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Suragouni Vemanna Vs. Thunga Sanjeeva Reddi and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1942Mad474; (1942)1MLJ511
AppellantSuragouni Vemanna
RespondentThunga Sanjeeva Reddi and anr.
Cases ReferredIn Abbott v. The Minister
Excerpt:
- - it is a well settled rule of law that statutes concerned with judicial procedure unless such operation be excluded affect judicial proceedings pending at the time such statutes come into force (vide gangaram v. on the acceptance of the proposal by the court, it does not become functus officio, but retains control to see that the composition is given effect to and section 40, distinctly provides that if it finds that a debtor is not bona fide with reference thereto, it can re-adjudge the debtor insolvent and annul the composition. the corresponding provisions of the english bankruptcy act and the presidency towns insolvency act distinctly provide that the effect of approval by the court of the composition is that it is binding on all the creditors......that if it finds that a debtor is not bona fide with reference thereto, it can re-adjudge the debtor insolvent and annul the composition. when once the court passes an order under section 39, the legal effect must be that it should be binding on all the creditors because section 38 (2), says the composition must be deemed to be accepted by all the creditors. the corresponding provisions of the english bankruptcy act and the presidency towns insolvency act distinctly provide that the effect of approval by the court of the composition is that it is binding on all the creditors. in enacting act v of 1920, there was an inadvertent omission to bring that section into line 'with the english bankruptcy act on which act iii of 1909 and act v of 1920 were based. mulla in his book on 'law of.....
Judgment:

Venkataramana Rao, J.

1. This second appeal arises out of a suit to recover a sum of Rs. 850 due under a promissory note, dated 21st August, 1932, executed by the first defendant in favour of the second defendant who assigned it to the plaintiff on 10th February, 1935. On the date of the assignment there was an application to adjudge the first defendant an insolvent. That application was filed by the first defendant himself on 4th February, 1935, and in the list of debts which he showed as owing by him he specified the amount due under the said promissory note as one of the debts. On the 27th July, 1935, an application was made to the Court to consider a proposal for composition of the debts. A notice was issued to the second defendant, who received it on the 9th of September, 1935. The present plaintiff also was aware of the said notice and the fact of the said application being pending. But neither the second defendant nor the plaintiff took any steps in regard thereto. That petition came on for hearing on 29th February, 1936, when the Court adjourned it to 14th March, 1936, for deposit of certain amounts into Court. This was accordingly done and as the conditions laid down in Section 38 of the Provincial Insolvency Act were complied with, the Court accepted the composition on 4th April, 1936, and annulled the adjudication under Section 39 of the Act. The present suit has been filed on 7th July, 1936, for recovery of the debt. Both the lower Courts have taken the view that the order approving the composition binds the plaintiffs and is a bar to the maintenance of the suit. This view is canvassed by the plaintiff-appellant. Both the lower Courts in support of their decision relied on the language of Section 39 of the Act which provides that the composition shall be binding on all the creditors so far as it relates to any debts due to them from the debtor and provable under the Provincial Insolvency Act. The contention of the plaintiff-appellant is that when the application for composition was filed, Section 39 of the Provincial Insolvency Act, as it then stood, provided that the composition shall be' binding on all the creditors entered in the schedule prepared under Section 33 of the Act that Section 39 was amended by Act X of 1935, that his rights should be governed by the law as it stood before the amendment and that therefore since he had not proved his debt, his right of action to sue the insolvent on the insolvency being annulled remained unaffected by the amendment of the section. The question is whether this contention is tenable. As observed by Sen, J., in Anand Prakash v. Narain Das I.L.R.(1939) All. 239 the insolvency law is merely an administrative or adjectival law. The object of the law is to provide equal distribution of the insolvent's property among all the creditors and to prevent an undue advantage being taken by any creditor to the detriment of other creditors. Therefore when the first defendant was adjudged insolvent all remedies which the second defendant and the plaintiff had in respect of the debt due by the insolvent became subject to the provisions of the Provincial Insolvency Act. His right was therefore to receive a pro rata distribution of the proceeds of the insolvent's property equally with the other creditors of the insolvent. Section 33 of the Act enjoins upon every creditor to tender proof of his debt by producing evidence of the amount and particulars thereof. A duty is cast on the Court to determine the persons who have proved themselves to be creditors of the insolvent and frame a schedule of such persons and debts. Until the discharge of the insolvent he can-tender proof of his debt and the Court can enter his name in the schedule to enable him to obtain the benefits under the Act. If he omits to do so, he loses his right to share in the rateable distribution and if the insolvent obtains an order of discharge, his remedy is completely lost. The Act also provides a method by which the insolvent can obtain a release from the debts by compounding his debts and making a proposal for composition in respect thereof. A creditor is entitled to get the benefit of that composition, if the composition is approved by the Court. After adjudication a debtor cannot settle privately with his creditors but is obliged to follow the procedure prescribed by the Act, and the Act prescribes what procedure should be followed when an application is made by the insolvent for the compounding of his debts and that procedure is prescribed by Sections 38 and 39 of the Act. Section 39 of the Act, before the amendment, ran thus:

If the Court approves the proposal, the terms shall be embodied in an order of the Court, and the Court shall frame a schedule in accordance with the provisions of Section 33, the order of adjudication shall be annulled, and the provisions of Section 37 shall apply, and the composition or scheme shall be binding on all the creditors entered in the said schedule so far as relatos to any debts entered therein.

It will be seen from this section that after the Court has approved the proposal it was required to embody the terms of the proposal in the order and also to frame a schedule in accordance with the provisions of Section 33 and annul the order of adjudication. As has already been pointed out, what the Court should do under Section 33 is to frame, a schedule of creditors who have proved their debts in accordance with the provisions of the Act. The effect of the order is stated to be that the composition scheme shall be binding on all the creditors entered in the said schedule so far as it relates to any debts entered therein. There was a conflict of view in regard to the operation of the order under Section 39, before it was amended. In Kamireddi Timmappa v. Devasi Harpal (1928) 56 M.L.J. 458 'Wallace, and Tiruvenkatachariar, JJ., took the view that once a proposal was accepted by the Court and the terms were embodied in an order of Court, it would be binding on all the creditors whether they had proved their debt or not and whether their debts were included in the schedule framed under Section 33 or not. In doing so they dissented also from a decision of the Lahore High Court in Khalil-ul-Rahman v. Rani Sarup (1926) 95 I.C. 204 which took the view that a creditor who has not proved his debt and ignored the insolvency proceedings was not bound by the composition and that he, on annulment of the adjudication could sue the insolvent for recovery of his debt. But the view taken in Kamireddi Timmappa v. Devasi Harpal (1928) 56 M.L.J. 458 was dissented from in Gopalu Pillai v. Kothandarama Aiyar (1934) 67 M.L.J. 843 : I.L.R. Mad. 1082 by Ramesam and Cornish, JJ. They expressed their agreement with the view in Kalil-ul-Rahman v. Ram Sarup (1926) 95 I.C. 204 and held that the creditor in the case with which they were dealing was not precluded from filing a suit, remarking 'the Court not having prepared a schedule as required by Section 39, that section strictly does not apply'. Their view was followed by Beasley, C.J., in Thangeswara Chettiar v. Ramamurti Chetti (1934) 42 L.W. 399 and K. S. Menon, J., in Govindaswami Mudaliar v. Appu. Mudaliars (1935) 43 L.W. 333. If I may say so with respect, this view is in consonance with the plain language of the section. If in the schedule framed under Section 33 a creditor's name is entered in the said schedule, it will be binding on him so far as his debt is concerned. What is required under the section is that there must be an entry of the name of the creditor and the debt due to him in the said schedule. The contention of the appellant is that since he has not proved his debt, he will not be bound by the order passed under that 'section. The question is whether this contention is tenable.

2. A few facts are necessary to be stated to appreciate this contention. In this case a schedule was prepared in accordance with Section 33 of the Act, as will appear from the report showing the amount claimed by each creditor and admitted by him Though the second defendant has not proved his debt, still the amount due to him was shown and admitted by the Official Receiver and his report was considered by the Court before the final order was passed and the schedule was accepted by the Court. There was in effect a compliance with the procedure prescribed under Section 39, in that a schedule was framed in accordance with the provisions of Section 33. According to the plain language of Section 39 since the name of the second defendant and the debt due to him,are entered in that schedule the composition will be binding on him. But what is contended is that that schedule is not a schedule which will be valid and binding on him because he has not proved his debt. Under Section 33, it is obligatory' on a creditor to tender proof of his debt and if he omits to do so, the Court may ignore him till he takes steps to comply with the provisions of the Act to get his debt admitted in the schedule. But there is nothing to prevent the Court from admitting the debt relying on the admission of the insolvent in his petition or on any other evidence before it and entering his name in the schedule. Robson in his book on Bankruptcy dealing with proof of debts under the Bankruptcy Act of 1883, where the provisions regarding proof of debts are similar to those in Act V of 1920 points out that proof may be dispensed with if the Court is of opinion that the debt has been otherwise sufficiently established (vide 1894 edition, p. 229). In this ease all the creditors excepting the second defendant who was ex parte signified their assent to the composition. In addition to the admission of the debt in the insolvency petition, the insolvent also admitted the debt and mentioned the amount owing to him in his application for composition. The other creditors did not raise any objection in regard to the genuineness of this debt or otherwise. The Court before passing the final order approving the composition and annulling the order of adjudication directed that the dividend due and payable to the second defendant in pursuance, of the composition should be deposited into Court and such a deposit was made. Therefore, though no forma] proof was tendered by the plaintiff, the debt must be deemed to have been proved and admitted by the Court.' It is only on that basis a dividend was declared in his favour. It seems to me therefore that even if Section 39, as it stood before it was amended should govern the right of the plaintiff, he must be held to be bound by the composition having regard to the fact that his name was entered in the schedule prepared under Section 33.

3. I shall also consider whether the amended section should not be held applicable to the plaintiff. The contention of the plaintiff is that he has a vested right to file a suit against the insolvent on the annulment of the order of adjudication and that right of action has not been taken away by the amendment and retrospective, operation cannot be given to the enactment since it affects a right of action which accrued to him under the old Section 39.,The question is whether this contention is tenable. Sections 38 and 39 of the Act deal essentially with procedure and prescribe what procedure the Court should follow when an application for composition is presented to it. It is a well settled rule of law that statutes concerned with judicial procedure unless such operation be excluded affect judicial proceedings pending at the time such statutes come into force (vide Gangaram v. Punamchan Nathuram I.L.R.(1896) 21 Bom. 822 and no litigant has got a vested right in procedure. As pointed out in Attorney-General v. Sittem (1864) 10 H.L.C. 704 : 11 E.R. 1200.

The right of the suitor is to bring the action, and to have it conducted in the way and according to the practice of the Court in which he brings it and if any Act of Parliament, or any rule founded on the authority of the Act of Parliament, alters the mode of procedure, then he has a right to have it conducted in that altered mode. That, therefore, takes away nothing. The right of action does not constitute a title to keep all the consequences. of the' right as they were before. It gives the right to have the action conducted according to the rules then in force with respect to procedure.

Therefore when an application for composition was presented on the 27th July, neither the debtor nor the creditor had a vested right to have that proceeding conducted in any particular mode. When the Legislature chooses to alter the procedure, both the debtor and the creditor must be held bound by it. Section 39, itself does not confer any right of action; nor when the application for composition was presented on the 27th July, did any right accrue to any creditor. A creditor who chooses not to prove his debt may expect that if an order as contemplated by Section 39, as it then stood were to be passed, he would not be precluded from filing a suit against the insolvent debtor. It is a privilege which he may obtain in a certain contingency. There cannot be said to be a taking away of any right vested or accrued in him. In Abbott v. The Minister for Lands (1895) A.C. 425 the Lord Chancellor pointed out that a mere right existing at the date of a repealing statute to take advantage of the provisions of the statute repealed is not a right accrued within the meaning of a saving clause, which saved all rights accrued under or by virtue of the said repealed statute. Therefore it seems to me that since the enactment deals only with the procedure, the amended section will apply to the proceeding then pending. By the amendment, the Court was relieved of the obligation to frame a schedule in accordance with Section 33. The plaintiff must be deemed to be bound by an order under the amended section. Even if I am not correct in this view, I am of the opinion that the object of the Legislature was to make the enactment retrospective. Under Section 38, which has not been amended, when a proposal for composition is made to a Court, a notice is issued to all the creditors and that proposal had to be considered by all the creditors and must be accepted by a majority which is prescribed under CI. (2). If such a majority of the creditors accept the proposal, CI. (2), provides that the proposal should be deemed to be duly accepted by the creditors whether they assented to the proposal or not, and the Court considers the proposal not in the interests of the creditors only who have proved their debts but in the interests of all the creditors and only when it is of opinion that it is beneficial to the general body of creditors that it accords sanction to the proposal. On the acceptance of the proposal by the Court, it does not become functus officio, but retains control to see that the composition is given effect to and Section 40, distinctly provides that if it finds that a debtor is not bona fide with reference thereto, it can re-adjudge the debtor insolvent and annul the composition. When once the Court passes an order under Section 39, the legal effect must be that it should be binding on all the creditors because Section 38 (2), says the composition must be deemed to be accepted by all the creditors. The corresponding provisions of the English Bankruptcy Act and the Presidency Towns Insolvency Act distinctly provide that the effect of approval by the Court of the composition is that it is binding on all the creditors. In enacting Act V of 1920, there was an inadvertent omission to bring that section into line 'with the English Bankruptcy Act on which Act III of 1909 and Act V of 1920 were based. Mulla in his book on 'Law of Insolvency' observes thus at page 254:

Under the Provincial Insolvency Act, 1907, an order of discharge released the insolvent from 'all debts entered in the schedule' and it was therefore appropriate that in the case of a composition also the debts to be barred should be the debts entered in the schedule prepared by the Court under Section 27 (7) of that Act. Under the Act of 1920, an order of discharge releases the insolvent from 'all debts provable under the Act'. It looks as; if the Legislature while enlarging the operation of an order of discharge under the Act of 1920, lost sight of the provisions of Section 39 of the Act of 1920.

4. The object of the Legislature was to bring Section 39 into line with the provisions of the English Bankruptcy Act and the Presidency Towns Insolvency Act by rectifying the obvious omission. In view of the declared policy of the Act that no creditor should be given undue advantage and the debtor should not be harassed once the composition is accepted, it seems to me that the Legislature intended the section to be retrospective and it should apply to pending proceedings. I am therefore of the opinion that the decree passed by both the lower Courts is correct.

5. In the result this appeal is dismissed with costs.

6. Leave to appeal refused.


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