Sait Sogmull Lachiram Firm of Tenali vs Vallabhaneni Parandhamayya and Others

Krishnaswami Aiyangar, J.—A somewhat interesting question relating to the construction of the proviso to Section 78(2) of the Provincial

Insolvency Act, 1920 arises for consideration in this revision petition. The petitioner was the plaintiff in a small cause suit in which he sued to

recover a sum of Rs. 1,000 on foot of a promissory note executed on 10th April, 1930, by the first respondent. The other respondents are the

undivided sons of the first respondent. The suit was filed on 12th November, 1934, that is to say, one year seven months and two days after the

period of limitation and is therefore prima facie time barred unless the plaintiff could claim the benefit of an exemption. To this end he relies on

Section 78(2) of the Provincial Insolvency Act which runs as follows:

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 inspect 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 At 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:

Provided that nothing in this section shall apply to a suit or application in respect of a debt provable but not proved under this Act.

The first respondent had been adjudicated an insolvent on 14th January, 1933, by an Order which fixed 14th January, 1934, as the last day for

applying for discharge. The insolvent defaulted to make the ''application within time with the result, that the adjudication was annulled u/s 43 on

16th August, 1934. It will be seen that, if the period which elapsed from the date of the order of adjudication to the date of the order of annulment,

namely, one year seven months and two days is excluded, the suit would just be in time. The question is whether the petitioner is entitled to have

this period excluded. It may be mentioned that he would be entitled to have one more day excluded as the 11th November, 1934, the day

previous to the institution of the suit happened to be a Sunday. If the section is applicable, there can be no doubt that the suit is in time.

The District Munsif dismissed the suit on the ground that Section 78 is not applicable, and that the suit is barred by limitation, as the petitioner''s

debt though one provable under the Act had not been proved in the manner direpted by the Act. It is clear on a consideration of the provisions of

Sections 28 and 78 of the Act, that two conditions have to be satisfied, before a party can claim the benefit of the exclusion enacted by the latter

section. The suit or application m which limitation is pleaded must be in respect of a debt provable, under the Act, and it must also have been

proved under the Act, There can be no doubt that the debt in suit is one provable under the Act. The question is whether the second requisite has

been satisfied in this case; in other words whether the debt had been proved under the Act.

The petitioner here was the petitioning creditor on whose petition the first respondent had been adjudicated insolvent. It is common ground that

the promissory note in suit was the debt on which the petitioner successfully founded his right to present the insolvency petition. It may therefore be

presumed that proof of the debt was given u/s 24 of the Act, before the adjudication order came to be made. It is also common. ground that no

proof as required by Section 49 had been made. Mr. Subramaniam appearing for the petitioner has urged that the word ''proved'' in Section 78

should receive a liberal interpretation, that Section 49 merely indicates one method of proof, which should not be regarded as the only method of

proof recognised by the Act. He has relied on a ruling of the Calcutta High Court in Raj Kumar Dutta Vs. Jadu Nath Gupta, , where Ghose and

Bose, JJ., have expressed the opinion that Section 49 only specifies a simple mode of proof but does not exclude any other mode of proof, and

that a debt should be held proved u/s 78, if it had been proved in the course of the proceedings leading to the adjudication of an insolvent. With

respect, I find myself wholly unable to accept this interpretation as correct, whether we look at the meaning of the word itself, or the object behind

the proviso to Section 78.

Proof of a debt in insolvency is an expressi6n well known to courts and lawyers, and there can be little doubt that it is the kind of proof that a

creditor is called upon to give c in order to enable him to obtain a dividend in the rateable distribution of the assets of the insolvent. ''Proof'' in this

connection has almost become a word of technical import, and is not to be understood as meaning any kind of proof at any stage of a proceeding

without reference to the purpose for, and the manner in which it is given. Proof given and accepted in a Civil Court, and not open to challenge

there is still open to question when its validity is impugned in an insolvency Court. Proof of a debt for the purposes of Sections 11 aid 24 is merely

proof that a person is insolvent and is in the nature of a preliminary step which leads to the Court taking up the administration of an insolvent''s

estate, but proof in insolvency is proof adduced after the Court has taken up the administration and in order to enable it to make a proper

distribution. Proof u/s 11 is ordinarily in a proceeding between the petitioning creditor and the insolvent, but proof u/s 49, which is proof proper in

insolvency, is one to which objection can be taken by the Official Receiver or any of the creditors.

Section 34 defines debts provable under the Act, and includes all debts and demands except demands in the nature of unliquidated damages

arising otherwise than by a contract or a breach of trust. Section 33 calls upon all persons alleging themselves to be creditors in respect of debts

provable under the Act to tender proof of their respective debts by producing evidence of the amount and particulars thereof, and then the Court is

directed by order to determine the persons who have proved themselves to be creditors, and the amount of their debts, so that it may be enabled

to frame the all important schedule which is to form the basis of the distribution of the realized assets in dividends, subject, of course, to the

provisions, of Sections 56, 62, 63 and 64. To no person whose name is not included in the schedule can a dividend be paid. Section 61(5)

provides that subject to the provisions of the Act, all debts entered in the schedule shall be paid rateably, and Section 64 relating to the final

dividend makeshift clear that the property of the insolvent is to be divided among the creditors entered in the schedule only, and without regard to

the claims of any other persons. I feel no doubt whatever that proof of debt in insolvency means that kind of proof only which entitles a creditor to

have his name entered in the schedule and none other. The opposite construction is in my judgment entirely opposed to the fundamental scheme of

the Act. It follows that evidence given to make out that a petitioning creditor is qualified to apply to have the debtor adjudicated insolvent, is not

proof in insolvency, and unless he tenders proof of his debt in the manner indicated by Section 49, his name cannot be entered in the schedule; and

however true his debt may be, he cannot be allowed to come in for a dividend. Nor can he be permitted to claim in a suit for the recovery of the

debt after annulment of the insolvency, an exclusion of the time during which the insolvency remained pending if he had not proved the debt in the

sense explained above. The decision of this Court in Ramalinga Iyer Firm v. Rayalu Ayyar Nagasami Iyer Firm (1929) 58 M.L.J. 170 : ILR 53

Mad. 243 proceeded on the special circumstances that a decree for the debt had been obtained, after adjudication against the insolvent and the

Official Receiver, and the learned judges while holding that the debt must be taken to have been proved within Section 78 by the decree being

obtained, expressly guarded themselves against being understood as laying down a general rule as regards the meaning of the word ""proved"".

It is to be observed that Section 78 was newly introduced into the present Act, in view of the Full Bench decision of this Court in Kopparthi

Lingayya and Others Vs. Araveti Chinnarayana and Others, that the general provisions of the Limitation Act could not be held applicable to

proceedings under the old Act, viz., III of 1907. In Ramaswami Pillai v. Govindasami Naicker (1918) 36 M.L.J. 104 : ILR 42 Mad. 319 a

Division Bench of this Court held that the provisions of Section 15 of the Limitation Act could not be invoked so as to secure an exclusion of the

time during wnich an insolvency might be pending, inasmuch as an order of adjudication did not amount to an absolute injunction or stay, but only

made it necessary that leave of Court should be obtained before a suit could be filed. The position would be different if leave had been asked for

and refused as in that case the creditor would be precluded from pursuing his remedy by suit against the debtor until the adjudication is annulled. It

was to meet this situation, that Section 78 was inserted in the new Act. This section and the amended Section 29 of the Limitation Act have tended

to remedy the hardship arising out of the Full Bench decision to which reference has been made.

The question which arises for consideration here is somewhat different from the question of the applicability of the general provisions of the

Limitation Act to a special Act such as the Insolvency Act is, though it does appear to me that the intention behind Section 78 was not to extend

the Limitation Act but rather to exclude it. In my judgment, Section 78(2) was intended to incorporate the principle of Section 14 of the Limitation

Act, so as to meet the situation which is likely to arise frequently in insolvencies. That principle operates to enable a person who was prosecuting

with due diligence another proceeding founded upon the same cause of action, in another Court, to exclude the time during which he was so

prosecuting that proceeding. The section withholds help to a person who has not shown due diligence, as where he obtains leave of Court u/s

28(2) but omits to take action. Similarly it insists that the creditor should so far as the Act permits, prosecute his claim to recover the whole or

portion of the debt, by tendering a proof u/s 49, by which he will be deemed to have proved the debt as held in Lakshmi Bai v. Rukmaji Rao

(1934) 67 M.L.J. 45 : ILR 57 Mad. 767. Want of diligence, and failure to do what could be done to recover the debt in spite of the insolvency,

that is to say, a failure to prove for the debt, would deprive a party of the benefit of the section.

From what has been said, the petition fails as neither Section 78(2) of the Provincial Insolvency Act nor Section 14 of the Limitation Act can

avail a party in respect of a debt provable but not proved under the Act. The Civil Revision petition is accordingly dismissed with costs.