J MCIVER AND H HADOW PARTNERS CARRYING ON BUSINESS UNDER THE NAME AND STYLE OF HUSON TOD AND CO Vs. KVALRMALAGAPPA CHETTIAR

JUDGEMENT

(1.) This is a petition to adjudicate as insolvents Mr. J. Mclver and Mr. H. Hadow, who carry on business as partners under the name of Huson. Tod & Co., Stockbrokers in Madras. The petition alleges that the debtors owed the petitioner on the 25 May of this year Rs. 1,32,915-10-11, of which a payment of Rs. 33,338-14-9 had been made leaving on the date of the petition a balance of Rs. 99,686-12-2 due. It is convenient to state at this stage that it is not denied by the debtors that this amount is due to the petitioner. The acts of bankruptcy upon which the petition is laid are three in number. Paragraph 11 of the petition alleges a preferential payment in favour of Mr. J.W. Macfarlane of Rs. 4,062 on 3 May 1935, and a similar preferential payment of Rs. 24,986 to Mr. W. H. Warren on the 9 May, 1935. With regard to this latter payment it was stated from the Bar by Mr. Grant that it was paid to Mr. Warren not in his personal capacity but as the representative of a missionary trust. Though not strictly relevant, I regret that this matter was not cleared up in evidence, because although payment to a missionary trust may be as much a preferential payment as to an individual, the transaction loses much of the sinister aspect ascribed to it by the petitioner if instead of being a payment to an individual of the same nationality as was stressed, it was in fact a payment to a missionary society who are not presumably applying their funds for the purpose of converting Europeans. The other ground is a notice to creditors within the meaning of subsection (g) of Section 9 of the Presidency Towns Insolvency Act given at a meeting held on the 22 May, 1935.

(2.) The debtors resist this petition and the grounds for their resistance will appear from an examination of the history of the case. It is common ground that in March a April, of this year, this firm became heavily involved and at least by the beginning of May they were quite unable to meet their obligations. I would at this stage state that I have not investigated the cause of the firm's losses. I have not endeavoured to assign the blame therefor to any individual because in my view it is totally irrelevant for the purpose of this application to decide the cause of the debtors losses. It is sufficient for the purposes of this case that there were such losses. It may be that in other litigation in other Courts, these matters will be investigated at the instance of persons interested, and it is indeed evident that one civil suit at least has been filed which will presumably involve the investigation of all the surrounding circumstances, and since the greater part of this judgment was written, it seems that an inquiry in a criminal court will follow. Suffice it then to say that in May the firm of Huson Tod & Co. were unable to pay their debts, and Mr. Mclver, as he states in his affidavit, cabled to his partner, Mr. Hadow, who very shortly before had gone to England on leave. Mr. Hadow immediately returned to Madras by aeroplane and he arrived on the 20 May. The debtors Solicitors were Messrs. King and Partridge, and Mr. W.H. Sell of that firm has virtually represented, with the occasional assistance of counsel, the debtors throughout these proceedings. Mr. Sell summoned a meeting of the creditors on 22nd May, at which Mr. Nugent Grant was present. What happened at that time is fortunately recorded in writing. Mr. K.S. Krishnaswami Aiyangar, who is a creditor for a very large sum, made a note which is marked Ex. I in this case and which is accepted as substantially accurate. At that meeting Mr. Grant stated that the firm was unable to pay its debts and that it was open to the creditors to have the firm adjudicated, or the firm itself would, if the creditors preferred, apply to be adjudicated. The liabilities were stated to be seven lakhs of rupees, and the firm's assets were said to be under Rs. 25,000. Mr. Grant pointed out that the partners of the firm were anxious to do their honest best and that in order to inspire confidence among the creditors, he made a suggestion that a small committee of creditors might co-operate with Messrs. King and Partridge and himself in seeing that all that could be done was being properly done and nothing left undorae. What were called the difficulties in the administration of affairs through the Official Assignee were mentioned and the advantage of saving the Official Assignee's commission emphasised. A hint of the possibility of suing successfully third parties was given and an indication that those suits were likely to be successful conveyed. But Mr. Grant did not ask the creditors to make up their mind there and then, but said that it was for them to consider and take whatever action they thought best.

(3.) And so the meeting broke up, and the creditors left to reflect on their position. It is clear - and no one suggests otherwise - that on May the 22nd the creditors never bound themselves to anything. Nothing further happened until the 29 May. On the 29 May a second meeting was held in response to a notice sent out by Messrs. King and Partridge on the 28th, and it is of the utmost importance to examine with care what happened at this meeting. Mr. Sell was able to tell the creditors that Mr. Hadow had furnished full details of his personal fortune which "on an approximate valuation came to Rs. 1,73,000 and odd" (? 12,700 or so) in the form of securities. These securities, said Mr. Sell, would be converted into money as quickly as possible. Mr. Mclver's personal property was stated to consist of two life poficies only payable after the death of the assured. Taking into account a charge, their surrender value might be ? 1,000. It was proposed to pay four annas in the rupee as soon as may be, but Mr. Sell stated that it was impossible to do this with prosecutions pending or to be instituted against Mr. Mclver. Mr. Sell said that if such prosecutions went on he would immediately get the firm adjudicated because with prosecutions hanging over their heads, the partners could not devote their attention to the conversion of the securities or the carrying on of the business. I agree that it is difficult for a man to carry on business efficiently with a criminal prosecution pending, but I do not see why a criminal prosecution should prevent anybody selling their shares. It is effected by the simple process of instructing a broker to sell them and handing him over the relative securities. Mr. Hadow was not being prosecuted. This however is not of importance. What is of importance and what must be borne in mind is that Mr. Sell's interest then, as stated by Mr. K.S. Krishnaswami Aiyangar and admitted by Mr. Sell, was to disperse the cloud of criminal prosecution. There was such a cloud on May the 14th. Rao Bahadur Soora Lakshmayya Chetti had launched criminal proceedings against Mr. Mclver and Mr. K.S. Narasimhachari, and another creditor, Mr. Balakrishnan was obviously contemplating criminal proceedings. The payment to Mr. Mcfarlane and the payment, as I will so describe it, to Mr. Warren were discussed and apparently made the subject of unfavourable comment. Mr. Balakrishnan asked whether after the payment of the four annas the partners could undertake to pay six pies at least per month in order to make further payments available to the creditors, It was not the intention to accept the four annas in full settlement of the entire claim and the rights and remedies in respect of the balance due remained open to the creditors.