# YENUMULA MALLU DORA v. PERURI SEETHARATNAM AND OTHERS

- **Citation:** [1966] 2 S.C.R. 209
- **Court:** Supreme Court of India
- **Decided:** 1965-10-14
- **Case number:** Civil Appeal No. 474 of 1964
- **Bench:** P. B. Gajendragadkar, K. N. Wanchoo, M. Hidayatullah, V. R.Amaswami
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/yenumula-mallu-dora-v-peruri-seetharatnam-and-others-3528
- **Pages:** 6

## Headnote

Provincial Insolvency Act, 1920, s. 6(e)-Act of insolvency-ft ne"
once committed whether purged by satisfying only some of the creditorsTherefore whether available to other creditors for the purpose of an app/i.
cation under s. ?-Section 25-Scope of.
On the application of two creditors (respondents in this appeal) the
appellant was adjudged a bankrupt by the Subordinate Judge, Kakinada,
and a receiving order was passed against him.
This adjudication was
based on the one act of insolvency out of three alleged in the application
which was accepted by the sub-judge, i.e., the sale of some of his properties in execution
of a money decree.
Appeals
against the
order
to the District Judge, and later to the High Court, were dismissed.
It was contended on behalf of the appellant that the alleged act of
insolvency was not established as he had deposited, within one month
of the sale, the entire decretal amount, and the sale was set aside on a
!>"titian by him under Order 21, rule 89 of the Code of Civil Procedure; that in any event he was entitled to have the application dismissed
under s. 25 of the Provincial Insolvency Act, 1920, which allows a
creditor's application to be dismissed on sufficient cause.
HELD: The adjudication of the appellant as an insolvent and the
receiving order against him were properly made. [214 E]
An act of insolvency once committed cannot be explained or purged
by subsequent events.
The insolvent cannot claim to wipe it off by
paying some of his creditors; the same act of insolvency is available to
all his creditors and is not erased unless all creditors are satisfied. The
act of insolvency which the appellant had committed had remained and
was not purged by payment of the decretal amount after the sale in
execution of the money decree; the respondents could therefore rely on
it even though one or more creditors might have been paid in
fuJI.
[212 F-HJ
(ii) Although s. 25 of the Provincial Insolvency Act is in wide terms,
it cannot be given effect to so as to ignore an act of insolvencv in cases
such as the present one, where the debtor continues to be heavily indebted
and ~here is no proof that he is able to pay his debts. [213 A-BJ
Venkatakrishnayya v. Malakandayya, A.I.R. 1942 Mad. 306; Pratapmall Rameshwar v. Chunnilal Jahurl, A.I.R. 1933 Cal. 417 and Lal Chand
Changhuri v. Bogha Ram & Ors., A.I.R. 1938 Lah. 819, referred to.

## Text

A
B
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G
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YENUMULA MALLU DORA
v.
PERURI SEETHARATNAM AND OTHERS
October 14, 1965
[P. B. GAJENDRAGADKAR, C.J., K. N. WANCHOO,
M. HIDAYATULLAH AND V. R.AMASWAMI, JJ.J
Provincial Insolvency Act, 1920, s. 6(e)-Act of insolvency-ft ne"
once committed whether purged by satisfying only some of the creditorsTherefore whether available to other creditors for the purpose of an app/i.
cation under s. ?-Section 25-Scope of.
On the application of two creditors (respondents in this appeal) the
appellant was adjudged a bankrupt by the Subordinate Judge, Kakinada,
and a receiving order was passed against him.
This adjudication was
based on the one act of insolvency out of three alleged in the application
which was accepted by the sub-judge, i.e., the sale of some of his properties in execution
of a money decree.
Appeals
against the
order
to the District Judge, and later to the High Court, were dismissed.
It was contended on behalf of the appellant that the alleged act of
insolvency was not established as he had deposited, within one month
of the sale, the entire decretal amount, and the sale was set aside on a
!>"titian by him under Order 21, rule 89 of the Code of Civil Procedure; that in any event he was entitled to have the application dismissed
under s. 25 of the Provincial Insolvency Act, 1920, which allows a
creditor's application to be dismissed on sufficient cause.
HELD: The adjudication of the appellant as an insolvent and the
receiving order against him were properly made. [214 E]
An act of insolvency once committed cannot be explained or purged
by subsequent events.
The insolvent cannot claim to wipe it off by
paying some of his creditors; the same act of insolvency is available to
all his creditors and is not erased unless all creditors are satisfied. The
act of insolvency which the appellant had committed had remained and
was not purged by payment of the decretal amount after the sale in
execution of the money decree; the respondents could therefore rely on
it even though one or more creditors might have been paid in
fuJI.
[212 F-HJ
(ii) Although s. 25 of the Provincial Insolvency Act is in wide terms,
it cannot be given effect to so as to ignore an act of insolvencv in cases
such as the present one, where the debtor continues to be heavily indebted
and ~here is no proof that he is able to pay his debts. [213 A-BJ
Venkatakrishnayya v. Malakandayya, A.I.R. 1942 Mad. 306; Pratapmall Rameshwar v. Chunnilal Jahurl, A.I.R. 1933 Cal. 417 and Lal Chand
Changhuri v. Bogha Ram & Ors., A.I.R. 1938 Lah. 819, referred to.
CIVIL APPELLATE JuRISDICTION: Civil Appeal No. 474 of
1964.
Appeal by special leave from the judgment and order dated
March 14, 1963 of the Andhra Pradesh High Court in C.R.P.
No. 1725 of 1959.
210
SUPIU!ME COURT REPORTS
(1966] 2 S.C.R.
M. C. Setalvad, and T. V. R. Tatachari for the appellant.
A
Kirpa Narain and T. Satyanarayana, for respondent Nos. 1
and 9.
The Judgment of the Court was delivered by
Hidayatullah J.
On the application of two creditors the
B
appellant Yenumula Mallu Dora has been adjudged insolvent by
the Subordinate Judge, Kakinada and a receiving order has been
passed against him.
The respondents before us are one of the
petitioning creditors and the legal representatives of the. other
petitioning creditor who died during these proceedings.
The first
petitioning creditor held a decree for money which he had obtained
C
in O.S. 67 of 1949.
He also held another money decree in O.S.
473 of 1948.
The second petitioning creditor held a decree
which she had obtained in O.S. 17 of 1955.
The application was
based upon three acts of insolvency which the appellant was stated
to have committed and on the general facts that he was indebted
to the tune of Rs. two lakhs, and was unable to pay his debts. The D
three acts of insolvency alleged against him were (a) evasion of
arrest in execution of the money decree in O.S. 67 of 1949; (b)
sale of some of his properties on September 26, 1956 in execution
arising from O.S. 73 of 1952; and (c) sale of some of his properties on September 19, 1956 in execution of money decree in
O.S. 9 of 1950. It was also alleged that he was fraudulently
E
transferring properties in the name of his wife and brother-in-law
and had suffered a collusive diarge decree for maintenance in
favour of his wife, to delay and defeat his creditors.
The Subordinate Judge, Kakinada did not accept the first two
acts of insolvency.
The evidence regarding evasion of arrest was
F
not found convincing and the second act of insolvency· was rejected because the sale of the property was in execution of a mortgage
decree.
Jn respect of the third act of insolvency the Subordinate
Judge held that it satisfied s. 6 ( e) of the Provincial Insolvency Act
and an adjudication and a receiving order were justified in the
case.
An appeal was taken to the District Court at Rajahmnndry G
(C.A. 41 of 1958) which was dismissed on October 15, 1959.
A Revision Application filed under s. 75 of the Provincial Insolvency Act was dismissed by the High Court of Andhra Pradesh
on March 14, 1963.
The appellant, however, obtained special
leave of this Court and has filed the present appeal against the
order of the High Court.
H
The contention of the appellant was, and still is, that the third
act of insolvency was not established as he had deposited, within
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c
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E
F
G
H
Y. M. 001.tA v. SEETHARATNAM (Hidayatul/ah, !.)
21 l
one month of the sale. the entire decretal amount together with
poundage and commission and the sale was set aside on his petition
under Or. 21 r. 89 of the Code of Civil Procedure.
He contended.
therefore, that as none of the acts of insolvency remained, the
petition ought to have been dismissed as incompetent or he was:
entitled to have the petition dismi~sed in any event, under s. 25
of the Provincial Insolvency Act which allows a creditor's petition
to be dismissed on sufficient cause.
He submitted that as the
sale was set aside before the order of adjudication wa~ made there
existed sufficient cause for the dismissal of the creditors' petition.
The Subordinate Judge relying upon Venkatakrishnayya v.
Malakondayya(') and on decisions of the Lahore and the Calcutta
High Courts rejected the submission and made the order against
the appellant.
The District Judge, Rajalunundry agreed with the
conclusion of the Subordinate Judge and the High Court rejected
the petition for revision.
In this appeal the same points are urged
again for our acceptance.
In our judgment the view of the law
taken in this case by the Subordinate Judge and approved by the
District Court is right and does not warrant any interference.
The object of the law of insolvency is to seize the property of
an insolvent before he can squander it and to distribute it amongst
his creditors. It is, however, not every debtor, who has borrowed
beyond his assets or even one whose property is attached in execution of his debts, who can be subjected to such control.
The
jurisdiction of the court commences when certain acts take place
which are known as acts of insolvency and which give a right to
his creditors to apply to the Court for his adjudication as an insolvent.
The Provincial Insolvency Act lays down in s. 6 what acts
are to be regarded as acts of insolvency. It is a long list. Some·
are voluntary acts of the insolvent and some others are involuntary.
The involuntary acts are of a kind by which a creditor is able t<>
compel a debtor to disclose his insolvent condition even if the
insolvent is careful enough not to commit a voluntary act of
insolvency.
One such act is that the insolvent has been imprisoned in execution of a decree of any court for payment of money, and
another is that any of his property has been sold in execution of a
decree of any court for payment of money.
In this case the property of the appellant was sold on September 19, 1956 in execution of a money decree against him and therefore there is no question that he was guilty of an act of insolvency described in s. 6 ( e}
of the Provincial Insolvency Act.
(I) A.I,R, 1942 Mad, 306,
212
SUPREME
COURT
REPORTS
[1966] 2 s.c.R.
Under s. 7,.a creditor is entitled to present a petition in the
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Insolvency Court agaimt a debtor if he has committed an act
·of insolvency provided [as laid down ins. 9(i) (c)] the petition is
made within three months of the act of insolvency on which the
petition is grounded.
In this case both these conditions are fulfilled.
There is thus no doubt that the petitioning creditors' application under s. 7 complied withs. 6(e) ands. 9(l)(c) of the B
Provincial Insolvency Act.
The petitioning creditors alleged that
the appellant was indebted to the extent of Rs. two lakhs and this
was not denied by the aopellant.
In the trial of one of the execu:
tion petitions filed against him by a decree-holder the appellant
admitted that he had "no means to pay the decree debt" because C
"all his properties" were "under attachment and were being brought
to sale".
He also stated that he was not "in a position to discharge
the debts".
It is, therefore, clear that the appellant who was in
more than embarrassed pecuniary circumstances was unable to pay
his debts.
It was also clear from the evidence, which the District
Court and the Subordinate Judge have concurrently accepted, that D
he had made some transfers to screen his properties from his creditors and had suffered a decree for maintenance in a suit by his
wife.
In view of these facts, which the appellant cannot now deny,
he is driven to support his case by argument on law.
The argument, as we have seen, is two-fold.
We are not inclined to accept
either leg of the argument.
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An act of insolvency once cowmitted cannot be explained or
purged by subsequent events. The insolvent cannot claim to
wipe it off by paying some of his creditors.
This is because the
same act of insolvency is available to all his creditors.
By satisfying one of the creditors the act of insolvency is not erased unless F
all creditors are satisfied because till all creditors are paid the
·debtor must prove his ability to meet his liabilities.
In this case
the petitioning creditors had their own decrees.
It was in the
·decree of another creditor that the payment was made but only
after the act of insolvency was committed.
Besides the petitioning
·creditors there were several other creditors to whom the appellant G
·owed large sum of money and his total debts aggregated to Rs. two
lakhs.
It is plain that any of the remiiining creditors, including
the petitioning creditors, could rely upon the act of insolvency
even though one or more creditors might have been paid in full.
The act of insolvency which the appellant had committed thus
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remained and was not purged by payment of decretal amount after
1he sale in execution of the money decree.
Y. M. DORA v. SEETHARATNAM (Hida,vatullah, J.)
213
A
The next question
1s whether the Subordinate Judge
should have exercised his discretion under s. ZS to dismiss the
petition of the creditors treating the deposit of the money as sufficient cause.
Section 25 of the Provincial Insolvency Act is in
wide terms but it is impossible to give effect to those wide terms
so as to confer a jurisdiction to ignorn an act of insolvency at least
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in cases where the debtor continues to be heavily indebted and
there is no proof that he is able to pay his debts.
The section
reads as follows :-
c
D
"25. Dismissal of petition.
(1) In the case of a petition presented by a creditor, where the Court is not satisfied with the proof of
his right to present the petition or of the service on
the debtor of notice of the order admitting the petition, or of the alleged act of insolvency, or is satisfied
by the debtor that he is able to pay his debts, or that
for any other sufficient cause no order ought to
be
made, the Court shall dismiss the petition.
(2)
"
The section expressly mentions three circumstances in which the
E petition made by a creditor must be dismissed, namely, (i) the
absence of the right of the creditor to make the application (ii)
failure to serve the debtor with the notice of the admission of the
petition; and (iii) the ability of the debtor to pay his debts. In
addition, the Court has been given a discretion to dismiss the
petition if it is satisfied that there is other sufficient cause for
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not making the order against the debtor. The last clause of the
section need not necessarily be read ejusdem generis with the
previous ones but even so there can be no sufficient cause if,
after an act of insolvency is established, the debtor is unable to
pay his debts. The discretion to dismiss the petition can only be
exercised under very different circumstances.
What those cases
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would be, it is neither easy nor necessary to specify, but examples
of sufficient cause are to be found when the petition is malicious
and has been made for some collateral or inequitable purpose
such as putting pressure upon the debtor or for extorting money
from him, ·or where the petitioning creditor having refused tender
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of money, fraudulently and maliciously files the application. An
order is sometimes not made when by the receiving order the
only asset of the debtor would be destroyed such as a life interest
which would cease on his bankruptcy. Cases have also occurred
214
SUPREME COURT
Rl!PORTS
[1966] 2 S.C.R.
where a rece1vmg order was not made because there were no
A
assets and it would have been a waste of time and money to make
a receiving order against the debtor.
These examples merely
-illustrate the grounds on which orders are generally made in the
exercise of the discretion conferred by the last clause of s. 25.
This case is clearly one which cannot be treated under that clause.
There are huge debts and no means to pay even though there
are prope!1ies which, if realised, may satisfy at least in part the
creditors of the appellant.
The appellant was clearly guilty of
an act of insolvency and an act of insolvency cannot be purged
by anything he may have done subsequently. There is no proof of
malicious or inequitable dealing on the part of the petitioning
creditors. They have proved the necessary facts and havo established both the act of insolvency and the inability of the appellant
to pay his debts.
The appe!Jant has not been able to prove that
he is able to pay. In fact, he has admitted that he is unable to
pay his debts.
The High Courts have taken a similar and uniform view of D
such cases.
These rulings are quite numerous but the following
may be seen : Pratapmall Rameshwar v. Chunni/al Jahuri, (1)
Lal Chand Chaughuri v. Bogha Ram and others(2 ) and Venkatakrishnayya v. Ma/akondayya( 8). We do not consider it necessary
to examine the facts in those cases because they apply correctly
the principles, which we have set out above to the· facts in the
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cases then present.
It is, therefore, quite clear that the adjudication of the appellant and the receiving order against him were
,;;;
properly made.
In the result the appeal fails and is dismissed.
There will be no order as to costs.
Appeal dismissed.
1
(1) A.I.R. (1933) Cal. 417.
(2) A.I.R. (1938) Lah. 819.
(3) A.I.R.(1942) Mad. 306.