Gopalu Pillai vs N.R. Kothandarama Ayyar and Others

Ramesam, J.—This appeal arises out of a suit brought by the plaintiff Kothandarama Ayyar to recover his half-share of a debt evidenced by

a promissory note executed by defendants 1 and 2 in favour of his deceased brother Natesa Ayyar and to get the other half-share paid to

defendant 3 who is Natesa Ayyar''s widow. The promissory note was executed on 21st July 1925 for Rs. 3,945-8-10 according to the particulars

given therein. The plaintiff alleged that at the time of the execution of the suit note, the plaintiff and his brother were undivided. Natesa Ayyar died

on 22nd March 1926 leaving a widow Avayambal Ammal the present defendant 3. The relative rights of the plaintiff and defendant 3 in the

properties of the family being the subject of doubt a partition-deed and an agreement were executed between them on 6th June 1926. The

partition-deed generally provides that the family properties not expressly mentioned in it should be taken equally, (Ex. 1). But the agreement (Ex.

E) expressly provides that

the amount due to the family and mentioned in the list attached hereto shall be collected either in the ordinary course or through Court bearing the

expenses in common and the amount realised shall from time to time be received equally.

A schedule of debts was appended to it and the debt evidenced by the suit promissory note is included in it. The suit was filed on 23rd July

1928 but it is admitted that 21st and 22nd July were holidays and the Court reopened on the 23rd. No question of limitation was raised in the

issues nor was any argued before us. Defendant 1 pleaded that the suit debt belonged exclusively to the deceased Natesa Ayyar (Para. 6), and

that the partition-deed was brought about fraudulently (Para. 8). He also pleaded that the suit not being based on an assignment from defendant 3

should be dismissed. Issue 1 is whether the plaintiff is entitled to maintain the suit. We may assume it is intended to raise all possible technical

objections to the maintainability of the suit. Defendant 3 remained ex parte. She was so declared on 3rd September 1928. The trial of the suit

began on 26th November 1928 and arguments were partly heard on 27th November. On 30th November on the plaintiff''s request the case was

adjourned for the production of succession certificate for defendant 3''s half share. On 12th December the plaintiff''s pleader put in a petition to set

aside the ex parte order against defendant 3. This is somewhat extraordinary because one would expect that defendant 3 would herself put in such

a petition. On the same day a written statement was filed by defendant 3 appearing through the plaintiff''s vakil in which she prays for a decree in

her favour for one-half of the amount according to the plaint. She does not pray for her name being transferred as a plaintiff. The written statement

was not accompanied by any affidavit of hers explaining her late appearance. On that date the order declaring her ex parte not being set aside she

was not even entitled to file a written statement. The case was adjourned to 18th December 1928 for the production of the succession certificate in

respect of her share. On 18th December the ex parte order against defendant 3 was set aside and the case was adjourned for the production of

the succession certificate. Succession certificate was ordered to be issued to her on 20th December by the same Sub-Judge.

It was produced on the 21st and exhibited as Ex. 6, and judgment was delivered on the same day giving a decree for the whole amount of the

debt in favour of the plaintiff and defendant 3. Defendant 1 files this appeal. The first of the points raised by the appellant which should be dealt

with in the logical order is that the whole suit is barred and is not maintainable by reason of certain proceedings in the insolvency of defendant 1.

Defendant 1 became very heavily indebted. He filed I.P. 15 of 1925 in the Subordinate Judge''s Court of Mayavaram for being-declared insolvent.

It was transferred to the Official Receiver''s Court of Negapatam and numbered as I.P. 1 of 1926. He was adjudicated on 16th July 1926. He

then applied by a petition dated 23rd March 1927, in the Subordinate Judge''s Court of Mayavaram suggesting a private arrangement and praying

for stay of further proceedings before the Official Receiver, Negapatam. In this petition Natesa Ayyar appears as respondent 3 but it is also shown

that he died and the present plaintiff and defendant 3 were brought in as legal representatives and made respondents 23 and 24. In Para. 4 of the

petition it is alleged that the petitioner has debts to pay to the extent of Rs. 8,723-11-7. This figure excludes the amount due on the suit promissory

note. A note was made at the end of the list of debts that although he executed the suit promissory note in favour of Natesa Ayyar the defendant 2

was liable to pay on it and that he (i.e., defendant 1) is not liable. Notice was ordered on this petition on 22nd April. Respondents 23 and 24, i.e.,

the present plaintiff and defendant 3 were served by 21st July. Finally permission was granted to the petitioner to raise the required amount by

executing a usufructuary mortgage and to deposit Rs. 8,500, in Court for paying off the debts. This was on 16th August 1927. On 28th October

1927, the present plaintiff and defendant 3 filed a memorandum in which they stated that they were willing to receive Rs. 1,443-1-3, in full

satisfaction of another debt due to them on a mortgage mentioned in the insolvency schedule. This memorandum makes no reference to the suit

debt. It does not say that they gave up that debt. It does not raise any objection to the recognition of the proposed arrangement on account of the

petitioner not offering to pay the suit promissory note, i.e., they agreed that the suit promissory note be left out of consideration in the settlement

proposed and should not form an obstacle to it. But on the other band they did not give up the rights in it. The proposal to pay off the debts with

the money raised on the mortgage was sanctioned on 28th October 1927. Presumably all the debts other than the suit promissory note debt were

paid off. The present plaintiff and defendant 3 filed an appeal against the above order dated 28th October 1927, objecting to the arrangement on

the ground that provision ought to have been made for the payment of the suit promissory note debt also. The appeal was dismissed by the District

Judge of East Tanjore on the ground that they consented to the proposed agreement : vide Ex. 5, dated 26th July 1928.

On these facts it is contended by the appellant that the plaintiff cannot recover the debt due under the suit promissory note. Either he and

defendant 3 must be taken to have given up their right against the defendants or steps to recover it must be taken in the insolvency proceedings

which were not at an end by reason of the order of October 1927. It is true that the order recognizing the arrangement does not put an end to the

insolvency but continues the proceedings for the purpose of giving effect to the arrangement : vide 1929 Mad. 323 (1). This is all the effect of the

decision. It is unnecessary to consider the correctness of every dictum of the learned Judges in that judgment. u/s 39, Provincial Insolvency Act, it

is provided that

the Court shall frame a schedule in accordance with the provisions of Section 38, the order of adjudication shall be annulled, and the composition

or scheme shall be binding on all the creditors entered in the said schedule so far as relates to any debts entered therein.

This section is very clear and admits of no ambiguity. Its language differs from that of the analogous provision in Section 30, Presidency Towns

Insolvency Act, which says that

the composition or scheme shall be binding on all the creditors so far as relates to any debt due to them from the insolvent and provable in

insolvency.

If the present case arises u/s 30, Presidency Towns Insolvency Act, it may be that the suit debt cannot be recovered by any suit on the ground

that it is not provided for in the composition. (I do not wish to express any final opinion on the point.) The only remedy of the plaintiff may be to get

it included in the composition by getting the order sanctioning the arrangement amended or revoked and getting a fresh order passed. u/s 8,

Presidency Towns Insolvency Act, the Court has very ample powers to do that. The analogous section in the Provincial Insolvency Act (Section

40) does not enable a creditor in the position of the present plaintiff and defendant 3 to get the scheme amended by the inclusion of their debts as

they themselves agreed to it and it cannot be said that the scheme cannot proceed without injustice. I am unable to agree with the observation of

Thiruvenkatachariar, J., in Subramaniyam v. Narasimham 1929 Mad. 323 , when he says that there does not seem to be sufficient reason for the

composition having different results under the two Acts. The existence of the wide powers u/s 8, Presidency Towns Insolvency Act, and the

absence of such powers in the Provincial Insolvency Act and the limited scope of Section 40 Provincial Insolvency Act, and the difference in the

language of Section 39, Provincial Insolvency Act and Section 30, Presidency Towns Insolvency Act, which must have been deliberate, show that

the policy of the two Acts is different in this matter. Apart from this, the Court not having prepared a schedule as required by Section 39, that

section strictly does not apply. But even if we look at the spirit of the proceedings and consider that the parties assumed that the schedule already

filed may be regarded as the schedule prepared u/s 39 still for the reasons given above, I do not think that the plaintiff and defendant 3 are

precluded from recovering the suit debt. I agree with the decision of the Punjab High Court in Khalil-Ul-Rahman v. Ram Sarup 1926 Lah. 489. It

is said that if a suit can be so filed such a suit and the proceedings under it derogate from the protection afforded by Section 28(2) of the Act. But

in the case of a scheme, Section 28 has to be read with Section 39 and the protection is taken away by Section 39 in respect of debts not included

in the scheme. I do not think therefore that there is anything in this contention.

Govindas Chaturbhujadas v. Ramdoss 1925 Mad. 593, the facts were somewhat different. It arose under the Presidency Towns Insolvency

Act and Section 30 of that Act governed the matter. I may also point out that the argument that the liability on the debt was denied by defendant 1

- the denial being accepted by the creditor - proceeded on a misconception on the position taken up by defendant 1 in the insolvency proceedings,

Ex. 2 the petition suggesting the arrangement was not the original petition for being declared an insolvent. That petition is not filed before us and we

must assume that the suit debt was shown in that petition as a debt for which the petitioner was liable. As there was nothing to dispute, Natesa

Ayyar did not appear. Afterwards he died.

It is only in Ex. 2 that the statement was made that defendant 2 was liable for the suit note debt and therefore the petitioner had only debts to the

extent of Rs. 8,723 to pay. The obvious meaning of this is that though in law the petitioner was liable for the debt, as a matter of fact defendant 2

was the person who received the money and who was looked to by the creditor for the payment. It might be he would pay the amount and the

liability of defendant 1 was extremely problematical. Though in law defendant 1 was liable he may be never called upon to pay. I think this is the

proper interpretation of his statement in Ex. 2 in the absence of the main insolvency petition. Under such circumstances the effect of the insolvency

proceedings is that not only the insolvent and the particular creditor but also all the other creditors agreed that the suit debt should be excluded for

the time being. In such a case there is no irregularity and though the general object of the scheme was to pay off all the creditors there is nothing in

the Act to show that a scheme may not by the consent of all parties interested exclude a particular debt or debts which are not urgent or the

burden of which on the insolvent is very problematical and may never arise. The appeal of the present plaintiff and defendant 3 in the insolvency

proceedings in which they attempted to get the suit debt included was really an after thought. They attempted to get behind their consent and the

appeal was rightly dismissed. For all these reasons I think that the pre. sent suit is not barred by what happened in insolvency. I now come to the

second point in the case, viz., whether there is any other objection to the maintainability of the suit. Subba Narayana Vathiyar v. Ramaswami

Ayyar (1907) 30 Mad. 88 is relied on in this connexion by the appellant. In that case it was held that a person cannot sue on a negotiable

instrument on the ground that the payee was a benamidar for him. But this has nothing to do with the case of a joint family. Where a note is taken in

the name of a member of a joint family, the whole family existing at the time of suit can certainly recover the amount of the loan on the allegation

that the debt really belonged to the family. In such a case the suit is really based on the debt and not on the instrument in its character of a

negotiable instrument. The decision in Gopal Ayyangar v. Venkatakrishna Aiyangar 1914 Mad. 440, is not inconsistent with this last statement. In

that case it was not found that the debt was due to the family but the finding was only that the note was taken for the joint benefit of plaintiff 1 and

the deceased. That is really a case of benami and falls within the scope of Subba Narayana Vathiyar v. Ramaswami Ayyar (1907) 30 Mad. 88

and was not a case of joint family.

The decision in Chandana Venkatadri v. Laximinarasimma Row (1910) 8 I.C. 33 shows that when there was a partition by which the note fell

to the share of a member of the family he can sue. The decision obviously means that such a suit is not based on the negotiable instrument but is

one to recover the debt. So early as Muhammad Khamarali v. Ranga Rao (1903) 24 Mad. 654 it was held that where there was no valid

endorsement of a note as a negotiable instrument by reason of both the payees not joining the endorsement, the endorsement may be regarded as

an assignment in writing of the half shares of the endorser within the meaning of Section 130, T.P. Act. This case has never been dissented from

and in my opinion is good law. In the present case no assignment is needed, for on the evidence afforded by Exs. E and I, we must now assume

that originally the suit note was executed for a debt due to the joint family but afterwards the brothers became divided in status and as a result the

plaintiff and Natesa Ayyar''s widow became each entitled to a half share. Ex. E being a settlement of a doubtful claim must be regarded as

conclusive as to the nature of the relations between the plaintiff and defendant 3 and we cannot go behind it : Kami Reddi Timmappa v. Devasi

Harpal 1929 Mad. 157, repeatedly followed and applied. The plaintiff was always the owner of a half share of the debt and required no

assignment. Defendant 3 inherits the other half share as the heir of Natesa Ayyar.

The third point argued is that defendant 3 cannot recover her half share. She was not a plaintiff. She never applied for being made a co-plaintiff

in the lower Court. Even if her written statement of 12th December can be regarded as such an application, there is no order on that application by

the lower Court. Her written statement was filed at a time when the ex parte order against her had not been set aside. In this part of the case there

is some mystery. The refusal of defendant 3 to join the suit as a plaintiff and even her later movements are not clearly explained to us and the matter

is shrouded in some suspicion. Perhaps she felt some moral compunction and did not wish to bring a suit for her half share. It is unnecessary to

speculate further on it. No affidavit is filed by her praying that she should be made a co-plaintiff and we do not see any reason why we should help

her now. If she was made a co-plaintiff by the Court, u/s 22, Lim. Act, the suit would not be barred. In her absence as a co-plaintiff defendant 3''s

claim cannot be decreed. It was open to her to apply for being transposed as a co-plaintiff within the time of limitation. She did not do so. There is

no principle which enables one plaintiff to recover a debt on behalf of another, vide Mayappa Chetty v. Subramanian Chetty 1916 P.C. 202.

Reliance was placed on Siluvaimuthu Mudaliar v. Muhammad Sahul 1927 Mad. 84 and Annapurnamma v. Akkayya (1913) 36 Mad. 544 to

show that the suit is maintainable by the plaintiff on behalf of both. But they are oases where the suit was by one of two joint promisees. In such

oases one of the joint promisees may sue to recover the whole debt making the other a party. But the present case is not one of joint promisees. It

is a case where there is one promisee in the beginning but afterwards the right comes to reside in two persons as tenants-in-common. In such a

case any one may sue to recover his own share, but the other co-sharer must be made a party. For otherwise the debtor may be harassed by pleas

which are inconsistent as to the share due to each claimant and the finding in one may not be binding on the other and the debtor may suffer by

inconsistent judgments. To avoid such injustice to the debtor the other co-sharer must be made a party. In such a case the more prudent course for

the other co-sharer would be to apply to be made a co-plaintiff or if his share is given up the actual plaintiff may recover his own share only and the

suit is not liable to the objection of splitting up the debt, the other share being given up, as the debtor profits by a claim being made against him for

a smaller amount. I think that the sentence ""the suit must be for the entire debt"" at p. 649 of 51 M 1 J must be confined to a case of joint promisees

from the beginning. Where there was originally a single promisee, afterwards represented by more than one, the suits may be for the respective

portions of the tenants-in-common, but provided the others are made parties. I do not think that any argument based on these decisions helps the

respondent.

The result is that the appeal against that portion of the decree which is in plaintiff''s favour is dismissed with costs of his half share, and the

appeal against that portion of the decree which is in defendant 3''s favour is allowed with costs on her half share to be paid by her. The costs of

printed papers will be divided into two shares.

Cornish, J.

I have come to the same conclusion. I think that the appellant can get no help from Section 39, Provincial Insolvency Act, as a bar to the

plaintiff''s suit. That section lays down that if the Court approved the debtor''s proposal of a composition, the Court shall frame a schedule in

accordance with the provisions of Section 33, the order of adjudication shall be annulled, and the composition shall be binding on all the creditors

entered in the said schedule so far as relates to any debts entered therein. The reference to Section 33, makes it clear that the purpose of the

schedule required by Section 39 is to furnish an authoritative list of the creditors who have proved their debts, which are the subject of the

composition. u/s 39, Provincial Insolvency Act, as likewise u/s 30, Presidency Towns Insolvency Act, a composition will not be effective in respect

of a debt which is not provable.

Unfortunately, the Court in this instance neglected to follow the procedure required by Section 39. Although the Court approved of the

proposed composition, no schedule of the creditors and debts included in the approved composition was framed. The Court has no power to

dispense with this formality. It is made by the Act a requisite part of the procedure for effectuating a composition. The importance of the schedule

is that the section says that the creditors whose names and debts are entered in the schedule shall be bound by the composition. The meaning of

this appears to me to be that a creditor whose debt is not entered in the schedule will not be bound by the composition arrangement. That was also

the view taken by the Lahore High Court in Khalil-Ul-Rahman v. Ram Sarup 1926 Lah. 489.

In the present case we have not to consider the effect of the Court''s failure to frame a schedule upon the validity of the composition; but the

point is whether a debt which was not included in the composition can be enforced in a suit by the creditor against the debtor after the composition

has been approved and the insolvency annulled. The annulment of the adjudication, which by Section 39, mast follow the Court''s approval of the

composition, puts an end to the insolvency. It is a conditional discharge of the insolvent, because Section 40 empowers the Court to re-adjudge

him an insolvent if it appears to the Court that the composition cannot proceed without in. justice or undue delay, or that the Court''s approval of

the composition was obtained by fraud. The result of the annulment is that the debtor''s property which had on his adjudication become vested in

the Official Receiver reverts to the debtor on payment of the composition, unless the Court has directed that the property shall vest in a trustee :

Flowers v. Lyme Reigis Corporation (1921) 1 K.B. 488, and Section 37, Provincial Insolvency Act. Thereafter, any claim against the debtor

which is not covered by the composition can be pursued against him by the ordinary course of a suit. In Ex parte Russell In re Winn (1876) 2 Ch.

D. 424, a proposal of composition approved by the Court expressly excepted from it three of the creditors who had'' agreed to make no claim on

the debtor for three years from the date, of the annulment of the ad indication. After the annulment the debtor continued to trade for some years,

and then filed a liquidation petition. It was held that in that liquidation the three excepted creditors were entitled to prove for their debts and to

receive a dividend pari passu with the new creditors.

Besides the persons who were willing to accept the composition,

said Bacon, C.J.,

there were three others who did not insist upon receiving the composition then, but gave the debtor three years'' time to pay their debts, the object

being plainly that right to recover was to exist in fall. The resolutions express that in plain terms, and they were entered into with the full knowledge

and consent of all the other creditors, and received the confirmation of the Court. When they were passed the bankruptcy was annulled, and the

rights of the three excepted creditors remained as they were.

In the present case there was certainly no express exception of the suit debt from the composition arrangement. But I think that the principle of

the above mentioned case is applicable. In a schedule of liabilities filed by the debtor he included a mortgage debt due to the plaintiff creditor and

he mentioned that ha had executed the promissory note in question, but he denied any present liability in respect of the note. This gave notice to the

creditors and to the Court of the debtor''s standpoint with regard to this particular debt, that ''it was not included in the debts which he was

proposing to settle. The plaintiff, the creditor concerned, took no Steps to challenge it, nor did he object to the petition filed by the debtor to stay

further proceedings in the insolvency and to grant the debtor leave to raise money on a mortgage to settle with his creditors, although the amount of

indebtedness stated in that petition was exclusive of the amount due on the promissory note and, further, the plaintiff accepted the composition in

respect of the sum due to him by the debtor on the mortgage. It seems to me there was an effect a tacit agreement between the plaintiff and the

debtor that the suit debt should stand out of the composition. No fraud was committed on the Court, and no harm was done to the other creditors.

Such being the position, I see no reason why the plaintiff should not be free to bring his suit to recover this debt.

If the plaintiff''s suit could be regarded as a suit upon the promissory note. I would agree with Mr. Jayarama Ayyar that, the plaintiff not being

the indorsee or transferee of the note, nor the legal representative of the deceased payee, the suit could not be maintained by him : Subba

Narayana Vathiyar v. Ramaswami Ayyar (1907) 30 Mad. 88, Arunachala Reddi v. Subba Reddi (1907) 17 M.L.J. 393 and Ulagappa Chetty v.

Ramanathan Chetty 1917 Mad. 512. But I think that this suit cannot be regarded as upon the note. The plaint does not allege any right in the

plaintiff to sue on the note. It states that the note was executed in favour of Natesa Ayyar, the plaintiff''s undivided brother. It hints at a division in

status between plaintiff and Natesa Ayyar, and refers to an agreement between plaintiff and Natesa Ayyar''s widow to take the debt half and ''half;

and the plaintiff prays that he may be decreed half of the amount due and that the other half may be decreed to the widow, who has been

impleaded as defendant 3 because she would not join with him in the suit. In my opinion, the plaint, which is very obscurely drawn, must be

understood as intending, a claim on the debt. And inasmuch as the plaintiff only claims to be entitled to one-half of the amount due, that is all that

the Court can decree, It cannot in this suit decree the other half to defendant 3. There is he allegation in the pleadings nor proof that plaintiff and

defendant 3 were joint promisees; so that the ruling in Siluvaimuthu Mudaliar v. Muhammad Sahul 1927 Mad. 84, has no application.