BYRAMJI BOMANJI TALATI Vs. OFFICIAL ASSIGNEE

JUDGEMENT

(1.) This appeal raises a short point of insolvency law, on which there appears to be no direct authority. The question is, whether a creditor can prove for a debt which was barred by limitation at the date of the order of adjudication, but was not so barred at the date of the act of insolvency on which the adjudication was founded. The debt in question was incurred by the debtor on November 19, 1928; on August 18, 1931, there was an act of insolvency, on which a petition for adjudication was presented on October 14, 1931; and an order of adjudication was made on March 27,1933. The point is not likely to arise frequently, because, as a rule, adjudication follows promptly, if it follows at all, upon an act of insolvency; but in this case there were special circumstances, which resulted in a delay of nearly two years between the act of insolvency and the order of adjudication. The Official Assignee held that the debt was provable, and his decision was upheld by the Insolvency Judge, from whose judgment this appeal is brought.

(2.) The case arises under the Presidency-towns Insolvency Act, 1909. Section 17 of the Act provides that- On the making of an order of adjudication, the property of the insolvent wherever situate shall vest in the official assignee and shall become divisible among his creditors, and thereafter except as directed by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable in insolvency shall, during the pendency of the insolvency proceedings, have any remedy against the property of the insolvent in respect of the debt or shall commence any suit or other legal proceeding except with the leave of the Court and on such terms as the Court may impose. Then Section 51 deals with the date of the commencement of the insolvency, and provides: The insolvency of a debtor, whether the same takes place on the debtor's own petition or upon that of a creditor or creditors, shall be deemed to have relation back to and to commence at- (a) the time of the commission of the act of insolvency on which an order of adjudication is made against him, or (b) if the insolvent is proved to have committed more acts of insolvency than one, the time of the first of the acts of insolvency proved to have been committed by the insolvent within three months next preceding the date of the presentation of the insolvency petition. Then the section, under which the question directly arises, is Section 46, Sub- section (3), which provides.- Save as provided by sub-sections (1) and (2), -(which are not material for the present purpose)- all debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable in insolvency. It is well settled that debts which are barred by limitation are not provable in insolvency, because the debtor is not subject to such debts; and the question we have to determine is the date at which time ceases to run in favour of the insolvent. If the material date is the date of the order of adjudication, then the claimant's debt is not provable; but if the material date is the date of the commission of the act of insolvency, then the debtor was still subject to the debt at the time at which he was adjudged, and the debt is provable.

(3.) In my opinion, the principle on which this case ought to be determined is well settled. Under Section 17 and Section 51 of the Presidency-towns Insolvency Act, the insolvency commences on the commission of the act of insolvency, and at that date the property of the insolvent vests in the Official Assignee, whose duty it is to administer it, and distribute it amongst the creditors who prove their debts. As from that date the Indian Limitation Act has no application, and the relationship of debtor and creditor ceases to exist. That principle was laid down as long ago as 1827 in Ex parte Ross : In the matter of Coles (1827) 2 GI. & J. 330, where the Lord Chancellor says (p. 332) :- Whatever may be the technical objection, the effect of the commission clearly is to vest the property in the assignees for the benefit of the creditors; they are, therefore, in fact, trustees: and it is an admitted rule, that unless debts are already barred by the statute of limitations when the trust is created, they are not afterwards affected by lapse of time.