Satya Prasad Ghosh v. Satya Narain Lal — 1961 DIGILAW 395 (ALL)

JUDGMENT Mithan, J. - This civil revision filed by the creditor arises out of an order passed by the Additional District Judge, Varanasi, rejecting the creditor's petition for declaring the opposite party as an insolvent. 2. The petition was brought on the ground that the three Hundis executed by the opposite party for Rs. 21,939/- in favour of the petitioner, which were payable by 31st Dec. 1952, had not been paid even though the money was demanded. The petition was presented on the ground that the opposite party by dishonouring the Hundis had committed an act of insolvency, that the opposite party had fraudulently executed mortgage deeds and mortgaged his properties with an intention to defeat and delay the claim of the petitioner, that is, the grounds contained in Sec. 6(1) (b), (c) and (g) of the Insolvency Act (hereinafter to be referred to as the Act) were alleged. 3. After contest the Insolvency Judge, Gyanpur, passed an order adjudging the opposite party as an insolvent. This order was set aside in appeal mainly on the ground that the provisions of the Act being mandatory and there being no compliance with the provisions of Sec. 13(2) of the Act the petition was not maintainable. It was further held that the opposite party had committed no act of insolvency and that the assets possessed by the opposite party were far more than the liabilities. It is against this order that the present revision has been filed. 4. It has been contended by Sri S.N. Kacker, learned counsel for the petitioner, that the Additional District Judge went wrong in holding that the provisions of Sec. 13(2) were mandatory. According to him if there was no compliance with those provisions it only amounted to an irregularity and as no prejudice had been caused to opposite party no. 1 the petition could not be thrown out on that ground. It is his contention that the petition was maintainable and the opposite party no. 1 had committed acts of insolvency ,4; under Secs. 6(1) (b), (c) and (g) of the Act. It has also been contended that the learned District Judge wrongly took into consideration the properties of the Company and wrongly came to the conclusion that the assets exceeded the liability. 1 had committed acts of insolvency ,4; under Secs. 6(1) (b), (c) and (g) of the Act. It has also been contended that the learned District Judge wrongly took into consideration the properties of the Company and wrongly came to the conclusion that the assets exceeded the liability. The learned counsel further contended and vehemently, too, that the appreciation of evidence has not been correctly done and that the Judge has gone wrong on several questions of fact. The learned counsel has given no certificate as required by the Rules of the Court that the findings of fact given by the learned Judge are perverse, so it is not necessary to reiterate or deal with the questions of fact which have been raised by the learned counsel in this revision. I have only to see whether the order passed by the learned Additional District Judge is bad in law or is such which is unjustified or requires any interference. 5. I have heard learned counsel for the petitioner at some length, but in spite of some fine distinctions pointed out, I do not at all agree with his learned arguments. The first question which arises for consideration is whether the learned District Judge wrongly held that the petition was not maintainable as the provisions of Sec. 13, which were mandatory, had not been complied with. Under Sec. 13(2) of the Act : "(2) Every insolvency petition presented by a creditor or creditors shall set forth the particulars regarding the debtor specified in cl. (b) of sub-Sec. (1), and shall also specify - (a) the act of insolvency committed by such debtor, together with the date of its commission; and (b) the amount and particulars of his or their pecuniary claim or claims against such debtor." 6. It has been found by the learned District Judge that the present petitioner had not mentioned anything in his application for insolvency about the notice given by the debtor about the suspension of payments. The two letters, which were produced in the court below and which have again been read over in this Court and relied upon, had also not been mentioned in the petition. The only thing alleged in the petition was about the dishonouring of the Hundis. The two letters, which were produced in the court below and which have again been read over in this Court and relied upon, had also not been mentioned in the petition. The only thing alleged in the petition was about the dishonouring of the Hundis. The insolvency petition further lacked in the particulars of the alleged mortgage-deeds in favour of some of the creditors which were alleged to be the acts of insolvency. All the vagueness, which was contained in the petition, and want of particulars of acts of insolvency said to have been committed by the debtor, was rightly taken by the learned Judge below as a fatal defect. In no case could it be said that the petitioner complied with the provisions of Sec. 13(2) of the Act. 7. The contention of the learned counsel is that even though the word `shall' has been used in Sec. 13(2), yet no penalty having been provided it should be taken to mean as `may'. For this purpose the learned counsel has relied upon the observations of the Supreme Court in the case of State of Uttar Pradesh v. Babu Ram Upadhya, A.I.R. 1961 S.C. 751. At page 765, paragraph 29, the Supreme Court has observed : "The relevant rules of interpretation may be briefly stated thus: When a statute uses the word `shall', prima facie, it is mandatory, but the Court may ascertain the real intention of the legislature by carefully attending to the whole scope of the statute. For ascertaining the real intention of the Legislature the Court may consider,-inter ilia, the nature and the design of the statute, and the consequences which would follow from construing it the one way or the other, the impact of other provisions whereby the necessity of complying with the provisions in question is avoided, the circumstance, namely, that the statute provides for a contingency of the non-compliance with the provisions, the fact that non-compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow there-from, and, above all, whether the object of the legislation will be defeated or furthered." 8. The above view of the Supreme Court does not at all help the contention of the learned counsel. The real intention of the legislature has to be found out from the provisions of Sec. 13(2) of the Act. The above view of the Supreme Court does not at all help the contention of the learned counsel. The real intention of the legislature has to be found out from the provisions of Sec. 13(2) of the Act. It can only be one purpose and it is that the word `shall' was used as `shall' and not in the sense of `may'. The legislature while enacting Sec. 13(2) of the Act could not have intended that any vagueness in the petition, which does not give sufficient particulars regarding the matters required to be given, could be condoned. The mere fact that no penalty was provided for not giving particulars is only one of the criteria laid down by the Supreme Court for judging the intention of the legislature. The learned counsel could not cite a single authority of any High Court in which the word `shall' used in Sec. 13(2) of the Act was taken to mean `may' and the defects were over-looked and the petition was held to be maintainable for want .of required particulars. He referred to the authority of Jagan Nath v. Jaswant Singh, A.I.R. 1954 S.C. 210 but that was a case under the Representation of Peoples Act to which the provisions of Civil Procedure Code have been made applicable. The case of Raghunath Misra v. Kishore Chandra Deo Bhanj, A.I.R. 1958 Orissa, 260 is again a case under the Representation of the People Act. The case of Hari Vishnu Kamath v. Election Tribunal Jabalpur, A.I.R. 1958 M.P. 168 is also a case under the Representation of the People Act. All these cases have been decided on different considerations. The ,observations made at page 272 of the Orissa case3 do not apply to the present case at all. The authority of Rani Drigraj Kuer v. Raja Sri Amar Krishna Narain Singh, A.I.R. 1960 S.C. 444 has again no application because that was a case under the Court of Wards Act. 9. It seems obvious that when the legislature intended to use the word `shall' it intended to use it in its mandatory sense. There is nothing in any of the provisions of the Act to show any contrary intention of the legislature. The Act from its very nature and design is such as requires protection of a debtor from the hands of any unscrupulous creditor. There is nothing in any of the provisions of the Act to show any contrary intention of the legislature. The Act from its very nature and design is such as requires protection of a debtor from the hands of any unscrupulous creditor. If any liberal interpretation is placed upon the Act it may give the creditors a handle to harass the debtors by filing vague applications of adjudication. The suggested interpretation will further have an impact on some other provisions of the Act like Secs. 6 and 9. Under Sec. 13(2) of the Act it is necessary that the act of insolvency committed by a debtor together with the date of its commission and the amount and particulars of his claim against such debtor be given. Acts of insolvency are given in Sec. 6 of the Act and the creditor in this case relies upon cls. (b), (c) and (g) of that section. In this petition one of the acts of insolvency alleged by the creditor was the transfer of property by execution of mortgages, but no particulars or dates of such mortgages are given. There was also no allegation in the petition that the debtor gave notice to any of his creditors about suspension of his business or his refusal to pay the debts. No mention of the letters which were produced before the lower court and were relied upon here was made. Sec. 9 of the Act makes it incumbent upon a creditor to show that the act of insolvency had been committed within three months of the presentation of the petition. The dates of mortgages having not been given it was also a violation of the provisions of Sec. 9. If the word `shall' is given the meaning of `may' as argued, this would affect the provisions of Secs. 6 and 9. Even if the statute has not made any provision for the consequence of noncompliance, yet it has made its intention clear by making other provisions. This view finds support from the case of Vasanji Mulji and Damodar Kalilnanji v. Mulji Ranchhod Ved, I.L.R. 50 Bom. 624 = 1926 A.I.R. Bom. 405 in which it was held by the Bombay High Court that "if an Act of insolvency as defined in Sec. 9 is not set out in the petition, then the petition is incompetent. This view finds support from the case of Vasanji Mulji and Damodar Kalilnanji v. Mulji Ranchhod Ved, I.L.R. 50 Bom. 624 = 1926 A.I.R. Bom. 405 in which it was held by the Bombay High Court that "if an Act of insolvency as defined in Sec. 9 is not set out in the petition, then the petition is incompetent. To my mind the word `shall' used in Sec. 13(2) of the Act cannot be taken to have been used in the sense of `may' and the non-compliance with the provisions of Sec. 13 would make the petition incompetent. It seems to me that the object of Sec. 13(2) of the Act is that every creditor must give the particulars in his petition and allege the act of insolvency committed by the debtor together with the date of its commission. That not having been done, the petition was rightly held to be not maintainable. 10. After the finding of the trial court on the incompetency of the petition has been upheld it does not seem necessary to discuss the further arguments raised by the learned counsel for the petitioner in this revision. However, I agree with the learned District Judge that the letter sent by the debtor does not amount to suspension of business or refusal on his part to pay off his debt. He simply expressed his inability to pay the debt at that time. In a similar case of Kanhayalal Bhargava v. Banwari Lal, AIR 1936 Calcutta 269. It was held that Sec. 9(g) of the Act contemplates that not only that the debtor should be able to pay his debt but he must convey this information to the creditor that his intention is not to pay. A mere declaration of inability to pay does not of itself constitute an act of insolvency. The learned District Judge has discussed other relevant authorities of Harkishan Lal v. People Bank of Northern India, Ltd., AIR 1932 Lahore 643 and the case of Hardayan Dass Johar Mall v. Jagarnath Marwari, AIR 1934 Patna 526. It was necessary for the creditor to prove that the debtor in this case was not merely refusing to pay any particular creditor but he had declined to pay every one of the creditor or the creditors in a body. It was necessary for the creditor to prove that the debtor in this case was not merely refusing to pay any particular creditor but he had declined to pay every one of the creditor or the creditors in a body. The learned Judge while dealing with the proposition of law has remarked : "There is absolutely no evidence worth the name on behalf of the petitioner to show that the opposite party had refused to deal with or to pay the debts due to all his creditors in a body." The finding of the learned District Judge must be accepted that the letters set up by the creditor, particularly the letter dated 22nd August 1953, do not amount to an act of insolvency. The real test in such cases is as to what is the effect of such a communication. If the effect is that the debtor has suspended his business or is about to suspend payment it may amount to an act of insolvency as held in the case of Kaushal Kishore v. Ram Dev, A.I.R. 1955 Punj. 193 but in this case the facts in the petition and the finding of the: learned District Judge make it clear that the letter sent by the debtor could not produce such an effect. 11. The finding of the learned Judge that no fraudulent preference was given to any creditor has also to be accepted. Under Secs. 6(b) and (c) of the Act if a debtor makes any transfer of his property or any part thereof with intent to defeat or delay the creditors or if he makes any transfer of his property or of any part thereof which would under this or any other enactment for time being in force be void as a fraudulent preference if he were adjudged an insolvent, are described as acts of insolvency. The intention to defeat or delay the creditors of the intention to give preference to the creditors are mental acts which can only be determined from surrounding circumstances. The intention to defeat or delay the creditors of the intention to give preference to the creditors are mental acts which can only be determined from surrounding circumstances. A transfer by the debtor of his property may be an act of insolvency upon either of two grounds (1) where the necessary consequence of the transfer is to produce insolvency or (2) where the debtor transfers a portion only of his property but is shown to have done so with the intention of defeating or delaying his creditors this criterion was laid down in the case of Adamali Mahomedali Nulvala. But this criterion is not fulfilled in the present case because neither the consequence of mortgaging the property was to produce insolvency nor the transfer was with any fraudulent intention as found by the lower appellate court. The authority of Krishna Das v. Raja Ram Bhait Lele, A.I.R. 1930 Allahabad 282 = 1930 A.L.J. 370 has also no application because in that case all the property had been handed over by the debtor to the Creditor. The case of Baijnath Rameshwar Lal v. Atal Prasad Kumar, AIR 1937 Patna 134 is based on different facts. That was a case where the debts exceeded the assets and the debtors was in pecuniary difficulties. It was under the circumstances of that case that the transfer was considered to be an act of insolvency. In another case of Patna. Dammu Vighnesam v. Varanasi Lakshmi Narasingha Murty, AIR 1940 Patna 187 another test was laid down and it was whether the alleged insolvent is in a position to pay his debt and whether the property which has been transferred bears such a proportion to the whole property that the remaining or the residue of the property is still sufficient from the point of view of an ordinary businessman to meet the debts of the creditors who remain unsatisfied. This test has again no application because in this case even though the valuation of the property has been challenged, yet I do not agree with the learned counsel that the Additional Civil Judge was wrong in taking into consideration the property belonging to the company. The sum of Rs. 20,000/- had been acknowledged by the opposite party as Managing Director of Bhadohi Textile Industries Limited, Bhadohi, and the hundis which were dishonoured were perhaps a liability against the company itself. The sum of Rs. 20,000/- had been acknowledged by the opposite party as Managing Director of Bhadohi Textile Industries Limited, Bhadohi, and the hundis which were dishonoured were perhaps a liability against the company itself. The learned Counsel for the other side also produced a chart of the property. a copy of which was given to the counsel for the petitioner. It shows that the value of the property charged and uncharged is sufficient to meet the liability. The Additional District Judge found the value of the property to be Rs. 70,000/- as against the petitioner's debt of less than Rs. 22,000/-. While executing the mortgages in favour of some other creditors the preference had to be given as found by the learned Judge. It was in no case a fraudulent preference. It is also not a case where a large proportion of the property or the whole of the property has been transferred. 12. In vide of what has been said above I am not prepared to accept the argument of the learned counsel for the petitioner that the learned District Judge took a wrong view of law in the case or wrongly decided the appeal or that this revision calls for any interference. The revision, therefore, fails. 13. The revision is hereby dismissed with costs. 14. Let the record of the case be sent back to the court below as early as possible.