Mohammad Alam vs Babulal Marwari and Others

Courtney-Terrell, C.J.—This is an appeal from an order of the District Judge of Monghyr, refusing the petition of the appellant for an adjudication in insolvency. The District Judge heard the appellant from whom it was elicited in cross-examination by the creditors that he had assigned the greater part of his property to his wife in satisfaction of an alleged dower debt. The Judge allowed the creditors to offer evidence and upon this evidence he came to the conclusion that the transfer of property was a mere farzi transaction, that the appellant was in fact still in possession of and controlling the property, and the Judge was not satisfied that the appellant was unable to pay his debts. He therefore rejected the petition. It has been contended on behalf of the appellant that the Judge at that stage of the inquiry was not entitled to take evidence on behalf of the creditors and even if so entitled should not have found that the transfer to the wife was farzi, and further that even if so entitled the finding of fact was unjustified. As to the last point, I am entirely in agreement with the learned Judge. It is unnecessary to go into the facts beyond stating that on the evidence at that stage before the Court the transfer was of a farzi nature and the property really remained with the appellant. The substantial dispute has been upon the proper construction to be put upon the proviso to Sub-section (4) of Section 24, Provincial Insolvency Act:

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.

It is contended that the Judge must form his opinion upon the evidence supplied by the debtor petitioner and must confine himself to that evidence only. It is conceded that the petitioner may be subjected to cross-examination but it is contended that at that stage of the proceedings the Judge should not have admitted any evidence offered by the creditors. Now there have been some decisions of this Court which would seem to imply that the appellant''s argument is well founded. The principal of these is the case of Narayan Mistri v. Ram Das 1928 Pat 477 decided by Kulwant Shay and Macpherson, JJ. Kulwant Sahay. J., after reading the proviso, went on to read Sub-section (2):

The Court shall also examine the debtor, if he is present, as to Ms conduct, dealings and property in the presence of such creditors as appear at the hearing, and the creditors shall have the right to question the debtor thereon;

and Sub-section (2) of Section 25:

In case of a petition presented by a debtor, the Court shall dismiss the petition if it is not satisfied of his right to present the petition.

In that case also the Court had examined a certain transfer made by the debtor with a view to finding out whether it was benami or not. Sahay, J., was of opinion that there was no provision in Section 24 to enable the creditors to produce evidence in support of their allegation that the transfer was benami, but that their activities were limited to cross-examination. On the facts he found on the evidence as it stood that it was not possible to hold that the transfer was in fact benami. Macpherson, J., agreed to the order setting aside the order of the District Judge, but he clearly indicated that he did not agree with the reasoning of Sahay, J. He further expressed the view that the decision in Bhagirathi Chaudhry v. Mt. jamuni 1927 Pat 188 upon which Sahay, J., had founded his judgment was not rightly decided. In Bhagirathi Chaudhry v. Mt. jamuni 1927 Pat 188 decided by Adami and Scroope, JJ., the learned District Judge had allowed evidence to be given on both sides to show whether a transaction as to a part of the property of the debtor was benami or not. The Judge finding that it was benami held that the debtors had sufficient funds to pay their debts and dismissed their application. Adami, J., in giving judgment used this expression:

At the stage of the application for adjudication no very careful inquiry is necessary with regard to the inability to pay debts. If the Court is satisfied that a prima facie case is established by the debtor, the Court will adjudicate him to be an insolvent; and indeed the consideration of the further question as to whether there has been a concealment of property and as to title to property is deferred till the stage when the discharge is applied for.

Now to the extent that the District Judge''s inquiry, in so far as it went into the question of title and in so far as it decided that question, was certainly erroneous. The only question before the Court was as to whether the debtor was able to pay his debts, and in my opinion the decision of the learned Judges that the District Judges should not have gone into the question at all was wrong. I agree with the opinion of Macpherson, J. In the earlier case, Gobind Prasad Gir v. Kishun Lal Dhokri 1924 Pat 166, the Court dealing with the words "unless he is unable to pay his debts" pointed out that they were for the first time introduced into the present Section 10, Sub-section (1), by the Act of 1920. "A debtor shall not be entitled to present an insolvency petition unless he is unable to pay his debts", and that the Court should not pronounce adjudication until satisfied upon this point. This case however did not deal with the question of whether the creditor was entitled to adduce evidence. More recently in Ganesh Lal Sarawgi v. Sanahi Ram 1933 Pat 43 I said:

There has been a tendency for Courts administering the Insolvency Act to believe that the hearing of a petition is a more or less formal matter and that if the petition is, as it were, merely verified by the evidence of the debtor the Court is bound to accede to the petition. That is not the case. It is the duty of the Court to be satisfied prima facie, and after following the necessary procedure and making the necessary investigation, to come to a conclusion that the statements by the debtor are true. After all the procedure of insolvency is for the protection of creditors quite as much as for the protection of debtors. It is unfortunately more often used by debtors than by creditors with the consequence that the interest of the creditor has a tendency to be forgotten.

The case was remanded to be re-heard and I said:

The matter should be re-heard and the applicant who will be in a position to adduce such evidence as he may be advised for the purpose of inducing the Judicial Commissioner, acting on the principles I have stated, to make the order in his favour. The creditors will be equally entitled to call such evidence as they think fit to throw discredit upon the statements in the petition.

This case was followed in Jagarnath Sahu v. Beni Prasad 1934 Pat 97. In using the expression "the creditors will be equally entitled to call such evidence, etc." I think I went too far. The meaning of the proviso is merely that the Court is enabled to deal summarily with the opposition by the creditor, that is to say the Court must listen to such evidence as the debtor may care to adduce and the debtor may be cross-examined, and if the Judge is satisfied after such hearing he may refuse to hear any further evidence and may grant the adjudication, but this is very far from saying that the Judge, if he shall be inclined to hear any evidence presented by the creditor, is not entitled to hear such evidence. He may, if he likes, hear the evidence and may hear as much evidence as he may think fit in the circumstances which will vary of course according to the difficulty of the case. In the case before us, the Judge exercised the discretion given to him, and after hearing the evidence tendered by the debtor and such evidence of the creditor as he chose to admit he found that he was not satisfied that the debtor was unable to pay his debts. The order therefore was correct and the appeal must be dismissed with costs to the contesting respondents.

Dhavle, J.

I agree.

Agarwala, J.

I agree