If Debtor has no liquid assets wherewith to pay his debts at present, he must be held not to be able to pay his debts

In Karim Bakhsh v. Gaja Dhari, AIR 1934 Lab 63(1) the debts due were cash debts and the assets were not immediately realisable and under those circumstances it was held that the insolvent was unable to pay his debts and should, therefore, be declared insolvent. Similarly, in Bhagwan Das v. Mohammad Nawaz Shah, AIR 1939 Lah 349 it was held that although a debtor may have assets which, if liquidated, would provide sufficient money to discharge his debts, yet if he has no liquidated assets with which to pay his debts at present he must be held not to be able to pay his debts and therefore liable to adjudication as an insolvent.

It was further held that the mere fact that the value of the immovable property owned by the debtor is in excess of his liabilities, is not sufficient to prove his ability to pay his debts, regardless of all other considerations. I respectfully agree with this view.

Rajasthan High Court

Ganesh vs Hukmichand And Anr. on 4 December, 1959

Equivalent citations: AIR 1960 Raj 242

1. This is an appeal under Section 75(2) of the Provincial Insolvency Act of 1920 by a debtor whose application for adjudication as insolvent under Section 10 of the said Act has been dismissed by the learned District Judge, Jodhpur.
2. The appellant's case was that his total debts amounted to Rs. 7619/-, that he was unable to pay the same and, therefore, he should be declared insolvent. In the schedule of the list of creditors which was filed by him along with the application it was shown that his debt of Rs. 5000/- was payable to one Hukmichand, that the second debt of Rs. 2044/- was also payable to the same person, and the third debt of Rs. 575/- was payable to one Godu. Thus, in fact, there were two creditors only. One of the creditors, namely, Hukmichand contested the application and urged that the appellant was a wealthy man and he was in a capacity to pay olf the entire debt.
The learned District Judge observed that the first debt was incurred not only by the appellant but also by his three brothers, that the second debt was similarly incurred by the appellant along with his one brother, that the total share of the debts payable by the appellant thus came to about Rs. 2500/- and since his share in the house which was mortgaged for the first debt, was also of the value of Rs. 2500/- it could not be said that the appellant was unable to pay off his debts,
3. It is contended by learned counsel for the appellant that the finding of the learned District Judge is erroneous., that it would not be said what amount could be fetched on the sale of the immovable property, that the said property was not within his sole control that it could not be sold away by him alone and that in execution of the decree which was taken out by Hukmichand for the second debt of Rs. 2044/- his immovable property was already attached. It is, therefore prayed that the erder of the court below should be set aside and his client should be adjudicated as an insolvent.
4. Nobody has appeared on behalf of any of the creditors, and therefore, the appeal has been heard ex parte.
5. I have gone into the judgment of the court below and also though the statements made by the debtor and the creditor in that court and I agree with the appellant's learned counsel that the finding of the learned District Judge to the effect that the appellant is able to pay his debts is not correct. It may be pointed out that creditor Hukmichand himself has admitted, that the value of the house which is mortgaged with him for the first debt may be nearabout Rs. 8000/-. At the same time he says that it cannot be said definitely as to what is its exact value, because it may be something more or something less.
Thus, even if it be taken that the first debt together with interest can be paid off from the sale of the house, the remaining two debts of Rs. 2619/-would remain unpaid. The appellant's share in the sale proceeds of the house after paying off the first debt cannot suffice to pay off this debt. It is therefore clear that the appellant is unable to pay off his debts within the meaning of Section 10 of the said Act. The appellant has filed a copy of an order dated 19-11-55 passed by the Munsif Jodhpur in connection with the execution of the decree taken out by Hukmichand against him,
It shows that the amount of the decree is nearabout Rs. 2249/- and still only one cycle and a small gold ear-ring could be attached from the possession of the appellant. It further appears from the same order that no attachable property was found in the house of the appellant. It seems that the learned District Judge did not apply his mind to this aspect of the case.
This important document was completely ignored by him, since there is no reference thereto in his order. It alone shows that the debts of the appellant amount to much' more than the minimum prescribed under Section 10 of the said Act and that he is unable to pay his debts. Under Section 10 of the said Act a debtor is entitled to present an insolvency petition if he is unable to pay his debts and his debts amount to a minimum total of Rs. 500/-- or an order of attachment in execution of the decree has been made against him and is subsisting against his property. All these conditions are present in this case.
6. It seems from the order of the learned District Judge that he was mostly guided by the consideration that the appellant had one-fourth share in the immovable property which was worth about Rs. 10,000/- and therefore the appellant could get Rs. 2500/- for his share. It was not appreciated by him that the appellant alone could not, in the first instance, sell away that property and it could not be said what exact amount that property could fetch on its being sold.
In Karim Bakhsh v. Gaja Dhari, AIR 1934 Lab 63(1) the debts due were cash debts and the assets were not immediately realisable and under those circumstances it was held that the insolvent was unable to pay his debts and should, therefore, be declared insolvent. Similarly, in Bhagwan Das v. Mohammad Nawaz Shah, AIR 1939 Lah 349 it was held that although a debtor may have assets which, if liquidated, would provide sufficient money to discharge his debts, yet if he has no liquidated assets with which to pay his debts at present he must be held not to be able to pay his debts and therefore liable to adjudication as an insolvent.
It was further held that the mere fact that the value of the immovable property owned by the debtor is in excess of his liabilities, is not sufficient to prove his ability to pay his debts, regardless of all other considerations. I respectfully agree with this view.
7. The appeal is therefore allowed. The order of the learned District Judge Jodhpur dated 2-6-56 is set aside and the appellant is adjudicated as an insolvent. He is directed to apply for his discharge within a year from today. Costs of this appeal will be borne by himself. The trial court will take further proceedings in the matter.