RAMDAYAL BHAGIRATH PERSHAD Vs. KANHAIYALAL RAMKISHAN GUJAR

JUDGEMENT

(1.) THIS revision is from an order passed in insolvency dismissing an appeal from an order purporting to restore proceedings. That order was passed on 5th March 1938 and arose out of ah application that was made on 27th October 1933 following upon a very remarkable order passed by the Insolvency Judge on 21st October 1933. In order to understand: why we stigmatize that order as remarkable it is necessary to state a few facts. On 1st June 1929 there was a mortgage and on 29th June there was a sale whereby the persons subsequently adjudicated insolvents transferred to a transferee certain property by way of mortgage and by way of sale. On 29th October 1929, a creditor of the transferors presented a petition for their adjudication and on 28th April 1931 the transferors were adjudicated insolvents and it was ordered that the insolvents must apply for their discharge by 28th April 1932, that is within a year. An application was then made under Section 53, Provincial Insolvency Act, for the avoidance of the above-mentioned transfers on the ground that they were voluntary transfers made within two years of the presentation of the petition the recited consideration being a fraudulent device to mask their true nature. That application under Section 53 was fixed fox hearing on 21st October 1933. It will be. observed that the time in which the insolvents had to apply for discharge was 28th April 1932 and by. that date they had not applied. Neither. had anybody applied to extend the time. But on 16th September 1933 the petitioning creditor applied to extend the time. The matter was not dealt with on the 16th September 1933 save that the creditor was asked to appear, and argue that application presumably on. the same day that his application under Section 53 was fixed for hearing, that is to say 21st October 1933. On 21st October 1933 neither the insolvents nor the petitioning creditor appeared though the transferee was present. In that state of fact the Judge who disposed of the matter dealt with it in the following way: In this case two enquiries for setting aside transfers--mortgage deed and a sale deed--are pending. The application of insolvency is dismissed in default.

(2.) THE argument before us is to the effect that that order amounts to an order of annulment and that there being an annulment of the insolvency the proceedings under. Section 53 come to an end and it is not possible, for anybody thereafter to restore the insolvency proceedings. The foundation pi, that argument, in our opinion, does not exist because we are quite clear that the above order does not amount to an order of annulment. We think it right . to issue a warning that orders of annulment should be very carefully worded because where the Court annuls, insolvency proceedings, to avoid very considerable hardship to the creditors (where the annulment is founded on a failure on the part of the insolvent to take the necessary steps in the insolvency), it is necessary to make provision for what is to happen to the assets Section 37 empowers the Court to vest such assets in such person as the Court may appoint and if there be no such appointment the assets will revert to the debtor though the Court may and usually should (failing the vesting in some person) attach conditions which will prevent the reverter until the debtor's debts are paid.

(3.) WE agree that Section 43 does not operate automatically to terminate insolvency proceedings when the time fixed for the application for discharge is up. The Calcutta Bench points out that an order of annulment is necessary, and the Court, in our opinion, before making such an order should exercise its discretion as to whether, or not it is not better to extend the time. We do not regard the word "shall" in Section 43(1) as mandatory : In re Lord Thurlow (1895) 1 Q B 724 The, decision of Pollock J, in Bakaram v. Manglya (1937) 24 AIR Nag 37 is not concerned with the case which arises where the insolvent has not applied for his discharge in time. He ob-serves however, at p. 462: The learned. District Judge held that this Section leaves it to the discretion of the Insolvency Court to annul the adjudication or not as it thinks fit, and in support of that view he has relied on the opinion expressed by Sir Dinshah Mulla in para. 351 of his Law of Insolvency, 1930 edition, and the cases therein cited. The learned District Judge has failed to appreciate the fact that in those cases the application for discharge was not made within the specified time and the view taken was that the Insolvency Court has power under Section 27 to extend the period within which the debtor must apply for his discharge and that this period can be extended even after the period has expired without any application being made for an extension. It was held that Section 43 must be read subject to Section 27, but it is only when Section 27 applies and no application for discharge has been made within the specified period that the question whether the order of adjudication shall be annulled under Section 43 is a matter for the discretion of the Court.