P A R CHANDRASEKHARA NADAR Vs. IPALANIAPPA CHETTIAR

JUDGEMENT

(1.) In this appeal the Court is called upon to decide what are the rights of a secured creditor of an insolvent when the adjudication has been annulled as the result of the Court having sanctioned a composition, the creditor not being a party to the arrangement and having taken no steps to realize his security before the annulment.

(2.) On the 19 October, 1937, the first defendant in the suit out of which the appeal arises executed a promissory note in favour of the plaintiff for Rs. 3,000. The first defendant at that time was joint with his four sons (defendants 2 to 5), all of whom are minors. As security for the advance the first defendant executed in favour of the plaintiff what has been described as a continuing security bond. The properties covered by the bond formed part of the family estate. On the 17 December, 1937, two creditors applied to the Subordinate Court of Madura for the adjudication of the first defendant under the provisions of the Provincial Insolvency Act. On the 21 February, 1938, an order of adjudication was passed, and in accordance with the provisions of Section 27, the first defendant was directed to apply for his discharge within one year. Within the year the first defendant submitted to the Insolvency Court a proposal for a composition in satisfaction of his debts. He offered to pay ten annas in the rupee. The wife of the first defendant, as the guardian of her minor sons, consented to the arrangement. The consent was necessary because the proposal involved the transfer of properties belonging to the joint family to trustees for the purpose of realisation. There were three secured creditors. The plaintiff refused to accept the proposal, but the other two secured creditors did so. Apparently, their securities did not represent as much as ten annas in the rupee. By an order dated the 10 July, 1939, the Court sanctioned the scheme and on the 8 October, 1939, the trust deed was executed by the father and by the minors acting through their mother. In due course the trustees realised all the assets of the family, except those charged to the plaintiff and two other lots of immoveable property. The proceeds of the realisation were sufficient to pay all the consenting creditors ten annas in the rupee. The administration was closed on the 30 November, 1940, when the unsold properties were delivered back to the minors guardian. The properties charged to the plaintiff remained, of course, subject to his charge.

(3.) On the 16 March, 1942, the plaintiff filed the present action in the Court of the Subordinate Judge of Sivaganga for a decree directing the realisation of the properties charged to him, and, in the event of the proceeds proving to be insufficient to pay him in full, directing the balance to be realised from the other properties of the defendants and from the first defendant personally. The Subordinate Judge held that as the first defendant had only a one-fifth interest in the properties charged, the plaintiff must, in the first place, look to the proceeds of sale of that interest. If the money realized was not sufficient to discharge the liability in. full the plaintiff was entitled to have recourse to all the joint family properties in the hands of the defendants. The sons appealed to the District Judge of Ramnad who agreed with the Subordinate Judge that the first defendant was only entitled to a one-fifth share of the properties charged to the plaintiff, but he held that if the one-fifth share did not satisfy the claim, the plaintiff could have recourse to the sons interest in the sale proceeds. Should there still be a deficiency, the plaintiff was entitled to proceed against the joint family properties in the hards of the sons but only to the extent of ten annas in the rupee with interest at six per cent per annum. The plaintiff appealed to this Court. His appeal was heard by Rajamannar, J., who restored the decree of the Subordinate Court. The learned Judge considered that the case fell within thejudgment of the Court delivered in Chockalinga V/s. Manicka . but in view of the decision in Govindas Chathurbhujadas V/s. Ramadas (1924) 48 M.L.J. 252 : I.L.R. 48 Mad. 521 he gave the first defendant's sons leave to appeal under Clause 15 of the Letters Patent. They availed themselves of the leave and their appeal is now before us.