In Re: S.P.S.A.L. Ramaswamy Chetty, an Insolvent

Somayya, J.—The decree in O.S. No. 13 of 1925 was being executed by the Official Assignee of Madras in the Sub-Court of Devakottah.

Meanwhile another person who obtained a decree in O.S. No. 56 of 1931 brought certain properties to sale in execution of his decree. Some

properties were sold in execution of that decree and the deposit of one-fourth of the purchase money was made on 23rd September, 1940. Mr.

R. Rama Aiyar, Advocate, Devakottah, who was appearing for the Official Assignee of Madras wrote on 24th September, 1940, intimating the

proceedings in O.S. No. 56 of 1931. He advised the Official Assignee that an application for rateable distribution must be filed and stated that the

matter was urgent. This was in view of the fact that the application for rateable distribution, if any, should be filed before the purchaser paid the

balance of the purchase money into Court. On 26th September, 1940, the Official Assignee sent the necessary papers and the application was

filed in the Sub-Court of Devakottah. In the course of the hearing of that application it transpired that at a prior stage in the course of execution of

the decree in O.S. No. 56 of 1931, the judgment-debtor gave a charge to the decree-holder over some of the properties for the purpose of

obtaining time for payment of the decree amount. It was those properties that were brought to sale and the money in Court represented the sale

proceeds of those properties. Taking the view that the proceeds realised from the sale of those properties were not available for the purpose of

rateable distribution u/s 73, Civil Procedure Code, the Subordinate Judge rejected the application of the Official Assignee with costs. Then he

made the following direction:

Having regard to the facts of this case, I think that I must also state in this application that the costs of this application shall not be debitable to the

estate of the insolvent whom the petitioner is said to represent.

The Official Assignee after getting the necessary information from his advocate files this report and requests that he should be authorised to pay

the costs which he himself incurred : and which he was directed to pay to the opposite side in this application from out of the estate which he

represents. I see absolutely no justification for the direction made by the Subordinate Judge. Further I doubt very much whether he had any

jurisdiction to make this direction. The Official Assignee in the City of Madras or the Official Receiver in the mofussil is an officer of Court

discharging his function to the best of his ability. Some are salaried officers and some are remunerated otherwise. They ought not to be made

personally liable for costs as between them and the estate which they represent, unless they are guilty of gross misconduct in taking the action

which they take.

When the Official Assignee or the Official Receiver files a suit in a Court other than the Insolvency Court of which he is the insolvency officer,

the Court trying the suit or the application may dismiss the suit or the application with costs. In such a case, the plaintiff or the applicant, that is, the

Official Assignee or the Official Receiver is always personally liable for costs. Before filing the suit or the application he ought to see whether there

are funds in the estate and in cases where there are no funds, it is his duty to take an indemnity from someone before filing the suit or the

application. Even in such cases the Court trying the suit or the application may say that the costs should come out of the estate, but unless it is so

said, the plaintiff or the applicant will always be personally liable to the successful party.

But where the Official Assignee or the Official Receiver is a defendant or a respondent, the position is different. In such a case he has to defend

the action or at least to put the plaintiff or the applicant to proof of his claim and to watch the proceedings to see that the claim is properly proved.

In such a case there is no justification whatever for the Court to make the Official Assignee or the Official Receiver personally liable to the plaintiff.

Even if he had remained ex parte some costs would have to be paid to the plaintiff or the applicant and that can only be out of the estate. So where

the Official Assignee or the Official Receiver appears and is not guilty of gross misconduct in his defence, the usual rule ought to be that the costs

should come out of the estate.

In any case the Court before which the suit or the application comes on, has no jurisdiction to say whether the Official Assignee or the Official

Receiver should or should not debit it as against the estate which he represents. That is a matter for the Insolvency Court of which he is the Officer.

It is not merely the costs payable to the other side that are involved. He incurs some expenses in addition to those which he is obliged to pay to the

other side. Even where he is successful, what he gets from the other side may not represent all that he spends. In all those cases, the usual rule is

that he is entitled to debit it to the estate which he represents. In cases where his action is grossly unfair and loss is occasioned to the estate by his

negligent conduct, there is ample provision in the Insolvency Act to make the Official Assignee or the Official Receiver personally liable for all the

loss caused to the estate by his negligence or misconduct. But that is for the Insolvency Court to say whether he ought to debit it against the estate

or not. The Court trying the suit or application has, in my opinion, no jurisdiction to say anything on this matter.

In Pitts v. La Fontaine (1881) 6 A.C. 482 the Judicial Committee said:

In an action at law a trustee in bankruptcy would be liable in the same way as any other plaintiff. In a case where a trustee makes an application,

the success of which is doubtful, he ought, before making it, to get from the creditors an indemnity against the costs if he knows that there are no

assets out of which they can be paid....

In every case of that kind, of course, the question may arise whether the trustee, having had to pay costs to the party aggrieved by an unsuccessful

and improper claim, may not, if he has acted bona fide, have a case for recouping himself out of the bankrupt''s estate if there are funds. That is a

question to be determined in a Court of Bankruptcy in an administration of the bankrupt estate. Any order of their Lordships here against La

Fontaine would, of course, leave that question open. It is a question with which their Lordships have nothing to do and on which they express no

opinion. But it is clear that, whatever La Fontaine''s rights in that respect may be, it affords no reason for depriving Mr. Pitts of that which the order

gave him and gave him, consistently with the general law.

In cases where he is a defendant and he does not appear, no costs ought to be given against him personally. In Dansk Rekylriffel Syndikat

Aktieselskab v. Snell (1908) 2 Ch. 127 the Court of Appeal laid down that where the trustee in bankruptcy is a defendant, costs ought not to be

given against him personally:

In the present case, the matter is additionally complicated by the fact that the defendant Snell became bankrupt, and the proceedings were ordered

to be carried on as against his trustee in bankruptcy, but the trustee entered no appearance. Under those circumstances I think the costs ought not

to be given against him personally.

The reason is also obvious. He is brought into Court against his wish and he does not take any part in the proceedings other than watching the

proceedings. In a case where he is made a defendant, the proper thing for the Official Assignee to do is merely to see that the claim is properly

proved and to watch the proceedings unless there are funds in the estate to pay the plaintiff''s costs or he is indemnified by a creditor to put

forward defences and fight the plaintiff. He is entitled and indeed, he is bound in my opinion to appear for the purpose of seeing that the claim is

properly proved and if he does no more than that, the principle laid down by the Court of Appeal in the case just referred to should apply. In Ex

parte Stapleton : In re Nathan (1875) 10 Ch. D. 586 the Court of Appeal decided that a trustee in bankruptcy who is a respondent to a successful

appeal will not be ordered to pay costs personally, that is, if he is only a respondent and not the appellant, even if the appeal succeeds, the order

will not be made for costs personally but the order will be for payment of costs out of the estate.

James, L.J., said:

The order will be for payment of the costs out of the estate, not by the trustee personally. He is not the appellant.

No doubt that is not an inflexible rule, and in a proper case an order for costs against him personally might be made. In re Neil Mackenzie : Ex

parte The Sheriff of Hertfordshire (1899) 2 Q.B. 566 Lindley, M. R., dealing with the request that the respondent who was the trustee in

bankruptcy should not be made personally liable said this as regards the decision in Ex parte Stapleton : In re Nathan (1875) 10 Ch. D. 586:

I do not think the practice is so settled as that The Court must consider what is the trustee''s right in each particular case. Our order now is that the

appeal must be allowed with costs.

Wallace and Thiruvenkatachariar, JJ., pointed out in A.V. Balakrishna Menon, late Official Receiver Vs. Kakkat Manakkal Uma alias

Pattanadi Andarjanam and Others, that when the matter arises not in the Bankruptcy Court but in the ordinary Civil Court, and the order is that the

plaintiff or defendant (appellant or respondent) is directed to pay costs, it means that he is to pay the costs personally even when he is the Official

Receiver but there they were dealing with the construction of an order which had already been passed against the Official Receiver in a civil suit. At

p. 267 this is what they say:

It follows that in a case like the present, in which we are concerned with a decree in an ordinary action, the party mulcted in costs is personally

liable for those costs and the Official Receiver is therefore under the decree in question, personally liable for the costs. It is open to him to apply to

the Insolvency Court for an order that he may reimburse himself out of the estate. It may, even, be open to him to reimburse himself out of the

estate, without an order of the Court; and, as between himself and the estate, he shall not be liable for costs unless the Insolvency Court by a

specific order so directs.

That even a Civil Court may in a proper case order costs to come out of the estate and not pass an order against the Official Receiver

personally is recognised on p. 274. So the result is that the ordinary Civil Court may as between the parties to that action give costs against the

Official Receiver without limiting it to the estate in his hands. In such a case he will be personally liable whether as a plaintiff or as a defendant. But

in doing so, the Courts will be guided by what I have stated above as to the rules which should guide the Court before passing a decree of the one

kind or the other. But it is not the province of the Civil Court to say whether the Official Assignee or the Official Receiver can, as between himself

and the estate which he represents, take the costs out of the estate or not. In the words of Wallace, J., in the case just referred to:

It is open to the Official Receiver to reimburse himself out of the estate even without an order of the Insolvency Court and as between himself and

the estate, he shall not be liable for costs unless the Insolvency Court by a specific order so directs.

The request of the Official Assignee is granted.