068-NLR-NLR-V-41-CASSIM-v.-SUPPIAH-PULLE.pdf
Cassim v. Suppiah Pulle.
275
1939
Present: Moseley A.C.J. and Nihill J.CASSIM v. SUPPIAH PULLE.
11—D. C. (Inty.) Colombo, 4,669.
Insolvency—Application to set aside the transaction of an insolvent—Proceed-ing arising out of but independent of insolvency—Evidence in insolvencyproceedings inadmissible—Prescription—Insolvency Ordinance (Cap. 82).
Section 51 of the Insolvency Ordinance applies only to the case of aperson who has been adjudged insolvent and is aimed at transactionseffected at a time when such person is in fact insolvent.
An application under the section by way of petition is a proceedingarising out of the insolvency proceedings but independent thereof.
In such a proceeding the assignee is not entitled to rely on the evidencegiven in the insolvency proceedings by the insolvent and the respondentto this application.
Per Nihill J.—Such a proceeding is an action within the meaning ofsection 2 of the Courts Ordinance and comes within the ambit of section10 of the Prescription Ordinance.
Kandapper v. Moses (8 T. C. L. R. 69) and Kandappa v. RamasamyChetty (6 C. L. Rec. 37) followed.
HIS was an application by the assignee of an insolvent estate under
JL section 51 of the Insolvency Ordinance. The insolvent was soadjudged on June 19, 1933. The certificate meeting was held on August31, 1937, when a certificate of the third class was granted but suspendedfor four years.
On December 9, 1937, the asignee instituted proceedings under section51 for the sale of certain property for the benefit of the creditors.
H. V. Perera, K.C. (with him S. J. V. Chelvanayagam), – for the firstrespondent, appellant.—The order for sale made under section 51 ofCap. 82 cannot be supported. Under section 51 insolvency at the timeof the impugned conveyance has to be proved by the petitioner—Kan-dapper v. Moses'.
The present proceedings are quite distinct from the certificate proceed-ings. The trial Judge, however, has treated them as parts of one andthe same action and has improperly let in the evidence which had beentaken in the certificate proceedings. In no sense can the appellant whowas a purchaser from the insolvent be regarded as a party to the certificateproceedings. See Kandappa v. Ramasamy Chetty !.
The assignee’s application should be regarded as.an independent action.The present claim, therefore, is prescribed—Fernando v. Peiris
N. E. Weerasooria, K.C. (with him C. Renganathan), for the assignee,respondent.—The Prescription Ordinance would apply only in regard toactions. It has been held that an insolvency proceedings is not an action—In re Hayne Thornhill'; Dias v. Palaniappa Chettiar.‘ Fernando v.Peries (supra) was not a proceeding under the Insolvency Ordinance; itwas am independent action to have a deed set aside.
1 (1930) 8 T. C. L. R. 69.' * (1931) 33 N. L. R. 1.
T
1 (1924) 6 C. L. Rev. 37.
* (1895) 1 N. L. R. 243.
(1932) 34 N. L. R. 195.
276
MOSELEY A.C.J.—Cassim v. Suppiah Pulie.
An application under section 51 of the Insolvency Ordinance is only astep and incident in the insolvency proceedings. Any evidence previouslygiven by the insolvent and the purchaser can, therefore, be incorporatedin the present application.
H. V. Perera, K.C., in reply.—The appellant is not the insolvent. Heis only a purchaser for valuable consideration. The whole of the insol-vency proceedings are not binding on me. The certificate proceedingsaffect the insolvent only. A new person is brought in for the first timeunder section 51 and, under the fundamental principle of procedure andjustice, only evidence properly led in the present application could beweighed. As to what part of the insolvency proceedings would be bindingagainst the appellant see section 41 of the Evidence Ordinance, section 126of the Insolvency Ordinance, and Punchirala v. Kiri Banda et al.'
In regard to prescription, section 51 contemplates a proceeding againsta person for the redress of a wrong. It is the Courts Ordinance and notthe Civil Procedure Code which should be looked at—the meaning of“ action ” in the interpretation section and the insolvency jurisdictionconferred on District Courts by section 62. The present applicationshould be regarded as an action—Silindu v. Akura*. The PrescriptionOrdinance is applicable. In Soosaipillai v. Fernando3 the proceedingwas under section 58 of the Insolvency Ordinance and, by parity ofreasoning, prescription would apply to a proceeding under section 51as well.
Cur. adv. vult.
October 23, 1939. Moseley A.C.J.—
This appeal arises out of a proceeding under section 51 of the InsolvencyOrdinance (Cap. 82 of the Laws). The insolvent was so adjudged onJune 19, 1933. The certificate sitting closed on August 31, 1937, whena certificate of the third class was granted but suspended for four years.On December 9, 1937, the assignee initiated proceedings under the above-mentioned section for the sale of certain property for the benefit of thecreditors.
The appellant, together with the insolvent, was made respondent tothose proceedings and was served with notice to show cause why theproperty should not be sold, since it appeared that the appellant, who wasthe father-in-law of the insolvent, had purchased the property from thelatter on August 7, – 1931. The deed of sale C 7, set out that theconsideration of Rs. 10,000 had been paid at the time of execution.
The insolvent did not appear at the hearing and there was evidencethat he was in hiding. The appellant was represented by Counsel whoapplied for an adjournment on the ground of the illness of his client.The request appears to have been refused and the inquiry proceeded. Inthe absence of the insolvent and the appellant, Counsel for the assigneemoved that their evidence given in the course of the certificate proceedingsshould be read. Counsel for the appellant objected to this course andfurther pointed out that it would be improper for the Court to take noticeof the finding of the Judge on those proceedings in which he had expressed
1 (1921) 23 N. L. R. 228 at v. 231.* (1907) 10 N. L. R. 193.
1 (1924) 26 N. L. R. 52.
MOSELEY A.CJ.—Cassim v. Suppiah Pulle.
277
the opinion that the transaction in question was of a fraudulent nature.The District Judge appears to have overruled the objection as the evidenceof both the insolvent and the appellant was referred to, as was the findingof the Judge on the certificate proceedings.
The application, which was by way of petition was allowed and it wasordered that the property be sold for the benefit of the creditors.
The grounds of appeal are, in short, that the petitioner, that is theassignee, has failed to prove the facts necessary to support an order forsale under section 51 of the Insolvency Ordinance, and further that theclaim is prescribed by section 10 of the Prescription Ordinance.
Section 51 of Cap. 82 applies only to the case of a person who has beenadjudged insolvent, and is aimed at transactions effected at a time whensuch person is insolvent. Obviously, that is not to say that the personmust have been, at the time of the transaction, adjudged insolvent, butthat he must have been in fact insolvent. That he was so in fact appearsto be the first fact which must be proved, that he was subsequentlyadjudged so being a matter of record.
As to the onus of proof we were referred to the case of Kandapper v.Moses' in which an insolvent prior to his adjudication assigned certainmortgage bonds. It was open to the assignee to claim the proceeds eitherunder section 51 or section 56.“ If ”, said Macdonell C.J., “ he makes it
under section 51 he must prove that the assignor, that is the insolvent,was actually insolvent at the time of making this assignment, and thatthe assignment was voluntary, or not for valuable consideration.”
In the present case, the onus of proof of these facts being upon thepetitioner, was it open to him to invite the Court to read the evidence ofthe insolvent and the appellant, and to reply very largely upon thatevidence in support of his application? Counsel for the appellantobjected to such evidence being read. There is no ruling by the DistrictJudge apparent from the record beyond a note that Counsel for theassignee referred to the evidence of the insolvent and the admission ofthe first respondent, that is the present appellant.
In my view the property of admitting this evidence in the way inwhich it was admitted depends in the first place upon the character ofthe proceeding. Is an application for an order of sale under section 51merely an incident in the insolvency proceedings, or is it a proceedingarising out of the insolvency proceedings but independent thereof? Itmust be borne in mind that the certificate sittings began in March, 1936,. and closed, as far as the taking of evidence is concerned, in June, 1937.The insolvent was of course examined and the appellant also gave evidence.His character at that time was merely that of a witness. He no doubtwas aware that the genuineness of the transaction of August 7, 1931,was being attacked, but he was not represented by Counsel and couldhardly know that the financial position of the insolvent at that date,some two years before the petition in insolvency was filled, was a matterwhich could in any way effect him personally. Some months later he isserved with the petition in the present proceedings and for the first timebecomes a party. The learned District Judge appears to have held the
1 (1930) 8 T. C. L. R. 69.
278
MOSELEY A.C.J.—Cassim v. Suppiah Pulle.
view that this application is merely a step in the insolvency proceedingsas a whole, for he says:—“ When the Court made its order (i.e., suspendingthe certificate) in August, 1937, it was perhaps open to the Court undersection 51 of the Insolvency Ordinance to order that this property shouldbe sold for the benefit of the creditors
Here we are faced with a difficulty which arises from the statute underwhich the proceedings are brought, an antiquated and unsatisfactorypiece of legislation. The difficulty is in no way lessened by the fact thatno rules have been framed to regulate the practice and the forms ofproceedings under the Ordinance. There is something to be said thereforefor the view taken t$y the District Judge since the wording of section 51does not suggest that any particular procedure is a condition precedentto the making of the order for sale. But there can be no doubt that tomake such an order in the manner suggested by the District Judge, thatis at the certificate sitting, would in many cases inflict an injustice uponthird, and, in some cases no doubt, innocent parties. In cases such asthis it is the rights of third parties that are being attacked and it isinconceivable that the law should permit an absolute order prejudicial totheir interests to be made without giving them an opportunity of beingheard. Such an opportunity was given to the insolvent in this case, andI hold the view, that the motion by way of petition is a proceeding arisingout of the insolvency but independent thereof.
In Kandappa v. Ramasamy Chetty it was held that, where in aninquiry under section 56 of this Ordinance no evidence was offered, andthe District Judge relied on the judgment in earlier proceedings betweenthe insolvent and other parties and held the transaction in question to be afraudulent assignment, the earlier judgment should not have beenadmitted.■ –
In the order now appealed from the following passage occurs:—“Atthe certificate meeting, after a good deal of evidence was gone into, theCourt held there was no consideration for the transfer to the father-in-lawand practically the transfer itself was fictitious ”. There is some indica-tion that the District Judge had in mind the earlier proceedings and theevidence upon which the certificate of conformity was suspended.
Now holding the view that these proceedings are distinct from thecertificate proceedings I know of no authority for the admission in theformer of the evidence of the insolvent. In the District Court, Counselfor the assignee referred to section 33 of the Evidence Ordinance (Cap. 11)but the first condition, viz., that the proceeding was between the sameparties or their representatives in interest, appears to me to be absentand I cannot see how the section is in any way useful in these circum-stances. At a later stage Counsel for the assignee sought to have theevidence of the appellant treated as admissions by him and thereforeadmissible. But if his evidence is to be so treated, it should have beenproved in proper manner, such as formal production by an officer of theCourt of the record in the previous proceedings, or the evidence of awitness who was in a position to testify that certain admission had beenmade. But all that the record shows in that Counsel “ refers to the-evidence of the insolvent and the admissions of the first respondent” (i. e.,the appellant).
{1924) 6 C. L. Res. 37.
NIHILL J.—Cassim v. Suppich Pttlle.
279
Now, although in my view the evidence was improperly admitted, I donot know that it was of any great use to the case for the asignee. Counselfor the respondent before us contended that the District Judge did not acton the previous evidence or judgment but that he had-'before him ampleevidence of insolvency. He relied largely upon a balance sheet whichmade. But all that the record shows is that Counsel “ refers to thepurported to show the position of the insolvent’s affairs at May, 1932, onthe ground that it was prepared from the insolvent’s books which wereclosed in 1931. But the assignee in the course of his evidence said :—“ Ido not know what his (the insolvent’s) liabilities were at the time of theexecution of the transfer …. I found that the liabilities wereabout one lack of rupees …. Insolvent said that he had stockto the extent of Rs. 10,000 at the time …. I cannot find outfrom the books what the debts due to the insolvent were and vice versa atthe time of transfer …. I have not prepared a balance sheet ofthe insolvent’s state of affairs at the time of the transfer of the propertyfor the purpose of this inquiry …. I cannot say what his state ofaffairs were at the time of the transfer
The extracts which I have just quoted are a fair sample of the evidenceupon which, in my view the District Judge should have considered • theapplication. To me the evidence falls considerably short of the standardof proof desirable in such proceedings. The case no doubt is full ofsuspicious circumstances in regard not only to the financial position ofthe insolvent at the relevant date but to the genuineness of the allegedconsideration for the transaction, but suspicion is not a ground uponwhich to base an order such as this. I have already said that in myopinion the evidence which I have held to have been improperly admitteddoes not help the assignee’s case. I would merely refer to one extractfrom his evidence, which is as follows: —“ At the time I sold my share inthe properties I had creditors to the extent of Rs. 100,000. I had bookdebts and stock-in-trade worth more than Rs. 100,000 ….Most of the books debts are irrecoverable ”. There is nothing to showthat the debts were irrecoverable at the time of the impugned transaction.The insolvent’s statement was not contradicted and, if believed, is ananswer to the allegation of insolvency.
In my view the assignee has failed to prove the necessary fact ofinsolvency, and on this ground the appeal must succeed.
Nihxll J.—
This is an appeal from an order of the District Judge directing a sale ofcertain properties in favour of an insolvent’s estate. The properties werepurchased by the appellant from the insolvent in August, 1931. Theadjudication of the insolvent took place in June, 1933. On August 31,1937, the insolvent was granted a certificate of the third class which wassuspended for a period of four years. The grant of a certificate wasopposed by the largest creditor on the grounds, inter alia, that the saleabove referred to was fraudulent and had been executed to defraud thecreditors. The sale was to the insolvent’s father-in-law who is the presentappellant.
The District Judge in the course of his certificate order stated that hewas “ inclined to think that no consideration in fact was paid for the
.280
NIHILL, J.—Cassim v. Suppiah Pulle.
transfer of these immovable properties” and reached the conclusion thatthe transfer was merely intended to put the property beyond the reachof the creditors of the insolvent.
I have detailed these facts in order to assist in determining the exactnature of the proceedings which led to the order which is now appealedagainst. The order was on an application made by way of petition bythe assignee of the insolvent and the learned District Judge in dismissingthe plea of prescription does so on the grounds that the application was“ more in the nature of execution proceedings ” by which I take him tomean that the Court could have ordered the sale of the properties at anytime under section 51 of the Insolvency Ordinance once it was satisfiedthat the transfer .was fraudulent which was the view of the Court whenthe certificate order, was made.
But before an order can be made under section 51, it must be provedthat at the time of the transfer the insolvent was insolvent, and that theexceptions named in the section were not present. If there has been abona fide purchased for valuable consideration by an innocent purchaser,he must be given his chance to demonstrate this to the Court, and hecannot do this until he is brought in as a party to the proceedings.
In the present matter the appellant was no party to the proceedingswhich led to the Certificate order being made, he comes in for the firsttime when the attempt is made to sell his properties.
Was not therefore the real nature of the proceedings now appealedaganist, however different in form they may have been, more in the natureof an action in which the appellant was an interested party than a mereinevitable, almost routine step in the insolvency proceedings ?
It is hardly likely that this preliminary difficulty would arise but for theabsence of Insolvency Rules. The archaic character of the law relatingto insolvency has often been the subject for comment of this Court, andthe difficulty is increased by the absence of rules. Without rules it isimpossible to say with certainty how a proceeding under section 51should be started. In the English Bankruptcy Rules, 1915, as given inWilliams’ on Bankruptcy (15th ed.) it is provided for that every applicationto the Court (unless otherwise provided for) shall be made by motionssupported by affidavit, and it has been held that a motion made undersection 105 of the Bankruptcy Acts, 1914 and 1926, which is a sectiondealing with general powers of Bankruptcy Courts is equivalent to anaction, and that accordingly the Statute of Limitations would be ananswer to a motion by the trustee if it would have been an answer to anaction by the bankrupt. (In re Mansel, 9 Mor. 189) Williams’ on.Bankruptcy (15th ed.) p. 438.
Now if the application upon which the order appealed against was intruth “ an action ”, would section 10 of the Prescription Ordinance(Cap. 55) apply? In Silindu v. Akura1, an application for restitutio inintegrum was held to be an action within the meaning of this section ofthe Prescription Ordinance. In his judgment Grenier J. commented onthe section’s comprehensive and far-reaching character. Wood Renton J.
» [1907) 10 N. L. R. 193.
NTTjfT.T. J.—Cassim v. Suppiah Pulle.
281
in the same case concluded that “ action ” in the terms of the sectionmust be construed as embracing any proceedings by which a legal rightto redress is asserted.
According to section 2 of the Courts Ordinance (Cap. 6) an “ action ”is a proceeding for the prevention or redress of a xtfrong and the jurisdictionof a District Court by section 62 of the same Ordinance includes insolvencymatters. It cannot be said therefore that the definition of an “ action ”in the Courts Ordinance can have no applicability to a matter whichcomes before a District Court under the Insolvency Ordinance but in theexercise of the Court’s insolvency jurisdiction.
Now the essence of the application by the assignee in this matter wasthat he was seeking to redress a wrong alleged to.have been committedagainst the creditors, but to succeed he had to bring in and defeat a partywho was not a party in any way to the insolvency. How then can thisbe said to be a mere step in the insolvency proceedings? There arecertain steps in insolvency in which the persons who make up an insol-vency each plays his part—insolvent, assignee, creditors, but when itbecomes necessary consequential on something that comes to light duringthe course of the insolvency to go outside and attack the rights of a thirdparty to retain property which he has acquired, it seems to me that suchproceedings must take on the character of an action, whatever they maybe called in fact, for if they do not the third party is prejudiced.
It is significant that in this case the difficulties with regard to theadmissibility of evidence arose because there was no clear distinctionmade by the learned District Judge between the insolvency proceedingsas a whole and application before him in which a stranger to theseproceedings was a party.
It should also be remembered that it would seem that the assigneecould have pursued the same remedy in this case by instituting a Paulianaction which is what was done in the well-known case of Fernando v.Petris'. Although that case -was decided on the facts, Garvin J. wasprepared to hold that a Paulian action was prescribed in three years fromthe time when the cause of action arose which in the.absence of concealedfraud he placed at the time when the alienation sought to be impeachedtook place.
If that be so, it seems to me illogical that the position of the purchaser-defendant should be worsened because the assignee moved the Court byway of petition to which the purchaser "had to be made respondent.
I would therefore hold that the application was an “ action ” and assuch came within the ambit of section 10 of Cap. 55.
If that view is correct, the application is prescribed because it was nottaken by the assignee within three years of the adjudication for there isno question here of concealed fraud. I agree however with my Lord theActing Chief Justice that apart from all other considerations, this appealshould be entitled to succeed because the assignee failed to prove that theinsolvent was in fact insolvent at the time he conveyed these properties.
Appeal allowed.
■ (1931) 33 X. L. R. 1.