1. In this case the plaintiff sues the defendant for the recovery of Rs. 5311-14-3 due under a deed of assignment. The facts alleged are as follows; A joint family carrying on business as Goberdhonedas Murlidhar sold oil to the defendant, carrying on business as Manubhai Purshottam & Co., valued at Rs. 4630, in October 1937. Two members of the family carrying on the business of Goberdhonedas Murlidhar were adjudicated insolvent on 16th November 1937, and on 22nd July 1938 the Official Assignee at a public auction sold to the plaintiff the entirety of the outstandings of the business of Goberdhonedas Murlidhar, and by a deed of assignment dated 9th March he assigned and transferred, among other debts, the debt alleged to be due by the defendant to the insolvents.
2. The defence is that no debt was owing at the time of the assignment. The defendant admits the delivery of the oil and says that for some time prior to 16th October 1937, the insolvents owed a firm named Hiralal Nayak Nilratan Sadhu a sum of money exceeding the claim of the insolvents against the defendant, and that on that date, by mutual arrangement, it was agreed that, after making certain deductions, Rs. 4219-5-6 should be paid by the defendant to the insolvents, who agreed to accept that sum in full settlement, and gave a receipt to that effect, and there and then the insolvents endorsed the cheque with the name of their business and delivered it to the firm of Hiralal Nayak Nilratan Sadhu in part satisfaction of the claims of that firm against the insolvents. The defendant therefore alleges that the firm of Hiralal Nayak Nilratan Sadhu became holders in due course of the cheque for value. It has been argued on behalf of the plaintiff that this defence is of no avail, because at the time of the adjudication the debt was still owing by the defendant to the insolvents and therefore became vested in the Official Assignee. This argument is advanced by reason of the fact that on 18th October 1937 the cheque was dishonoured, and it was not until 6th July 1939 that Hiralal Nayak Nilratan Sadhu filed a suit in the Alipur Court against the defendant upon the cheque, which was decreed by consent.
3. The only other relevant facts which must be considered are that after the order of adjudication, namely, on 20th July 1938, the attorney of the defendant informed the Official Assignee that upon inspecting the schedule filed by the insolvents, to enable him to bid at the forthcoming sale of the insolvents' assets, he was surprised to find that his client had been described as a debtor, whereas the debt had been paid long before the date of adjudication. The Official Assignee replied that he could not do anything about the matter unless the defendant got the insolvents to delete his name from their schedule, whereupon, on the date of the sale, the defendant's attorney gave notice to all present, both in English and Hindustani, that this debt had been paid. On 26th July the insolvents wrote to the defendant admitting that they had inadvertently included his name in the schedule and that the debt had been paid by him long before the order for adjudication was passed. What has happened is unfortunate, for the plaintiff paid about Rs. 13,000 for the assets of the insolvents which he valued at about Rs. 27,000 and up to the present he has only been able to realize about Rs. 10,000. But after giving careful consideration to the evidence which has been given I feel no hesitation whatever in accepting the evidence which has been given by the defendant and on his behalf, nor can I accept the plaintiff's statement that though present at the auction he did not hear any notice being given with regard to this particular debt to the effect that it had already been paid.
4. Learned Counsel for the plaintiff I think realized that he was unable successfully to dispute the facts, and the only question is whether, in these circumstances, it can be said that the debt was in existence at the time of the adjudication. On behalf of the plaintiff reliance has been placed upon the case in Cohen v. Hale (1878) 3 QBD 371 and the case in Monmohon Das v. Baldeo Narain Tandon . In my opinion, neither of these cases has any bearing on the point which I have to consider. On the other hand, such cases as Davis v. Reilly (1898) 1 QB 1 and In re Debtor; Ex parte Debtor; (1908) 1 KB 344 show that where such a bill, promissory note or cheque has been negotiated with a third party, and while it is outstanding in the hands of that third party, it cannot be said that the original debt is still outstanding and unpaid. In Davis v. Reilly (1898) 1 QB 1 it was held that where a buyer of goods has given a bill of exchange for the price, an action will not lie for the price, even after dishonour of the bill, if at the date of the commencement of the action the bill is outstanding in the hands of a third party. It is not enough to entitle the plaintiff to succeed that he is in possession of the bill at the date of the trial. And in the case in In re Debtor; Ex parte Debtor (1908) 1 KB 344 it was held that acceptance by a judgment creditor of a bill, or promissory note, for the amount of his debt operates as an agreement not to enforce that debt during the currency of the bill, and afterwards, notwithstanding dishonour, so long as the bill is outstanding in the hands of a third person to whom it has been indorsed for value by the creditor. In that case a creditor who had accepted a bill of exchange for the amount of his judgment debt, which was dishonoured but was outstanding in the hands of a third party, issued a bankruptcy notice upon the judgment-debtor but it was held that this was not a debt on which a bankruptcy notice could be served, and that the notice of a receiving order made upon it must be set aside. For these reasons there must be judgment in favour of the defendant with costs.