K.V. Thomas vs Naina Mathai

Janaki Amma, J.—The revision Petitioner filed LP. No. 2 of 1972 before the Munsiff, Thiruvalla stating that he owed an amount of Rs. 273926 to the Respondent under a decree O.S. No. 186 of 1972 of that court, that he had no other liability, that he had no property movable or immovable, that he had no means to pay the debt and that he should be adjudicated an insolvent. The Respondent opposed the prayer. He contended that the revision Petitioner has not disclosed ail his assets, that he is getting military pension, and income from his properties, that he has executed Ext. B-2 a sham document of assignment in respect of 40 cents of property on 24th June 1970 in favour of his wife''s uncle and that he owed another debt to the Syndicate Bank as per Ext. B-1 plaint in O.S. No. 153 of 1972 of the Sub Court, Kottayam. The Munsiff held that the revision Petitioner owed another debt exceeding Rs. 3,000 which was the subject-matter of Ext. B-1 plaint, that he was still in possession of Ext. B-2 property, that the Petition was defective in as much it did not include all the assets and liabilities of the revision Petitioner and that there was no bona fides for the Petition. The Petition was dismissed. The findings were confirmed in appeal by the Subordinate Judge, Alleppey.

There is considerable weight in the contention put forward by the revision Petitioner that the courts below have misdirected themselves as to the exact scope of Section 10 of the Insolvency Act - Kerala Act 2 of 1956 (for short the Act) - and of the enquiry contemplated u/s 24.

u/s 7 of the Act an insolvency Petition may be presented either by a creditor or a debtor on the debtor committing an act of insolvency. Acts of insolvency are detailed in Section 6 and under Clause (f) if the debtor Petitions to be adjudged an insolvent, that itself amounts an act of insolvency. Section 10 lays down the conditions on which debtor may Petition. Section 10(1) reads:

A debtor shall not be entitled to present an insolvency Petition, unless he is unable to pay his debts; and

(a) his debts amount to five hundred rupees, or

(b) he is under arrest or imprisonment in execution of the decree of any Court for the payment of money, or

(c) an order of attachment in execution of such a decree has been made, and is subsisting, against his property.

Section 24 lays down the procedure at hearing of the Petition. I shall quote Section 24(1).

(1) On the day fixed for the hearing of the Petition, or on any subsequent day to which the hearing may be adjourned, the court shall require proof of the following matters, namely:

(a) that the creditor or the debtor, as the case may be, is entitled to present the Petition:

Provided that, where the debtor is the Petitioner he shall for the purpose of proving his inability to pay his debts, be required to furnish only such proof as to satisfy the court that there are prima facie grounds for believing the same and the court, if and when so satisfied, shall not be bound to hear any further evidence thereon;

(b) that the debtor, if he does not appear on a Petition presented by a creditor, has been served with notice of the order admitting the Petition; and

(c) that the debtor has committed the act of insolvency alleged against him.

It is clear that the enquiry contemplated of the debtor''s inability to pay his debt is of a summary nature and prima facie proof thereof alone is expected under the section.

It is outside the scope of an enquiry u/s 24(1) to find out whether the debtor has committed acts of dishonesty in respect of his property or whether documents of transfer executed by him are sham and as such inoperative against creditors. Such matters according to the scheme of the Act are relegated to a later stage when proceedings are taken under Sections 54 and 55 when the debtor moves for discharge.

Reference may be made to the decision of the Privy Council in Chhatrapat Singh Dugar v. Kharag Singh Lachmiram ILR Cal. 535. A Petition presented by the Appellant in that case under the Provincial Insolvency Act III of 1907 was dismissed by the District Court and the High Court holding that it was an abuse of process of Court. Sir Lawrence Jenkins observed:

In clear and distinct terms the Act entitles a debtor to an order of adjudication when its conditions are satisfied. This does not depend on the court''s discretion but is a statutory right; and a debtor who brings himself properly within the terms of the Act is not to be deprived of that right on so treacherous a ground of decision as an ''abuse of the process of the court''. This case illustrates the peril of this doctrine in India, for what has been treated by the courts below as such an abuse appears to Their Lordships in no way to merit this censure. It may, perhaps, give rise to a contest for priority between competing creditors, but that will be, if necessary, a matter for decision hereafter in the course of the insolvency. Be that, however, as it may, Their Lordships are now concerned only with the debtor''s position; and as to that they are satisfied that he has complied with all the conditions specified in the Act, and is entitled as of right to an order adjudging him an insolvent. This conclusion, apart from the decision under appeal, is in agreement with the current of authority in India, where it has been rightly held that the stage at which to visit with its due consequences any misconduct of a debtor is when his application for discharge comes before the court, and not on the initial proceeding.

Krushna Chandra Das Vs. The Orissa Textile Mills Ltd. and Others, is a case arising under the Provincial Insolvency Act, 1920. The observations of Barman, J. apply with equal force to the provisions of the Act.

The proviso to sub-Section (1) of Section 24, which lays down the procedure for hearing, requires the debtor to furnish only such proof as to satisfy the court that there are prima facie grounds for believing that he is unable to pay the debts; under Sub-section (2) the creditors have a right to question the debtor as regards his conduct, dealings and property but there is nothing in the section which would empower the creditors to produce substantive evidence as regards the concealment of property by the debtor; it is only at the stage of making the order of discharge that the question as regards the concealment of property or the question of the debtor being guilty of any fraud or fraudulent breach of trust can be raised and it is only at that stage that the creditors are entitled to adduce evidence on these points, Narayan Mistri Vs. Ram Das and Others, .

The latest decision which has been brought to my notice - Lingasami Goundar Vs. S.K. Subramanian and Others, - also adopts the same view.

In the instant case the presentation of the Petition to be adjudged insolvent was itself an act of insolvency u/s 6. Even going by the Respondent''s case the debts of the Petitioner amount to more than five hundred rupees. There are no documents slowing that he is possessed of properties. Ext. B-2 prima facie shows otherwise. Going by the evidence of the Petitioner, his assets are his Military Pension and a gold ring given to him by his wife at the time of his marriage. These are insufficient for discharging his debts. Prima facie the Petitioner is unable to pay his debts. The conditions u/s 10 of the Act are thus satisfied.

The Petitioner is entitled to be adjudged an insolvent. The matter is sent back to the Munsiff for a formal order of adjudication and for further steps. The revision Petition is allowed as above with costs.