This appeal arises in the insolvency of one G. Venkatasubba Rao who was adjudged insolvent on 5th January 1938 in I.P No. 22 of 1934 on the file of the District Court, Kistna. The appellant is one of the creditors and respondents 2 and 3 are two of the other creditors while the first respondent is the Official Receiver, Kistna. The appellant is the holder of a decree against the insolvent in O.S No. 466 of 1934 (District Munsif's Court, Masulipatam). Evidently in pursuance of a notification in the Gazette on 27th April 1943 calling the proof of debts by the creditors of the insolvent, the appellant filed an affidavit before the Official Receiver on 15th June 1943 in which he set out that he had obtained a decree in the suit abovementioned on 9th September 1935 and that a sum of Rs. 2,346-1-6 was due to him upto the 5th January 1938. A copy of the decree was not, however, filed along with the affidavit. On 6th September 1943 this affidavit was returned to the appellant with a direction to file the decree copy before the 9th July 1943. On 9th July 1943 ten days further time was granted for filing the decree and again further time till 26th July was granted. Eventually the Official Receiver directed the appellant to file a petition and affidavit to excuse the delay in re-presentation, and also granted him time to re-present the affidavit along with the copy of the decree till 13th September 1943. Admittedly the appellant did not re-present this affidavit till 13th December 1943 when he produced a copy of the decree.
Meanwhile on 16th November 1943 the Official Receiver declared a dividend at Re. 0-8-5 in the rupee, but excluded the appellant's debt in the calculation of this dividend. He prepared a schedule of creditors from which the appellant was omitted. The schedule of creditors and the dividend were approved by the District Court on 22nd November 1943.
On 23rd December 1943 after having re-presented the affidavit with a copy of the decree, the appellant filed in the District Court, Application No. 1639 of 1943 purporting to be under Ss. 5 and 33 of the Provincial Insolvency Act and other sections of the Code of Civil Procedure, praying that the Court may be pleased to amend the schedule of creditors framed by the Official Receiver and approved and sanctioned by the Court on 22nd November 1943 by adding the debt due to him. On 31st December 1943 while this application was pending, the Official Receiver accepted the claim of the appellant to the debt due to him under his decree. However, dividends were paid away to the creditors entered in the schedule approved by the District Court in March and April 1944. The appellant's application itself was disposed of on 22nd July 1944 when the District Judge rejected the application. Hence this appeal. The ground on which the learned District Judge dismissed the application was that the appellant was guilty of negligence in not filing the copy of the decree before the Official Receiver in time and by the time the decree copy was filed the schedule had been prepared, the payment of dividends had been ordered to the creditors included in the schedule and that the dividends paid to such creditors could not be ordered to be re-deposited as the law did not permit such a course. The learned District Judge observed however that it was open to the appellant to come in proper time when a second dividend was available and participate in it. When this appeal first came on before me, I felt it necessary to obtain information on certain points and I have since received a report from the Official Receiver furnishing information on some of the points. It is now clear from this report that the dividend that was declared on 16th November 1943 and approved by the Court on 27th November 1943 was the final dividend.
The appellant raised several points to support his claim to share in the dividend already declared, but on the view I take on one of the points, I think it unnecessary to express an opinion on the other points, particularly because they would lead to calling for findings from the lower Court on questions of fact.
The contention of Mr. Ramanarasu for the appellant which I think ought to prevail is that under S. 64 of the Provincial Insolvency Act he will be entitled to have the benefit of the dividend as he must be deemed to have proved his debt within the time limited (15th June 1943). S. 33 lays down that where an order of adjudication has been made under the Act, all persons alleging themselves to be creditors of the insolvent in respect of debts provable under the Act shall tender proof of their respective debts by producing evidence of the amount and particulars thereof. S. 49 prescribes the mode of proof. It says:
“A debt may be proved under this Act by delivering, or sending by post in a registered letter, to the Court an affidavit verifying the debt.”
Sub-S. 2 of that section says this:
“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.
Rule 8 of the Rules framed by the High Court is in these terms:
“(1) Unless otherwise ordered all claims shall be proved by affidavit in Form No. 3 in the manner provided in S. 49 of the Act, provided that before admitting any claim the Court may call for further evidence.
(2) The affidavit may be made by the creditor or by some person authorised by him, provided that if the deponent is not the creditor, the affidavit shall state the deponent's authority and means of knowledge.
(3) As soon as may be after proof of any debt is tendered the Court shall by order in writing admit the creditor's claim in whole or in part or reject it, provided that when a claim is rejected in whole or in part the order shall state briefly the reasons for the rejection.
(4) A copy of every order rejecting a claim, or admitting it in part only, shall be sent by the Court by registered post to the person making the claim within seven days from the date of the order.”
It is clear that when a creditor delivers or sends by registered post an affidavit verifying the debt due to him, he must be deemed to have proved his debt. The Court no doubt may call for the production of the vouchers or for other information. Thereafter, the Court, if not satisfied with the proof may reject the claim. There is no direct authority on this question, namely, when a debt can be said to be proved. The decision, however, of the late Chief Justice in Lakshmi Bai v. Rukmaji Rao(1) is apposite and supports the view that I am inclined to take. It was there held that a debt proved within the meaning of the proviso to S. 78(2) of the Provincial Insolvency Act means a debt in respect of which a proof has been lodged and all the requirements of S. 49 of the Act fulfilled. The petitioner in that case filed an affidavit as required by Sub-S. 1 in the approved form verifying the debt and giving particulars of the amount due to him. He did not produce the promissory note under which this amount was due, but intimated that it would be produced later. The learned Chief Justice in dealing with the question whether by the mere act of having filed this affidavit, he must be deemed to have proved his debt observes as follows:
“The question arises here whether a person who has lodged a proof and fulfilled all the requirements of S. 49 has “proved” his debt under the Act. Some assistance upon this point is to be got from the English Bankruptcy Act and the rules which are set out in the second schedule of that Act. Rule 23 deals with the admission or rejection of proofs and the Trustee has to examine every proof and may admit or reject it in whole or in part or require further evidence in support of it. Rules 24, 25 and 28 also speak of proofs. What therefore the English Bankruptcy Act is dealing with is a proof, that is to say, the formal claim lodged by the creditor in the Insolvency. The position is similar under the Provincial Insolvency Act; and the Official Receiver after proof has been lodged has either to admit it or reject it and can, if he requires, ask for further evidence in support of the proof. Has a person who has lodged a proof “proved” within the meaning of the Insolvency Act? In my opinion, he clearly has, and that is the meaning to be given to the word ‘proved’ in the proviso to Sub-S. 2 of S. 78 of the Act.”
It was pressed before him that the affidavit filed in that case was not sufficient proof because the details of the debt had not been given and the promissory note had not been produced. The provision in Sub-S. 2 of S. 49 that the Court may at any time call for the production of the vouchers was also relied upon. The learned Chief Justice in overruling these contentions says that:
“S. 49(2) in my view, only deals with the admissibility or rejection of the proof. It is power given to the Official Receiver to call for evidence in support of the proof.”
I therefore consider that in this case the appellant must be deemed to have proved his debt within the meaning of the Provincial Insolvency Act. It may also be remarked that eventually his claim was also admitted by the Official Receiver on 31st December 1943, long before the application itself was disposed of and it is highly regrettable that in spite of this fact the dividends were disbursed in February and March 1944.
The question now is: What should be done to give relief to the appellant. The debt has been proved and the claim has been admitted, but the final dividend has been paid to the creditors included in the schedule and there are no further assets available for distribution. On the finding arrived at by me, it is clear that the dividends have been wrongly paid over to the creditors including the respondents. In such a case as this, I think, the insolvency Court has ample power to direct the creditors who have so received their dividends to bring back the amounts received by them and then to pass an order ordering a re-distribution after including the appellant among the creditors. In Chandrayya v. Chinnappan Reddi the power of the insolvency Court in circumstances analogous to those in the present case has been fully discussed. It is there pointed out that in England the power of a creditor in Bankruptcy to recall dividends paid to creditors whose debts are barred by limitation or paid to them on erroneous principles of law was never doubted. This position is not seriously contested by learned Counsel for the respondents.
I therefore allow the civil miscellaneous appeal and grant the application of the appellant to be included among the schedule of creditors. The learned District Judge will direct the creditors to whom moneys had been paid to bring back the amounts so received by them. Then he shall frame a schedule of creditors including therein the appellant and declare a final dividend. As the appellant has certainly been guilty of negligence and has himself to blame for not getting adequate relief in time, he will not be entitled to the costs of the appeal.
See 1953 SC 370
N.R.R