Lakhi Prasad Choudhary v. Mohammad Matin — 1978 DIGILAW 91 (PAT)

Judgment 1. The petitioning creditors-appellants preferred an appeal to this Court under S. 75 (2) of the Provincial Insolvency Act (V of 1920) (hereinafter referred to as the Act). 2. The petitioning creditors-appellants filed an application under S. 9 of the Act on 17th May, 1972 for adjudging Md. Matin as an insolvent and also for annulling the Baimokasa deed (a deed in lieu of dower debt) executed by Md. Matin in favour of his wife on 9th Feb., 1972. 3. The case of the petitioning creditors 1 to 5 is that Md. Matin had executed a hand note on 14th Jan., 1969, for Rs. 23,804/- in favour of Meghraj Choudhary, the father of Lakhi Prasad Choudhary (petitioning creditor-appellant No. 1), Md. Matin (respondent No. 1) did not pay the amount. Hence, petitioning creditors 1 to 3 and 5 filed Money Suit No. 7 of 1972 on 11th Jan., 1972 in the court of the Subordinate Judge, Bhagalpur, against Md. Matin for realisation of the amount due under the hand note mentioned above. 4. After the filing of the suit, petitioning creditor appellant No. 6 also filed a mortgage suit for realising the consideration of the mortgage deed, which was executed by Md. Matin and his father Hazi Salamat Husain on 21st August, 1967. It is said that Md. Matin and his father, Hazi Salamat had purchased five power-looms, machineries and other articles for Rs. 43,200.00 on the said date, namely, 21st August, 1967, from creditor-appellant No. 6 and in lieu of the selling price respondent No. 1 and his father had executed a registered mortgage bond for Rs. 43,200.00 in favour of petitioning creditor No. 6. Hence, the petitioning creditors-appellants filed all application on 17th May, 1972 before the insolvency court for adjudging Md. Matin as an insolvent as well as for annulling the Baimokasa deed dated 9th February, 1972. 5. The application was resisted by Md. Matin on the ground that the application of the petitioning-creditors is not maintainable unless and until the relationship of debtor and creditor is decided by the Civil Court in the two suits. He also denied the relationship of creditor and debtor between the parties. 6. On these facto, the insolvency court (hereinafter referred to as "court") dismissed the application of the creditors-appellants under S. 25 of the Act. He also denied the relationship of creditor and debtor between the parties. 6. On these facto, the insolvency court (hereinafter referred to as "court") dismissed the application of the creditors-appellants under S. 25 of the Act. The Court below was of opinion that the creditors must get a decision in their favour as creditors in the suits pending in the Civil Court and thereafter they may come to this Court with a fresh petition under S. 9 of the Act. It is relevant to quote the reasoning of the court below which is as follows in paragraph No. 12 of the judgment : "In view of my above discussions, I hold that since suits are pending between the parties for realisation of the debts alleged in the insolvency petition, this Court will not go into the question of relationship of debtor and creditor specially when the opposite party has denied the debt. Since no finding can be given regarding the relationship of debtor, and creditor between the parties in this proceeding, the petitioners at this stage will not be entitled to get the adjudication under S. 27 of the Act. The petitioners must first get the decisions in their favour as creditors in the suits pending and then they may come forward with a fresh petition under S. 9 of the Act" 7. The court was of opinion that since the two suits are pending between the parties in the Civil Court, this Court will not decide the question of relationship of debtor and creditor. In our opinion, the court below erred in law in holding so. 8. The short question for decision in this appeal is :- Whether the insolvency court can stay the hearing of the insolvency petition pending under the provisions of the Act? In order to answer this question, it is necessary to go through the relevant provisions of the Act. 9 Sec. 4 (1) of the Act provides that the insolvency court shall have full power to decide all questions, whether of title or priority, or of any nature whatsoever, which may arise for consideration in the insolvency proceeding. In order to answer this question, it is necessary to go through the relevant provisions of the Act. 9 Sec. 4 (1) of the Act provides that the insolvency court shall have full power to decide all questions, whether of title or priority, or of any nature whatsoever, which may arise for consideration in the insolvency proceeding. Sec. 4 (2) of the Act provides that notwithstanding anything contained, in any other law for the time being in force and subject to the provisions of this Act, every such decision shall be final and binding for all purposes as between the parties and all claimants claiming under both the parties. On a perusal of Sec. 4 (1) of the Act, it is clear that the Legislature has empowered the insolvency court to decide all questions of any nature which may arise for consideration in the proceeding. It also provides that such decision shall be final for all purposes between the parties. 10. It is, therefore, clear that if a petition is filed either by a creditor or a debtor under the provisions of the Act, it is the duty of the insolvency court to hold enquiry as laid down under Sec.24 of the Act. The insolvency court has no option to stay the hearing of the petition before it, as there is no specific provision to that effect in the Act. When a petition is filed by a creditor under S. 9 of the Act, the insolvency court shall consider under S. 24 as to whether the applicant-creditor or debtor is entitled to present the petition or not. It will also hold an enquiry in the case of an application by the creditor as to whether the debtor has committed any act of insolvency alleged against him. It is, there-fore, clear that while holding an enquiry under S. 24 (1), the court shall hold enquiry in respect of the relationship of creditor and debtor between the parties. It will also examine about the existence of the debt as well as the acts of insolvency committed by the debtor. The court has no option but to proceed in the matter in accordance with S. 24 of the Act. The court has no option to refer the matter to the Civil Court. It will also examine about the existence of the debt as well as the acts of insolvency committed by the debtor. The court has no option but to proceed in the matter in accordance with S. 24 of the Act. The court has no option to refer the matter to the Civil Court. The court has no option to stay the proceeding before it, while the suit was pending in respect of the same subject-matter before the Civil Court for the simple reason that there is no provision for staying the petition before the court. 11. It is a settled law that if the Legislature empowers a certain court to hold a preliminary enquiry in respect of the existence of certain facts and thereafter to hold final enquiry in respect of the subject-matter of dispute, then in that case that court cannot shirk its responsibility and wait till the matter is decided in any Civil Court. In the present case, the Act empowers the court under S. 24 (1) of the Act to hold an enquiry about the existence of a debt, about the relationship between the creditor and the debtor and about the acts of insolvency committed by the debtor. After holding its preliminary enquiry under S. 24 (1), the court is empowered to make final adjudication about the insolvency. It is, therefore, clear that the Legislature has empowered the court to hold a preliminary enquiry under Sec.24 (1) of the Act and to adjudge the matter finally about the insolvency under the provisions of the Act. If it is so, a complete machinery has been provided by the Act and the court cannot act in a way which does not fall within its purview by the provisions of the statute. There is no provision in the Act to stay the proceeding pending before the insolvency court. If it is so, a complete machinery has been provided by the Act and the court cannot act in a way which does not fall within its purview by the provisions of the statute. There is no provision in the Act to stay the proceeding pending before the insolvency court. There is such a provision as S. 13 (6) in the Presidency Towns Insolvency Act (III of 1909) which runs as follows : "(6) Where the debtor appears on the petition and denies that he is indebted to the petitioner, or that he is indebted to such an amount as would justify the petitioner in presenting a petition against him the court, on such security (if any) being given as the court may require for payment to the petitioner of the debt which may be established against the debtor in due course of law, and of the costs of establishing the debt, may, instead of dismissing the petition, stay all proceedings on the petition for such time as may be required for trial of the question relating to the debt." Such power of stay has been given to the court exercising powers under Sec.13 (6) of the Presidency Towns Insolvency Act. In the absence of such a provision in the Act, the court cannot stay the proceeding before it. The court also cannot refer the matter to the Civil Court. The court also could not wait till the subject matter is decided by the Civil Court. Hence, we hold that the court below has erred in law in holding that the petition filed by the creditors is dismissed till the relationship of creditor and debtor is decided by the Civil Court. 12. In this connection, the learned counsel for the appellant relied on a decision in Deorao Raoji V/s. Ramji Baheraji, AIR 1953 Nag 189. In that case, a Division Bench of the Nagpur High Court held as follows (at p. 191) : "In our judgment, the insolvency court cannot leave the insolvency matter suspended for years while the matter is being fought out elsewhere. Such is not the intention to be gathered from the Act as a whole." It is for this reason that the Division Bench of the Nagpur High Court in Deorao Raojis case, AIR 1953 Nag 189 dissented from the decision of the Bombay High Court in Gopikabai V/s. Chapasi Lohana, AIR 1935 Bom 80. Such is not the intention to be gathered from the Act as a whole." It is for this reason that the Division Bench of the Nagpur High Court in Deorao Raojis case, AIR 1953 Nag 189 dissented from the decision of the Bombay High Court in Gopikabai V/s. Chapasi Lohana, AIR 1935 Bom 80. In Bombay case, a learned single Judge of that court was of opinion that the insolvency court has the power to refer the parties to a regular suit. We respectfully disagree with decision of the learned single Judge of the Bombay High Court and we accept the decision of the Division Bench of the Nagpur High Court in Deorao Raojis case, AIR 1953 Nag 189. Learned counsel for the appellant also relied on a Division Bench decision of the Madras High Court in Mundla Gangi Reddi V/s. Golla Narasimha Reddi, AIR 1941 Mad 895 . The Division Bench of the Madras High Court has held that the dismissal of the insolvency petition outright is wrong. In the Madras case, the insolvency court dismissed the petition and directed the creditor to go to the Civil Court. On appeal, the Division Bench of the High Court set aside the order of the court below. We agree with the decision of the Madras High Court. Learned counsel for the appellant also relied on a single Judge decision of the Lahore High Court in Hukam Chand V/s. Ganga Ram, AIR 1927 Lah 111. The learned single Judge rejected the argument of stay to be granted by the insolvency court, because there is no such provision in the Act. It is for this reason that the learned single Judge set aside the order of the insolvency court and held that the insolvency judge was bound to make enquiry as to the right of the petitioning creditor to present the petition. Relying on these decisions, we hold that the insolvency court erred in law in dismissing the petition till the relationship of creditor and debtor is decided in the two suits filed by the creditors. We also hold that there is no such power vested in the insolvency court. If a petition is presented by a creditor or debtor under Section 9 or under Sec. 10 of the Act, the insolvency court is bound to hold an enquiry as laid down under S. 24 of the Act. We also hold that there is no such power vested in the insolvency court. If a petition is presented by a creditor or debtor under Section 9 or under Sec. 10 of the Act, the insolvency court is bound to hold an enquiry as laid down under S. 24 of the Act. 13 There is another aspect of the matter, and that is this : If this petition is dismissed by the insolvency court, then the second application will be barred under S. 9 (c) of the Act. S. 9 (c) of the Act provides that the petition should be filed within three months from the date of occurring of the act of insolvency. In the present case, the act of insolvency occurred on 9th Feb. 1972, when Md. Matin had executed a Baimokasa deed in lieu of dower debt in favour of his wife (opposite party No. 2). The act of insolvency occurred on 9th Feb. 1972, and, if the petitioning creditors had not filed their petition under Section 9 of the Act within three months from 9th Feb. 1972, then it would have been barred by time under S. 9 (c) of the Act. In this view of the matter also, we hold that the dismissal of the petition of the petitioning creditors is not in accordance with law. 14. In this view of the matter, we set aside the impugned order and direct the insolvency court to proceed in accordance with law under S. 24 of the Act and decide all questions between the parties which may arise, for consideration in this case and he should not wait for the decision in the two suits (mentioned above). We also hold that the court below erred in law in dismissing the petition under S. 25 of the Act. 15. The point of law may be summarised thus : If a petition is filed by a creditor or by a debtor under the provisions of the Act for adjudging the debtor as an insolvent, it is the duty of the insolvency court to proceed under S. 24 of the Act and to decide the matter finally between the parties without waiting for the decision of the subject-matter of dispute by the civil court. The insolvency court has also no jurisdiction to stay the proceeding before it till the matter is decided by the civil court as there is no provision in the Act. The insolvency court has no authority to refer the matter to the civil court. The insolvency court has full authority to decide any point and its decision shall be final between the parties. The Act provides complete machinery for adjudging insolvency and, as such, the insolvency court has not to wait till the dispute is decided by the civil court or any other courts. 16. In the result, the appeal is allowed and the judgment of the insolvency judge dated 12th March, 1976 is set aside. The parties will bear their own costs.