Nagarpur Sambayya vs Nagarpur Pedda Subbayya

Venkataramana Rao, J.—This appeal raises a question of limitation. The suit was to recover a sum of money due in respect of two

promissory notes dated 7th May, 1922, executed by the defendant in favour of the plaintiff. Subsequent to the execution of the promissory notes,

the creditors, presented a petition in insolvency on 7th November, 1922, to adjudicate the defendant an insolvent. The order of adjudication was

passed on 21st March, 1923. The adjudication order was annulled on 5th April, 1928. The suit was instituted on 23rd October, 1930. The

plaintiff seeks to escape the bar of limitation by alleging that he is entitled to exclude the whole period during which the proceedings in insolvency

were pending, that is, from 7th November, 1922, the date of the presentation of the insolvency petition to 5th April, 1928, the date of annulment.

The contention of the defendant is that the plaintiff is entitled to exclude only the period from the date of the order of adjudication, namely, 21st

March, 1923, to 5th April, 1928, the date of annulment. The learned District Judge has given effect to the contention of the defendant and hence

this appeal is preferred by the plaintiff.

The question is, is this view right ? The relevant provision bearingonthe question is Section 78,Clause (2) of the Provincial Insolvency Act which

runs thus:

Where an order of adjudication has been annulled under this Act, in computing the period of limitation prescribed for any suit or application for the

execution of a decree (other than a suit or application in respect of which the leave of the Court was obtained under Sub-section (2) of Section 28)

which might have been brought or made but for the making of an order of adjudication under this Act, the period from the date of the order of

adjudication to the date of the order of annulment shall be excluded.

Unfettered by authority according to the plain terms of the section, the period of exclusion is that from the date of the order of adjudication to

the date of the order of annulment. But it is contended that the date of the order of adjudication in Section 78,Clause (2) must be deemed to be the

date of the presentation of the petition and reliance is placed on Section 28,Clause (7) of the Provincial Insolvency Act, which provides that:

An order of adjudication shall relate back to and take effect from the date of the presentation of the petition on which it is made.

The contention is outlined thus. Section 28, Clause (7) is a general section relating to ''adjudication and the consequences of adjudication'' and

must govern the interpretation of the expression ''the order of adjudication'' wherever it occurs in the Act. This contention seems to be untenable on

an examination of the principle underlying that provision and other sections of the Act, where the expression '' order of adjudication occurs''.

Section 28, Clause (7) only enunciates the well-known doctrine of relation back in insolvency law. The principle underlying that doctrine is that the

adjudication has relation to the act of bankruptcy and the property vests by relation from that time in the trustee in bankruptcy, that is, the title of

the trustee in bankruptcy or receiver relates to the commencement of the insolvency. This is the English rule. Under the English law, the insolvency

commences either on the date of the presentation of the petition, or from the earliest act of insolvency committed within three months before the

date of the presentation of the petition and ramana the title; of the trustee in bankruptcy relates to that date. It is also the law under the Presidency

Towns Insolvency Act. u/s 28, Clause (7) of the Provincial Insolvency Act, the insolvency commences from the date of the presentation of the

petition. We do not think that a different rule from the English law and that laid down in the Presidency Towns Insolvency Act was intended to be

laid down in regard to the legal consequences flowing from the doctrine of relation back. The only difference as pointed out by Mulla (p. 413) is as

to the point of time when the insolvency commences. The whole of Section 28 deals with the property of the insolvent and the order of

adjudication relates back and takes effect from the date of the presentation of the petition, vesting the property of the insolvent in the official

receiver as from that date. As explained in In re Polli (1893) 1 Q.B. 455:

The result of the relation back is that all the subsequent dealings with debtor''s property must be treated as if the bankruptcy had taken place at the

moment when the act of bankruptcy was committed.

Vide Kalianji v. The Bank of Madras (1915) 29 M.L.J. 788: ILR 39 Mad. 693 wherein In re Pollitt1 is cited with approval. And the same view

is expressed in Rachamadugu Rangiah and Others Vs. Y.V. Appaji Rao, a case on which strong reliance was placed by the appellant--where the

learned Judges observe at p. 302 of Rachamadugu Rangiah and Others Vs. Y.V. Appaji Rao, that:

Section 28, Clause (7) is a general clause which applies to all dealings by or with the insolvent, unless any particular dealing is expressly exempted

from its operation.

The question now under consideration has nothing to do with any dealing by or with the insolvent but it relates to the maintainability of the action

on a debt due by him in a Court of law. The relevant provisions which deal with the effect of the insolvency on the maintainability of actions are

Sections 28, 29 and 78. It will be seen from these three sections that the material date is the date of the order of adjudication. The insolvency does

not per se bar the maintenance of an action. Before the date of the adjudication the action is maintainable without the leave of the Insolvency Court

but thereafter, that is, after the date of the order of adjudication, the action is not maintainable without leave. If an action has been commenced

before the date of the order of adjudication, the moment the order of adjudication is passed, the Court before which the suit is pending can either

stay or continue it. The statute of limitation for the maintenance of an action at law, once it has commenced to run, will continue to run in spite of

the presentation of the petition in insolvency. If the order of adjudication is made, the operation of the statute of limitation is suspended till the date

of the annulment and if the adjudication is annulled, the period between the date of the adjudication and that of annulment is excluded and the

statute begins to run immediately on annulment. If no order of adjudication is made, the insolvency does not save the claim from being barred by

limitation. So, under the law as it stands, a prudent creditor in order to keep his debt alive, will be obliged to file a suit to save it from the bar of

limitation in spite of insolvency. No doubt, it may in a sense be futile, if an order of adjudication takes place; but he runs the risk of losing the claim

altogether if no adjudication is made. If the presentation of an insolvency petition per se laid the creditor under a disability, of course, it may stand

to reason that the time occupied by the pendency of the insolvency, that is, commencing from the date of the petition should be excluded; but since

the creditor is placed under no such disability, the legislature has provided that the period during which he is under a disability should be excluded.

Considerable reliance was placed on the decision in Mulukutla Atchuta Ramayyagaru Vs. The Official Receiver, East Godavari, . It was no doubt

held in that case that a suit filed and a decree obtained therein after the date of presentation of the insolvency petition and before the date of

adjudication were held to be incompetent because the leave of the Insolvency Court had not been obtained before the commencement of the suit.

With respect, we are unable to follow this decision. If a suit can be filed by a creditor without leave before the date of the order of adjudication

and the Court before which it is filed has jurisdiction to entertain it and pass a decree thereon, it is difficult to understand how an order passed ex

post facto by another Court could render such a suit incompetent and the decree passed therein void. The learned Judges have not given due

weight to the word ''thereafter'' in Section 28, Clause(2)and to the provisions of Section 29 of the Act which clearly apply to a state of affairs

which occurred in the case with which they were dealing. u/s 29, it was competent to the Court to pass an appropriate order and it was not

necessary to pronounce the suit to be incompetent or the decree void. It seems to us that to apply the doctrine of relation back to a suit instituted

before an order of adjudication is against the plain language of Section 28, Clause (2). The view expressed by Ramesam, J., in T.R. Kaliaperumal

Naicker and Others Vs. O.S. Ramachandra Aiyar, Official Receiver in I.P. No. 38 of 1919 on the file of the Court of the District Munsif of

Kumbakonam (ceased to be O.R.) and Another, seems to be sound, namely, ""once the order (adjudication) is made, the effect created by it is, by

a legal fiction, taken to relate back to the presentation of the petition or in other words the commencement of the insolvency. For all purposes of

the Insolvency Act, this fiction has to be used and it is a very useful fiction; but outside those purposes, it has no place. The filing of a suit prior to

the adjudication may be regarded as being outside these purposes with reference to the provisions of Section 28, Clause (2)."" The result of the

decision in AtchutaRamayya Garu v. Official Receiver, East Godavary (1915) 29 M.L.J. 788: ILR 29 Mad. 693 is that if a creditor files a suit

without obtaining leave of the Insolvency Court before the date of the order of adjudication, his suit is incompetent; but if he does not file a suit and

no order of adjudication is made, he may find his claim barred. We do not think that such a state of affairs was contemplated by the legislature in

enacting Section 28, Clause (7), andwe are therefore unable to adopt the interpretation placed by the learned Judges in Mulukutla Atchuta

Ramayyagaru Vs. The Official Receiver, East Godavari, . Again an examination of several other sections of the Act does not lead to the conclusion

that wherever the date of the order of adjudication occurs it must mean the date of the presentation of the petition. The legislature has kept in view

the distinction between these two dates. For example, see Sections 30, 74, Clause (5) and proviso to Section 55 where the contrast between the

two dates is clearly brought out.

There is no direct decision on the point with which we are now dealing but our attention has been drawn to certain observations in two reported

cases, namely, Machanjeeri Ahmed Vs. K. Govinda Prabhu, and Bandeally Jaffer v. Peer Mohamed AIR 1933 Rang. 75. In both these cases, the

question was whether a creditor is entitled to rely on Section 78(2) in regard to a suit filed while the insolvency proceedings were pending and

there was no annulment of adjudication. The learned Judges in both the cases rightly held that Section 78(2) would not apply. In Machanjeeri

Ahmed Vs. K. Govinda Prabhu, there is an observation to the following effect:

If the order of adjudication is annulled, the right to proceed against the insolvent would revive and the period during which the insolvency

proceedings were pending would be excluded if the person wishes to proceed against the insolvent or his property.

We do not think that the learned Judges meant having regard to the context that the insolvency proceedings would include for the purpose of

exclusion u/s 78(2) the period between the date of the presentation and the date of adjudication. In A. Subramania Aiyar Vs. S.

Meenakshisundaram Chettiar, no doubt there are observations to the effect that the whole of the proceedings commencing from the date of the

presentation of the petition would be excluded; but the observations are entirely obiter and are not necessary for the decision of that case.

Again, considerable reliance was placed on a recent decision reported in Subramania Aiyar v. Meenakshisundaram Chettiar (1802) 2 G. J. B.

C 46 where, it was held that even though a debt is barred before the date of adjudication it can be proved in insolvency u/s 34(2). It seems to us

that it is unnecessary to examine the correctness of the decision for the purpose of this case; probably that decision may be explainable upon the

principle that once the order of adjudication is made, the administration of the insolvent''s estate is under the supervision of the bankruptcy Court

and all the property is vested or must be deemed to have vested in the trustee in bankruptcy from the date of the presentation of the petition by the

doctrine of relation back and the trustee in bankruptcy is deemed to be a trustee for the creditors who cannot plead the statute of limitation against

the creditors for whose benefit he is administering the estate. This seems to derive support from the decision in Ex parte Ross cited with approval

in In re Benson: Bower v. Chetwynd (1914) 2 Ch. 68 where Channel, J., observed thus:

Ex Parie Ross shows that in the bankruptcy a debt does not become barred by lapse of time if it was not so barred at the commencement of the

bankruptcy, and of this, there can be no doubt, but this is only in the bankruptcy.

The proof in bankruptcy is one thing and the maintain ability of an action in a Court of law is another. However, as we have stated, we think it

unnecessary to express an opinion in regard to the construction of Section 34 as the debt in the present case was not barred on the date of the

adjudication.

We therefore hold that u/s 78(2) a creditor is entitled to deduct only the period from the date of adjudication to the date of annulment. The

decision of the lower Court is therefore correct and we accordingly dismiss the appeal with costs.

A.S. No. 450 of 1931.--This appeal also raises the same question of limitation, but the facts are slightly different, The material dates are as

follows:

The date of the pronote. 8--1--1920

The date of the presenta-

tion of the petition in

insolvency ... 7--11--1922

The date of adjudication. 21--3--1923

The date of the annulment

of adjudication ... 5--4--1928

Acknowledgment of the

debt ... 6--6--1927

The date of the filing of

the suit ... 23--9--1929

But for the acknowledgment relied on, the suit would be obviously barred by limitation in the view we have taken in the connected appeal No.

449 of 1931. The question is whether the acknowledgment on the said date would not save the bar of limitation. The learned District Judge has

held that the acknowledgment relied on cannot have the effect of extending the time on the ground that it was made after the period of limitation

had expired. It seems to us that this view is wrong. u/s 19 of the Limitation Act where before the expiration of the period prescribed for a suit an

acknowledgment of liability is made, a fresh period of limitation shall be computed from the date of the acknowledgment. The word ''prescribed'' in

Section 19 of the Limitation Act is not limited to the period in the first schedule of the Act; in computing the period prescribed the period which a

party is entitled to exclude under any law for the time being in force should be taken into account. This is clear from the recent decision of the Privy

Council in Maqbal Ahmad v. Pratap Narain Singh (1935) 68 M.L.J. 665: L.R. 62 IndAp 80: ILR 57 All. 242 where their Lordships observe thus:

In order to ascertain what is the date of the expiration of the prescribed period, the days excluded from operating by way of limitation have to be

added to what is primarily the prescribed period.

If this principle is given effect to, there can be no question that the acknowledgment in the present suit was made before the expiration of the

prescribed period. The suit is therefore in time.

We therefore reverse the decision of the learned District Judge and pass a decree in favour of the plaintiff for the amount claimed with interest

at six per cent, from the date of the plaint with costs here and in the Court below.