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K. Subramania Pillai Vs. A.V.S.V. Sankara Kulathu Iyer - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1956)1MLJ527
AppellantK. Subramania Pillai
RespondentA.V.S.V. Sankara Kulathu Iyer
Cases Referred(Kathayyan Chettiar v. Govindaswami Chettiar
Excerpt:
.....to these directions, the assets, if any, in travancore of the petitioner will vest in the official receiver. time for discharge, 6 months. 3. on 20th march, 1125 an order of discharge was passed in the following terms: read petition, dated 13th january, 1125 presented by advocate mr. r. gopala pillai on behalf of kumaraswami pillai. subramania pillai, petitioner in i.p. no. 1/23, praying for discharge under section 76. heard the petitioner's advocate and passed the following - - 96. the creditors who have not proved their debts are not necessary parties to an application for discharge and the failure to give notice to such creditor or to bring the representatives of such deceased creditor on record does not affect the proceedings: 9. point (b) :even assuming that the order of..........should have notice of the proceedings or is not based on any rule or fiction of constructive notice. notice or no notice, section 44 comes into play and releases the insolvent from all debts, which can be proved in insolvency. kundan lal v. nathu : air1933all600 , elmslie v. corrie l.r. (1878) 4 q.b.d. 295. the validity of the order does not depend upon notice. section 44(2) protects the insolvent and not the assets in the hands of the official receiver. section 44(2) means that the order of discharge frees the insolvent from liability for all debts provable under the act, but does not free his property from such a liability. upon the passing of an order of discharge the insolvency court does not become functus officcio. the proceedings can undoubtedly go on in respect of the.....
Judgment:
ORDER

.-' Nothing has been realised from the petitioner as yet. He is therefore given a discharge subject to the condition that his after-acquired assets, if any, will vest in the Official Receiver till his creditors are paid 8 annas in the rupee '.

4. It is obvious from this order that this Sankara Kulathu Ayyar has not reported any realization from out of the assets of the insolvent in the Madras State. On application by this Sankara Kulathu Ayyar, the decree obtained by him was transmitted on 16th October, 1949 to the Sub Court, Tirunelveli, and E.P. No 163 of 1949 was filed for executing the said decree by attachment of the immovable properties of this Sabramania Pillai in Tirunelveli. I may add for completeness of information that this Sankara Kulathu Ayyar who had no notice of the petition for discharge filed a review petition against the order of discharge and it has been dismissed by the Trivandrum District Court and it has become final.

5. On notice being taken to this Subramania Pillai in the execution petition, his contention was that after the passing of the order of discharge the execution petition would not lie, under Section 44(2) of the Provincial Insolvency Act, viz., that the order of discharge shall release the insolvent from all debts provable under the said Act. This was sought to be met by Sankara Kulathu Ayyar on the ground that the discharge order was an invalid order inasmuch as it was passed without notice to him.

6. The learned Subordinate Judge upheld the contention of this Subramania Pillai and dismissed the execution petition. In appeal the learned District Judge held that it was open to Sankara Kulathu Ayyar to proceed in execution and allowed execution. Hence this Civil Miscellaneous Second Appeal.

7. In this case the debtor who had been adjudicated as an insolvent has within the period specified by the Court applied to the Court for an order of discharge. It is apparent that notice of this petition has not been given to this Sankara Kulathu Ayyar. The insolvency Court has granted an order of discharge subject to its conditions as to payment from out of the insolvent's after-acquired assets. In regard to this order we have to construe four things, viz., (a) whether such an order of discharge would be invalid by reason of notice not having been given to this Sankara Kulathu Ayyar; (b) what is the effect of the order of discharge made by the Trivandrum Court outside that State, viz., in the Madras State; (c) what was the effect of this order in regard to the decree debt of this Sankara Kulathu Ayyar; and (d) whether the execution petition as it stands framed can be proceeded with in Tirunelveli.

8. Point (a) :-Under the terms of Section 41 of the Provincial Insolvency Act when an application for discharge is made by the insolvent, a date must be fixed for hearing such application and notice of the date and place of hearing shall be given to the creditors who may file objections. The giving of notice is peremptory and the Court must consider the creditors' objections: Dutt v. Blades : AIR1928Cal843 . An order of discharge is not, however, invalid in consequence of the omission to give notice in a case where none of the creditors had proved his debt, as the notice is only required to be given to those creditors who have proved their debts. Bishandhand v. Kishan lal 1939 Nag. L.J. 96. The creditors who have not proved their debts are not necessary parties to an application for discharge and the failure to give notice to such creditor or to bring the representatives of such deceased creditor on record does not affect the proceedings: Kanshi Ram v. Official Receiver A.I.R. 1937 Lah. 752. Even otherwise the rule that an order of discharge shall operate to release the insolvent from all debts provable in insolvency-a debt provable in insolvency includes a proved debt defined in Rule 3 of the Insolvency rules-is based on a policy of the law and is not qualified by any rule that the creditor should have notice of the proceedings or is not based on any rule or fiction of constructive notice. Notice or no notice, Section 44 comes into play and releases the insolvent from all debts, which can be proved in insolvency. Kundan Lal v. Nathu : AIR1933All600 , Elmslie v. Corrie L.R. (1878) 4 Q.B.D. 295. The validity of the order does not depend upon notice. Section 44(2) protects the insolvent and not the assets in the hands of the Official Receiver. Section 44(2) means that the order of discharge frees the insolvent from liability for all debts provable under the Act, but does not free his property from such a liability. Upon the passing of an order of discharge the insolvency Court does not become functus officcio. The proceedings can undoubtedly go on in respect of the properties in the hands of the Receiver or the Court in spite of the order of discharge. The discharge order does not have the effect of revesting the property in the insolvent. Jubilee Bank v. Santmajee : AIR1950Cal487 , Mahangerlal v. Firm Suraj : AIR1939All114 , Arjundas v. Marchia : AIR1936Cal434 . Therefore, the absence of notice would not invalidate the order of discharge. In addition, in this case this creditor has filed a review petition against the order of discharge on the ground of absence of notice to him and that petition has been dismissed and the discharge order has become final.

9. Point (b) :-Even assuming that the order of discharge was passed by a foreign Court which certainly was not in this case by reason of the fact that before the date of discharge the Travancore State had ceased to be a foreign state-it is well settled law that a discharge from any debt or liability under the Bankruptcy Act of Imperial Parliament of England is a discharge from such debt or liability in any part of the British Dominions. The general rule is that a discharge granted under the Indian Insolvency law is binding on all the Courts of India without regard to the place where the contract was made, or was to be performed. A discharge granted in the Travancore State would certainly be an answer to a claim made subsequently in Madras State. In fact even in the case of foreign state, orders of discharge granted under the Insolvency Act by any foreign country have always been recognised by the comity of Nations in accordance with the principles regulating faith and credit being given to such order. In this case it is common ground that the insolvency law in Travancore State, when it was a foreign state, was identical with that of the insolvency law in British India. This order of discharge, whether it is looked upon as an order passed by a foreign State or by any part of the Republic of India, would certainly be binding on us. Magadu Pillai v. Asan Rowther (1919) 9 L.W. 535, Gill v. Barron L.R. (1868) P.C. 157, Ellis v. Mc. Henry L.R. 2 C.P. 228, Gibbs and Sons v. Socreteindusticelle (1890) 25 Q.B.D. 399, Lakshmi Ram v. Pooranchand : AIR1921Bom128 ; see Dicey, Conflict of Laws, page 440; Halsbury's Laws of England, Section 450 (Hailsham edition)

10. Point (c) :-An order of discharge does not mark the termination of all insolvency proceedings relating to the insolvent. What it means to the insolvent is thereafter he is released from all the debts provable in insolvency. In this regard a conditional discharge is as much a discharge as an absolute order of discharge and concludes the insolvency proceedings with respect to the insolvent's property except his after-acquired property; Muhammad v. Viswanatappa A.I.R. 1946 Nag. 111. They become payable only from the assets vested in the Official Receiver and except to the extent where any condition has been imposed as regards after-acquired property under Section 41(2)(c), the insolvent is free to deal with his after-acquired property. Kashiram v. Hariram A.I.R. 1937 L. 87; Arjundas v. Marchia : AIR1936Cal434 , Sukha v. Ramachandra . Khemchand v. Hemandas A.I.R. 1937 Sind 306, Mahangerlal v. Suraj : AIR1939All114 , Parsa Vithoba v. Balaji , Somasundaram v. Official Receiver : AIR1947Mad95 , Jubilee Bank v. Santmajee : AIR1950Cal487 , Doraiswami v. Arumuga : (1935)69MLJ799 , Bishan v. Kishanlal A.I.R. 1939 Nag. 103, K.P.S. Firm v. C.A.P. Firm A.I.R. 1929 Rang. 105. The object of bankruptcy law is, as pointed out by Lord Coleridge, C.J., in Heather v. Webb (1876) 2 C.P.D. 1, to make bankruptcy proceedings more completely effect the object of winding up a man's previous liabilities and giving him an altogether fresh start.

11. The granting of an order of discharge marks a stage in the administration of the insolvent's estate when the insolvent is freed from the incubus of all liabilities provable under the Act and he is able to start life again unburdened by those liabilities. The over-riding intention of the Legislature in all bankruptcy laws which replaced the barbarous treatment of debtors in the earlier Roman Law, viz., that if a debtor did not pay within a specified time the creditors were at liberty to cut the debtor's body into pieces and each of them taking his proportionate share and so creditor who cut too little or too much could be called therefor to account, is that the debtor on giving up the whole of his property shall be a free man again able to earn his livelihood and having the ordinary inducements to industry. Thus, the Courts have to avoid two extremes, viz., except in very extreme cases they ought not to refuse discharge absolutely to the debtor provided he has fulfilled his obligations of placing his entire effects for distribution amongst his creditors; Mulchand v. Official Receiver A.I.R. 1930 All. 47 and secondly, too much leniency should not be displayed in the matter of granting discharge with the result that the insolvency Court may not continue to be a place of pilgrimage for debtors to enter by one door with offerings of debts for the Gods presiding in it and depart through the other door discharged free of their debts and all their sins. (Mulla, Law of Insolvency, Lecture I.P. 30).

12. The discharge of the insolvent does not mean the divesting of the Official Receiver or the insolvency Court becoming functus officio. The proceedings can undoubtedly go on in respect of the property in the hands of the Official Receiver in spite of the order of discharge. A creditor, though he has not proved before discharge, is entitled to come in and prove at any time so long as there are assets available for distribution, provided that he does not by his proof interfere with the prior distribution of the estate amongst the creditors and subject always in cases in which he has to come in and ask for leave to prove, to any terms which the Court may think it just to impose: Prl. M.C. Murdoo L.R. (1902) 2 Ch. 684, Siva v. Theetcappa A.I.R. 1924 M. 163, Jan Bahadur v. Bailiff A.I.R 1927 Rang. 263, Babulal v. Krishna I.L.R. (1924) Pat. 128, Gokul v. Radha : AIR1926Cal1210 . The other limitation imposed is that the creditors who have got debts provable under the Act can, after the order of discharge, look only to those particular assets which the insolvent was possessed of and which had accordingly vested in the Court or the Receiver on the date of the filing of the application for adjudication. The claim of the creditors cannot be directed against any other property which may be acquired by the insolvent after an order of discharge. They are not destroyed or extinguished as pointed out in Haji Abdul Ruthus v. Inayatullah : AIR1941Mad620 , but their realisation is limited to the assests vested in the Court or Receiver. The order of discharge frees the insolvent from liability from all debts provable under the Act but does not free his property from such liability and where after discharge property of the insolvent is vested in the Court and remains unsold and a creditor applies for its sale, the Court will allow the application; Sukha v. Ramachandra A.I.R. 1937 N. 171. The insolvent ceases to be a debtor on discharge so far as debts provable in insolvency are concerned, though his property, including property acquired till his discharge, continues liable for the debt. For instance he cannot apply for scaling down a debt under the Debt Relief Act as he ceases to be a debtor within the meaning of the Act; Somasundaram Pillai v. Official Receiver : AIR1947Mad95 . The release of the insolvent from debts provable in insolvency is not in the sense that there is a re-transfer of the property of the insolvent to him free from the claims of his creditors. So far as debts proved up to the date of discharge are concerned, it is not accurate to say that they are discharged under Section 44(2), but they have ceased to be provable debts and have become proved claims before the Court administering the estate: Purusuvithoba v. Balaji . But any proceeding for recovering the debt de hors the insolvency jurisdiction in respect of a debt provable under the insolvency and which is released by the order of discharge is not maintainable even though the insolvent made a subsequent promise to pay the debt from which he was so discharged, as such a promise is nudum pactum (Kathayyan Chettiar v. Govindaswami Chettiar) : AIR1932Mad416 .

13. Bearing these principles in mind, if we examine the facts of this case, it is quite true that in regard to this debt of Sankara Kulathu Ayyar the order of discharge has released the bankrupt from liability, but it does not extinguish the debt in the sense that after this order of discharge the creditor could look to these particular assets which the insolvent was possessed of and which had vested in the Court or Receiver on the filing of the application for adjudication. In this case by reason of the condition attached to the discharge order, the claim of this creditor can be satisfied also from any other property which may be acquired by the insolvent after the date of order of discharge. (For a lucid discussion of the effect of discharge, see Ramaswami Iyer's Provincial Insolvency Act, 2nd edition (1955), P. 584; Dial, Provincial insolvency Act, Second edition, 1953 P. 342; Sastri, Provincial insolvency Act, Second Edition (1953) P. 278; C.P. Ramachandra Rao, Law of Official Receivers (1934), (a little known but excellent treatise) P.4, etc).

14. Point (d) :-The final point for determination is, what follows on the above conclusions. It is that the execution petition, as it has been framed and filed into the Sub-Court, Tirunelveli, cannot be permitted by any Court to be proceeded with. On the other hand, the creditor now states that he is willing to be considered as an agent and mouth-piece of the Trivandrum Court in which the assests of the insolvent are still vested and which has given permission to him to realize the assets here and that he would deposit the entire realizations in the insolvency Court subject to the orders of that Court for distribution and that he would also be willing to accept a dividend of eight annas in the rupee as the other creditors and not seek any special advantage for himself. Then, this would not become a proceeding for recovering the debt de hors the insolvency jurisdiction in respect of a debt proved under the insolvency and which has been released by the order of discharge.

15. Therefore, the order of the learned District Judge setting aside the order of the learned Subordinate Judge will stand confirmed and the order of the District Judge as it stands will stand modified and it will be open to this creditor, Sankara Kulathu Ayyar, either to amend his execution petition or file a fresh execution petition embodying these limitations which he now undertakes, subject, of course, to its being open to the judgment-debtor, Subramania Pillai, to raise objections regarding the non-liability of the properties sought to be attached for this debt. The costs of this appeal will be costs in the execution proceedings.


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