Full Judgment Text
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PETITIONER:
FIRM MUKAND LAL VEER KUMAR & ANR.
Vs.
RESPONDENT:
SRI PURUSHOTTAM SINGH & ORS.
DATE OF JUDGMENT:
31/01/1968
BENCH:
RAMASWAMI, V.
BENCH:
RAMASWAMI, V.
SHAH, J.C.
CITATION:
1968 AIR 1182 1968 SCR (2) 862
ACT:
Provincial Insolvency Act (5 of 1920), s. 9(1)(c)-Transfer
of property by Deed-Alleged act of insolvency-Three months
period starts whether- from execution or registration
--Whether firm can be adjudicated insolvent-Partners when
can be adjudicated insolvent,
HEADNOTE:
M a partner of a firm executed it deed of gift in October,
1957 of a property, which was not partnership property. The
deed of gifts was registered in March 1958. In April, May,
1958 and January 1959, petitions were filed alleging that
the firm and its two partners had committed acts of
insolvency and therefore, they should be declared
insolvents. The lower courts adjudicated the firm and the
partners insolvent. The High Court, in revision, confirmed
the adjudication of insolvency with regard to the firm and
M, but set aside with regard to the other partner. In
appeal to this Court it was contended that (i) the starting
point of the three months’ period prescribed under s.
9(i)(c) of the Provincial Insolvency Act should be the date
of execution of the deed of gift and not the date of
registration; (ii) no order of adjudication could be made
against a firm but it could only be made against the
partners individually and (iii) the firm should not have
been declared insolvent merely because of the deed of gift
executed by M.
HELD : (i) Section 49 of the Indian Registration Act implies
that a document by reason of its execution alone cannot have
the effect of transferring the property. The deed of gift
executed by M, could not be considered to be an act of
insolvency unless a valid transfer of property was made by
that document and such a valid transfer could be said to
have been made only when the document was registered. 1866
D-F]
Lakhmi Chand v. Kesho Ram, I.L.R. 16 Lah. 735, Sarvathada
Iswarayya v. Kuruba Subbanna, I.L.R. 58 Mad. 166 and
District Board Bijnor
v. Muhammad Abdul Salam I.L.R. 1947 All. 624, approved.
U on Maung v. Maung Shwe Hpaung A.I.R. 1937 Rangoon 446,
disapproved.
(ii) An order of adjudication could be made against the firm
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in the present case if the proper conditions were satisfied.
Section 79(2)(c) of the Act provides for rules to be made by
the High Court as to the procedure to be followed when the
debtor is a firm. This section, therefore, assumes that an
adjudication order can be made under the Act against the
firm in the firm’s name. [867 G-H]
Ex parte Blain ( 1879) 12 Ch. D. 522, referred to.
(iii) In order to support an adjudication against a firm
there must be proof that each of the partners has committed
some act of insolvency. It however, a joint act of
insolvency is relied upon it must be shown to be the act of
all the partners. An order for adjudication can also be
mad(. against a firm if there was an act of insolvency by an
agent of the firm which was such as must necessarily be
imputed to the firm. The explanation to s. 6 of the Act
does not lay down that an act of insolvency o
863
the agent shall be attributed to the principal but that it
may be treated as the Act of the principal. [868 E, F]
The order of the lower court, so far it adjudicated the
registered firm, as insolvent, must be set aside. The
property of which M made gift was not a partnership property
and there was no collective act of insolvency alleged on
behalf of all the partners of the firm.
Re : Mohamad Hasam & Co. 24 Bom. L.R. 861 and Gopal Naidu
v. Mohanlal Kanyalal, I.L.R. Mad. 189, referred to.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeals Nos. 1167 to
1169 of 1965.
Appeals by special leave from the judgment and order dated
November 1, 1961 of the Allahabad High Court in Civil
Revision Nos. 310 to 312 of 1960.
A. K. Sen and J. P. Goyal, for the appellants (in all the
appeals).
B. C. Misra, M. V. Goswami and R. H. Dhebar, for respon-
dents Nos. I and 2 (in C.As. Nos. 1167 and 1168 of 1965).
S. S. Shukla, for respondent No. 3 (in C.As. Nos. 1167 and
I 1 68 of 1965) and respondent No. 2 (in C.A. No. 1 1 69 of
1965).
B. C. Misra and R. Mahalingier, for respondent No. 1 (ii)
to (v) (in C.A. No. 1169 of 1965).
The Judgment of the Court was delivered by
Ramaswami, J. These appeals are brought, by special leave,
from the judgment of the Allahabad High Court dated November
1, 1961 in three Civil Revision Applications nos. 310 to 312
of 1960.
Appellant no. I is a registered firm of which appellant no.
2, Mukund Lal and respondent no. 7, Ram Surat Misra are the
only two partners. The firm carried on ’Arhat’ (Commission
Agency business. Three petitions under the Provincial
Insolvency Act (Act V of 1920), hereinafter called the
’Act’, were made against the firm and its two partners under
S. 7 of the Act. Purushottam Singh, respondent no. I and
Sat Narain Singh, respondent no. 2 filed the first petition
(Petition no. 9 of 1958) on April 28, 1958. The second
petition was filed by Smt. Tara Devi, respondent no. 3 and
Shyam Das, respondent no. 4 on May 30, 1958 which was
registered as Petition no. 19 of 1958. The third petition
was filed by Jivenda Mal on January 20, 1959 which was
registered as Petition no. 2 of 1959. in petition no. 9 of
1958, a sum of Rs. 15,760/- was claimed; in petition no. 19
of 1958, a sum of Rs. 14,545/- was claimed and in petition
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no. 2 of 1959 a sum of Rs. 3,884/- was claimed but other
creditors also filed their claims to the extent of Rs.
96,000/-. In all these petitions it was alleged
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that the firm and its two partners had committed acts of
insolvency and therefore they should be declared insolvents.
The firm and its partners contested the petitions and
asserted that they had already paid a sum of Rs. 3,50,000/-
to other creditors and they were in a position to pay all
the creditors and had not Committed any acts of insolvency.
All the three insolvency petitions were consolidated
together and were heard by the Insolvency Judge, Varanasi
who by his judgment dated August 8, 1959 adjudicated the
firm and its two partners as insolvents. Thereafter the
firm and its two partners filed three appeals under s. 75 of
the Act but all these appeals were dismissed by the
Additional District Judge, Varanasi by his judgment dated
February 28, 1960. Thereafter the firm and its two partners
took the matter in revision to th, Allahabad High Court
which partly allowed the revision applications and set aside
the order of the lower courts adjudging Rain Surat Misra,
respondent no. 7, one of the partners of the firm as
insolvent. The: rest of the order declaring the firm and
its other partner, Mukand Lal as insolvent was confirmed.
The main question to be considered in these appeals is
whether the deed of gift executed by Mukand Lal in favour of
his son, Veer Kumar on October 31, 1957 and registered on
March 11, 1958 could be treated as an Act of insolvency
committed within three months of the presentation of the
petition.
Section 6(b) of the Act states :
"6. A debtor commits an act of insolvency in
each of the following cases, namely :-
(b) if, in India or elsewhere, he makes any
transfer of his property or of any part
thereof with intent to defeat or delay his
creditors;"
Section 9 (I ) (c) states :
"9. (1) A creditor shall not be entitled to
present an insolvency petition against a
debtor unless-
(c) the act of insolvency on which the
petition is grounded has occurred within three
months before the presentation of the petition
:
Provided that where the said period of three
months referred to in clause (c) expires on a
day when the Court is closed, the insolvency
petition may be presented on the day on which
the Court re-opens."
Section 122 of the Transfer of Property Act
(Act 4 of 1882) is to the following effect:
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"Gift is the transfer of certain existing
moveable or immoveable property made
voluntarily and without consideration, by one
person, called the donor, to another, called
the donee, and accepted by or on behalf of the
donee.
Such acceptance must be made during the life-
time of the donor and while he is still
capable of giving.
If the donee dies before acceptance, the gift
is void."
Section 123 of the Transfer of Property Act
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states
"For the purpose of making a gift of
immoveable property, the transfer must be
effected by a registered instrument signed by
or on behalf of the donor, and attested by at
least two witnesses.
For the purpose of making a gift of moveable
property, the transfer may be effected either
by a registered instrument signed as aforesaid
or by delivery.
Such delivery may be made in the same way as
goods sold may be delivered."
Section 47 of the Indian Registration Act,
1908 (Act 16 of 1908) is to the following
effect :
"A registered document shall operate from the
time from which it would have commenced to
operate if no registration thereof had been
required or made, and not from the time of its
registration."
Section 49 of the Indian Registration Act
states as follows
"No document required by section 17 or by any
provision of the Transfer of Property Act,
1882, to be registered shall-
(a) affect any immoveable property comprised
therein, or
(b) confer any power to adopt, or
(c) be received as evidence of any
transaction
affecting such property or conferring such
power, unless it has been registered :
Provided that an unregistered document affecting immoveable
property and required by this Act or the Transfer of
Property Act, 1882, to be registered may be received as
evidence of a contract in a suit for specific performance
under Chapter II of the Specific Relief Act, 1877, or as
evidence of part performance of a contract for the purposes
of section 53A of the Transfer of Property Act, 1882, or as
evidence of any collateral
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transaction not required to be effected by registered
instrument."
it was contended on behalf of the appellants that under S.
47 of the Indian Registration Act a registered document
operates from the date of its execution even though it may
require registration and consequently the registration of
the document should be taken to date back to the date of
execution by a fiction of law. III was therefore submitted
that the starting point of the three months’ period
prescribed under s. 9 (1 ) (c) of the Act should be the date
of execution of the deed of gift and not the date of
registration. We are unable to accept this argument as
correct. Section 123 of the Transfer of Property Act states
that for the purpose of making a gift of immoveable property
the transfer must be effected by a registered instrument in
the prescribed manner. Under this section therefore a gift
of immoveable property is not valid unless it is effected by
a registered instrument. It is true that under S. 47 of the
Indian Registration Act once a document is registered the
effect begins to commence from the date of execution, but if
the document is not registered it can never have any legal
effect as a deed of gift. Under S. 49 of the Indian
Registration Act it is provided that no document required by
s. 17 or by any provision of the Transfer of Property Act,
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1882, to be registered shall affect any immoveable property
comprised therein unless it has been registered. The
section necessarily implies that such a document by reason
of its execution alone cannot have the effect of trans-
ferring the property. In the present case, therefore, the
deed of gift executed by Mukand Lal in favour of Veer Kumar
dated October 31, 1957 cannot be considered to be an act of
insolvency unless a valid transfer of property was made by
that document and such a valid transfer could be said to
have been made only when the document was registered on
March 11, 1958. The question in the present case is not
what was the effect of the registration of the deed of gift,
but when did the event take place which effectively
transferred the property. We are not concerned with the
point of time from which the document became operative but
with the point of time at which the deed of gift became
legally effective. The contrary viewpoint for which the
appellant contends would ignore the circumstance that if the
registration of the deed of gift was not effected within the
period of -three months the creditor would be deprived of
his remedy of relying upon the act of transfer as
constituting an act of insolvency. Such an interpretation
should be avoided as it would nullify the intention of the
statute.
On this question there has been divergence of opinion among
the various High Courts. In Lakhmi Chand v. Kesho Ram(1)
(1) I.L.R. 16 Lah, 735.
8 6 7
it was held by the Full Bench of Lahore High Court that when
a petition was presented alleging that a debtor had
committed an act of insolvency by a registered deed, the
period of limitation prescribed by s. 9 ( I ) (c) of the Act
ran from the date of the registration of the deed and not
’from the date of the execution thereof. The same view was
expressed by the Madras High Court in Sarvathada Iswarayya
v. Kuruba Subbanna(1). In that case, the execution of the
sale deed was relied upon as an act of insolvency by a
petitioning creditor and it was held by Madhavan Nair and
Bardswell, JJ. that the three months’ period prescribed by
s. 9 (I) (c) of the Act must be calculated from the date of
the registration of the deed and not from the date of its
execution. The same view was also enunciated by the
Allahabad High Court in District Board, Bijnor v. Mohammad
Abdul Salam ( 2 ) . A contrary view has been taken by the
Full Bench of the Rangoon High Court in U On Mating v. Maung
Shwe Hpaung(3) It was held that the period of three months
referred to in s. 54, Provincial Insolvency Act, began to
run from the date of execution of the transfer provided it
had been properly registered within the specified time. But
for the reasons already expressed we hold that the decisions
in Lakhmi Chand v. Kesho Ram(4), in Sarvathada Iswaryya v.
Kuruba ’ Subbanna, (1), and in District Board, Bijnor v.
Mohammad Abdul Salam (2) correctly state the law on the
point.
It was next argued that no order of adjudication could be
made against a firm but it can only be made against the
partners individually. We are unable to accept this
argument as correct. It is true that according to the
English law the act of bankruptcy must be a personal act and
no act of bankruptcy could be committed by a firm as such,
and no adjudication could be made against a firm in the
firm’s name.-(See Ex parte Blain)(5). But under s. 99 of
the Presidency-towns Insolvency Act (Act III of 1909) an
adjudication order may be made against a firm in the firm’s
name and such an order operates as if it were an order made
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against each of the persons who at the date of the order was
a partner in the firm. There is, however, no provision in
the Act corresponding to s.99 of the Presidency-towns
Insolvency Act. But s.79(2)(c) of the Act provides for
rules to be made by the High Court as to the procedure to be
followed when the debtor is a firm. This section therefore
assumes that an adjudication order can be made under the Act
against the firm in the firm’s name. Rules have been made
under this section by the Allahabad High Court. Reference
was made on behalf of the respondents to Rule 26 which
states :
(1) I.L.R. 58 Mad. 166. (2) I.L.R.
1947 All. 624.
(3) A.I.R. 1937 Rangoon 446. (4) I.L.R.
16 Lah. 735.
(5) (1879) 12 Ch. D. 522.
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.lm15
"26. An adjudication order made against a firm shall
operate as if it were an adjudication order made against
each of the persons who at the date of the order is a
partner in that firm."
It is manifest that an order of adjudication could be made
against the firm in the present case if the proper
conditions were satisfied. We therefore reject the argument
of the appellants on this aspect of the case.
It was further contended on behalf of the .appellants that
there is no finding of any of the courts to the effect that
the firm committed any act of insolvency. The allegation of
the respondents was that appellant no. 2 transferred to his
son, Veer Kumar his personal house property by way of a gift
deed dated October 31, 1957 and this was done by him with
the intent to defeat or delay his creditors. It was pointed
out that Ram Surat Misra was adjudged not to be insolvent by
the High Court on the ground that there was no allegation
against him of any act of insolvency. It was therefore
contended that the firm should not have been declared
insolvent merely because of the deed of gift executed by
appellant no. 2, Mukand Lal. In our opinion, this argument
is well-founded and must be accepted as correct. We think
that in order to support an adjudication against a firm
there must be proof that each of the partners has committed
some act of insolvency. If, however, a joint act of
insolvency is relied upon it must be shown to be the act of
all the partners. An order for adjudication can also be
made against a firm if there was an act of insolvency by an
agent of the firm which was such as must necessarily be im-
puted to the firm. The Explanation to s. 6 of the Act says
"for the purpose of this section the act of the agent may be
the act of the principal". The Explanation does not lay
down that an act of insolvency of the agent shall be
attributed to the principal but that it may be treated as
the act of the principal. Section 2(a) of the Indian
Partnership Act (Act IX of. 1932) defines ’an act of a firm
to mean "any act or omission by all the partners, or by any
partner or agent of the firm which gives rise to a right
enforceable by or against the firm". The effect of this
section read with the Explanation to s. 6 of the Act appears
to be that the question whether an act of insolvency of one
or more partners can be regarded as an act of all the
partners is a question of fact to be determined on the facts
and circumstances of each particular case. For instance, In
Re Mahomed Hasham & Co. (1) one of the partners in a firm
consisting of two partners departed from the usual place of
business with intent to delay and defeat the creditors of
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the firm. It was held by the Bombay
(1) 24 Bom. L.R. 861.
8 6 9
High Court that an adjudication order could not be made
against the firm in such a case unless the other partner had
also departed with like intent. Similarly, in Gopal Naidu
v. Mohanlal Kanyalal(1) it was held by the Madras High Court
that it is a question of fact whether the act of one partner
in closing the business of the firm and thus committing an
act of insolvency so far as he is concerned was imputable to
another partner so as to entitle the creditors of the firm
to get the other also adjudicated an insolvent. In the
circumstances of that particular case it was held that the
mere fact of closing the firm by one partner without more
evidence to show that the other either expressly or
impliedly authorized the same was insufficient to lead to
such imputation. In the present case, the property of which
Mukand Lal made a gift to Veer Kumar was not partnership
property and there was no collective act of insolvency
alleged on behalf of all the partners of the firm. In the
circumstances of the present case it cannot also be held
that the act of insolvency committed by Mukand Lal should be
attributed to Ram Surat Misra. The High Court has, in fact,
allowed the appeal of Ram Surat Misra and set aside the
order of the lower courts declaring him as insolvent. We
are consequently of opinion that the order of the lower
courts, so far as it adjudicates the registered firm as
insolvent, should be set aside, but the rest of the order of
the lower courts declaring Mukand Lal as insolvent will
stand.
Subject to this modification these appeals are dismissed.
There will be no order as to costs of this Court.
Y. P. Appeals dismissed.
(1) L. R. 49 Mad. 189.
870