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K.V. Chandramouleswaran Vs. G. Krishnaswami Naidu and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Case NumberCivil Revn. Petn. No. 473 of 1950
Judge
Reported inAIR1953Mad993
ActsProvincial Insolvency Act, 1920 - Sections 16 and 19; Code of Civil Procedure (CPC) , 1908 - Sections 151
AppellantK.V. Chandramouleswaran
RespondentG. Krishnaswami Naidu and ors.
Appellant AdvocateR. Ramasubba Iyer, Adv.
Respondent AdvocateP.R. Vasudeva Iyer, Adv.
DispositionPetition allowed
Cases ReferredKrishnayya v. Rangarayakulu
Excerpt:
civil - insolvency proceedings - sections 16 and 19 of provincial insolvency act, 1920 and section 151 of code of civil procedure, 1908 - petition against order of district judge - present petitioner's application for substitution of original petitioning creditor should be allowed - in insolvency proceedings petitioning creditor acts not merely for himself but also on behalf of other creditors - petitioner creditor brought to notice of court that there were other creditors also to whom payment had been suspended by debtors - order of dismissal of petition unjust to rest of creditors - petition allowed. - .....order of the learned subordinate judge of the same place dismissing a petition under section 16, provincial insolvency act, and sections 151 and 152, civil p. c.2. one krishnaswarni naidu filed a petition against the two respondents, namely, second and third respondents in this petition, for adjudicating them insolvents in i. p. no. 24 of 1946 on the file of the sub court, coimbatore. the respondents who were sought to be adjudged insolvents pleaded that no amount was due to the first respondent, the petitioning creditor. the third respondent in particular pleaded that he was not unable to pay his debts and actually deposited in court on 22-2-1947 a sum of rs. 1680, being the entire amount claimed by the first respondent-petitioning creditor, as due to him. the third respondent also.....
Judgment:
ORDER

Basheer Ahmed Sayeed, J.

1. This revision petition is against the order of the learned District Judge of Coimbatore confirming the order of the learned Subordinate Judge of the same place dismissing a petition under Section 16, Provincial Insolvency Act, and Sections 151 and 152, Civil P. C.

2. One Krishnaswarni Naidu filed a petition against the two respondents, namely, second and third respondents in this petition, for adjudicating them insolvents in I. P. No. 24 of 1946 on the file of the Sub Court, Coimbatore. The respondents who were sought to be adjudged insolvents pleaded that no amount was due to the first respondent, the petitioning creditor. The third respondent in particular pleaded that he was not unable to pay his debts and actually deposited in court on 22-2-1947 a sum of Rs. 1680, being the entire amount claimed by the first respondent-petitioning creditor, as due to him. The third respondent also challenged the first respondent to establish his claim by way of suit and draw the amount if ho obtained a decree in respect of his claim. On such deposit of the sum of Rs. 1680 the learned Subordinate Judge who heard the application dismissed the said petition of the first respondent by an order dated the 24th February 1947.

The learned Subordinate Judge in his order held that as a result of the deposit it followed that the respondents were in a position to pay their debts and that it was not necessary therefore to go into the question whether there was really any debt due to the petitioner in the said petition. Ho opined that in the circumstances there was no longer any necessity, nor sufficient grounds to adjudicate the respondents as insolvents. He further ordered that as per the agreement entered into between the respondents and the petitioning creditor, the amount deposited in court could be kept earmarked to meet the debt of the petitioning creditor if any, and if the petitioning creditor could establish his claim in a suit and obtain a decree he can draw the money from court.

In the opinion of the court, the agreement entered into between the petitioning creditor and respondents 2 and 3 was a right one and it accordingly directed the money deposited to be kept earmarked for the claim o the petitioner as and when he obtained a decree against respondents 2 and 3. It also gave time for the filing of the suit by the petitioning creditor and directed that in default of a suit being filed within the time stipulated the 2nd respondent (3rd respondent in C. R. P. No. 473 of 1950) could draw out the amount deposited in court by him. In the event of the petitioning creditor getting a decree, the amount in court deposit will bo paid off in satisfaction of the decree, was the further direction made by the learned Subordinate Judge. On the strength of this order the learned Subordinate Judge thought that there was no more justification for proceeding with the application of the petitioning creditor and so dismissed the same.

Nearly five months after this dismissal order, the petitioner now before me filed a petition, I. A. No. 130 of 1947 in the said I. P. No. 24 of 1946 praying that the Sub Court should be pleased to reopen I. P. No. 24 of 1946 on its file and substitute and implead the petitioner as the 2nd petitioning creditor in the said insolvency petition and allow the petitioner to continue the application for the adjudication of the 2nd respondent before him as an insolvent. This petition was purported to be filed under Section 10 of the Provincial Insolvency Act and also under Sections 151 and 152 C. P. C. The learned Subordinate Judge who heard this application, dismissed the application holding that a prayer of the kind contained in the application of the petitioner could be granted only if the original petitioning creditor did not proceed with his application against respondents 2 and 3 with diligence.

According to him, Section 16 provided that where the petitioner does not proceed with due diligence with his petition, the court may substitute as petitioner any other creditor to whom the debtor may be indebted in the amount required by the Act in the case of a petitioning creditor. He said in so far as the dismissal of I. P. No. 24 of 1946 was not on the ground that the petitioning creditor had not proceeded with the petition with due diligence, Section 16, Provincial Insolvency Act, would not entitle the present petitioner to sustain the application for being brought on record in substitution of the original petitioning creditor. In dismissing the said application the learned Subordinate Judge also relied upon a ruling of a Division Bench of the Rangoon High Court in -- 'Gye Maung v. A.K.P. Chettyar firm', AIR 1933 Rang 251 (A), in which the facts were identical with the facts of the present petition.

3. Against this order oi dismissal, the petitioner preferred an appeal before the District Judge of Coimbatore, questioning the validity of the order of the learned Subordinate Judge. But the learned District Judge who heard the appeal in C. M. A. No. 32 of 1949 agreed with the learned Subordinate Judge and dismissed the appeal holding that the petition of the petitioning creditor was dismissed not on default of the petitioning creditor or for lack of due diligence on his part but that the petition was dismissed on merits and that under Section 25(1), Provincial Insolvency Act, if the court was satisfied that the debtor was able to pay his debts, the court had no alternative but to dismiss the petition and inasmuch as the order dated 22-2-1947 passed by the learned Subordinate Judge was on that basis there was no alternative for the learned District Judge but to dismiss the said appeal.

4. Against this order of dismissal, it is that the petitioner has now preferred this revision petition. In the course of his argument learned counsel, Mr. Ramasubha Aiyar appearing for the petitioner contended in the first place that Section 16 Provincial Insolvency Act, would apply to the facts of the case and though the petition was dismissed on the basis of a compromise entered into between the petitioning creditor and respondents 2 and 3, it should be held that the dismissal was due to want of due diligence in the prosecution of the petition and that therefore his client was entitled to be substituted under that section.

I must say I am unable to agree with this contention of the learned Counsel for the petitioner that Section 16 gives him any remedy. The facts as stated above are quite clear and it cannot be said that the dismissal of the petition on 24-2-1947 was due to any lack of due diligence on the part of the petitioning creditor in the prosecution of his petition. It must be held that the dismissal of the petition was on merits after an enquiry and on the court being satisfied under Section 25(1), Provincial Insolvency Act, that there was no ground for adjudicating the respondents insolvents. Learned counsel for petitioner relied upon --Keshav Appa v. Sitaram Hanumandas', AIR 3946 Bom 20 (B), in support of his contention that Section 16 Provincial Insolvency Act, gives him the right to come in as a substitute for the petitioning creditor. I do not think that that decision helps the learned counsel to any extent on that point.

5. The next point that the learned counsel for the petitioner relied on was that his client, the petitioner, did not have notice as required under Section 19(2), Provincial Insolvency Act. Prima facie it looked as though there was some substance in this contention; but on a scrutiny of the records particularly the B diary, it was found that the learned counsel was not right in saying that the requirements of Section 19(2) were not satisfied. In fact after the petition was admitted and before the hearing date was fixed, which was in this case 24-1-1947, the court called upon the petitioning creditor to deposit charges and ordered notice to respondents and also for a notification to be published in the Fort St. George Gazette. This direction was in pursuance of Rule 21 of the rules framed under the Provincial Insolvency Act.

The records would further show that this notification did appear in the gazette as prescribed by Rule 21 of the said Provincial Insolvency Rules and that the respondents who were the debtors were also served. The records further show that on 24-1-1947, which was the date fixed by the court for this petition, the court also gave time till 1-2-1947 for creditors, if any, to appear and to be heard. The B Diary makes this clear. In such circumstances, I do not think it is open to the learned counsel for the petitioner to say that the requirements of Section 19(2) have not been complied with in this case. If the position were otherwise, certainly, the authorities quoted by him, namely. -- 'Muthukaruppan Chettiar v. Muthuraman Chettiar', AIR 1915 Mad 589 (C) and -- 'Nachiappa Chetti v. Thangavelu Chetti', AIR 1917 Mad 203 (D) and also the latest decision in. -- 'Krishnayya v. Rangarayakulu', : AIR1950Mad386 (E), would have been very helpful to him. But actually as set out above, the facts are otherwise. On both these points, therefore, there is no ground for the learned counsel for the petitioner to succeed in his contentions.

6. But the learned counsel for the petitioner will not leave the matter at that. He would on the other hand urge that the dismissal of his petition filed not merely under Section 16, Provincial Insolvency Act, but also under Section 151, Civil P. C., ought not to have been dismissed by the learned Subordinate Judge for the reason that such dismissal entails gross failure of justice. It is well known that petitioning creditors, when they seek debtors to be adjudicated insolvents, do so not merely on behalf of themselves but also on behalf of a large body of other creditors, and when that is the position, if any one petitioning creditor is permitted to withdraw the petition and walk away with any deposit of money that might be made in court in order to satisfy that petitioning creditor or to purchase peace from him, certainly it will be to the prejudice of the other creditors who at the time may not be before the Court.

In this case, the learned counsel for the petitioner would further urge that not merely was there a compromise between the petitioning creditor and the debtors on the basis of which the petition was dismissed, but there was a further order of the learned Subordinate Judge that the sum of Rs. 1680 which was deposited in court should be paid over to the petitioning creditor in case he obtained a decree against one of the respondents. Such an order, learned counsel contends, would work out great hardship and prejudice to the rest of the creditors who would also be entitled to a dividend out of the deposit amount that was available from the debtors. Therefore, in such circumstances not merely was the order, without giving an opportunity to other creditors to appear on the scene but also making the deposit payable exclusively to one of the creditors when there was a specific allegation in the petition of the respondent before this court that the debtors had given notice to their creditors suspending payment of their debts, wholly unjust, but it was also against the interests of justice.

I should consider that there is considerable force in this contention of the learned counsel for the petitioner. It is the policy and scheme of the Provincial Insolvency Act that the filing of a petition by one of the creditors to adjudicate debtors for non-payment of their debts should enure to the benefit of the rest of the creditors who may or may not be before court at the time the petition was filed. Certainly under Section 19(1) there is provision for notice being given to the rest of the creditors by means of publication in the Fort St. George Gazette. But even granting that in pursuance of such notice some other creditors appear on the scene and are brought on record before the court which hears the petition for adjudicating the debtors, if the other creditors are actually not in court on the day on which a compromise between the petitioning creditor and the debtors is entered into it may not be just nor proper that the other creditors should be deprived of their legitimate right to the benefit of the insolvency proceedings. . Much worse would be the position if the creditors are yet to come on the scene. As has been observed in -- AIR 1946 Bom 20 (8)' even when a petition is dismissed for lack of due diligence on the part of the petitioning creditor, it will be just and proper that the court should wait for some reasonable time before a final order of dismissal for default is passed, with a view to enable the other creditors to get themselves substituted for the creditor who has failed to prosecute the petition with due diligence. If such be the policy underlying the Provincial. Insolvency Act, it is all the more necessary and reasonable that when there is a compromise or settlement entered into between the petitioning creditor and the debtors as a result of which the petition is likely to be dismissed once for all, there should be an opportunity given to other creditors who would like to safeguard their interests from being jeopardised by the action of the sole petitioning creditor.

It may be certainly difficult under the rules as they stand at present for the court to give any specific notice to the other creditors when a compromise is sought to be entered into between the Dethroning creditor and the debtors, but this difficulty can be obviated certainly by court notice being put on the notice board of the court that the petitioning creditor is seeking to settle the matter between himself and the debtors and that the other creditors who are interested and who are already on record or not may take necessary steps to saieguard their interests. Such a thing has not been done in the present case and what is worse, the learned Subordinate Judge has thought it fit to make an order that the sum of Ks. 1680 deposited by one of the respondents before me should be taken away by the petitioning creditor in whole.

Such an order is certainly manifestly unjust to the rest of the creditors, especially when it was brought to the notice of the court in the petition filed by the petitioning creditor that there were other creditors besides to whom payment had been suspended by the debtors. The proper thing for the court would have been to withhold the payment of the amount for a period in order to allow other creditors to come up and then adjudge their rights against the debtors. Such a procedure would alone have satisfied the principle or the policy and scheme underlying the Provincial Insolvency Act that the petitioning creditor acts not merely for himself but also on behalf of other creditors when once he files a petition to adjudicate debtors as insolvents.

7. Further, I must observe that the courts below have not addressed themselves to the fact that the application filed by the petitioner before me for substitution and for restoration of the original petition I.P. No. 24 of 1946 was filed under Section 151 Civil P.C., which lays down that the courts have inherent power to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the court. This is a fit case where the ends of justice require that in the exercise of the powers vested in court under Section 151 of the Code, the original I. P. No. 24 of 1946 should be ordered to be restored to file in order that the claims of the other creditors against the respondents could be considered and disposed of. Even if Sections 16 and 19 of the Provincial Insolvency Act would not be of any avail to the petitioner, still the courts below had ample power and jurisdiction to rectify situations such as this, where if such rectification does not take place, injustice will ensue.

In this view I think the courts below ought to have allowed the petition for restoration of I. P. No. 24 of 1946 on the file and also ordered substitution of the petitioner in place of the original petitioning creditor who went out of the scene. Otherwise, the position would be that, the debtors having already alienated all the properties, as represented by the original petitioning creditor in the said insolvency petition, there would be no further acts of insolvency which would enable any other creditor to proceed with any application for adjudication of the debtors within the period of time prescribed by the Act.

The result would be that the other creditors would be left without any remedy at all and one of the creditors would have already walked away with the entire sum that was available to all the creditors as such. This in my opinion could not be claimed to be the policy underlying the provisions of- the Provincial Insolvency Act. Therefore in order to meet the ends of justice, I consider that there should be an order directing the Subordinate Judge's court, Coimbatore to restore the petition I. P. No. 24 of 1946 to its file and proceed with the same, substituting the petitioner before me as the petitioning creditor and dispose of the same according to law. In view of the lack of diligence on the part of the petitioner before me, I do not think that he should be awarded any costs. The petition is therefore allowed without costs.


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