Posted On by &filed under High Court, Madras High Court.

Madras High Court
Alamelumangathayarammal vs T.S. Balusami Chetti on 29 August, 1927
Equivalent citations: AIR 1928 Mad 394, 108 Ind Cas 208
Author: Phillips


Phillips, Offg. C.J.

1. This is an appeal from an order made by Jackson, J., annulling the adjudication of the appellant. The appellant filed an application to be declared insolvent stating that she was unable to pay her debts and that she owed a debt of over Rs. 500. It has now been found that her statement that she was unable to pay her debts was absolutely false and that her only reason for filing the application was to avoid being harassed by her creditor in execution, although she was well able to satisfy his debt. On these facts the adjudication was annulled; and curiously enough the petitioner now asks the Court again to declare her an insolvent, not because she is really insolvent, but merely to evade payment of a debt and apparently also in order that she may retain the stigma of insolvency. It is difficult to understand her conduct, but she has chosen to adopt this somewhat discreditable course and the matter must be dealt with in accordance with the law.

2. The first objection taken by the appellant is that the creditor’s petition to annul the adjudication was put in too late by reason of Rule 69, Insolvency Rules, which provides that such applications shall be made within ten days of the service of notice or such further time as may be allowed by the Court. Admittedly this application was not made within ten days, but the section gives very wide discretion to the Court to extend the time, or rather to allow the application to be filed within such further time as it thinks reasonable, and the learned Judge has allowed this application to be so filed. No objection can be taken to this procedure, and this objection must, therefore, be disallowed.

3. Coming to the merits, it is urged that inasmuch as petitioner has committed an act of insolvency by filing her petition and as her debts exceed Rs. 500 the Court is bound to make an order of adjudication and that order cannot be annulled and that any misconduct of hers must be dealt with only at the time of discharge; and reliance is placed on a case reported in Chhatrapat Singh Dugar v. Kharag Singh Lachmiram A.I.R. 1916 P.C. 64. That decision only lays down that when a debtor applies for adjudication the Court has only to be satisfied that the debtor is entitled under the Act to an adjudication and any question of misconduct must be left to be dealt with at the time of discharge. That, however, does not dispose of the question before us which is whether the Court should have made an order of adjudication, for under Section 21, Presidency Towns Insolvency Act, where in the opinion of the Court a debtor ought not to have been adjudged insolvent the Court may annul the adjudication. In this case it has been held that the appellant has been guilty of an abuse of the process of Court in coming forward and saying falsely that she was unable to pay her debts. This is a question which goes to the root of the insolvency law for it is only in cases of inability to pay that the insolvency law is applicable: The argument for the appellant is that so long as she makes a statement that she is unable to pay her debts, whether it is true or false, she is entitled to an order provided that she is otherwise entitled to an adjudication order.

4. Reliance is placed on two English cases Ex parte Painter, In Be Painter [1895] 1 Q.B. 85, and In re Taylor [1901] 1 Q.B. 744. The facts in In re Taylor [1901] 1 Q.B. 744, are somewhat similar to these, for there the debtor had been adjudged insolvent and it was subsequently found that he concealed his assets and that he was able to pay his debts: but in that case the application for annulment was made by the debtor himself and the Court held that he had committed such serious crimes in bankruptcy that no such order could be made, at any rate, until he had expiated them by continuing bankrupt for a considerable period. Here it is the creditor that seeks to set aside the adjudication and not the debtor. In the case in Ex parte Painter, In re Painter [1895] 1 Q.B. 85 a debtor who had been ordered to pay his debts by instalments and who had no other means except an inalienable pension, applied for adjudication, and it was held although his object was to get rid of the oppression of his creditor that was not a sufficient ground for refusing him an adjudication order. That is distinguishable on the ground that in that case the debtor was unable to pay off his debts. It is also argued that both under the Provincial Insolvency Act of 1907 and under the Presidency Towns Insolvency Act it is only necessary for a debtor to make a statement that he is unable to pay his debts and that the truth of the statement is not one of the facts essential for an order of adjudication. The two sections are not the same, for in the Provincial Act of 1907 the statement of inability to pay appears merely as one of the many particulars to ‘be noted in an insolvency petition, whereas in the Presidency Towns Insolvency Act there is a separate section dealing with this point, Section 15 (1), which says:

A debtor’s petition shall allege that the debtor is unable to pay his debts, and, if the debtor proves that he is entitled to present the petition, the Court may thereupon make an order of adjudication.

5. The wording of this section looks as if this allegation of inability to pay the debts was a substantial part of the debtor’s claim to be declared insolvent, and that, if that fact is not proved he would not be entitled to present a petition. This is certainly a possible interpretation of the section and that it is the correct interpretation is supported by the fact that the Provincial Insolvency Act has now been amended by the Act of 1920 so as to make it essential that the debtor shall prove that he is unable to pay his debts before he can present any application. This is only natural in view of the fact that the whole of the Insolvency Jurisdiction is provided for the case of persons who are unable to pay their debts and not of persons who are merely unwilling to pay their debts although able to do so. It, therefore, appears that the appellant’s petition was not one for any of the purposes for which the insolvency law was created and it is consequently an abuse of the process of the Court in that it obtained the jurisdiction of the Court by a false declaration. That being so, the Court certainly ought not to have made the order of adjudication and is consequently bound to annul that order on proof that the petitioner was not entitled to present the petition. The learned Judge, was therefore, right in passing the order he did, and the appeal is dismissed with taxed costs on the original side scale.

Reilly, J.

6. I agree that this appeal must be dismissed. The appellant’s petition appears to me an astonishing one and her appeal here even more astonishing. They afford one more instance of the shameless way in which many people look upon insolvency in this country. But with very great respect I should prefer not to rest my decision in this case on a finding that the petition was an abuse of the process of the Court or even on the finding of the learned Judge in the insolvency Court that he could properly annul the adjudication in this case in the exercise of the discretion of the Court. The annulment has been made under Section 21 of the Act on the ground that the appellant ” ought not to have been adjudged insolvent.” To my mind we ought to be very careful in interpreting those words. I do not think that there is any moral flavour about them, or that we can say within the meaning of the section that a person ought not to have been adjudged insolvent on the ground that his conduct has been dishonourable or dishonest or fraudulent or that he is a scoundrel who does not deserve the assistance of the Court. I find it very difficult to believe that words so lacking in precision in their general meaning could have been introduced into the Act unless we are to read them solely with reference to their context, with reference to the provisions of the Act, in which case their meaning becomes, I think reasonably clear and precise. If a petitioning debtor has not fulfilled any of the conditions required by the Act to enable him to present a petition, then it is clear that he ought not to have been adjudged insolvent. If his application or his ad judication defeats some provision of the Act or some order properly made under the provisions of the Act then again we can say that he ought not to have been adjudged insolvent.

7. That was the case in Malchand v. Gopal Chandra Ghasel [1917] 44 Cal. 899, where a firm as petitioners were adjudged insolvent the adjudication was annulled, and a month after the annulment they came forward with another petition and again got an adjudication on the same facts and in respect of the same debts. The Court found that on the second occasion they ought not to have been adjudged; and there it might be properly said, as it was said, that their second application was an abuse of the process of the Court.

8. There may be extraordinary cases in which the application of the debtor is made for some purpose wholly unconnected with the Act and when rightly viewed would be outside the scope of the Act. In such cases too I think one might say that the adjudication ought not to have been nude. But in this particular case, apart from one essential disqualification, to which I will refer in a minute, what is alleged against the appellant appears to be that she adopted a discreditable or even fraudulent way of defeating for the time being a judgment creditor. Well, that is very much what happened in Ex parte Painter [1895] 1 Q.B. 85 in which a Divisional Court decided that however objectionable the petitioner’s conduct was, it was not technically an abuse of the process of the Court. The learned Judges were there interpreting a section of the Bankruptcy Act which contained the very same words as those with which we are concerned, namely, ought not to have been adjudged.”

9. But, as I have said, there is one essential disqualification under which the appellant was in this case. The learned Judge in the Insolvency Court has found in effect that she was not unable to pay her debts at the time when she presented her petition. Mr. Narayana Ayyangar, who appears for the appellant, has contended that that is not a disqualification under the Act. His contention is that in Section 14 of the Act certain conditions are set out, one of which a petitioning debtor must fulfil; he must either have debts amounting to Rs. 500 or he must have bean arrested or imprisoned in execution, or his property must have been attached in execution. If one of those conditions is fulfilled, Mr. Narayana Ayyangar contends that a petitioning debtor is entitled to be adjudged insolvent. It is true, he admits, that under Section 15 of the Act a petitioning debtor must state in his petition that he is” unable to pay his debts. But that Mr. Narayana Ayyangar says, is neither here nor there; it does not matter whether it is true or not; it is not the concern of the Court to ascertain either then or subsequently, when considering the question of annulment under Section 21, whether the debtor was unable to pay his debts or not at the time of presenting the petition. That contention appears to me to rest upon an entire misconception of the scope of the Act. An insolvent is a person who cannot pay his debts. But it is not every insolvent who is entitled to the benefit of the Act. Something more is required for an insolvent to that benefit. Besides being unable to pay his debts, he must comply with one of the conditions set out in Section 14: his debts must amount to Rs. 500 or he must have been arrested in execution, or his property must have been attached in execution. But those are additional conditions. The essential condition, the heart of the whole matter is that he is unable to pay his debts. At first sight it looks a little curious that this essential condition is not mentioned in Section 14, but is left to be alleged by” the debtor in his petition under Section 15. Perhaps the explanation of that is to be found in the procedure laid down by the Act. Under Presidency Towns Insolvency Act a petitioning debtor gets his adjudication ex: parte and for that purpose it is enough that he should assure the Court in his petition that he is unable to pay his debts. After he is adjudged, notice goes to the creditors.

10. Under the Act and the Rules of the Insolvency Court the creditors are entitled to come in and show under Section 21 that the adjudication ought never to have been made, and surely one of the things that they can show under that section is that the very foundation of the adjudication was not there, that the petitioning debtor was not unable to-pay his debts, that he is not insolvent. That is what has been found in this case, and as a finding of fact it has not been disputed before us. The learned Judge in the insolvency Court appears to-think that a finding that the petitioning debtor has been guilty of fraudulent conduct would be sufficient to justify the Court in annulling the adjudication; if that is his view I cannot agree with him. But be has found earlier in his judgment that the appellant was not unable to pay her debts and that is amply sufficient to support his order.

11. I should like to mention one other thing. Mr. Narayana Ayyangar, in the course of his argument referred to the-fact that a somewhat similar question recently came before me when sitting,. alone in a case under the Provincial Insolvency Act In regard to that I need only say that the occasions for exercising the power of annuleing an adjudication under the Provincial Insolvency Act on the ground that it ought not to have been made appear to me even more restricted than under the Presidency Towns Insolvency Act. The provisions and procedure of the Provincial Insolvency Act are different from those of the Presidency Towns Insolvency Act; and, when we are dealing with such questions under the Provincial Insolvency Act, we are bound to follow the opinion of the Privy Council expressed in Chhatrapat Singh Dugar v. Kharag Singh Lachmiram A.I.R. 1916 P.C. 64. I agree that this appeal must be dismissed with costs.

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