(PENUMETSA) CHINA VENKATARAJU Vs. PULAVARTHI LAKSHMANASWAMI

JUDGEMENT

(1.) The appellants in this case, who are father and son, were adjudged insolvent on their own petition in 1919. Eventually, when their estate was realized, it was found to leave a large surplus after all the creditors who had proved their debts had been paid off under Section 61 (5), Provincial Insolvency Act. The respondent here, who was one of the creditors, applied to the District Judge for a further amount out of the surplus representing the balance due to him if interest on his claims, which were two, was calculated at the contract rate from the date of adjudication. The District Judge did not allow this subsequent claim in full. There were two debts due to the respondent, on one of which the contract rate was 48 per cent and on the other 19 per cent. The learned District Judge allowed 18 per cent on each debt from the date of the contract to the date of payment. The insolvents appeal against that order.

(2.) The answer to the question to what amount is the creditor entitled in these circumstances depends upon the interpretation of several sections of the Provincial Insolvency Act, which at first sight may not be easy to reconcile; but I think when they are examined, their effect becomes clear. Under Section 33 of the Act, when an adjudication is made, a. schedule has to be framed showing the creditors and the amounts of the debts duo to them as proved by them. Section 34 of the Act provides that provable debts-include all debts and liabilities to which the debtor is liable when he is adjudged insolvent. That would include the principal and interest at the contract rate-on each debt, where the debtor is really liable to that rate in the absence of reduction by way of relief against penalty or by restriction of interest under the Usurious Loans Act and so on. That a provable debt includes not only the principal of the debt but interest up to the date of adjudication is shown both by Section 34 of the Act and by Section 48, in neither of which is there any limit to the rate of interest which can be proved. An extreme case of a high rate of interest being provable under the contract will be found in Kanto Mohun Mullick v. John Carapiet Galstaun , where Rankin, C. J., points out that the creditor, having lent one lakh but by his contract being entitled to get two lakhs in six months and interest at 12 per cent on the two lakhs, could prove in accordance with that very harsh-looking contract. So we find that the creditor's proved claim, whether it is described as "entered in the schedule" or is a "debt proved"-those terms as used in the Act being synonymous-will include both the principal and interest at the contract rate, if any, unless that rate is specially reduced under provisions of law such as I have mentioned. But that interest, which is included in the proved debt, the debt entered in the schedule, runs only up to the date of adjudication.

(3.) That is in accordance with the long established rule in, England, as shown by Bromley V/s. Goodere 26 E.R. 49 and In Re: Savin [1872] 7 Ch. A 760, and will he clear when Secs.34 and 48 of our Act are examined. But although interest at the contract rate, unless specially reduced under the provisions of law, will be included in the debt as entered in the schedule, there is a provision in our Act, as in the English Bankruptcy Act, that for purposes of dividend interest will not be calculated necessarily at the contract rate. In Section 48(2) of our Act for the purpose of dividend interest is limited to 6 per cent. The result of that is that, when a dividend is to be distributed to different creditors, the claim of each on which he is entitled to got rateable distribution is not necessarily the principal plus the contract interest up to the date of adjudication but the principal plus interest at 6 per cent up to the date of adjudication where that is less than the contract rate. Section 61 (5) of our Act directs distribution of the assets. After payment of certain specified preferential debts, all other debts entered in the schedule are to be paid off rateably; but that is to be done subject to the provisions of the Act. That will mean, as I have explained, that, if a dividend is being paid, it will not necessarily be the full debt entered in the schedule which is taken for the purpose of calculation but the principal with interest on it not exceeding 6 per cent. But that restriction, it must be noticed, only applies when there is a dividend to be distributed. If the assets are large enough for the whole of the proved debts entered in the schedule to be paid, then there is nothing in Section 61 (5) which places any restriction on paying off the whole of those debts. In fact Section 61 (5) requires them to be paid in full if the assets are sufficient. Any question of dividend of course only arises when there is not enough to pay the proved debts in full.