Re Mohan Bhagwandas Murjani

Case No.HCB 525/1989

Court

HCB

Date25 Jan 1991

Judge—

Case Document

100%Judiciary

HCB000525/1989

Bankruptcy No.525 of 1989

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HEADNOTE

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Application for an extension of time to set aside a bankruptcy notice. Section 100(4) of the Bankruptcy Ordinance read with rule 204 of the Bankruptcy Rules does not give the court jurisdiction to extend the period under s.3(1)(g) of the Bankruptcy Ordinance.

IN THE SUPREME COURT OF HONG KONG

IN BANKRUPTCY

NO. B525 OF 1989

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RE:	MOHAN BHAGWANDAS MURJANI
EX PARTE:	BANK OF INDIA, a Creditor

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Coram: Hon. Jones J. in Chambers

Dates of hearing: 24 and 25 January 1991

Date of delivery of judgment: 25 January 1991

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JUDGMENT

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1. This is an application by Mr M.B. Murjani ("the debtor") by a summons dated the 10th November 1990 under s.3(1)(g) of the Bankruptcy Ordinance for an extension of time to set aside a bankruptcy notice that was issued on behalf of the Bank of India ("the petitioner") on the 19th October 1989 on the grounds that he has a counterclaim set-off or cross-demand which equals or exceeds the amount of the judgment debt which he could not set up in the action in which the judgment was obtained.

2. The bankruptcy notice was served upon the debtor in Hong Kong on the date of issue, the 19th October 1989.

3. The petition was presented on the 1st November 1989 based upon a judgment debt of over US$10m. obtained by the petitioner on the 27th April 1989. Three acts of bankruptcy are alleged in the petition, two under s.3(1)(h) of the Bankruptcy Ordinance that the debtor had given notice to his creditors that he had suspended payment of his debts and the third failure to comply with the requirements of the bankruptcy notice, the subject matter of the present application under s.3(1)(g).

4. The petition was served on the 15th December 1989 and notice of intention to show cause against the petition was filed on the 21st December 1989. By the notice, the debtor challenges the jurisdiction of the court on the grounds that he was not a debtor within the meaning of s.3(2) of the Ordinance and does not fall within any of the categories set out in s.6(1)(d). It will now be convenient to set out the relevant provisions relating to bankruptcy notices that appear in the Bankruptcy Ordinance and Bankruptcy Rules which are :-

Section 3(1)(g)

	(1)	A debtor commits an act of bankruptcy in each of the following cases -
	(g)	if a creditor has obtained a final judgment or final order against him for any amount, and execution thereon not having been stayed, has served on him in Hong Kong or, by leave of the court, elsewhere, a bankruptcy notice under this Ordinance, and he does not, within 7 days after service of the notice, in case the service is effected in Hong Kong, and in case the service is effected elsewhere, then within the time limited in that behalf by the order giving leave to effect the service, either comply with the requirements of the notice or satisfy the court that he has a counter-claim set off or cross demand which equals or exceeds the amount of the judgment debt or sum ordered to be paid, and which he could not set up in the action in which the judgment was obtained or the proceedings in which the order was obtained:
		For the purposes of this paragraph and of section 4, any person who is for the time being entitled to enforce a final judgment or final order shall be deemed to be a creditor who has obtained a final judgment or final order;

Rule 45(2)and (3)

	(2) There shall .... be endorsed on every bankruptcy notice an intimation to the debtor that, if he has a counterclaim, set-off or cross demand which equals or exceeds the amount of the judgment debt and which he could not have set up in the action in which the judgment or order was obtained, he must within the time specified in the notice file an affidavit to that effect with the Registrar.
	(3) In the case of a notice served in Hong Kong the time shall be 3 days. In the case of a notice served elsewhere with the leave of the court under section 3 of the ordinance, the Registrar when issuing the notice shall fix the time.
	Rule 46

The filing of such affidavit shall operate as an application to set aside the bankruptcy notice and thereupon the court shall fix a day for hearing the application, and not less than 3 days before the day so fixed the Registrar shall give notice thereof both to the debtor and the creditor and to their respective solicitors, if known. If the application cannot be heard until after the expiration of the time specified in the notice as the day on which the act of bankruptcy will be complete, the court shall extend the time and no act of bankruptcy shall be deemed to have been committed under the notice until the application has been heard and determined.

5. Mr Rogers, counsel for the debtor, submits that the court has jurisdiction to extend time under s.100(4) of the ordinance which reads :-

100. (4) Where by this Ordinance or by general rules the time for doing any act or thing is limited, the court may extend the time either before or after the expiration thereof upon such terms, if any, as the court may think fit to impose.

Rule 204 of the Bankruptcy Rules is also relevant and it reads :-

204. The court may, under special circumstances and for good cause shown, extend or abridge the time appointed by these rules or fixed by any order of the court for doing any act or taking any proceeding.

6. Mr Tang, counsel for the petitioner, in response contends that the present case is indistinguishable from a Court of Appeal decision in England In re A debtor (No. 6864 of 1980) Ex parte The debtor v. Slater Walker Ltd. [1981]1 WLR 1205. In that case, a bankruptcy notice was served under s.1(1) (g) of the Bankruptcy Act, 1914, which is in the same terms as s.3(1) (g) of the Bankruptcy Ordinance with the exception for the period of time being 10 days instead of 7 days, whilst the period for filing an affidavit is 7 days instead of 3 days. The facts as set out in the headnote reveal that on the 22nd January 1981, a bankrupty notice was served on the debtor requiring him to satisfy the debt within 10 days or satisfy the court that he had a counterclaim set-off or cross demand as prescribed by s.1(1) (g) of the Bankruptcy Act 1914. No affidavit stating that he had a counterclaim was filed within the seven days prescribed by the notice pursuant to rules 137 and 138 of the Bankruptcy Rules 1952. On the 4th February 1981, the creditors presented a bankruptcy petition. On the 13th February 1981, the debtor filed an affidavit alleging that he had a counterclaim or counterclaims and applied to the registrar to fix a date for the hearing of his deemed application to set the bankruptcy notice aside. The registrar refused to extend the time for filing the affidavit and dismissed the application.

7. The Court of Appeal dismissed the debtor's appeal on the grounds that once the period of 10 days prescribed under s.1(1)(g) had expired, without an affidavit being filed, the debtor had committed an act of bankruptcy, so the court had no jurisdiction to extend either the period of ten days or seven days. In deciding whether the court had power to extend the period of time, Eveleigh L.J. had this to say at pp.1209 and 1210 :-

	"The question is whether this court has power under section 109 to extend time in such a way as to cancel that act or to revoke it or to deem it never to have occurred. That means that the debtor in this case has to satisfy the court that there is a retrospective power to alter the effect of section 1 of the Act of 1914.
	Turning to section 1(1) (g), one sees that the time prescribed there of 10 days relates to a failure of the debtor to satisfy the court. The words used are 'If ... he does not, within 10 days after service of the notice, ... satisfy the court ....,' etc. Now, 'If he does not,' in my view, is equivalent to saying 'If he fails to.' Once the 10 days are up the act that gives rise to the consequential act of bankruptcy has been completed. That act is his failure. Seen in this way, the court, in my opinion, is concerned to determine whether a condition has been fulfilled so that an act of bankruptcy has been committed and not to decide whether there is an act that remains to be done. The act has been done: his failure is complete. If the court extends the 10 days after the failure is complete it will be refusing to recognise the consequences that Parliament has said have ensued. In my opinion, we cannot do this. Once the 10 days have expired the failure within that period of the debtor to satisfy the court is properly to be seen as a condition that has been fulfilled and that gives rise to the consequences, namely, that an act of bankruptcy has been committed
	I accept that the court can extend the seven days in rule 138 and can do so retrospectively. In the present case, however, the registrar was asked to do this for the purpose of revoking a condition that had already been fulfilled, that is to say, for the purpose of extending the 10 days. To grant an extension of time for the seven days would be of no effect if the 10 days period were not to be extended, and, as I have said, in my opinion we cannot extend the 10 days retrospectively. The power to extend the seven days must be exercised for a proper purpose. It cannot be used for the purpose of extending the 10 days. In my opinion, the court has no jurisdiction to exercise the power under section 109(4) for this purpose ."

8. Watkins L.J. agreed while Sir David Cairns who also agreed said at p.1211 a follows :-

"I am satisfied that there is no jurisdiction under section 109(4) of the Bankruptcy Act 1914 to extend the period of seven days within which an affidavit setting up a counterclaim may be filed under rule 138 of the Bankruptcy Rules 1952, as amended in 1977, beyond the 10 days at the expiration of which an act of bankruptcy is deemed to have occurred under section 1(1)(g) of the Act of 1914 as amended by section 4 of the Insolvency Act 1976. There is no provision in the Acts for extending the 10 days. Section 109(4) does not apply to it, because there is no 'act or thing' to be done within the 10 days. When a bankruptcy notice has been given and nothing occurs before the expiration of the 10 days to hold up its operation, then the act of bankruptcy takes place by operation of law. There is nothing in the Acts or the Rules to suggest that, once there has been an act of bankruptcy, it can be set aside by proceedings under rules 137 to 139. Therefore, extension of the time for filing the affidavit after the 10th day has passed would be nugatory. Parliament cannot have intended by section 109 to authorise a futile extension.

That is the formal reason for saying that there is no such jurisdiction. There are good practical reasons too. If the time could be extended after the 10th day there is no limit to the possible extensions. Mr Moss conceded that, if his argument is right, there could be an application for extension at any time in the course of the bankruptcy proceedings, even after adjudication. This would lead only to inconvenience, expense and delay. Moreover, it has to be remembered that an act of bankruptcy enures to the benefit not only of the creditor who has served the bankruptcy notice but also of any other creditor who may wish to present a petition. It would be unsatisfactory if such a right could be defeated as a result of an application on which no creditor has the right to be heard."

9. Mr Rogers relies upon In re A Debtor (No. 75 of 1982) Ex parte The Debtor v. National Westminster Bank Plc. [1984]1 WLR 353 where the court was concerned with an application by a debtor to extend the time for compliance with a bankruptcy notice. However, in that case, no act of bankruptcy had been committed with the result that the court had a discretion to extend the time for compliance with the notice. Mr Rogers also cited two other authorities King v. Henderson [1898] AC 720 and Samuels v. Linzi Dresses Ltd. [1981]1 QB 115, but these decisions did not provide any assistance.

10. In this case, the debtor failed to comply with the requirements of the bankruptcy notice within the period prescribed so that an act of bankruptcy was committed. I agree with Mr Tang that the facts are indistinguishable from the Slater Walker case which sets out a correct statement of the law that I respectfully adopt. Accordingly, I am satisfied that s.100(4) of the Bankruptcy Ordinance read with Rule 204 does not give the court jurisdiction to extend the period of seven days under s.3(1)(g).

11. Although I did not hear Mr Rogers in reply on the exercise of discretion for granting an extension pending my decision on the issue of jurisdiction, the evidence before me was wholly inadequate to justify the court exercising such discretion in favour of the debtor. The evidence was set out in paragraph 7 of the affidavit of the debtor's former solicitor, Mr Bonsall, in which a delay of over 12 months in taking out the present summons was claimed to be attributable to the debtor's business affairs, litigation that he has commenced in New York and to the defence of bankruptcy proceedings instituted against him in England by the petitioner. No good reason was put forward to show that the debtor could not have made an affirmation setting out the brief grounds to set aside the bankruptcy notice that he was able to make in England on the 4th May 1990 by his affirmation in response to the statutory demand.

12. However, for the reasons that I have given on the matter of jurisdiction, I am satisfied that the court has no power to grant an extension of time so that the summons will be dismissed with costs. There will also be a certificate for two counsel.

(B.L. Jones)
Judge of the High Court

Representation:

Mr A.G. Rogers, Q.C. & Mr W. Poon (Stephenson Harwood & Lo) for Debtor/Applicant.

Mr R. Tang Q.C. & Mrs Barbara Kaplan (Wilkinson & Grist) for Petitioner/Respondent.

Miss D. Silkstone for Official Receiver.