G.A.G. Ayyar vs R.B. Seth Moolchand Nemichand

Jagat Narain, J.—This is a plaintiff''s revision application against an appellate order of the District Judge, Jodhpur, staying proceedings in the suit filed by him u/s 29 of the provincial Insolvency Act.

The plaintiff filed the present suit for recovery of money against the dependant on 4. 3. The suit was decreed on 21-12-59 for 3786-4-0 The defendant filed an appeal (No. 27 of 1966) against this decree. He was declared insolvent on 21-12-62. The plaintiff however recovered the whole of the amount of the decree which had been passed in his favour by attachment and sale of the defendant''s properties. The defendant did not take any steps to implead the receiver as a party, to his appeal. at he was so impleaded on the application of the plaintiff dated 7-8-63. The appeal was heard and the case was remanded by the learned District Judge for evidence on 19-5-65. The defendant or the receiver did not ask the appellate court to stay proceedings u/s 29 of the Provincial Insolvency Act. The suit was decreed again on 30-12-65 sor lesser amount. The plaintiff preferred appeal No. 199/65 against the decree and the defendant filed appeal No. 201/65 against it.

It is contended on behalf of the plaintiff that when the appeal came up for hearing before the learned District Judge both parties argued it on merits and neither party referred to Section 29 of the provincial Insolvency Act. and the plaintiff had therefore no opportunity of showing that the suit could not be stayed u/s 29 of the provincial Insolvency Act. Shri Roshan Lal Maheshwari, learned Counsel for the respondent, who argued the case on his behaif before the learned District Judge however asserts that the question of the application of Section 29 of the provincial Insolvency Act. was first raised on his behalf on 16-3-66 and on the verbal orders of the court a copy of the adjudication order was filed by him on 26-7-66 Argument were heard on 26-7-66.

The plaintiff was represented on 26-7-66 by the late Shri Shyam Behaai Lal Sharma. who drafted the memorandum of revision in this case. In this memorandum it is stated in para 9 that there was no objection by any of the parties that the claim of the plaintiff should be decided by the Insolvency Court, but the lower appellate court suo motu decided the appeal quashed the decree of the lower court even without hearing him.

In view of the statement of Shri Roshan Lal Maheshwari I am unable to hold that Section 29 of the provincial Insolvency Act. was not referred to at all during the course of argument and the plaintiff had no opportunity of showing that the suit should not be stayed. The appellate court has undoubtedly not stated in its judgment that arguments were addressed to it about the applicability of Section 29 of the Provincial Insolvency Act. It has solely relied on the following passage occurring in the Report of the civil Justice Committee:

There seems to be much confusion of mind as regards the proper step to be taken when a defendant is adjusticated insolvent during the pendency of the suit. In any case in which the suit is merely one to establish a claim which in insolvency would be a provable debt or liability the correct course clearly is to stay the suit in order that the plaintiff''s claim may be proved in the insolvency & to give to leave to prove for the costs incurred in the suit. It is much better that it should be proved in the insolvency than that a law suit should go on either against the insolvent who has no interest or his Receiver.

The following observations have been made in Sastri''s Commentaries on the Provincial Insolvency Act about the above passage:

The report, it is clear, has failed to note that there cm be no question of stay of mortgage suit which are outride the section. According to the Report no suit for a provable debt or liability can be allowed to continue, a sweeping proposition which has not the support of decisions. Having regard to the terms of Section 29 of the Provincial Insolvency Act it is no doubt discretionary that the trial court before whom a suit or proceeding against the insolvent is pending either to stay the preceedings or to allow it to continue on such terms as such court may impose.

In Realisations Industrielles Et Commerciales S.A. v. Loescher and Partners (1957) 3 A.E.R. 241 also it was held that the proceedings against the defendant were not stayed automatically as a result of the adjudication order made against him, because by Section 9(1) of the Bankruptcy Act 1914, a discretion to stay proceedings against a bankrupt at any time after the presentation of a bankruptcy petition was given both to the Bankruptcy Court and to the court in which the proceedings were pending, and, therefore, the proceedings continued until an order was made staying them. Section 9(1) of the Bankruptcy Act 1914, reads:

The court may, at any time after the presentation of e bankruptcy petition. Stay any action, execution, or other legal process against the property or person of the debtor, and any court in which proceedings are pending against a debtor may on proof that a bankruptcy petition has been presented by or against the debtor, either stay the proceedings or allow them to continue on such terms as it may think just.

The above provision is similar to the provision contained in in Section 29 of the provincial Insolvency Act.

On behalf of the plaintiff it is contended that the appellate court having failed to take the other circumstances of the present case into consideration namely that a decree had already been passed before the defendant was adjusted as insolvent and was realised in full and that no prayer was made on behalf of the defendant for stay of the suit when the first appeal was filed which was decided on 19-5-65, this Court should interfere in revision and set aside the order of the appellate court. Reliance was placed on the decision in Moolchand v. Nihal Karan AIR 1661 M.P. 199. In that case the trial court had stayed the suit merely by observing that the stay war necessary for avoiding further complications and did not even mention what were the likely further complications. It was held in those circumstances that the order involved material irregularity in the exercise of jurisdiction. That case is distinguishable in as much as in the judgment in that case there as on for passing an order for stay were not stated in the judgment. In the present case, the learned District Judge accepted the opinion expressed by Civil Justice committee without realising what that amounted to acceptance of that opinion would no doubt mean that in every case there should be an automatic stay because the Insolvency Act has not application to those debts which cannot be proved in the insolvency. u/s 28(6) secured debts have been excluded from the operation of the Insolvency Act. However what it amounts to is this that the decision of the learned District Judge is erroneous in law. No interference can be made in revision on that ground.

Lastly it is contended that the proceedings could not be stayed u/s 29 while hearing appeals No. 199/65 and 701/65 because the decision of appeal No. 27/19/0 on 19-5-65. On merits operates as constructive resjudicata on the point. The defendant who had filed that appeal was declared as insolvent during the pendency of it on 21-12-62. On the application of the plaintiff dated 7-8-63 the receiver was impleaded as a party. Neither of them applied to the court to stay the proceedings u/s 29. The appeal was urgued on merits and was decided on merits operates as constructive res-judicata in the matter. Both the defendant and the receiver will be deemed to have prayed for stay of proceedings u/s 29 or for the imposition of terms and these prayers will be demed to have been refused by the appellate court. The appellate court which decided appeals No. 199/65 and 201/65 could not allow the question of stay u/s 29 to be agitated.

I accordingly allow the revisision application, set aside the order of the learned District Judge dated 27-7-1966 staying the proceedings u/s 29. The appeals are remanded for decision in accordance with law to the court of District Judge, Jodhpur.

The order staying proceedings for restitution pending in the court of the the Additional Civil Judge, Jodhpur, is discharged.

In the circumstances of the case, I leave the parties to bear their own costs of this revision application.