjudged.

2. On 30th November, 1932, the creditor filed a statement to the effect that his claim was satisfied and that the insolvency petition might therefore be dismissed. On 1st December, 1932, the petitioners put in an application for compensation under Section 26 of the Provincial Insolvency Act and the Additional Subordinate Judge on 2nd December, 1932, passed the following order on the insolvency petition:

Petitioner's vakil files memo, that ciaim is satisfied and that the petition may be dismissed. Respondents press for costs. So, the point whether this petition was filed on sufficient grounds has to be gone into. Respondents 2 and 3 have filed a petition for compensation. For enquiry, 20th January, 1933.

3. On the application for compensation the following order was made, 'counter in a week. Enquiry on 20th January, 1933'. Later, the matter came up before Mr. Narayana Menon, the then Additional Subordinate Judge, whose predecessor had passed the orders to which I have referred. As regards the father, he passed the following order:

The first respondent admittedly owed the money to the petitioner when the insolvency petition was filed. He had also admittedly alienated a major extent of his properties. The first respondent did not pay the petitioner's debt for nearly four mcnths after the alienation. The petitioner had therefore some justifiable apprehension that the alienation was intended to defeat him. The first respondent paid the debt due to petitioner after filing of the insolvency petition. In these circumstances I order the first respondent to bear his costs.

4. With regard to the petitioners he held that on the face of the insolvency petition they were not necessary parties and could not be adjudged insolvents as they were not personally liable and he ordered the creditor to pay their costs. It is clear that the creditor's statement where he says that the debt had been settled by payment asks for a dismissal of the petition. I think that it must be tajcen that the petition was dismissed under Section 25 of the Provincial Insolvency Act and it is not suggested by Mr. K.S. Jayarama Aiyar for the respondent that it could be dismissed under any other section though he contends that it was merely withdrawn and not dismissed. With this contention I do not agree as in my view this comes within the words of the section:

Or that for any other sufficient cause no order ought to be made, the Court shall dismiss the petition.

5. The petition having been dismissed under Section 25(1), the debtor is entitled to apply for compensation under Section 26(1) but Mr. Jayarama Aiyar argues that the provisions of Section 26 can only be applied if at the time of the dismissal under Section 25(1) the Court is satisfied that the petition was frivolous or vexatious and that it does not have in view a subsequent enquiry into that matter. No such restriction, in my view, is to be gathered from the words of the section. The Court can, in my opinion, consider the matter on this application even though it has not done so at the time of the dismissal of the petition under Section 25(1). Next Mr. Jayarama Aiyar contends that the petitioners were not entitled to apply under that section because they were not 'debtors'. This argument is founded on the petitioners' own case that they were not personally liable for the debt, it having been contracted by their father. I think this contention is unsound and that 'debtor' in the section means any one against whom an Insolvency Petition has been presented by a creditor and that the person applying for compensation need not in truth have been a debtor at all. Suppose, for example, that some one wishing to harass another files an Insolvency Petition against that other person falsely alleging that he is indebted to him and his petition is on that ground dismissed, why should not the alleged debtor be entitled to have compensation awarded to him under Section 26(1) instead of being driven to the expense of a suit? In my opinion, the petitioners were 'debtors' within the meaning of the section. The applications were considered by the learned Subordinate Judge who held that the petition was not dismissed under Section 25 (1) and therefore the applications under Section 26(1) could not be entertained and that it was not open to the Insolvency Court to enquire into the matter further. For the reasons I have already given the opinion of the learned Subordinate Judge was wrong. On appeal, the learned District Judge held that the applications were rightly dismissed, the Court having in his opinion rightly exercised its discretion to refuse to award compensation. He also agrees with the Subordinate Judge that Section 26 is intended to meet cases where a creditor's application has not only been dismissed on the merits after taking evidence but also held to be frivolous or vexatious, that is, the present petition was not dismissed under Section 25(1). My view upon the law which is contrary to that of both the lower Courts does not however dispose of these petitions as, in my opinion, the applications for compensation stood to be dismissed upon the facts already on the record. In paragraph 13 of his order the learned Subordinate Judge says:

It is not necessary to state anything further on these petitions but this. I am in no way persuaded, having regard to the records before me and the allegations of the petitioners that the petition filed by the creditor was not justified and that it was fraudulent or frivolous. As it is, we have the fact that in June 1932 the creditor filed the Insolvency Petition consequent on the fact that there were four alienations by the father and the sons. His claim was satisfied only in November....

6. The learned Subordinate Judge who originally dealt with the matter as regards the father as I have already observed stated that the petitioner had some justifiable apprehension that the alienation was intended to defeat him and he therefore ordered him to bear his own costs. That order does not reflect upon the conduct of the petitioners at all but the learned District Judge in his judgment says:

A Brahmin father and his two sons - one a doctor and the other a lawyer - were heavily involved in debt. The father was personally liable but the family being joint the sons' shares were aiso liable. The creditors of the family insisted on the appointment of a trustee to make a rateable distribution of the family assets or that the family should sell its lands, etc., in parcels to each creditor according to the amount of his debt. In other words, there was to be a voluntary liquidation.

7. I doubt very much whether the creditors of the family did insist on the appointment of a trustee. It is merely so alleged in the counter-petitions. What the father stated in his statement was that various creditors were pressing for payment of their dues, that he had no ready money on hand, that therefore with a view to pay off all the creditors fully he entered into an arrangement with the creditors with their full consent and co-operation and with the help of respectable mediators, that it was decided under the arrangement that each of the creditors should take a sale of a portion of the family properties equal in value to the debt due jto him, that accordingly on 14th March, 1932, sale deeds were executed to the creditors in full discharge of their settled debts and that it was clearly recited that a portion of the properties had been reserved for the petitioner in discharge in full of his debt and that the property so reserved was sufficient to the petitioner's knowledge to fully discharge his debt. I must mention here that the creditor in his petition alleged that the property was worthless or inadequate. The father further alleged that the creditor had been throughout made aware of the arrangements and never objected at any time thereto, that he and his sons believed that he would also give effect to it and that they were always ready and willing to execute a sale deed of the property reserved to him. The petitioners filed a joint counter-petition in which they denied that they were heavily involved. Their counter-petition follows closely on the lines of their father's. The creditor in answer to the petitioner's application for compensation denied that he knew or acquiesced in the alleged agreement with the creditors and said that he was never at any time told by anybody about the mediation, which took place behind his back; and the learned Counsel for the petitioners was unable to contend before me that any notice of the alleged meeting of the creditors and mediation was ever given to the creditor and I can see no reason for believing that he ever knew of it, or afterwards acquiesced in it. The fact that he filed a petition in insolvency indicates the contrary. This alleged arrangement with the creditors was all effected within the space of 10 days immediately following on the notice of demand for payment given by the creditor. Certainly on the record before the Court it is very probable that the whole thing was done behind the creditor's back. On the record it seems to me that the Insolvency Court could not find that the petition against the two sons was not put in without some reason. The legal position with regard to the liability of sons in a Hindu undivided family in respect of a binding family debt incurred by their father to be adjudicated insolvents is even to-day none too clear though in Purnayya v. Basava Kottayya : AIR1931Mad788 Krishnan Pandalai, J., held that the son of a Hindu father who died after incurring debts upon promissory notes apart from some special circumstances which would make him personally liable for the family debt cannot be adjudged insolvent on account of his liability as a member of the family to pay those debts out of the family properties. In the course of his judgment he refers to an unreported decision in C.M.A. No. 47 of 1916 where it was held that members of joint families liable as such for a family debt but not otherwise are debtors within the meaning of the Insolvency Act and therefore can be adjudged insolvent on those debts. He does not follow that case and refers also to Muthu Veerappa Chettiar v. Sivagurunatha Pillai : AIR1926Mad241 which to some extent followed the unreported decision though the judges there say that each case would depend upon its circumstances and that, if the petitioner makes the necessary allegations and proves them, then the Court would be justified in adjudging the members of a joint family insolvents. He also refers to Nagasubramania Mudali v. Krishnamachariar : AIR1927Mad922 . In that case it was held by Odgers and Venkatasubba Rao, JJ., that a decree against a son for the debt of his deceased father to the extent of the assets in his hands does not make him (the son) liable to adjudication and he cannot be so adjudicated unless the decree is a personal decree. The conditions necessary to impose a personal liability upon the members of an undivided family in respect of money borrowed for family purposes are stated in Chelamayya v. Varadayya (1898) 9 M.L.J. 403 : I.L.R. 50 Mad. 981. In Manwyya v. K.R. Rice Mill Co. : AIR1921Mad294 , Sadasiva Aiyar and Napier, JJ., held that the members of a joint Hindu family can be adjudicated insolvents on a single petition by a creditor if they are liable on a joint debt and have been guilty of a joint act or acts of insolvency. Although this case was relied upon by Mr. Jayarama Aiyar, I do not think that it is of much assistance. This matter has also been dealt with by Cornish, J., in Krishna Aiyar v. Pierce Leslie and Co. : AIR1936Mad64 , where he holds that the members of the family must be under a personal liability before they can be adjudicated. Even assuming that the petitioners would not be personally liable for this debt and that they could not therefore be adjudicated insolvents in respect of it, I am far from thinking that the petitioning creditor must have known that the sons could not be made insolvents. This was a debt binding on the family for which certainly the sons' shares could be made liable and they together with their father set about alienating a large portion of the family property under circumstances which the petitioning creditor might very reasonably suppose indicated that a fraud upon him was being attempted; and clearly the financial position of the family was such that its debts could not be discharged without such alienations. I am satisfied that there was quite sufficient ground on the facts for the lower Court's refusal to award compensation. Both Civil Revision Petitions are dismissed with costs.


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