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Report No. 26

Clause 19

General.-See section 28(2), Provincial Act, and section 17, Presidency Act.

Sub-clause (1).-This incorporates sub-section (2) of section 28 of the Provincial Act, with this modification that, whereas under that section, the vesting is in the court or in the Receiver, under the clause, the vesting is to be in the Official Assignee. The reason for this change is, that under the scheme of this Bill1 the appointment of an Official Assignee is obligatory throughout the territories to which the Act applies, and he is to occupy the position of existing Official Assignee in the Presidency Towns. Hence the clause follows section 17, Presidency Act, on this point.

In section 17 of the Presidency Act the words "wherever situate" have been used. That has been adopted.

The property to vest under the clause under discussion will of course be the "property of the insolvent" as defined in another clause2, and hence the words "subject to have been inserted to make it clear. This has become necessary in view of the break-up of section 28, Provincial Act, into several clauses in this draft.

Sub-clause (2).-This is new, and is intended to remove any doubts3 which may arise as to whether secured creditors who have enforced the security can take proceedings for recovery of the balance from the insolvent's other property.

Sub-clause (3).-There has been some conflict of opinion as to whether the provision for obtaining leave of the court before proceedings are taken is a condition precedent to the maintainability of those proceedings, or whether such leave could be obtained after the proceedings are commenced. In Nazir Ahrnad v. People's Bank of Northern India, ILR 1942 Lah 517: AIR 1942 Lah 289 (FB), it was held that a suit instituted without leave of the Court could not be treated as a nullity on that account.

(It was also observed in Satyamma v. Official Receiver, AIR 1933 Mad 917 that if objection as to the want of leave is not taken at the earliest opportunity, it must be deemed to have been waived.) But the preponderance of authority is in favour of the view that a proceeding taken without obtaining leave as required by the section is wholly incompetent and must be dismissed on that ground. Vide Maya Ookeda v. Kuverji, AIR 1932 Bom 338, Davood Mohideen Rowther v. Sahabdeen Sahib, ILR 1937 Mad 841: AIR 1937 Mad 667 and Narayana Iyer v. Kendan, ILR 1938 Mad 897. In accordance with the view4, it has been provided that a proceeding commenced without obtaining leave shall be dismissed.

Section 28(3).-Provincial Act.-Under section 28(3) of the Provincial Act, goods which are in the possession of the debtor on the date of the presentation of the petition under the circumstances mentioned therein are divisible among the creditors of the insolvent.

Section 28(6) of the Provincial Act provides that nothing in that section shall affect the rights of secured creditors. On the terms of section 28(6), therefore, if the owner of the goods mortgages them but continues in possession, section 28(3) will have no application and the right of the mortgagees will prevail. That is the view taken by the High Court of Calcutta in Shamaldas Kshettry v. Phanindra Nath, AIR 1923 Cal 532, and by the Allahabad High Court in Moti Ram v. Rodwel11, AIR 1923 All 159 (Case of charge).

That is not the law in England nor under the Presidency Act, and there are no particular reasons why the law should be different under the Provincial Act5. It is proposed to deal with the topic dealt with in section 28(3), Provincial Act in a later clause6. Section 28(4) and (5) of the Provincial Act also will more appropriately be dealt with later7. This splitting up will avoid the confusion caused by existing section 28.

Sub-clause (4).-Section 28(6) of the Provincial Act is reproduced in this sub-clause, with one addition which is intended to settle the conflict of decisions, as to whether proceedings against the person of the insolvent are or are not barred under section 28(2) of the Provincial Act8. Some decisions hold that such proceedings are not barred, and can be taken without the leave of the court. Vide Hariram v. Sri Krishna Ram, 1927 ILR 49 All 201; Ali Hussain v. Lakshminarain, 54 All 416: AIR 1932 All 188, Mahomed Roshan v. Gulam Mohinddin, AIR 1929 Born 135. The contrary was held in Alamelu Ammal v. Venkatarama Iyer, 1927 ILR 50 Mad 977 and Hitnarayan Singh v. Brij Nandan Singh, 1931 ILR 10 Pat 422. The former view has been preferred and embodied in this sub-clause, as the grant of protection is a privilege to be granted or withheld at the court's discretion.

[It may be noted that while paragraph (a) of this sub-clause is confined to secured creditors, paragraph (b) (i.e., the added paragraph) will apply to all creditors, including unsecured creditors.]

[Stay of suits after adjudication.-Whether suits instituted after the order of adjudication could be stayed under these sections is a question on which the decisions are conflicting. Under the corresponding provisions of the English Statutes, it has been held that the court has the power to stay proceedings commenced after an order of adjudication had been made. Vide Brownscombe v. Fair, 58 LT 85 : Mulla, (1958), p. 245.9 In Mahomed Haji Essack v. Abdul Rahimanw, 1917 ILR 41 Born 312 a suit instituted after adjudication was stayed under section 18(3) of the Presidency Act, following the decision in Brownscombe v. Fair, and that was in turn followed in.

Bheraji Samarathji and Co. v. Vasantrao Govindrao Prabhakar, AIR 1929 Bom 398 and Bhimaji Bhabhutmal v. Chunilal Jhaverchand, ILR 57 Born 623: AIR 1932 Born 344. In Maya Ookeda v. Kuverji, AIR 1932 Born 338 and in Jehangir Cursetji v. Kastur Pannaji, AIR 1939 Born 344, however, it was held that such a suit was wholly incompetent and should be dismissed. In Ghouse Khan v. Baia Subba Rowther, 1928 ILR 51 Mad 833: AIR 1927 Mad 925, it was observed that a suit instituted after the order of adjudication might be continued under section 29 of the Provincial Act, but in Davood Mohideen Rowther v. Sahabdeen-Sabbib, ILR 1937 Mad 841;

AIR 1937 Mad 667 and Narayana Iyer v. Kenden, ILR 1938 Mad 897: AIR 1938 Mad 643, it was held that such a suit was not maintainable, and that the court had no power under section 29 to grant leave to continue the suit. That was also the view taken in Pannalal v. Hira Nand, 1927 LLR 8 Lah 593: AIR 1928 Lah 28. In Haji Liman Sharif v. Jwala Prasad, AIR 1924 Nag 300, it was held that if a suit is instituted after adjudication but in ignorance of adjudication, the court can act under this section. In view of the provision proposed above10-that a suit instituted without leave shall be dismissed,-this question can no longer arise.]

1. See clause 88.

2. See clause 48.

3. The discussion in Mulla, (1958), p. 259.

4. Cf the view of Mulla, (1958), p. 245.

5. See also Mulla, (1958), pp. 29-30 and 532.

6. See clause 51.

7. See clause 48.

8. See Mulla, (1958), pp. 252-253.

9. Williams, p. 73, speaks of "restraining" the proceedings.

10. Clause 19(3).

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