http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 7  

PETITIONER: FIRM MUKAND LAL VEER KUMAR & ANR.

       Vs.

RESPONDENT: SRI PURUSHOTTAM SINGH & ORS.

DATE OF JUDGMENT: 31/01/1968

BENCH: RAMASWAMI, V. BENCH: RAMASWAMI, V. SHAH, J.C.

CITATION:  1968 AIR 1182            1968 SCR  (2) 862

ACT: Provincial  Insolvency Act (5 of 1920), s.  9(1)(c)-Transfer of  property by Deed-Alleged act of insolvency-Three  months period  starts  whether-  from  execution  or   registration --Whether  firm can be adjudicated  insolvent-Partners  when can be adjudicated insolvent,

HEADNOTE: M  a partner of a firm executed it deed of gift in  October, 1957 of a property, which was not partnership property.  The deed of gifts was registered in March 1958.  In April,  May, 1958  and January 1959, petitions were filed  alleging  that the  firm  and  its  two  partners  had  committed  acts  of insolvency   and   therefore,  they   should   be   declared insolvents.   The lower courts adjudicated the firm and  the partners insolvent.  The High Court, in revision,  confirmed the  adjudication of insolvency with regard to the firm  and M,  but  set  aside with regard to the  other  partner.   In appeal to this Court it was contended that (i) the  starting point  of  the  three months’  period  prescribed  under  s. 9(i)(c) of the Provincial Insolvency Act should be the  date of  execution  of  the  deed of gift and  not  the  date  of registration;  (ii) no order of adjudication could  be  made against  a  firm  but  it could only  be  made  against  the partners  individually  and (iii) the firm should  not  have been  declared insolvent merely because of the deed of  gift executed by M. HELD : (i) Section 49 of the Indian Registration Act implies that a document by reason of its execution alone cannot have the  effect of transferring the property.  The deed of  gift executed  by  M,  could not be considered to be  an  act  of insolvency  unless a valid transfer of property was made  by that  document  and such a valid transfer could be  said  to have  been made only when the document was registered.  1866 D-F] Lakhmi  Chand v. Kesho Ram, I.L.R. 16 Lah.  735,  Sarvathada Iswarayya  v.  Kuruba  Subbanna,  I.L.R.  58  Mad.  166  and District Board Bijnor v.   Muhammad Abdul Salam I.L.R. 1947 All. 624, approved. U  on  Maung v. Maung Shwe Hpaung A.I.R. 1937  Rangoon  446, disapproved. (ii) An order of adjudication could be made against the firm

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 7  

in the present case if the proper conditions were satisfied. Section 79(2)(c) of the Act provides for rules to be made by the  High Court as to the procedure to be followed when  the debtor is a firm.  This section, therefore, assumes that  an adjudication  order  can be made under the Act  against  the firm in the firm’s name. [867 G-H] Ex parte Blain ( 1879) 12 Ch.  D. 522, referred to. (iii)     In order to support an adjudication against a firm there must be proof that each of the partners has  committed some  act  of  insolvency.   It  however,  a  joint  act  of insolvency is relied upon it must be shown to be the act  of all  the  partners.  An order for adjudication can  also  be mad(. against a firm if there was an act of insolvency by an agent  of  the firm which was such as  must  necessarily  be imputed  to  the firm.  The explanation to s. 6 of  the  Act does not lay down that an act of insolvency o 863 the  agent shall be attributed to the principal but that  it may be treated as the Act of the principal. [868 E, F] The  order  of the lower court, so far  it  adjudicated  the registered  firm,  as  insolvent, must be  set  aside.   The property of which M made gift was not a partnership property and  there  was no collective act of insolvency  alleged  on behalf of all the partners of the firm. Re  : Mohamad Hasam & Co. 24 Bom.  L.R. 861 and Gopal  Naidu v. Mohanlal Kanyalal, I.L.R. Mad. 189, referred to.

JUDGMENT: CIVIL  APPELLATE JURISDICTION : Civil Appeals Nos.  1167  to 1169 of 1965. Appeals  by special leave from the judgment and order  dated November  1,  1961  of the Allahabad  High  Court  in  Civil Revision Nos. 310 to 312 of 1960. A.   K. Sen and J. P. Goyal, for the appellants (in all  the appeals). B.   C.  Misra, M. V. Goswami and R. H. Dhebar, for  respon- dents Nos.  I and 2 (in C.As. Nos. 1167 and 1168 of 1965). S.   S. Shukla, for respondent No. 3 (in C.As. Nos. 1167 and I 1 68 of 1965) and respondent No. 2 (in C.A. No. 1 1 69  of 1965). B.   C. Misra and R. Mahalingier, for respondent No. 1  (ii) to (v)    (in C.A. No. 1169 of 1965). The Judgment of the Court was delivered by Ramaswami, J. These appeals are brought, by special leave, from the judgment of the Allahabad High Court dated November 1, 1961 in three Civil Revision Applications nos. 310 to 312 of 1960. Appellant no.  I is a registered firm of which appellant no. 2, Mukund Lal and respondent no. 7, Ram Surat Misra are  the only two partners.  The firm carried on ’Arhat’  (Commission Agency  business.   Three  petitions  under  the  Provincial Insolvency  Act  (Act  V of 1920),  hereinafter  called  the ’Act’, were made against the firm and its two partners under S.  7 of the Act.  Purushottam Singh, respondent no.  I  and Sat Narain Singh, respondent no. 2 filed the first  petition (Petition  no.  9 of 1958) on April 28,  1958.   The  second petition was filed by Smt.  Tara Devi, respondent no. 3  and Shyam  Das,  respondent  no. 4 on May  30,  1958  which  was registered  as Petition no. 19 of 1958.  The third  petition was  filed  by  Jivenda Mal on January 20,  1959  which  was registered  as Petition no. 2 of 1959. in petition no. 9  of 1958, a sum of Rs. 15,760/- was claimed; in petition no.  19 of  1958, a sum of Rs. 14,545/- was claimed and in  petition

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 7  

no.  2  of 1959 a sum of Rs. 3,884/- was claimed  but  other creditors  also  filed  their claims to the  extent  of  Rs. 96,000/-.  In all these petitions it was alleged 8 64 that  the  firm and its two partners had committed  acts  of insolvency and therefore they should be declared insolvents. The  firm  and  its partners  contested  the  petitions  and asserted that they had already paid a sum of Rs.  3,50,000/- to  other creditors and they were in a position to  pay  all the creditors and had not Committed any acts of  insolvency. All   the  three  insolvency  petitions  were   consolidated together  and were heard by the Insolvency  Judge,  Varanasi who  by  his judgment dated August 8, 1959  adjudicated  the firm  and  its two partners as insolvents.   Thereafter  the firm and its two partners filed three appeals under s. 75 of the  Act  but  all  these  appeals  were  dismissed  by  the Additional  District Judge, Varanasi by his  judgment  dated February 28, 1960.  Thereafter the firm and its two partners took  the  matter in revision to th,  Allahabad  High  Court which partly allowed the revision applications and set aside the  order of the lower courts adjudging Rain  Surat  Misra, respondent  no.  7,  one  of the partners  of  the  firm  as insolvent.   The: rest of the order declaring the  firm  and its other partner, Mukand Lal as insolvent was confirmed. The  main  question  to be considered in  these  appeals  is whether the deed of gift executed by Mukand Lal in favour of his  son, Veer Kumar on October 31, 1957 and  registered  on March  11,  1958 could be treated as an  Act  of  insolvency committed  within  three months of the presentation  of  the petition.               Section 6(b) of the Act states :               "6.  A debtor commits an act of insolvency  in               each of the following cases, namely :-               (b)   if, in India or elsewhere, he makes  any               transfer  of  his  property  or  of  any  part               thereof  with  intent to defeat or  delay  his               creditors;"               Section 9 (I ) (c) states :               "9.  (1) A creditor shall not be  entitled  to               present  an  insolvency  petition  against   a               debtor unless-               (c)   the  act  of  insolvency  on  which  the               petition is grounded has occurred within three               months before the presentation of the petition               :               Provided  that where the said period of  three               months referred to in clause (c) expires on  a               day  when the Court is closed, the  insolvency               petition may be presented on the day on  which               the Court re-opens."               Section  122 of the Transfer of  Property  Act               (Act 4 of 1882) is to the following effect:               8 6 5               "Gift  is  the transfer  of  certain  existing               moveable    or   immoveable   property    made               voluntarily and without consideration, by  one               person,  called the donor, to another,  called               the donee, and accepted by or on behalf of the               donee.               Such acceptance must be made during the  life-               time  of  the  donor and  while  he  is  still               capable of giving.               If the donee dies before acceptance, the  gift               is void."               Section  123 of the Transfer of  Property  Act

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 7  

             states               "For   the  purpose  of  making  a   gift   of               immoveable  property,  the  transfer  must  be               effected by a registered instrument signed  by               or on behalf of the donor, and attested by  at               least two witnesses.               For  the purpose of making a gift of  moveable               property, the transfer may be effected  either               by a registered instrument signed as aforesaid               or by delivery.               Such  delivery may be made in the same way  as               goods sold may be delivered."               Section  47  of the Indian  Registration  Act,               1908  (Act  16 of 1908) is  to  the  following               effect :               "A registered document shall operate from  the               time  from  which it would have  commenced  to               operate  if no registration thereof  had  been               required or made, and not from the time of its               registration."               Section  49  of the  Indian  Registration  Act               states as follows               "No document required by section 17 or by  any               provision  of  the Transfer of  Property  Act,               1882, to be registered shall-               (a)   affect any immoveable property comprised               therein, or               (b)   confer any power to adopt, or               (c)   be   received   as   evidence   of   any               transaction               affecting  such  property or  conferring  such               power, unless it has been registered : Provided that an unregistered document affecting  immoveable property  and  required  by  this Act  or  the  Transfer  of Property  Act,  1882, to be registered may  be  received  as evidence  of a contract in a suit for  specific  performance under  Chapter  II of the Specific Relief Act, 1877,  or  as evidence of part performance of a contract for the  purposes of section 53A of the Transfer of Property Act, 1882, or  as evidence of any collateral 8 6 6 transaction  not  required  to  be  effected  by  registered instrument." it  was contended on behalf of the appellants that under  S. 47  of  the Indian Registration Act  a  registered  document operates  from the date of its execution even though it  may require  registration and consequently the  registration  of the  document  should be taken to date back to the  date  of execution by a fiction of law.  III was therefore  submitted that  the  starting  point  of  the  three  months’   period prescribed under s. 9 (1 ) (c) of the Act should be the date of  execution  of  the  deed of gift and  not  the  date  of registration.   We  are unable to accept  this  argument  as correct.  Section 123 of the Transfer of Property Act states that for the purpose of making a gift of immoveable property the transfer must be effected by a registered instrument  in the prescribed manner.  Under this section therefore a  gift of immoveable property is not valid unless it is effected by a registered instrument.  It is true that under S. 47 of the Indian  Registration Act once a document is  registered  the effect begins to commence from the date of execution, but if the  document is not registered it can never have any  legal effect  as  a  deed  of gift.  Under S.  49  of  the  Indian Registration Act it is provided that no document required by s.  17 or by any provision of the Transfer of Property  Act,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 7  

1882, to be registered shall affect any immoveable  property comprised  therein  unless  it  has  been  registered.   The section  necessarily implies that such a document by  reason of  its  execution alone cannot have the  effect  of  trans- ferring  the property.  In the present case, therefore,  the deed of gift executed by Mukand Lal in favour of Veer  Kumar dated October 31, 1957 cannot be considered to be an act  of insolvency  unless a valid transfer of property was made  by that  document  and such a valid transfer could be  said  to have  been  made only when the document  was  registered  on March  11,  1958.  The question in the present case  is  not what was the effect of the registration of the deed of gift, but  when  did  the  event  take  place  which   effectively transferred  the  property.  We are not concerned  with  the point  of time from which the document became operative  but with  the  point of time at which the deed  of  gift  became legally  effective.   The contrary viewpoint for  which  the appellant contends would ignore the circumstance that if the registration of the deed of gift was not effected within the period  of -three months the creditor would be  deprived  of his   remedy  of  relying  upon  the  act  of  transfer   as constituting  an act of insolvency.  Such an  interpretation should  be avoided as it would nullify the intention of  the statute. On this question there has been divergence of opinion  among the various High Courts.  In Lakhmi Chand v. Kesho Ram(1) (1)  I.L.R. 16 Lah, 735. 8 6 7 it was held by the Full Bench of Lahore High Court that when a  petition  was  presented  alleging  that  a  debtor   had committed  an  act of insolvency by a registered  deed,  the period of limitation prescribed by s. 9 ( I ) (c) of the Act ran  from the date of the registration of the deed  and  not ’from the date of the execution thereof.  The same view  was expressed  by the Madras High Court in Sarvathada  Iswarayya v.  Kuruba Subbanna(1).  In that case, the execution of  the sale  deed  was  relied upon as an act of  insolvency  by  a petitioning  creditor and it was held by Madhavan  Nair  and Bardswell,  JJ. that the three months’ period prescribed  by s. 9 (I) (c) of the Act must be calculated from the date  of the  registration of the deed and not from the date  of  its execution.   The  same  view  was  also  enunciated  by  the Allahabad  High Court in District Board, Bijnor v.  Mohammad Abdul  Salam ( 2 ) . A contrary view has been taken  by  the Full Bench of the Rangoon High Court in U On Mating v. Maung Shwe  Hpaung(3) It was held that the period of three  months referred  to in s. 54, Provincial Insolvency Act,  began  to run  from the date of execution of the transfer provided  it had been properly registered within the specified time.  But for the reasons already expressed we hold that the decisions in  Lakhmi Chand v. Kesho Ram(4), in Sarvathada Iswaryya  v. Kuruba  ’  Subbanna, (1), and in District Board,  Bijnor  v. Mohammad  Abdul  Salam (2) correctly state the  law  on  the point. It  was next argued that no order of adjudication  could  be made  against  a firm but it can only be  made  against  the partners  individually.   We  are  unable  to  accept   this argument  as  correct.   It is true that  according  to  the English law the act of bankruptcy must be a personal act and no  act of bankruptcy could be committed by a firm as  such, and  no  adjudication could be made against a  firm  in  the firm’s  name.-(See Ex parte Blain)(5).  But under s.  99  of the  Presidency-towns  Insolvency Act (Act III of  1909)  an adjudication order may be made against a firm in the  firm’s name and such an order operates as if it were an order  made

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 7  

against each of the persons who at the date of the order was a  partner in the firm.  There is, however, no provision  in the  Act  corresponding  to  s.99  of  the  Presidency-towns Insolvency  Act.   But s.79(2)(c) of the  Act  provides  for rules to be made by the High Court as to the procedure to be followed when the debtor is a firm.  This section  therefore assumes that an adjudication order can be made under the Act against  the firm in the firm’s name.  Rules have been  made under  this section by the Allahabad High Court.   Reference was  made  on  behalf of the respondents to  Rule  26  which states : (1)  I.L.R. 58 Mad. 166.                         (2)  I.L.R. 1947 All. 624. (3)  A.I.R. 1937 Rangoon 446.                    (4)  I.L.R. 16 Lah. 735. (5)  (1879) 12 Ch.  D. 522. 8 68 .lm15 "26.   An  adjudication  order made  against  a  firm  shall operate  as  if it were an adjudication order  made  against each  of  the  persons who at the date of  the  order  is  a partner in that firm." It  is manifest that an order of adjudication could be  made against  the  firm  in  the  present  case  if  the   proper conditions were satisfied.  We therefore reject the argument of the appellants on this aspect of the case. It  was further contended on behalf of the .appellants  that there is no finding of any of the courts to the effect  that the firm committed any act of insolvency.  The allegation of the respondents was that appellant no. 2 transferred to  his son, Veer Kumar his personal house property by way of a gift deed  dated October 31, 1957 and this was done by  him  with the intent to defeat or delay his creditors.  It was pointed out that Ram Surat Misra was adjudged not to be insolvent by the  High Court on the ground that there was  no  allegation against  him  of any act of insolvency.   It  was  therefore contended  that  the  firm should  not  have  been  declared insolvent  merely  because of the deed of gift  executed  by appellant no. 2, Mukand Lal.  In our opinion, this  argument is  well-founded and must be accepted as correct.  We  think that  in  order to support an adjudication  against  a  firm there must be proof that each of the partners has  committed some  act  of  insolvency.   If, however,  a  joint  act  of insolvency is relied upon it must be shown to be the act  of all  the  partners.  An order for adjudication can  also  be made against a firm if there was an act of insolvency by  an agent of the firm which was such as must necessarily be  im- puted to the firm.  The Explanation to s. 6 of the Act  says "for the purpose of this section the act of the agent may be the  act  of the principal".  The Explanation does  not  lay down  that  an  act  of insolvency of  the  agent  shall  be attributed  to the principal but that it may be  treated  as the  act  of  the principal.  Section  2(a)  of  the  Indian Partnership Act (Act IX of. 1932) defines ’an act of a  firm to mean "any act or omission by all the partners, or by  any partner  or  agent of the firm which gives rise to  a  right enforceable  by  or against the firm".  The effect  of  this section read with the Explanation to s. 6 of the Act appears to be that the question whether an act of insolvency of  one or  more  partners  can be regarded as an  act  of  all  the partners is a question of fact to be determined on the facts and circumstances of each particular case.  For instance, In Re  Mahomed Hasham & Co. (1) one of the partners in  a  firm consisting of two partners departed from the usual place  of business  with intent to delay and defeat the  creditors  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 7  

the firm.  It was held by the Bombay (1)  24 Bom.  L.R. 861. 8 6 9 High  Court  that an adjudication order could  not  be  made against the firm in such a case unless the other partner had also  departed with like intent.  Similarly, in Gopal  Naidu v. Mohanlal Kanyalal(1) it was held by the Madras High Court that it is a question of fact whether the act of one partner in  closing the business of the firm and thus committing  an act of insolvency so far as he is concerned was imputable to another  partner so as to entitle the creditors of the  firm to  get  the other also adjudicated an  insolvent.   In  the circumstances  of that particular case it was held that  the mere  fact of closing the firm by one partner  without  more evidence  to  show  that  the  other  either  expressly   or impliedly  authorized the same was insufficient to  lead  to such imputation.  In the present case, the property of which Mukand  Lal  made a gift to Veer Kumar was  not  partnership property  and  there  was no collective  act  of  insolvency alleged  on behalf of all the partners of the firm.  In  the circumstances  of  the present case it cannot also  be  held that the act of insolvency committed by Mukand Lal should be attributed to Ram Surat Misra.  The High Court has, in fact, allowed  the  appeal of Ram Surat Misra and  set  aside  the order  of the lower courts declaring him as  insolvent.   We are  consequently  of opinion that the order  of  the  lower courts,  so  far as it adjudicates the  registered  firm  as insolvent, should be set aside, but the rest of the order of the  lower  courts declaring Mukand Lal  as  insolvent  will stand. Subject  to this modification these appeals  are  dismissed. There will be no order as to costs of this Court. Y. P.                                Appeals dismissed. (1) L. R. 49 Mad. 189. 870