It is in this sense of obligation that the word 'charge' is used in the passage in Mayne's Hindu Law and not in the sense of the properties being hypothecated for the debt. It is one thing to say that before partition the debts of the father shall be provided for and it is another thing to say that when the son becomes the sole owner on the father's death entitled to dispose of the property as his own, there is any restriction imposed on his powers for disposing it for his own debts though he is equally under an obligation to satisfy the demand of his father's creditors. Again the obligation imposed by the Hindu Law being incidental to the property so long as the property remains in the hands of the son the property cannot escape liability, whether there is a charge or No. But once the property has been alienated to a bona fide alienee, the obligation cannot be pursued against the property. It seems to us that the same principle would apply where the son is divested of his ownership therein by operation of law. Bankruptcy is an involuntary alienation and by the provisions of the insolvency law there is a statutory conveyance or alienation of the said property in favour of the Official Assignee in trust for the creditors for distribution among them according to the provisions of the said law. Having regard to these principles the question of priority has to be viewed. Under Section 52(2) of the Presidency Towns Insolvency Act all property as may belong to or be vested in the insolvent at the commencement of the insolvency will vest in the Official Assignee. The principle is the same under the Provincial Insolvency Act and under the English Law. It cannot be denied that the separate property of the father devolving on the son and the joint family property owned by the son at the date of the insolvency, which has been augmented by the father's share devolving upon the son by survivorship on account of the father's death before the date of the insolvency, will be property which belonged to the insolvent. But once that property vests in the Official Assignee, "it would have to be governed by the provisions of the Insolvency law. One of the provisions of that law is Section 49(5) which provides that subject to the provisions of the Act all debts proved in insolvency shall be paid rateably according to the mounts of such debts respectively and without any preference. Of course under Section 49 certain unsecured debts have to be paid in priority and it is in respect of them that a preference is accorded by the Act. The insolvency law is a special law having for its object the distribution of the insolvent's available assets among his creditors pro rata. The father's debt is not one to which a right of priority is given by the Act. The Official Assignee can only administer the assets and distribute them in accordance with the provisions of the Act. If a father's creditor chooses to prove in the insolvency of the, son as a provable debt of the son, he must submit himself to the provisions of the Act which does not recognise any priority in his favour. In a recent decision reported in Thimmiah v. Official Receiver, Bellary (1939) 1 M.L.J. 158, our learned brother Abdur Rahman, J,, took this view and held that the unrealised debts of the father and the debts of the son stood on the same footing and that a father's creditor would not got priority over the son's creditor. In the course of the judgment the learned Judge observed thus: If one looks to the provisions contained in Section 61 of the Provincial Insolvency Act, it would be found to provide in Sub-clause 5 that all debts entered in the schedule have to be paid rateably according to the an fount of such debts without any preference except to those which have been otherwise specified by the Provinc Insolvency Act...The learned counsel for the petitioner has not been able to point to any provision in the Provincial Insolvency Act under which he could claim priority for the debt in question and so far as proceedings in insolvency are concerned, the petitioner, as provided in Sub- 5, share rateably without any preference. It is obviously the policy of the insolvency law to distribute the estate among the creditors fairly and unless a preference was given by the Act to any particular debt, it must necessarily be held to fall within the sub-and no priority can legitimately be claimed in regard to the same. Viewed in the light of this section the unrealised simple debts of the father and that of the son would stand on the same footing.
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Madras High Court
Pr. N. Sm. Chokkalingam Chettiar vs The Official Assignee Of Madras on 16 October, 1939
Equivalent citations: (1940) 2 MLJ 621
Venkataramana Rao, J.
1. These two connected appeals are against the order of our learned brother Wadsworth, J., on the application made by Pr. N. Sm. Chokkalingara Chettiar the appellant in O.S.A. No. 68 of 1937 to recover a sum of Rs. 1,61,127 and 22 cents and interest thereon less a sum of Rs. 47,573 and 80 cents from and out of the estate of the insolvents in the hands of the Official Assignee of Madras. The learned Judge allowed the said Chokkalingam Chettiar to prove the balance of. his debt as claimed by him subject to certain limitations specified in para. 2 of the order disallowing all claims to priority in respect of any portion - of the assets in the hands of the Official1 Assignee. O.S.A. No. 68 of 1937 is by the said Chokkalingam Chetti against the order in so far as it disallowed his claim to priority and O.S.A. No. 82 of 1937 is by the Official Assignee against the order allowing the said Chokkalingam Chetti to prove the claim in the insolvency. Before dealing with the contentions advanced in the appeals the relevant facts may be stated.
2. One Ar. Ar. Sm. Somasundaram Chettiar and his sons Arunachala, Ramanatha, Sundaresa and Lakshmana were members of a joint family and doing extensive business in money-lending and rice in British India, Burma and Ceylon. In 1919 an arrangement was entered into between them in and by which it was agreed that each of the sons should get a sum of Rs. 51,000 that with the sum so obtained they should establish separate businesses of their own and that the father himself should be entitled to certain businesses exclusively. It was further stipulated that Arunachala should be the guardian of Lakshmana and Ramanatha should be the guardian of Sundaresa. In regard to the rights and obligations with respect to the rest of the properties no change was effected and the family must therefore be deemed to have continued undivided. In pursuance of the said arrangement, Ramanatha and Sundaresa carried on business at Colombo and Kumbakonatn; so also Arunachala and Lakshmana together in those two places. The joint family ceased to do any business in Colombo except rice business at Bankshall. The father carried on business exclusively in Jaffna and Rangoon. Ramanatha died in November, 1919, and thereupon the two businesses at Colombo which were carried on by the two sets of brothers were amalgamated into one and an arrangement was come to providing that the combined businesses should be carried on by the father on behalf of the sons and it was accordingly carried on until the date of his death in July, 1923. It is also in evidence that the businesses at Jaffna and Rangoon which were carried on by the father were carried on by the adult sons until August, 1925, when they were adjudicated insolvents both in Madras and in Colombo1. On the 15th July, 1925, Arunachala and Sundaresa were adjudicated insolvents in Madras. On the 25th August, 1925, the firm which was carried on by the sons at Colombo was adjudicated insolvent in the Colombo District; Court. Arunachala and Sundaresa before they were adjudicated insolvents applied through their Attorneys Messrs. Subbayya Naidu and Lakshmanan Chettiar for letters of administration in regard to the estate of their father in Ceylon on the basis that the father died intestate whereas in fact he had left two wills dated 2nd October, 1922 and 23rd October, 1922, The District Court 'of Jaffna to which the application was made issued letters of administration on 9th June, 1925, to Messrs. Subbayya Naidu and Lakshmanan Chettiar and they were therefore constituted administrators of the Ceylon assets of the father Somasundara. As these were not properly functioning, one B. Emmanuel, Secretary of the District Court of Jaffna was later appointed administrator to act with them and he seemed to have administered the assets solely until 1929| when he was transferred to another Court. On the 17th August, 1925, P.R.R. Section M. Somasundaram Chetti, the father of the said Chokkalingam Chetti filed a suit in the District Court of Colombo against all the sons of Somasundara for recovery of a sum of Rs. 1,60,531 and 47 cents alleging that that sum was borrowed by them between the 4th January, 1923 and 9th August, 1925. On the 29th August, 1925, the said Somasundaram Chetti got an affidavit filed before the Official Assignee of Madras through his son claiming a sum of Rs. 53,367-0-3 in respect of the transactions had with the insolvents at Madras and a sum of Rs. 1,60,501 and odd as due from them at Colombo. On 4th February, 1926, the plaintiff withdrew the suit which he filed in the District Court of Colombo with liberty to bring a fresh action. Even before the said suit was withdrawn, Somasundaram filed a suit on 19th January, 1926, against the said Emmanuel, Secretary of the District Court of Jaffna as official administrator of the estate of Somasundara for Rs. 1,61,127 and 22 cents on the ground that the money was lent to the father Somasundara between 4th January, 1923 and 30th June, 1923 and that the said defendant as administrator was bound to pay the said. sum. (See Plaint No. 18800, District Court, Colombo, dated 19th January, 1926, subsequently amended on 12th October, 1926.) His Proctor also wrote to the Official Assignee informing him that he withdrew his claim against the insolvents for the sum of Rs. 1,60,531 as it was misconceived and as the said debt was contracted by Somasundaram Chetti, the father of the insolvents. By reason of the insolvency of the sons Arunachala and Sundaresa, all the property which they were possessed of vested in the Official Assignee. The properties which they were possessed of on the date of the insolvency would be their shares in the entire joint family properties of the family in addition to their separate property. But the share of Lakshmana and the shares of the sons of Arunachala and Sundaresa were not vested in him but by a compromise entered into with the latter all i.e. property possessed by the joint family became vested in the Official Assignee by an order dated 6th August, 1928. It is rather extraordinary that such an order should have been passed especially when there were minors but it is unnecessary to go into the validity or otherwise of the said order because it must be taken for the purpose of these appeals that the entire joint family property and the separate property of the sons in so far as they were situate within British India vested in the Official Assignee. It must also be stated that by an order passed on 3rd August, 1925, by this Court in insolvency the District Court of Jaffna and the District Court of Colombo were directed to act in aid of the Madras Insolvency. The Colombo Court agreed but the Jaffna Court did not, so that, the Official Assignee had control over all the assets of the insolvents whether in British India or at Colombo but in regard to the other Ceylon assets left by Somasundara they were under the control of the administrator of the Jaffna Court. According to the Roman-Dutch law it is stated that the property standing in the individual name of Somasundara must be taken to belong to him absolutely, and neither the theory of joint family nor the rights and obligations which flow out of that status including the pious obligation of the sons for payment of their father's debts are recognised by that law. The position therefore was that so far as, at any rate, the immovable, property which stood in the name of Somasundara was concerned, the widow was entitled to a half and the children of Somasundara, that is, the three sons Arunachala, Sundaresa and Lakshmana and four daughters left by him were entitled to the remaining half and each of them thus had 1/14th share. The three sons of Somasundara according to that law would only be entitled to a 3/14th share in the immovable property standing in the name of Somasundara in Ceylon subject to the payment of his debts. But as a fact both the movables and immovables appear to have been treated by the Jaffna Court on the same footing. Under the will of Somasundara of the 23rd October, 1922, Somasundara purported to divide all the properties which he was possessed of barring a few exceptions into four shares to be taken by the sons after his death and if that will were to be given effect to, the sons would be entitled to get the entire property to the exclusion of the widow and daughters. The Official Assignee of Madras apparently wanted to get at the assets of the Jaffna Court and in order to enable him to do so, he applied to this Court for letters of administration with the two wills of Somasundara annexed to that on the strength of the letters so obtained he might get himself appointed administrator of the Ceylon assets of Somasundara in the Jaffna Court. Letters were issued by this Court on the 15th November, 1928.' On the 18th February, 1929, the Official Assignee made an application through his power of attorney agent one M. J. Harding for the grant of letters of administration in respect of Ceylon assets and the allegations in the paras. 4 and 5 of that petition were as follows:
4. That the deceased A.R.A.R.S.M. Somasundaram Chetti left behind properties in Ceylon to the value of Rs. 84,18,848 according to the papers filed by the administrator in this case.
5. That for the purpose of administering the estafe of the said deceased in Ceylon, it is necessary that letters of administration should be taken out.
3 But the application was rejected by the District Court of Jaffna on the ground that a probate of a foreign Court could not be accepted under Section 3 of the Ceylon Ordinance VII of 1921. This order was passed on the 21st May, 1929. An appeal was preferred against the said order. On the 25th July, 1929, the Official Assignee executed a power of attorney in favour of Messrs. H. D. Thornton and I.I. J. Harding empowering them to apply for letters of administration in Jaffna after complying with the formalities of Ceylon law. By that time Mr. Emmanuel who was functioning as administrator seems to have been transferred to another District Court and on the 16th September, 1929, Messrs. Harding and Thornton as attorneys of the Official Assignee made an application for an interim grant of letters to them pending decision of the appeal which they had preferred. Para. 6 of the petition runs thus: The petitioner as Official Assignee as aforesaid is not only a representative of the said heirs but is also a creditor to the extent of seven lakhs due to the said heirs from the late A.R.A. R.S.M. Somasundaram Chettiar.
4 By an order dated 16th December, 1929, it appears that letters of administration with copies of the will annexed were directed to be issued to Messrs. Thornton and Harding as attorneys of the Official Assignee of Madras, if before the 19th December? 1929, nobody shows sufficient cause to the contrary. This order was passed by Mr. Rock the District Judge but it also appears from another order passed by him on 16th April, 1930; wherein it was stated that he saw no objection to the granting of a limited power of probate to the Official Assignee. At any rate, it is clear that letters of administration were actually issued on the 19th May, 1930, to Messrs. Thornton and Harding constituting them administrators. There can be doubt that it was issued to them as agents of the Official Assignee of Madras and they were functioning as such. After obtaining the letters they seemed to have applied to the District Court of Colombo in the suit brought by Chokkalinga Chetti's father and got themselves substituted as defendants in the place of the original defendants on record. After contest a decree was passed against them in the said suit and the decretal portion runs thus: It is ordered and decreed that the substituted defendants as administrators of the intestate estate of the late A.R.A.R.S. M. Somasundaram Chettiar deceased do pay to the substituted plaintiff as administrator of the estate of the late P. R. N. Section M. Somasundaram Chettiar, deceased, the sum of Rs. 1,61,127 and 22 cents with interest thereon at the rate of 9 per cent, per annum from 20th January, 1926, till payment in full and costs of suit.
5. So far as the scope of this decree is concerned there can be no doubt that Chokkalinga Chetti who was substituted as plaintiff in the place of his father who had died in the meanwhile obtained a decree against the administrators Messrs. Thornton and Harding as administrators of the Ceylon assets of Somasundara. Though the decree is against the said administrators it may be taken that it was against the Official Assignee of Madras as administrator of the Ceylon assets of Somasundara. We are not inclined to agree with the view taken by our learned brother Wadsworth, J., that the decree in the Colombo District Court is a decree which binds the spns represented by the Official Assignee with personal liability to the extent of the assets of the father in their hands. Against the said decree an appeal was preferred to the Supreme Court of Ceylon. In the meantime Chokkalinga applied to execute the decree in his favour by attaching a sum of Rs. 2 lakhs in the District Court of Jaffna and applied for a transfer of the said moneys to the credit of the suit. This was opposed by the Official Assignee as the creditor of the estate of Somasundara on the ground that the firm of the plaintiff was not registered according to Ceylon law and was not entitled to the relief claimed in the application. The ground on which the said attorneys of the Official Assignee preferred the appeal against the decree was that the case was disposed of by the trial Juddge without giving sufficient opportunity to adduce necessary evidence in support of his plea. The plea that was raised by the Official Assignee in the trial Court was that Chokkalinga's father was not a creditor of the father but a creditor of the sons and he was entitled to prove only in the insolvency of the sons and could not claim any moneys from and out of the exclusive property of the father and therefore he was not entitled to claim any moneys from and out of the Jaffna assets. One object of the Official Assignee was to get as much money as possible for the son's creditors in the Jaffna Court as the estate of Somasundara was indebted largely to the firm of the sons whose property had been vested in the Official Assignee. A compromise was arrived at and the terms of the settlement were as follows: Substituted plaintiff is to be paid his taxed costs incurred in 18800,. District Court, Colombo, such costs not to exceed Rs. 9,000. He agrees to share pro rata with all the other creditors the assets of the deceased. He is entitled to proceed for the recovery of any balance that may be due to him in action No. 18800, District Court, Colombo, from assets that may exist out of Ceylon. The Official Administrator undertakes to withdraw his appeal in 18800, District Court, Colombo.
6. Thereupon a decree was passed on 17th November, 1933f by the Supreme Court of Ceylon as follows:
Of consent it is considered and adjudged that the decree made in this action by the District Court of Colombo and dated the 12th January, 1933, be and the same is hereby affirmed and this appeal is dismissed subject to the terms of settlement arrived at between the parties and filed herewith. And it is further ordered and decreed that each party do bear his costs of this appeal.
7. The appellant Chokkalingam Chetti received from the Administrator Jaffna a sum of Rs. 47,573 and 80 cents as his pro rata share and after receiving the said sum he preferred a. claim before the Official Assignee, Madras, for the balance due to him under the decree and the claims made on the basis of the compromise arrived at with the Official Assignee. The grounds of his claim are set out in paras. 7 and 8 of his affidavit dated 12th September, 1936, thus:
By an arrangement however come to on or about the 21st October, 1933, and sanctioned by the District Court of Jaffna with the Official Administrator and the said defendants, it was agreed that I should take a share pro rata with all the other creditors of the assets of the deceased in the hands of the said Official Administrator, Jaffna and that I should be at liberty to recover the moneys due to me under the said decree from the assets that may exist out. of Ceylon. The Official Administrator of Jaffna paid me as my share out of the assets then in his hands Rs. 47,573 and 80 cenfcs. The said assets in the hands of the Official Administrator of Jaffna never formed and do not lorm part of the assets of the above-mentioned insolvents and did not and could not vest in the Official Assignee. I say that so far as it is the liability of the joint estate the same has to be paid before the creditors of the insolvents are paid.
8. The Official Assignee rejected the claim and the reasons for doing so were stated by him thus in his order dated the 16th November, 1936:
The debt was contracted by Ar. Ar. Sm. Somasundaram Chetti in Ceylon and is repayable in Ceylon from out of the said Somasundara in the hands of the administrators. Under the Ceylon law the sons are not liable for the debts contracted by the father. Further the claimant having elected to proceed against Somasundara's estate in the hands of the administrators and obtained a decree against the said estate should be deemed to have waived his right to proceed against the sons' estate assuming he had the right which I do not admit. This claim is therefore disallowed.
9. Thereupon Chokkalingam Chetti preferred an appeal to the Court for rescinding the order of the Official Assignee. In the report submitted by the Official Assignee to the Court he denied that he was a party to the action in the District Court, Colombo and submitted that the consent decree passed by that Court could not have any validity and binding force so far as he was concerned. He went so far as to say that the letters were issued to Messrs. Harding and Thornton by the Jaffna Court in their individual capacities, that is, as assignees of the Ceylon insolvency of the firm Ar. Ar. Sm. and not in their character as his attorneys. It is rather surprising that the Official Assignee should have taken the' stand which he did. The various affidavits and reports filed in the case conclusively show that Messrs. Harding and Thornton were appointed b y Mr. Wilson as his attorneys for the specific purpose of getting letters of administration on his behalf with the wills annexed of Somasundara in the Jaffna Court. In fact the judgment of Mr. Rock dated the 16th April, 1930, makes it clear that it was intended by him that the letters of administration should be issued to Mr. Wilson though the letters were actually issued to Messrs." Harding and Thornton. Therefore it must be taken that Messrs. Harding and Thornton were functioning as administrators in the Jaffna Court as agents of Mr. Wilson. He obtained letters of administration in this Court with the wills annexed for the purpose of getting letters of administration in the Ceylon Court, so that he could get at the Ceylon assets which were being administered by the Court at Jaffna. In fact the petition on which final orders for letters of administration were issued was filed by Mr. Wilson through his attorneys Messrs. Harding and Thornton and as already stated Mr. Wilson in that petition applied as Official Assignee as representing the heirs and creditors of the sons. The power-of-attorney issued to Messrs. Harding the Thornton gave them complete power to compromise and settle all claims against the estate. Therefore it does not lie in the mouth of Mr. Wilson to say that he was not a party to the action in the Ceylon Court and that the consent decree does not bind him. There can be no doubt that Messrs. Harding and Thornton were acting as the agents of Mr. Wilson in entering into a compromise in the capacity of administrators. It must also be said that Mr. Wilson in his capacity as the Official Assignee opposed the application of Chokkalingam Chetti to have the moneys attached by him transferred to the Jaffna Court. Therefore though it does not appear on record that the Official Assignee was a pro forma party to the compromise, the compromise could not have been entered into without reference to the Proctor who was functioning on his behalf and without the Official Assignee being apprised of the terms on which the consent decree was passed by the Supreme Court of Ceylon. I think it is in view of this that the concession which appears to have been made before Wadsworth, J., should be considered. The concession which is alleged to have been made by Mr. Wilson is thus stated by the learned Judge in the judgment under appeal: It was first contended that this decree against the administrator of the estate of the deceased Somasundara was not in fact a decree against the sons to the extent of the assets of their father in their hands nor a decree against the Official Assignee to the extent to which he was in possession of those assets. This contention has now been abandoned.
10. Mr. T.M. Krishnaswami Aiyar on behalf of the Official Assignee says that the concession Was not made in the manner stated by Wadsworth, J.; but that the second part of the concession as recorded by the learned Judge was confined to the separate assets. We will have to examine the scope and effect of the compromise decree and the nature of the concession that was made by the Official Assignee at some length, but it is sufficient at this stage to say that the consent decree passed against Messrs. Harding and Thornton must be taken to have been passed "against them as the agents of the Official Assignee and it is not open to Mr. Wilson to say that he was not a party to the consent decree at all. The learned Judge on a consideration pf the entire evidence on record and on a construction of the compromise decree and in view of the concession made by the parties before him came to the conclusion that Chokkalingam Chetti must be placed in the same position as any of the creditors of the insolvent's father (Somasundara) in British India in proceeding against the assets, whether joint family assets or the separate assets of the father, in the hands of the Official Assignee as representing the sons but that Chokkalingam Chetti was not entitled to priority either in respect of what are deemed to be the separate assets of the father or the joint family assets wherejn Somasundara and his sons were interested and the proper course according to him would be to treat the creditors of the father to the extent of the father's assets in the hands of the sons as creditors of the sons entitled to rank rateably to that extent with the son's subsequent creditors. As we have already said, both the Official Assignee and Chokkalingam Chetti have preferred appeals.
11. The contentions on behalf of the Official Assignee are thus formulated by Mr. Krishnaswami'Aiyar : (i) The claim of Chokkalingam Chetti is a claim made by him as a creditor of the father of the insolvents and such a claim cannot be proved in the insolvency of the sons and his application was therefore incompetent. (ii) Assuming that an application lies, he could only prove his claim to the extent to which he could establish a personal liability of the sons, that is, a liability which could be enforced against the sons' entire property including their separate property. (iii) Assuming that such personal liability could be established there must be an inquiry as to how much of the debts that were subsisting on the date of the death of the father were binding on the joint family and were discharged by the insolvents and to that extent so much of the property as represented the value of the debts which have been discharged or taken over by the sons must be eliminated in coming to a conclusion as to what property would be available for distribution among the creditors, (iv) In any event Chokkalingam Chetti cannot claim any interest and the interest must be taken to have ceased to run from the date of the order of this Court adjudging the sons insolvents. The appeal on behalf of Chokkalingam Chetti was mainly on the ground that the learned Judge ought to have allowed priority in respect of his debt in preference to the creditors of the sons both in respect of the separate assets of the father and in respect of the joint family assess.
12. The first question therefore that falls to be decided is whether the application of Chokkalingam Chetti was competent. Mr. Krishnaswami Aiyar's contention is that on a debt of the father which under the Hindu Law the son may be under a pious obligation to pay the son could not be adjudicated insolvent because under the law of insolvency whether in British India or in England a person can be adjudicated insolvent in respect of any debt only if he was under a personal liability to pay it, that is to say, personal liability is a necessary foundation for an order of adjudication and if therefore a debt could not be made the foundation for an order of adjudication it is not a provable debt in insolvency. Mr. Krishnaswami Aiyar relied strongly on Nagasubramania Mudaliar v. Krishnamackariar (1927) 53 M.L.J. 403 : I.L.R. 50 Mad. 981, In re Lynes : Ex parte Lester and Co. (1893) 2 Q.B. 113 and In re Hewett; Ex parte Levene (1895) 1 Q.B. 328 at 332. In Nagasubramania Mudaliar v. Krishnamachariar (1927) 53 M.L.J. 403 : I.L.R. 50 Mad. 981, Odgers and Venkatasubba Rao, JJ., took the view that where a decree has been passed against a person as the legal representative of another (in that case the decree was against the son for the debt of his deceased father to the extent of the assets in his hands) he could not be adjudged insolvent unless a personal decree was obtained under Section 52 of the Code of Civil Procedure. Venkatasubba Rao, J., in the course of the judgment remarked thus: The proposition that any person who happens to be a debtor in his representative capacity is liable to be adjudicated an insolvent, cannot be seriously argued, for in that case any executor or administrator may be so adjudicated by reason of his occupying that limited capacity.
13. Then he concluded as follows:
If the debts could not be personally enforced the debtor could not be. adjudicated an insolvent.
14. A similar view was taken in English cases, namely, that if the debtor could not be called upon personally to pay, bankruptcy notice cannot be issued. ( Vide In re Hewett : Ex parte Levene (1895) 1 Q.B. 328 at 332.) This position is canvassed by Mr. Rajah Aiyar for the appellant (Chokkafingam Chetti) and he went to the length of contending 1jiat the view taken in Nagasubramania Mudaliar v. Krishntonachariar (1927) 53 M.L.J. 403 : I.L.R. 50 Mad. 981 is wrong but it seems to us that it is not necessary to deal with this contention because a debt, though it may not be made the foundation for an order of adjudication, may still be a debt provable in insolvency. In other words, though a personal liability is a necessary foundation for an order of adjudication, it is not a necessary condition for a debt provable in insolvency. It is enough if there is a ' proprietary liability' to use the language of Lord Bown, in Scott v. Morley (1887) 20 Q.B. 120 , that is, a liability in respect of property. Under Section 46 of the Presidency Towns Insolvency Act, 1883, which is word for word, Section 37 of the English Bankruptcy Act of 1883: All debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is adjudged an insolvent, or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable in issolvency.
15. What is therefore required is there must be a debt or liability to which the debtor was subject on the date of the receiving order or order of adjudication. 'Subject' means 'liable', that is, liable personally or in respect of property. Therefore if the debtor is liable to pay a debt or satisfy a liability from and out of the property in his hands, it would be a provable debt in insolvency. In re O'Gorman : Ex parte Bale (1899) 2 Q.B. 62 Wright, J., held that the damages awarded to a petitioner in a Divorce Court against a co-respondent, though they will not support a bankruptcy petition against the co-respondent, are nevertheless a debt provable in insolvency. The same view was taken in The Official Receiver, Tinnevelly v. Krishna Pillai (1935) 69 M.L.J. 818, unreported judgment of 4th May, 1938, in Applications Nos. 294 and 295 of 1938 in C.S. No. 79 of 1936, High Court by Beasley, C.J. Therefore if on the date of the order of adjudication the insolvents were under a liability to pay a debt from and out of the joint family property in their hands or from and out of the separate property inherited by them from their father, such a liability would be a debt provable in insolvency. We understand that our learned brother Gentle, J., has taken the view that a father's debt can be proved in the insolvency of the son. (Vide Application Nos. 294 and 295 of 1938 in C.S. No. 79 of 1936.) We are therefore of opinion that the father's debt is provable in the insolvency of the son under Section 46 of the Presidency Towns Insolvency Act and that the application of Chokkalingam Chetti is competent. In this view the contention of Mr. T.M. Krishnaswami Aiyar that there should be a personal liability on the part of the son before a debt can be proved in insolvency must be negatived.
16. The next contention of Mr. Krishnaswami Aiyar is that assuming that the father's debt can be proved in the son's insolvency, in this case the joint family property which vested in the Official Assignee on the order of adjudication could not be deemed to be assets against which Chokkalingam Chetti could have any right. The contention is that the debts were incurred in Ceylon where the Roman-Dutch Law prevails and that that law does not recognise the theory of pious obligation and therefore the debt could not be enforced against the sons. Further, Chokkalingam Chetti's father, having elected to obtain a decree against the administrators of the "estate of the insolvents' father, could not now seek to recover anymonies from and out of the joint family properties in the hands of the sons as the assets of the father available for the payment of his debt. The contention of Mr. Rajah Aiyar is that the Roman-Dutch Law must be treated as applicable only with reference to immovable property situated in Ceylon and cannot apply to any movable property left by the deceased either in Ceylon or in British India, that any creditor, foreign or British Indian, can realise his debt from and out of such property which can be made available for the payment of the debt and therefore the remedies available to a foreign creditor for realising the debt from and out of the property of a deceased which is situated in British India are not taken away by the Roman-Dutch Law. It seems to us that it is unnecessary to go into the contentions based on the Roman-Dutch Law in the view we take of the consent decree passed by the District Court of Colombo. Though the decree was passed against the administrators who were administering the assets in Ceylon, still a creditor will be entitled to come and claim in the administration of the assets in British India from the administrator who would be functioning in British India. In the light of this principle the consent decree that has been passed by the Supreme Court of Ceylon must be considered. The first portion of the compromise is that Chokkalingam Chetti should share pro fata with all the other, creditors the assets of the deceased. Prima facie that would apply to the assets of the' deceased in Ceylon. The next portion of the compromise decree is that he is entitled to proceed for the recovery of any balance that may be due to him from the assets that may exist out of Ceylon. On the date of that order the assets of the deceased out of Ceylon must be said to have been in the hands of the Official Assignee whether as the administrator of the estate of Somasundara or as Official Assignee in the insolvency of the sons of Somasundara. If the agreement is deemed to relate to assets in the hands pf the Official Assignee as administrator of British India assets by virtue of the grant of letters of administration to him in this Court, it means that the right of Chokkalingam Chetti to prove in the administration here is recognised, that is, he will be entitled of recover pro rata from the assets of the father in the hands of the administrator, the Official Assignee. In this connection it must not be forgotten that when the Official Assignee made an application to this Court for letters of administration with the wills annexed of Somasundara, he appeared to treat the joint family properties in the hands of the insolvents as the assets of Somasundara. In the affidavit filed by him in this Court dated the 19th December, 1928, he deposed as follows:
So far as I am able to gather, the position of the estate of the late Ar. Ar. Sm. Somasundaram Chettiar is this. The assets that were in the hands of the insolvents at the time of their adjudication aggregate to Rs. 60,08,399-7-8 in British India and Burma, Rs. 4,74,807-15-9 in Colombo and Rs. 7,17,067-4-0 in Jaffna, thus totalling Rs. 72,00,274-11-5.
As against the said assets, according to the account books of the insolvents and according to their valuation, the liabilities amount to as follows: - Rs. 54,71,782-5-2 in India and Burma, Rs. 17,65,846-0-10 in Colombo and Rs. 3,78,065-6-0 in Jaffna, thus totalling Rs. 76,15,693-12-0.
The above is an estimate as per the insolvents' schedule. Whatever that may be, the said estate of Ar. Ar. Sm. Somasundaram Chettiar is insolvent and I have so far declared a dividend of an anna in the rupee and I am declared a further dividend of two or three annas. I therefore state that for the purpose of the above petition the net assets are nil.
17. It is clear from this that he purported to treat the property which vested in him by virtue of the order of adjudication in the insolvency of the sons as the assets of Somasundara, that is, not only the joint family property but also the separate property of the sons is treated as the assets of the father. Whether the Official Assignee was in law right in so treating such assets is another matter. The fact remains that he was not administering such assets as the administrator of the father because before any grant was made to him in the testamentary matter such property vested in him by virtue of the provisions of the insolvency law and he was only administering such assets in the capacity of Official Assignee. Therefore the question arises whether "assets" in the compromise petition should not be understood as meaning assets in the hands of the Official Assignee in insolvency. It may be contended that the power of Messrs. Harding and Thornton to settle any debt could tently be in their capacity as administrators and that any compromise arrived at by them beyond the scope of the power conferred upon them may not be binding upon the Official Assignee in his capacity as Assignee or upon the creditors of the sons in the insolvency of the sons. But it seems to us that the letters of administration were obtained both here and in the Ceylon Court by the Official Assignee not only as representing the insolvents but also the creditors of the insolvents in his capacity as Official Assignee, and no distinction was made by him between the father's assets and his liabilities and the sons' assets and liabilities. Further he must be deemed to have been a party to the compromise because he was a party to the proceeding in the Supreme Court which resulted in the compromise. It is hardly likely that without reference to him any compromise was entered into. Therefore it must have been the understanding between the parties, that after getting such amount as he could get from the assets in the Jaffna Court, the claimant Chokkalingam Chetti should be allowed to proceed to recover the balance from the British Indian assets in the hands of the Official Assignee in whatever capacity he might hold them. If this was the understanding, it could only be on the footing that Chokkalingam Chetti should share pro rata with all the creditors who are entitled to participate in the assets in the hands of the Official Assignee without any preference. The word 'proceed' can only be understood in the light of the circumstances then existing as referable to a claim to be made before the Official Assignee. In the light of these facts one can understand the concession alleged to have been made by the Official Assignee before Wadsworth, J. and we are not. inclined to accept that the concession was only confined to the separate assets. Whether the Official Assignee and his agents were within their powers to enter into such a compromise so as to bind the son's creditors in the insolvency of the sons is another matter; but what we have to decide is whether the Official Assignee has agreed to the terms of the compromise in the Supreme Court and thus agreed to Chokkalingam Chetti proving in the insolvency of the sons. On the evidence on record we hold that he did agree. In this view the concession alleged to have been made by the Official Assignee may be understood. The decree certainly does not bear the interpretation which the concession of the Official Assignee as stated by our learned brother Wadsworth, J., seems to suggest. The concession warrants the inference that he agreed to Chokkalinga proving his claim before him and sharing in the assets being administered by him. Therefore in the circumstances of this case, Chokkalingam Chetti must be allowed to prove for the balance of the debt, after crediting the amount realised by him in the Jaffna administration, in the insolvency of the sons.
18. Now we shall deal with the question of priority. In the view we have already expressed of the terms of the compromise arrived at between Chokkalinga and the administrators in Ceylon and the Official Assignee, it would not be open to Chokkalinga Chetti to contend that he ought to be given a priority over the other creditors. The understanding seems to us to be that he should share pro rata along with other creditors entitled to share in the insolvency of the sons. Having regard to the first portion of the compromise where pro rata distribution was agreed to, it must also be taken that the understanding between the parties then was that pro rata distribution was the foundation and essence of the agreement irrespective of the fact against which assets the applicant would be entitled to put forward his claim for the recovery of the amount due.
19. Apart from the compromise, the question is whether as a matter of law Chokkalingam Chetti is entitled to claim priority on the ground that he was the father's creditor and was therefore entitled to be paid in preference to the creditors of the sons in the insolvency of the sons from and out of the separate property of the father which devolved on the sons by inheritance and from and out of the joint family properties which vested in the sons by survivorship.
20. The separate property in British India left by the father was the business in Rangoon and its assets The rest of the properties were owned by the father and sons as joint family property. It was the contention of Mr. T.M. Krishnaswami Aiyar on behalf of the Official Assignee that the father died heavily indebted and that the sons discharged a major portion of the father's debts before they became insolvents, so that on the date of the insolvency no property of the father was available for payment to any creditor who was not paid and that an account should be directed on the debts which the sons discharged for ascertaining from what assets the claimant could get his claim satisfied.
21. In regard to the separate property of the father inherited by the sons there is no difference between the nature of the obligations imposed on them and any other heir inheriting the property from his ancestor. The heir would take the property subject to the obligation of paying his ancestor's debts and in so far as he is unable to satisfy that he has applied the property in discharge of the ancestor's debts, he will be personally liable. The theory is that he takes only the residue after payment of the debts. Kazim Ali v. Sadiq Ali and Fakhr Jahan Begum v. Sadiq Ali (1938) 2 M.L.J. 210 : L.R. 65 I.A. 219 : I.L.R. 13 Luck. 494 at 502 (P.C.). But the debts do not form a charge on the Estate so that if the heir alienates it to a bona fide purchaser for value or if a creditor of the heir seizes and sells it, the ancestor's creditor cannot reach it. So far as the Hindu Law is concerned, this principle is undoubted. It was thus stated in a very early case: We do not find nor can the pleader show us from any text of Hindu Law, that the property of a deceased person is so hypothecated for his debts, as to prevent his heir from disposing of it to a third party or to allow a creditor to follow it and take it out of the hands of a third party who has purchased in good faith and for valuable consideration. The creditor may hold the heir personally liable for the debt if he has alienated the property but he cannot, we think, follow the property." Unnopoorna Dassea v. Gunga Narain Paul (1865) 2 W.R. 296.
22. Thus there is nothing to prevent a creditor of the son getting satisfaction out of the father's property which devolved on the son. Therefore questions have arisen both under Section 73, Civil Procedure Code and the law of insolvency in regard to the preferential claims of a father's creditor. Where there was a decree against a son as a legal representative of his father and also a decree obtained against the son personally by a creditor of his, our High Court took the view that the holders of both decrees are entitled to share rateably Vadlamany Venkatesam v. Mangipudi Visvanathan (1917) M.W.N. 859, though a different view has been taken by the Allahabad High Court, Bhola Nath v. Maqbul-un-nissa (1903) I.L.R. 26 All. 28. In Gade Lakshmi Narasimham v. Pillalamarri Jagannadha Rao (1915) 30 I.C. 256, under the law of insolvency Oldfield and Sadasiva Aiyar, JJ., took the view that a father's creditor must only share rateably with a creditor of the son. But a different view was taken in Shankar Lai v. Muhammad Ismail A.I.R. 30 I.C. 256, where an ancestor's creditor was held to have priority over the creditor of the heir. Mr. Rajah Aiyar laid considerable emphasis on the later decision. In that case the parties were governed by Muhammadan Law and the learned Judges took the view that under that law a creditor of a deceased Muhammadan has a general charge upon the assets left by the deceased and that it partakes of the nature of an equitable lien, so that in effect he becomes a secured creditor in the insolvency of the heir. How far this view is tenable under the Muhammadan Law is open to doubt, but at any rate it is not the Hindu Law. Even with reference to Muhammadan Law our High Court has adopted the view that no such charge exists and that the creditor of the deceased is not a secured creditor but must share rateably along With the creditors of the heir. (Vide the observations of Odgers and Madhavan Nair, JJ., in Nainar Rowthen v. Kuppai Pichai Rozvthen A.I.R. 1929 Mad. 609 at 610 and 611.) The learned Judges followed the decision of Oldfield and Sadasiva Aiyar, JJ., decided with reference to the Hindu Law and reported in Gade Lakshmi Narasimham v. Pillalamarri Jagannadha Row (1915) 30 I.C. 256. In that case a creditor of a Hindu father obtained a decree against his sons for an amount payable by them from and out of the assets of the father in their hands. Before any proceedings were taken to realise the money, the sons became insolvents and the entire property owned by them including the property which once belonged to their father vested in the Official Receiver. Subsequently the creditor who had obtained the decree wanted to attach the said property in the hands of the Official Receiver. It was contended on the creditor's behalf that he being a creditor of the father was entitled to attach and sell the property and that the son's insolvency could not affect him. Dealing with this contention the learned Judges remarked: The property of a deceased Hindu is not so hypothecated for his debt as to prevent his heir disposing of it or to allow a creditor to follow it in the hands of a third party. There is therefore no question of respondent's right to a lien or charge on Balarama Doss's (the ancestor) property in the first and seventh defendants' (the sons) hands or in those of the Official Receiver who derived it from them - Balarama Doss's estates must accordingly be treated as having vested in the Official Receiver like the first and seventh defendants' other assets and as being immune from execution proceedings under Section 16(2) of the Provincial Insolvency Act, respondents being left to prove their debts like other unsecured creditors,
that is, just like any other unsecured creditor of the sons. The view is, as we shall presently show, in strict accordance with the provisions of the Insolvency Acts both Provincial and Presidency. This principle if adopted with reference to the separate property of the father devolving on his sons would apply with greater force to the joint family property which has devolved on the son by survivorship. Under the Mitakshara law by which the parties in this case are governed, the. cardinal principle is that the ownership of the father and the son is equal in every item of joint family property possessed by them. The son has by birth an interest in the said property and he can deal with and dispose of it for value. On the death of the father his interest in the property becomes augmented, but the nature of the rights possessed by him as owner thereof remains unchanged. No doubt the interest of the son during his father's lifetime is liable to be dealt with by the father or seized by a father's creditor for the satisfaction of the father's debt because by virtue of his relationship the Hindu Law casts upon the son a pious obligation to discharge his father's debts but it is not a personal liability and is only incidental to the property. So long as such property remains in the hands of the son, the same obligation continues even after the death of the father. The son who was owner of an undivided share during the lifetime of his father becomes on the latter's death the sole owner of the whole and not merely of the net residue of the property after deduction of the debts as in the case of inherited property. There can be therefore no question that the property is the individual property of the son and a creditor of his can set satisfaction of the debt from the entire property possessed by the son, that is, his interest in the joint family property after it has been augmented by the death of the father. If such a creditor therefore in execution of a decree seized that property and got it sold, the alienee would get a complete title and it would not be open to any creditor of the father to come and say that the alienee is liable to pay his debt. It cannot be contended that there is any charge on the joint family property for the father's debt in the sense that it is hypothecated for the debt so as to make a father's creditor a secured creditor. The pious obligation does not fasten any such charge on the property so that he who takes the property takes it subject to that charge. It is one thing to say that a son is under an obligation to discharge the debt; it is quite another to assert that the property is charged in the sense that it is hypothecated for the debt. Where after the father's death the son becomes the sole owner of the property and the creditor becomes entitled to get satisfaction from it, it seems to us on principle that no distinction can be drawn between a father's creditor and a son's creditor. It is sufficient for our present purposes to note that neither during the father's lifetime nor after his death the son's interest in the joint family property can be said to be charged for the father's debt. Mr. Rajah Aiyar relied upon certain authorities for the position that the father's debts constitute a charge upon the inheritance and relied on the following passage in Mayne's Hindu Law: A father's debts are a first charge upon the inheritance and must be paid in full before there can be any surplus for the division.(Para. 339.)
23. He also relied upon the decision in Venku Reddi v. Venku Reddi (1926) 52 M.L.J. 387 : I.L.R. 50 Mad. 535 (F.B.), for the position that before partition can be effected the father's debts must be provided for and only the residue after making such provision can be divided. But neither the passage in Mayne's Hindu Law, nor the decision in Venku Reddi v. Venku Reddi (1926) 52 M.L.J. 387 : I.L.R. 50 Mad. 535 (F.B.) supports the contention of Mr. Rajah Aiyar. It is no doubt true that before a partition of joint family prop$ty can be effected, the obligations imposed by law on all the members must be provided for and one of such obligations relates to the father's debts. The theory is that if it were not so done the father would continue to be a debtor and it is incumbent upon the sons to see that he does not and thus save his soul from unhappiness in the next world. This is what Narada says: What remains of the paternal estate after paying off the debts of the father shall be divided among the brothers. Otherwise the father continues a debtor." (Vyavasta Chandrika, Vol. 1, p. 238.)
24. It is in this sense of obligation that the word 'charge' is used in the passage in Mayne's Hindu Law and not in the sense of the properties being hypothecated for the debt. It is one thing to say that before partition the debts of the father shall be provided for and it is another thing to say that when the son becomes the sole owner on the father's death entitled to dispose of the property as his own, there is any restriction imposed on his powers for disposing it for his own debts though he is equally under an obligation to satisfy the demand of his father's creditors. Again the obligation imposed by the Hindu Law being incidental to the property so long as the property remains in the hands of the son the property cannot escape liability, whether there is a charge or No. But once the property has been alienated to a bona fide alienee, the obligation cannot be pursued against the property. It seems to us that the same principle would apply where the son is divested of his ownership therein by operation of law. Bankruptcy is an involuntary alienation and by the provisions of the insolvency law there is a statutory conveyance or alienation of the said property in favour of the Official Assignee in trust for the creditors for distribution among them according to the provisions of the said law. Having regard to these principles the question of priority has to be viewed. Under Section 52(2) of the Presidency Towns Insolvency Act all property as may belong to or be vested in the insolvent at the commencement of the insolvency will vest in the Official Assignee. The principle is the same under the Provincial Insolvency Act and under the English Law. It cannot be denied that the separate property of the father devolving on the son and the joint family property owned by the son at the date of the insolvency, which has been augmented by the father's share devolving upon the son by survivorship on account of the father's death before the date of the insolvency, will be property which belonged to the insolvent. But once that property vests in the Official Assignee, "it would have to be governed by the provisions of the Insolvency law. One of the provisions of that law is Section 49(5) which provides that subject to the provisions of the Act all debts proved in insolvency shall be paid rateably according to the mounts of such debts respectively and without any preference. Of course under Section 49 certain unsecured debts have to be paid in priority and it is in respect of them that a preference is accorded by the Act. The insolvency law is a special law having for its object the distribution of the insolvent's available assets among his creditors pro rata. The father's debt is not one to which a right of priority is given by the Act. The Official Assignee can only administer the assets and distribute them in accordance with the provisions of the Act. If a father's creditor chooses to prove in the insolvency of the, son as a provable debt of the son, he must submit himself to the provisions of the Act which does not recognise any priority in his favour. In a recent decision reported in Thimmiah v. Official Receiver, Bellary (1939) 1 M.L.J. 158, our learned brother Abdur Rahman, J,, took this view and held that the unrealised debts of the father and the debts of the son stood on the same footing and that a father's creditor would not got priority over the son's creditor. In the course of the judgment the learned Judge observed thus: If one looks to the provisions contained in Section 61 of the Provincial Insolvency Act, it would be found to provide in Sub-clause 5 that all debts entered in the schedule have to be paid rateably according to the an fount of such debts without any preference except to those which have been otherwise specified by the Provinc Insolvency Act...The learned counsel for the petitioner has not been able to point to any provision in the Provincial Insolvency Act under which he could claim priority for the debt in question and so far as proceedings in insolvency are concerned, the petitioner, as provided in Sub- 5, share rateably without any preference. It is obviously the policy of the insolvency law to distribute the estate among the creditors fairly and unless a preference was given by the Act to any particular debt, it must necessarily be held to fall within the sub-
and no priority can legitimately be claimed in regard to the same. Viewed in the light of this section the unrealised simple debts of the father and that of the son would stand on the same footing.
26. If we may say so with respect we think that this view is sound. The learned Judges of the Allahabad High Court in Shankar Lai v. Muhammad Ismail A.I.R. 1930 All. 552, on which Mr. Rajah Aiyar relied would seem to support their decision as to priority on Section 4 of the Provincial Insolvency Act. We are unable to understand how it can be done because that section itself says "subject to the provisions of this Act." Section 49 is one such provision. So long as a debt is not a charge upon a particular property and the obligation to pay the debt out of a particular property is imposed on the owner personally, an obligation which is not transmissible to his alienee except when the alienation is not in good faith, it cannot be said that the Official Assignee who is a statutory alienee of the property can be bound by any such obligation. Such priority if any must be deemed to have been abrogated by the provisions of the Insolvency Act. We are therefore of opinion that the contention of Mr. Rajah Aiyar that his client must be paid in preference to the creditors of the sons must be overruled.
27. The next question relates to the contention raised by Mr. Krishnaswami Aiyar that an account should be directed in regard to the question of separate assets and joint family properties available to satisfy the claim of the said Chokkalingam Chetti. Though this question was argued before our learned brother Wadsworth, J., it was not raised in any of the reports of the Official Assignee, nor did he allege and prove the facts to enable the Court to pronounce an opinion thereon. We therefore do not propose to go into it. Further, in the view we have taken of the scope of the compromise decree and Chokkalingam Chetti's right to priority, this question does not arise.
28 There remains only the question relating to interest. The contention of Mr. Krishnaswami Aiyar on behalf of the Official Assignee is that from the date of the insolvency of the sons the claimaint is not entitled to claim any interest. It is conceded by Mr. Rajah Aiyar that if the provisions of the Insolvency Act were to be applied, his client would not be entitled to interest. But what Mr. Rajah Aiyar says is that under the compromise it was stipulated that his client should get the balance of the amount under the decree in the Colombo District Court after giving credit to the amounts received by him in the Jaffna Court and therefore it was agreed that he should get interest on the decree amount. We are not inclined to agree with him in this contention. As we have already remarked, what was agreed to by the Official Assignee was that Mr. Rajah Aiyar's client could prove his claim before him. The amount payable in respect thereof must be subject to the provisions of the Insolvency law by which the Official Assignee is governed and it is not open to him to disregard the provisions of the Act and consent to anything which is contrary to the Act. We must therefore hold that interest on the claimant's debt will cease from the date of the adjudication of the sons.
29. In the result, we confirm the decree of our learned brother Wadsworth, J., subject to the modification as to interest as declared above and dismiss both the appeals with costs.
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