Abdul Khader Sahib vs The Official Assignee of Madras

Abdur Rahim, O.C.J.

Mr. Justice Bakewell, sitting in the Insolvency Court, has held that, under the new Insolvency Act III of 1909, he has no jurisdiction to try the

question whether certain property situate outside the local limits of the Original Civil jurisdiction of this Court belongs to the insolvent, lit being

alleged by the Official Assignee that the purchase in the name of the insolvent''s wife effected 3 or 4 years before the petition in insolvency was filed

was merely benami for the insolvent himself. He was of opinion that though admittedly the old Act 11 & 12 Vict., cap. 21, gave a discretion to the

Judge sitting in the Insolvency Court to exercise jurisdiction in such cases over third parties, the present Insolvency Act has made a change in the

law and all questions arising between the Official Assignee and third parties must be dealt with by the ordinary Civil Court which has jurisdiction

over the matter. With all respect to the learned Judge, it seems to me that Section 7 of the Act gives him the power to decide questions of title to

land situate outside the limits of the Original Civil jurisdiction of the High Court. It says:

Subject, to the provisions of this Act, the Court shall have full power to decide all questions of priorities, and all other questions whatsoever,

whether of law or fact; which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court-may deem it

expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.

I do not think that because questions of priority are mentioned first, the very comprehensive words that follow must be narrowed down in their

application. The section expressly enables the Court to decide all questions whatsoever which it may deem expedient to decide for the purpose of

doing justice or making a complete distribution pf the insolvent''s property. I find nothing in these words which for a moment suggest that the

jurisdiction which the Court had hitherto has been in any way cut down. Reliance is however placed upon Section 36, Clause (5), which says that

if on the examination of a person, summoned on the application of Official Assignee or of any creditor and who has been in possession of the

property belonging to the insolvent, the Court is satisfied that the allegation is true, it will order the person in possession to deliver the property to

the Official Assignee. The argument is that this shows that the power of the Court to deal with property in possession of a person other than the

insolvent is confined to cases where that person admits that the property belongs to the insolvent. But Section 86 only provides a summary

procedure in cases where there is no dispute raised, but that does not necessarily exclude the jurisdiction of the Court to deal with cases of

disputed title. Only in cases of the latter class the ordinary procedure has to be followed. Section 90 provides:

In proceedings under this Act the Court shall have the like powers and follow the like procedure as it has and follows in the exercise of its ordinary

original civil jurisdiction.

An appeal lies from an order made in the exercise of the insolvency jurisdiction in the same way as from a judgment in civil suits. It has been

argued that where questions of title to property are concerned, the general policy of the legislature is that they should be tried in the ordinary forum

and difficult and complicated questions of title should not be decided in insolvency proceedings which are more or less of a summary nature. The

answer to that is that the jurisdiction conferred by Section 7 is of a discretionary character, and it is seldom that the Insolvency Court will deem it

expedient to try difficult questions of title. The Judge in such cases would ordinarily ask the Official Assignee to establish his title by an ordinary

civil suit and it is only cases which do not involve any prolonged enquiry that the Insolvency Court itself would undertake to decide. Reliance was

placed on behalf of the Respondent on a decision of Mr. Justice OHITTY of the Calcutta High Court in In re Lucas ILR (1915) Cal. 109. That

decision does not however in any way help the Respondent. It lays down, that

Section 36, Clauses (4) and (5) of the Presidency Towns Insolvency Act, 1909, provides summary procedure in cases where there is no dispute ;

it is not intended for contentious matters or for following property the subject of fraudulent preference or dishonest concealment.

But those observations have no force incases where the ordinary procedure provided in the CPC is followed for the purpose of deciding

whether the property in possession of a third person really belongs to the insolvent. It may be pointed out that Rule 13 of this Court and Rule 5 of

the Calcutta High Court clearly recognizes the distinction between cases in which the procedure u/s 36 or the ordinary procedure is to be followed.

The English decisions on the subject which were also discussed at the bar are, I think, perfectly relevant in this connection, inasmuch as Section

102 of the Bankruptcy Act of 1883 corresponding to Section 12 of the Bankruptcy Act of 1889 is identically in the same terms as Section 7 of the

Indian Act. In Ex parte, Dickin; In re Pollard (1878) L.R. 8 Ch. D. 377 at p. 386 and in Ex parte Brown; In re Yates (1879) L.R. 11 Ch. D. 148,

the jurisdiction of the Court of Bankruptcy in deciding upon the rights of third parties is fully recognized and though in Eills v. Silber (1872) L.R. 8

Ch. App. 83 at p. 85 there are some general remarks of Lord Selborne which militate against that view, it cannot be said that the authority of Ex

parte Dickin, hire Pollard (1878) L.R. 8 Ch. D. 377 at p. 386 and Ex parte Brown ; In re Yates (1879) L.R. 11 Ch. D., 148, has been shaken.

The English law on the subject is correctly stated in Williams on Bankruptcy, new edition, pages 375--377 and in Robson''s Law of Bankruptcy,

page 87, where they state the result of the English decisions as affirming the Insolvency Court''s jurisdiction in adjudicating upon the rights of third

parties.

Nor can it be rightly said that Section 12 of the Letters Patent decides the question : for u/s 18, the Judge is to exercise:

Such powers and authorities with respect to the original and appellate jurisdiction and otherwise as are constituted by the laws relating to insolvent

debtors in India.

As for the argument based on Section 93 of Act III of 1909 the proviso to it makes it clear that it was not intended to curtail the jurisdiction of

the Court.

The order of Mr. Justice Bakewell dismissing the application for garnishee summons taken out by the Official Assignee, is set aside and the

case will be remitted to the Insolvency Court for disposal according to law. The same order will govern Appeal No. 95: costs will abide the result.

Seshagiri Ayyar, J.

I agree. The point for decision is whether the Insolvency Court in Madras has jurisdiction to adjudicate on claims relating to immoveable

property situated outside the limits of its ordinary original civil jurisdiction. It was conceded that the practice until very recently was to deal with

claims to such properties in the Court of Insolvency. It was also not disputed that u/s 26 of 11 & 12 vict., cap. 21, the Presidency Insolvency

Courts had and exercised this jurisdiction : see Ganeshdas Panalal: In re R.D. Sethna v. R.S.D. Chopra ILR (1908) 32 Bom. 198. The question is

whether Section 7 of Act III of 1909 which replaces the old section enacts a departure from the rule which was well understood and accepted by

all the Courts. The section says:

The Court shall have full power to decide all questions of priorities, and all questions whatsoever...for the purpose of doing complete justice or

making a complete distribution of property.

I fail to see in this section anything to cut down the jurisdiction till then exercised. The decision whether a particular property belongs to the

claimant or insolvent, is necessary for doing justice as well as for the distribution of the property. If anything, the section is more comprehensive

than Section 26 of the repealed statute. It is true that in terms that section deals with the claims of third parties; but the language employed by the

legislature in the new Act is intended to comprise more questions (e.g., the one relating to priority) than came within the purview of the old section.

The expression ""all other questions whatsoever"" expands rather than curtails the jurisdiction already possessed. Reference was made by Mr.

Tirunarayanachariar to Section 36 of the new Act as pointing to a limit on the powers of the Court. That section empowers the Insolvency Court to

summon any person known or suspected to have in his possession any property belonging to the insolvent; and in Clauses (2) and (3) prescribes

the procedure to be followed on his failure to appear or on his appearance. Then follows Clause (5) which seems to put a restraint upon the

summary powers of the Court:

If, on the examination of any such person, the Court is satisfied that he has in his possession any property belonging to the insolvent.

The Court may direct the delivery of the properties. This clause does not say that the Court should base its decision once for all on the

evidence adduced by the garnishee, and that it has no power otherwise to adjudicate upon the rights of the garnishee. The enquiry at this stage to

my mind is analogous to what takes place when a claim to property is advanced in execution proceedings. The enquiry in such proceedings is not

generally exhaustive; because a further right of litigation by suit is reserved to the unsuccessful party. Similarly, the Insolvency Court is restricted to

the materials furnished by the ''examination of the garnishee in summarily dealing with his claim. That is how I interpret the section. As pointed out

in In re Lucas ILR (1915) Cal. 109 and in Khan Sahib Bangi Abdul Kadhar Sahib v. The Official Assignee (1913) 14 M.L.T. 51 the contentious

matters arising on the claim should not be disposed of only on the examination of the claimant, but should be allowed to be dealt with in the

ordinary way. That is to say, the Insolvency Court will have to raise the necessary issues, hear evidence and come to a final conclusion as fully as if

a suit were instituted for the purpose. I am, therefore, clearly of opinion that Section 36 does not control the language of Section 7, but provides a

special and summary remedy in certain cases.

A brief examination of the provisions of the English Bankruptcy Act bears out fully this position. Section 36 corresponds to Section 27(1) of

the Bankruptcy Act of 1883. It is not necessary to refer to the later English Act in dealing with this subject. This section is more restrictive in its

operation than the Indian Act. The English Act speaks of the admission of the party summoned as being the basis of the summary decision. Section

7 of the Indian Act corresponds to Section 102 of the Bankruptcy Act of 1883. The proviso and the subsequent clauses of the latter section have

no bearing in this country. The decisions u/s 102 bold that the Bankruptcy Court has jurisdiction to deal with the rights of third parties : Ex parte

Anderson, In re Anderson (1870) L.R. 5 Ch. App. 478 Halliday v. Harris (1874) 9 C.P. 668 and Morley v. White; In re White (1872) L.R., 8

Ch., App. 214. As against these decisions the observations of Lord Sklborne in Ellis v. Silber (1872) L.R. 8 Ch. App. 83, relating to Section 72

of the repealed Bankruptcy Act were strongly relied on. These observations must be understood as negativing the suggestion that the ordinary

Courts should under no circumstances entertain a claim where the Bankruptcy Court has seisin of the matter. The more guarded expression of

opinion in Maule v. Davis In re Motion (1873) L.R., 9 Ch. App., 192 at p. 210 (Lord Selborne took part in this case also) bears out this view: see

also Ex parte Tait, In re Tait and Co. (1872) L.R. 13 Eq., 311. In my opinion, the distinction between the two classes of cases is this.

Whereas what the Lord Chancellor dealt with in Ellis v. Silber (1872) L.R., 8 Ch. App., 83 at p. 85, referred to the contention that the

Bankruptcy Court alone was competent to adjudicate upon the claims of third parties, Maule v. Davis; In reMotion (1873) L.R., 9 Ch. App., 192

at p. 210, and the other cases relate to the discretion to be exercised by the Bankruptcy Court in directing the trustee to institute or defend in the

ordinary Courts suits concerning the rights of third parties of course, in England, no question of the local jurisdiction of the High Court can arise.

Applying the principle of these decisions to India, it can safely be said that whereas Section 7 gives jurisdiction over the property of the insolvent

wherever situate, Section 36 indicates that this jurisdiction should be exercised summarily only in certain cases and that in other cases all the

formalities of a regular trial should be observed, although the forum will be the same in both cases.

The only other point that need be mentioned is the suggestion that Clause 12 of the Letters Patent controls Clause 18. I see no force in this

contention. The two jurisdictions are separately dealt with in the Letters Patent, and there is no reason for importing into Clause 18, the restrictive

provisions of Clause 12. Moreover the Letters Patent by Clause 18 directs the Judge to exercise:

such powers and authorities with respect to original and appellate jurisdiction, and otherwise, as are constituted by the laws relating to insolvent

debtors in India.

These powers are contained in Act III of 1909 and not in Clause 12 of the Letters Patent. Mr. Sidney Smith who appeared in the connected

appeal referred to Section 90 as placing a restriction on the powers of the Insolvency Court; but the proviso to that section makes it clear that it

was not intended to limit the powers otherwise exerciseable by the Insolvency Court. I am, therefore, of opinion that the decision under appeal

should be reversed and that the petitions should be remitted back for disposal on the merits. Costs will abide.