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PETITIONER: THE STATE OF PUNJAB

       Vs.

RESPONDENT: S. RATTAN SINGH

DATE OF JUDGMENT: 16/12/1963

BENCH: DAYAL, RAGHUBAR BENCH: DAYAL, RAGHUBAR GAJENDRAGADKAR, P.B. SUBBARAO, K. WANCHOO, K.N. SHAH, J.C.

CITATION:  1964 AIR 1223            1964 SCR  (5)1098

ACT: The Patiala Recovery of State Dues Act (Act IV of 2002  BK), ss.  4 and 11-- Scope of-Civil Court-Jurisdiction to  decide if a person is defaulter.

HEADNOTE: Provincial  Insolvency  Act  (5  of  1920),  s.   4--Whether Insolvency Court can go behind decree. 1099 Jyoti  Parshad was indebted to the Bank of Patiala.   As  he 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, Respondent stood surety to the extent of Rs. 2 lacs and entered into a contract of guarantee with the  Bank to discharge the liability of Jyoti Parshad to the extent of Rs.  2 lacs in case of default by Jyoti Parshad.  A deed  of guarantee was also executed.  As 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 transfer 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

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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.  1  1 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. II 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 1100 dues recoverable and the liability of the alleged  defaulter to  pay that amount.  Such powers were however possessed  by the  Insolvency Court.  In the present case, the  Insolvency Court  had  found that the Respondent had not  executed  the surety  bond and therefore, was not liable to make good  any payment  under  it.   The  order  of  the  Insolvency  Judge dismissing   the  insolvency  petition  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.L.R. [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.I.R. 1938 Lah. 148,  referred to.

JUDGMENT: CIVIL APPELLATE JURISDICTION : 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  J.-This appeal, by  special  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

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called  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 1101 to  cl. (1) of s. 3 ’State dues’ included debts due  to  the Patiala  State Bank.  The expression  ’department’  includes the Patiala State Bank, and the expression ’defaulter’ means a person from whom State dues are due and includes a  person who  is  responsible as surety for the payment of  any  such dues.   ’Head of department’ means, among other things,  the Managing  Director  in the case of the Patiala  State  Bank. Chapter  11  purported to deal with determination  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  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,               exercises any powers vested in him or it by or               under this Act or the rules made thereunder." 1102 Section  12  empowers the Government of the  State  to  make rules for the purpose of carrying out the provisions of  the Act.   Sub-s. (2) thereof states that the rules may  provide the  manner  in  which the amount of  State  dues  shall  be determined by a head of department. The  Patiala Recovery of State Dues Rules, 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 shall 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

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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  1103 them  through the Nazim or the Accountant-General  or  both. Rule  8  provides for appeal by the  defaulter  against  the orders  passed  under  rr. 5 or 6. Rule  9  provides  for  a revision  by the defaulter in case his appeal is  dismissed. Rule 12 provides that the appellate or revisional  authority may pass such order in appeal or revision as it thinks fit. The facts of the case may be briefly stated 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 once 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 with 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 Sab-Judge,  1st  Class (Insolvency Court) Patiala, praying for the adjudication  of Rattan  Singh,  respondent, 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 and two sons within three months of the petition with intent to defeat and delay his creditor-Bank having full  knowledge of his liability towards the State. By his written statement dated June 16, 1955 the  respondent denied  having  stood surety or having signed  the  deed  of guarantees  and stated that he was not liable to  the  State and that the impugned transfers of land and houses were made

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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.  75  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 1105 and that therefore the Insolvency Court had no  jurisdiction to  reconsider  and determine it.  The High  Court  did  not agree  with this contention and dismissed the revision.   It is against this order that the State of Punjab has preferred this appeal after obtaining special leave. The  contention for the appellant in this Court is 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,  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 of  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 determine the amount of the debt due 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, person  disputes his liability to pay the alleged debt; (ii) that even if the bead  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 the 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

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contentions  for the respondent are based on these  grounds: (i)  s. 4 empowers the head of the department to 1106 determine  the  exact amount of State dues  recoverable  and does  not  empower  him to determine the  liability  of  the alleged defaulter to pay those dues in case the liability is disputed   (ii)   The  question  of  liability   may   raise complicated questions of  fact and law for determination and to  determine  which  the  head  of  department  cannot   be competent;  (iii) The Managing 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  in Lachhman Dass v. State of Punjab(1).   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  depart-               ment 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  evi-               dence.  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 S.C.R. 353.                1107               account other documentary evidence, if he con-               siders that, is necessary for a proper  deter-               mination of the dispute." it  follows  that  the Managing Director or the  head  of  a department   can  record  evidence  with  respect   to   the objections raised before him by the alleged defaulter  about his liability to pay the dues. Section 4 is really concerned with the determination 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.  (2) of s. 6 which provides for the certificate issued under sub- s. (1) of s. 6 to be conclusive proof of the matters  stated therein,  the  matters being that such and such  amount  was

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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 1108 of  so construing the provisions of s. 4 as to exclude  ,the objection  to  liability of the alleged defaulter  from  the purview  of  the head of department?  It would be  that  the Bank  will have to go to the Civil Court for  a  declaration that the alleged person is liable to pay its dues.  The suit will  have  to  be  merely  ,for  a  declaration,  as,   the determination of the amount he has to ’pay, if liable,  will inevitably have to be 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  deter- mination  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(.1) provides that no action shall be taken  by  the Nazim or the Accountant-General on  a  certi- ficate  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  1109 relevant  authority under s. 4 of the Act cannot proceed  to determine  the  exact  amount of debt due  and  even  if  it determined   the  amount  it  cannot  obviously  issue   any certificate  to  the  Nazim or  Accountant-General  for  the recovery of that amount.

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In  view  of  these  considerations,  it  is  reasonable  to conclude that 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.  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(1) 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. II 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 (1)  I.L.R. [1961] 2 Punj. 823. 1110 adjudged  an insolvent unless he owes the debts equal to  or more than a certain amount and has also committed an act  of insolvency.   It  is  the  duty  of  the  Insolvency   Court therefore to determine itself the alleged debts owed by  the debtor  irrespective of whether those debts are based  on  a contract  or ,under a decree of Court.  At the stage of  the proof  of the debts, the debts to be proved by the  creditor are 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 than 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 reopen 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

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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  1111 dues  recoverable from the defaulter under S. 4 of  the  Act can  have  no better status than the ordinary  judgment  and decree  of a civil court have.  The head of  the  department could  not  have decided a dispute about the amount  of  the State dues recoverable from the defaulter between  creditors other  than the Bank and the defaulter and therefore such  a dispute  between the creditors in general and the  defaulter cannot be a dispute which comes within the mischief of s. II of the Act. Such a jurisdiction of the Insolvency Court is readily  made out by the provisions of the Provincial Insolvency Act, 1920 (Act  5  of  1920) hereinafter called  the  Insolvency  Act. According to s. 2, sub-s.(1), cl. (a), ’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 :               "(1)  Subject to the provisions of  this  Act,               the Court shall have full power to decide  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               1112               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  (1),               but has reason to believe that the debtor  has               a saleable interest in any property, the Court               may   ’without  further  inquiry   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 consider 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

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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. Section   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  1113 satisfy  before presenting an insolvency petition.  In  view of  the  definition  of creditor, debtor  and  debt  already referred  to, the judgment-creditor can present  a  petition for the adjudication of the judgment debtor an insolvent  on the  basis of the judgment debt.  Section 10 lays  down  the condition  on  which  the debtor  can  present  a  petition. Section 14 provides that no petition presented, whether by a creditor or by a debtor, shall be withdrawn without leave of the  Court.  This fits in with the position that  insolvency proceedings  are  not proceedings between  the  petitioning- creditor and the debtor alone.  Section 16 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. 17.  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 creditor 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 respective debts by producing evidence of the amount and the particulars thereof and the Court has then to determine  the person  who  have proved themselves to be creditors  of  the insolvent in respect of such debts and the amount of  debts, respectively, and then frame a schedule of such persons  and

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debts.   Creditors other than the creditor who  had  applied for  the  adjudication of the insolvent  may  have  judgment 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 roof 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. In  Ex  parte Kibble.  In re Onslow(1) 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               (1)   [1875] 10.  Ch.  A.C. 373.                1115               the  judgment should be liable  to  investiga-               tion."               In this case the probe into the judgment  debt               was  made  at  the time  of  the  adjudication               proceedings.               In  Ex  parte  Lennox, In  re  Lennox(1)  Lord               Esher, M.R., said at p. 323:               "   The  authority,  however,  of   Ex   parte               Kibble(2) seems to me quite sufficient, and  I               think 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  estopped  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,

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             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 establish 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,               (2)   [1875] 10 Ch.  A.C. 373.               (1) [1885] 16 Q.B.D. 315.               1116               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.  The Court will not allow bankruptcy               proceedings  to  be had recourse  to  for  the               purpose   of   enforcing   debts   which   are               fictitious,  and not real, even although  they               are in the form of judgment debts."               In  re  Fraser,  Ex  parte  Central  Bank   of               London(1) Lord Esher, M.R. said at p. 635:               "As  a matter of law the  judgment,  therefore               stands as a good judgment against John  Fraser               and  it  cannot be questioned by  him  in  any               Court,  except the Court of Bankruptcy.   But,               when it is sought to obtain a receiving  order               against  him in respect of the judgment  debt,               the  Court of Bankruptcy has to  exercise  its               discretion,  and  for  the  exercise  of  that               discretion one rule of conduct is to be  found               in  s.  7 of the Bankruptcy Act,  1883,  which               provides,  by sub-s. 3, that ’if the Court  is               not   satisfied   with  the   proof   of   the               petitioning creditor’s debt, or of the act  of               bankruptcy, or of the service of the petition,               or is satisfied by the debtor that is able to               (1)   [1892] 2 Q.B.D. 633.               pay  his debts, or that for  other  sufficient               cause no order ought to be made, the Court may               dismiss the petition’." In In re Van Laun, Ex parte Chatterton(1) Cozens Hardy  M.R. said  at p. 30 what Bigham J., had said in In re  Van  Laun. Ex parte Pattullo : (2)               "The trustee’s right and duty when examining a               proof   for  the  purpose  of   admitting   or

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             rejecting  it is to require some  satisfactory               evidence  that the debt on which the proof  is               founded is a real debt.  No judgment recovered               against the bankrupt, no covenant given by  or               account  stated  with  him,  can  deprive  the               trustee  of this right.  He is entitled to  go               behind such forms to get at the truth, and the               estopped  to  which  the  bankrupt  may   have               subjected  himself  will not  prevail  against               him." The  principles  of  these cases have been  applied  by  the courts in this country.  Reference may be made to  Narasimha Sastri v. Official Assignee, MadraS(3). Reference may also be made to Sadhu Ram v. Kishori Lal(4) in which  it was held in view of s. 4(2) of the Insolvency  Act that  the  decree founded on a debt held  fictitious  by  an Insolvency Court could not be executed.  Bhide J said:               "In  the present instance the finding  of  the               Insolvency  Court had, I think, the effect  of               rendering  the decree inoperative, as  it  was               tantamount  to a declaration that  the  decree               was  non-existent and the finding was  binding               on the decree-holder as well as the  judgment-               debtor." In  view  of  our opinion that an Insolvency  Court  can  go behind  a decree and probe into the genuineness of the  debt on which it is founded, it is not necessary to consider  the contention  as  to whether the Insolvency Court is  a  Civil Court or not for the purpose of s. 11 of the Act. (1)  [1907] 2 K.B. 23. (3)  A.I.R. 1930 Madras 751. (2)  [1907] 1 K.B. 155,162. (4)  A.I.R. 1938 Lah, 148. 1118 We therefore hold that the head of department had the  power to  decide,  under  s. 4 of the  Act,  whether  the  alleged defaulter  was a defaulter or not, that no Civil  Court  can consider  this matter in view of s. 11 of the Act  and  that the Insolvency Court is however not precluded from enquiring into  the question whether the alleged debtor was  really  a debtor  and liable to "/pay sums said to be payable by  him. The  Insolvency Court has found that the respondent had  not executed the surety bond and that therefore he could not  be liable to make good any payment under it.  The order of  the Court  below  in  dismissing  the  insolvency  petition  is, therefore, correct. We  accordingly dismiss this appeal with costs,  though  for different reasons.                                      Appeal dismissed. GIPNLK-1/SCI/64-13-10-65--2,500 Copies. 1