Case: Yenumula Mallu Dora Vs. Peruri Seetharatnam And Others

1. On the application of two creditors the appellant Yenumula Mallu Dora has been adjudged insolvent by the Subordinate Judge Kakinada and a receiving order has been passed against him. The respondents before us are one of the petitioning creditors and the legal representatives of the other petitioning creditor who died during these proceedings. The first petitioning creditor held a decree for money which he had obtained in O. S. 67 of 1949. He also held another money decree in O. S. 473 of 1948. The second petitioning creditor held a decree which she had obtained in O. S. 17 of 1955. The application was based upon three acts of insolvency which the appellant was stated to have committed and on the general facts that he was indebted to the tune of Rs. two lakhs, and was unable to pay his debts. The three acts of insolvency alleged against him were (a) evasion of arrest in execution of the money decree in O. S. 67 of 1949; (b) sale of some of his properties on September 26, 1956 in execution arising from O. S. 73 of 1952; and (c) sale of some of his properties on September 19, 1956 in execution of money decree in O. S. 9 of 1950. It was also alleged that he was fraudulently transferring properties in the name of his wife andw and had suffered a collusive charge decree for maintenance in favour of his wife, to delay and defeat his creditors2. The Subordinate Judge, Kakinada did not accept the first two acts of insolvency. The evidence regarding evasion of arrest was not found convincing and the second act of insolvency was rejected because the sale of the property was in execution of a mortgage decree. In respect of the third act of insolvency the Subordinate Judge held that it satisfied Section 6 (e) of the Provincial Insolvency Act and an adjudication and a receiving order were justified in the case. An appeal was taken to the District Court at Rajahmundry (C. A. 41 of 1958) which was dismissed on October 15, 1959. A Revision Application filed under S. 75 of the Provincial Insolvency Act was dismissed by the High Court of Andhra Pradesh on March 14, 1963. The appellant, however, obtained special leave of this Court and has filed the present appeal against the order of the High Court.

Court's reasoning:
The section expressly mentions three circumstances in which the petition made by a creditor must be dismissed namely, (i) the absence of the right of the creditor to make the application; (ii) failure to serve the debtor with the notice of the admission of the petition; and (iii) the ability of the debtor to pay his debts. In addition, the Court has been given a discretion to dismiss the petition if it is satisfied that there is other sufficient cause for not making the order against the debtor. The last clause of the section need not necessarily be read ejusdem generis with the previous ones but even so there can be no sufficient cause if, after an act of insolvency is established, the debtor is unable to pay his debts. The discretion to dismiss the petition can only be exercised under very different circumstances. What those cases would be it is neither easy nor necessary to specify, but examples of sufficient cause are to be found when the petition is malicious and has been made for some collateral or inequitable purpose such as putting pressure upon the debtor or for extorting money from him, or where the petitioning creditor having refused tender of money, fraudulently and maliciously files the application. An order is sometimes not made when by the receiving order the only asset of the debtor would be destroyed such as a life interest which would cease on his bankruptcy. Cases have also occurred where a receiving order was not made because there were no assets and it would have been a waste of time and money to make a receiving order against the debtor. These examples merely illustrate the grounds on which orders are generally made in the exercise of the discretion conferred by the last clause of S. 25. This case is clearly one which cannot be treated under that clause. There are huge debts and no means to pay even though there are properties which, if realised, may satisfy at least in part the creditors of the appellant. The appellant was clearly guilty of an act of insolvency and an act of insolvency cannot be purged by anything he may have done subsequently. There is no proof of malicious or inequitable dealing on the part of the petitioning creditors. They have proved the necessary facts and have established both the act of insolvency and the inability of the appellant to pay his debts. The appellant has not been able to prove that he is able to pay. In fact, he has admitted that he is unable to pay his debts8. The High Courts have taken a similar and uniform view of such cases. These rulings are quite numerous but the following may be seen : Pratapmal Rameshwar v. Chunilal Johuri, AIR 1933 Cal 417  , Lal Chand Chaudhri v. Bogha Ram, AIR 1938 Lah 819 and AIR Mad 306. We do not consider it necessary to examine the facts in those cases because they apply correctly the principles, which we have set out above to the facts in the cases then present. It is, therefore, quite clear that the adjudication of the appellant and the receiving order against him were properly made.