Perera V. Joseph Et Al.,

Present: Lascelles C.J. and Wood Renton J.

PERERA v. JOSEPH et al.

46 and 47-D. C. Colombo, 2,447.

Mortgagee proving debt in insolvency proceedings-Is he bound to share proceeds pro rata with unsecured creditors?-Who is a "trader" -Reckless trading-Books not kept.

A mortgagee who elects in the first instance to prove in the insolvency would not lose the advantage of his security, and is not bound to share pro rata with the unsecured creditors in the proceeds.

Section 109 deals with the case of a creditor who has brought an action against the insolvent in respect of a demand prior to the filing of the petition. In that case the creditor cannot prove in the insolvency without relinquishing the action, and the act of proving the claim amounts to a relinquishment of the action.

The correctness of the definition of the term " trader " in In re Kanagaratne1 doubted.

An insolvent who failed to keep books, and who was guilty of reckless trading, was in the circumstances of this case granted a certificate in the third class, which was suspended for two years.

IN this case there were two appeals. No. 46 was an appeal by a mortgage-creditor against the order of the District Judge holding that by proving his claim in the insolvency proceedings the mortgagee had elected to come in as an unsecured creditor and share in the proceeds pro rata with the other creditors.

No. 47 was an appeal preferred by the insolvent against an order refusing to grant him a certificate of conformity.

H. A. Jayewardene, for appellant in No. 46. Talaivasingham, for the fourth respondent.

A. St. V. Jayewardene, for the seventh respondent.

Sansoni for the assignee.

Cur. adv. vult.

June 17, 1912. Lascelles C.J.-

The appellant is a creditor in the insolvency, whose debt was secured by a secondary mortgage of certain house property in Colombo. The property comprised in the mortgage, together with other property, having been sold in the course of the insolvency,

1 (1900) 1 Br. 70.

the appellant by his proctor moved for an order for payment to him of Rs. 1,741.06, representing the balance of the proceeds of the sale of the mortgaged property after satisfaction of the primary mortgage. The learned Acting District Judge took the view that the appellant, by proving his claim, had surrendered his security, and had elected to come in as an unsecured creditor and share in the proceeds pro rata with the other creditors, and dismissed the appellant's motion. From this order the appellant now appeals.

The question turns upon "the construction of sections 111 and 109 of the Insolvency Ordinance, and with regard to this there has been some divergence in the decisions of this Court. In S. T. Mathiah v. Meera Lebbe Marcar Tamby,1 Lawrie J. held that it was competent to the mortgagee to claim the property under the mortgage bond, and when the mortgaged property is sold, to draw the whole proceeds or so much as are sufficient to satisfy the debt. The learned Judge was of opinion that the mortgagee's right to draw the full amount of his debt from the proceeds of the sale of the property was reserved by the exceptions stated in section 111. In In re Ingleby,2 the same learned Judge delivered a similar opinion that a creditor by proving his claim did not renounce any of the rights -which his mortgage bond gave him. In Karthan Chetty v. Pakir Bawa Mohamadu Lebbe Marcar,3 Burnside C.J., without definitely deciding the point, stated that he was inclined to think that a mortgagee who elected in the first instance to prove in insolvency would not lose the advantage of his security. The contrary opinion was expressed by Dias J., who did not understand section 109 as applying only to cases where the creditor has brought the action against the insolvent before the filing of the petition. In Ramen Chetty v. Anstruther,4 the question related to the rights of a judgment creditor, who had seized the insolvent's land before the peti

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