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Satyabadi Sahu And Others v. Puri Bank Ltd. .
Factual and Procedural Background
The appellants, together with one Gadadhar Sahu (a family member), were adjudicated insolvent on 19-3-1937. Prior to that adjudication the respondent, Puri Bank Ltd., had obtained a decree against those persons and had put that decree into execution on one or more occasions. Execution proceedings continued even after adjudication until the adjudication was annulled on 27-10-1942 under Section 43 of the Provincial Insolvency Act, the annulment being occasioned by the insolvents' failure to apply for discharge under Section 41 within the prescribed period.
After annulment, the respondent took out fresh execution of the decree. By that time one of the insolvents (Gadadhar) had died. The appellants objected that the decree was barred by limitation; the respondent contended that Article 182(5) of the schedule to the Limitation Act saved limitation because execution proceedings had been filed during the pendency of the insolvency proceedings. Execution petitions were filed in the ordinary course under Order 21, Rule 11 of the Code of Civil Procedure.
The Subordinate Judge ruled for the respondent, holding that the mere filing of execution petitions (if conforming to O. 21, R. 11 CPC) saved limitation. The present appeal followed from that order. The appellants argued that the respondent could only succeed if its case fell within Section 78(2) of the Provincial Insolvency Act and that the proviso to that subsection excluded the respondent; they also argued there was no leave of the Insolvency Court permitting the execution petitions during insolvency and therefore the petitions were not "in accordance with law" for purposes of Article 182(5). The respondent advanced three main contentions in response (see Arguments below).
Legal Issues Presented
- Whether execution petitions filed by the decree-holder during the pendency of insolvency proceedings can be treated as "in accordance with law" for the purposes of Article 182(5) of the Limitation Act, thereby saving time for execution after annulment of the adjudication.
- Whether the respondent can rely on Section 78(2) of the Provincial Insolvency Act to exclude the period of adjudication from the computation of limitation, or whether the proviso to Section 78(2) (excluding debts "provable but not proved under this Act") prevents that reliance.
- Whether compliance with the form requirements of Order 21, Rule 11 CPC is sufficient to make execution petitions "in accordance with law" when they were filed during the pendency of insolvency proceedings without leave of the Insolvency Court.
- Whether the respondent's subsequent steps in the Insolvency Court (including an affidavit filed after annulment and a later vesting order) amounted to proof of the debt "under the Act" within the meaning of the proviso to Section 78(2).
Arguments of the Parties
Appellants' Arguments
- The respondent could succeed only if its case fell within Section 78(2) of the Provincial Insolvency Act; the proviso to that subsection excludes debts provable but not proved.
- There was no permission by the Insolvency Court for filing execution petitions during the pendency of the insolvency proceedings; hence those petitions were not "in accordance with law" for the purposes of Article 182(5), Limitation Act, and therefore could not save limitation.
Respondent's Arguments
- One ground was that the son of Gadadhar (against whom execution was also instituted) could be personally liable for the father's debts from family property; therefore the execution cases filed during insolvency could be regarded as in accordance with law as they were proceedings against the son as a liable person.
- Second, the execution petitions complied in form with Order 21, Rule 11 CPC; therefore they must be treated as "in accordance with law" for the purposes of Article 182(5) even if some reliefs later proved unattainable.
- Third, the respondent contended that, by certain proceedings in the Insolvency Court (an affidavit in proof of debt filed after annulment and subsequent vesting orders), the debt had been proved in the insolvency proceedings and so the proviso to Section 78(2) would not bar reliance on that subsection.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| 171 I.C. 991 | Interpretation of the words "in accordance with law" in Article 182(5): they are general and not confined to compliance with the Code of Civil Procedure; they mean applying to the Court to do something which by law the Court is competent to do, not applying where the decree-holder must have known the Court was incompetent. | The court applied this precedent to conclude that the respondent, by presumed knowledge of Section 28(2) of the Provincial Insolvency Act, must have known it was not entitled to institute execution proceedings during the insolvency; therefore the execution petitions filed during insolvency could not be treated as "in accordance with law" for Article 182(5). |
| 12 Pat. 1632 | An order under Section 37 vesting property need not be simultaneous with the order of annulment. | The court relied on this authority to accept that a vesting order might lawfully be made after annulment, which was relevant to events (a vesting order made after annulment in the present matter) relied on by the respondent. |
| 14 Rang. 254 | Authority bearing on the powers of the person in whom property is vested under Section 37 and on the powers of the Insolvency Court after annulment (cited as showing conflict of opinion among Courts). | The court noted this decision as part of the body of authority demonstrating conflict on the scope of the powers of the Insolvency Court and the person in whom property is vested after annulment; the court did not decide the broader conflict because it concluded the case on other grounds. |
| 58 Mad. 908 | Authority cited among decisions addressing the powers of the Insolvency Court and the person in whom property is vested under Section 37 after annulment; reflects a conflicting view. | The court cited this decision as evidence of the conflict of opinions in the case law about post-annulment powers; it did not adopt or fully resolve the conflict for purposes of this decision. |
| 58 Mad. 1014 | Held that a claim to the Official Receiver for a debt accruing after annulment could be proved for the purposes of Section 37 and that the rule in Section 34 (that only debts subsisting at the time of adjudication are provable) does not apply after annulment. | The court considered this decision and used it to distinguish between the courthouse power to determine rights under Section 37 under the general law and the separate concept of proving debt "under the Act." The court concluded that even if a debt was proved to some extent after annulment, it was not necessarily proved "under the Act" within the meaning of the proviso to Section 78(2). |
Court's Reasoning and Analysis
The court proceeded in two major analytical steps, corresponding to the respondent's two principal lines of defence (Article 182(5) and Section 78(2)).
1. Article 182(5) and the meaning of "in accordance with law"
The court considered whether the execution petitions filed by the respondent during the pendency of insolvency proceedings could be treated as "in accordance with law" under Article 182(5) of the Limitation Act so as to save limitation. It invoked Section 28(2) of the Provincial Insolvency Act, which plainly prohibits creditors from proceeding against the property of an adjudged insolvent or commencing legal proceedings in respect of debts provable under the Act during the pendency of insolvency proceedings except with leave of the Court and on such terms as it may impose.
Applying the principle in 171 I.C. 991 (that "in accordance with law" means applying for relief that the court is lawfully competent to grant, and does not extend to applications that the decree-holder must have known were beyond the court's competence), the court reasoned that the respondent, by presumed knowledge of Section 28(2), must have known it was not entitled to institute execution proceedings during the pendency of insolvency. Therefore the executing Court could not legally have granted the relief sought. Consequently the execution petitions filed during pendency could not be treated as "in accordance with law" for the purposes of Article 182(5) and do not save limitation.
2. Section 78(2) of the Provincial Insolvency Act and its proviso
The court next examined Section 78(2), which excludes from computation of period of limitation the time between adjudication and annulment for suits or applications for execution that "might have been brought or made but for the making of an order of adjudication," subject to the proviso that nothing in the section applies "to a suit or application in respect of a debt provable but not proved under this Act."
The respondent relied on post-annulment proceedings in the Insolvency Court: on 27-1-1945 it filed an affidavit in proof of debt; subsequently the District Judge, by order dated 13-2-1945, ordered vesting of properties (and referred to Section 33 and Section 37). The court accepted (citing 12 Pat. 1632) that a vesting order under Section 37 need not be simultaneous with the order of annulment. The court considered a line of authorities (including decisions from Rangoon and Madras) indicating conflicting views about the powers of the Insolvency Court and the person in whom property is vested after annulment, and noted the Madras decisions which have treated the Insolvency Court as retaining powers to direct realisation and disposal under Section 37 after annulment.
The court then analysed the effect of the decision in 58 Mad. 1014 (that a claim to the Official Receiver for a debt accruing after annulment could be proved for the purposes of Section 37). The court treated that decision as showing that power to determine rights of creditors under Section 37 may exist under the general law after annulment, but that such authority does not equate to proving a debt "under the Act" for the purposes of the proviso to Section 78(2).
On this basis the court concluded that even though the respondent had filed an affidavit and there had been later vesting, the respondent had not proved the debt "under the Act" within the meaning of the proviso to Section 78(2). As a result, the proviso prevented the respondent from claiming the time exclusion under Section 78(2).
Holding and Implications
Holding: The court concluded that the respondent's execution petitions filed during the pendency of insolvency were not "in accordance with law" for the purposes of Article 182(5) of the Limitation Act, and that the respondent had not proved its debt "under the Act" within the meaning of the proviso to Section 78(2) of the Provincial Insolvency Act. For these reasons the court determined that the execution case filed by the respondent bank was barred by limitation.
CORE RULING: The court directed that the execution case filed by the respondent bank be dismissed as barred by limitation, and found the appellants entitled to costs in both Courts. The opinion records that Reuben, J. agreed. The printed disposition line in the opinion also includes the statement: "Appeal dismissed."
Consequences: The direct effect stated in the opinion is dismissal of the respondent's execution proceedings as barred by limitation and an award of costs to the appellants. The opinion does not purport to establish a broader new precedent beyond the application of established principles (notably the interpretation of "in accordance with law" and the meaning of "proved under the Act" in the context of Section 78(2)); the court expressly refrained from resolving the broader conflict of authority about post-annulment powers of the Insolvency Court because the case was decidable on narrower grounds.
Beevor, J.:— The present appellants with one Gadadhar Sahu, a member of the same family, were adjudicated insolvents on 19-3-1937. The respondent, Puri Bank Ltd., before that date, obtained a decree against these persons and had already put the said decree into execution once or more than once. Thereafter, the proceedings in execution continued until the order of adjudication was annulled on 27-10-1942 under Section 43 of the Provincial Insolvency Act, as the insolvents had never prayed for an order of discharge under S. 41 within the” period limited. Subsequent to the order of annulment the respondent, Puri Bank, proceeded to take out fresh execution of the decree. By this time, one of the insolvents had died, and the present appellants objected that the decree was barred by limitation. The respondent bank claimed that the decree was not barred by limitation, because, of the provisions of Article 182(5) of the schedule to the Limitation Act, as the respondent bank had filed execution proceedings even during the pendency of the insolvency proceedings. They filed execution petitions in the regular course against these appellants as well as against the son of the deceased Gadadhar. The appellants contended that the respondent could only have proceeded in execution after the annulment, if he could bring his case within Section 78(2) of the Provincial Insolvency Act, and that his case was excluded by the proviso.
2. The Subordinate Judge held in favour of the respondent that the mere filing of the several execution petitions saved limitation, if they were according to law as required under O. 21, R. 11 of the CPC, and he, therefore, allowed execution to proceed and rejected the claim of the present appellants that the execution case was barred by limitation. Against that order, the present appeal has been filed. On behalf of the appellants it has again been urged that the respondent could succeed only if he brought his case within Section 78(2) of the Provincial Insolvency Act, and that, as there was no permission granted by the Insolvency Court for the filing of the execution petitions during the pendency of the insolvency proceedings, those petitions could not be treated as in accordance with law for the purposes of Article 182(5), Limitation Act, and, therefore, those petitions for execution would not save limitation and it was further contended that, as the debt due to the respondent bank was provable but not proved under the Provincial Insolvency Act, the proviso to s. 78(2) would prevent the respondent bank from claiming any exemption of time under that section.
3. Now, the learned Advocate for the respondent bank has attempted to support the decision of the lower Court on three grounds: first, that as the son of Gadadhara was a person against whom the Bank proceeded in execution and the son would be liable for the father's debts from the family property, therefore, he might proceed to execute the decree obtained against the father, Gadadhara, against the son after the death of the father, Gadadhara, and, for these reasons, the execution cases filed during the pendency of the insolvency proceedings should be regarded as in accordance with law. In connection with this argument, it was urged that the father might have been representing the family including the son in the suit, in which the decree was passed, and, thus, the son might be personally liable under the decree. The second point urged by the respondent is that, as the form of the executions petitions was in accordance with O. 21, R. 11 of the CPC, therefore, the said petitions must be treated as being in accordance with law for the purposes of Article 182(5), Limitation Act even though the prayer in those execution petitions was for reliefs, which it subsequently proved the Court could not grant. Thirdly, it was urged that by reason of certain proceedings, to which I would later refer, the debt due to the respondent bank had actually-been proved in the insolvency proceedings and therefore, the proviso to Section 78(2) of the Provincial Insolvency Act would not bar the respondent, bank from relief under that section. Now, Section 28(2) of the Provincial Insolvency Act provides that
“On the making of an order of adjudication, the whole of the property of the insolvent shall vest 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 insolvency proceedings have any remedy 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.”
4. Now, I do not find it necessary to consider closely the question how far the respondent bank might have been entitled to proceed against the son of Gadadhara personally had they established that Gadadhara represented his-son in the suit in which the decree in favour of the respondent bank was passed, because it is conceded on behalf of the respondent bank that there is no evidence on the record to prove such representation in this case. On the other branch of this argument, a large number of cases were cited before us regarding the limits of the wording of Article 182(5), Limitation Act. So far as this Court is concerned, the position is made absolutely clear by the decision in 171 I.C 991 where it was held that
“The words ‘in accordance with law’ which occur in Article 182(5) are general and cannot be construed to mean only ‘in accordance with the Code of Civil Procedure’,”
5. And that
“the expression means applying to the Court to do something in execution which by law that Court is competent to do, and it does not mean applying to the Court to do something which either to the decree-holder's direct knowledge in fact or from his presumed knowledge of the law he must have known the Court was incompetent to do.”
6. Now, in this case, from the respondent's presumed knowledge of law, he must be treated as knowing by reason of Section 28(2) of the Provincial Insolvency Act that he was not entitled to institute the execution proceedings, and, there, fore, the executing Court could not legally grant him the relief he sought. I am satisfied, therefore, that the execution proceedings filed by the respondent bank during the pendency of the insolvency proceedings cannot be treated as in accordance with law for the purposes of Article 182(5), Limitation Act, and this application cannot help the respondent bank.
7. As regards the third argument on behalf of the respondent bank, Section 78(2) of the Provincial Insolvency Act, lays down that:
“Where an order of adjudication has been annulled under this Act, in computing the period of limitation prescribed for any suit or application for the execution of a decree (other than a suit or application in respect of which the leave of the Court was obtained under sub-s. (2) of S. 28) which might have been brought or made but for the making of an order of adjudication under this Act, the period from the date of the order of adjudication to the date of the order of annulment shall be excluded.”
8. This is subject to the following proviso:
“Provided that nothing in this section shall apply to a suit or application in respect of a debt provable but not proved under this Act.”
9. We have been furnished with affidavits on behalf of the respondent showing that subsequent to the date of annulment in the insolvency proceedings now in question, the respondent bank filed on 27-1-1945, in the Insolvency Court an affidavit in proof of his debt. As by a mistake no vesting order was made before, the District Judge by his order dated 13-2-1945, ordered that the properties of the debtors including the sum then held in Court should vest in the receiver and he should act under Section 33 of the Insolvency Act. The reference to the vesting order referred to above has a, reference to Section 37 of the Provincial Insolvency Act. Section 37, sub-s. (1), lays down as follows:
“Where an adjudication is annulled, all sales and dispositions of property and payments duly made, and all acts theretofore done, by the Court or receiver, shall be valid; but, subject as aforesaid, the property of the debtor who was adjudged insolvent shall vest in such person as the Court may appoint, or, in default of any such appointment, shall revert to the debtor to the extent of his right or interest therein on such conditions (if any) as the Court may, by order in writing, declare.”
10. It has been held by this Court in 12 Pat. 1632 that an order under S. 37 vesting the property in some person need not be simultaneous with the order of annulment. There has been a large number of cases cited before us regarding the powers of the Insolvency Court and of the person in whom the property of the debtor is vested by an order under Section 37(1) of the Provincial Insolvency Act, and the learned advocate for the respondent has argued at considerable length to how that both the Insolvency Court and even fine person in whom the property is so vested have power after the annulment of the adjudication to proceed not merely to realise the assets and property which are vested in the person so appointed but also to determine the rights of creditors and to distribute the property. It is no disrespect to the learned advocate if I fail to deal in detail with the numerous decisions which he has cited. The reason why I shall refrain from doing so is that it seems to me that this case may be decided without considering very closely the questions raised in those cases. I may point out, however, that the decision of the Rangoon High Court in 14 Rang. 254,3 and the decision of the Madras High Court in 58 Mad. 9084 and the cases therein cited show that there is a conflict of opinion regarding the true position of the person in whom the property is vested by an order under S. 37(1) and the powers and duties of the Insolvency Court after an adjudication has been annulled under Section 43 of the Provincial Insolvency Act. The Madras High Court has taken the view that even after the annulment of an adjudication under s. 43, the Insolvency Court retains full powers to give directions under S. 37 as to the realisation and disposal of the debtor's assets. There remains the question whether even on the view of the Madras High Court any power in the Insolvency Court to decide the status of creditors after an annulment of adjudication under s. 43 is power to receive proof of debt under the Act.
11. Now, soon after the above decision of a Full Bench of the Madras High Court, there was another decision of the Madras High Court in 58 Mad. 1014,5 in which a claim was preferred on behalf of the Government to the Official Receiver in whom the property of a debtor had been vested by an order under Section 37 of the Provincial Insolvency Act, for realisation of a debt due to the Government which had accrued after the date of the annulment itself, and it was held that this debt could be proved for the purposes of s. 37 and that the rule in s. 34 of the Act that only debts which are subsisting at the time of the adjudication are provable in the insolvency can have no further application when the adjudication has been annulled. To my mind, this decision shows clearly that even if there is a power in the Court to determine what persons have rights as creditors for the purposes of s. 37 of the Act, that is a power under the general law, and cannot be a power to accept proof of debts under the Provincial Insolvency Act itself. I am satisfied, therefore, that even if in one sense the respondent bank has proved the debt due to them in the Insolvency Court by means of the affidavit filed subsequent to the date of annulment, still they have not proved under the Act within the meaning of the proviso to Section 78(2) of the Provincial Insolvency Act.
12. For these reasons, I would allow this, appeal and direct that the execution case filed by the respondent bank be dismissed as barred by limitation. The appellants are entitled to costs in both the Courts.
Reuben, J.:— I agree.
W.N.G
13. Appeal dismissed.
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