KAMIREDDI TIMMAPPA Vs. DEVASI HARPAL TRADING AS RATILAL KHIMJI OF BOMBAY BY DULY AUTHORISED AGENT RAM DAS BHIMJI

JUDGEMENT

(1.) This appeal is against the decision of the District Judge of Bellary in an insolvency matter. The facts necessary to be set out are: In I.P. No. 9 of 1921 one Karugodu Seenappa Chetti was adjudged insolvent on 26 October, 1921. On 22nd December, 1925 a composition scheme in which all creditors named in the I.P. were to be paid at four annas in the rupee was approved by the Court and the adjudication was annulled. The scheme was based on a surety bond given by the present appellant, the effect of which will be considered later. By that date 16 out of 36 creditors named in the I.P. had proved their debts and were included in the scheme schedule. The present respondent was one of those who had not then proved his debt. The surety undertook to pay the creditors named in the scheme schedule the four-anna dividend provided by the scheme, and also to pay into Court such sums as the Court ordered to be paid to such creditors as the Court hereafter brought on to the scheme schedule. In consideration of his surety bond the assets of the insolvent were handed over to the appellant. On 20 December, 1926 the present respondent, whose name appears in the original insolvency petition schedule, applied to be allowed to prove his debt on foot of the composition scheme to be included among the scheme schedule creditors and to be given a dividend thereon at four annas in the rupee. The District Judge found that notice of the scheme had not been served upon him, allowed him to prove his debt, ordered his name to be included in the scheme schedule, and directed the surety, the appellant, to pay him his four- anna dividend. The appellant appeals. His main contentions are that it is contrary to law for the Court to allow a creditor to prove his debt after the adjudication has been annulled in consequence of a composition scheme, that with the annulment the insolvency proceedings came to an end and therefore the Court is no longer functioning as an Insolvency Court and that the creditor's only remedy is under the ordinary law, the insolvent being no longer entitled to the protection of the Insolvency Court. Each of these contentions is open to attack and will be dealt with in detail.

(2.) I will first however deal with a contention advanced on behalf of the respondent that, apart from these points of law the contract between the appellant and the Court embodied in his surety bond is an asolute answer to the appellant. Under that bond, which was executed on 30 November, 1925, the surety bound himself to pay to the District Judge a sum in all of Rs. 8,479-11-6 and undertook to pay or deposit into Court within two months the dividend amount in the scheme schedule allotted to the creditors named therein and further "to pay into Court when ordered such sums as may hereafter be ordered by the Court to be paid to such creditors as may be ordered to be included in the schedule. The principal sum secured under the bond is exactly one-fourth, four annas in the rupee, of the sum total of the debts shown in the insolvency petition schedule. The total dividend which was due to the 16 creditors who had been already placed on the scheme schedule on 22nd December, 1925 at the rate of four annas in the rupee amounted to Rs. 3,741-1-2, so that the surety was making himself responsible beyond that sum for a further sum of about Rs. 4,700. It is clear therefore that the schedule approved by the Court provided for each creditor in the insolvency petition schedule being paid four annas in the rupee if his debt was proved to the satisfaction of the Court. Thus both the Court and the bond contemplated that creditors who had not yet come on the scheme schedule might be allowed to come on hereafter, that is, might be allowed to prove their debt for the purpose of being paid the approved dividend of four annas in the rupee.

(3.) Now it is contended for the respondent that inasmuch as the Court has now ordered the respondent's name to be put on the schedule it is not open to the appellant to contest that order since under the terms of his bond he has to pay whatever sums the Court may order up to the limit of Rs. 8,479. I do not accept this contention so broadly stated. It is obvious, for example, that the bond implies, though it does not state, that the limit of the surety's obligations was not so much the lump sum of Rs. 8,479 as the payment of a four-anna dividend to each of the creditors in the original insolvency petition schedule, and that if the Court had ordered him to pay to some creditor not on that schedule, the spirit if not the letter, of the bond would have been broken. In such a case it would be open in my opinion for the surety to plead that the action of the Court was contrary to the contract. It also appears to me implicit in the contract that the inclusion of other creditors in the scheme schedule by the Court shall be in accordance with law. It cannot be supposed that the parties contracted with the idea that one party or the other would not conform to the law. It appears to me therefore that it is open to the appellant to take up the position that the inclusion of this creditor in the scheme schedule and the consequent order of the Court that the appellant shall pay him a dividend are contrary to law and should be annulled. I therefore proceed to consider the legality of the Judge's order.