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Judgment
Alfred Henry Lionel Leach, C.J.—This is an appeal from an order passed by Chandrasekhara Ayyar, J., dismissing a petition asking for the
adjudication under the Presidency Towns Insolvency Act of the respondents. The learned Judge considered that the petition had been presented
mala fide and that it amounted to an abuse of the process of the Court. We share in full this opinion.
On the 19th June, 1942, one A. Suryanarayana filed an application for the adjudication of the respondents. This is not the application which has
given rise to this appeal, but in order to appreciate the situation it is necessary to examine in some detail what preceded the present application.
The third respondent is the mother of the first and second respondents. They live at Bezwada where they own a cinema theatre. Suryanarayana
was a creditor of theirs. They owed him the sum of Rs. 1,045. In his petition Suryanarayana alleged that they had a dwelling house and office at
No. 2/355, Mint Street, Madras. This they denied and the affidavit which was filed by the first respondent in answer stated that they were never
residents of Madras. The first respondent had visited Madras in November, 1940, but had not been here since. His brother used to visit Madras
but his mother never . : came here, and in no sense were they residents of this city. We see no reason to doubt the truth of these statements. The
acts of insolvency alleged against the respondents were that they had with intent to defeat and delay their creditors departed from their dwelling
house in Madras, that they had mortgaged their properties for Rs. 24,000 with like intent, and that they had disposed of other properties in order
to place them beyond the reach of their creditors. In reply to the affidavit which was filed by A. Suryanarayana in support of the petition, the
respondents set out a statement of their assets and liabilities. According to this statement, the assets amount to Rs. 2,31,040 and their debts to only
Rs. 25,743, secured and unsecured. It was stated that the respondents were able to pay all their debts and that no act of insolvency had been
committed.
On the 19th August, 1942, the respondents applied under the provisions of Section 13 (4) (b) for an order permitting them to deposit in Court
sufficient to pay their unsecured creditors. After the filing of the application for adjudication, the petitioner obtained an interim order asking the
Official Assignee to take possession of the assets. The Official Assignee took possession of the cinema theatre at Bezwada and by the time the
application u/s 13 was made he had collected the sum of Rs. 4,740. The learned Judge sitting in Insolvency, after an investigation into the position,
came to the conclusion that if the respondents furnished security in the sum of Rs. 9,000 they would be entitled to the dismissal of the petition. They
were given time until the 39th September, in which to furnish the security. Security was tendered, but the Court considered it insufficient.
Thereupon the respondents deposited in Court in cash the sum of Rs. 9,000 which with the Rs. 4,740 collected by the Official Assignee, was more
than sufficient to pay off the unsecured creditors. When this deposit was made the petition was dismissed.
Realising that the first petition was likely to be dismissed the appellants on the 5th September, 1942, filed the petition which has given rise to the
appeal. The first appellant is the assignee of promissory note executed by the first respondent and the assignee of one executed by the third
respondent. Both these instruments were assiged to him on the 30th August, 1942, the day before Chandrasekhara Ayyar, J,, passed his order on
the respondents'' application u/s 13. The second appellant is the assignee of a promissory note executed by the second respondent. He acquired
this note on the 15th June, 1942, four days before the filing of the first petition. The second appellant filed an affidavit in support of the first petition.
.
Out of the Rs. 13,740 lying in Court, Suryanarayana was entitled to withdraw his debt of Rs. 1,045 but he has not applied for the withdrawal of
his money. The appellants were offered payment out of the funds in Court, but they both refused! As a matter of fact, on the 3rd August, 1942, the
second appellant was offered out of Court payment of the amount due to him. A draft on a bank in Madras was tendered to his advocate, but he
refused to accept it.
The allegations in the present petition are that the respondents had conveyed certain wet lands for the inadequate price of Rs, 7,000 with the
object of putting the property beyond the reach of their creditors and for the purpose of reserving to themselves ""a secret beneficial interest"", that
they agreed to sell for Rs. 10,000 certain building sites in Masulipatam worth Rs. 20,000 with a similar object; that they had distributed the Rs.
7,000 received on the sale of the first property to bogus creditors, and that they had fraudulently preferred other creditors.
All the material facts had been disclosed in the proceedings which followed the presentation of the first petition and the learned Judge was fully
acquainted with the position. In his affidavit filed in opposition to the first petition the first respondent averred that the person behind the application
was the Zamindar, of Challapalle who had been inimically disposed towards them since March, 1942 and was trying his best to humiliate them.
There is no finding that the Zamindar of Chellapalle is behind these petitions and it is unnecessary for us to decide whether the allegation against him
is well-founded. At. the same time it is obvious that there is some one behind these petitions and that neither was filed bona fide. The fact that the
petitioner in the first petition and the petitioners in the present case have refused to receive payment out of the monies in Court, although they were
entitled to receive payment under an order of the Court are sufficient to show that these applications have not been made bona fide and that they
have been persisted in with an ulterior object.
The evidence on the record is sufficient to satisfy us that the respondents are able to pay their debts. Their assets are considerably in excess of
their liabilities. Moreover, an amount sufficient to pay the unsecured creditors is lying in Court. The learned Judge was satisfied, as we are, that the
appellants are merely tools in the hands of others and that their action in presenting the petition is thoroughly dishonest, which means that their
action amounts to an abuse of the process of the Court.
Mr. Venugopalachari on behalf of the appellants, has contended that even though the present petition was presented mala fide his clients are
entitled to an order for adjudication and in this connection has referred to the decision of the Privy Council in King v. Henderson (1898) A.C. 720
That case, however, was not like the present one, an appeal against an order refusing to adjudicate, It arose out of a suit for damages for malicious
presentation of a bankruptcy petition where different considerations arise. In such a case the principles which apply in an action for malicious
prosecution, apply, and the plaintiff must show, not only that the action was taken maliciously but that it was taken without reasonable and
probable cause. Cases which are in point are In re Davies Ex parte King (1876) 3 Ch.D. 461 and Ex parte Griffin In re Adams (1879) 12 Ch.D.
In the former of these cases it was held that where a bankruptcy petition had been made use of to extort money from the debtor, the Court
would refuse to make an adjudication, even though there was a debt owing to the petitioner and an act of bankruptcy had been committed. In Ex
parte Griffin In re Adams (1879) 12 Ch.D. 480 the Court refused to make an adjudication order on a bankruptcy petition which had not been
presented with the bona fide view of obtaining an adjudication, but for a collateral purpose and with the object in view of putting pressure on the
debtor. The present application, like the first, was not filed for the purpose of having the respondents'' assets distributed proportionately amongst
their creditors, but with the object of injuring their credit by dragging them into the Insolvency Court and was persisted in notwithstanding the fact
that the Court had permitted the appellants to he paid out of the funds in Court. The action of the appellants cannot be condemned too strongly.
The appeal will be dismissed with costs, which we fix at Rs. 350 for the senior counsel and two thirds of this amount for the junior counsel.
There will be no further taxation.