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TMI Blog1964 (9) TMI 72X X X X Extracts X X X X X X X X Extracts X X X X ..... communicating with him, and had thereby committed an act of insolvency. The Insolvency Judge by order dated October 8, 1937 adjudicated Kotwaleshwar insolvent and appointed the first appellant the Official Receiver, Kanpur, as receiver of his estate with powers under s. 80 of the Provincial Insolvency Act, 1920--hereinafter called the Act . The Receiver proceeded in exercise of the powers under s. 33 read with s. 80 of the Act to frame a schedule of debts. The claims set up by the respondents were challenged by Kotwaleshwar and a creditor named Abdul Sayed, but the Official Receiver included the claims of the respondents in the schedule of debts, for in his view Kotwaleshwar had admitted the claims on October 8, 1937 before the Insolvency Court. In appeal under s. 68 to the Insolvency Judge the matter -was remanded to the Official Receiver with directions to hold a fresh enquiry into the debts due to the respondents. The Official Receiver then held a further enquiry and rejected the claims of the respondents I to 3. He held that it was not proved that Kotwaleshwar had received consideration for the three promissory notes. In the view of the Official Receiver the documentary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so 2 of the Provincial Insolvency Act. 1920 to the High Court -of Allahabad. The Division Bench hearing the appeal referred the following two questions to a Full Bench. These questions were (1) Whether the presumption mentioned in cl. (a) of s. 118, Negotiable Instruments Act, 1881 can be invoked in insolvency proceedings where an alleged debt against the insolvent is called in question by the official receiver or by a creditor or by the insolvent ? (2) If it can be invoked, would circumstances tending to make it doubtful that consideration passed under the n egotiable instrument even though coupled with a denial on the part of the maker of the instrument, suffice to deprive the creditor of the benefit of the presumption and require him to prove by evidence that consideration did actually pass ? A Full Bench of the High Court by majority having recorded an affirmative answer on the first question, the second appeal was placed for hearing before a Division Bench of the High Court. The Division Bench observed that the District Court had recorded certain findings and from those findings it had inferred as a matter of law that the statutory presumption under s. 118 of the N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that time the insolvent was already indebted to other creditors to the extent of ₹ 6,000 that the respondents had no previous business relations with the insolvent, that although the creditors knew that the insolvent s share in the property left by his father was only ₹ 28,000 to ₹ 30,000 and that he was joint in estate with his brother, no kind of security was taken from the insolvent, nor was any enquiry made whether the said property was encumbered or not, that respondent 3 Abdul Wahid admitted that about 21 months after the execution of the promissory note dated September 28, 1935 he came to know that the insolvent was executing bogus and fictitious promissory notes in favour of his friends to defraud his real creditors, and therefore it was incredible that further sums should have been advanced under the two subsequent promissory notes of the aggregate value of ₹ 7,500, that the insolvent was fairly well off for his ordinary needs and there was no apparent reason why he should have borrowed those considerable sums of money, that the respondents did not have sufficient funds or resources with them to advance either the amounts covered by the three pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Court shall, by order, determine the persons who have proved themselves to be creditors of the insolvent in respect of such debts, and the amount of such debts, respectively, and shall frame a schedule of such persons and debts : The Act imposes a duty upon the court to frame a schedule of creditors and of the debts due to them which are provable under the Act. For that purpose the court has to hold an enquiry into the debts due by the insolvent which are provable. A proceeding under s. 33 of the Provincial Insolvency Act is not a proceeding between the insolvent and the proving creditor. The proceeding is between the creditors represented by the official receiver and the insolvent. When a creditor, seeking to prove a debt relying upon a negotiable instrument, or other evidence makes a claim for inclusion of the debt due to him, the court, or where he is authorised the receiver of the estate of the insolvent, has to be satisfied about the existence of the debt, the amount due, its particulars and that it is provable in insolvency. Section 33 does not indicate the quantum of proof which may be regarded as sufficient to prove a debt. A court may accept in proof of a deb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uptcy has power, at the instance of the debtor himself, to go behind the judgment and to inquire into the validity of the debt, even though the debtor has previously applied in the action to set aside the judgment, and his application has been refused, and the refusal affirmed by the Court of Appeal. Lord Esher, M. R., observed at pp. 636-637 The decision (Ex parte Lennox) is based upon the highest ground-viz., that in making a receiving order, the Court is not dealing simply between the petitioning creditor and the debtor, but it is interfering with the rights of his other creditors, who, if the order is made, will not be able to sue the debtor for their debts, and that the Court ought not to exercise this extraordinary power unless it is satisfied that there is a good debt due to the petitioning creditor. The existence of the judgment is no doubt prima facie evidence of a debt; but still the Court of Bankruptcy is entitled to enquire whether there really is a debt due to the petitioning creditor. A debt to be entered in the schedule must therefore be a real debt. A judgment against a debtor which is sought to be relied upon in proving a debt does not necessarily establis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was procured by fraud or collusion, or that there has been miscarriage of justice But a mere irregularity or error in form will not be a sufficient reason for going behind the judgment. When a debt secured by a promissory note is sought to be proved, the Insolvency Court must enquire into the reality, and the quantum of consideration. What shape this enquiry may take will depend upon the circumstances of the case. In a given case the Insolvency Court may regard an affidavit setting out the particulars ,of the debt, and affirming execution of the promissory note by the insolvent, and asserting non-satisfaction of the debt, as sufficient In other cases, the Court may enter upon a fuller enquiry which the circumstances of the case may demand. But in all cases of proof of debts under s. 33 the burden is upon the -creditor. That burden may be discharged by the affidavit of the creditor viewed in the light of a presumption which the Court may raise under s. 114 of the Evidence- Act, that a bill of exchange accepted or endorsed, was for good consideration. If that be the true effect of. s. 33 of the Provincial Insolvency Act, and we think both on principle and authority that is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aiming under them. In other cases the presumption can only be in the terms enacted in section 114 of the Evidence Act (vide illus. c) which by the use of the expression may presume leaves it to the Court to apply the presumption or not according to circumstances. Section 114 of the Indian Evidence Act authorises the Court to presume the existence of any fact which it thinks likely to have happened, regard being had to the common course of natural events, human conduct and public and private business in their relation to the facts of the particular case. Under the third illustration of s. 114 the Court may presume that a bill of exchange accepted or endorsed was accepted for good consideration. But the section provides, that the, Court shall also have regard to other material facts in considering whether the maxim does or does not apply in the particular case before it. It is therefore open to the Court to consider in its proper setting, the fact that the drawer of a bill of exchange was a man of business, and the acceptor was a young and ignorant person completely under the former s influence. This is one illustrative fact which the Court may consider in raising the presumptio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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