In Re: Brijmohun Dobay, an Insolvent

Sale, J.—This is an application for revocation of an order of adjudication which was made by my learned colleague Mr. Justice Jenkins on the 5th December 1896, and it appears that the order was made in respect of two acts of insolvency alleged to have been committed by the debtor Brijmohun Dobay described as lately carrying on business as merchant and commission agent in Calcutta. The acts of insolvency relied on, were, first, that the debtor with intent to defeat and delay his creditors departed from the jurisdiction of this Court, and next that he executed a fraudulent assignment of the whole of his property with a like intent. The question now is, whether, having regard to the provisions of sec. 9 of the Insolvent Debtors Act, the adjudication can be maintained in respect of either of these acts. The facts are, I think, tolerably plain. The debtor carried on a considerable business as merchant and commission agent in different places, the main business being at Allahabad. In Calcutta he carried on business through a Gomastha, and early in the month of November the debtor''s place of business in Calcutta was closed, and the Gomastha who carried on the business departed from his usual place of business, and at the time of his departure all the goods and stock-in-trade belonging to the debtor in Calcutta were removed to Allahabad. I think there can be no doubt that this departure (sic) the jurisdiction by the Gomastha (sic) the debtor and the removal of his goods took place without any notice to the creditors in Calcutta and without their assent.

On the 10th November and after the closing of the debtor''s business in Calcutta and the departure of the Gomastha, the adjudicating creditors received a notice to the effect that the whole of the property belonging to the debtor had been made over to certain persons nominated by the debtor as his trustees and the object of the transfer was stated to be to provide for payment of all the debtor''s debts and liabilities. It appears that, on the 7th November 1896, the debtor executed a deed, the main provisions of which are as follows: It recites that the settler or author of the trust is desirous of creating a trust of all his property and of transferring the same to trustees for the purpose of paying off his debts. It then proceeds to provide for payment of certain necessary expenses in the collection of the assets of the settler and the expenses of winding up the business, and it also provides for the payment of certain allowances for the maintenance of the settler and his family, and then it proceeds to state that after making the above payments and disbursements "the said trustees will apply the remainder with the accumulation thereof to pay and satisfy the debts and liabilities of the said author of the trust, according to law." It also provides that the trustees are "to satisfy all the debts of the insolvent together with interest accrued thereon, which are, or may become, legally due by the author of the trust, as can be conveniently paid after defraying the expenses herein provided for," and lastly, it is provided that after all the debts and liabilities of the settler have been paid and satisfied, then the balance in the hands of the trustees is to be paid back to the settler.

The adjudicating creditors declined to assent to the proposed arrangement embodied in this deed, and accordingly on the 5th December, they applied for and obtained an order adjudicating the debtor an insolvent.

In support of the application for revocation of that order the debtor has succeeded, I think, in showing this:--He has shown that this arrangement was entered into by him bona fide with the object of providing a means for ultimately paying off and satisfying all his creditors. He has also shown that a very large proportion of his creditors have agreed to accept this arrangement and have signified their assent to it.

The materials at present before me, are insufficient to show even approximately as to what balance, if any, there will be payable to the debtor after satisfaction of all his debts. He alleges and I have no doubt that he believes what he says, that there will be after payment of all his debts a considerable balance payable by the trustees to himself.

The total amount of the debts disclosed by the debtor is very large. The amount is stated by him to be Rs. 1,70,000, and obviously if his assets are to prove sufficient to satisfy these debts in full, the outstandings which he alleges to be due to him must, to a considerable extent, be good and realizable, but of course it is impossible to say to what extent his outstandings are of that character.

The question as to whether under the circumstances the assignment by the debtor of the whole of his property to trustees for the benefit of all his creditors amounts to an act of insolvency or not, must depend on the terms of the Insolvent Debtors Act, and I will deal with this question in the first place.

Sec. 9 provides that an assignment to amount to an act of insolvency must show two characteristics: first, it must be a fraudulent assignment, and in the next place it must have been made with the intent to defeat and delay the assignor''s creditors.

The question is as to what the meaning is which is to he attached to the word "fraudulent" and also to the words "with intent to defeat and delay creditors " as used in this section.

The section of the Act in which these expressions occur is substantially the same as the corresponding section contained in similar enactments in England.

I refer to sec. 4 of 6 George IV, Chapter XVI and to sec. 67, 12 & 13 Victoria, Chapter CVI.

There can be, I think, no doubt at all as to what the construction is which has been placed upon these sections of the English Acts. The English authorities have been conveniently collected and are referred to in Williams'' Bankruptcy Practice, 5th edition, at page 6, and also in Robson''s Bankruptcy Practice, pages 130-137 and also at page 778. What these authorities show is that a fraudulent assignment within the meaning of the Act, is an assignment which has the effect of defeating or delaying creditors, i.e., that the term fraudulent is held to import a wro(sic) not of a moral character, but of a (sic) character, and so as regards the (sic) necessary to be shown. The intent is a legal intent which the law will assume, on the principle that the debtor must be taken to intend that which is the necessary consequence of his act. It has been contended, that the construction which the English Courts have adopted in respect of these sections, is a construction which the Courts have adopted not merely by reason of the terms of the particular sections referred to, but also by reason of certain other provisions of the Acts, and in particular sec. 4 of 6 George IV, Chapter XVI and sec. 68 of 12 & 13 Victoria, Chapter CVI, have been referred to. These sections just mentioned expressly provide that a conveyance of all of a trader''s property, is not to be considered an act of bankruptcy unless a commission issue within a certain period. It is pointed out that there are no similar provisions in the Indian Act, and it is contended that the effect of these two sections is expressly to provide and declare that where the condition mentioned is fulfilled, then a coveyance of the whole of a trader''s property is an act of bankruptcy.

I do not obseve, however, that the construction of the acts which the Courts have adopted in England has ever been based upon that ground.

To give an illustration if I may refer to the case of Stewart and another v. Moody and another I C. M. & R. 777. That is a case in which the Court expressly declared that a conveyance by a trader of all his property for trust for all his creditors mounted under sec. 3, Chapter XVI (sic) 6 George IV to an act of insolvency although he did not, in fact, intend to defeat or delay his creditors as that being the necessary consequence of the assignment, he must in law be taken as having so intended. Park, B., in giving the judgment of the Court, stated that the words in sec. 3 were not intended in any way to alter the law, and the ground on which he based his conclusion, was that inasmuch as a conveyance of all a trader''s property even though it was stated to be for the benefit of all his creditors had the effect of delaying them, it must be regarded that the trader''s intent in making that assignment was an intent to delay his creditors, and I am inclined to think that the enactment of the sections, which provide that under certain circumstances assignments of all of trader''s property for the benefit of creditors is not to be taken as an act of insolvency, rather shows that it was intended that those sections should operate as a saving clause to the general provision contained in the earlier sections.

There is no Indian authority which assists me in coming to a conclusion as to the proper construction to be placed on sec. 9 of the Indian Act, unless the opinion expressed by Mr. Justice Pigot in the case of Gibson''s Insolvency Unreported is to be taken as a guide.

The learned judge in giving judgment in that case very carefully considered the effect of the English decisions and the weight which ought to be attached to them and thought that the construction adopted as regards the English Acts ought to be followed in respect of the similar provision in the Indian Act.

It is possible that the learned judge did not intend that his decision should be taken as authoritative on the point, because in the view the took of the case, it was unnecessary to decide it. Still I think the opinion expressed is entitled to great weight.

After giving the case the best consideration I can, I have come to the conclusion that I ought to be guided by the English authorities on the sections in the English Acts corresponding with sec. 9 of the Indian Act.

It is quite true that the facts, as I think they have been sufficiently proved in this case, show that Brijmohun Dobay, the settler, is to be acquitted of any intent or design on his part to commit a fraud in the popular sense of the word on his creditors.

I do not think for one moment that he supposed he was doing them a moral wrong, and it is quite possible he did not suppose he was doing "them any legal wrong. At the same time it may be, he took too narrow a view of what the rights of his creditors were.

He probably thought they obtained all they were entitled to, if they ultimately received payment of their debts and in that sense having provided as he supposed (to the best of his ability) for the satisfaction of his creditors'' claims he thought he had done all the aw required him to do for the discharge of his debts. I think, however, there can be no doubt that the effect of his action was to delay his creditors and to infringe upon their rights.

Creditors are not bound to accept an arrangement which provides for a deferred payment of their debts, they are entitled to insist upon immediate payment, and failing immediate payment to sue for and recover their debts by process of execution.

The effect of the assignment was to defeat or delay the creditors in two respects--in the first place as to the method of payment, and in the next place as to time of payment.

Under the deed the trustees are to exercise their discretion as to both the method and time of payment. If they saw fit, they might pay by instalments.

This arrangement might possibly turn out to be for the ultimate benefit of the general body of creditors, but at the same time it was an arrangement which they were not bound to accept.

From this point of view, therefore, it seems to me, I must hold that the assignment was fraudulent, and that moreover it was executed with the intent to defeat and delay creditors within the meaning of sec. 9 of the Act.

It has been suggested that the circumstances of this case, are very different from the circumstances of some of the cases cited as in these cases, the assignments were for the benefit of one particular creditor, but in my opinion the distinction is not one of principle but is one of degree only.

All those cases are cases in which the assignor has been acquitted of any moral blame, but still it was held that the assignment was fraudulent and void as against creditors.

Where the assignment is in favour of one particular creditor, the unfavourable operation of the assignment is more obvious and palpable than in a case where the assignment is to trustees and it is stated to be for the benefit of the general body of creditors. It has been urged that as regards the Calcutta creditors all of them except the adjudicating creditors, are prepared to accept the arrangement made by the settler. It is obvious of course that the Calcutta creditors are those who would be more unfavourably affected by this settlement than those at Allahabad, where the main business of the settler was carried on, because it is admitted that not only is the Calcutta business closed, but all the stock in-trade which might have been liable to attachment at the instance of a Calcutta creditor, has been removed to Allahabad.

Still though the majority of the Calcutta creditors may be ready to accept the arrangement, and though this fact tends to show that the arrangement would, in the end, probably prove beneficial to the general body of creditors, it is one which the adjudicating creditors were not bound to accept, and they were, therefore, entitled to rely on it as an act of insolvency for the purpose of adjudicating the debtor an insolvent. If 1 had taken another view of this point, the question would still remain as to whether the departure of the Gomastha under the circumstances and under the instructions of the debtor did not constitute an act of insolvency.

The difficulties which arose in Dhunput Singh''s case are absent from this, and I am inclined to think that the departure of the Gomastha did, under the circumstances, amount to an act of insolvency on the part of the debtor.

For all these reasons, I think the application for revocation of the order of adjudication fails and must be dismissed. The adjudicating creditors may add their costs of this application to their claim with liberty to apply for payment hereafter.