Arunagiri Mudaliar vs Kandaswami Mudaliar

Krishnan, J.—This is an appeal arising from an insolvency proceeding, before the District Judge of North Arcot. The first respondent before

us had applied, to be adjudicated an insolvent, to that Court in October 1919. The appellant before us was one of his creditors, who had a simple

mortgage over a good portion of the insolvent''s properties for a part of his debts. He was partly a secured and partly an unsecured creditor of the

insolvent.

The petition was referred, by the District Judge, to the Official Receiver for disposal, and the Official Receiver acting under his powers u/s 80

(a) of the Act, heard the petition and passed an order of adjudication in August 1920. In that order, he gave the insolvent time for five months to

file his application for discharge u/s 27 (1) of the Provincial Insolvency Act. It was suggested in this case that the Official Recever had no power to

fix the time within which the debtor should apply for his discharge as Section 27 (1) applied only to the Court. That argument does not seem to be

valid, as the period has to be specified in the order of adjudication itself, which the Official Receiver has power to pass and he has, therefore, to be

taken to have the power also to fix the period for applying for discharge, as it should be a part of the order of adjudication, u/s 27. The insolvent

took no steps to apply for his discharge, or to help the Receiver, to get his assets realised, or his debts examined and paid pro rata from his assets.

Some months thereafter, in July 1921, the creditor (the appellant before us) applied to the Court, u/s 43 of the Insolvency Act, to have the order of

adjudication annulled, on the ground that the debtor had not applied for an order of discharge, within the period specified. As soon as this was

done, the insolvent put in a petition to the Official Receiver for extending time for applying for his discharge and the Official Receiver granted time

till 9th February 1922. It is said that the application for his discharge was put in, by the respondent before that date. However that may be, the

creditor appealed to the District Court contending that the Receiver had no power to extend the period, within which the debtor was to apply for

his discharge and that the order of adjudication should be annulled and the insolvency petition dismissed. The learned Judge, instead of complying

with this request himself, granted an extension for a period of six months for the debtor to apply for his discharge, acting u/s 27 (2) of the Act and

dismissed the appellant''s application. It is against that order that the appellant has appealed to us and leave was granted for the appeal.

A preliminary objection has been raised to the hearing of the appeal, on the, ground that the appeal is not a competent one under the Insolvency

Act. It is contended that u/s 75, the creditor cannot be treated as a person aggrieved by the order of the District Judge and the argument is put in

two ways First of all, it is said that the creditor being a secured creditor is unaffected by any proceeding in insolvency and therefore, he is not

aggrieved. It is not necessary to consider this argument; for the appellant is also an unsecured creditor and an unsecured creditor is certainly

affected by proceedings in insolvency taken by his debtor. The order of adjudication prevents him from realising his debt except by receiving a

dividend under the Act. An unsecured creditor would, undoubtedly, be a person aggrieved by the refusal to annul the order of adjudication. Next,

it is argued that a creditor has no right to apply u/s 43 and, therefore, any order passed under that section cannot be treated, as, in any way,

causing, a grievance to a creditor. Section. 43 (1) does not say by whom the application has to be made. But it is clear to my mind that a creditor

who is affected by the adjudication is certainly a person, entitled to apply to the Court, u/s 43, and if his claim is dismissed without proper reason

for it, he will certainly be a person aggrieved u/s 75, adopting the definition of the expression ''person aggrieved, given in Ex parte Sidebotham, In

Re: Sidebotham (1880) I.Ch.D. 458 : 49 L.J. Bk. 41 : 42 L.T. 783 : 28 W.R. 715 that is: ""A person who has suffered a legal grievance, or has

been wrongfully refused something."" A person in the position of the appellant, who says that he has been wrongfully refused the order of

annulment, which he was entitled to, is thus a person aggrieved. Both the arguments failing, the preliminary objection must be overruled.

On the merits, it was first argued by the appellant that u/s 43 (1) ''the District Court had no right whatsoever to grant an extension of time, after

the period originally fixed for the filing of the application for discharge had expired and that, under the peremptory words of that section the order

of adjudication must be annulled.'' The words no doubt are ""shall be annulled."" But Section 27 (2) gives the Court, if sufficient cause is shown,

power to extend the period. It is argued that this clause can be availed of, only within the period fixed by the original order, for applying for

discharge and that once original period has expired, the Court has no jurisdiction whatever to grant an extension. I regret I am unable to agree with

my learned brother, in upholding this argument. I am inclined to think that the power given u/s 27 (2) is not exhausted by the period originally fixed

for the order of discharge having expired. There is nothing in Section 27, which indicates that. Language quite as peremptory as that in Section 43,

has been construed by the Privy Council in Badri Narain v. Sheo Koer 17 C. 512 : 17 I.A 1 : 5 Sar. P.C.J. 493 : 8 Ind. Dec.881, as not

preventing the Court from extending the period, even after the period fixed originally had expired with reference to Section 549 of the Code of

Civil Procedure, which said:

If such security be not furnished within such time as the Court orders, the Court shall reject the application.

The use of the word ''shall'' in that clause was considered by the Privy Council as quite consistent with the power in the Court to extend the time

for. furnishing security, even after the time originally fixed had expired. The principle of that case, it seems to me, applies equally to the present

case. Section 10 (2) of the Insolvency Act applies to a case, where the order of adjudication had been already annulled and does not deal with

cases where the order of adjudication is still in force. It is Section 27 (2) that deals with the latter class of cases. Of course, if the order of

adjudication had already been annulled there is no proceeding before the Court, in which it could extend time and, therefore, Section 10 (2) had to

be enacted to enable the insolvent to put in a fresh application. I do not think we can draw any inference from Section 10 (2) against the power of

the Court to extend time, in a pending insolvency petition, after the expiry of the period originally fixed for applying for discharge. The case, of

Badri Narain v. Sheo Koer 17 C. 512 : 17 I.A 1 : 5 Sar. P.C.J. 493 : 8 Ind. Dec. 881, has been applied by the Bombay High Court, in

Bhugwandas Bagla v. Haji Abu Ahmed 16 B. 263 : 8 Ind. Dec. (N.S.) 654 to a case which was one of failure to amend a plaint within the time

allowed. The learned Judge of the Bombay High Court held that it was competent to him, in spite of the peremptory language of the section relating

to amendments that ""the plaint shall be rejected,"" to allow extension of time, even after the period had expired. Applying this principle, I think there

is nothing in the Insolvency Act, to prevent the District Court from extending the time, after the period fixed originally had expired, u/s 43. That

being my view, it seems to me that Section 148, Civil Procedure Code, which now, expressly enacts that time may be extended, even after the

expiry of the original period fixed, can be applied to these proceedings, by virtue of Section 5 (1) of the Insolvency Act. I would, therefore,

overrule the first objection of the appellant.

But on the merits, I agree with my learned brother that this is a case, in which there is no ground for granting the extension of time which the

Official Receiver and the District Judge have granted. It will be difficult, as he puts it, to find a case less deserving, of indulgence. The Insolvent

absolutely failed to do anything at all for nearly a year to help the Official. Receiver, or to apply for his discharge. It is only after the creditor put in

his application for annulment that he did anything in the matter. The only ground, suggested, for granting extension is that the Act being new, the

insolvent, probably did not know what he had to do. This can hardly be accepted as a-proper reason; for, the insolvent was expressly told in the

order of adjudication that he was to apply for discharge within five months. Any plea of ignorance of law can hardly be accepted as a sufficient one

in mitigation of the gross negligence that is apparent in this case. Therefore, even though the extension of time is a matter of discretion for the lower

Court, as that discretion has to be exercised judicially, I think it is open to us to interfere in appeal and to,, hold that; there'' was no sufficient

ground for granting extension in this case. Taking that view it follows that u/s 43, the lower Court should have annulled the order of adjudication of

the insolvent in this case on the merits and not granted him. any extension. I would, therefore, allow the appeal of the creditor and. annul the

insolvency of the first respondent, As regards costs, I think the appellant is entitled to his costs in this Court and in the District Court, from the first

respondent. The second respondent must bear his own costs.

Waller, J.

This is an appeal from ah order of the District Judge of North Arcot, dismissing an application u/s 43 of the Provincial Insolvency Act A

preliminary objection is taken that no, appeal lies I am clearly of opinion that the appellant is entitled to appeal.

The facts are these. One Kanda-swami Mudaly was adjudicated insolvent on 9th August 1920 and was directed to apply for discharge in five

months, which he failed to do. In July 1921, appellant, who was one of the creditors, petitioned the District Judge to annul the adjudication, u/s 43

of the Provincial Insolvency Act. In January 1922, the insolvent, who had become aware of appellant''s petition, requested the Official Receiver to

extend the period of application for discharge, and an extension was granted till 9th February 1922. Insolvent, however, continued to refrain from

applying for his discharge and appellant''s petition came on for hearing in April 1922. In the result, it was dismissed and the insolvent was given

time to apply, till 22nd October 1922. It would be difficult, to find a case less deserving of in diligence.

Objection is taken to the District Judge''s order on two grounds.

(a) That, u/s 43, he had no option but to annul the adjudication.

(b) That, he hadno power u/s 27 (2), to extend the period after it had expired.

I think that both grounds are good. Section 43 is absolutely peremptory in its terms and I am of opinion that directly the Court was informed of

the insolvent''s omission to apply within the time fixed, the only course open to it was to annul the adjudication. That being so, (it follows that), no

application for extention of the period can lie, after it has expired. No doubt Section 148, Civil Procedure Code, allows extensions of this

description; but the Code is applicable, only so far as it does not conflict with the provisions of the Provincial Insolvency Act and they are opposed

to such an extension.

On both points, I find in favour of appellant. I think that the District Judge should have annulled the adjudication, leaving it to the insolvent, to

apply u/s 10 (2) of the Act, if he had good cause for his delay. Had the latter even put in an application for discharge in February 1922

accompanied by a petition u/s 5 of the Limitation Act, the case would have been somewhat different. As it was, the District Judge had before him

nothing but gross and unexplained delay on one side and an application u/s 43 on he other.

On the merits also, I consider that appellant should succeed. The insolvent made no attempt to do any of the things that the law directed him to

do. He was ordered to apply for discharge in five months, but omitted to do so, for nearly two years, and did not hand over the properties to the

Receiver.

I agree that the adjudication should be annulled. I concur in my learned brother''s order as to costs.