1. This is an application by the Bhowanipore Banking Corporation, Ltd. for an order that the proof of debt lodged by the applicant with the trustees of a certain deed of composition should be admitted, and for an order that the trustees should pay to the applicant the dividends payable on the applicant's claim on the basis of the dividends already issued. The circumstances which give rise to this application are as follows: A company called 'Kar's Bricks and Tiles Ltd.' obtained an advance of a lac of rupees from the applicant (hereinafter referred to as 'the Bank') on the 27th September 1927. That advance was secured by a deed of mortgage to which the limited company and one Upendra Nath Kar (hereinafter referred to as 'the insolvent'), who was the proprietor of a business known as Kar & Co. were parties. The mortgage security consisted of immovable property belonging to the limited company. The papers before me do not contain a complete translation of the mortgage-deed, which was in the Bengali language, but a translation of the material clause is set out in the affidavit used in reply. Under that clause, in case of default the Bank is to be competent to institute a suit against both the limited company and the insolvent and bring the mortgaged property to sale, and in case the sale proceeds are insufficient to discharge the mortgage debt
to realise the balance from all the assets belonging to the firm styled 'Kar & Co.' owned by the insolvent and by securing a personal decree against the insolvent from his personal and other properties and by all other means according to law.
2. On 17th August 1931 the Bank proceeded to enforce their mortgage by a suit in the Court of the Subordinate Judge at Alipore. In that suit both the limited company and the insolvent were made defendants. The preliminary mortgage-decree was made on 15th February 1931 and the final decree on 12th January 1932. On a date in January subsequent to the final decree the insolvent was adjudicated under the Presidency Towns Insolvency Act by this Court in pursuance of a petition presented on 8th October 1931. The Bank allege that they were not aware of the insolvent's adjudication until some time in May 1934.
3. On 9th November 1932, the mortgaged property was brought to sale and the mortgagee Bank were declared the purchasers, being the highest bidders at a sum of Rs. 26,410. After setting off that sum there remained due to the Bank, Rs. 10,03,975-5-2. There was an application by the limited company to have the sale set aside, but the proceedings terminated in favour of the Bank and the sale was confirmed. On 12th March 1934, the Bank applied to the Alipore Court for a personal decree against the insolvent for the sum still outstanding, On 25th May 1934 the Bank, who had come to know of the insolvency and had ascertained that the adjudication had been annulled in consequence of the Court's approval of a scheme of composition under Section 30, Presidency Towns Insolvency Act, wrote to the trustees of the deed asking them to register their claim. Certain correspondence followed in which the trustees asked for and obtained documents in support of the Bank's claim, and the position finally taken up by the trustees was that, on the true construction of the deed, before the Bank could proceed to satisfy their claim by executing it against the insolvent, they must first obtain a personal decree against him. The trustees also indicated that as the adjudication order had been made prior to the application for personal decree, the application was bad because the High Court's leave to make it had not been obtained under Section 17, Presidency Towns Insolvency Act. The trustees successfully advanced this contention before the Subordinate Judge at Alipore, who on the ground that no leave had been obtained dismissed the application. I do not think it necessary to set out in detail the further steps which the Bank took and it will be sufficient to state that notice, of the present application was served on the trustees on 16th July 1936. I should add however that from time to time the trustees distributed dividends to the insolvent's creditors under the terms of the deed of composition, and that some of such distributions were prior to, and some subsequent to, the receipt by the trustees of notice of the Bank's claim. The Bank have not participated in any of the dividends distributed.
4. The application is opposed by the trustees upon several grounds. The first ground advanced is that which the trustees put forward when the question of the Bank's claim was first agitated, namely that no liability can attach to the insolvent until a personal decree has been made against him: admittedly no such decree has been obtained, and inasmuch as the insolvent is now dead, quite apart from any other objections there might be to such a decree being passed, it may be assumed that no personal decree will ever be made against him or his representatives. The decision of this question depends upon the construction of the deed. I feel no doubt at all that the clause was inserted for the benefit of the mortgagees and that it was intended to provide them with a way of recovering their debt from the guarantor, and was not intended in any way to limit their ordinary rights against him. Both the limited company and the insolvent are referred to in the deed as the mortgagors, and in my opinion the words in the clause 'by all other means according to law' recognize the right of the mortgagees to recover from the surety in any way they can, as for example by filing a suit based on the contract of guarantee, if for any reason they do not choose or are not able to obtain a personal decree in the mortgage suit. The first objection, therefore, fails.
5. It is suggested that at some stage or other the Official Assignee should have been made a party to the mortgage suit. He clearly could not have been made a party prior to the order of adjudication, and before the date of adjudication the final decree had already been made. I do not think that the effect of 0. 22, Rule 10 is to give to the Official Assignee a right to be made a party on the ground that the property and assets of the insolvent have devolved on him by virtue of the order of adjudication. The next point taken by learned counsel for the trustees is that the surety has been deprived of the benefit of the security for the debt and has thereby been discharged from liability. It is stated, with what justification I am not able to say, that the price obtained for the property was quite inadequate, and it is suggested that if a proper price had been obtained at the auction sale, the deficiency would have been very considerably reduced. In other words it is said that if the insolvent had been able to redeem, his liability as surety would be comparatively small. Undoubtedly under Section 91, T.P. Act as it stood at the date of the mortgage deed, he had the right to redeem or institute a suit for redemption. As he had this right he was properly made a party to the mortgage suit. He did not seek to exercise his right to redeem, and it is now suggested that it was the duty of the mortgagees to have the decree drawn up in some way which would preserve that right. I cannot see on what principle that duty was cast upon the mortgagees, or how by taking a decree in the ordinary form they have discharged the surety from his liability.
6. Reference has been made to the doctrine of subrogation, and my attention has been directed to Section 92, T.P. Act. It appears to me that the contention of the bank is justified when they say that the section applies only when some one other than the mortgagor has in fact redeemed the property, and that it has no bearing on the circumstances of the present case. Finally a technical point is taken. It is said that this application is barred by limitation. When I asked where I should find the law prescribing the period of limitation for an application such as this, I was referred to Section 101, Presidency Towns Insolvency Act. That section provides a period of 20 days for an appeal from any act or decision of the Official Assignee or from an order made by an Officer of the Court empowered under Section 6 of the Act. Nothing is said in the section as to applications arising from a refusal by trustees under a deed of composition to admit a claim. Learned counsel however argues that when an adjudication is annulled for the purpose of adjudicating upon claims the trustees take the place which has hitherto been occupied by the Official Assignee, and that Section 101, must be read to cover an application such as this. I find it impossible to agree, although possibly it would have been better, had the Act made some provision of the nature suggested. I should not however be justified on that account in construing the words 'Official Assignee' to include trustees under a deed of composition. Moreover I do not think that an application calling upon them to admit a claim can rightly and properly be called an appeal from their decision within the meaning of Section 101. There is this further difficulty that it is not easy to point to a definite refusal to admit, which is the decision against which it is said the bank are now appealing.
7. Copies of a number of letters are attached to the affidavit in support of the application, but the trustees do not rely upon any of them as containing the refusal. They point to a statement in the letter of 3rd June 1936 written by the trustees solicitor to the effect that in July 1934 the trustees intimated to the bank that unless the bank could obtain a personal decree against the insolvent's estate the trustees would not admit such claim. I cannot treat this as evidence of a refusal, and the fact that, as is shown by the letter itself, the trustees were taking advice as to their position indicates that there had been no such refusal as is suggested. This disposes of the main points urged. The bank are entitled to have the claim admitted subject to reduction of Rs. 150, which are being held on their account by the receiver appointed in the mortgage suit. With regard to the liability of the trustees I do not think they can be held liable in respect of any dividend paid prior to May 1934. It appears to me however that after they received notice of the bank's claim they paid subsequent dividends at their own. risk, and although of course the assets of the insolvent, if any, must first be exhausted in putting the bank in the same position as the other creditors, if there is any deficiency in this respect it appears to me the trustees are liable. Both parties are entitled to their costs out of the insolvent's estate.