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Govind Das Pity Vs. Jardine Skinner and Co. - Court Judgment

LegalCrystal Citation
CourtKolkata
Decided On
Judge
Reported in80Ind.Cas.849
AppellantGovind Das Pity
RespondentJardine Skinner and Co.
Excerpt:
insolvency - composition between insolvent and creditor--guarantor for payment--default in payment--adjudication annulled--guarantor, liability of--jurisdiction of insolvency court--presidency towns insolvency act (iii of 1909), section 30(2). - .....the 13th of november 1922.2. the next appeal, no. 25 of 1923, is against an order made by the learned judge, on the 6th of february 1923, whereby the learned judge directed that a previous order, which he had made on the 21st of november 1922, should be vacated, and the third appeal, no. 26 of 1923, is against an order which the learned judge made on the 7th of february 1923, directing that a writ of attachment should issue against the person of the appellant to the sheriff of calcutta authorizing him to attach the person of the appellant and bring him up before the court to be dealt with according to law for having failed to comply with the order dated the 31st august 1922.3. the facts of this case are, to say the least unusual: it appears that certain persons, bhimraj ramprotap.....
Judgment:

Lancelot Sanderson, C.J.

1. In this matter there are three appeals, Nos. 151 of 1922, 25 of 1923 and 26 of 1923. Appeal No. 151 of 1922 is against an order made by my learned brother Mr. Justice Greaves on the 31st of August 1922, whereby he directed the appellant Govind Das Pity to pay the sum of Rs. 3,750 to Messrs. Jardine Skinner & Co., on or before the 13th of November 1922.

2. The next appeal, No. 25 of 1923, is against an order made by the learned Judge, on the 6th of February 1923, whereby the learned Judge directed that a previous order, which he had made on the 21st of November 1922, should be vacated, and the third appeal, No. 26 of 1923, is against an order which the learned Judge made on the 7th of February 1923, directing that a writ of attachment should issue against the person of the Appellant to the Sheriff of Calcutta authorizing him to attach the person of the Appellant and bring him up before the Court to be dealt with according to law for having failed to comply with the order dated the 31st August 1922.

3. The facts of this case are, to say the least unusual: It appears that certain persons, Bhimraj Ramprotap and Bangsidhar, carrying on business in co-partnership in piece goods in Calcutta, were adjudicated insolvents on the 31st of October 1910. On the 10th December 1910, a deed of composition was entered into by the insolvents of the first part, the Appellant Seth Govind Das Pity, referred to therein as 'Guarantor' of the second part, and the several creditors whose names were entered in the second column of the schedule to the deed, who had executed that deed, of the third p Article It recited the insolvency, that the estate of the insolvents had vested in the Official Assignee, that the debtors had proposed to pay a composition to their creditors on their debts set forth in the schedule of six annas in the rupee payable at the time and in the manner mentioned in the deed: and, then there was this recited: 'Whereas the said guarantor has agreed to join in these presents for the purpose of guaranteeing to the creditors the due payment of the said composition, this indenture witnesseth as follows: 1st. That the debtors and the guarantor jointly and severally covenant with the creditors, and each of them to pay to the said creditors, and each of them a composition of six annas in the rupee upon the amounts of their respective debts fixed and settled at sums mentioned in the said schedule, such payment to be made within a month from the date of the order revoking, annulling or setting aside the aforesaid adjudication order or determining, dismissing or putting an end to the aforesaid insolvency proceedings now pending in the said High Court of Judicature at Fort William in Bengal in its Insolvency Jurisdiction.' Then there was the ordinary covenant by the creditors that they should abstain from bringing actions in the events provided for. Clause 3 provided: 'If and when the said composition shall have been duly paid to the creditors respectively then the debtors and their heirs, executors, administrators, representatives and their estate and effects shall be released and discharged from the several debts and liabilities now owing from or incurred by the debtors to the creditors respectively and from all actions, claims or demands in respect or on account thereof.' Clause 5 provided: 'The guarantor will be considered as the trustee of the settlement and is hereby empowered and authorised by the debtors to take over the estate of the said insolvents from the Official Assignee of Calcutta or from any other person or persons who has or have or may hereafter have any of the properties, estate or effects of the debtors or any of them and also to demand, realise, recover, sue for and have all debts and outstandings which the debtors or any of them or which the said Official Assignee by virtue of the aforesaid vesting order is now entitled to and also to give all effectual receipts and discharges...' Clause 7 provided: 'The debtors and each of them will see and take steps to have all their properties and estate and effects now vested in the Official Assignee vested in the guarantor and will execute all deeds and documents that may from time to time be required by the guarantor in that behalf.' The last Clause, Clause 9, provided: 'If the debtors and the guarantor make default in payment of the composition or the costs in accordance with their covenants in that behalf hereinbefore respectively contained or if the adjudication or insolvency proceedings aforesaid be not set aside, annulled, quashed, dismissed or determined by the end of February one thousand nine hundered and eleven, the foregoing release shall be void and and of no effect and the creditors and each of them respectively shall be remitted to and be entitled to exercise as regards their respective debts all such rights, and remedies as they and such of them would have been entitled to exercise if these presents had never been executed but without prejudice in any way to the rights of the creditors against the guarantor or to his liability under the covenant by him hereinbefore contained.

4. By an order of the 14th September 1911 the composition was approved by the Court, and a copy of the deed was attached to the order, and marked 'A.'

5. It is to be noted that the deed of composition provided not only that the Appellant should be the guarantor of the payment, which the debtors had undertaken to make in pursuance of the composition, but also that the guarantor was to be the trustee of the settle ment, and therefore he assumed a dual capacity.

6. In the first place, the appellant was a guarantor or surety for the amounts, which the insolvents were to pay: and in the second place, he assumed the position of a trustee for the purpose of collecting the assets and the effect of the insolvents from the Official Assignee, or from any other person or persons who might have any effects of the insolvent in his or their possession: and, in my opinion, the form, in which this deed of composition was made, has given rise to a considerable amount of difficulty in this case.

7. The facts which are necessary for me to state are as follows: The adjudication according to the terms of the deed ought to have been set aside by the end of February 1911, but it was not in fact annulled until the 14th of September 1911, when the Court by an order of that date annulled the adjudication made on the 31st of October 1910, directed the Official Assignee to make over the assets belonging to the estate of the debtors to the trustee named in the deed, upon the trustee furnishing security to the extent of the amount of the assets to be made over to him, to the satisfaction of the Registrar of this Court: so that on the 14th of September 1911 the adjudication in insolvency was annulled. The appellant gave security to the satisfaction of the Registrar in September 1911. As far as the respondents are concerned, no steps were taken by them to enforce the provisions of the composition deed until the 29th of July 1922. Then an application was made to my learned brother Mr. Justice Greaves under Section 30(2) of the Presidency Towns Insolvency Act: and, the application was for an order that 'the debtors and the trustee aforesaid (i.e., the appellant) should pay to Messrs. Jardine Skinner & Co., the sum of Rs. 3,750 with interest within three days from the date of the order to be made on the application, and in default thereof the said debtors and trustee should be committed for contempt.' The second part of the application was for an order that 'the debtors should be re-adjudged insolvents and the annulment of the adjudication order should be set aside and the order for composition should be set aside and that such further or other orders mightbe made as to the Court might appear proper,'

8. The learned Judge dealt with the first part of that application on the 31st of August 1922, and he made an order, as I have already said, that the appellant should pay the sum of Bs. 3,750 to Messrs. Jardine Skinner & Co. As far as the debtors were concerned, the learned Judge allowed the application to stand over to see what the effect of the order, as far as the guarantor was concerned, would be. The sum was not paid; and, the matter was brought before the learned Judge on the 21st of November 1922. Thereupon, the learned Judge dealt with the second part of the application which I have already read, and he made an order as follows: 'It is ordered that the order made herein and dated the 14th September 1911, approving the composition therein mentioned be and the same is hereby vacated and it is hereby further ordered that an adjudication order be made against the said Bhimraj Ramprotap and Bangsidhar: and it is further ordered that this order be not drawn up or completed for a period of a fortnight from the date hereof in order to enable the said Govind Das Pity or the said insolvents in the meantime to pay to the said creditors Jardine Skinner & Co., the sum of Rs. 3,750 pursuant to the said Order dated the 31st day of August last and in the event of the said sum of Rs. 3,750 being paid within the time aforesaid the order of adjudication of the said insolvents hereby made do stand vacated.' The result of that was that the order was not to be drawn up for a fortnight: if the sum of Rs. 3,750 was paid within the fortnight the order of the 21st of November was to be vacated. If that sum was not paid, then the effect of the learned Judge's order was that the composition, which had been approved, should be set aside and the debtors would be adjudicated insolvents. The money was not paid within the fortnight, The result was, in my judgment, that but for what happened afterwards, there was an end of the composition deed and the debtors were adjudged insolvents.

9. The fortnight's time, which was prescribed by the learned Judge, expired on or about the 6th of December 1922. On the 19th of January 1923, Messrs. Jardine Skinner & Co. gave notice that they would apply for an order that 'the time given for payment by the order of the 21st of November 1922 should be extended and that the order might not be drawn up or come into effect sine die till the proceedings against the trustee Govind Das Pity taken by the applicant be completed and thereafter till further orders: and that in the alternative the said order be vacated, and for such further and other orders or directions as to the Court might seem fit, and that the debtors and the trustee should pay to the applicant the costs of and incidental to the application.' That came before the learned judge on the 6th February 1923, and the learned Judge came to the conclusion that inasmuch as his order of the 21st November 1922, had not been drawn up, although in fact it had been settled, he had jurisdiction to alter the order which he had made on the 21st of November, with the result that he directed that the order of the 21st of November 1922 should be vacated. The ground of his decision was that, as the appellant had made himself personally liable under the deed of composition, the learned Judge thought that he ought not to allow him to escape from that liability inasmuch as there was no doubt that the order of the 21st November 1922 was made so far as the applicants (i.e., to say, Messrs. Jardine Skinner & Co ) were concerned under a misapprehension of what the effect of that order would be with regard to the appellant: in other words, Messrs. Jardine Skinner & Co. had discovered that the result of their application to the learned Judge on the 21st of November 1922 and of the order which the learned Judge made upon it was that the composition deed was at an end, and that the liability of the appellant was at an end: and, having discovered that, they applied to the learned Judge to vacate the order, which he had previously made, at the instance of Messrs. Jardine Skinner & Co. There is one other fact which I have to mention before I deal with the merits of these appeals. Having set aside the order of the 21st of November 1922, the learned Judge, on the 7th February 1923, directed that a writ of attachment should issue against the appellant inasmuch as he had failed to comply with the order of payment made on the 31st of August 1922.

10. The first point that was taken in this case was that the learned judge had no jurisdiction to make an order for payment against the appellant on the 31st of August 1922.

11. The learned Judge came to the conclusion that he had jurisdiction. He said: 'In my opinion he is a trustee for the reasons indicated above and he is a trustee for all the creditors who signed the deed. Then so far as the question of suit is concerned it seems to me that having regard to She provisions of Rule 124 of the rules under the Presidency Towns Insolvency Act, the creditors are expressly precluded from proceeding by suit and it seems to me that the words of that rule are quite clear and can bear no other interpretation. I think, therefore, that so far as the trustee is concerned the only remedy of the creditor is by proceedings under Section 30.' Then he proceeded to discuss whether the trustee had received any assets of the estate: and then he said: 'To my mind that is not material if you have regard to the express terms of the covenant under Clause 1 of the composition.'

12. I agree with the learned Judge that if this application is to be regarded as an application by a creditor against the trustee under the composition deed as such trustee, then the procedure, which was adopted, namely, of applying to the learned Judge under Section 30(2) of the Presidency Towns Insolvency Act was correct, and the learned Judge had jurisdiction to deal with the application. But I have already mentioned that in this particular case the appellant was in the first place a guarantor in the real sense of the word, having entered into a personal liability to pay the amount specified in the composition deed: and, in the next place, he was constituted a trustee to collect the assets. Now, there is no finding by the learned Judge that the appellant had received any assets of the estate and had not distributed them according to the deed of composition. There was an allegation on the one hand that he had received such assets: and there was a denial on the other hand that he had received any assets, but there is no finding by the learned Judge either one way or the other. The learned Judge held that the appellant was liable by reason of his personal covenant under Clause 1 of the deed of composition. I need not read that clause again. Clause 1 of the deed is the clause which constitutes the Appellant's personal liability as a guarantor. By that clause he made himself personally liable to the creditors and to each of them, 'to pay to the said creditors and each of them a composition of six annas in the rupee... such payment to be made within a month from the date of the order... annulling the adjudication.'' The learned Judge, therefore, in my judgment, held the appellant to be liable in his capacity as guarantor and by virtue of the personal covenant into which he had entered as such guarantor: and the appellant was not held liable in his capacity of trustee, inasmuch as the learned Judge considered it immaterial to decide whether be had received any assets of the debtor's estate. Now, under those circumstances, in my judgment, it is, to say the least, doubtful whether the learned Judge had jurisdiction under Section 30(2) of the Presidency Towns Insolvency Act to deal with the alleged personal liability of the appellant as a mere guarantor of the amounts, which the debtors had covenanted to pay in the composition deed.

13. There is a case in English Courts, Ex parte Mirabita: In re Dale (1875) 20 Eq. 772 : 44 L.J.P.K. 119 : 33 L.T. 60 : 23 W.R. 864. It is a judgment by the Chief Judge of the Court of Bankruptcy, Sir James Bacon, with reference to Section 126 of the Bankruptcy Act of 1869, which is, in material respects, similar to Section 30(2) of the Presidency Towns Insolvency Act. That section runs as follows: 'The provisions of any composition made in pursuance of this section may be onforced by the Court on a motion made in a summary manner by any person interested, and any disobedience of the order of the Court made or such motion shall be deemed to be a contempt of Court,' In that case the learned Judge was considering an application which was made by a creditor against a person called Fenwick, who had joined in the deed of composition as a surety: and, the learned Judge said this: 'The Court has power to enforce the payment of the composition by the debtor, and by the trustee if he has in his hand the money with which to pay it, though of course he cannot be compelled to pay it out of his own pocket. If the composition is not paid when it becomes due, it is his duty to sue the surety at law upon his covenant. Application should be made to the trustee to do this, and if be refuses, the Court can compel him to discharge his duty.' The ratio decidendi was stated as follows: 'I think that the application against the surety is wholly without authority and entirely contrary to principle. A man who becomes surety for his friend for the payment of a composition does not by so doing make himself subject to the jurisdiction of the Court of Bankruptcy. There is no necessity for resorting to this extraordinary proceeding.' That reasoning, in my judgment, is applicable to the construction of Section 30, Sub-section (2) of the Presidency Towns Insolvency Act. It is to be noticed that the sanction provided by the section is a drastic one; because if an order is made under Section 30(2), and any disobedience of that order occurs, that disobedience may be dealt with as a contempt of Court.

14. It is a novel proposition, in my experience, that a person who has made himself liable as a guarantor for the payment of a composition in insolvency, should be subject to the insolvency jurisdiction so as to be liable to be dealt with for contempt of Court, if he does not carry out any order made under such jurisdiction. I have already stated that it appears to me that the learned Judge did not hold the appellant liable as a trustee by reason of his having assets of the estate in his hands, but on the ground that he had entered into a personal covenant as guarantor. I have serious doubt whether the learned Judge had any jurisdiction in a proceeding under Section 30 (2) of the Presidency Towns Insolvency Act to make the order of the 31st August 1922, on that ground.

15. In any event, having regard to the facts of this case, assuming for the sake of my judgment that the learned Judge had jurisdiction, in my opinion the order ought not to have been made. I need not re-capitulate all the facts which lead me to this conclusion, I have stated them at the beginning of my judgment: the scheme of composition was made so long ago as the 10th of December 1910. By its terms the composition was to be paid within a month from the date of the order annulling the adjudication order. The adjudication was annulled on the 14th September 1911; and it was not until the 29th July 1922 that the respondents applied for the covenant to be enforced against the appellant. The learned Judge held that this long delay was not explained. Under these circumstances, in my judgment, the peculiar jurisdiction under Section 30(2) of the Presidency Towns Insolvency Act should not be exercised against the appellant, in his capacity as guarantor, even assuming that the Court has jurisdiction to deal with such a matter under that section.

16. The matter, however, does not rest there. The respondents, Messrs. Jardine Skinner & Co., applied to the learned Judge to set aside the deed of composition and to re-adjudge the debtors insolvents, and the learned Judge proceeded to do so on the 21st November 1922. Consequently the appellant's liability under the covenant came to an end. Then without any further facts but merely because it was alleged that the respondents had misconceived the effects of the order, for which they had applied, the learned Judge vacated the order of the 21st of November 1922. and revived the liability of the appellant Mr. Pity, and on the next day he issued a writ of attachment on the ground that he had failed to comply with the order of the 31st of August.

17. It was argued that the learned Judge had no jurisdiction to vacate or alter the order, which be had made on the 21st November 1922. It is not necessary for me in this appeal to decide that question and I assume for the purpose of my judgment that he had jurisdiction to vacate the previous order inasmuch as the order had not been completed or perfected, but with much respect to the learned Judge, I cannot think that the order of the 21st November 1922, ought to have been vacated, having regard to the circumstances of this case. The order of the 21st of November 1922 had been made upon the application of the respondents themselves, and having regard to the fact that such a long period had elapsed since the deed of composition was entered into and approved by the Court, during which no steps bad been taken to enforce the covenant against the appellant, I see no sufficient ground for setting aside the order which the respondents themselves had applied for.

18. For these reasons in my judgment these appeals ought to be allowed, and the orders of my learned brother, dated the 31st of August 1922, the 6th of February 1923 and the 7th of February 1923, should be set aside.

19. As regards costs, it seams to mo that if the appellant had complied with the learned Judge's order of the 31st of August 1922, subject to his right of appeal to this Court, a largo part of these proceedings would have been unnecessary. Having regard to the circumstances of this case we are of opinion that the proper order to make in this matter is that the parties must bear his and their own costs both of the proceedings in this Court and in the Court of first instance.

Richardson, J.

20. I agree that the appeals should succeed.


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