Gopalan vs Kunhu Velan and Another

Raman Nayar, J.—These eight petitions arise out of the same proceeding in insolvency. The adjudication was on a petition by the debtor, and, in due course, four of the creditors named in the petition filed proofs before the receiver. The present revision petitioner, who is undisputedly a creditor, filed objections before the receiver to the proofs submitted by these four creditors, the present respondents. But because he did not appear to prosecute his objections, the receiver ignored them and included the four respondent-creditors in the schedule framed by him u/s 33 of the Provincial Insolvency Act read with the delegation made u/s 80. Thereupon the petitioner-creditor filed eight applications before the Insolvency court, namely, the Sub-Court, Palghat, for the purpose of removing the names of the four respondent-creditors from the schedule--four u/s 50 and four u/s 68 of the Act. The learned Subordinate Judge after due enquiry found that the debts alleged to be due to the respondent-creditors were fictitious and, allowing the four applications filed by the petitioner-creditor u/s 50, he directed that the entries in the schedule in respect of these debts be expunged. Although the proper order to pass on this finding would have been to allow also the four applications u/s 68 with the same result, namely, the deletion of the entries, the learned Subordinate Judge dismissed those applications as unnecessary. The respondent-creditors appealed to the District Court u/s 75 against the order allowing the four applications u/s 50. But, obviously, since he had got what he wanted, the petitioner-creditor did not appeal against the dismissal of the four applications u/s 68. The learned District Judge, without-going into the merits, allowed the appeals and dismissed the applications brought u/s 50, upholding the preliminary objection taken by the respondent-creditors that those applications did not lie, in view of the fact that there was no refusal by the receiver to interfere in the matter so as to give the petitioner-creditor the right to apply under sub-section (2) of section 50. He seems to have thought that the proper remedy for the petitioner-creditor was to apply u/s 68, as indeed he had done, but, since the petitioner-creditor had not appealed against the dismissal of his applications under that section, the learned District Judge found himself powerless to help him. The result is that, although the finding of the Insolvency court is that the debts in question are fictitious debts, and this finding has not been upset in appeal, the debts in question are to figure in the schedule and the respondent-creditors are to get dividends as if they were genuine creditors. Against the order of the District Judge allowing the appeals of the respondent-creditors and dismissing the applications brought by the petitioner-creditor u/s 50 of the Act, the petitioner-creditor has instituted C.R.P. Nos. 441 to 444 of 1957; and against the order of the Sub-Judge dismissing his applications u/s 68 of the Act, he has instituted C.R.P. Nos. 434 to 436 and 445 of 1957.

If indeed the applications brought by the petitioner-creditor u/s 50 of the Act were not maintainable under sub-section (2) thereof, I would have been inclined to interfere in revision against the dismissal of the applications brought by him u/s 68 of the Act, although he could have appealed against that dismissal to the District Court, but failed to do so. No appeal against that dismissal lies to this court, and therefore the express prohibition in section 115 of the CPC contained in the words "and in which no appeal lies thereto" does not apply. Having regard to the circumstances already mentioned, this, it seems to me, would have been a fit case for departing from the ordinary rule, and interfering in revision, although a remedy lay by way of appeal to some other court, but was not availed of.

But I am of the view that the applications by the petitioner-creditor u/s 50 of the Act were maintainable. Section 50 runs as follows:

(1) Where the receiver thinks that a debt has been improperly entered in the schedule, the Court may, on the application of the receiver and after notice to the creditor, and such inquiry (if any) as the Court thinks necessary, expunge such entry or reduce the amount of the debt.

(2) The Court may also after like inquiry, expunge an entry or reduce the amount of a debt upon the application of a creditor where no receiver has been appointed or where the receiver declined to interfere in the matter or in the case of a composition or scheme, upon the application of the debtor.

It will be seen that under sub-section (1), it is the receiver that has to apply and there can, therefore be no question of the petitioner-creditor applying under that sub-section. But under sub-section (2), a creditor can also apply where the receiver declines to interfere in the matter, and the short question here is whether the receiver has declined to interfere in the matter. What then is the matter? It will be noticed that what the sub-section says is not that the receiver declines to make an application under sub-section (1), but that the receiver declines to interfere in the matter, a term which is surely of larger import. If the section had said that a creditor can make an application when the receiver declines to make an application himself, it could perhaps be argued that since an application under the section is for expunging an entry appearing in the schedule, there must be refusal by the receiver after the framing of the schedule on his being moved by the aggrieved party to make an application. But the matter here is simply the appearance of the disputed debts in the schedule. The petitioner-creditor objected to the proofs, but the receiver over-ruled this objection and, admitting the proofs, included the debts in the schedule. As pointed out in S.K. Mohideen Khadirshaw Maraikar v The Official Receiver, Tinnevelly and Another (I.L.R. XLI Madras 30), what the receiver does in pursuance of the delegation u/s 80 of the Act is to frame a schedule after an ex-parte examination of the evidence tendered by the alleged creditors. He does not decide the objections taken by any other interested party. In the ordinary course, the objection taken by the petitioner-creditor was one which the receiver should have referred to the Insolvency court, and I do not think that it would be any violence to language to say that, in ignoring that objection altogether and framing a schedule accepting the proofs of the respondent-creditors, the receiver has declined to interfere in the matter within the meaning of sub-section (2) of section 50 of the Act.

In the result, I allow C.R.P. Nos. 441 to 444 of 1957, and remand the appeals filed by the petitioner-creditor against the dismissal of his applications u/s 50 of the Act to the District Court for fresh disposal on the merits. I dismiss C.R.P. Nos. 434 to 436 and 445 of 1957 as unnecessary. There will be no order as to costs.