Chuni Lal vs Kheta Mal on 8 March, 1879

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Allahabad High Court
Chuni Lal vs Kheta Mal on 8 March, 1879
Equivalent citations: (1880) ILR 2 All 181
Author: Spankie
Bench: R Stuart, Spankie


Spankie, J.

1. Respondent admitted in his plaint that he agreed to the arbitration and the award made by the arbitrators, in which a composition was made between the creditors of defendant, appellant, and defendant himself. He admits that he signed the award, and it is certain that he accepted payments towards the satisfaction of his debt, due by defendant on his failing to meet two hundis when they fell due. But plaintiff avers that several of the creditors did not accept the award, and some had sued and recovered debts due to them in spite of the award : also the defendant had acted dishonestly, and had made away with some of the goods over which he was placed in charge by the award and the creditors who signed it: plaintiff was therefore compelled to sue, as there were not sufficient assets left to satisfy his debt and the debts of the others who were also suing defendant.

2. But it appears to me that the plaintiff and all persons who signed the award and were parties to and signed the agreement to refer to arbitration are bound by their acts. The arbitrators decided that there were not sufficient assets to discharge all the debts due to that of the creditors, but the latter should surrender their claims to a sum of Rs. 4,632-2-6, which is mentioned in the award as irrecoverable, and that the stores, etc., now in the defendant’s possession should be made over to the creditors for their benefit. The award goes on to say that the creditors ” have released Kheta Mal from the payment of the said (irrecoverable) balance of Rs. 4,632-2-6: now there is no claim for these debts by the creditors against Kheta Mal and Kashi Nath, nor will there be any claim hereafter, and Kheta Mal and Kashi Nath have no claim to the stores, etc., now in their shops, nor will they have any claim to them hereafter. But Kheta Mal and Kashi Nath shall sell these stores, etc., on the part of the creditors, and shall engage Bankey Lal, son of Kheta Mal and brother of Kashi Nath, and shall act as gomashtas: these three men shall manage the affairs for four months, getting a consolidated salary of Rs. 30 per mensem.” Then come some other less important conditions and the award proceeds: “If these stores are not all sold in four months, Bankey Lal and Kashi Nath shall leave the shop and carry on their own work, leaving Kheta Mal alone to sell the balance on a salary of Rs. 10 per mensem.”

3. There are certainly the following conditions: “If Kheta Mal realises any sums on account of stores sold from the shop, or if he has previously sold any, or realised any sums, or if he misappropriates any of the property, or if he acknowledges the claim of any other party, Kheta Mal and Khashi Nath will be responsible for the payment of such sums and for the defence to such claims: if Kheta Mal and Kashi Nath collusively allowed a suit to be instituted against them, they shall be liable to pay the amount of the decree: the property made over by this award shall not be liable for the payment of such decrees, nor will such decree-holders be entitled to recover from this property, because up to to-day’s date, except those creditors to whom this property has been made over, there are no other creditors, inasmuch as their claims have not been admitted before us nor are their names entered in Kheta Mal’s account-books: no further claims remain between the parties and both parties agree to be bound by our award.”

4. Now, from these extracts it is quite apparent that there are no conditions such as those referred to by the lower Appellate Court which rendered the agreement void or voidable. The defendant is made responsible under the award. No right is given to the plaintiff to rescind the agreement and repudiate the award and fall back upon his dishonoured hundis. The Judge’s application of Section 65 of the Contract Act to this case altogether fails. The very fact that the plaintiff received on two occasions moneys in satisfaction of his claim under the award shows incontestibly that the award was carried out, and was in full operation when the suit was brought. The agreement entered into for the satisfaction of the claims of creditors was a new contract substituted for former contracts between creditors and defendant. This agreement was never discovered to be void, nor had it become void by any circumstances making it so. The defendant was the paid servant of the creditors as manager of the stores, and if he misappropriated them or behaved fraudulently, they could proceed against him and hold him responsible for losses, but only under the award. If creditors who had not signed the award obtained decrees, the creditors who had signed it could only protect themselves under the terms of the award. They could not rescind the award and fall back on their old debts in satisfaction of which the defendant had assigned all his property for the benefit of his creditors. As the award declares: “Now, there is no claim for these debts by the creditors of Kheta Mal and Kashi Nath, neither will there be any such claim hereafter, and Kheta Mal and Kashi Nath have no claim to the stores now in the shops.”

5. I am clearly of opinion that the suit was not one that could be maintained, and that it should have been dismissed. I would decree the appeal and reverse the decrees of both the lower Courts with costs.

Robert Stuart, C.J.

6. I agree in the conclusion arrived at by Mr. Justice SPANKIE. Both the lower Courts have utterly mistaken the law applicable to this case. There is no bankruptcy law in these provinces, nor any coercive legal process which can be enforced against the property of an unwilling insolvent for the benefit of all his creditors. A person in the position of the present defendant, appellant, may avail himself of the provisions of the Code of Civil Procedure for the purpose of being relieved of his debts, but he can only do so under the conditions of that Code, he himself being the applicant, and under executed process by arrest or imprisonment. No such result can be attained by the legal action of any or even all of an insolvent’s creditors. Doubtless, creditors and their debtors can agree as to the disposal of property for the benefit of the former, and that is an agreement of course that can be given effect to. But irrespective of such an agreement among a debtor and his creditors, the law, at least in these provinces, places no compulsory machinery in the hands of the creditors as a body. On the other hand, there is no law in this country to prevent a debtor from making an assignment of his estate for the benefit of all or a limited class of his creditors; nor, for that matter, from his assigning, conveying, or settling his estate in favour of any person or persons whom he may wish to favour, provided of course that he makes those assignments, settlements, or conveyances without fraud, that is, honestly and in good faith. The fundamental principle that underlies this state of things is that, so long as the law does not step in to deprive a man of his control over his estate, he remains sui juris, and can up to the last moment of its possession deal with his property as he thinks fit. The legal right remains in him, and if he acts honestly and in good faith, and not fraudulently, he may transfer his estate, or any portion of it, to any one or more of his creditors, but whose acceptance of such transfer or assignment, or whatever the form of the conveyance may be, of course deprives them of all further relief against their debtor, and the only remedy of other persons to whom he is indebted, and who have by that means been excluded from any such transfer, assignment, or other conveyance, can only be against such property of the debtor as may not have been so dealt with, or against the debtor’s person.

7. Now, applying these legal principles to the present case, there can be no doubt that the agreement between Kheta Mal and those creditors of his who joined with him in the arrangement was in effect such a transfer or conveyance as I have referred to, and the plaintiff, being one of the creditors who accepted that mode of settlement, is bound by it, and cannot recover any balance that may remain over after the event of the award in the arbitration proceedings; and the fact that he had on foot of the award accepted [180 payments from the sale of the defendant’s goods only still further weakens his contention that he has a surviving right of action against his debtor.

8. I must here observe that a more extraordinary misreading of a plain law than that afforded by the recorded opinion of the Judge as to the application of Section 65 q. v. supra II All. 176 of the Contract Act to the facts of the present case I never met with. That section of the Contract Act is in the following terms: “When an agreement is discovered to be void, or where a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it to the person from whom he received it.” So that, according to the Judge, the payments made to the plaintiff in the present case is merely an advantage for which compensation may be made by being credited to the debtor as against his hundis. Now, there was here no void contract, no contract void in any sense, but the arbitration proceedings between Kheta Mal and his other creditors who are parties thereto, including Chuni Lal, the plaintiff, constituted, together with the award made by the arbitrators, a good and sufficient contract, valid and effectual, against the plaintiff and those other creditors in the same position, and all these persons are thereby concluded against any further remedy ultra the arbitrators’ award.

9. The present appeal must therefore be allowed, the decrees of both the lower Courts reversed, and the suit dismissed with costs in all the Courts.

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