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High Court Of Rajasthan
Judgename : M.C. Jain
Harshamal Shivbux - Appellant
Versus
Ramkishan Das Sagarmal - Respondent
Civil Revision No. 147 of 1977
Decided On : 01/19/1983
INSOLVENCY - STAY OF PROCEEDINGS - ADJUDICATION ORDER - APPLICABILITY - COURT'S JURISDICTION - EX-PARTNERS AND LEGAL REPRESENTATIVES - LIABILITY - CONTINUANCE OF SUIT - CONDITIONS.
Fact of the Case:
Plaintiff instituted a suit for recovery of money against a firm and its partners, including ex-partners and legal representatives of deceased partners. Two sets of written statements were filed by defendants, one by ex-partners and legal representatives, and the other by current partners. An application for stay of proceedings was filed by one of the defendants under Section 29 of the Provincial Insolvency Act, 1920, based on an adjudication order of the Bombay High Court. The trial court allowed the application and stayed the proceedings.
Finding of the Court:
The court held that the application for stay of proceedings under Section 29 of the Provincial Insolvency Act was not maintainable as no order of adjudication had been made against the debtors under the Act. However, the court found that the application could be treated as an application under Section 17 of the Presidency-Towns Insolvency Act, 1909, which provides for the vesting of the insolvent's property in the official assignee and restricts creditors from commencing any suit or legal proceedings without the leave of the court.
Issues: 1. Whether the application for stay of proceedings under Section 29 of the Provincial Insolvency Act was maintainable? 2. Whether the application could be treated as an application under Section 17 of the Presidency-Towns Insolvency Act? 3. Whether the suit could have been stayed in the absence of any order of adjudication against the legal representatives of the ex-partners and the ex-partner? 4. Whether the suit should be allowed to be continued only against the ex-partners and their legal representatives or it should be allowed to continue even against the adjudicated insolvents?
Ratio Decidendi: 1. The court held that the application for stay of proceedings under Section 29 of the Provincial Insolvency Act was not maintainable as no order of adjudication had been made against the debtors under the Act. 2. The court found that the application could be treated as an application under Section 17 of the Presidency-Towns Insolvency Act, which provides for the vesting of the insolvent's property in the official assignee and restricts creditors from commencing any suit or legal proceedings without the leave of the court. 3. The court held that the suit could not have been stayed in the absence of any order of adjudication against the legal representatives of the ex-partners and the ex-partner. The order of adjudication only operated against the partners who were partners on the date of the order, and their properties vested in the official assignee. The properties of the ex-partners and legal representatives of deceased partners, who were not adjudicated as insolvents, would not vest in the official assignee and could be proceeded against in the suit. 4. The court held that the suit should be allowed to be continued against the ex-partners and their legal representatives, as well as the adjudicated insolvents, but the plaintiff would be required to bear the costs of the adjudicated insolvent defendants for the conduct of the suit.
Final Decision: The court allowed the revision petition, set aside the impugned order of the trial court, and allowed the plaintiff to continue the suit against the defendants with the condition that the plaintiff would bear the costs of the adjudicated insolvent defendants in defending the suit.
M.C. Jain, J.-This revision is directed against the order of the Additional District Judge. Chum, dated April 4, 1977, whereby he allowed the application of Girdharilal (defendant No. 3) under Section 29 of the Provincial Insolvency Act, 1920 (V of 1920) (hereinafter referred to as “the F. I. Act”), And consequently stayed the proceedings of the suit.
2. A few relevant material facts giving rise to the present revision petition may briefly, be stated as under. The plaintiff M/s. Harshamal Shivbox instituted a suit for the recovery of Rs. 18,916.95 p. against M/s. Ramkishan-das Sagarmal and its partners and ex-partner and the legal representatives of the ex-partners. It was alleged by the plaintiff-firm that Sagarmal Nathmal, Poosraj alias Pushpraj, Girdharilal, Hulashchand and Mst. Ratni Bai were the partners of the defendant-firm and this firm continued its business up to St. 2020 at Bombay. After St. 2020, the firm, stopped its business Sagarmal and nathmal expired in St. 2020 and St. 2021, respectively. Poosraj alias Pushpraj was excluded from the partnership firm on 5-4-1960. The plaintiff impleaded the legal representatives of Sagarmal and Nathmal and also impleaded Poosraj as defendants. Besides that, the partners of ,he defendant-firm were impleaded as defendants. The plaintiff has alleged that not only the partners of the firm, but also the legal representatives of the deceased partners of the firm, as well as the ex-partner Poosrai are ail liable for the payment of the suit money. The plaintiff-firm prayed for a decree against the firm, its present partners, ex-partner, as well as legal representatives of the deceased partners.
3. Twoseparate written statements were filed by two sets of defendants. One written statement was filed by defendants Nos. 2 to 5, namely, Poosraj alias Pushpraj, Girdharilal, Mst. Goda-wari, and Mst. Rsmibai and the other has been filed by Hulashchand, Narayan Prasad, and Smt. Naybadi Bai. TN hoth the written statements it was pleaded that the defendant-firm was closed on account of losses and insolvency proceedings are pending for adjudicating the defendant-firm, as insolvent, and on this basis a plea was taken that the suit cannot continue.
4. On 25th November, 1976. Gir-dharilal (defendant No. 3) submitted an application under Section 29 of the P.1. Act for staying the proceedings in the suit. It was stated in the application that the defendant-firm has been adjudicated as insolvent by the Bombay High Court and in view thereof the suit cannot continue, so the proceedings in the suit may be stayed. On 6-1-1977 the certified copy of the adjudication order of the Bombay High Court was submitted by defendant No. 3. Reply to the application was filed by the plaintiff on 10-2-1977. After hearing the parties, the learned Additional District Judge allowed the application and stayed the proceedings in the suit. One of the arguments, which was advanced on behalf of the plaintiff-petitioner before
the Additional District Judge, was that the adjudication order of the Bombay High Court is not operative against all the defendants. There are parties arrayed as defendants, who have not been adjudged as insolvents by the Bombay High Court. This contention of the plaintiff-petitioner was negatived by the learned Additional District Judge. So far as the question of maintainability of the suit is concerned, the learned Additional District Judge was of the opinion that when suit is instituted in ignorance of the order of adjudication, then the proper course is only to stay the suit and not to dismiss it. The learned Additional District Judge also found that the suit is in respect of the balance amount of a ‘khata’ and is not based on any breach of contract and he further found that even if the names of all the partners have not been stated in the order of adjudication, it is of no consequence, as the property of all the partners vests in the Court or in the receiver. Dissatisfied with the order of the
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