PRAKASH MOHTA v. PREM RATAN KOTHARI — 1987 DIGILAW 280 (CAL)

BIMAL CHANDRA BASAK, J. ( 1 ) THIS appeal raises a short but an interesting question of law. The question being, if a decretal debt is barred at the time of filing of an insolvency petition under The Presidency Towns Insolvency Act, 1909 (hereinafter referred to as the said Act) can it be made a ground of insolvency in such petition. The relevant provisions of the said Act are set out herein below: sec. 9. Acts of Insolvency. (2) Without prejudice to the provisions of sub-section (1), a debtor commits an act of insolvency if a creditor, who has obtained a decree or order against him for the payment of money (being a decree or order which has become final and the execution whereof has not been stayed), has served on him a notice (hereafter in this section referred to as the insolvency notice) as provided in sub-section (3) and the debtor does pot comply with that notice within the period specified herein : (3) An insolvency notice under sub-section (2) shall (A)be in the prescribed form; (b)be served in the prescribed manner; (c)specify the amount due under the decree or order and require the debtor to pay the same or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent; (d)specify far its compliance a period of not less than one month after its service on the debtor or, if it is to be served on a debtor residing, whether permanently or temporarily, outside India, such period (being not less than one month) as may be specified by the order of the Court granting leave for the service of such notice;"sec. 10. Power to adjudication - Subject to the conditions specified in the Act, if a debtor commits an act of insolvency, an insolvency petition may be presented either by a creditor or by the debtor, and the Court may on such petition make an order (hereinafter called an order of adjudication) adjudging him an insolvent. 10. Power to adjudication - Subject to the conditions specified in the Act, if a debtor commits an act of insolvency, an insolvency petition may be presented either by a creditor or by the debtor, and the Court may on such petition make an order (hereinafter called an order of adjudication) adjudging him an insolvent. "conditions on which creditor may petition - (1) A creditor shall not be entitled to present an insolvency petition against a debtor unless - (a) the debt owing by the debtor to the creditor, or, if two or more creditors join in the petition, the aggregate amount of debts owing to such creditors, amounts to five hundred rupees, and (b) the debt is a liquidated sum payable either immediately or at some certain future time, and (c) the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition : (Provided that where the said period of three months referred to in clause (c) expires on a day when the Court is closed, the insolvency petition may be presented on the day on which the Court reopens ). ""sec. 12. Conditions on which creditor may petition - (1) A creditor shall not be entitled to present an insolvency petition against a debtor unless - (a) the debt owing by the debtor to the creditor, or, if two or more creditors join in the petition, the aggregate amount of debts owing to such creditors, amounts to five hundred rupees, and (b) the debt is liquidated sum payable either immediately or at some certain future time, and (c) the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition: (Provided that where the said period of three months referred to in clause (c) expires on a day when the Court is closed, the insolvency petition may be presented on the day on which the Court reopens) (2) If the petitioning creditor is a secured creditor, he shall in his petition either state that he is willing to relinquish his security for the benefit of the creditors in the event of the debtor being adjudged insolvent or give an estimate of the value of the security. In the later case, he may be admitted as a petitioning creditor to the extent of the balance of the debt due to him after deducting the value so estimated in the same way as if he were an unsecured creditor. ""sec. 13. Proceedings and order on creditor's petitions - (1) A creditor's petition shall be verified by affidavit of the creditor, or of some person on his behalf having knowledge of the facts. (2) At the hearing the Court shall require proof of - (a)the debt of the petitioning creditor, and (b)the act of insolvency, or, if more than one act of insolvency is alleged in the petition, some one of the alleged acts of insolvency. (3) The Court may adjourn the hearing of the petition and order service thereof on the debtor. (4) The Court shall dismiss the petition - (a)if it is not satisfied with the proof of the facts referred to in sub-section (2); or (b)if the debtor appears and satisfies the Court that he is able to pay his debts, or that he has not committed an act of insolvency or that for other sufficient cause no order ought to be made. (5) The Court may make an order of adjudication if it is satisfied with the proof above referred to, or if on a hearing adjourned under sub-section (3) the debtor does not appear arid service of the petition on him is proved, unless on its opinion the petition ought to have been presented before some other Court having insolvency jurisdiction. (6) Where the debtor appears on the position 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 establishing the debt, may, instead of dismissing the petition, stay all proceedings on the petition for such time as may be required, trial of the question relating to the debt. (7) Where proceedings are stayed, the Court may, if by reason of the delay caused by the stay of proceedings or for any other cause if thinks just, make an order of adjudication on the petition of some other creditor and shall thereupon dismiss, on such terms as it thinks just, the petition on which proceedings have been stayed as aforesaid. (8) A creditor's petition shall not, after presentation, be withdrawn without the leave of the Court. It is to be pointed out that the act of insolvency in the present case is as provided in sub-section (2) of Section 9 which has been introduced by an amending Act of 1978. " ( 2 ) THE short facts of this case are as follows: On 6th December, 1968 a decree was passed against the appellant and in favour of the plaintiff for a sum of Rs. 21,320. 34p. with interest on the principal sum at the rate of 6% per annum from the date of decree until realisation and costs. In the year 1978 the amending Act was passed whereby sub-section (2) was included as an act of insolvency as set out above. On 14th November 1980 in purported exercise of power conferred by sub-section (2) the respondent caused to be served upon the appellant a notice whereby he was called upon to spay the decretal dues within a month. On 5th December, 1980 the time to execute the decree expired. On 14th December, 1980 the period of one month referred to in the notice dated 14th November, 1980 expired. On 27th February, 1981 an application was made by the respondent for adjudicating the appellant as insolvent as the appellant has failed to pay the decretal dues pursuant to the said notice, dated 14th November, 1980. An order was passed on 26th March, 1981 by learned Trial Judge adjudging the appellant as an insolvent. An application was taken out on the 16th April, 1981 whereby the appellant prayed that the order of adjudication passed on the 26th March, 1981 be set aside and/or recalled. It was contended in the said application that at the time of filing of this application on 27th February, 1981 and at that time of the order of adjudication, dated 20th March, 1981, the claim was barred by limitation. The learned Judge dismissed this contention and rejected the application. It was contended in the said application that at the time of filing of this application on 27th February, 1981 and at that time of the order of adjudication, dated 20th March, 1981, the claim was barred by limitation. The learned Judge dismissed this contention and rejected the application. The learned Judge accepted the contention of the respondent and held that the act of insolvency was committed by the petitioner by non-compliance with the statutory notice of demand under the 1978 amendment and the rules made thereunder by this Court and as soon as the said act is committed the petitioning creditor's right to apply accrues for filing the petition of insolvency against the debtor and therefore Article 137 of the limitation Act can apply and the application cannot be said to be barred by limitation. In this connection the learned Judge relied on the Supreme Court decision in Kerala State Electricity Board vs. T. P. Kunha Humma AIR 1977 S. C. 282 where it has been held that Article 137, which prescribes three years as the period, of limitation applies to all application matter under any Act. It was held that the right to apply accured only when the act of insolvency was committed, i. e. , when the notice period expired and not before that and therefore if the act, was committed within three years prior to the filing of the insolvency petition, then the application is not out of time. The application having been filed on 27th February 1981 which is within three years from the date of the act of insolvency, i. e. , non payment of the decretal amount after the statutory notice, it is not barred. Being aggrieved by the same this appeal has been preferred. ( 3 ) MR. Chatterjee has repeated the same contentions before us as contended by him before the Court. He has submitted that there must be debt due on the date of the presentation of the winding up petition and at the hearing. The date of presentation of the petition being dated 27th February 1981, as the decree dated 6th December 1968 being barred on that, date, there was no debt due at the date of the proceedings. In this connection he relied on the following decisions Ahmed Md. Paruk vs. Profulla Nath Tagore AIR 1939 Calcutta 35; Re: Messrs Bhimji Nauji and Co. In this connection he relied on the following decisions Ahmed Md. Paruk vs. Profulla Nath Tagore AIR 1939 Calcutta 35; Re: Messrs Bhimji Nauji and Co. 71 Bombay Law Reporter, 638 Kerala State Electricity Board vs. T. P. Kunha Humma, AIR 1977 SC 282 , Modern Dekor Painting Contracts P. Ltd. vs. Jenson and Nicholson (India) Ltd. 58 (1985) Company Cases 255 at page 259. ( 4 ) IN this case as no one appeared on behalf of the respondent and in view of the important question of law involved, we requested a senior member of the Bar Mr. Hiranmoy Dutta to assist the Court as amicus curiae Mr. Dutta has submitted firstly that the notice period expired one month after the expiry of the notice, that is, 14th December, 1980 but even before that the time to execute the decree expired and it became barred. Therefore, there was no act of insolvency. He has further submitted that so far as the computation of period is concerned, unlike notice under section 80 of the Code of Civil Procedure, that period of notice is not excluded in respect of a notice under the said Act as amended and that cannot be excluded in any manner whatsoever. ( 5 ) BEFORE we consider this aspect of this matter we shall consider the decisions cited before us. In the case of The Kerala State Electricity Board. vs. T. P. Kunhaliumma (ibid) The Supreme Court held that there was a difference between the old Article 181 of the 1908 Limitation Act and the new Article 137 of the Limitation Act 1963. Under Article 137 of the new Act, applications contemplated under the said Article are not applications confined to the Code of Civil Procedure. "any other application" under Article 137 would be petition or any application under any Act but it has to be an application to a Court. That was a case where a petition was filed under section 16 (3) of the Telegraph Act claiming enhanced compensation beyond 3 years from the date of service of notice intimating fixing of compensation by the State Electricity Board. It was held that such petition was an application within the meaning of Article 137 and accordingly the petition was barred by time. It was held that such petition was an application within the meaning of Article 137 and accordingly the petition was barred by time. We ought to point out that in the present case though the learned Judge proceeded on the basis of Article 137 of the 1963 Limitation Act there is a special period of limitation provided in the Act itself, which is section 12. Under section 12 (1) (c) of the said Act no such insolvency petition can be presented against a debtor unless, inter alia the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition. In view of the said period of limitation, Article 137 would not be applicable in respect of presentation of an insolvency petition under the said Act. In our opinion, the learned Judge's attention was not drawn to this aspect of the matter and accordingly the learned Judge proceeded on the basis of Article 137 of the Limitation Act. ( 6 ) IN the case of Ahmed Md. Paruk vs. Prafulla Nath (ibid) it was an application filed by the appellant for leave to appeal to His Majesty in Council against a judgment and decree of the High Court given on 2nd March 1937, affirming an order made by Mcnair, J. on 12th August 1930 whereby the appellant was adjudicated insolvent at the instance of the petitioning creditor. The insolvency petition was presented on 3rd August 1936. On that date an order was passed by Lord Williams J. that the petition should be heard on 11th August 1936. Notice of the petition was given to the debtor on 4th August 1936, and accordingly Rule 79 Calcutta Insolvency Rules 1910 came into operation. The question was relating the duty of the appellant to give notice to the petitioning creditor under Ru1es 79. The Division Bench considered the question as to whether there was substantial point of law in the case so as to render it possible for the matter to go to the Judicial Committee of the Privy Council. One of the questions which was stated to be substantial question was "whether the petitioning creditor has to prove that the debt due to him was owing not merely at the date when the petition was presented but also at the date of the hearing". One of the questions which was stated to be substantial question was "whether the petitioning creditor has to prove that the debt due to him was owing not merely at the date when the petition was presented but also at the date of the hearing". The Court held that the decision arrived at by the Court of Appeal as to whether the learned Trial Judge was right in making the adjudication order upon the basis that the debts were still subsisting was really a decision upon a question of fact, and therefore no point of law, still less a substantial point of law, arises as regards that part of the case. In that context it was mentioned that the law is that there must be a debt of Rs. 500 or upwards existing not only at the time when the petition was presented, but at the time of the hearing of the petition and at the moment of time immediately prior to the making of an order of adjudication. In our opinion, strictly speaking, this decision does not help the appellant because firstly, in the present case we are concerned with the effect of the 1978 amending Act and this judgment related to a period long before that. Secondly, there the question involved whether there was any substantial question of law for allowing an appeal to the Privy Council. In this context, the observation was made regarding the law. Thirdly, we are mainly concerned with the question that whether at the time of the hearing of the petition and at the moment of time immediately prior to the making of an order of adjudication, there was a debt. ( 7 ) IN the case of Re: Messrs. Bhimji Nauji and Co. (India) it was held by a learned Single Judge of the Bombay High Court that the debt on the basis of which a petition for adjudication is presented by the creditor under the Presidency Towns Insolvency Act, 1909, must be subsisting not only at the date of the presentation of the petition but also at the date of its hearing as well as at the date when the adjudication order is proposed to be passed. In this case we are not strictly concerned with that question because here the question of limitation raised is on the date of presentation of the petition. In this case we are not strictly concerned with that question because here the question of limitation raised is on the date of presentation of the petition. ( 8 ) IN the case of Modern Dekor Painting Contracts P. Ltd. vs. Jenson And Nicholson (India) Ltd. (ibid) the petitioner filed a petition for the winding up of a company on the ground that under S. 433 (a) of the Companies Act, 1956, viz. , it was unable to pay its debts because of non-compliance with a statutory notice of demand dated September 9, 1976. The debt on the basis of which the petition was filed was within the period of limitation at the date of the filing of the petition, viz. , on March 25, 1977. However, in January 1983, when the petition came up for hearing, the recovery of the debt was barred by limitation. It was contended on. behalf of the company that the petition ceased to be maintainable as at the date of hearing, the debt having barred by limitation. In this context, the Division Bench of Bombay High Court held as follows :"it is not disputed that to maintain a petition for winding up on the ground of inability to pay the debt, the debt must be recoverable, i. e. , due and payable and not barred by limitation at the date of the petition. This was so because under Section 439 quoted above, one of the persons, inter alia, entitled to file a petition for winding up was a creditor and in order that a person could qualify himself to be a creditor, he must be able to satisfy the court that at the date of the petition, there was a debt ascertainable or due and payable to him which he could claim. "8a. The first question is whether a debt which is barred by limitation at the time of the presentation of the insolvency petition can be subject matter of insolvency petition. In our petition it cannot be so. The language of the Act makes it so clear. Section 12 makes it clear that there are three conditions which must be satisfied before a creditor shall be entitled to file an insolvency petition. Under Section 12 (1) (a) the aggregate amount of debt "owing" by the debtor to the creditor must amount to five hundred rupees. The language of the Act makes it so clear. Section 12 makes it clear that there are three conditions which must be satisfied before a creditor shall be entitled to file an insolvency petition. Under Section 12 (1) (a) the aggregate amount of debt "owing" by the debtor to the creditor must amount to five hundred rupees. Under Section 12 (1) (b) the debt must he a liquidated sum "payable" either immediately or at some other future time. Under Section 12 (1) (c) the act of insolvency relied upon must have occurred within three months before the presentation of the petition. Here the expression "the debt" or debt "owing" must mean a debt recoverable, i. e. , due and payable. A debt which was barred at the time of presentation of the petition is no longer a debt recoverable, that is, owing or payable. In this context we fully agree with and respectively followed the observations made by the Bombay High Court in Modern Dekor case (ibid ). ( 9 ) THE further question is that there must be an act of insolvency. What is the act of insolvency has been specified in Section 9. We are concerned with sub-section (2) of Section 9 which is set out above. Under sub-section (2) of Section 9 an act of insolvency is committed if a creditor, who has obtained a decree, has served a notice on the debtor and the debtor does not comply with that notice within the period specified therein. The debtor gets minimum one months time. If a notice is given when the debt is already barred, the question of complying with such notice cannot and does not arise. In the present case he had time according to the notice to pay within 14th December, 1980, i. e. , one month from the date of 14th November, 1980 when the notice was served on him specifying one month's time. The said subsection will not be attracted when the debtor is not bound to pay the amount as the amount has already become barred. The question of complying with the notice within the meaning of the said sub-section cannot and does not arise when before the period specified, the debt has become time barred. The said subsection will not be attracted when the debtor is not bound to pay the amount as the amount has already become barred. The question of complying with the notice within the meaning of the said sub-section cannot and does not arise when before the period specified, the debt has become time barred. Accordingly, in our opinion there was no debt due or owing or payable on the date of the presentation of the petition and there was no act of insolvency existing at the time of the presentation of the petition. The decree having been time barred on 5th December, 1980, has ceased to be payable to or enforceable by the creditor. At that time he was not liable to make any payment. Accordingly, the question of any act of insolvency taking place upon the expiry of the said period cannot and does not arise in our opinion. ( 10 ) MR. Hiranmoy Dutt, learned Advocate is right that unlike Section 80 there is no provision for exclusion of the period of the notice served under Section 9. We have held that the question of Section 137 does not arise because of the special period of limitation. Ordinarily it must be three months from the date of act of insolvency. In the present case there was no act of insolvency for the reasons already stated. In any view of the matter if the notice period is excluded even then it was required to be filed within one month from 5th December, 1980, when the time to execute the decree was to expire or within one month from the expiry of the date of the notice which is 14th December, 1980, in which case it would be 14th January, 1981. Admittedly in the present case the insolvency petition was filed on 27th February, 1981, and therefore, even if that one month period is excluded, the application was barred by limitation. ( 11 ) FOR the aforesaid reasons we allow this appeal and set aside the order appealed from. We allow the application made by the appellant. The order dated 26th March, 1981, in Insolvency Case No. 2 of 1981, is accordingly, rescinded, recalled and set aside. ( 12 ) WE wish to place on record our appreciation of the assistance given by Mr. Hiranmoy Dutt who appeared as amicus curiae which was in true tradition of the Bar. We allow the application made by the appellant. The order dated 26th March, 1981, in Insolvency Case No. 2 of 1981, is accordingly, rescinded, recalled and set aside. ( 12 ) WE wish to place on record our appreciation of the assistance given by Mr. Hiranmoy Dutt who appeared as amicus curiae which was in true tradition of the Bar. We have been greatly helped by him submissions in coming to the conclusion as we have done. ( 13 ) THERE will be no order as to costs. ( 14 ) LET a copy of the operative portion of this judgment be sent by the Registrar, Original Side of this Court, to Mr. Hiranmoy Dutt, Barrister-at-Law. Satyabrata Mitra, J. I agree. Appeal allowed.