Kaku Chenchuramana Reddi vs Palapu Arunachalam

Horace Owen Compton Beasley, Kt., C.J.—This Civil Miscellaneous appeal raises an important and interesting question. The appellant

here presented a petition praying that the respondent should be adjudicated an insolvent under the Provincial Insolvency act. The chief act of

insolvency alleged in the petition was the execution of a sale-deed on 28th February, 1931 in favour of a close relative of the respondent. This act

of insolvency admittedly occurred more than three months before the date of the presentation of the petition which was dated 29th June, 1931.

The three months'' period ended on 28th May, 1931 but that was during the lower Court''s vacation and the petition was accordingly presented on

the re-opening day. The question is whether the period of three months stated in Section 9 (1)(c) of the Provincial Insolvency Act is a period of

limitation or a condition precedent. The learned District Judge rightly states that this is a question which is not easy of solution. He, however, felt

himself bound by the judgment of Spencer, J. in Aiyapparaju v. Venkatakrishnayya (1922) 44 M.L.J. 303 and held that the three months stated is

a condition precedent to the filing of a petition and is not a period of limitation. The section in question, namely, Section 9 of the Provincial

Insolvency Act reads as follows:

(1) A creditor shall not be entitled to present an insolvency petition against a debtor unless * * * (c) the Act of insolvency on which the petition is

grounded has occurred within three months before the presentation of the petition.

It was contended here and in the lower Court by the petitioner that Sub-clause (c) provides a period of three months from the occurrence of the

act of insolvency relied upon within which the petitioner can present a petition and therefore that period is a period of limitation. Much reliance was

placed by the appellant''s counsel on a decision of Krishnan Pandalai, J. in Narayana Aiyar v. Official Receiver, South Malabar, Calicut (1933) 39

L.W. 449 : 150 I.C. 339. There, the respondent, the Official Receiver, filed a petition under Sections 4, 53 and 54 of the Provincial Insolvency

Act against the appellant to declare his mortgage invalid as a fraudulent preference. The mortgage was executed on 13th March, 1924 and the

insolvency petition was presented on 16th June, 1924 on the re-opening of the Court after vacation, that is, more than three months from the date

of the mortgage-The Subordinate Judge held that Section 10 of the General Clauses Act applied to extend the time given by Section 54. The

District Judge held that there was no warrant for such extension as the three months mentioned in Section 54 is not a period of limitation. In second

appeal, Krishnan Pandalai, J. held (i) that Section 10 of the General Clauses Act would not, by the proviso to that section, apply to provincial

insolvency proceedings after the amendment of the Limitation Act in 1922 by the insertion of Section 29 (2), (ii) that Section 4 of the Limitation

Act applies though the effect is the same as if Section 10 of the General-Clauses Act applied, (iii) that an insolvency petition which by Section 9(1)

(c) of the Act should be presented within three months of the act of insolvency-in that case the mortgage would, if three months expired as it did

there during the vacation of the Court, be validly presented on the re-opening of the Court, (iv) that the period of three months mentioned in

Section 54 is a period of limitation and not a condition precedent incapable of extension and a valid presentation u/s 9 of the Act is valid for the

purposes of the whole Act and (v) that the appellant''s mortgage was hence made within three months before the presentation of the petition and

therefore it had to be considered whether in other respects it amounted to a fraudulent preference. With great respect to the learned Judge, I am

unable to agree with his conclusion that Section 54 provides a period of limitation. A transfer which is a fraudulent preference is also an act of

insolvency upon which a petition for adjudication can be founded and Section 54 is, as regards the period of three months, in my view, quite

definite. It means that, if, within three months from the date of the transfer, a petition for adjudication is presented upon which the debtor is

subsequently adjudicated an insolvent, the transfer is liable to be impeached as a fraudulent preference. As such, it is also an act of insolvency. A

debtor making such a transfer knows that he is, within three months from the date of his transfer, liable to have a petition in insolvency presented

against him; the transferee-creditor knows that he is running a risk within those three months of having the transfer set aside thereafter as a

fraudulent preference under the Insolvency Act; and I see no warrant for supposing that after the expiry of the three months the debtor and the

creditor are to be subject any longer to their respective risks. As soon as the three months'' period has expired, the transaction ceases to be

impeachable under the Insolvency Act and in my view therefore the transfer ceases on that day to be an act of insolvency. The object of the Act is

to prevent a debtor on the eve of his insolvency from intentionally preferring a creditor to his other creditors. The Act specifies a period of three

months. Krishnan Pandalai, J., however, is of the opinion that it can be more than three months, namely, that it can be some period just short of

three months plus the vacation of the Court in whose jurisdiction the debtor is. He thinks that any other view would lead to an impossible result

because in certain cases it would cut down the period of three months from the date of insolvency beyond which period no insolvency petition

could be presented. He regards this as unreasonable. I do not see that it is as unreasonable as extending the period beyond that stated in the Act

which would have the result of extending the risk of the debtor and of the transferee-creditor beyond that stated in Section 54. The conclusion

reached by Krishnan Pandalai, J., can only be reached by looking forward from the date of the act of insolvency and giving a creditor three

months'' time from that date in which to present his insolvency petition. On the other hand, I am of the view that Section 9(1)(c) is a condition

precedent to the filing of the petition, that is to say, the petitioning creditor must, on the day when he presents his petition, have in view some act of

Insolvency which the debtor has committed within the preceding three months. He has to see on that date, and on that date only, what acts of

insolvency; are available to him; and he cannot make use of any act of insolvency which has been committed outside the period of three months as

that has ceased to be an act of insolvency.

The English case of Ex parte Games, In re, Bamford (1879) 12 Ch. D. 314 appears to me to be in point. There, Thesiger, L.J. on page 324

says:

With regard to the other point, I will assume with Mr. Winslow that the execution of the deed was an act of bankruptcy, and might have been set

aside as an act of bankruptcy if any creditor had availed himself of it in sufficient time. But no creditor did avail himself of it, and the time for doing

so has passed by. What, then, is the position of things under, the bankruptcy law? It appears to me that no consequence whatever can follow from

an act of bankruptcy of which the creditors might have availed themselves if they had applied in time, but of which they did not avail themselves as

an act of bankruptcy within the time limited by the Bankruptcy Act. This point was really decided by Lord Justice Giffard in Allen v. Bonnett

(1870) L.R. 5 Ch. App. 577 where he said at page 582:-''It appears to me to follow from this section that where there is a deed which cannot be

set aside under the statute of Elizabeth, or generally as fraudulent--including in the term a fraudulent preference--but solely and only as being an act

of bankruptcy, the lapse of twelve months before any fiat issues validates that which would otherwise be impeachable; and that if a given

transaction of this description cannot be treated as a ground for adjudication, it cannot be treated as having the consequences of an act of

bankruptcy in any sense or for any purpose''.

The view there expressed is that the act of the debtor and his transaction are validated as soon as the period stated has expired. Taking a

fraudulent preference as an act of insolvency, for the reasons I have already stated, Section 9(1)(c) does not provide a period of limitation. If it

does not do so in the case of one act of insolvency, it cannot do so in relation to any act of insolvency. I am not impressed with another argument

addressed to us, namely, that, where a person is under any act in force entitled to do something, that person is not to be prevented from exercising

that act by, as in this case, the closing of the Court for the vacation because, in my opinion, general principles such as this cannot alter an act which

by statute is defined as an act of insolvency, namely, a fraudulent preference of a creditor within three months of the presentation of an insolvency

petition. For these reasons, I am of the opinion that the Lower Court''s decision was correct and this Civil Miscellaneous Appeal must be

dismissed with costs.

Cornish, J.

I agree. I think the language of the Act itself makes it clear that Section 9 fixes the conditions and not a period of limitation to a creditor''s right

to present an insolvency petition. Section 7 provides that-

Subject to the conditions specified in this Act, if a debtor commits an act of insolvency an insolvency petition may be presented by a creditor and

the Court may on such petition adjudicate the debtor insolvent."" The conditions are specified in Section 9, which says, in Sub-section 1(c), that a

creditor shall not be entitled to present a petition against a debtor ""unless the act of insolvency on which the petition is grounded has occured within

three months before the presentation of the petition"". So that, according to the terms of the Act, the debtor''s act of insolvency is the foundation of

the creditor''s right to present a petition to have the debtor adjudicated, and unless the act of insolvency took place within three months before the

presentation of the petition it will not serve to support the petition. This is the effect of the ruling in Ex parte Games, In re, Bamford (1897) 12 Ch.

D. 314. Again in In re Maund, Ex parte Maund (1895) 7 Q.B. 194 where it was sought to amend a petition by adding creditors after more than

three months from the date of the act of bankruptcy it was held that the amendment could not be made, because the Court had no power to make

a person a petitioning creditor on any other ground than was prescribed by the Act itself, namely by Section 6(c) of the Bankruptcy Act, 1883.

This section, it may be observed, was similar to Section 9(1)(c) of the Provincial Insolvency Act. Then, if, as these authorities decide, an act of

insolvency ceases after the lapse of three months to be a valid ground of adjudication, it cannot be made so by Section 10 of the General Clauses

Act. This section adopts and declares the equitable rule that when a fixed period is given for doing a certain act, and the party bound to do it within

that time is prevented by the act of the Court itself in being closed on the crucial date, the party may do the act on the Court''s re-opening day. But

no period is fixed by the Insolvency Act for presenting an insolvency petition. What the Act provides is that a creditor shall not be entitled to

present a petition grounded upon an act of insolvency which occurred more than three months before, which is quite a different thing from saying

that a petition may be presented within three months from the commission of an act of insolvency.

Pandrang Row, J.

I agree with my Lord The Chief Justice.