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Kanhyalal Bhargava and ors. Vs. Banwari Lal and ors. - Court Judgment

LegalCrystal Citation
Decided On
Reported inAIR1936Cal269,166Ind.Cas.657
AppellantKanhyalal Bhargava and ors.
RespondentBanwari Lal and ors.
Cases ReferredPratapmull Rameshwar v. Chunilal Johury
- january 1926, protab chandra, a member of branch 2, filed a suit for partition of the joint family properties. a preliminary partition decree was made on 14th february 1927 by the subordinate judge of allahabad. there was an appeal from that decree and and on 13th january 1931 a consent decree was passed. it is clear from the pleadings in the partition suit that the calcutta business of kishorilal mukundlal was included in the joint family properties being valued in the plaint at rs. 30 lakhs. there were also numerous other businesses carried on under differrent names in the large towns of india and in burma. they include a business in allahabad where the partition suit was brought and where many of the alleged debtors reside.3. the alleged debtors oppose this application on.....

McNair, J.

1. This is an application for adjudication as insolvents of 19 members of a joint Mitakshara Hindu family who are alleged to be carrying on business under the firm name of Kishorelal Mukundlal at various addresses in Calcutta. That firm is alleged to be indebted to the petitioners in a sum of about rupees 75,000 on Khatapeta account. The petitioners were three members of a Mitakshara family trading as Radha Kisen Beniprasad at 10 Cotton Street, Calcutta. Kanhyalal is said to be the Karta of the family, Manoharlal is his brother and Baikuntha is the infant son of Kanhyalal who acts as his next friend. The petition was presented on 18th April 1935 and was ordered to be served on the debtors, the hearing being fixed for 21st May. The third petitioner Manoharlal died on 2nd May and his interest devolved on his brother Kanhyalal. Owing to Manohar's death the hearing was adjourned to 18th June and has since been adjourned on various occasions by consent. On 24th January 1935, a letter of demand was sent to the debtors and a reply was received dated 30th January from solicitors for 4 of the alleged debtors viz., Banwarilal, Budriprasad, Sangamlal and Samsunder who are represented on this application by the learned Standing Counsel.

2. The debtor family are the descendants of Dwarkaprasad who had 5 sons and for convenience I shall refer to the various alleged debtors according to the 5 branches of his family which these sons represent: (1) Harnamdas, (2) Mohanlal. These two branches are represented before me by Mr. Sen, (3) Kisorilal's branch represented by the learned Standing Counsel, (4) Kanhyalal represented by the learned Advocate-General, and (5) is Mukundlal's branch which is unrepresented. In January 1926, Protab Chandra, a member of branch 2, filed a suit for partition of the joint family properties. A preliminary partition decree was made on 14th February 1927 by the Subordinate Judge of Allahabad. There was an appeal from that decree and and on 13th January 1931 a consent decree was passed. It is clear from the pleadings in the partition suit that the Calcutta business of Kishorilal Mukundlal was included in the joint family properties being valued in the plaint at Rs. 30 lakhs. There were also numerous other businesses carried on under differrent names in the large towns of India and in Burma. They include a business in Allahabad where the partition suit was brought and where many of the alleged debtors reside.

3. The alleged debtors oppose this application on the ground that they ceased to be 'partners' in the firm of Kishorilal Mukundlal on the filing of the partition suit in January 1926, which they claim formed a severance of the joint family and a cessation of the joint family business. Alternatively, they contend that their interest, at any rate in the Calcutta business, ceased in February 1927, the date of the preliminary decree, or in January 1931 when the decree was made by the appeal Court embodying the terms of settlement. They further contend that no act of insolvency has been committed and branches 1, 2 and 4 plead that it has not been established that this Court has jurisdiction within the meaning of Section 11, Presidency Towns Insolvency Act. I will deal first with the alleged acts of insolvency. These are based on Section 9 (g), Presidency Towns Insolvency Act, and are said to be notices of suspension of payment of debts. Two oral notices are alleged: (1) 28th February 1935 and (2) 5th March 1935, and two written notices in the form of letters dated respectively 30th January 1935 and 6th March 1935.

4. Admittedly at sometime prior to 1926 the firm of Kishorilal Mukundlal in Calcutta was a branch of a vast family business operating throughout India. The petitioners claimed to be creditors of the Calcutta branch for a sum of Rs. 74,805-3-0 calculated upto 24th January 1935, and on that date their solicitors sent a letter demanding payment to 42 members of the joint family. On 30th January Messrs. Dutt and Sen replied on behalf of branch 3 admitting the debt. This is alleged to be the first written notice of suspension. On 28th February the petitioners sent their gomastha Shewgolam Sukul to the debtor's office in Shib Thakur Lane. Shewgolam says in his affidavit that he met Banwari Lal, Songam Lal and Badri Prasad, 3 of the members of branch 3 from whom he demanded payment immediately. 'They informed me' he says:

that they and other members of the joint family were unable to pay the debt, had practically closed the business and had already suspended payment of their debts to all their creditors.

5. The second oral notice of suspension is said to have taken place on 5th March when Jivanram, the creditors' munim gomastha, called and interviewed the same persons and received the same reply, which he was told to convey to his masters and to state 'that they will be writing to them in the matter.' A letter was written on 6th March, which is relied on as the second written notice of suspension. This letter of 6th March does not mention either of the interviews and considering that it was supposed to be written immediately after Jivanram's call, and in pursuance of an alleged statement to him that it would be written, the failure to mention the interviews is noteworthy. Again, at the interviews it was alleged that the debtors stated that they had suspended payment of all their creditors. This is not the statement in the letters, and it is contrary to fact, for it appears that several creditors were paid, though comparatively small sums, throughout March and until the middle of June. It may be that the alleged interviews took place, though even that is denied on oath by Sangam Lal, but I cannot believe that those conversations were definite, formal, and deliberate notices and intended to be understood in that sense; in view of the somewhat informal nature of the correspondence--anything less is inadequate: see Ex parte Oastler (1885) 13 Q B D 471 at p. 475. I am not prepared to accept the statements of Shewgolam and Jivanram, and I hold that no act of insolvency has been proved at the alleged interviews. Turning to the alleged written notices, the letter on 30th January is set out in para. 6 of the petition. It recites the partition suit and states that the firm of Kishorilal Mukundlal from whom the debt is due, is one of the joint family businesses subject to the partition suit. The debt is admitted and it is asserted that the assets of the joint family will be considerably more than the amount of the debt. 'There is therefore,' the writers say:

no real cause of apprehension for non-payment of your clients' debt; only there may be a little delay in payment. Under the circumstances our clients hope that your clients will be good enough to stay their hands for the present.

6. The letter of 6th March set out in para. 11 of the petition is written by the debtor firm and purports to explain the reasons for delay in meeting their obligations. It explains the vast activities of the family and the difficulty of getting out the accounts and the valuation of their properties. They then write:

We are sorry to say, due to the most unpleasant and hostile attitude of the fighting plaintiff lately, the situation became very serious and we were obliged to put a stop to most of our business activities .... A commissioner however had been appointed and remarkable progress had been made. 'As for your dues,'

7. they write:

We have no doubt whatever in respect of their repayment to the last pie, because out liabilities are quite insignificant in comparison with the assets of our family business, but it is only a question of time. Due to this unfortunate litigation we feel absolutely helpless at the moment and we feel sure that things will straighten out in course of the next few months. We cannot but express our most sincere thanks and gratitude for your patience and reliance on us and we do sincerely hope that in view of our past unstained business relations you will be so good as to allow us time and give us opportunity to pay back your dues to enable us to expedite matters further we shall thank you to furnish with the amount of your dues both principal and interest up to 28th February 1935....

8. That was to the end of the preceding month. It is contended that these letters do not give notice that the debtor has suspended or is about to suspend payment of his debts. No composition is offered and there is a definite offer to pay, nd to pay in full, and although the letter of 6th March contains the statement 'we were obliged to put a stop to most of our business activities . . .', this is not a categorical assertion that payment has been suspended. The meaning appears to me to be, our trade is at a standstill owing to the disputes connected with the Partition, but there really has been some progress recently: the money is there, and we hope very shortly it will be availablo for distribution. I have been referred to numerous cases both under the English Act, in which the relevant clause is in the same words, and under the Indian Act, and I quote Lord Justice Bowen's words in In Re: Lamb (1887) 4 Morrell 25, at p. 32, which have been referred to with approval in most of the reported eases:

Suspension of payment is a business term usually applied to traders . . . It seems to me that it means not meeting your engagements, and paying your debts in the ordinary course of business as they become due, and as you are called upon to pay them. What, therefore, is the question that arises when we are presented with a statement of a debtor, and we are asked to consider that it falls within the Mischief at which this provision of the statute strikes? We have in each case to ask ourselves, and in each case to answer the question, what is the reasonable construction which those who receive this statement of the debtor would have a right under the circumstances of the debtor's case to assume, and would assume, to be his meaning as to what he intends to do with respect to paying or suspending payment of his debts. Having said that, I protest that I hope we are not going to have a series of cases which are to be cited hereafter as determining that special words used by a special debtor in a particular case do or do not amount as a matter of law to notice of suspension.

9. and on p. 34:

It does seem to me that applying as far as I can the only real legal test to this circular to bring it within the statute, we ought to take to circular in its business sense, then to find the circumstances of the debtor under which he makes it, and then to see what the statement came to....

10. No useful purpose can be served by comparing the words used by one debtor with the words used by another; in each case it must depend on the construction of a particular document and the circumstances under which it was written. We do however find from the cases the legal tests to which the words should be subjected and the principles by which the Court should be guided in coming to a conclusion. It is noteworthy that most of the English cases deal with a circular letter sent by the debtor to all his creditors, but in the case of In Re: Scott (1896) 1 Q B 619 the debtor was an unmarried lady of no occupation who lived with her mother at Broadstairs, and the petitioning creditors relied on statements made by the debtor in conversation with one of her creditors as amounting to a notice of suspension of payment. During that conversation the debtor, in answer to the question, 'Wont you pay Mr. Lewis's account as you promised?' replied, 'No, I won't pay anybody now.' In the report of his judgment at p. 623 Vaugham Williams, J, said:

If we were to hold that every refusal to pay a debt when demanded was a notice of suspension of payment, merely because it was based on the excuse of inability to pay the debt at that moment, we should be giving far too wide an application to Section 4, Sub-section 1 (h),

11. (which is the equivalent section in the English Act), and at p. 624 the learned Judge, while holding for other reasons that the notice came within the meaning of the section, said:

I do not hold that this notice comes within the section, on the ground that it is based on inability to pay; if that were all, it would not be sufficient....

12. In John Crook v. L & R Morley (1891) A C 316, there was a general circular by the debtor to all his creditors and Lord Selborne referring to the words of Bowen, L. J., in In Re: Lamb (1887) 4 Morrell 25, viz.,

what effect would the circular produce on the mind of a creditor receiving it as to the intention of the debtor with regard to his creditors?

13. said, 'That is the true test,' and both he and Lord Watson were of opinion that the words of that particular circular implied that the debtor meant to pay no creditor in full. In Clough v. Samual (1905) A C 442, the House of Lords held by a majority that a stock broker's circular did not amount to an act of bankruptcy. Lord Macnaughten, who dissented, held that the words did amount to a notice within the meaning of the Act. There was no divergence of opinion as to the proper construction of the section and Lord Halsbury in his speech referred to the opinions of Lord Selbourne and Lord Watson in John Crook v. L & R Morley (1891) A C 316, that a declaration of inability by a debtor does not of itself and without reference to context or circumstances satisfy the statute. The same propositions have been considered and applied in Narain Das v. Chiman Lal 1927 All 266. For the petitioning creditor reliance has been placed on the decision of this Court in Pratapmull Rameshwar v. Chunilal Johury 1933 Cal 417, where it was held that although a debtor may have assets which, if liquidated would provide sufficient money to discharge his debts, yet if he has no liquid assets wherewith to pay his debts at present, he is not able to pay his debts within the meaning of Section 13 (4) (b), Presidency Towns Insolvency Act. That Section provides that the Court shall dismiss a petition for adjudication if the debtor appears and satisfies the Court that he is able to pay his debts Had the writer of the letter of 6th March appeared he might have found difficulty in persuading the Court that he was able to pay his debts, but Section 9 (g) contemplates something entirely different. Not only must the debtor be unable to pay his debts, but he must also convey to the creditor his intention not to pay.

14. In the English cases to which I have referred the House of Lords have laid it down quite definitely that a declaration of inability to pay does not of itself constitute an act of insolvency. In the present case I am unable to hold that the reasonable interpretation of the two letters is that the debtor intended to give notice to the petitioning creditor that he had suspended or was about to suspend payment of his debts. In the letter of 30th January there is not a word which suggests a general suspension of payment, and with regard to the particular debt there is definite assurance of payment in the near future. I have already given my reasons for considering that the letter of 6th March did not constitute a notice of suspension. For these reasons in my opinion there has been no act of insolvency and this application must be dismissed, but in case the matter is taken further, I will record my opinion on the question which was argued at some length regarding the liability of the branches 1, 2 and 4. Reference is made to Section 11, Presidency Towns Insolvency Act, and it is contended that the Court has jurisdiction to make an order of adjudication only if the debtor has carried on business in person or through an agent within the limits of the ordinary original civil jurisdiction of this Court. Branches 1, 2, and 4 urge that there has been a partition of the joint family and that they are no longer carrying on business in Calcutta so as to be liable to adjudication on failure by the Calcutta branch to meet its liabilities.

15. There can be no doubt that the institution of a partition suit by a member of a joint family operates as a severance of the joint status as from the date of its institution. The member who institutes the suit intimates to his co-sharers his clear and unequivocal intention of his desire to sever himself from the joint family, and the status of the plaintiff as separate in estate is brought about by his assertion of his right to separate. The separation of the plaintiff however does not automatically involve the separation of the other branches of the family, and it is a question of fact in each case whether the other members of the family separated or remained united. Their subsequent conduct must be scrutinised and thus their intention must be decided. It is urged in the present case that there was a severance of the joint family and a partition of the joint family properties on the institution of the suit in 1926 There was undoubtedly a severance of status; but it is a question of fact how far the various businesses remained the joint family property subject to subsequent division.

16. To ascertain the intention of the parties the most important evidence is the partition decree. The preliminary decree of 14th February 1927 declared that the property in the schedules to the plaint was joint family property. The Calcutta business was specifically set out in Schedule A to the plaint, and the plaint itself alleged that the joint family business was carried on in Calcutta among other places. ' The business ' it states is transacted jointly, and the business in every shop and in mills is carried on in the name and supervision of some one or the other member of the family aforesaid.

17. These allegations are admitted in the written statements of members of branches 2 and 4. The consent decree of 13th January 1931 provides for division of the entire property into five lots of equal value. Each item of property was to be valued by a commissioner and the true valuation of the ' shops with business' should be ' according to the present existing net assets as disclosed by the account books of those shops.'

18. There was a further provision that the entire net income, after meeting the necessary expenses and losses during the pendency of the suit, shall be a part of the divisible property. The petitioners rely strongly on this provision which they contend shows that the businesses were to continue as part of the joint assets and indicate the intention of the co-sharers to carry them on as undivided joint property pending the allocation of shares by a commissioner. Reference has also been made to recent proceedings in the Allahabad Court. The affidavit containing these proceedings was filed only on 13th August and was objected to. As it consisted almost entirely of certified copies of affidavits and orders, I admitted it and it has been referred to and relied on by both sides.

19. In these proceedings the original plaintiffs and other members of branch 2 applied for the appointment of a receiver for the preservation of the business and properties under partition, and the Subordinate Judge appointed an interim receiver to take charge as such and submit a scheme for starting the business which had already closed down. That receiver was discharged within a few weeks and each side relies on isolated sentences in the judgment as supporting his view. The compromise decree shows that the property was divided into five lots for apportionment between the five branches of the family, but there is no clear evidence as to how the businesses were being carried on. It is alleged that the members of branch 4 were actually participating in the management of the Calcutta business, but again there is no evidence to support that allegation nor is it clear that these were debts for which all the members of the family would be liable. All that can be said is that by operation of law the persons who carried on the joint family business have changed their status from that of joint tenants to tenants in common.

20. There is no evidence as to the manner in which the debts were contracted nor as to the powers of the Manager of the Calcutta business to bind members of the family who are occupied in other branches of the business. Even assuming that after partition the business remained a joint family business there is no evidence that this debt was a debt for which the other members of the family would be personally liable, and the petitioning creditor cannot get an adjudication order against members of the other branches unless he can prove their personal liability. An argument has been based on the proposition that 'all the members of the family, and therefore all their property, divided and undivided, are liable for debts contracted on behalf of the family by one who was authorised to contract them' and it is urged that the managers of the Calcutta business are the 'accredited agents of the family and authorised to bind them for all proper and necessary purposes within the scope of their agency.'

21. This is a proposition of law and refers to the position of the managing member of a Hindu joint family. The family here is no longer joint and the extent of the authority that was vested in the managers of the various businesses after the partition decree was made is a question of fact which cannot be determined on the evidence before me. The burden of proving that the members of branches 2, 3 and 4 are personally liable rests on the petitioning creditor and that burden he has not discharged. In view of my findings the petition must be dismissed with costs as against all the appearing parties, including Nos. 5, 6, 7, 18 and 19, who have not appeared at the hearing. The learned Advocate-General, in opening his case, contended that the procedure adopted was incorrect and objected to the use of any affidavits in reply on a petition of this nature. This is a creditor's petition and Rule 66, Insolvency Rules, provide that it shall be in form No. 8 in the appendix with such variations as circumstances may require. Rule 71 provides for the petition to be verified by the applicant and Rule 72 provides for affidavits in support. The petition is then presented to the Registrar, and, if approved, admitted and referred to Court. Rule 74 In Re: Lamb (1887) 4 Morrell 25 enables the Court forthwith to make an order of adjudication or to adjourn the hearing and have the petition served on the debtor. Rule 79 provides that a debtor who intends to show cause should file a notice with the Registrar specifying the statements in the petition which he intends to deny or dispute. Under Rule 81 the creditor has to prove the matters disputed, and if any new matter is introduced the Court is empowered to grant the debtor such further time as may be reasonable to show cause.

22. These are the particular rules dealing with an application by a petitioning creditor, and it seems quite clear that the rules contemplate only a formal petition with an affidavit in support and a notice by the debtor specifying the statements which he intends to deny or dispute. No other affidavit, notice or pleading is suggested, but Rule 81 contemplates an adjudication on the materials before the Court including any oral evidence that may be tendered at the hearing and an adjournment if either party desires to produce further oral evidence. I was told on inquiry that this procedure is not adopted and that the ordinary practice is to present a petition supported by affidavits, and if this is accepted, to proceed by notice of motion with affidavits in support, in opposition, and in reply. This may be the procedure as formulated in Rules 17 to 27, but it does not appear to be the correct procedure in an application by a petitioning creditor for which the special rules to which I have referred have been laid down. In view of the practice which has become prevalent I have dealt with this application on all the affidavits that have been filed although in my opinion no affidavits in reply are permissible. So long as the rules indicate a particular form of procedure that procedure should be observed, and in future, in an application by a petitioning creditor, only such affidavits will be admitted as are contemplated by Rules 70 to 87. In view of the above findings the petition is dismissed with costs to all the parties who have appeared including debtors Nos. 5, 6, 7, 18 and 19. Costs as of a defended suit.

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