Andhra Pradesh High Court
Judges : VENKATESAM
Central Bank of India Ltd - Appellant
Versus
Kaluva Chenchaiah - Respondent
Decided On : 08-17-63
PROVING DEBT IN INSOLVENCY - RES JUDICATA - ORDER 9, RULE 9, CIVIL PROCEDURE CODE - APPLICABILITY - PROVINCIAL INSOLVENCY ACT, 1920, SECTIONS 34, 63 - CIVIL PROCEDURE CODE, 1908, SECTIONS 11, 26, ORDER 9, RULES 8, 9.
Fact of the Case:
The respondent, a creditor, deposited groundnut with the insolvent firm, Rustomji and Sons, for decortication. The groundnut was sold by the Central Bank of India, a pledgee, and the creditor filed a suit for recovery of the value of the groundnut. The suit was dismissed for default and an application for restoration was also dismissed. The insolvent firm was adjudicated insolvent and the creditor filed an application before the Official Receiver to prove his debt. The Official Receiver held that the application was barred by res judicata and Order 9, rule 9, Civil Procedure Code.
Finding of the Court:
The court held that the application for proof of debt was not barred by res judicata or Order 9, rule 9, Civil Procedure Code. The court found that the suit filed by the creditor was dismissed for default and not on merits, and therefore, the principle of res judicata did not apply. The court also found that the application for proof of debt was not a suit within the meaning of the Civil Procedure Code and, therefore, Order 9, rule 9 did not apply.
Issues: 1. Whether the application for proof of debt was barred by res judicata? 2. Whether the application for proof of debt was barred by Order 9, rule 9, Civil Procedure Code?
Ratio Decidendi: 1. The principle of res judicata applies only when the matter directly and substantially in issue in the subsequent suit has been heard and decided in the former suit. In the present case, the suit filed by the creditor was dismissed for default and not on merits, and therefore, the principle of res judicata did not apply. 2. The application for proof of debt was not a suit within the meaning of the Civil Procedure Code. Therefore, Order 9, rule 9 did not apply.
Final Decision: The court dismissed the revision petition and directed that an inquiry be made into the truth and validity of the claim put forward by the respondent.
( 2 ) THE facts leading to the Civil Revisional ptend follows : Kaluva Chenchaiah, the respondent herein, who will here the referred to as the creditor used to purchase groundnut and store them In the godown of Rustomji and Sons for the purpose of decortication. In 1951 the creditor deposited 5,000 maunds of groundnut with Rustomji and Sons, hereinafter referred to as the insolvents firm, which executed a letter dated 15th January, 1952. Having learnt that the central Bank of India, hereinafter referred to as the Bank was bringing to sale 7,527 maunds of groundnut as pledgees thereof, the creditor issued a telegraphic notice on 23rd October, 1952, claiming that he was entitled to the groundnut and any sale by the Bank is illegal. The Bank by its reply dated 24th October, 1952, alleged that it was a bona fide pledgee from the insolvents firm. The groundnut was actually sold on 27th October, 1952, and a third party, Messrs. Lakshmayya and Sons purchased the same at Rs. 6-1-0 per maund. The creditor s case is that, in fact the groundnut was worth Rs. 7-1-0 per maund and at that rate his 5,000 maunds are of the value of Rs. 35,312-8-0 and that amount was due to him. The respondent thereupon filed O. S. No. 76 of 1952, Sub-Court, Anantapur, on 30th October, 1952, for recovery of Rs. 41,875-8-0, being the said amount of rs. 35,312-8-0 with interest.
( 3 ) AFTER the institution of that suit, another creditor of the insolvent firm filed i. P. No. 20 of 1952 for adjudging the firm of Rustomji and Sons as insolvents and it was dismissed by the Subordinate Judge, Anantapur, in 1954. O. S. No. 76 of 1952 was dismissed on 23rd September, 1955, by the Sub-Court, Anantapur, for default. Thereupon, the creditor filed I. A. No. 362 of 1955 for restoration of the suit. Against the order dismissing the insolvency petition, the creditor filed C. M. A. No. 35 of 1954. Even during the pendency of I A. No. 362 of 1955, C. M. A. No. 35 of 1954 was allowed by the District Court, and the firm was adjudicated insolvent on 20th December, 1955. By reason of that order, the Official Receiver was brought on record in I. A. No. 362 of 1955 in the place of the insolvents firm. Against the order of adjudication, the insolvents firm preferred C. R. P. No. 27 of 1956 to this Court, and the same was dismissed on 19th March, 1957. LA. No. 362 of 1955 for restoration of the suit was dismissed on 19th October, 1957. An appeal against that order, C. M. A. No. 201 of 1958, was also dismissed by this Court on 25th January, 1960.
( 4 ) WHILE matters stood thus, the creditor filed the petition I. A. No. 189 of 1958 before the Official Receiver, praying for proof of his debt of Rs. 41,875-8-0 and being entered in the Schedule of creditors. This application was opposed by the bank on the ground that the creditor filed O. S. No. 76 of 1952 for the recovery of the very same amount, and that suit was dismissed, and the petition for restoring the suit also was dismissed, and that the application is barred by the principles of res judicata. As the Official Receiver was made a party to I. A. No. 362 of 1955, it was also contended that the debt is not one which could be proved in insolvency, and that the Court had no jurisdiction to entertain the petition. The Official receiver held that he was competent to hear the petition, but held that the petition is barred on the principle of res judicata and Order 9, rule 9, Civil Procedure code. The contention that the debt is not provable under section 34 of the provincial Insolvency Act, hereinafter referred to as the Act on the ground that it is unliquidated damages was, however, rejected by the Official Receiver as
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