The learned Assistant Judge considered that the petitioning creditor sues on behalf of the general body of creditors and, therefore, in a sense every creditor is a party to the proceedings and that under Order IX, Rule 9, any party to the proceeding can ask for a petition dismissed for default being restored to file. But Order IX, Rule 9, refers specifically to the plaintiff who has to satisfy the Court that he has sufficient cause for non-appearance, and it is doubtful whether it was competent to the shop of Laxminarayan Sitaram to apply under Order IX, Rule 9, for a revival of the petition.
7. But the question still remains whether the Court did not have inherent jurisdiction to restore the application to file at the instance of one of the creditors. Under Section 151 of the Civil Procedure Code the Court has inherent powers to make such orders as may be necessary for the ends of justice and to prevent abuse of the process of the Court. In my opinion the ends of justice do require in the peculiar circumstances of this case that the application should be restored to file, and that, therefore, the two lower Courts were right in passing the order that they did.
IN THE HIGH COURT OF BOMBAY
Civil Revision Application No. 87 of 1944
Decided On: 17.11.1944
Keshav Appa Bhagat Vs. Sitaram Hanumandas
Hon'ble Judges/Coram:
G.S. Rajadhyaksha, J.
Citation:1944 SCCONLINE 79: AIR 1946 Bom 20:MANU/MH/0133/1944
1. This is an application in revision against an order passed by the Assistant Judge of Poona in Miscellaneous Appeal No. 39 of 1942 confirming the order passed by the First Class Subordinate Judge of Poona restoring to file insolvency petition No. 45 of 1938 which had been dismissed for default. The facts of this case are these:
2. Some four creditors filed a petition in insolvency on May 25, 1938, in the Court of the First Class Subordinate Judge at Poona against the present applicant who is one of the owners of the shop going by the name of Bhujangrao Sadashiv Bhagat The petition remained pending for over three years, and on September 15, 1941. the pleaders for the petitioners stated by exhibits 103 and 104 that they had no directions to continue the proceedings. But on the very next day, i.e. on September 16, 1941, two other creditors shops, viz. Laxminarayan Sitaram Shop and Rambhagat Paichandas Shop applied under Section 16 of the Provincial Insolvency Act to be substituted in the place of the petitioning creditors on the ground that the original petitioners were not prosecuting the petition with due diligence. The application was opposed on the ground that it had not been properly verified and presented. The Court dismissed the application for substitution but directed the two creditors to present a new application within a week. This order was passed on September 17, 1941, and on the next day one of the two creditors asking for substitution, i.e. the shop of Rambhagat Paichandas filed a proper application for substitution. The application was granted on February 22, 1942, and the name of the shop of Rambhagat Paichandas was brought on record as the 'petitioning creditor. Then the petition continued until June 26, 1942. On that day persons representing the shop of Rambhagat Paichandas remained absent. Their pleaders also remained absent and accordingly on that very day the learned Judge proceeded to pass an order dismissing for default the petition in insolvency. The receiver who had sold certain properties and collected money was also directed to return the property to the original opponent, i.e. the present applicant. But on the very next day the shop of Laxminarayan Sitaram presented an application purporting to be an application Under Section 16 of the Provincial Insolvency Act requesting the Court to restore the insolvency petition to file and to substitute its name as the petitioning creditor. It was alleged that the shop of Rambhagat Paichandas had not prosecuted the petition with due diligence and had remained absent on the day of the hearing, and that as a result of this other creditors had suffered irreparable damage. This application was opposed by the opponent on the ground that as the original petition had already been dismissed for default there was no petition pending and that, therefore, the shop of Laxminarayan, Sitaram could not ask for its name being substituted as a petitioning creditor Under Section 16 of the Provincial Insolvency Act. It was further contended that the original petitioning creditor whose name had been brought on record by way of substitution, viz. Rambhagat Paichandas, had no) made any application for restoring the petition to file and that there was not any sufficient cause alleged for restoring to file the original petition. The learned trial Judge, however, thought that the application that was made was not only for substitution under Section 16 of the Provincial Insolvency Act but also for restoring the original petition to file. He considered that the other creditors had not been given any opportunity to proceed with the application before it was dismissed. Under these circumstances he thought it fit to set aside the order dismissing the insolvency petition and he, therefore, directed that the petition be restored to file.
3. Against that order an appeal was filed in the District Court of Poona and the learned Assistant Judge who heard the appeal thought that the Court had inherent jurisdiction under Section 151 of the Civil Procedure Code to restore the petition to file. He considered that although the application had been made by a person who was not a petitioning creditor when the petition was dismissed, still it was made by one of the creditors whose name had been entered in the list of creditors and that he could be considered to be a party to the proceedings and could therefore, apply Under Order IX, Rule 9, of the Civil Procedure Code. He was of opinion that in the interests of justice the lower Court had acted rightly in setting aside the order dismissing the petition for default and in restoring the petition to file. He, therefore, confirmed the order of the lower Court and dismissed the appeal with costs. It is against that order that this application has been filed in revision.
4. The first argument that was advanced by the learned advocate Mr. Gumaste was that under Section 16 of the Provincial Insolvency Act there can be no prayer for substitution in a proceeding which has already come to an end by reason of the petition being dismissed for default. In my opinion, this contention has some substance and is supported by the ruling of the Rangoon High Court in the case of Maung Gyi v. A.L.K.P. Chettyar Firm I.L.R (1933) Ran. 407 In that case the petitioning creditor came to some kind of an agreement with the debtor which was intimated to the Court, and on this intimation the petition was dismissed. Some months later another creditor asked to be substituted for the original petitioning creditors. The application was opposed on the ground that the original petition having been dismissed, the second petitioning creditors had no locus standi for making an application for substitution. The Rangoon High Court upheld this contention and observed as follows (p. 409):
A person cannot proceed with due diligence in any proceedings that have come to an end and although, as far as we can see, there is no direct case-law on this point, we are of the opinion that the meaning of the section is, quite clear. The only course open to the respondents to this appeal is to launch a fresh petition.
5. It has to be noticed, however, that in that case it was several months after the original petition was dismissed that an application was made under Section 16 of the Provincial Insolvency Act. Moreover, that application was made only under that section and did not ask for the original petition being revived. Further, in that case the original order dismissing the petition was passed after an intimation had been given to the Court of a certain agreement which had been arrived at between the petitioning creditor and the debtor. It was not passed for default in the appearance of the petitioning creditor.
6. However, the position that an application under Section 16 of the Provincial Insolvency Act could not be made when the original petition had already been dismissed was apparently realised in the present instance and, therefore, in the application that was made on June 27, 1942, by the Shop of Laxminarayan Sitaram, not only was there a prayer for substitution but it was prayed that the original petition may, in the first instances be restored to file. But the contention of the learned advocate Mr. Gumaste is that such an, application for restoring the dismissed petition to file can only be made Under Order IX, Rule 9, of the Civil Procedure Code, and hence it is only the plaintiff the present instance the original petitioning creditor who can apply for the petition being restored to file provided he can show sufficient cause for non-appearance when the petition was called on for hearing. There is, in my opinion, some force in this contention. The learned Assistant Judge considered that the petitioning creditor sues on behalf of the general body of creditors and, therefore, in a sense every creditor is a party to the proceedings and that under Order IX, Rule 9, any party to the proceeding can ask for a petition dismissed for default being restored to file. But Order IX, Rule 9, refers specifically to the plaintiff who has to satisfy the Court that he has sufficient cause for non-appearance, and it is doubtful whether it was competent to the shop of Laxminarayan Sitaram to apply under Order IX, Rule 9, for a revival of the petition.
7. But the question still remains whether the Court did not have inherent jurisdiction to restore the application to file at the instance of one of the creditors. Under Section 151 of the Civil Procedure Code the Court has inherent powers to make such orders as may be necessary for the ends of justice and to prevent abuse of the process of the Court. In my opinion the ends of justice do require in the peculiar circumstances of this case that the application should be restored to file, and that, therefore, the two lower Courts were right in passing the order that they did.
8. If the application for restoring the original petition to file was dismissed and the original order dismissing the petition stood good, then a fresh petition in insolvency would have had to be filed. In such fresh petition, a fresh act of insolvency would require to be alleged and proved as under Section 9 (1)(c) of the Provincial Insolvency Act, "the act of insolvency on which the petition is grounded must occur within three months before the presentation of the petition." The act of insolvency on the basis of which the original petition was filed would not be of any avail for the filing of a fresh petition though that act would be sufficient for the purpose of asking for substitution under Section 16 of the Provincial Insolvency Act, as held by Ramesam J., in Venkata Hanumantha Rao v. Gangayya I.L.R (1928) Mad. 594. But there is a more serious difficulty which would arise if the original petition was not restored to file. If the original petition had proceeded as far as adjudication, then under Section 28(7) of the Provincial Insolvency Act, the order of adjudication would have related back to, the date of the presentation of the petition. In that event under Section 34 of the Act all debts which were not barred on the date of the presentation of the petition could be proved in insolvency. In the present' case the original petition was filed in May 1938 and was dismissed for default in July 1942. Many debts owed to the various creditors may have been time-barred during the interval and could not now be proved in insolvency if a fresh petition was to be made. It was this consideration that weighed with the Madras High Court in the case of Venkata Hanumantha Rao v. Gangayya. In that case a creditor whose debt was barred at the time of asking for substitution was allowed to be treated as a creditor for the purpose of Section 16, and in the course of the judgment Ramesam J. made the following observations (p. 596):
The object of the section is to prevent other creditors from being injured by the action of one creditor, who, by reason of collusion or otherwise, may not diligently prosecute the petition. If it is to be regarded as a new petition, this object is frustrated and there is no purpose in having a section of the kind. If the original petition had proceeded up to adjudication or if another creditor whose debt is not barred by the date of substitution is substituted and obtained an order of adjudication, the appellant's debt which was not barred by the date of the petition could be proved. If so, we see no reason why he cannot be substituted. The words ' as petitioner' in the section show that, on substitution, the petition becomes his petition with the original date and it is enough if the debt was an en-forcible debt on the original date.
It might be argued that other creditors should not have allowed their debts to be time-barred merely on the off-chance of there being an order of adjudication which might relate back to the date of filing the petition. But it has to be remembered that in an application in insolvency the Court has got certain responsibilities. Under Section 14 of the Act "no petition whether presented by a debtor or by a creditor, shall be withdrawn without the leave of the Court". As pointed out in the commentary on that section by Rameshwar Dial in his book on the Provincial Insolvency Act.
the petition once presented, the petitioner is no longer in unfettered control of it. The insolvency proceedings are for the administration of the estate of the debtor, for the benefit of not any particular creditor but for the general body of creditors. Very often petitions are made not with the bona fide intention of getting the debtor's estate administered under the insolvency laws but for the collateral purpose of bringing pressure to bear upon the debtor. It is to check this abuse of the process of the Court that the section has been enacted
Similarly Section 16 makes a special provision which enables another creditor to be substituted when the original petitioner does not proceed with due diligence on his petition. The object is to serve as a check on the fraud of either the debtor or the creditor who has presented the application for insolvency. It is not difficult to imagine the case of a creditor, who has presented the application for insolvency against the debtor, having entered into a private treaty with his debtor, not prosecuting his application with diligence and allowing it to be struck off for default. The creditor presenting the petition is regarded as prosecuting the petition not only for his own benefit but also for the benefit of the creditors generally. It would be an easy way of circumventing the statutory provision contained in Section 14 of the Act, if the petitioning creditor was allowed to let the application be dismissed for default when he could not be allowed to withdraw it without the permission of the Court. In cases such as these, I think, it is desirable that the Court before making an order of dismissal should wait for some time especially as Section 16 provides a special procedure which enables any creditor to have his name brought on record as a petitioner if the original petitioner does not proceed with due diligence on his petition, It is not necessary that the Court should wait indefinitely before passing an order dismissing the application for default. But some intimation by way of a notice on the Court's notice-board that in the absence of any further steps being taken to continue the proceedings, the application would be dismissed on a particular date should be given to the parties interested. Of course, if the application is dismissed on merits and no order of adjudication is eventually made, then the creditors who allowed their debts to be time-barred would have no one else to blame but themselves. But in the present case the application was dismissed for default after it had been pending for four years. There was a very large list of creditors. As soon as it was found that the original four petitioning creditors did not appear, two other creditors immediately came forward and asked for substitution. One of them eventually did apply to be substituted ; but on the day of hearing he remained absent and on that very day the learned Judge, apparently without considering the effect of it, proceeded to make an order dismissing the petition and even directed that the property in the hands of the receiver be returned to the opponent. But on the very next day the present application was made for restoring the original petition to file. I think, therefore, that it was in the interests of justice that the original order dismissing the petition for default should be set aside and the petition restored to file. I, therefore, think that both the lower Courts rightly held that under the inherent jurisdiction of the Court, the original application should be revived. The rule will, therefore, be discharged and there will be no order as to costs.
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