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Arjun Das Kundu Vs. Marchia Telini - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtKolkata
Decided On
Reported inAIR1936Cal434,166Ind.Cas.886
AppellantArjun Das Kundu
RespondentMarchia Telini
Cases ReferredJhan Bahadur Sing v. The Baliff of
Excerpt:
- .....the insolvent applied for her discharge and on 9th september 1932, the court directed that the final discharge should await the disposal of the suit then pending in the serampore munsif's court, the suit which the insolvent had filed against her husband.2. on 9th december 1932, the insolvent informed the court that she had won the suit. the court stated in its order that the creditors had not taken any interest in the case and she was not responsible for her debts in that they were caused by litigation forced on her. the court accordingly granted an absolute order of discharge on 9th december 1932. after this order the appellant appeared on the scene. he wanted to prove his debts and wanted the property of the insolvent which she got as a result of the said suit, to be brought under.....
Judgment:

R.C. Mitter, J.

1. The respondent before me applied under Section 10, Provincial Insolvency Act for being adjudicated as an insolvent. She said in her application that her assets were almost nil. She mentioned the names of her creditors, the appellant being one of them. The application was dated 1st September 1930 and the adjudication order was passed on 25th August 1931, by which the insolvent was directed to apply for discharge within six months of the said order. As there were no appreciable assets, the Court did not appoint a Receiver on her adjudication. In the application she gave an information that she had instituted a suit for some land against her husband and if she won that suit, her assets could be used for the purpose of meeting the creditors, but she had no present means for satisfying her creditors. The present appellant, although his name was given in the application as a creditor, did not take any steps to prove his debt before the discharge of his insolvent. The insolvent applied for her discharge and on 9th September 1932, the Court directed that the final discharge should await the disposal of the suit then pending in the Serampore Munsif's Court, the suit which the insolvent had filed against her husband.

2. On 9th December 1932, the insolvent informed the Court that she had won the suit. The Court stated in its order that the creditors had not taken any interest in the case and she was not responsible for her debts in that they were caused by litigation forced on her. The Court accordingly granted an absolute order of discharge on 9th December 1932. After this order the appellant appeared on the scene. He wanted to prove his debts and wanted the property of the insolvent which she got as a result of the said suit, to be brought under the administration of the Court in the insolvency proceedings. The insolvent opposed subsequently, and it is against the order passed by the Court below on 8th February 1934, the present appellant has filed the present appeal. For the purpose of deciding the controversy in this case, two facts are important, firstly, that it was known to the Court from the time of the filing of the application for adjudication that the appellant was a creditor of the insolvent, and secondly that no dividend has been declared up to now, much less the final dividend. The learned District Judge in support of the order he passed, has held that the effect of the absolute discharge under the provisions of Section 44, Provincial Insolvency Act, was to release the insolvent from all debts provable under the act and that such debts had to be proved in the proceedings before the order of absolute discharge was made.

3. Under Section 33 (3) of the act, says he, it is imperative on the creditor to prove his debt before the discharge of the insolvent. The learned Judge has further remarked that as none of the creditors of the insolvent had proved their debts before the final discharge, the property which has been recovered by the insolvent as a result of the aforesaid suit is no longer available for distribution in the insolvency proceedings, but that property though acquired before the discharge order, is to be enjoyed by the insolvent absolutely and without any restriction. In my judgment none of these reasons appears to me to be sound and the learned Judge has overlooked not only certain important provisions of the Insolvency Act but has committed fundamental errors with regard to matters of principle applicable to such cases. The principle underlying all bankruptcy proceedings, in my judgment, is this: that when a debtor is adjudicated an insolvent at his instance all his assets there which he has at the time of the presentation of the application and all assets which he may acquire before his final discharge, must come in the hands of the Court in order that the said assets may be administered, and his creditors whose debts can be proved in the insolvency proceedings may get their debts pro rata from these assets. When an insolvency proceeding takes place at the instance of the creditor there is the self-same principle.

4. The man adjudicated an insolvent is given a chance to become a freeman after his discharge, after he had placed in Court for the benefit of his creditors his assets. The next principle is that when this is done and he gets an absolute discharge, he is a free man and the legislature makes him a free man on high policy, that after his properties had been taken out of him for the purpose of meeting his creditors, he ought to begin again in his career without any impediment.

5. It follows therefore that an insolvent has no title in the properties in which he had beneficial rights at the date of the presentation of the application or which was acquired subsequently by him at any time before his absolute discharge. All such properties vest in the Court or in the Receiver appointed by the 'Court. This is the express provision of Section 28 of the Act. The effect of absolute discharge is defined in Section 44 of the Act. The insolvent is not freed in respect of certain particular debts which are specified in Sub-section (1) of Section 44. With regard to other debts provable in insolvency he is freed from the liability. It is on this principle the creditors are entitled to look only to those assets which had vested in the Court or receiver by reason of the adjudication. That is to say, the claims of such creditors are transferred from one fund to another. The claims of such creditors can only be realised from the assets which had vested in the Court or the Receiver and not against the assets which the insolvent may acquire after absolute discharge. The effect of Section 44 (2) in my judgment is not to extinguish altogether the claims of the creditors whose claims are provable under the Act, but to limit their remedy for the purpose of realizing the same from the assets vested in the Court or receiver according to the provisions of Section 28, Insolvency Act. There is no express period of limitation for a creditor whose debt is provable in insolvency proceedings to prove his debt. A debt is to be proved ordinarily before any dividend is declared. That is necessary in order that the officer of the Court administering the insolvent's estate may have in his possession materials which will enable him to make a pro rata and equitable distribution of the assets. If the Receiver has got materials in his hands to show that there are creditors who have not proved their debts because they reside at distant places, and that they have had no time to tender proof of their debts, he can set apart a sum of money sufficient for the purpose of paying them, if and when they prove their debts, after meeting his expenses.

6. The learned District Judge has referred to the provisions of Section 33, Clause (3) of the Act, for the purpose of laying down the proposition that a creditor is bound to come with the proof of his debts before the discharge of the insolvent, and if he comes after the discharge he is too late. The whole question is whether that subsection bears the meaning which the learned Judge has put upon it. That Sub-section says that 'a creditor of the insolvent may, at any time before the discharge of the insolvent, tender proof of his debt...' The only question is whether that Sub-section makes it obligatory on the creditor to come in before the discharge of the insolvent. For the reasons which I shall indicate later on, my judgment is that the provisions of that subsection are directory and that he can come on the schedules of creditors as long as there are any assets available for distribution amongst the creditors and till the final dividends are distributed and till the administration is complete. This view of mine has the support of the weighty authority of Vaughan Williams, L. J., in In Re: Me Murdo Penfield v. Me Murdo (1902) 2 Ch D 684 The principle is laid down by that learned Judge at p. 699 of the report in these words

Now according to my experience of bankruptcy practice, there never has been any doubt as to the right of a creditor, whether he is secured creditor, or whether he is an unsecured creditor, to come in and prove at any time during the administration, provided only that he does not by his proof interfere with the prior distribution of the estate amongst the creditors, and subject always, in cases in which he has to come in and ask for leave to prove, to any terms which the Court may think it just to impose.

7. Some indication is given in the Insolvency Act itself that the correct principle is the principle which is formulated by the said Lord Justice Section 64, Provincial Insolvency Act, required a Receiver before declaring a final dividend, to serve notice in the manner prescribed, to persons whose claims to be creditors have been notified but not proved; and if such persons come and prove their claims within the time limited by the notice, then they will be entitled to a share in the final distribution. That contemplates that creditors who have not proved already can come in and prove their debts in time before the final dividend is declared and distributed by the Receiver. The time of the discharge of an insolvent has no relation to and can have no relation to in any case, to the time for declaring the final dividend. When making the order of adjudication the Court limits the time within which the insolvent is to apply for his final discharge and this without reference to the time that may possibly be taken up for the administration of the estate of the insolvent. Then when the insolvent makes an application for discharge the question whether he will get absolute discharge or not or from what date depends upon circumstances which have no relation to the administration of his estate. It may be that where the causes of his insolvency are his misfortunes he ought to be made a free man quickly, but the administration of his estate may be a complicated one, and it may take a large number of years to get in the assets and to distribute them amongst the creditors. Section 64 therefore will still have to be invoked in such cases where the discharge order has been made a long time ago but the assets have been realized by the Receiver a long time thereafter, and the time for making a final dividend may have arrived a long time after the discharge of the insolvent.

8. In such a case, on the wording of the statute, clearly a creditor who has not already proved his debt, will not be debarred from proving his debt within the time given in the notice issued under Section 64 of the Act. This principle leads me to think that the words of Section 33, Clause (3), which include creditors whose claim had already been notified but whose debts have not already been proved, are merely directory. It is on this principle and on this limited ground, that I follow the decision of the Madras High Court in Sivasubramania Pillai v. Theethiappa Pillai 1924 Mad 163, of the Patna High Court, in Babu Lal Sahu v. Krishna Prosad 1925 Pat 438 and of the Rangoon High Court in Jhan Bahadur Sing v. The Baliff of the District Court Toungoo 1927 Rang 263. I do not base my decision on the distinction which has been drawn in some of these cases between a conditional order of discharge and an order of absolute discharge. I go upon the principle laid down by Vaughan Williams, L. J., and on the principle laid down in Section 64 of the Act. I accordingly discharge the order of the learned District Judge and I direct that the Court would take immediate steps for the purpose of bringing the said property in its possession through any of its officers, that it would take steps for sale of the said property, and after the assets are realised would take steps (after complying with Section 64) for their distribution amongst those creditors who would prove their debts before the final dividend is declared. The appellant before me and all other creditors who may wish, may tender proofs of their debts at any time before the assets realized by the sale of the said property are distributed, that is before the final dividend is declared. The appellant before me will get his costs of this appeal not from the insolvent personally but from the assets realised in the insolvency proceedings, hearing fee being assessed at one gold mohur.


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