Abdullakutty vs Abubacker and Others

K. Sukumaran, J.—The 2nd defendant in a suit for recovery of money is the appellant in the second appeal. Defendants 1 and 3 remained ex parte; the resistance to the claim therefore come only from the 2nd defendant. The resistance, however, was unsuccessful in the courts below. The contentions are pursued in the second appeal. Some of the contentions at any rate have a legal flavour. Those have to be dealt with in the second appeal. The claim was on the basis that the plaintiff joined and paid subscriptions to a Kuri run by a firm of which defendants were partners. The 2nd defendant admitted that he was initially a partner. He claimed that he ceased to be so from 1-4-1972. According to him, the plaintiff became a subscriber of the Kuri only after he so ceased to be partner.

The factual position as to when the plaintiff joined the Kuri need not be considered by this court by attempting a fresh evaluation of the evidence in the case. The evidence of P.W. 1 that he joined the kuri in 1971, is not controverted by any acceptable evidence of the 2nd defendant. It has therefore to be held that the plaintiff joined the kuri in the year 1971.

The above finding has impact on the contention based on Section 72 of the Indian Partnership Act. Ext. B3 intimation about the retirement from the firm as effective from 1-4-1972, was given to the Registrar of firms only on 15-6-1972. The retirement was notified in the newspaper as evident from Ext. B2 only on 29-7-1972. There is no evidence to above that the requirement u/s 63(2) of a publication in the Gazette (for the public notice of retirement being effective.) had been satisfied. The plaintiff had no knowledge of such retirement.

In view of the factual position that the plaintiff had joined the kuri in 1971, and that the retirement was only with effect from 1-4-1972, long after the plaintiff had joined the kuri which was started by the firm of which the 2nd defendant was a partner, and other circumstances referred to above, the 2nd defendant cannot disclaim liability for the plaint claim.

The further - and a very important - question that arise relates to the necessity for leave of the insolvency Court for the filing of the present suit. That calls for an interpretation of Section 28 of the Kerala Insolvency Act, 1956. Counsel submitted that there is no decision of this Court on the point. There was therefore some justification for the elaborate arguments addressed on that aspect. The case law on the corresponding provision of the Indian Act was presented in the course of the arguments.

The proceedings under the Kerala Insolvency Act were started under I. P. No. 1 of 1975 on 9-9-1975. The suit was filed on 16-9-1975. It is, however, clear that no order of adjudication had been passed in those proceedings at the time when the suit had been instituted. There is no evidence about any such order having been passed later, either. Counsel for the respondents submitted that ultimately the petition had been dismissed. Is the suit liable to be dismissed for the simple reason that it had been instituted subsequent to the initiation of proceedings under the Insolvency Act, but before the order of adjudication, when the plaintiff had no knowledge of such proceedings.

There had been considerable controversy in judicial opinion on the question. The background of the relevant provision could be traced to the provisions of the English Bankruptcy Act, which is sketched in Williams on Bankruptcy page 346 of 19th Edn. Counsel for the appellant referred me to come of the earlier decisions in England, (vide Wild v. Southwood (1897) 1 O.B. 317 = (1895) All E.R. 1193, discussed the objective behind the similar provisions in Bankruptcy enactments. A later decision containing useful discussion is Re Love. Ex Parte Official Receiver (Trustee) v. Kingston-upon-Thames Country Court Registrar, (1951)2 All ER 321, which has been confirmed by the Court of Appeal in Re. Love Ex Parte Official Receiver (Trustee) v. Kingston-upon-Thames County Court Registrar, (1951) 2 All ER 1016. It is unnecessary for the purpose of this case to go into the history behind the statutory provisions, in the United Kingdom and consider the interpretations placed on the relevant provisions there, in as much as the identically worded provision has been the subject-matter of judicial consideration in India. One of those early decisions which analysed the scheme of the Act is that of Ramesam J. (vide T. K. Kaliaperumal Naicker and Others Vs. O. S. Ramchandra Ayyar and Others, ). The question came up again for consideration in Donepudi Subramanyam Vs. Nune Narasimham and Others, . The view taken by Ramesam, J. was dissented in Muluktla Achuta Ramayya Garu Vs. The Official Receiver, . Again the Madras High Court had evaluated all the aforesaid decisions in Nagarpur Sambayya Vs. Nagarpur Pedda Subbayya, . The observations therein indicate a departure from the view that was taken in Muluktla Achuta Ramayya Garu Vs. The Official Receiver, . It is sufficient to note that the ruling view of the Madras High Court on the topic is that the mere initiation of the insolvency proceedings would not fatally affect the institution of the suit which was done at a time before the order of adjudication had been passed. The relating hack of the order of adjudication would not have the effect in all the circumstances, and in total disregard Of the practical difficulties and considerations of interests of justice. The provisions of Section 28(2) were therefore given an interpretation by which the retroactive operation of the order was restricted in its effect.

The Andhra Pradesh High Court considered the question in Chatrati Sriramamurthi and Another Vs. Official Receiver, Krishna and Others and Dondapati John Vs. Vaddi Subrahmani and Another, . The observations of Viswanatha Sastri, J. in the first of the above cases express, if I may say so with utmost respect, the correct legal position:

There may be some ambiguity in the word "thereafter" as used in S. 28(2) but having regard to the explicit reference to "the order of adjudication" to which the word "thereafter" is related in the same clause and to the anomalous results flowing from a different interpretation it must be held that doctrine of relation back in S. 28(7) applies to the first part of S. 28(2) and not to the second part and that a suit instituted after the filing of an insolvency petition and before adjudication docs not become incompetent or unsustainable by reason of want of leave of the insolvency Court.

I am in respectful agreement with the above view, as expressed by Viswanatha Sastri J. in the passage referred to earlier.

These observations were adopted in the later decisions of the Division Bench in Dondapati John Vs. Vaddi Subrahmani and Another, . The view indicated in the decisions in Nagarpur Sambayya Vs. Nagarpur Pedda Subbayya, and Chatrati Sriramamurthi and Another Vs. Official Receiver, Krishna and Others , was the one which found acceptance in other decision also (See AIR 1940 234 (Rangoon) , Damodar Mukherjee and Others Vs. Bonwarilal Agarwalla and Others, , and Official Receiver, Jhansi Vs. Jugal Kishore Lachhi Ram Jaina, Hyderabad and Others, ).

I hold that on a proper interpretation of Section 28(2) of the Kerala Act, a suit instituted by a person against another without the knowledge of the initiation of insolvency proceedings as regards that other person and before the order of adjudication, is maintainable even if the leave of the Insolvency Court had not been obtained for filing the suit. In the light of the above conclusion, it has to be held that the institution of the suit did not suffer from any fatal defect on the ground of omission to obtain leave of the Insolvency Court. The conclusion reached by the courts below on this aspect is perfectly correct and is not vitiated by any error of law whatever.

In the result, the second appeal is dismissed with costs.