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J. Mciver and H. Hadow Partners Carrying on Business Under the Name and Style of Huson Tod and Co. Vs. K.V. Al. Rm. Alagappa Chettiar - Court Judgment

LegalCrystal Citation
Decided On
Reported in(1936)70MLJ545
AppellantJ. Mciver and H. Hadow Partners Carrying on Business Under the Name and Style of Huson Tod and Co.
RespondentK.V. Al. Rm. Alagappa Chettiar
Cases ReferredSee King v. Henderson
- - grant pointed out that the partners of the firm were anxious to do their honest best and that in order to inspire confidence among the creditors, he made a suggestion that a small committee of creditors might co-operate with messrs. grant did not ask the creditors to make up their mind there and then, but said that it was for them to consider and take whatever action they thought best. i agree that it is difficult for a man to carry on business efficiently with a criminal prosecution pending, but i do not see why a criminal prosecution should prevent anybody selling their shares. krishnaswami aiyangar, the government pleader and a well known and respected member of the bar. hadow's funds were clearly available for payment as to part of that indebtedness. anybody in his position.....mockett, j.1. this is a petition to adjudicate as insolvents mr. j. mclver and mr. h. hadow, who carry on business as partners under the name of huson. tod & co., stockbrokers in madras. the petition alleges that the debtors owed the petitioner on the 25th may of this year rs. 1,32,915-10-11, of which a payment of rs. 33,338-14-9 had been made leaving on the date of the petition a balance of rs. 99,686-12-2 due. it is convenient to state at this stage that it is not denied by the debtors that this amount is due to the petitioner. the acts of bankruptcy upon which the petition is laid are three in number. paragraph 11 of the petition alleges a preferential payment in favour of mr. j.w. macfarlane of rs. 4,062 on 3rd may 1935, and a similar preferential payment of rs. 24,986 to mr. w. h......

Mockett, J.

1. This is a petition to adjudicate as insolvents Mr. J. Mclver and Mr. H. Hadow, who carry on business as partners under the name of Huson. Tod & Co., Stockbrokers in Madras. The petition alleges that the debtors owed the petitioner on the 25th May of this year Rs. 1,32,915-10-11, of which a payment of Rs. 33,338-14-9 had been made leaving on the date of the petition a balance of Rs. 99,686-12-2 due. It is convenient to state at this stage that it is not denied by the debtors that this amount is due to the petitioner. The acts of bankruptcy upon which the petition is laid are three in number. Paragraph 11 of the petition alleges a preferential payment in favour of Mr. J.W. Macfarlane of Rs. 4,062 on 3rd May 1935, and a similar preferential payment of Rs. 24,986 to Mr. W. H. Warren on the 9th May, 1935. With regard to this latter payment it was stated from the Bar by Mr. Grant that it was paid to Mr. Warren not in his personal capacity but as the representative of a missionary trust. Though not strictly relevant, I regret that this matter was not cleared up in evidence, because although payment to a missionary trust may be as much a preferential payment as to an individual, the transaction loses much of the sinister aspect ascribed to it by the petitioner if instead of being a payment to an individual of the same nationality as was stressed, it was in fact a payment to a missionary society who are not presumably applying their funds for the purpose of converting Europeans. The other ground is a notice to creditors within the meaning of subsection (g) of Section 9 of the Presidency Towns Insolvency Act given at a meeting held on the 22nd May 1935.

2. The debtors resist this petition and the grounds for their resistance will appear from an examination of the history of the case. It is common ground that in March and April of this year, this firm became heavily involved and at least by the beginning of May they were quite unable to meet their obligations. I would at this stage state that I have not investigated the cause of the firm's losses. I have not endeavoured to assign the blame therefor to any individual because in my view it is totally irrelevant for the purpose of this application to decide the cause of the debtors' losses. It is sufficient for the purposes of this case that there were such losses. It may be that in other litigation in other Courts, these matters will be investigated at the instance of persons interested, and it is indeed evident that one civil suit at least has been filed which will presumably involve the investigation of all the surrounding circumstances, and since the greater part of this judgment was written, it seems that an inquiry in a criminal court will follow. Suffice it then to say that in May the firm of Huson Tod & Co. were unable to pay their debts, and Mr. Mclver, as he states in his affidavit, cabled to his partner, Mr. Hadow, who very shortly before had gone to England on leave. Mr. Hadow immediately returned to Madras by aeroplane and he arrived on the 20th May. The debtors' Solicitors were Messrs. King and Partridge, and Mr. W.H. Sell of that firm has virtually represented, with the occasional assistance of counsel, the debtors throughout these proceedings. Mr. Sell summoned a meeting of the creditors on 22nd May, at which Mr. Nugent Grant was present. What happened at that time is fortunately recorded in writing. Mr. K.S. Krishnaswami Aiyangar, who is a creditor for a very large sum, made a note which is marked Ex. I in this case and which is accepted as substantially accurate. At that meeting Mr. Grant stated that the firm was unable to pay its debts and that it was open to the creditors to have the firm adjudicated, or the firm itself would, if the creditors preferred, apply to be adjudicated. The liabilities were stated to be seven lakhs of rupees, and the firm's assets were said to be under Rs. 25,000. Mr. Grant pointed out that the partners of the firm were anxious to do their honest best and that in order to inspire confidence among the creditors, he made a suggestion that a small committee of creditors might co-operate with Messrs. King and Partridge and himself in seeing that all that could be done was being properly done and nothing left undorae. What were called the 'difficulties' in the administration of affairs through the Official Assignee were mentioned and the advantage of saving the Official Assignee's commission emphasised. A hint of the possibility of suing successfully third parties was given and an indication that those suits were likely to be successful conveyed. But Mr. Grant

did not ask the creditors to make up their mind there and then, but said that it was for them to consider and take whatever action they thought best.

3. And so the meeting broke up, and the creditors left to reflect on their position. It is clear - and no one suggests otherwise - that on May the 22nd the creditors never bound themselves to anything. Nothing further happened until the 29th May. On the 29th May a second meeting was held in response to a notice sent out by Messrs. King and Partridge on the 28th, and it is of the utmost importance to examine with care what happened at this meeting. Mr. Sell was able to tell the creditors that Mr. Hadow had furnished full details of his personal fortune which 'on an approximate valuation came to Rs. 1,73,000 and odd' ( 12,700 or so) in the form of securities. These securities, said Mr. Sell, would be converted into money as quickly as possible. Mr. Mclver's personal property was stated to consist of two life poficies only payable after the death of the assured. Taking into account a charge, their surrender value might be 1,000. It was proposed to pay four annas in the rupee as soon as may be, but Mr. Sell stated that it was impossible to do this with prosecutions pending or to be instituted against Mr. Mclver. Mr. Sell said that if such prosecutions went on he would immediately get the firm adjudicated because with prosecutions hanging over their heads, the partners could not devote their attention to the conversion of the securities or the carrying on of the business. I agree that it is difficult for a man to carry on business efficiently with a criminal prosecution pending, but I do not see why a criminal prosecution should prevent anybody selling their shares. It is effected by the simple process of instructing a broker to sell them and handing him over the relative securities. Mr. Hadow was not being prosecuted. This however is not of importance. What is of importance and what must be borne in mind is that Mr. Sell's interest then, as stated by Mr. K.S. Krishnaswami Aiyangar and admitted by Mr. Sell, was to disperse the cloud of criminal prosecution. There was such a cloud on May the 14th. Rao Bahadur Soora Lakshmayya Chetti had launched criminal proceedings against Mr. Mclver and Mr. K.S. Narasimhachari, and another creditor, Mr. Balakrishnan was obviously contemplating criminal proceedings. The payment to Mr. Mcfarlane and the payment, as I will so describe it, to Mr. Warren were discussed and apparently made the subject of unfavourable comment.

Mr. Balakrishnan asked whether after the payment of the four annas the partners could undertake to pay six pies at least per month in order to make further payments available to the creditors,

It was not the intention to accept the four annas in full settlement of the entire claim and the rights and remedies in respect of the balance due remained open to the creditors.

4. That, according to Mr. Krishnaswami Iyengar, is what Mr. Sell said. I propose to set out verbatim a part of Mr. K.S. Krishnaswami Aiyangar's statement in Ex. II as it is of the greatest importance and it is quite evident that the meeting of June the 29th ended on this note. Mr. Krishnaswami Aiyangar,

explained that he was taking the four annas without commitment of any kind. If further information or disclosures should happen to be made, he was going to keep his powder dry and he was not binding himself not to take such steps as further information might incline him to take. He suggested that none of the other creditors need be under the apprehension that by taking this four annas they or any of them were jeopardising their rights and remedies in any way against the firm or the individual members thereof, but as matters stood, it was not possible to take any definite step and accordingly he was agreeable to take the four annas offered.

5. I think it is possible by reading those words to understand what was in the mind at least of Mr. Krishnaswami Aiyangar, and, I think, also of the other creditors who were, I gather, ready to take a lead from him - naturally so. Mr. Krishnaswami Aiyangar was anxious that all attempts should be made to effect economies in the establishment charges and there should be no more preferential payments. There is one further matter. It was emphasised that the expenses of running the business should not exceed the income made by the firm and the partners should not be permitted to make drawings in their old way. Mr. Sell answered that the drawings of course would not be on the old scale, but, emphasising that the partners could not be penniless, suggested that Rs. 750 for each of them might be a fair figure. Mr. Sell said he would ask the committee to look into the accounts and be in constant touch with the current business of the firm to satisfy themselves that every thing was in order. In Mr. Sell's own words in evidence, they were to be 'watchdogs'. This of course was the committee that had been referred to at the meeting of the 22nd May. Finally Mr. Alagappa Chetti, the petitioner in this case, Mr. Balakrishnan and Mr. Kissendoss were appointed to constitute the committee. Now on the proceedings at that meeting is founded a part of the debtors' case. They allege that apart from the legal consequences there was a definite agreement on that day which precludes the petitioner from bringing in these proceedings. The suggested agreement, as I understand it, is as was put by Mr. Grant to Mr. Krishnaswami Aiyangar, namely, that in consideration of the creditors getting four annas in the rupee they agreed to allow the business to go on, but subject to certain safeguards, which were (1) that all attempts should be made to effect economies in the establishment charges, and (2) that no further payments of the kind made to Mr. Macfarlane or to Mr. Warren or indeed any payments to any creditors of the firm should be made. There is a further definite allegation, namely, that on June the 15th a payment of Rs. 33,338-14-9 representing four annas in the rupee was made to the petitioner Mr. Alagappa Chetti on the terms that he was not to take any action against the debtors for the space of three months. Out of these contentions arise questions both of fact and of law.

6. Three witnesses have given evidence. Mr. Sell on behalf of the debtors, the petitioner himself, Mr. Alagappa Chetti, and Mr. K.S. Krishnaswami Aiyangar, the Government Pleader and a well known and respected member of the Bar.

7. His Lordship set out the course of events and continued:

8. The first question is, 'Was there any agreement on the 29th June, and if so, what were its terms and what is its effect'? It must be remembered that at that time the debtors owed 7 lakhs of rupees and that Mr. Hadow's funds were clearly available for payment as to part of that indebtedness. I asked Mr. Sell whether it was correct that in fact no actual agreement was ever come to at any meeting, that the sense of the meeting was thought to be so and so, but that there was no explicit agreement, and he answered,

There was no agreement as for instance Articles 1, 2, 3 and 4, but definitely an arrangement under which we were to carry on.

9. Then I asked him 'did everybody agree that none of them would adjudicate the debtors'? and he replied.

No, because it was not put in that form. There was no 'discussion of insolvency then. I think the way it struck me was this. There was definitely an arrangement by which the firm would carry on under supervision.

10. Mr. Sell agreed that no time was fixed as to how long the firm should carry on but he thought it was to be for a reasonable time. My impression of what happened is as stated by Mr. K.S. Krishnaswami Aiyangar in Ex. II, namely, that in receiving four annas in the rupee, which was after all their just dues, there was no commitment by the creditors to anything at all. It is not suggested that when Mr. Krishnaswami Aiyangar said that,

none of the creditors need be under the apprehension that by taking this four annas they were jeopardising their rights or remedies in any way against the firm or the individual members thereof,

this was contradicted by any one representing the debtors. I find this somewhat surprising because it has been strenuously argued before me that, quite apart from any agreement not to adjudicate these debtors for a period of three months to which I shall refer later, by their actions at the meeting of the 29th May, the creditors were by operation of law precluded not for three months but for ever from adjudicating the debtors relying on the acts of bankruptcy on or before that date. My impression is that none on either side had this in their minds. Mr. Krishnaswami Aiyangar would not hear of the suggestion that any action taken at the meeting was in consideration of the creditors being paid four annas in the rupee. In his evidence this witness makes it quite clear that he felt himself free to go to a civil court, by which he means also the insolvency court, but he states he was not anxious to do so unless he felt that he was morally justified. There is one question that requires examination. He was asked whether it was agreed that instead of going into bankruptcy the creditors should receive whatever there was to be got from Mr. Hadow's estates. His answer was that that was certainly his idea. I think that that answer has to be read with Mr. Sell's evidence taken as a whole and Ex. II and Mr. Krishnaswami Aiyangar's evidence taken as a whole. My final conclusion on this matter is this, that there was never any agreement in the sense of a contract. Mr. Hadow had brought has assets to India for the express purpose of making them available to his creditors. I find it difficult to believe that it was ever in his mind that he was going to make terms or that terms should be made on his behalf. Anybody in his position with their assets beyond the jurisdiction who wished to make terms would have been in a very strong position, especially as he himself at the critical time was beyond the jurisdiction. It is at any rate clear that Mr. Hadow, at once realised all he had in the world and handed it over for distribution. I think that the creditors thought that as this money was being paid, no immediate action was required and that Mr. Krishnaswami Aiyangar meant to say that instead of going in to immediate bankruptcy this part payment weighed with the creditors and caused them to hold their hands. I do not find anywhere in the evidence of Mr. Sell that there was any express agreement not to take proceedings in insolvency. He relies more on what he thought was the sense of the meeting. As I have said, I consider that the sense of the meeting was that no action should be taken immediately in view of the fact that a four annas in the rupee payment was to be made and that the creditors committed themselves to no course of conduct, either positive or negative, by accepting that payment. I do not see what consideration there could possibly be for such an agreement as the debtors were doing nothing more than what they were legally compellable to do, namely, to pay their debts.

11. There is, however, another incident on the grounds of contract on which the debtors rely. On the 15th June, the above mentioned cheque was paid to Mr. Alagappa Chetti and it must be remembered that that still left Mr. Alagappa Chetti with nearly a lakh of rupees unpaid. But it is suggested, and it was so put to him in cross-examination, that he obtained it by means of a plot by which he schemed to get the money from Mr. Sell and to repudiate the circumstances afterwards; that is to say, that he was plotting to get 25 per cent of his just dues, a somewhat ironical position.

12. His Lordship discussed the evidence and concluded.

13. My view of this is that the minds of Mr. Sell and Mr. Alagappa Chetti were never at one in this matter.

14. His Lordship again dealt with the evidence and proceeded.

15. To continue this story, there was a meeting on July the 6th, the main object of which was, according to Mr. Sell, to obtain definite instructions as to the wishes of the creditors about filing suits against the two Banks. Mr. Sell obviously did not trust Mr. Alagappa Chetti because of his initmate relations with the Chattered Bank and when Mr. Magappa Chetti asked questions about the suits, in the words of Mr. Sell 'I refused to give the information'. It was decided to get counsel's opinion and it is stated in this case--and I of course accept it - that counsel's opinion was taken signed by Mr. Section Doraiswami Aiyar and Mr. Nugent Grant who advised that there was a good cause of action against the two Banks. The plaint was not then actually filed. But it should have been filed on the 16th July when this petition was launched. The suit against the Chartered Bank would have been time barred a few days after that. I therefore thought it proper, as will be seen from the record in this case, to authorise the solicitors to expend the necessary stamp fee and file the suit. I desire to make clear that I did this because it is eminently desirable and perhaps one may say especially in this case, that if a firm in financial difficulties has alleged rights against third parties then those rights should be ventilated by an action at law, at least in their creditors' interests. It is perhaps unnecessary for me to say that by doing so I express no opinion whatever about the merits of that case, for the all sufficient reason that I know nothing whatever about the facts and the case is not before me. I think that Mr. Alagappa Chetti attended that meeting in a suspicious frame of mind. The mention in June of the period of three months had possibly caused him, and certainly his legal advisers, 'furiously to think'. It must be recalled that even Mr. Krishnaswami Aiyangar had stated that attaching conditions was certain to excite suspicion and here was the significant period of three months with all its legal consequences obtruding itself into a position which had previously been free from difficulty. At that meeting it appeared that there was a fund of Rs. 10,000 which had been set aside for the criminal case and it was stated by Mr. Sell that that money was available for the civil suits. Mr. Alagappa Chetti, says Mr. Sell, was going to make some sort of complaint about it - that he had not been told about it. Mr. Sell said he would take all responsibility. I asked Mr. Sell why the creditors had not been told there was the Rs. 10,000 and the answer was that they were not particularly anxious to know about it and Mr. Sell quite fairly says that this committee had access to all the books and could easily, if they had been interested, find that out for themselves. I am perfectly satisfied that there was no intentional concealment of this fund, but Mr. Alagappa Chetti was apparently, indeed admittedly, complaining that he had not been told. Rs. 10,000 is after all a large sum.

16. Two other facts appeared, that the partners were receiving each Rs. 1,000 a month when the original suggestion was that Rs. 750 was sufficient. That increase is explained by the fact that account had not been taken of the fact that the April bills of these two gentlemen had not been paid. However Mr. Alagappa Chetti apparently says he was displeased about that. Something else appeared namely, that the firm had made a loss in May and June and that as there was no profit that loss had naturally to be met out of the capital. The general impression that I have got in this case is that the capital was to be kept intact. Then on the 13th July Mr. Alagappa Chetti read in the papers that the Government had filed an appeal against the acquittal of Mr. Mclver and Mr. K.S. Narasimha chari. Since I reserved judgment in this case that appeal has been heard and the result is that the acquittal b the Magistrate of Mr. Mclver for criminal breach of trust has been set aside. The petitioner seems to have taken the view that with this accumulation of circumstances culminating in the worst disaster of all, the Government's appeal, the whole idea underlying abstention from action had gone and he filed this petition on the 16th July. Now it is alleged, that his conduct throughout has been mala fideand an abuse of the process of this Court and that I should exercise the undoubted discretion vested in a Judge sitting in Insolvency and dismiss this petition.

17. I had endeavoured to summarise the salient facts and to record some of my findings thereon, but it will be convenient to conclude the findings of fact - and I refer to such of them as relate especially to the conduct of Mr. Alagappa Chetti - when I have considered the law relating to these matters which has been so ably argued from the bar. A great deal of evidence has crept into this record which in my opinion is neither relevant nor admissible. I refer particularly to what other creditors said or what has been said to other creditors who are not before me. I was under the impression that many of these gentlemen would appear, but as they have not I am proposing to disregard entirely this part of the evidence. As an example I disregard whether Mr. Balakrishnan retailed to Mr. Sell passages from Macaulay said to have been quoted by Mr. Alagappa Chetti.

18. When the arguments are analysed there are really two legal positions taken up by the debtors in this case although in the course of argument they have become intermingled. The first is that the creditors are estopped from relying on the acts of insolvency pleaded; secondly that by reason of the conduct of the petitioner I should under Section 13(4)(b) of the Presidency Towns Insolvency Act dismiss this petition. That section reads as follows:

The Court shall dismiss the petition 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.

19. Mr. Srinivasa Aiyangar has argued that 'other sufficient cause' should be construed ejusdem generis in relation to the earlier part of the section. I am unable to take that view. The Presidency Towns Insolvency Act is based on the English Bankruptcy Acts and I am inclined to follow the construction put upon those words by English Courts. It will be seen from Ex parte Dixon (1884) 13 Q.B.D. 118 that Baggallay, L.J., puts the widest possible interpretation on the words 'sufficient cause'. I am asked to make a distinction here because the words are 'other sufficient cause' but I think the English and the Indian statutes have the same meaning and intention.

20. Now on what facts is this plea of estoppel based? It is based on this, that the petitioner with full knowledge of an act of insolvency received a part payment and allowed the debtors to carry on business, even becoming a member of a committee of inspection. There is no decision on facts similar to these, but Mr. Grant argues that on the analogy of the English decisions, which are unquestionably accepted in India See Rukmani Ammal v. Rajagopala Iyer : AIR1924Mad839 , his plea of estoppel is good. I will shortly summarise those cases. It is settled law that a creditor who is a party to, or privy to, a deed of assignment to creditors cannot rely upon the execution of that deed as an act of bankruptcy although he may rely on an independent act of bankruptcy. That position was accepted in In re Mill (1906) 1 K.B. 389 In re Sunderland (1911) 2 K.B. 658 and In re a Debtor (1924) 94 L.J. Ch. 42. A The latter case holds that the recognition of the deed would preclude a petitioning creditor from relying on it as an act of bankruptcy. In order to appreciate what underlies the decisions it is necessary to examine the old case-law. The position is summarised in the case of In re Stray (1867) 2 Ch. App. 374. There Lord Cairns explained it as follows:

It is well settled by a series of authorities, of which the case of Ex parte Alsop (1860) 1 De G.F. & J. 289 may. be mentioned as the last, that a creditor, who is a party or privy to a deed of the description mentioned in the statute, or who has acted in any way which would be equivalent to an assent, recognition, or approval of the deed, cannot allege that the execution of the deed is an act of bankruptcy.

21. I apprehend that the principle upon which those cases (the authority of which cannot now be questioned) have gone is this, that inasmuch as, under the statute, the petitioning creditor is obliged to allege that the act in question is a fraudulent act, any person who has been a participator or sharer in the fraud cannot be heard to claim any benefit or advantage from the act. This is what a distinguished Bankruptcy practitioner Mr. Muir Mackenzie describes in his argument in In re Hawley (1897) 4 Manson, 41 as ' the peculiar doctrine' of estoppel by recognition, and in that case Vaughan' Williams, J., points out that there need not be fraud in fact proved but merely fraud in law. I am unable to see how those cases assist the debtors. They all rest on the fact that the debtors executed a deed of assignment, a document void against creditors, to which the petitioning creditors were parties or privies and that such creditors were estopped from going behind their express or implied assent. There is of course no estoppel against non-assenting creditors, the theory being that it is in fraud of them that the assignment has been made. In the case of the partners in Messrs. Huson Tod no deed of assignment has been executed; indeed a very large sum remained in the firm as capital. The act of insolvency on which this petition mainly rest is a statement that the debtors were unable to pay their debts. I am unable to follow how a crediton can be privy to a voluntary statement of that sort except under very special circumstances, none of which are present here. A deed of assignment is a legal fraud as pointed out in the authorities. A statement of inability to pay debts is nothing of the sort. It must follow therefore that this curious form of estoppel has application only to a deed of assignment and cannot afford any protection to the debtors in this case. It would indeed be a strange thing that creditors, who after hearing a statement of inability to pay debts do not press their bankruptcy rights but accept a portion of their just dues and do not interfere with the carrying on of the debtor's business, should be in the same position as creditors who by a written document which is at best a technical fraud, deliberately plan to administer the debtor's estate not in bankruptcy but by a special private arrangement, all the assets being put into a pool. No case has been quoted to me which takes this doctrine to any length approaching this. Mr. Grant relied on two cases, or rather observations in two cases; Re Sunderland, to which I have already referred, and Re Newbury (1924) 95 L.J. Ch. 199. Both these cases proceed on the legal position as enunciated in Re Stray (1867) 2 Ch. App. 374 but in Sunderland's case it is argued from certain remarks of Kennedy, L.J., that there is authority for the proposition that a creditor can be estopped by being privy to a declaration under slab-section (g) to Section 9 of the Presidency Towns Insolvency Act. An examination of that case shows that the learned Judge took a different view of the facts to that taken by the other Lord Justices and was prepared to hold that the creditors' conduct was improper, that is that there was sufficient cause under Section 7 of the Bankruptcy Act of 1883. In In re Newbury (1924) 95 L.J. Ch. 199 'the acknowledgment of an act of bankruptcy' referred to by Astbury, J., at p. 200 was in fact a deed of assignment which takes the debtors' argument no further. In In re Carr (1902) 85 L.T. 553, it is clearly indicated by Wright and Phillimore, JJ., that attendance at a meeting and not expressing dissent does not estop the creditor. And the same learned Judges in re Day (1903) 86 L.T. 238 point out that whereas in Carr's case (1902) 85 L.T. 553 the delay in filing the petition was unexplained, in the case before them the agent expressly stated that he reserved all his rights including the right to take bankruptcy proceedings and there was no acquiescence in any deed of assignment. That is very much the position here if one believes, as I do, the evidence of Mr. K.S. Krishnaswami Aiyangar. Mr. Srinivasa Aiyangar relied on the interesting decision of Ex parte Mendelssohn (1903) 1 K.B. 216 affirmed by the House of Lords in Mendelssohn v. Ratcliff (1904) A.C. 456. It appears that under the London Stock Exchange rules, the assets of defaulters vest in an Official Assignee of the Stock Exchange and the creditors appear to have accepted their share under the distribution by the Official Assignee. It was held that such a state of affairs does not place the stock exchange creditors in the same position as creditors who have assented to a deed of composition or to distribution of the debtors' assets under a deed. That being so, still less does it seem to me can a part payment affect the creditors' rights. I am unhesitatingly against Mr. Grant's argument with regard to estoppel. It is argued that according to Wharton, 'privy' means having a participation or interest or 'knowledge' and the creditors were told of the suits against the Bank. I do not see how the debtors were prejudiced by this and I only mention this point because it was argued. One other point must be noticed. Under Section 51 of the Act a period of three months is given within which a petition may be filed. The creditor is not bound immediately an act of insolvency comes to his knowledge to take action. This is clearly a beneficient provision as it gives time for reflection and possibly for the debtor to restore his position qua the creditors.

22. It remains to consider whether in this case 'other sufficient cause' has been shown why no order should be made. I think the position is that, when the necessary facts under Section 13(2) have been made out, the petitioning creditor is entitled to an order and that it is for the debtor to satify the Court that that right should be taken away under Section 13(4)(b). Mr. Grant has rested this part of his case largely on the ground that the petitioner's conduct was such that I ought to dismiss this petition. He did not argue that it is fraudulent within the meaning of Re Shaw (1901) 83 L.T. 754 but he did argue that it was morally dishonest and an abuse of the process of the Court and that the payment from Mr. Sell was obtained by a plot. I already found that there is no basis for the last suggestion and I will repeat that it is beyond my comprehension why a man who had been promised an unconditional payment and went in that frame of mind to receive it should have to plot to get it.

23. Now to consider his general conduct, I do not understand that anybody suggests that he did anything improper before June the 15th. It would have been better if he had taken a more active part in the committee, but there is nothing improper in not doing so. I do not suppose that his absence was the cause of much regret to any one on the debtors' side. With regard to the incident of the 15th I have already dealt with it, and I leave it with this comment that, taking the debtors' case, it is clear to me that no condition was attached to this payment until the 15th and I am not satisfied that Mr. Sell had authority to attach such a condition if the previous promise had been unconditional. I do not think there was any sort of agreement. The debtors had arranged to pay a quarter of their indebtedness and the creditors stood on their legal rights. Then it is said that Mr. Alagappa Chetti behaved improperly over the Chartered Bank suit. He is, of course, entitled to hold any view he thinks fit with respect to any legal position, and that cannot be improper conduct. However, it is insinuated that he is in some way conspiring with the Chartered Bank to frustrate this suit. It must be remembered that he has been associated for years with the Chartered Bank and, as he says, saw Mr. Clarke daily. I think he talked far too much with Mr. Clarke who must have been much interested, but I do not think he gave anything away because I do not think he knew anything. It was known to Mr. Sell that he was constantly at the Chartered Bank because Mr. Sell described him as 'the Bank's ambassador'. Mr. Alagappa Chetti may be wrong headed about this suit. I do not say he is, but I should require a great deal of proof that he deliberately and necessarily for a consideration was endeavouring to obstruct it. If this suit succeeds, he is liable to get a very large sum of money. As to the abuse of the process of the Court I made a special note of Mr. Grant's argument as to that. He said that it was 'that the agreement had been broken.' That agreement was the agreement of the 29th May, or alternatively the 15th June. But I have already indicated my views about this agreement. Then it is said on the lines of certain remarks of Baggalay L.J., in Ex parte Dixon (1884) 13 Q.B.D. 118 that there were proceedings pending by means of which, if the debtor should be successful, he would obtain ample funds that would enable him to pay his debts. If satisfactory material had been put before me to show that as far as was possible to see there was an unanswerable suit against the Bank or any one else which would reimburse the estate, I might have thought that was 'sufficient cause', but I have no material before me. It is true that there is the opinion of counsel, but I should be very reluctant to lay down that it was' sufficient cause for dismissing a petition merely because the petitioner had been advised that they had a good cause of action. On the other hand if it was a suit on a promissory note or even a suit for personal injuries in a motor accident, it might be very easy to satisfy the court that prima facie the suit was bound to succeed. I can easily picture a set of facts appropriate to this view. There is another feature of this case which I cannot omit to note and that is that as between Mr. Balakrishnan who is owed Rs. 1,50,000 and Mr. Alagappa Chetti who is owed Rs. 1,35,000 - I disregard for the moment the four anna payment - these two gentlemen have a very large claim and are entitled to have a considerable say. Then it is said that Mr. Alagappa Chetti's conduct in the manner that he filed this petition is improper and mala fide. If he is entitled to file a bankruptcy petition, his motive in doing so is immaterial; See King v. Henderson (1898) A.C. 720 a striking case. The petitioner has been criticised because he did not inform Mr. Sell that he was filing this petition. I think that under the circumstances he should have done so; but there was no obligation on him to do so in law. The explanation of course is that the petitioner was frightened of Mr. Sell and preferred 'fait accompli' to a preliminary discussion which in his own words, might have been 'fatal'. I do not sit here as an arbiter of good taste.

24. Another reason was urged why I should use my discretion in this case. It was said that insolvency would be most detrimental to the suits against the Banks; and in this connection it must be recalled that Mr. Sell was very anxious that the evidence should come out for the first time in these suits and for this reason was insistent that the criminal proceedings should be discontinued. I infer from this that the evidence in the, criminal proceedings is likely to be, in parts at least, the same as in the civil suit. Without expressing an opinion whether that reason is good or bad it can only now be said that criminal proceedings are in fact to go on. Then it is said that if the firm is dissolved the clerks--the important witnesses - may not be available. I do not think that it is necessarily so. The fact is that if the creditors want this suit to go on it will go on whether this firm is adjudicated or not. If on the grounds of the suit I use my discretion in favour of the debtors it will mean that not for a very long time will the matter be finally concluded. A very large sum of money is involved. It is impossible to shut one's eyes to the fact that the probability of the matter being concluded by an Original Side trial is very remote. In such matters an appeal is usual and a further appeal to the Judicial Committee not unusual. The idea that three months would see this matter settled one way or the other is in my opinion optimistic beyond words. The authorities on what is 'sufficient cause' are not very helpful, as naturally each case must be decided on its special facts, but an examination of this shows that under two heads only does the judicial discretion seem to have been actually used in favour of debtors : (1) on the principle of estoppel which in several cases has been treated as being ' sufficient or good cause ' a blend of two different ideas. I have referred to many of them which deal with the estoppel point. (2) Fraudulent or improper conduct on the part of the petitioning creditor. Mr. Grant relied strongly on a decision of Ghose, J., in Ex parte Harsukdas (1924) 39 C.L.J. 512 and emphasised that jurisdiction in Bankruptcy is entirely discretionary. My only comment is that on the facts in that case which revealed spiteful and indeed morally dishonest conduct on the part of the creditor, I should, had it come before me, have used my discretion in exactly the same way as did Ghose, J., who described the petitioner's conduct as vexatious and oppressive and an abuse of the process of the Court. But that case is not this case.

25. There remains the question of the preferential payments, with which I can deal very shortly. I do not think, that these were preferential payments has been proved before me.

26. His Lordship dealt with the conduct of parties and concluded:

27. It is open to the Official Assignee to have that matter investigated in the insolvency proceedings.

28. I will conclude by referring to two matters. It was stated in the clearest possible terms by Mr. Grant that the debtors' case was that these proceedings were instigated by the Chartered Bank. That charge, though not pressed, has not been withdrawn and it is of course a very grave charge. I, therefore, think it right to state also in the clearest possible terms that there has not been any evidence before me suggesting that the Chartered Bank in any way inspired this petition. I have already sufficiently indicated that I do not consider Mr. Alagappa Chetti's conduct has been improper. There is one other matter, this time an allegation by the petitioner. In his affidavit he charges the debtors with concealing assets. In his evidence, he quite fairly stated that he did not refer to personal assets but that assests of the firm, for example, Rs. 10,000 has not been at once brought to the creditors' knowledge. With regard to this charge, I also think it right to say that there is no evidence before me of any concealment of assets by the debtors. On the other hand, as Mr. Krishnaswami Aiyangar has pointed out, the conduct of Mr. Hadow made a most favourable impression on the creditors - as it did on me. His canduct seems to have been a model of correctness since his firm got into difficulties, and although as a result of the order I am about to make, he must fall with the firm, losing apparently everything he has in the world, I do not think on the facts as revealed before me in this inquiry that he should be ashamed to look any man in the face.

29. As a result of the conclusions at which I have arrived there was in my opinion an act of bankruptcy available to the petitioning creditor on the 22nd of May, and in spite of the arguments addressed to me I do not find after considering the facts most anxiously that there is any sufficient cause why I should dismiss this petition. As it has been adumbrated in this case ever since May, that this firm cannot carry on business with a criminal prosecution pending against Mr. Mclver, I imagine that the following order merely anticipates events. The elimination of criminal proceedings was the primary basis of any alleged arrangement or course of conduct adopted by any one concerned, - a basis which has now disappeared. The necessary result of my findings is that there will be an order of adjudication. The petitioner will have his taxed costs out of the estate. As I have already said that the petitioner is entitled to his taxed costs out of the estate, having regard to the dimensions of the case, those costs will be on the Original Side scale and I certify for two counsel. Also having regard to the circumstances of the case, I direct that the debtors' taxed costs will be payable out of the estate on the Original Side scale and in both cases the parties may add to it the costs of the shorthand note.

30. In order that the creditors may make up their minds as to the future of this firm, it is important that the business should not be instantly stopped. I therefore permit Mr. Wilson to continue this business until the 26th of this month on which day all concerned should appear before me and let me have their views as it is primarily the concern of the creditors.

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