TMI Blog1963 (12) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes a person who is responsible as surety for the payment of any such dues. 'Head of department' means, among other things, the Managing Director in the case of the Patiala State Bank. Chapter II purported to deal with determination of State dues and modes of recovery thereof. Section 4 which falls in this Chapter provides that the head of department shall determine in the prescribed manner the exact amount of State dues recoverable by his department from the defaulter. Section 5 lays down the modes for the recovery of State dues. Section 6 provides for the transmission of a certificate as to the amount of State dues recoverable from the defaulter to the Nazim and to the Accountant-General and its sub-s. (2) is : A certificate transmitted under the preceding sub-section shall be conclusive proof of the matters stated therein and the Nazim or the Accountant-General shall not question the validity of the certificate or hear any objections of the defaulter as to the amount of State dues mentioned in the certificate or as to the liability of the defaulter to pay such dues. 3. Section 10 provides that no action shall be taken by the Nazim or the Accountant-General on a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall finally determine the State dues recoverable. 7. Rules 7 provides that if the defaulter does not pay the State dues within the period specified in that rule, the head of department may proceed to recover them through the Nazim or the Accountant-General or both. Rule 8 provides for appeal by the defaulter against the orders passed under Rules 5 or 6. Rule 9 provides for a revision by the defaulter in case his appeal is dismissed. Rule 12 provides that the appellate or revisional authority may pass such order in appeal or revision as it thinks fit. 8. The facts of the case may be briefly stated now. 9. One Jyoti Parshad, proprietor of M/s. Ralla Ram Jai Gopal, a firm at Patiala, was indebted to the Bank of Patiala. Being unable to pay the debt of rupees 5 lacs, Jyoti Parshad approached the Bank in 1952 with a request to forbear from recovering the amount just then all at once and grant time and allow him to pay the amount in installments. The Bank agreed. In pursuance of the agreement between Jyoti Parshad and the Bank, Sardar Rattan Singh, respondent, stood surety to the extent of ₹ 2 lacs and entered into a contract of guarantee with the Bank to discharge the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the State of Patiala, appealed against this order to the District Judge who agreed with the findings of the trial Court and dismissed the appeal. The State then went in revision to the High Court under s. 75 of the Provincial Insolvency Act. Two contentions were raised there. One relating to the respondent's executing the deed of guarantee was repelled as being concluded by the finding of fact by the courts below. The other contention was that in view of the provisions of the Act the Managing Director of the Bank had exclusive jurisdiction to determine whether a certain person was or was not a surety or a defaulter and what the extent of his liability to the bank, if any, was and that therefore the Insolvency Court had no jurisdiction to reconsider and determine it. The High Court did not agree with this contention and dismissed the revision. It is against this order that the State of Punjab has preferred this appeal after obtaining special leave. 15. The contention for the appellant in this Court is that the Civil Court had no jurisdiction to determine matters which could be determined by the Head of the Department under the provisions of the Act, that the head of the depar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, Venkatarama Aiyar J., delivering the majority judgment, said at p. 235. The Managing Director is a high-ranking official on a salary of ₹ 1,600-100-2,500, with a free furnished residence. He has no personal interest in the transaction and there is no question of bias, or any conflict between his interest and duty. 18. The vesting of the power to determine the matters covered by s. 4 in the Managing Director who has no personal interest in the matter cannot therefore be a ground for holding that the Act could not have provided and does not provide for the head of department to determine the liability of an alleged defaulter in case he disputes it. 19. In construing r. 6 it was said at the same page : It does not bar the parties from examining witnesses or producing other documentary evidence. The Managing Director, has, under this Rule, to examine the statement and the records of the Bank in so far as they bear on the points in dispute and that normally, would be all that is relevant. But he is not precluded by the Rule from examining witnesses or taking into account other documentary evidence, if he considers that that is necessary for a proper determin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vitably have to be made by the head of department and in accordance with s. 4 of the Act. Two proceedings for achieving one object are neither desirable nor convenient and if the Bank has to go to the Civil Court for the determination of the liability of the alleged defaulter, there can be no good reason for enacting that the Civil Court which ordinarily decides such disputes cannot determine the amount, if any, the alleged defaulter has to pay to the Bank. 23. Further, the proceedings in the Civil Court may take a long time for final disposal and that may affect the limitation prescribed under s. 10 of the Act for the Nazim or the Accountant-General to take action for the recovery of the amount due. Section 10(1) provides that no action shall be taken by the Nazim or the Accountant-General on a certificate from the Managing Director of the Bank unless it is sent to him within such period of limitation prescribed by the Limitation Act for the time being in force in the State within which the Bank would have instituted a suit in a Civil Court for the recovery of its debts or dues respectively, if such debts or dues were not declared as State dues under the Act. This means that if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we the debts mentioned by the creditor in the petition and whether, if he owes them, what is the extent of those debts. A debtor is not to be adjudged an insolvent unless he owes the debts equal to or more than a certain amount and has also committed an act of insolvency. It is the duty of the Insolvency Court therefore to determine itself the alleged debts owed by the debtor irrespective of whether those debts are based on a contract or under a decree of Court. At the stage of the proof of the debts, the debts to be proved by the creditor are scrutinized by the Official receiver or by the Court, in order to determine the amount of all the debts which the insolvent owes as his total assets will be utilised for the payment of his total debts and if any debt is wrongly included in his total debts that will adversely affect the interests of the creditors other than the judgment creditor in respect of that particular debt as they were not parties to the suit in which the judgment debt was decreed. That decree is not binding on them and it is right that they be in a position to question the correctness of the judgment debt. It is on their behalf that the Insolvency Court or the Official ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court shall have full power to decide all questions whether of title or priority or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case. (2) Subject to the provisions of this Act and notwithstanding anything contained in any other law for the time being in force, every such decision shall be final and binding for all purposes as between, on the one hand, the debtor and the debtor's estate and, on the other hand, all claimants against him or it and all persons claiming through or under them or any of them. (3) Where the Court does not deem it expedient or necessary to decide any question of the nature referred to in sub-section (1), but has reason to believe that the debtor has a saleable interest in any property, the Court may without further inquiry sell such interest in such manner and subject to such conditions as it may think fit. 29. It is to be noticed that the Insolvency Court has ful ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the realisation and distribution of the property of the debtor in view of s. 17. Section 24 lays down the procedure at the hearing of the insolvency petition, and provides that the Court shall require proof of the fact that the creditor or the debtor as the case may be, is entitled to present a petition. One of the conditions for the creditor to present the petition is that the debt owing by the debtor to him amounts to ₹ 500 and one of the conditions for the debtor to apply for adjudication is that his debts amounts to ₹ 500. The Court, therefore, has to be provided with proof about the existence of the debt and its amount, even though the debt be a judgment debt. The judgment or decree can be prima facie evidence of the debt, but in view of the Court's requiring proof of the debt, it is not bound to treat the judgment or decree to be conclusive proof of the existence of the debt for which the decree had been passed. 31. Subsequent to the adjudication of the debtor as an insolvent, the next stage for the preparation of the schedule of creditors under s. 33 of the Insolvency Act comes. All persons alleging themselves to be creditors of the insolvent in respect o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t principles. If that be so it is not true to say that the mere fact of a judgment existing ought to prevent the Court at the instance of the debtor at the first stage of the proceedings, viz., when a receiving order is applied for, from inquiring whether there was any real debt as the foundation of the judgment, and, although by consenting to a judgment the debtor is estopped everywhere else from saying that there was no debt due - although the judgment is binding upon him by reason of his consent, and of its being the judgment of the Court, yet no such estoppel is effectual as against the Court of Bankruptcy. The Court is not estopped by the conduct of the parties, but it has a right to inquire into the debt. 37. Cotton, L.J., said at p. 325 : It has been long established, as regards the proof of a debt in bankruptcy, that the trustee, acting on behalf of the creditors, can go behind a judgment, and that, although the judgment is prima facie evidence of a debt due to the creditor who claims to prove for the judgment debt, yet the trustee, on behalf of the creditors, may show that in fact the judgment does not establish a debt. That rule is founded upon this principle - th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of admitting or rejecting it is to require some satisfactory evidence that the debt on which the proof is founded is a real debt. No judgment recovered against the bankruptcy, no covenant given by a account stated with him, can deprive the trustee of this right. He is entitled to go behind such forms to get at the truth, and the estoppel to which the bankrupt may have subjected himself will not prevail against him. 41. The principles of these cases have been applied by the courts in this country. Reference may be made to Narasimha Sastri v. Official Assignee, Madras A.I.R. 1930 Mad 751.. 42. Reference may also be made to Sadhu Ram v. Kishori Lal A.I.R. 1938 Lah. 148. in which it was held in view of s. 4(2) of the Insolvency Act that the decree founded on a debt held fictitious by an Insolvency Court could not be executed. Bhide J said : In the present instance the finding of the Insolvency Court had, I think, the effect of rendering the decree inoperative, as it was tantamount to a declaration that the decree was non-existent and the finding was binding on the decree-holder as well as the judgment-debtor. 43. In view of our opinion that an Insolvency C ..... X X X X Extracts X X X X X X X X Extracts X X X X
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