Raghunath Prasad v. Baijnath Dwivedi — 1979 DIGILAW 10 (PAT)

Judgment B.P.JHA, J. 1. The debtor preferred this appeal under S.75(2) of the Provincial Insolvency Act (Act V of 1920) (hereinafter to be referred to as the Act) against the order dated 12-9-1977, passed by the First Additional District Judge, Chapra. 2. The debtor (appellant) filed an application under S.10 of the Act for being adjudged as insolvent. During the pendency of the insolvency proceeding respondent Baijnath Dwivedi filed an application for including his name in the schedule of the creditors. It is said that the debtor Raghunath Prasad and his sons contracted to sell their house with Baijnath Dwivedi for Rs 21,000/-. To this effect the debtor and his sons entered into a contract on 24-3-1969. On 24-3-69 Baijnath Dwivedi advanced Rs. 11,000.00 in pursuance of the contract to Raghunath Pd. and Raghunath Pd. executed a Mahandanama in this respect. It is also agreed that Rs. 8000.00 would be paid by Baijnath Dwivedi to the three creditors namely Mahendra Pd., Advocate, Badri Narain Singh and Dr. Sushila Devi. It was also agreed that balance of Rupees 2,000.00 would be paid at the time of registration. It was further alleged by Baijnath Dwivedi that the debtor did not carry out the terms of the contract and as such he filed a title Suit No. 166 of 1969 for specific performance of contract dated 24-3-1969. The aforesaid title suit was decided on the 30th April, 1977 by the Second Additional Sub-Judge, Chapra. By this judgement the Second Additional Sub-Judge, Chapra awarded Rs. 19,000.00 as compensation to Baijnath Dwivedi. It is on the basis of this judgement respondent Baijnath Dwivedi filed an application before the Insolvency Court that his name should be included in the list of creditors. 3. On these facts the Insolvency Court directed that Baijnath Prasad be added as a creditor in the insolvency petition. 4. Learned counsel for the appellant attacks the validity of the impugned order on the ground that it is contrary to S.33 of the Act. 5. In my opinion there is sufficient force in the contention of the learned counsel for the appellant. It is relevant to quote S.33 of the Act which runs as follows; "33. 4. Learned counsel for the appellant attacks the validity of the impugned order on the ground that it is contrary to S.33 of the Act. 5. In my opinion there is sufficient force in the contention of the learned counsel for the appellant. It is relevant to quote S.33 of the Act which runs as follows; "33. Schedule of creditors.- (1) When an order of adjudication has been made under this Act all persons alleging themselves to be creditors of the insolvent in respect of debts provable under this Act shall tender proof of their respective debts by producing evidence of the amount and particulars thereof, and the Court shall by order, determine the persons who have proved themselves to be creditors of the insolvent in respect of such debts and the amount of such debts, respectively, and shall frame a schedule of such persons and debts : Provided that if, in the opinion of the Court, the value of any debt is incapable of being fairly estimated the Court may make an order to that effect and thereupon the debts shall not be included in the schedule. (2) A copy of every such schedule shall be posted in the Court house. (3) Any creditor of the insolvent may, at any time before the discharge of the insolvent, tender proof of his debt and apply to the Court for an order directing his name to be entered in the schedule as a creditor in respect of any debt payable under this Act and not entered in the schedule and the Court, after causing notice to be served on the receiver and the other creditors who have proved their debts and hearing their objections if any shall comply with or reject the application." On a perusal of S.33(1), it is Clear that when an application is filed by a creditor along with proof of the debt then the Court shall by order determine the persons who have proved themselves to be the creditors of the insolvent in respect of such debt. The Court shall further determine the amount of such debt and shall frame a schedule of such creditors and debts. 6. There are two types of creditors under the Act, admitted creditors and disputed creditors. The Court shall further determine the amount of such debt and shall frame a schedule of such creditors and debts. 6. There are two types of creditors under the Act, admitted creditors and disputed creditors. The Court shall not hold any enquiry about the factum of being creditor in respect of such person who has been accepted as creditor by the insolvent. In that case the Court will hold only an enquiry about the quantum of debt. But in a case where the creditors are not being accepted by the insolvent then in that case the Insolvency Court is required to hold enquiry either under S.33(1) or under S.33(3) about the factum that he is a creditor in respect of such debt. In the present case the respondent is not accepted as creditor by the debtor-appellant. In such a case the insolvency Court is required to hold enquiry either under S.33(1) or under S.33(3) as to whether he is a creditor in respect of the debt or not. In such a case the insolvency Court is further required to determine the amount of such debt and thereafter the insolvency Court shall frame a schedule of such creditors and the debts. In my opinion, the insolvency Court is required to hold enquiry simultaneously in respect of (1) that a person is a creditor of such debt and (2) about the quantum of debt. In the present case the insolvency Court without following the procedure as laid down either in S.33(1) or in S.33(3) held the respondent as a creditor. The respondent can be declared as a creditor u/s. 33 of the Act in respect of a debt. The insolvency Court is further required to find out the amount of debt also. 7. In the present case the Court below treated the judgement of the 2nd Subordinate Judge in title Suit No. 166 of 1969 as an evidence of debt. It is a settled law that the insolvency Court is authorised to decide ah the questions which may arise in the insolvency proceeding and the decision of the insolvency Court is final. It is also clear from the wordings of S.4(2) of the Act Sec. 4(1) of the Act provides that the insolvency Court shah have full power to decide the question in the insolvency proceeding under S.4(2) of the Act. It is also clear from the wordings of S.4(2) of the Act Sec. 4(1) of the Act provides that the insolvency Court shah have full power to decide the question in the insolvency proceeding under S.4(2) of the Act. It is provided that every such decision shall be final and binding. It is also a well settled law that the order passed by the insolvency Court shall be treated as judgement in rem. In this circumstance the creditor is required to prove his debt before the insolvency Court. In this connection reference was made to a decision in Fraser Ex Parte Central Bank of London ((1892) 2 QB 633). In that case Lord Esher M.R. held as follows; "The court of Bankruptcy can go behind the judgement and can enquire whether notwithstanding the judgement, there was a good debt." It is therefore clear that apart from the judgement and decree in Title Suit No. 166 of 1969 the insolvency court is entitled to hold an enquiry as to whether there was a real debt or not. This proposition of law has also been supported by the decision of the Supreme Court in the case of Official Receiver V/s. Abdul Shakoor, AIR 1965 SC 920 . In that case the Supreme Court held (at p. 924) : "The Court has power, however to insist upon proof of the debt apart from the judgement of the negotiable or other instrument." In my opinion the insolvency Court is not bound by the decision of the Civil Court. A complete machinery has been set up by the Act to hold an enquiry about existence of the debt. The Act also provides that the decision of the insolvency Court shall be final between the parties. It is therefore clear that even if there is a decree, the insolvency Court is entitled to hold enquiry as to whether there exists a real debt or not between the parties. The same principle has been reiterated in State of Punjab V/s. Rattan Singh, AIR 1964 SC 1223 . 8 By virtue of the impugned order, the insolvency Court has added the respondent as a creditor. In my opinion there is no provision in the Act which provides insolvency Court to add any person as creditor without holding any enquiry as envisaged u/s. 33 of the Act. 8 By virtue of the impugned order, the insolvency Court has added the respondent as a creditor. In my opinion there is no provision in the Act which provides insolvency Court to add any person as creditor without holding any enquiry as envisaged u/s. 33 of the Act. A creditor can come to the insolvency Court before adjudication and after adjudication as well as before the discharge of the insolvent. In any event, the enquiry will be held under S.33 of the Act only after the adjudication has been made and not before that. The creditor is entitled to come at any stage but he will not be adjudged as creditor unless an adjudication has been made and enquiry as envisaged under S.33 has been made. In the present case there has been no enquiry under S.33 and as such the impugned order is not in accordance with law. 9. Learned counsel for the respondent contends that the application filed by the respondent is a petition under O.1, R.10 of the C.P.C. and not under S.33 of the Act. Learned counsel for the respondent concedes that if the application is treated as under S.33 then no enquiry was made as envisaged under S.33 of the Act and as such the impugned order is bad in law. The petition did not suggest that it was filed under O.1, R.10, C.P.C. In the prayer portion it has also not been prayed that he should be added in the list of creditors. The prayer was that he should be included in the list of the creditors. On the basis of the prayer portion of the petition I hold that it is a petition under S.33 of the Act. If it is a petition under S.33 of the Act then an enquiry should be made in respect of these facts (1) that the respondent is a creditor in respect of such debt and (2) that about the quantum of the debt. Thereafter he will prepare a schedule of the creditors and the amount of debt. In my opinion the Court has to hold enquiry and give its finding one way or the other in respect of the above mentioned facts. Thereafter he will prepare a schedule of the creditors and the amount of debt. In my opinion the Court has to hold enquiry and give its finding one way or the other in respect of the above mentioned facts. In view of these infirmities in the order I set aside the order and direct the Court below to proceed in accordance with law as well as on the basis of the observations made above. 10. In the result, the appeal is allowed and the impugned order dated 12-9-1977 is set aside and the case is remitted back to the trial Court for a fresh consideration on the basis of the observations made. The parties will bear their own costs. B.S.SINHA, J. 11 I agree to the order proposed. The appellant has not been able to state whether an order of adjudication has been made in this case. By going through the impugned order I am inclined to take the view that it is an innocuous order inasmuch as it has been held that it would be for the insolvency Court to determine such amount as is payable to the applicant-creditor. The impugned order only shows that the case of the applicant-creditor will be considered subsequently. Mr. Tarakant Jha, appearing for the respondent conceded that it was not an order under S.33 of the Provincial Insolvency Act, 1920 . It is true that en insolvency Court can go behind the judgement of a Civil Court and can enquire whether notwithstanding the judgement, there was a good debt and although the Court does not ordinarily go behind the judgement against the debtor, but can do so, provided there are circumstances prima facie justifying an enquiry.