LAWS(PVC)-1929-1-129

FIRM JETHAJI PERAJI Vs. KRISHNAYYA

Decided On January 17, 1929
FIRM JETHAJI PERAJI Appellant
V/S
KRISHNAYYA Respondents

JUDGEMENT

(1.) Several connected appeals and revision petitions have been argued before up, but, in my opinion, C. M. A, Nos. 310, 311 and 312 of 1925 really raise the question of substance which presents itself for decision. If we decide these appeals in favour of the appellants there, our decision in them governs the other cases and the contentions raised in the latter by the respondents seem beside the point. Shortly stated, the question we have to decide relates to the construction and effect of Secs.43,37 and 27 of the Provincial Insolvency Act of 1920.

(2.) The facts are undisputed and I shall briefly state them. Three brothers were adjudicated insolvents, first on their own petitions and subsequently on petitions filed by certain creditors. The orders of adjudication were passed on the debtors petitions by the Official Receiver on the 25 of November, 1921, and he fixed 18 months, as the period within which the debtors were to apply for their discharge. The same debtors were subsequently adjudicated by the District Judge on the 12 December, 1921, and the period fixed by him was 12 months, Passing here for a moment, one fails to understand bow two such sets of parallel orders came to be made; but this curious irregularity has no bearing on the question we have to decide. The total liabilities shown amount to over 2 1/2 lakhs. The insolvents had, on the 10 of January, 1921, executed a mortgage in favour of certain creditors whom I shall, in this judgment, call the mortgagees, for about Rs. 60,000 and it is said that the mortgage-deed comprises the bulk, if not the whole, of the insolvents property. In the insolvency petition, a proceeding was commenced by the Official Receiver under Section 54, for the annulling of the mortgage. He filed his petition under that section on the 20 of April, 1923. Its trial began on the 1 of February, 1923, and became a protracted one, the evidence being recorded piecemeal from time to time. In. fact, from the 1 of February, 1923, to the 1 of May, 1924, that is for 15 months, witnesses were examined off and on, but the trial was not, even on the last mentioned date, con-eluded. I may mention that the evidence of 10 witnesses for the petitioner and 3 for the respondent had by then been taken. On the 30 of April, 1924, a creditor by name Krishnayya applied under Section 43 that the orders of adjudication might be annulled, on the ground that the debtors had not applied for their discharge within the time fixed. The date chosen for making the application is significant. On the 24 of April, the petition under Section 54 was adjourned to the 1 of May. The application to annul the adjudication was made, as I have said, on the 30 of April, that is, the day previous to the date fixed for the hearing of the substantive petition. On the 1 of May, I have already stated, the Judge heard the petition for annulling the mortgage. Curiously enough, on that very date, without notice to, or knowledge of the creditors an order appears to have been made on Krishnayya spetition directing the Official Receiver to submit a report. This petition came on the 3 of May, 1924, and the District Judge made an order annulling the adjudication, It must be noted that the petition under Section 5.4 stood adjourned from the 1 of May to the 28th of July. It was between these two dates, that is on the 3 of May, that the adjudication was annulled. It is surprising that when this order was made without notice to creditors, the fact was overlooked that there was pending on the file of the Court, the petition under Section 54 which was being hotly contested. So far as the record goes, the Official Receiver does not appear to have taken any steps to safeguard the interests of the general body of creditors. This led to the strange result that the adjudication was unconditionally annulled. I use the words "strange result" advisedly. The order under Section 43 was made presumably to punish the debtors. But in this case the persons who are prejudicially affected, are not the debtors but the creditors generally. Another unexpected result of that order is, that the petition under Section 54 was held to have lapsed automatically and the mortgage, which was the subject of attack, became, for the time being, valid and final. The very object of the insolvency petition?, so far as the creditors collectively were concerned, became frustrated, for it cannot be gainsaid that the creditors started the proceedings mainly if not solely, for the purpose of getting rid of the mortgage. The rest of the story may be briefly told. Several creditors applied to the District Judge for review of the orders made under Section 43 and the review petitions were dismissed. As a necessary result, the Judge held that the petition to anuul the mortgage under Section 54 lapsed and that petition, was accordingly dismissed.

(3.) The general body of creditors (whom I shall refer to as appellants) attack these orders of the learned District Judge, whereas Krishnayya and the mortgagee support them. It is contended for the appellants that the word " shall " in Section 43 is not used in a mandatory sense, but must be held to be directory only. The argument is put thus : generally, no doubt it is the debtor that is punished by the annulling of the adjudication. The very terms of the section show that what is intended is in the nature of a penalty to the insolvent. If the adjudication is annulled, the section provides that the Court may re-commit the debtor to his former custody and that, he shall be subject to all the processes that had previously been in force against him. But there may by cases where, if no discretion is left to the Court, the very opposite of what is intended may result. In this case, it is asked, how are the insolvent really prejudiced by the orders? The parties who profited by them are the mortgagees, that is to say, the creditors fraudulently preferred. The honest creditors, on the contrary, have been seriously prejudiced. Can this be the intention of the section?