{"id":111595,"date":"1999-01-12T00:00:00","date_gmt":"1999-01-11T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/p-veerasamy-vs-the-official-assignee-high-court-on-12-january-1999"},"modified":"2017-08-26T15:10:24","modified_gmt":"2017-08-26T09:40:24","slug":"p-veerasamy-vs-the-official-assignee-high-court-on-12-january-1999","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/p-veerasamy-vs-the-official-assignee-high-court-on-12-january-1999","title":{"rendered":"P. Veerasamy vs The Official Assignee High Court, … on 12 January, 1999"},"content":{"rendered":"
Supreme Court of India<\/div>\n
P. Veerasamy vs The Official Assignee High Court, … on 12 January, 1999<\/div>\n
Author: J M. Rao<\/div>\n
Bench: S.B. Majmudar., M Jagannadha Rao.<\/div>\n
           PETITIONER:\nP. VEERASAMY.\n\n\tVs.\n\nRESPONDENT:\nTHE OFFICIAL ASSIGNEE HIGH COURT, MADRAS.\n\nDATE OF JUDGMENT:\t12\/01\/1999\n\nBENCH:\nS.B. MAJMUDAR. & M JAGANNADHA RAO.\n\n\n\n\nJUDGMENT:\n<\/pre>\n
M. JAGANNADHA RAO,J
\nLeave granted.\n<\/p>\n
\t      Lord  Mansfield  said, over two hundred  years
\n\t ago, that you cannot `let out the bankrupt’.  He is
\n\t not  a\t slave of the Assignee.\t The point  in\tthis
\n\t appeal\t is  as to what extent the insolvent can  be
\n\t allowed  to run his business to sustain himself and
\n\t his  dependents and as to what rights the  official
\n\t Assignee  and\tcreditors  have,   as  against\t the
\n\t insolvent?\n<\/p>\n
\t      The    modern   concept\t  appears   to\t  be
\n\t rehabilitation\t of  an honest insolvent and a\tmore
\n\t humane\t treatment to be meted out to the  insolvent
\n\t and  his family.  At the same time, it must be seen
\n\t that a benevolent view towards the honest insolvent
\n\t is not abused by one who is dishonest.\n<\/p>\n
\t      “It  has to be admitted that both in our\tpast
\n\t and  also  in\tour   present  insolvency  law,\t the
\n\t punitive and deterrent aspects of legal policy have
\n\t seemed\t hard  to reconcile with the  rehabilitative
\n\t philosophy  with  which  they are supposed  to\t co-
\n\t exist.\t  It  would certainly appear to be the\tcase
\n\t that  it  is  not   very  widely  appreciated\tthat
\n\t bankruptcy  law is also designed in part to protect
\n\t the  honest  but  unfortunate debtor,\tas  well  to
\n\t discipline and if necessary punish one who has been
\n\t incompetent or even dishonest.” While those who are
\n\t not   aware  of  the\tbeneficial   provisions\t  of
\n\t insolvency  law may suffer oppression at the  hands
\n\t of   creditors,  conversely,\t“there\tare  certain
\n\t opportunities\tfor  those who are closely  familiar
\n\t with  the insolvency law to exploit its  provisions
\n\t to  their  advantage, and at the expense  of  their
\n\t less  knowledgeable creditors.\t In this area of the
\n\t law,  the  aphorism that knowledge is power has  an
\n\t especially  truthful  ring  in\t it.   (The  Law  of
\n\t Insolvency  by Ian Fletcher, 1990, pp.33-34).\t The
\n\t law must, therefore, achieve a just balance.\n<\/p>\n
\t      This  appeal is preferred against the Judgment
\n\t of  the Madras High Court in O.S.A No.\t 17 of\t1998
\n\t dated\t18.02.98,  rejecting the O.S.A.\t in  limine.
\n\t By  that Judgment, the Division Bench affirmed\t the
\n\t order of the learned Single Judge dated 4.8.1997 in
\n\t Application  No.  89 of 1997 in Insolvency Petition
\n\t No.   33  of 1996.  The result of the dismissal  of
\n\t the   interlocutory   application   was  that\t the
\n\t appellant  who was declared an insolvent on his own
\n\t petition  on 25.4.96, was not permitted to  conduct
\n\t his  retail  business\tof  selling  Kerosene  under
\n\t Licence  No.  173 of 1974 as an agent of the  Civil
\n\t Supplies Department of the Tamil Nadu Government.\n<\/p>\n
\t      The  following  are the facts in\tbrief:\t The
\n\t appellant  filed  a Petition I.P.  No.\t 33 of\t1996
\n\t for  being  adjudicated  as   an  insolvent   under
\n\t Sections   14\t&  15  of  the\t Presidency   Town’s
\n\t Insolvency  Act,  1909(Act 3 of 1909)\t(hereinafter
\n\t called\t the  `Act’).\tThe   said  application\t was
\n\t allowed  on  25.4.96 by the learned  Single  Judge.
\n\t Thereafter,  the  appellant filed I.A.\t No.  89  of
\n\t 1997  on 10.5.97 seeking permission to restart\t his
\n\t Kerosene business under Licence No.  173 of 1974 as
\n\t agent\tof the Tamil Nadu Civil Supplies  Department
\n\t which, according to him, would fetch him Rs.  920\/-
\n\t per  month and out of which the appellant would  be
\n\t willing  to  allocate Rs.  150\/- p.m.\ttowards\t his
\n\t liability  to\tthe general body of  creditors.\t  He
\n\t stated\t that  he was earlier supplying 5000  litres
\n\t every\tmonth at the rate of 200 litres per day\t for
\n\t 25  days in a month.  He had to supply 10 litres to
\n\t each  card  holder  per  month.   The\tlicence\t was
\n\t renewable  every two years.  His first licence\t was
\n\t obtained  in  1974  and the same was  renewed\tupto
\n\t 31.12.1998.   The Insolvency Petition was filed  as
\n\t he  incurred loss in Cement business.\tPrior to the
\n\t filing\t of the Insolvency Petition, the supply\t was
\n\t temporarily  suspended\t and 500 card  holders\twere
\n\t allotted  to  another shop.  The  appellant  stated
\n\t that due to unavoidable circumstances, he could not
\n\t reside\t in Madras and was forced to go back to\t his
\n\t native\t place.\t  If he has to come back  to  Madras
\n\t city  either  for continuing the education  of\t his
\n\t children or to attend at the office of the Official
\n\t Assignee,  he\tmust be allowed to do  his  Kerosene
\n\t business.   The Official Assignee is now in  charge
\n\t of  his  immovable  properties.  Unless  the  Court
\n\t gives\tthe  insolvent permission, the Civil  Supply
\n\t Department  will not allow him to receive  Kerosene
\n\t supplies.  He states that no capital is involved in
\n\t this  business.   Only\t a  sum\t of  Rs.   496\/-  is
\n\t required   to\tbe  paid  to  the   Civil   Supplies
\n\t Department  to\t start with, for the supply  of\t 200
\n\t litres.   He has rented a shop at No.\t354,  N.S.K.
\n\t Road, Madras -106, on a monthly rent of Rs.  150\/-.
\n\t He  states that there is no need for him to  borrow
\n\t any  money  for running this business.\t  The  Civil
\n\t Supplies  Department has given him a commission  of
\n\t 0.32 paise per litre and in a month for 500 litres,
\n\t he will get a total commission of Rs.\t1600\/-.\t His
\n\t expenses  for the cart – charges will be Rs.  680\/-
\n\t p.m.\tfor  lifting  the kerosene,  Rs.   30\/-\t for
\n\t electricity  and Rs.  150\/- for rent.\tBalance will
\n\t be Rs.\t 920\/- p.m.  He is willing to pay Rs.  150\/-
\n\t to  his  creditors out of the said income.   He  is
\n\t prepared  to abide by any other conditions that may
\n\t be imposed by the Court.  This application is dated
\n\t 10.3.97.\n<\/p>\n
\t       The  Official Assignee submitted a report  to
\n\t the Court on 17.4.97 stating that the appellant had
\n\t disclosed assets worth Rs. 34,000\/- and liabilities
\n\t of  Rs.  39.21 lakhs, Book  liabilities  were\t Rs.
\n\t 12,02,660   but  had  not  disclosed  his  Kerosene
\n\t business  nor did he submit accounts regarding\t the
\n\t said  business. The creditors complained  that\t the
\n\t appellant  had\t omitted to refer  to  the  kerosene
\n\t business   and\t  that\the   had   also\t  suppressed
\n\t information  regarding\t some other assets.   If  he
\n\t were  to be allowed to do this business,  he  might
\n\t incur\t further   debts.   The\t  application\twas,
\n\t therefore not bona fide and should be dismissed.\n<\/p>\n
\t      The   learned  Single   Judge  dismissed\t the
\n\t application  by  order dated 4.8.97, accepting\t the
\n\t contentions  of the Official Assignee.\t On  appeal,
\n\t the  Division\tBench dismissed the  appeal  stating
\n\t that  in the light of what was stated in the report
\n\t of  the Official Assignee, the discretion exercised
\n\t by  the  learned Single Judge was not liable to  be
\n\t interfered with.\n<\/p>\n
\t      It is contended in this appeal that the Act in
\n\t sub-clause(1) of Section 75 gives a statutory right
\n\t to  move  the Official Assignee for  permission  to
\n\t manage\t his  property or to carry on his trade\t for
\n\t the benefit of his creditors, subject to conditions
\n\t and  that  under sub-clause (2) of Section  75\t the
\n\t Court\tmay, from time to time, make such  allowance
\n\t as  it\t thinks\t just  out of the  property  of\t the
\n\t insolvent, for the support of the insolvent and his
\n\t family\t or in consideration of his services.\tSuch
\n\t an  allowance can also be varied from time to time.
\n\t Learned  counsel  has\talso   relied  upon  Article
\n\t 19(1)(g)  and\tArticle\t 21 of the  Constitution  of
\n\t India.\t  He  has  contended that  inasmuch  as\t the
\n\t appellant  has stopped the kerosene business before
\n\t the  filing  the  insolvency\tpetition,  the\tsaid
\n\t business  was not disclosed.  The books of  account
\n\t in regard to this business were produced before the
\n\t Official  Assignee  at the time the inquiry of\t the
\n\t application   seeking\tpermission  to\t renew\t the
\n\t business  was\ttaken  up.  The\t business  does\t not
\n\t involve  any  capital.\t  The\tappellant  has\t two
\n\t children  and\tthey are presently admitted into  an
\n\t orphanage.  If the insolvent is allowed to continue
\n\t the  kerosene business, he will be able to  sustain
\n\t himself  and  his  family members who\tare  totally
\n\t dependent on him.\n<\/p>\n
\t      In  spite of notice, the official Assignee has
\n\t not  chosen  to appear before us.   We,  therefore,
\n\t requested learned senior counsel, Shri Arun Jaitley
\n\t to  help  us  in  the matter and he  has  made\t his
\n\t submissions.  We are grateful to him.\n<\/p>\n
\t      Learned\tcounsel\t  for\tthe  appellant\t Sri
\n\t P.B.Suresh  relied upon Section 75 of the Act\tbut,
\n\t in  our view, three other sections, namely Sections
\n\t 17,  52  and  60  are also  relevant.\t As  already
\n\t stated,  learned counsel for the appellant had also
\n\t referred  to Article 19(1)(g) and Article 21 of the
\n\t Constitution of India.\n<\/p>\n
\t      The  appeal relates to release of income\tfrom
\n\t Kerosene  business to the appellant for the purpose
\n\t of  the  survival of the appellant and\t his  family
\n\t members.   Such  income  will\tbe  `after  acquired
\n\t property’.  On that question, the points that arise
\n\t for consideration are as follows:\n<\/p>\n
\t      (1)  In the context of section 17 and  section
\n\t 52(2) of the Presidency Towns Insolvency Act, 1909,
\n\t does  the after-acquired property of the  insolvent
\n\t automatically vest in the official Assignee?\n<\/p>\n
\t      (2)  In  the context of section 60(2)  of\t the
\n\t Act,  does  ‘salary  or income’  of  the  insolvent
\n\t earned by him after adjudication automatically vest
\n\t in  the  official  Assignee;  and is  the  official
\n\t Assignee’s  right to receive these monies, even  to
\n\t the   extent  they  would   otherwise\t have\tbeen
\n\t attachable, subject to orders of the Court?\n<\/p>\n
\t      (3)  Is  the word `income’ in  the  expression
\n\t `salary or income’ in section 60(2) to be construed
\n\t ejusdem  generis like salary or can it be construed
\n\t so  as\t to  include other types of income  such  as
\n\t income\t from  trade  or business of  the  insolvent
\n\t conducted after adjudication?\n<\/p>\n
\t      (4)  Are `personal earnings’ of the  insolvent
\n\t earned after adjudication exempt from vesting under
\n\t the common law relating to insolvency?\n<\/p>\n
\t      (5)  In what manner the provisions of  section
\n\t 75  of the Act are to be construed for allowing the
\n\t insolvent  to run his business and for allowing him
\n\t an  allowance\tout of the property, to support\t him
\n\t and his family?\n<\/p>\n
\t      (6) To what relief?<\/p>\n
\t      Point 1:<\/p><\/blockquote>\n
\t      This  point concerns the vesting of the `after
\n\t acquired’  property  of  the\tinsolvent,  and\t the
\n\t question  is whether it vests automatically in\t the
\n\t insolvent  under  the Presidency  Towns  Insolvency
\n\t Act, 1909.\n<\/p>\n
\t      Under  section 17 of the Act, on the making of
\n\t an  order  of adjudication, the `property’  of\t the
\n\t insolvent,  wherever  situate,\t shall vest  in\t the
\n\t official  Assignee and shall become divisible among
\n\t his creditors.\t Section 2(e) of the Act states that
\n\t `property’  includes any property over which or the
\n\t profits  of which any person has a disposing  power
\n\t which\the may exercise for his benefit.  Obviously,
\n\t therefore,  in\t the normal course, the\t `salary  or
\n\t income’   accruing   to    the\t  insolvent,   after
\n\t adjudication,\twould  vest in the  Assignee  unless
\n\t there is anything in the Act inconsistent with such
\n\t vesting.   It\tis  here that section  52(2)(a)\t and
\n\t section  60 gain importance.  Under this point,  we
\n\t shall refer to the effect of section 52(2)(a).\n<\/p>\n
\t      Section\t52(2)(a)  deals\t  with\tthe  `after-
\n\t acquired’  property  of  the\tinsolvent  which  is
\n\t divisible among creditors.  It reads as follows:\n<\/p>\n
\t      “Section\t52(2)(a):  Subject as aforesaid, the
\n\t property  of  the  insolvent\tshall  comprise\t the
\n\t following particulars, namely;\n<\/p>\n
\t      (a)  all such property as may belong to or  be
\n\t vested\t in the insolvent at the commencement of the
\n\t insolvency  or maybe acquired by or declare on\t him
\n\t before his discharge.”\n<\/p>\n
\t      This  corresponds to section 38 of the English
\n\t Bankruptcy  Act, 1914.\t The corresponding provision
\n\t in  the  Provincial Insolvency Act, 1920  which  is
\n\t differently  worded  but  which deals\twith  `after
\n\t acquired  property’  is  section   28(4)  and\tthat
\n\t section  uses the words `forthwith vest’ while such
\n\t words\tare  absent in section 52(2)(a) of the\tAct.
\n\t That  section\t28(4) of the  Provincial  Insolvency
\n\t Act, 1920 reads as follows:\n<\/p>\n
\t      “Section\t 28(4):\t  All\tproperty  which\t  is
\n\t acquired  by or devolves on the insolvent after the
\n\t date  of  an order of adjudication and\t before\t his
\n\t discharge  shall  forthwith  vest in the  Court  or
\n\t receive,  and\tthe provisions of sub-\tsection\t (2)
\n\t shall apply in respect thereof.”\n<\/p>\n
\t      In  the English law, according to the rule  in
\n\t Cohen\tvs.   Mitchell\t[(1890) 25 Q.B.O  262],\t the
\n\t after\tacquired property of the insolvent does\t not
\n\t automatically\tvest  in  the  trustee\tor  Assignee
\n\t unless\t the  trustee  intervenes.    But  once\t  he
\n\t intervenes, the property vests in him absolutely as
\n\t stated\t in Hill vs.  Settle [1917 (1) Ch 319].\t  As
\n\t to what is intervention by the Assignee in relation
\n\t to   insolvent’s  dealings    with   after-acquired
\n\t property,  depends on the nature of the property, –
\n\t immovable, movable etc.<\/p>\n
\t      In  India,  the above principle in  Cohen\t vs.
\n\t Mitchell  has been followed by various High  Courts
\n\t in  regard  to bonafide transactions  entered\tinto
\n\t with  the insolvent by strangers without notice  of
\n\t insolvency  but  as stated in Mulla (p.431,  Tagore
\n\t Law  Lectures) (Mulla Law of Insolvency, 1977,\t 3rd
\n\t Ed.),\tthe  Madras High Court alone has  taken\t the
\n\t view  that the rule in Cohen vs.  Mitchell does not
\n\t apply to after-acquired immovable property.\n<\/p>\n
\t       As  we are here not concerned with  immovable
\n\t property  but\twith `income’ that may\tbe  received
\n\t after\tadjudication  by  the  insolvent  from\t his
\n\t business  –  and  that question  is  covered  by  a
\n\t specific  provision  in Section 60(2)\tof  the\t Act
\n\t conferring certain powers on the Court, – we do not
\n\t think\tit necessary in the present case to go\tinto
\n\t the  question as to what extent the rule  in  Cohen
\n\t vs. Mitchell is applicable in India in relation  to
\n\t intervention  by the Assignee.\t We,  therefore,  do
\n\t not  think  it\t necessary  to\tanswer\tPoint  No.1.
\n\t However,  we shall again refer to section  52(2)(a)
\n\t while\tdealing\t with  `personal  earnings’  of\t the
\n\t insolvent under Point 4.\n<\/p>\n
\t      Point 2:\n<\/p>\n
\t      As  stated  earlier, the question\t is  whether
\n\t `income’  that\t may  be received by  the  insolvent
\n\t after\tadjudication  from  his business  will\tvest
\n\t automatically\tin the Assignee or whether the Court
\n\t has  power  to\t pass orders in regard to  the\tsaid
\n\t income.   In  this  context, we have  to  refer  to
\n\t section 60(2) of the Act.  It reads as follows:\n<\/p>\n
\t      “Section\t60(2):\tWhere an insolvent is in the
\n\t receipt of a salary or income other than aforesaid,
\n\t the  Court may, at any time after adjudication\t and
\n\t from  time  to time, make such orders as it  thinks
\n\t just  for the payment to the official assignee, for
\n\t distribution among the creditors of so much of such
\n\t salary\t or income as may be liable to attachment in
\n\t executing a decree or any portion thereof”.\n<\/p>\n
\t      This  Section corresponds to Section 51 of the
\n\t English Bankruptcy Act, 1914.\n<\/p>\n
\t      It will be noticed from section 60(2) that the
\n\t after-acquired\t `salary or income’ of the insolvent
\n\t does  not  automatically  vest in the\tAssignee  as
\n\t otherwise permitted by Section 17 of the Act but it
\n\t continues   to\t be  the   property  vested  in\t the
\n\t insolvent  and out of the said `salary or  income’,
\n\t whatever  is not attachable if the same were to  be
\n\t proceeded  against  in execution of a decree,\tthat
\n\t amount\t will not vest and cannot be directed,\teven
\n\t by  the Court, to be made over to the Assignee.  So
\n\t far  as  the  attachable part of  such\t `salary  or
\n\t income’  is  concerned,  the\tsame  too  does\t not
\n\t automatically\tvest  in  the  Assignee\t because  of
\n\t Section  60(2) but only such part of it can be made
\n\t over  to  the Assignee as the Court may think\tjust
\n\t for payment to the assignee, for distribution among
\n\t creditors.  In other words, the Court can allow the
\n\t insolvent  to\tretain not only the  non  attachable
\n\t part  of the `salary or income’ but also that\tpart
\n\t of  the attachable `salary or income’ to the extent
\n\t the Court thinks just.\n<\/p>\n
\t      A\t provision  like  Section 60  requiring\t the
\n\t Court\tto  pass  orders  regarding  after  acquired
\n\t `salary  or income’ is not there in the  Provincial
\n\t Insolvency  Act,  1920.   (See\t  Mulla\t Tagore\t Law
\n\t Lectures,  1929  (Law\tof   Insolvency,  1977\t 3rd
\n\t Ed.)(p.439)  and sub-clauses (4) and (5) of Section
\n\t 28  of\t that  Act deal with  automatic\t vesting  of
\n\t after-acquired\t  property  under   the\t  Provincial
\n\t Insolvency Act, 1920.\n<\/p>\n
\t      In  this context, Mulla also says (p.438) that
\n\t under Section 60 of the Presidency Towns Insolvency
\n\t Act,  1909, the “official assignee cannot,  without
\n\t an  order of the Court, recover any portion of\t the
\n\t salary\t or  income.  Until the order is  made,\t the
\n\t whole\tof  the\t salary\t or income  belongs  to\t the
\n\t insolvent  and\t he is entitled to  vary  agreements
\n\t entered  into by him with the employers in  respect
\n\t of  his personal services.  (Re Shine 1892 (1) Q.B.\n<\/p>\n
\t 522)  In  determining\twhether\t the  whole  of\t the
\n\t attachable  salary  or\t income is to  pass  to\t the
\n\t official  Assignee  or only a portion thereof,\t the
\n\t Court\twill  have  regard  to\twhat  is  reasonably
\n\t necessary for the maintenance of the insolvent, his
\n\t wife  and  family  (Ex\t  parte\t Official  Receiver:
\n\t [1896(1)  Q.B.\t  417];\t  Re   Rogers  1894(1)\tQ.B.\n<\/p>\n
\t 425)”.\n<\/p>\n
\t      We  are of the new that the above statement of
\n\t law in Mulla represents the correct legal position.
\n\t Point 2 is decided accordingly.\n<\/p>\n
\t      Point 3:\n<\/p>\n
\t      Inasmuch\tas  in\tthe   present  case  we\t are
\n\t concerned  not with `salary’ but with the  `income’
\n\t that  may be derived by the insolvent from trade or
\n\t business,  it becomes necessary to find out whether
\n\t the word `income’ in section 60(2) is restricted in
\n\t its  meaning to income which is similar to `salary’
\n\t or  can mean other income also, such as income from
\n\t trade\tor business.  In case, income from  business
\n\t or  trade can be brought within Section 60(2), then
\n\t the   advantage  is  that   such  income  will\t not
\n\t automatically\tvest in the Assignee and even if  it
\n\t is  entirely  attachable,  no\tpart of\t it  can  be
\n\t received  by the Assignee except by an order of the
\n\t Court\tand  until  the Court  has  considered\twhat
\n\t amount\t is to be treated just in the  circumstances
\n\t of the case, to be distributed to the creditors.\n<\/p>\n
\t      Question\tis whether the income from `trade or
\n\t business’ can be brought within section 60(2).\n<\/p>\n
\t      The meaning of `salary or income’ has not been
\n\t defined in the Act but it has been held in England,
\n\t while\tdealing with the corresponding provision  in
\n\t Section  51 of the English Act, 1914 that the\tword
\n\t `income’  `is a larger word than salary’ (Per\tLord
\n\t Hanworth  in  Re  Landau 1934\tCh.549\t(554,  556).
\n\t Earlier,  Sir\tGeorge Jessel, MR said in  Ex  parte
\n\t Huggins (1882) 21 Ch.\t85 that the said word `is as
\n\t large a word as can be used’.\n<\/p>\n
\t      But even so, English Courts initially took the
\n\t view  that  the word `income’ was to  be  construed
\n\t `ejusdem  generis’ like salary.  That was the\tview
\n\t of Lord Esher in Ex parte Benwell (1884) 14 Q.B.  D
\n\t 301  (307-308).   That\t was also the  view  of\t the
\n\t Rangoon  High Court in Official Assignee of Rangoon
\n\t vs.   Maung  Nyun Maung (AIR 1931 Rangoon  79).   A
\n\t similar  view was expressed by Mulla in his  Tagore
\n\t Law Lectures of 1929 (see Mulla, Law of Insolvency,
\n\t 3rd  Ed.,  1977  p.459)   wherein  he\tstated\tthat
\n\t `income’  means income in the nature of salary\t and
\n\t it  has reference to a particular period such as  a
\n\t year  or  some part of a year.\t Obviously, in\t1929
\n\t that was the state of the law.\n<\/p>\n
\t      But,  in\tlater years, a more  humanistic\t and
\n\t pragmatic  view has been taken in England in regard
\n\t to  `income’ which is not of the nature as `salary’\n<\/p>\n
\t –  for even if the insolvent is to earn income from
\n\t other\tsources\t such as from business, some  amount
\n\t must  be  allowed  to be retained by  him  for\t the
\n\t support  of himself and his family.  The  insolvent
\n\t has to live.  In Re Landau 1934 Ch.549 (560), Romer
\n\t LJ   therefore\t held  that   the  earlier  view  in
\n\t Benwell’s  case  that the word `income’ had  to  be
\n\t construed  `ejusdem generis’ was not correct in  as
\n\t much  as  it had not been stated there as  to\twhat
\n\t genus\tthe  salary payment belonged.\tIn  Landau’s
\n\t case, maintenance ordered to be paid by the Divorce
\n\t Division  to a bankrupt-wife during the joint-lives
\n\t of  herself and her former husband, was held to  be
\n\t `income’.   That view was followed in Re  Tennant’s
\n\t Application  1956(2)  All  E.R.753 (CA).   In\tthat
\n\t case, it was held monthly sums paid by a husband to
\n\t his  wife (who was adjudicated bankrupt) – under  a
\n\t covenant  in a deed executed during the pendency of
\n\t the wife’s application for an order for maintenance
\n\t on  dissolution  of   their  marriage,\t constituted
\n\t `income’  within  Section  51(2)   of\tthe  English
\n\t Bankruptcy Act, 1914.\n<\/p>\n
\t      In fact, a wide definition appears to have now
\n\t been incorporated statutorily in Section 310 of the
\n\t British  Insolvency  Act,  1986 which\tAct  is\t the
\n\t result of the Cork Report.  Section 310 of that Act
\n\t deals\twith `Income payment orders’ and  sub-clause
\n\t (7)  thereof  which  defines\t`income’  reads\t  as
\n\t follows:\n<\/p>\n
\t      “Section\t310  (7):  For the purpose  of\tthis
\n\t Section, the income of the bankrupt comprises every
\n\t payment  in the nature of income which is from time
\n\t to  time  made to him or to which he, from time  to
\n\t time  becomes\tentitled, including any\t payment  in
\n\t respect  of  the carrying on of any business or  in
\n\t respect of any office or employment”\n<\/p>\n
\t      In   Halsbury’s  Law  of\tEngland\t  (Vol.3(2),
\n\t Bankruptcy  & Insolvency) (4th Ed., para 437 f.n 2)
\n\t it  is\t stated\t as  follows,\tin  regard  to\t the
\n\t definition  of\t `income’ in the English statute  of
\n\t 1986  in  section  310(7).    “This  definition  of
\n\t `income suggests an intention of the legislature to
\n\t enact\ta wider definition of income than that which
\n\t the Courts developed under the Bankruptcy Act, 1914
\n\t Section   51\t(repealed).\tIn   Section   51(2)
\n\t (repealed),  `salary or income’ was used and income
\n\t was  construed\t ejusdem  generis:  Ex\tP.   Benwell
\n\t (1884)\t 14 Q.B.D.301 (CA);  Re Cohen 1961 Ch.\t 246
\n\t (CA),\tbut see Re Tenants Application 1956 (2)\t All
\n\t E.R.  753 (CA);  Re Landau, 1934 Ch.549”.\n<\/p>\n
\t      We are of the view that though our legislature
\n\t has  not  defined `income’ as widely as in  Section
\n\t 310(7)\t of the English Act, 1986, the word `income’
\n\t is  not to be construed ejusdem generis and that it
\n\t includes income from business or trade conducted by
\n\t the insolvent after his adjudication.\n<\/p>\n
\t      So  construed, the said business income  would
\n\t then  fall under Section 60(2) of the Act and would
\n\t not become receivable by the Assignee automatically
\n\t but  only upon an order to be passed by the  Court,
\n\t to  the  extent  the Court would deem it  just\t for
\n\t payment  to the official Assignee, for distribution
\n\t among\tcreditors.  Till such an order is passed  by
\n\t the  Court,  the business income will\tcontinue  to
\n\t vest  in  the\tinsolvent, even if the whole  of  it
\n\t would\totherwise have been attachable in  execution
\n\t of a decree.  We hold accordingly under Point 3.\n<\/p>\n
\t      Point 4:\n<\/p>\n
\t      This point deals with the common law principle
\n\t applicable  to\t the  `personal\t  earnings’  of\t the
\n\t insolvent  earned  by\this personal labour,  to  be
\n\t allowed  to  be  retained  by\thim  to\t the  extent
\n\t necessary  for\t his  support  and  support  of\t his
\n\t family.\n<\/p>\n
\t      According\t to  Williams  and  Muir  Hunter  on
\n\t Bankruptcy  (19th  Ed.) (1979) (p.290), one of\t the
\n\t categories of property excluded from vesting in the
\n\t assignee  is  the amount covered by  the  `personal
\n\t earnings’  of the insolvent.  This principle ,\t the
\n\t author\t says,\tis  based  on  the  `common  law  of
\n\t Bankruptcy’.\n<\/p>\n
\t      Section  38 of the 1914 English Act is similar
\n\t to  Section  52 of the Presidency Towns  Insolvency
\n\t Act,  1909  and  deals\t with  distribution  of\t the
\n\t property  of  the  insolvent.\tIn  the\t context  of
\n\t Section  38 as to whether `personal earnings’\twill
\n\t be distributable among creditors, the above authors
\n\t say as follows:\n<\/p>\n
\t      “By  virtue  of  this  Section,  the  personal
\n\t earnings of a bankrupt pass like any other property
\n\t to  the  trustee,  except such part of them  as  is
\n\t necessary  for the maintenance of the bankrupt\t and
\n\t his  family.\tIn Re Roberts (1900) (1)  Q.B.\t 122
\n\t (CA).\t The  Court  of\t  Appeal,  after   reviewing
\n\t previous   decisions,\twhich\thad  suggested\tthat
\n\t personal  earnings  did not vest in the trustee  at
\n\t all,  stated  that there is `no authority  for\t the
\n\t proposition that property of a bankrupt acquired by
\n\t his  personal\texertions since his bankruptcy,\t and
\n\t not wanted for his present support, does not belong
\n\t to his trustee.  No such doctrine can be maintained
\n\t in the face of Section 44 “(now Section 38).” After
\n\t bankruptcy  and  before   his\tdischarge,  whatever
\n\t property  a  bankrupt\tacquires   belongs  to\t his
\n\t trustee,  save\t only  what  is\t necessary  for\t his
\n\t support.   He\tmay  sue  for his  earnings  if\t his
\n\t trustee  does\tnot interfere (As he did in  Affleck
\n\t vs.  Hammond 1912 (3) K.B.162″.  But, “the language
\n\t of  (that  Section)…\t  must\t not  be  taken\t too
\n\t literally  as\tto  deprive   those  fruits  of\t his
\n\t personal  exertions  which are necessary to  enable
\n\t him  to live.\tOn the other hand, the necessity  is
\n\t the limit of the exception.”\n<\/p>\n
\t      As mentioned earlier, Lord Mansfield stated in
\n\t Chippendale  vs.   Tomlinson (1785) Doug 318  =  99
\n\t E.R.318)  that\t `the  assignee cannot let  out\t the
\n\t bankrupt,  they  cannot contract for  his  labour’.
\n\t But  according\t to the notes of Mr.Douglas in\tthat
\n\t case  Butler,J.   and Mansfield,J.  both said\tthat
\n\t the bankrupt had an undoubted right to sue for such
\n\t profits of his labour but supposing a person in his
\n\t situation  should  have  a large sum  of  money  or
\n\t considerable  effects, then such money and  effects
\n\t would\tundoubtedly be liable to be made over to his
\n\t assignee.   In Re Jones (1891) 2 Q.B.\t213, it\t has
\n\t been  stated that an insolvent cannot be  compelled
\n\t to  work and earn for his creditor.  Lord Denman CJ
\n\t in  Williams vs.  Chambers (1847) 10 Q.B.  337\t and
\n\t Lush  LJ  in Eaden vs.\t Carte (1881) 17 Ch.  D\t 768
\n\t stated\t that the earnings beyond what is needed for
\n\t the support of the insolvent and his family, are to
\n\t be  made  over to the assignee.   These  principles
\n\t were laid down under the common law.\n<\/p>\n
\t      In  our view, the above common law  principles
\n\t relating  to  earnings from personal labour of\t the
\n\t insolvent are equally applicable in our country and
\n\t in  spite of Section 52(2)(a), the said earnings of
\n\t the  insolvent\t from  his   labour  to\t the  extent
\n\t necessary  for the support of the insolvent and his
\n\t family,  do  not vest in the assignee.\t There is  a
\n\t further  rider\t to  be\t added\tto  the\t common\t law
\n\t principles  namely that the balance of the personal
\n\t earnings,  – after deducting what is necessary\t for
\n\t the  support of the insolvent and his family,\tdoes
\n\t not  automatically  vest  in the  assignee  but  is
\n\t subject  to  the orders that may be passed  by\t the
\n\t Court\tunder  Section\t60(2).\tPoint 4\t is  decided
\n\t accordingly.\n<\/p>\n
\t       Point 5:\n<\/p>\n
\t      We finally come to Section 75 of the Act which
\n\t is  the  statutory  provision\t dealing  with\t the
\n\t Assignee  granting  permission to the insolvent  to
\n\t carry\ton trade.  That Section also deals with\t the
\n\t Court\tallowing the insolvent an allowance for\t the
\n\t support   of\thimself\t and   his  family   or\t  in
\n\t consideration\tof his services, if he is engaged in
\n\t winding  up  his  estate.    Section  75  reads  as
\n\t follows:\n<\/p>\n
\t      “Section\t75(1)  &  (2):(1)  Subject  to\tsuch
\n\t conditions  and  limitations as may be\t prescribed,
\n\t the  official\tassignee may appoint  the  insolvent
\n\t himself  to  superintend  the\t management  of\t the
\n\t property  of the insolvent or of any part  thereof,
\n\t or  to carry on trade (if any) of the insolvent for
\n\t the  benefit  of  his creditors, and in  any  other
\n\t respect  to  aid in administering the\tproperty  in
\n\t such  manner  and  on such terms  as  the  official
\n\t assignee may direct.\n<\/p>\n
\t      (2)  Subject as aforesaid, the Court may, from
\n\t time to time, make such allowance as it thinks just
\n\t to  the  insolvent  out of his\t property,  for\t the
\n\t support  of  the  insolvent and his family,  or  in
\n\t consideration\tof his services, if he is engaged in
\n\t winding  up his estate, but any such allowance\t may
\n\t at any time be varied or determined by the Court.”\n<\/p>\n
\t      In our view, the above provision in Section 75
\n\t is based on a humane consideration of the condition
\n\t of  the insolvent and his family.  In the book, The
\n\t Law  of Insolvency by Ian Fletcher (1990), referred
\n\t to  earlier,  it  is  stated  in  the\tintroductory
\n\t chapter, (at p.3) that<\/p>\n
\t      “After  a time, a position is reached in which
\n\t some  effort  is made to treat individual cases  on
\n\t their\tmerits and to explore the possibilities\t for
\n\t rehabilitation of the debtor under a controlled and
\n\t more humane legal process”.\n<\/p>\n
\t      After  referring to the Cork Report which\t led
\n\t to the passing of the English Act, 1986, the author
\n\t says (p.188) that the principle of releasing monies
\n\t for  the support of the insolvent and his family is
\n\t based on a policy<\/p>\n
\t      “both  as an aspect of the device to  preserve
\n\t the  dignity  and self-respect of the bankrupt\t and
\n\t his  dependents,  and in the interests of  avoiding
\n\t the  creation of a further burden on the  resources
\n\t of  the State if the bankrupt’s family are rendered
\n\t destitute.   A\t rule  has  therefore  been  adopted
\n\t whereby  the  bankrupt\t is   allowed  to  retain  a
\n\t proportion  of\t his  income to\t the  extent  deemed
\n\t necessary  to\tmaintain  him\tand  his  family  in
\n\t reasonable circumstances”.\n<\/p>\n
\t      As  to  what  is a  reasonable  provision\t for
\n\t support of the insolvent and his family, the author
\n\t says  (p.190) :  “It will be a question of fact  in
\n\t each case to establish what are to be considered as
\n\t the  reasonable domestic needs of the bankrupt\t and
\n\t his  family  and what proportion of his  income  he
\n\t should\t be  allowed to meet them”.  After the\tCork
\n\t Report\t and  Section 310 of the English Act,  1986,
\n\t “the\tCourt  would  be   acting  within  a  spirit
\n\t expressed  in\tthe  Cork Report in  advocating\t the
\n\t adoption  of  a more humane and realistic  attitude
\n\t towards  the position of the debtor and his family,
\n\t and  the  more\t imaginative   utilisation  of\t the
\n\t bankrupt’s  surplus  future income” (Comnd  &\t558,
\n\t paras\t591-598,  1158- 1163).\t“In respect of\tthat
\n\t portion  of  his  earnings or income  which  he  is
\n\t allowed  to retain in consequence of an order under
\n\t Section  310, the bankrupt enjoys full freedom\t and
\n\t disposition.” We may add that if over a period, out
\n\t of the amounts allowed by the Court for the support
\n\t of the insolvent and his family, there is a surplus
\n\t or  excess, then the creditors or the Assignee\t can
\n\t apply to the Court for a review of previous orders.
\n\t The  above  procedure\twill,  in  our\topinion,  be
\n\t clearly   consistent  with   Article  19(1)(g)\t and
\n\t Article 21 of the Constitution of India.\n<\/p>\n
\t      Before parting with this aspect of the matter,
\n\t we  might  add that while the Court has to  take  a
\n\t humanistic  view  towards  honest  insolvents,\t the
\n\t Court must also guard against undue exploitation of
\n\t the  above  principles\t and provisions of  law,  by
\n\t unscrupulous\tpersons\t who   get  adjudicated\t  as
\n\t insolvents.  Point 5 is decided accordingly.\n<\/p>\n
\t      Point 6:\n<\/p>\n
\t      In  the present case, the application filed by
\n\t the  appellant\t has been dismissed by\tthe  learned
\n\t Single\t Judge\tand  by the Division  Bench  without
\n\t noticing  the\tabove  provisions of law.   We\thave
\n\t already  set  out the plea of the insolvent in\t his
\n\t application  and also his version of facts and that
\n\t his two children have been put in an orphanage.\n<\/p>\n
\t      In the light of the legal principles stated by
\n\t us  and  the  facts as may be proved,\tit  will  be
\n\t necessary  for the Court to decide the\t application
\n\t of  the insolvent afresh and determine whether\t the
\n\t insolvent  can\t be permitted to do business and  if
\n\t so,  subject  to what conditions.  The\t Court\twill
\n\t also then have to determine the extent of income he
\n\t is  likely  to\t derive and the part  he  should  be
\n\t allowed  to retain for the support of himself,\t his
\n\t wife and family and then as to what amount, if any,
\n\t could be made over to the Assignee.\n<\/p>\n
\t       As none of these aspects have been gone into,
\n\t we  set aside the judgments passed by the  Division
\n\t Bench\tand the learned Single Judge.  We remit\t the
\n\t matter to the learned Single Judge for disposal  in
\n\t accordance  with  law, after hearing  the  official
\n\t Assignee   or\tany  other  aggrieved  person,\t and
\n\t considering  such  evidence  as  the  parties\t may
\n\t adduce.   It is requested that the application\t may
\n\t be disposed of within a period of 2 months from the
\n\t receipt  of this order.  The appeal is\t accordingly
\n\t allowed  and  matter  is remitted  to\tthe  learned
\n\t Single\t Judge of the High Court.  There will be  no
\n\t order as to costs.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India P. Veerasamy vs The Official Assignee High Court, … on 12 January, 1999 Author: J M. Rao Bench: S.B. Majmudar., M Jagannadha Rao. PETITIONER: P. VEERASAMY. Vs. RESPONDENT: THE OFFICIAL ASSIGNEE HIGH COURT, MADRAS. DATE OF JUDGMENT: 12\/01\/1999 BENCH: S.B. MAJMUDAR. & M JAGANNADHA RAO. JUDGMENT: M. JAGANNADHA RAO,J Leave granted. […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-111595","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nP. 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