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Mohamed Zackeria, Sole Proprietor Of K. Mohammed Zackeria & Co. v. V. Srinivas And Co. And Another.
Factual and Procedural Background
This appeal arises from an order of Balakrishna Ayyar, J., adjudicating the appellant — the firm of Mohamed Zackeria (sole proprietor Mohamed Zackeria) — insolvent under the Presidency Towns Insolvency Act. The adjudication followed the appellant's failure to pay a business debt of approximately Rs. 3,000 due to the first respondent, V. Srinivasan and Co., despite the appellant's house in Madras having been under attachment for 21 days. There was also an outstanding decree debt of Rs. 400 that had remained unpaid for four years.
The appellant argued below that he was substantially solvent (claimed assets of nearly one lakh of rupees, including property and a tannery in Vaniyambadi) and that his debts did not justify insolvency proceedings. He also contended that his business was conducted only at Vaniyambadi and not at Madras, and raised a constitutional challenge under Article 14 contending that the Presidency Towns Insolvency Act's requirement of 21 days' attachment (Clause (e) of Section 9) was discriminatory compared to the Provincial Insolvency Act provision (Section 6(e)), which required sale in execution. Balakrishna Ayyar, J. rejected these contentions and adjudicated the firm insolvent. This decision was brought before the court in the present appeal.
Legal Issues Presented
- Whether the appellant could properly be adjudicated insolvent in Madras under the Presidency Towns Insolvency Act given his claim that the firm carried on business only at Vaniyambadi (i.e., the territorial jurisdiction and meaning of "carrying on business").
- Whether the Presidency Towns Insolvency Act's Clause (e) of Section 9 (attachment for 21 days as sufficient cause) discriminates vis-à-vis Section 6(e) of the Provincial Insolvency Act (which requires sale in execution) and thus violates Article 14 of the Constitution.
- Whether the appellate court should remit the matter to the trial judge to allow the appellant to expand or revise unambiguous evidence regarding the nature and location of his business activities.
- Whether the appellant's assertions of substantial solvency and readiness to pay the first respondent within 24 hours — coupled with an asserted willingness of other creditors to wait — warranted setting aside the adjudication.
Arguments of the Parties
Appellant's Arguments
- The appellant asserted that he was effectively solvent: he claimed assets of about Rs. 80,000–1,00,000 (a house and tannery at Vaniyambadi and movable property) and that his total debts did not approach one quarter of that amount.
- He contended that his firm did not carry on business at Madras and therefore could not be adjudicated insolvent there; business was said to be carried on only at Vaniyambadi.
- He argued that Clause (e) of Section 9 of the Presidency Towns Insolvency Act — which permits adjudication where property is under attachment for 21 days — is harsher than Section 6(e) of the Provincial Insolvency Act (which requires execution sale) and that this difference discriminates against persons in presidency towns, violating Article 14 of the Constitution.
- The appellant submitted that he could pay the first respondent's debt within 24 hours, and claimed that other creditors were not pressing for immediate recovery, so the adjudication should be set aside.
- Before this court, counsel asked for a remand to allow the appellant to expand or revise his earlier unambiguous statements about his Madras business activity.
Respondent's Arguments
The opinion does not contain a detailed account of the first respondent's specific legal arguments beyond the factual position that the debt remained unpaid and execution/attachment had occurred; the court's reasoning describes and responds to the appellant's contentions.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Gokaldoss Govardhandoss v. Parry and Co., ILR 48 Mad 795 (AIR 1925 Mad 1249) | The firm is to be deemed "carrying on business" in a place so long as its business debts incurred there remain undischarged (interpreting Section 11(d) of the Presidency Towns Insolvency Act). | The court applied this ruling to hold that, because the debt to the first respondent was a business debt contracted at Madras before 15 July 1954, the appellant must be deemed to have been carrying on business in Madras and thus could be adjudicated insolvent there under the Presidency Towns Insolvency Act. |
| In re Benode Behari Saha, 46 Cal WN 664 | Held that a retail trader resident outside Calcutta who went to Calcutta solely to purchase stock and stayed briefly with his broker (making payments there) was not thereby carrying on business in Calcutta. | The court distinguished these facts: in the present case the appellant admitted purchasing and selling goods in Madras (not merely purchasing stock), so the Benode Behari Saha principle did not aid the appellant. |
Court's Reasoning and Analysis
The court proceeded by closely examining the appellant's evidence and the legal framework. Key steps in the court's analysis included:
- Assessment of evidence: The appellant had stated unambiguously that he came to Madras "now and then" in connection with his business and engaged in purchasing and selling goods there until he stopped his Madras business on 15 July 1954. The court refused to permit counsel to extend or reinterpret clear, unambiguous testimony by way of argument or to remand solely for the purpose of altering such statements.
- Application of precedent: Relying on the earlier Bench ruling in Gokaldoss Govardhandoss v. Parry and Co., the court treated the firm as "carrying on business" in Madras for the purposes of the Presidency Towns Insolvency Act so long as liabilities incurred there remained undischarged. Because the debt to the first respondent was a business debt contracted at Madras before 15 July 1954, adjudication in Madras was held to be proper.
- Distinguishing contrary authority: The decision in In re Benode Behari Saha was considered and rejected as inapplicable because that case involved a trader who purchased stock in Calcutta but did not sell there; by contrast, the appellant admitted both purchasing and selling in Madras.
- On the Article 14 challenge (alleged discrimination): The court accepted the learned judge's reasoning that differences in business conditions, tempo of life and the economic structure between presidency towns and the mofussil justified different legislative provisions; such classification was treated as justifiable and rational, and the appellant's broad contention that all special laws applicable to Madras must be struck down was rejected as unsupported.
- On the appellant's solvency plea and offer to pay: The court emphasized the collective interest of the body of creditors. It observed that allowing an insolvent debtor to settle with a single creditor to avoid adjudication would prejudice other creditors. The appellant had not provided a schedule of creditors or substantiation that other creditors would permit delayed recovery, and the existence of long-standing unpaid debts (including the four‑year‑old Rs. 400 decree) undermined the solvency claim. The court noted the available remedies short of setting aside adjudication (payment of all creditors or entering into a composition) but found the appellant's assertions insufficient to overturn the adjudication.
Holding and Implications
Holding: The court confirmed the adjudication of the appellant firm as insolvent under the Presidency Towns Insolvency Act and dismissed the appeal with costs, one set.
Implications and immediate effects:
- The adjudication in Madras stands: the appellant may be dealt with under the Presidency Towns Insolvency Act for the debts incurred in Madras (including the Rs. 3,000 debt to the first respondent).
- The court did not set aside or modify the adjudication on the grounds of claimed solvency, purported willingness to pay a single creditor, or the Article 14 challenge; it accepted the regional classification justification for differing insolvency procedures between presidency towns and the mofussil.
- The opinion notes a concurrent possibility (not disturbed by this decision) that the appellant could be adjudicated at Vaniyambadi under the Provincial Insolvency Act for any act of insolvency committed there; the court's decision does not foreclose appropriate proceedings in that jurisdiction where applicable.
- No novel constitutional principle was established: the court applied existing precedent and reasoning (and distinguished contrary authority) rather than creating a new rule; the decision therefore confirms application of established principles to the facts of this case.
JUDGMENT Panchapakesa Ayyar, J.
1. This is an appeal against the order of Balakrishna Ayyar J. adjudicating the appellant, Mohamed Zackeria firm, by sole proprietor Mohamed Zackeria, insolvent under the" Presidency Towns Insolvency Act as he did not pay the debt of about Rs. 3000 due to the first respondent, V. Srinivasan and Co., on dealings, despite the attachment of his house in Madras remaining in force for 21 days. .
The appellant had urged before Balakrishna Ayyar J. that he was worth nearly a lakh of rupees and that his debts did not amount to even one fourth of that amount and that it would be improper to adjudicate him Insolvent when he could easily pay off all his debts. He had represented that he had Rs. 80,000 worth of property in Vaniyambadi, in the shape of a house and tannery, and some movable property besides. Balakrishna Ayyar J. was not impressed by this argument.
Not only the debt of Rs. 3,000 due to the first respondent, but also a small decree debt of Rs. 400, had remained unpaid though four years had. passed. The appellant also urged before Balakrishna Ayyar J. two other arguments. The first was that he could not be adjudicated insolvent in Madras as he and his firm were carrying on business only at Vaniyambadi. Hut in view of his admission that he was coming to Madras now and then in connection with his business and was purchasing and selling things here on those occasions arid sleeping in a house in Madras, and that he stopped his business in Madras only on 15-7-1954 and had not sold even a single square foot of leather (his trade is in leather) since then, Balakrishna Ayyar J. considered that he was doing business in Madras actively purchasing and selling things till 15th July 1954, and that under the ruling of a Bench of this court in Gokaldoss Govardhandoss v. Parry and Co. ILR 48 Mad 795: (AIR 1925 Mad 1249) (A), his firm should be deemed to be "carrying on business" within the meaning of Section 11(d) of the Presidency Towns Insolvency Act so long as its business debts remained undischarged.
In the present case the debt due to the first respondent was a business debt contracted before 15th July 1954, at Madras, and therefore the learned Judge held that the appellant could be adjudicated insolvent here under the Presidency Towns Insolvency Act.
2. The nest contention urged before Balakrishna Ayyar J. by the appellant was that Under Clause (e) of Section 9 of the Presidency Towns Insolvency Act, it is sufficient cause for adjudicating a person insolvent if his property remains under attachment for a period of twenty one days, whereas under Section 6(e) of the Provincial Insolvency Act the attached property of the debtor has to be sold in execution of a. decree for the payment of money before the transaction can be considered to be an act of Insolvency, and that this would amount to discrimination, and a denial of equality before the law and the benefit of equal laws to persons residing in or carrying on business within the presidency towns. Balakrishna Ayyar J. rejected this argument by observing:
"Persons outside the presidency (owns live and trade and buy and sell under conditions very different from those obtaining in the presidency towns. The entire economical structure and the tempo of life are different. The distinction between the provisions is therefore one which can be traced to a just, regional (rational?) and reasonable classification."
In the end, he adjudicated the firm insolvent.
Hence this appeal.
3. We have perused the records, and heard Mr. Jayachandra Naidu, the learned counsel for the appellant. He adduced the same three contentions before us. Firstly, he contended that the appellant firm never carried on any business at Madras even before 15th July 1954, in which case alone the ruling in ILR 48 Mad 795: (AIR 1925 Mad 1249) (A) would apply. According to him, the sole proprietor of the appellant firm, Mohamed Zackeria, had loosely stated that he was visiting Madras now and then and purchasing goods here, and selling things here till 15th July 1954, whereas really he ought to have said that he was purchasing avaram leaves here and consigning his leather to the first respondent and other commission agents for being sent to London to be sold there.
But we cannot allow the words in the evidence of Mohamed Zackeria to be extended thus when the man himself had stated clearly and unambiguously that he was coming to Madras now and then in connection with his business and was purchasing and selling goods here. There is no ambiguity to be cleared in those statements. So we cannot allow those statements to be extended and made to bear a different meaning, by mere arguments of his counsel. Nor do we see any reason to remand the matter to the learned Judge again as requested by Jayachandra Naidu, for allowing Mohamed Zackeria to give the extended and revised Version.
A remand is not Intended for purposes of adding thus to unambiguous evidence and changing the meaning. So we are satisfied that Balakrishna Ayyar J. was right in holding that the appellant was coming to Madras now and then and carrying on business here, and that, though he closed down his business here on 15th July 1954, he must be deemed to be carrying on his business here so long as the liabilities he incurred in the course of the business remain undischarged. Mr. Jayachandra Naidu relied on the ruling of Panckridge J. In re Benode Behari Saha, 46 Cal WN 664 (B). That will not help him.
All that was held there was that if a person carried on a retail business in piecegoods in the mofussil, that is, outside Calcutta, but went to Calcutta for the purpose of buying his stock, and stayed in his broker's house for four or five days at a time whenever he went to purchase the stock, paid the vendors of the stock at Calcutta, he could not be deemed to be carrying on business at Calcutta. The facts there will not apply to this case.
Mr. Jayachandra Naidu himself conceded that if that retail merchant had sold his retail goods at Calcutta, in addition to purchasing his stock there, he would be carrying on business in Calcutta. Here, Mohamed Zackeria, the sole partner of the firm admitted in his evidence, that he was purchasing goods at Madras, and selling goods at Madras, in the course of his business visits to Madras. So he was carrying on business at Madras, and could be adjudicated here under the Presidency Towns Insolvency Act, though doubtless, he could also be adjudicated at Vanlyambadi under the Provincial Insolvency Act, by the appropriate Court, for any act of insolvency committed there.
4. The next argument was that Article 14 of the Constitution of India would prevent the section of the Presidency Towns Insolvency Act being applied to this firm, since the firm's main place of business was at Vaniyambadi, where the Provincial Insolvency Act would apply, and there was no reason to discriminate against a person carrying, on business in a presidency town by making him liable to be adjudicated insolvent if his Property remained attached, for a debt for 21 days without the debt being paid, when under the Provincial Insolvency Act his property must be actually sold in execution under a decree for the payment of money before he could be adjudicated insolvent.
Mr. Jayachandra Naidu urged that actually, there is no difference between the conditions of business and the tempo of life in Madras and the mofussil, and no just, rational or reasonable classification is indicated by such difference in the provisions of the Presidency Towns Insolvency Act and the Provincial Insolvency Act, and so the provision in the Presidency Towns Insolvency Act is ultra vires and must be struck down.
He argues that it is wrong to assume that a debtor in Madras can raise money more easily than a debtor in the mofussil and that, therefore, the denial to a Madras debtor of the extended time for adjudication given to a mofussil debtor amounts in effect to a denial of equality before the law, and the benefit of equal laws and that Balakrishna Ayyar J. went wrong in relying on the just, rational and reasonable classification theory. We cannot agree. It is clear to us that Balakrishna Ayyar J. was quite right in holding that the conditions of business in Madras' & the tempo of life and the whole structure of economics are different from the mofussil.
Indeed Mr. Jayachandra Naidu went on to say that all the laws peculiarly applicable to Madras City and differing from the laws applicable to the moffussil will stand condemned under Article 14." He could quote no decision in support of this extraordinary and extravagant contention. We cannot agree with him at all on this point.
5. The last contention was that in fact the appellant firm has assets worth over a lakh of rupees and debts of only some Rs. 25000 at the utmost and that none of the creditors except the first respondent is anxious to recover his debt at once, and that the appellant firm is willing to pay off the first respondent's debts within. 24 hours, and so the order of adjudication may be set aside. We are afraid, we cannot accept this argument.
When a person is adjudicated insolvent, It is not a particular creditor alone whose interests are to be protected by the Court but the entire body of creditors, secured and unsecured. Otherwise a cunning insolvent would settle with one creditor and get an adjudication set aside, leaving other creditors in the lurch. It is significant that the first respondent's debt, like the other debt of Rs. 400, has remained unpaid for four long years despite all the alleged riches of the appellant firm.
So too it is significant that the appellant has not given a schedule of creditors and the amount of debts due to them and there is no knowing whether the statement that all the other creditors are willing to allow their debts to remain unpaid for any length of time is true or not. It is always open to the appellant firm to pay all the creditors and get free from this insolvency. It is also open to the appellant firm to enter into a composition with all the creditors and take the usual steps under the insolvency law to get free from the adjudication. There is, in our opinion, little merit in this contention also.
6. In the end, therefore, we confirm the order of adjudication passed by Balakrishna Ayyar J. and dismiss this appeal, with costs, one set.
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