Generally speaking there seems to be no provision in the law as it exists in Ceylon for winding up the estate of a deceased person in insolvency.` We have therefore made new and special provisions to cover insolvent testamentary estates. An estate of a deceased person shall be deemed to be insolvent where

(i) upon the basis of a valuation of his assets and liabilities as at the date of his death or at any subsequent time it appears that the assets are or will be insufficient to pay in full the funeral, testamentary and administration expenses of the estate and the claims of creditors; or

(ii) owing to execution proceedings being taken against the deceased or his estate or the difficulty of realising any of the assets of the estate or because of disputed claims or for any other sufficient reason the estate should be administered as an insolvent estate for the benefit of all parties interested in the estate.

Where an estate is deemed to be insolvent the applicant for probate or letters of administration is required to take steps to have it so declared and the procedure for that purpose is provided. It is also competent for a creditor, heir, beneficiary or other person interested in the estate to have the estate adjudicated as insolvent.

We have also empowered the Court that where an executor named in the will, or the widow or widower is unwilling to proceed with the due administration of an insolvent estate or where an executor or administrator to whom probate or letters have been issued fails to administer the estate with reasonable despatch to appoint any fit person to administer the estate if it considers such an appointment necessary, having regard to the proper conservation of the estate and the interests of all parties before it. Where a testamentary insolvency order is made the estate will then be administered in accordance with the following provisions:

(a) The funeral, testamentary and administration expenses shall first be paid out of the assets available.

(b) Subject as aforesaid, the provisions for the time being in force under the Law of Insolvency with respect to the estate of a person adjudged insolvent shall apply and be observed in regard to the respective rights of secured and unsecured creditors as to the debts and liabilities provable, the valuation of annuities and future and contingent liabilities. and the priorities of debts and liabilities.

The executor or administrator of an insolvent estate will have the same powers and obligations as an assignee appointed under the Insolvency Ordinance and an appeal from an insolvency testamentary order will not stay the further proceedings in administration unless an order to the contrary is made by the Supreme Court.

Inventory, Accounting and Settlement

175. The present section 538 requires the filing of an inventory and valuation. We have provided that every executor and administrator should file in Court within one month of the date on which the assessment of the estate duty becomes final, or within such further period as the Court may allow, an inventory and valuation of the property belonging to the deceased valued as at the date of death, and a statement of the liabilities

(1) Vide 35 N. L. R. 255.

of the deceased as at the same date. The valuation of the property should be the same as that which is finally accepted or ordered by Court for the purpose of assessment of the estate duty. It will be possible for a creditor or any person interested in the estate to challenge the correctness of the inventory valuation or statement of liabilities on the occasion on which an intermediate or final account may be challenged or at any time prior to or at the distribution of the estate. Although the inventory may not have been filed, an executor or administrator is not prevented from paying the debts of the deceased or selling the assets or vesting property in any heir or beneficiary in due course of administration. In regard to accounting, under the present Code an executor or administrator may file an intermediate account or final account and may have these accounts judicially settled. In the generality of cases it is the practice to file a final account after which order is made that the "final acount" is "passed" and the "estate is closed". This is invariably the practice in most cases, but no estate can be closed under the existing procedure except on a judicial settlement of accounts. It has been held that practice cannot supersede the procedure for a judicial settlement. Under the existing law therefore most estates are never closed although an order is made that the estate is closed. As a large number of estates do not go through the elaborate procedure of judicial settlement of acounts, the absence of a provision giving legal finality to the final account which is duly accepted by all relevant parties seems to us a defect in the existing procedure. We therefore think legal validity should be given to the existing practice with sufficient safeguards to protect the types of estates that would have to go through the elaborate procedure of judicial settlement. We have accordingly provided that where an executor or administrator files a final account with a receipt and discharge filed by the devisees, legatees, trustees, heirs, creditors or other persons entitled to the estate of the deceased and establishes that the entire estate has been duly administered and distributed, he should be entitled to obtain from Court a discharge and an order that the estate has been fully administered. Where there is a dispute in regard to the grant of a receipt or discharge by the interested parties a provision has been made for adjudication by Court before it makes its order. The Court may also order the judicial settlement of an account where in its opinion the disputes raised are of such a nature and character as to necessitate a judicial settlement. Otherwise an order declaring the estate fully administered will have the same legal effect as a judicial settlement of an account. Representations were made to us that the final account as now filed is nothing more than a statement of the receipts and expenditure of the executor or administrator and entirely omits property transferred or allotted to heirs where no cash passed through the hands of the executor or administrator. No form for the final account is given in the Code. The Judicial Commission urged that a special Form should be provided. If a final acount is to be of any use at all it must be carefully prepared and drawn up. We have accordingly prepared what we hope is a full and comprehensive Form for the purposes of the final account. It is in Appendix I. to our Draft Code. We have also so arranged our rules as to make every step in the proceedings for a judicial settlement quite clear. The powers of a Court during the proceedings for judicial settlement are also clearly set out as follows:

(a) make directions as to the manner in which the assets of the deceased are to be marshalled, sold, divided or otherwise dealt with in due course of administration.

(b) declare in what respect and to what extent the rights of creditors secured and unsecured are to be enforced or deferred;

(c) declare the rights and obligations of the heirs, legatees, devisees or other beneficiaries inter se ;

(1) Vide 17 N. L. R. 126.

(d) make directions as to the carrying out or deferment of any trust created by the will of the deceased;

(e) consider, settle and approve of any scheme for the sale, division, distribution or other disposal of the estate of the deceased;

(f) direct in what manner and to what extent the costs of the judicial settlement or the costs of carrying out any order made in the course thereof are to be borne, divided and paid.

176. Sections 740 and 741 of the present Code seem to contemplate the conversion of the estate into money and the distribution also in money. This is not only impracticable but it hardly ever happens in the course of an administration. We have accordingly altered the rules to provide that the decree may direct the delivery of unsold property, movable or immovable; or the assignment of an uncollected demand to a party entitled to such property or make a distribution of such property by allocating separate items of property among the parties entitled thereto in proportion to their shares; and in the event of the property being unsold such property may be sold for the purposes of distribution.

Estate Duty Appeals

177. There is no special procedure in regard to estate duty appeals. Our attention was drawn to the judgment of the Supreme Court in the case of Mackie vs. Attorney-General'. In view of the provisions we have made in the Code under which the Crown will be bound by the rules of the Civil Procedure Code and in view of the special rules for discovery by the Crown, we feel that the difficulties envisaged will tend to disappear. Our attention was drawn to the rules under which appeals under the Finance Act in England are conducted. We have examined those rules but we feel that the provisions we have made in our Code for preliminary investigation and for the disclosure of documents will sufficiently meet the situation.

CHAPTER XXXI-ARREST AND SEQUESTRATION
BEFORE JUDGMENT

178. Some representation was made to us that these provisions may be deleted. It is true these are extraordinay provisions but they are intended to meet extraordinary situations. The Indian Code still contains these provisions and we do not see any reason why we should delete these provisions. We have however endeavoured to simplify the somewhat complicated wording of the present sections. We have also provided a remedy in the same action to enable compensation to be obtained for arrest or sequestration on insufficient grounds. This remedy is available to any person against whom an injunction has been obtained on insufficient grounds. We do not see any reason why it should not exist in regard to a wrongful arrest or sequestration.

CHAPTER XXXII-TEMPORARY INJUNCTIONS

179. The only alteration we have made in the existing provisions of the Code is to give effect to the present practice requiring the Court in every case in which it grants an injunction without notice to the opposite party

(1) 42 C. L. W. 33.

to secure the payment of all compensation, damage and costs that may be sustained by the opposite party by reason of the issue of an injunction. In all other cases a discretion is vested in the Court either to order or not to order security.'

CHAPTER XXXIII-INTERIM ORDERS

180. We have slightly altered the present section 669 to bring it into accord with the Indian provisions and we have provided that the provision as to execution of process should apply mutatis mutandis to persons authorised to enter into any premises by virtue of an order of Court. We have also provided that where the subject matter of an action is money, or some other thing capable of delivery, and any party thereto admits that he holds such money or other thing as trustee for another party, the Court may order the same to be deposited in Court or to be delivered to the party whose right is recognized.

CHAPTER XXXIV-RECEIVERS

181. We have made no substantial alteration except to provide that a writ may issue against a receiver where he fails to file his accounts or where he fails to pay the amount due from him as directed by Court or occasions loss to the property by his wilful default or gross negligence. Under the writ it will be possible to realize by seizure and sale of the property of a receiver the amount found to be due from him and the proceeds so realized will be applied to make good the amount due from him.

CHAPTER XXXV-ARBITRATION

182. The Arbitration Ordinance (Chapter 83) which was enacted as Ordinance No. 15 of 1866 was originally the main provision regulating arbitrations. The Civil Procedure Code in 1889 enacted provisions governing voluntary reference to arbitration, and therefore sections 10 to 19 and 30 to 33 inclusive of the old Arbitration Ordinance and so much of sections 20 to 29 as regards the voluntary references were repealed. As the Ordinance stands to-day, only sections 1 to 8 of the Ordinance have any effect, while the provisions of sections 9 to 18 which provide for voluntary reference to arbitration have no force. In England the Arbitration Act was amended in 1934 and again in 1951. We feel that it will be best to include all the provisions in regard to arbitration in the Civil Procedure Code and consequently we have taken over into the New Code all the provision relating to the powers now vested in a Court to order compulsory arbitration; the new provisions bring the law of arbitration into line with those in England and in India. We therefore recommend that the Arbitration Ordinance (Chapter 83) be repealed.

CHAPTER XXXVI-SUMMARY PROCEDURE ON

NEGOTIABLE INSTRUMENTS

183. We have confined this procedure to all actions upon Bills of Exchange, Promissory Notes or Cheques. We have omitted the following words from section 703; "Where the claim is for a debt or liquidated demand in

(1) Vide 6 C. W. R. 358.

1

money arising"...." or instrument or contract in writing for a liquidated amount of money, or on a guarantee where the claim against the principal is in respect of such debt or liquidated demand, bill, note, or cheque ". The judicial interpretation of this section has confined this remedy to actions upon bills of exchange, promissory notes or cheques. The other words therefore are unnecessary and we have accordingly deleted them. We have omitted the provision in section 705 which requires an affidavit to be tendered along with the plaint. If this action is in fact confined to a bill of exchange, promissory note or cheque, an affidavit would appear to be unnecessary. The period of 7 days fixed in the summons may in special circumstances be reduced to a shorter period by order of the Court upon application made for that purpose. Where the defendant does not obtain leave the allegations in the plaint will be deemed to be admitted and the plaintiff will be entitled to a decree for the sum mentioned in the summons together with interest at the rate specified in the instrument up to the date of the decree and further interest on the aggregate sum on the rate allowed by law up to the date of payment. We have also provided that the defendant should serve a copy of his application on the plaintiff or his Proctor at the same time as he files his application to Court. The Court will make an order upon the application of the defendant only after hearing the plaintiff. We have also provided that where no leave is obtained or conditions on which the leave is granted are not complied with judgment will be entered. It will however be competent to the Court before entering judgment to consider any application by the defendant to pay the plaintiff's claim by instalments. As there is no requirement that an affidavit should be filed the decision of the Supreme Court that the remedy is not open to corporations in as much as a corporation is incapable of making an affidavit will no longer apply. *

CHAPTER XXXVII-APPEALS

184. The present state of the Law in regard to perfecting an appeal is, as has been commented upon more than once by the Supreme Court, in a most unsatisfactory state. The provision in regard to tendering security may be said to be almost impossible of performance. In partition cases, where there are numerous parties, to be able within fourteen days to give notice of tendering a security and to have the security fixed by Court and also furnish security is well nigh impossible, and the requirement that the appellant should forthwith give notice of such tendering of security is one which cannot be defended on any principle of equity. Notwithstanding the interpretation of section 756 by a Bench of five Judges, the legal position continues to remain obscure. Furthermore, the rock on which many an appeal gets dashed and lost is the requirement that the correct amount of stamp fees should be tendered along with the petition of appeal to cover the expenses of serving of notice of appeal, with no discretion vested in the Court to mitigate the rigour of such a provision in a deserving case, and that requirement has remained unaltered on the Statute Book, although the hardship caused by this very stringent provision has been drawn attention to by the Appellate Court time and again.

185. We have sought to remedy all these defects by simplifying procedure and clarifying the language. We have done away with the provision requiring the tendering of a sum of money for service of notice of appeal by providing that the appellant himself should serve the notice of appeal thereby

(1) Vide 4 C. L. Recorder 210.

(2) Vide 9 S. C. C. 169.