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Dhurvas J. Subbarayar & Brothers And Another v. J.K Muniswami Iyer & Sons
Factual and Procedural Background
These appeals arise from contracts for the purchase and delivery of goods between the appellant and the respondent. The contracts specified terms regarding delivery, advance payments, and liability for losses related to the goods. The respondent filed Suit No. 27 of 1921 against the appellant seeking damages for breach of contract due to the appellant's failure to take delivery of goods, claiming Rs. 8,860 or alternatively Rs. 3,460 with interest and costs. The appellant filed Suit No. 58 of 1921 against the respondent seeking recovery of the advance paid, alleging the respondent breached the contract by failing to deliver the goods and claiming Rs. 5,289-10-0 with interest.
The suits were tried together. The Subordinate Judge held that the breach was on the part of the appellant (defendant in Suit No. 27) and awarded damages of about Rs. 7,000 after crediting the advance. Suit No. 58 was dismissed on the ground that the appellant was not entitled to recover the advance since he was in breach. The appellant filed appeals against both decrees but became insolvent before prosecution of the appeals. An Official Receiver was appointed and applied to be made a party to prosecute the appeals. The dismissal of the appeals was set aside on terms, and the Official Receiver now prosecutes the appeals.
Legal Issues Presented
- Whether the Official Receiver has the competence under the Provincial Insolvency Act to prosecute appeals relating to claims for damages which do not directly affect the insolvent's property.
- Whether the Official Receiver can appeal against the decree dismissing the suit for recovery of the advance deposit, which is considered the insolvent's property.
- Who committed the breach of contract, affecting the entitlement to damages or return of the deposit.
Arguments of the Parties
Appellant's Arguments
- The appellant contended that the respondent breached the contract by failing to deliver the goods, entitling the appellant to recover the advance payment with interest.
Respondent's Arguments
- The respondent alleged that the appellant breached the contract by not taking delivery of the goods and claimed damages accordingly.
Preliminary Objection by Mr. Krishnaswami Iyer
- Argued that under Section 28 of the Provincial Insolvency Act, the Official Receiver cannot prosecute an appeal relating solely to a claim for damages that does not affect the insolvent's property.
- Relied on provisions of the Code of Civil Procedure and the Transfer of Property Act to assert that a mere right to sue for damages is not property that vests in the Official Receiver.
- Contended that suits for purely personal actions cannot be prosecuted by the Official Receiver, and the Official Receiver’s power is limited to actions affecting the insolvent’s property.
Arguments by Mr. Anantakrishna Iyer (Official Receiver’s Counsel)
- Argued for a wider construction of Section 59 of the Provincial Insolvency Act to allow the Official Receiver to continue suits that affect the insolvent’s property, including actions founded on contracts where decrees affect divisible assets.
- Maintained that the Official Receiver can appeal against the decree dismissing the suit for recovery of the deposit as the deposit is the insolvent’s property.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Section 28 of the Provincial Insolvency Act, 1920 | Defines the effect of an order of adjudication and vesting of insolvent’s property in the Court or Receiver, limiting creditors’ remedies. | Used to argue that the Official Receiver cannot prosecute appeals relating only to damages claims that do not vest as property. |
| Section 59 of the Provincial Insolvency Act | Defines the scope of suits and legal proceedings relating to the insolvent’s property that the Official Receiver may prosecute or defend. | Interpreted to allow the Official Receiver to appeal only in cases where the suit relates to the insolvent’s property, such as recovery of deposits. |
| Section 60(e) of the Code of Civil Procedure | Exempts certain property from attachment, including a mere right to sue for damages. | Supports the contention that a right to sue for damages is not property vesting in the Official Receiver. |
| Section 6(e) of the Transfer of Property Act | Exempts from transfer a mere right of suit, which cannot be transferred. | Used to reinforce that unliquidated claims for damages are mere rights of suit, not property transferable to the Official Receiver. |
Court's Reasoning and Analysis
The Court examined the Provincial Insolvency Act, particularly Sections 28 and 59, to determine the Official Receiver's authority to prosecute the appeals. It recognized that while a mere right to sue for damages is not property that vests in the Official Receiver, the existence of a decree against the insolvent changes the situation. The Court distinguished between suits purely personal in nature and those affecting the insolvent's property or assets divisible among creditors.
The Court held that the Official Receiver cannot appeal against the decree awarding damages to the respondent because such a claim relates to damages and does not constitute property of the insolvent. However, the Official Receiver is competent to appeal against the dismissal of the suit for recovery of the advance deposit, which is considered the insolvent's property. The deposit money, though held by the respondent, remains the property of the insolvent subject to conditions for return under the contract.
The Court further reasoned that the question of entitlement to the deposit depends on who breached the contract. It noted that if the appellant was in breach, no obligation arises to return the deposit, and credit for the deposit is given in assessing damages. The evidence showed damages exceeded the deposit, indicating the appellant committed a substantial breach.
Holding and Implications
Appeal No. 220 of 1921 is dismissed with costs as the Official Receiver is not entitled to prosecute the appeal relating to damages.
Appeal No. 221 of 1921 is held competent and the Official Receiver may prosecute the appeal relating to the recovery of the deposit. However, on the merits, the appeal fails because the appellant (insolvent) breached the contract and is not entitled to the return of the deposit. The appeal is dismissed with costs.
The decision clarifies the scope of the Official Receiver’s authority under the Provincial Insolvency Act, distinguishing between personal claims for damages and claims relating to the insolvent’s property. No new precedent beyond the interpretation of statutory provisions was established, and the direct effect is that the Official Receiver may only appeal in respect of property claims, not pure damages claims.
1. These appeals arise out of a contract for purchase and delivery of goods entered into by the appellant in each of the cases with the respondent. The contract has been filed as Exhibit D, which, after describing the goods and the place where the goods were to be got from and delivered in paras. 1 and 2, goes on to say that the purchaser shall be bound by the contract he (respondent) entered into with his vendors and should take delivery of the goods. As regards the delivery of the goods and the advance, paras, 5, 6 and 7 are material: they run as follows:
On the very day on which the aforesaid two parsons (their vendors) inform that the aforesaid bales have arrived here you should pay money and take delivery of the bales. Whenever the atore-specified bales are issued from the mill you should take delivery of the same. We are not liable therefor. As the afore-specified advance money is with, us without interest, as the bales are issued, according to the proportion of the advance, you should deduct for the bales at the rate of Rs. 190 and at the rate of Rs. 160 par bale.
2. Then clause 8 says;
If the bales are received from the aforesaid two persons and if we have not informed you of the same we are liable for the matters of loss that may result therein. In the matter of your not taking delivery after we informed you of the receipt, you yourself are liable for the loss that may arise therein.
3. This is signed by the respondent firm and is addressed to the appellant firm. Suit No. 27 of 1921 which led to appeal No. 220 of 1921 was filed by the present respondent against the appellant for recovery of damages for breach of contract, the allegation being that the appellant hag not performed his contract in taking delivery. The particulars are given in the plaint and the claim, after credit is given for the advance, is for Rs. 8,860 as detailed in Schedule A or in the alternative for Rs. 3,460 as detailed in Schedule B with interest and costs. Suit No. 58 of 1921 which refers to Appeal No. 221 of 1921 was filed by the present appellant against the respondent for the recovery of the advance paid with interest. His case is that under this contract he paid advances, that the respondent did not deliver the goods and therefore the contract was broken by the respondent and that the appellant is entitled to recover the advance with interest. He claims Rs. 5,289-10-0. The suits were tried together and the Subordinate Judge decreed the plaintiff's claim in O.S No. 27 of 1921, holding that the breach was on the part of the defendant in that suit and awarded a decree for about Rs. 7,000 odd as damages after giving credit for the advance which was paid. He dismissed suit No. 58 of 1921, the suit filed by the present appellant against the respondent on the ground that the breach of contract being on the part of the plaintiff in that suit, he was not entitled to recover the deposit. These appeals are filed by the appellant against the two decrees. After the filing of the appeals, the appellant became insolvent. He applied for the benefit of the provisions of the Provincial Insolvency Act and an Official Receiver was appointed. When the appeals came on, the appellant who became insolvent did not press the appeal. The Official Receiver not being a party did not appear and the result was that the appeals were dismissed. The Official Receiver then applied to be made a party to the appeals on the ground that he had no notice of the appeals and their pendency and that there was a good case to represent to the Court against the decrees of the Subordinate Judge. His petition was granted on terms that he gave security and the dismissal was set aside; and he now appears by Mr. Anantakrishna Iyer to prosecute the appeals.
4. A preliminary objection was taken by Mr. Krishnaswami Iyer on the ground that under the Provincial Insolvency Act it is not competent to the Official Receiver to prosecute an appeal which relates to a claim for damages only and does not affect any property of the insolvent He bases his contention on two grounds, first of all, he stages that; so far as the claim for damages is concerned, Section 28 of the Provincial Insclvancy Act of 1920 states the effect of an order of adjudication. Cl. 2 states that on the making of an order of adjudication, the whole of the property of the insolvent; shall vast in the Court or in a Receiver as hereinafter provided, and shall become divisible among the creditors and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the iasclyency proceedings have any remady against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, except with the leave of the Court and on such terms as the Court may impose.
5. Than follow what properties, for the purposes of the section, shall be included and excluded. As regards exclusion, Cl. 5 of the section says (S. 5 was quoted,)
6. We have now, therefore, to turn to the Code of Civil Procedure to see what are exempted from attachment because such exempted property could not vest is the Court or in the Receiver. S. 60 of the Code in treating of property not liable to attachment refers in clause (e) to a mere right to sue for damages. We take it by mere “right to sue” is meant a right which has not ripened into or merged in a decree of Court and which still exists as a cause of action which the insolvent can enforce if he chooses by filing a proper suit. Section 6(e) of the Transfer of Property Act is also relied upon which exempts from transfer a mere right of suit and states that it cannot be transferred. In the case of an unliquidated claim for damages there can be no doubt that it is a mere right of suit and the contention of Mr. Krishna-swami Iyer is that reading these sections together in this case, the right of suit would not vest in the Official Receiver and secondly, that he has no right to come in as a party. If the matter rested here, there may be some force in this contention. But in this case there are two points to be considered. On the date when the appellants became insolvent not only had the respondent exercised his right of filing a suit, but there was also decree which they obtained against the insolvent and the matter did not rest merely on a chose in action which has not ripened into a decree. The case must therefore be judged with reference to Section 59 of the Provincial Insolvency Act. (Here the section was quoted.)
7. Turning to this section, what we have to see is what under Cl. (6) is the meaning of the term, “Relating to the property of insolvent.” Is it a suit which directly or immediately affects the property of the insolvent or is it a suit or legal proceeding which might ultimately result in a decree which if executed or sought to be enforced would be payable out of the assets of the insolvent and thereby affect the property? The argument of Mr. Krisunaswami Iyer is that it should be such as directly and immediately affects the property and that we cannot hold “Relating to the insolvent's property” to mean “affecting the property because that construction would result in every cause of action which the insolvent had being continued or defended by the Official Receiver for the benefit of the insolvent, while the law dearly is that so far as regards merely personal actions the Receiver cannot continue them but he can continue actions which are not personal, and he referred to some English cases on the point. We do not think there is very much use in referring to English law on the subject because the Provincial Insolvency Act has codified and crystallized the law which we have to administer on the subject and we have not been referred to any corresponding section in the English Act. We do not think there is any authority for holding that the words “Relating to” must be taken to mean “affecting.” Mr. Anantakrishna Iyer himself admits that such a construction, which would give the Official Receiver power to conduct suits of a purely personal nature, which no Court has yet allowed to be done, would be placing an undue stretah on the section. What he argues is that where once a decree is passed or where the cause of action does not ralates to personal actions but relates to actions founded on contracts and not is a purely personal nature, as the effect of a decree passed would be, if improper, be reduce the assets which are divisible among creditors, or, as the effect of a suit dismissed, if proper, should be to diminish the amount coming into the hands of the Receiver for distribution to the creditors, a wide construction would be placed on S. 59(d). It is argued that the Official Receiver has no remedy in such cases unless a liberal construction is put on S. 59. It seems to us that the Official Receiver has in such cases a remedy. The definition of a debt under the Insolvency Act includes a decree debt because S. 2(a) states that “Creditor” includes a decree-holder and “debtor” includes a judgment-debtor. Now the section as regards proof of debt in S. 33: (here S. 33 was quoted). Then there is the provision that:
Any creditor of the insolvent may, at any time before the discharge of the insolvent, tender proof of his debt and apply to the Court for an order directing his name to be entered in the schedule, and the Court, after causing notice to be served on the insolvent and the other creditors who have proved their debts, and hearing their objections (if any), shall comply with or reject the application. Then comes S. 49 which describes the mode of proof and it says that “A debt may be proved under this Act by delivering, or sending by post in a registered letter, to the Court affidavit verifying the debt. The affidavit shall contain or refer to a statement of account showing the particulars of the debt, and shall specify the vouchers (if any) by which the same can be substantiated. The Court may at any time call for the production of the vouchers.
8. Then S. 50 says:
Where the Receiver thinks that a debt has been improperly entered in the schedule, the Court may, on the application of the receiver and after notice to the creditor, and such enquiry (if any) as the Court thinks necessary, expunge such entry or reduce the amount of the debt.
9. Cl. 2 deals with cases where no receiver is appointed. Thus we find that where a decree is passed without the receiver being made a party, it is open to him to contest the validity of that decree in proper proceedings under the Insolvency Act. So far as the law in England is concerned, it is clear that the Bankruptcy Court is not bound by the decrees passed against the insolvent but can go into proof of the consideration and the amount which is due and validity of those decrees. We may refer to Williams on Bankruptcy (13th Edition, page 258). It is therefore not a case where the Official Receiver is without a remedy. We are of opinion that S. 59 does not authorize the Official Receiver to appeal against a decree which was passed against him in a suit for damages which the respondent filed against him. The suit which the insolvent-appellant filed against the respondent for the return of the deposit stands in an entirely different position. His case is that he deposited a certain sum of money with the respondent which was to be appropriated in a certain mannar and when certain contingencies happened, that the respondent is not entitled to retain the money as he has not given the goods which was the consideration for the deposit being given and that therefore he is entitled to the return of the deposit. Now, deposit under those circumstances is the insolvent's property. The money is with the respondent but it is the insolvent's property and he is entitled to get a return of the money in certain contingencies. It cannot be said that because the respondent in that suit might justify the retention on the ground that the insolvent has not fulfilled the conditions which entitle him to its return on a breach of contract, the suit is a suit for damages sounding entirely in damages without any reference to the property of the insolvent. None of the sections would apply because, if it is property of the insolvent, and the suit is only for the return of that property, it clearly vests in the Official Receiver under S. 20 and he is entitled to get back the money. The defence which the defendant may raise is no criterion in estimating or appropriating the cause of action of the plaintiff. What we have to see is whether that money can be said to be his property and there can be little doubt that the money would be his property unless the defendant can show a right to appropriation and not to return it.
10. We are of opinion therefore that Appeal No. 220 of 1921 fails and is dismissed with costs as the Official Receiver could not prosecute it and that Appeal No. 221 of 1921 is competent and that the Official Receiver can appeal against that decree in so far as it relates to the dismissal of the suit to recover the deposit. In this view the question is material as to whether this deposit which was admittedly received by the respondent in this case is returnable or not; and that question will turn upon who committed the breach of the contract. In all cases of deposits on contracts it is well established that a person in default cannot claim a return of the deposit and in this case, as it is not denied that if the contract was broken damages would be much more than the amount deposited no obligations arise to return the deposit for which credit will be given as in estimating the amount of damages. In fact, in the other suit in which a decree was obtained damages were awarded to the extent of Rs. 7,000 after giving credit to the advance. (The judgment then discussed the evidence and continued.) It is clear from the evidence that so far as damages are concerned, it far exceeds the deposit and the suit will therefore fail as the appellant who claimed deposit committed breach of a very large portion of the contract. The appeal therefore fails and is dismissed with costs. The Memorandum of Objections is not pressed. Dismissed. No costs.
11. Appeal dismissed.
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