SATDEO NARAIN Vs. UNION OF INDIA

JUDGEMENT

(1.) The appellants are a Hindu joint family firm carrying on the business of selling gold and silver ornaments under the name and style of Mahesh Lal Satdeo Narain, their principal place of business being in the town of Gaya. According to their case, the firm suffered heavy losses in various forms and the business was accordingly closed on the 26th of July, 1954. They filed an application for being adjudicated as insolvents, which gave rise to Insolvency Case No. 10/4 of 1955/1956 in the Court of the Additional District Judge, Gaya. An objection was filed to the application by the Union of India in respect of the income-tax dues payable by the appellants to it. Other creditors also joined in opposing the appellants' application. The learned Additional District Judge, however, by his order dated the 5th of July, 1957, found in favour of the appellants and adjudicated them insolvents. A Receiver was duly appointed. The Receiver realised certain amounts which were below the amount of debts payable by the firm. The appellants, however, did not apply for discharge. Accordingly, the Additional District Judge passed an order, dated the 10th of January, 1958, under Section 43(1) of the Provincial Insolvency Act (hereinafter referred to as 'the Act') annulling the adjudication.

(2.) On the 3rd of February, 1958, the applicants filed an application for leave to present a petition for adjudication as insolvent under Section 10(2) of the Act. This gave rise to Insolvency Case No. 3 of 1958. This was transferred to the Court of the Additional District Judge, II, Gaya. The Union of India, among others, objected to the prayer of the appellants. On the 25th of July, 1960, an order was passed by the learned. Additional District Judge dismissing the application, holding that the applicants did not come to Court with clean hands. The application for insolvency was filed with a view to defraud the Income Tax Department of its dues. The closure of ancestral business of the firm in July 1954 was followed by a new business started by them as 'Guinea Jewellery House'. The applicants did not also mention-in schedule B of the petition their ancestral house and their plea that this house was gifted to the sister of applicant No. 1 (who was examined as A. W. 1) was a false plea, inasmuch as an ancestral house could not be gifted by the father in a Hindu joint family, consisting of himself and his sons, even in respect of the father's own share. The applicants came up to this Court for leave to appeal under Section 75 (3) of the Act and leave was granted by this Court on the 18th of August, 1960.

(3.) Mr. Ramanugrah Prasad appearing in support of the appeal has raised three questions. The first one is that the learned Additional District judge erred in rejecting the prayer of the appellants for adjudication as insolvents on mere suspicion, and conjecture. The scope of the enquiry under Section 25(2) and 10(1) of the Act for rejecting the debtor's petition is to find as a fact that he is able to pay his debts, and not to take into consideration other factors. The second question raised is that the Court is not required in an enquiry under sections 25(2) and 10(1), at the stage of considering the petition of debtor for adjudication to look into the bona fides of a transaction i.e., whether it is benami or a genuine transaction. The stage for that comes up later on when the application for discharge is filed. The learned Additional District Judge, therefore, erred in rejecting the application of the petitioners at this stage. The third point raised is that once the applicants were adjudicated insolvents by the learned Additional District Judge, Mr. S.M. Karim, on a consideration of the evidence led by the parties including the Union of India in the Income Tax Department, and that having been annulled only because the appellants failed to apply for discharge within a period of six months from the date of the order n/ adjudication, and permission having been granted to the appellants to file the application, the finding of Mr. S.M. Karim could not be re-opened. Even if it were not to be regarded as res judicata, at any rate, that finding should not have been disturbed unless fresh facts or materials were available for reconsidering the matter.