1. We are invited in this appeal, which has been preferred under Section 46, Sub-section (2) of the Provincial Insolvency Act, 1907, to set aside an order dismissing a petition for insolvency under Sub-section (1) of Section 15. The appellant Shaik Samir-ud-din presented a petition upon the allegation that his debts amounted to more than Rs. 500 which he professed his inability to pay and prayed that he might be adjudged an insolvent under the provisions of the Act. Two creditors were named in the petition, one of whom alone appeared to contest the application. The petitioner was examined, and as soon as he deposed that he had transferred a portion of his property in lieu of dower, the learned District Judge held that he had committed an act of bad faith which disentitled him to the protection of the Act. In this view, he dismissed the application. The petitioner has now appealed to this Court.
2. A preliminary objection has been taken to the hearing of the appeal on the ground that the second creditor mentioned in the petition has not been served with notice of this appeal. The learned Vakil for the respondent has contended that the order of dismissal of the petition under Section 15 of the Act operates as a decree between the petitioner on the one hand and each of the creditors on the other, no matter whether they opposed the application or did not at all appear in the proceedings. He has argued that the effect of the reversal of the order will be to leave the second creditor, who is not a party to the appeal, unaffected by the order of this Court, so that it would after remand be open to such creditors to contend that the, petitioner ought not to be adjudged an insolvent. Tn this view, he has contended that the second creditor ought to be added as a party respondent to the appeal. Tn our opinion, there is no force in this contention. Section 11, Sub-section (1), Clause (d),provides that in every insolvency petition presented by a debtor, the names and residence of his creditors, so far as they are known and can by the exercise of reasonable care and diligence be ascertained by him, must be mentioned. Section 12, Sub-section (2), provides that notice of the order under Sub-section (1), fixing a date for the hearing of the petition, shall be given to the creditors by publication in the local official Gazette and in such other manner as may be prescribed. Section 14, Sub-section (2), provides for the examination of the debtor as to his conduct and dealings with his property, in the presence of such creditors as appear at the time, and the creditors have the right to question the debtor thereon. Sub-section (3) of the same section entitles the Court, if sufficient cause is shown, to grant time to a creditor to produce any evidence which appears to the Court to be necessary for the proper disposal of the petition. Section 15 provides for the dismissal of the petition under certain circumstances, while Section 16 provides for an order of adjudication under other circumstances. It is obvious that, neither the order of dismissal of the petition nor the order of adjudication can be treated as a decree between the parties in a contested or uncontested suit. In fact, the order of the Court is made appealable, not as a decree but as an order under the provisions of Section 46 of the Act. If a creditor upon notice does not appear to contest the proceedings, it may fairly be assumed that he has no objection to an order of adjudication. If, in spite of his absence, the petition is dismissed under Section 15, and if an appeal is preferred against such order of dismissal, it is manifest that he is not interested in the result of the appeal. If the appeal fails, he is obviously not affected thereby. If the appeal succeeds and an order of adjudication is made, the event expected by him happens, because he did not oppose the application in the original Court. Under these circumstances, we are of opinion that it was not necessary for the appellant to add, as a party respondent to the present appeal, the second creditor mentioned in the petition who did not appear in the Court below to oppose the application. It was pointed out, however, to the learned Vakil for the respondent that an order might be made even at this stage for the addition of the second creditor as a party respondent under Order XLI, Rule 20, of the Civil Procedure Code of 1908, which is applicable to the present appeal by reason of the provisions of Section 47, Sub-section (2), of the Provincial Insolvency Act; and it was suggested to him that the second creditor might be added as a party, if he would, undertake to pay his costs; because when added as a party respondent, he might appear and contend that he had been unnecessarily brought before this Court inasmuch as he had never opposed the application. The learned Vakil for the respondent, however, declined to take the risk. We must consequently overrule the preliminary objection and proceed to consider the appeal as properly constituted.
3. In support of the appeal, the learned Vakil for the applicant has contended that the order of the District Judge is erroneous inasmuch as it contravenes the provisions of Sub-section (1) of Section 15 of the Provincial Insolvency Act. The argument in substance has been that at the preliminary stares contemplated by Section 15 it wa3, not open to the District Judge to dismiss the petition on the ground that the petitioner had improperly alienated a portion of his property in lieu of dower. In our opinion, this contention is well founded and is supported by the decision of this Court in the case of Udai Chand Maity v. Ram Kumar Khara 7 Ind. Cas. 394 and of the Allahabad High Court in Girwardhari v. Jai Narain 7 Ind. Cas. 39 : 7 A.L.J. 835.
4. Sub-Section 1 of Section 15 provides as follows: where the Court is not satisfied with the proof of the right to present a petition or of the service of notice on the debtors as required by Sub-section (3) of Section 12 or by the alleged act of insolvency or is satisfied that the debtor is able to pay his debts or that, for any other sufficient cause, no order shall be made, the Court shall dismiss the petition. This sub-section is obviously divided into two parts, the first of which contemplates the dismissal of the petition if the Court is not satisfied as to certain, elements, while the second provides for the dismissal of the petition if the Court is satisfied as to certain other elements. Before we deal with each of these sub-divisions of the sub-section, it is necessary to consider for a moment a suggestion made by the learned Vakil for the respondent. He has invited us to interpret the sub-section so as to make the last clause, or for any other sufficient cause no order ought to be made' relate back to the introductory words 'where the Court is not satisfied.' This obviously is an untenable position. In fact, this construction is grammatically impossible and, indeed, gives no sense at all. We must, therefore, treat the sub-section as composed of two distinct parts, and ascertain their effect. The first part provides that the petition is to be dismissed if the Court is not satisfied as to one of three elements. The first of these is the proof of the right to present the petition. This obviously refers to Section 6 and covers the case of an application by a judgment-debtor as well as by a creditor. Section 6 provides in Sub-section (3) that the debtor is not entitled to present an insolvency petition, unless one of three things has happened. Sub-section (4) of Section 6 similarly provides that the creditor is not entitled to present an insolvency petition, unless one of three contingencies has come to pass. The first element, therefore, mentioned in the first division of Sub-section (1) of Section 15 requires the Court to be satisfied with the proof of the right to present the petition, whether such petition has been presented by the debtor or by the creditor. The second element refers to the service of notice on the debtor as required by Section 12, Sub-section (3). This clearly is applicable only to the case in which the debtor is not the petitioner. In other words, whereas the first element refers to the case of an application by either the debtor or the creditor, the second refers only to the case in which the creditor is the petitioner. The third element refers to the proof of the alleged act of insolvency. This clearly refers to Section 4, which defines the circumstances under which an act of insolvency may be committed. This element, therefore, may refer to the case of a petition by a debtor as well as that by a creditor, subject to this reservation that in the case of an application by a debtor, the question becomes practically immaterial, because under Clause (f) of Section 4 the mere fact of a person presenting a petition, to be adjudged an insolvent under the provisions of the Act, is treated as constituting an act of insolvency. The third element, therefore, in practice can arise for consideration only in the case in which the petitioner is a creditor. This completes the examination of the first sub-division of sub-Section 1 of Section 15.
5. The second sub-division of Sub-section (1) requires that if the Court is satisfied as to one of two elements, the petition must be dismissed. The first of these elements is, whether the debtor is able to pay his debts. Here the Legislature expressly provided that the Court is to be satisfied by the debtor. The question, therefore, can arise only upon an application by a creditor. In other words, when a creditor makes an application on the ground mentioned in Sub-section (4) of Section 6, it is open to the debtor to defeat the application if he satisfies the Court that he is able to pay his debts. The second element, mentioned in this second sub-division of the sub-section, is that the debtor may, for any other sufficient cause, satisfy the Court that no order ought to be made. Here also the question clearly can arise only if the application has been made by the creditor under Sub-section (4) of Section 6. In other words, although the debtor is not able to satisfy the Court that he is able to pay his debts, he may satisfy the Court that there are other circumstances which may justify the dismissal of the application. As illustration of cases of this character, reference may be made to the decisions in Ex parte Dixon 13 Q.B.D. 118 : 53 L.J. Ch. 769 : 1 Marrel 98 : 50 L.T. 414 : 32 W.R. 837 and Ex parte Oram 15 Q.B.D. 399 : 52 L.T. 785 : 33 W.R. 890 : 2 Morrell 199, where it was held that a debtor may justly invite the Court to dismiss an application by his creditor, if he satisfies the Court that there are proceedings pending which, if successful, may result in funds being recovered amply sufficient for payment of all his debts. to put the matter in another way, although a debtor may not be able to satisfy the Court that he is then and there able to pay his debts, yet he may be able to satisfy the Court that there is a reasonable prospect of his being able to make such payment: and in such circumstances, he may invite the Court to dismiss the application of the creditor for adjudging him an insolvent. This completes the analysis of the second sub-division of Sub-section (1) of Section 15.
6. In the case before us, the learned District Judge has dismissed the application on a ground which is not included in any of those mentioned under Section 15, Sub-section (1). He has proceeded on the ground that as the debtor has, in his opinion, committed an act of bad faith, he is not entitled to an order of adjudication. This is clearly erroneous. The question of bad faith or improper dealing with the property of an insolvent arises for consideration at a much later stage of the proceedings. If the debtor, after the order of adjudication, applies for an order of discharge, it becomes obligatory upon the Court, under Section 44 of the Provincial Insolvency Act, to investigate whether or not he has been guilty of acts of bad faith. Sub-section (3) of Section 44 provides that the Court shall refuse to grant an absolute order of discharge on proof of various facts which may be described compendiously as acts of fraud and bad faith. There is, moreover, suggestion that the petition has been presented, not bona fide with a view to obtain an order of adjudication but for an inequitable or collateral purpose; if such allegation had been made and established, possibly the Court might have dismissed the application as an abuse of the process of the Court. [Ex parte King 3 Ch. D. 461 : Ex parte Griffin 12 Ch. D. 480; Ex parte Tynte 15 Ch. D. 125 : 42 L.T. 598 : 28 W.R. 768; In re Betto (1901) 2 K.B. 39 : 70 L.J.K.B. 511 : 84 L.T. 421 : 29 W.R. 447 : 8 Manson, 227; In re Sabbapati 21 B. 297 at p. 310. Laws of England, Ed. by Lord Halsbury, Volume II, Section 72]. The result, therefore, is that the order of the learned District Judge cannot be supported on the ground upon which it has been made. The learned Vakil for the respondent has, however, made a desperate effort to support the order on a different ground. He has seriously argued that inasmuch as the debtor had been neither arrested nor imprisoned, he could not maintain an insolvency application. This contention is clearly negatived by Sub-section (3) of Section 6, which entitles the debtor to present an insolvency petition if his debts amount to Rs. 500 or if he has been arrested or imprisoned in execution of the decree of any Court for payment of money, or if an order of attachment in execution of such a decree has been made and is subsisting against his property. These contingencies are obviously to be taken in the alternative, and if any one of them happens, the debtor becomes entitled to present an insolvency petition. It follows consequently that the order of the learned District Judge cannot be maintained notwithstanding the dictum in Nathumall v. District Judge of Benares 7 A.L.J. 602 : 6 Ind. Cas. 870, which we are not prepared to accept as based upon a true interpretation of the provisions of the Provincial Insolvency Act.
7. The question next arises, what order should be made by the Court. The learned Vakil for the appellant has contended that the order of the Court below should be discharged and an order of adjudication made under Section 16 of (he Provincial Insolvency Act. The learned Vakil for the respondent has argued, on the other hand, that the case should be remanded in order that the District Judge might consider whether the right of the petitioner to present the application had been established. He has, in this connection, invited our attention to the second paragraph of the petition of the opposing creditor in which it is stated that the debt alleged to be due to the second creditor is wholly fictitious. This matter has not been investigated by the learned Judge in the Court below. We further find from an examination of the record that on the 17th June 1909 when the case was heard, the opposing creditor had his witnesses in attendance; they were obviously not examined because the learned Judge thought that the petition of insolvency ought to fail on the ground that the petitioner, had committed an act of bad faith. The District Judge has thereupon omitted to investigate the matter, which it was competent to him to determine under Sub-section (1) of Section 15, and has dismissed the application upon a ground .not included within the scope of that section.
8. The result is that this appeal is allowed and the order of the Court below discharged. The case is remanded to the District Judge in order that he may determine upon evidence to be adduced by both the parties, whether the debts of the petitioner amount to Rs. 500. If this question is answered in the affirmative, the order of adjudication must be made under Sub-section (1) of Section 16. If, on the other hand, it is found that his debts do not amount to Rs. 500 because the debt alleged to be due to the second creditor is fictitious, is petition of insolvency must be dismissed. The appellant is entitled to the costs of this appeal. We assess the hearing fee at two gold mohurs.