Bonthala Baliah vs Santiveerappa Sivarudrappa Srigari and Others

Subba Rao, J.—These two connected appeals arise out of orders passed by the District Judge of Cuddappah in insolvency. The insolvent

filed I. A. No. 45 of 1943 under Sections 35 and 38, Provincial Insolvency Act. It was alleged in the petition that the insolvent proposed to satisfy

the creditors at the rate of a rupee for a rupee on the amounts of the debts due to them and therefore, requested the Court to approve of his

proposal and annul the adjudication. In the schedule annexed to the application the total amount of the debts was shown at Rs. 15016-0-6. The

progress of this application is disclosed in the B diary. After notices were served on all the creditors, the application was posted for enquiry to 15th

December 1943. Some of the creditors, respondents 2, 4, 5, 14 and 15 filed a counter stating that they would agree only if the amounts payable

under the promissory notes in their favour and interest upto the date of payment were paid. The insolvent undertook to pay like that. The learned

District Judge then adjourned the application to 17th January 1944 for payment or deposit. The insolvent did not take advantage of this

opportunity, and did not pay the amount within the time given. Instead, he filed applications u/s 50(2) against some creditors for expunging or

reducing the debt due to them. The amount due to respondents 1, 4 and 14, who did not agree to the proposal, was more than one-fourth in value

of the total amount of the debt due by the insolvent. The learned District Judge, therefore, dismissed the application filed under Sections 35 and 38,

Provincial Insolvency Act, as also the applications filed u/s 50(2) on the ground that they were not maintainable in view of his dismissal of the main

application. The insolvent has preferred C. M. A. No. 672 of 1946 against the order of the learned District Judge dismissing the application under

Sections 35 and 38, Provincial Insolvency Act, and C. M. A. No. 673 of 1946 against the order of the learned District Judge dismissing the

application u/s 50(2) of the Act,

Mr. Umamaheswaram, the learned counsel for the appellant contended that the learned District Judge approved of the composition and was,

therefore, wrong in dismissing the application filed under Sections 35 and 38 of the Act. In regard to the application u/s 50(2) of the Act he argued

that the existence of an approved composition was not a condition precedent for the maintainability of an application under that section. The first

argument ignores the obvious facts in the case. From the aforesaid narration of the facts it is clear that the learned District Judge did not purport at

any point of time to approve of the scheme put before him. Indeed, as the creditors opposed it, he gave a further opportunity to the insolvent by

adjourning the'' matter to enable the insolvent to comply wife the requirements of Section 38, which he did not avail himself. In the circumstances,

the learned Judge was right in dismissing the application on the ground that a majority in number and three-fourths in value of all the creditors

whose debts were proved did not resolve to accept the proposal.

We cannot also agree with the learned counsel for the appellant in regard to his second contention. The material portion of Section 50 of the Act

reads :

The Court may also, after like inquiry, expunge an entry of reduce the amount of a debt upon the application of a creditor where no receiver has

been appointed or where the receiver declines to interfere in the matter or, in the ease of a composition or a scheme, upon the application of the

debtor.

Under this Sub-section a debtor''s right to apply depends upon the existence of the composition or the scheme under the provisions of the Act. It is

argued that a debtor could apply u/s 50, even: before the composition was approved of by the Court. A comparison of the provisions of Sections

38 and 50, brings out the distinction between the proposal for composition and the approved composition. The principle also is apparent. Before

the composition, the Official Receiver would be the person to represent the creditors whereas after the composition is accepted by the Court, the

debtor is given the right to apply under the said section. The same view has been accepted in Ganga Sahai and Others Vs. Mukarram Ali Khan, .

In Ghosh on Provincial Insolvency Act the principle under-lying the section is stated as follows :

So long as insolvency exists, the insolvent cannot be allowed to challenge the correctness of the debts entered in the schedule, and, therefore, his

application disputing the correctness of those debts and requesting the Court to enquire into the accounts of the creditors cannot be entertained.

But when-insolvency is annulled as would be the case when the composition or scheme is accepted, he can apply for expunging or reducing a debt

entered in the schedule.

We agree with the above statement of the law. If so, it follows that the learned District Judge rightly dismissed the application u/s 50(2), as the

scheme was not approved by him.

In the result, C. M. A. No. 672 of 1946 is dismissed with the costs of respondents 4, 5 and 15 and C. M. A. No. 673 of 1946 is dismissed

with the sole respondent''s costs.