The Official Assignee of Madras. vs O.R.M.O.R. S. Firm

The Official Assignee of Madras who is the appellant in this case took out a garnishee application in the matter of the insolvency of M.R.V.

S.M. Doraiswami Chetty and Co., against the respondent firm for an order declaring that a sum of Rs., 10,000 which belonged to the insolvents

came into the hands of the respondent firm was a payment made by the insolvents when they were in insolvent circumstances and that the same

was a fraudulent preference and asking for consequent reliefs.

Mr. Justice Beasley by whom the application was heard dismissed it with costs holding that what was proved by the Official Assignee at the

hearing of the application could not possibly be held to constitute any payment by the insolvents by way of undue or fraudulent preference. The

learned Judge also Incidentally refused the application of the Official Assignee for amendment of the application or even the withdrawal of the

application with liberty to make a fresh application. In brief the conclusion arrived at by the learned Judge was that the facts proved, established if

anything, only a conversion by the respondents of moneys belonging to the insolvents and that as there was no voluntary payment by the insolvents,

no question could possibly arise of any fraudulent preference. It may, to begin with, be observed that however summary such proceedings in

insolvency may be and we might indeed say, because the proceedings are summary, it is incumbent on the Official Assignee making such

applications to set out the exact grounds or cause of action properly and definitely so as to give sufficient notice thereof to the other side. However

much the vagueness of pleading by or on behalf of the lay public may be regarded as excusable, no similar reasons are available in the case of a

law officer of the Crown like the Official Assignee.

Mr. S. Doraiswami Aiyar, the earned Counsel for the appellant, attempted to argue that the case really set up by the Official Assignee in the

report on which the application was based was one 01? conversion, if not in the main, at least in the alternative. It is impossible to accede to such

an argument. Apart altogether from the terms of the notice of motion, the report of the Official Assignee leaves no doubt whatever that the case set

up and sought to be made out by him was one exclusive of fraudulent preference. The report speaks of a member of the insolvent firm endorsing

the hundies to the respondent firm ostensibly for collection and concludes by saying that the insolvents were great friends of the respondents, that

the payment of the amount by the insolvents to the respondents was made at a time while the insolvents were heavily involved in debts and were

unable to pay their debts in full, and that the payment was therefore a fraudulent preference and void against him. It has not been argued before us

that, if the case set up by the Official Assignee should be regarded as one of fraudulent preference, the decision by the learned Judge was anything

but right. The earned Counsel for the appellant did not argue that in the circumstances the learned Judge''s order refusing any amendment or

withdrawal of the petition especially at the stage when the case of both sides had been closed and also argued could be regarded as wrong.

There was, however, a new point on which the case for the appellant was in the last resort strenuously pressed by his learned Counsel. The

point was new, not only as not having been taken in the first Court before the learned Judge or even indicated in the grounds of appeal to this

Court, but new also in the sense of its being entirely novel. We however allowed the point to be raised and argued having regard specially to its

importance and the far-reaching consequences of the correct view turning out to be as contended for on behalf of the Official Assignee.

The contention may be briefly set out as follows: For an order of adjudication in insolvency some ground or grounds of insolvency have to be

made out, and the order is based on such ground or grounds and the Official Assignee''s title is by statute made to relate back to the date of the

first of the acts of insolvency on which the order is founded. The adjudication of a person as a bankrupt affects his status and has been recognised

to be a judgment in rem. As the adjudication itself is based on a decision with regard to the particular act or acts of insolvency, it follows that the

adjudication comprises also the commission of the particular act or acts of bankruptcy and is binding on all the world including persons who are

not parties to the order in the same manner and to the same extent as a judgment in rem. The order of adjudication therefore is as regards the

particular act or acts of bankruptcy on which it is founded on adjudication with regard to the commission thereof and is valid and binding on all the

persons until set aside by any party interested.

The argument in this case was that the adjudication of the insolvent was based on the insolvent having committed an act of fraudulent preference

with regard to the sum of Rs. 10,000 received by the garnishee, and that as the garnishee has not had the order of adjudication set aside, he is not

entitled to be heard to argue that his receipt of the sum of Rs. 10,000 was not by way of fraudulent preference.

In the first place it must be observed that the act of a particular person when adjudged to be an act of bankruptcy has reference mainly to such

acts regarded as a ground for adjudication. As a person may hold several characters, so an act may also have several characters and when some

act of the bankrupt is adjudged to be an act of bankruptcy it is in its character as a ground for adjudication and it does not necessarily follow that

the adjudication extends to and comprises all the legal consequences in all the various aspects of the act. If such had been intended, the Insolvency

Act would undoubtedly have provided for it.

It may further be observed that if such consequences had been contemplated by the Act the sections which deal with the avoidance of voluntary

transfers and fraudulent preferences and similar matters would have excluded from the necessity of such avoidance, by excepting the transfers,

preferences, etc., which have already been made the ground of adjudication.

The result of the contention put forward by Mr. S. Doraiswami Aiyar would in all cases where the adjudication is found on alleged fraudulent

transfers or preferences be to adjudicate about such transfers and preferences finally and conclusively without even an opportunity to the parties

thereby affected to be heard in the matter. No doubt it is clear from the statute that if such a result was intended, the mere fact that the provision is

unreasonable or unjust could not possibly affect the question. But we are not satisfied that there is any such clear indication in the Act. On the other

hand Section 116 which deals with the conclusiveness of the order of adjudication is in the following terms:

(1) A copy of the official Gazette containing any notice inserted in pursuance of this; Act shall be evidence of the facts stated in the notice.

(2) A copy of the official Gazette containing any notice of an order of adjudication shall he conclusive evidence of the order having been duly

made, and of its date.

It is significant that according to this section the conclusiveness is stated to be only with regard to the order having been duly made and of its

date, and that as regards the other facts the notification is said to be only evidence of such facts,

It has not been proved in this case that the notification published in the official Gazette comprised the ground of adjudication or the acts of

bankruptcy, and even if it did, it follows that such notification would only have been evidence of the facts--not conclusive evidence.

The earned Counsel for the appellant relied strongly on the decision of Hawkins and Anr. v. Duche and Sons and AnRule 37 TLR 748. That

case is clearly distinguishable from the present because the order of adjudication in that case referred to the partnership, and the section speaks of

the notification being conclusive evidence of the order of adjudication having been duly made. The observations of the learned Judge in the matter

are clearly obiter and the learned Judge expresses himself not without doubt.

Mr. S. Doraiswami Aiyar also referred to the case of Ex parte Learoyd. In re Foulds (2). All that was decided in that case was that an order

of adjudication in bankruptcy was conclusive till set aside not only as to the other but also as to the acts of bankruptcy on which it was based. The

judgment in that case cannot be regarded as deciding any question with regard to the necessity or otherwise of the Official Assignee or trustee

seeking to set aside preferential alienations and payments made by the insolvent although the order of adjudication might have been founded

thereon.

The earned Counsel for the appellant also referred to the case of Ex parte Tucker. In re Tucker (3). That case refers only to the, operation of

the date of the act of bankruptcy on which the adjudication purports to be founded and the rights of third parties affected thereby to have the same

set aside. The date to which the title of the Official Assignee relates back is a matter dealt with by the statute itself and therefore the case cannot be

regarded as having any bearing on the question now before us.

The whole question really resolves itself into whether the legislature by the use of the expression ""duly made"" in Section 116 contemplated not

merely that the act of bankruptcy on which the order of adjudication is founded should be regarded as acts of bankruptcy but also further to give

such findings the legal consequences of a decision against the parties who have not had any opportunity of being heard in the matter. We consider

that such an interpretation and such far-reaching consequences are not warranted by the mere use of the expression ""duly made."" We think it more

reasonable to suppose that it is only in their character as acts of bankruptcy that the adjudication is said to be founded on them and that if the

Official Assignee should, in such cases also, desire to obtain a decision against third parties, he should adopt the ordinary procedure indicated in

the Act.

We have therefore come to the conclusion that the order of the learned Judge was right and the appeal fails and is dismissed with costs.