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Pratapmal Rameshwar v. Chunilal Jahuri .
Factual and Procedural Background
This opinion concerns an appeal against an order dismissing a creditor's petition for the adjudication of two respondents as insolvents under the Presidency Towns Insolvency Act. The petition was filed on 4th March of the relevant year. The learned Judge dismissed the petition on the ground that the creditor had not sufficiently established that the debtors were unable to pay their debts. The appeal challenges this dismissal and also addresses the legality of an attachment made on the debtors’ property.
Legal Issues Presented
- Whether the learned Judge correctly applied Section 13 of the Presidency Towns Insolvency Act in dismissing the creditor's petition on the basis that the debtors were able to pay their debts.
- What constitutes the debtor’s burden of proof in showing ability to pay debts under the statute.
- The legality and propriety of the attachment of the debtors’ immovable property despite the appointment of a receiver.
- Whether the act of insolvency, specifically the attachment of property under Order 21, Rule 54 of the Civil Procedure Code, was valid and sufficient to sustain the petition.
- Whether the debtors should be granted further time to pay the petitioning creditor’s debt.
Arguments of the Parties
Respondents' Arguments
- The respondents claimed they were not insolvent as they owned immovable properties whose value exceeded the mortgages against them.
- They contended they were currently unable to pay the petitioning creditor’s debt in cash, but implied that they were able to pay their debts generally.
- They argued the attachment of their property was irregular or illegal, specifically challenging the applicability of Order 21, Rule 52 of the CPC to the attachment in question.
Petitioning Creditor’s Arguments
- The creditor argued that the attachment of property under Order 21, Rule 54 was valid and properly authorized by the Court despite the appointment of a receiver.
- The creditor maintained that the act of insolvency was established by the attachment continuing for more than 21 days.
- The creditor opposed any further adjournment or extension of time for payment by the debtors, emphasizing the petitioning creditor’s interest in timely recovery.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Kewney v. Attrill, 1886 34 Ch D 345 | Principle regarding charging orders and control of assets under receivership to prevent interference with court administration and to avoid preference of creditors. | The Court referenced this precedent to explain the practice of granting charging orders instead of direct attachment when receivership exists, and to justify that in the present case the Court had properly granted leave for direct attachment. |
Court's Reasoning and Analysis
The Court analyzed the statutory provision under Section 13 of the Presidency Towns Insolvency Act, which requires the debtor to prove an ability to pay debts as a ground for dismissal of a creditor’s petition. The Court clarified that the debtor’s burden is not satisfied merely by showing ownership of assets, especially if such assets are immovable and not readily liquid. The ability to pay debts refers to the capacity to meet debts in the ordinary way by payment in legal tender, not contingent or speculative liquidation of assets.
The Court found that the respondents’ claim—that they could not pay the petitioning creditor presently but had assets exceeding mortgages—did not meet the statutory standard for dismissal. The Court emphasized that having assets that are not liquid supports the case for insolvency proceedings rather than dismissal.
Regarding the attachment, the Court examined the procedural context of the attachment under Order 21, Rule 54 CPC, despite an existing receivership. It rejected the respondents’ contention that the attachment was illegal under Order 21, Rule 52, explaining that Rule 52 applies only to property in the custody of the Court or public officer and was not intended to limit attachments where only rents and profits were under receivership. The Court noted established practice permitting creditors to seek leave from the Court appointing the receiver to attach specific properties directly, which had been properly done here.
The Court further observed that granting further time to the debtors was not appropriate given the petition had been pending since March without any attempt to pay the petitioning creditor’s debt. The creditor was unwilling to consent to any adjournment, and the Court found no basis to impose one against the creditor’s will.
Consequently, the Court held that the act of insolvency was properly established by the attachment, the petitioning creditor’s debt was valid, and the dismissal order could not be supported on the grounds relied upon.
Holding and Implications
The Court allowed the appeal and ordered the adjudication of the respondents as insolvents. The act of insolvency was found valid, and the petitioning creditor’s debt was held to be a good petitioning creditor’s debt. The Court also ordered that the petitioning creditor’s ordinary costs of both this Court and the Court below, certified for counsel, shall be paid out of the insolvent’s assets.
The direct effect of this decision is to reverse the dismissal of the creditor’s petition and to initiate insolvency proceedings against the respondents. No new legal precedent was established beyond the application and clarification of existing statutory provisions and procedural rules.
Rankin, C.J:— This is an appeal from an order made by my learned brother Ameer Ali, J., whereby he dismissed a creditor's petition for the adjudication of the two respondents as insolvents under the Presidency Towns Insolvency Act. The petition was brought on 4th March of the present year and the learned Judge proceeded upon the ground that, in his opinion, it was not made out by the creditor that the debtors were not in a position to pay their debts. It is quite true that one of the reasons, for which the Court is enabled to dismiss a creditor's petition is the reason given in Section 13 of the Presidency Towns Insolvency Act, which says that:
“the Court shall dismiss the petition if the debtor appears and satisfies the Court that he is able to pay his debts.”
2. It will be seen that the burden of proof is entirely on the debtor. In the present case the question appears to be what is meant by saying that the debtor has to prove that he is able to pay his debts. The case made by the respondents was not a case that they were able to pay their debts, if it be carefully examined; though they do say in so many words “we are still in a position to pay all just and reasonable debts.” But the case they make is that they are entirely unable at the present to pay the petitioning creditor's debt, to speak of that alone, apart altogether from any other debts.
3. They say they have got a number of immovable properties; that the mortgages will be less than the value of these properties. They wind up by saying that they are not insolvents, but, in the circumstances, they have no ready cash to pay. What the statute means by ability to pay debts is not merely that the man has assets which, if liquidation proceeds, may, in the result, provide sufficient money to discharge his debts. It means that he is not so em-brassed that he cannot meet his debts is the ordinary way by making legal tender and discharging his debts.
4. The circumstance that a man has assets and the assets are not liquid assets and therefore be cannot pay his debts is a circumstance which stands in favour of having a liquidation and not against having a liquidation. The judgment to be exercised on this ground in connexion with a petition for adjudication is exercised on very much the same lines as the discretion to annul an adjudication on the ground that the debts have been paid or that the debtor ought never to have been adjudicated. It was never the intention of the statute that a man, having a petitioning creditor's debt and proving an act of bankruptcy, should be told that no provision whatever will be made for the payment even of his debt, and that the petition is to be dismissed on the ground that the debtors are able to pay all their debts. If, to a petitioning creditor who has knowledge of an act of bankruptcy, tender of money is made for his own debt, he is not, in a usual case, at all obliged to receive the money and have the petition dismissed, because it may very well be that other creditors may proceed in insolvency and that the paynent will be held bad against the Official Assignee. But, if coupled with such an offer, it can be shown that there are no other debts or that the debtors are prepared and able to pay off all the other debts, then no doubt a Strong case arises for dismissal of the petition. In my judgment the learned Judge has misapplied the terms of the section, on which he has relied, and the judgment cannot be supported upon the ground on which it has been based.
5. Before us, the appeal has been supported by a contention to the effect that the only act of insolvency shown is that premises No. 38, Baratola Street, belonging to the debtors were attached on 19th January 1932, and continued under attachment for more than 21 days. It is said that attachment was an irregular or illegal attachment altogether. It appears that the Court appointed a receiver over the properties of the debtors including this property. It appears that the petitioning creditors, who held a decree for their debts, applied to the Court, which had appointed a receiver, and asked for leave, notwithstanding the appointment of a receiver, to attach two definite specified immovable properties in which the debtors had an interest. The Court gave the leave asked for and the attachment was formally and regularly made by an attachment under O. 21, R. 54. The way in which it is said that attachment is illegal or improper is this: It is said that under R. 52, O. 21 of the CPC, this proceeding was not rightly taken. It is quite true that proceeding has no connexion whatever with R. 52, O. 21. R. 52 refers to property in the custody of a Court or public officer. It provides that an attachment can be made in a way which leaves no room for an application for the leave of the Court or of the public officer. It is to be noticed that it treats the Court and the public officer exactly in the same way. Under that rule, in any case to which it applies, the executing Court simply issues attachment without consulting the-other Court. Apart altogether from any question whether R. 52 applies to immovable property, while it is true in a sense that the Court, when it appoints a receiver, takes possession of the property, I am reasonably clear that the rule was never intended to apply to a case where the Court appoints a receiver of the rents and profits of the immovable property.
6. What has been done in this case has been done following the practice on the original side, which of late years, became settled in view of principles well-settled in England and is now in Ch. 17 of our rules. It is very common for persons who apprehend execution to start a partnership suit and have a receiver appointed of the assets of the partnership, or a partition suit, and have a receiver appointed of the assets of the family; or a mortgage suit and have a receiver appointed of the assets under mortgage. In these cases, the endeavour to use O. 21 R. 52, is of very small use to the executing creditor. It may be that the suit, for partition or for dissolution of partnership is entirely collusive, and under R. 52, O. 21, very little relief is to be obtained by the executing creditor. According to the particular practice in this Court and in the Courts in England the creditor, in such circumstances, is to go to the Court who appoints the receiver, and he asks the Court to give him leave, so far as a certain property is concerned, to ignore the receivership altogether. In that case he proceeds exactly as if no receiver has ever been appointed and that is the course adopted by the creditor in this case. Sometimes, when a creditor goes and asks leave in such fashion, the Court will not allow him to attach the assets direct.
7. In many cases that might result in interfering with the administration of the Court as regards the partnership assets. In a partnership case, the Court calls for the creditors and endeavours to pay the creditors of the firm out of the assets and to hand back the balance, if any, to the partners according to their shares. In many cases therefore to allow an executing creditor to come in and levy upon the assets directly and independently of the Court's proceedings would lead to confusion and cause injustice or give preference to the attaching creditor. In such cases the Court will refuse the relief in that form and will make an order in the well-known form now known by the case of Kewney v. Attrill . 1886 34 Ch D 345. It will give the creditor no leave to attach direct, but it will give him a charging order upon the assets that are being administered upon the term that the creditor will use that charging order in a way which will be under the control of the Court. The present is a case where the Court granted leave to attach the assets direct by the ordinary process and the Master, in this case, upon a tabular statement, is quite right in ordering attachment under R. 54, O. 21. That attachment is a perfectly good attachment and the act of bankruptcy therefore cannot be challenged.
8. We have been asked in this case, to give the debtors further time. I am well aware of the difficulties of giving debtors very much time when a bankruptcy petition has been filed and is being contested. But had there been any attempt when this petition was first filed on the part of the debtors to provide for the petitioning creditor's debt on term of being given a little time, I should have been the last person to have objected to any reasonable order of adjournment. One may take notice of the fact that at the present time, people may very legitimately have special difficulty in finding the necessary liquid money to pay debts; but this petition was presented in March and nothing whatever has been done to pay off even the petitioning creditor, let alone any of the other creditors Mr. Banerjee, who has to look after the in terests of his client, is not disposed to consent to further time being given to the debtors, and his client might very well be, for all we know, in difficulty at this stage in receiving his money, unless indeed all the other creditors can be ascertained and at the same time paid. It is quite impossible for us therefore to thrust upon Mr. Banerjee's client, against his will, a further adjournment for any such purpose.
9. In the result the order of adjudication must be made. We find the act of insolvency being the act mentioned in Cl. 1, para. 6 of the petition and we find the petitioning creditor's decretal debt to be a good petitioning creditor's debt and we make the ad judication now. The appeal will be allowed. The petitioning creditor's ordinary costs of this Court and of the Court below certified for counsel will come out of the assets.
C.C Ghose, J.:— I agree.
K.S
10. Appeal allowed.
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