D CHOCKALINGAM CHETTIAR Vs. TSPLPPALANIAPPA CHETTIAR

JUDGEMENT

(1.) The appellant trust, through a former trustee, executed a mortgage bond in favour of the two insolvents and their brother. On this bond a mortgage suit was brought and a decree obtained against the plaint institution. In O.S. No. 8 of 1924 on the file of the Sub-Court, Negapatam, the plaintiff, another trustee, brought a suit to have it declared that the mortgage decree was not binding on the plaint trust and for refund of a certain amount which had been paid under the decree obtained by the insolvents and their brother. He was successful in the trial Court; but the" insolvents and their brother, who were defendants 1 to 3 in the suit, filed a joint appeal against the decree in O.S. No. 8 of 1924. During the pendency of the appeal the first and second defendants became insolvents and died before the appeal came on for hearing. The appellate Court, apparently in ignorance of the fact that defendants 1 and 2 had become insolvents, declared that the appeal of defendants 1 and 2 had abated; and so the appeal against them was dismissed. The third defendant, on precisely the same grounds of appeal as defendants 1 and 2 had raised, was successful; and it was held that the mortgage in question was binding on the plaintiff institution. On the strength of this judgment and decree passed in appeal, the appellant has sought to prove for the amount of the decree debt in O.S. No. 8 of 1924 in the Insolvency Court; and the learned District Judge has held that the decree passed in O.S. No. 8 of 1924 and confirmed in appeal as far as the insolvents are concerned - is not binding on the creditors; and he has held that the debt is not a true one. The plaintiff trustee in this appeal contends that the decree was a proper one, free from fraud and collusion; and that therefore the Insolvency Court ought not to have gone behind the decree and, secondly, that in fact the then Official Receiver did have knowledge of the pendency of the appeal and did not take the trouble to come on record; and that he is therefore precluded from claiming that the decree of the appellate Court is not binding on him. The third contention is that if the Insolvency Court goes behind the decree of this Court it should reconsider the whole question whether the mortgage debt is binding on the appellant institution.

(2.) It is not denied that in certain circumstances the Insolvency Court can refuse to admit a judgment debt. The leading case on the question as to how far an Insolvency Court should consider itself bound by a decree is Ex parte Lennox : In re Lennox (1885) 16 Q.B.D. 315 and it will be seen therefrom that no judgment or decree is binding on the Insolvency Court, that the business of an Insolvency Court is to ascertain whether a debt is true or not, and that although the judgment and decree are binding on the parties to it whether the debt is true or false and whatever the judgment and decree might be; yet the Insolvency Court is not so bound; for the Insolvency Court will not and should not ordinarily go behind the decree unless it has reason to believe that the decree-was brought about by fraud or collusion or is unjust. As pointed out by Lord Esher in the case above referred to, a judgment is prima facie evidence of the correctness of the debt. He says: It cannot be doubted that a judgment is prima facie evidence of a debt, and that a judgment or order to which a debtor has consented is far stronger evidence against him of the validity of the debt for which it purports to be given than a mere judgment by default. It is very strong evidence against him. Nevertheless, it seems to me that upon certain allegations being brought forward, the Court is entitled to inquire into the alleged debt; and the Court, exercising a judicial authority, is bound to do so upon a sufficient cause being shown.

(3.) This principle has been followed in In re Van Laun Ex parte Chatterton (1907) 2 K.B. 23, in which Cozens-Hardy, M.R., quotes with approval a passage in the judgment of Bigham, J., which was the subject of appeal: The trustee's right and duty when examining a proof for the purpose of admitting or rejecting it is to require some satisfactory evidence that the debt on which the proof is founded is a real debt. No judgment recovered against the bankrupt, no covenant given by or account stated with him, can deprive the trustee of this right. He is entitled to go behind such forms to get at the truth, and the estoppel to which the bankrupt may have subjected himself will not prevail against him.