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Mrs. Rahmath Bi Vs. Angappa Raja (Petitioning Creditor) and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1969)2MLJ518
AppellantMrs. Rahmath Bi
RespondentAngappa Raja (Petitioning Creditor) and ors.
Cases ReferredKetokey Churan v. Sarat Kumari Debee
Excerpt:
- k.s. venkataraman, j.1. this is an application filed by one mrs. rahmath bi to implead her as the second petitioning creditor in i.p. no. 31 of 1967. the facts giving rise to this application are these:i.p. no. 31 of 1967 has been filed by one angappa raja to adjudge one r. a. khaleel, the first respondent therein as insolvent. r. a. khaleel had executed a promissory note for rs. 20,000 on 16th july, 1963 in favour of mrs. rahmath bi, who happens to be his sister. that promissory note was endorsed on 10th april, 1967 in favour of angappa raja. the endorsement was only for purposes of collection, the actual endorsement being ' i do hereby endorse this promissory note in favour of sri d. angappa raja of no. 28, muniappa naicken st., madras-11,. for the purpose of collection.2. on 9th march,.....
Judgment:

K.S. Venkataraman, J.

1. This is an application filed by one Mrs. Rahmath Bi to implead her as the second petitioning creditor in I.P. No. 31 of 1967. The facts giving rise to this application are these:

I.P. No. 31 of 1967 has been filed by one Angappa Raja to adjudge one R. A. Khaleel, the first respondent therein as insolvent. R. A. Khaleel had executed a promissory note for Rs. 20,000 on 16th July, 1963 in favour of Mrs. Rahmath Bi, who happens to be his sister. That promissory note was endorsed on 10th April, 1967 in favour of Angappa Raja. The endorsement was only for purposes of collection, the actual endorsement being ' I do hereby endorse this promissory note in favour of Sri D. Angappa Raja of No. 28, Muniappa Naicken St., Madras-11,. for the purpose of collection.

2. On 9th March, 1967 the debtor, Khaleel, had sold his lands, 12 acree 89 cents, in Arkonam taluk to Shasukraj for Rs. 43,000. The deed was also registered on the same day. Angappa Raja filed I.P. No. 31 of 1967 on 22nd May, 1967, to adjudicate Khaleel as insolvent, the act of insolvency relied on being the above sale deed, dated 9th March, 1967. It is alleged that the sale was made with intent to defeat or delay the creditors of Khaleel. It is stated that he was indebted to an extent of Rs. 1,75,000, and that the lands in question were practically the only property of the debtor. He had no doubt a 15th share as a partner in a firm, Abdul Rahman & Co. manufacturing beedies. But the firm itself was in an insolvent condition. It is further averred that the lands would be worth more than Rs. 70,000 and that the value of Rs. 43,000 mentioned in the deed was low.

3. Khaleel in his counter admitted his indebtedness to Mrs. Rahmath Bi but, contended that Angappa Raja was not a creditor at all and was not entitled to file the petition for adjudication. The contention is that the endorsement in his favour is only for purposes of collection and would not authorise him to institute insolvency proceedings and that Angappa Raja had no proprietary interest in the promissory note and had not paid any consideration for getting the endorsement. Khaleel further pleaded on merits that he was solvent, that the sale was for a fair price and that be was not liable to be adjudicated.

4. The transferee, Shasukraj, also filed a similar counter contending that the transfer was bona fide and did not amount to an act of insolvency.

5. Before enquiring into the merits of the application, the contention that Angappa Raja was not entitled to file the petition was argued as a preliminary point. Thiru S. K. Ahmed Meeran, Counsel for Khaleel, based that contention on the grounds (i) that Angappa Raja being only an indorsee for collection and it being admitted that he had not paid any consideration for the endorsement was not a creditor entitled to file an insolvency petition; (ii) in any case he became a creditor only on 10th April, 1967, after the alleged act of insolvency, dated 9th March, 1967 and only a person who was a creditor on the date of the act of insolvency could file a petition for adjudication.

6. Arguments were heard in part and before the adjourned date, Appln. No. 94. of 1968 was put in by Mrs. Rahmath Bi to implead her as the second petitioner-creditor in order to overcome the above objection of the debtor Khaleel. This application has been stoutly resisted by the learned Counsel, Thiru S. K. Ahmed Meeran, for the debtor, and Thiru T. R. Srinivasan and Thiru M. P. Sundararajan appearing for the transferee, Shasukraj. Their point is that on 7th March, 1968, the date of Appln. No. 94 of 1968, more than three months had elapsed after the alleged act of insolvency (9th March, 1967), and therefore Mrs. Rahmath Bi could not herself file an independent application for adjudicating Khaleel as insolvent and so should not be allowed to get over the bar of limitation, by being impleaded as the second petitioning creditor in the petition, I.P. No. 31 of 1967, filed by Angappa Raja.

7. The relevant statutory provisions are these:

8. Section 12 (1) of the Presidency Towns Insolvency Act III of 1909, which runs thus:

A creditor shall not be entitled to present an insolvency petition against a debtor unless:

(a) the debt owing by the debtor to the creditor or if two or more creditors join the petition, the aggregate amount of the debts owing to such creditors amounts, to five hundred rupees; and

(b) the debt is a liquidated sum payable either immediately or at some certain future time, and

(c) the act of insolvency on which the petition is grounded has occurred within 3 months before the presentation of the petition....

9. Section 8 of the Negotiable Instruments Act XXVI of 1881, is to the following effect:

The ' holder ' of a promissory note, bill of exchange, or cheque means any person entitled in his own name to the possession thereof and to receive or recover the amount due thereon from the parties thereto.

10. Section 46 of the Negotiable Instruments Act is as follows:

The making, acceptance or endorsement of a promissory note, bill of exchange or cheque is completed by delivery, actual or constructive. As between parties standing in immediate relation, delivery to be effectual must be made by the party making, accepting or endorsing the instrument or by a person authorised by him in that behalf.

As between such parties and any holder of the instrument other than a holder in due course, it may be shown that the instrument was delivered conditionally or for a special purpose only, and not for the purpose of transferring absolutely the property therein.

A promissory note, bill of exchange or cheque payable to bearer is negotiable by the delivery thereof;

A promissory note, bill of exchange or cheque payable to order is negotiable by the holder by endorsement and delivery thereof.

11. Section 50 of the Act is as follows:

The endorsement of a negotiable instrument followed by delivery transfers to the endorsee the property therein with the right of further negotiation; but the endorsement may, by express words, restrict or exclude such right or may merely constitute the endorsee an agent to endorse the instrument or to receive its contents for the indorser, or for some other specified person.

12. Section 78 of the Act is as follows:

Subject to the provisions of Section 82, Clause (c), payment of the amount due on a promissory note, bill of exchange, or cheque must in order to discharge the maker or acceptor, be made to the holder of the instrument.

13. It is clear from Sections 8, 46, 50, and 78 of the Negotiable Instruments Act;as applied to this case that because the endorsement was only for collection Angappa Raja would not have the right of further negotiation and the property in the promissory note was not transferred absolutely to him and was delivered to him only for the special purpose of collection. But the endorsement certainly conferred on him the right to collect the amount by means open in law; otherwise there would be no point in the endorsement' at all and the provision permitting endorsement would be valueless. The normal mode of collection is no doubt by filing a suit against the maker of the promissory note; but that is not the only one.

It is open to the endorsee in any particular case to file an insolvency petition against the maker in order to collect the money. Suppose the allegations made by Angappa Raja in the application for adjudication are true, the filing of the insolvency petition was the best method of collecting whatever was possible from Khaleel. It would be a waste of money to file a suit paying the Court-fee on the amount of Rs. 27,000 odd, the amount due on the promissory note and further even if a decree was obtained, it might not be possible to realise anything in execution of the decree unless the sale of his lands to Shasukraj was set aside, and for that again, the best course would be to file an insolvency petition. There is nothing in Sections 8, 46, 50 and 78 of the Negotiable Instruments Act, to restrict the right of the endorsee filing an insolvency petition against the maker of the promissory note. On the contrary the reason of the thing requires that the endorsee should have the right of filing an insolvency petition as well for realising the money.

14. What then is the basis for the contention of Thiru S.K. Ahmed Meeran that a bare endorsee for collection like Angappa Raja is not a creditor entitled to file an insolvency petition? The basis is some decisions rendered in England which are to the effect that a trustee alone cannot file a petition to adjudicate a debtor an insolvent, and that the beneficial owner or the cestui que trust must also join in the petition. It is urged that since the Indian Act is modelled on the English Acts of Bankruptcy the English decisions must also be applied. I shall immediately deal with the cases relied on by Thiru Ahmed Meeran. But it can be straightaway stated that what all those decisions lay down is merely that the beneficial owner also must join in the petition, and they do not say that the trustee has no locus standi at all to file a petition, so as to render the application filed by him absolutely valueless. Indeed the course which was suggested and was adopted in some cases was to permit the beneficial owner also to join in the application at a later stage as a petitioner, and such permission was given even though more than three months had elapsed from the date of the act of insolvency when the application to implead the beneficial owner was put in. This has been justified on the footing that the rule requiring the addition of the beneficial owner is not a statutory rule but only a rule of practice, the object of the rule being that the Court must be satisfied that there are no special equities or considerations which would prevent the beneficial owner from getting the debtor adjudged as an insolvent, that the beneficial owner does not hold any security for the debt, and that the beneficial owner is also willing to have the debtor adjudged as insolvent. Among other things, this rule of practice has been followed because insolvency affects the status of the debtor and is a question in which the community at large is interested and it is not a bare question between the creditor and the debtor. Since the rule is based only on practice and not on any express provision in the statute, the fact that the application for the beneficial owner joining as a petitioner is filed more than three months after the act of insolvency, is immaterial so long as the original petition of the trustee was filed within three months of the act of insolvency. Such a case is different from one where the person who wants to come in as a supplemental petitioner is an entirely new creditor, the debt due to whom is entirely different from the debt of the original petitioning creditor. For instance, where the debt due to the original (petitioning) creditor is less than the minimum amount prescribed as a condition requisite for filing an insolvency application (Rs. 500 in India and 50 in England) the defect cannot be cured by another creditor seeking to come in as a supplemental petitioner more than three months after the alleged act of insolvency so as to overcome the defect in the minimum qualifying amount of the debt. In other words, if the petition was filed in the first instance only by a person, the debt due to whom turns out to be Rs. 300 on enquiry, the defect cannot be cured by another creditior to whom a debt of Rs. 400 is due by coming in as a second and supplemental petitioning creditor, if on the date on which he seeks to come in more than three months have elapsed from the alleged act of insolvency. The case is however different where the original debt was more than Rs. 500 but the petition was filed only by a trustee, but the beneficial owner seeks to come in after three months of the act of insolvency merely to overcome the objection based on the, rule of practice that the beneficial owner also must join in such a petition.

15. Applying these principles to the present case Angappa Raja, the endorsee, must be considered as a trustee for Mrs. Rahmath Bi for the amount which he is able to collect from the debtor, Khaleel. But Mrs. Rahmath Bi may and should be allowed to come in as a supplemental petitioning creditor even though on the date of her application more than three months had elapsed from the alleged act of insolvency. In fact, when she wants to come in the Court should necessarily allow her to do so. The right of Mrs. Rahmath Bi to realise whatever is possible from Khaleel the debtor cannot be defeated by the technical argument put forward by Khaleel and the transferee. Justice cannot be allowed to be defeated by such technicalities.

16. The earliest decision in which the matter appears to have been considered is Ex parte Dubois Decided in 1787, Coxes Cases in Equity Volume I, p. 310. The Lord Chancellor stated:

The reason why a trustee is not permitted to prove the debt alone under the commission is, that he must swear to the debt being due to him; now the debt being only due to him in trust for another, it is rather too great a refinement for , him to take such an oath; and if he swears the debt is due to him as trustee only that is not sufficient, for it does not appear with certainty that the debt has not been paid to the cestui que trust. The cestui que trust, must, therefore, join the trustee in swearing that no part of the debt has been paid or secured.

17. The next case is Ex parte Gray Decided in 1835, Montague and Aytrona Reports Vol. I, p. 283. The facts are somewhat interesting. One Grady, a chemist, became insolvent. The Official Assignee fold the premises, stock and furniture to him for Rs. 2,200. One Hodges advanced the whole money and became a partner with Gray. Thus Gray became liable to pay 1,100 to Hodges. Gray assigned the lease, stock and furniture to Hannan ' in trust' by way of mortgage to secure repayment of 1,100 due to Hodges. Hodges filed a bill on 13th March, 1835 for dissolution of the partnership and treated the debt of 1,100 as part of the partnership account. On 28th May, 1835, Hannan issued a fiat on the debt of 1,100. It was held that Hannan alone could not file the fiat because he was a trustee for Hodges and Ex parte Dubois Decided in 1787, Coxes Cases in Equity Volume I, p. 310 was relied on. But if Hodges should come Gray could defeat him on the ground that a separate fiat could not be issued in respect of a debt which had been taken as an item to be considered in the dissolution of the partnership.

18. The next case is Hope v. Meek 10 Exch. Rep. 829, decided in 1855, The facts were briefly these. One Dunbar was adjudicted a bankrupt on the petition of one Vickerman.. Dunbar had executed two promissory notes to one Alexander Hodson, the then president of a club of which Dunbar was a member in respect of an obligation incurred by Dunbar to the club. The promissory notes were indorsed by the previous president Hodson to the succeding president, Vickerman. It was contended that the petitioning creditor was only a trustee and the debt due to him could not be a good petitioning creditor's debt for filing the insolvency petition and the case of Ex parte Gray Decided in 1835, Montague and Aytrona Reports Vol. I, p. 283 was relied on. The above case was however distinguished on the ground that in the instant case there was ample evidence of the acquiescence of the cestui que trust (the club) and that the indorsee could maintain an action at law and further could also file a petition in bankruptcy. It was stated:

In the present case, however, there was ample evidence of the acquiescence of the cestui que trust; and we apprehend that there is no doubt that, generally speaking it is no objection to a petitioning creditor that he is a trustee.

19. It was further stated:

In the present case we think the amount unpaid was a debt due to the petitioning creditor and when the other necessary circumstances concur, a debt to the requisite amount confers upon the creditor the power to present a petition in bankruptcy as a right; Ex-parte Gray Decided in 1835, Montague and Aytrona Reports Vol. I, p. 283.

20. These cases were followed in Ex parte Culley in re Adams 9 Ch.D. 307. In that case, one Margeret Edenborough, a widow, recovered judgment in an action against one Adams for over 1,000. She assigned the debt to Culley giving notice to Adams. Culley presented a bankruptcy petition against Adams founded upon the judgment debt. At the hearing Culley admitted that he had no interest whatever on the debt, and had himself given no consideration for it, but that he was a mere trustee for Mr. Griffin, who was the absolute beneficial owner of the debt. It was contended on be half of Adams inter alia, that under those circumstances the petition could not be presented by the trustee alone, but that the trustee and the cestui que trust must both join in the petition. The Registrar accepted the above contention and an appeal was dismissed by the Court of appeal. It was pointed out by James, L.J., that it had been established previously as a rule of law of practice of the Bankruptcy Courts that for the safety of mankind the beneficial owner must join in the requisite oath that the money is justly and truly due, that it has not been paid and that he had no security for it, and that it was considered not sufficient to have only the oath of a man to whom in fact not a farthing was due, and who might know nothing at all about the security which the real owner had got. Counsel for Culley contended that the old rule of practice had been abrogated by the provisions of the Bankruptcy Act, 1869. The Court held that the old rule had not been so abrogated and that the only alteration made by the Act of 1869 was that whereas previously only debts at law could be the basis of a bankruptcy petition, under the Act debts in equity also could be made the basis. But the Act did not make any alteration in respect of who the petitioning creditor should be. This was pointed out clearly in the judgment of the other two learned Judges, Brett and Cotton, L.JJ.

21. The wisdom of the above rule is illustrated in the next decision, Ex parte Griffin in re. Adams 12 Ch.D. 480. Upon the dismissal of the petition of Culley, Culley assigned the debt to Griffin and Griffin presented a bankruptcy petition against Adam in respect of the same debt. It was found that Adams had a mortgage upon a property of one Moojen, a Solicitor and that later Griffin, a son-in-law of Moojen acquired a transfer of the mortgage right in another mortgage on the same property. It was held that Griffin acquired the debt of Mrs. Margeret Edenborough simply to force Adams to give up his rights as a mortgagee over the mortgaged property and in order to make the property available to Moojen free from the encumbrance of Adams. Thus it was found that the insolvency petition was an abuse of the process of the Court intended to achieve a collateral purpose. This case is of interest because it shows that when the real beneficial owner of the debt, namely, Griffiin, sought to present the bankruptcy petition, Adams had a good defence to it.

22. The question again came up in 1884 in Ex parte Dearle in re Hastings (1884) 14 Q.B.D. 184. There, a lady had advanced a loan of 1,200 through her brother J. G. Dearie to one Carr. J.G. Dearie obtained a judgment against Carr for 1,206-19-6 inclusive of interest. One Hastings entered into an agreement with J. G. Dearie (acting on behalf of his sister) guaranteeing repayment of the said judgment debt. The amount was not paid. J.G. Dearie issued a bankruptcy notice. It was not complied with. He thereupon filed a bankruptcy petition against Hastings. Objection was taken by Hastings before the Registrar that J.G. Dearie being a mere trustee of the debt for his sister could not, according to the practice of the Courts, as laid down in Ex parte Culley, present the petition in bankruptcy, and his sister as the cestui que trust must join as a co-petitioner. The contention Was upheld and the petition was dismissed. J.G. Dearie appealed. In the Court of appeal a request was made to implead the sister as competitioner. The request was allowed even though it was resisted on the ground that on the date of the request more than three months had elapsed and the amendment would be equivalent to the presentation of a new petition founded on an act of bankruptcy more than three months old. It was contended that the old rule had been abrogated by the provisions of the Bankruptcy Act of 1883. That argument was rejected and it was pointed out that a similar argument that the Bankruptcy Act of 1869 had abrogated the old rule had been rejected by the Court of appeal Ex parte Culley 9 Ch.D. 307, and that with full knowledge of that state of things, the Bankruptcy Act, 1883, had not made any specific provision disclosing an intention to abrogate the old rule. The reasons for the old rule were again reiterated in particular by Brett, M.R. who was a party to the previous decision. He observed:

This was not a mere rule of practice; it was a rule of conduct founded on principle. For if you took no notice of the cestui que trust, it might well happen there was no real debt at all, though in legal parlance there might be a debt. A cestui que trust who was competent to do so might have released the debt. I think the reason remained after the passing of the Bankruptcy Act of 1869, and that it remains after the passing of the Bankruptcy Act of 1883 just as much as it did before. By the Act of 1869 a new act of bankruptcy and a new petitioning creditor's debt were created. But no new petitioning creditor was created; there were no negative words as to the person who ought to be the petitioner.

23. On the question of amendment Lord Coleridge, C.J., observed:

Then arises the question whether we ought to allow an amendment of the petition. I think we have clearly power to do so under Section 105, and the only question is whether the case is a proper one for the exercise of the power? I think it is. A blunder by no means unnatural have been made in the construction of the Act; it is a mere slip. I think it would be just to allow the name of the sister, on proper terms, to be added as a co-petitioner, and that the proceedings should then be continued with the addition of her name; but I think that the person who has made the blunder must pay for it...The. amendment must be taken to have been made at the time when the petition was presented.

24. Brett, M.R., concurred; Lindley, L.J., also concurred and added that though it would not appear that leave to amend had been asked for before the Registrar, still it must be given when it was asked for before them, subject to terms. In passing it may be noted that the power of amendment is contained in Section 89 of the Presidency Towns Insolvency Act read with the relevant provisions of the Civil Procedure Code, like Order 1, Rule 10 and Order 6, Rule 17 and Section 141.

25. The above decision was followed in 1887 in In re Ellis, Ex parte Hinshelwood 4 Morrel's Bankruptcy Reports, Vol. IV, 283--There a debtor, Ellis, had borrowed 1,030 from one Hinshelwood on a bill of exchange. The bill was endorsed by the payee to his son C. C. Hinshelwood. The son obtained a judgment and issued a bankruptcy notice. It was not complied with and then he presented the bankruptcy petition. Objection was taken that the son was only a trustee for the father and could not maintain the petition without adding the father. Leave was sought for to implead the father but was refused by the Registrar and the petition was dismissed. Against that the Eon appealed. The Court of appeal allowed the amendment as a matter of indulgence on condition that the father paid all the costs thrown away by his not having been joined.

26. The position is thus summed up in Halsbury's Laws of England, Simonds Edition, Volume 2, page 289, paragraph 541:

A person to whom a debt is due as a bare trustee may present a petition in certain cases, e.g., when the beneficial owner of the debt is under disability. But when a debt is due to a person as a bare trustee for an absolute beneficial owner, who is capable of dealing with the debt as he pleases, the trustee cannot alone present a petition upon the debt, but the beneficial owner must join in the petition.

27. In the foot-note, the authorities quoted arc Ex parte Culley 9 Ch.D. 307, Re Hastings Ex parte Dearle (1884) 14 Q.B.D. 184, and it is added that where a petition has been presented by a bare trustee, leave may be given to amend it by joining the cestui que trust. The authorities quoted are In re Hastings Ex parte Dearle (1884) 14 Q.B.D. 184, and Re Ellis, Ex parte Hinshel-wood (1887) 4 Morr. 283.

28. The question of amendment is further considered in para. 576 at page 303 thus:

The Court may amend a petition upon such terms, if any, as it may think fit to impose. A petition may be amended even after a receiving order has been made, but the Court will not after adjudication amend a petition from which an essential part of the description of the act of the bankruptcy relied on has been omitted; nor will the Court, after three months have elapsed from the date of the act of bankruptcy on which the petition is founded, amend a petition by adding as petitioners other creditors, unless the joining of the persons sought to be added is a mere rule of bankruptcy practice and such persons are not essential to the petition by virtue of the statutory requirements with respect to who may be a petitioning creditor.

29. The foot-note quotes as authority, Re Maund, Ex parte Maund (1895) 1 Q.B.D. 194, explaining Re Owen, Ex parte Owen (1884) 13 Q.B.D. 113, Re Hastings, Ex parte Dearle (1884) 14 Q.B.D. 184, and Re Ellis, Ex parte Hinshelwood (1887) 4 Morr. 283.

30. It will now be convenient to deal with In re Maund Ex parte (1895) 1 Q.B.D. 194. That was a case where the bankruptcy petition was presented by four creditors claiming that the debts due to them aggregated to 206, but it was found on enquiry that some of the alleged debts had no existence and therefore, the amount of the debts fell below the statutory minimum (50). The defect was sought to be got over by filing an application to amend the petition by adding a fresh petitioner by fresh petition. But on the date of the application more than three months had elapsed from the date of the act of bankruptcy. The amendment was allowed by the Registrar. The debtor appealed against the decision. The appeal was allowed. Vaugham Williams, J., stated:

It is perfectly clear that the Court ought not to allow, after three months have elapsed from the date of committal of the act of bankruptcy, the introduction of creditors, as petitioning creditors, who could not themselves present a petition, and the introduction of a debt which, after the same period has elapsed, would not be a debt upon which a petition could be founded.

31. He distinguished the earlier cases where amendment was allowed or proposed to be allowed in the following manner:

Our attention was called to several cases which, it was said, established that the power of amendment could be exercised after the three months had elapsed. In all these cases, however, it will be seen that the person added was, not essential to the petition by virtue of the requirement of the Act, but only by virtue of the rules of practice of the bankruptcy Court. That is the explanation of the addition of the cestui que trust in Ex parte Dearle, in re Hastings (1884) 14 Q.B.D. 184.

32. Wright, J., added:

As I understand the matter, every debt sought to be added as ground of the petition, after three months from the date of the act of bankruptcy, is unavailable for that purpose; but if within that period a debt has been made ground of the petition and afterwards becomes desirable to add another party to the petition in respect of the debt, leave may be given to join that other party as a petitioner where it will not lead to any injustice.

33. In Ex parte Owen (1884) 13 Q.B.D. 113, the facts were these: Edward Peyton and Frank Peyton carrying on business in partnership filed a writ on 26th November, 1883, against one Owen in respect of a bill of exchange. The writ was served on Owen on 30th November, 1883. On 12th December, 1883, Edward Peyton filed a liquidation petition in the Bankruptcy Court and one Harrison was appointed Receiver of his property. On 20th December, 1883, final judgment was obtained in the writ. Frank Peyton founding on the judgment debt issued a bankruptcy notice to Owen in the name of the firm and followed it up with a bankruptcy petition. In the meantime a meeting of the creditors of Edward Peyton was held and Harrison was appointed trustee. The bankruptcy petition filed by Frank Peyton against Owen then came on for hearing before the Registrar. Objection was taken on behalf of Owen that the interest of Edward Peyton in the judgment debt was vested in the trustee in his liquidation and that a receiving order ought not to have been made at any rate in the absence of that trustee (Harrison). The Registrar overruled the objection and made a receiving order. Owen appealed. The trustee in the liquidation of Edward Peyton was willing to assent to the discharge of the receiving order. The learned Judges of the Court of appeal expressed the opinion that though the bankruptcy petition might have been properly presented, yet when it came on for hearing the trustee ought to have been made a party.

34. They thought that the proper course was to give leave to amend the petition by adding the trustee as co-petitioner and otherwise the receiving order would be discharged.

35. Williams on Bankruptcy, 17th Edition says at page 49:

A bare trustee can petition, but the cestui que trust, unless under disability, must join, on the ground that the Court always requires the oath, not only of the person to whom the debt was legally due that he had not been paid, but also of any beneficial owner capable of receiving or releasing the debt.

36. The question of amendment is dealt with at pages 489-490 in the commentary to Section 109 of the Bankruptcy Act of 1914.

37. The same position is reiterated on Mullah's Law of Insolvency, 2nd Edition, page 156. The position regarding amendment is thus summarised at page 166:

If the effect of the amendment is to introduce creditors as petitioning creditors who could not themselves present a petition after three months have elapsed or to put it differently, if its effect is to introduce a debt which after the same period has elspsed would not be a debt upon which the petition could be founded, then the Courts will not give leave to amend. But if on the contrary, within that period a debt has been made the ground of the petition and it afterwards becomes desirable to add another party, the case stands on an entirely different footing.

38. The authorities cited are: Chockalinga Chettiar v. Muthia Chettiar : (1938)2MLJ390 and Karuppia v. Veerabadra : AIR1951Mad456 .

39. In Chockalinga Chettiar v. Muthia Chettiar : (1938)2MLJ390 , the insolvency petition was presented on 24th November, 1930 by a person, who claimed to be the sole creditor of the debtor for Rs. 16,000 odd. But actually on that date an arbitration enquiry was pending between the petitioner and a third party who claimed an interest in the debt. By an award made four days later the petitioner became solely entitled to the debt. He wanted to amend the petition by alleging that fact. The District Judge allowed the amendment. The debtor appealed. Venkatasubba Rao and Abdul Rahman, JJ., discussed the cases cited by me and held that the Court had power to allow the amendment, by adding that the inchoate right which the petitioner had previous to the petition became-perfected by virtue of the award delivered four days later.

40. In Karuppia Nadar v. Veerabadra : AIR1951Mad456 , the petitioning creditor was one Karuppia Nadar and he alleged that the debt was due to him in his individual capacity. It was really a debt due to a firm of which Karuppia was only one of the partners. To overcome the objection taken by the debtor on that ground, the petitioner sought to amend the petition by describing the petitioner as the firm of which he was the managing partner. Panchapagesa Sastri, J., held that the amendment ought to be allowed, observing:.while it may be incorrect to describe a debt due to A because it is really a debt due to A, B and C the partners of the firm, it would be incorrect to hold that a new debt is sought to be taken advantage of as foundation for the petitioning creditor's debt merely because the same debt due to the partnership and therefore due to also A is now sought to be described as a debt due to A. B and C, all the partners. This, in my opinion, is a case where really an identical debt in question continues to be the foundation of the petition for insolvency.

The learned Judge followed the decision in Chockalinga Chettiar v. Muthia Chettiar : (1938)2MLJ390 and the test propounded by Vaugham William, J. and Wright, J. in the decision cited already.

41. It is true the petitioning creditor's debt must have existed at the time of the act of insolvency as pointed out in the cases cited in foot-note (g) at page 158 of Mullah's Law of Insolvency, in particular Ex parte Howward 6 Ch. Ap. 546, Chidambur Singh v. Mrs. Baijes I.L.R. (1936) Lah. 580 and Dt. Board, Bijnor v. Mohd. Abdul Salam I.L.R. (1947) All. 624 : A.I.R. 1947 All. But that criterion has been satisfied in this case because the debt of the petitioning creditor, Angappa Raja was the debt due to the assignor, Mrs. Rahmath Bi, and had come into existence even on 16th July, 1963, that is, before the date of the alleged act of insolvency. We have further seen that according to the cases decided in England, it was not as if Angappa Raja could not have filed the petition at all and all that those cases would require as a rule of practice is that Mrs. Rahmath Bi must also join and we have further seen that in similar cases permission was given to amend the petition so as to allow the true beneficial owner (like Mrs. Rahmath Bi) to come in as an additional petitioner, even though on the date of the application more than three months had elapsed from the date of the act of insolvency. There is really nothing in Section 12 of the Presidency Towns Insolvency Act, when read with the relevant provisions of the Negotiable Instruments Act to hold that the endorsee Angappa Raja could not by himself maintain the petition and there appears to be no decided case in India importing the practice in the English Bankruptcy Courts requiring the cestui que trust to be added. But I am prepared to import that rule of practice for the purposes of the Presidency Towns Insolvency Act, for the reasons discussed above. But it is clear that when Mrs. Rahmath Bi wants to come as an additional petitioner she must be allowed to do so, and the fact that on the date of her application more than three months had elapsed from the alleged act of insolvency cannot stand in her way.

42. Thiru Ahmed Meeran has relied on the opinion of Lord Hanworth, M.R. in In re a debtor (1929) 2 Ch. D. 146, in support of his contention that Angappa Raja is not a creditor for the purpose of Section 12 of the Presidency Towns Insolvency Act. The facts in that case were shortly these. A decree nisi was made on 30th April, 1928, in a divorce suit in which the debtor was the co-respondent. On 11th July; 1928, an order was made directing the co-respondent to pay to the Court the amount of the costs of the petitioner in the divorce suit. On 24th October, 1928, it was varied by directing him to pay the amount to the petitioner's Solicitors on their undertaking to lodge this sum in Court when received. The Solicitors gave the undertaking. Subsequently on 5th November, 1928, the decree nisi was made absolute. A bankruptcy notice was issued by the Solicitors against the debtor for payment of the sum which had been ordered. He did not comply with the notice. Thereupon the Solicitors presented the bankruptcy petition. The objections were taken by the debtor before the Registrar (1) that the Solicitors were not the creditors of the debtor within the meaning of Section 4 of the Bankruptcy Act of 1914 and that the true creditor was the husband who had brought the divorce suit and (ii) that the order of 24th October, 1928, was not a final order within the meaning of Section 1 (1) (g) of the Bankruptcy Act. The objections were overruled by the Registrar. The debtor appealed. The Court of appeal really decided the case on the second point and held that the orders of 11th July, 1928 and 24th October, 1928, were not final orders because it was contemplated that the Court should later order about the amount only after the final disposal of the divorce suit. But incidentally Lord Hanworth stated with regard to the other point,:.It is not perhaps material to our decision to consider it very fully, but I think it is also a good point...The Solicitors were merely acting as a necessary part of the machinery, under which the sum enured for the benefit of the petitioner; but they were not the principals as against the debtor.

43. The case of the endorsee of a negotiable instrument is distinguishable from the Solicitors in the situation of that case. Further the discussion was brief and did not consider the question of an endorsee of a negotiable instrument (promissory note) or the question of a bare trustee filing a bankruptcy petition by himself and the permissibility of adding the cestui que trust on an application. Hence the decision cannot be considered as authority contrary to the authorities discussed by me.

44. In support of the contention that Angappa Raja became a creditor only on 10th April, 1967, after the act of insolvency and therefore could not maintain the application for adjudication, the learned Counsel, Thiru Meeran, cited two decisions Muthia Chettiar v. Lakshminarasa Iyer A.I.R. 1921 Mad. 62 : 61 I.C. 756 : 13 L.W. 141, and District Board, Bijnor v. Mohamed Abdul Salam I.L.R. (1947) All. 624 : A.I.R. 1947 All. 383. In Muthia Chettiar v. Lakshminarasa Iyer A.I.R. 1921 Mad. 62 : 61 I.C. 756 : 13 L.W. 141, the debtor executed a promissory note to the petitioning creditor on 23rd March. The act of insolvency alleged was a release deed executed by the father (Lakshminarasa Iyer) in favour of his father of the family properties. The body of the deed was written on 13th March. On 6th April, a schedule of the family properties was attached. The deed was registered on the 8th April. The question was whether the act of insolvency took place on the 13th March, or only on 6th April. The Bench held that the transfer took place on 13th March, itself on the ground that the deed of release with respect to a coparcener's share in joint Hindu family property need not specify all the family properties. Since the petitioner became a creditor only on 23rd March, i.e., ten days after the act of insolvency it was held that he was not competent to file the petition. The case is distinguishable because there the debt itself came into existence only after the act of insolvency.

45. In Dt. Board, Bijnor v. Abdul Salam I.L.R. (1947) All. 624 : A.I.R. 1947 All. 383, the District Board sought to adjudicate one Salam as insolvent. Salam had entered into a contract with the Board for plying a ferry. He filed a suit against the District Board for recovery of some damages. The suit was decreed on 31st October, 1941, for Rs. 700 odd with proportionate costs. Against that the District Board filed an appeal to the Court of the District Judge. During the pendency of the appeal, Salam realised the decretal amount in February, 1942. Further on 3rd August, 1942, he executed a sale deed of his entire property in favour of his wife for Rs. 800 a portion of the alleged dower debt due to his wife. The sale deed was registered on 13th August, 1942. The appeal was allowed by the District Court on 12th November, 1942. The District Board instead of applying for restitution under Section 144, Civil Procedure Code, filed the petition against Salam for adjudication on 13th November, 1942, the act of insolvency being the transfer of his entire property to his wife. The District Judge held firstly that the petition was out of time because in his view the sale deed took effect even on 3rd July, 1942, and the petition was presented more than three months later. Secondly the learned Judge held that on 3rd July, 1942 the District Board had not become a creditor of Abdul Salam, that they became creditors only on 12th November, 1942, when their appeal was allowed by the District Court. The District Board filed an appeal to the High Court. The learned Judges disagreed with the District Judge on the point of registration and held that the three months would count only from the date of registration because it was only then the outside world would come to know of the sales. On the second point however they agreed with the learned District Judge.

46. Here again it must be noted that the debt itself came into existence only after the act of insolvency whereas in the case before us the debt was in existence even on 9th March, 1967; but it was then due to Mrs. Rahmath Bi.

47. Thiru Ahmed Meeran relied on Jaleel Sahib v. Seeniappa Ramaswami (1951)1 M.L.J. 87 : A.I.R. 1851 Mad. 665, and contended that there is provision in the Insolvency Acts (Provincial and Presidency Towns) only for substituting a fresh creditor and not for adding a fresh creditor under Order I, Rule 10, Civil Procedure Code. In that case a new creditor different from the petitioning creditor, sought to get himself added as an additional party under Order I, Rule 10 alleging that the petitioning creditor might collude with the debtor. Here Mrs. Rahmath Bi does not make any such allegation and the case here is not one of substitution at all. The decision is no authority on the question before us.

48. Thiru Ahmed Meeran then submitted that Section 50 of the Negotiable Instrument Act speaks of endorsee for collection as an agent to receive the contents for the endorser and he urged that an agent could not necessarily be a trustee. In that connection he cited the following sentence from Lewin on Trusts, 16th Edition 1964, at page 144:

Every agency is not of a fiduciary character, and it may be a difficult question to determine whether or not the agent is in the particular case a constructive trustee.

49. Learned Counsel referred to the decisions cited there and in addition he referred to Travancore Bank v. Abraham A.I.R. 1955 T. C. 139, and Rapudaman v. Surinder Kumar . I do not think it however necessary to discuss these cases in detail, because, in my opinion an endorsee like Angappa Raja who admittedly has not paid any consideration for the endorsement will be a trustee for the endorser in respect of the money which he is able to collect. It is only on the basis that he is trustee for Rahmath Bi, the learned Counsel was able to invoke the decisions in England requiring that a cestuique trust should also join in the petition for adjudication. The question really before the Court whether the endorsee, Angappa Raja, could not have filed the petition at all by himself. On that point, I have shown that he could not merely file a suit but could file an insolvency petition as well, and that in order to safeguard any defence which the debtor might have against the original endorser, it will be sufficient to implead the original endorser as a party. Since it is not disputed by the learned Counsel, Thiru Ahmed Meeran that the endorsee could file a suit to recover the amount, it is unnecessary to refer to the authorities on that position; these have been quoted in Bhashyam and Adiga's Commentary to Section 50 of the Negotiable Instruments Act at page 297-301.

50. Thiru Ahmed Meeran relied on Ketokey Churan v. Sarat Kumari Debee (1917) 37 I.C. 71 : 20 C.W.N. 995, as authority for the position that a benamidar cannot file an insolvency petition. But in my opinion, that authority cannot be extended to an endorsee for collection.

51. In the result, I allow Appeal No. 94 of 1968 and permit Mrs. Rahmath Bi to be added as the second petitioner, and as pointed out already in Ex parte Culley 9 Ch. p. 307, the amendment will date back to 22nd May, 1967 Since the application for impleading has been filed at an early stage, I do not think it necessary to direct Mrs. Rahmath Bi to pay any costs to the respondents.

52. Application Mo. 182 of 1967.--In view of Mrs. Rahmath Bi having been allowed to be added as the second petitioner, the preliminary objections to the maintainability of the petition are no longer available to the respondent and they are overruled. Application No. 182 of 1967 will be posted in due course for further enquiry ' and it will be open to the respondents to file further counter affidavits which may be necessary as a result of Mrs. Rahmath Bi coming on the record.


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