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2012 DIGILAW 214 (KAR)

K. Madan Kumar v. Rajasekhara Gouda

2012-03-08

B.V.PINTO, D.V.SHYLENDRA KUMAR

body2012
Judgment 1. The petitioners in I.C.No.21/2011 on the file of the II Addl. District Judge, Bellary, which came to be dismissed in limine as per its order dated 14.10.2011 have presented this appeal u/s 75 (2) of the Provincial Insolvency Act, 1920, (for short ‘the Act’) interalia urging that their petition filed u/ss.10, 11 and 13 of the Act could not have been dismissed at the threshold without adjudging petitioners as insolvent or without going into the further merits of the petition when the petition was a debtor’s petition presented u/s 10 of the Act and therefore required adjudication after issue of notice to the respondent-creditors. 2. The learned Judge of the Insolvency Court not only dismissed the main petition of the two debtors, but also dismissed IA-II filed u/s 74 (1) of the Act so also IA-III filed u/s 151 of the Code of Civil Procedure seeking for protection to the petitioners/appellants from the onslaughts and harassment by the respondents/creditors in view of their coercive proceedings and pressurizing tactics on the appellants to pay off the amounts the appellants owe to them though the appellants were bankrupt and were unable to pay the debts. 3. The petition presented before the Insolvency Court indicated not less than 72 persons as respondents and except for four respondents namely respondent Nos.53, 58 and 60 who were private organizations and not individuals and respondent Nos.68, the Bharath Sanchar Nigam Limited represented by its General Manager, the rest of the respondents to the petition are all individuals but the petitioners had not indicated the names of their father even in case of a single individual arrayed as respondent/creditors to the petitions. 4. 4. This defect and the casual and careless manner of presentation of the insolvency petition coupled with the fact that many of the respondent/creditors were from outside the State of Karnataka whose addresses and whereabouts and identification had not even been properly furnished except for describing that the father’s name of such respondents were not knows to the petitioners, compelled the learned Judge of the Insolvency Court to frame a point as to the maintainability of the insolvency petition presented u/ss.10, 11 and 13 of the Act along with the applications as already noticed and having examined this question in detail and having answered this point in the negative and against the petitioners, the Insolvency Petition having been dismissed by the learned Judge of the trial Court, the present appeal by the very petitioners u/s 75 (2) of the Act. 5. The appeal in listed for admission. Though appellants are represented by counsel M/s. M.M. Swamy and V.Shivaraj Associates, none appears on behalf of the appellants. 6. The question is whether the appeal merits admission. 7. In the absence of any assistance from counsel, we have perused the memorandum of appeal and the order impugned in this appeal and also the contents on IA-I/2012 filed in this appeal under Section 151 of the Code of Civil Procedure seeking for interim protection as had been sought for before the Court below and also the affidavit of the 2nd appellant accompanying this application. We have looked into the provisions of the Act and examined the Scheme of the Provincial Insolvency Act and after an elaborate examination, we are of the definite view this appeal only deserves to be dismissed at the threshold without being admitted. The appeal is dismissed for the reasons as under: 8. Application in IA-I/2012 filed u/s 151 of the CPC was examined by us yesterday and the following order came to be passed: “The application is filed u/s 151 of the Code of Civil Procedure for the following relief: “To direct the Superintendent of Police, Bellary to give interim protection to the Appellants/Applicants against the unwarranted onslaughts by the respondents pending disposal of the main appeal, which would meet the ends of justice and equity.” 2. The application is accompanied by the affidavit of the 1st appellant. The application is accompanied by the affidavit of the 1st appellant. The affidavit interalia narrates that the respondents numbering as many as 72 persons amongst whom figure many firms such as M/s. Premier Engineering Corporation; that they are trying to harass and pressurize the appellants for immediate repayment of the debts they owe to the respondents; that the respondents are their creditors; that the appellants who were doing mining business and were financially doing very well earlier are facing difficulties in recent times due to the stoppage of mining activities and imposition of restrictions on movement of ore and export of ore; that some of the respondents have forcibly taken blank cheques from the appellants on which the appellants have signed and have filed criminal cases on after the other; that the appellants are unable to fact the onslaughts of such continuous pressure and criminal proceedings against them and therefore a direction may be given to the Superintendent of Police, Bellary District, to protect their interest from such unwarranted onslaughts by way of interim protection, given to them from such harassment during the pendency of the main appeal etc. 3. The main appeal itself is one purporting to be u/s 75 (2) of the Provincial Insolvency Act, 1920 (for short ‘the Act’) and is directed against the order dated 14.10.2011 passed in I.C.21/2011 by the learned Presiding Officer of the Court of II Additional District Judge, at Bellary, dismissing the main petition presented under Sections 10,11 and 13 of the Act and so also rejecting the interim application filed u/s 74 (1) of the Act and also an application of similar nature as of now filed u/s 151 of the Code of Civil Procedure. The learned Judge of the District Court did not admit the main petition itself and therefore applications also came to be dismissed even at the threshold. 4. The learned Judge of the District Court did not admit the main petition itself and therefore applications also came to be dismissed even at the threshold. 4. The petition was dismissed mainly for the reason that the petition is not a bonafide utilization of statutory provision; that the present appellants have not been truthful nor have come up with a bonafide reasons to present the petition before the Court; that they have not exercised any care or diligence even to furnish the requisite particulars of a petition of that nature, that the manner in which they have described the names of not less than 65 respondents without their proper identity and pleading that they do not know even the names of the father of so many respondents, was nothing short of misuse or abuse of the Court process and therefore the petition was dismissed as not tenable. 5. We find the appeal itself is not yet listed for admission before the Court, but nevertheless application has become active for orders. 6. None appears for the appellants/applicants. In the absence of any assistance from counsel, we have ourselves perused the appeal papers as well as the application and the affidavit accompanying it. 7. We find the application is nothing short of a gross abuse and misuse of the Court process. Even the appeal itself is yet to be admitted but we have found the order passed by the learned Judge of the District Court not far off the mark and there is neither merit in the application nor supported by statutory provision or material on record. This application is dismissed. List the appeal for admission on 08.03.2012.” 9. It is in the wake of this order, this matter has come up for admission today. The main contentions urged in support of the appeal are that the trial Court has committed a grave error in dismissing an insolvency petition presented u/ss. This application is dismissed. List the appeal for admission on 08.03.2012.” 9. It is in the wake of this order, this matter has come up for admission today. The main contentions urged in support of the appeal are that the trial Court has committed a grave error in dismissing an insolvency petition presented u/ss. 10,11 and 13 of the Act at the threshold even without going through the procedure contemplated in terms of Section 24 of the Act; that what was required on the part of the petitioners was only to satisfy the court of the requirement u/s 10 of the Act; that even as per the petition averment, the outstanding debts were to the tune of Rs.20 crores and more and therefore the condition was fully and squarely met and therefore there was no occasion for dismissal of the petition without further examination. It is also urged that even when the petitioners had disclosed full particulars of not only the pecuniary claims against them with names and residences of the creditors as far as was known to them and also indicating few criminal complaints lodges by them against the petitioners which constituted sufficient and necessary compliance for the purpose of Section 13 of the Act, nevertheless dismissing the petition on the ground that full and proper particulars are not provided for, is a clear error in law. It is also urged that the inability on the part of the petitioners to satisfy or discharge their debts was entirely due to the order passed by the Supreme Court stopping all mining activities in the district of Bellary which had a great negative impact on the business that was being carried on by the petitioners, resulting in huge losses and that was the reason as to why the petitioners were unable to pay the debts and had sought for adjudication as insolvents and dismissing the petition of this nature in limine was uncalled for. It is urged that the decision was contrary to the settled legal principles as enunciated both by this Court as well as by the Supreme Court. 10. The petition averments was that the 1st petitioner was doing sponge iron business and iron ore trading under the name and style of Renuka Enterprises at T.B. Sanitarium Road, Bellary. It is urged that the decision was contrary to the settled legal principles as enunciated both by this Court as well as by the Supreme Court. 10. The petition averments was that the 1st petitioner was doing sponge iron business and iron ore trading under the name and style of Renuka Enterprises at T.B. Sanitarium Road, Bellary. It had a factory in the premises known as Prabhu Minerals located at Nemakal plot, Nemakal; that the petitioners had commissioned another plot called B.M.S. Mines and Metals Private Limited at Obalapuram; that for their business convenience, petitioners had hired one more factory at Halakundi Known as Banashankari Steel and Alloys Private Limited. The 2nd petitioner is a dormant partner in the said Renuka Enterprises and the 1st petitioner had commissioned the said concern during July 2008 during the mining boom in Bellary district and on and after July 2008 to middle of 2010 had very active trading and business had enlarged their mining activities; that the 2nd petitioner to some extent was positively assisting the 1st petitioner in transportation of money and material. It is in this background that respondents had offered to invest huge amounts of money with the petitioners business activities; that the expectation of good and fair returns though petitioners were not inclined to such persuasion with great pressure and persuasion, respondents have managed to permit the petitioners to invest their monies in their concerns; that many of the respondents had also business relationship with the petitioners; that the petitioners had paid good returns to the investments made by the respondents in the concerns from 2008 to October 2010, but on and after the middle half of the year 2010, in view of the stringent regulations imposed by the Government of respect of excavation, marketing and transportation of minerals and later there being full fledged ban on the movement of the minerals, the business of the petitioners was brought to a stand still and mining operations were crippled, their stockyards were filled up with dumped mine ores and the situation coupled with the global economic melt down bringing along with recessary trends have all contributed to the down fall of the petitioners ventures; that they suffered huge losses but the respondents without appreciating the precarious position of the petitioners had been mounting great pressure on the petitioners to return their investments and the petitioners unable to withstand the pressure due to collapse of business, were compelled to present the petition contending that unless the Court protected them with orders on the application filed u/s 151 of the CPC, they will be left helpless and suffer great harassment and humiliation and that the petitioners were subjected to physical violence by some of the creditors by gate crashing into their business premises and the petitioners have got registered Crime Case No.188/2001 u/s 143, 147, 323, 342, 504, 506 r/w 149 IPC at the Cowl Bazar police station, Bellary; that under such circumstances, petition was required to be adjudicated by issue of notice to the respondents; that the petitioners have not made any attempts to avoid or defraud the creditors; that they have not transferred any of the properties to anybody with such intention during the last two years immediately preceding the presentation of the present petition; that their inability to pay the debts to the respondents was due to their business losses beyond their control and such being the cause of action, sought for adjudicating them as insolvents and to discharge them from the debts that they owe to the respondents. 11. The learned Judge of the Insolvency Court examined this petition pleadings, noticed that in terms of the details given in Schedule-A to the petition, the debts owned by the petitioners in favour of the respondents was to the tune of Rs.20,74,13,388/-inclusive of payments by them to the 68th respondent M/s. Bharath Sanchar Nigam Limited. The details of the assets inclusive of amounts to the creditors of the petitioners owed to them are all indicated in Schedule-C; that some of the amounts due to them had been forcibly taken over by some of the respondents; that even their crusher was forcibly taken over by the 25th respondent and therefore indicated that the petitioners were left with no tangible or intangible properties except for view transactions mentioned in the Schedule. Learned Judge of the trial Court noticed that petitioners had not cared to furnish the proper particulars of as many as 68 respondents amongst 72 figuring as respondents; that though majority of the residents are from Bellary town and have business contact and had interaction with the petitioners, it had been stated that the petitioners do not know the names of father’s of such creditors; that it is a clear indication of lack of diligence and seriousness on the part of the petitioners in presenting the petition; that the petitioners have not exercised even reasonable care and due diligence before presenting the petitioner; that the petitioners had business transaction with such respondents over a period of years and not as though it was momentary or instantaneous and that such manner of presentation did not conform to the requirement of Section 13 of the Act; that amongst respondents figured many Corporations and Public Sector Organisations also which was in contravention of Section 8 of the Act; that the petitioners have presented the petition on behalf of other organizations claiming that they have interest in such organizations such as Renuka Enterprises, B.M.S. Mines and Metals Private Limited at Obalapuram, location of which is not necessarily within the State of Karnataka and also on behalf of a private limited company known as Banashankari Steel and Alloys Private Limited; that not disclosing the legal status of such other organizations and merely claiming that the 2nd petitioners is a dormant partner in such ventures is virtually not pleading the cause of petitioner themselves but espousing the cause of someone else; that no particulars of other organizations was forthcoming; that even the petition averments indicated that several transactions were between the companies and enterprises and Corporations in which petitioners claim to have interest but the transactions were directly with many respondents; that all necessary particulars as required u/s 13 of the Act was not forthcoming in the petition presented by the petitioners; that petitioners are also not forthright in giving facts and figures and also in coming up with vague averments such as making huge profits and incurring mammoth losses etc.,; that Court can take judicial notice of the fact that many of the organizations with which the petitioners claimed to have interest was under scrutiny by investigating agency such as CBI and other investigating agencies and under the direct supervision of the Supreme Court of India, they were also being scrutinized by various other investigating agencies like Lokayuktha and others; that petitioners have not even indicated the extent of profits that they made during the boom period; that the manner in which the petitioners had filed the application u/s 74 (1) of the Act praying for dispensation of notice in the official gazette and the supporting reasons were not convincing the conscience of the Court; that the petition did not meet the requirements of Section 18 of the Act for admitting the petition and in the overall view of these glaring defects, deficiencies and shortcomings, the learned Judge answered point No.1 against the petitioners and passed the order as under: “The petition filed by the petitioners 1 and 2 U/Ss. 10, 11 and 13 of the Provincial Insolvency Act, 1920 along with IA No. II U/s. 74[1] of the said Act and IA No. III U/Ss. 151 of CPC are hereby not admitted by the Insolvency Court as per Sec.18 of the Provincial Insolvency Act, 1920 r/w. Order 7 Rule 11[a] of Civil Procedure Code, are hereby rejected/not admitted or dismissed with costs of Rs.5,000/-payable to District Legal Service Authority, Bellary. It is hereby directed the office to notify copy of this order to the Official Receiver, Bellary and the learned Secretary, District Legal Service Authority, Bellary, for information and needful action in the matter.” 12. A perusal of the order passed by the learned Judge of the Insolvency Court clearly and cogently indicates that the petitioners had come up with a petition without giving either proper, true or accurate particulars of their liabilities; that they had not even disclosed their precise interest in many organizations many of which were limited companies and enterprises whose legal status was not disclosed and particularly companies and organizations which were facing enquiry before law on many other fronts and in such circumstances if the learned Judge of the trial Court felt that the petitioners were not really seeking the relief for themselves but were using the provisions of Sections 10, 11 and 13 to present a petition of this nature and to seek for protection from the so-called onslaughts of the creditors and as noticed above to indirectly protect organizations which had business interactions directly with the respondents whose names the petitioners had disclosed in the petition and in which they had interest and therefore the petition was virtually a front for seeking protection to such other companies and not necessarily to the petitioners themselves. 13. The basic requirement for an insolvency petition particularly by a debtor seeking for being adjudicated as an insolvent and also to seek for discharge from his debts is to come up with a proper pleading to indicate that the petitioner is unable to pay his debts. 14. 13. The basic requirement for an insolvency petition particularly by a debtor seeking for being adjudicated as an insolvent and also to seek for discharge from his debts is to come up with a proper pleading to indicate that the petitioner is unable to pay his debts. 14. While it is no doubt true that the requirement of the debts as pleaded in the petition is much more than Rs.500/-stipulated in the Act i.e., in Section 10(1) (a) of the Act (the figure Rs.500 had been found in the parent Act when it was legislated in the year 1920 being retained till date is not only a mockery but is only reflective of the kind of total negligence shown by our legislators to enact laws which cater to the needs of the Society in the present days and in the system!), but that in itself is not the end as any person coming before the Court who seeks for relief can get relief only when there is a proper cause of action which is indicated in the pleading; that the presentation of a petition of that nature is justified and the petition should also contain true facts leading to the arisal of the cause of action. 15. In our considered opinion, the petition as presented by the petitioners before the Insolvency Court and in the appeal before us did not contain the minimum requirements of a petition to pass the test of Section 10 r/w Section 13 of the Act for eliciting admission in terms of Section 18 of the Act.16. Section 18 specifically indicates that procedure laid down in the Code of Civil Procedure, 1908 (5 of 1908), with respect of the admission of plaints, shall so far as it is applicable, be followed in the case of insolvency petitions. 17. A petition of the present nature in our considered opinion does not pass the test of the provisions of Order VII Rule 11 and was a fit case for rejection in terms of Order VII Rule 11 (a) of the CPC. 18. We are of the view that the petition was rightly dismissed by the learned Judge of the Insolvency Court at the stage of admission itself i.e., without being admitted and without issue of notice to the respondents. 19. We find no merit in this appeal either for admission. 18. We are of the view that the petition was rightly dismissed by the learned Judge of the Insolvency Court at the stage of admission itself i.e., without being admitted and without issue of notice to the respondents. 19. We find no merit in this appeal either for admission. No merits in the grounds urged in respect of the petition and therefore the appeal is only to be dismissed. 20. Before parting with this appeal, we cannot help put to observe that a relic laws enacted in a bygone era when our country was under colonial rule and the approach and attitude of the law makers was totally different which was to keep a colony and its people under subjugation have continued to rule the roost even though we are now governed by a written Constitution which proclaims our country is an independent Socialistic Democratic Republic. Added to this, the Constitution proclaims India is a welfare State. 21. In such a scenario, it is the duty of our legislators to take stock of the pre-constitution laws which though are saved and continued by the adaptation laws, orders and ordinances and the Constitution itself about the need to continue them, the need to weed off unnecessary and useless outdated laws and it is high time legislature bestows its though and attention in this direction. 22. In our considered opinion, the preset Act is one such law. 23. This is a law to protect bonafide creditors and debtors from being taken for a ride by persons who indulge in deceit, fraud and trickery while creditors can move the Court for arresting the trend of fraudulent transfers and payments in favour of preferred creditors, debtors are also enabled under the Act to seek for being adjudicated as insolvent, whereupon they can be discharged from their past liabilities so that they can turn a new leaf and start a new chapter. 24. The law perhaps had some significance when business transactions were carried on ethical lines, people valued their status and commitment more than materials and finances and when deceit and misrepresentation was not as rampant as in the present days. 25. 24. The law perhaps had some significance when business transactions were carried on ethical lines, people valued their status and commitment more than materials and finances and when deceit and misrepresentation was not as rampant as in the present days. 25. This Court can take judicial notice of the rampant corruption prevailing in our public offices, businessmen and traders indulged in unethical practices, even individuals trying to avoid and evade their liabilities which is the trend and the order in the Society as of now. In such a scenario, an enactment of this nature may perhaps only be used rather misused by those who want to get a certificate from the Court to absolve them from discharging their debts.26. While the facts in the preset appeal may not necessarily be a full scaled representation or manifestation of the trends in the Society, the fact that it deserves to be dismissed by the trial Court at the admission stage and also this appeal by this Court at the admission stage only speaks volumes of the manner in which the facility of law is used rather misused. We therefore strongly urge that it is for the Law Commission of India to examine the need and necessity for retaining such Laws particularly the present legislation namely the Provincial Insolvency Act, 1920 and its sister enactment the Presidency Towns Insolvency Act, 1909, for their retention on the statute book any further and to make suitable recommendations to the Union Parliament in this regard. 27. We direct the Additional Registrar General of the Circuit Bench, Dharwad, to forward a copy of this order to the Union Law Commission and Secretary, Government of India, Ministry of Law Parliamentary Affairs, New Delhi for necessary follow up action at their end. This appeal is dismissed.