Ramu Chettiar vs S.R. Govindarajulu and Others

K.M. Natarajan, J.—This revision is directed against the order passed by the learned Principal District Judge, Salem, reversing the order

passed by the learned Second Additional Subordinate Judge, Salem.

The facts which are necessary for understanding the points involved in the revision can be shortly stated as follows: One late V. Sundaram filed a

petition against the petitioner herein for adjudging him as insolvent in I.P.No. 67 of 1974 on the allegation that he had executed a promissory note

in his favour of 6th January, 1974, and subsequently in order to defraud his debt and other creditors, he executed a sale deed on 19th March,

1974, in favour of his nominees in respect of his properties and also in view of his unequivocal declaration of his inability to pay the debts and

suspension of the payment of the debts. The petitioning creditor died on 14th September, 1975, and his legal representatives came on record as

petitioners 2 to 9 in I.P.No. 67 of 1974. The insolvency petition originally was allowed on 18th September, 1976, and as per the order of remand

passed by the appellate Court, the matter was remanded for fresh disposal and the same was allowed to be dismissed for default on 12th July,

1978 and again it was restored to file on 4th August, 1978. Subsequently, the Advocate for the legal representatives reported no instructions in the

insolvency petition on 14th April, 1981, and thereafter they did not take any interest. The first respondent herein, who is the petitioner before the

lower court, had advanced a sum of Rs. 12000 to the same debtor on 11th June, 1974, and he has filed an application u/s 16 of the Provincial

Insolvency Act, on 26th September, 1978 for substituting himself in the place of the petitioning creditor in the main petition itself. It was alleged in

the petition that the legal representatives are not evincing any interest in prosecuting the insolvency petition and by virtue of an arrangement, the 8th

respondent debtor has filed a lodgement schedule for depositing the amount due to the legal representatives of the petitioning creditor and that they

are not diligently prosecuting the insolvency petition. The said application was resisted by the 8th respondent-debtor and he contended that the

promissory note executed in favour of the first respondent herein who was the petitioner in I.A.No. 383 of 1978, is subsequent to the alleged act

of insolvency, and hence, he is not entitled to take advantage of the said act of insolvency and consequently he could not get himself substituted as

a petitioner. The other respondents have filed a counter stating that they would abide by the orders passed by the Court.

The learned Subordinate Judge dismissed the application. On appeal, the learned District Judge reversed the said finding and allowed the

application. Hence this revision.

The learned Counsel for the petitioner herein Mr. Venkatasubramanian, contended that in the instant case, the alleged act of insolvency was on

19th March, 1974, and that the promissory note in favour of the first respondent came into existence only on 11th June, 1974, and that the

insolvency petition was filed on 17th June, 1974, and since the debt in favour of the first respondent itself came into existence subsequent to the act

of insolvency alleged, the first respondent herein is not entitled to the relief prayed for in the application. According to the learned Counsel, the

insolvency petition was filed under Sections 6 and 9 of the Provincial Insolvency Act and Section 9 of the Act lays down three conditions for filing

a petition by the creditor, viz.,

(a) the debt owing by the debtor to the creditor, or, if two or more creditors join in the petition, the aggregate amount of debts owing to such

creditors, should amount to five hundred rupees;

(b) the debt should be a liquidated sum payable either immediately or at some certain future time, and

(c) the act of insolvency on which the petition is grounded should have occurred within three months before the presentation of the petition.

The learned Counsel drew my attention to the decision in The Public Prosecutor Vs. Thangiah Nadar, wherein it was held that as there was no

debt in existence on the dates when the acts of insolvency alleged in the petition were committed the petition was not maintainable in view of the

proviso to Section 9(1)(b) of the Provincial Insolvency Act. The learned Counsel also invited my attention to the decision in District Board Bijnor

v. Mohammed Abdul Rax Sadan AIR 1947 All. 383 wherein also it was held that -

The word ''creditor'' as used in Sections 6(b), 7, 9(1) and 54 does not include a person who becomes creditor of debtor after the date of the

transfer or other act of insolvency. Hence, such a creditor cannot apply for the adjudication of the debtor as insolvent.

For the same proposition, he relied on the decision in M.R.P.R.S. Muthiah Chettiar v. Lakshminarasu Aiyar (1921) 13 L.W. 141 : A.1.R. 1921

Mad. 62 and Chhabihar Singh v. Mrs. K.N. Baines AIR 1936 Lah. 600. The learned Counsel relying on the principles laid down in the above

decisions contended that as the petitioner (first respondent herein) admittedly became the creditor after the act of insolvency, even though prior to

the filing of the insolvency petition, is not entitled to maintain the application for adjudication under Sections 6 and 9 of the Provincial Insolvency

Act, and the lower appellate Court erred in allowing the appeal, and as such the revision has to be allowed.

The learned Counsel for the first respondent submitted that these rulings are applicable only to cases of filing the main petition for adjudication of

the debtor as an insolvent under Sections 6 and 9 of the Provincial Insolvency Act, and not to an application filed u/s 16 of the said Act. These

decisions were not u/s 16 of the said Act and there was no scope for considering the application u/s 16 of the Act in those cases. On the other

hand, the learned Counsel submitted that a Division Bench of this Court in Dinavahi Venkata Hanumantha Rao Vs. Yerugulapati Gangayya and

Others, held that:

Where a creditor applies to have his debtor adjudicated an insolvent but would not proceed with his petition, another creditor, whose debt was not

barred by limitation on the date of the original petition, can be substituted as petitioner, u/s 16 of the Provincial Insolvency Act 1920, and be

allowed to continue the petition, even though his debt might be barred by limitation on the date of the substitution provided he was otherwise

qualified to be a petitioning creditor under the Act.

It was held in that decision as follows:

The object of the section is to prevent other creditors from being injured by the action of one creditor, who, by reason of collusion or otherwise,

may not deligently prosecute the petition. If it is to be regarded as a new petition, this object is frustrated and there is no purpose in having a

section of the kind. If the original petition had proceeded upto adjudication or if another creditor whose debt is not barred by the date of

substitution is substituted, and obtained an order of adjudication, the appellant''s debt which was not barred by the date of the petition could be

proved. If so, we see no reason why he cannot be substituted. The words ''as petitioner'' in the section show that on substitution, the petition

becomes his petition with the original date and it is enough if the debt was an enforceable debt on the original date.

Yet, another decision of this Court reported in Bysani Venkataratnam Chetti Vs. R. Venkatayya of Kadiri and Others, wherein it was held by a

Division Bench of this Court consisting of King and Happell, JJ. that -

A creditor who is substituted u/s 16 of the Provincial Insolvency Act cannot be compelled to prove the qualification of the original creditor to file a

petition in insolvency; and the mere accident of the fact that the creditor who has filed the petition should turn out not to have been qualified to do

so cannot prevent a substituted creditor from taking advantage of its date and the act of insolvency mentioned therein.

The learned Counsel for the first respondent drew my attention to the main insolvency petition filed by late V. Sundaram, wherein the debt of the

first respondent herein also was referred to and in paragraph 4 of the counter of the petitioner herein also the said debt has not been disputed,

except contending that he is related to the debtor. It was contended by the learned Counsel for the respondent that the requirement of an

application u/s 16 of the Act is to satisfy only the condition in Section 9(1) viz., to satisfy the court that the debt incurred by the debtor exceeds

more than Rs. 500 and all other qualifications for filing a petition are not necessary for the substitution u/s 16 of the Provincial Insolvency Act.

On going through the order passed by the learned District Judge also I find that the learned Judge has considered all these decisions in a proper

perspective, and had arrived at a correct finding. The learned Counsel for the first respondent also drew my attention to Section 28(7) of the

Provincial Insolvency Act, wherein it has been provided that ""An order of adjudication shall relate back to, and have effect from, the date of the

presentation of the petition on which it is made."" Admittedly, the first respondent herein was a creditor on the date of the application and if any

adjudication is made, he is also entitled to prove his debt and claim rateable. In these circumstances, as rightly observed by the lower appellate

Court, there is no reason why the first respondent herein, who, though was not a creditor on the date of the alleged act of insolvency but became a

creditor before the filing of the application for adjudication, should be deprived of the benefit of the petition by the failure of the original petitioning

creditor, or his legal representative as in this case, to diligently prosecute the petition for adjudication. u/s 2(a) of the Provincial Insolvency Act,

''creditor'' is defined as ''creditor'' includes a decree-holder. It is nowhere stated that the word ''creditor'' occurring in Section 16 of the Act relates

to a person who was a creditor on the date of the alleged act of insolvency. No other point was urged by the learned Counsel for the petitioner.

For all these reasons I am of the view that the order passed by the learned Principal District Judge is perfectly legal and correct and I do not find

any infirmity to interfere with the said order.

In the result, the revision fails and it is dismissed. There will be no order as to costs.