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The Official Assignee of Madras Vs. A.R. Narayana Mudaliar and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberI.P. No. 226 of 1936 and Appln. No. 268 of 1951
Judge
Reported inAIR1951Mad1045; (1952)IMLJ662
ActsPresidency Towns Insolvency Act, 1909 - Sections 17; Provincial Insolvency Act, 1920 - Sections 28(2)
AppellantThe Official Assignee of Madras
RespondentA.R. Narayana Mudaliar and anr.
DispositionApplication dismissed
Cases ReferredIn Sisram v. Ram Chander Mal
Excerpt:
.....presidency town insolvency act, 1909 and provincial insolvency act, 1920 - no legal objection to undischarged insolvent from entering into contract and enforcement of such liability against undischarged insolvent - suit may be entertained by competent court against undischarged insolvents - section 17 only refers to debt provable in insolvency - debts incurred after order of adjudication and before discharge are not debts provable in that insolvancy. - - on the other hand, the scheme of the act in respect of debts which are covered by any particular proceeding in insolvency, shows clearly that any disability which a creditor may have is only in respect of debts provable in insolvency and these are only debts incurred by the insolvent prior to his adjudication. 4. it is well..........(the presidency towns insolvency act) provides no machinery by which any creditor who lends to an undischarged insolvent can recover his debt. he also held that no court has got any power or jurisdiction to entertain a suit against the insolvent on the basis of a debt incurred by him while an undischarged insolvent. krishnaswami nayudu j. in two applications which came up for disposal before him was not inclined to accept this view of mack j. and in view of the importance of the question raised, he considered it necessary that the applications should be heard and disposed of by a bench of this court. this is how those applications come up before us for disposal.2. mack j. came to the conclusion that an undischarged insolvent had no borrowing capacity at all not on any authority but.....
Judgment:

Rajamannar, C.J.

1. In Application no. 552 of 1949 in I. P. No. 71 of 1940 Mack J. held that an undischarged insolvent had no borrowing capacity at all and that the Act (the Presidency Towns Insolvency Act) provides no machinery by which any creditor who lends to an undischarged insolvent can recover his debt. He also held that no Court has got any power or jurisdiction to entertain a suit against the insolvent on the basis of a debt incurred by him while an undischarged insolvent. Krishnaswami Nayudu J. in two applications which came up for disposal before him was not inclined to accept this view of Mack J. and in view of the importance of the question raised, he considered it necessary that the applications should be heard and disposed of by a Bench of this Court. This is how those applications come up before us for disposal.

2. Mack J. came to the conclusion that an undischarged insolvent had no borrowing capacity at all not on any authority but because he thought that it was the effect of some of the sections of the Presidency Towns Insolvency Act. The sections mentioned by him in his judgment are Sections 17, 45, 46, 50, 52 and 102, Presidency Towns Insolvency Act. Section 17 lays down the effect of an order of adjudication, viz., that the property of the insolvent vests in the Official Assignee and becomes divisible among his creditors and after the order of adjudication no creditor to whom the insolvent is indebted in respect of any debt provable in insolvency shall during the pendency of the insolvency proceedings, have any remedy against the property of the insolvent in respect of the debt nor can any creditor commence any suit or other legal proceeding in respect of such debt except with the leave of Court. Section 45 provides that an order of discharge shall release the insolvent from all debte provable in insolvency except certain kinds of debts mentioned in Sub-section (1). Section 46 deals with the debts which are provable in insolvency. Section 50 especially provides that after an order of adjudication has been made no distress for rent due before such order shall be made upon the goods or effects of the insolvent. Section 52 describes the insolvent's property which is divisible among his creditors and sets out what it shall not comprise and what it shall comprise. Section 102 is a penal provision under which an undischarged insolvent obtaining credit to the extent of fifty rupees or upwards from any person without informing such person that he is an undischarged insolvent is liable on conviction to be punished with imprisonment for a term which may extend to six months or with fine or with both. It is obvious that none of the sections either expressly or impliedly affects the contractual capacity of an undischarged insolvent. In fact Mack J. himself recognised that there was no specific section in the Act which prohibited an insolvent from borrowing before he obtains his discharge from a. creditor or money-lender lending money. On the other hand, the scheme of the Act in respect of debts which are covered by any particular proceeding in insolvency, shows clearly that any disability which a creditor may have is only in respect of debts provable in insolvency and these are only debts incurred by the insolvent prior to his adjudication. Under Section 46, all debts and liabilities present or future, certain or contingent, to which the debtor is subject when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable in insolvency. The effect of this provision is that any debt incurred by the insolvent after adjudication and before his discharge cannot be a debt provable in that insolvency. Section 102 appears to imply that an undischarged insolvent could obtain credit to any extent if he informs the person giving him credit that he is an undischarged insolvent. There is nothing which we can find in any of the provisions of the Presidency Towns Insolvency Act which prohibits expressly or impliedly an insolvent from borrowing or entering into contracts giving rise to financial liability.

3. Under Section 11, Indian Contract Act, every person is competent to contract who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject. Now insolvency is not a disqualification which prevents a person from entering into a contract. It follows that there is nothing in law which prevents an insolvent who has not yet obtained his discharge from borrowing or making himself liable financially.

4. It is well established that there is no legal objection to an undischarged insolvent from being again adjudicated bankrupt on the basis of debts not covered by the prior insolvency; that is to say by debts incurred after the order of adjudication. In Dessa Gopal v. Bhanji Damji, 26 Bom. 171 this was specifically decided. Starling J. relied upon the ruling in Morgan v. Knight, (1864) 143 E. R. 947 for the proposition that there can be no objection to a man becoming bankrupt a second time before he has received his final discharge under the first. There are numerous cases in England and in India in which the competitive claims between the creditors in one insolvency and the creditors in the second insolvency have been dealt with. A few of such cases will be found referred to in Abdul Rahim v. Official Assignee of Madras I. L. R. (1949) Mad. 693 to which Mack J. was a party. In Gustasp Behram v. Bhagawandas Sobharam, 55 Bom. 649 it was decided that a decree debt to which the insolvent became liable after an adjudication and before discharge and which could not be traced to any liability antecedent to the order of adjudication, could be conferred against the insolvent after and notwithstanding his discharge. The reasoning of the decision was that a debt incurred by the insolvent after adjudication and before discharge was not provable in insolvency and therefore the order of discharge would not release the: insolvent from such a debt and it could be enforced even after discharge. In Sisram v. Ram Chander Mal, 52 ALL. 439 the question now before us fell to be directly decided. In that case, the question was whether leave of Court for bringing a suit in respect of an obligation incurred after the order of adjudication was necessary under Section 28(2) of the Provincial Insolvency Act. The suit was on a bond executed by an undischarged insolvent after the order of adjudication. It was held that leave of Court was not necessary as the liability sought to be enforced was a new obligation incurred after the order of adjudication and the debt in question was not a debt provable in insolvency. Niamutullah J. in the course of his judgment observed thus:

'It appears that the bond on which the suit is based was executed after the order of adjudication. The insolvent is not under any disability in the matter of entering into contracts and the bond is therefore not open to objection on the score of its validity.'

5. If there is no legal objection to an undischarged insolvent entering into contracts it follows that his liability under the contract so entered into can be enforced in appropriate proceedings. In Sisram v. Ram Chander Mal, 52 ALL. 439 it was directly held, as already mentioned, that leave of Court is not necessary as a condition precedent to the institution of a suit to enforce the obligation under a bond executed by an undischarged insolvent. It is impossible to find any principle or authority to support the view of Mack J. that no Court has got any power or jurisdiction to entertain a suit against an insolvent on the basis of a debt incurred by him while he was still undischarged. Unless barred by the provisions of any statute any Court which has got pecuniary and other jurisdiction to entertain a suit will not cease to have jurisdiction to entertain that suit because the defendant in the suit happens to be an undischarged insolvent. We have already seen that Section 17 only refers to debts provable in insolvency and debts incurred after the order of adjudication and before discharge are not debts provable in that insolvency.

6. Krishnaswami Nayudu J. was inclined to take the same view that we are now taking and we agree with him that an undischarged insolvent is not legally incapacitated from incurring any debt and a creditor is not prevented from recovering on the basis of a debt so incurred by way of a suit or otherwise: The decision of Mack J. on this point must be held to be wrong. In this view the applications must be dismissed as the debts were incurred during the pendency of earlier insolvency petitions when the insolvents had not yet been discharged.


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