Skip to content


R.M.N.N. Nagappa Chettiar Vs. Trojan and Company - Court Judgment

LegalCrystal Citation
SubjectLimitation
CourtChennai
Decided On
Reported inAIR1948Mad446; (1948)1MLJ173
AppellantR.M.N.N. Nagappa Chettiar
RespondentTrojan and Company
Cases ReferredRam Ranbijay Prasad Singh v. Mt. Bachia Kuari A.I.R.
Excerpt:
.....have been set aside :metropolitan bank v. ' the plea of limitation put forward on behalf of the respondents must therefore fail because the suit was brought one year after the order of annulment. when a person knows that there is no just debt due to him without which he cannot file a petition in insolvency and yet files such a petition based upon a false debt, the ingredients of malice are clearly present. 5,197. for this he is clearly entitled to compensation and is therefore awarded rs. 20,000. he is clearly entitled under the law to general damages and the question is only as to the quantum......as follows, and it is supported by the evidence of annamalai chettiar himself. when trojan and company filed i.p. no. 345 of 1937 they knew that the debt alleged by them against him was not true and that they had no justification whatever for the pro-ceedings. in cross-examination annamalai chettiar admitted that if after receiving secret information from calcutta and without disclosing the same to the appellant, he had sold the shares to him his conduct would have been improper and that the transaction would not have been binding on the appellant. apart from the claims of these stockbrokers the appellant's just debts were comparatively small and his possessions ample to meet them if and when called upon to do so. he says that the respondents' action was designed only to ruin him and.....
Judgment:

Bell, J.

1. In this appeal the appellant, who was the plaintiff in the suit, sought to recover damages on the ground that the defendants had maliciously and without reasonable and probable cause presented a petition in insolvency against him, as the result of which on 5th October, 1937, he was adjudicated insolvent. He says he was not able to obtain annulment of his adjudication until 21st February, 1944. Kunhi Raman, J., dismissed the suit holding in the first place that it was barred by limitation. He came also to the conclusion that want of reasonable and probable cause had not been satisfactorily proved. Even so he held that there was no evidence of malice and finally was of the opinion that the plaintiff on the evidence was entitled to no more than nominal damages.

2. The plaintiff has been pressed before us as a well-to-do man of the Chettiar community and of good character and reputation. It is stated that in a partition somewhere about 1933 between himself and his brothers he received as his share-more than two lakhs of rupees. He took up residence in Madras and began specu-lating on the stock exchange. As he himself said in the course of the insolvency proceedings, his transactions were extravagant in the extreme and were in fact no more than rash speculations in differences. In the course of these transactions he became concerned with two firms of stock-brokers, one called Ramlal and Company and the other Trojan and Company, the present respondents who are a registered firm still carrying on business in Second Line Beach, George Town, Madras. The sole proprietor of the firm today is one Annamalai Chettiar.

3. In April, 1937, there was something approaching a crisis on the Calcutta Stock Exchange in relation to certain shares in which there had been much heavy gambling. Trojan and Company, it has been proved beyond doubt, received private information from Calcutta, as the result of which they determined to get rid of their own holdings in those particular shares before the anticipated slump in them actually took place. To this end they fraudulently induced the plaintiff to buy 5000 Indian Iron shares pretending that they had purchased them in the normal way on the market. In fact, 1,800 of these shares belonged to Annamalai Chettiar, 1,000 to his wife and 1,000 to a firm of which Annamalai Chettiar and Company were managing agents. The rest of the shares belonged to persons who were close friends of Annamalai Chettiar: Trojan and Company charged the usual commission to the appellant. The above transaction which took place on 5th April, 1937, has been considered several times in this Court and a number of Judges have held, without hesitation, that Trojan and Company acted most unscrupulously and in gross fraud of the appellant who was their client and who acted on their advice.

4. The shares ultimately and inevitably dropped seriously in price and the appellant's accounts with Trojan and Company showed as the result a debt against him to the extent of over a lakh of rupees. The appellant paid off some Rs. 60,000 leaving apparently due a balance of Rs. 51,712-7-0. Trojan and Company pressed him for payment and on 22nd May, 1937, he executed a promissory note in their favour, acting under the full belief that the transaction was perfectly above board. Trojan and Company then filed C.S. No. 151 of 1937 in the High Court in order to realise the amount alleged to be due as quickly as possible. They obtained an interim order of attachment before judgment on the appellant's moveable and immoveable properties.

5. His transactions with the other firm also resulted in a heavy loss and with the pressure put on him to clear off his liabilities and believing that he was hopelessly-involved financially, he foolishly attempted to alienate some of his properties, in particular a house in Madras which was then in process of building, to his wife and others. The other firm of brokers heard about the respondents' attachment and of these alienations and on 3rd September, 1937, they presented a petition in insolvency (I.P. No. 305 of 1937). The usual consequences followed and the Official Assignee was appointed interim receiver of the appellant's properties.

6. Fearing lest the appellant should effect some compromise with the other firm, Trojan and Company on 22nd September, 1937, took it upon themselves to file another insolvency petition (I.P. No. 345 of 1937) against him. In the petition they asked for leave to present and prosecute the petition in case the other petitioning creditors Ramlal and Company ' do not proceed with due diligence with their petition.' They went on to say, '...the debtor has been trying to compromise with Messrs. Ramlal and Company and as any such arrangement may affect prejudicially other creditors, the present petition is filed...' Out of the uling of this petition, the present proceedings have arisen.

7. On 5th October, 1937, the appellant was adjudicated insolvent and the Insol-vency Judge, Wadsworth, J., mentioned in his judgment that in fact the appellant submitted to being adjudicated. The two petitioning creditors were given their costs. A similar order on the second petition was asked for at the same time, both the petitions being heard together.

8. At this time the insolvent believed that he was legally indebted to these firms of stockbrokers. When the Official Assignee, however, came to investigate his affairs, the true history and nature of the transaction with Trojan and Company came to light and their claim to rank as creditors was ultimately denied. Their claim after rejection by the Official Assignee was ordered to be tried as a suit in the insolvency jurisdiction and Somayya, J., dismissed it, holding that they had been guilty of a shocking and gross fraud. On appeal to a Bench, the late Chief Justice and Lakshmana Rao, J., came unhesitatingly to the same conclusion. Trojan and Company then asked for leave to appeal to the Privy Council. This was rejected. Ultimately in London they asked for special leave to appeal which was refused by the Board. All these proceedings had taken considerable time and it was not until somewhere about the 19th November, 1943, when the result of the respondent's application to the Board was received in Madras that the appellant knew finally that he was not indebted in respect of these transactions to Trojan and Company. On 24th January, 1944, he filed an application for annulment of his insolvency and on 21st February, 1944, the order of annulment was made after notice to the respondents. The application would unquestionably have been premature had it been made before the last mentioned proceedings of the respondents had comb to an end.

9. The appellant's case is shortly as follows, and it is supported by the evidence of Annamalai Chettiar himself. When Trojan and Company filed I.P. No. 345 of 1937 they knew that the debt alleged by them against him was not true and that they had no justification whatever for the pro-ceedings. In cross-examination Annamalai Chettiar admitted that if after receiving secret information from Calcutta and without disclosing the same to the appellant, he had sold the shares to him his conduct would have been improper and that the transaction would not have been binding on the appellant. Apart from the claims of these stockbrokers the appellant's just debts were comparatively small and his possessions ample to meet them if and when called upon to do so. He says that the respondents' action was designed only to ruin him and to cover up and hide their own fraud.

10. Before Kunhi Raman, J., and before us it has been contended that the present suit, which was filed on 21st February, 1945, was out of time because if the suit be an action for malicious prosecution, the wrong done occurred on 22nd September, 1937, when the respondents' petition was filed. Article 23 of the Limitation Act provides that proceedings for malicious prosecution must be started within one year from the time when the prosecution is commenced. The learned Judge held and I agree with him that Article 23 is inappropriate, because therein the word ' prosecution ' relates to a case where the criminal law is set in motion. In support of a contention that the word ' prosecution ' can cover not only prosecutions in criminal matters but also in cases such as the present one, Mr. Krishnaswami Ayyangar for the appellant has cited several cases including Mohamed Amin v. Jogendra Kumar Bannerjee (1947) M.L.J. 27 : L.R. 74. IndAp 193 where their Lordships, after referring to the fact that the action for damages for malicious prosecution is part of the Common law in England and that the foundation of the action lies in abuse of the process of the Court by wrongfully setting the law in motion, go on to say.

That the word ' prosecution ' in the title of the action is not used in the technical sense which it bears in Criminal Law is shown by the fact that the action lies for the malicious prosecution of certain classes of civil proceedings, for instance falsely and maliciously presenting a petition in bankruptcy or a petition to wind up a company:

11. It is, however, the use of the word in the Indian Limitation Act which has to be considered and it is beyond doubt that Article 23 refers only to criminal proceedings. Article 36 would appear to be more appropriate and this prescribes two years as the period of limitation for claiming compensation 'for any malfeasance, misfeasance or nonfeasance independent of contract and not herein specifically provided for.' The time when the limitation will start is, 'when the malfeasance, misfeasance or nonfeasance takes place.' Even so, it is argued for the respondents that the two years' period must run from the date of the filing of the petition when the Act of malfeasance or misfeasance, of which the complaint is made, took place. This contention cannot be accepted. It is a well-known and well-settled principle of law that before a cause of action can arise in respect of an order of a competent Court, the order must have been set aside : Metropolitan Bank v. Pooley (1885) 10 A.G. 210. In the present case no proceeding to set aside the order of adjudication could have been undertaken by the appellant until it was finally ascertained that Trojan and Company could no longer contend before any Court that they had any right to file an insolvency petition. As stated this was not until the news was received that the Privy Council had rejected their application for leave to appeal from the order of this High Court rejecting their claim. Limitation starts when it is possible to bring a suit or other proceeding at law. It was observed in Western India Oil Distributing Company, Limited v. Rathnasabapathy : (1947)1MLJ360 dealing with Article 145 of the Limitation Act:

The cause of action and the right to sue first arose when the business between the parties ceased....

12. The Court then referred with approval to Ram Ranbijay Prasad Singh v. Mt. Bachia Kuari A.I.R. 1939 Pat. 688 where it was said, ' The Limitation Act provides for time running only after the cause of action has arisen.' The plea of limitation put forward on behalf of the respondents must therefore fail because the suit was brought one year after the order of annulment. Even if Article 3 6 could be deemed inappropriate there is always available the residuary Article 120 which provides for a period of six years. This would amply cover the case of the appellant.

13. On the question whether Trojan and Company's petition was filed without reasonable and probable cause and with malice there is no doubt whatever. As already indicated, Annamalai Chetti, the head of the defendants' firm, admitted that at the time when the petition was filed he knew only of the debt alleged by Ramlal and Company and of his own. He did not know that there were any other creditors until the Official Assignee subsequently made a list. He was forced to admit that from his knowledge of the appellant the latter could easily have discharged his just debts, which in any event amounted to no more than a sum of Rs. 12,000. He admitted that it was only because he felt that Ramlal and Company might settle their claim that he filed his petition and that he did it so as to make certain that there would be an adjudication. In fact, Ramlal and Co.'s debt was subsequently disposed of. Kunhi Raman, J., felt some doubt whether there was want of reasonable and probable cause being evidently under the impression that the petitioners had acted on legal advice. Trojan and Company however never pleaded in their written statement that they had acted under legal guidance and there was no issue on the point. The assertion was made by Annamalai Chettiar only in cross-examination and his evidence in this connection is vague to a degree, without support and entirely unacceptable he stated that he had instructed and consulted various lawyers privately but produced nothing in writing, and there was no witness, to support his story. He had to admit that at all events he had never told the lawyers who appeared for him and who appear for him to-day anything about his consultations and instructions to other lawyers prior to the filing of the insolvency petition. In all the circumstances there can be no doubt that there was a complete lack of reasonable and probable cause for filing the petition, nor can there be any doubt that Trojan and Company, knowing what they did know about the share transactions, knew that they had been fraudulent and that the appellant was not justly indebted to them. Not content with allowing Ramlal's petition already filed, to go on by itself, they filed a petition of their own so as to ensure that the appellant whom they knew they had so wickedly deceived should not excape adjudication as an insolvent. In doing so, on the evidence which has been read before us with care, they were plainly guilty of malice also. When a person knows that there is no just debt due to him without which he cannot file a petition in insolvency and yet files such a petition based upon a false debt, the ingredients of malice are clearly present. In the present case, one K. Bhairavan the authorized agent of Trojan and Company verified the petition by stating, inter alia, '...the facts stated...are true to my knowledge....'

14. The next question for consideration is that of damages. 'The plaintiff claimed in all a total of Rs. 1,80,000 under 8 different heads, of this amount Rs. 80,000 was waived. The amount is grossly and indeed hopelessly exaggerated. Mr. Krishnaswami Aiyangar has wisely abandoned most of the claims leaving three only to be considered, namely, (a), (c) and (g). With regard to (a) which is alleged to be the loss sustained by the sale by the' official Assignee of a house which the appellant was building in Madras and in respect of which the appellant claims Rs. 30,000, it appears to be clear that the claim is unsustainable. There is some suggestion that under Hindu law or custom the appellant was bound to provide for his wife and therefore in some way was bound to build this house for her. This was the story which was put forward at the time when the sale deed executed by him in favour of his wife in July, 1937, was being examined. The Court held that the purported sale was false, in any event was without consideration and was an attempt to defeat his creditors. It was thererfore set aside and the property reverted to the estate. There can be no doubt that the appellant did try to defeat his creditors thinking of course that they were more numerous and for greater amounts than they proved to be subsequently. His case throughout was that the property belonged to his wife as the result of the conveyance he made to her. Alienations by owners of property can always be made but they are subject to Insolvency Law and if made within the statutory period are always liable to be set aside at the instigation of the Official Assignee and for statutory reasons, one of which is an attempt to defeat or delay creditors. The appellant tried without any evidence of substance to suggest that if he had been allowed to finish the house it would have been worth on the date of the annulment very much more than its original cost and that thereby a loss has been occasioned. Even if true, however, the loss is not his loss but that of his wife.

15. With regard to head (c) the appellant says that in the course of the administration of his estate in insolvency a number of insurance policies, of which he had paid the premia for at least four years in some cases, were surrendered by the Official Assignee and thereby the appellant had lost the use and benefit of the money which he paid as premia. It is conceded that he had paid in premia Rs. 7,160. The total surrender value was Rs. 1,963 and his loss was therefore Rs. 5,197. For this he is clearly entitled to compensation and is therefore awarded Rs. 5,197 under this head.

16. The last head, viz., (g) relates to 'damage due to loss of reputation, physical pain, mental suffering and inability to engage himself profitably in any business due to the adjudication in insolvency'. The appellant claims Rs. 20,000. He is clearly entitled under the law to general damages and the question is only as to the quantum. Normally the filing of a petition in bankruptcy must damage any trader's credit and reputation. The appellant, it is conceded indeed, was described by the respondents as a banker. He was or had been possessed of considerable properties although given to rash and hazardous speculation. It must be noted however that he was also a man who was prepared to go to any length to deceive and defeat his creditors and that his truthfulness has not survived the test of cross-examination. For no very apparent reason he was cross-examined about a minor criminal prosecution in which he had been involved and which under no circumstances could have been deemed very harmful to his normal character. When questioned he had no scruple in denying any Knowledge of the matter and persisted in doing so, although plainly he was not telling the truth. He has given no evidence about loss of reputation or about the physical pain which he alleges he suffered as a result of being made an insolvent and there is no evidence to show that he was unable to earn his living by reason of his adjudication. He was, however, publicly held to be an insolvent for nearly seven years. In all the circumstances a fair sum by way of compensation would be Rs. 3,500 and this he is awarded.

17. The appellant therefore succeeds in this appeal and the decision of Kunhi Raman, J., is set aside. The appellant in all will recover a sum of Rs. 8,697 with all his costs here and in the Court below.

Frederick William Gentle, C.J.

18. I agree.


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