JUDGMENT

Rahmah Hussain JCA:

In the court below, the learned judge of the High Court in Kuala Lumpur had reversed the order of the senior assistant registrar, who, on 10 June 1996, dismissed with costs the respondent's (debtor) application for the setting aside of the receiving and adjudication orders made against him on 27 June 1995. Hence this appeal.

The facts of this case can be summarised as follows: The debtor is, and has been since 1985, a partner with two other doctors in a medical partnership carrying on business in the name of "Poliklinik Kotaraya". He has a 35% share in the partnership. In 1989 there arose between the three partners a dispute which gave rise in that year to three civil suits between them. On 13 March 1990 two interim receivers and managers of the partnership were appointed by the court pending final resolution of the dispute between the partners. By the said order also, the receivers were authorised to pay a monthly allowance of RM4,000 only to each of the partners.

Despite the dispute, the partnership continued to be a viable business enterprise and as at 30 December 1994 its net current assets amounted to RM2,047,442.12. The debtor had a share in the net profit for 1994 which amounted to RM660,433.52. On 26 February 1996, the receivers and managers confirmed that the amount of cash proceeds due to the debtor (after the partnership was sold under a settlement agreement entered into by the three partners on 10 November 1993) was in the region of RM400,000 after deducting all moneys owed by him to the partnership.

As regards the present appeal, it arose out of a suit in the Sessions Court brought by the petitioning creditor (appellant in this appeal) against the debtor, whereby it obtained judgment in the sum of RM32,095.41 with interest, plus RM2,033.50 for costs. Based on that judgment the petitioning creditor (more than two (2) years later) that is in 1993, commenced bankruptcy proceedings against the debtor without, it seems, resorting first to ordinary execution to recover the debt, which then stood at RM45,693.81.

The debtor claimed that he was not aware of the bankruptcy notice and bankruptcy petition as the documents were served on him by way of substituted service. As a result, he was not aware of the hearing date and did not instruct solicitors to oppose the petition. Finally on 27 June 1995 adjudication and receiving orders were made against him.

It is to be noted that the bankruptcy action against the debtor was conducted during the period when efforts were being made to sell the partnership business pursuant to the settlement agreement.

Before us, learned counsel for the appellant contended that since the debtor had committed an act of bankruptcy on 8 February 1994 and that the procedure on bankruptcy proceedings was not contested, there was no ground for the court to annul the adjudication order and rescind the receiving order made on 27 June 1995. In support of his contention, he relied on the Federal Court case of Kamaruddin Mohamed v. United Motor Works (M) Sdn Bhd [1980] ; [1982] 1 MLJ 126, wherein it was held:

(2) in this case the debtor had not complied with the bankruptcy notice and therefore there was an act of bankruptcy on which the petition could be grounded;

(5) in this case, the appellant had not paid his debts and the other grounds on which he relied were not proved to the satisfaction of the court and therefore there were no grounds to warrant an annulment of the adjudication order.

He went on to say that in the present case the learned judge had relied solely on the first limb of s. 105(1) of the Bankruptcy Act 1967, which is "a debtor ought not to have been adjudged bankrupt" (emphasis added), when he formed the opinion that at the time of the adjudication, the debtor was able to pay his debts. However, it was learned counsel's contention that the ability to pay was of no relevance unless payment was made towards satisfaction of the judgment debt and that, without such