1. By this application under section 25 of the Insolvency (Karachi Division) Act of 1909 (hereinafter referred to as the Art) the insolvent has applied for a protection order. This application is opposed by one of the 7 creditors. Namely, Habib Bank Ltd. The insolvent has obtained a certificate front the Official Assignee which does not show that the insolvent has not so fax conformed to the provisions of the Act. The only thing pointed out by the Official Assignee in his certificate is that the insolvent has not produced any account books an the plea that his account books were taken away by Martial Law Authorities in the year 1969. The Official Assignee has, however, stated that the insolvent has filed photostat copies of the trading. Profit anti lass accounts and balance-sheets for the years 1968, 1969 and 1970 \and photostat copies of assessment orders in respect of the company Engineering and Trading Corporation (Pakistan) Ltd., for the assessment years 1972-73, 1973-74 and 1974-75, according to which he has not done any business after 1972-73.
2. Under subsection (4) of section 25 of the Act an insolvent is prima facie entitled after adjudication to an order of protection in the absence of any report against his conduct and the protection is granted as a matter of course. However the creditors have a right to appear and oppose the grant of a protection order. It is, therefore, necessary to consider the objections which Habib Bank Ltd. Has raised against the grant of the protection order. Mr. M. A. M. Namazi, Advocate, ties filed written objections but at the hearing he has raised tile following 5 objections:
(1) No public examination has yet taken place of the insolvent.
(2) Recently insolvent has been charged under Arms Act for being in possession or sealing with Arms without licence, and was arrested and has been released an bail.
(3) The insolvent also had his valuable property situated at Clifton sold recently and paid the American Express its debts and thus the sale according to the creditors is a fraudulent preference.
(4) The insolvent has sold away the trawler belonging to their company for a song without informing the creditor or paying the sale proceeds of this trawler.
3. The fifth objection which is not taken in the written objections but was urged at the hearing is that the insolvent has failed to maintain the account books.
4. So far as the first objection is concerned it is as admitted position the public examination has not taken place so far. But there Is no provision in section 25 of the Act which prohibits an Insolvency Court from granting protection without first there being public examination of the insolvent. In fact the scheme of the Act shows that the public examination comes at a later stage. Under the provisions of the Act it is not necessary that the public examination should be held before any protection order can be passed.
5. Taking up the second ground that the insolvent has been charged under Arms Act for being in possession or dealing with arms without licence I have nothing on regard before me except the bare word of the creditor. In any vas this ground is irrelevant to the present proceedings. Even under section 39(1) of the Act discharge of insolvent could not be refused on this ground for the offences which are relevant to an order of discharge are the offences under the Act or under sections 421 to 424, P. P. C.
6. As regards third and fourth grounds again I have nothing before m except the bare word of the creditor. I cannot enter into any inquiry at this stage and if after public examination the creditor finds any male fide act on the pan of the insolvent falling under any of the provisions of the Insolvency Act he could move the Court for revocation of the order o protection under the provisions of subsection (21 of section 25 of the Act. Moreover, good faith or bad faith of an insolvent does not ordinarily come under the scrutiny of the Court until the application for his discharge is heard, and before discharge the Court has hardly any materials on which it can come to any finding as to the conduct of the insolvent. At the initial stage of insolvency the affairs of the insolvent have to be investigated and his property has to be realised; and it is in the interest of the creditors themselves that this should be done and it cannot be done without considerable difficulty If the insolvent is put in Jail or has to go into hiding to escape from arrest. These are the comments made by D. F. Mulls in his book entitled 'the Law of Insolvency in India' (second edition) page 275, Mr.
0. Raymond learned counsel for the insolvent has relied on the decision by Mcleod. J. In re: Meghraj Gangabux 1 L R 35 Bom. 47 In support of his proposition that the discretion under subsection (4) of section 25 is generally exercised in favour of the insolvent, after he has produced the certificate from the Official Assignee that he has conformed to the provisions of the Act. The relevant observation is as follows : "Section 25 clearly intends that while an insolvent diligently performs the duties prescribed by the Act he should not be harassed by execution, creditors, and should not be rendered liable to pressure whereby one creditor may get undue advantage over another. The section does not deprive the Court of its discretion in granting or refusing protection, but subsection (4) indicates clearly the lines along which that discretion should be exercised when a creditor opposes the grant. If an insolvent can produce the certificate referred to, the onus is thrown on the opposing creditor of showing cause why the protection order should not be granted, but I do not think he Is entitled to ask the Court to eat; r into an inquiry whether the insolvent has boon guilty or not of commercial immorality, or of an offence under the Act. It is open to the creditor to show that the Insolvent has imposed on the Official Assignee, and that in spite of the certificate he has not conformed to the provisions of the Act, or that the insolvent has been guilty of undue delay in applying for his discharge, for, the Court will not countenance an insolvent resting unreasonably beneath the shade of the protection order."
7. As regards th4 fourth ground that the insolvent has sold away the trawler belonging to their company for a song I have nothing on record to substantiate the allegations with regard to the sale of the trawler. On the contrary, in the counter affidavit filed by the insolvent he hats denied the allegation stating that the trawler was lost at sea during the year 1968, Intimation of which had been given to the creditors. However, after the public examination of the insolvent, if the creditor finds some material which proves the allegation, it will be open to it to apply under subsection (2) of section 25 of the Act for revocation of the order of adjudication either generally or with regard to the debt due to it.
8. Now. I would deal with the last ground that the insolvent has not produced the account books, The learned counsel for the insolvent has pointed out that the Official Assignee in his certificate under section 25(4) of Act has himself stated that the insolvent has filed photostat copies of the trading, profit and loss account and balance-sheet for the years 1968, 1969 and 1970 and also the photostat copies of assessm ent orders for the assessment years 1972-73, 1973-74 and 1974-75 in respect of his company namely, Engines: ins and Trading Corporation (Pakistan) Ltd., Karachi. According to the assessm ent orders no business was done after the year 1972-73. Thus, it will be seen that the insolvent would not have gained anything by suppressing the account books when he had produced the copies of the trading, profit and loss accounts and the balance-sheets and the assessm ent orders which show that no business was done during the years 1972-73, 1973-74 and 1974-75. Prima facie the allegation that the account books were taken away by Martial Law authorities in the year 1969 appears to be correct. However if any material is brought during the course 4 public examination of the insolvent it would be again open to the creditor to move fox revocation of the order of adjudication as stated , above It may be pointed out that one of the grounds on which order of dischargeunder section 39(1) could be refused is that the insolvent has omitted to keep such books of accounts as are usual and proper in the business carried down by him within the three years immediately preceding his insolvency. In the present case order of adjudication -as passed on his own petition dated 23-2-1976. Thus the account books which would be relevant for' consideration for the passing of an order of discharge are the account books for the years 1972-73, 1973-74 and 1974-75 and according to the assessment order the insolvent had not done any business during these years. Thus t non-production of account books of prior years in my opinion, does not adversely reflect on the bona fide of the insolvent. I may however, mention[: that Mr. Namazi has strongly relied on the judgment of Calcutta High Court In re: Gopal Dass Aurora AIR 1926 Cal. 260. Rut this ease is distinguishable on facts. Moreover. In that case the High Court has refused to interfere with the order passed by the Registrar in insolvency as the insolvent had failed to show that the discretion exercised by the Registrar was improper. Therefore. This --ground also fails. In the result, the application is granted and the interim, protection order is confirmed.