P L D 1949 Lahore 79 (PLP)

Muhammad Ashraf Israeeli, for Respondent. MUHAMMAD SHARIF, J.-(20th December, 1948)- The question referred for decision is "whether a liability imposed by a statute on a person becoming a member of the Society can be held to be wiped off when he had been discharged by an Insolvency Court before the Society was ordered to be wound up and a Liquidator appointed"? This question has arisen in the following manner in the course of execution proceed ings. Allah Bakhsh and Kathu were the members of Co-operative Society known as Anjuman Imdad Qarza Rajajang Musalmanan. Both of them applied for being declared insolvents. That was done. Allah Bakhsh was absolutely discharged on 22nd February 1935 and Kathu on 2nd November 1935. In the year 1936 the Society itself went into liquid ation and a Liquidator was appointed by the Registrar to wind it up. The Liquidator on 24th September 1946 assessed the liability of Allah Bakhsh for Rs. 1000 and that of Kathu for Rs. 916 in their capacity as members of the Society. The order of the Liquidator was executed as a decree of a civil Court. Objections were taken to the execution, the main ground being that both of them had been discharged insolvents free from all liability and as the Society had failed to prove its debts in the course of the insolvency proceedings, it was no longer open to it to take out execution against them. The first Court held that the "liability" of the insolvents was a "provable debt" as defined in the Insolvency Act and the fact that it did not materialize till long time after the adjudication would not in any way affect the case. For this reason the Liquidator was not held entitled to saddle the insolvents with any liability and the application for execution was dismissed. On appeal by the Liquidator the learned Senior Sub-Judge, by his order dated 12th January, 1943, held otherwise and found that it was not a "provable debt" and the liability came into existence for the first time when the Liquidator passed his order and as such the order could be executed. The insolvents came up in appeal to this Court. The appeal came up for hearing before a learned Single judge who thought it advisable to refer the question stated above to a larger Bench for determination. If was contended by the learned counsel for the appellants that the liability of the insolvents as members of the Society existed at the time of their adjudication; that it was a "provable debt" and as the Society had failed to prove or to have it excluded from the "Schedule of the creditors" it could no longer do so at a subsequent period. Reliance was placed upon A I R 1942 Lah.

237. The relevant provisions of the Insolvency Act dealing with the subject are reproduced below :- "Section 33 (1). When an order of adjudication has been made under this Act, all persons alleging themselves to be creditors of the insolvent in respect of debts provable under this Act, shall tender proof of their respective debts by producing evidence of the amount and particulars thereof, and the Court shall, by order, determine the persons who have proved themselves to be creditors of the insolvent in respect of such debts, and the amount of such debts, respectively, and shall frame a schedule of such persons and debts Provided that, if, in the opinion of the Court the value of any debt is incapable of being fairly estimated, the Court may make an order to that effect, and thereupon the debt shall not be, included in the schedule. "Section 34 (1). Debts which have been excluded from the schedule on the ground that their value is incapable of being fairly estimated and demands in the nature of unliquidated damages arising otherwise than by reason of a contract or a breach of trus'. shall not be provable under this Act." (2) Save as provided by subsection (1) all debts and liabilities, present or future, certain or contingent, to which the debtor 4 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 under this Act. "Section 44 (2). Save as otherwise provided by subsection (1), an order of discharge shall release -the insolvent from all debts provable under this Act." Penalty imposed under section 44 (2) relates only to those debts which are "provable" under the Act and where they are so, they must be proved and entered in the schedule. In the case of any debt which is "incapable of being fairly estimated" the Court may not in clude it in the schedule. This is a matter entirely within the discretion of the Insolvency Court. Where the debt or liability exists at the time of adjudication or arises before the discharge in consequence of any obligation incurred before the date of such adjudication, it shall not cease to be "provable debt" because it was not immediate or was contingent. The only requisite condition is that must be in existence. The word "debt" to use it in its ordinary meaning, is a sum payable in respect of a money demand recoverable by action, I L R 40 Mad. 31 (F. B.) In I L R 27 Cal. 38 it was pointed out that "debt" within the meaning of Insolvency Act means only those debts that are provable' under the Act under section

34. It should be noted that the word "debt" means an actually existing debt, i.e., a perfected and absolute debt, not! merely a sum of money which may or may not become payable at some future time or the payment of which is dependent upon contingencies.1 The debt under the Provincial Insolvency Act must be a liquidated sum; (that is capable of being ascertained) payable either immediately or at certain future time as explained in section 9 (1)(b) of the Act. The term "liability" has nowhere been defined in the Act. According to section 37 of the Bankruptcy Act 1883 it "includes any compensation for work done, any obligation or possibility of an obligation to pay money or money's worth on the breach of any express or implied covenant, contract, agreement or undertaking, whether the breach does or does not occur or whether it is or not likely to occur or capable of occurring before the discharge of the debtor, Generally it includes any express or implied engagement, agreement or undertaking resulting in or capable of resulting in as obligation to pay money or money's worth whether the payment is as respects amount fixed or unliquidated as respects time, present or future, certain or contingent as to valuation, capable of being ascertained by fixed rules or as a matter of opinion." This is surely very wide, but the "liability" must exist at the time of the order of adjudication or must come into existence before discharge in consequence of "any obligation incurred before the date of such adjudica tion." Where neither of these conditions is satisfied it shall not be a "liability" provable under the Act. It would be desirable at this stage to consider the liability of a member of a Co-operative Society as defined in the Co-operative Societies Act of 1912. A Society may be with or without limited liability under section 4 of the Act, though it shall be presumed that "liability of a Society of which the object is the creation of funds to be lent to its members and of which the majority of the members are agriculturists and of which no member is a registered Society, shall be unlimited". Section 35 of the Act authorises the Registrar to hold an enquiry into the affairs of the Society either on his own motion or at the request of the Collector or on the application of a majority of the Committee or of not less than one-third of the members. Section 36 empowers the Registrar to inspect the books of the Society on the application of a creditor of a registered Society. Under section 39 the registration of the Society might be cancelled by the Registrar if he is of the opinion that the Society ought to be dissolved after an enquiry under section 35 or making an inspection under section 36 or on the receipt of an application made by 3/4th members of the registered Society. When the registration of a Society is cancelled, the Society shall cease to exist as a corporate body (section 41). Under section 42, on the cancellation of the registration of a Society, the Registrar may appoint a competent person to be a Liquidator of the Society. A Liquidator so appointed shall have power "to determine the contribution to be made by the members and past members of the Society respective ly to the assets of the Society." [42 (2) (b)]. The answer to the question furmulated above would depend upon "whether the liability of a member to make contribution to the asset of the Society existed at the time of the adjudication or before discharge"? If it existed it would be a "provable debt" and as such it must be either proved in the course of the insolvency proceeding or an order obtained for its exclusion from the schedule of the creditors. Where it was not done, under section 44 (3) it shall cease to be enforceable thereafter. It would, however, be quite apparent from section 42 (2) (b) above that the amount of the contribution to be mad was to be determined by the Liquidator and that could only be after the Society had been wound up. Abdul Ghani v. Anjuman Imdad Qaraz Bahami Chak. No. 127 R. B. A I R 1942 Lah. 237 on which the learned counsel for the appellant relied, dealt with a similar question. Abdul Ghani was a member of the Co-operative Society. In October 1930 he applied for being adjudicated an insolvent and he was adjudged insolvent on 4th August 1931. Four years later on 12th December 1935 he was granted an absolute discharge. In the meantime on 8th November 1932 the registration of the Society was cancelled by the Registrar under section 39 of the Co-operative Societies Act and a Liquidator appointed under section 42 to wind up its affairs. The winding up continued for several years, in the course of which the Liquidator on 27th January 1937 more than a year after the discharge and without notice to tog appellant, passed an order under section 42 (2) (b) determining Rs. 1,132 as the contribution of the appellant as a member of the Society to the assets of the Society. It was held that "the appellant was a member of the Society and it is common ground that as such he was liable to be called upon to contribute the assets of the Society in the event of its being dissolved. This contingent liability was incurred by the appellant before his adjudication. It was, therefore, a provable debt as defined in the Act. It is true that the liability did not materialise till some time after the adjudication, but this circumstance is in my opinion immaterial." Reference was made to in re. the Muslim Bank of India Lahore in liquidation reported as A I R 1940 Lah. 304 in support of the above conclusion. There a person had purchased 10 shares of Rs. 100 each in a company in liquidation. The purchaser paid Rs. 200 on allot ment. Later, the company, before the order for compulsory liquidation made a call of Rs. 300 on these shares. The purchaser was adjudged insolvent and was unconditionally discharged. In the insolvency the purchaser included these shares in Schedule B. The company was wound up compulsorily and the official liquidator of the company placed the purchaser's name upon the list of contributories. It was held that "any person acquainted with business or company affairs, on having been given the facts as to the position of the Muslim Bank in 1936, could form some reasonable and fair estimates of the possible liability of the bankrupt to the company with regard to his share-holding. Section 34 (2) Provincial Insolvency Act clearly contemplates a certain difficulty in arriving at what is a fair estimate of the value of a debt, by the use of the word "contingent". But because there may be a difficulty in the estimation that does not imply that the value cannot be "fairly estimated." The circumstances in that case did not leave any room for doubt, that there was .the possibility of a call being made by the company when it was in existence upon the uncalled balance of the share money due upon the shares. The debt of Rs. 500, i.e., the balance due on the shares was clearly provable in the insolvency and if no action was taken regarding it the liability disappeared when the order of discharge was made. It cannot be seriously disputed that there is a fundamental difference between the shareholder of a company and the member of a Co-operative Society. In the case of the former, the liability is limited and known, while in the case of the latter this is not so. The debt due from a shareholder of the company may not be immediately enforceable, but it is there. The same, however, is not true of the member of the Co-operative Society, when he is called upon to make contribution to the assets of the Society on its liquidation. The money that might have been borrowed from the Society by a member, would be a debt in the same sense as that due from the shareholder of the company. The liability to make contribution stands. on a different footing. This liability may never accrue at all and the Liquidator might not think it fit to assess a liability in the case of a particular, member. Moreover, the shares held by the shareholder of a company are saleable and transferable and on parting with them, he would cease to be a member of the company. In he case of a Co-operative. Society the share of a member is not ordinarily saleable to a stranger and on his adjudication as an insolvent, it is not liable to sale nor would it terminate his membership of the Society. Again the affairs of the Co-operative Society might have deteriorated after the discharge of a particular member and his liability to assessment of contribution by the Liquidator, might be based upon what happened after his discharge. Under the Co-operative Societies Act, therefore, there is no doubt a possibility, howsoever remote it might be, of a member becoming liable for contribution to the Society's assets, but this remote possibility could hardly be said to be a liability existing at the time of adjudication or discharge. As pointed out above it might come into existence after the discharge. With the utmost respect I am of the opinion that the analogy between the liability of a shareholder of a company and that of the member of a Cooperative Society was not apt and A I R 1940 Lah. 304 could not be a useful guide for the determination of the liability of the member of a Co-operative Credit Society. This question may be viewed from another standpoint. When petitions for insolvency were presented or when the discharge was obtained in the year 1935, the Co-operative Society could not lay any claim to the possible liability of contribution to its assets for the simple reason that that liability could only come into being when the Society itself was no more. The Society no doubt, as already pointed out, could claim to be entered in the schedule of creditors as regards the debt then due from the member, but could not legitimately urge that the possibly remote chance of the member being made liable for con tribution should also be estimated, as that was the function not of the Society but of the Liquidator after the Society had been dissolved and its assets had been ascertained and realised. Till then no order for contribution could be made and if a Liquidator did so it would be ultra vires. (1941 N L J 412). There is yet another distinguishing feature of Abdul Ghani v. Anjuman i-Imdad Qarza Bahami Chak No.

121. R. B. (A I R 1942 Lah. 237). Long before the discharge was granted, the registration of the Society had been cancelled and the Liquidator had been appointed. The liability of the member as such had arisen and the amount of contribution alone remained to be determined by the Liquidator. The Liquidator could move the Insolvency Court and obtain an order that the debt should not be included in the schedule as it was "incapable of being fairly estima ted" as mentioned in the proviso to section 33 (1) of the Provincial Insolvency Act. On his failure to do so this debt shall be taken to have been discharged under section 44 (2) of the Act. An identical question arose in Anjuman-i-Imdad Bahami Qarza v. Imam Din reported as (A I R 1939 Lah. 275). It is a single Bench judgment. The Society was dissolved on 3rd February 1933. The Liquidator was not appointed till 1937 and he made the order of assessment under section 42 (2) (b) on 20th May 1937. The members had been declared insolvents on 10th October 1932 and had been discharged' on 21st November 1935. The learned judge observed that the "respondents (members of the Society) did not cease to be members of the Society by their adjudication as insolvents on 10th October 1932 as was clear from section 21 of the Act and section 7 of the by-laws of the Society. They were, therefore, still members" On the question whether the liability of the respondents was a debt "provable" in insolvency within the meaning of section 34 (2) Provincial Insolvency Act it was held "that in the circumstances of this case it is not possible to hold that the liability was provable under the terms of section 34 (2) for the reason that no Liquidator was appointed up to 1937 by which time the respondents had been discharged. Under section 42 (2) (b) it is the Liquidator alone who could ascertain and fix the liabilities of the respondents. Therefore, until a Liquidator was appointed it could not he said that there was any debt or liability, certain or contingent, which could affect the respondents". The question of the effect of the appointment of the Liquidator by the Registrar before the date of discharge was left open. A Letters Patent Appeal was preferred against this judgment but it was dismissed in limine. I am in respectful agreement with the observations made in this judgment. Lastly it was argued by the learned counsel for the appellants that the amount of contribution assessed by the Liquidator was the same which was due as debt from the appellants to the Society. The appel lants were released from obligation to pay debts as they were not duly proved in the Insolvency proceedings and the Liquidator was now trying to recover the same in an indirect manner. There is absolutely no proof of this fact on the record. There was nothing to prevent the appellants from proving this fact but it was never done and in its absence, no assumption can be made in favour of the appellants. My answer to the question referred for decision that the liability of a member of a Co-operative Society for the contribution to the assets of the Society on its dissolution imposed by the state is not wiped out by the fact that he had been discharged by the Insolvency Court before the Society had been wound up and the Liquidator appointed. As the question was of considerable difficulty, parties are left to bear their own costs. The case shall now go back to the learned Single judge for a decision on merits. CORNELIUS, J.-I agree. A. H. Reference answered.