Case: Firm Mukand Lal Veer Kumar &amp; Anr Vs. Sri Purushottam Singh &amp; Ors

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 firms name - (See Ex parte Blain, (1879) 12 Ch D 522). But under S. 99 of the Presidency-towns Insolvency Act (Act II of 1909) an adjudication order may be made against a firm in the firms name and such an order operates as if it were an order made 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 firms 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:"26. An adjudication order made against a firm shall operate as if it were an adjudication order made against each of the person who at the date of the order is a partner in the 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. 13. 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, Mukund 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 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 imputed 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 1X 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 and Co., 24 Bom LR 861 = (AIR 1923 Bom 107 ) 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 the firm. It was held by the Bombay High Court that an adjudication order could not be made against the firm in such a ease unless the other partner had also departed with like intent. Similarly, in Gopal Naidu v. Mohanlal, ILR 49 Mad 189 = (AIR 1926 Mad 206 ) 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 circumstance 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 ease, the property of which Mukund 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 Mukund 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 arc 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 Mukund Lal as insolvent will stand.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]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 ofthe Transfer of Property Act, 1882, to be registered shall affect any immovable 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 transferring the property. In the present case, therefore, the deed of gift executed by Mukund 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, 1958In 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 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 imputed 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 1X 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 caseIn the present ease, the property of which Mukund 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 Mukund 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 arc 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 Mukund Lal as insolvent will stand.