Babu Lal Sahu vs Krishna Prashad

Kulwant Sahay, J.

(His Lordship stated facts and proceeded:

It is necessary to state at the outset that the insolvency proceedings were commenced and the order of discharge was made in the present case under the Provincial Insolvency Act III of 1907, but at the time the present application was made by the respondent in June, 1923, the Act of 1907 had been repealed and Act V of 1920 was in force. In order to consider the effect of the discharge made on the 23rd of August, 1919, we have to look to the provisions in the Act of 1907 whereas in considering the present application of the respondent for leave to prove his debt, it is contended that we are to be guided by the Act of 1920. There is, however, no difference in the provisions of the two Acts as regards the effect of a conditional order of discharge.

The provision for discharge in the Act of 1907 is contained in Section 44 of the Act, which section corresponds with Sections 41 and 42 of the Act of 1920. Section 44 Sub-section (2)(c), of the Act of 1907, prescribes that the Court may grant an order of discharge subject to any conditions with respect to any earnings or income which may afterwards become due to the insolvent, or with respect to his after-acquired property, which exactly corresponds with the provisions of Section 41, Sub-section (2)(c), of the Act of 1920. Now, the effect of a discharge is to release the insolvent from all debts entered in the schedule (Section 45 of the Act of 1907; Section 44 of the Act of 1920) but a conditional discharge does not release the insolvent. Section 24(3) of the Act of 1907 which materially corresponds with Section 33(3) of the Act of 1920 provides that any creditor of the insolvent may, at any time before the discharge of the insolvent, tender proof of his debt and apply to the Court for an order directing his name to be entered in the schedule as a creditor in respect of any debt provable under this Act and not entered in the schedule and the Court after causing notice to be served on the insolvent and the other creditors, and hearing their objections (if any) shall comply with or reject the application. Therefore, under the provisions of the Act, it was open to the respondent to apply to the Insolvency Court for leave to prove his debt at any time before the discharge of the insolvent. The discharge contemplated by Section 24(3) of the old Act [Ss. 33(3) of the new Act] is the final discharge and not the conditional discharge of the insolvent, the effect of such conditional discharge being that the insolvency proceedings are not terminated. Section 39(4) of the Act of 1907 which corresponds with Section 64 of the Act of 1920 authorizes certain creditors to prove their debt before the declaration of the final dividend by the Receiver and this shows that debts can be proved even after the order of discharge in certain cases and in the present case no final dividend appears to have been made upto the date when the application was made by the respondent in June, 1923, and it does not appear from the proceedings in the insolvency proceeding that any final dividend has yet been declared. In the decision of the Madras High Court in the case of Sivasubramania Pillai v. Theethiappa Pillai AIR 1924 Mad. 163 their Lordships, after an elaborate consideration of all the authorities on the point have come to the conclusion that the conditional order of discharge like the one in the present case, does not debar the creditor from proving his debt in insolvency and that a creditor is entitled to tender proof of his debt at any time during the administration so long as there are assets to be distributed and no injustice is done to third parties. I am, therefore, of opinion, that the first contention raised by the learned Counsel for the appellant cannot be sustained.

The second contention of the learned Counsel for the appellant is that the debt is barred by limitation and is not provable under the Act. His contention is that the sale of the mortgaged property in execution of the mortgage decree having taken place on the 24th April, 1918, the respondent could proceed against the person and other properties of the insolvent only after obtaining a decree under Order 34, Rule 6, of the CPC and that an application for a decree under Order 34, Rule 6, could be made only within three years from the date of sale of the mortgaged properties, and this not having been done his debt is barred by limitation and that he could not be allowed to prove a barred debt. The answer to this contention is contained in Section 28 of the Act of 1907 which corresponds with Section 34 of the Act of 1920. This section provides that:

All debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable under this Act.

The only limitation in Sub-section (2) of Section 28 in the Act of 1907 is that demands in the nature of unliquidated damages arising otherwise than by reason of a contract or breach of trust shall not be provable under this Act, while the limitation in Clause (1) of Section 34 of the Act of 1920 is that debts which have been excluded from the schedule on the ground that their value is incapable of being fairly estimated and demands in the nature of unliquidated damages arising otherwise than by reason of a contract or a breach of trust shall not be provable under this Act. Therefore, if the debt was alive and not barred at the time when the order adjudging the appellant an insolvent was made it can be proved at any time during the continuance of the insolvency proceedings. This view is also supported by the case of Sivasubramania Pillai v. Theethiappa Pillai AIR 1924 Mad. 163 referred to above. This contention of the learned Counsel for the appellant must also be overruled.

The third objection taken on behalf of the appellant is that the respondent could not be allowed to prove the debt before obtaining a decree under Order 34, Rule 6, of the Code of Civil Procedure. Now, the necessity of obtaining a decree under Order 34, Rule 6 of the CPC is to realize the debt by means of execution proceedings. A decree under Order 34, Rule 6, does not create a debt but merely authorizes the decree-holder to realize it by means of execution in the ordinary way. The absence of a decree under Order 34, Rule 6, will not in law debar a creditor from proving his debt in insolvency proceedings. All that is necessary for the purposes of insolvency proceedings is to prove the existence of the debt and, therefore, the absence of decree under Order 34, Rule 6, of the CPC will not debar the respondent from proving his debt in the present proceedings.

The last objection taken by the appellant is equally unsustainable. u/s 31, Clause (1), of the Act of 1907 which corresponds with Section 47, Clause (1), of the Act of 1920, where a secured creditor realizes his security, he may prove for balance due to him after deducting the net amount realized. The fact of his getting his name removed from the list of scheduled creditors and proceeding to realize his security will not debar him of the statutory right to prove for the balance due to him in the insolvency proceedings.

[His Lordship finished by upholding the Dt. Judge''s order. Jwala Prasad, Ag. C.J.--Concurred.]