Sunday, 19 March 2017

Whether joint hindu family firm can be adjudicated as insolvent?

As the above rulings throw little light on the question whether a Hindu joint family firm can be adjudged insolvent under Section 99, Presidency Towns Insolvency Act, it is necessary to look to the words of the section itself. It is no doubt true that a Hindu joint family firm is somewhat different from an ordinary partnership business; as pointed out in Mulla's Hindu Law, p. 250, a joint Hindu family firm is not dissolved by the death of a coparcener whereas an ordinary partnership is dissolved when a partner dies. Ordinarily however there is not much difference between the members of a Hindu joint family who carry on business together and the partners of an ordinary partnership firm. In common parlance members of the family who transact the business are partners and in this case they have so described themselves in the application to the Imperial Bank of India Ex. 14. In that they refer to the firm of Kala Gella as a firm and inform the bank that they are partners of the said firm. This being so, it would seem to be that the wording of Section 99, Presidency Towns Insolvency Act is wide enough to include a Hindu joint family business and that under that section it was open to the learned Additional Judicial Commissioner to adjudicate the firm insolvent.
 Citation : AIR 1931 Sindh 179
IN THE HIGH COURT OF SIND
Decided On: 07.11.1930
 Chaturbhuj and Ors.
Vs.
 F.O. Kewalram and Ors.
Milne, A.J.C.


1. This is an appeal against an order of the learned Additional Judicial Commissioner in insolvency proceedings adjudicating the appellants firm insolvent. The appellant firm under the name of Kala Gella traded in Karachi; on 13th June 1930 a suit was filed by certain members of the firm for partition of the family pro-party. On the same day an ex parte application was made to the Court with the consent of the principal members of the family then residing at Karachi that one of the members of the firm Mr. Khetsi and Mr. Tolasing, pleader, should be appointed interim receivers of the estate. On 16th June a letter was sent from Messrs. Tolasing & Co. to the creditors of the firm stating that there was disagreement in the family; that a suit for partition had been filed and that Mr. Tolasing and Mr. Khetsi, manager of the family, were appointed interim receivers of the family property; the creditors were therefore asked to carry on all correspondence with the receivers. The creditors of the firm made inquiries from the members of the firm, who according to the petitioning creditors in the insolvency application, stated that they were not able to pay their debts and that receivers had been appointed to realize the assets and divide the same pro rata amongst the creditors. A demand was then made on the receivers for payment and on 19th June 1930, Mr. Tolasing wrote that the assets had to be realized before the firm could be wound up arid they, the receivers, had been instructed to give an assurance that there would be no preferential treatment of any of the unsecured creditors. The petitioning creditors then filed their petition on 23rd June and the firm of Kalla Gella was adjudicated insolvent. Against this order the firm has appealed.
2. Appellants contend that no action can be taken against a joint family firm under Section 99, Presidency Towns Insolvency Act. The learned Additional Judicial Commissioner held that the firm of Kalla Gella was an ordinary partnership firm, but that even if it were a joint family firm, action could be taken against it under Section 99 of the Act. On appeal Mr. Lobo for the Official Assignee has taken the same line. He urges that the firm of Kalla Gella is an ordinary partnership firm, but that in any case the question is immaterial.
3. It is clear that the firm of Kalla Gella is a joint family firm. Ex. 13 is an assistant in the Imperial Bank who produces Ex. 14, a statement submitted by the firm of Kalla Gella to the Imperial Bank of India, giving the names of the partners constituting the firm. The letter Ex. 14 does not describe the firm of Kalla Gella as a joint family firm, but Ex. 13 admits that he knew that it was a joint family firm. It was usual to get this kind of letter from every firm which did business with them. The manager of the bank knew that the firm of Kalla Gella was a joint family firm. Most of the Indian business was done through the witness.
4. Exhibit 16 is a power given by the firm to the Mercantile Bank. It does not mention therein that the firm is a joint family firm. The witness however admits that the power-of-attorney, Ex. 17, was given to the bank; in that the firm is described as a joint family firm. Ex. 17-2 similarly describes the manager as manager of the joint family. Ex. 18 puts in a power-of-attorney Ex. 32 which was given to the Alliance Bank. The firm is therein described as a joint family firm. Ex. 21 which was given to the Punjab National Bank refers to the firm as a joint family firm. The affidavit of petitioning creditor No. 2 describes the firm as carrying on an ancestral trade with the consent of all the members of the family.
5. It is clear then that the firm did on many occasions, though not invariably, describe itself as a joint family firm and the fact that they were members of a1 joint family must have been apparent to the people who had dealings with them. It does not appear that they deliberately represented themselves to be an ordinary partnership or that any person was misled into believing them to be such. No question of estoppel therefore arises.
6. The firm then being a joint family firm, the appellants contend that the firm as such cannot be declared insolvent. Eor this they rely on the statement in Sir Dinshaw Mulla's Book on the Law of Insolvency at p. 73-A, viz., that no insolvency petition can be presented against a Hindu joint family firm as such. A petition can only be presented against the members of the joint family, but they must be adults. For this proposition the learned author relies on Sanyasi Charan Mandal v. Krishnadhan Banerjee A.I.R. 1922 P.C. 237. There does not appear to be anything in that ruling to justify the proposition. There is only a reference to an adjudication being made in a previous case against the adult brother, they being members of the firm.
7. It is contended that under Section 99 of the Act an ordinary firm can be declared insolvent and under Rule 76 of the insolvency rules of this Court the adjudication of the firm as insolvent implies that the individual members thereof are at the same time adjudicated insolvents. This it is contended shows that the provisions of Section 99 do not apply to joint family firms: some members of which, i.e., minors and adult members, who have not taken an active part in the management of the firm, are not liable except to the extent of their interest in the joint family property, and therefore cannot be declared insolvent. Even if Rule 76 does not apply to joint family firms, it does not follow that Section 99 does not. The adjudication of the firm does not imply that a minor member, who cannot be adjudicated insolvent, is thereby so adjudicated. The same principle would apply in the case of an adult member who on the ground that he had taken no active part in the management of the firm would be liable only to the extent of his interest in the joint family property and his liability being so limited, could not therefore be adjudicated insolvent.
8. The provisions of Section 99 of the Act, refer to partners and firms. It does not specify a firm as defined in the Contract Act. A joint family firm is a peculiar kind of partnerships: that has been ruled on several occasion; vide Sanyasi Charan Mandal v. Asutosh Ghose[1915] 42 Cal. 225 and there is nothing to show that the provisions of Section 99 are limited to any particular kind of partnership. It appears indeed to be necessary to declare the film insolvent because not only the interests of the adult members actually engaged in the management but the interests of the minors and of adult non managing members are affected. Their interests may not vest in the Official Receiver; that is another question: the cases Sat Narain v. Behari Lal MANU/PR/0003/1924 and Sanyasi Charan Mandal v. Asutosh Ghose [1915] 42 Cal. 225, relied on by the appellants, deal with that question. It may be noted that in Sat Narain v. Beharilal MANU/PR/0003/1924 Sir John Edge noted en passant the possibility of a joint family firm being declared insolvent. In Gokuldoss Goverdhandoss v. Parry & Co. A.I.R. 1925 Mad. 1249 a joint family appears to have been declared insolvent. I therefore hold that Section 99 of the Act, does apply to a joint family firm.
9. The third contention raised by the appellants is that even supposing a joint family firm can be declared insolvent, still individual notices must be served upon each member of the family. This is substantially the same contention as that just dealt with, that Section 99 does not apply to a joint family firm. Appellants rely on Ramprasad Shivlal v. Shrinivas Balmukand A.I.R. 1925 Bom. 527 for the proposition that in a suit against a joint family firm there must be individual service on each member. A contrary view has been stated in Detaram Ratumal v. Vishindas Tarachand A.I.R. 1928 Sind 57, in which De Souza, A.J.C., has stated that the provisions of Order 30, Rule 1 apply to joint family firms. These provisions are analogous to the provisions of Section 99, Insolvency Act. But it does not appear that the provisions of Section 99, Insolvency Act, are limited to any particular kind of partnership. It is true that that section does specify one class of members who cannot be adjudicated insolvents and the other class peculiar to joint family firms, i.e., adult members who have not taken any part in the management of the firm, is not specified. But even if this is an omission it does not affect the generality of the provisions of the first subsection. Appellant's next contention is that no act of insolvency has been proved. The creditors contend that the whole proceedings from the institution of the partition suit constitute one continuing act of insolvency. The partition suit was filed on 13th June on the same day two receivers were appointed with tie consent of the principal members of the family then residing in Karachi; circulars were issued to various creditors of the firm showing the assets and liabilities of the firm. On 17th June the managing member of the family, Khetsi, who was appointed one of the receivers is said to have stated to the creditors or their agents who called on him that the firm was not in a position to pay its debts as they fell due and to the same effect was the letter written by Mr. Tolasing to one of the creditors on 19th June.
10. The witness' account of Khetsi's statement on 17th June must be taken to be substantially true, because there is really nothing else that Khetsi could have said, The evidence of Kashomal and Jethanand, Exs. 22 and 24, in support of their affidavits is very definite. They were sent by their firms to make inquiries as soon as the circulars were issued on 17th, and Khetsi told them the only thing be could say that they had not sufficient money to pay their debts and the creditors would be paid pro rata.
11. I hold then that the whole transaction must be taken as one agreeing with the learned Additional Judicial Commissioner that the firm was not in a position to pay its debts as they fell due; that the managing member Khetsi admitted that fact, and that the whole proceedings from the institution of the partition suit constituted an act of insolvency. It was merely a device to bar the provisions of the Insolvency Act. The statement made by Khetsi on 17th June and the letter written by the other receiver Mr. Tolasing on 19th Juneclearly show that the firm admittedly ?was not in a position to pay its debts as they fell due.
12. Appellants contend that one partner is not an agent of the others to commit an act of insolvency. But it is clear that in this case the partners were acting with one mind and an thing done by one partner was in pursuance of the policy authorized by the other partners. Reliance is placed on In re Mahomed Hasham & Co. A.I.R. 1923 Bom. 107 for the proposition that a firm cannot commit an act of bankruptcy but it is clear that the partners can. Appellants rely on the affidavit of Budhar one of the members of the family that he did not authorize any statement that they had suspended payment: he was however (it is clear from the affidavit) in Karachi, is a plaintiff in the partition suit and was conversant with the affairs of the firm. There is also the affidavit of his brother Popat. But the facts speak for themselves: it is clear that all the members of the firm were equally concerned. No one has demurred to the action taken in the partition suit. The plaintiffs in the partition suit including Popat and Budhar in their plaint stated that they and defendants were tarrying on the joint family business: vide also Budhar's affidavit in that suit for the appointment of a receiver, though he tried to tell a different story in his affidavit on the amendment application in the insolvency proceedings.
13. As to what is an act of insolvency, appellants have quoted various cases; that it must be unequivocal and intentional. The principles on which the real nature of the alleged acts are to be determined are stated in Dwarkadas Javhermal v. David Sassoon & Co. Ltd.A.I.R. 1930 Sind 83. It is clear that in the present case the creditors understood and were meant to understand that payment had been suspended and that only a pro rata payment would eventually be made.
14. The appellants further contend that even if Khetsi did commit an act of insolvency, that does not bind the joint family, as he was a receiver appointed by the Court and as after the institution of the partition suit, the joint family had separated and Khetsi was no longer a representative of the joint family. It has been held in Gokuldoss Goverdhandoss v. Parry & Co. A.I.R. 1925 Mad. 1249 that a firm should be deemed to carry on business so long as the business debts remained undischarged That was with reference to jurisdiction under Section 11(d), but a firm could easily commit an act of insolvency while so carrying on: and equally their agents authorized by them. It is clear that the receivers appointed on the application of parties in the partition suit were carrying out the wishes of the partners. 1 agree with the learned Additional Judicial Commissioner that the receivers appointed in this case must be considered the agents of the firm and the partners mast be bound by the acts of their agents.
15. The case of Gokuldoss Goverdhandoss v. Parry & Co. A.I.R. 1925 Mad. 1249appears to be an authority for most of the propositions in dispute in this case. The firm in that case appears to have been a joint family firm. In 1923 one of the members of the family instituted a suit for partition, a receiver was appointed. Subsequently some of the firm's property was attached; the attachment remained in force for more than 21 days and insolvency proceedings were instituted; an order was passed adjudicating the firm with two of the partners insolvent; two other members of the firm who were minors were not so adjudicated. It was contended in that case that as the business of the firm ceased in 1923, the Court had no jurisdiction to make an order of adjudication in 1924 but it was held that so long as the debts remained undischarged, business must be regarded as still being carried on. This was with special reference to Section 11. A further contention was also raised that after the appointment of the receiver any business carried on by the receiver did not amount to carrying on the business of the firm as the receiver was not an agent of the parties but an officer of the Court. The learned Judge there held that the legislature could not have intended that an insolvent firm should be allowed to evade its responsibilities and obligations by the device of one member of the firm bringing a suit against another member and applying to the Court to appoint a receiver. The act of insolvency was one for which the receiver was responsible. Appellants contended that the property in the Madras case could not have been attached without the permission of the Court as a receiver had been appointed; but the receiver was responsible for allowing the attachment to continue for a period of 21 days. I must hold then that the statement of Khetsi on 17th June and the letter of the other receiver Mr. Tolasing on 19th June are special acts of insolvency committed by the firm. But the whole proceedings ab initio constitute the act of insolvency in this case and the question whether the members of the family on the institution of the suit became separate, whether Khetsi's acts subsequent can be held to bind the family or whether the receivers' acts bind the firm, do not arise. It was one entire scheme culminating in the notice to creditors of suspension of payment.
16. It may be added that the order adjudging the firm of Kalla Gella insolvent applies to the firm other than minors and members whose liability is limited to their interest in the joint family property. The liability of a member who takes no part in the management of the firm is so limited; vide Amar Nath v. Hukam Chand Nath Mal A.I.R. 1921 P.C. 35, remarks at p. 52 (of 2 Lah.) They cannot be adjudged insolvent.
17. We therefore uphold the order of the learned Additional Judicial Commissioner and dismiss this appeal with costs, except the costs of Mr. Kewalram who appeared for one of the creditors who will bear his own costs.
Wild, J.C.
18. I agree. The principal question in those appeals is whether a joint Hindu' family can be adjudicated insolvent as it is clear that the persons adjudicated insolvents are members-of a Hindu joint family firm. Section 99, Sub-section (1), Presidency Towns Insolvency Act, says that any two or more persons being partners may take proceedings or be proceeded against under the Act in the name of the firm. As the persons who carry on a Hindu joint family business would be in common parlance partners and their business would be a firm there would seem prima facie to be no reason why Section 99 should not apply to such a firm. It is curious that the learned pleaders for the appellants have not been able to refer to any direct ruling on this point though it is probable that there have been many Hindu joint family firms adjudicated insolvent as firms both at Karachi and at other places where the Presidency Towns Insolvency "Act is in force.
19. Reliance is placed on the remark in Mulla's Insolvency Law, p. 73-A, that a joint Hindu family firm is not a firm in the sense in which that word is used in the law of partnership. Therefore no insolvency petition can be presented against a Hindu joint family firm as such. For this proposition the learned author relies upon a case of Sanyasi Charan Mandal v. Krishnadhan Banerji A.I.R. 1922 P.C. 237. The case itself does not appear to support the remark of the learned author, that no insolvency petition can be presented against a Hindu joint family firm as such and if there were anything in the ruling in support of that remark it would be an obiter dictum, because the insolvency with which the case indirectly deals was an insolvency under the old Provincial Insolvency Act and this Act contained no provision like that contained in Section 99, Presidency Towns Insolvency Act. Reference has also been made to the case of Sanyasi Charan Mandal v. Asutosh Ghose [1915] 42 Cal. 225 which is concerned with the same insolvency as in the previous case. That insolvency however was under the Provincial Insolvency Act which gave the Court no power to adjudicate insolvent a firm as can be done under Section 99, Presidency Towns Insolvency Act. The next case relied upon for the proposition that Section 99 does not apply to a Hindu joint family firm is Sat Narain v. Behari Lal MANU/PR/0003/1924. The facts in that case were not in any way similar to the facts in the present case and the adjudication was not of a firm but, of one person who had joint minor sons. On p. 138 it is remarked:
It is quite clear that if this joint family could be treated as a firm carrying on its business in partnership an order adjudging the father who managed the business or even an order adjudging the firm insolvent could not be made under that Act even if the firm consisted solely of a Hindu father and his two minor sons which would affect the interest of a minor who happened to be a partner in the firm.
20. That however is not the same as saying that such a firm could not be adjudged as insolvent and it is clear from Sub-section (2), Section 99, that in a case of a firm in which a partner is a minor the adjudication order should ba against the firm other than the minor partner. The case is no authority for the proposition that a Hindu joint family firm cannot be adjudicated insolvent. For the respondent reliance is placed on the cases of Gokuldoss v. Parry & Co. A.I.R. 1925 Mad. 1249 and In re Shaw Wallace & Co. A.I.R. 1927 Sind 18 in both of which the firm adjudged insolvent was apparently a Hindu joint family firm. There is however perhaps a doubt about this in the first case because as shown on p. 800 the insolvent who had first of all instituted a suit for partition later on amended his plaint and sued for a declaration that the family had been divided from 1890.
21. As the above rulings throw little light on the question whether a Hindu joint family firm can be adjudged insolvent under Section 99, Presidency Towns Insolvency Act, it is necessary to look to the words of the section itself. It is no doubt true that a Hindu joint family firm is somewhat different from an ordinary partnership business; as pointed out in Mulla's Hindu Law, p. 250, a joint Hindu family firm is not dissolved by the death of a coparcener whereas an ordinary partnership is dissolved when a partner dies. Ordinarily however there is not much difference between the members of a Hindu joint family who carry on business together and the partners of an ordinary partnership firm. In common parlance members of the family who transact the business are partners and in this case they have so described themselves in the application to the Imperial Bank of India Ex. 14. In that they refer to the firm of Kala Gella as a firm and inform the bank that they are partners of the said firm. This being so, it would seem to be that the wording of Section 99, Presidency Towns Insolvency Act is wide enough to include a Hindu joint family business and that under that section it was open to the learned Additional Judicial Commissioner to adjudicate the firm insolvent.
22. The next question for consideration is whether prior to the petition of the petitioning creditors there was an act of insolvency committed by the firm. The petitioning creditors rely upon the affidavits and the evidence of the two Mehtas Kashomal and Jethanand and on the affidavit and evidence of A.S. David, as showing that Khetsi the managing partner of the firm gave notice to his creditors that he had suspended payment of his debts.
23. As regards the evidence and affidavit of A.S. David it appears to me that the act of Khetsi does not amount to an act of insolvency. All that the witness says in his affidavit is that when he demanded the sum of Rs. 10,000 due from Khetsi he expressed his inability to pay the entire amount saying that the assets of the firm were tied up. He goes on to say payment should be made gave a postdated cheque which was subsequently dishonoured. In para. 7 of his affidavit A.S. David states that Khetsi in clear and unequivocal words expressed that his firm was unable to meet its debts in full though suggesting that his money was locked up in various places but all that the evidence of the witness amounts to is that Khetsi told him that he could not pay him the amount due to him at that time but offered him a post-dated cheque.
24. This is hardly the same as if Khetsi had said that he had suspended or was about to suspend payment of his debts. In the case however of the witnesses Kashomal and Jethanand who first put in affidavits and were then examined in Court, it would appear that there was an act of insolvency by Khetsi. The learned Additional Judicial Commissioner has remarked that they gave their evidence in a straightforward way. The story which they tell is also a probable one. At the time when these two Mehtas went to Khetsi their employers had received notices from the receivers that receivers had been appointed and that they should apply to them for their money. It was natural that the masters of these two Mehtas should send them to Khetsi to find out how matters stood, and Khetsi would naturally have told them of the partition suit, the appointment of the receivers and would have explained that he was not able to pay what was due from him. I see therefore no reason to doubt that Khetsi told the Mehtas that he had suspended payment of his debts.
25. It is argued that Section 9(g), Presidency Towns Insolvency Act requires that notice should be given to the creditors but here notice was given to the Mehtas of the creditors. It appears however to be sufficient compliance with the section if the notice is given to the representative of the creditor see: In re a Debtor [1929] 1 Ch. D. 362.
26. It is next contended that Khetsi's act if it amounted to an act of insolvency is not the act of all the partners and reference is made to In re Mahomed Hasham & Co. A.I.R. 1923 Bom. 107 and Muthu Chettiar v. Nagindas MANU/MH/0037/1926 : AIR1926Bom383 . In the first of these cases it was held that an adjudication order Could not be passed against a firm when only one of two partners departed from his usual place of business. But the facts are different here. In the second case the act of insolvency was a statement of the manager of a firm which was not accepted as be was a mere agent and an agent does not usually have authority to commit an act of insolvency on behalf of his principal. Here however in the opinion of the learned Additional Judicial Commissioner the partition suit was a device by the insolvents to defeat their creditors. On the same day that the suit was filed by certain members of the family the plaintiffs in that suit made an application that receivers should be appointed and the receivers appointed were the pleaders of the parties and the managing partner Khetsi himself. This appointment of the receivers was made with the consent of all the principal members of the family and obviously ail the principal members of the family know of the partition suit and appointment of the receivers. It is not too much to presume that Khetsi had instructions from them to tell all who might apply to him for their money that the partition suit had been filed and receivers appointed. The act of insolvency therefore committed by Khetsi was not without authority but was committed with the knowledge and consent of the other partners.
27. It is however argued that the filing of is partition suit effected a partition between the members of the joint family and that therefore Khetsi when he committed the act of insolvency was no longer a managing member of a joint family and that there was therefore no act of insolvency on the part of the other partners. The learned Additional Judicial Commissioner has treated the proceedings in the partnership suit as a nullity because they were in fraud of the creditors and there is authority for that in the case of Gokuldoss Goverdhandas v. Parry & Co. A.I.R. 1925 Mad. 1249 where it is said by Spencer, J.:
It seems to me that the legislature could not have intended that an insolvent firm should be allowed to evade its responsibilities and obligations by the device of one member of the firm bringing a suit against another member and applying to the Court to appoint a receiver.
28. Apart from that it would appear that an act of insolvency was committed by the firm when on the same day the partition suit was filed and an application was made to appoint receivers of the property. Such an act would come under Section 9, Clause (a) or Clause (b), Presidency Towns Insolvency Act, because the partners have in effect made a transfer of all their property either for the benefit of their creditors or more probably with the intent to defeat or to delay them. It is clear from the evidence that the firm was in a bad financial position. The effect of the filing of the suit and appointment of the receivers has been to defeat and delay the creditors and it may fairly be assumed that that was the real intention of the parties in filing the suit.

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