AI Structured Summary
Not yet generated for this judgment
Judgment
Curgenven, J.—The question of law which this appeal raises is whether, during the pendency of a suit for partition, the Official Assignee can
obtain in proceedings u/s 7 of the Presidency Towns Insolvency Act a declaration that the debts of an insolvent father are binding upon the sons to
the extent of their shares in the family property. The father,'' Narasimha Aiyar, was adjudicated together with his partner on the 2nd December,
1919. A few days earlier, on the 26th November, a partition deed had been executed between himself and his sons which was held to be void as
against the Official Assignee, and this decision was confirmed on appeal by this Court on the 1st August, 1922. Meanwhile, in July, 1922, the sons
filed a suit for partition in the Court of the Subordinate Judge of Madura against their father. On the 5th- February, 1924, the Official Assignee
made the application to the Insolvency Court out of which this appeal arises. It was a notice of motion praying for a declaration that the insolvent''s
debts were binding upon his sons and for sale of their interests in the joint family property. The matter came in the first instance before
Kumaraswami Sastri, J., who was in doubt as to the effect of the suit for partition upon the claim made by the Official Assignee and referred the
question to a Full Bench. The opinion of the Full Bench is reported in Balusami Aiyar, In re ILR (1928) M. 417 : 55 M.L.J. 175. Ramesam and
Madhavan Nair, JJ., Phillips, J., dissenting, held that the institution of the partition suit put an end to the joint family status and with that to the right
of the father to alienate the sons'' shares for his debts, thus extinguishing the right of the Official Assignee to effect Such a sale. The latter, it was
held, took the father''s property exactly as it stood with all its advantages and all its burdens and notwithstanding that he took it as it existed at the
commencement of the insolvency, yet the division in status effected by the filing of the suit deprived the Official Assignee equally with the father of
the power of sale, In his judgment, Ramesam, J., adverts to certain other remedies which might still be open to the Official Assignee. He might, the
learned Judge considered, as representing the creditors or associating himself with them, file suits against the sons, obtain decrees and sell the sons''
shares also, or again he might apply in the partition suit for the creditors to be made parties and ask for a decree providing for the payment of, such
debts as were not illegal or immoral.. He then adverts to another possible remedy, by taking what are called garnishee proceedings in the
Insolvency Court itself, adding that this was a matter for the Judge sitting in insolvency to decide. These observations about a possible alternative
course are, it is needless to say, obiter. The case then came before Waller, J., who was of opinion that it was open to him to adopt the course last
suggested u/s 7 of the; Presidency Towns Insolvency Act, and he gave the Official Assignee the declaration for which he asked. Waller, J., did not
in his judgment grant the further prayer for sale of the sons'' shares and a direction to that effect inserted in the decretal order goes further, we must
presume, than his intention. This appeal has now been instituted by the sons and it is contended before us that it is not open to the Insolvency Court
to deal with the liability of the sons'' shares under the Act.
Mr. T.R. Venkatarama Sastri for the appellants bases his arguments largely upon certain general considerations. In the first place he says the
Insolvency Act has for its scope only the distribution of the debtors'' property or assets, the term ""property"" of course including such property as
the Official Assignee by virtue : of his special powers may recover u/s 55 or 56. The proceeds of a son''s liability to pay his father''s debts cannot
be described as the property of the insolvent, he continues, because in no circumstances would the insolvent be entitled to realise it for his own
benefit : the son is not under any pecuniary liability to his father but only to the creditors of the father, so that the Official Assignee standing in the
father''s shoes cannot lay claim to a payment of this kind as money due to the father. The son''s position bears some analogy to that of a surety and
I think it may at once be conceded that in the ordinary acceptance of the term ""property"" the sale proceeds of the son''s share could not be
described as the property of the insolvent. Mr. Venkatarama Sastri''s second main argument is that, assuming that the Official Assignee could deal
with this property as an asset of the debtor, it would not necessarily be divisible equally amongst all the creditors. It might be that the debts due to
some of the creditors were tainted with illegality or immorality or it might be that, while some of the creditors were pre-partition creditors, others
were post-partition creditors, and the latter of course would have no claim on the sons'' shares. It is urged that equal distribution is of the essence
of insolvency procedure and attention is drawn to the terms of Section 49 of the Act whereby after certain special provisions Sub-section (5) lays
down that
subject to the provisions of this Act, all debts proved in insolvency shall be paid rateably according to the amounts of such debts respectively and
without any preference.
This principle also, I think, must in general terms be conceded.
For the Official Assignee it is contended that Section 52(2)(b) affords the necessary statutory authority for dealing with the sons'' shares in
insolvency. This section defines what is to be deemed the property of the insolvent divisible among his creditors and the portion with which we are
concerned includes as such property ""the capacity to exercise and to take proceedings for exercising all such powers in or over or in respect of
property as might have been exercised by the insolvent for his own benefit at the commencement of his insolvency or before his discharge."" The
specific question with which we are concerned is what capacity had the insolvent to take proceedings to exercise powers in respect of the sons''
shares, because whatever capacity he may have enjoyed will as ""property"" vest in the Official Assignee and will be at his disposal. It is clear, I
think, that the section does not require that the property itself in respect of which the powers are to be exercised should in the ordinary sense be
property of the insolvent. So long as he has a capacity to take certain proceedings in respect of some other person''s property, that capacity
passes to the Official Assignee, and it seems to follow that the proceeds realised by taking advantage of that capacity must themselves become the
property of the insolvent. If this were not so, it would lead to the result that, whereas the capacity to take proceedings is an asset, no benefit could
accrue to the creditors as the outcome of such proceedings, which appears an irrational positions The effect of this provision would seem therefore
in some cases artificially to enlarge the meaning of the term ""property of the insolvent"" and to include in it funds which according to ordinary tests
would not be so classified. It may be pointed out that the next ensuing portion of the section declares to be his property goods in his possession, at
the commencement of the insolvency in his trade or business by the consent and permission of the true owner under such circumstances that he is
the reputed owner thereof, which seems to be another artificial extension of the idea.
Whatever difficulty there may be in holding that a sum of money so derived is an asset divisible among the creditors, the position undoubtedly
has the support of a Full Bench of this Court. After the Privy Council in Sat Narain v. Behari Lal (1924) L.R. 52 IndAp 22 : ILR 6 Lah. 1 : 47
M.L.J. 857 (P.C.) had settled that a son''s share in the : joint family property does not vest in the Official Assignee upon the father becoming
insolvent, It became necessary to decide whether the father''s power to sell that property so vested; and this question was affirmatively answered in
Seetharama Chettiar v. Official Receiver, Tanjore ILR (1926) M. 849 : 51 M.L.J. 269. That decision was under the Provincial Insolvency Act,
which does not contain any counterpart to Section 52 of the Presidency Towns Insolvency Act; but the Full Bench was able to hold, even without
the aid of a provision in those terms, that the power to sell was property, although the share to be sold was not. Now one of the logical
implications of so holding clearly is that the proceeds of such a sale--a sale of property not itself the property of the insolvent- is divisible among
the creditors, and is therefore ""property of the insolvent"" within the meaning and intention of the Act, if, as seems reasonable to hold, only property
which can technically be so described is so divisible. It is impossible to avoid seeing the difficulties which attach to this view. How, for instance, is
any surplus to be dealt with, when Section 76 provides that it is to be returned to the insolvent, whereas it is not in any ordinary sense his property?
But unless we are to adopt a position inconsistent with this Full Bench ruling I do not see how we can hold that, if in the one case the capacity sell
an undivided share affords sale proceeds divisible in insolvency, the capacity, whatever it may be held to amount to, to take proceedings to realise
debts due to the creditors out of a divided share does not afford proceeds equally divisible and, assuming for the present that the insolvent has the
capacity, which Section 52 declares to be his ""property,"" or, in other words, to vest in the Official Assignee, it seems necessary to hold, apart from
this authority, that the proceeds become ""property"" in their turn, or at least that they are divisible among the creditors, otherwise, as I have already
said, the capacity itself would vest to no purpose. The case must be regarded, I think, as anomalous, because in all ordinary instances of the
application of Section 52(2)(b) it will be ""found that where the insolvent has a capacity to take proceedings to enforce some power over property,
whatever those proceedings realise in the shape of money would be his property in the ordinary sense of the term.
The same Full Bench case bears upon the other main objection raised by Mr. Venkatarama Sastri, that the proceeds of a sale of the son''s
divided share would not necessarily be divisible among all the creditors, because the same condition might attach to the sale proceeds of an
undivided share, the father''s right to sell this too depending upon the debts not having been incurred for illegal or immoral purposes. This point has
not been dealt with by the Full Bench and therefore it may be said that the decision does not in terms bind us, but here again considerations of
consistency seem to require that the rule accepted in the one case should be in conformity with the rule accepted in the other. In defence of it may
be adduced the ground that normally the father''s debts would be binding upon the, son and the proceeds equally divisible. In a special case where
this was not so, it would be for consideration whether the insolvency procedure could be applied to distribute among only those creditors whose
claims against the son could be sustained.
Let us now consider what capacity the father has to take proceedings for exercising power over the son''s share for the purpose of ensuring the
due discharge of the debts. Admittedly, he has the power, upon a partition, to require that suitable provision is made for the discharge of the debts
out of the estate before it is divided up, indeed he can insist upon the payment of the debts by sale of a sufficient portion of the family property
before the partition of the remainder is effected. And it has not been denied that, in the pending partition suit, the Official Assignee could take his
place and secure the same result. Is it open to the Official Assignee, instead of adopting this course, to get a sale of a sufficiency of the property
carried out in insolvency, by means of an application u/s 7 of the Presidency Towns Insolvency Act? Such a proposition does, I think, at first sight
seem to extend the scope of the section to extreme and perhaps unjustifiable lengths; it virtually requires that the Insolvency Court should constitute
itself a Court for the trial of a partition action and that too when there is already a partition action pending in the ordinary Civil Court. Mr. Srinivasa
Aiyangar has rightly enough dwelt upon the very wide language in which Section 7 is couched, the only qualifying phrase which needs consideration
being the opening words ""subject to the provisions of this Act."" I have already endeavoured to deal with the contention that the provisions of the
Act require that the subject-matter of an application under the section must be ""property of the insolvent divisible among his creditors."" If the views
expressed are not erroneous, I can discover nothing in the provisions of the Act to exclude the enquiry upon this score. Ramesam, J., in Balusami
Aiyar, In re ILR (1928) M. 417 : 55 M.L.J. 175 appears to hold that the test is whether or not the sons are ""garnishees"" a term not to be found in
the Act, but meaning I think third persons from whom divisible assets are realisable. The line of reasoning followed above would appear to bring
them within this class. In another Full Bench case, Official Assignee of Madras v, Narasimha Mudaliar ILR (1929) M. 717 : 57 M.L.J. 145,
composed of Coutts-Trotter, C.J., and Odgers and Beasley, JJ., the scope of Section 7 came under consideration, with particular reference to the
amended terms of Section 36. That specific point does not now concern us, but the learned Judges had occasion to lay down that, whatever might
be the practice in England,
the Official Assignee is entitled to proceed by way of motion u/s 7 of the Act in those cases where he has a money claim against a stranger to the
insolvency.
By ""money claim"" is meant, I suppose, any claim to money which, on realisation, would rank as a divisible asset. This gives a very wide
extension to the section, so far as the only question we are dealing with--that of jurisdiction--is concerned. So long as its purpose is the realisation
of assets, it seems that every species of action that would yield such a result can be so brought, discretion being reserved to the Court to decline to
exercise jurisdiction in unsuitable cases. Mr. Srinivasa Aiyangar has endeavoured to show by examples the diverse uses to which the section, or
the corresponding section in the Provincial Insolvency Act, has been put. In Ramasomayajudu v. Official Receiver, Godavari (1925) 23 L.W. 80
an issue had to be tried whether a partition had taken place or not. In Doraiappa Aiyar v. Official Assignee of Madras (1921) 42 M.L.J. 141 the
insolvent had sold certain family property and had further given his purchaser a mortgage over other family property as security against a challenge
of the sale by the other family members. The Insolvency Court was asked to decide whether the sale was or was not binding on the other members
so that it might be ascertained how far if at all the security bond was necessary. In both these instances, of course, the object of the enquiry was to
determine what was and what was not property of the insolvent, and perhaps they do not take us very far. On the other hand, it is worth note that
no decision against the applicability of the section has been cited before us. There is, for instance, no authority for the view that if it should suit the
Official Assignee, as representing the insolvent, to bring what would in effect be a suit for partition, the Insolvency Court would have no jurisdiction
to entertain it. In Morley v. White, In re White (1872) 8 Ch. App. 214 where the creditors of a deceased father filed an administration suit in the
Chancery Division and the son petitioned in Bankruptcy and connected questions arose in each Court with regard to the estates, it was decided by
the Court of Appeal that the Court of Bankruptcy was the proper tribunal to determine them. ""The case is one,"" said James, L.J., ""which shows
how beneficial is the effect of the 72nd section"" (corresponding to Section 7 of the Presidency Towns Insolvency Act.) and he adds:
It is true that there may be important questions to be determined before it can be ascertained how the distribution is to be made; but the Court of
Bankruptcy is armed for that purpose with every power of a Court of Law and a Court of Equity, and there is not a single question stated to us as
an important and difficult question arising in this matter which cannot be litigated and determined by that Court of Bankruptcy which the legislature
has thought to be the proper tribunal for the determination of it.
There is no ground for holding that a Court of Insolvency in India has powers more circumscribed than these; and 1 cannot find any convincing
answer to the contention that, whatever a Court of Law may do, an Insolvency Court, subject to the provisions of the Act, may do u/s 7. I think
therefore that the learned Judge was acting with jurisdiction in giving the declaration asked for by the Official Assignee. We have not to adjudicate
upon his power to direct sale of the property, but upon the line of reasoning I have accepted it seems that the Insolvency Court must possess that
consequential power.
I think also that he has rightly decided the question of limitation. Generally speaking, and excluding such an exceptional case as the post-
partition renewal of a debt by the father, the liability of the son''s share is enforceable so long as the father himself may be proceeded against; and it
can make no difference to this principle what rule of limitation the circumstances may render applicable. Nor is it pertinent to say that the debt
would be time barred in an ordinary Court. We have been shown no authority for the view that, while a father''s debt is alive in insolvency, any
remedy in insolvency against the son may become barred; and that is the only question we have to decide.
It is represented to us that Schedule A appended to the decretal order, enumerating the liabilities, needs amendment in some respects, but we
think that this should be effected through an application to the Judge sitting in insolvency. We dismiss the appeal with taxed costs on the Original
Side scale, to be paid by the Official Assignee, as Receiver in the partition suit, out of the appellants'' shares in the family property.
Bhashyam Aiyangar, J.
The Full Bench have, by a majority, decided in this case, that the severance of status brought about by the institution of a suit for partition by
the appellants against their lather, the insolvent in question, extinguished the right of the Official Assignee to sell by himself their shares in the family
property to meet the debts of the insolvent.
The main questions in this appeal are, whether the Official Assignee has still any right left ""in or over or in respect of"" the said shares in the
family property and, if so, how, that is, by what means, ""he is entitled to utilise it for the benefit of the general body of creditors.
As regards the first question, it is conceded in the leading judgment of the majority of the Full Bench delivered by Ramesam, J.:
The only remedy lost to the Official Assignee is the right of selling the sons'' shares by private sale. This is merely a processual right. The substantial
right of the Official Assignee to enforce the debts due to the creditors against the sons remains.
Now, there cannot be the least doubt that, even after a division in status, the father has the right to ask and insist that, before a partition is
made, all his proper debts be paid out of the family estate and that the sons cannot resist such a demand. This has been laid down by the Full
Bench of this Court in Venku Reddi v. Venku Reddi ILR (1926) M. 535 : 52 M.L.J. 387.
The right of the father just referred to may not be ""property"" as defined in Section 2 (e) of the Presidency Towns Insolvency Act, but it cannot
be denied that it is a ""power in or over or in respect of. property"" exercisable by the father for his own benefit. The capacity to exercise and to
take proceedings for exercising this power is one of the ""particulars"" comprised in and going to make up ""the property of the insolvent (father)
divisible amongst his creditors"" as explained and defined by Section 52 of the Act. If authority were needed in support of this statement, it is found
in the judgment of the Privy Council in Sat Narain v. Behari Lal (1924) L.R. 52 IndAp 22 : ILR 6 Lah. 1 : 47 M.L.J. 857 (P.C.) in which their
Lordships observe at page 6 that the property of an insolvent which by Section 17 vests in the Official Assignee must mean the property which by
that section and Section 52 is divisible among his creditors, after first pointing out that the power to obtain a partition of the joint family property is
a power which the Official Assignee might exercise u/s 52(2)(b).
The conclusion is, therefore, that, notwithstanding the suit for partition and the consequent division in status, the right of the father to have his
just debts paid out of the entire family property subsists, and the father being an insolvent, it now vests in the Official Assignee ""as property of the
insolvent divisible among his creditors.
Going to the second question it will be noted in the first place that, in the case already cited, their Lordships of the Privy Council while holding
that the insolvency of the father does not of itself vest his sons'' shares in the joint family property in the Official Assignee, observe that the Official
Assignee may, in a proper case, make that property available for the payment of the father''s just debts ""under the provisions of Section 52 or in
some other way"" (page 23). This goes to show that it is open to the Official Assignee to realise or convert into money, the right or capacity
referred to already, in the insolvency proceedings themselves, without the necessity to proceed by or in an independent action. The right is given to,
and the duty is laid on, the Official Assignee, u/s 68 of the Act, to realise the property of the insolvent, with all convenient speed. It has been shown
that on the insolvency of the father (of divided status), the Official Assignee becomes vested with his right to get all his just debts paid up from and
out of the entire family property, before partition. How is this right or capacity, which is property divisible among the creditors of the insolvent-
father, to be realised or converted into money? It can only be done by getting the family property of which he is in joint possession, or a sufficient
portion thereof, sold. The Full ""Bench has held that owing to the division of status brought about by the suit for partition instituted by the sons after
insolvency, the father and consequently the Official Assignee also lost the right of private sale. The only other course open to him is, therefore, to
obtain a declaration against the sons and get the family property including their shares therein sold by or through Court.
In what Court is this to be done? Is the Official Assignee entitled to get it done through the Insolvency Court itself or is he bound to seek the
aid of a different Court? It was argued that the sons being strangers to the insolvency, the Official Assignee can get) any order or relief against them
only in or by means of an independent action against them, but this argument does not seem tenable. In the first place, the relief asked for by the
Official Assignee is not against the sons (personally), but their shares in the property of their family, which was being represented by the father-
insolvent. Secondly, the sons'' shares being undoubtedly liable for all the just debts of the father-insolvent, the sons who are entitled to get only the
balance or surplus cannot, in so far as they own such shares, be said to be entire strangers to the insolvency. And thirdly, Section 7 of the Act
gives the widest powers to the Insolvency Court to go into and decide all questions whatsoever arising in any case of Insolvency, ""for the purpose
of doing complete justice or making a complete distribution of property in any such case."" It must, therefore, be open to the Insolvency Court in a
case of this sort to declare the liability of the sons'' shares in the family property for the proved and just debts of the father-insolvent and make all
necessary orders for their realisation.
The mere fact that the father alone is the insolvent and the sons are not, does not preclude the Insolvency Court from exercising jurisdiction
over the latter to the extent necessary for the realisation of all the assets divisible among the creditors of the former. That the jurisdiction of the
Insolvency Court extends to the determination of questions affecting persons not parties to the insolvency has been decided in several cases u/s
105 of the English Bankruptcy Act (1914) which corresponds to our Section 7. In some cases the Bankruptcy Courts even assumed exclusive
jurisdiction by the issue of an injunction. These cases are collected in the commentaries on Section 105 in Williams on Bankruptcy and special
reference need only be made to one of them, namely. Morlev v. White (1872) 8 Ch. App. 214. In that case, an administration suit was first filed in
the Court of Chancery by a creditor of a testator against the executor, the estate consisting of a business in which the executor, son of the testator,
had individually been a partner with the testator. Subsequently a liquidation petition was filed in the Bankruptcy Court by the executor. A Receiver
was then appointed in the suit and thereafter a trustee in the liquidation proceeding. Competition having arisen between the Receiver in the suit and
the trustee in bankruptcy in the matter of the realisation of the partnership assets, the Court of Appeal held in favour of the trustee, Sir W. M.
James, L.J., observing as follows:
It appears to me that the Court of Bankruptcy is the proper tribunal to determine the questions arising in this matter. The case is one which shows
how beneficial is the effect of the 72nd section (the reference was to the Bankruptcy Act of 1869, Section 72 of which corresponded to Section
105 of the Bankruptcy Act of 1914). There are, no doubt, questions between the father''s estate and the son''s estate which have been mixed up
together--questions between the joint creditors of the father and son, the separate creditors of the father and the separate creditors of the son.
These questions must be determined somewhere, before the assets can be distributed among the creditors. If the orders under appeal are to stand,
the result must be that the whole administration of the estate, and its division among the creditors according to their respective rights, will be
delayed until the suit is determined. It is true that there may be important questions to be determined before it can be ascertained how the
distribution is to be made; but the Court of Bankruptcy is armed for that purpose with every power of a Court of Law and a Court of Equity. and
there is not a single question stated to us as an important and difficult question arising in this matter which cannot be litigated and determined by that
Court of Bankruptcy which the Legislature has thought to be the proper tribunal for the determination of it; and those questions. if decided in
Bankruptcy, would come on appeal before the same Court as if they had been determined in Chancery, that is, before the same Judges sitting
under one name instead of under another.
These observations apply with full force to the facts of this case. They are not merely authority for the position that the Insolvency Court has
jurisdiction in the present case to decide on the liability of the sons'' shares and direct their realisation for the payment of the debts of the insolvent-
father but to show that as between that Court and the Court in which the sons have subsequently sought partition of the family property, the former
is by far the more proper tribunal for dealing with the said matters satisfactorily and expeditiously.
There is also the direct authority of a Full Bench of this Court in support of a liberal construction of Section 7 of the Act. It has been held in the
Official Assignee of Madras v. Narasimha Mudatiar ILR (1929) M. 717 : 57 M.L.J. 145 that
Section 7 of the Presidency Towns Insolvency Act is not limited in its scope to matters in which the Official Assignee by the operation of the
Insolvency law claims a higher title than what the insolvent himself would have had, and the Official Assignee is entitled to proceed by way of
motion u/s 7 .... against strangers to the insolvency.
It was said that it is of the essence of the distribution of assets in insolvency that it should be rateable among all the simple creditors of the
insolvent and as the sons'' shares in the family property can be made liable only for such debts of the father as are just, that is, not illegal or
immoral, these shares cannot be proceeded against and realised in insolvency, but only, if at all, in suits by individual creditors. This contention
cannot, however, be accepted. It will be observed that if this objection were good, it would equally apply against the exercise by the Official
Assignee of the power of selling the shares of the sons on the adjudication of their undivided father. But the power of the Official Assignee to effect
such a sale is undoubted and has been upheld by the Full Bench of this Court in Seetharama Chettiar v. The Official Receiver of Tanjore ILR
(1926) M. 849 : 51 M.L.J. 269.
It must be held for these reasons that the learned Judge in Insolvency had full power and jurisdiction to grant the declaration asked for by the
Official Assignee u/s 7 of the Act.
A further point was raised that the debts of the insolvent father are now barred by time against the sons and the Official Assignee cannot,
therefore, seek to make the latter''s shares in the family property liable for them, but there is no force in this argument. It is conceded that limitation
ceases to run as against the insolvent as soon as the adjudication is made, so long as the adjudication is in force. The debts are therefore alive as
against the father. And this is all that is necessary to enable the Official Assignee to make the sons'' shares liable for them in insolvency by
appropriate proceedings. The only question is whether the sons'' shares can or cannot be made liable in insolvency and there is really no point of
limitation with reference to them, so long as the father''s debts subsist and the subsistence is not due to any act of the father for which he had no
authority such as an acknowledgment made after a division of status.
The decision of the learned Trial Judge was not challenged on any other ground. I concur with the order just pronounced by my learned
brother.