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1916 Supreme(SC) 77
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
LORD SHAW OF DUNFERMLINE, SIR JOHN EDGE, AND SIR LAWRENCE JENKINS.
CHHATRAPAT SINGH DUGAR - Appellant
Versus
KHARAG SINGH LACHMIRAM AND OTHER - Respondents
On Appeal From The High Court In Bengal.
Decided On : November 20, 1916.
Solicitor for appellant: G. C. Farr.
Solicitors for respondents: Watkins & Hunter.
A debtor's right to an order of adjudication under the Provincial Insolvency Act, 1907, is a statutory right, not discretionary. If statutory conditions are met, the court cannot refuse the order based on lack of bona fides; such conduct is relevant only during discharge proceedings.
Headnote:(A) Provincial Insolvency Act, 1907 - Sections 5, 14, 15 and 16 - Order of adjudication - Statutory right of debtor - Court's discretion to refuse order - Whether a petition can be dismissed on the ground of lack of bona fides or abuse of process when statutory conditions are satisfied - If a debtor commits an act of insolvency and complies with the conditions specified in the Act, the right to an order of adjudication is a statutory right and not dependent on the court's discretion - The court cannot deprive a debtor of this right on the ground of "abuse of the process of the court" if the debtor brings himself within the terms of the Act.
(B) Debtor's conduct - Stage of inquiry - Misconduct or bad faith of a debtor is to be visited with consequences at the stage of application for discharge and not during the initial proceeding for adjudication.
Facts of the case:
A debtor presented a petition to be adjudged an insolvent. The creditors opposed the application, alleging that the debtor had acted in bad faith to defeat and delay creditors and that the petition was filed for an inequitable and collateral purpose. The district court dismissed the petition as not being bona fide, and the high court subsequently dismissed the appeal.
Findings of Court:
The debtor had complied with all the conditions specified in the Act. The dismissal of the petition on the ground that it was an abuse of the process of the court was erroneous.
Issues: Whether the court possesses inherent discretion to refuse an order of adjudication on the ground that the petition is not bona fide or is an abuse of process, provided the statutory requirements of the Act are met.
Ratio Decidendi: The Act provides a complete and exact delineation of a debtor's right to an order of adjudication. Once the conditions are satisfied, the court is mandated to make the order. The right is statutory and not discretionary. The court cannot use the doctrine of "abuse of process" to override a statutory right. Any misconduct or bad faith on the part of the debtor is a matter to be decided during the proceedings for discharge, not at the initial stage of adjudication.
Result: Order of the high court reversed and the debtor adjudged an insolvent.
Legal Category Hierarchy
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insolvency law
-
adjudication
- statutory right to adjudication
- grounds for dismissal
- discharge of debtor
-
adjudication
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practice and procedure
- abuse of process
Judgement
Appeal from an order of the high court (April 12, 1912) affirming an order of the district judge of Murshidabad (April 22, 1911).
The appellant in 1909 presented a petition to the district court under s. 5 of the provincial insolvency act (iii. Of 1907) praying that he might be adjudged an insolvent. He stated that his debts amounted to about twelve lakhs of rupees, that his assets were about five lakhs, and that he had failed to effect a compromise with his creditors. The respondents, who were creditors some of whom had issued executions, opposed the application and charged the appellant with acts .of bad faith in relation to his creditors. They pointed out that in march, 1906, he had filed a similar petition in the high court and that woodroffe j., in refusing to make an order, had said " it is clear that the insolvent for the last fourteen years has been doing everything possible to defeat and delay his creditors."
The district judge dismissed the petition upon the ground that it was not made bona fide, but for an inequitable and collateral purpose.
The high court (sir cecil brett j. And sharfuddin j.) Dismissed the appeal summarily under order xll, r. 11, of the code of civil procedure, 1908. A petition to the high court for leave to appeal [@ page lria 12] to his majesty in council was opposed upon the ground that the provincial insolvency act, 1907,
Law. Rep. 44 Ind. App. 11 ( 1916- 1917)
C hhatrapat Singh Dugar V. Kharag Singh Lachmiram 168
contained no provision for such an appeal and by ss. 46 and 47 negatived the right. The learned judges (sir lawrence jenkins c.j. and mullick j.) Granted a certificate under s. 109 (c) of the code of civil procedure, 1908. The judgment upon this question is reported at i. L. R. 40 calc. 685.
1916. Nov. 1. Sir erie richards, k.c., and sir w. Garth, for the appellant. The appellant was entitled to an order of adjudication under s. 5 of the provincial insolvency act (iii. Of 1907). Ali the requirements of ss. 5, 6, and 11 were complied with. The act makes the discharge of the debtor under s. 44 depend upon his conduct and dealings, which are to be a subject of inquiry in the insolvency. The act differs in this respect from ch. 20 of the code of civil procedure, 1882, which it repeals; under s. 351 of the code the grant of an order was dependent upon the debtors conduct. The words " or for any other sufficient cause " in s. 15 of the act of 1907 are for the protection of the debtor ; they do not give the court a discretion to refuse an order to a debtor applicant. The Indian decisions strongly support the appellants contention Uday Chand Maiti v. Ram Kunwar Khala (( 1910) 15 calc. W. N. 213); sheikh abdul rezack v. Basiruddin ahmed (( 1910) 15 calc. W. N. 244.); samiruddin v. Kadumoyi dasi (( 1911) 17 calc. W. N. 405.); triloki nath v. Badri das (( 1914) i. L. R. 36 allah. 250.); bava jeer chetti v. Bava rengesami . (( 1911) i. L. R, 36 madr. 402.) The act of 1907 is framed on the english bankruptcy act, 1883 (46 & 47 viet. C. 52). It has been held that there is no inherent discretion in the court to refuse an order under that act on the ground that the petition is presented for a collateral purpose in re painter ([ 1895] 1 q. B. 85.) ; in re hancock . ([ 1904] 1 k. B. 585.) An order was refused in in re betts ([ 1901] 2 k. B. 39.) And in re bond (( 1888) 21 q. B. D. 17,); those were extreme cases in which the application did not really come within the statute.
De gruyther, k.c., and dube, for the second respondent. There was a discretion in the court to dismiss the petition ; s. 5 of the act provides that the court may make an order. The words in s. 15 " or for any other sufficient cause " are intended to preserve the [@ page lria 13] right to refuse an order if upon the examination of the debtors conduct and dealings, provided for by s. 14, it appears that the application is not made bona fide but with a collateral object. The decisions in India relied on for the appellant do
