O.V. Balusami v. Official Assignee

1. This is an interesting matter which involves questions relating to the duties of the Official Assignee and also to matters in execution. The facts are very simple. The decree-holder, one Obla K. Ramaswamier & Sons, obtained a decree against the insolvents in this insolvency petition, No. 201 of 1919. On 24th February 1937, he assigned all his right sunder the decree to the applicant, O.V Balusami, who applied to the Official Assignee in July of that year 1937 to be recognized as a creditor in view of his assignment. Between 1931 and 1937 important developments took place. I have not a complete record of them, but I have some record of them, It is conceded that suits were filed against O.K Ramasamier & Sons and so-called attachment orders obtained from the Subordinate Judge, Madura. I have before me some examples. I am told there are others but I have not seen them. One is in O.S No. 97 of 1930 in which one C.S Varadachariar sued the decree-holder. The order of the Court was passed on an execution petition, No. 162 of 1986, in that Suit No. 97 of 1930, which application was made under O. 21, R. 46 of the CPC, for the issue of a prohibitory order to the garnishee, the Official Assignee of Madras, not to pay the dividend amount, about Rs. 9000, due to O.K Ramaswamier & Sons. The order was that the defendants be, and are hereby, prohibited and restrained until the further order of this Court, from receiving from you (that is the Official Assignee) a certain debt, i.e alleged now to be due from you to the said defendants, namely dividend amount Rs. 9000 due to the above defendants herein as decree-holders in, C.S No. 175 of 1921 on the file of the High Court, Madras, declared by the Official Assignee Madras, in I.P No. 201 of 1919 on the file of the High Court, Madras, and that you the said garnishee be, and you are hereby prohibited and restrained until the further order of this Court, from making payment of the said debt, or any part thereof, to any person whomsoever or otherwise than into this Court.

2. It must be remarked at once that no dividend had been declared at that time and no dividend was declared until January of this year, 1938, when the first dividend was declared in this insolvency. Now it will be observed that there is a direct prohibitory order from the Subordinate Judge of Madura addressed to the Official Assignee of Madras in Madras City outside his jurisdiction. Various objections have been taken. The first objection taken was that the lower Court had no jurisdiction because it purported to make a direct order to the Official Assignee. I consider this objection is well founded.

3. The Code of Civil Procedure is perfectly clear on what is the procedure to obtain in attachment outside the jurisdiction of a Court. It is dealt with in S. 39 and O. 21, R. 46 of the Code. None of that procedure was carried out. No transfer of any decree was made to this High Court with a request to execute it in Madras. O. 21, R. 46 states that in the case of a debt not secured by a negotiable instrument, the attachment shall be made by a written order prohibiting, in the case of the debt, the creditor from recovering the debt and the debtor from making payment thereof until the further order of the Court.

4. So the attachment must be made by two separate actions: an order prohibiting the creditor from recovering the debt and—I emphasize the ‘and’—the debtor from making payment thereof until the further order of the Court; both must be done. In this case only one of those things was done. No doubt a valid order was made by the Court to the creditor within its jurisdiction; but no valid order has been made upon the Official Assignee because that order could only be made, in my opinion, by the High Court itself within whose jurisdiction the Official Assignee is. The result is that in my opinion, no attachment has been made of this money. Very similar circumstances have arisen elsewhere. It seems to be the practice of the Madura Subordinate Judge's Court to issue such orders. They issued one to the Official Assignee of Rangoon, and Roberts, C.J and Leach, J. in AIR 1937 Rang 5381 point out that the proper course for the attaching decree, holders there would have been to transfer the decree and to have asked the High Court in Rangoon to issue the prohibitory order, but they were too late in doing this. No attempt, I may say, has been made in the matter before me to transfer the decree to Madras. The Official Assignee of Madras has not ignored this order but has moved the party now before me who is interested as assignee of the debt to bring it before the Court. I observe that the Official Assignee of Rangoon ignored the order altogether. It is not necessary to adumbrate that a Court cannot by direct order execute outside its jurisdiction. My learned brother Gentle, J. has dealt with the matter in an unreported case, Pattabhiramayya v. Angel Insurance Co. of Delhi. He therein refers to the leading case in 39 Cal 104,2 where the headnote quite clearly states that it is not competent to a Court, in execution of is decree for money, to attach, at the instance of the decree-holder, a debt payable to the judgment-debtor outside the jurisdiction by a person not resident within the jurisdiction of that Court. In my view therefore there has been no valid attachment of this money and therefore Section 64 of the CPC, is of no avail to the respondents. I think that S. 64 implies an attachment made with all the formalities complied with and O. 21, as Lord Shaw points out in 51 Mad 349 : 55 IA 2563 is a very formal matter and no property can be declared to be attached until first the order for attachment has been issued and secondly in execution of that order the other things prescribed by the Rules and the Code had I been done. In other words, all formalities must be complied with.

5. Other objections have also been taken. It is stated that this is not a debt which can be attached; and that also appears to be so. Sir Dinshaw Mulla dealt with the matter in his book at p. 494, S. 708, where he refers to the English decision in (1890) 24 QBD 281.4 That was a decision of Lord Coleridge, C.J and Mathew J. The headnote of that case reads as follows:

A dividend payable under the administration in bankruptcy of the estate of a person dying insolvent to a creditor of the estate is not a debt liable to be attached.

6. I do not understand that case is not as good law today as it was in 1890. But in this particular case the facts are even stronger with regard to this debt not being attachable as a dividend, because no dividend, as I have pointed out, was declared until January 1938 and all there was to be attached during the years of these so-called attachment orders was a purely nebulous fund which for aught I know may be a sum not payable to the creditors at all. In AIR 1937 Rang 538, to which I have already referred, the learned Judges state that in the circumstances of that case no dividend was declared until 10th January 1933 and there was nothing in the Official Assignee's hands to which the judgment, debtor of the appellant was entitled prior to that date, the attachment having been made apparently before them. I am quite clear that this attachment, if it is an attachment at all, is invalid because a dividend is not a debt for two reasons: because it has been directly held not to be so, and secondly because, in fact there was nothing to attach at the time these orders were made.

7. The result is that I consider the Official Assignee is empowered if he thinks fit to take the course which was referred to in (1899) 2 QB 50.5 In that case Wright and Bigham, JJ. held that an assignee of a creditor of a bankrupt had no locus standi and could not claim as of right to be treated as a creditor. Both the learned Judges however inclined to the view that it was open to the assignee to apply to be accepted as a creditor in the place of the original creditor, his assignor. That is really why this case has come before me. The matter will go back to the Official Assignee, who will consider the application made by the present applicant to be accepted as creditor in the shoes of the judgment-debtors. If the Official Assignee thinks fit to recognize him, I think it is open to him to do so. But I think it is also open to him to refuse to do so if it should seem to him that he is being used as an instrument for perpetrating fraud. I mean this, that I think he might well recognize an honest assignee but that he might refuse to recognize an assignee who was merely taking an assignment for the purpose of defrauding third parties even where those third parties were in no way concerned with the bankrupt himself. In this matter there are allegations that the assignment was fraudulent and no doubt the Official Assignee will consider whether he should give an opportunity to people alleging that to substantiate it. Than that further orders are necessary. In my view this is not a matter for making any order as to costs.

C.R.K/D.S

8. Order accordingly.