G.H. Yusuf Sait vs S. Ramamurthy

Anantanarayanan, J.—This revision proceeding involves a question of some interest and importance with regard to the degree to which a

Court exercising powers in insolvency could review or set aside its own order, either under powers vested in the Court by virtue of Section 5 of

(he Provincial Insolvency Act (V of 1920), read with Section 114, C. P. Code and Order 47, Rule I, C. P. Code, or by virtue of its inherent

powers u/s 151, C. P. Code. As I shall show presently, there is the authority of the judgment of a learned Judge of this Court in K.V.

Chandramouleswaran Vs. G. Krishnaswami Naidu and Others, in an instance that was very similar upon the facts, for the affirmative reply to the

question with regard to the power of the Court. But the matter is not free from difficulty, particularly in view of certain authorities that have been

placed before me by learned counsel for the petitioner. Hence I shall first particularise the essential facts which have led up to the revision

proceeding.

A certain petitioning creditor, one Fred, J. Dyas, filed I. P. No. 5 of 1960 before the learned Subordinate Judge of Nilgiris at Ootacamund, to

have the adjudication in insolvency of the present revision petitioner (insolvent). The act of insolvency alleged was that on 7th October 1959, the

insolvent had executed an alleged deed of settlement, by virtue of which he had fraudulenly gifted away or transferred all his properties, worth over

Rs. 1 1/2 lakhs in favour of his wife. The petition, which was filed on 23rd December 1959 further alleged that the insolvent was indebted to

various persons including the petitioning creditor himself, and the present respondent in the revision proceeding. The petition was numbered as I. P.

No. 5 of 1960 on 11th August 1960. The insolvency was notified in the Gazette as per orders of Court, and the insolvency petition was posted on

5th October 1960 for return of publication in the Fort St. George Gazette and notices duly served.

On 3rd October 1960, a joint memorandum was filed by the petitioning creditor and the insolvent or debtor, to the effect that the matter

between them had been settled outside Court, and hence that the Court might be pleased to record the settlement and to dismiss the proceeding in

insolvency. Thereupon, the hearing of the petition was advanced to that date and it was dismissed, recording the compromise, by the learned

Subordinate Judge.

Coming to know of these proceedings, the present respondent, a creditor who was admittedly indicated as such by the petitioning-creditor him-

self, filed an application under Sections 5 and 16 of the Provincial Insolvency Act read with Order 47, Rule 1 and Section 151 of the C. P. Code,

to the Sub Court, praying for a review of the order of dismissal, passed on 3rd October 1960, the setting aside of that order and the restoration of

the application to file. He also desired to be substituted as the petitioning-creditor u/s 16 of the Provincial insolvency Act. The Sub-Court heard

and allowed this petition. The learned Subordinate Judge has pointed out that his earlier order, recording the compromise and dismissing the

insolvency petition in terms of that record, was defective and amounted to an apparent error of law. That is because a petitioning creditor is not

merely acting for himself, but for the benefit of the general body of creditors, whose interest also he is bound to subserve by his action to have the

debtor adjudicated an insolvent. The result of such an order of Court, as the dismissal of the petition, would mean that the other creditors would

not be in a position to rely on the alleged act of insolvency, namely, the gratuitous transfer of a very substantial property, in the context of a general

indebtedness to the wife of the debtor himself, shortly prior to the peit-tion.

In prosecuting this revision proceeding, the debtor has relied on the following main grounds in support of his contention that the Court had no

jurisdiction to pass the order which is now sought to be impugned. The respondent creditor could not really invoke the powers of review vested in

the Court u/s 5 of the Provincial Insolvency Act, read with Section 114 and Order 47, Rule 1, C. P. Code. That is because, it is not enough that

the respondent creditor is a person aggrieved by the order of Court dated 3rd October 1960. It is conceded that he is a person aggrieved. But he

must further show that the order in question was one made ''against him'' within the scope of Section 114, read with Order 47, Rule 1 of the C. P.

Code. Since, admittedly, the order was not made with the respondent-creditor as a party eo nomine, he could not validly invoke the powers of the

Court in review. The second ground is that the respondent-creditor being a stranger to the proceedings, could not invoke the inherent powers of

the Court, u/s 151, C.P.C. to set aside the earlier order. Reliance is placed upon certain observations in Perumal Moopan Vs. M.K.

Venkatachariar B.A. The Assistant Registrar of Co-operative Credit Society and Liquidator of Cooperative Credit Society, .

The third ground, which is equally important, is that the respondent-creditor has misconceived his proper remedy in instituting the application

before the learned Subordinate Judge for review of the earlier order, and the substitution of the respondent creditor on record u/s 16. The earlier

order was appealable u/s 75 of the Provincial Insolvency Act, and it is not in dispute that far wider reliefs are afforded under that section than even

u/s 8(1) of the Presidency Towns Insolvency Act, as far as the party affected is concerned. Further the Provincial Insolvency Act does not invest

the Court with any such wide powers as are invested in the Insolvency Court u/s 8(1) of the Presidency Towns Insolvency Act. Hence, the true

remedy of the respondent-creditor ought to have been only the institution of an appeal u/s 75 . He could not have validly maintained the application

for review.

In further support of these arguments, certain authorities are relied upon, in clarification of the matters that incidentally arise for consideration,

upon the general situation of the facts earlier set forth by me. For instance, the following passage has been cited which occurs in Mullah''s

Principles of Insolvency, at page 777:

An application for re-hearing u/s 8(1) can only be made by a person who was a party to the proceedings in which the order was made. In this

respect the right of a rehearing is much more limited than the right of appeal in insolvency, for the right of appeal is given not merely to persons who

are parties to the original order but to any person aggrieved thereby.

This passage is relied upon in support of the argument that the respondent-creditor wholly misconceived his remedy. When he came to know of

the order recording the compromise and dismissing the petition in insolvency as a person aggrieved by this order, he should have properly instituted

an appeal u/s 75 of the Act He had no locus standi to institute any proceeding in the insolvency petition, for review of that order and for

substitution of the respondent creditor u/s 16, either under that section, or u/s 114, C. P. Code read with Order 47, Rule 1, C. P. Code or u/s

151, C. P. Code, Further, the doctrine of inherent power cannot apply, where there is some express statutory provision which would meet a

particular contingency or situation. In the decision of the Privy Council in AIR 1934 213 (Privy Council) it has been laid down that the powers of

Court u/s 114, C. P. C. must be read as qualified by the powers in Order 47 Rule 1, C. P. C. for the reason that the Code itself provides that

rules in the first Schedule will have effect as if enacted in the body of the Code. Again, the right of appeal of the respondent might now be barred,

and the observations of the Privy Council in AIR 1934 213 (Privy Council) are relevant.

On the contrary, learned counsel for the respondent-creditor not merely relies on K.V. Chandramouleswaran Vs. G. Krishnaswami Naidu and

Others, , wherein the facts were very similar, but also upon several authorities of this court and other High Courts, for the view that the court has

inherent power u/s 151 C. P. Code under such circumstances, to review and set aside its own order in the interests of justice. The decisions relied

upon are Lal Singh v. Dhaumal Jailal, AIR 1937 Lah 631, Keshav Appa; v. Sitaram Hanumandas, AIR 1946 Bom 20, K.S.P. Thangavelu Chetti

Vs. K.S.R. Chockalingam Chetti and Others, , and Jivraj Gordhandas and Another Vs. Gaganmal Ramchand, . the last two decisions being under

the Presidency Towns Insolvency Act. It is not necessary for me, for the purpose of disposal of this revision petition, to analyse the facts of these

decisions, and the degree to which they may govern the present situation of fact. It is sufficient for me to observe that, in my view, the real reasons

why the order of the Court, reviewing its prior order u/s 151 C. P. Code should be sustained as within the powers of the court and a valid order,

lies in the nature of the proceeding, in relation to the basic concepts of insolvency law, rather than in the question of the propriety of the form. For

instance, the question does not merely depend, as it might in other conceivable cases, on the status of the petitioning creditor to invoke the powers

of court u/s 151 C. P. Code. It is for this reason that the observations in Jivraj Gordhandas and Another Vs. Gaganmal Ramchand, are particularly

relevant. There it is pointed out that a petitioning creditor did not occupy the same status as a plaintiff who was a dominus lite as far as his suit was

concerned. The plaintiff could withdraw that suit, settle his claim or otherwise abandon it. But a petitioning-credi- tor is, if I may so express it, a

kind of trustee for the general body of creditors, bound to serve their interests also by the bona fide prosecution of this petition to adjudicate the

debtor as insolvent. Any other view, would mean that the interests of the general body of creditors might be irreparably jeopardised by collusion

between the petitioning creditor and the debtor.

Baheer Ahmed Sayeed, J. in K.V. Chandramouleswaran Vs. G. Krishnaswami Naidu and Others, , has expressed his view of the matter in

words of almost identical import. The learned Judge said :

Such an order is certainly manifestly unjust to the rest of the creditors, especially when it was brought to the notice of the court in the petition filed

by the petitioning creditor that there were other creditors besides to whom payment bad been suspended by the debtors. The proper thing for the

court would have been to withhold the payment of the amount for a period in order to allow other creditors to come up and then adjudge their

rights against the debtors..... Even if Section 16 and 19 of the Provincial Insolvency Act would not be of any avail to the petitioner, still the courts

below had ample power and jurisdiction to rectify situations such as this, where if such rectification does not take place, injustice will ensue.

In an earlier context the learned Judge stresses :

If such be the policy underlying the Provincial Insolvency Act, it is all the more necessary and reasonable that when there is a compromise or

settlement entered into between the petitioning-creditor and the debtors, as a result of which the petition is likely to be dismissed once for all, there

should be an opportunity given to other creditors who would like to safeguard their interests from being jeopardised by the action of the sole

petitioning creditor"".

I am, therefore, of the view that even if the court had become aware of the error, defect or, of the possible injustice resulting from its order by

any other mode than the formal act of an aggrieved party, still it would have inherent power u/s 151 C. P. C. to rectify the situation, as the earlier

settlement between the petitioning creditor and the debtor was substantially ""an abuse of the process of the court.

Consequently, the revision proceeding has to be dismissed. But learned counsel for the revision petitioner (debtor) represents that ample

provision has been made already for the satisfaction of the claim of the non-petitioning creditor who has not been substituted u/s 16, and that the

alleged act of insolvency was a perfectly bona fide act which might be fully justified when the facts of the context of the transaction are taken into

account. I need not express any opinion upon these arguments. They will no doubt be carefully considered on the merits, when further proceedings

are taken by the Court below in the insolvency, resulting from the lifting of the interim stay directed by this court.

The revision proceeding is accordingly dismissed, but I make no order as to costs.