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2006 DIGILAW 1313 (MAD)

B. Srinivasan v. N. Jambulingam

2006-06-13

S.RAJESWARAN

body2006
Judgment :- 1. The Petitioning Creditor has filed this I.P., under Sections 9(2), 10, 11, 12 and 13 of the Presidency-Towns Insolvency Act, 1909 (hereinafter referred to as ‘the Act’) praying to adjudicate the Debtor as an insolvent, to direct the estate of the Debtor be vested in the Official Assignee of Chennai, for the benefit of the general body of Creditors and Debtor and for costs. 2. The Petitioning Creditor and his Wife filed a Suit in O.S.No.5024/1992 on the file of VII Assistant City Civil Judge, Chennai against the Debtor and another person Thiru Venkataramanan. The said Suit was decreed on 27.9.1995. Even after the said decree, the Debtor and the other Judgment Debtor did not pay the decree amount, resulting in the Petitioning Creditor filed a Petition in I.N.No.75/2001 before this Court for issue of Insolvency Notice to the Debtor. In spite of such service of Insolvency Notice, the Debtor failed to comply with the notice by making payments nor has he made any Application to set aside the said Insolvency Notice. Hence, the Debtor has committed an act of insolvency. The amount due and payable by the Debtor as per the Notice was Rs.1,81,795.90 and at the time of filing of this Petition it was Rs.1,86,355.90. Therefore the Petitioning Creditor has filed this Petition praying for adjudication of the Debtor as insolvent. 3. The Debtor filed a Counter Statement wherein he has stated that he has sufficient means and he is in a position to pay the debts. He further added that the Petitioning Creditor prior to the decree obtained by him had created an equitable mortgage of a property in Pakkam Village, Thiruvallur Taluk, measuring 2090 sq.ft. to the 2nd Defendant in the Suit by deposit of Title Deeds and the Creditor is still in possession of the documents. The Petitioning Creditor having filed an E.P. to execute the decree, ought not to have withdrawn the same. The Debtor further adds that the Petitioning Creditor is aware that the Debtor is owning a house property at Nancy Street, Purasawalkam, Chennai-7, which is worth more than Rs.60 lakhs. Having not taken any steps against Pakkam, Thiruvallur property which was given as collateral security for the amount borrowed, the Petitioning Creditor is not entitled to file the above Petition. Hence, he prayed for dismissal of the above petition. 4. Having not taken any steps against Pakkam, Thiruvallur property which was given as collateral security for the amount borrowed, the Petitioning Creditor is not entitled to file the above Petition. Hence, he prayed for dismissal of the above petition. 4. Heard the learned Counsel for the Petitioning Creditor as well as the learned Counsel for the Debtor. I have also perused the documents, both oral and documentary, filed in support of their submissions. 5. The Petitioning Creditor herein examined himself as P.W.1 and marked Exs.P1 to P7. The Debtor examined himself as R.W.1 and marked Exs.R1 and R2. 6. It is the case of the Petitioning Creditor herein that having failed to pay the amount covered under the decree dated 27.9.1995 made in O.S.No.5024/1992, the Debtor herein committed an act of insolvency as he did not pay the money as per the Insolvency Notice nor challenged the same. On the contrary the Debtor contended that he is a man of means and he is owning a property in Purasawalkam, Chennai which is valued at Rs.1,17,77,463/-, as per Ex.R2, the Valuer’s Report dated 6.12.2004. It is the case of the Debtor that having obtained the documents of the other Judgment Debtor in O.S.No.5024/1992 with regard to his property at Pakkam Village, Thiruvallur Taluk and having created an equitable mortgage, it is not open to the Petitioner herein to file the above Petition. 7. Learned Counsel for the Debtor has relied on the following judgments in support of his contentions: (1) Neelakanta Sarma, S. v. K. Govindarajulu, 1981 (94) LW 534; and (2) P.K. Venkateswaran v. R. Shanmugam, AIR 1987 Mad. 143 . 8. In Neelakanta Sarma, S. v. K. Govindarajulu, 1981 (94) LW 534, this Court has held that the Debtor has clearly established that the Creditor is secured creditor and in such circumstances the Debtor ought not to have been adjudged as an insolvent. 9. In P.K. Venkateswaran v. R. Shanmugam, AIR 1987 Mad.143, this Court held as follows: “10. The first point to be decided is, whether the Respondent has to be adjudged as insolvent. 9. In P.K. Venkateswaran v. R. Shanmugam, AIR 1987 Mad.143, this Court held as follows: “10. The first point to be decided is, whether the Respondent has to be adjudged as insolvent. Under Section 12 of the Act, in a Petition to adjudge a Debtor as insolvent, the Creditor has to prove that the debt owing by the Debtor to the Creditor exceeds Rs.500/-, that the debt is a liquidated sum, that the Debtor has committed an act of insolvency on which the Petition is grounded and that the same has occurred within three months before the presentation of the Petition. If the Petitioning Creditor is a secured creditor, he should relinquish his security for the benefit of the general creditors in the event of the Debtor being adjudged as insolvent. Under Section 13(4) of the Act, notwithstanding the proof of the above mentioned facts by the Creditor, still the Petition shall be dismissed if the Debtor 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.” “19. Even assuming that by virtue of the two notices having been returned unserved with the endorsement that the Respondent was not found, on that basis, even if it is concluded that an act of insolvency has been established under Section 9(d)(ii), still, in this case, since the Respondent has contended that he is able to pay the debts, it has to be seen whether he substantiates that contention. If he substantiates that contention, even if the Debtor-Respondent committed an act of insolvency, still the Petition is liable to be dismissed. According to the Petition, the total debts due to the three Petitioners inclusive of the debt due to the Wife of the 2nd Petitioner comes to Rs.2,32,500/-. Interest is claimed at heavy rates of 24% and 36%. Accepting the interest as claimed, the total amount as per the Petition comes to only about Rs.3,77,000/-. According to the Petitioners, though the Respondent owns a number of properties, he has been selling one after the other and therefore, it will be difficult for the Creditors to recover the amount from him. Excluding the properties sold by the Respondent, including the one sold after the filing of the Petition under Ex.P-16, still he has two houses. According to the Petitioners, though the Respondent owns a number of properties, he has been selling one after the other and therefore, it will be difficult for the Creditors to recover the amount from him. Excluding the properties sold by the Respondent, including the one sold after the filing of the Petition under Ex.P-16, still he has two houses. In the reply statement filed by the Petitioners, they have valued Door No.17, C.N.K. Street, Triplicane, Madras-5 at Rs.4,00,000/-. As such, the Respondent, who is entitled to half share in that house, would be entitled to at least Rs.2,00,000/- towards his share, though according to the Respondent, that house is worth about Rs.7,00,000/- and that his share would be Rs.3-1/2 Lakhs. Further, with respect to Door No.18, Murugappa Achari Street, Triplicane, Madras, which also belongs to the Respondent, he had entered into an agreement to sell the rear portion to one M.P. Damodaran (P.W.4) for a sum of Rs.3,10,000/- and had received an advance of Rs.1,35,000/-. But the Respondent did not actually sell that property as seen from the evidence of P.W.4. With respect to this house also, the Respondent is still entitled to about rupees two lakhs. Besides, he is carrying on business. Therefore, the Respondent will being (sic) a position to satisfy the debts of the Petitioners including reasonable interest from out of the estate available with him.” “21. In the decision reported in S.A. Ramalinga Mudaliar v. T.K. Ratna., AIR 1963 Mad. 181 , a Bench of this Court had occasion to consider the scope of ‘other sufficient cause’ occurring in Section 13(4)(b) of the Act, by which the Insolvency Court has to dismiss the Petition filed by the Creditors to adjudge the Debtor as insolvent. In that decision, the Bench has held as follows: “The words ‘other sufficient cause’ in Section 13(4)(b) should be interpreted in the widest possible manner and not ejusdem generis in relation to the earlier clauses in Section. Adjudication of a Debtor as insolvent changes his status, vests his entire property in the Official Assignee and limits his capacity to do business or even acquire property. Under Section 12 of the Presidency-Towns Insolvency Act, a Debtor would be liable to be adjudicated insolvent by an unsecured Creditor having a claim for more than Rs.500/-, if the former had committed an act of insolvency within three months of the Petition. Under Section 12 of the Presidency-Towns Insolvency Act, a Debtor would be liable to be adjudicated insolvent by an unsecured Creditor having a claim for more than Rs.500/-, if the former had committed an act of insolvency within three months of the Petition. But, the right of such a Creditor to adjudicate the Debtor a bankrupt, is not a weapon available to him to be used to serve any ulterior purpose or to be used vindictively. If the object of the adjudication is not the result of a genuine desire to have the property of the Debtor administered in insolvency, but one solely with a view to disgrace him or to utilize the machinery of Court for other purposes, the Petition cannot be said to be a bona fide one. Section 13 gives power to the Court in those cases to dismiss it … It cannot be said that adjudication of a Debtor as Insolvent is one of the remedies open to a Creditor and it will be for him to choose whether he is to take the thorny path of execution of the decree or adopt a short cut of adjudicating the Debtor an insolvent. An adjudication of a Debtor as a bankrupt is not a method of collecting a debt, though as a result of it, the Creditor may get paid. Essentially, an adjudication brings about a change in the status of a Debtor and enables the Official Assignee or receiver, in whom the property of the Debtor gets vested, to administer or sell it to pay of his Creditors. It is only a particular class of Creditors that can file a Petition for adjudication. And no absolute right is given to them to obtain an adjudication as the Court will dismiss the Petition if the conditions laid down in Section 13 are satisfied.” In that decision, this Court has further held that the fact that the Debtor had been a recalcitrant Debtor and was unable to pay his debts could not justify the Creditor, purely out of spite and with no other object in view to adjudge him bankrupt.” “22. Keeping the above laid down principles in mind, if we consider the facts of the case on hand, we find that the Creditors have satisfied that the Debtor-Respondent owes them nearly rupees two lakhs. Keeping the above laid down principles in mind, if we consider the facts of the case on hand, we find that the Creditors have satisfied that the Debtor-Respondent owes them nearly rupees two lakhs. Though the Creditors cannot claim the entire interest as recited in the promissory notes, which is certainly exorbitant and usurious in nature, the Creditors will be entitled to interest at a reasonable rate. The principal amount due to the Creditors is more than rupees two lakhs. The property of the Respondent still available with him is sufficient to satisfy the debts of the Creditors. No doubt, the conduct of the Debtor-Respondent in denying the liability of the Creditors-Petitioners and selling his properties with a false recital that such a sale is to discharge the debts due to the Petitioning Creditors is that of a vexatious and recalcitrant Debtor and also with a view to delay the payment to the Petitioning Creditors. But that by itself will not give a right to the Petitioning Creditors to choose a remedy available under the Insolvency Act instead of proceeding against the available property of the Debtor-Respondent. Knowing the behavious (sic) and conduct of the Debtor-Respondent, still the 2nd Petitioner has chosen to advance a further sum of Rs.20,000, even after the Respondent-Debtor has not chosen to discharge his earlier debts by selling one of his properties under Ex.P.15. As already pointed out, the 2nd Petitioner has planned to purchase the house property which was sold under Ex.P.15, and also made an advance of Rs.50,000 but that transaction did not go through. Therefore, it appears that the Petitioning Creditors had chosen to the present adjudication proceedings more to disgrace the Debtor-Respondent rather than to recover the amount due to them, which could have been done under the normal process of law. In the circumstances, even assuming that the Debtor-Respondent has committed an act of insolvency, which actually has not been established, the Petition is liable to be dismissed, under Section 13(4)(b) of the Act, both on the ground that the Debtor-Respondent is liable to pay his debts and also for ‘other sufficient cause.” 10. In the circumstances, even assuming that the Debtor-Respondent has committed an act of insolvency, which actually has not been established, the Petition is liable to be dismissed, under Section 13(4)(b) of the Act, both on the ground that the Debtor-Respondent is liable to pay his debts and also for ‘other sufficient cause.” 10. In the above judgment, this Court held that if the Debtor is able to bring evidence on record showing that he is able to pay his debts, acts of insolvency is not proved against him and in such circumstances, initiating insolvency proceedings is more to disgrace the Debtor rather than to recover the amount due to him. 11. In the light of the above judgments, if the facts and evidence let in the instant case are analysed, I find that it is indisputable that the Debtor is owning a property at Purasawalkam, Chennai which, according to the report of the licensed Surveyor, is worth Rs.1,17,77,463/- which is marked as Ex.R2. Even the Petitioning Creditor himself in his cross-examination as P.W.1 has admitted that he was aware of the Purasawalkam property of the Debtor and that property would be worth about Rs.25 lakhs to 30 lakhs at the time of liability. He further admitted that he is not aware of the present value of the property. In such circumstances, it cannot be said that the Debtor is not a man of means considering the fact that the amount payable is just a sum of Rs.1,86,355.90 at the time of filing the above I.P. Moreover, the Petitioning Creditor has also admitted in his oral evidence as P.W.1 that Venkataramanan, the other judgment-debtor in O.S.No.5024/1992 created an equitable mortgage by depositing the Title Deeds of the property at Pakkam Village, Thiruvallur Taluk. He only says that the said property is not valuable and it cannot satisfy the debt which is worth about Rs.14,630/- at the time when the property was offered as collateral security. The Petitioner further deposed that he is not aware of the present value of the above said property. 12. He only says that the said property is not valuable and it cannot satisfy the debt which is worth about Rs.14,630/- at the time when the property was offered as collateral security. The Petitioner further deposed that he is not aware of the present value of the above said property. 12. In such circumstances, I am of the opinion that no proper explanation has been given by the Petitioning Creditor for not proceeding against the mortgaged property by not having a mortgage over the property in question, and it cannot be said that he is not a secured Creditor whereas he is the secured Creditor only who had not fulfilled the requirements of Section 12(2) of the Act before instituting the Petition and therefore, the above Petition is without jurisdiction. The Petitioning-Creditor has also not stated that there are other Creditors for whom the Debtor is liable to pay. 13. In such circumstances, in this case, evidence on record shows that the Debtor is in a position to pay his debts and notwithstanding the proof of attracting Section 13(4) of the Act, still the Petition is to be dismissed and as the Debtor satisfies that he is able to pay his debts. In the circumstances, even assuming that the Debtor has committed act of insolvency, the Petition is liable to be dismissed under Section 14(b) of the Act both on the ground that the Debtor is able to pay his debts or other “sufficient” cause. 14. In the result, this I.P. is dismissed. No costs.