Ganesh Lal Sarawgi vs Sanehi Ram and Aliar Ram

Courtney Terrell, C.J.—This miscellaneous appeal is against an order of the Judicial Commissioner of Chota Nagpur dealing with the petition of two persons Sanehi Ram and Aliar Ram who are said to have carried on business in partnership and who applied for adjudication of insolvency. The petition set forth a schedule of debts the principal creditor being the appellant in this case whose debt was said by the petitioners to amount to Rs. 2,835. The schedule set forth other debts which we are told by the learned Advocate on behalf of the debtors are mainly, as in the case of the appellant, for goods supplied on credit. The younger of the two petitioners gave evidence before the Judicial Commissioner, the elder being his father, and it was stated that the elder was ill.

The younger petitioner in his evidence states that the petitioning debtors carried on a business in lac in the district of Palamau and the debts which totalled Rs. 6,530 were for the greater part as I have said in respect of goods supplied on credit, the appellant creditor having supplied a very large quantity of cloth. The petition also scheduled a trifling quantity of moveable property and the only immovable property scheduled was Rs. 1,000 in respect of the house upon which it was said that a mortgage was held and the amount of the mortgage debt was set down amongst the other debts which the petitioners owed.

They described themselves as Banias carrying on business in lac and the evidence of the younger petitioning debtor given in chief was of the briefest possible character. He stated that the debts of the firm amounted to Rs. 6,530 and the assets were worth only Rs. 300 or Rs. 400. He was unable to pay his debts and had concealed none of his assets. He was willing to place all his assets at the disposal of the Court and he stated that he suffered the losses which had brought about his insolvency in connection with the lac business. He then stated in cross-examination that he kept no books of account and that whenever he was supplied with goods on credit he merely signed the creditor''s books. This was an unimpressive statement and two witnesses were called on behalf of the creditor who stated that they knew the petitioning debtors and that in fact they did keep books of account.

The learned Judicial Commissioner apparently thought that the requirements of the law was that he must simply have the evidence of the petitioning debtors as it were merely to verify the statements of the petition. That however is not the case. Section 13, Provincial Insolvency Act, imposes upon the petitioning debtor the obligation to state the amount and particulars of all his property and of all his debts and he is to make a statement that he is unable to pay his debts. The requirements of such a petition arc set forth in Section 13 of the Act. Section 24 of the Act imposes upon the Court the duty of requiring proof of the following matters:

(a) that the creditor or the debtor, as the case may be, entitled to present the petition:

Provided that, where the debtor is the petitioner, he shall, for the purpose of proving his inability to pay his debts, be required to furnish only such proof as to satisfy the Court that there are prima facie grounds for believing the same.

Under Sub-section (2)

The Court shall also examine the debtor, if he is present, as to his conduct, dealings and property in the presence of such creditors as appear at the hearing, and the creditors shall have the right to question the debtor thereon.

The Court in this case does not seem to have proceeded to carry out that obligation imposed upon it by Sub-section (2). Moreover this procedure is to be adopted as preliminary to the decision as to whether to grant the petition or not and therefore the matters disclosed by that procedure are material to be taken into consideration-Otherwise Sub-section (2) would have to be considered superfluous. By Sub-section (3)

The Court shall, if sufficient cause is shown grant time to the debtor or to any creditor to produce any evidence which appear to it to be necessary for the proper disposal of the petition.

It is further incumbent upon the petitioning debtor u/s 22 of the Act when his petition is admitted to produce all books of account. The debtor has stated here that he has no books of account but necessarily in order to consider the debtor''s conduct of the business as directed by Sub-section (2), Section 24, the Court should make an investigation as to whether the statement that he did not keep account books, is to be believed or not. Indeed it is clear that the Court must treat the evidence produced by following the procedure prescribed in Section 24 as material to its decision as to whether or not to allow the petition and in deciding, whether such evidence has satisfied the Court that there are prima facie grounds for believing the statements in the petition.

The statements in the petition by themselves if merely repeated formally in the evidence, are not sufficient prima facie grounds for believing such statements. There has been a tendency for Courts administering the Insolvency Act to believe that the hearing of a petition is a more or less formal matter and that if the petition is as it were merely verified by the evidence of the debtor the Court is bound to accede to the petition. That is not the case. It is the duty of the Court to be satisfied prima facie and after following the necessary procedure and making the necessary investigation to come to a conclusion that the statements by the debtor are true. After all the procedure of insolvency is for the protection of creditors quite as much as for the protection of the debtors. It is unfortunately more often used by debtors than by creditors with the consequence that the interest of the creditor has a tendency to be forgotten.

In this case we think that the proper course should be to remit the matter back to the learned Judicial Commissioner with a direction to follow the procedure prescribed by the Act and to come to a finding as to whether or not there are prima facie grounds for believing the statements in the petition and if he comes to the conclusion that there are such grounds then he may make the order for adjudication.

The matter should be re-heard and the applicant will be in a position to adduce such evidence as he may be advised for the purpose of inducing the Judicial Commissioner, acting on the principles I have stated, to make the order in his favour. The creditors will be equally entitled to call such evidence as they think fit to throw discredit upon the statements in the petition. The present order of adjudication is vacated without prejudice to such order as the Judicial Commissioner may make. The costs of this hearing will abide the result.

Fazl All, J.

I agree.