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2007 DIGILAW 254 (CAL)

BAJRANG LAL JAIN v. SICOM LTD.

2007-04-04

BHASKAR BHATTACHARYA, KISHORE KUMAR PRASAD

body2007
BHASKAR BHATTACHARYA, J. ( 1 ) THIS appeal is at the instance of a debtor and is directed against the order dated June 9, 2006 passed by a learned single Judge of this Court thereby allowing an application under Section 9 (2) of the Presidency Town insolvency Act, 1909 (hereinafter referred to as the Act) and adjudicating the present appellant as an insolvent. ( 2 ) THE facts giving rise to initiation of the proceedings may be summed up thus : (a) The respondent company filed a suit under Order 37 of the Code of Civil Procedure being Summary suit No. 1790 of 2002 against the appellant and one Suresh Kumar jain on the ground that the respondent company had lent and advanced a sum of Rs. 2 crore to one M/s. Appu Industries Ltd. and the appellant along with Suresh Kumar Jain, had stood guarantor to the said amount of rs. 2 crore which was to be paid by the borrower company, namely, Appu Industries ltd. along with an interest at the rate of 15 per cent per annum. (b) In view of the alleged default committed by the borrower company, the respondent by invoking the guarantee furnished by the appellant and the said Suresh Kumar Jain, filed a suit being Suit No. 1790 of 2002 before the Hon'ble Bombay High Court. In the said suit, the borrower company namely, Appu industries Ltd. , however, was not made party. The said suit was decreed ex parte in favour of the respondent on 11th December 2002. (c) By a notice dated 2nd May, 2003 issued by the learned advocate for the respondent under Section 9 (3) of the Act calling upon the appellant and the said Suresh kumar Jain, the respondent demanded a sum of Rs. 3,31,73,935/- within five weeks from the date of service of such notice. In the said notice, it was further alleged that if the payment was not made within the period specified therein, the appellant and suresh Kumar Jain would be deemed to have committed an act of insolvency under section 9 (2) of the Act and an insolvency petition would be presented before the appropriate Court for adjudging them as insolvent. In the said notice, it was further alleged that if the payment was not made within the period specified therein, the appellant and suresh Kumar Jain would be deemed to have committed an act of insolvency under section 9 (2) of the Act and an insolvency petition would be presented before the appropriate Court for adjudging them as insolvent. (d) By the said notice, according to the respondent, the addresses were called upon to make an application if they so intended under Section 9 (5) of the Act for setting aside the said notice. (e) On 24th June, 2003, the respondent company affirmed an affidavit verified by one sri V. C. Dev, Deputy Manager (Legal) seeking declaration that the appellant and the said Suresh Kumar Jain had become insolvent and notice of motion was taken out on 30th June, 2003 and the same was filed in the High Court at Calcutta and had been numbered as. C. Case No. 5 of 2003. (f) In the said application, it was alleged by the respondent that despite service of insolvency notice under section 9 (2) of the Act. the appellant and said Suresh Kumar Jain had failed and neglected to pay the decretal amount of Rs. 3,31,73,935/- or to furnish security on payment of such amount. (g) According to the respondent, the appellant and the said Suresh Kumar Jain had avoided the services of the said notice and failed to comply with the same within a period of five weeks from the date of service. Hence the application for adjudication as insolvent. ( 3 ) THE appellant contested the application by filing opposition thereby denying the material allegations made in the application for insolvency and according to the appellant, he for the first time came to know about the issue of the said notice in the month of september, 2003 when pursuant to the direction given by this court a copy of the Insolvency petition was served upon him on 8th September, 2003. ( 4 ) ULTIMATELY, by the order impugned herein the learned single Judge of this Court held that the appellant had committed an act of insolvency as provided in Section 9 (2) of the Act and, thus, passed an order adjudicating the appellant as an insolvent ( 5 ) BEING dissatisfied, the appellant has come up with the present appeal. ( 6 ) MR. ( 6 ) MR. Chatterjee, the learned senior advocate appearing on behalf of the appellant has raised a pure question of law in support of the present appeal. According to Mr. Chatterjee the respondent in its petition has admitted that the notice under Section 9 (3) of the Act was sent under the speed post and registered post and those came back with the postal endorsement "out of station, hence left" and "notice issue", such being the position, Mr. Chatterjee contends that the learned single Judge committed an error of law in holding that such a notice was served upon his client and such finding was arrived at on the basis of mere assumption. Mr. Chatterjee contends that in arriving at the conclusion that such a notice was served upon the appellant, the learned single Judge erred in law in taking into consideration the past conduct or even the post-suit conduct of the appellant in the matter of contest of the present proceedings. According to Mr. Chatterjee, an adjudication under the Act being a "judgment in rem", the Court should be overcautious in assessing the evidence as regards the service of notice under Section 9 (3) of the act. Mr. Chatterjee, therefore, prays for setting aside the order passed by the learned single Judge. ( 7 ) MR. Gupta, the learned counsel appearing on behalf of the respondent has, however, opposed the aforesaid contentions advanced by Mr. Chatterjee and has contended that from the materials on record it has been well established that the appellant was all along aware of the decree passed by the Bombay High Court and in spite of knowledge of such decree, even did not care to pray for setting aside the said decree as he well knew that he had no defence in the suit. Mr. Gupta contends that the legislature in its wisdom having incorporated the additional ground of declaring a debtor as insolvent. e. the inability on the part of the debtor to comply with the demand contained in the notice contemplated under Section 9 (3) of the Act in spite of service, for the purpose o'f giving relief to the decree holder where the judgment debtors try delay the execution of the decree, and the debtor not having complied with the same even today, this Court should not set aside the order of adjudication. According to Mr. According to Mr. Gupta, the learned single Judge on consideration of the evidence on record having believed the case of the respondent that the notice was duly served this Court sitting in an appeal should not upset the findings of fact based on appreciation of evidence. He, therefore, prays for dismissal of the present appeal. ( 8 ) AFTER hearing the learned counsel for the parties and after going through the materials on record we find that the notice under Section 9 (3) of the Act was sent to the appellant in two different ways. The first mode was the service by speed post and the other one, by the registered post. Admittedly, those were not received by the appellant. The xerox copy of those envelopes which came back to the sender are annexed with the paper book. The notice was issued on May 2, 2003 and the postal endorsement on the envelope is "absent" and thereafter; the following dates are mentioned : 5-5-2003, 6-5-2003, 7-5-2003 and thereafter, the endorsement "notice issue" dated 8-5-2003 is given. So far the other envelope is concerned, it is recorded as "out of station, hence left" and then endorsed by the postal peon with the date" 17-05" ( 9 ) FROM the aforesaid endorsements on the envelopes, we are unable to hold that the notice issued under Section 9 (3) of the Act was duly served upon the appellant so as to enable the respondent to file an application for the adjudication of the appellant as insolvent within the meaning of Section 9 (2) of the act. In our opinion, the learned single Judge erred in law in taking into consideration the affidavit of service for the service of summons of this proceeding for the purpose of arriving at the conclusion whether the notice of insolvency was served upon the appellant. The service of summons of the present proceedings or the conduct of the appellant in contesting the earlier suit is insignificant for determining whether the notice under Section 9 (3) of the Act was duly served. ( 10 ) WE, therefore, find that the essential pre-requisites condition for maintaining an application under Section 9 (2) of the Act has not been fulfilled in the present ease and the learned single Judge erred in law in adjudicating the appellant as insolvent in this proceeding. We find substance in the contention of. Mr. ( 10 ) WE, therefore, find that the essential pre-requisites condition for maintaining an application under Section 9 (2) of the Act has not been fulfilled in the present ease and the learned single Judge erred in law in adjudicating the appellant as insolvent in this proceeding. We find substance in the contention of. Mr. Chatterjee that in the proceeding under the Insolvency Act where the final verdict is a judgment in rem, the Court should be cautious in arriving at the finding about the service of notice under Section 9 (3) of the Act. When the postal endorsement on the envelope itself did not assert that the appellant refused to accept the same, a Court in an Insolvency Proceeding cannot presume service on the basis of his past conduct or because of his subsequent conduct. In this case, even the postal peon was not examined for the purpose of clarification of the endorsements. ( 11 ) THE mere fact that the appellant suffered an ex parte decree or that he entered into an agreement thereby agreed to be a surety is not sufficient for declaring him as an insolvent unless the act of insolvency as mentioned in the Act is clearly established. ( 12 ) WE, therefore, set aside the order passed by the learned single Judge and hold that the respondent had failed to prove the act of insolvency on the part of the appellant as indicated in Section 9 (2) of the Act. ( 13 ) THE appeal, accordingly, is allowed. In the facts and circumstances, there will be, however, no order as to costs. .