Sunday 19 March 2017

Whether creditor can make single insolvency petition for adjudicating two or more person as insolvents?

After giving the matter my careful consideration I am of opinion that there is no legal bar to a single application being made by a creditor for adjudicating two or more persons as insolvents if they are jointly liable on a debt or have committed a joint act of insolvency.
 Citation : AIR 1930 Lah 592
Decided On: 07.03.1930
 Kalu Ram
Gitwar Singh and Ors.
Tek Chand, J.

1. In order to understand the facts of this case it is necessary to refer to the following pedigree table:
Rattan Singh | ----------------------------- | | Ranpat Mahipat | | Girwar Singh | respondent 1 ------------------------------------------- | | | Dhannu Singh Baroda Singh Chatter Singh respondent 2 respondent 3 | Molar Singh respondent 4
2. On 30th March 1927, a decree for Rs. 14,000 was passed in favour of firm Prem Sukh Das-Kalu Ram against Girwar Singh, Dhannu Singh, and Baroda Singh personally and against Molar Singh as the legal representative of his deceased father Chattar Singh. In December 1927 Girwar Singh, Dhannu Singh and Baroda Singh filed a petition for being adjudicted insolvents. This petition was opposed by Kalu Bam, proprietor of the firm Prem Sukh Das-Kalu Ram, on the ground that the debt-ors had concealed their assets, inflated their liabilities and were in a position to pay their genuine debts. After enquiry the Court dismissed the petition on 18th June 1928.
3. About seven months later, on 21st January 1929, the aforesaid Kalu Ram, who had in the meantime got certain houses, alleged to belong to the judgment-debtors, attached and sold in execution of his decree, applied to the District Judge for adjudication of Girwar Singh, Dhannu Singh, Baroda Singh and Molar Singh as insolvents, alleging that their liabilities amounted to more tha& Rs. 500, that they were unable to pay their debts and that they had committed an act of insolvency. This petition was opposed by the respondents on the following grounds: (a) that a joint petition for adjudicating four persons aft insolvents was not legally maintainable; (2) that the respondents had not committed any act of insolvency; (3) that they were in a position to pay their debts; and (4) that Molar Singh was not personally liable under the decree in favour of Kalu Ram and therefore could not be adjudicated insolvent. The learned District Judge has accepted all these pleas and has dismissed the petition.
4. Kalu Ram has preferred a miscellaneous first appeal to this Court and on his behalf Mr. Shamair Chand has assailed the finding of the learned District Judge; on all the four points mentioned above.
5. The first question for decision is whether a creditor can file a single petition for adjudicating a number of debtors as insolvents, all of whom are liable on a. joint debt or have been guilty of a joints act or acts of insolvency. There is nothing in the Provincial Insolvency Acts prohibiting filing or grant of such a petition and I cannot see anything wrong in principle against such a course-being adopted. The learned Districts Judge has, however, answered the question in the negative, and in doing so he has followed a decision of the Calcutta High Court reported as Kali Charan Saha v. Hari Mohan Basak[1920] Cri.L.J. 206, in which it was held that where it is sought to obtain an order adjudicating several persons insolvents, there must be separate applications in respect off each debtor even though the several debtors are members of a Hindu joint family, In that case the question was not discussed in any detail, but was based on a prior decision of the same Court reported as Sarada Prasad Ukil v. Ram Sukh Chandra [1905] Cri.L.J. 318. That was a case decided under the Civil Procedure Code of 1882, and laid down that Section 344 of that Code did not contemplate joint petition by several judgment-debtors to be adjudged insolvents and that if in execution of a joint decree against several persons their joint property is -attached and all or some of them desire to be declared insolvents, each must make a separate application and the case of each should be tried separately from that of the others. The learned Judge after examining, the phraseology of Section 344 et seg of the Code expressed the opinion that in those sections the word "judgment-debtor" should "be taken to be as one person," and that having regard to the contest it could not be said that it was intended to mean a number of judgment-debtors. They also pointed out that a joint application by several judgment-debtors to be adjudged insolvents would lead to serious inconvenience in holding the trial.
6. It is not necessary to examine the correctness of this decision for, as stated above, it was given under a statute, which has since been repealed, and the phraseology of which is materially diffirent from that of Act 5 of 1920. It may, however, be pointed out that this case has been dissented from by the Madras High Court in Mamayya v. Rice Mill Co.A.I.R. 1921 Mad. 294 where after an exhaustive discussion of the subject it was held that under the Provincial Insolvency Act (3 of 1907) members of a joint Hindu family could be adjudicated insolvents on a single petition by a creditor, if they were liable on a joint debt and bad been guilty of a joint act or acts of insolvency. Referring to the reasoning of Sarada Prasad Ukil v. Ram Sukh Chandra [1905] Cri.L.J. 318, Sadasiva Ayyar, J. observed:
Mukerjee, J. who delivered the judgment of the Bench in that case, merely points out several inconveniences which would arise in many cases from entertaining a single application directed against several persons to adjudicate them insolvents and the inconveniences of holding a single trial on such a petition. But I think the learned Judge (with all respect) ignores that there would be grave inconveniences also in many cases in holding separate trials where the debt due to the petitioning creditor is a joint debt of all the persons sought to be adjudicated insolvents and where the latter have been guilty of a joint act or joint acts of insolvency. The fact that Section 8, Insolvency Act, provides for consolidation on the ground of convenience even in cases where distinct petitions are obligatory shows that the argument on the ground of inconvenience should not be given too much weight. As I stated, the test is whether if the application was treated as a suit, that suit would be bad for multifariousness, that is, for misjoinder of different causes of action against different defendants. If no such objection can be successfully advanced single application is, in my opinion, maintainable in that case.
7. Napier, J. agreed with his colleague and remarked:
As for inconvenience, it seems to me that that question is practically resolved by the provision which says that where a creditor has actually applied in separate petitions against persons jointly liable the Court has power to consolidate the proceedings for the convenience of all parties. I quite agree that there must be a cause of action, which is joint to all the persons who are sought to be adjudicated and that it would not be sufficient to allege that persons were joint debtors but had committed separate acts of insolvency, but where the debt and the acts of insovency are joint, I have no doubt that a petition will lie against persona alleged to be jointly liable to the creditor.
8. This view has been re-affirmed by the same Court in Muthu Veerappa Chettiar v. Sivagurunath Pillai A.I.R. 1926 Mad. 133 and Punniah v. Sagarjee Kasarmal A.I.R. 1927 Mad. 124 and has been accepted as correct by the Rangoon High Court also in Mating Kyi Oh v. S.M.A.L. Arunachallam Chetty A.I.R. 1925 Rang. 36, where the question was considered at length and Sarada Prasad Ukil v. Ram Sukh Chandra [1905] Cri.L.J. 318was dissented from. The Judicial Commissioners of Sind have also adopted he Madras view in In the matter of David Sasson and Co. Ltd. A.I.R. 1927 Sind. 155. It may be noted that all these cases were decided under Act 5 of 1920.
9. Under the English law such applications are frequently made as will appear from the following quotation from Williams' Bankruptcy Practice (13th Edn.) p. 186.
In order to sustain a joint petition against two or more persons, it is necessary that some act of bankruptcy shall have been committed by each of them. This maybe a joint act of bankruptcy; but it is not requisite that they should have committed a joint act of bankruptcy of the same kind; and in order to support a joint petition against all the members of a firm, the acts of bankruptcy must have been committed during the continuance of a joint debt, and the petition must be founded on a joint debt. (Ex. P. Clacke, 1 D aad Ch. 544.
10. After giving the matter my careful consideration I am of opinion that there is no legal bar to a single application being made by a creditor for adjudicating two or more persons as insolvents if they are jointly liable on a debt or have committed a joint act of insolvency. The question, however, whether such an application should be jointly tried and decided will depend on the facts of each case. The test laid down by the Madras High Court in the cases cited above seems to me to be the proper one to be applied to such cases. Treating the petition as a suit as it should be under Section 5 of the Act if the suit is bad for multifariousness, the partition should not be proceeded with. But if it is free from this defect, the Court should try it, and if it comes to the conclusion, that all the debtors or 3ome of them should be adjudicated insolvents it should pass an order to that effect.
11. The plea of multifiariousness was not raised in this case and Mr. Fakir Chand has conceded that there are no materials on the record which might support it. He has not asked for a remand, and I do not see any reason to order one. I hold therefore, that the decision of the learned District Judge on this point was erroneous and that the application was maintainable.
12. The second ground on which the learned District Judge has dismissed the petition is that the respondents are not shown to have committed an act of insolvency. It appears, however, that the attention of the learned Judge was not drawn to clause (e), Section 6, Prov-Ins. Act (5 of 1920) where it is expressly provided that a debtor commits an act of insolvency in case any of his property has been sold in execution of a decree of any Court for the payment of money. Mr. Fakir Chand for the respondents frankly admitted that in view of this statutory provision the learned District Judge's finding on this point could not be sustained.
13. The third ground on which the learn-red Judge has found in favour of the respondent is that the appellant has not shown that the respondents were not able to pay their debts. His decision on this issue proceeds solely upon the fact that in the proceedings on the previous application filed by the first three respondents, Kalu Ram, appellant himself, had successfully pleaded that they were able to pay their debts. From this the learned Judge concluded that as it had not been shown that since the passing of that order the respondents had wasted their assets or that their assets had in any way decreased, these respondents possessed the means to pay off their genuine liabilities. In my opinion the finding of the learned Judge on this point is also erroneous and is based upon an incorrect view of the law. Under Section 25, on a petition presented by the creditor for adjudicating a debtor as insolvent, it lies on the debtor to satisfy the Court that he is able to pay his debts. Admittedly there is no evidence on the record to show that they have done so. Indeed none of the respondents went into the witness-box and stated that they were able to pay their debts, though the onus of issue 2 had been definitely placed on them. The decree of the appellants is for Rs. 14,000 and has been outstanding for more than three years. They have not taken any steps to voluntarily discharge any portion of their liability on this decree. In these circumstances this issue should have been decided against them. The mere fact that the insolvency Court had in 1928 found that the respondents were able to pay their debts is no proof that their financial position was the same in 1929 when the present application was made and the order under appeal passed.
14. On the fourth point the learned District Judge is clearly right. Molar Singh, respondent 4, was not personally liable under the decree. The debt in question was due by his father Chattar Singh along with his uncles, respondents 1 to 3. So far as Molar Singh is concerned the decree against him was passed in his representative capacity and was obviously realisable from the estate of Chattar Singh which had come into his possession. On these facts, it was eventually conceded by Mr. Shamair Chand for appellant that, Molar Singh could not be adjudicated insolvent.
15. It remains to consider a contention raised by Mr. Fakir Chand in the course of his arguments that the houses which are stated to have been attached and sold in execution of the decree in favour of the appellant did not belong to the respondents but to the sons and grandsons of Girwar Singh, respondent 1. This objection was raised in the written statement but does not seem to have been pressed in the Court below. No evidence whatsoever was led to prove this allegation. As stated already, the respondents themselves did not go into the witness box to substantiate it. In the execution proceedings, and the attachment and sale which followed, the houses in question were described and sold as the property of the judgment-debtors. These proceedings must be presumed to have been conducted in a proper and legal manner and the mere fact, that the sons and grandsons of Girwar Singh, who is one of the judgment-debtors have now come forward to claim the houses as their own, cannot affect the decision of the present petition. For the foregoing reasons I accept the appeal to this extent, that I set aside the order of the lower Court dismissing the petition for adjudicating Girwar Singh, Dhannu Singh and Baroda Singh respondents 1 to 3, as, insolvents and in lieu thereof, I direct that these three respondents be adjudicated as insolvents. The order of the lower Court dismissing the petition against Molar Singh, respondent, is confirmed and shall stand. Respondents 1 to 3 must pay the costs of the appellant in both Courts.
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