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2009 DIGILAW 93 (BOM)

Ramavatar Kunjilal Gupta v. SICOM Limited

2009-01-20

S.J.VAZIFDAR

body2009
Judgment : This Notice of Motion has been taken out by the insolvent for an order annulling and/or setting aside an order dated 21.6.2005 adjudicating them insolvents; for an order discharging the Official Assignee and for a declaration that there is no claim of whatsoever nature due on the basis of an ex-parte decree dated 30.6.1989 passed in Summary Suit No.3646 of 1989 against the insolvent. 2. It is not necessary to set out in detail the proceedings which led to the said order dated 21.6.2005 adjudicating the judgment debtors as insolvents. Suffice it to state that the insolvency notice was based on a decree obtained by the judgment creditor in the sum of Rs.38,04,080/- in the said Summary Suit. 3. Thereafter, the judgment debtors settled the Petitioning creditors claim. The petitioning creditor has confirmed that it now has no claim against the judgment debtors. The judgment debtors filed a schedule of assets and liabilities disclosing the Canara Bank and the IDBI Bank (Erstwhile United Western Bank Ltd.) as their creditors. It appears that the claim of IDBI Bank has also been settled. 4. Canara Bank filed O.A. No.256 of 2001 in the Debts Recovery Tribunal, Mumbai, against several parties, including the judgment debtors who were Respondent nos.2 and 3 therein. By a judgment dated 5.9.2005 the claim of Canara Bank was adjudicated for the sum of Rs.69,90,782.58 together with further interest thereon at 12% per annum from the date of the filing of the O.A. till realisation. The Debts Recovery Tribunal also recognised the charge on the properties in favour of Canara Bank. 5. The present Notice of Motion has been taken out under Section 21 of the Presidency Town Insolvency Act, 1909. I will for the purpose of this judgment, proceed on the basis that the Notice of Motion under Section 21 is maintainable at the instance of the judgment debtors. 6. Mr. 5. The present Notice of Motion has been taken out under Section 21 of the Presidency Town Insolvency Act, 1909. I will for the purpose of this judgment, proceed on the basis that the Notice of Motion under Section 21 is maintainable at the instance of the judgment debtors. 6. Mr. Bulchandani submitted that Canara Bank could not have taken out a notice under Section 9(2) of the said Act on the basis of the recovery certificate issued by the D.R.T. in view of the judgment of the Supreme Court in the case of Paramjeet Singh Patheja v. ICDS Ltd. JT 2006(10) SC 41 = (2006)13 SCC 322 and in view of an unreported judgment of a learned Single Judge of this Court in the case of Re: Kishore K. Mehta dated 4.9.2007 in a group of Notices of Motion, the first of which is Notice of Motion No.40 of 2007 in Notice No.N/224 of 2006. He submitted that Canara Bank therefore cannot intervene in the proceedings or oppose this Notice of Motion. It was thereafter contended that the judgment debtors are entitled to the reliefs claimed in the Notice of Motion despite the claim of Canara Bank not having been satisfied on the ground that Canara Bank is a secured creditor. It was also contended that in any event the value of securities held by the Canara Bank are more than adequate to meet the claim of the Canara Bank against the judgment debtors. 7. The Petitioning Creditor was indeed entitled to take out the insolvency notice under the provisions of Section 9(2) of the said Act, which reads as under: - “Section 9. Acts of insolvency.[(1)] .............. ......................................................................... 7. The Petitioning Creditor was indeed entitled to take out the insolvency notice under the provisions of Section 9(2) of the said Act, which reads as under: - “Section 9. Acts of insolvency.[(1)] .............. ......................................................................... [(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 not comply with that notice within the period specified therein: Provided that where a debtor makes an application under sub-section (5) for setting aside an insolvency notice— (a) in a case where such application is allowed by the Court, he shall not be deemed to have committed an act of insolvency under this sub-section; and (b) in a case where such application is rejected by the Court, he shall be deemed to have committed an act of insolvency under this sub-section on the date of rejection of the application or the expiry of the period specified in the insolvency notice for its compliance, whichever is later: Provided further that no insolvency notice shall be served on a debtor residing, whether permanently or temporarily, outside India, unless the creditor obtains the leave of the Court therefor.” 8. In view of the judgment of the Supreme Court and the judgment of this Court the recovery certificate issued by the D.R.T. is neither an order nor a decree within the meaning of Section 9(2) of the said Act. Canara Bank therefore could not have issued an insolvency notice on the basis of the recovery certificate issued by the DRT on the judgment debtors. That however is not decisive of the present case. 9. The petitioning creditor had admittedly validly adopted the above proceedings. The present Notice of Motion has been taken out under Section 21 of the said Act. The question before me is not whether Canara Bank or any other creditor was or is entitled to avail of the provisions under Section 9(2) but whether they are entitled to oppose the judgment debtors application under Section 21 thereof. 10. The question must be answered in the affirmative. The question before me is not whether Canara Bank or any other creditor was or is entitled to avail of the provisions under Section 9(2) but whether they are entitled to oppose the judgment debtors application under Section 21 thereof. 10. The question must be answered in the affirmative. The fact that a creditor may not be entitled to avail of the provisions of Section 9(2) does not lead to the conclusion that such a creditor cannot oppose an application made by the judgment debtor under Section 21. Section 21 reads as under :- “21. Power for Court to annul adjudication in certain cases.— (1) Where, in the opinion of the Court, a debtor ought not to have been adjudged insolvent, or where it is proved to the satisfaction of the Court that the debts of the insolvent are paid in full, [the Court shall, on the application of any person interested,] by order annul the adjudication [and the Court may, of its own motion or on application made by the official assignee or any creditor, annul any adjudication made on the petition of a debtor who was, by reason of the provisions of sub-section (2) of section 14, not entitled to present such petition]. (2) For the purposes of this section, any debt disputed by a debtor shall be considered as paid in full, if the debtor enters into a bond, in such sum and with such sureties as the Court approves, to pay the amount to be recovered in any proceeding for the recovery of or concerning the debt, with costs, and any debt due to a creditor who cannot be found or cannot be identified shall be considered as paid in full if paid into Court.” 11. The present Notice of Motion has been taken out on the basis that the debts of the insolvent are paid in full. If, the debts of the insolvents are in fact not paid in full, they would not be entitled to an order annulling the adjudication. If the debts due by the insolvent are not paid any creditor entitled to prove the debt in insolvency would be entitled to oppose such an application. Mr.Bulchandani's submission is based on the erroneous premise that even after an order of adjudication only creditors entitled to avail of the provisions of Section 9(2) may prove their debt in insolvency. If the debts due by the insolvent are not paid any creditor entitled to prove the debt in insolvency would be entitled to oppose such an application. Mr.Bulchandani's submission is based on the erroneous premise that even after an order of adjudication only creditors entitled to avail of the provisions of Section 9(2) may prove their debt in insolvency. The answer to Mr.Bulchandani's submission lies in the fact that debts provable in insolvency are not restricted to the dues only of creditors who are entitled to avail of the provisions of Section 9(2). Section 46 reads thus :- “46. Debts provable in insolvency.— (1) Demands in the nature of unliquidated damages arising otherwise than by reason of a contract or breach of trust shall not be provable in insolvency. (2) A person having notice of the presentation of any insolvency petition by or against the debtor shall not prove for any debt or liability contracted by the debtor subsequently to the date of his so having notice. (3) Save as provided by sub-sections (1) and (2), all debts and liabilities, present or future, certain or contingent, to which the debtor is subject when he is adjudged an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, shall be deemed to be debts provable in insolvency. (4) An estimate shall be made by the official assignee of the value of any debt or liability provable as aforesaid which by reason of its being subject to any contingency or contingencies, or for any other reason, does not bear a certain value : Provided that if in his opinion the value of the debt or liability is incapable of being fairly estimated, he shall issue a certificate to that effect, and thereupon the debt or liability shall be deemed to be debt not provable in insolvency. Explanation.— For the purposes of this section “liability” includes any compensation for work or labour done, any obligation or possibility of an obligation to pay money or money’s worth on the breach of any express or implied covenant, contract, agreement or undertaking, whether the breach does or does not occur, or is or is not likely to occur or capable of occurring, before the discharge of the debtor, and generally it includes any express or implied engagement, agreement or undertaking to pay, or capable of resulting in the payment of, money or money’s worth, whether the payment is, as respects amount, fixed or unliquidated; as respects time, present or future, certain or dependent on any contingency or contingencies ; as to mode of valuation, capable of being ascertained by fixed rules, or as matter of opinion.” 12. There is nothing in Section 46 which provides that the debts provable in insolvency are only those where the creditor is entitled to avail of Section 9(2). Once an order of adjudication is validly passed, all debts and liabilities falling within the ambit of Section 46, to which the debtor is subject when he is adjudicated an insolvent or to which he may become subject before his discharge by reason of any obligation incurred before the date of such adjudication, are provable in insolvency. Section 2(b) defines a "debt" to include a "judgment debt" and a "debtor" to include a "judgment debtor". The definition is inclusive. Moreover, Section 46(3) permits not only all debts but even all liabilities to be provable in insolvency. Indeed, to be provable in insolvency, it is not even necessary for a debt or liability to be adjudicated. Thus, keeping aside the aspect as to whether a secured creditor can prove its debts in insolvency, it must be held that the debts due to Canara Bank are provable in insolvency in view of the admitted position that the same have to date, not been paid. 13. Mr. Bulchandani also submitted that Canara Bank being a secured creditor cannot avail of the provisions of Section 46. He submitted further that the value of the security is greater than the amounts due to the Canara Bank. In the circumstances, he submitted that even in this view of the matter the insolvents are entitled to an order under Section 21 annulling the adjudication. 14. He submitted further that the value of the security is greater than the amounts due to the Canara Bank. In the circumstances, he submitted that even in this view of the matter the insolvents are entitled to an order under Section 21 annulling the adjudication. 14. The proceedings between the Canara Bank and the insolvents have not been finalised. There is still a serious dispute as to whether the securities are available only towards the discharge of the dues of the first judgment debtor. It is admitted that the said properties constituted security for the dues of three entities viz. i) Trimbale Ispat Pvt. Ltd. ii) Trigrania Metal and Steel Industries and iii) Trigrania Ispat Pvt. Ltd. It appears that the dues of Trigrania Ispat Pvt. Ltd. have been settled. There are however recovery certificates in respect of the other two entities. Mr. Bulchandani admitted that there is a dispute between the co-owners/members of the family as to whether the properties belong solely to debtor no.1 or not. 15. Mr. Bulchandani invited me to consider and adjudicate upon the title of debtor no.1 in respect of this property. It is not possible to do so in these proceedings. Apart from anything else, the concerned parties are not even before me. 16. Canara Bank would in any event be entitled to prove and claim in insolvency for the balance, if any, after realisation of its securities. There is no dispute that a secured creditor is entitled to prove its dues for the balance in insolvency. 17. In the circumstances, I do not find it appropriate at this stage to grant an order annuling the adjudication in view of the fact that the dues of Canara Bank, provable in insolvency have not been adjudicated. In view thereof, it must be held at least at this stage that it cannot be said that the debts of the insolvents are paid in full. The insolvents are always at liberty to file a fresh Notice of Motion if there is any change in the circumstances regarding the dues of Canara Bank. 18. In view thereof, it must be held at least at this stage that it cannot be said that the debts of the insolvents are paid in full. The insolvents are always at liberty to file a fresh Notice of Motion if there is any change in the circumstances regarding the dues of Canara Bank. 18. It is pertinent to note in this regard that the official assignee has also filed an affidavit for a direction that the insolvents lodge a letter from the Canara Bank stating that they are satisfied with the securities held by them and that they will not look to the O.A. for the payment of their dues. Canara Bank admittedly has not furnished the said letter and has justifiably no intention of doing so at present. 19. The judgment in the case of Niaz Ahmed v. Phul Kunar, AIR 1932 Allahabad, 336 is of no assistance. The judgment does not hold that a secured creditor cannot prove for the balance in insolvency and that such a secured creditor cannot oppose the insolvent's application under Section 21 for annulment. 20. The judgment of the Madras High Court in S. Neela Kanta Sarma v. K. Govindarajulu & Anr., AIR 1982 Madras, page 18 is of no assistance to the Petitioner's case. In this case, the application under Section 21 was allowed as the judgment creditor had not followed the procedure under Section 12(2) which reads as under: - “12. Conditions on which creditor may petition. (1) ................................................................... (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 latter 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.” It was therefore held that the order of adjudication ought not to have been made. In the latter 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.” It was therefore held that the order of adjudication ought not to have been made. It was held that the Respondent, who was admittedly the judgment creditor, had filed the petition without fulfilling the condition under Section 12(2) and the petition was therefore filed without jurisdiction and that therefore the insolvent had established that an order of adjudication ought not to have been passed. It is for this reason that an order of annulment under Section 21 was made. In the case before me there is no question of the order of adjudication having been passed without jurisdiction. In other words, the present Notice of Motion is not filed on the basis that the order of adjudication ought not to have been made, which is one of the grounds under Section 21 for passing an order of annulment of the adjudication. In the present Notice of Motion the ground on which the order annulling the adjudication is sought is that the debts of the insolvents are paid in full. Canara Bank admittedly was not the Petitioning Creditor in the present case. The judgment therefore is of no relevance in the present Notice of Motion. 21. In the circumstances, the Notice of Motion is dismissed. There shall however be no order as to costs.