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2005 DIGILAW 660 (CAL)

Prabir Kumar Patra v. Shyam Sundar Giri

2005-10-05

BHASKAR BHATTACHARYA, SADHAN KUMAR GUPTA

body2005
Judgment : BHATTACHARYA, J. (1.) This first miscellaneous appeal is at the instance of an alleged debtor in a proceeding under Section 13(2) of the Provincial Insolvency Act ("Act") and is directed against Order No. 18 dated 9th March, 2005 passed by the Additional District Judge, 13th Court, Alipore in Insolvency Case No. 468 of ,2004 thereby disposing of an application under Section 20 of the Act by appointing Official Receiver South-24 Parganas as interim receiver over the estate of the appellant. (2.) The respondent herein filed the proceedings under Section 13(2) of the Act thereby giving rise to Insolvency Case No.468 of 2004 praying for adjudicating the appellant as insolvent and the case made out by the respondent may be summed up thus: "(a) The appellant, borrowed a sum of Rs.1,10,000/-on 17th December, 2001 from the respondent by executing a promissory note thereby undertaking to repay the same with interest at the rate of 1.2 per cent per annum till realisation. The total claim of the respondent with interest came to Rs.1,13,000/-. (b) The appellant had committed the following acts of insolvency: (i) On repeated demands verbally the appellant failed to repay and on demand under registered post with A/D. sent through lawyer at his working address, the said notice came back with the postal remark "Not Claimed" as the appellant intentionally did not receive the same. (ii) In spite of the aforesaid demand, the respondent and his agent visited the residence of the opposite party for making d.emand and personal contact but the appellant with bad motive and intention, to defeat and delay the payment of the due payable to his creditors, secluded himself so as to deprive his creditors. He further secluded on 23rd May, 2004 at about 9:00 a.m. at his residence. (iii) Lastly, on 13th June, 2004, when the respondent met at his residence at about 8:30 a.m. he told and informed the respondent as well as his agent that he had suspended payment of his debts to all his creditors generally including the respondent in particular, being unable to pay his debts to his creditors." (3.) In connection with the aforesaid proceedings, the respondent came up with an application under Section 20 of the Act thereby praying for appointment of an interim receiver for the purpose of attaching the salary of the appellant. In the said application the respondent further alleged that appellant was working for gain as an employee under M/s. Syndicate Bank, Alipore Branch and was drawing a sum of Rs. 13,000/-a month and prayed for a direction upon the Bank Authority to deposit every month a sum of Rs.3,000/- to the Official Receiver. (4.) The learned Trial Judge initially allowed the prayer and appointed the Official Receiver on 28th June, 2004. Being dissatisfied, the appellant preferred an appeal before this Court and this Court set aside the said order and directed the learned Trial Judge to re-hear the application under Section 20 of the Act along with objection of the appellant after giving both the parties opportunity of hearing and the earlier order was stayed till 31 st January, 2005. (5.) The appellant denied all the allegations contained in the application but in spite of that, the learned Trial Judge, by accepting the allegation of the respondent that he was avoiding appellant as made in the application for appointment of receiver came to the conclusion that the appellant committed acts of insolvency under Section 6(d) and 6(g) of the Act and accordingly affirmed the earlier order of appointment of receiver by which direction was given to realise Rs.3,000/-a month from the salary of the appellant every month. The learned Trial Judge further came to the conclusion that the appellant did not specifically deny his signature on the Xerox copy of the alleged promissory note which was filed at the time of hearing. (6.) Being dissatisfied, the alleged debtor has come up with the present first miscellaneous appeal. (7.) Mr. Dutt, the learned Advocate appearing on behalf of the appellant contended before us that before the Trial Court the appellants specifically denied that he ever took any loan or advance from the respondent but in spite of that the learned Trial Judge wrongly came to the conclusion that the appellant admitted the debt. Mr. Dutt further contends that on the basis of averments made in the application for appointment of receiver the Court could not pass any order appointing an interim receiver and the appropriate remedy of the respondent lay by filing a regular suit for recovery of that amount. Mr Dutt contends that no act of insolvency was proved justifying appointment of a receiver. Mr Dutt contends that no act of insolvency was proved justifying appointment of a receiver. (8.) The aforesaid contentions of Mr Dutt are seriously disputed by Mr Ghosh, the learned Advocate appearing on behalf of the respondent and according to him, the learned Trial Judge rightly came to the conclusion that only a vague denial was given by the appellant as regards execution of the promissory note and no specific denial was made as regards his signature appearing in the promissory note. Mr Ghosh contends that in such a situation there is no bar in appointing an interim receiver overthe property of the appellant. He, thus, prays for dismissal of this appeal. Mr Ghosh further contends that the fact that the debtor was not meeting the creditors although he is staying at his residence is sufficient to prove that he secluded in order to deprive his creditors of the means of communication. Mr Ghosh further submits that oral notice of suspension of payment of debt to the creditors is sufficient to attract the provision of Section 13(2) of the Act and there is no necessity of giving such notice in writing. (9.) Therefore, the question that falls for determination in this appeal is whether in the facts of the present case the learned Trial Judge was justified in allowing an application under Section 20 of the Act. (10.) In order to appreciate the contentions raised by the learned Counsel for the parties and the scope of a proceeding under Section 13(2) of the Act, the following provisions of the Act are relevant and those are quoted below. "6. ACTS OF INSOLVENCY. -A debtor commits an act of insolvency in each of the following cases, namely:-(a) if, in India or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally; (b) if, in India or elsewhere, he makes a transfer of his property, or of any part thereof with intent to defeat or delay his creditors; (c) if, in India, or elsewhere, he makes any transfer of his property, or of any part thereof which would, under this or any other enactment for the time being in force be void as a fraudulent preference if he were a judged an insolvent. (b) if, with intent to defeat or delay his creditors- (i) he departs or remains out of the territories to which this Act extends, (ii) he departs from his dwelling house or usual place of business or otherwise absents himself, (iii) he secludes himself so as to deprive his creditors of the means of communicating with him; (c) if any of his property has been sold in execution of the decree of any Court for the payment of money; (d) if he petitions to be adjudged an insolvent under the provisions of this Act; (e) if he gives notice to any of his creditors that he has suspended, or that he is about to suspend payment of his debts; or (f) if he is imprisoned in execution of the decree of any Court for the payment of money. Explanation. - For the purpose of this section the act of an agent may be the act of the principal. 13. CONTENTS OF PETITION. Explanation. - For the purpose of this section the act of an agent may be the act of the principal. 13. CONTENTS OF PETITION. -(1) Every insolvency petition presented by a debtor shall contain the following particulars, namely:-(a) a statement that the debtor is unable to pay his debts; (b) the place where he ordinarily resides or carries on business or personally works for gain, or, if he has been arrested or imprisoned, the place where he is in custody; (c) the Court (if any) by whose order he has been arrested or imprisoned, or by which an order has been made for the attachment of his property, together with particulars of the decree in respect of which any such order has been made; (d) the amount and particulars of all pecuniary claims against him, together with the names and residences of his creditors so far as they are known to, or can by the exercise of reasonable care and diligence be ascertained by him; (e) the amount and particulars of all his property, together with-(g) a specification of the value of all such property not consisting of money; (ii) the place or places at which any such property is to be found; and (iii) a declaration of his willingness to place at the disposal of the Court all such property save in so far as it includes such particulars (not being his books of account) as are exempted by the Code of Civil Procedure, 1908, or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree; (f) a statement whether the debtor has on any previous occasion filed a petition to be adjudged an insolvent, and (where such a petition has been filed)-(i) if such petition has been dismissed, the reasons for such dismissal, or (ii) if the debtor has been adjudged an insolvent, concise particulars of the insolvency, including a statement whether any previous adjudication has been annulled and, if so, the grounds therefor. (2) Every insolvency petition presented by a creditor or creditors shall set forth the particulars regarding the debtor specified in clause (b) of sub-section (1), and shall also specify- (a) the act of insolvency committed by such debtor, together with the date of its commission; and (b) the amount and particulars of his or their pecuniary claim or claims against such debtor. 18. 18. PROCEDURE FOR ADMISSION OF PETITION.-The procedure laid down in the Code of Civil Procedure, 1908, with respect to the admission of plaints, shall, so far as it is applicable, be followed in the case of insolvency petitions. 19. PROCEDURE ON ADMISSION OF PETITION.-(1) Where an insolvency petition is admitted, the Court shall make an order fixing a date for hearing the petition. (2) Notice of the order under sub-section (1) shall be given to creditors in which manner as may be prescribed. (3) Where the debtor is not the petitioner, notice of the order under subsection (1) shall be served on him in the manner provided for the service of summons. 20. APPOINTMENT OF INTERIM RECEIVER.-The Court when making an order admitting the petition may, and where the debtor is the petitioner ordinarily shall, appoint an interim receiver of the property of the debtor or of any part thereof, and the interim receiver shall thereupon have such of the powers conferrable on a receiver appointed under the Code of Civil Procedure, 1908, as the Court may direct. If an interim receiver is not so appointed the Court may make such appointment at any subsequent time before adjudication, and the provisions of this section shall apply accordingly. 21. If an interim receiver is not so appointed the Court may make such appointment at any subsequent time before adjudication, and the provisions of this section shall apply accordingly. 21. INTERIM PROCEEDINGS AGAINST DEBTOR-At the time of making an order admitting the petition or at any subsequent time before adjudication the Court may either of its own motion or on the application of any creditor make one or more of the following orders, namely:- (1) Order the debtor to give reasonable security for his appearance until final orders are made upon the petition, and direct that, in default in giving such security, he shall be detained in the civil prison; (2) Order the attachment by actual seizure of the whole or any part of the property in the possession or under the control of the debtor, other than such particulars (not being his books of account) as are exempted by the Code of Civil Procedure, 1908, or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree; (3) Order a warrant to issue with or without bail for the arrest of the debtor, and direct either that he be detained in the civil prison until the disposal of the petition, or that he be released on such terms as to security as may be reasonable and necessary: Provided that an order under clause (2), or clause (3), shall not be made unless the Court is satisfied that the debtor, with intent to defeat or delay his creditors or to avoid any process of the Court, (i) has absconded or has departed from the local limits of the jurisdiction of the Court, or is about to abscond or to depart from such limits, or is remaining outside them, or (ii) has failed to disclose or has concealed, destroyed, transferred or removed from such limits, or is about to conceal, destroy, transfer or remove from such limits, any documents likely to be of use to his creditors in the course of the hearing, or any part of his property other than such particulars as aforesaid." (11.) On a plain reading of the aforesaid provisions it is apparent that a proceeding under Section 13(2) of the Act can be filed by a creditor on specifying the acts of insolvency committed by the debtor together with the date of such commission and at the same time, the amount and the particulars of his claim against such debtor should also be indicated. Section 6 of the Act describes the acts of insolvency giving cause of action for filing a proceeding. In the present case, the respondent has alleged the ingredients of Section 6(d)(iii) and Section 6(g) of the Act and such grounds have been repeated in the application under Section 20 of the Act. (12.) We first propose to consider whether on the basis of averments made in the application under Section 13, a case under Section 6(d)(iii) has been made out. According to the aforesaid provision, it must be established that the debtor secluded himself so as to deprive his creditors of the chance of communicating with him. In the petition, it is clearly stated that the respondent visited the residence of the debtor for making demand and personal contract on a particular day at a specific time in the morning when the appellant secluded himself so as to deprive his creditors of the means of communication. It is however admitted in the application under Section 20 of the Act that the appellant is an employee of a Bank and accordingly the prayer of attachment of his salary has been made. In our view, the aforesaid averments are not sufficient to attract the provisions under Section 6(d) (iii) of the Act. If a person is an employee of a Nationalised Bank and if it is admitted that he regularly goes to office situated at a particular place, such fact on the face of it indicates that he is not secluding himself to deprive his creditor of the means of communication. One can easily before or after the Office hours get in touch with him at the door of the office. Merely because, on a particular day, when approached at his residence, he did not meet the respondent and his agent that fact cannot lead to the inference that he secluded himself to deprive his creditor of the means of communicating with him. No proof has been furnished by the respondent before the learned Court below that on that day at the specified hour he was really available at the house. No proof has been furnished by the respondent before the learned Court below that on that day at the specified hour he was really available at the house. Therefore, the aforesaid averment that on a particular date at a particular time he tried to meet the appellant at his residence taut failed, does not justify the conclusion that he was secluding himself in order to deprive his creditors of the means of communication with him particularly when he is an employee of a Nationalised Bank and he is regularly going to his office. (13.) As regards the other allegation that on a particular date the appellant told the respondent and his agent by way of "verbal talk" that he had suspended payment of his debts to all his creditors, we are of the view that such statement must be specifically proved at the time of hearing. It is now settled law that notice contemplated under Section 6(g) need not be in writing and may be oral but there must be definite assertion of the debtor that he had suspended the payment of his debts. Therefore, if the notice alleged in the application is an oral one, the Court must be cautious in taking into consideration such allegation and will demand definite proof of such assertion and at the time of hearing of an application under Section 20 of the Act, no receiver should be generally appointed on the basis of such assertion of the applicant unless such allegation is supported by other reliable materials on records. Therefore, in this case, although, the ingredient of Section 6(g) is available, yet, solely on the basis of such oral notice, no receiver should be appointed unless supporting convincing materials are filed along with such application in support of the allegation of the "oral notice" and other mandatory requirements of the Act are satisfied. (14.) But the defect that is glaring on the face of the order impugned is the noncompliance of the conditions mentioned in the proviso to Section 21 (3) of the Act. We have already indicated that Section 20 gives power to the Court to appoint interim receiver. If the debtor himself applies under Section 13 (1) of the Act, it is obligatory upon the Court to appoint an interim receiver whereas if the applicant is the creditor, the power to appoint receiver is discretionary. We have already indicated that Section 20 gives power to the Court to appoint interim receiver. If the debtor himself applies under Section 13 (1) of the Act, it is obligatory upon the Court to appoint an interim receiver whereas if the applicant is the creditor, the power to appoint receiver is discretionary. Section 21(1) speaks of jurisdiction of the Court to pass direction of giving security upon the debtor and in default, for his detention in the civil prison. Section 21 (2) authorises a Court to order the attachment by actual seizure of the whole or any part of the property of the debtor. Sub-section 3 of Section 23 further authorises the Court to issue warrant of arrest during the pendency of the proceedings and according to the proviso to Sub-Section (3), an order under Clauses 2 and 3 should not be made unless the Court is satisfied that the debtor, with intend to defeat or delay his creditors or to avoid any process of the Court has absconded or has departed from the local limits of the jurisdiction of the Court, or is about to abscond or to depart from such limits, or is remaining outside them, or that he has failed to disclose or has concealed, destroyed, transferred or removed from such limits, or is about to conceal, destroy, transfer or remove from such limits, any documents likely to be of use to his creditors in the course of the hearing, or any part of his property other than such particulars as aforesaid. (15.) When the statute demands satisfaction of the aforesaid facts as indicated in proviso to Section 21 (3) of the Act before a Court passes an order of attachment of the property, it necessarily follows that for actual appointment of receiver as mentioned in Section 20 over any part of the property of the debtor at the instance of the creditor, the same ingredients, if not further more, should be present. (16.) In the case before us, the Court has not arrived at any such conclusion in terms of proviso to Section 21 (3) of the Act nor has the respondent/ creditor made any such allegation either in the application under Section 13(2) or in the one under Section 20 of the Act. (16.) In the case before us, the Court has not arrived at any such conclusion in terms of proviso to Section 21 (3) of the Act nor has the respondent/ creditor made any such allegation either in the application under Section 13(2) or in the one under Section 20 of the Act. (17.) Therefore, in the absence of any material indicating existence of the circumstances mentioned in proviso to Section 21 (3) of the Act the learned Trial Judge acted without jurisdiction in appointing a receiver at the instance of the creditor. (18.) We, therefore, set aside the order impugned on the ground that there was no just cause for even attachment of the property of the debtor, not to speak of appointment of a receiver, over the assets of the appellant at the instance of the respondent. (19.) The appeal is, thus, allowed. The order impugned is set aside. The amount recovered by the receiver be immediately returned to the appellant. The learned Trial Judge is directed to dispose of the main proceedings as expeditiously as possible. In the facts and circumstances, there will be, however, no order as to costs.