A debtor is deemed to continue carrying on business for the purposes of insolvency law until all trade or business liabilities have been discharged, even if there are no assets available within the court's jurisdiction.

Headnote:
INSOLVENCY - JURISDICTION - CARRYING ON BUSINESS - INTERPRETATION OF SECTION 11(B) OF THE PRESIDENCY TOWNS INSOLVENCY ACT, 1909 - COURT HELD THAT A DEBTOR IS DEEMED TO CONTINUE CARRYING ON BUSINESS UNTIL ALL TRADE OR BUSINESS LIABILITIES HAVE BEEN DISCHARGED, NOTWITHSTANDING THE ABSENCE OF ASSETS WITHIN THE COURT'S JURISDICTION.
Fact of the Case:

The debtor, Girdharlal Shankar Dave, challenged an order of adjudication and an insolvency notice issued against him, arguing that the court lacked jurisdiction. The debtor claimed he had not resided or carried on business within the court's jurisdiction for more than a year before the petition was filed.
Finding of the Court:

The court found that the debtor had carried on business within the jurisdiction as a partner in a firm, M/s J. M. Dave & Co., until 1960, and that certain debts from that business remained unpaid. The court held that the business continued for the purposes of Section 11(b) of the Presidency Towns Insolvency Act, 1909, even though the debtor alleged it had closed.
Issues: 1. Whether the court had jurisdiction to issue the insolvency notice and entertain the insolvency petition against the debtor. 2. Whether the debtor had carried on business within the limits of the ordinary original civil jurisdiction of the court within a year before the presentation of the insolvency petition or the application for the issue of the insolvency notice.
Ratio Decidendi: 1. The court interpreted Section 11(b) of the Presidency Towns Insolvency Act, 1909, and held that a debtor is deemed to continue carrying on business until all trade or business liabilities have been discharged, notwithstanding the absence of assets within the court's jurisdiction. 2. The court relied on English case law, including in re Dagnall and Theophile v. The Solicitor-General, which established that trading continues until all trade debts are paid. 3. The court also referred to the decision in Gover-dhandoss v. Parry & Co., where the Madras High Court held that a firm should be deemed to be carrying on business within the meaning of Section 11(d) of the Presidency Towns Insolvency Act so long as its business debts remain undischarged.
Final Decision: The court dismissed both of the debtor's Notices of Motion, upholding the order of adjudication and the insolvency notice.

JUDGMENT - 1. The debtor, one Girdharlal Shankar Dave, has taken out two Notices of Motion both dated 18th November 1965, one of which is for setting aside the order of adjudication passed in petition No. 69 of 1965 against the debtor on 19th October 1965 and the other for setting aside the insolvency notice dated 18th May 1965 which was issued at the instance of the petitioning creditors against the debtor. The admitted facts are that the debtor carried on business in Bombay as a partner in the firm of M/s J. M. Dave Co. In export and import. The petitioning creditors filed a suit No 193 of 1961, in this Court against the said firm of M/s J. M. Dave Co. to respect of certain amounts borrowed by the said firm from the petitioning creditors for the purpose of its business. On 22nd August 1961 a decree on admission was passed in favour of the petitioning creditors against the said firm. On 18th May 1965 the petitioning creditors got issued an insolvency notice being No. N/89 of 1965 against the debtor. On 10th June 1965 the petitioning creditors obtained an order for substituted service of the said insolvency notice against the debtor. On 22nd September 1965 the petitioning creditors filed a petition being Petition No. 69 of 1965 for an order of adjudication against the debtor and on 19th October 1965 an order of adjudication was passed against the debtor. In the affidavits filed by the debtor in support of the two Notices of Motion he has made certain allegations about his not having received the insolvency notice or notice of petition. At the hearing, however, Mr. Palan for the debtor, made it clear that the debtor did not challenge the correctness of the order for substituted service which was obtained by the petitioning creditors or contend that the order of adjudication or the insolvency notice were bad on the ground of want of service. It may be pointed out that the registered packet containing the insolvency notice was returned by the postal authorities with an endorsement "Refused" made on 22nd June 1965. The disputes as to whether the debtor received the insolvency notice or the notice of the petition are not relevant because Mr. Palan has made it clear that the only ground on which he challenges both, the order of adjudication and the insolvency notice is that the Court had no jurisdiction either to issue the insolvency notice or to entertain the petition against the debtor.

2. The provision in the Presidency Towns Insolvency Act, 1909, which deals with the question of restrictions on jurisdiction is Section 11 and the relevant portion of that Section is as follows:

"The Court shall not have jurisdiction to make an order of adjudication unless-

(a) xxxxx

(b) the debtor, within a year before the date of the presentation of the insolvency Petition, has ordinarily resided or had a dwelling house or has carried on business either in person or through an agent within the limits of the ordinary original Civil jurisdiction of the Court."

3. Both the Notices of motion were called together with the consent of the parties and the parties have also agreed that as the same question is involved in both the Notices of Motion, the evidence taken should be treated as common. The evidence of the debtor, which had been taken on commission, was tendered in evidence and has been taken on record as Ex. A. In his evidence the debtor has stated that since May 1961 he has been residing at Calcutta, but that prior to that time he was residing in Bombay with his family in a flat in Khira Bhavan. The debtor stated that prior to May 1960 he was doing export-import business in Bombay as a partner in the firm of M/s J. M. Dave and Co. which carried on business at 529 Kalbadeyi Road, Bombay 2, within the jurisdiction of this Court. He stated that this business resulted in a loss and he closed it in 1960. He further stated that there were no outstandings to be recovered by that firm but that there were debts which remained to be paid. He went on to s

Click Here to Read the rest of this document

1970 Supreme(Bom) 118

IN THE HIGH COURT OF BOMBAYM.H.Kania, J.Appellants: Ex parte: Girdharlal Shankar DaveVs.Respondent: Petn. Nos. 69 and 89 of 1965 Decided On: 09.03.1970Counsels: For Appellant/Petitioner/Plaintiff: M.L. Palan, Adv.For Respondents/Defendant: M.S. Sanghvi, Adv.

A debtor is deemed to continue carrying on business for the purposes of insolvency law until all trade or business liabilities have been discharged, even if there are no assets available within the court's jurisdiction.

Login now and unlock premium legal research

IN THE HIGH COURT OF BOMBAY
M.H.Kania, J.
Appellants: Ex parte: Girdharlal Shankar Dave
Vs.
Respondent:
Petn. Nos. 69 and 89 of 1965 Decided On: 09.03.1970
Counsels:
For Appellant/Petitioner/Plaintiff: M.L. Palan, Adv.
For Respondents/Defendant: M.S. Sanghvi, Adv.