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1947 DIGILAW 3 (ALL)

District Board, Bijnor v. Mohd. Abdul Salam

1947-01-07

VERMA, WALIULLAH

body1947
JUDGMENT Verma, C.J and Waliullah, J. - This is an application in revision u/s 75 of the Provincial Insolvency Act. It arises under the following circumstances: 2. It appears that Mohammad Abdul Salam, the opposite-party, filed suit No. 152 of 1940 for recovery of a certain amount of damages from the District Board, Bijnor, which is the applicant before us. This claim was in respect of a contract for plying a ferry granted by the District Board. 3. On the 31st October 1941 the suit was decreed for a sum of Rs. 721-4-0 with proportionate costs. Against this decree the District Board filed an appeal in the Court of the District Judge. On the 12th of November, 1942 this appeal was allowed with the result that the suit filed by Abdul Salam was dismissed. It appears that, while the appeal was pending in the Court of the District Judge, Abdul Salam, in execution of his decree, realised a sum of Rs. 874-7-0 from the District Board in February 1942. Thereafter, while the appeal against him was still reading in the Court of the District Judge, Abdul Salam appears to have executed a sale deed of his entire property in favour of his wife on the 3rd July 1942 for a sum of Rs 800 which was only a portion of the dower debt alleged to be due to his wife. This sale deed was registered on the 13th August 1942. It may be noted here that this Court on the 24th July 1942 pronounced its judgment in second appeal No. 89 of 1941 between District Board of Bijnor and one Mohammad Sharif. This second appeal arose in circumstances very similar to those of suit No. 152 of 1940, instituted by Abdul Salam against the District Board, Bijnor and the High Court decided the case in favour of the District Board and against Mohammad Sharif. As mentioned above, the learned District Judge allowed the appeal on the 12th of November 1942, with the result that the claim of Abdul Salam stood dismissed with costs. The District Board took no proceedings for restitution u/s 144 of the CPC Code, presumably because it realised that it would be difficult to recover from Abdul Salam the money which he had realised in execution of his decree. The District Board took no proceedings for restitution u/s 144 of the CPC Code, presumably because it realised that it would be difficult to recover from Abdul Salam the money which he had realised in execution of his decree. On the 13th of November 1942, the District Board filed a petition in the Insolvency Court u/s 7 read with Section 9 of the Provincial Insolvency Act praying that Abdul Salam might be adjudged insolvent on the ground that be had committed an act of insolvency inasmuch as he had transferred the whole of his property with intent to defeat or delay his creditors within three months of the presentation of the application. At the hearing of this application, it appears, Abdul Salam as well as his counsel were absent. The application was, therefore, heard and disposed of ex-parte. The learned Insolvency Judge held that Abdul Salam had transferred all bis property in favour of his wife in order to defeat the claims of the District Board. He further held that Abdul Salam was not in a position to pay the amount due to the District Board. The application was allowed on the 18th September, 1943, and Abdul Salam was adjudged an insolvent. 4. Against the order of adjudication, Abdul Salam filed an appeal in the Court of the District Judge. Two points were urged in the appeal. 1. That the petition of the creditor, i.e. the District Board, was incompetent inasmuch as the act of insolvency on which it was grounded did not occur within three months before the presentation of the petition. 2. That a creditor who files a petition for adjudging his debtor an insolvent must be a 'creditor' on the date on which the alleged act of insolvency occurred and further that he must also be a 'creditor' when he presents the petition. 5. With regard to the first point, the learned District Judge was of the opinion that the period of three months should be counted from the date of the registration of the deed and he thus came to the conclusion that the act of insolvency had occurred within three months of the date of the presentation of the petition. 5. With regard to the first point, the learned District Judge was of the opinion that the period of three months should be counted from the date of the registration of the deed and he thus came to the conclusion that the act of insolvency had occurred within three months of the date of the presentation of the petition. With regard to the second point, however, the learned Judge was of the opinion that, in order to be competent to present the petition, the District Board should have been a 'creditor' of Abdul Salam on the date when the act of insolvency occurred, i.e. the 13th August, 1942, when the deed was registered. In view of the fact that the appeal of the District Board, reversing the decree in favour of Abdul Salam, was allowed on the 12th November, 1942, the learned Judge came to the conclusion that the District Board was not a creditor of Abdul Salam on the crucial date. In this view of the matter, the appeal was allowed and the order adjudging Abdul Salam insolvent was set aside on the 28th July, 1944. Against this order of the learned District Judge, the District Board, Bijnor has come up in revision to this Court. 6. In the first instance this application was heard by a learned single Judge of this Court who, in view of the importance of the questions involved and some conflict of authority in other High Courts has referred it for decision by a Bench of two Judges. 7. We have heard learned Counsel for the parties at great length. There are two main questions which call for consideration and decision in this case: (1) Whether the period of three months provided for by Section 9 (1) (c) of the Provincial Insolvency Act should be counted from the date of the execution of the deed, or from the date of registration of the same. 2. Whether the debt on which the insolvency petition is founded must be due at the time when the act of insolvency is committed. 8. Before proceeding further, reference might be made here to the relevant provisions of the Insolvency Act (Act v. of 1920). 9. Section 6, A debtor commits an act of insolvency in each of the following cases, namely....... 8. Before proceeding further, reference might be made here to the relevant provisions of the Insolvency Act (Act v. of 1920). 9. Section 6, A debtor commits an act of insolvency in each of the following cases, namely....... (b) If, in British India or elsewhere, he makes a transfer of his property, or of any part thereof with intent to defeat or dealy bis creditors ; (c) If, in British India or elsewhere, he makes any transfer of his property, or of any part thereof, which would, under this or any other enactment for the time being in force, be void as a trudulent preference if he were adjudged an insolvent....... 10. Section 9--(1) A creditor shall not be entitled to present an insolvency petition against a debtor unless (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, amounts to five hundred rupees, and (b) the debt is a liquidated sum payable either immediately or at some certain future time, and (c) the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition. 11. Section 64. (1) Every transfer of property, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money in favour of any creditor, with a view of giving that creditor a preference over the other creditors, shall, if such person is adjudged insolvent on a petition presented within three months after the date thereof, be deemed fraudulent and void as against the receiver, and shall be annulled by the Court 12. With regard to the first question it is obvious that the terminus a quo from which the limitation of three months begins to run is the time when the act of insolvency occurs. The crucial question, therefore, is to determine when exactly the act of insolvency occurs in a particular case. The act of insolvency alleged in the present case is a transfer of property by the debtor with a certain intent. The question at issue therefore resolves itself into the question when exactly the transfer of property took place. The crucial question, therefore, is to determine when exactly the act of insolvency occurs in a particular case. The act of insolvency alleged in the present case is a transfer of property by the debtor with a certain intent. The question at issue therefore resolves itself into the question when exactly the transfer of property took place. Here a written deed of sale was executed on the 3rd July, 1942, but as the property involved was worth more than Rs. 100 the deed could operate as an effective sale-deed only when it was registered. Till registration it could not have any legal effect as a sale deed. This is clear from the provisions of Section 49 of the Registration Act read with Section 54 of the Transfer of Property Act. It follows that title to the property does not pass so long as registration is not effected. The 'transfer of property' therefore occurs only when--and not till then--registration is effected, The crucial event on which the transfer of property hinges is therefore the fact of registration. Admittedly the registration in the present case was effected on the 13th August 1942. In our judgment, therefore, the point of time when the transfer took effect is the point of time when the event of registration occurred which caused the transferee to become the owner of the property, learned Counsel for the opposite-party has drawn our attention to the provisions of Section 47 of the Registration Act. That section provides: 47. A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration. 13. Learned Counsel contends that in view of the provisions of this section, as toon as registration was effected on the 13th August 1942, the sale deed executed on the 3rd July 1942 became operative and legally effective from the 3rd July 1942. There is no doubt that this proposition is well founded, but in the present case, we are not concerned with the question of the 'operation' of the deed of sale, but with the point' of time when event happened which made the deed of sale legally effective. There is no doubt that this proposition is well founded, but in the present case, we are not concerned with the question of the 'operation' of the deed of sale, but with the point' of time when event happened which made the deed of sale legally effective. Care has to be taken to keep the question of the operation of the deed distinct from the question of the point of time when the event which gives it legal effect takes place. That event alone must, in our judgment, determine the commencement of the limitation of three months provided for in Section 9 of the Provincial Insolvency Act. On this question no decision of this Court has been brought to our notice but our attention has been drawn to several decisions of other High Courts. In Lahshmi Chand v. Kesho Ram,(1935) 16 Lah 736: AIR 1936 Lah 565, a Full Bench of three learned Judges of the Lahore High Court took the same view that we are disposed to take in the present case. It was held: When a petition is presented alleging that a debtor has committed an act of insolvency by deed registered, the period of limitation prescribed by Sub-Section 1 (c), S. 9 of the Act runs from the date of its registration and not from the date of its execution. 14. Similarly in M.G. Sundaragiriraja Ayyangar and Others Vs. D. Balasubramania Ayyar and Another, AIR 1934 Mad 637 , a Bench of two learned Judges of the Madras High Court, following an earlier decision of a learned single Judge of the same Court in N.R.M.M.M. Muthiah Chettiar Vs. The Official Receiver of Tinnevelly District and Another, AIR 1933 Mad 185 , held: Where the act of insolvency of a debtor is the execution of a sale deed, the period of three months for presenting a petition for adjudication by a creditor commences from the date of registration of the deed and not the date of its execution. 15. To the same effect is the decision of two learned Judge of the Madras High Court in Venkadari Semappa v. Official Receiver, Bellary, AIR 1038 Mad 801, where it was held with reference to Section 5+ of the Provincial Insolvency Act. 15. To the same effect is the decision of two learned Judge of the Madras High Court in Venkadari Semappa v. Official Receiver, Bellary, AIR 1038 Mad 801, where it was held with reference to Section 5+ of the Provincial Insolvency Act. For the purpose of Section 64, Provincial Insolvency Act, the date of the transfer is the date of registration and the transfer cannot be antedated by the operation of Section 47, Registration Act. Hence a deed of transfer can be impeached u/s 64, if the registration is effected within the three months next preceding the presentation of the insolvency petition, even though the execution was more than three months before presentation of insolvency petition. 16. Again, in AIR 1934 171 (Nagpur) , a learned Judge of the Nagpur Judicial Commissioner's Court, following the decision of the Madras High Court in Muthiah v. Official Receiver, Tinnevelly, (Ubi Supra) held: The starting point of limitation for the purpose of Section 9 (l) (c) is the date of registration of the deed of transfer, and not the date of execution. 17. To the same effect is the decision of Pollock, J. in AIR 1937 197 (Nagpur) , where with reference to Section 54 of the Provincial Insolvency Act it was held: The limitation for presentation of an application by a creditor for adjudging a debtor insolvent on his committing an act of insolvency by effecting a tranfer of his property, begins to run from the date of the registration of the deed of transfer and not from the date of its execution. 18. At page 198 the learned Judge observed: Though it is no doubt dangerous to speculate on the intention of the Legislature, it seems highly improbable that the Legislature should ever have intended that limitation should run from the date of execution, of which the creditor had no notice, and that the debtor and his transferee should be able to defraud creditors by delaying registration for three months. Such an unreasonable construction should not readily be placed on the section. Such an unreasonable construction should not readily be placed on the section. The view taken In G. W. Godbole v. Marotisa Balusa Bhaosar (ubi supra) was taken by another leanred Judge of the Nagpur High Court, Niyogi J., in Seth Balkishan v. Bhanuprasad, AIR 1938 Nag 454, where it was held: The three months period contemplated in Section 54 runs from the date of registration of the transfer deed because it is by registrat.ion that the transfer becomes effective and the title passes from the transferor to the transferee. 19. At page 454 the learned Judge observed: It is evident that if the period of three months were taken to commence on the date of the execution of the transfer deed, then it would be open to the insolvent and the colluding creditor to defeat other creditors by merely delaying registration of the document for more than three months. The Word ' transfer' means a valid and effective transfer which could only take place after registration and not by mere execution of document. 20. Similarly, in Indo Burmah Trader's Bank, Ltd. Vs. Barada Charan Dhar, on Death, Sm. Sita Sati Dhar and Others, AIR 1944 Cal 370 , two learned Judges of the Calctua High Court, after a comprehensive review of the case law on the point, held at page 373: For the purpose of Section 9, Sub-section (1) Cl. (c), Provincial Insolvency Act, time is to be reckoned from the date of the registration of the transfer deed, where the Transfer of Property Act requires a registered instrument for the transfer which is alleged to constitute the act of insolvency. 21. In an earlier case viz. Ramananda Paul and Others Vs. Pankaj Kumar Ghosh, Receiver and Others, AIR 1938 Cal 417 , a Division Bench of the Calcutta High Court had taken the view that for the purpose of Section 54 the date of the execution of the deed and not the date of its registration was a material date. This view was, however, doubted in the case of Indo Burmah Trader's Bank Ltd. v, Barda Charan Dhar (ubi supra) and the case was also distinguished on the ground that it concerned Section 54 and not Sections 9 (1) (c) and 6(b), Provincial Insolvency Act. 22. This view was, however, doubted in the case of Indo Burmah Trader's Bank Ltd. v, Barda Charan Dhar (ubi supra) and the case was also distinguished on the ground that it concerned Section 54 and not Sections 9 (1) (c) and 6(b), Provincial Insolvency Act. 22. The view taken by the Lahore, Madras, Nagpur and Calcutta High Courts in the cases mentioned above was adopted by a Division Bench of the Rangoon High Court in U Ba Sein v. Maung San, ILR 1934 Ran 263. That was a case dealing with Section 54 of the Provincial Insolvency Act but a Full Bench of that Court in AIR 1937 446 (Rangoon) has overruled the decision of the Division Bench and has held that the date of the execution of the deed is the material date. One of the learned Judges of the Full Bench, however, has remarked that different considerations may arise in considering limitation with regard to Section 9 (1) (c), Provincial Insolvency Act. 23. In view of the decision of different High Courts mentioned above,. the preponderance of authority is clearly in favour of the view which we are disposed to take in the present case. We accordingly hold that the period of three months must be counted from the date of the registration of the deed, namely the 13th of August 1942. 24. With regard to the second question stated above viz., whether the debt on which the insolvency petition is founded must be due at the time when the act of insolvency is committed, the answer to the question turns on the proper interpretation of the expression " with intent to defeat or delay his creditors "in Section 6 (b) of the act. The Provincial Insolvency Act in Section 2(1) merely says that a creditor includes a "decree-holder"; in terms it gives no further indication as to the significance of the word " creditor ". The word "creditor" is undoubtedly correlative to debtor and signifies a person to whom a debt, i. e. a liquidated or a specific sum of money is due. But the point is whether the word "creditors" as used in the expression is necessarily confined to the creditors whose debt exists before the act of insolvency is committed. No decisions of any of the High Courts in India regarding this question have been brought to our notice. But the point is whether the word "creditors" as used in the expression is necessarily confined to the creditors whose debt exists before the act of insolvency is committed. No decisions of any of the High Courts in India regarding this question have been brought to our notice. Learned Counsel for the applicant has, however, contended that a good deal of assistance may be derived from the interpretation which has been put upon the same expression in Section 53 (1) of the Transfer of Property Act. Section 53 of the Transfer of Property Act runs thus: Every transfer of Immovable property made with intent to defeat or delay the creditors of the tranferor shall be voidable at the option of any creditor so defeated or delayed. 25. The contention of the learned Counsel is that it has been repeatedly held by High Courts in India that the term "creditors" in this section includes not only creditors of the debtor at the time of the transfer, but also those who subsequently become his creditors. There is no doubt that it is well settled that future creditors of the transferor are also within the scope of Section 53 of the Transfer of Property Act. 26. The law in England relating to fraudulent transfer of property, new(sic) Section 172 of the Law of Property Act, 1925, on which the provisions of Section 53 (1) of the Transfer of Property Act are based, is substantially the sane but the question remains whether the interpretation put upon the expression as used in Section 53 of the Transfer of Property Act can legitimately be put upon the same expression when it occurs in the Provincial Insolvency Act. It should not be forgotten that the amendment of Section 53 of the Transfer of Property Act in 1929 makes it clear that Sub-section (1) of that section does not affect the law of insolvency in any way. Further there can be no doubt that the object of Section 53 of the Transfer of Property Act is not to secure an equal distribution of the property of the bankrupt whereas the object of Section 54 of the Provincial Insolvency Act is to secure an equal distribution of the insolvent property among his creditors and different consequences may flow from that distinction. It is obvious that the law of insolvency is much more stringent than the provisions of Section 53 of the Transfer of Property Act, e.g., a preference to one creditor which might be valid u/s 53 of of the Transfer of Property Act would, if the debtor were adjudged insolvent within three months, be deemed fraudulent u/s (5) of the Provincial Insolvency Act. Similarly a transfer by a debtor of all his property to a particular creditor is not necessarily voidable(sic) u/s 53 of the Transfer of Property Act; but under the Provincial Insolvency Act it may operate as an act of insolvency or at least a fraudulens preference. There are thus important differences betweem the law of insolvency and the provisions of Section 53 of the Transfer of Property Act. In this connection(sic) reference might usefully be made to the salutary principle of interpretation(sic) Indicated(sic)br their Lordships of the Privy counsil in AIR 1938 152 (Privy Council) their Lordships are reported to have observed: Decisions made(sic)other statutes have been cited. But it is advantagerous(sic) to seek to construe one statue by reference to the words of another. 27. In view these considerations, in our opinion similarly of the expressions used in the two sections is not a good ground for interpreting them in the same sense. It is beyond question that the basis of the Indian Insolvency legislation is the English Law of Bankruptcy. In India, as in England the law relating to bankruptcy is essentially the creation of statute. In both countries the basis of the law is the same viz. the Roman principle of cessio bonorum, or the surrender by the debtor of all his goods for the benefit of his creditors in return for immunity from process (vide Encyclopaedia of the General Act3 and Codes of India, Vol. I p. 143). It is, therefore, not only permissible but also of great advantage to see what the English law is on a particular point which is not clarified by the provisions of the stature law in India as it is today. I p. 143). It is, therefore, not only permissible but also of great advantage to see what the English law is on a particular point which is not clarified by the provisions of the stature law in India as it is today. According to the English law the debt must exist before the act of bankruptcy The law is stated thus in Halsbury's Laws of England, Hailsham Edition Vol II page 55: A person to whom a debt is one from a debtor, or who is the holder of a bill of exchange accepted by a debtor cannot maintain a bankruptcy petition against him unless the debt came into existence or the bill of exchange was issued before the date of the act of bankruptcy on which the petition is founded vise(sic) R. Wnelan(sic), Ex. Parte Sadler (1878e) 39 L T. 361 But it will be sufficient for the maintenance of a petition, if the original debt dury by the debtor or accrued before trie act of bankruptcy was committed(sic) and the circumstance that afte the commension(sic)of the act of bankruptcy the debt become merged in a judgment will not preven the maintanance(sic) of the petition (vide Re King and Beeley, Ex parte King and Beesley, l859 I Q. B. 189. 28. In Williams Law and Practice in Bankruptcy, 15th Edition, 1937 p. 47, she law on the point is stated thus: By the so callled Common Law of Bankruptcy, it has always been held that the petitioning creditors' debt must have accrued the before the act of Bankruptcy on which the petition is founded (Moss v. Smith, I Camp. 489); further the debt must be a liquidated debt. though not necessarily payable in present before the act of bankruptcy--it is not enough that it became liquitdate(sic)after the act of bankruptcy and before the petition (Re Debtors, 1927 1 Ch 19), but the debt need not have been due to the petitoining creditor at the date of the act of bankruptcy. Thus if the debt be on a bill of exchange accepted before the act of bankruptcy, It is not neccessary that it should have vested in the petitioning creditor before the act of bankruptcy......A bill of exchange accepted before the act of bankruptcy, but not issued until alter it, will not support a petit on vide Et-parte Hayward, L. R. 6 Ch 546...... It is submitted that this is still the law. 29. The above statement of the law in William's well known text book has received the approval of the Court of Appeal in England in Re Debtors, (1927) 1 Ch 19. 30. In Ringwood's Principles of Bankruptcy 1930 16th edition, at page 40, the law on the point is thus stated: The petitioning creditor's debt, must have existed at the time of the act of bankruptcy ; but if there was a good petitioning creditor's debt at that time it is immaterial that judgment has been subsequently obtained for it. 31. The reasons for the rule is thus stated in the leading case of Ex-parte Hayward In re Hayward, (1870) L R 6 ca 545 at P. 549,by Mellish L. J: It has always been the settled rule that the debt of the petitioning creditor must be a debt which existed at the time of the act of Bankruptcy. The law Was so settled, not on the ground of any express words in any of the Bankruptcy Act, but because it would be manifestly unjust that a person who commits an act of bankruptcy, and who happens to have no creditors or pays all his creditors in full, should be liable to be made bankrupt on account of that act by some person to whom he afterwards becomes indebted(sic). 32. And it is further clear that a man who is the only creditor of a debtor can present bankruptcy petition against him--vide Halsbury's law of England, Hailsham Edition, Vol. 2 p 54 and Re Hecquard, Ex-Parte Hecquard, (1889) 24 Q B D 71 C A, per Lindiey L. J. at page 76. 33. Sir Dinshah Mulla in his well known book on the Law of Insolvency in British India, 1930 Edition at p. 117 has stated the law thus: The petitioning creditor's debt must have existed at the time of the act of insolvency. It must also have existed at the time of the presentation of the petition(sic), and must have continued to exist at the leanring(sic) and down to the making of the order (sic)juudication. If there was a good petitioning creditor's debt at the time of the act of insolvency it is immaterial that judgment has been subsequently obtained for it and it has become merged in the judgment. 34. If there was a good petitioning creditor's debt at the time of the act of insolvency it is immaterial that judgment has been subsequently obtained for it and it has become merged in the judgment. 34. Similarly in the Encyclopaedia of the General Acts and Codes of India, Vol. 1 at pages 167 and 250, the law is thus stated: The petitioning creditors debt, must have been subsisting when the act of insolvency was committed (Moss v. Smith (1808), 1 Camp. 489; Re Hay-ward Ex parte Hayward (l87l) 6 Ch. App 546). 35. In view of the authorities mentioned above, it must be held that the word "creditors" as used in Section 6 (b), Section 7, Section 9 (1) and Section 54 of the Provincial Insolvency Act, does not include a person who becomes a creditor of the insolvent after the date of the transfer or other act of insolvency. It follows, therefore, that the District Board, the applicant in this case, which became a creditor of Abdul Salam only when the appeal was allowed and the suit dismissed on the 12th of November 1942 was not competent to file the petition on the 13tb of November 1942. 36. The result, therefore, is that the application in revision is dismissed with costs.