Payment of dividend in respect of barred debts.

This Civil Miscellaneous Second Appeal is against the judgment and decree of the District Judge, Guntur, dated 31st July, 1948, in C.M.A.No. 23 of 1948, and raises three important questions: (1) whether the Insolvency Court can order dividends paid on time-barred debts, expunged from the schedule, to be put back into Court; (2) whether the Official Receiver, like a full owner, can acknowledge and pay at his will and pleasure time-barred debts; and (3) whether a creditor authorised and directed by the Official Receiver can file a petition under section 50, Provincial Insolvency Act, in the Insolvency Court, to have debts incorrectly or improperly admitted expunged from the schedule and get a valid order.

C.M.A.No. 23 of 1948 was an appeal against the order of the Subordinate Judge, Guntur, dated 19th January, 1948, in I.A.No. 233 of 1947, in O.P.No. 54 of 1935, an application of the respondent, Venugopala Rao, a creditor of the insolvent in I.P.No. 54 of 1935, on the file of the Subordinate Judge, Guntur, to expunge two Khata debts amounting to Rs. 9,135 said to be due to the appellant, Subbamma, from one Seetharamamma, from the schedule of proved debts. The learned Subordinate Judge expunged these two debts and directed the appellant, Subbamma, to repay the sum of Rs. 2,689-4-0, paid by the Official Receiver, Guntur, to her as dividend on these expunged debts, with interest thereon up to the date of realisation. The learned District Judge confirmed the order of the Subordinate Judge as he had no hesitation in agreeing that it was correct. He has given two reasons for supporting the expunging of the debts, firstly, that they are Khata debts which became barred on 9th April, 1932, and, secondly, that there was obviously an interpolation and subsequent insertion in the accounts of the appellant in a desperate attempt to revive these debts which were given up for good by the appellant at the settlement of accounts, with Seetharamamma, on 12th February, 1935, when the entire sum due by Seetharamamma to the appellant was fixed at Rs 4,426-6-0 for which a promissory note was executed, which promissory note had already been allowed for in the insolvency petition, and dividend paid therefor. In other words, the learned District Judge considered that this alleged debt of Rs. 9,135-6-0 was not only time-barred, even if true, but it was also given up at the settlement of accounts on 12th February, 1935, and was sought to be fraudulently revived and claimed by interpolations and subsequent insertions in the accounts, a conclusion which the Subordinate Judge too arrived at. I see no reason to differ from these two findings of fact by the learned District Judge, and the question of law has to be considered with reference to these two facts.

I may add that the learned District Judge’s finding regarding the bogus nature of the debt of Rs. 9,135-6-0 sought to be dishonestly revived is supported not only by the tell-tale over-writings, etc., in the accounts, but also by the curious fact that the debt of Rs. 4,426-6-0 due really to the appellant, Subbamma, as per the settlement of accounts dated 12th February, 1935, was claimed by her nearly three years before this alleged additional debt of Rs. 9,135-6-0 was claimed by her in the insolvency proceedings. There can be no explanation at all for this except on the basis that she too was aware’ that only Rs. 4,426-5-0 was the debt really due to her, and that she therefore proved that debt first and drew the dividend in respect of it, and waited for a sufficiently long time before coming forward with the subsequent fraudulent claim regarding the abandoned debt of Rs. 9,135-6-0. The Official Receiver could have easily seen this subsequent claim to be fraudulent if he had looked into the accounts carefully and taken note of two significant facts, namely, that the settlement of accounts on 12th February, 1935, settled the liability of Seetharamamma only at Rs. 4,426-6-0, regarding which a promiss