P L D 1972 Karachi 62 (PLP)

3. The Official Assignee in his report dated 16th October 1970 filed after the completion of the public examination of the Insolvent, has opposed the, approval of the composition on various grounds, that is :‑ (i) That the Insolvent had not been able to explain an entry of Rs. 1,12,648‑8‑4 debited to his personal account on page 200 of the ledger produced by him and the nature and particulars of this entry could not, be ascertained as the insolvent has not produced the books of accounts prior to 1st April 1959. (ii) That the Insolvent had not been able to explain how and for what purpose he drew a sum of Rs. 6,565 in cash in 1959‑60 as evidenced by entries on page 200 of the ledger. (iii) That the Insolvent has been carrying on business through his wife in the name of M/s. Birdle Mac. Enterprise in which business he supplied Bands and Cabaret Artists to Karachi Hotels. (iv) That the Insolvent had entered into speculative business of forward, contracts in Bonus Vouchers, in which he had suffered loss of Rs. 17,533. (v) 'That the Insolvent was reckless in contracting debts to favour his two friends, namely, K. Contractor and G. M. Shekhdar, from whom he knew that he had no hope to recover the loan of Rs. 26,600 (vi) That the Insolvent made two business trips on 5‑6‑69 and 11‑4‑70 without obtaining the permission from the competent authority and further‑ (vii) That the Insolvent had neglected his duty in giving proper assistance to the Official Assignee in realising the Insolvent's assets.

4. Arguments were addressed before me by Mr. G. Raymond, for the Insolvent, and by the Official Assignee. Before I deal with these arguments I should refer to the relevant sections of the Act which are material for the purpose of deciding the two applications before me. Section 28 of the Act permits an Insolvent to submit proposals for composition or scheme of arrangement of his affairs for submission to a meeting of the creditors and any creditor may assent to or dissent from such proposal or scheme. If the proposal or scheme is assented to by the creditors, the Insolvent or the Official Assignee may, under section 29 of the Act, apply to the Court for approval of the composition or the scheme ; which approval may be given after hearing the Official Assignee. Under subsections (4) and (5) of section 29 of the Act, this approval shall not be given if the Court is of the opinion. (i) that the terms of the proposal are not reasonable or are not calculated to benefit the general body of creditors or if the case is such that the Court is required to refuse the insolvent's discharge; (ii) if facts are proved on proof of which the Court would be required either to refuse, suspend or attach conditions to the debtor's discharge, unless the proposal or scheme provides reasonable security for payment of not less than four annas in the rupee on all the unsecured debts provable against the debtor's estate.

5. Now the question is whether the Insolvent's application for approval of composition meets the requirements of the Act. It may here be noted that at the hearing before me on 21st October, 1970, the Insolvent filed a supplementary statement to the effect that he is willing to pay Rs. 350 per month towards the claim of his creditors, and that this payment shall be secured by the guarantee, in the shape of immovable property, of Mr. D. C. Minwalla, Managing Director of Hotel Metropole Ltd. In my opinion, the application for approval of composition and the supplementary statement filed by the Insolvent before me on 21st October 1970, would justify accord by the Court of its approval to the composition as amended by the Insolvent's own supplementary statement. I may in this connection refer to a Sind decision in Re : Gopaldas Versimal Ex parte Firm of Hari chand Kishichand ((1929) 23 S L R 192) in which a learned Single Judge held that before accepting a proposed composition or scheme the Court should satisfy itself that such composition or scheme fulfils certain conditions, inter alia, that it is both reasonable and for the benefit of the general body of the creditors, and that a composition or scheme is neither reasonable nor for the benefit of the general body of the creditors unless it affords some advantage to the creditors which they would not have if the insolvency proceedings were allowed to continue. In an English case, decided by the Court of Appeals, Ex parte Kearsley In Re: Genese ((1887) 18 Q B D 168) it was held that when a composition comes up for approval, both the interest of the creditors and the conduct of the debtor are to be looked into, and if it is manifest that the composition or scheme is the best thing for the creditors, then it is no ground to refuse approval that debtor has been guilty of offences under section 28 of the English Bankruptcy Act, 1883, (corresponding to section 39 of the Insolvency (Karachi Division and Dacca) Act, 1909). In another English case, In Re: Tobias & Co. Ex parte H. A. Tobias ((1891) 1 Q B D 463), Cave, J. held that an absolute refusal of discharge is no ground to refuse a reconsideration of discharge after a lapse of time. In this case, the bankrupt's suspension was discharged for nearly 7 years, and this was considered a sufficient punishment and a sufficient ground, amongst other for reconsideration of the Insolvent's application for discharge. The judgment of Cave, J., was concurred in by Vaughan Williams J., In Re : E. A. B. ((1902) 1 K B 457) the English Court of Appeal held that to disentitle a bankrupt to obtain approval of composition or scheme, the misconduct of the Bankrupt should be gross or such as would make the sanction of the composition or scheme contrary to public policy, and that the finding of the Official Receiver that the debtor has indulged in rash and hazardous speculations is not itself a sufficient ground for discharge. In another English case In Re: Webb, Ex parte The Board of Trade ((1914) 3 K B 387) decided by the Court of Appeal, the view was taken that if a scheme or arrangement of a debtor's affairs is submitted for the approval of the Court, and facts are proved, on proof of which the Court would be required either to refuse, suspend, or attach conditions to the debtor's discharge, then approval shall be refused unless it provides reasonable security for payment of not less than seven shillings and six pence in the pound on all the unsecured debts provable against the debtor's estate.

6. The review of the decisions cited above shows that (i) a lapse of a sufficient long term, say seven years, is sufficient punishment to the debtor and is a good and sufficient ground to accord approval to the scheme or arrangement between the debtor and the creditors (ii) the fact that the Insolvent had in dulged in rash and hazardous speculation is no ground for withholding approval of a scheme or arrangement submitted by the debtor and (iii) that the scheme or arrangement submitted by the debtor should be approved, even if he is guilty of gross misconduct, if such scheme or arrangement is in the interest of the general body of the creditors and gives reasonable security for payment of at least four annas in a rupee of the creditors' claim. Now, in the instant case all these factors are present to justify accord of approval to the composition agreed to between the debtor and the majority of the creditors. The Official Assig nee's objection with regard to the Insolvent's failure to explain various debit entries against him in the ledger has already been dealt with in the previous report of the Official Assignee dated 29th August 1963, on the basis of which discharge was refused to the Insolvent by this Court by its order dated 11th November 1963. With regard to the Official Assignee's contention that the Insolvent is carrying on flourishing business of supplying Bands and Cabaret Artists to the Karachi Hotels under the name M/s. Birdie Mac. Enterprise, it has been shown that this business really belongs to the Insolvent's wife and that the Insolvent is attending to this business as attorney of his wife since 1956. In any case, if the Official Assignee did think that this business is of the Insolvent himself, then it was open to him to attach this business under the provisions of the Insolvency (Karachi Division and Dacca) Act, 1909, and further, the Official Assignee should in such a case have examined the Insolvent's wife. But neither of these courses was followed. With regard to the foreign trips of the insolvent, which, according to the Official Assignee showed misconduct on the Insolvent's part, again it is enough to say, firstly, that these foreign trips per se cannot be treated as mis conduct, and, further, it has been shown that with regard to his trip to England, the Insolvent's sister is staying in that country and that as regards trips to Afghanistan, again it has been shown that they were made in connection with his wife's business and were financed by other parties. The facts of the case show that the adjudication of the Insolvent was made on 28th February, 1962, and discharge was refused on 11th November, 1963. Since this date, nearly seven years have passed. It is sufficient punish ment to the Insolvent, particularly in view of the fact that he has to support three school‑going children. Another circumstance in favour of the Insolvent is that the composition submitted to this Court, as amended by the supplementary statement of the Insolvent filed on 21st October 1970, shows that the terms of the composition afford greater advantage to the creditors, which they will not have if the insolvency proceedings are allowed to continue. At present the insolvent is paying Rs. 100 per month towards the satisfaction of the debts. But under the composi tion, as amended by his supplementary statement, he will pay Rs. 350 per month, in addition to the fees of the Official Assignee permissible under the rules and that these obligations shall be secured by the guarantee of Mr. D. C. Minwalla, Managing Director of Hotel Metropole Limited, which guarantee shall be in the shape of immovable property and shall cover the claims of all the creditors who have assented to the composition, as well as the claims of the creditors who have remained absent, as also the claims with regard to the income‑tax liability against the debtor. With regard to this particular liability, that is, the claim for income‑tax arrears, it may be pointed out that approval of the composition and consequent discharge of the insolvent, shall not release the insolvent, under the terms of section 32 and section 25 (1) of the said Act, from his liability to pay the income‑tax arrears. This position was confirmed by Mr. S. A. Nusrat who appeared before me on behalf of the Income‑tax Department.

7. Accordingly, for the foregoing reasons approval is hereby granted to the composition entered into between the insolvent and the majority of his creditors as amended by the insolvent's supplementary statement filed in Court on 21st October 1970. In view of this conclusion, the insolvent shall pay Rs. 350 per month commencing from the first day of November 1970, towards the satisfaction of the debts standing against him and further, he shall furnish guarantee of Mr. D. C. Minwalla in the shape of immovable property, within three weeks from today, for performance of these obligations, which obligations will include payment of annas four in a rupee to all the creditors and payment of income‑tax liabilities standing against the insolvent and the fee of the Official Assignee. The monthly instalment of Rs. 350 shall be payable by the 10th of each month. As soon as the guarantee of Mr. D. C. Minwalla, in terms aforesaid, is given to the satisfaction of the Nazir of this Court, the order of adjudication shall stand annulled. S. A. H. Petition allowed.