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Judgment
Horace Owen Compton Beasley, Kt., C.J.—The respondent presented a petition in insolvency against a Hindu father and his two sons to
have them declared insolvents. The two sons are the petitioners. Their father executed a promissory note in favour of the respondent for Rs. 1,500
on 6th June, 1931. On 4th March, 1932, the respondent made a demand upon the father for payment of the promissory note debt. Between that
date and 14th March, 1932, there were a series of alienations of joint family property, the petitioners with their father being parties to these
alienations. On 27th June, 1932, the respondent presented the insolvency petition already referred to on the ground that the father in his capacity
as family manager had executed the promissory note in question and alleging that the debt was binding on all the members of the family and that the
debt had not been discharged in spite of repeated demands. He alleged that the three respondents to the insolvency petition had brought about a
number of sales in favour of their relations, friends and others quoting fictitious debts. This petition was returned on the ground inter alia that the
creditor must state how the respondents 2 and 3 to the petition were liable to be adjudged insolvents. It was re-presented with the following
endorsement:
The first respondent is the family manager. Respondents 2 and 3 are liable for the debt and they have joined the first respondent in fraudulently
dealing ''with the properly. They are therefore liable to be adjudged.
On 30th November, 1932, the creditor filed a statement to the effect that his claim was satisfied and that the insolvency petition might therefore
be dismissed. On 1st December, 1932, the petitioners put in an application for compensation u/s 26 of the Provincial Insolvency Act and the
Additional Subordinate Judge on 2nd December, 1932, passed the following order on the insolvency petition:
Petitioner''s vakil files memo, that ciaim is satisfied and that the petition may be dismissed. Respondents press for costs. So, the point whether this
petition was filed on sufficient grounds has to be gone into. Respondents 2 and 3 have filed a petition for compensation. For enquiry, 20th January,
1933.
On the application for compensation the following order was made, ""counter in a week. Enquiry on 20th January, 1933"". Later, the matter came
up before Mr. Narayana Menon, the then Additional Subordinate Judge, whose predecessor had passed the orders to which I have referred. As
regards the father, he passed the following order:
The first respondent admittedly owed the money to the petitioner when the insolvency petition was filed. He had also admittedly alienated a major
extent of his properties. The first respondent did not pay the petitioner''s debt for nearly four mcnths after the alienation. The petitioner had
therefore some justifiable apprehension that the alienation was intended to defeat him. The first respondent paid the debt due to petitioner after
filing of the insolvency petition. In these circumstances I order the first respondent to bear his costs.
With regard to the petitioners he held that on the face of the insolvency petition they were not necessary parties and could not be adjudged
insolvents as they were not personally liable and he ordered the creditor to pay their costs. It is clear that the creditor''s statement where he says
that the debt had been settled by payment asks for a dismissal of the petition. I think that it must be tajcen that the petition was dismissed u/s 25 of
the Provincial Insolvency Act and it is not suggested by Mr. K.S. Jayarama Aiyar for the respondent that it could be dismissed under any other
section though he contends that it was merely withdrawn and not dismissed. With this contention I do not agree as in my view this comes within the
words of the section:
Or that for any other sufficient cause no order ought to be made, the Court shall dismiss the petition.
The petition having been dismissed u/s 25(1), the debtor is entitled to apply for compensation u/s 26(1) but Mr. Jayarama Aiyar argues that the
provisions of Section 26 can only be applied if at the time of the dismissal u/s 25(1) the Court is satisfied that the petition was frivolous or vexatious
and that it does not have in view a subsequent enquiry into that matter. No such restriction, in my view, is to be gathered from the words of the
section. The Court can, in my opinion, consider the matter on this application even though it has not done so at the time of the dismissal of the
petition u/s 25(1). Next Mr. Jayarama Aiyar contends that the petitioners were not entitled to apply under that section because they were not
debtors"". This argument is founded on the petitioners'' own case that they were not personally liable for the debt, it having been contracted by
their father. I think this contention is unsound and that ""debtor"" in the section means any one against whom an Insolvency Petition has been
presented by a creditor and that the person applying for compensation need not in truth have been a debtor at all. Suppose, for example, that some
one wishing to harass another files an Insolvency Petition against that other person falsely alleging that he is indebted to him and his petition is on
that ground dismissed, why should not the alleged debtor be entitled to have compensation awarded to him u/s 26(1) instead of being driven to the
expense of a suit? In my opinion, the petitioners were ""debtors"" within the meaning of the section. The applications were considered by the learned
Subordinate Judge who held that the petition was not dismissed u/s 25 (1) and therefore the applications u/s 26(1) could not be entertained and
that it was not open to the Insolvency Court to enquire into the matter further. For the reasons I have already given the opinion of the learned
Subordinate Judge was wrong. On appeal, the learned District Judge held that the applications were rightly dismissed, the Court having in his
opinion rightly exercised its discretion to refuse to award compensation. He also agrees with the Subordinate Judge that Section 26 is intended to
meet cases where a creditor''s application has not only been dismissed on the merits after taking evidence but also held to be frivolous or
vexatious, that is, the present petition was not dismissed u/s 25(1). My view upon the law which is contrary to that of both the lower Courts does
not however dispose of these petitions as, in my opinion, the applications for compensation stood to be dismissed upon the facts already on the
record. In paragraph 13 of his order the learned Subordinate Judge says:
It is not necessary to state anything further on these petitions but this. I am in no way persuaded, having regard to the records before me and the
allegations of the petitioners that the petition filed by the creditor was not justified and that it was fraudulent or frivolous. As it is, we have the fact
that in June 1932 the creditor filed the Insolvency Petition consequent on the fact that there were four alienations by the father and the sons. His
claim was satisfied only in November....
The learned Subordinate Judge who originally dealt with the matter as regards the father as I have already observed stated that the petitioner
had some justifiable apprehension that the alienation was intended to defeat him and he therefore ordered him to bear his own costs. That order
does not reflect upon the conduct of the petitioners at all but the learned District Judge in his judgment says:
A Brahmin father and his two sons - one a doctor and the other a lawyer - were heavily involved in debt. The father was personally liable but the
family being joint the sons'' shares were aiso liable. The creditors of the family insisted on the appointment of a trustee to make a rateable
distribution of the family assets or that the family should sell its lands, etc., in parcels to each creditor according to the amount of his debt. In other
words, there was to be a voluntary liquidation.
I doubt very much whether the creditors of the family did insist on the appointment of a trustee. It is merely so alleged in the counter-petitions.
What the father stated in his statement was that various creditors were pressing for payment of their dues, that he had no ready money on hand,
that therefore with a view to pay off all the creditors fully he entered into an arrangement with the creditors with their full consent and co-operation
and with the help of respectable mediators, that it was decided under the arrangement that each of the creditors should take a sale of a portion of
the family properties equal in value to the debt due jto him, that accordingly on 14th March, 1932, sale deeds were executed to the creditors in full
discharge of their settled debts and that it was clearly recited that a portion of the properties had been reserved for the petitioner in discharge in full
of his debt and that the property so reserved was sufficient to the petitioner''s knowledge to fully discharge his debt. I must mention here that the
creditor in his petition alleged that the property was worthless or inadequate. The father further alleged that the creditor had been throughout made
aware of the arrangements and never objected at any time thereto, that he and his sons believed that he would also give effect to it and that they
were always ready and willing to execute a sale deed of the property reserved to him. The petitioners filed a joint counter-petition in which they
denied that they were heavily involved. Their counter-petition follows closely on the lines of their father''s. The creditor in answer to the petitioner''s
application for compensation denied that he knew or acquiesced in the alleged agreement with the creditors and said that he was never at any time
told by anybody about the mediation, which took place behind his back; and the learned Counsel for the petitioners was unable to contend before
me that any notice of the alleged meeting of the creditors and mediation was ever given to the creditor and I can see no reason for believing that he
ever knew of it, or afterwards acquiesced in it. The fact that he filed a petition in insolvency indicates the contrary. This alleged arrangement with
the creditors was all effected within the space of 10 days immediately following on the notice of demand for payment given by the creditor.
Certainly on the record before the Court it is very probable that the whole thing was done behind the creditor''s back. On the record it seems to
me that the Insolvency Court could not find that the petition against the two sons was not put in without some reason. The legal position with
regard to the liability of sons in a Hindu undivided family in respect of a binding family debt incurred by their father to be adjudicated insolvents is
even to-day none too clear though in Kalagara Purnayya Vs. Cherukuri Basava Kottkyya and Others, Krishnan Pandalai, J., held that the son of a
Hindu father who died after incurring debts upon promissory notes apart from some special circumstances which would make him personally liable
for the family debt cannot be adjudged insolvent on account of his liability as a member of the family to pay those debts out of the family
properties. In the course of his judgment he refers to an unreported decision in C.M.A. No. 47 of 1916 where it was held that members of joint
families liable as such for a family debt but not otherwise are debtors within the meaning of the Insolvency Act and therefore can be adjudged
insolvent on those debts. He does not follow that case and refers also to Sourimuthu and Others Vs. Pavadai Pachia Pillai and Another, which to
some extent followed the unreported decision though the judges there say that each case would depend upon its circumstances and that, if the
petitioner makes the necessary allegations and proves them, then the Court would be justified in adjudging the members of a joint family insolvents.
He also refers to Nagasubramania Mudali Vs. N. Krishnamachariar, . In that case it was held by Odgers and Venkatasubba Rao, JJ., that a
decree against a son for the debt of his deceased father to the extent of the assets in his hands does not make him (the son) liable to adjudication
and he cannot be so adjudicated unless the decree is a personal decree. The conditions necessary to impose a personal liability upon the members
of an undivided family in respect of money borrowed for family purposes are stated in Chelamayya v. Varadayya (1898) 9 M.L.J. 403 : ILR 50
Mad. 981. In Bolisetti Mamayya Vs. Buragadda Venkateswaralu and Another and Kolla Kotayya Kummuri Ramayya Rice Mill Company, ,
Sadasiva Aiyar and Napier, JJ., held that the members of a joint Hindu family can be adjudicated insolvents on a single petition by a creditor if they
are liable on a joint debt and have been guilty of a joint act or acts of insolvency. Although this case was relied upon by Mr. Jayarama Aiyar, I do
not think that it is of much assistance. This matter has also been dealt with by Cornish, J., in N.C. Krishna Ayyar and Others Vs. Pierce Leslie and
Co., , where he holds that the members of the family must be under a personal liability before they can be adjudicated. Even assuming that the
petitioners would not be personally liable for this debt and that they could not therefore be adjudicated insolvents in respect of it, I am far from
thinking that the petitioning creditor must have known that the sons could not be made insolvents. This was a debt binding on the family for which
certainly the sons'' shares could be made liable and they together with their father set about alienating a large portion of the family property under
circumstances which the petitioning creditor might very reasonably suppose indicated that a fraud upon him was being attempted; and clearly the
financial position of the family was such that its debts could not be discharged without such alienations. I am satisfied that there was quite sufficient
ground on the facts for the lower Court''s refusal to award compensation. Both Civil Revision Petitions are dismissed with costs.