Hariram vs K.I. Zachariah and Another

Mohan, J.—This is a petition u/s 9(e) of the Presidency Towns Insolvency Act (hereinafter referred) to as the Act) seeking to adjudicate the

respondents as insolvents on the ground that attachment of the movables of the debtors were subsisting for a period exceeding 21 days.

By an ex part order passed on 24-7-1074, the respondents were adjudicated as insolvents. That order was later on set aside. Subsequently, on

behalf of the second respondent (I. S. K. Menon), it was stated that there was no defence to the petition and, therefore, he was adjudicated

insolvent by an order of Sethuraman J. dated 19-8-1974. Hence, the only question that survives is whether the first respondent could be

adjudicated as insolvent.

In the counter-affidavit, the stand is taken by him that he is not the proprietor of the shop, Zacharia Stores, at No. 39 Purasawalkam High

Road, Madras 7, and that the shop belongs to his son. Further, he was not carrying on business within the jurisdiction of this Court within one year

prior to the presentation of the petition. As the attached movables do not belong to this respondent, the alleged subsistence of attachment would

not enable the petitioner to seek adjudication. Further, inasmuch as the ex parte decree in O. S. 1637 of 1973 in execution of which alone the

movables were attached, had been set aside, the basis of the attachment itself is gone, and, therefore, it cannot form the basis of adjudication.

On the side of the petitioner, Exs. P. 1 to P. 15 have been marked, while Exhibits on the respondent''s side consist of Rule 1 to Rule 7, On

behalf of the petitioner, P. W. 1, the petitioning creditor, was examined and he sneaks to the fact of attachment and that the amount was borrowed

for the benefit of the first respondent. The first respondent has been examined as R. W. 1, who, in his oral evidence would state that the

promissory note on which the decree was sought was a printed form and the blanks were filled up by his son and because the creditor insisted

upon R. W. 1 signing it, he signed it as the proprietor of Zacharia Stores, since the creditor wanted it that way.

R. W. 2 is the son of R. W. 1 and he would claim to be the proprietor of Zacharia Stores and E. A. 7511 of 1974 in E. P. 219 of 1974 was

filed on behalf of his father seeking to claim the movables, but the reason for not pursuing the same was by then the ex parte order forming the

basis of the execution petition was set aside.

In this state of pleadings and evidence, the two questions that arise for consideration are (1) whether the first respondent is the proprietor of

Zacharia Stores and (2) inasmuch as the ex parte decree, in execution of which the movables came to be attached, was set aside subsequently,

whether it could be said that the prior valid attachment subsisted for more than 21 days.

As regards the first question, Ex. P. 2, the report of the bailiff says that at the time when the attachment was effected, the respondent was

present and he pleaded only his inability to pay the decree amount. This report of attachment was dated 17-5-1974, but the first respondent would

claim that he had discontinued his business and in support of which he would produce Exs. Rule 2 and Rule 3, They do not advance the case of the

first respondent, since the assessee is only Zacharia Stores and it cannot be contended merely because R. W. 2 represented the matter before the

Deputy Commercial Tax Officer that he was the proprietor or any description therein, would be of no consequence, and undoubtedly, better proof

will be required to hold that R. W. 2 alone is the proprietor and not R. W. 1.

Then again, there is Ex. P. 7. That is a reply given to the advocate, which has also been signed by R. W. 1 as proprietor of Zacharia Stores. In

addition to that, it is admitted by R. W. 1 that he issued a number of cheques towards such debt.

Though there is a dispute relating to the amount due, a careful perusal of Exs. P. 9 to P, 11, ledgers and Exs. P. 12 to P. 14, day books, it is

clear that the amount that is claimed is due. Though notice was issued to the debtor under Ex. P-15 to produce his account, so that he might prove

his version that the amounts as claimed by the creditor, are not due, he has not chosen to do so. Besides, there is Ex. P. 8 which also contains an

admission about the amount due. Therefore, considering the accounts, viz., Exs. P. 9 to P. 11 and P. 12 to P. 14, undoubtedly, the amount stated

in the petition is due. Thus, I come to the conclusion that R. W. 1 is the Proprietor of Zacharia Stores and that the debt is due by him.

Coming to the next question, the following facts require to be noted.

O. S. 1637 of 1973 on the file of the City Civil Court, was deereed on 5-7- 1973. E. P. 219 of 1974 for the attachment of the movables was

ordered on 29-1-1974. Against the first respondent, a warrant was issued on 17-5-1974, and with police aid, the attachment of moveables was

effected. The Insolvency petition was filed on 15-6- 1974. But, since there was an ex parte adjudication of both the respondents as insolvents on

29-7-1974, by Sethuraman J. an endorsement was made in the execution petition concerning this fact, whereupon the execution petition was

dismissed 011 9-8-1974. Later on, 24-8-1974, the ex parte decree in O. S. No. 1637 of 1973 itself was set aside.

Section 9 of the Act says that a debtor commits an act of insolvency in each of the following cases, namely-

....... (e) if any of his property has been sold or attached for a period of not less than 2] days in execution of the decree of any Court for the

payment of money;..

The learned counsel for the petitioning creditor, Mr. G. Nandalal draws my attention to the decisions in R.M. Subramaniam Vs. N. Sundaram Iyer,

. Yenumula Mallu Dora Vs. Peruri Seetharatnam and Others, and S. K. Venkatarama Aiyar Vs. A. Buran Sheriff and Another, and contends that

the subsequent events do not alter the position and the fact that the ex parte decree came to be set aside later oh will be of no consequence.

Mr. Abdul Wahab, learned counsel for the respondent, in meeting this submission also relies upon the same Full Bench judgment on which the

petitioning creditor places his reliance and contends that once an ex parte decree itself is set aside, the basis of the attachment itself is gone and,

therefore, the attachment must be considered to be non est in law, and no rights could be considered to flow on the foot of such an attachment.

In S. K. Venkatarama Aiyar Vs. A. Buran Sheriff and Another, , the only question that came up for consideration was whether the creditor

should continue to be a creditor at the time when the order of adjudication is passed or whether it will be sufficient if the creditor happened to be

so, at the time of the presentation of the petition. The Division Bench held that under the statute, what is required is that it is enough if the petitioning

creditor happens to be a creditor at the time of the presentation of the petition. This decision, in my opinion, does not have any bearing on the

question that arises in this case.

In the decision of the Supreme Court in Yenumula Mallu Dora Vs. Peruri Seetharatnam and Others, it was held that the jurisdiction of the

insolvency Court commences when an act of insolvency takes place and the sale of a person''s property in execution of a decree for payment of

money is an act of insolvency u/s 6, Once such an act is committed, it cannot be explained or purged by subsequent events. Therefore, by paying

some of the creditors, the insolvent cannot claim to wipe it off. Thus, an act of insolvency remains and is not purged by payment of a decretal

amount after the sale in execution of the money decree.

This decision also does not directly decide the point in issue, except stating in aa indirect way, that by payment of the decretal amount after the

sale in execution, the act of insolvency cannot be purged.

I will turn my attention now to the decision ip R.M. Subramaniam Vs. N. Sundaram Iyer, , concerning this aspect of the matter, what has been

laid down is this-

The language of Section 9(e) of the Presidency Towns Insolvency Act would seem to indicate that what all is necessary to constitute the act of

insolvency is a de facto sale or an attachment for 21 days. It is open to the construction that once the sale is held by the property being knocked

down to the highest bidder or if the attachment subsists for 21 days, the act of insolvency is complete and indefeasible, But, we do not think that

this is the true meaning of the section. Of course, there must be a factual sale or the continuance of attachment for the prescribed period. That

would not be enough to comply with the section. In our opinion, the sale or attachment must also be valid in law. If the sale is set aside or that

attachment is cancelled in due course of judicial proceedings on the ground that the sale ought not to have been held or the attachment ought not to

have been ordered, those acts of sale or attachment as the case may be, must be deemed to have had no judicial existence. They must be treated

as ''non est'' in law. No rights can flow from them and accrued rights, if any, on foot of them must also cease. The act of insolvency grounded on a

sale or attachment in execution of a money decree loses its foundation the moment such sale or attachment is wiped out as a result of judicial

adjudication.

There is one other case which I may usefully refer. That case is Chettiattil Muhamed v. Kunhi Koru (1906) ILR 29 Mad 175, wherein in

pursuance of an ex parte decree attachment of the properties was ordered on 19-2-1900 and the attachment itself was actually made on 10-3-

1900. But, even earlier on 3-2-1900 itself, the ex parte decree had been set aside. In ignorance of the same, the Court to which the decree had

been transferred for execution ordered the above said attachment. When the matter came up before this Court, it was laid down by a Division

Bench as follows-

When the attachment was made, and even when the order for attachment was made, there was no decree in existence and we are entirely unable

to see how any order of attachment so made could have any force or validity. We cannot agree with the District Judge that the fact that the decree

had been transferred for execution to another Court could give the attachment any additional validity. The attachment not being based on any

decree in existence at the time was null and void, and the fact that a decree was subsequently passed in terms of the decree that was set aside had

not the effect of restoring the original decree nor could it operate to render the attachment valid"".

The facts of this case are clearly distinguishable because on the date of the attachment, there was decree in existence and, therefore, this ruling is of

no assistance to the debtor,

Reverting my attention to the decision in R.M. Subramaniam Vs. N. Sundaram Iyer, , it may be noted that this is not a case where the order of

attachment had been set aside as a result of judicial adjudication. The execution petition had merely been closed and it is impossible to hold that

merely because the ex parte decree came to be set aside long after the statutory period of 21 days, contemplated u/s 9(e) of the Act, it can be said

that it was null and void and that the creditor cannot found his insolvency petition on that basis. The decision of the Supreme Court cited above, is

a clear authority for the position, once an act of insolvency is committed, it cannot be purged by subsequent events.

So, from any point of view, it cannot he held that merely because the ex parte decree came to be set aside on a later occasion, the act of

insolvency got wiped out. On this reasoning, the first respondent is adjudicated insolvent and the Official Assignee is appointed receiver to take

charge of the estate and administer the same.

Accordingly, the petition will stand allowed. But, there will be no order as to costs.