1. The question in this case is whether the Official Assignee is entitled as against the firm of Ramratan Bagree to retain by way of commission to him under the Insolvency Rules of this Court a sum which appears to amount to some 62 Rupees.
2. The insolvent, one Dwijendra Nath Sen, was adjudicated on the 9th of June 1925. Prior to the insolvency, namely, on the 15th of February 1924, and the 14th of January 1925 he had executed certain deeds of hypothecation over his stock-in-trade, book-debts and certain other assets, in favour of a firm which I shall refer to as Mathura Das. He had also on the 25th of march 1925 executed a deed of hypothecation over the same assets in favour of the present respondents-the firm of Ramratan Das Bagree. It appears that the Official Assignee took possession of the assets at a time when he had no notice of the respondent's claim to a security there over but that immediately thereafter the respondent firm objected to the Official Assignee proceeding to sell the stock-in-trade and other assets comprised in the alleged security. The Official Assignee had become responsible for rent of the premises in which these goods were and he was not at the moment in a position to deal finally with the claim of either of the two firms whom I have named to be secured creditors. He obtained consent of the firm of Mathura Das to his proceeding with the sale but the respondent firm stoutly objected and maintained that they would take steps to prevent the Official Assignee from selling these assets at his own hand.
3. In fact, the respondent firm on the 16th of June, very shortly after the adjudication, commenced a suit on the Original Side for enforcement of their security. They originally brought the suit against the insolvent, but on the 22nd of June the Official Assignee was added as a party; and apparently at or about that time the Official Assignee made an arrangement with the respondent firm. The arrangement was in substance this that it was in the interest of all the parties that the goods should be sold at once and that the respondent firm would waive their objection to the Official Assignee proceeding with his sale provided that the sale proceeds would be retained by the Official Assignee pending the decision of the questions of lien and priority which were arising from the claims of these two firms to be secured creditors. The sale was held on the 23rd of June and it appears that the result of it was that the gross proceeds were Rs. 3,702 and that a sum of Rs. 256 and another of Rs. 34 were costs and charges of the actual sale, and the question with reference to the Official Assignee's commission is a question in all of Rs. 185-1-11 pies. So far as the firm of Mathura Das is concerned, no objection is raised to the Official Assignee retaining two-thirds of that sum which otherwise would come to that firm. The real question in dispute is as regards one-third of that sum, i.e., a sum of some 62 Rupees.
4. What happened was that the respondent firm proceeded with their suit, and in November 1925 the Official Assignee admitted the claim of the respondent firm in respect of two sums amounting altogether to Rs. 3,700 and on the 1st of December 1925 a decree was obtained by the respondent firm in the presence of the Official Assignee declaring that that sum formed a charge upon the goods the stock-in-trade and the outstandings of the insolvent. I would pause here to observe that that decree is in one respect extremely erroneous and absurd. Whether it is a slip on the part of the learned Judge or on the part of some one in the drawing up of the decree I do not know, but the decree actually says that
the Official Assignee do, out of the estate and effects of the insolvent defendant, pay to the plaintiffs the sum of Rupees three thousand and seven hundred with interest thereon.
5. Anything more improper than that a person with a security which he is proposing to realize should get a judgment of that sort against the Official Assignee it would be difficult to imagine. His right of course was to have his charge declared and enforced and to have it declared that he was at liberty to prove for a dividend oat of the general assets on the ordinary terms, namely, to prove for the balance after realising his security or to value his security and take a dividend on the balance. The judgment in this respect is one which I should have thought the Official Assignee or some one on his behalf would never have allowed to pass without objection. That, however, does not affect the present ease.
6. There was another suit commenced by the firm of Mathura Das to which apparently the respondent firm were parties and in that suit which appears to have been for enforcement of the plaintiff's security the parties in the end arrived at a settlement. The Official Assignee, to put the matter shortly, was satisfied that both these firms were secured creditors and that there was nothing left out of the sale proceeds to come to the general estate of the insolvent and it was arranged that the proceeds should be divided between these two rival claimants who were secured creditors in the ratio of 2 to 1. I do not know that the amount of the debt of the firm of Mathura Das appears from the paper book, but I do not understand it to be disputed that their claim was larger than the claim of the respondent firm. This, no doubt, explains why the ratio should be 2 to 1. Be that as it may, the sale proceeds after deducting the costs of the sale were insufficient to pay in full even the claim of the respondent firm and it is now abundantly clear that in the subject matter of the various deeds of hypothecation the Official Assignee, on behalf of the general creditors, had no beneficial interest.
7. The question which now arises is not whether by virtue of Insolvency Rule No. 178 the Official Assignee is entitled to say that he must, out of the general assets and at the expense of unsecured creditors, receive a commission of 5 per cent upon the total amount fetched by the goods on their sale but whether he is entitled as against these secured creditors - the respondent firm - to claim to deduct a portion of that 5 per cent out of their actual security itself. Some difficulty has arisen in considering this matter from the fact that the actual deeds of hypothecation are not before the Court. I will dispose of this case on the basis that it may well be that the nature of the security given to the firms of Mathura Das and Ramratan Das Bagree was a mere charge i.e, to say, that it was not in substance equivalent to an absolute assignment or complete transfer of what in English law would be called the legal estate. The principle which governs the question whether a property goes to the Official Assignee at all it cases of this class is as follows; I am quoting from a statement of the law which appears in a note to Section 38 of the English Bankruptcy Act in the well-known book Williams' 'Bankruptcy Practice.'
Secondly, there is a class of trusts where although the bankrupt did not acquire the absolute legal ownership for the purpose of an express trust yet, he, though retaining the legal property has divested himself of the whole or part of his beneficial interest. In this class of trusts, if the bankrupt has parted with the whole of his beneficial interest (as where a bankrupt has sold a debt or mortgaged it to secure a debt of art-amount greater at the time of the bankruptcy than the debt mortgaged) and become a bare trustee, the legal interest of the bankrupt will not pass to the trustee in bankruptcy, but remain in the bankrupt : but if any beneficial interest remains in the bankrupt, whether the extent of such beneficial interest be ascertained, or not, the legal interest will pass to the trustee in bankruptcy, subject, of course, to the performance of the trust.
8. In my judgment it matters nothing in, this case whether the nature of the security was a mere charge or was something, more. So long as it is established that the insolvent has no beneficial interest in the property I do not think that the property itself is in any way to be regarded as a part of the general estate. There is no difficulty in equity in regarding a person who is in possession of property which is subject to a charge which he himself has created as being in the position of a trustee. Now in these circumstances it has to be remembered that it is a fundamental principle of Insolvency Law that as regards his security a secured creditor cannot be forced into the Insolvency Court at all. He can stand outside the Insolvency Court and proceed, as these creditors were proceeding, to enforce his rights outside the Insolvency Court altogether. That being the position, it is a matter for very careful consideration whether a rule made by this Court under its jurisdiction to make Insolvency rules could validly be made so as to appropriate a part of the property of a mere third party and it is necessary to scrutinize very carefully the terms of any rule which is said to have that effect. It is quite clear in this case that the firm of Ramratan Das Bagree were doing their best to keep intact and unprejudiced all their rights under their deed of hypothecation. Rule 178 says that
the Official Assignee shall be entitled to retain as a remuneration for the duties to be performed by him, inter alia, a commission of 5 per cent on the principal amount or value of the assets collected by him in each estate.
9. So far as the present question is concerned, it is reasonably clear that these are the words which must govern this case. There is in that rule an explanation which has no direst bearing on this case but which may parhaps, require to be considered in so far as it may be thought to throw some light upon the expression in the rule itself 'the principal amount or value of the assets collected by him in each estate.' That explanation, as it now stands, is in these terms:
For the purpose of this rule the amount to be paid in pursuance of a composition or scheme of arrangement and also any amount realizad under the Second Schedule to the Act shall be deemed to be assets collected by the Official Assignee.
10. In interpreting that explanation I will assume that an amount realized under the Second Schedule to the Act is to be deemed to be an asset collected by the Official Assignee not only for the purpose that the Official Assignee's commission is to be computed at the expense of the general creditors upon the total sum but that it is to be deducted from that part of the amount realized which has to go to the secured creditors. I will assume that but I am very far from deciding it. Even so, however, it has to be remembered that under Rule 18 of the Second Schedule to the Presidency Towns Insolvency Act no mortgagee can be compelled to have his security realized under that schedule in any case. Steps can only be taken either by the mortgagee or with his consent and it may not, therefore, be totally unreasonable in these circumstances to impose a condition that the commission has to be paid even at the expense of the security that is realized. It is another matter altogether to say because of those words in the amended explanation that in a case where certain assets are charged for a sum that greatly exceeds their value the total amount realized by those assets on sale is to be regarded as assets collected by the Official Assignee in the estate for the purpose of levying upon a secured creditor a part of the commission. The word 'assets' in the Calcutta Insolvency Rules may be found also in Rule GO where the rule says that
the assets in every matter remaining after payment of the actual expenses incurred in realizing any of the assets of the insolvent shall, subject to any order of the Court, be liable to the following payments which shall be made in the following order of priority;
and second in the list of the payments in this : 'Any fees payable to or costs, charges or expenses incurred or authorized by the Official Assignee.' Looking at the rule as a whole it seems to me that the purpose of Bankruptcy Rule No. 178 is to say that the remuneration of the Official Assignee is to be computed on the amount that he collects for the estate. This is very different from the rule that obtained under the previous Insolvency Act - the Imperial Statute - where it had to be computed on the amount available as dividend which of course is a very different thing because the expense of administration has come out of the general estate before there is any dividend.
11. In the present case I feel reasonably clear that the intention of the arrangement between the firm of Ramratan Das Bagree and the Official Assignee was that that firm would raise no objection to the Official Assignee selling as he wanted to sell but that they were not by that arrangement to be understood as in any way bringing themselves into the Insolvency administration but on the contrary would proceed with their suit for enforcement of their security as indeed their right was. The learned Judge takes in this matter substantially the same view which I venture to think is correct.
12. Some comment has been made on the fact that the learned Judge ordered the Official Assignee to pay the costs personally. If he was to order the Official Assignee to pay costs at all he must order him to pay the costs personally as it is quite clear that this consequence cannot be visited upon the unsecured creditors. The correspondence immediately proceeding the launching of this motion does not induce me to think that the learned Judge would have been right in leaving each party to bear its own costs, and I for one am not disposed to interfere with his discretion in that matter. With regard to this appeal there can be no question that the Official Assignee having lost, must pay the costs of the respondents.
13. I agree.