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K.V. Al. Rm. Alagappa Chettiar Vs. Official Assignee and anr. - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1936Mad414
AppellantK.V. Al. Rm. Alagappa Chettiar
RespondentOfficial Assignee and anr.
.....the insolvency utterly disconnected from the litigation in which the insolvent is involved and success in which would not in any way affect the future of the insolvent's estate......have legal advice and assistance against a bankruptcy petition, but if a solicitor has to refund money paid to him for such a purpose a man would be left defenceless because nobody would act for him.4. in in re beyts & craig (1894) 1 manson 56 the facts were : two partners were arrested on a charge of forgery. they paid over a sum of money to their solicitors who at the same time verbally undertook to provide for their defence. four days later they became bankrupt. the solicitors ware-ordered to repay the money which in fact had been applied by them in the bankrupts' defence. there again, the motion was filed by the trustee in bankruptcy. the question was, was the money part of the estate of the bankrupts or had it passed away from the bankrupts if it had ceased to be part of the.....

Madhavan Nair, J.

1. This appeal is from an order of the learned Judge sitting in insolvency. It raises a short point which does not appear to have been the subject of any reported decision, although: there is an obiter dictum by Wright, J., reported in In re Charlwood (1894) 1 Manson 42 at p. 44. The point at the time it is taken before us is one that is to a large extent academic, for it concerns the power of the Court to order the payment of sums out of the estate of the insolvent in the hands of the Official Assignee for the defence of the insolvent against a criminal charge. The reason why at the time the point is urged before us it is academic is that in fact the payments have been made, the inquiry in respect of which the legal expenses were incurred is over and it is not suggested that there is any possible means of recovering the sums spent away should we come to the conclusion that the learned Judge was wrong in passing the order that he did. This position could easily have been avoided by the creditor, who is the only creditor or person opposing either the making of the order or the order, when made, applying that the matter should be expedited. The question at issue is a very short one and there was no need whatever to have the proceedings printed and the appeal could have been heard within a very short time of the passing of the order. However, now that the matter has come up before us, we shall dispose of it.

2. The appellant asked us to treat the point in issue as a pure point of law restricted to a discussion of Sections 85 and 75, Presidency Towns Insolvency Act, and in support of his argument that there was no power in the Court to make such a provision as this, he cited a number of English cases : In re Sinclair (1885) 15 QBD 616, In re Beyts & Craig (1894) 1 Man-son 56 and In re Charlwood (1894) 1 Manson 42. In our opinion, save for the obiter dictum of Wright, J., contained in the last mentioned case, none of these cases is in point. I shall deal with them before passing on to consider the point that is at issue. In re Sinclair (1885) 15 QBD 616 decided that where a debtor pays moneys to his Solicitor for the purpose of enabling his Solicitor to pay those moneys out on account of out of pocket expenses including counsel's fees in opposing the proceedings in bankruptcy that have been commenced, such moneys cannot, should the debtor be adjudicated, be recovered by the trustee in bankruptcy, even though the Solicitor knew of the acts of bankruptcy on which the proceedings were based. It should be observed that the motion was made by the trustee in bankruptcy and the ground for it was that the money in question was part of the estate of the bankrupt. It was held that on the facts the money in question when paid away by the debtor to his Solicitor ceased to be part of the estate of the bankrupt, As Cave, J., observed at p. 618:

It might just as well be said that if a bankrupt goes into a baker's shop, who knows that he has committed an act of bankruptcy, and pays for a loaf of bread, the trustee can recover the money from the baker.

3. He also observed:

It is right that a man should have legal advice and assistance against a bankruptcy petition, but if a Solicitor has to refund money paid to him for such a purpose a man would be left defenceless because nobody would act for him.

4. In In re Beyts & Craig (1894) 1 Manson 56 the facts were : Two partners were arrested on a charge of forgery. They paid over a sum of money to their Solicitors who at the same time verbally undertook to provide for their defence. Four days later they became bankrupt. The Solicitors ware-ordered to repay the money which in fact had been applied by them in the bankrupts' defence. There again, the motion was filed by the trustee in bankruptcy. The question was, was the money part of the estate of the bankrupts or had it passed away from the bankrupts If it had ceased to be part of the bankrupts' estate it could not be recovered; if it remained part of the bankrupts' estate, it could be recovered. It was held that the Solicitors' authority to expend the money was determined the moment the bankruptcy petition was filed, subject to payment of costs up to that date. It followed that thereafter the Solicitors had no authority to expend the money. It followed from that that the money was in the hands of the Solicitors unexpended in the eye of the law; it was money thus in the hands of the Solicitors as part of the estate of the bankrupts. The conclusion immediately followed that the trustee in bankruptcy could recover it back. The learned Judge, one of the most experienced of the Insolvency Judges, Vaughan Williams, J.,. as he then was, observed at p. 59;

I should have been glad to find In favour of the Solicitors here, if I could, and for this reason I allowed evidence to be given to see if there had been acquiescence on the part of the trustee. If I could have found that the trustee had taken subject to this agreement, I should have allowed the Solicitors to retain the money.

5. In In re Charlwood (1894) 1 Manson 42 the person who subsequently became bankrupt paid over a lump sum of money to the Solicitor under a binding contract that the solicitor should provide for his defence on a charge of murder. Later, but before his trial, he became bankrupt. The trustee in bankruptcy applied in the appropriate county Court for the repayment of the sum so paid to the solicitor. The county Court refused the application. An appeal was taken to Divisional Court sitting in bankruptcy and the members of the Court were Vaughan Williams and Wright, JJ. They dismissed the appeal. It was held that the agreement which was entered into before any act of bankruptcy was binding, that the agreement was to the effect that the sum paid was to be the whole amount to be charged by the solicitor, that is it was a lump sum paid for definite services, that it was thus no longer a sum belonging to the estate of the bankrupt and that the only question that remained was whether it was a transaction which gave to the solicitor an undue preference. The Court came to the conclusion that there was nothing to show that the agreement was a device to defeat the bankruptcy law and it followed that the trustee was not entitled to it, because it had ceased to be part of the bankrupt's estate, not entitled to it as being paid by way of undue preference because it was not shown to have been paid as an undue preference. Wright, J., puts the matter almost in a sentence:

Here is a bona fide business agreement, and the money was no longer the property of the debtor.

6. He adds:

I desire only to add that i the law is so inhuman as not to allow for a bankrupt's defence, I think the Official Receiver would be justified in making an 'allowance for that purpose under Rule 325.

7. Rule 325, as it stood at that date is the same as Rule 312 under the present Bankruptcy Rules and both are very similar to Section 75, Presidency Towns Insolvency Act. There is, however, this difference that under our Act power is conferred upon the Court, whereas under the English rules it is a power conferred upon the Official Trustee. The power in question which we have to consider is that contained in Section 75, Clause (2) of the Act. It is as follows:

Subject as aforesaid, the Court may, from time to time make such allowance as it thinks just to the insolvent out of his property for the support of the insolvent and his family.

8. This power conjoined with Section 85, which gives discretionary powers to the Official Assignee and, in particular, enables him to apply to the Court for directions in relation to any particular matter arising in the insolvency and gives him a discretion in the management of the estate, is relied upon as justifying the making of the allowance which the learned Judge made in that case. Before we examine it, it is necessary to make some preliminary remarks with regard to the nature and form of the application and the opposition to it. The application which is No. 331 of 1935 was taken out by Mr. Mclver, one of the insolvents, and it asked that directions be given to the Official Assignee to pay to the insolvent's solicitor funds sufficient to defend three criminal cases pending in the Chief Presidency Magistrate's Court. It was supported by an affidavit by Mr. Mclver and also by the report of the Official Assignee. The only counter-affidavit that was filed was filed not on behalf of the creditors generally but on behalf of the petitioning creditor. There is nothing before us for in this respect para. 8 cannot be relied upon as proving that the other creditors were supporting the opposition, to show that the petitioning creditor in any way represented the general body of creditors. The report of the Official Assignee contains inter alia the statement:

It is certainly necessary from the point of the case against the Chartered Bank that the Criminal Proceedings should be properly defended.

9. The case against the Chartered Bank comes into the story in the following way : The insolvents who (as stated without contradiction), have become indebted in a large sum of money, have pending a case against the Chartered Bank in which a large sum of money is claimed. We are not of course in the least concerned with the probable result of that case, but it is said, also without contradiction, that if that case should end in favour of the insolvents, the creditors of the insolvents, if not paid in full, will be paid nearly in full. On the contrary, if that case and the other case should fail, then it is said again without contradiction that the estate will be very little larger than it is at present and the probable dividend will be in the neighbourhood of four annas in the rupee. It is thus clearly very desirable from the point of view of the creditors generally, that the case against the Chartered Bank should be won and that nothing that should imperil that case should be suffered. The Official Assignee, who is a very experienced officer, has 'committed himself to the opinion that it is 'certainly necessary' from that point of view that the criminal proceedings should be adequately defended. This would, in our opinion, probably without more, justify the finding of reasonable sums for the purpose in hand. But the learned Judge has not based himself on that at all, but upon Section 75. Before us his conclusion is, however, also sought to be supported on that ground and we think that on that ground it can be supported. We also think that it can be supported on the ground that the learned Judge founded himself upon. The critical word in Section 75 is the word 'support' and it will be noted that the persons that are to be supported are not only the insolvent but also his family. It had been suggested that the support must be restricted to such support as is immediately necessary to maintain life. This however is not the primary meaning of the word. According to the Oxford Dictionary the primary meaning is:

The action or an act, of preventing a person from giving way, backing him up, or taking his part; assistance, countenance, backing.

10. The second meaning, is, 'Bearing or defraying of charge or expense.' The third meaning is

The action of keeping from failing, exhaustion, or perishing; especially the supplying of a living thing with what is necessary for subsistence, the maintenance of life.

11. The counsel opposing observed in this case that it might well 'be exceedingly hard that the law, having by an act of law taken away from a debtor adjudicated bankrupt all the money that he had should leave him defenceless in a criminal case pending against him; but hard though it was, the law was contained in S 75 and had made no provision for such a case. But that argument depends upon giving to the word, 'support' a restricted and special meaning and a meaning which is not its primary meaning. If either the primary or the secondary meaning is given the word will justify the making of the allowance as was the opinion of Wright, J. Further, even taking the third meaning, the Court is not restricted to making an allowance which is immediately necessary for the support of life. It can make a provision that will enable the insolvent hereafter to support himself and his family rather than be a constant drain upon the estate throughout; the whole period of the insolvency. In all these matters the Court of course has to exercise a discretion and it might well be that it should not permit the use of the funds lying in the estate for the defence of criminal charges utterly disconnected from the transactions which had led up to the insolvency utterly disconnected from the litigation in which the insolvent is involved and success in which would not in any way affect the future of the insolvent's estate. They are all matters, that must be considered. Farther, a very different state of affairs would arise if the application was made, as this application at first was made, by the insolvent and not by the Official Assignee. Here, however, in addition to putting in a report supporting the application, the Official Assignee did, as the learned Judge observes, apply under O 14, R 3 of the Insolvency Rules the effect being to turn the application originally launched by the insolvent into an application by the Official Assignee.

12. Further, the Court was justified in closely scrutinising, as the learned Judge has done the amount asked for. The amount asked for was Rs .15,000 and the amount allowed was Rs. 150 a day which amounted in the result to something in the neighbourhood of Rs. 3,000. We are accordingly of the opinion that the learned Judge exercised a discretionary power and that he exercised his discretion properly. The appeal is dismissed with costs which will be Rs. 75.

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