P L D 1966 (W (PLP)

H. T. RAYMOND, J.‑

This Letters Patent Appeal is from the order of a Single Judge of this Court rejecting an application made to him on behalf of the appellant/debtor under section 13(6) of the Insolvency (the Karachi Division and Dacca) Act (III of 1909). The facts forming the background ‑ to this rejected application may be summarised as under:‑

2. On 23‑8‑1963 a Petition under the Insolvency Act of 1909 was filed in this Court being Insolvency Case No. 13/1963 on behalf of the two respondents/creditors against the appellant/ debtor praying for an order adjudicating the said debtor an insolvent. On 26‑9‑1963 the appellant/debtor filed his affidavit admitting his indebtedness to the extent of Rs. 35,000 and undertaking to repay the entire amount with interest in instalments mentioned in the said affidavit. A compromise was arrived at and on the same day 26‑9‑1963 Faruqui, J. allowed the respondents/petitioners to withdraw Insolvency Application No. 13/63. A year later, on 28‑9‑64 a second petition under section 12 of the Insolvency Act of 1909 being Insolvency Case No. 3/64 was filed in this Court by the respondents/petitioners against the appellant/debtor stating that the appellant/debtor had paid up a sum of Rs. 7,000 thereby leaving a balance of Rs. 28,000 still due and praying that in view of the acts of insolvency alleged against him he be adjudged an insolvent. An application under section 13(6) of the said Insolvency Act was filed on behalf of the appellant/debtor denying his indebtedness to the respondents/ creditors, submitting that the respondents/creditors have not proved and established the alleged debt in due course of law and that as the determination of this controversy involves complicated questions of law and fact which cannot properly be enquired into and decided upon in these proceedings which are of a summary nature, this Hon'ble Court may be pleased to dismiss the petition or instead of dismissing the petition stay all proceed ings on the petition for such time as may be required for trial of the question relating to the debt on such security, if any, as the Court may require. Kadir Nawaz Awan, J. by his impugned order of 9‑10‑65 dismissed this application under section 13(6) with costs and hence the present Letters Patent Appeal from this order.

3. We have heard Mr. S. M. Sadiq on behalf of the appellant/debtor and Mr. N. A. Faruqui on behalf of the respondents/creditors. Mr. Sadiq has submitted that the appellant/debtor in his counter‑affidavit of 12‑10‑64 filed in Insolvency Case No. 3 of 1964 has denied that he is indebted in any sum of money to the respondents/creditors. In this affidavit the appellant/debtor has pointed out that when Insolvency Petition No. 13/63 was filed against him by the present respondents alleging his indebtedness to them in the sum of Rs. 35,000 that in point of fact all that he had then owed the respondents/ creditors was a sum of Rs. 20,000 only which sum he has duly paid to them thereby leaving no balance due by him or from him to them. The learned Advocate further submitted that the respondents/creditors have filed the present application under section 12 of insolvency Act III of 1909 without establishing or proving the debt in due course of law and that in view of the fact that complicated questions of law and fact arise for considera tion in this regard the provisions of section 13 (6) apply squarely to this case and the learned Single Judge has erred in not accepting his application under section 13 (6) made on behalf of his client the appellant/debtor. Mr. Sadiq invited our attention to two cases Gopikabai v. Chapsi Purshottam (A I R 1935 Bom. 80) and A I R 1953 Nag. 189.

4. On the other hand, Mr. Naseem Faruqui, the learned advocate appearing on behalf of the respondents/creditors has submitted that this application under section 13 (6) has been filed mala fide and only with a desire to protract the proceedings. He stated that on 3‑10‑64 the appellant had filed a suit against his clients for a declaration and injunction declaring the contents of his affidavit of 26‑9‑1963 as ineffective and unenforceable against him and praying for an injunction restraining the respondents from filing or instituting any insolvency application against him arising out the, said documents. On 8‑5‑65 the appellant with drew this suit with leave to file a fresh application against the res pondents, Mr. Naseem Faruqui further submitted that the appel lant has no genuine defence and that be has produced no receipts in support of the alleged payment of Rs. 20,000 made by him to the respondents/creditors. The learned Advocate contended that the present application under section 13 (6) was a bogus applica tion intended only to procrastinate matters and keep his clients out of their money. He referred us to a case Chetty Firm v. Maung Aung Bwint (A I R 1923 Rang. 21).

5. We have examined the provisions of the Insolvency Act (III of 1909) and we observe that section 12 thereof lays down the conditions on which a creditor may present an insolvency petition against a debtor and section 13 lays down the procedure to be adopted and followed before an order can be made on an Insolvency Petition filed under section

12. It is imperative under the provisions of section 13 that the debt alleged by the petition ing creditor shall be proved and that the alleged act or acts of insolvency on the part of the debtor or at least one of them should also be established. If the Court is not satisfied on both the above requisites it shall dismiss the petition: alternatively, if the Court is satisfied on the above two points and the debtor does not appear despite the notice issued to him, the Court may make an order of adjudication as prayed for. Then comes sub section (6) of section 13 which is in these words:‑-- "Where the debtor appears on the petition and denies that he is indebted to the petitioner, or that he is indebted to such an amount as would justify the petitioner in presenting a petition against him, the Court, on such security (if any) being given as the Court may require for payment to the petitioner of any debt which may be established against the debtor in due course of law, and of the costs of establishing the debt, may, instead of dismissing the petition, stay all proceedings on the petition for such time as may be required for trial of the question relating to the debt."

6. It was pointed out by Mr. Sadiq that the concluding words of this subsection leave the Court with two alternatives either (a) to dismiss the petition or (b) stay all proceedings on the petition for such time as may be required for trial of the question relating to the debt. We have carefully examined the language of this subsection and it seems to us that it makes it perfectly clear that where the debtor appears in answer to the petition and' denies his indebtedness the Court on taking security from him in respect of the amount of the debt as may ultimately be found and of the costs in establishing it, may adopt E either of the two alternatives mentioned above. The choice, then, before the Court is an extremely limited one: namely, either to dismiss the petition or otherwise to stay all proceedings thereon after taking the requisite security in order to be able, in the mean while, to try the question relating to the debt. Mr. Sadiq referred us, in the first instance, to a case of the Bombay High Court reported in A I R 1935 Bom. 80 where Divatia, J. held that where a creditor presents an application and the other debtor challenges the creditor's right to apply, the Court will ask for proof from the creditor as to his right and is entitled to go into that question. The learned Judge went so far as to hold that‑ "It does not follow there from that the Insolvency Court must decide every question connected with it or which may incidentally arise from it, and cannot refer the parties to a regular suit in any case, if it is of opinion that a complicated question of fact or law arises therein." This view of Divatia, J. that a Civil Court other than the Insolvency Court can enquire into the alleged indebtedness and questions connected therewith did not find favour with the Madras High Court or the Nagpur High Court which in later decisions dissented from this view as will be shown hereafter. Nor, was the Rangoon High Court of this view because in A I R 1923 Rang. 21 a Bench of that Court held that the Insovency Court must try such questions and not relegate the parties to a separate suit. In Gangi Reddi v. Narasimha Reddi (A I R 1941 Mad. 895) the Insolvency Court had dismissed the Insolvency Petition filed by a creditor and referred the parties to a suit on the ground that the questions raised in it were too difficult and complicated for the Insolvency Court to decide. In dealing with this matter Burn, J. with whom Happell, J. agreed observed as follows:‑

"I am unable to agree with the decision of the Bombay High Court referred to above. I find myself in agreement with the contention of Mr. S. Rao that the question which has arisen in this case between the petitioner and the respondent is a question expressly and explicitly for the decision of the Insolv ency Court. 1 do not see how the Insolvency Court can have a discretion to refuse to decide this question and refer the parties for the decision of it to a different Tribunal." Similarly, the Nagpur High Court in a case reported in A I R 1953 Nag. 189 has stated‑ "In our judgment, regard being had to the entire scheme of the Act and the fact that all matters are open for determination by the Insolvency Court and there is no provision for trial of any issue by a regular suit the Insolvency Court has no option but to try all these matters. Further, the Insolvency Court has to determine whether the creditor's application is proper or not and to dismiss it if it is not: and for this purpose the inquiry, though summary, has to be made. In our judgment, the Insolvency Court cannot leave the Insolvency matter suspended for years while the matter is being fought out elsewhere. Such is not the intention to be gathered from the Act as a whole."

8. But, it is important to notice that the Insolvency Act that has been considered in the four cases mentioned above by the Bombay, Rangoon, Madras and Nagpur High Courts respectively, is the Provincial, Insolvency Act, 1920 and not the Presidency Towns Insolvency Act. It has been pointed out in these judgments that there is a difference ‑ between these, two Acts in that the Provincial Insolvency Act, 1920 does not contain a provision like section 13 (6) of the Presidency Towns Insolvency Act or the Insolvency (The Karachi Division and Dacca) Act (Act III of 1909). Dealing with this difference, the learned Judges of the Nagpur High Court in the case reported in A I R 1953 Nag. 189 have referred to an earlier decision of Jailal, J. Hukam Chand v. Ganga Ram (A I R 1927 Lah. 111) where his Lordship pointed out that‑ "The Provincial Insolvency Act does contemplate an inquiry by the Court as to the existence of the debt, otherwise any debtor may defeat the creditor's insolvency petition merely by denying the existence of the debt claimed by the petitioning creditor and thereby frustrate the whole object of the petition to the great detriment to the interest of the creditors." In this judgment Jailal, J. went on further to state‑ "In the English statute and in the Act which governs the cases of insolvency petitions in Presidency towns express provisions are contained conferring power on the insolvency Courts either to determine the disputed questions themselves or to stay (but not to dismiss) the insolvency proceedings pending decision of such questions by the ordinary Courts after complying with certain procedure relating to taking of security, etc. from the debtor, but there is no similar provision in the Provincial Insolvency Act. I hold, therefore, that the view of the learned District Judge is wrong and that he was bound to make enquiry as to the right of the petitioning creditor to present the petition which included an enquiry as to the existence of the debt alleged to be due to him.".

9. The true position, then, in law is that where such as in the instant case, the indebtedness of the appellant/debtor to the respondents/creditors is denied, the provisions of section 13 (6) of the Insolvency Act III of 1909 come into full force and it is, therefore, necessary that in a fit case the Insolvency Judge should after taking sufficient security from the debtor stay all proceedings on the petition for such a length of time as may be necessary for the respondents/creditors to prove their debt against the appellant/debtor in due course of law before the ordinary Civil Courts. We are fortified in this view by the judgment of a Bench of the High Court of Bombay in the case of Rustomji Ardeshir Cooper v. Madhavji Damodar Thackersey (34 B L R 1436). In this case respondents had obtained a decree with costs against the appellant in the Appeal Court. The appellant appealed to the Privy Council against the decree. The respondents attached certain property of the appellant for their taxed costs, but satisfac tion not having been made within the usual period he filed an insolvency petition against the appellant and got an ex parte order of adjudication under sections 9 (e) and 10 of the Presidency Towns Insolvency Act, 1909. The appellant applied for a discharge of the adjudication order contending that the order should not have been made pending his appeal to the Privy Council, but the Commissioner in insolvency refused to discharge the order. In appeal Bench of the Bombay High Court presided over by Sir Amberson Marten, C. J. discharged the insolvency order and held that the proper order to pass in this case was to stay the insolvency petition generally with liberty to apply provided adequate security was given by the alleged insolvent. Referring to the English Bankruptcy Act his Lordship stated:‑-- "On the other hand, as far as the justice of the case is concerned, it would seem that there is no difference, and that it would e as unfair in India as it would be in England to adjudge a man insolvent on a judgment‑debt for which he can give proper security although an appeal is pending from the judgment. There are certain express clauses in our own Act. One is to be found in S. 13 (6) which provides that where the debtor appears on the petition and denies that he is indebted to the petitioner, the Court on such security (if any) being given as the Court may require, may, instead of dismissing the petition, stay all proceedings on the petition for such time as may be required for trial of the question relating to the debt . . . . . . On the whole, then, I would hold that in this case the proper order that the learned Judge should have' made would have been to stay the insolvency petition generally with liberty to apply and that he should not have made an adjudication order, provided, of course, proper, security was given by the alleged insolvent."

10. In the light of the above discussion, the next question for consideration is whether this is a fit case in which the discretion vested in this Court under section 13 (6) of the Insolvency Act (Act III of 1909) should be exercised. The plea of the appellant cannot be considered to be of a bogus nature or with a view to delay further. proceedings. The question involved in this matter requires elaborate enquiry which is likely to take a long time. The controversy being of a complicated nature, we consider this as a dispute fit for adjudication on the regular side.

11. In these circumstances, then, we would allow this appeal and set aside the impugned order of the learned Single Judge. We direct that on the appellant/debtor furnishing security to the satisfaction of the Nazir of this Court in the sum of Rs. 28,000 plus such costs as may be incurred in establishing this debt and interest thereon, all proceedings on the respondent/ creditors petition be stayed until the debt has been proved in due course of law in a Civil Court. K.B.A. Appeal accepted.