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Official Assignee Vs. Trustees of Port Trust - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1936Mad789; 166Ind.Cas.427
AppellantOfficial Assignee
RespondentTrustees of Port Trust
Cases Referred and Food Controller v. Cork
Excerpt:
- - we think that that is clearly correct. the bond was clearly a contract of indemnity; 6. the contract of idemnity was clearly an obligation incurred by the debtors before the date of the adjudication, and the debt in question comes within subsection (3); and the explanation to section 46, in our opinion, makes the position even clearer. we are clearly of the view that debts due to the crown or a local authority must mean 'provable' debts. had that section been similarly worded to the equivalent section in the english bankruptcy act, the position would have been perfectly clear......in respect of those groundnuts. on arrival in madras the groundnuts came into the charge of the port trust. it is a general rule that these should not be handed over to the consignees without the production of the railway receipts but under section 57 of the indian railways act the port trust can hand over the goods to the consignee after taking an indemnity bond. at that time the insolvents used to pledge the railway receipts as security for advances made to them by some of the madras banks and it has since been held by the privy council in the official assignee of madras v. the mercantile bank of india, ltd. 1934 58 mad 181, that a pledge of a railway receipt operates as a pledge of relative goods. on 25th june 1928, a large quantity of groundnuts was banded over to the insolvents.....
Judgment:

1. This is an appeal from a judgment of Mockett, J. in the Insolvency Court. The facts leading up to this appeal need only be stated very briefly. C. K. Narayana Iyer & Sons, the insolvents, were dealers in groundnuts on a very large scale. They purchased groundnuts largely in the mofussil and these were consigned to them in Madras sometimes by their vendors and sometimes by themselves. Railway receipts were, in accordance with the railway practice, issued in respect of those groundnuts. On arrival in Madras the groundnuts came into the charge of the Port Trust. It is a general rule that these should not be handed over to the consignees without the production of the railway receipts but under Section 57 of the Indian Railways Act the Port Trust can hand over the goods to the consignee after taking an indemnity bond. At that time the insolvents used to pledge the railway receipts as security for advances made to them by some of the Madras banks and it has since been held by the Privy Council in The Official Assignee of Madras v. The Mercantile Bank of India, Ltd. 1934 58 Mad 181, that a pledge of a railway receipt operates as a pledge of relative goods. On 25th June 1928, a large quantity of groundnuts was banded over to the insolvents by the Port Trust without production of the railway receipts and instead the Port Trust took from the insolvents and one Pyda Rangiah Chetty an indemnity bond of that date in their favour. The insolvents took advantage of this procedure to commit a fraud. They pledged the railway receipts relating to the groundnuts with the Central Bank. After the insolvency the Central Bank claimed that the groundnuts covered by the railway receipts belonged to them and brought a suit against the Port Trust, C.S. No. 573 of 1929. The insolvent estate was of course represented by the Official Assignee and he and Pyda Rangiah Chetty were brought on record in that suit by means of third party notices. A decree was passed on 7th March 1934, in favour of the Central Bank against the Port Trust for Rs. 25,041-2-6 and in favour of the Port Trust against the Official Assignee and Pyda Rangiah Chetty for the same amount by reason of the indemnity bond, the Port Trust having claimed to be indemnified by the insolvents and Pyda Rangiah Chetty against the damages which under the decree it had to pay to the Central Bank and in consequence of this they claimed priority in respect of the amount payable by the insolvent's estate under Section 49, Presidency Towns Insolvency Act. The Official Assignee admitted the Port Trust only as unsecured creditors and did not allow their claim to preferential payment. The Port Trust, therefore, by notice of motion prayed that this order of the Official Assignee should be varied contending that by reason of Section 49, Presidency Towns Insolvency Act, they ware entitled to priority in respect of this amount. Section 49 reads as follows:

(1) In the distribution of the property of the insolvent there shall be paid in priority to all other debts : (a) all debts due to the Crown or to any local authority.

2. Mockett, J. upheld the Port Trust's contention. Hence this appeal. For the appellant it is argued firstly that the Port Trust is not a 'local authority' and there being no definition of local authority in the Presidency Towns Insolvency Act the definition section in the General Clauses Act, namely Section 3(28) is referred to. There the definition of 'local authority' is as follows:

Local authority' shall mean a Municipal Committee, District Board, body of Port Commissioners or other authority legally entitled to or entrusted by the Government with the control or management of a Municipal or Local Fund.

3. It is contended that the Port Trust is not entrusted by the Government with the control or management of Municipal or Local Fund and is not therefore a 'local authority' within the meaning of that sub-section and that no fund has been constituted under the Port Trust Act of 1905 such as that in Section 139, Madras City Municipal Act. Mockett, J. negatived this contention because provision is made in the Port Trust Act for the imposition and recovery of rates and that it is from these rates that the Port Trust income is derived and had no doubt that its collection by the Port Commissioners constitutes a local fund within the meaning of Section 3(28), General Clauses Act. In our view it is not necessary to employ the test of whether the Port Trust is entrusted with the control or management of a local fund because Mr. K.S. Krishna-swami Iyengar has put an interpretation upon that sub-section with which we agree. It is that the words 'legally entitled to or entrusted by the Government with the control or management of a Municipal or Local fund' qualify the words immediately preceding them, namely, 'or other authority' and do not relate to a Municipal Committee, District Board or body of Port Commissioners. We think that that is clearly correct. It is obvious that a Municipal Committee is a 'local authority' and equally so a District Board, land in our view so also is a body of Port Commissioners; and it is conceded that the Port Trust comes within this description; and it does not seem to us to be intended or reasonable that they should be a 'local authority' only when they 'Control or are entrusted by the Government with the control and management of a Municipal or Local fund, but it is otherwise in the case of other authorities not definitely specified who can only bring themselves within that definition if the latter part of the sub-section can be applied to them; and moreover the word 'or' and not 'and' other authority is used. The Port Trust therefore is a local authority.

4. Next the appellant argues that the amount claimed is not a 'debt due' to the Port Trust within the meaning of Section 49, Presidency Towns Insolvency Act, as it was not a debt due or ascertained at the date of the adjudication in insolvency though it seems to be conceded in argument by the appellant that this would be a 'debt provable in insolvency' under Section 46. But a distinction is sought to be drawn between a 'debt due' and a 'debt provable.' We think it is clear beyond doubt that this is a 'debt provable in insolvency.' Section 46, Presidency Towns Insolvency Act, provides in Sub-section (1) that:

Demands in the nature of unliquidated damages arising otherwise than by reason of a contract or breach of trust shall not be provable in insolvency.

5. At the date of the adjudication the Port Trust held the indemnity secured from the insolvents and Pyda Rangiah Chetty before the insolvency in respect of future loss or damages occasioned by the release of the groundnuts without the production of the railway receipts. The bond was clearly a contract of indemnity; and although the claim against the insolvents was not at that time ascertained, there was still that claim and it was ascertainable, and after the adjudication was in fact ascertained. The claim was therefore excepted from demands not provable in Sub-section (1). Sub-section (3) provides that:

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 the debts provable in insolvency.

6. The contract of idemnity was clearly an obligation incurred by the debtors before the date of the adjudication, and the debt in question comes within subsection (3); and the explanation to Section 46, in our opinion, makes the position even clearer. The debt therefore is one which is 'provable in insolvency.' But is it a 'debt due' as provided in Section 49(1)(a) The appellant argues that it is not, and refers to Ex parte Kemp, In re Fastnedge (1874) 9 Ch A 383. The head-note of that case is as follows:

Sums retained by bankers against acceptances, and for which they have given marginal notes, are not debts due to the bankrupt in the course of his business within the order and disposition clause, Bankruptcy Act, 1869, Section 15(5). The expression 'debts due' in that clause is not confined to debts presently payable, but, on the other hand, will not include debts which were only contingent at the commencement of bankruptcy.

7. This case however does not assist the appellant because on p. 388 illustrations are given by Mellish, L.J., of the various meanings of the word 'due' which may be found in the Bankruptcy Act itself, and he states:

Then again, in Section 49 it is enacted that an order of discharge shall release the bankrupt from all other debts provable under the Bankruptcy Act except debts due to the Crown. In that place I think that 'debts due to the Grown' mean all provable demands which the Crown has against the bankrupt whether they have become payable or not and whether they are in point of law strictly debts or not.

8. In the present Section 28 of the English Bankruptcy Act, which is the equivalent of Section 45, Presidency Towns Insolvency Act, although differently worded, the words 'debts due to the Crown' do not appear, though it is clear from Mellish, L.J.'s remarks that those were the words in the old section. It is difficult to see why a 'debt due to the Crown' should in Section 45, Presidency Towns Insolvency Act be given a different meaning when those words appear in the Priority of Debts section. The scheme of the Act is to treat debts due to the Crown differently from those due to others, in the Discharge section, to preserve the liability for the payment of those debts notwithstanding the order of discharge, and in the Priority of Debts section to give priority to those debts, and we think that it follows that the same construction as Mellish, L.J. gave to those words in the Discharge section of the English Bankruptcy Act would have been given to the words in the Priority of Debts section in the same Act. The fact that in Section 45, Presidency Towns Insolvency Act, only debts due to the Crown are mentioned does not in our view make any difference. We are clearly of the view that debts due to the Crown or a local authority must mean 'provable' debts. But the appellant has a further argument to advance and it is: that nevertheless priority cannot be given to this debt because it is not the kind of debt which under the English Act is entitled to priority. This is quite true. The equivalent section in the English Bankruptcy Act is Section 33 and it reads as follows:

(1) In the distribution of the property of a bankrupt there shall be paid in priority to all other debts (a) all parochial or other local rates due from the bankrupt at the date of the receiving order, and having become due and payable within twelve months next before that time, and all assessed taxes, land tax, property or income-tax assessed on the bankrupt upto the fifth day of April next before the date of the receiving order and not exceeding in the whole one year's assessment.

9. Hence it is only that specific class of debt which when due either to the Crown or to the local authority is entitled to priority and therefore a debt due to the Crown not being one of that class will not come under the section, and Food Controller v. Cork (1923) AC 647 is certainly authority upon this point. The facts of that case are that during the war the food controller in exercise of certain statutory powers-conferred on him in that behalf appointed1 H. J. Webb & Co. agents to sell on com- mission and distribute frozen rabbits imported from Australia by the appellants, the Board of Trade. The company sold the rabbits to various retail dealers and received the purchase moneys which it was bound to pay over to the food controller less commission and expenses. The company went into voluntary liquidation and was found to be insolvent and at the date owed the food controller 9,689-5-10, representing purchase money which had been collected by the company on account of the food controller but not paid over to him. The food controller lodged a proof of the debt and claimed to be paid in priority to the other creditors of the company on the ground that it was a Crown debt. The question turned on the construction of the Companies (Consolidation) Act, 1908,. Sections 186 and 209. Section 186 deals with the consequences which shall ensue on the voluntary winding up of a company and provides that the property of the company shall be applied in satisfaction of its liabilities pari passu, and Section 209 is similarly-worded to Section 33, Bankruptcy Act. It was held that the Crown had no claim to priority of payment other than such priority as was given by the statute and no such priority was given by statute. Lord Shaw in his judgment on p. 665 says:

The Crown as a creditor is by its assent to this legislation plainly restricted in priority to the limited specifications of Crown debts given. It follows that beyond that point the Crown assents to an equal division. Any super-eminent right, whether under the name of the prerogative or otherwise, has disappeared. The Crown' stands plainly bound to that result.

10. Mockett, J. thought-and we think correctly-this case is of no assistance in dealing with the Presidency Towns Insolvency Act. Had that section been similarly worded to the equivalent section in the English Bankruptcy Act, the position would have been perfectly clear. Unfortunately for the appellant it is not so worded and we are not entitled to go outside the words of the Act and import into it words which are in the English Act for the purpose of limiting the scope of the section. Nor are we concerned with the intention of the legislature when there is no expression of that intention to be gathered from the words of the Act. We are not entitled to make guesses and to say that the legislature intended to do what the English Bankrutpcy Act has done. If we were, it would be equally open to us to hazard the opinion that the Indian Legislature intended to provide differently in order to meet local conditions. The words of Section 49(1) are wide indeed, and all debts due to the Crown or to any local authority are to be paid in priority to all other debts. That being so, it is impossible to hold that the Port Trust debt is not under this section entitled to priority. It follows therefore that this appeal must be dismissed with costs against the insolvent's estate. The Official Assignee will get his costs out of the estate also. Costs will be taxed on the original side scale.


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