Bombay High Court
Jamshedji Fraamji Havevalla vs Pestonji Cawasji Gonda on 1 February, 1932
Equivalent citations: (1932)34BOMLR980
JUDGMENT Rangnekar, J.
1. This is an application in revision from a decree made by the Chief Judge of the Court of Small Causes at Bombay and confirmed by the Full Court of that Court, by which the plaintiff's suit was dismissed.
2. The facts are as follows: On July 31, 1924, the opponent filed a petition for an order of adjudication in the Insolvency Court at Dahanu, and an order of adjudication was made on January 19, 1925. It was subsequently found, however, that one of the creditors was not duly served with the notice prescribed by the Provincial Insolvency Act. Thereupon the learned Subordinate Judge set aside the order made on January 19, 1925, and directed fresh notices to be issued and served on all the creditors.
3. It is not clear under what provision of the Provincial Insolvency Act this order was made. It seems, however, from the record that all that was intended by the learned Subordinate Judge in making the order was to let further proceedings stand over until notices were issued and served on all the creditors.
4. The notices ordered by the Court were duly served, and on April 12, 1926, an order of adjudication was made, In the meanwhile, however, the opponent on April 1,1926, executed a promissory note for Rs. 1,000 in favour of the petitioner. The insolvent ultimately obtained his discharge in July 1927. In 1929 the present suit was filed on the promissory note in the Small Cause Court.
5. In the course of the hearing of the suit, the learned Chief Judge raised a point whether the suit was maintainable having regard to the provisions of the Provincial Insolvency Act, He held that the debt evidenced by the promissory note was provable in insolvency, and therefore as no leave was obtained, under Section 23, Sub-section (2), the suit was barred. He further held that the suit was barred under Section 44 of the Act. The learned Judge, therefore, dismissed the suit. His decision was confirmed by the Full Court of the Small Causes. The petitioner now applies in revision, and the question is whether the decree of the lower Courts is right.
6. I may state at once that it is difficult to see how on the facts Section 28(2) applies. It is clear from the terms of that section that leave of the Court is necessary when a suit has to be filed "during the pendency of the insolvency proceedings." Here, the proceedings had terminated as the insolvent had obtained his discharge in 1927 and the present suit was filed in 1929.
7. On the other hand it is clear that if the debt in question was provable in insolvency, a suit to recover it would be barred by Section 44 of the Act, A creditor who fails to prove for a debt which is provable in insolvency cannot after the discharge of the insolvent sue him for it. The debt is barred by the discharge under Section 44 of the Act.
8. The only question, therefore, is whether this debt which was contracted after the presentation of the petition for an order of adjudication but before the order of adjudication was made is provable in insolvency. If it is, Section 44 of the Act would bar the suit.
9. Mr. Dalvi for the petitioner says that Section 34(2), which deals with the question of debts provable in insolvency, should be read with Section 28 (7) of the Act, and that so reading the sections, the debt was not provable in insolvency.
10. Broadly speaking the scheme of the Act is, that in Part I the Act deals with the Constitution and Powers of the Court. In Part II Proceedings from Act of Insolvency to Discharge are dealt with, and it is in this Part that the two material sections are placed. This Part is divided in (a) Acts of Insolvency,
(b) Petition, (c) Order of Adjudication-and this includes Section 28, (d) Proceedings consequent on order of Adjudication, including Section 34, (e) Annulment of Adjudication, (f) Compositions and schemes of arrangement, and (g) Discharge. It is unnecessary to refer to rest of the Act. Section 28 deals with the effect of the order of adjudication, Sub-section (7) of the section runs as follows :
(7) An order of adjudication shall relate back to, and take effect from, the date of the presentation of the petition on which it is made.
11. The section gives legislative sanction to the well known doctrine of relation back, and what it means is that the title of the receiver relates back to and commences at the date of the presentation of the petition on which the order of adjudication is made. " The result of the application of the doctrine is merely this, that the receiver is deemed to be the owner of the property from the date of the presentation of the petition, and as such, he is entitled to impeach all dealings of the debtor even prior to the date of the adjudication unless the same are protected by Section 55 of the Act. The further result is that the debtor cannot after the date of his insolvency, that is the date of the presentation of the petition, enter into any transaction in respect of his property which will bind the receiver.
12. The next point is that the whole of the Section 28 deals with the question of the property of the insolvents, and that is clear from the language of the section. It will thus be seen that the section has nothing to do with the debts provable in insolvency, and that subject is dealt with in Section 34 (2).
13. Turning to Section 34(2), there are two points of time indicated for the purpose of ascertaining what debts are provable under the Act The first is the date of the adjudication order and the second is the date of discharge. The plain meaning of the section is that all debts and liabilities, present or future, certain or contingent, to which the debtor is subject at the date of the order of adjudication or to what he may become subject before his discharge by reason of any obligation incurred before that date, are provable in insolvency.
14. Here the debt was contracted before the adjudication order and therefore was clearly provable. Mr. Dalvi says that the order of adjudication goes back to the presentation of the petition, therefore the debt was not existing at the date of the petition, and therefore not provable. But the express language prescribing the terminus a quo for ascertaining the debts provable in insolvency is against the contention. To accept the argument would lead to an absurdity. It meane this that an insolvent can contract a debt even after insolvency, which he is forbidden to do by the Act and the policy of the law. In the case of a debt existing at the date of the presentation of the petition the debt is provable. This means the creditor cannot recover it by action either before or after discharge. Before discharge the action cannot be commenced without the leave of the Court, and no leave would be granted in such a case. After discharge the suit would be barred under Section 44 of the Act. If Mr. Dalvi's argument is correct it means this that if a debt is contracted after presentation of the petition but before adjudication order, the creditor can sue the debtor. Section 46 (2) of the Presidency-towns Insolvency Act says :-
A person having notice of the presentation of any insolvency petition by or against the debtor shall not prove for any debt or liability contracted by the debtor subsequently to the date of his so having notice.
15. That means that if a debt is contracted before the order of adjudication the creditor can sue for it if he has no notice of the presentation of the petition by or against the debtor. But where the creditor has notice, the debt is not non-provable. It is a provable debt, but the creditor having notice is under a personal disability to prove. In such a case he has no remedy. This Sub-section is not contained in the Provincial Insolvency Act. It follows, therefore, that a creditor who advances money to the debtor before an order of adjudication is entitled to prove under the Act even if the advance was made after notice of the presentation of the petition. (See Law of Insolvency, by Mulla p. 284).
16. In my view, having regard to the scheme of the Act and the relative position of the two sections and the express language of Section 84 (2), a debt contracted alter the presentation of the petition in insolvency but before an order of adjudication is provable in insolvency. I think, therefore, that the lower Courts were right in dismissing the suit,
17. Apart from the merits of the case, it seems to me there is considerable force in the argument of the opponent's counsel that no revisional application under Section 115 of the Civil Procedure Code lies in this case.
18. In the result, the rule is discharged with costs.