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Kerala High Court · body

2009 DIGILAW 696 (KER)

Kanishk Steel Industries Ltd. v. Annie Sweety

2009-07-29

S.S.SATHEESACHANDRAN

body2009
Judgment : The Writ Petition is filed seeking the following reliefs: 1. To issue a writ of certiorari and to quash Exhibit P6 order passed by the Sub Court, Thiruvalla in E.A.No.22/06 in E.P.No.42/04. 2. To issue a writ of mandamus or such other appropriate writ order or direction directing the Sub Court, Thiruvalla to expedite the execution proceedings for the sole of the attached property. 3. To grant such other reliefs as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case. 2. Petitioner is the decree holder in C.S.No.668/03 passed by the High Court of Madras. The above decree was passed in a suit for money against the respondents 2 to 5, for an amount of Rs.14,99,242/- with future interest and cost. The decree was transferred for execution to Sub Court, Thiruvalla and pursuant to such transfer, the petitioner filed E.P.No.42/04 before that court and got the properties, four items, of the judgment debtors attached. In the execution proceedings, it was noticed that a Bank, additional 7th respondent in the Writ Petition, is a secured creditor since the properties had already been mortgaged to it as security. When proceedings for sale subject to the claim of the Bank for first preference continued, the first respondent, the Official Receiver, filed an application as E.A.No.22/06 stating that an insolvency proceeding (I.P.No.1/03) against respondents 2 to 5 is in progress, with the receiver appointed by the insolvency court taking over possession of properties. That being so, stay of the execution in the case was applied for. The execution court, after hearing all parties, passed Exts.P6 and P7 orders staying all further proceedings in the execution petition in view of the pendency of the insolvency proceedings against the judgment debtors 2 to 5 and the appointment of a receiver over their properties by the insolvency court. Ext.P6 order is passed on the application filed by the receiver as E.A.No.22/06 and Ext.P7 on the application of the decree holder to settle the proclamation for sale of the properties attached. Separate orders are passed in such petitions in effect staying the execution proceedings in view of the insolvency proceedings initiated against respondents 2 to 5. Propriety and correctness of Exts.P6 and P7 orders are impeached by the decree holder invoking the supervisory jurisdiction vested with this court under Article 227 of the Constitution of India. 3. Separate orders are passed in such petitions in effect staying the execution proceedings in view of the insolvency proceedings initiated against respondents 2 to 5. Propriety and correctness of Exts.P6 and P7 orders are impeached by the decree holder invoking the supervisory jurisdiction vested with this court under Article 227 of the Constitution of India. 3. I heard the learned counsel on both sides. Having heard the counsel appearing for the respective parties at length and taking note of the facts and circumstances presented, I find that Exts.P6 and P7 orders passed by the court below staying the execution proceedings of the decree for recovery of money passed in favour of the petitioner in view of the admission of the insolvency petition against the judgment debtors/respondents 2 to 5 and appointing of a receiver to take over their properties, and continuance of such proceedings, cannot at all be assailed as not proper and correct. The grievance of the petitioner as espoused by the learned counsel is that he has not been made a party in the insolvency proceeding, and long before the admission of the insolvency petition steps had been taken for attachment of sale of the properties of the judgment debtors for realisation of the decree debt, cannot be given any unmerited consideration where the mandate under Section 30 of the Insolvency Act commands any court in which any suit or other proceeding is pending against the debtor to stay the suit or proceeding or allowed to continue on such terms as it may impose. No order of adjudication has been passed in the case, but only admission of the petition to declare the judgment debtors as insolvent at the instance of some creditors who, according to the learned counsel, are acting hand in glow with the judgment debtors to screen their properties from attachment and sale. The explanation under Section 7 of the Insolvency Act makes it abundantly clear that presentation of a petition shall itself be deemed as an act of insolvency and on such petition the court may make an order of adjudication. The explanation under Section 7 of the Insolvency Act makes it abundantly clear that presentation of a petition shall itself be deemed as an act of insolvency and on such petition the court may make an order of adjudication. Before adjudging as an insolvent where the court proceeds further with the petition it has to be construed as an order of an adjudication which in the given facts of the case has to be taken so in the light of the appointment of a receiver by the insolvency court to take over the assets of the judgment debtors. The non-impleadment of the decree holder as one among the respondents in the insolvency proceedings commenced against the judgment debtors has no significance as being a creditor he is entitled and expected to get himself impleaded as a correspondent in that proceeding and putforward whatever contentions available to resist a declaration under the proceeding that the judgment debtors are not insolvent, if he has any such case. 4. Admittedly, the petitioner is not a secured creditor whereas the additional 7th respondent-Bank having mortgage rights over the properties of respondents 2 to 5 is a secured creditor entitled to a preferential treatment irrespective of the insolvency proceedings for adjudging them as insolvents. Learned counsel for the petitioner taking note of the insurmountable legal hurdles in pursuing with the execution of the decree for realisation of decree debt from respondents 2 to 5 by bringing to sale their properties, which had already been attached by the executing court, contended that Exts.P6 and P7 orders to the extent that no reservation has been made in those orders in favour of the petitioner for realisation of the cost of the suit in which the decree was made and also execution expenses as a first charge on the properties, in view of the insolvency proceedings as contemplated under Section 53 of the Insolvency Act, is not correct and at least to that extent appropriate orders have to be passed by this court. A further grievance was also raised by the counsel that there is nothing on record to show the receiver appointed by the insolvency court has taken possession of the properties of the respondents 2 to 5 and as the petitioner has a case that the above proceedings is a collusive affair, an order or direction from this court to expedite the proceeding of the insolvency court is essential to advance the ends of justice. The additional 6th respondent is the receiver appointed by the insolvency court and the learned counsel for that respondent submitted that the properties of respondents 2 to 5 have already been taken possession by the receiver. Submission of the learned counsel as above is recorded. The grievance of the petitioner with respect to his plea of nontaking of possession by the receiver is thus redressed. Whether the petitioner is entitled to have a charge on the properties of the respondents 2 to 5 which are taken over by the receiver at least towards the cost of the suit and the expenses in execution of that decree depends upon satisfaction of various factors. Where an executing court proceeding against the property of a debtor against whom insolvency proceedings had been initiated is given notice of admission of such insolvency petition on application, presumably, by the receiver appointed by the insolvency court, it has to direct that the property of the debtor be delivered to the receiver provided it is in possession of that court, with further direction that the cost of the suit which is executed and also expenses of the execution thereof shall be a first charge on the property so delivered and the receiver may sell the property or portion thereof for the purpose of satisfying that charge, is the spirit and ambit of Section 53 of the Insolvency Act. So, first of all, the property of the debtor must be in possession of the executing court, and secondly, there should be an application by the receiver or any other person in the execution proceedings to deliver possession of that property to the receiver appointed by the insolvency court. So, first of all, the property of the debtor must be in possession of the executing court, and secondly, there should be an application by the receiver or any other person in the execution proceedings to deliver possession of that property to the receiver appointed by the insolvency court. When such an application is presented, any order of charge towards the cost of the suit or the execution expenses of the executing court, issuing direction to the receiver to sell the property or an adequate part thereof for the purpose of satisfying the charge cannot be made automatically, but, after an enquiry whether the decree which is sought to be executed has been passed before or after an order of adjudication has been made by the insolvency court on the petition filed to declare the debtor as an insolvent. Having regard to Section 27 of the Insolvency Act, it has to be noted that if the insolvency court does not dismiss the petition to declare the debtor as insolvent as under Section 25 of the Insolvency Act, but proceeds further it will constitute an order of adjudication and that being so, with reference to Section 30 of the Act which commands stay of the proceedings of any suit or proceeding pending against a debtor once an order of adjudication has been made against him, the date on which the decree was passed against the debtor may become crucial and relevant in considering whether the executing court can pass any order under Section 53 of the Insolvency Act as regards the charge on the property of the debtor delivered over to the receiver appointed under the insolvency proceedings so as to satisfy the cost of the suit and also the execution expenses by sale of that property of the debtor or an adequate portion thereof. So much so, without an enquiry on the question so involved, by the executing court, it may be inappropriate for this court to pass any order in favour of the petitioner decree holder to confer on him the benefits covered under Section 53 of the Insolvency Act as canvassed by his learned counsel. So much so, without an enquiry on the question so involved, by the executing court, it may be inappropriate for this court to pass any order in favour of the petitioner decree holder to confer on him the benefits covered under Section 53 of the Insolvency Act as canvassed by his learned counsel. However, I make it clear that Exts.P6 and P7 orders will not stand in the way of the executing court in considering the entitlement of the petitioner to have a charge on the property of the debtor, as covered by Section 53 of the Insolvency Act, subject to the satisfaction of the conditions as discussed above and in accordance with the provisions of the Insolvency Act. The challenge against Exts.P6 and P7 orders in all other respects by the petitioner must fail. Subject to the reservations made above, granting opportunity to the petitioner to apply for his entitlement under Section 53 of the Insolvency Act but without expressing any opinion on the merit of that claim, I leave it open to the execution court to consider that question, if so applied for. I also make it clear that Exts.P6 and P7 orders will not stand in passing appropriate orders, if any such application is moved. The Writ Petition is closed directing both sides to suffer their costs.