Yenumula Mallu Dora Vs. Peruri
Seetharatnam & Ors  INSC 215 (14 October 1965)
14/10/1965 HIDAYATULLAH, M.
GAJENDRAGADKAR, P.B. (CJ) WANCHOO, K.N.
CITATION: 1966 AIR 918 1966 SCR (2) 209
Provincial Insolvency Act, 1920, s. 6(e)-Act
of insolvency--when once committed whether purged by satisfying only some of
the creditors Therefore whether available to other creditors for the purpose of
an application under s.
7-Section 25--Scope of.
On the application of two creditors
(respondents in this appeal) the appellant was adjudged a bankrupt by the
Subordinate Judge, Kakinada, and a receiving order was passed against him. This
adjudication was based on the one act of insolvency out of three alleged in the
application which was accepted by the sub-judge, i.e., the sale of some of his
properties in execution of a money decree. Appeals against the order to the
District Judge, and later to the High Court, were dismissed.
It was contended on behalf of the appellant
that the alleged act of insolvency was not established as he had deposited,
within one month of the sale, the entire decretal amount, and the sale was set
aside on a petition by him under Order 21, rule 89 of the Code of Civil
Procedure; that in any event he was entitled to have the application dismissed
under s. 25 of the Provincial Insolvency Act, 1920, which allows a creditor's
application to be dismissed on sufficient cause.
HELD: The adjudication of the appellant as an
insolvent and the receiving order against him were properly made. [214 E] An
act of insolvency once committed cannot be explained or purged by subsequent
events. The insolvent cannot claim to wipe it off by paying some of his
creditors; the same act of insolvency is available to all his creditors and is
not erased unless all creditors are satisfied. The act of insolvency which the
appellant had committed had remained and was not purged by payment of the
decretal amount after the sale in execution of the money decree; the
respondents could therefore rely on it even though one or more creditors might
have been paid in full. 1212 F-H] (ii) Although s. 25 of the Provincial
Insolvency Act is in wide terms, it cannot be given effect to so as to ignore
an act of insolvency in cases such as the present one, where the debtor
continues to be heavily indebted and there is no proof that he is able to pay
his debts. [213 A-B] Venkatakrishnayya v. Malakondayya, A.I.R. 1942 Mad. 306;
Pratapmall Rameshwar v. Chunnilal Jahuri,
A.I.R. 1933 Cal.
417 and Lal Chand Changhuri v. Bogha Ram
& Ors., A.I.R. 1938 Lah. 819, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 474 of 1964.
Appeal by special leave from the judgment and
order dated March 14, 1963 of the Andhra Pradesh High Court in C.R.P.
No. 1725 of 1959.
210 M. C. Setalvad, and T. V. R. Tatachari
for the appellant.
Kirpa Narain and T. Satyanarayana, for
respondent Nos. 1 and 9.
The Judgment of the Court was delivered by
Hidayatullah J. On the application of two creditors the appellant Yenumula
Mallu Dora has been adjudged insolvent by the Subordinate Judge, Kakinada and a
receiving order has been passed against him. The respondents before us are one
of the petitioning creditors and the legal representatives of the other
petitioning creditor who died during these proceedings. The first petitioning
creditor held a decree for money which he had obtained in O.S. 67 of 1949. He
also held another money decree in O.S. 473 of 1948. The second petitioning
creditor held a decree which she had obtained in O.S. 17 of 1955. The
application was based upon three acts of insolvency which the appellant was
stated to have committed and on the general facts that he was indebted to the
tune of Rs. two lakhs, and was unable to pay his debts.
The three acts of insolvency alleged against
him were (a) evasion of arrest in execution of the money decree in O.S.
67 of 1949; (b) sale of some of his
properties on September 26, 1956 in execution arising from O.S. 73 of 1952; and
(c) sale of some of his properties on September 19, 1956 in execution of money
decree in O.S. 9 of 1950. It was also alleged that he was fraudulently
transferring properties in the name of his wife and brother-in-law and had
suffered a collusive charge decree for maintenance 'in favour of his wife, to
delay and defeat his creditors.
The Subordinate Judge, Kakinada did not
accept the first two acts of insolvency. The evidence regarding evasion of
arrest was not found convincing and the second act of insolvency was rejected
because the sale of the property was in execution of a mortgage decree. In
respect of the third art of insolvency the Subordinate Judge held that it
satisfied S. 6(e) of the Provincial Insolvency Act and an adjudication and a
receiving order were justified in the case. An appeal was taken to the District
Court at Rajahmundry (C.A. 41 of 1958) which was dismissed on October 15, 1959.
A Revision Application filed under S. 75 of the Provincial Insolvency Act was
dismissed by the High Court of Andhra Pradesh on March 14, 1963. The appellant,
however, obtained special leave of this Court and has filed the present appeal
against the order of the High Court.
The contention of the appellant was, and
still is, that the third act of insolvency was not established as he had
deposited, within 211 one month of the sale, the entire decretal amount
together with poundage and commission and the sale was set aside on his
petition under Or. 21 r. 89 of the Code of Civil Procedure. He contended,
therefore, that as none of the acts of insolvency remained, the petition ought
to have been dismissed as incompetent or he was. entitled to have the petition
dismissed in any event, under s. 25 of the Provincial Insolvency Act which
allows a creditor's petition to be dismissed on sufficient cause. He submitted
that as the sale was set aside before the order of adjudication was made the
preexisted sufficient cause for the dismissal of the creditors' petition. The
Subordinate Judge relying upon Venkatakrishnayya v. Malakondayya(1) and on
decisions of the Lahore and the Calcutta High Courts rejected the submission
and made the order against the appellant. The District Judge, Rajahmundry
agreed with the, conclusion of the Subordinate Judge and the High Court
rejected' the petition for revision. In this appeal the same points are urged'
again for our acceptance. In our judgment the view of the law taken in this
case by the Subordinate Judge and approved by the, District Court is right and
does not warrant any interference.
The object of the law of insolvency is to
seize the property of' an insolvent before he can squander it and to distribute
it amongst his creditors. It is, however, not every debtor, who has borrowed'
beyond his assets or even one whose property is attached in execution of his
debts, who can be subjected to such control. The jurisdiction of the court
commences when certain acts take place which are known as acts of insolvency
and which give a right to, his creditors to apply to the Court for his
adjudication as an insolvent.
The Provincial Insolvency Act lays down in s.
6 what acts.
are to be regarded as acts of insolvency. It
is a long list. Some are voluntary acts of the insolvent and some others, are
involuntary.. The involuntary acts are of a kind by which a creditor is able
to, compel a debtor to disclose his insolvent condition even if the insolvent
is careful enough not to commit a voluntary act of insolvency. One such act is
that the insolvent has been imprisoned in execution of a decree of any court
for payment of money, and another is that any of his property has been sold in
execution of a decree of any court for payment of money. In this case the
property of the appellant was sold on September 19, 1956 in execution of a
money decree against him and therefore there is no question that he was guilty
of an act of insolvency described in s. 6(e); of the Provincial Insolvency Act.
(1) A.I.R, 1942 Mad, 306, 212 Under S. 7, a
creditor is entitled to present a petition in the Insolvency Court against a
debtor if he has committed an act of insolvency provided [as laid down in S.
9(i) (c)] the petition is made within three months of the act of insolvency on
which the petition is grounded. In this case both these conditions are
fulfilled. There is thus no doubt that the petitioning creditors' application
under S. 7 complied with S. 6 (e) and S. 9 ( 1 ) (c) of the Provincial Insolvency
Act. The petitioning creditors alleged that the appellant was indebted to the
extent of Rs. two lakhs and this was not denied by the appellant. In the trial
of one of the execution petitions filed against him by a decree- holder the
appellant admitted that he had "no means to pay the decree debt"
because "all his properties" were "under attachment and were
being brought to sale". He also stated that he was not "in a position
to discharge the debts". It is, therefore, clear that the appellant who
was in more than embarrassed pecuniary circumstances was unable to pay his
debts. It was also clear from the evidence, which the District Court and the
Subordinate Judge have concurrently accepted, that he had made some transfers
to screen his properties from his creditors and had suffered a decree for
maintenance in a suit by his wife. In view of these facts, which the appellant
cannot now deny, he is driven to support his case by argument on law. The
argument, as we have seen, is two-fold. We, are not inclined to accept either
leg of the argument.
An act of insolvency once, committed cannot
be explained or purged by subsequent events. The insolvent cannot claim to wipe
it off by paying some of his creditors. This is because the same act of
insolvency is available to all his creditors. By satisfying one of the
creditors the act of insolvency is not erased unless all creditors are
satisfied because till all creditors are paid the debtor must prove his ability
to meet his liabilities. In this case the petitioning creditors had their own
decrees. It was in the decree of another creditor that the payment was made but
only after the act of insolvency was committed. Besides the petitioning
creditors there were several other creditors to whom the appellant owed large
sum of money and his total debts aggregated to Rs. two lakhs. It is plain that
any of the remaining creditors, including the petitioning creditors, could rely
upon the act of insolvency even though one or more creditors might have been
paid in full. The act of insolvency which the appellant had committed thus
remained and was not purged by payment of decretal amount after the sale in
execution of the money decree.
21 3 The next question is whether the
Subordinate Judge should have exercised his discretion under s. 25, to dismiss
the petition of the creditors treating the deposit of the money as sufficient
cause. Section 25 of the Provincial Insolvency Act is, in wide terms but it is
impossible to give effect to those wide terms so as to confer a jurisdiction to
ignore an act of insolvency at least in cases where the debtor continues to be
heavily indebted and there is no proof that he is able to pay As debts.
The section reads as follows "25.
Dismissal of petition.
(1) In the case of a petition presented by a
creditor, where the Court is not satisfied with the proof of his right to
present the petition or of the service on the debtor of notice of the order
admitting the petition, or of the alleged act of insolvency, or is satisfied by
the debtor that he is able to pay his debts, or that for any other sufficient
cause no order ought to be made, the Court shall dismiss the petition,
(2)...................................." The section expressly mentions
three circumstances in which the petition made by a creditor must be dismissed,
namely, (i) the absence of the right of the creditor to make the application
(ii) failure to serve the debtor with the notice of the admission of the
petition; and (iii) the ability of the debtor to pay his debts. In addition,
the Court has been given a discretion to dismiss the petition if it is
satisfied that there is other sufficient cause for not making the order against
the debtor. The last clause of the section need not necessarily be read ejusdm
generis with the previous ones but even so there can be no sufficient cause if,
after an act of insolvency is established, the debtor is unable to pay his
debts. The discretion to dismiss the petition can only be exercised under very
different circumstances. What those cases would be, it is neither easy nor
necessary to specify, but examples of sufficient cause are to be found when the
petition is malicious and has been made for some collateral or inequitable
purpose such as putting pressure upon the debtor or for extorting money from
him, or where the petitioning creditor having refused tender of money,
fraudulently and maliciously files the application. An order is sometimes not
made when by the receiving order the only asset of the debtor would be
destroyed such as a life interest which would cease on his bankruptcy. Cases
have also occurred 214 where a receiving order was not made because there were
no assets and it would have been a waste of time and money to make a receiving
order against the debtor. These examples merely illustrate the grounds on which
orders are generally made in the exercise of the discretion conferred by the
last clause of s. 25. This case is clearly one which cannot be treated under
that clause. There are huge debts and no means to pay even though there are
properties which, if realised, may satisfy at least in part the creditors of
the appellant. The appellant was clearly guilty of an act of insolvency and an
act of insolvency cannot be purged by anything he may have done subsequently.
There is no proof of malicious or inequitable dealing on the part of the
petitioning creditors. They have proved the necessary facts and have
established both the act of insolvency and the inability of the appellant to
pay his debts. The appellant has not been able to prove that he is able to pay.
In fact, he has admitted that he is unable to pay his debts.
The High Courts have taken a similar and
uniform view of such cases. These rulings are quite numerous but the following
may be seen: Pratapmall Rameshwar v. Chunnilal Jahuri,(1) Lal Chand Chaughuri
v. Bogha Ram and others(2) and Venkatakrishnayya v. Malakondayya(3). We do not
consider it necessary to examine the facts in those cases because they apply
correctly the principles, which we have set out above to the facts in the cases
then present. It is, therefore, quite clear that the adjudication of the
appellant and the receiving order against him were properly made. In the result
the appeal fails and is dismissed.
There will be no order as to costs.
(1) A.I.R. (1933) Cal. 417.
(2) A.I.R. (1938) Lah. 819, (3) A.I.R.(1942) Mad. 306.