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2010 DIGILAW 530 (BOM)

K. Devidas Pai v. P. Y. Maiankar

2010-04-06

U.D.SALVI

body2010
Judgment : This is an appeal against the order dated 15/11/1996 rejecting the insolvency petition No.1/1996 moved by the appellant for adjudging the respondent No.1 as an insolvent under Section 7 of the Provincial Insolvency Act, 1920 before the Court of Additional District Judge at Panaji. 2. The appellant contended that the respondent No.1 with intent to defeat or delay his creditors including himself and others (i) made a transfer of his property by fabricating false documents in the names of fictitious persons (ii) tried to stall the recovery proceedings by setting up third parties to object to the auction sale of the properties attached in the execution proceedings (iii) departed from his dwelling house or usual place of business or otherwise absented himself in order to frustrate the execution of the arrest warrant issued by the Court on 31.1.1995 and refused to disclose his whereabouts (iv) willfully avoided to satisfy the decree obtained by the appellant in Special Civil Suit no.15/1988/A against the respondent / the defendant therein in the Court of CJSD at Panaji for recovery of Rs. 2 Lacs with interest @ Rs.6 % p.a. and the costs of the suit though he is capable of doing so. According to the appellant, the cause of action for the said application arose on 20.12.1995 when the appellant was convinced that the respondent had left his permanent place of business at Panaji, Goa without leaving any clue about his whereabouts with an intention to avoid his creditors and defeat or delay the recovery of their debts. 3. The respondent no.1 took exception to the petition on the ground of want of notice envisaged under Section 6(2) of the Provincial Insolvency Act, 1920 (hereinafter referred to as 'the Act'). Hinting at the crux of the matter, the then ld. District Judge, Panaji overruled the said exception with the observation that prima facie the insolvency complained was found to be covered by Section 6(1)d of the Act and, therefore, the question of giving prior notice to the respondent No.1 under Section 6(2) of the Act did not arise. 4. Learned Advocate Lawande for the appellant submitted that all throughout, the Trial Court failed to appreciate a fact that the proceedings under the said Act are the proceedings in public interest and the decision rendered by the Court in such proceedings is a judgment in rem. 4. Learned Advocate Lawande for the appellant submitted that all throughout, the Trial Court failed to appreciate a fact that the proceedings under the said Act are the proceedings in public interest and the decision rendered by the Court in such proceedings is a judgment in rem. All throughout, he submitted, the Trial Court failed to observe the mandatory procedure for trying and deciding the issue of insolvency under the said Act and proceeded as if it was a dispute between the appellant and the first respondent, and yet ventured to reject the petition without formulating any points for determination. To highlight his submissions, learned Advocate Lawande for the appellant took this Court through the various provisions of the said Act, particularly Sections, 6, 19, 20, 21, 22, 23, 24, 25 and 27 of the Act. 5. Despite service of notice of this appeal on the respondents including the respondent no.1 whose status as a insolvent was to be adjudged, none appeared to counter the submissions made on behalf of the appellant. 6. Undoubtedly, on general principles, it can be seen that a decision in insolvency matter is a decision in rem, affecting not only the parties before the Court, but all those who are creditors of the insolvent and who meddle with his property. It is for this reason, Section 19 of the said Act prescribed procedure on admission of the petition for insolvency. Section 19(1) of the Act requires the Court to make the order fixing a date for hearing a petition upon admission of the insolvency petition. Subsection 2 of Section 19 speaks of giving of notice of the order passed under subsection 1 to creditors in such a manner as may be prescribed. 7. A look at Section 79 of the Act provides the view of what is prescribed for carrying into effect the provisions of the said Act. This section hands over to the High Court an authority to make rules with the previous sanction of the State Government for effectively administering the provisions of the said Act. Clause (e) of the sub-clause 2 of Section 79 makes a room for the rule making in respect of any matter which is to be or may be prescribed. These rules are better known as the Bombay Provincial Insolvency Rules, 1924. Clause (e) of the sub-clause 2 of Section 79 makes a room for the rule making in respect of any matter which is to be or may be prescribed. These rules are better known as the Bombay Provincial Insolvency Rules, 1924. These rules specifically deal with insolvency notice, petitions, proof of debts, schedule of creditors, schemes, receivers, dividends, discharge, summary administration, costs and such other topics which cover virtually every aspect governing effective administration of the said Act. Incidentally, a reference to the rule XXV would show the manner in which notices under Sections 19(2), 30, 37(2), 38(1), 41(1), 64, 33 (3) are to be served/ published. Clause 2 of rule XXV mandates that various notices to be given under Sections 19(2), 38(1) and 41(1) of the Act shall be published in any suitable newspaper in English or regional language, and if the Court so directs, in the State Government gazette, and copies of the notices in English and in the language of the Court shall be affixed to the notice board of the Court. Reverting back to the record of the case, one is at a loss to find answer to the question as to whether such procedure as prescribed under the rules was adhered to by the Trial Court. Adherence to this procedure is essential for the reason that the outcome of this insolvency petition i.e. the judgment in the said proceedings is in rem. 8. The Ld. Trial Court not only neglected to frame the material points for determination but also took entirely wrong approach to the proceedings, particularly in view of the provisions of the said Act. Having come to the conclusion that it was not necessary for the creditor to have served insolvency notice under Section 6(2) on the debtor i.e. the respondent No.1, it was incumbent on the trial Court to have given a categorical finding/s on (i) right of creditors i.e. appellant to present the petition (ii) service on the debtor of notice of the order admitting the petition (iii)act or acts of insolvency as envisaged under Section 6(1) of the Act (iv) ability of debtor that he is able to pay his debts, before dismissing or disposing of the petition with the order that on payment of Rs.16,230/- by the respondent No.1 within a period of 10 days the petition would be disposed of. 9. 9. If one looks at Section 25 and 27 of the Act, it is not difficult to make out that there are only two courses open to the Court deciding the insolvency petition under the said Act – one of dismissal under Section 25 of the Act for reasons enumerated therein or the other of passing of an order of adjudication. The course adopted by the Trial Court of the conditional disposal of the petition as aforesaid is not known to the law. 10. The record reveals that the appellant had moved applications under Sections 21 and 22 of the Act in order to ensure the appearance of the respondent No.1 debtor before the Trial Court for discharging his duties as a debtor and for enabling the Court to examine the debtor as to his conduct, dealings of property in the presence of creditors as appear at the hearing and further to enable the creditors to exercise their right to question the debtor thereon in terms of sub section 2 of Section 24 of the Act. The record reveals, the procedure relating to the hearing as envisaged under Section 24 of the said Act was not followed and the opportunity to the Court as well as to the creditors under the said Act to examine the debtor at the time of hearing was not exhausted. 11. In view of the aforesaid discussion, the entire proceedings before the learned Trial Court are found to be vitiated and the appellant is justified in asking for the remand of the said case. Hence the order. (i) The impugned order dated 15.11.1999 is set aside. (ii) The case is remanded back to the insolvency Court and for that matter to the District Judge, Panaji for disposal of the said case de novo in accordance with the provisions of the Provincial Insolvency Act and the Rules thereunder. (iii) The appellant shall appear before the District Judge, Panaji at 11.00 a.m. on 20/04/2010. (iv) The appeal shall stand disposed of accordingly with no order as to costs.