KHUPCHAND NATHMAL MARWADI Vs. RAJESHWAR SHANKER DESHPANDE

JUDGEMENT

(1.) THIS appeal raises a point under the Insolvency Act which one would expect to have occurred on a great number of occasions if the point made by the appellant is a good one. The short facts may be stated thus. Let A be the mortgagor and B the mortgagee. The mortgage had a covenant requiring the mortgagor to pay to the mortgagee the debt so that the mortgagee was in the position of a secured and an ordinary creditor. A became an insolvent. B did not act under Section 47, Provincial Insolvency Act, but ignored the Insolvency Court and proceeded to realize his security which security proved insufficient to meet the mortgage debt. The result was that only Rs. 2140 were realized and that more than Rs. 6000 remained due. The mortgage was in 1923. The first sale in execution of part of the security took place on 23rd February 1929 and fetched Rs. 600. The sale of a farther part of the security took place on 21st March 1930 and fetched Rs. 1540 and the sale was confirmed on 22nd April 1930. In the meantime, on 7th November 1929, the insolvent was discharged. The mortgagee then in execution sought to recover the balance of Rs. 6000 odd and the lower Court has held that the debt has been discharged as a consequence of the insolvency and the mortgagor's discharge therefrom.

(2.) COUNSEL for the appellant has relied upon three cases, Sheoraj Singh v. Gauri Sahai (1899) 21 All 227, Ashrafuddin Ahmed v. Bepin Behari (1903) 30 Cal 407 and Amthalal Bhagvandas v. Cursetji Dhanjisha (1907) 9 Bom LR 466 in which Courts have held that in a case such as the present the debt realizable under the personal covenant is not discharged on the discharge of the insolvent. Out of respect for the Courts that have so decided we have examined the insolvency law more fully than we should otherwise have considered necessary. We agree with Ghosh's observations in his Provincial Insolvency Act, Edn. 10 at p. 375, to the effect that if a secured creditor ignores the Insolvency Court altogether he must be content with his security and will be debarred from claiming any dividend if his security should prove insufficient. The decisions in Sant Prasad Singh v. Sheo Dut Singh (1924) 11 AIR Pat 259 and Haveli Shah v. Mt. Hussaina Jan AIR 1938 Lah 217 are to the same effect. We are not however relying on these decisions but on first principles in this matter. The difficulty that appears to have been felt in a case like this is to know how such a creditor should proceed. It has been observed that until he has realised his security he can only guess whether there will be any liability under the personal covenant and if any, what. Therefore it is said that such a debt is not provable in insolvency. Accordingly it is urged, the discharge of the insolvent does not affect the liability of the mortgagor. Therefore such a debt can be recovered in full after discharge. This sort of problem, though in a much more difficult form, came before a very strong committee of the House of Lords in Hardy v. Fothergill (1888) 13 AC 351. The learned law Lords were the Earl of Halsbury, Earl of Selborne, Lord Fitz-Gerald, Lord Herschell and Lord Macnaghten. They leave no doubt whatever in our opinion as to what principles apply. Lord Macnaghten at page 356, commenting on the quotation from Mellish L.J., It is quite plain that the object of these Sections is, that the bankrupt shall he absolutely relieved from any liability under any contract he has ever entered into observes: With one qualification that statement is I think perfectly correct as regards any liability capable of resulting in payment of money or money's worth. Section 81, Bankruptcy Act, 1869 (which is similar in terms to Section 34, Provincial Insolvency Act) contains one exception, and one exception only. It excepts any case in which the Court on appeal thinks the value of the liability incapable of being fairly estimated, and makes an order to that effect. Such a case is conceivable, but it is one, I think, very unlikely to occur.

(3.) IF after having valued his security he subsequently realises it and the net amount realised is not the same as the valuation, provision is made for correcting the valuation. If instead of taking one or the other of these courses he simply ignores the insolvency, then, as above observed, he is limited to his security, the reason being that a mortgagee with a mortgage containing a personal covenant is a secured creditor so far as the mortgage transaction is concerned and an ordinary creditor so far as the personal covenant is concerned. His normal right is to realise his security and then to prove for the balance, and until he has realised his security he can oppose a discharge. It is difficult to see how a Court could discharge an insolvent while it was still at large as to what his indebtedness really was. Debts can be proved up to the date of discharge under certain circumstances and this is one of those cases in which proofs can be given long after the normal proofs are in because Section 47(1) expressly provides for proof after realisation and Section 33(3) enables a creditor in certain circumstances to tender proof at any time before discharge. Until the last of the provable debts is complete it is difficult to see how the Court can come to the conclusion that the insolvent's assets amount to 8 annas in the rupee, and if that cannot be concluded, then Section 42(1)(a) creates a difficulty in the way of a discharge. However that may be, if in point of fact a secured creditor does not assess under Section 47 and does not even ask the Court to say that, under the powers conferred by Section 34, the debt is of such a nature that its valuation is incapable of being fairly estimated and allows the insolvent to be discharged without any proof having been put in for the balance, then, in our opinion, he (the secured creditor) must be content with his security, and that is the conclusion arrived at by the lower Court. The appeal accordingly fails and is dismissed with costs.