Firm Mukand Lal Veer Kumar & ANR Vs.
Sri Purushottam Singh & Ors [1968] INSC 22 (31 January 1968)
31/01/1968 RAMASWAMI, V.
RAMASWAMI, V.
SHAH, J.C.
CITATION: 1968 AIR 1182 1968 SCR (2) 862
ACT:
Provincial Insolvency Act (5 of 1920), s.
9(1)(c)-Transfer of property by Deed-Alleged act of insolvency-Three months
period starts whetherfrom execution or registration --Whether firm can be
adjudicated insolvent-Partners when can be adjudicated insolvent,
HEADNOTE:
M a partner of a firm executed it deed of
gift in October, 1957 of a property, which was not partnership property. The
deed of gifts was registered in March 1958. In April, May, 1958 and January
1959, petitions were filed alleging that the firm and its two partners had
committed acts of insolvency and therefore, they should be declared insolvents.
The lower courts adjudicated the firm and the partners insolvent. The High
Court, in revision, confirmed the adjudication of insolvency with regard to the
firm and M, but set aside with regard to the other partner. In appeal to this
Court it was contended that (i) the starting point of the three months' period
prescribed under s. 9(i)(c) of the Provincial Insolvency Act should be the date
of execution of the deed of gift and not the date of registration; (ii) no
order of adjudication could be made against a firm but it could only be made
against the partners individually and (iii) the firm should not have been
declared insolvent merely because of the deed of gift executed by M. HELD : (i)
Section 49 of the Indian Registration Act implies that a document by reason of
its execution alone cannot have the effect of transferring the property. The
deed of gift executed by M, could not be considered to be an act of insolvency
unless a valid transfer of property was made by that document and such a valid
transfer could be said to have been made only when the document was registered.
1866 D-F] Lakhmi Chand v. Kesho Ram, I.L.R. 16 Lah. 735, Sarvathada Iswarayya
v. Kuruba Subbanna, I.L.R. 58 Mad. 166 and District Board Bijnor v. Muhammad
Abdul Salam I.L.R. 1947 All. 624, approved.
U on Maung v. Maung Shwe Hpaung A.I.R. 1937
Rangoon 446, disapproved.
(ii) An order of adjudication could be made
against the firm in the present case if the proper conditions were satisfied.
Section 79(2)(c) of the Act provides for
rules to be made by the High Court as to the procedure to be followed when the
debtor is a firm. This section, therefore, assumes that an adjudication order
can be made under the Act against the firm in the firm's name. [867 G-H] Ex
parte Blain ( 1879) 12 Ch. D. 522, referred to.
(iii) In order to support an adjudication
against a firm there must be proof that each of the partners has committed some
act of insolvency. It however, a joint act of insolvency is relied upon it must
be shown to be the act of all the partners. An order for adjudication can also
be mad(. against a firm if there was an act of insolvency by an agent of the
firm which was such as must necessarily be imputed to the firm. The explanation
to s. 6 of the Act does not lay down that an act of insolvency o 863 the agent
shall be attributed to the principal but that it may be treated as the Act of
the principal. [868 E, F] The order of the lower court, so far it adjudicated
the registered firm, as insolvent, must be set aside. The property of which M
made gift was not a partnership property and there was no collective act of
insolvency alleged on behalf of all the partners of the firm.
Re : Mohamad Hasam & Co. 24 Bom. L.R. 861
and Gopal Naidu v. Mohanlal Kanyalal, I.L.R. Mad. 189, referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 1167 to 1169 of 1965.
Appeals by special leave from the judgment
and order dated November 1, 1961 of the Allahabad High Court in Civil Revision
Nos. 310 to 312 of 1960.
A. K. Sen and J. P. Goyal, for the appellants
(in all the appeals).
B. C. Misra, M. V. Goswami and R. H. Dhebar,
for respondents Nos. I and 2 (in C.As. Nos. 1167 and 1168 of 1965).
S. S. Shukla, for respondent No. 3 (in C.As.
Nos. 1167 and I 1 68 of 1965) and respondent No. 2 (in C.A. No. 1 1 69 of
1965).
B. C. Misra and R. Mahalingier, for
respondent No. 1 (ii) to (v) (in C.A. No. 1169 of 1965).
The Judgment of the Court was delivered by
Ramaswami, J. These appeals are brought, by special leave, from the judgment of
the Allahabad High Court dated November 1, 1961 in three Civil Revision
Applications nos. 310 to 312 of 1960.
Appellant no. I is a registered firm of which
appellant no.
2, Mukund Lal and respondent no. 7, Ram Surat
Misra are the only two partners. The firm carried on 'Arhat' (Commission Agency
business. Three petitions under the Provincial Insolvency Act (Act V of 1920),
hereinafter called the 'Act', were made against the firm and its two partners
under S. 7 of the Act. Purushottam Singh, respondent no. I and Sat Narain
Singh, respondent no. 2 filed the first petition (Petition no. 9 of 1958) on
April 28, 1958. The second petition was filed by Smt. Tara Devi, respondent no.
3 and Shyam Das, respondent no. 4 on May 30, 1958 which was registered as
Petition no. 19 of 1958. The third petition was filed by Jivenda Mal on January
20, 1959 which was registered as Petition no. 2 of 1959. in petition no. 9 of
1958, a sum of Rs. 15,760/was claimed; in petition no. 19 of 1958, a sum of Rs.
14,545/was claimed and in petition no. 2 of 1959 a sum of Rs. 3,884/was claimed
but other creditors also filed their claims to the extent of Rs.
96,000/-. In all these petitions it was
alleged 8 64 that the firm and its two partners had committed acts of
insolvency and therefore they should be declared insolvents.
The firm and its partners contested the
petitions and asserted that they had already paid a sum of Rs. 3,50,000/to
other creditors and they were in a position to pay all the creditors and had
not Committed any acts of insolvency.
All the three insolvency petitions were
consolidated together and were heard by the Insolvency Judge, Varanasi who by
his judgment dated August 8, 1959 adjudicated the firm and its two partners as
insolvents. Thereafter the firm and its two partners filed three appeals under
s. 75 of the Act but all these appeals were dismissed by the Additional
District Judge, Varanasi by his judgment dated February 28, 1960. Thereafter
the firm and its two partners took the matter in revision to the Allahabad High
Court which partly allowed the revision applications and set aside the order of
the lower courts adjudging Rain Surat Misra, respondent no. 7, one of the
partners of the firm as insolvent. The: rest of the order declaring the firm
and its other partner, Mukand Lal as insolvent was confirmed.
The main question to be considered in these
appeals is whether the deed of gift executed by Mukand Lal in favour of his
son, Veer Kumar on October 31, 1957 and registered on March 11, 1958 could be
treated as an Act of insolvency committed within three months of the
presentation of the petition.
Section 6(b) of the Act states :
"6. A debtor commits an act of
insolvency in each of the following cases, namely :(b) if, in India or
elsewhere, he makes any transfer of his property or of any part thereof with
intent to defeat or delay his creditors;" Section 9 (I ) (c) states :
"9. (1) A creditor shall not be entitled
to present an insolvency petition against a debtor unless(c) the act of
insolvency on which the petition is grounded has occurred within three months
before the presentation of the petition:
Provided that where the said period of three
months referred to in clause (c) expires on a day when the Court is closed, the
insolvency petition may be presented on the day on which the Court
re-opens." Section 122 of the Transfer of Property Act (Act 4 of 1882) is
to the following effect:
8 6 5 "Gift is the transfer of certain
existing moveable or immoveable property made voluntarily and without
consideration, by one person, called the donor, to another, called the donee,
and accepted by or on behalf of the donee.
Such acceptance must be made during the lifetime
of the donor and while he is still capable of giving.
If the donee dies before acceptance, the gift
is void." Section 123 of the Transfer of Property Act states "For the
purpose of making a gift of immoveable property, the transfer must be effected
by a registered instrument signed by or on behalf of the donor, and attested by
at least two witnesses.
For the purpose of making a gift of moveable
property, the transfer may be effected either by a registered instrument signed
as aforesaid or by delivery.
Such delivery may be made in the same way as
goods sold may be delivered." Section 47 of the Indian Registration Act,
1908 (Act 16 of 1908) is to the following effect :
"A registered document shall operate
from the time from which it would have commenced to operate if no registration
thereof had been required or made, and not from the time of its
registration." Section 49 of the Indian Registration Act states as follows
"No document required by section 17 or by any provision of the Transfer of
Property Act, 1882, to be registered shall(a) affect any immoveable property
comprised therein, or (b) confer any power to adopt, or (c) be received as
evidence of any transaction affecting such property or conferring such power,
unless it has been registered :
Provided that an unregistered document
affecting immoveable property and required by this Act or the Transfer of Property
Act, 1882, to be registered may be received as evidence of a contract in a suit
for specific performance under Chapter II of the Specific Relief Act, 1877, or
as evidence of part performance of a contract for the purposes of section 53A
of the Transfer of Property Act, 1882, or as evidence of any collateral 8 6 6
transaction not required to be effected by registered instrument." it was
contended on behalf of the appellants that under S. 47 of the Indian Registration
Act a registered document operates from the date of its execution even though
it may require registration and consequently the registration of the document
should be taken to date back to the date of execution by a fiction of law. III
was therefore submitted that the starting point of the three months' period
prescribed under s. 9 (1 ) (c) of the Act should be the date of execution of
the deed of gift and not the date of registration. We are unable to accept this
argument as correct. Section 123 of the Transfer of Property Act states that
for the purpose of making a gift of immoveable property the transfer must be
effected by a registered instrument in the prescribed manner. Under this
section therefore a gift of immoveable property is not valid unless it is
effected by a registered instrument. It is true that under S. 47 of the Indian Registration
Act once a document is registered the effect begins to commence from the date
of execution, but if the document is not registered it can never have any legal
effect as a deed of gift. Under S. 49 of the Indian Registration Act it is
provided that no document required by s. 17 or by any provision of the Transfer
of Property Act, 1882, to be registered shall affect any immoveable property
comprised therein unless it has been registered. The section necessarily
implies that such a document by reason of its execution alone cannot have the
effect of transferring the property. In the present case, therefore, the deed
of gift executed by Mukand Lal in favour of Veer Kumar dated October 31, 1957
cannot be considered to be an act of insolvency unless a valid transfer of
property was made by that document and such a valid transfer could be said to
have been made only when the document was registered on March 11, 1958. The
question in the present case is not what was the effect of the registration of
the deed of gift, but when did the event take place which effectively
transferred the property. We are not concerned with the point of time from
which the document became operative but with the point of time at which the
deed of gift became legally effective. The contrary viewpoint for which the
appellant contends would ignore the circumstance that if the registration of
the deed of gift was not effected within the period of -three months the
creditor would be deprived of his remedy of relying upon the act of transfer as
constituting an act of insolvency. Such an interpretation should be avoided as
it would nullify the intention of the statute.
On this question there has been divergence of
opinion among the various High Courts. In Lakhmi Chand v. Kesho Ram(1) (1)
I.L.R. 16 Lah, 735.
8 6 7 it was held by the Full Bench of Lahore
High Court that when a petition was presented alleging that a debtor had
committed an act of insolvency by a registered deed, the period of limitation
prescribed by s. 9 ( I ) (c) of the Act ran from the date of the registration
of the deed and not 'from the date of the execution thereof. The same view was
expressed by the Madras High Court in Sarvathada Iswarayya v. Kuruba
Subbanna(1). In that case, the execution of the sale deed was relied upon as an
act of insolvency by a petitioning creditor and it was held by Madhavan Nair
and Bardswell, JJ. that the three months' period prescribed by s. 9 (I) (c) of
the Act must be calculated from the date of the registration of the deed and
not from the date of its execution. The same view was also enunciated by the
Allahabad High Court in District Board, Bijnor v. Mohammad Abdul Salam ( 2 ) .
A contrary view has been taken by the Full Bench of the Rangoon High Court in U
On Mating v. Maung Shwe Hpaung(3) It was held that the period of three months
referred to in s. 54, Provincial Insolvency Act, began to run from the date of
execution of the transfer provided it had been properly registered within the
specified time. But for the reasons already expressed we hold that the
decisions in Lakhmi Chand v. Kesho Ram(4), in Sarvathada Iswaryya v. Kuruba '
Subbanna, (1), and in District Board, Bijnor v. Mohammad Abdul Salam (2)
correctly state the law on the point.
It was next argued that no order of
adjudication could be made against a firm but it can only be made against the
partners individually. We are unable to accept this argument as correct. It is
true that according to the English law the act of bankruptcy must be a personal
act and no act of bankruptcy could be committed by a firm as such, and no
adjudication could be made against a firm in the firm's name.-(See Ex parte
Blain)(5). But under s. 99 of the Presidency-towns Insolvency Act (Act III of
1909) an adjudication order may be made against a firm in the firm's name and
such an order operates as if it were an order made against each of the persons
who at the date of the order was a partner in the firm. There is, however, no
provision in the Act corresponding to s.99 of the Presidency-towns Insolvency
Act. But s.79(2)(c) of the Act provides for rules to be made by the High Court
as to the procedure to be followed when the debtor is a firm. This section
therefore assumes that an adjudication order can be made under the Act against
the firm in the firm's name. Rules have been made under this section by the
Allahabad High Court. Reference was made on behalf of the respondents to Rule
26 which states :
(1) I.L.R. 58 Mad. 166. (2) I.L.R.
1947 All. 624.
(3) A.I.R. 1937 Rangoon 446. (4) I.L.R.
16 Lah. 735.
(5) (1879) 12 Ch. D. 522.
8 68 .lm15 "26. An adjudication order
made against a firm shall operate as if it were an adjudication order made
against each of the persons who at the date of the order is a partner in that
firm." It is manifest that an order of adjudication could be made against
the firm in the present case if the proper conditions were satisfied. We
therefore reject the argument of the appellants on this aspect of the case.
It was further contended on behalf of the
.appellants that there is no finding of any of the courts to the effect that
the firm committed any act of insolvency. The allegation of the respondents was
that appellant no. 2 transferred to his son, Veer Kumar his personal house
property by way of a gift deed dated October 31, 1957 and this was done by him
with the intent to defeat or delay his creditors. It was pointed out that Ram
Surat Misra was adjudged not to be insolvent by the High Court on the ground
that there was no allegation against him of any act of insolvency. It was
therefore contended that the firm should not have been declared insolvent
merely because of the deed of gift executed by appellant no. 2, Mukand Lal. In
our opinion, this argument is well-founded and must be accepted as correct. We
think that in order to support an adjudication against a firm there must be
proof that each of the partners has committed some act of insolvency. If,
however, a joint act of insolvency is relied upon it must be shown to be the
act of all the partners. An order for adjudication can also be made against a
firm if there was an act of insolvency by an agent of the firm which was such
as must necessarily be imputed to the firm. The Explanation to s. 6 of the Act
says "for the purpose of this section the act of the agent may be the act
of the principal". The Explanation does not lay down that an act of
insolvency of the agent shall be attributed to the principal but that it may be
treated as the act of the principal. Section 2(a) of the Indian Partnership Act
(Act IX of. 1932) defines 'an act of a firm to mean "any act or omission
by all the partners, or by any partner or agent of the firm which gives rise to
a right enforceable by or against the firm". The effect of this section
read with the Explanation to s. 6 of the Act appears to be that the question
whether an act of insolvency of one or more partners can be regarded as an act
of all the partners is a question of fact to be determined on the facts and
circumstances of each particular case. For instance, In Re Mahomed Hasham &
Co. (1) one of the partners in a firm consisting of two partners departed from
the usual place of business with intent to delay and defeat the creditors of
the firm. It was held by the Bombay (1) 24 Bom. L.R. 861.
8 6 9 High Court that an adjudication order
could not be made against the firm in such a case unless the other partner had
also departed with like intent. Similarly, in Gopal Naidu v. Mohanlal
Kanyalal(1) it was held by the Madras High Court that it is a question of fact
whether the act of one partner in closing the business of the firm and thus
committing an act of insolvency so far as he is concerned was imputable to
another partner so as to entitle the creditors of the firm to get the other
also adjudicated an insolvent. In the circumstances of that particular case it
was held that the mere fact of closing the firm by one partner without more
evidence to show that the other either expressly or impliedly authorized the
same was insufficient to lead to such imputation. In the present case, the
property of which Mukand Lal made a gift to Veer Kumar was not partnership
property and there was no collective act of insolvency alleged on behalf of all
the partners of the firm. In the circumstances of the present case it cannot
also be held that the act of insolvency committed by Mukand Lal should be
attributed to Ram Surat Misra. The High Court has, in fact, allowed the appeal
of Ram Surat Misra and set aside the order of the lower courts declaring him as
insolvent. We are consequently of opinion that the order of the lower courts,
so far as it adjudicates the registered firm as insolvent, should be set aside,
but the rest of the order of the lower courts declaring Mukand Lal as insolvent
will stand.
Subject to this modification these appeals
are dismissed.
There will be no order as to costs of this
Court.
Y. P. Appeals dismissed.
(1) L. R. 49 Mad. 189.
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