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Present : Lascelles C.J. and Wood Renton J.
PERERA v. JOSEPH et al.
46 and 47—D. C. Colombo, 2,447.
Mortgagee proving debt in insolvency proceedings—Is he bound to share
proceeds pro rata v>Uh unsecured creditorst—Who is. a "trader" t—
Reckless trading—Books not kept.
A mortgagee who elects in the first instance to prove in theinsolvency would not lose the advantage of his security, and is notbound to share pro rata with the' unsecured creditors in the proceeds.
Section 109 deals with the case of a creditor who has brought anaction against the insolvent in respect of a demand prior te thefiling of the petition. In that case the creditor cannot prove in-the insolvencywithout relinquishing the action, and the act of
poving the claim amounts to a relinquishment of the action.
The correctness of the definition of the term *' trader " in In reKanagaratne 1 doubted.
An insolvent who failed to keep books, and – who was guilty ofreckless trading, was in the circumstances of this case granted acertificate in the thind class, which was suspended for two years.
N this case there were two appeals. No. 46 was an appeal bya mortgage-creditor against the order of the District Judge
holding that by proving his claim in the insolvency proceedings themortgagee had elected to come in as an unsecured creditor and6hare in the proceeds pro rata with the other creditors.
No. 47 was an appeal preferred by the insolvent against an orderrefusing to grant him a certificate of conformity.
H. A. Jayewardene, for appellant in No. 46.
Talaivasingham, for the fourth respondent.
A. St. V. Jayewardene, for the seventh respondent.
Sansoni. for the assignee.
Cur. adv. wit.
June 17, 1912.- Lascelles C.J.—
The. appellant is a creditor in the insolvency, whose debt wassecured by a secondary mortgage of certain house property inColombo. The property comprised in the mortgage, together withother property, having been sold in the course of the insolvency,
* (1900) 1 Br. 70.
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the appellant by his proctor moved for an order for payment to himof Rs. 1,741.06, representing the balance of the proceeds of the saleof the mortgaged property after satisfaction of the primary mortgage.The learned Acting District Judge took the view that the appellant,by proving his claim, had surrendered his security, and had electedto come in as an unsecured creditor and share in the proceeds prorata with the other creditors, and dismissed the appellant's motion.From this order the appellant now appeals.
The question turns upon the construction of sections 111 and 109of the Insolvency Ordinance, and with regard to this there has beensome divergence in the decisions of this Court. In 8. T. Mathiah v.M'eera L/ebbe Marcar Tamby,1 Lawrie J. held that it was competentto the mortgagee to claim the property under the mortgage bond,and when the mortgaged property is sold, to draw the whole proceedsor so much as are sufficient to satisfy the debt. The learnedJudge was of. opinion that the mortgagee’s right to draw the fullamount of his debt from the proceeds of the sale of the propertywas reserved by the exceptions stated in section 111. In In reIngleby,* the same learned Judge delivered a similar opinion that acreditor by proving his claim did not renounce any of the rights-wliich his mortgage bond gave him. .In Karthan Chetty v. PakirBawa Mohamadu Lebbe Marcar,3 Burnside C.J., without definitelydeciding the point, stated that he was inclined to think that amortgagee who elected in the first instance to prove in insolvencywould not lose the advantage of his security. The contrary opinionwas expressed by Dias J., who did not understand section 109 asapplying only . to cases where the creditor has brought the actionagainst the insolvent before the filing of the petition. In BamenChetty v. Anstruther,* the question related to the rights of a judgment-creditor, who had seized the insolvent’6 land before the petition ininsolvency was filed, to be paid in full in preference to the othercreditors. The right of the creditor to payment in full was allowed.Of these authorities, the one which is most directly in point is thedecision of Lawrie J. in S. T. Mathiah v. Meera Lebbe Marcar Tamby,1and in my opinion the construction there adopted of section lit ofthe Insolvency Ordinance accords with the expressed meaning ofthe section. The general rule that secured creditors, and creditors•who have attached any .part of the effects of the insolvent, areentitled only to a rateable part of the debt is, subject to certainexceptions, stated in the section; one of them is that where thesecurity consists of a mortgage or lien on the property of the insolventbefore the date of the filing of the petition the rule is not applicable.The present case is within the exception.
• With regard to section 109, the marginal note is misleading. Thesection deals with the case of a creditor who has brought an action
a (1886) 8 S. C. C. 11.
* (1889) 9 S. C. C. 54.
(1884) 6 S. C. C. 88.
(1885) 7 S. C. P. 39.
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against the insolvent in respect of a demand prior to the filing of thepetition. In that case the creditor cannot prove in the insolvencywithout relinquishing the action, and the act of proving the claimamounts to a relinquishment of the action. This section, it seemsclear, does not apply to the present case.
Por the above reasons, I am of opinion- that Mr. Justice Lawrie'sjudgment in S. T. Mathiah v. Meera Lebbe Marcar Tamby 1 ought tobe followed. I would set aside the order appealed against, and remitthe case to the District Judge to deal with the appellant’s motionon the footing that by proving in the insolvency he has not lost hissecurity. The appellant is entitled to the costs of the appeal.
Wood Benton J.—
This appeal raises an interesting question as to the constructionof section 111 of the Insolvency Ordinance, No. 7 of 1853. Theappellant is one of several creditors who proved their claims inInsolvency case No. 2,447—D. C. Colombo. The appellant had, as-security for his debt, a secondary mortgage over certain propertybelonging to the appellant in Prince street, Pettah, Colombo; certainhousehold furniture and printing materials, the property of theinsolvent; and an insurance policy on the life of the insolvent’s son.At the date of his adjudication the insolvent was indebted to theappellant in the sum of Es. 6,334.19, together with further interest
on a sum of Rs. 6,192 at 18 per cent, per annum from March 26,,1911, on seven promissory notes and two I. 0. U’s. The paymentof all these sums was secured by the mortgage above referred to.As the insolvent had no other available assets, his assignee proposed"to sell, the mortgage property, and the appellant consented to this-being done tendering his mortgage bond, which is filed in Court.The life insurance policy had lapsed. The household furniture and*printing materials were sold at Rs. 1,327.92, and the appellant wasallowed to draw that money. The house and premises at Princestreet were sold, and a sum of Rs. 11,682.53 was brought into Court.The primary mortgagee drew the whole sum due to him, namely,Rs. 9,941.47, and the appellant thereupon moved for leave to drawout the balance, namely, Rs. 1,741.06. The learned. District Judgedisallowed the motion on the ground that the appellant by surren-dering his mortgage had elected to come in as an unsecured creditorand share in the proceeds pro rata with the other creditors. The'present appeal is brought against the order disallowing that motion.
Apart from authority, I should have thought that the case was-free from doubt. Section 111 of Ordinance No. 7 of 1853 provides-that “ no creditor having security for his debt, or having made anyattachment of the goods and effects of the insolvent, shall receive *upon any such security or attachment more than a rateable part of.
(1684) 6 S. C. C. 8$.
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such debt, except in respect of any execution served and levied byseizure and sale upon or any mortgage of or lien upon any part ofthe property of such insolvent before the date of the filing of apetition for sequestration of his estate."
In the present case the seizure was effected before the insolventfiled his petition for sequestration. That being so,- I should havethought that, the clear effect of the saving clause in section 111 wasto secure the appellants preference, in spite of the fact that he hadproved his claim and tendered his mortgage bond. There is nothingin the reoord to show that the appellant intended in any way torenounce his rights under the mortgage. The construction ofsection 111, which I have here suggested as the correct one, wasadopted obiter by Lawrie J. in In re In-gleby 1 (and see 8. T.Mathiahv. Meera Lebbe Marcar Tamby l). A different view of the law wastaken, however,' by the Supreme Court in Brown v. Fernando.*That case Was not, however, followed in Ramen Ghetty v. Anstruther.4
As the authorities are conflicting, we are at liberty, I think tochoose between them. I unhesitatingly accept the view taken byLawrie J. in In re Ingleby.1
. Mr. A. St. V. Jayewardene, counsel for the seventh respondent,called our attention to the provisions of section 109 of OrdinanceNo. 7 of 1853, that “ no creditor who has brought any action againstany insolvent in respect of a demand prior to the fiiling of a petitionfor sequestration, or which might have been proved as a debt underthe insolvency, shall prove a debt under such insolvency, or haveany claim entered upon the proceedings, without relinquishing suchaction; and the proving or claiming a debt under a petition forsequestration by any creditor shall be deemed an election by suchcreditor to take the benefit of such petition with respect to the debtso proved or claimed.”
It is quite clear, however, from the. language of this section as awhole, that it is applicable only where an action has been broughtagainst the insolvent prior to the filing of the petition for seques-tration, a state of fact which does not exist in the present case.I would allow the appeal on the terms stated by my Lord the ChiefJustice.
Set aside and sent back.
H. J. C. Pereira (with him F. M. de Saram), for appellant inappeal No. 47.
H. A. Jayewardene, for the opposing creditor.
Talaivasingham and A. St. V. Jayewardene, for the respondent.
(1885) 7 S. C. C. 39.* (1888) 8 S. C. C. IBS.
(1884) 6 S, C. C. 83.* (1889) 9 S. C. C. U.
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This is an appeal from a refusal of the District Judge to grant acertificate of conformity to the insolvent. The principal groundsof the refusal are the failure of the insolvent to keep books, and theDistrict Judge’s finding that the insolvent has been trading recklessly.With regard to his failure to keep books, it has been contendedthat the insolvent is not a trader withing the meaning assigned tothat term by Chief Justice Bonser in In re Kanagaratne.1 Evenaccepting the correctness of this definition, as regards which, Iadmit, I have some doubt, there is sufficient evidence that theinsolvent was a trader in the sense that he had followed the occu-pation of buying and Belling goods; for during a part of the periodwith which we are concerned he did deal in cloths and combs. I amtherefore of opinion that the insolvent in failing to keep bookshas been guilty of one of the offences set out in section 151 of theInsolvency Ordinance. There is also evidence of reckless- trading.It is I think proved that the insolvent at the time that he. was awarethat he was in a state of insolvency borrowed more money andembarked on fresh enterprises. There is therefore ground, inmy opinion, for dealing somewhat severely with the insolvent. On(die other hand, I do not regard the case as one of the worst character.The insolvent was able to produce a fair, proportion of assets, andit is possible that if his property in th<> Pettah had been sold morefavourably his balance sheet would have been better. On thewhole, I think that the justice of the case will be met if the certificateof the insolvent is suspended for two years, and then granted in thethird class. The order of the District Judge must be set aside, andan order as I have indicated must be substituted accordingly. Noorder will be made as to costs.
Woon Benton J.—
I entirely agree, and I only desire to add that I share in thedoubts of my Lord the Chief Justice as to the correctness of thedecision of Chief Justice Bonser and Mr. Justice Moncreiff in In reKanagaratne.1 In the latest English case, in which the. meaning ofthe word “ trade ” has been discussed (Commissioners of Taxationv. Kirk2), Lord Davey, in delivering the judgment of the PrivyCouncil, expressed himself as follows: “ The word * trade ’ nodoubt primarily means traffic by way of the sale or exchange orcommercial dealing.” It will be observed that, in thst passage ofthe judgment, commercial dealings are treated as falling withinthe primary meaning of the word “ trade.
» 11900) 1 Br. 70.
Set aside.> (1900) A. c. m.
PERERA v. JOSEPH et al