THE HON'BLE Dr.AR.LAKSHMANAN, CHIEF JUSTICE THE HON'BLE SRI JUSTICE GOPALAKRISHNA TAMADA
C.M.S.A. NO.8 of 1992
23-04-2002
Dasari Sridhari Rao.
Talluri Harinadha Babu
Counsel for the Appellant: Mr. B.Adinarayana Rao.
Counsel for the Respondents: None appears.
:Judgment: (per the Hon'ble the Chief Justice Dr.AR.Lakshmanan)
Heard Sri B.Adinarayana Rao, Advocate for the appellant.
The respondent
herein filed I.P. No.6 of 1984 on the file of the Sub Court, Bapatla to declare
him as an insolvent.
The appellant herein who is one of the respondents-
creditors opposed the said application on the ground that the respondent is
guilty of suppression of facts as regards his assets and the insolvency
application was filed only to evade the rightful debts.
The Subordinate Judge,
Bapatla having recorded a finding that the respondent herein had suppressed his
assets and such failure would disentitle him to make an application and had
dismissed his application by an order dated 10.8.1987 relying upon the judgment
of a learned single Judge (LAKSHMAIAH.J.) of this Court in S.SIVA RAMA RAO V.
SURESH TRADING COMPANY1.
Aggrieved by the said judgment,
the respondent filed A.S. No.145 of 1987
on the file of the District Judge, Guntur who by judgment dated 19.6.1989 had
allowed the appeal holding that the suppression of assets would not disentitle
the Debtor to file an application and declared the respondent herein as an
insolvent relying upon the judgment of a learned single Judge of this Court
(GANGADHARA RAO.J.) in P.DHARMA RAO V. VATLURU COOPERATIVE BANK2.
It is against the said judgment of the learned District Judge, this Civil
Miscellaneous Second Appeal is filed and this Court while admitting the appeal
by orders dated 13.7.1992 directed the matter be listed before the Division
Bench in view of the conflict of opinions between two learned single Judges of
this Court and that is how the matter is posted before this Bench.
Under the Provincial Insolvency Act, 1920,
a debtor is entitled to make an
application to declare him as insolvent under Section 10 of the Act, if he
satisfies that he is unable to pay his debts and
1) his debts amount to five
hundred rupees, or
2) he is under arrest or imprisonment in execution of the
decree of any Court for payment of money; or
3. an order of attachment in
execution of such a decree has been made, and is subsisting, against his
property.
In this case, the schedule of creditors show that his debts exceeded
Rs.500/- and thus he is entitled to file the application.
Under Section 13,
the application filed by a debtor shall contain the particulars mentioned which
read thus:
13. Contents of the petition: 1) Every insolvency petition presented by a
debtor shall contain the following particulars, namely:-
a) xxx
b) xxx
c) xxx
d) xxx
e) the amount and particulars of all his property, together with
i) a specification of the value of all such property not consisting of money;
ii) the place or places at which such property is to be found; and
iii) a declaration of his willingness to place at the disposal of the Court all
such property save in so far as it excludes such particulars (not being his
books of accounts) as are exempted by Code of Civil Procedure, 1908, or by any
other enactment for the time being in force from liability to attachment and
sale in execution of decree.
xx
Thus, Section 13 (1)(e) of the Act imposes an obligation on the debtor making
the application, to furnish the particulars of all his property in his
application and as could be seen from the opening words of the Section which
mandates by the use of the expression 'Shall'.
Though mere use of the
expression 'shall' do not by itself is the determinative factor to decide
whether the provision is mandatory or directory,
having regard to the fact that
one of the questions in an insolvency application being that the debtor is
unable to pay his debts, could only be ascertained on prima facie view of the
fact that the value of the debts of the debtor exceeded his assets and as such
he is unable to discharge them and also in view of the fact that the assets of
the insolvent vest in the Court on making the order of adjudication under
Section 28 (2) of the Act, the prescription under Section 13 (1)(e) of the Act
is mandatory.
Under Section 25 of the Act, the Court is empowered to dismiss
the application if the Court is not satisfied of the debtor's right to present
the petition.
Thus, a cumulative reading of the above provisions makes it
clear without any ambiguity that the debtor shall show that he is unable to
discharge his debts and satisfy one of the conditions stipulated in Section 10
and on his furnishing all the information as is required by Section 13, he can
be adjudicated as an insolvent.If on the failure of the above, the
application is liable for rejection under Section 25 (2) of the Act.
As regards the conflict of opinion between the judgments referred to
above,
it is submitted by Sri Adinarayana Rao that the law laid down in the
decision of SIVARAMA RAO reported in 1977 (2) AnWR 462 is correct and it is in
accordance with the scheme and purport of the Act and the contra view taken in
the decision of P.DHARMA RAO reported in AIR 1978 AP 197 fails to take into
account the scheme of the Act and the mandatory language employed in Section 13
(1)(e) referred to above.
It is further submitted that the precedents relied on
by the learned Judge do not support the view that was taken.
The learned counsel in support of his contention relied few other
decisions.
The first in series is the decision in CHATRAPAT SINGH DURGAR V.
KHARAG SINGH LACHMIRAM3 wherein the Privy Council held:
The Provincial Insolvency Act entitles a debtor to an order of
adjudication when its conditions are satisfied. This does not depend on the
Court's discretion, but is a statutory right; and a debtor who brings himself
properly within the terms of the Act is not to be deprived of that right on so
treacherous a ground as an abuse of the process of the Court. Any
misconduct of a debtor is to be visited with its due consequences at the time of
the debtor's application for discharge and not on the initial proceeding.
It could be noticed from the above ratio laid down by the Privy Council
that a person is entitled to get himself declared as an insolvent only if he
satisfies the conditions specified. Thus the observations made by the learned
Judge had no application and further misconduct referred to therein is
subsequent to adjudication.
Similarly in NARAYANAPPA V. BHEEMAPPA4 a Division Bench of the Madras High
Court was concerned with the fact, where it was alleged, that certain debts were
not real.
It is in this context, the Court opined that the bonafide of the
insolvent would be tested when he comes up with an application for discharge.
Similar view was taken in SRIRANGACHARIAR V. NARASIMHA IYER5 wherein it
was observed:
Court has to satisfy itself
whether the debtor is unable to pay his debts
and if he has asserted or if his poverty cannot be converted into money the
statement of the debtor must be accepted as true unless the Court has reasons to
think that all his debts are fictitious debts and that he is making the
application with the ulterior motive.
Mere fact that the debtor has large
properties is no ground to hold that he is able to pay his debts.
The Court was concerned about the suppression of the assets by the
applicants and its effect on the insolvency application vis--vis Section 13
(1)(e) of the Act.
Thus, the conclusion reached in P.DHARMA RAO (supra) in our
opinion is incorrect and as such it needs to be declared as such.
In KUMARTHAL V. BALASUBRAMANIA GOUNDER6, the Madras High Court observed
that the Courts below did not consider the scope of Sections 10, 13 and 24 as
regards to the conditions to be satisfied for making an application.
Further,
the Court ruled that the applicant failed to make out a case for adjudication as
an insolvent by not complying with the requirements of Section 13 and reversed
the order.
Even if tested on the general principles of law, a person who is guilty of
suppression of facts is not entitled to get any relief. Where there is an
obligation to speak, a failure to speak will constitute the suppression of a
fact and it is expressed in the Latin Maxim "Supressio veri expressio falsi"
which means that suppression of the truth is equivalent to the expression of
falsehood. The oft- quoted expression that "he who comes to the Court must
come with clean hands" is squarely applicable to the facts of the case. The
said principle is embedded into the Statute by directing the applicant to state
the facts as mandated by Section 13 of the Act and failure will visit the
consequence of dismissal of the application under Section 25 (2) of the Act.
Thus, the long line of cases on suppression of facts disentitles the applicant
to seek intervention of the Court are not being adverted to.
In MARAPPA GOUNDER V. CENTRAL R.T. BOARD7 Rajagopalan.J. of the Madras High
Court was dealing with a writ petition in which rule nisi was obtained on the
basis of an affidavit suppressing the material facts and relevant facts. The
learned Judge held:
It is a well settled proposition of law that it is the duty of a person invoking
the special writ jurisdiction of a Court to make a full and true disclosure of
all relevant facts. He should not suppress any facts.An applicant for a
writ under Article 226 of the Constitution must come in the manner prescribed
and must be perfectly frank and open with the Court. If he makes a statement
which is false or conceals some thing which is relevant for the Court, the Court
will refuse to go into the matter. If the Court comes to the conclusion that
the affidavit in support of the application was not candid and did not fully
state the facts, but either suppress the material facts or stated them in such a
way as to mislead the Court as to the true facts, the Court ought, for its own
protection and to prevent an abuse of its process to refuse to proceed any
further with the examination of the merits.
The reason for the adoption of this rule is not to arm the applicant's opponent
with a weapon of technicality against the farmer, but to provide an essential
safeguard against the process of the Court.
Where the petitioner is clearly found to have suppressed material and relevant
facts which if brought to the notice of the court when applying for a rule nisi
should certainly have influenced the Court in deciding one way or the other and
such suppression was certainly calculated to deceive the Court into granting
the order of rule nisi, the petition should on that short ground be dismissed.
It is not enough to say that even had those facts been placed before the Court,
the court might first have issued the rule nisi pending a final adjudication.
If the facts are relevant, it is the duty of the applicant to have placed them
before the Court leaving it to the Court to decide whether it was a case where
the rule nisi that was asked for should issue. When that has not been done, the
High Court should decline to interfere in the exercise of its jurisdiction under
Article 226 of the Constitution.
The Court in an application for a writ under Article 226 should be reluctant to
interfere with a finding of fact, unless the circumstances gathered from the
material placed before it conclusively establish that no reasonably minded
Tribunal could have reached that conclusion, particularly when it cannot be said
that the petitioner has made out the case he set out to prove.
Even under the Code of Civil Procedure, the non- disclosure of relevant facts
and material documents with a view to obtain advantage amounts to fraud as held
by the Supreme Court in S.P.CHENGALAVAARAYA NAIDU (dead) BY LRs vs. JAGANNATH
(dead) by LRs8 wherein the Apex Court held:
The facts of the present case leave no manner of doubt that Jagannath obtained
the preliminary decree by playing fraud on the court. A fraud is an act of
deliberate deception with the design of securing something by taking unfair
advantage of another. It is a deception in order to gain by another's loss. It
is a cheating intended to get an advantage. Jagannath was working as a clerk
with Chunilal Sowcar. He purchased the property in the court auction on behalf
of Chunilal Sowcar. He had, on his own volition, executed the registered release
deed (Ex. B-15 in favour of Chunilal Sowcar regarding the property in dispute.
He knew that the appellants had paid the total decretal amount to his master
Chunilal Sowcar. Without disclosing all these facts, he filed the suit for the
partition of the property on the ground that he had purchased the property on
his own behalf and not on behalf of Chunilal Sowcar. Non-production and even
non-mentioning of the release deed at the trial is tantamount to playing fraud
on the court. We do not agree with the observations of the High court that the
appellants-defendants could have easily produced the certified registered copy
of Ex. B-15 and non-suited the plaintiff. A litigant, who approaches the court,
is bound to produce all the documents executed by him which are relevant to the
litigation. If he withholds a vital document in order to gain advantage on the
other side then he would be guilty of playing fraud on the court as well as on
the opposite party.
Under Section 5 (1) of the Act, Court shall have the same powers and shall
follow the procedure as it has and follows in the exercise of original civil
jurisdiction. In VENKATA NAGAYYA V. SITARAMAYYA9, Chief Justice K.Subba Rao
speaking for the Bench held that by reason of Section 5, it is manifest that
unless there is any express provision in the Act to the contrary, the procedure
followed in exercise of original jurisdiction applies to proceedings under the
Act.
The applicant cannot be permitted to plead that despite the suppression,
he is entitled to be declared as an insolvent which means that the Court cannot
even make a prima facie adjudication of his inability to pay his debts.
It
cannot be expected that the Court in which the property of the insolvent vests
for administration to make an investigation into the suppressed assets of the
insolvent and make the same available for distribution among the creditors.
Under Section 4 (1) of the Act,
the Court shall have power to decide all
questions whether involving matters of law or of fact which may arise in any
case of insolvency coming within the cognizance of the Court or which the Court
may deem it expedient or necessary to decide for the purpose of doing complete
justice or making a complete distribution of property.
No useful purpose would
be served by postponing every aspect for adjudication to a later date viz., on
the applicant making an application for discharge under Section 41 of the Act.
Further the Court can refuse an absolute discharge under Section 42 on any of
the grounds stated therein, but not otherwise and the suppression of assets in
the petition is not one of the grounds on which discharge can be denied.
In view of the finding recorded by the trial Court that the respondent had
suppressed his assets and thereby failed to comply with Section 13 (1)(e) of the
Act, the dismissal of the application under Section 25 is justified and the
appellate Court in our view committed an error of law in reversing the said
order.
For the foregoing discussion,
we are of the view that the decision in P.DHARMA
RAO reported in AIR 1978 AP 197 does not lay down the correct proposition of law
and we are unable to subscribe to the view expressed by the learned Judge in the
said decision. We therefore overrule the same and
hold that the decision in
S.SIVARAMA RAO reported in 1977 (2) An WR 462 holds good in the case.
In the
instant case, it has been clearly established that the respondent had suppressed
material facts with regard to his assets and therefore such a party cannot be
declared as an insolvent. The order passed in Appeal Suit No.145 of 1987 dated
19.7.1989 by the learned District Judge, Guntur is set aside and the appeal is
accordingly, allowed.
?1 1977 (2) Anwr 462
2 AIR 1978 AP 197
3 AIR 1916 PC 64
4 AIR 1926 MADRAS 494
5 AIR 1928 MADRAS 1193
6 AIR 1996 MADRAS 277
7 1956 (1) MLJ 324
8 1994 (1) SCC 1
9 1955 An WR 322
