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Advocates
  • Mehta, with Damkewala & Co., for the appellant.
  • J.G Rele, for the respondent.
  • The defendant No. 2 appealed to the High Court.
Judges
  • Mr. Patkar
  • Mr. Broomfield, JJ.
Acts
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Cites
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Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Mehta, with Damkewala & Co., for the appellant.
  • J.G Rele, for the respondent.
  • The defendant No. 2 appealed to the High Court.
Judges
  • Mr. Patkar
  • Mr. Broomfield, JJ.
Acts
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Smart Summary

Structured Summary of the Opinion (Patkar, J.; Broomfield, J.)

Factual and Procedural Background

The appeal arises in execution of darkhast No. 567 of 1929, suit No. 1205 of 1926. The appellant was adjudged an insolvent on July 15, 1924, and lodged a schedule of mortgages on December 12, 1924. On August 9, 1926, the respondent Bhagwandas applied for leave to sue the Official Assignee and the mortgagors under section 17 of the Presidency-towns Insolvency Act; the High Court granted leave and ordered that the costs of the leave-application be tacked on to the mortgage debt (Exhibit 35). Bhagwandas filed suit as a secured creditor on September 4, 1926; a decree was obtained on October 27, 1927 awarding a mortgage decree for Rs. 1,12,822-10-9 and a personal decree for the balance, including Rs. 513-5-9 as costs incurred in the High Court application for leave to sue. The appellant was discharged on September 7, 1926. An execution application was made on March 30, 1929, and the Subordinate Judge allowed execution to proceed against the appellant, disallowing the appellant's challenge to the decree as to the Rs. 513-5-9 item. This appeal challenges (a) the validity of the personal decree for the High Court costs given the earlier order tacking costs to the mortgage debt, and (b) the permissibility of executing that decretal costs item against the discharged insolvent, contending it should instead have been proved in insolvency.

Legal Issues Presented

  1. Whether the decree (specifically the personal decree for Rs. 513-5-9 representing costs of the High Court application for leave) is a nullity because the High Court had ordered those costs to be tacked on to the mortgage debt, and consequently whether a personal decree for those costs ought not to have been passed.
  2. Whether the decretal debt for the costs (Rs. 513-5-9) is a "provable debt" within the meaning of section 46 (sub-section (3)) of the Presidency-towns Insolvency Act, such that the decree-holder must prove the balance in the insolvency and the appellant's discharge (under section 45, clause (2)) would release the appellant from that liability, preventing execution after discharge.

Arguments of the Parties

Appellant's Arguments

  • The High Court's order granting leave on August 9, 1926, directed that the costs of the application be tacked on to the mortgage debt; consequently the trial Court lacked power to pass a personal decree for those costs and the decree (to the extent it is a personal decree for costs) is a nullity.
  • Even if the decree is not a nullity, the decretal costs should have been proved as a provable debt in the insolvency under Schedule II, rule 9, and section 46(3); once proved, the appellant's discharge under section 45(2) would release him from such provable debts, preventing execution against his property after discharge.

Respondent / Court's Counter-Arguments (as articulated in the opinion)

  • The objection to the personal decree ought to have been raised by the appellant during the suit; the appellant did not raise it and did not appeal from the decree—therefore the decree stands and must be executed as drawn.
  • The High Court's order tacking costs to the mortgage debt does not necessarily preclude the passing of a personal decree for those costs; in any event, the appellant failed to contest that issue at the trial or on appeal.
  • Substantively, the costs-item arose and the liability to pay it accrued after the date of adjudication (the order for costs was passed after the adjudication): debts or liabilities incurred after adjudication are not provable in insolvency under section 46(3). The obligation to pay costs arises when judgment or an order for costs is given, not at the time the action is brought. Therefore the decretal cost is not a provable debt and is enforceable despite discharge.
  • Schedule II rule 9 (allowing a secured creditor to prove for a balance after realization of security) must be read subject to section 46's definition of provable debts; rule 9 only permits proof where the balance is a provable debt as defined by section 46.
  • Clause (2) of section 46 (disqualification where person had notice of an insolvency petition) also prevents proving liabilities contracted after notice; here the cost liability arose after adjudication and so is not provable.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Re Bluck; Ex parte Bluck The obligation to pay costs arises when judgment is given against a party; bringing an action does not immediately create the obligation to pay costs. The court relied on this principle to hold that the liability to pay the High Court costs arose when the order for costs was made (after adjudication), and therefore the costs were not provable in insolvency.
British Gold Fields of West Africa, In re Costs ordered after bankruptcy/adjudication are not provable; only costs attaching to a provable verdict or order made before adjudication are provable. Used to support the proposition that costs ordered after adjudication do not form a provable debt and therefore survive discharge.
A Debtor, In re Support for the rule that costs ordered after adjudication are not provable in insolvency. Referred to as consistent authority reinforcing the view that post-adjudication costs are not provable debts.
Pilling, In re Similar authority cited for the non-provability of costs ordered after adjudication. Cited by the court as supporting authority for the non-provability conclusion.
Vint v. Hudspith Another authority cited consistent with the rule that costs incurred or ordered after adjudication are not provable in insolvency. Relied on by the court as corroborative authority for its position.
Buckwell v. Norman Authority illustrating that where costs were ordered before the receiving order/adjudication, the debt may be provable in insolvency. Distinguished by the court: Buckwell was different because the costs-order there preceded the receiving order; in the present case the costs-order followed adjudication, making Buckwell inapplicable.

Court's Reasoning and Analysis

The court's analysis proceeded along two linked strands: procedural/estoppel considerations and substantive insolvency-law analysis.

  1. Procedural/estoppel reasoning:
    • The court observed that the appellant (defendant No. 2) did not raise the objection to the personal decree during the suit, did not instruct his pleader, and did not file an appeal from the decree. Where a specific prayer for the disputed costs had been made in the suit, the appropriate time to contest the form of relief was at trial or by appeal. For that reason the decree could not be treated as a nullity in execution merely because it contained a personal component for costs.
  2. Substantive insolvency analysis:
    • The key statutory provision examined was section 46 of the Presidency-towns Insolvency Act (particularly sub-section (3)) defining what debts are provable in insolvency, read together with Schedule II rule 9 (procedure for secured creditors proving balances) and section 45(2) (effect of discharge).
    • The court emphasized the temporal element: for a debt to be provable it must be an obligation incurred before the date of adjudication or an obligation that the insolvent was subject to before his discharge by reason of obligations incurred before adjudication. If the liability arises after adjudication, it is not provable.
    • Applying that temporal test, the court found the order for costs was made after the adjudication (the adjudication was on July 15, 1924; the costs order arose from events in 1926). The obligation to pay the Rs. 513-5-9 costs therefore accrued after adjudication, and so could not be a provable debt within the meaning of section 46(3).
    • The court also addressed the interplay between Schedule II rule 9 and section 46: rule 9 (allowing secured creditors to prove for a balance after realization) must be read subject to section 46's definition of provable debts; rule 9 does not create provability where section 46 forbids it.
    • Clause (2) of section 46 (disqualification where a person has notice of presentation of insolvency petition) was noted as an additional bar: where the creditor had notice, a subsequent liability contracted by the debtor could not be proved; thus even apart from the temporal bar the creditor could not prove a debt incurred after notice/adjudication.
    • The court relied on authorities (Re Bluck; British Gold Fields; A Debtor; Pilling; Vint v. Hudspith) to confirm the legal principle that costs ordered after adjudication/bankruptcy are not provable; Buckwell v. Norman was distinguished because in that case the costs-order preceded the receiving order.
  3. Conclusion of analysis:
    • Because the cost-liability accrued only when the costs-order was made (post-adjudication), it was not provable in insolvency and therefore not discharged by the appellant's order of discharge. Consequently, execution of the personal decree for those costs against the discharged insolvent was permissible.

Holding and Implications

Holding: The appeal is dismissed and the order of the lower Court allowing execution to proceed in respect of the High Court costs (Rs. 513-5-9) is upheld. The court ordered the appeal to be dismissed with costs.

Implications:

  • Direct effect on the parties: The decretal item for the High Court costs (Rs. 513-5-9) is enforceable against the appellant despite his adjudication and subsequent discharge, because the liability was incurred after adjudication and is not a provable debt under section 46(3) of the Presidency-towns Insolvency Act.
  • On procedure: A party who wishes to challenge the form of relief (such as the grant of a personal decree where an earlier order stated costs should be tacked to mortgage debt) must raise that objection at trial or by timely appeal; failure to do so precludes successful collateral attack in execution.
  • Broader precedent: The court applied existing authorities to the facts; the opinion does not purport to create a novel rule beyond applying established principles regarding the provability of post-adjudication costs. The decision reinforces the established principle that costs ordered after adjudication are not provable debts and therefore survive a discharge.
Order: Appeal dismissed.

Source: Opinion of Patkar, J. and Broomfield, J., as provided. This summary strictly reflects only the matters set out in the provided opinion and does not add or infer facts or reasoning beyond that text.

Show full summary ...

    Gustasp Behram Irani v. Bhagwandas Sobharam

    Patkar, J.:—

    This is an appeal in execution of darkhast No. 567 of 1929, suit No. 1205 of 1926.

    The appellant in this case was adjudged an insolvent on July 15, 1924, and filed a schedule mentioning all the mortgages in suit on December 12, 1924. On August 9, 1926, the respondent Bhagwandas applied for leave to sue the Official Assignee and the mortgagors under section 17 of the Presidency-towns Insolvency Act. The Court passed an order Exhibit 35 allowing leave, and further ordered that the costs of the application be tacked on to the mortgage debt due to the applicant by the estate of the said insolvent. On September 4, 1926, the respondent Bhagwandas filed a suit as a secured creditor and obtained a decree on October 27, 1927. He was awarded a mortgage decree to the extent of Rs. 1,12,822-10-9, and a personal decree in respect of the balance due after deducting the amount realised from the mortgaged property, and also in respect of Rs. 513-5-9 the amount of costs incurred in the High Court in the application for leave to sue in the matter of the insolvency of defendant No. 2. On September 7, 1926, the appellant was discharged. On March 30, 1929, an application was made for execution of the decree including the costs of the application for leave to sue the Official Assignee and the mortgagors. We are concerned in this appeal with regard to the item of Rs. 513-5-9 costs awarded by the High Court in the application for leave to sue. The learned Subordinate Judge disallowed the contention of the appellant who was a discharged insolvent and allowed execution to proceed.

    It is contended in this appeal that the decree is a nullity as the High Court in allowing the leave ordered the costs of the application to be tacked on to the mortgage debt due to the respondent by the estate of the said insolvent, and that a personal decree with respect to the costs of the application ought not to have been passed. This objection ought to have been raised by the appellant-defendant in the suit. He did not raise that contention and the decree was passed against him and must be executed as it stands. Further, the order passed in the application for leave to sue does not necessarily preclude the Court from passing a personal decree with regard to the amount of costs in the application for leave to sue.

    It is next contended that even if the decree is not a nullity the mode of execution is erroneous, and that the decree-holder ought not to be allowed to execute the decree against the property of the insolvent after his discharge. It is urged that under Schedule II of the Presidency-towns Insolvency Act, rule 9, a mortgagee, after he finds that the realisation of the mortgaged property is not sufficient for the payment of the mortgage amount, can prove for the balance of the mortgage money as a debt in insolvency. It is further contended that under section 46, clause (3), of the Presidency-towns Insolvency Act the decretal debt would be provable in insolvency and under section 45, clause (2), the order of discharge shall release the insolvent from all debts provable in insolvency.

    The question, therefore, arises whether the decretal debt with regard to the costs in the application for leave to sue is a provable debt within the meaning of sub-section (3) of section 46. Apart from authority, in order that a debt should be provable, it must appear that the insolvent was subject to such debt or liability at any time before his discharge by reason of any obligation incurred before the date of the adjudication. The debt or the liability would not be provable if the debtor becomes subject to it after his discharge or if he becomes subject to it by reason of any obligation incurred after the date of the order of adjudication. In the present case the order for costs was passed after the date of the adjudication, and the obligation to pay the debt was incurred at the time when the order for costs was passed. The liability, therefore, to pay the costs accrued on August 9, 1926, after the appellant was adjudged an insolvent on July 15, 1924. Though the word ‘debt’ includes a judgment-debt according to section 2(b) of the Act, the obligation to pay the costs is one which accrued after the debt of the adjudication and in respect of which there could be no proof in insolvency, and which remained a debt enforceable against the insolvent after and notwithstanding his discharge.

    According to the decision of Re Bluck; Ex parte Bluck if a man brings an action he does not place on himself the obligation to pay the costs. The obligation arises when the judgment is given against him.

    In British Gold Fields of West Africa, In re it was observed as follows (p. 11):—

    “If the action against a person who becomes bankrupt is unsuccessful, no costs become payable by him or out of his estate, and no question as to them can arise. But if an unsuccessful action is brought by a man who becomes bankrupt, then, if he is ordered to pay the costs, or if a verdict is given against him before he becomes bankrupt, they are provable… On the other hand, if no verdict is given against him and no order is made for payment of costs until after he becomes bankrupt, they are not provable. In such a case there is no provable debt to which the costs are incident, and there is no liability to pay them by reason of any obligation incurred by the bankrupt before bankruptcy; nor are they a contingent liability to which he can be said to be subject at the date of his bankruptcy.”

    The same view is taken in A Debtor, In re and also in Pilling, In re and Vint v. Hudspith.

    The case cited on behalf of the appellant in Buckwell v. Norman is distinguishable on the ground that the order for costs was passed before the receiving order was made, and the debt was, therefore, provable in insolvency notwithstanding the personal disqualification for proving it. Under sub-section (2) of section 46 the respondent having notice of the presentation of the insolvency petition would not be in a position to prove the debt or liability contracted by the debtor subsequent to the date of his so having notice.

    In the present case the debt is not provable as the liability was incurred after the date of adjudication, and there is also the personal disqualification under sub-section (2) of section 46 for proving it.

    We think, therefore, that the liability incurred by the order for costs in the application for leave to sue is not a provable debt within the meaning of sub-section (3) of section 46 of the Presidency-towns Insolvency Act, and, therefore, the order of discharge would not release the insolvent from that debt.

    The order, therefore, of the lower Court seems to be right and this appeal must be dismissed with costs.

    Broomfield, J.:—The relevant facts and the dates have been stated by my learned brother. The appellant has raised two contentions. In the first place he contended that the trial Court had no power to pass a personal decree against the appellant in view of the order of the High Court of August 9, 1926, directing that the amount of costs incurred in connection with the application to the High Court for leave to sue should be tacked on to the mortgage debt. It appears to me to be very doubtful whether this order of the High Court necessarily means that a personal decree for the amount of costs could not be passed in addition. But in any case it is clear that the appellant defendant No. 2 in the suit ought to have raised that contention at the hearing of the suit and ought also to have appealed against the decree. It is to be noted that a specific prayer was made in the suit for this particular amount of costs. Defendant No. 3, who was a puisne mortgagee, contended that the plaintiff could not get priority over him in respect of this claim and a special issue was raised on that point which was decided in favour of defendant No. 3. But defendant No. 2, the present appellant, neither appeared nor gave any instructions to his pleader and after the decree had been made he did not file any appeal. The decree in respect of these costs cannot be described as a nullity and its validity cannot be questioned in execution.

    Then, secondly, it was contended that instead of executing the decree the plaintiff was bound to prove the debt in the insolvency. This argument was based on Schedule II, rule 9, of the Presidency-towns Insolvency Act and section 45, clause (2), of the Act. Rule 9 of the schedule provides as follows:—

    “If a secured creditor realizes his security, he may prove for the balance due to him after deducting the net amount realized.”

    Section 45, clause (2), provides:—

    “Save as otherwise provided by sub-section (1), an order of discharge shall release the insolvent from all debts provable in insolvency.”

    Counsel argued that by reason of the High Court's order of August 9, 1926, the debt in respect of the costs became part of the secured debt and the plaintiff, therefore, could have proved for the balance after realization of the security. But it is clear, I think, that this rule 9 in the schedule must be read subject to section 46 of the Act which defines what are provable debts. The rule can only mean that the creditor can prove for the balance if the balance consists of a provable debt.

    The question, therefore, is whether this particular debt was provable in the insolvency. clause (2) of section 46 is as follows:—

    “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.”

    This clause would appear to stand in the way of any attempt by the plaintiff to prove this particular debt in the insolvency. The case of Buckwell v. Norman shows that the fact that a party cannot prove a debt by reason of the provisions of this clause (2) does not necessarily mean that the debt is not a provable debt within the meaning of clause (3) of section 46. But this particular debt with which Ave are concerned does not come within the terms of clause (3). In spite of the very wide definition of the word “liability” in the explanation to section 46 it seems to me to be impossible to hold that the liability to pay these costs is one to which defendant No. 2 became subject by reason of any obligation incurred before the date of his adjudication. The only obligation incurred before the order of adjudication which was made on July 15, 1924, was the obligation to pay the mortgage debt. The plaintiff's application in which the costs were incurred and the Court's order on it were both more than two years after the date of the adjudication order. That this debt is not a provable debt seems to me to be sufficiently clear from the language of section 46, and if any authority is needed it will be found in the cases cited in the arguments to which my learned brother has referred. If the debt is not a provable debt then clause (2) of section 45 has no application and the appellant's objection to the execution of the decree is untenable.

    I agree with the order proposed by my learned brother.

    Appeal dismissed.
    B.G.R
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    Comments

    Gustasp Behram Irani v. Bhagwandas Sobharam
    (Feb 18, 1931)