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Judgment
Wadsworth, J.—These matters all arise out of the same insolvency. The civil miscellaneous appeal is preferred against the order approving
the schedule of creditors and sanctioning the distribution of the dividend. The two sets of civil revision petitions are against two sets of applications
u/s 19 of Madras Act IV of 1938 by the same insolvent, one of which was before the District Judge and the other before the District Munsiff of
Ellore. All the applications under. Section 19 were dismissed.
The appellant was adjudged an insolvent on 1st October, 1934. On the 21st March, 1938, the Official Receiver approved a statement which
contained the schedule of creditors, the rate of dividend declared and the amount of dividend due to each of the creditors. On the same date he
issued a notice to all the proved creditors requiring them to make their objections, if any, within one week. The insolvent on the same day, 21st
March, 1938, presented an application to the District Judge in which he prayed for stay of proceedings in the insolvency in anticipation of the
passing of Madras Act IV of 1938 under which he hoped to get relief. Act IV came into force on 22nd March and on the 26th March, the
insolvent filed a fresh application to the District Judge for stay of proceedings. Neither of these two applications quoted any provision of law under
which stay could be properly granted. Nevertheless stay was ordered by the District Judge on 4th April, 1938. It could only have been ordered
under the Court''s inherent jurisdiction. No specific provision is however quoted nor does the order say up to what time the stay will operate. The
prayer of the insolvent was for stay until he had filed his application under Act IV, and had paid off his creditor. Presumably, the intention of the
District Judge was to stay proceedings only until orders had been passed on the anticipated applications under Act IV.
After the stay had been ordered the insolvent filed two sets of applications u/s 19 of Act IV of 1938, one before the District Judge and the other
before the District Munsiff to scale down the decrees in favour of his creditors. He did not implead the Official Receiver in any of these
applications as he should have done; nor did he take any action to get the non-decree debts scaled down under Act IV. The applications to the
District Judge were dismissed on the 26th October, 1940, and the applications to the District Munsiff were dismissed on the 6th November, 1940,
on the ground that a dividend had been declared before the passing of the Act so that Section 21 of Act IV would have no application. On the
date of the dismissal of the application by the District Munsiff the Official Receiver declared a further dividend and both the distribution statements
were submitted to the District Judge for sanction. The actual stay order seems to have been formally vacated on 3rd December, 1940. On the
10th December, 1940, the dividends were approved.
It is contended by the appellant, who is also the petitioner in the civil revision petitions, that the act of the Official Receiver on the 21st March,
1938, did not amount to the declaration of a dividend, so as to bring into force the operation of tin first portion of Section 21 of Act IV of 1938
which runs as follows:
Nothing contained in this Act shall apply to the debts payable by any person who has been adjudicated an insolvent, if prior to the coming into
force of this Act, a dividend has been declared out of his assets.
The power to frame a schedule of creditors under the Provincial Insolvency Act has, by rule, been delegated to the Official Receiver. By rule
also the Official Receiver is required to obtain the sanction of the Insolvency Court before distributing a dividend. Rule 19 of the rules under the
Provincial Insolvency Act says "" No dividend shall be distributed by the receiver without the previous sanction of the Court."" The same rule
requires notice that the distribution of a dividend has been sanctioned to be sent by the receiver. Apparently, in this case, the notice which under
the rules is strictly to be sent after the sanction has been obtained, was in fact sent as soon as the schedule had been framed and the dividend had
been calculated by the receiver, before the Court''s sanction was obtained.
It is contended for the appellant that there is no declaration of the dividend until the sanction of the Court has been obtained for its distribution.
u/s 59, it is the receiver who is to distribute the dividend. u/s 62, it is the receiver who is to calculate the dividend and the manner in which it should
be calculated is laid down in that section. Section 63 provides for what is to be done in the case of a belated proof by a creditor and it is provided
that a creditor who has not proved his debt before the declaration of any dividend shall be entitled to be paid out of any money in the hands of the
receiver before that money is devoted to any future dividends, but he shall not be entitled to disturb the distribution of any dividend declared before
the proof of his debt. This section makes a clear distinction between the process of declaration and the process of distribution and it seems to me
obvious that whereas the declaration of the dividend will be a single definite act, the distribution of the dividend will be a series of acts probably
spread over a considerable period of time according to the accessibility of the creditors. That presumably is the reason why the criterion adopted
u/s 21 of Act IV of 1938 is the declaration of the dividend and not the distribution thereof. It appears from Section 64 which deals with the final
dividend that the declaration of the dividend is a thing to be done by the receiver. Here again, the Madras rule would require the Court''s sanction
before distribution takes place. But there is nothing, so far as I have been able to gather, either in the Act or the rules which makes the Court''s
sanction necessary before the dividend is declared.
As I understand it, the process of declaration is the process contemplated in Section 62. That is to say, the Official Receiver totals the proved
debts, totals the debts likely to be proved and the money required for the expenses of administration, and retains the amount necessary for future
contingencies and then the balance is allotted rateably to the total of the proved debts and this ratio is the basis on which the dividend is declared.
When this dividend has been so declared a further process of allotting the amount individually between the creditors who have proved, has to be
carried out and it is this distribution statement which requires the sanction of the Court before any disbursement is made. It is not, so far as I can
gather, necessary that the actual declaration of the dividend should receive the sanction of the Court before it could be said to be complete. The
form authorised has a column which states "" dividend declared in the rupee "" and another column "" dividend due to each creditor "". The declaration
of the amount in the rupee of the dividend is a preliminary process to the calculation of the amount due to each creditor.
It seems to me on the facts of this case that on the 21st March, 1938, the Official Receiver did definitely declare a dividend due under the
insolvency to the proved creditors after making the calculations contemplated in Section 62. He then proceeded to work out a distribution
statement and he sent a notice to the creditors which must, presumably, have been intended to comply with Rule 19 (2) of the Act, although strictly
speaking the notice should have been issued after the distribution of the dividend had been sanctioned. The fact that he issued this notice
prematurely would not, in my opinion, detract from the completed character of the declaration of dividend. It seems to me, therefore, that there
was dividend declared on the 21st March, 1938, before Act IV of 1938 came into force. The insolvent is therefore not entitled to the benefits of
the Act with reference to the debts under the insolvency. The applications u/s 19 were rightly rejected and there is no reason to set aside the
Insolvency Court''s order for the distribution of the dividends. The civil miscellaneous appeal and the civil revision petitions are, therefore,
dismissed with costs, two sets in civil miscellaneous appeal No. 449 of 1941 and one set in each of the Civil Revision Petitions Nos. 2193 of
1940, 471 of 1941, 473 of I941 and 509 of 1941.