# Ramnarayan Mor and another v. State of Maharashtra

- **Citation:** [1964] 5 S.C.R. 1098
- **Court:** Supreme Court of India
- **Decided:** 1964
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ramnarayan-mor-and-another-v-state-of-maharashtra-2963
- **Pages:** 21

## Headnote

1963
Ramnarayan
Mor and
another
v.
State of
Maharashtra
Ayyangar J.
1963
December 16
1098
SUPREME COURT REPORTS
[1964]
by reference to unproved, untested and possibly inadmissible documents on which the prosecution proposes
to rely, whether to such a case those considerations
necessarily apply. If without evidence, properly so
called, a Magistrate examines ·an accused, he would
be converting himself into an investigating agency
and there is therefore every possibility of the accused
being prejudiced and that might be the very reason
why the sub-section has been framed in a manner to
avoid this result. The position is, of course, different
under s. 251-A(2) where the examination is by virtue
of the statute and so it stands in a class apart, and we
are not concerned to consider whether an examination
under that provision might prejudice the accused.
We, therefore, hold that where there is no evidence recorded under sub-s. (4) of s. 207-A, the Magistrate has no jurisdiction to examine an accused
under s. 207-A(6) and consequently the Magistrate in
the present case had no jurisdiction to direct the
accused to appear before him for examination.
We would accordingly allow the appeal and set
aside the order of the Magistrate directing the accused
to appear before him for being examined.
ORDER
Jn view of the Judgment of the majority, the
appeal fails and is dismissed.
THE STATE OF PUNJAB
v.
S. RATTAN SINGH
(P.B.
GAJENDRAGADKAR,
K. SUBBA RAO,
K.N.
WANCHOO,
J:C. SHAH AND RAGHUBAR DAYAL JJ.)
The Patiala Recovery of State Dues Act (Act IV of 2002 BK),
ss. 4 and II-Scope of-Civil Court-Jurisdiction to decide if a
person is defaulter.
~.
/ '
' !
-
~
I
Provincial Insolvency Act (5of1920), s. 4-Whether Insolvency
. c..111·.
Court can go behind decree.
...
y
(
·j -
•
' --
-
5 S.C.R.
SUPREME COURT REPORTS
1099
Jyoti Parshad was indebted to the Bank of Patiala. As he
1963
could not pay the debt, he asked the Bank in 1952 to allow him
to pay the same in instalments and the Bank agreed. Rattan Singh,
The State of
Respondent stood surety to the extent of Rs. 2 lacs and entered
Pun 'ab
into a contract of guarantee with the Bank to discharge the liability
U
of Jyoti Parshad to the extent of Rs. 2 lacs in case of default by
v.
Jyoti Parshad. A deed of guarantee was also executed. As S. Rattan Singh
Jyoti Parshad did not pay, the Bank started proceedings against
Rattan Singh under the Act. The Managing Director of the Bank
dismissed the objections raised by Rattan Singh. The Board
of Directors dismissed the appeal. The appellant filed a petition
in the Court of the Insolvency Judge praying for adjudication of
Rattan Singh Respondent as insolvent on account of his transfer
of his houses and agricultural lands without consideration to his
wife and two sons within 3 months of the petition with intent to
defeat and delay his creditor Bank having full knowledge of his
liability towards the State. The contention of the Respondent
was that he did not stand surety and that the impugned tranfser
of lands and houses was made on account of natural love and affection for his wife. The insolvency petition was dismissed by the
Insolvency Judge on the ground that the Respondent had not
executed a deed of guarantee. The appellant went in appeal to
the District Judge but the appeal was dismissed. The revision
was also dismissed by the High Court. The appellant came to
this court after obtaining special leave.
The contentions of the appellant before this court were that
the Civil Court had no jurisdiction to determine matters which
could be determined by the Head of the Department under the
provisions of the Act, that the Head of the Department in the
exercise of the powers conferred under s. 4 on him could not only
determine the amount due from the defaulter but also could determine whether the alleged defaulter was really a defaulter or not
and that in view of s. 11 of the Act, a civil court could not determine
the question of the liability of the alleged defaulter to

## Text

_Characters 0–39,919 of 43,701. This is a partial read: ask again with offset=39919 for what follows._

1963
Ramnarayan
Mor and
another
v.
State of
Maharashtra
Ayyangar J.
1963
December 16
1098
SUPREME COURT REPORTS
[1964]
by reference to unproved, untested and possibly inadmissible documents on which the prosecution proposes
to rely, whether to such a case those considerations
necessarily apply. If without evidence, properly so
called, a Magistrate examines ·an accused, he would
be converting himself into an investigating agency
and there is therefore every possibility of the accused
being prejudiced and that might be the very reason
why the sub-section has been framed in a manner to
avoid this result. The position is, of course, different
under s. 251-A(2) where the examination is by virtue
of the statute and so it stands in a class apart, and we
are not concerned to consider whether an examination
under that provision might prejudice the accused.
We, therefore, hold that where there is no evidence recorded under sub-s. (4) of s. 207-A, the Magistrate has no jurisdiction to examine an accused
under s. 207-A(6) and consequently the Magistrate in
the present case had no jurisdiction to direct the
accused to appear before him for examination.
We would accordingly allow the appeal and set
aside the order of the Magistrate directing the accused
to appear before him for being examined.
ORDER
Jn view of the Judgment of the majority, the
appeal fails and is dismissed.
THE STATE OF PUNJAB
v.
S. RATTAN SINGH
(P.B.
GAJENDRAGADKAR,
K. SUBBA RAO,
K.N.
WANCHOO,
J:C. SHAH AND RAGHUBAR DAYAL JJ.)
The Patiala Recovery of State Dues Act (Act IV of 2002 BK),
ss. 4 and II-Scope of-Civil Court-Jurisdiction to decide if a
person is defaulter.
~.
/ '
' !
-
~
I
Provincial Insolvency Act (5of1920), s. 4-Whether Insolvency
. c..111·.
Court can go behind decree.
...
y
(
·j -
•
' --
-
5 S.C.R.
SUPREME COURT REPORTS
1099
Jyoti Parshad was indebted to the Bank of Patiala. As he
1963
could not pay the debt, he asked the Bank in 1952 to allow him
to pay the same in instalments and the Bank agreed. Rattan Singh,
The State of
Respondent stood surety to the extent of Rs. 2 lacs and entered
Pun 'ab
into a contract of guarantee with the Bank to discharge the liability
U
of Jyoti Parshad to the extent of Rs. 2 lacs in case of default by
v.
Jyoti Parshad. A deed of guarantee was also executed. As S. Rattan Singh
Jyoti Parshad did not pay, the Bank started proceedings against
Rattan Singh under the Act. The Managing Director of the Bank
dismissed the objections raised by Rattan Singh. The Board
of Directors dismissed the appeal. The appellant filed a petition
in the Court of the Insolvency Judge praying for adjudication of
Rattan Singh Respondent as insolvent on account of his transfer
of his houses and agricultural lands without consideration to his
wife and two sons within 3 months of the petition with intent to
defeat and delay his creditor Bank having full knowledge of his
liability towards the State. The contention of the Respondent
was that he did not stand surety and that the impugned tranfser
of lands and houses was made on account of natural love and affection for his wife. The insolvency petition was dismissed by the
Insolvency Judge on the ground that the Respondent had not
executed a deed of guarantee. The appellant went in appeal to
the District Judge but the appeal was dismissed. The revision
was also dismissed by the High Court. The appellant came to
this court after obtaining special leave.
The contentions of the appellant before this court were that
the Civil Court had no jurisdiction to determine matters which
could be determined by the Head of the Department under the
provisions of the Act, that the Head of the Department in the
exercise of the powers conferred under s. 4 on him could not only
determine the amount due from the defaulter but also could determine whether the alleged defaulter was really a defaulter or not
and that in view of s. 11 of the Act, a civil court could not determine
the question of the liability of the alleged defaulter to pay the
debt demanded from him. The contentions of the Respondent
were that the Head of the Department could only determine the
amount of debt due from a person alleged to be a defaulter
but could not determine whether that person was defaulter or
not and even if the Head of the Department could determine
the liability of the alleged defaulter to pay the debt, the jurisdiction of the Insolvency Court itself to decide whether the debt was
due from the alleged debtor sought to be declared insolvent was
not ousted by the provisions of s. 11 of the Act and that the Insolvency Court was not a civil court. Dismissing the appeal,
Held: The provisions of s. 4 of the Act empower the
Head of department to determine not only the amount of State
dues recoverable but also the liability of the alleged defaulter to
pay those debts. In view of the provisions of s. 11 of the Act,
no civil court has jurisdiction to determine the amount of State
llOO
SUPREME COURT REPORTS
[1964]
1963
dues recoverable and the liability of the alleged defaulter to pay
that amount. Such powers were however possessed by the InsolThe State of vency Court. In the present case, the Insolvency Court had found
p
. b
that the Respondent had not executed the surety bond and thereunJa
fore, was not liable to make good any payment under it. The
v.
order of the Insolvency Judge dismissing the insolvency petition
S. Rattan Singh was correct. An insolvency court can go behind a decree and
probe into the genuineness of the debt on which it is founded.
Lachhman Dass v. State of Punjab, [1963] 2 S.C.R. 353,
Kanshi Ram v. The State of Punjab, I.LR. [1961) 2 Punjab
823, Ex parte Kibble. In re Onslow, (1875) 10 Ch. A.C. 373, Ex parte
Lennox. In re Lennox (1885), 16 Q.B.D 315, In re Freser, Ex parte
}
Central Bank of London, [1892] 2 Q.B.D 633,
In re Van Laun,
Ex parte Chatterton, [1907] 2 KB 23, In re Van Laun Ex parte
Pattullo, [1907] 1 KB 155, Narasimha Sastri v. Official Assignee,
Madras, A.I.R. 1930 Madras 751 and Sadhu Ram v. Kishori Lal
A.LR. 1938 Lah. 148, referred to.
CrvrL APPELLATE JurusmcrroN : Civil Appeal
No. 6 of 1962.
Appeal by special leave from the judgment and
order dated May 14, 1959 of the Punjab High Court
in Civil Revision No. 404 of 1957.
S. V. Gupte, Additional Solicitor-General of India,
D.D. Chaudhuri and B.R.G.K. Achar, for the appellant.
M.C. Setalvad,
S.N. Andley, and Rameshwar
Nath, for the respondent.
December 16, 1963. The Judgment of the Court
was delivered by
Raghubar Dayal
RAGHUBAR DAYAL J.-This appeal, by special
J.
leave, raises mainly the question whether the Insolvency Court can, at the hearing of a petition by a
creditor for declaring a debtor insolvent, determine
the liability of the alleged debtor for the payment
of the debt for the recovery of which the creditor
had obtained an order under the Patiala Recovery
of State Dues Act, 2002 BK (Act IV of 2002 BK),
hereinafter calJed the Act. To appreciate how the
question arises on the facts of the case, reference to
the provisions of the Act is necessary, and we set
them out first.
The Act was enacted to consolidate and amend the
law relating to the recovery of State dues. According -
5 S.C.R.
SUPREME COURT REPORTS
1101
to cl. (I) of s. 3 'State dues' included debts due
1963
to the Patiala State Bank. The expression 'departme:nt' includes the Patiala State Bank, and the exThe State of
prcssion 'defaulter' means a person from whom State
Punjab
du1es are due and includes a person who is responsiv.
ble as surety for the payment of any such dues. 'Head S. Rattan Singh
of department'
means,
among other things, the
-
Managing Director in the case of the Patiala State Raghubar Daya.
Bank. Chapter II purported to deal with determinaJ.
tion of State dues and modes of recovery thereof.
Section 4 which falls in this Chapter provides that
the head of department shall determine in the prescribed manner the exact amount of State dues recoverable by his department from the defaulter. Section
5 lays down the modes for the recovery of State dues.
Section 6 provides for the transmission of a certificate
as to the amount of State dues recoverable from the
defaulter to the Nazim and to the Accountant-General
and its sub-s. (2) is:
"A certificate transmitted under the preceding
sub-section shall be conclusive proof of the
matters stated therein and the Nazim or the
Accountant-General shall not question the validity of the certificate or hear any objections of
the defaulter as to the amount of State dues
mentioned in the certificate or as to the liability
of the defaulter to pay such dues."
Section 10 provides that no action shall be taken
v
by the Nazim or the Accountant-General on a certificate coming from the Managing Director, unless
it is sent to him within the period of limitation
specified in that section. Section 11 reads:
"No Civil Court shall have jurisdiction in any
matter which the head of department, or any
authority or officer authorised by the head of
department is empowered by this Act or the
rules made thereunder to dispose of, or take
cognizance of the manner in which any such
head of department, or authority, or officer,
e:xercises any powers vested in him or it by or
under this Act or the rules made thereunder."
1102
SUPREME COURT REPORTS
[1964]
1963
Section 12 empowers the Government of the State
to make rules for the purpose of carrying out the
The State of provisions of the Act.
Sub-s. (2) thereof states that
Pun1ab
the rules may provide the manner in which the amount
v.
of State dues shall be determined by a head of departs. Rattan Singh ment.
Raghubar Dayal
The Patiala Recovery of State Dues Rules,
J
2002 hereinafter called the rules, lay down the mode
·
of determination of State dues in rr. 3 to 7. Rule
3 requires the head of department to serve a notice
on the defaulter specifying therein the amount of
State dues and from whom such dues were recoverable
and snail require the defaulter to pay such dues on
or before a specified date or to appear before the
authority specified therein (called the Inquiry Officer)
and present a written statement of his defence. If
the defaulter appears and pays the amount of State
dues, the head of department issues a receipt to him,
under r. 4 and the matter is closed. If he does not
appear on the specified date and the Inquiry Officer
be satisfied that the notice has been duly served, he
may proceed ex parte and determine by order in writing
the amount of State dues recoverable from him.
The order is to be subject to confirmation by the
head of department.
If the Enquiry Officer is not
so satisfied another notice is issued to the defaulter.
Rule 6 provides that where the defaulter appears
on the date fixed in the notice and presents his written
statement, the head of department, or the Inquiry
Officer, as the case may be, shall examine the objections of the defaulter stated in written statement in
the light of the relevant records of the department
and shall then, by order in writing, determine finally
the exact amount of State dues recoverable from such
defaulter. The Inquiry Officer is to submit his report
to the head of department before the latter shall finally
determine the State dues recoverable.
Rule 7 provides that if the defaulter does not
pay the State dues within the period specified in that
rule, the head of department may proceed to recover
-
I
I •
5 S.C.R.
SUPREME COURT REPORTS
1103
them through the Nazim or the Accourttant-General
1963
or both. Rule 8 provides for appeal by the defaulter
against the orders passed under rr. 5 or 6.
Rule 9
The State of
provides for a revision by the defaulter in case his
Punjab
appeal is dismissed.
Rule 12 provides that the
v.
appellate or revisional authority may pass such order s. Rattan Singh
in appeal or revision as it thinks fit.
b . ft
d Raghubar Dayal
The facts of the case may
be
ne y state
J.
now.
One Jyoti Parshad, proprietor of M/s. Ralla
Ram Jai Gopal, a firm at Patiala, was indebted to
the Bank of Patiala. Being unable to pay the
debt of rupees 5 lacs, Jyoti Parshad approached the
Bank in 1952 with a request to forbear from recovering the amount just then all at cmce and grant time
and allow him to pay the amount in instalments.
The Bank agreed. In pursuance of the agreement
between Jyoti Parshad and the Bank, Sardar Rattan
Singh, respondent, stood surety to the extent of
Rs. 2 lacs and entered into a contract of guarantee
wiith the Bank to discharge the liability of Jyoti Parshad
to the extent of rupees 2 lacs in case of default. He
executed a deed of guarantee on July 1, 1952. When
Jyoti Parshad made default in payment of the requisite
amount, the Bank started proceedings for the recovery
of its dues under the Act against Rattan Singh, the
defaulter under its terms.
On May 26, 1955, the Managing Director of
the Bank dismissed the objections Rattan Singh had
raised by his written statement and held him liable
for the amount he had undertaken to pay under the
surety bond. An appeal by him to the Board of
Directors was dismissed on December 24, 1955.
Meanwhile, on May 10, 1955 during the proceedings for the recovery of the debt under the Act, the
State of Patiala filed a petition in the Court of the
Sub-Judge, 1st Class (Insolvency Court) Patiala,
praying for the adjudication of Rattan Singh, responde:nt, an insolvent on account of his transferring all
his houses at Patiala and agricultural lands at Sunihal
Heri and Patiala without consideration to his wife
1104
SUPREME COlJRT REPORTS
[1964)
1963
and two sons within three months of the petition· with
intent to defeat and delay his creditor-Bank having
The State of full knowledge of his liability towards the State.
Punjab
.
.
v
By his wntten statement dated June 16, 1955
s. Ratta;, Singh t~e respondent denied having stood surety or having.
signed the deed of guarantees and stated that he was
Raghubar Dayal not liable to the State and that the impugned transfers
J.
of land and houses were made on account of natural
love and affection for his wife.
He also challenged
the jurisdiction of the Insolvency Court to entertain
that application.
The learned Insolvency Judge rejected the insolvency petition holding that the respondent had
not executed the deed of guarantee. It, however,
held that the Insolvency Court was competent to
consider the question of the liability of the respondent
to the State under the deed of guarantee, its jurisdiction being not ousted by the provisions of s. 11
of the Act which excluded the jurisdiction of the
Civil Court in any matter which the head of the department was empowered by the Act or the rules made
thereunder to dispose of or take cognizance of, as
the head of the department could, under the Act,
determine only the amount of the debt due from the
alleged defaulter and not the question whether the
alleged defaulter was really a defaulter in case this
was disputed.
The State of Punjab, successor of the State of
Patiala, appealed against this order to the District
Judge who agreed with the findings of the trial Court
and dismissed the appeal. The State then went in
revision to the High Court under s. 7 5 of the Provincial
Insolvency Act. Two contentions were raised there.
One relating to the respondent's executing the deed
of guarantee was repelled as being concluded by the
finding of fact by the courts below. The other
contention was that in view of the provisions of the
Act the Managing Director of the Bank had exclusive
jurisdiction to determine whether a certain person
was or was not a surety or a defaulter and what
the extent of his liability to the bank, if any, was
;
•
I
•
~
-
~,.
~
Ill '
' •
••
•
•
· 5 S.C.R.
SUPREME COURT REPORTS
1105
and that therefore the Insolvency Court had no jurisdic1963
tion to reconsider and determine it. The High Court
did not agree with this contention and dismissed the
The State of
revision. It is against this order that the State of
Punjab
Punjab has preferred this appeal after obtaining special
v;
leave.
s. Rattan Singh
The contention for the appellant in this Court Raghubar Dayal
is that the Civil Court had no jurisdiction to deterJ,
mine matters which could be determined by the
Head of the Department under the provisions of the
Act, that the head of the department in the exercise
of the powers conferred under s. 4 on him, can not
only determine the amount due from the defaulter
but also whether the alleged defaulter is really a
defaulter or not in case such an objection be raised
by that person and that therefore the Civil Court, in
view of s. 11 of the Act, cannot determine the question
or the liability of the alleged defaulter to pay the
debt demanded from him. It is contended for the
respondent that (i) the head of department can only
d1~termine the amount of the debt d~e from a person
alleged to be a defaulter, but cannot determine whether
that person is a defaulter or not, i.e., the question
whether the debt is due from that person or not if the
p1~rson disputes his liability to pay the alleged debt;
(ii) that even if the head of department can determine
the liability of the alleged defaulter to pay the debt,
the jurisdiction of the Insolvency Court itself to decide
whether the debt was due from the alleged debtor
sought to be declared insolvent is not ousted by the
provisions of s. 11 of the Act; and (iii) that the Insolvency Court is not a Civil Court.
The first question to determine then is whether
tJ1e head of a department can determine the objection
of an alleged defaulter that he is really not a
defaulter, i.e., no State dues are due from him
as he is not liable for any dues to the State irrespective of the question whether what amount is due
if he is liable for that debt to the State. The contentions for the respondent are based on these grounds:
{i]1 s. 4 empowers the head of the. department tQ
1106
SUPREME COURT REPORTS
[1964]
determine the exact amount of State dues recoverable /
and does not empower him to determine the liability
1Jie St~te of of the alleged defaulter to pay those dues in case
Pun;ab
the liability is disputed ; (ii) The question of liability
1963
v.
may raise complicated questions of fact and law
s .. Rattan Singh for determination and to determine which the head
. . -
·of department cannot be competent; (iii) The Managing
Raghubar Daya/Director of the Patiala Bank cannot be taken to be
/,
an independent person to determine the question
of the alleged defaulter's liability to pay the amount
as he is an official of the bank and the dispute is between the bank and the alleged defaulter.
.
The vires of the Act came up for consideration before this Court inLachhman Dass v. State of Punjab<l).
This Court held the Act to be valid and in considering the various contentions, Venkatarama Aiyar
J., delivering the majority judgment, said at p. 235.
"The Managing Director is a high-ranking official
on a salary of Rs. 1,600-100-2,500, with a free ·
furnished residence. He has no personal interest
in the transaction and there is no question
of bias, or any conflict between his interest and
duty."
The vesting of the power to determine the matters
covered by s. 4 in the Managing Director who has
no personal interest in the matter cannot therefore
be a ground for holding that the Act could not have
provided and does not provide for the head of department to determine the liability of an alleged defaulter
in case he disputes it.
In construing r. 6 it was said at the same page:
"It does not bar the parties from examining
witnesses or producing other documentary evidence. The Managing Director, has, under this
Rule, to examine the statement and the records
of the Bank in so far as they bear on the points
in dispute and that normally, would be all that
is relevant. But he is not precluded by the
Rule from examining witnesses or taking into
(1) [1963] 2 $.C.R. 353.
}
-
5 S.C.R.
SUPREME COURT REPORTS
1107
account other documentary evidence, if he con1963
siders that that is necessary for a proper determination of the dispute."
The State of
.Punjab
It follows that the Managing Director or 'the head
v
of a department can record evidence with respect s Ratt~ Singh
to the objections raised before him by the alleged ·
defaulter about his liability to P.ay the dues.
Raghubar Dqyal
Section 4 is really concerned with the determina1.
tion of the amount of State dues recoverable from
a defaulter and therefore the determination can take
into account both the amount and also its recoverability
from the person said to be a defaulter. There is
nothing in it which directly makes the head of department incompetent to determine the question of the
liability of the alleged defaulter in case of dispute.
This appears more clearly from the provisions of
sub-s. l2) of s. 6 which provides for the certificate
issued under sub-s. (lJ of s. 6 to be conclusive proof
of the matters stated therein, the matters being that
such and such amount was recoverable from the
person shown as defaulter. This sub-section further
provides that the specified authorities will not bear
any objections of the defaulter as to the amount of
State dues mentioned in the certificate or as to the
liability of the defaulter to pay such debt. The Act
therefore contemplated that there might be a dispute
about the liability of the alleged defaulter to pay the
dues and therefore directed the authorities to whom
the certificate is submitted not to bear objections
about it. When the authorities were conscious of
the possibility of such objections, it must be presumed
that they intended these objections to be decided
by the authority determining the amount of State
dues recoverable from a defaulter under s. 4 of the
Act. If it was not so intended by the Act, the legislature would have provided for the determination of
such an objection either by an agency specified in the
Act or by the regular courts.
The Act would
have made some mention about the agency and
would not have left this matter without a definite
provision in the Act. What would be the consequence
·nos
SUPREME COURT REPORTS
[1964]
'.1963
of so construing the provisions of s. 4 as to exclude
the objection to liability of the alleged defaulter
.The State. of from the purview of the head of department? It
Punjab
would be that the Bank will have to go to the Civil
.v.
Court for a declaration that the alleged person is
S. Rattan Singh liable to pay its dues. The suit will have to be merely
. ·-
for a declaration, as the determination of.the amount
,Raghubar Dayal he has to pay, if liable, will inevitably have to be
J.
made by the head of department and in accordance
with s. 4 of the Act. Two proceedings for achieving
one object are neither desirable nor convenient and
if the Bank has to go to the Civil Court for the determination of the liability of the alleged defaulter,
there can be no good reason for enacting that the
Civil Court which ordinarily decides such disputes
cannot determine the amount, if any, the alleged
defaulter has to pay to the Bank.
Further, the proceedings in the Civil Court
may take a long time for final disposal and that
may affect the limitation prescribed under s. 10 of
the Act for the Nazim or the Accountant-General
to take action for the recovery of the amount due.
Section 10( lJ provides that no action shall be taken
by the Nazim or the Accountant-General on a certificate from the Managing Director of the Bank unless
it is sent to him within such period of limitation prescribed by the Limitation Act for the time being in
force in the State within which the Bank would have
instituted a suit in a Civil Court for the recovery of
its debts or dues respectively, if such debts or dues
were not declared as State dues under the Act. This
means that if the period of limitation for the institution of a suit for the recovery of a debt has elapsed,
that debt .could not be recovered as State dues under
the procedure laid down by the Act. The usual
·period of limitation for filing a suit for recovery of
a debt is three years and the time taken in obtaining
a final decision from the Civil Courts for the declaration of liability of a certain person may take longer
time. So long as the final decision about that person's
liability is not reached in those proceedings, the
j
.l.
'-:-
-
5 S.C.R.
SUPREME COURT REPORTS
1109
relevant authority under s. 4 of the Act cannot proceed
1963
to determine the exact amount of debt due and even
--"'--'
if it determined the amount it cannot obviously issue
The St~te of
any certificate to the Nazim or Accountant-General
Pun1ab
for the recovery of that amount.
vi
I
.
f h
'd
.
. .
bl
S. RatianSingh
n view o t ese cons1 erattons, it is reasona e to ·
-·· _. -
conclude that the provisions of s. 4 of the Act Rtighubar Dayal
empower the head of department to determine not
J,
only the amount of State dues recoverable but also
the liability of the alleged defaulter to pay those
debts. It follows therefore that in view of the provisions of s. 11 of the Act no Civil Court can have
jurisdiction to determine these two matters, viz.,
determining the amount of State dues recoverable
and the liability of the alleged defaulter to pay the
amount.
We may mention that the Punjab High Court
itself has, in Kanshi Ram v. The State of Punjab(ll
has taken the view we have expressed and did not
approve its earlier decision under appeal.
The next question then to decide is whether the
Insolvency Court can, in spite of the provisions of
s. 11 of the Act and the jurisdiction which the head
of the department has, under s. 4 as construed by
us, go into the question whether the alleged debtor
sought to be adjudicated insolvent really owed the
debt which has been determined or could be deter"
mined only by. the head of department under s. 4
of the Act. It is well-settled that the Insolvency
Court can, both at the time of hearing the petition
for adjudication of a person as an insolvent and
subsequently at the stage of the proof of debts, reopen the transaction on the basis of which the creditor
had secured the judgment of a court against the debtor.
This is based on the principle that it is for the Insolvency Court to determine at the time of the hearing
of the petition for Insolvency whether the alleged
debtor does owe the debts mentioned by the creditor
in the petition and whether, if he owes them, what
is the extent of those debts. A debtor is not to be
(I) I.L.R. (1961) 2 Punj. 823.
1110
SUPREME COURT REPORTS
[1964]
1963
adjudged
an insolvent unless he owes the debts
equal to or more than a certain amount and has also
T,heSt~te of committed an act of insolvency. It is the duty of
J!.un1ab
the Insolvency Court therefore to determine itself
'II•
the alleged debts owed by the debtor irrespective
S•,Riittan .Singh of whether those debts are based on a contract or
-
.. ·
under a decree of Court. At the stage of the proof
llfJ¥hUbar Dayal of the debts, the debts to be proved by the creditor
1·
ate scrutinized by the Official Receiver or by the Court,
in order to determine the amount of all the debts
which the insolvent owes as his total assets will be
utilised for the payment of his total debts and if any
debt is wrongly included in his total debts that will
adversely affect the interests of the creditors other
thart the judgment creditor in respect of that particular
debt as they were not parties to the suit in which the
judgment debt was decreed. That decree is not binding
on them and it is right that they be in a position to
question
the
correctness of the judgment debt.
It is on their behalf that the Insolvency Court or the
Official Receiver is to scrutinize the proof of debts
to be proved and can even demand proof of the debts
on which the judgment debt has been decreed. The
decree is binding only on the parties. The debtor
sought to be adjudged is bound by it and so is the
creditor. But this binding effect of the decree is
only to be respected by the Insolvency Court in circumstances where nothing is reasonably alleged against
the correctness of the judgment debt. The Insolvency
Court has the jurisdiction to re-open such debts
and will do so ordinarily when such judgments have
been obtained by fraud, collusion or in circumstances
indicating that there might have been miscarriage
of justice, On similar grounds it must be held that
the determination of the amount of the debt and the
liability of the defaulter to pay it could be open for
scrutiny by the Insolvency Court in the aforesaid
circumstances in spite of the provisions of s. 11 of
the Act, which provisions really contemplate a decision
of the dispute about the matters covered by it between
the same parties, viz., the creditor Bank and the alleged
defaulter. The determination of the amount of State
·L
.I
-
.J_
....
J;
.5 S.C.R.
SUPREME COURT REPORTS
1111
dues recoverable from the defaulter under s. 4 of the
1963
Act can have no better status than the ordinary judgment
and decree of a civil court have.
The head of the The State (}f
department could not have decided a dispute about
Punjab
the amount of the State dues recoverable from the
v:
defaulter between creditors other than the Bank S. Rattan Singh
and the defaulter and therefore such a dispute between
-
the creditors in general and the defaulter cannot Raghubar Dayal
be a dispute which comes within the mischief of s. 11
J.
of the Act
Such a jurisdiction of the Insolvency Court
is readily made out by the provisions of the Provin~
cial Insolvency Act, 1920 (Act 5 of 1920) hereinafter
called the Insolvency Act. According to s. 2, sub-s.(1),
cl. ta), 'creditor' includes a decree holder , 'debt'
includes a judgment-debt, and 'debtor' includes a
judgment-debtor. Section 3 confers insolvency jurisdiction on the District Courts. Civil Courts, as
such, have not got this jurisdiction. Courts subordinate to the District Courts can, however, be invested
with jurisdiction in any class of cases by the· State
Government.
Section 4 deals with the power of the Insolvency
Court with respect to the questions it can decide.
It reads :
·
"(l) Subject to the provisions of this Act, the
· Court shall have full power to deeide all questions whether of title or priority or of any nature
whatsoever, and whether involving matters of
law or of fact, which may arise in any case of
insolvency
coming
within
the
cognizance
of the Court, or which the Court may deem
it expedient or necessary to decide for the purpose
of doing complete justice or making a complete
distribution of property in any such case. ·
(2)
Subject to the provisions of this Act and
notwithstanding anything contained in any other
law for the time being in force, every such decision shall be final and binding for all purposes
as between, on the one hand, the debtor and the
debtor's estate and, on the other hand,. all
1963
The State of
Pilnjab
:v;
S. Rattan Singh
1112
~ SUPREME .COURT REPORTS
[1964]
claimants against him or it and all persons claiming through or under them or any of them.
(3) Where the Court does not deem it. expedient
or necessary to decide any question of the nature
referred to in sub-section (I), but has reason
to believe that the debtor has a saleable interest
'.Raghubar Dayal
J.
!n a!1y property, the Court may without further
mqmry sell such interest in such manner and
· subject to such conditions as it may
think
fit."
It is to be noticed that the Insolvency Court
has full power to decide all questions of any nature
whatsoever which arise in any insolvency case before
it. It can also decide all questions which it may
corisider expedient or necessary to decide for the
purpose of doing complete justice or making a complete distribution of property in any such case.
Nothing could be more expedient or necessary for
exercising its jurisdiction in adjudicating a person
insolvent or in distributing the assets of the insolvent than to probe into the question of the genuineness of the debts said to be owed by the debtor. The
decisions of the Insolvency Court in view of sub-s.
(2) of s. 4 are final and binding for all purposes despite
what is contained in any other law for the time being
in force. This finality and binding nature of the
decisions for all purposes are between the debtor and
the debtor's estate on the one hand and all claimants
against him or it. The binding nature of such decisions is clearly not just between the individual creditor
and the debtor but is between all the creditors on one
side and the debtor and his estate on the other. The
jurisdiction of the Insolvency Court is therefore much
larger than that of an ordinary civil court deciding
a particular. claim between the claimants
and the
other party.
Secti.on 7 provides for an Insolvency petition
being presented either by a creditor or by a debtor
and for the Court adjudicating the debtor insolvent,
if the debtor commits an act of insolvency. Section
9 lays down the condition which a creditor must
+
·'
l
-
•
...
5 S.C.R.
SUPREME COURT REPORTS
1113
~:atisfy before presenting an insolvency petition. In
1963
view of the definition of creditor, debtor and debt
already referred to, the judgment-creditor can present a
The State of
petition for the adjudication of the judgment debtor
Punjab
an insolvent on the basis of the judgment
debt.
v.
Section 10 lays down the condition on which the S. Rattan Singh
debtor can present a petition. Section 14 provides
--
that no petition presented, whether by a creditorRaghu.bar Dayal
or by a debtor, shall be withdrawn without leave
J.
of the Court. This fits in with the position that
insolvency proceedings are not proceedings between
the petitioning-creditor and the debtor alone. Section
I 6 provides for the substitution of any other creditor
in place of the original creditor who had filed the
petition in case he does not proceed with due diligence
with his petition. Even after the death of the debtor,
insolvency proceedings can continue for the realisation and distribution of the property of the debtor
in view of s. I 7.
Section 24 lays down the procedure
at the hearing of the insolvency petition, and provides
that the Court shall require proof of the fact that the
creditor or the debtor as the case may be, is entitled
to present a petition. One of the conditions for the
c:reditor to present the petition is that the debt owing
by the debtor to him amounts to Rs. 500 and one
of the conditions for the debtor to apply for adjudication is that his debts amount to Rs. 500. The Court,
therefore, has to be provided with proof about the
existence of the debt and its amount, even though
the debt be a judgment debt. The judgment or decree
can be prima facie evidence of the debt, but in view
of the Court's requiring proof of the debt, it is not
bound to treat the judgment or decree to be conclusive
proof of the existence of the debt for which the decree
had been passed.
Subsequent to the adjudication of the debtor
as an insolvent, the next stage for the preparation of the
schedule of creditors under s. 33 of the Insolvency
Act comes. All persons alleging themselves to be
creditors of the insolvent in respect of the debts provable under the Act have to tender proof of the
1114
SUPREME COURT REPORTS
[1964]
1963
respective debts by producing evidence of the amount
and the particulars thereof and the Court has then
The State of to determine the person who have proved themselves
Punjab
to be creditors of the insolvent in respect of such
v.
debts and the amount of debts, respectively, and then
S. Rattan Singh frame a schedule of such persons and debts. Credi-
-
tors other than the creditor who had applied for the
Raghubar Dayal adjudication of the insolvent may have judgment
J.
debts against that insolvent and they will have to
prove by evidence the amount and particulars of the
debts owed by the insolvent to them. Judgments
or decrees may be good evidence for proving of such
debts, but it is open to the Court to require independent
proof of the debt which had merged in the judgment
debt.
It is clear from the above provisions of the
Insolvency Act that it is the duty of the Insolvency
"Court and therefore clearly within its jurisdiction
to require proof to its satisfaction of the debts sought
to be proved at the stage of the hearing of the insolvency petition or subsequent to the adjudication.
There is plenty of case law in support of the
view that the Insolvency Court can go behind the
decree of a court in order to probe into the genuineness of the debt in connection with which the decree
is passed.
Jn Ex parte Kibble. In re Onslow<ll it was said
by Sir James, L.J., at p. 376:
· "It is the settled rule of the Court of Bankruptcy,
on which we have always acted, that the Court
of Bankruptcy can inquire into the consideration for a judgment debt. There are obviously
strong reasons for this, because the object of the
bankruptcy laws is to procure the distribution
of a
debtor's goods among his just creditors.
If a judgment were conclusive, a man might
allow any number of judgments to be obtained
by default against him by his friends or relations
without any debt being due on them at all; it
is· therefore necessary that the consideration of
(!) (1875] 10. Ch. A.C. 373.
. .)
•
-
5 S.C.R.
SUPREME COURT REPORTS
1115
the judgment should be liable to investiga1963
tion."
The State of
In this case the probe into the judgment debt was
Punjab
made at the time of the adjudication proceedings.
v.
In Ex parte Lennox,
In re Lennox<O
Lord s. Rattan Singh
Esher, M.R., said at p. 323:
"The authority, however, of Ex parte KibbleC2> Raghubar Dayal
seems to me
quite
sufficient,
and I think
1·
it was decided on right principles. If that be
so it is not true to say that the mere fact of a
judgment existing ought to prevent the Court
at the instance of the debtor at the first stage
of the proceedings, viz., when a receiving order
is applied for, from inquiring whether there
was any real debt as the foundation of the judgment, and, although by consenting to a judgment the debtor is estopped everywhere else
from saying that there was no debt due--although
the judgment is binding upon him by reason of
his consent, and of its being the judgment of the
Court, yet no such estoppel is effectual as against
the Court of Bankruptcy. The Court is not
estopped by the conduct of the parties, but it
has a right to inquire into the debt."
Cotton, L.J., said at p. 325:
"It has been long established, as regards the
proof of a debt in bankruptcy, that the trustee,
acting on behalf of the creditors, can go behind
a judgment, and that, although the judgment
is prima facie evidence of a debt due to the creditor
who claims to prove for the judgment debt,
yet the trustee, on behalf of the creditors may
show that in fact the judgment does not est~blish
a debt. That rule is founded upon this principle
-that, under whatever circumstances a judgment may have been obtained against the bankrupt, yet no act of his-collusion, compromise
improperly entered into, or anything else-ought
to prejudice the rights of the other creditors,
(I) [1885) 16 Q.B.D. 315.
(2) [1875) 10 Ch. AC. 373.
1963
The State of
Punjab
v.
S. Rattan Singh
Raghubar Dayal
J.
1116
SUPREME COURT REPORTS
[1964]
because the assets ought to be distributed in the
bankruptcy only amongst the honest bona fide
creditors of the bankrupt."
Lindley, L.J., said at pp. 328, 329:
"Bankruptcy proceedings are not like ordinary
proceedings; they are a very serious matter,
not only to the debtor himself, but to all his
other creditors; and, before the machinery of
the Court of Bankruptcy is put in motion, it
appears to me that it is, not only the right, but
the duty of the Court to see at whose instance
it is asked to act. By the express language of
sub-s. 3, of s. 7 the Court is enabled to look into
a judgment debt;"
"It means, I think, that, although the judgment
debtor could not go behind the judgment, the
Court of Bankruptcy will now allow itself to be
put in motion at the instance of a person who
is not a real creditor.