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K. Lakshmandoss, Sole Proprietor, Sethkanyalal Lachmandas Vs. Raghava and Veera and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1980)2MLJ498
AppellantK. Lakshmandoss, Sole Proprietor, Sethkanyalal Lachmandas
RespondentRaghava and Veera and ors.
Cases ReferredIn Jiavraj Gordhandas v. Gaganmal Ramchand
Excerpt:
.....the learned counsel for the appellant firstly contends that there is no question of abatement of insolvency proceedings, that the object of section 92 is to see that the benefit of filing of the insolvency petition by one creditor should go to the entire body of creditors and this object will be entirely defeated if the insolvency petition filed by one creditor is treated as having abated on his death, and that a petition for adjudication is by its very nature a representative action for the benefit of the entire body of creditors and in such a representative action there is no question of any abatement and any other creditor can take advantage of the existence of the petition and continue the same again as a representative of all the creditors. 4. before we proceed further, we would..........to bring on record additional person or persons.this decision proceeds on the basis that in a suit filed in a representative capacity there is no question of abatement, and it is for the court to decide whether the suit can be allowed to be continued by the surviving person or persons or whether some other person or persons should be joined.6. venkataratnam v. venkatayya : air1942mad172 , was a case where the original creditor who filed a petition in insolvency was found not qualified to present the insolvency petition. the question arose whether in such a circumstance another creditor can be substituted in the place of the original creditor. a division bench of this court consisting of king and happel, jj., held that substitution is possible even though the original creditor was.....
Judgment:

G. Ramanujam, J.

1. An interesting question of law has arisen in this appeal, which is directed against the common order of Ismail, J. (as he then was) in I. P. No 66 of 1977 and Application Nos. 561 of 1977 and 70 of 1978 on the file of the Original Side of this Court.

2. The said I. P. No. 66 of 1977 has been filed on 6th August, 1977 under Section 9(e) of the Presidency Towns Insolvency Act hereinafter referred to as the Act, by a creditor by name Munusami Reddiar for adjudication of the firm of Messrs. Raghava and Veera and its partners, Messrs. Raghava Reddi and Veera Reddi as insolvents. The said insolvency petition was contested by the debtors. On 24th September, 1977 one Lachmandas, the appellant herein, who was the another creditor of the same debtors filed Application No. 561 of 1977 under Section 92 of the Act, for substituting him in the place of the petitioning creditor in I. P. No. 66 of 1977 and for permission to continue the insolvency proceedings against the debtors alleging that the debtors are trying to settle with the petitioning creditor, that it is apprehended that the petitioning creditor may not prosecute the insolvency petition diligently, and that, therefore, it is just and necessary that he should be substituted in the place of the petitioning creditor. Another creditor by name, Messrs. Ajit India Pvt. Ltd., also filed an Application No. 70 of 1978 for substitution under Section 92 of the Act on the same ground. However, the petitioning creditor Munuswami Reddiar died during the pendency of the said insolvency petition. When the insolvency petition and the applications for substitution came up for hearing on 7th September, 1978, before the Court, a request was made by the learned Counsel who was appearing for the petitioning creditor for grant of time to bring on record the legal representatives of the deceased petitioning creditor. The Court, however, felt that there was no need to adjourn the matter any further as there was no petition before the Court to bring the legal representatives on record as on date, and dismissed the insolvency petition. As far as the two substitution applications referred to above are concerned, the Court took the view that the substitution applications cannot be ordered under Section 92 of the Act, as that section contemplates the Court substituting another petitioner only where the original petitioning creditor does not proceed with due diligence on his petition' and as the original petitioning creditor is dead, the question of his not proceeding with due diligence on his petition does not arise. In this view the learned Judge dismissed the applications for substitution. The applicant in Application No. 561 of 1977 has filed this appeal questioning the correctness of the dismissal of the application for substitution on the ground that Section 92 had no application in the case of death of the petitioning creditor Thus the interesting question of law that arises is as to whether Section 92 could be invoked by other creditors in the event of the petitioning creditor dying, as a result of which the insolvency petition is not prosecuted.

3. The learned Counsel for the appellant firstly contends that there is no question of abatement of insolvency proceedings, that the object of Section 92 is to see that the benefit of filing of the insolvency petition by one creditor should go to the entire body of creditors and this object will be entirely defeated if the insolvency petition filed by one creditor is treated as having abated on his death, and that a petition for adjudication is by its very nature a representative action for the benefit of the entire body of creditors and in such a representative action there is no question of any abatement and any other creditor can take advantage of the existence of the petition and continue the same again as a representative of all the creditors. The learned Counsel secondly contends that even assuming that the theory of abatement applies to insolvency proceedings, the expression 'petitioner' occurring in Section 92 can be interpreted as including the legal representatives so that, if the legal representatives do not bring themselves on record in the place of the deceased petitioning creditor and proceed with due diligence in the insolvency petition, substitution is possible under the said section and the non-prosecution with due diligence on the petition may be either by the petitioning creditor or by his legal representatives and Section 92 will apply in either case and that if the legal representatives of the deceased petitioning creditor do not bring themselves on record and continue the proceedings, Section 92 could be invoked by another creditor.

4. Before we proceed further, we would like to refer to certain provisions of the Act which are relevant in this connection. Section 9 defines an act of insolvency and in this case the act of insolvency complained of by the petitioning creditor is that the debtors' property stood attached for a period of not less than 21 days in execution of a decree of Court for the payment of money, which is covered by Section 9(e). Section 12 sets out the conditions on which a creditor may present an insolvency petition. It is under this section the petitioning creditor has sought an adjudication of the debtors in this case as insolvents. Section 13 sets out the manner in which the creditor's petition should be disposed of by the Insolvency Court. Sub-section (8) of Section 13 says that a creditor's petition shall not, after presentation, be withdrawn without the leave of the Court. Section 90 says that the Insolvency Court shall have the like powers and follow the like procedure as it has and follows in the exercise of its Ordinary Civil Jurisdiction. Sections 92 and 93 which are directly relevant here are as follows:

92. Power to change carriage of petition. Where the petitioner does not proceed with due diligence on his petition, the Court may substitute as petitioner any other creditor to whom the debtor is indebted in the amount required by this Act in the place of a petitioning creditor.

93. Continuance of proceedings on death of debtor.--If a debtor by or against whom an insolvency petition has been presented dies, the proceedings in the matter shall, unless the Court otherwise orders, be continued as if he were alive.

Once an insolvency petition is filed either by the creditor or by the debtor if the debtor dies, the proceedings shall be continued as if he were alive. This is clear from Section 93. As par Section 92, if the petitioning creditor does not proceed with the insolvency petition with due diligence, the Court may substitute as petitioner any other creditor in the place of the petitioning creditor. But it does not say specifically as to what is to happen if the petitioning creditor dies and the legal representatives have not shown due diligence in prosecuting that petition.

5. According to the learned Counsel for the appellant, having regard to the object behind Sections 13(8), 92 and 93, the sections will come into play even in a case where the legal representatives of the deceased petitioner have not shown due diligence to prosecute the petition and such a construction is possible if the word 'petitioner' occurring in Section 92 is understood as including the legal representatives of the original petitioner, and it is only by such a construction the object sought to be achieved by Sections 13(8), 92 and 93 could be carried out. According to him, the object behind these sections is to continue the insolvency proceedings even after the death of the petitioning creditor or the debtor and even otherwise, Section 146, Civil Procedure Code, will enable the legal representatives or persons claiming under a deceased party to continue the proceedings initiated by the deceased. It is also pointed out by the learned Counsel that in representative actions coming under Order 1, Rule 8 no abatement is contemplated in case of death of one of the parties and the petition for adjudication, being a representative action will not abate on the death of the petitioner. This decision in G. F. F. Foulkes v. Suppan Chettiar : AIR1951Mad296 , is referred to in this connection. In that case, an administration suit was filed by two creditors for administration of the estate of one Robert Foulkes after obtaining an order under Order 1, Rule 8. There was a decree in the suit as against the first defendant and the suit was dismissed as against the other defendants. The plaintiffs appealed against the judgment. While the appeal was pending, one of the plaintiffs died and his legal representatives were not brought on record. It was contended, in those circumstances, that as the two plaintiffs are in the position of joint decree-holders the abatement of appeal as against one will result in the abatement of appeal in to and, therefore, the appeal should be dismissed in its entirety as having abated. Dealing with the question of abatement, Rajamannar, CJ.. speaking for the Bench observed:

There is authority for the position that when a suit is brought by several persons in a representative capacity, if one of them dies, the suit does not abate, because the right to represent others of a class is not a right which ipso facto survives to the legal representatives of the deceased party. The source of that right is the order of the Court permitting the party to represent others. In such a contingency, namely, the death of one of the parties to whom originally permission was granted to institute a suit in a representative capacity, it is for the Court to decide whether the suit can be allowed to be continued by the surviving person or persons or whether other person or persons should be joined. In Venkatakrishna Reddi v. Srinivasachariar (1931) ILR 54 Mad 527 : 34 LW 214 : 61 MLJ 135 : AIR 1931 Mad 452, Ramaswami, J., has discussed this question and with great respect to that learned Judge, we are in entire agreement with his conclusion. He points out that the proper procedure, in cases like this, is for the remaining person or persons to apply to the Court for directions and it is for the Court to decide whether it will permit the remaining person or persons to whom the original sanction was given to continue to prosecute or defend the suit or appeal or it will give directions to bring on record additional person or persons.

This decision proceeds on the basis that in a suit filed in a representative capacity there is no question of abatement, and it is for the Court to decide whether the suit can be allowed to be continued by the surviving person or persons or whether some other person or persons should be joined.

6. Venkataratnam v. Venkatayya : AIR1942Mad172 , was a case where the original creditor who filed a petition in insolvency was found not qualified to present the insolvency petition. The question arose whether in such a circumstance another creditor can be substituted in the place of the original creditor. A Division Bench of this Court consisting of King and Happel, JJ., held that substitution is possible even though the original creditor was not duly qualified to present the petition. The reasoning of the Bench is as follows:

If it once be conceded that the purpose of Section 16 of the Provincial Insolvency Act, 1920, is that the general body of creditors should be benefited, and if it also be remembered that other creditors will very probably hold their hands and decline to file unnecessary insolvency petitions themselves when they know that one creditor has already done so, we do not think that the mere accident of the fact that the creditor who has filed the petition should turn out not to have been qualified to do so should prevent a subsequent creditor, who but for that petition might well have filed one himself, from taking advantage of its date.

The Bench also referred with approval an earlier decision in Venkata Hanumantha Rao v. Gangayya (1928) ILR 51 Mad 594 : 28 LW 304 : 55 MLJ 168 : AIR 1928 Mad 608, where it was pointed out that the object of Section 16(corresponding to Section 92 of the Presidency Towns Insolvency Act) was to prevent other creditors from being injured by the action of one creditor who by reason of collusion or otherwise may not diligently prosecute the petition. The Bench also pointed out that it would inevitably be difficult for one creditor who has been substituted under Section 16 to prove the qualification of the original creditor by proving the existence of his debt and that if once it is found that the original creditor had no right to present a petition in insolvency as he has no subsisting debt he ex hypothesis has no further interest in the case and therefore, there is no question of the substituted creditor proving the qualification of the original creditor. This decision appears to proceed on the bas s that even if the petitioning creditor ceases to have any interest in the case the substitution is possible .

7. The question as to whether on the death of a plaintiff in a representative action, the action will abate came up fur consideration before the Privy Council in Venkatanarayana Pillai v. Subbammal (1915) ILR 38 Mad 406 : 2 LW 596 : 42 IA 125 : 28 MLJ 535 : AIR 1915 PC 124. In that case, a suit had been filed by a presumptive reversioner to set aside an adoption made by a Hindu widow as invalid and as affecting his reversionary interest. The widow resisted the suit contending that the impugned adoption was made by her under the authority of her husband given under a Will. When the matter came before this Court, this Court upheld the adoption on the ground that the widow had the requisite authority of her husband to adopt. The matter was taken on appeal to His Majesty in Council When that appeal was pending the plaintiff died. Another reversioner filed a petition before the Privy Council to be substituted in the place of the deceased appellant and for reviver of the appeal and for leave to prose cute. The said petition was opposed on the ground that as the petitioner is not the legal representative of the original plaintiff in respect of the reversionary right claimed by him, he cannot be substituted in the place of the deceased appellant. Their Lordships of the Privy Council held that as the suit had been brought by the presumptive reverisioner as a representative action on behalf of all the reversioners and the relief claimed in the suit is for their common benefit, on the death of the presumptive reversioner who filed the suit, another presumptive reversioner could continue the suit instituted by the deceased plaintiff unless there is anything in the procedural law of India precluding him from so doing. According to the learned Judges what has to be considered in such cases is to see whether the right to sue in the words of the statute 'survives' and if it does, who can continue the action to obtain the relief that is sought.

8. In Pushkaran v. Ramakrishna Nair ILR (1959) TC 1042, a question arose as to whether after the insolvency petition having been struck off on the ground that there has been a settlement between the petitioning creditor and the debtor, another creditor can seek to substitute as petitioning creditor in the place of the original petitioning creditor. The Court held that as the insolvency petition has been struck off at the request of the original petitioner on the ground of his settlement with the debtor without seeking the leave of the Court, that order of striking off is erroneous and it could be reviewed and substitution could be ordered. This decision lays emphasis on the withdrawal of the petition without the leave of the Court. Section 13(8) of the Act lays down that a creditor's petition shall not, after presentation be withdrawn without the leave of the Court. The said provision read along with Section 92 seems to suggest that a creditor's petition once filed cannot be dismissed as abated on the death of the original petitioner but the Court retains its control over the same and can continue the proceedings by substitution of another creditor, and if no creditor is forthcoming to be substituted, the Court is at liberty to close the same for non-prosecution. It has been held in Keshav Appa Bhagat v. Sitaram Hanumandas AIR 1946 Bom 20, that Sections 13(8) and 92 of the Act are not independent of each other but there is a link or nexus as between them, and that they are to be read together for the purpose of finding out the extent of the powers of the Court in dealing with an application for adjudication of a debtor as insolvent filed by a creditor. Under Section 13(8) a petition presented by a creditor shall not be withdrawn without the leave of the Court. This means that a creditor's petition once presented, the petitioner is no longer in unfettered control of it. Insolvency proceedings are for the administration of the estate of the debtor for the benefit of not any particular creditor but the general body of creditors. Very often petitions are made not with the bona fide intention of administration of the estate of the debtor under the Insolvency laws but for the collateral purpose of bringing pressure to bear upon the debtor It is to check this abuse of the process of the Court Sub-section (8) of Section 13 has been enacted. Section 92 enables another creditor to be substituted when the original petitioner does not proceed with due diligence on his petition. This shows that the creditor presenting the petition is regarded as prosecuting the petition not only for his own benefit but also for the benefit of the creditors generally.

9. In Jiavraj Gordhandas v. Gaganmal Ramchand : AIR1953Bom430 , a Division Bench of the Bombay High Court considered the scope of Section 92. In that case a petition was presented for adjudicating the debtors as insolvents on 3rd December,, 1951. On 1st of April, 1952 the advocate for the petitioning creditor informed the Court that he had no evidence to lead and therefore, the petition was dismissed. On 11th October, 1952, some of the other creditors applied to set aside the order of dismissal and to substitute them in one place of the original petition. It was found on facts that the dismissal of the original petition was on a misrepresentation that there was no evidence to lead while in fact there had been a settlement between the petitioning creditor and the debtors. Therefore, the Court rescinded the order of dismissal passed on 1st April, 952, and substituted the other petitioning creditors under Section 92. The matter was taken on appeal and the Division Bench held that the Insolvency Judge had jurisdiction under Section 7(1) of the Act to set aside the order of dismissal and having set aside the order of dismissal he was competent to substitute the respondents in the place of the original petitioners. While doing so the Bench observed:

We would like to suggest to the Judges doing insolvency work that they might adopt a rule of practice whereby, if a petitioning creditor does not want to prosecute his petition or when he wants the petition to be dismissed for want of evidence, before an order of dismissal is made, the petitioning creditors should be directed to advertise the fact that they want to apply to the Court for substitution.

10. It is true, all the decisions referred to above do not deal with a case of death of the petitioning creditor but if we bear in mind the nature and the scope of the proceedings which are representative in character, the conclusion is inescapable that the proceedings which have been initiated by a petitioning creditor while alive for the common benefit of the creditors could be continued after his death by another creditor on behalf of the entire body of creditors, as there is admittedly a non-prosecution arising out of the death. The emphasis in Section 92 is not so much on the expression 'due diligence' but on the expression 'does not proceed'. This view of ours finds support from the decision of the Privy Council referred to already wherein on the death of a presumptive reversioner who filed a suit challenging the adoption made by a widow the other presumptive reversioners were allowed to continue the procedings on the ground that the proceeding was one for the benefit of the entire body of reversioners and therefore the right to sue survived to the other presumptive reversioners as the proceedings had been initiated for the benefit of the entire body of reversioners. It cannot be said that the insolvency petition filed by the original petitioner was for his own and exclusive benefit. The petition had been filed only on behalf of and for the benefit of all the creditors. Therefore, if the original petitioner dies, the other creditors are entitled to substitute themselves as petitioning creditors if they are so inclined. If no other creditor is forthcoming, the Court, of course, will nave no alternative except to close the proceedings. But where, as in this case, the other creditors are willing to prosecute the petition by substituting themselves as petitioning creditors, the Court cannot close the proceedings on the ground that the legal representatives have not been brought on record. We are, therefore, of the view that Section 92 of the Act can be invoked by the other creditors in the event of the death of the petitioning creditor.

11. The learned Counsel for the respondents at this stage points out that in this case the appeal has been filed only as against the order dismissing his application for substitution and no appeal has been filed as against the order of the Court dismissing the insolvency petition as abated, and after the dismissal of the insolvency petition, there is no question of the appellant being substituted as a petitioning creditor even if he succeeds in this appeal. It is true, a substitution can be ordered only when the original petition is pending and not when it has been disposed of. However, if we hold that substitution under Section 92 is possible even in case of death of the original petitioner, it is always open to the appellant to go before the Insolvency Court to have the main Insolvency petition restored to file and to ask for substitution thereafter.

12. In this view of the matter, we allow the appeal and set aside the order passed in Application No. 561 of 1977. The appellant is at liberty to move the Insolvency Court for restoration of the insolvency petition for the purpose of enabling him to be substituted in the place of the deceased petitioner. The appeal is allowed accordingly. There will, however, be no order as to costs.


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