http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 12  

PETITIONER: P. VEERASAMY.

       Vs.

RESPONDENT: THE OFFICIAL ASSIGNEE HIGH COURT, MADRAS.

DATE OF JUDGMENT:       12/01/1999

BENCH: S.B. MAJMUDAR. & M JAGANNADHA RAO.

JUDGMENT:

M. JAGANNADHA RAO,J Leave granted.

             Lord  Mansfield  said, over two hundred  years          ago, that you cannot ‘let out the bankrupt’.  He is          not  a  slave of the Assignee.  The point  in  this          appeal  is  as to what extent the insolvent can  be          allowed  to run his business to sustain himself and          his  dependents and as to what rights the  official          Assignee  and  creditors  have,   as  against   the          insolvent?

             The    modern   concept     appears   to    be          rehabilitation  of  an honest insolvent and a  more          humane  treatment to be meted out to the  insolvent          and  his family.  At the same time, it must be seen          that a benevolent view towards the honest insolvent          is not abused by one who is dishonest.

             "It  has to be admitted that both in our  past          and  also  in  our   present  insolvency  law,  the          punitive and deterrent aspects of legal policy have          seemed  hard  to reconcile with the  rehabilitative          philosophy  with  which  they are supposed  to  co-          exist.   It  would certainly appear to be the  case          that  it  is  not   very  widely  appreciated  that          bankruptcy  law is also designed in part to protect          the  honest  but  unfortunate debtor,  as  well  to          discipline and if necessary punish one who has been          incompetent or even dishonest." While those who are          not   aware  of  the   beneficial   provisions   of          insolvency  law may suffer oppression at the  hands          of   creditors,  conversely,   "there  are  certain          opportunities  for  those who are closely  familiar          with  the insolvency law to exploit its  provisions          to  their  advantage, and at the expense  of  their          less  knowledgeable creditors.  In this area of the          law,  the  aphorism that knowledge is power has  an          especially  truthful  ring  in  it.   (The  Law  of          Insolvency  by Ian Fletcher, 1990, pp.33-34).   The          law must, therefore, achieve a just balance.

             This  appeal is preferred against the Judgment          of  the Madras High Court in O.S.A No.  17 of  1998          dated  18.02.98,  rejecting the O.S.A.  in  limine.          By  that Judgment, the Division Bench affirmed  the          order of the learned Single Judge dated 4.8.1997 in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 12  

        Application  No.  89 of 1997 in Insolvency Petition          No.   33  of 1996.  The result of the dismissal  of          the   interlocutory   application   was  that   the          appellant  who was declared an insolvent on his own          petition  on 25.4.96, was not permitted to  conduct          his  retail  business  of  selling  Kerosene  under          Licence  No.  173 of 1974 as an agent of the  Civil          Supplies Department of the Tamil Nadu Government.

             The  following  are the facts in  brief:   The          appellant  filed  a Petition I.P.  No.  33 of  1996          for  being  adjudicated  as   an  insolvent   under          Sections   14  &  15  of  the   Presidency   Town’s          Insolvency  Act,  1909(Act 3 of 1909)  (hereinafter          called  the  ‘Act’).   The   said  application  was          allowed  on  25.4.96 by the learned  Single  Judge.          Thereafter,  the  appellant filed I.A.  No.  89  of          1997  on 10.5.97 seeking permission to restart  his          Kerosene business under Licence No.  173 of 1974 as          agent  of the Tamil Nadu Civil Supplies  Department          which, according to him, would fetch him Rs.  920/-          per  month and out of which the appellant would  be          willing  to  allocate Rs.  150/- p.m.  towards  his          liability  to  the general body of  creditors.   He          stated  that  he was earlier supplying 5000  litres          every  month at the rate of 200 litres per day  for          25  days in a month.  He had to supply 10 litres to          each  card  holder  per  month.   The  licence  was          renewable  every two years.  His first licence  was          obtained  in  1974  and the same was  renewed  upto          31.12.1998.   The Insolvency Petition was filed  as          he  incurred loss in Cement business.  Prior to the          filing  of the Insolvency Petition, the supply  was          temporarily  suspended  and 500 card  holders  were          allotted  to  another shop.  The  appellant  stated          that due to unavoidable circumstances, he could not          reside  in Madras and was forced to go back to  his          native  place.   If he has to come back  to  Madras          city  either  for continuing the education  of  his          children or to attend at the office of the Official          Assignee,  he  must be allowed to do  his  Kerosene          business.   The Official Assignee is now in  charge          of  his  immovable  properties.  Unless  the  Court          gives  the  insolvent permission, the Civil  Supply          Department  will not allow him to receive  Kerosene          supplies.  He states that no capital is involved in          this  business.   Only  a  sum  of  Rs.   496/-  is          required   to  be  paid  to  the   Civil   Supplies          Department  to  start with, for the supply  of  200          litres.   He has rented a shop at No.  354,  N.S.K.          Road, Madras -106, on a monthly rent of Rs.  150/-.          He  states that there is no need for him to  borrow          any  money  for running this business.   The  Civil          Supplies  Department has given him a commission  of          0.32 paise per litre and in a month for 500 litres,          he will get a total commission of Rs.  1600/-.  His          expenses  for the cart - charges will be Rs.  680/-          p.m.   for  lifting  the kerosene,  Rs.   30/-  for          electricity  and Rs.  150/- for rent.  Balance will          be Rs.  920/- p.m.  He is willing to pay Rs.  150/-          to  his  creditors out of the said income.   He  is          prepared  to abide by any other conditions that may          be imposed by the Court.  This application is dated          10.3.97.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 12  

              The  Official Assignee submitted a report  to          the Court on 17.4.97 stating that the appellant had          disclosed assets worth Rs. 34,000/- and liabilities          of  Rs.  39.21 lakhs, Book  liabilities  were   Rs.          12,02,660   but  had  not  disclosed  his  Kerosene          business  nor did he submit accounts regarding  the          said  business. The creditors complained  that  the          appellant  had  omitted to refer  to  the  kerosene          business   and   that  he   had   also   suppressed          information  regarding  some other assets.   If  he          were  to be allowed to do this business,  he  might          incur   further   debts.   The   application   was,          therefore not bona fide and should be dismissed.

             The   learned  Single   Judge  dismissed   the          application  by  order dated 4.8.97, accepting  the          contentions  of the Official Assignee.  On  appeal,          the  Division  Bench dismissed the  appeal  stating          that  in the light of what was stated in the report          of  the Official Assignee, the discretion exercised          by  the  learned Single Judge was not liable to  be          interfered with.

             It is contended in this appeal that the Act in          sub-clause(1) of Section 75 gives a statutory right          to  move  the Official Assignee for  permission  to          manage  his  property or to carry on his trade  for          the benefit of his creditors, subject to conditions          and  that  under sub-clause (2) of Section  75  the          Court  may, from time to time, make such  allowance          as  it  thinks  just  out of the  property  of  the          insolvent, for the support of the insolvent and his          family  or in consideration of his services.   Such          an  allowance can also be varied from time to time.          Learned  counsel  has  also   relied  upon  Article          19(1)(g)  and  Article  21 of the  Constitution  of          India.   He  has  contended that  inasmuch  as  the          appellant  has stopped the kerosene business before          the  filing  the  insolvency   petition,  the  said          business  was not disclosed.  The books of  account          in regard to this business were produced before the          Official  Assignee  at the time the inquiry of  the          application   seeking  permission  to   renew   the          business  was  taken  up.  The  business  does  not          involve  any  capital.   The   appellant  has   two          children  and  they are presently admitted into  an          orphanage.  If the insolvent is allowed to continue          the  kerosene business, he will be able to  sustain          himself  and  his  family members who  are  totally          dependent on him.

             In  spite of notice, the official Assignee has          not  chosen  to appear before us.   We,  therefore,          requested learned senior counsel, Shri Arun Jaitley          to  help  us  in  the matter and he  has  made  his          submissions.  We are grateful to him.

             Learned   counsel   for   the  appellant   Sri          P.B.Suresh  relied upon Section 75 of the Act  but,          in  our view, three other sections, namely Sections          17,  52  and  60  are also  relevant.   As  already          stated,  learned counsel for the appellant had also          referred  to Article 19(1)(g) and Article 21 of the          Constitution of India.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 12  

             The  appeal relates to release of income  from          Kerosene  business to the appellant for the purpose          of  the  survival of the appellant and  his  family          members.   Such  income  will  be  ‘after  acquired          property’.  On that question, the points that arise          for consideration are as follows:

             (1)  In the context of section 17 and  section          52(2) of the Presidency Towns Insolvency Act, 1909,          does  the after-acquired property of the  insolvent          automatically vest in the official Assignee?

             (2)  In  the context of section 60(2)  of  the          Act,  does  ’salary  or income’  of  the  insolvent          earned by him after adjudication automatically vest          in  the  official  Assignee;  and is  the  official          Assignee’s  right to receive these monies, even  to          the   extent  they  would   otherwise   have   been          attachable, subject to orders of the Court?

             (3)  Is  the word ‘income’ in  the  expression          ‘salary or income’ in section 60(2) to be construed          ejusdem  generis like salary or can it be construed          so  as  to  include other types of income  such  as          income  from  trade  or business of  the  insolvent          conducted after adjudication?

             (4)  Are ‘personal earnings’ of the  insolvent          earned after adjudication exempt from vesting under          the common law relating to insolvency?

             (5)  In what manner the provisions of  section          75  of the Act are to be construed for allowing the          insolvent  to run his business and for allowing him          an  allowance  out of the property, to support  him          and his family?

             (6) To what relief?

             Point 1:

             This  point concerns the vesting of the ‘after          acquired’  property  of  the   insolvent,  and  the          question  is whether it vests automatically in  the          insolvent  under  the Presidency  Towns  Insolvency          Act, 1909.

             Under  section 17 of the Act, on the making of          an  order  of adjudication, the ‘property’  of  the          insolvent,  wherever  situate,  shall vest  in  the          official  Assignee and shall become divisible among          his creditors.  Section 2(e) of the Act states that          ‘property’  includes any property over which or the          profits  of which any person has a disposing  power          which  he may exercise for his benefit.  Obviously,          therefore,  in  the normal course, the  ‘salary  or          income’   accruing   to    the   insolvent,   after          adjudication,  would  vest in the  Assignee  unless          there is anything in the Act inconsistent with such          vesting.   It  is  here that section  52(2)(a)  and          section  60 gain importance.  Under this point,  we          shall refer to the effect of section 52(2)(a).

             Section   52(2)(a)  deals   with  the  ‘after-

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 12  

        acquired’  property  of  the   insolvent  which  is          divisible among creditors.  It reads as follows:

             "Section  52(2)(a):  Subject as aforesaid, the          property  of  the  insolvent   shall  comprise  the          following particulars, namely;

             (a)  all such property as may belong to or  be          vested  in the insolvent at the commencement of the          insolvency  or maybe acquired by or declare on  him          before his discharge."

             This  corresponds to section 38 of the English          Bankruptcy  Act, 1914.  The corresponding provision          in  the  Provincial Insolvency Act, 1920  which  is          differently  worded  but  which deals  with  ‘after          acquired  property’  is  section   28(4)  and  that          section  uses the words ‘forthwith vest’ while such          words  are  absent in section 52(2)(a) of the  Act.          That  section  28(4) of the  Provincial  Insolvency          Act, 1920 reads as follows:

             "Section   28(4):   All   property  which   is          acquired  by or devolves on the insolvent after the          date  of  an order of adjudication and  before  his          discharge  shall  forthwith  vest in the  Court  or          receive,  and  the provisions of sub-  section  (2)          shall apply in respect thereof."

             In  the English law, according to the rule  in          Cohen  vs.   Mitchell  [(1890) 25 Q.B.O  262],  the          after  acquired property of the insolvent does  not          automatically  vest  in  the  trustee  or  Assignee          unless  the  trustee  intervenes.    But  once   he          intervenes, the property vests in him absolutely as          stated  in Hill vs.  Settle [1917 (1) Ch 319].   As          to what is intervention by the Assignee in relation          to   insolvent’s  dealings    with   after-acquired          property,  depends on the nature of the property, -          immovable, movable etc.

             In  India,  the above principle in  Cohen  vs.          Mitchell  has been followed by various High  Courts          in  regard  to bonafide transactions  entered  into          with  the insolvent by strangers without notice  of          insolvency  but  as stated in Mulla (p.431,  Tagore          Law  Lectures) (Mulla Law of Insolvency, 1977,  3rd          Ed.),  the  Madras High Court alone has  taken  the          view  that the rule in Cohen vs.  Mitchell does not          apply to after-acquired immovable property.

              As  we are here not concerned with  immovable          property  but  with ‘income’ that may  be  received          after  adjudication  by  the  insolvent  from   his          business  -  and  that question  is  covered  by  a          specific  provision  in Section 60(2)  of  the  Act          conferring certain powers on the Court, - we do not          think  it necessary in the present case to go  into          the  question as to what extent the rule  in  Cohen          vs. Mitchell is applicable in India in relation  to          intervention  by the Assignee.  We,  therefore,  do          not  think  it  necessary  to  answer  Point  No.1.          However,  we shall again refer to section  52(2)(a)          while  dealing  with  ‘personal  earnings’  of  the          insolvent under Point 4.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 12  

             Point 2:

             As  stated  earlier, the question  is  whether          ‘income’  that  may  be received by  the  insolvent          after  adjudication  from  his business  will  vest          automatically  in the Assignee or whether the Court          has  power  to  pass orders in regard to  the  said          income.   In  this  context, we have  to  refer  to          section 60(2) of the Act.  It reads as follows:

             "Section  60(2):  Where an insolvent is in the          receipt of a salary or income other than aforesaid,          the  Court may, at any time after adjudication  and          from  time  to time, make such orders as it  thinks          just  for the payment to the official assignee, for          distribution among the creditors of so much of such          salary  or income as may be liable to attachment in          executing a decree or any portion thereof".

             This  Section corresponds to Section 51 of the          English Bankruptcy Act, 1914.

             It will be noticed from section 60(2) that the          after-acquired  ‘salary or income’ of the insolvent          does  not  automatically  vest in the  Assignee  as          otherwise permitted by Section 17 of the Act but it          continues   to  be  the   property  vested  in  the          insolvent  and out of the said ‘salary or  income’,          whatever  is not attachable if the same were to  be          proceeded  against  in execution of a decree,  that          amount  will not vest and cannot be directed,  even          by  the Court, to be made over to the Assignee.  So          far  as  the  attachable part of  such  ‘salary  or          income’  is  concerned,  the   same  too  does  not          automatically  vest  in  the  Assignee  because  of          Section  60(2) but only such part of it can be made          over  to  the Assignee as the Court may think  just          for payment to the assignee, for distribution among          creditors.  In other words, the Court can allow the          insolvent  to  retain not only the  non  attachable          part  of the ‘salary or income’ but also that  part          of  the attachable ‘salary or income’ to the extent          the Court thinks just.

             A  provision  like  Section 60  requiring  the          Court  to  pass  orders  regarding  after  acquired          ‘salary  or income’ is not there in the  Provincial          Insolvency  Act,  1920.   (See   Mulla  Tagore  Law          Lectures,  1929  (Law  of   Insolvency,  1977   3rd          Ed.)(p.439)  and sub-clauses (4) and (5) of Section          28  of  that  Act deal with  automatic  vesting  of          after-acquired   property  under   the   Provincial          Insolvency Act, 1920.

             In  this context, Mulla also says (p.438) that          under Section 60 of the Presidency Towns Insolvency          Act,  1909, the "official assignee cannot,  without          an  order of the Court, recover any portion of  the          salary  or  income.  Until the order is  made,  the          whole  of  the  salary  or income  belongs  to  the          insolvent  and  he is entitled to  vary  agreements          entered  into by him with the employers in  respect          of  his personal services.  (Re Shine 1892 (1) Q.B.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 12  

        522)  In  determining  whether  the  whole  of  the          attachable  salary  or  income is to  pass  to  the          official  Assignee  or only a portion thereof,  the          Court  will  have  regard  to  what  is  reasonably          necessary for the maintenance of the insolvent, his          wife  and  family  (Ex   parte  Official  Receiver:          [1896(1)  Q.B.   417];   Re   Rogers  1894(1)  Q.B.          425)".

             We  are of the new that the above statement of          law in Mulla represents the correct legal position.          Point 2 is decided accordingly.

             Point 3:

             Inasmuch  as  in  the   present  case  we  are          concerned  not with ‘salary’ but with the  ‘income’          that  may be derived by the insolvent from trade or          business,  it becomes necessary to find out whether          the word ‘income’ in section 60(2) is restricted in          its  meaning to income which is similar to ‘salary’          or  can mean other income also, such as income from          trade  or business.  In case, income from  business          or  trade can be brought within Section 60(2), then          the   advantage  is  that   such  income  will  not          automatically  vest in the Assignee and even if  it          is  entirely  attachable,  no  part of  it  can  be          received  by the Assignee except by an order of the          Court  and  until  the Court  has  considered  what          amount  is to be treated just in the  circumstances          of the case, to be distributed to the creditors.

             Question  is whether the income from ‘trade or          business’ can be brought within section 60(2).

             The meaning of ‘salary or income’ has not been          defined in the Act but it has been held in England,          while  dealing with the corresponding provision  in          Section  51 of the English Act, 1914 that the  word          ‘income’  ‘is a larger word than salary’ (Per  Lord          Hanworth  in  Re  Landau 1934  Ch.549  (554,  556).          Earlier,  Sir  George Jessel, MR said in  Ex  parte          Huggins (1882) 21 Ch.  85 that the said word ‘is as          large a word as can be used’.

             But even so, English Courts initially took the          view  that  the word ‘income’ was to  be  construed          ‘ejusdem  generis’ like salary.  That was the  view          of Lord Esher in Ex parte Benwell (1884) 14 Q.B.  D          301  (307-308).   That  was also the  view  of  the          Rangoon  High Court in Official Assignee of Rangoon          vs.   Maung  Nyun Maung (AIR 1931 Rangoon  79).   A          similar  view was expressed by Mulla in his  Tagore          Law Lectures of 1929 (see Mulla, Law of Insolvency,          3rd  Ed.,  1977  p.459)   wherein  he  stated  that          ‘income’  means income in the nature of salary  and          it  has reference to a particular period such as  a          year  or  some part of a year.  Obviously, in  1929          that was the state of the law.

             But,  in  later years, a more  humanistic  and          pragmatic  view has been taken in England in regard          to  ‘income’ which is not of the nature as ‘salary’          -  for even if the insolvent is to earn income from          other  sources  such as from business, some  amount

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 12  

        must  be  allowed  to be retained by  him  for  the          support  of himself and his family.  The  insolvent          has to live.  In Re Landau 1934 Ch.549 (560), Romer          LJ   therefore  held  that   the  earlier  view  in          Benwell’s  case  that the word ‘income’ had  to  be          construed  ‘ejusdem generis’ was not correct in  as          much  as  it had not been stated there as  to  what          genus  the  salary payment belonged.   In  Landau’s          case, maintenance ordered to be paid by the Divorce          Division  to a bankrupt-wife during the joint-lives          of  herself and her former husband, was held to  be          ‘income’.   That view was followed in Re  Tennant’s          Application  1956(2)  All  E.R.753 (CA).   In  that          case, it was held monthly sums paid by a husband to          his  wife (who was adjudicated bankrupt) - under  a          covenant  in a deed executed during the pendency of          the wife’s application for an order for maintenance          on  dissolution  of   their  marriage,  constituted          ‘income’  within  Section  51(2)   of  the  English          Bankruptcy Act, 1914.

             In fact, a wide definition appears to have now          been incorporated statutorily in Section 310 of the          British  Insolvency  Act,  1986 which  Act  is  the          result of the Cork Report.  Section 310 of that Act          deals  with ‘Income payment orders’ and  sub-clause          (7)  thereof  which  defines   ‘income’  reads   as          follows:

             "Section  310  (7):  For the purpose  of  this          Section, the income of the bankrupt comprises every          payment  in the nature of income which is from time          to  time  made to him or to which he, from time  to          time  becomes  entitled, including any  payment  in          respect  of  the carrying on of any business or  in          respect of any office or employment"

             In   Halsbury’s  Law  of  England   (Vol.3(2),          Bankruptcy  & Insolvency) (4th Ed., para 437 f.n 2)          it  is  stated  as  follows,   in  regard  to   the          definition  of  ‘income’ in the English statute  of          1986  in  section  310(7).    "This  definition  of          ‘income suggests an intention of the legislature to          enact  a wider definition of income than that which          the Courts developed under the Bankruptcy Act, 1914          Section   51   (repealed).     In   Section   51(2)          (repealed),  ‘salary or income’ was used and income          was  construed  ejusdem  generis:  Ex  P.   Benwell          (1884)  14 Q.B.D.301 (CA);  Re Cohen 1961 Ch.   246          (CA),  but see Re Tenants Application 1956 (2)  All          E.R.  753 (CA);  Re Landau, 1934 Ch.549".

             We are of the view that though our legislature          has  not  defined ‘income’ as widely as in  Section          310(7)  of the English Act, 1986, the word ‘income’          is  not to be construed ejusdem generis and that it          includes income from business or trade conducted by          the insolvent after his adjudication.

             So  construed, the said business income  would          then  fall under Section 60(2) of the Act and would          not become receivable by the Assignee automatically          but  only upon an order to be passed by the  Court,          to  the  extent  the Court would deem it  just  for

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 12  

        payment  to the official Assignee, for distribution          among  creditors.  Till such an order is passed  by          the  Court,  the business income will  continue  to          vest  in  the  insolvent, even if the whole  of  it          would  otherwise have been attachable in  execution          of a decree.  We hold accordingly under Point 3.

             Point 4:

             This point deals with the common law principle          applicable  to  the  ‘personal   earnings’  of  the          insolvent  earned  by  his personal labour,  to  be          allowed  to  be  retained  by  him  to  the  extent          necessary  for  his  support  and  support  of  his          family.

             According  to  Williams  and  Muir  Hunter  on          Bankruptcy  (19th  Ed.) (1979) (p.290), one of  the          categories of property excluded from vesting in the          assignee  is  the amount covered by  the  ‘personal          earnings’  of the insolvent.  This principle ,  the          author  says,  is  based  on  the  ‘common  law  of          Bankruptcy’.

             Section  38 of the 1914 English Act is similar          to  Section  52 of the Presidency Towns  Insolvency          Act,  1909  and  deals  with  distribution  of  the          property  of  the  insolvent.  In  the  context  of          Section  38 as to whether ‘personal earnings’  will          be distributable among creditors, the above authors          say as follows:

             "By  virtue  of  this  Section,  the  personal          earnings of a bankrupt pass like any other property          to  the  trustee,  except such part of them  as  is          necessary  for the maintenance of the bankrupt  and          his  family.   In Re Roberts (1900) (1)  Q.B.   122          (CA).   The  Court  of   Appeal,  after   reviewing          previous   decisions,  which   had  suggested  that          personal  earnings  did not vest in the trustee  at          all,  stated  that there is ‘no authority  for  the          proposition that property of a bankrupt acquired by          his  personal  exertions since his bankruptcy,  and          not wanted for his present support, does not belong          to his trustee.  No such doctrine can be maintained          in the face of Section 44 "(now Section 38)." After          bankruptcy  and  before   his  discharge,  whatever          property  a  bankrupt  acquires   belongs  to   his          trustee,  save  only  what  is  necessary  for  his          support.   He  may  sue  for his  earnings  if  his          trustee  does  not interfere (As he did in  Affleck          vs.  Hammond 1912 (3) K.B.162".  But, "the language          of  (that  Section)...   must   not  be  taken  too          literally  as  to  deprive   those  fruits  of  his          personal  exertions  which are necessary to  enable          him  to live.  On the other hand, the necessity  is          the limit of the exception."

             As mentioned earlier, Lord Mansfield stated in          Chippendale  vs.   Tomlinson (1785) Doug 318  =  99          E.R.318)  that  ‘the  assignee cannot let  out  the          bankrupt,  they  cannot contract for  his  labour’.          But  according  to the notes of Mr.Douglas in  that          case  Butler,J.   and Mansfield,J.  both said  that          the bankrupt had an undoubted right to sue for such

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 12  

        profits of his labour but supposing a person in his          situation  should  have  a large sum  of  money  or          considerable  effects, then such money and  effects          would  undoubtedly be liable to be made over to his          assignee.   In Re Jones (1891) 2 Q.B.  213, it  has          been  stated that an insolvent cannot be  compelled          to  work and earn for his creditor.  Lord Denman CJ          in  Williams vs.  Chambers (1847) 10 Q.B.  337  and          Lush  LJ  in Eaden vs.  Carte (1881) 17 Ch.  D  768          stated  that the earnings beyond what is needed for          the support of the insolvent and his family, are to          be  made  over to the assignee.   These  principles          were laid down under the common law.

             In  our view, the above common law  principles          relating  to  earnings from personal labour of  the          insolvent are equally applicable in our country and          in  spite of Section 52(2)(a), the said earnings of          the  insolvent  from  his   labour  to  the  extent          necessary  for the support of the insolvent and his          family,  do  not vest in the assignee.  There is  a          further  rider  to  be  added  to  the  common  law          principles  namely that the balance of the personal          earnings,  - after deducting what is necessary  for          the  support of the insolvent and his family,  does          not  automatically  vest  in the  assignee  but  is          subject  to  the orders that may be passed  by  the          Court  under  Section  60(2).  Point 4  is  decided          accordingly.

              Point 5:

             We finally come to Section 75 of the Act which          is  the  statutory  provision   dealing  with   the          Assignee  granting  permission to the insolvent  to          carry  on trade.  That Section also deals with  the          Court  allowing the insolvent an allowance for  the          support   of   himself  and   his  family   or   in          consideration  of his services, if he is engaged in          winding  up  his  estate.    Section  75  reads  as          follows:

             "Section  75(1)  &  (2):(1)  Subject  to  such          conditions  and  limitations as may be  prescribed,          the  official  assignee may appoint  the  insolvent          himself  to  superintend  the   management  of  the          property  of the insolvent or of any part  thereof,          or  to carry on trade (if any) of the insolvent for          the  benefit  of  his creditors, and in  any  other          respect  to  aid in administering the  property  in          such  manner  and  on such terms  as  the  official          assignee may direct.

             (2)  Subject as aforesaid, the Court may, from          time to time, make such allowance as it thinks just          to  the  insolvent  out of his  property,  for  the          support  of  the  insolvent and his family,  or  in          consideration  of his services, if he is engaged in          winding  up his estate, but any such allowance  may          at any time be varied or determined by the Court."

             In our view, the above provision in Section 75          is based on a humane consideration of the condition          of  the insolvent and his family.  In the book, The          Law  of Insolvency by Ian Fletcher (1990), referred

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 12  

        to  earlier,  it  is  stated  in  the  introductory          chapter, (at p.3) that

             "After  a time, a position is reached in which          some  effort  is made to treat individual cases  on          their  merits and to explore the possibilities  for          rehabilitation of the debtor under a controlled and          more humane legal process".

             After  referring to the Cork Report which  led          to the passing of the English Act, 1986, the author          says (p.188) that the principle of releasing monies          for  the support of the insolvent and his family is          based on a policy

             "both  as an aspect of the device to  preserve          the  dignity  and self-respect of the bankrupt  and          his  dependents,  and in the interests of  avoiding          the  creation of a further burden on the  resources          of  the State if the bankrupt’s family are rendered          destitute.   A  rule  has  therefore  been  adopted          whereby  the  bankrupt  is   allowed  to  retain  a          proportion  of  his  income to  the  extent  deemed          necessary  to  maintain  him   and  his  family  in          reasonable circumstances".

             As  to  what  is a  reasonable  provision  for          support of the insolvent and his family, the author          says  (p.190) :  "It will be a question of fact  in          each case to establish what are to be considered as          the  reasonable domestic needs of the bankrupt  and          his  family  and what proportion of his  income  he          should  be  allowed to meet them".  After the  Cork          Report  and  Section 310 of the English Act,  1986,          "the   Court  would  be   acting  within  a  spirit          expressed  in  the  Cork Report in  advocating  the          adoption  of  a more humane and realistic  attitude          towards  the position of the debtor and his family,          and  the  more  imaginative   utilisation  of   the          bankrupt’s  surplus  future income" (Comnd  &  558,          paras  591-598,  1158- 1163).  "In respect of  that          portion  of  his  earnings or income  which  he  is          allowed  to retain in consequence of an order under          Section  310, the bankrupt enjoys full freedom  and          disposition." We may add that if over a period, out          of the amounts allowed by the Court for the support          of the insolvent and his family, there is a surplus          or  excess, then the creditors or the Assignee  can          apply to the Court for a review of previous orders.          The  above  procedure  will,  in  our  opinion,  be          clearly   consistent  with   Article  19(1)(g)  and          Article 21 of the Constitution of India.

             Before parting with this aspect of the matter,          we  might  add that while the Court has to  take  a          humanistic  view  towards  honest  insolvents,  the          Court must also guard against undue exploitation of          the  above  principles  and provisions of  law,  by          unscrupulous   persons  who   get  adjudicated   as          insolvents.  Point 5 is decided accordingly.

             Point 6:

             In  the present case, the application filed by

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12  

        the  appellant  has been dismissed by  the  learned          Single  Judge  and  by the Division  Bench  without          noticing  the  above  provisions of law.   We  have          already  set  out the plea of the insolvent in  his          application  and also his version of facts and that          his two children have been put in an orphanage.

             In the light of the legal principles stated by          us  and  the  facts as may be proved,  it  will  be          necessary  for the Court to decide the  application          of  the insolvent afresh and determine whether  the          insolvent  can  be permitted to do business and  if          so,  subject  to what conditions.  The  Court  will          also then have to determine the extent of income he          is  likely  to  derive and the part  he  should  be          allowed  to retain for the support of himself,  his          wife and family and then as to what amount, if any,          could be made over to the Assignee.

              As none of these aspects have been gone into,          we  set aside the judgments passed by the  Division          Bench  and the learned Single Judge.  We remit  the          matter to the learned Single Judge for disposal  in          accordance  with  law, after hearing  the  official          Assignee   or  any  other  aggrieved  person,   and          considering  such  evidence  as  the  parties   may          adduce.   It is requested that the application  may          be disposed of within a period of 2 months from the          receipt  of this order.  The appeal is  accordingly          allowed  and  matter  is remitted  to  the  learned          Single  Judge of the High Court.  There will be  no          order as to costs.