Decided on April 16,1969

SHRI KISHAN Respondents


Bhargava J. - (1.) THIS is an appeal under section 75 of the Provincial Insolvency Act, 1920 (hereinafter called the Act).
(2.) THE appellants are the creditors. THEy made an application against the three respondents under section 9 of the Act for getting them adjudged as insolvents. Respondents 1 and 2 are partners of the firm Shrikrishan Bhagwandas, Vidisha, which is respondent No. 3 on record. THE appellants in their application stated that the respondents were indebted to them in the sum of Rs. 35,371.40 paise which was payable immediately to them. THE acts of insolvency alleged to have been committed by the debtors were that with intent to defeat or delay the creditors the first and' the second respondents had secluded them selvess so as to deprive their creditors of the means of communicating with them and that they had given notice to the appellants that they were not in a position to pay their debts and had suspended payments of the debts. In other words, the application was grounded on acts specified in clauses (d) and (g) of section 6 of the Act. Before admitting the petition, the Additional District Judge, Vidisha, examined respondents 1 and 2 under Order 1, rule 10, Civil Procedure Code and then directed the petitioners to produce prima facie evidence to establish that their petition deserved admission. In consequence of the said direction, both the appellants and the respondents examined witnesses. By his order dated 31-8-1964 the learned Additional District Judge admitted the petition under section 18 of the Act and appointed an ad interim Receiver of the property of the respondents giving certain directions to the ad interim Receiver in the matter of the management of the property. Later, the following three issues were framed on the pleadings of the parties:- (1) Whether the non-applicants owe a debt of Rs. 500 and above to the petitioners? (2) Whether the non-applicants with intent to defeat and delay the creditors secluded themselves so as to deprive the petitioners of the means of communicating with them? (3) Whether the non-applicants have given a notice to the petitioner specified in clause 3 (D) in the latter's petition that they have suspended the payment of their debts to them? After the framing of these issues, none of the parties adduced any evidence in support of their contentions. The contentions of the respondents were that they were not indebted to the appellants in the amount of Rs. 35,371.40 paise as claimed by them or in any other sum and that they had not committed any act of insolvency. The trial Court dismissed the application on 10-3-1966 deciding all the said issues against the appellants on the ground that they had failed to substantiate their allegations. Feeling aggrieved, the appellants have filed this appeal. Shri V. S. Pandit, learned counsel for the appellants, raised the following contentions: - (1) That the evidence adduced by both the parties in compliance of the trial Court's order dated 24-3-1961 should have been read as evidence on the merits of the case and if that evidence were so read, it was established that the respondents had stopped their work at their usual place of business and thus had deprived the appellants of the means of communicating with them and further that they were indebted to the petitioners in the amount claimed by them and they had stopped and suspended payment of their debts. (2) That it was obligatory upon the trial Court to examine respondents 1 and 2 who were the partners of the respondent-firm under section 24 (2) and the failure of the Court to examine the debtors-respondents had caused a very serious prejudice to the appellants inasmuch as the facts which they could establish easily through these respondents were not available to them.
(3.) WE shall take up the second point for consideration first. Section 24 (2) enacts that the Court shall also examine the debtor, if he is present, as to his conduct, dealings and property in the presence of such creditors as appear at the hearing, and the creditors shall have the right to question the debtor thereon. The object of the provision is to obtain information at as early a stage as possible of the property of the debtors and their whole conduct in relation to the insolvency proceedings. In Gangadas Seal and another v. Percival and others, AIR 1927 Cal 32, it has been held that sub-section (2) of section 24 is mandatory and if the debtors are present in Court, there is an obligation on the Court to examine them and failure to do so would vitiate the order of adjudication. In Popa Bam v. Bara Khan, AIR 1935 Peshawar 139, the same view has been taken. In Bala Bam Sant Bam v. Gyan Singh and others, AIR 1930 Lah 746, the facts were that the debtor had made an application for his being adjudged an insolvent and his application was dismissed without his examination. It was held that the provisions of section 24 (2) were mandatory and the Court must examine the insolvent with reference to the facta stated in the petition before dismissing his application for being adjudged an insolvent. In Sita Ram Bajirao Bhalerao v. Amrutrao Ganpatrao Kunbi and another, AIR 1937 Nag. 226=ILR 1939 Nag 463= 10 R. Nag. 338, it was held that the failure to examine the debtor when the petition for adjudicating him an insolvent was presented by the creditor did not invalidate the subsequent proceedings, unless it was shown that the debtor had been prejudiced by the omission. The learned Judge attached a great deal of significance to the fact that in that case the debtor had filed a written statement and gave evidence on his behalf and therefore was not obviously prejudiced. On a consideration of these authorities, we are of the view that in the instant case the creditors-appellants can justly complain of their having been seriously prejudiced by the non-examination of the respondents-debtors under section 24 (2). The mere fact that the debtors were examined before under Order 1, rule 10, Civil Procedure Code or had given their statements in rebuttal of the evidence adduced by the creditors for showing that their application under section 9 deserved to be admitted, is not sufficient. If the respondents- debtors were examined under section 24 (2), the appellants could direct them all proper questions touching the issues and could elicit from them, if possible, answers favourable to them. They could also seek the production of the account-books from them and could establish through cross-examination that the reasons assigned for non-production of account-books by these debtors were improper or insufficient. It is not necessary to speculate the inferences and conclusions which may have been possible if they had been examined. The decision in Sita Bam Bajirao Bhalerao's case, AIR 1937 Nag 228=ILR 1939 Nag 463=10 R. Nag. 338, was based on the particular facts of that case, and in our opinion that case cannot be read as an authority for the proposition that the failure to examine the debtor under section 24 (2) does not invalidate the subsequent proceedings in all cases.;

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