In Re: Kassam and Karmali; Ex Parte Bruce Limited (Bankruptcy Cause No. 3 of 1938) [1938] EACA 202 (1 January 1938)

## **BANKRUPTCY JURISDICTION**

## BEFORE LUCIE-SMITH, J.

## In re KASSAM AND KARMALI, Debtors Ex parte BRUCE LIMITED, Creditors Bankruptcy Cause No. 3 of 1938

Bankruptcy Notice-Validity-Misstatement of amount actually due -Set off for costs-"Judgment", Bankruptcy Ordinance, 1930, section $4$ .

Application to set aside a bankruptcy notice on the ground of misstatement therein of the amount actually due. The bankruptcy notice was in respect of the amount of the judgment passed against the applicant and taxed costs in Civil Case No. 144 of 1938, but it did not give credit for the costs of an application in that case which were awarded to the applicant.

Held $(26-11-38)$ .—(1) That the bankruptcy notice was invalid by reason of its claiming a sum of money greater than that for which execution could be<br>issued and the appellant had disputed the validity of the notice on the ground of such misstatement.

(2) That the word "judgment" under the Bankruptcy Ordinance is<br>not governed by the definition in the Civil Procedure Code as explained in Munshiram & Co. v. The Star Soda Water Factory (16 K. L. R. 50) and<br>Ambalal Patel v. The High Land Produce Mill (17 K. L. R. 102).

Shapley for the applicants.

Anderson for the petitioning creditors.

JUDGMENT.—This is an application to set aside a bankruptcy notice dated 20th September, 1938. Five grounds of objection are set out in the applicant's affidavit, one of which—that under paragraph 3 (a), has been abandoned.

I propose dealing first with the ground set out in paragraph 2 of the affidavit which reads as follows:-

"I dispute the correctness of the amount mentioned in the said notice and further say that I have not been given credit for the costs awarded to me in Civil Case No. 144 of 1998."

Reference to the record in Civil Case No. 144 of 1938 shows that on 27th August, 1938, the plaintiffs in that case, Bruce Limited, had an application of theirs dismissed with costs, the present applicant was the defendant in that case.

On 13th September, 1938, the defendant (the present applicant) consented to judgment and it is on that judgment that the present proceedings in Bankruptcy are founded. The Bankruptcy Notice herein is in respect of the sum of Sh. 15,596/81, which is the amount of the judgment and taxed costs in Civil Case No. 144 of 1938, but does not give credit for the costs awarded to the applicant on 27th August, 1938. As has been pointed out by Mr. Shapley, this question of costs could have been dealt with by the judgment creditor, before the issue of the Bankruptcy Notice, under rule 49 of Part XIII of

the Rules of His Majesty's Supreme Court of Kenya, Vol. 1 of Orders, Proclamations, etc., at p. 108. The form of a Bankruptcy Notice is set out as No. 5 in the appendix to the Bankruptcy Rules.

Section 4 of the Bankruptcy Ordinance contains the following proviso:-

"Provided that a Bankruptcy Notice $\ldots$ (2) shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due, unless the debtor within the time allowed for payment gives notice to the creditor that he disputes the validity of the notice on the ground of such misstatement."

Our section 4 is practically word for word the same as section 2 of the English Act.

Williams on Bankruptcy, 15th Edition, in his commentary to section 2 states at p. 28 that the notice can only be issued for the amount for which the creditor is entitled to issue execution: where, therefore, part of the judgment debt has been paid, the notice can only be issued for the balance. I am inclined to think that where as in this case the debtor has a set off by way of costs notice can only be issued for a balance after deducting the amount of such set off of which the petitioning creditors clearly had notice.

Dealing with the same subject, Baldwin's Law of Bankruptcy and Bills of Sale, 11th Edition, lays it down at p. 152 that the rule is that the creditor issuing the notice must be in a position to issue immediate execution for the whole sum mentioned in the notice; so that where there has been part payment, a Bankruptcy Notice for the original debt, at least, if the debtor insists on its validity on this ground is bad. In re Child ex parte Child (1892 2 O. B. D. p. 77) is authority for the proposition that where part of a judgment $p$ . debt has been paid, the creditor is not entitled to serve a Bankruptcy Notice in respect of the whole amount of such debt, inasmuch as he could not issue execution in respect of the part which has been paid. In that case Vaughan Williams J. at p. 79 says as follows: "I think that under it (the relevant sub-section) a creditor who has obtained final judgment is not entitled to serve a Bankruptcy Notice for any amount greater than that for which he could have issued execution, and that therefore, if the circumstances of the case are such that he has ceased to be entitled to issue execution for the whole amount of the judgment debt, he has ceased to be entitled to serve a Bankrupcy Notice for the whole amount of the judgment debt", and again: "It can scarcely, I think, have been the intention of the legislature that a judgment debtor should be liable to be served with a Bankruptcy Notice claiming from him a sum which is not due

$\ldots$ I think they show a clear intention that a judgment creditor, in serving a Bankruptcy Notice, shall deal with the sum which is really due in respect of the judgment debt, and with that sum alone". The same learned judge in re Follows ex parte Follows (1895 2 Q. B. D. 521 at 524) says: "I do not rely on any right to a stay of execution, but on the plain intention of the Act of Parliament, that a Bankruptcy Notice shall only demand payment of that which the judgment creditor can enforce payment of", and again to paraphrase the learned judge to meet the present case, the only question remaining is, could execution have been issued in the present case for the whole. amount of the judgment debt? It is clear that it could not, for the execution creditor would have been bound to deduct the sum of "the taxed costs" awarded to the judgment debtor.

To take another viewpoint of the matter, I would refer to In re H. B. (1904 1 K. B. D. 95), in which again Vaughan Williams J. laid it down that a Bankruptcy Notice issued for a smaller sum than the judgment debt by reason of credit being given for amounts already paid is a notice to pay in accordance with the terms of the judgment.

In re Miller (1912 3 K. B. D. 1) again reiterates the fact that the amount set out in the notice must be an amount for which the execution creditor can issue execution.

The case of *In re Easton ex parte Dixon* (10 Morrells Bankruptcy Reports 111) is of no assistance as to the question of misstatement of the amount owing. The last decision to which I shall refer is that of In re a Debtor (1938 1 Ch. D. 694). It is true that this case rests in part on the position of a married woman before The Law Reform (Married Women and Tortfeasors) Act 1935, but the principle that a Bankruptcy Notice cannot include moneys not recoverable by execution would appear to have been once again upheld.

In view of the authorities above quoted, I have come to the conclusion that the Bankruptcy Notice in the present case is bad and must be set aside by reason of its claiming a sum of money greater than that for which execution could be issued and the applicant having disputed the validity of the notice on the grounds of such misstatement.

Holding as I do, there is no need for me to decide the other grounds put forward by the applicant but I should like to put it on record that in my opinion a "judgment" under our Bankruptcy Ordinance is not the same thing as a "judgment" under the Civil Procedure Ordinance and as explained in *Munshiram and Co. v.* The Star Soda Water Factory (16 K. L. R. 50) and Ambalal Patel v. The Highland Produce Mill (17 K. L. R. 100) at p. 102. My reason for so thinking is that our Bankruptcy Ordinance is practically word for word the same as the English Act and in neither the Ordinance nor the Rules is the word "decree" mentioned—further our Bankruptcy Ordinance appears to be divorced from the Civil Procedure Ordinance by reason of rule 316 of the Bankruptcy Rules. As I stated in In re Kassam and Karmali (ante p. 28), I am of opinion that this Court in its Bankruptcy Jurisdiction should follow the English Bankruptcy decisions in so far as the same apply. It further appears to me that the grounds of objection set out in paragraph 3 $(c)$ and $(d)$ must also fail in view of the applicant having consented to judgment and the wording of section 3 (1) (8) of the Ordinance "and which" he (the debtor) could not set up in the action in which the judgment was obtained or the proceedings in which the order was obtained."

In the result, the applicant must succeed on the point raised in paragraph 2 of his affidavit. The application is allowed and the Bankruptcy Notice set aside. Costs to the applicant.