Summary Suit No. 1241 of 1973

21st July, 1992.

Petitioner Counsel: N. R. Bhatena, Official Assignee present-in-person.

Cases Cited:
AIR 1918 Mad 1158,(1917) 32 Mad LJ 503 (Followed) [Para 6]
In re Ford Ex parte The Trustee, (1900) 2 QB 211 (Followed) [Para 10]

JUDGMENT

ORDER :-On 5th December 1973, Chimanlal Gaghubhai Shah filed summary suit No. 1241 of 1973 in this Hon'ble Court against M/s. Hargovind Dharmsi, a partnership firm for recovery of a sum of Rs. 41,800/- together with interest on Rs. 40,000/- at the rate of 6%a per annum from the date of the suit till payment and cost of the suit, On death of original plaintiff, the heirs end legal representative of the original plaintiff Mrs. Chandrakant widow of Mr. Chimanlal Gaghubhai Shah and Mr. Kirtikumar Chimanlal Shah and of the deceased were substituted as the plaintiffs.

2. The plaintiffs filed this summary suit against the defendants invoking O. XXXVII of Code of Civil Procedure on the ground that the defendants executed 8 hundies of Rs. 5,000/- each in favour of the plaintiffs for valuable consideration and the said hundies were dishonoured by the firm of M/s. Hargovind Dharmsi, the defendants in the suit.

3. At the hearing of summons for Judgment taken out by the plaintiffs in this suit, Vimadalai, J. passed an order on 8th April 1974, directing the defendants to deposit a sum of Rs. 15,000/- in Court within 4 weeks. The learned Judge granted conditional leave to the defendants to defend the suit provided the defendants deposited the said amount in Court as a Security towards plaintiff's claim. The said order of deposit was made by the learned Judge under Order 37, Rule 3 of the Code of Civil Procedure.

4. During the pendency of the suit, the defendants were adjudicated as Insolvent.

5. On 2nd July 1992, I passed a Decree in favour of the plaintiffs and against the defendants.

6. The learned Counsel for the plaintiffs decree holder then made an application to the Court that the Prothonotary and Senior Master should be directed to make the payment of the said sum of Rs. 15,000/- with accrued interest thereon if any to the plaintiffs for payment of decretal claim. The learned counsel for the plaintiff relied upon the judgment of the High Court of Madras in the case of Gopalaiyar v. Tiruvengadam Pillai, 32 Mad LJ 503 : (AIR 1918 Mad 1158) and also the judgment of English Court in the case of

In re FORD Ex parte The Trustee ((1900) 2 QB 211). I thereupon directed issue of notice to the Official Assignee.

7. The following question arises for consideration of the Court :

(i) Whether the amount deposited by the defendants in a summary suit filed under O. XXXVII of the Code of Civil Procedure as a condition imposed on the defendants to the grant of leave to defend the suit constitutes security of the plaintiff and is available to the plaintiffs towards the decretal claim in the event of suit being decreed even if the defendant is adjudicated as an insolvent during pendency of the suit ?

(ii) Whether the amount so deposited by the defendant in Court forms part of general assets of the defendants and is available to the Official Assignee for benefit of creditors of the defendants generally and the plaintiffs decree holder must lodge his claim for entire decretal amount with the Official Assignee and rank as unsecured creditor. Whether the said amount of deposit is not liable to be treated as earmarked for payment of decretal claim if the suit in question is decreed in favour of the plaintiff ?

I answer question No. 1 in affirmative and first part of question No. 2 in negative. The amount of deposit is earmarked for decretal claim.

8. Order XXXVII, R. 3(vi) of the Code of Civil Procedure provides that at the hearing of the summons for judgments the Court may require the defendants to furnish security within such time as may be fixed by the Court and in the event of failure of the defendants to give such security within the time specified by the Court, the Court shall be entitled to pass the judgment against the defendants forthwith. O. XXXVII, R. 3(iv) of the Code of Civil Procedure as amended by the Bombay High Court also provides that at the hearing of summons for judgment, the Court may require the defendants to furnish security as a condition to the grant of leave to defend the suit.

9. In this connection, it shall be useful to refer to the formulation of legal principles in Halsbury's Laws of England, Forth Edition para 318 at page 191, Volume III. The relevant principle of law is well formulated in the above-referred standard work as under :-

"When the debtor, being defendant in an action brought by the creditor, pays money into Court, either voluntarily or pursuant to an order giving conditional leave to defend and afterwards becomes bankrupt, the payment into Court makes the creditor a secured creditor".

Foot notes 8 and 9 appended to the said paragraph furnish the list of references in support of the said proposition. As a matter of contrast one may refer to para 319 of the same volume of Halsbury's Laws of England. The illustrations given in para 319 of the said volume indicate that an attaching creditor is not a secured creditor. It is also held that "a judgment creditor who has obtained an order for the appointment of a receiver over the property of the debtor is also not in general, a secured creditor." In Mulla's The Law of Insolvency in India, Third Edition at page 501 one come across large number of cases cited by the learned author in his standard work taking the same view. The relevant paragraph of the said well-known work reads as under :

"Similarly money paid into Court by the defendant as a condition of being allowed to defend a summary suit under O. 37, R. 3 of the Code, is a security to the plaintiff for the amount for which judgment may be passed for him".

10. The High Court of Madras has taken the same view in the case of Gopalaiyar v. Tiruvengadam Pillai, (1917) 32 MLJ 503 : (AIR 1918 Mad 1158). I am in respectful agreement with the view taken in the said Madras judgment.

11. In re Ford Ex parte The Trustee, the Official Trustee in bankruptcy claimed that the Official Trustee was entitled to the sum of money deposited by the defendants in Court in a summary suit. The provisions of O. 14 of the Rules of the Supreme Court in England are virtually identical with the provisions of O. XXXVII of the Code of Civil Procedure

in India on this particular aspect. It was held by the Court that "money paid into Court" under the rules of the Supreme Court 1883, O. 14, for leave to defend, must be treated as money paid into Court so-as to abide the event and is security to the plaintiff for the sum for which he may obtain judgment at the trial. If the defendant becomes bankrupt before the trial the money must remain in Court until "the event" is decided by the trial of the action. In view of the authorities referred to hereinabove, I hold that the plaintiff decree holder is entitled to receive the said sum of Rs. 15,000/- and accrued interest thereon if any.

12. The Official Assignee has fairly invited my attention to the various passages from Mulla's Law of Insolvency, Third Edition at page 501 and has informed the Court that there appears to be no authority to the contrary. The Official Assignee has pointed out that there is no Bombay judgment of our High Court on this subject insofar as he has been able to ascertain on making enquiries. I am completely in agreement with the view taken by the High Court of Madras and with the view taken in above-referred English case and other cases referred to in the relevant footnotes at page 501 of Mulla's Law of Insolvency and at page 191 of Halsbury's Laws of England (para 318).

13. The Prothonotary and Senior Master shall handover the said sum of Rs. 15,000/- and accrued interest if any to the plaintiff towards the decretal claim. The plaintiff shall record satisfaction of the decree to the extent of the amount which may be received by the plaintiff from the Prothonotary and Senior Master. The plaintiff shall be at liberty to lodge the claim for balance of the amount with the Official Assignee in its capacity as unsecured creditor. In other words the plaintiff is a secured creditor of the defendants to the extent of the amount lying deposited in Court and is an unsecured creditor for balance of the amount.

14. The Prothonotary and Senior Master is directed to act on ordinary copy of this Order and on minutes duly authenticated by the associates of this Court.

15. The plaintiffs shall file their claim with the Official Assignee as early as possible and if possible within 4 weeks from today in respect of the balance of decretal amount as aforesaid as the insolvents have proposed scheme of composition with all the creditors.

16. Issue of certified copy is expedited.

Order Accordingly