Hemant M. Nabar And Ors. vs Farohar And Co. And Ors.
2005 Latest Caselaw 463 Bom

JUDGMENT

1. This is a reference to the larger Bench made by D.K. Deshmukh, J., in a Notice of Motion taken out for setting aside the insolvency notice. The question is whether an insolvency notice under Section 9 of the Presidency Towns Insolvency Act, 1909, hereinafter called as the 'Act' can be set aside on the ground that the decree was not enforceable for want of leave of the Court under Order 21, Rule 22 of the Code of Civil Procedure (C.P.C.). The learned Single Judge has referred this question in view of the conflicting judgments by the Single Benches of this Court.

2. In Bhurmal Kapurchand and Co. v. Premium Machine Tools and Co., A.I.R. 1977 Bom. 305, Mridul, J., held that the issuance of insolvency notice is equitable mode of execution of a decree or order. In the absence of leave under Order 21, Rule 22 of the C.P.C., it is not open to the judgment creditor to execute the decree which is more than 2 years old. If the execution of the said decree is not permissible under the provisions of the C.P.C. then it must also be held that the judgment creditor is not entitled to resort to any equitable mode of execution thereof.

3. As against this in Sharad R. Khanna and Ors. v. Industrial Credit and Investment Corporation of India Ltd. and Ors., , Dhanuka, J., held that the insolvency notice now as a result of 1978 Amendment, can be set aside only on the grounds which are mentioned in Sub section (5) of Section 9 and that the grounds mentioned in Rules 52(B) and 52(C) of the Bombay Presidency Town Insolvency Rules, 1910, hereinafter called as "Rules", have lost their legal efficacy. Same view has been taken by Rebello, J., in Bijausingh Mansingh Baid and Ors. v. Mansingh H, Baid, wherein it was held that in view of the amendment in 1978, the judgment in M/s. Bhurmal Kapurchand's case is no longer good law. Similar view has also been taken by another learned Single Judge J.A. Patil, J., in judgment and order dated 8-2-2001 in Notice of Motion No. 104 of 2000 in Insolvency Notice No. N/ 72 of 2000, T.R. Rajasekhar and Ors. v. The Bharat Co.op Bank Ltd. and Ors., and connected matters. Deshmukh, J., has, however, taken a view that Article 372 of the Constitution of India had not been taken into consideration by the earlier Benches of this Court. Article 372 is considered would result in pre-constitutional laws being saved. Once those laws were saved then Rules framed by this Court before the amendment of 1978 would also be the law in force and consequently grounds other than those contained in Section 9(5) would be available under the Rules framed by this Court.

4. Mr. Sen appearing as amicus curiae for the judgment debtor submitted that the expression "decree" in Section 9(2) must be construed as a decree which is enforceable in praestanti under which money is due and the expression "creditor" is a person who holds such a decree. This construction of Section 9(2) is supported by the language of Section 9(3) and (4). Both the provisions presuppose that there is some amount due under the decree on the date of issuance of the insolvency notice. The enforce-ability of a decree may be barred by a permanent or a temporary disability. Thus, if a decree is barred by time, no amount is due under it and it would not support an insolvency notice. Equally, if a decree is more than 2 years old and no leave has been obtained to enforce it, no amount is presently due under the decree and no insolvency notice can be issued on its basis. The learned Counsel submitted that Section 9(5) comes into play only if a notice satisfies the jurisdictional requirements under Section 9(2) and (3) and prescribes further grounds on which it may be set aside. He has placed heavy reliance on the judgments of the Division Bench of this Court in J.P. Tiwari v. Harlalka, 1958(60) Bom. L.R. 923 and Adi D. Gandhi v. Thakurdas, 1974(77) Bom.L.R. 119. The learned Counsel also submitted that Order 21, Rule 22 constitutes a statutory stay of execution of a decree and in the absence of leave of the Court no insolvency notice can be issued. In this connection Mr. Sen sought to rely upon the judgment of the Division Bench of this Court in Ganeshnarayan Jagdamba Prasad v. Indian Textile Syndicate, .

5. On the other hand, Mr. Jain, learned Counsel appearing for the decree holder urged that the decisions relied upon by Mr. Sen are no more good law in view of the amendment incorporating Sub-section (5) of Section 9 of the Act. Mr. Jain urged that substantive provisions contained in sub-section (5) of Section 9 must prevail over the provisions of Rules 52-B and 52-C of the Rules. Sub-section (5) of the Section 9 in terms provides that insolvency notice can be challenged only on the limited grounds enumerated therein. In view of the change in law ground provided in Clause (c) of Rule 52 (B) (5) is not available to the debtor and the debtor is restrained from challenging the notice on any ground not provided under Section 9(5) of the Act. He submitted that the matter stands concluded by an unre-ported judgment of the Division Bench in Appeal No. 683 of 1993 dated 17-9-1993 in Ramanlal Khanna v. Industrial Finance Corporation of India Ltd., whereby the judgment of Dhanuka, J., (supra) was confirmed. He submitted that the view taken by the learned Single Judge that the Insolvency Rules would prevail inspite of 1978 amendment is contrary to the decision of the Division Bench in Appeal No. 683 of 1993. He also drew out attention to the decision in Re : Shailesh Harinarayan Bajaj Ex parte Creative Outerwear Ltd., , where Rebello, J., disagreeing with the view of the learned Single Judge that the Rules are protected by Article 372 has held that the provisions of Article 254 of the Constitution were not noticed by the learned Single Judge and in view of Article 254 the law as it stood legally prior to the amended as well as Rules framed under the old law are no longer valid.

6. Before we discuss the rival contentions of the learned Counsel at the hearing of this reference, it is necessary to notice relevant provisions of the Act. and the Rules. Section 9 of the Act defines grounds which amount to act of insolvency. Section 9(i) was inserted in the said Act by Bombay Act XV of 1939 providing for "non compliance with an insolvency notice" as an additional act of insolvency which could form the basis of the judgment creditor's petition for adjudication of the judgment debtor concerned as an insolvent. Simultaneously Section 9-A was inserted in the said Act by Bombay Act XV of 1939. In substance it was provided by the Bombay Amendment that the decree holder could make an application to the prescribed authority under the Act to issued an insolvency notice requiring the debtor to pay the amount due under the decree or order or to furnish security for payment of such amount to the satisfaction of the creditor or to satisfy the Court that the debtor has counter claim or set off which equalled or exceeded the decretal amount or the amount ordered to be paid by him and which he could not lawfully set off in the suit or proceedings. In case the decree holder fails to comply with an insolvency notice issued by the Insolvency Registrar, the debtor is deemed to have committed act of insolvency. In the result the creditor is entitled to file a petition for adjudication of the debtor as an insolvent within three months from the date of committing the act of insolvency under Section 12 of the Act.

7. Rule 52-A of the Bombay Presidency Town Insolvency Rules, 1910 prescribes that every insolvency notice shall require the debtor to pay the amount claimed, or to furnish security for the payment of the amount to the satisfaction of the creditor or his agent. Sub-rule (4) of Rule 52-B provides that "non-compliance by the debtor with the requirements of the notice within the specified period will be treated as an act of insolvency on the debtor's part". Rule 52-B(5) provides that any person served with an insolvency notice may within the time allowed for compliance with that notice apply to the Court to set aside the insolvency notice on any of the following grounds :

(a) On the ground that he has paid the amount claimed or furnished security for the payment of the amount to the satisfaction of the creditor or his agent;

(b) On the ground that he has a counter claim or set off which equally or exceeds the decretal amount or the amount ordered to be paid him and which he could not lawfully set up in the suit or proceedings in which the decree or order was made; or

(c) On the any other ground which would in law entitled him to have the notice set aside;

(emphasis supplied)

8. Sometime in the month of August, 1978, the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920 were amended by the Insolvency Amendment Act of 1978 i.e. Act No. 28 of 1978. By the said amending Act Section 9(2) to Section 9(5) were incorporated in Section 9 of the Act. By Section 9(2) of the Act, a provisions was made to the effect that a debtor commits an act of Insolvency if a creditor, who has obtained a decree or order against him for the payment of money (of which the execution was not stayed) has served on him a notice referred to therein as the Insolvency notice and the debtor does not comply with such notice within the period specified therein. Section 9(2), Section 9(3) and Section 9(4) of the said Act are more or less identical with the provisions contained in Sections 9(i) and 9A of the said Act incorporated in Presidency Town Insolvency Act, 1909 r/w Rule 52-A and Rule 52A(1) to Rule 52B(4) of The Rules of 1910. The grounds on which the insolvency notice may be set aside are now specified in Section 9(5) of the said Act. The grounds available to. the debtors in support of an application for setting aside of insolvency notice as specified in Section 9(5) of the Act are not identical with the grounds specified in Rule 52-B(5) Rules of 1910. It is obvious to us that after coming into force of Act No. 28 of 1978, an insolvency notice can be set aside only on the grounds specified in Section 9(5) of the Act and no other ground. Section 9(5) of the Act as amended reads as under :

5) Any person served with an insolvency notice may within the period specified therein for its compliance apply to the Court to set aside the insolvency notice on any of the following grounds namely :

a) that he has counter-claim or set-off against the creditor which is equally to or is in excess of the amount due under the decree or order and which he could not, under any law for the time being in force, prefer in the suit or proceeding in which the decree or order was passed;

b) that he is entitled to have the decree or order set aside under any law providing for the relief of indebtedness and that- (i) he has made an application before the Competent Authority under such law for the setting aside of the decree or order, or (ii) the time allowed for the making of such application has not expired;

c) that the decree or order is not executable under the provisions of any law referred to in Clause (b) on the date of the applications.

The Insolvency Court can also set aside the insolvency notice if the debtor has complied with the insolvency notice.

9. A bare reading of the amended provisions shows that the grounds available to a debtor in support of an application for setting aside the insolvency notice as specified in Section 9(5) of the Act are not identical with the grounds specified in Rule 52(B)(5) of the Rules. In our opinion Rule 52(B)(5) of the Rules has not legal efficacy to the extent of inconsistency with the provisions inserted in the Presidency Towns Insolvency Act, 1909 by Act No. 28 of 1978. Section 9(2) and 9(5) of the Act constitute a self contained Code on the subject an it is not permissible to the Court to evolve additional grounds of challenge to the insolvency notice with reference to the judgments under old law or by analogy. The above referred provisions were incorporated in the insolvency laws by the Parliament in view of the difficulties faced by the decree holders concerning execution of the decree as recognized by the Privy Council as more particularly set out in the Statements of Objects and Reasons concerning above referred amending Act. The amended provisions provide for deemed insolvency by operation of law. Once there is a Central Legislation then the Central Legislation must prevail, when both Parliament and the State Legislature can legislate in the field. In view of the amendment to Section 9 the judgments of the Division Bench in J.P. Tiwari's case and Adi D. Gandhi's case are no more good law.

10. In our opinion the issue stands concluded by the judgment of the Division Bench in Appeal No. 683 of 1993 (supra). In that case similar contention was raised relying upon the Division Bench decision in Adi D. Gandhi's case which came to be rejected by the Division Bench. Kurdukar, J., as he then was, speaking for the Bench observed as follows :

" In pur opinion substantive provisions contained in Sub-section (5) of Section 9 must prevail over Rule 52-B(5)(c) of the Rules, Sub-section (5) of Section 9 in terms provides that insolvency notice can be challenged only on limited grounds enumerated therein. The legislature while amending Section 9 has thoughtfully not incorporated the ground contained in Rule 52-B(5)(c) of the Rules in Section 9(5) of the Act. It is true that Rule 52(B)(5)(c) provides that on any other ground which would in law entitled the judgment debtor to have the notice set aside, can be urged. But this provision is precisely dropped by Amendment Act No. 28 of 1978. Legislature in its wisdom only incorporated the provisions contained in Rule 52-B(5)(a) and (b) in Section 9(5) of the Act, excluding Clause (c) therefrom. The change in law precludes the judgment debtors from challenging the notice on the ground provided under Clause (c) of Rule 52-B(5)."

(emphasis supplied)

11. The Court also expressly rejected the contention that there is no inconsistency between the amended Section 9(5) and Rule 52(B)(5) and observed as follows :

"5. Mr. Chinoy then urged that the trial Court erred in inferring that there is implied repeal of a provision contained in Rule 52-B(5)(c) of the Rules. The Court should be slow to infer such implied repeal unless it is shown that there is total inconsistency between the amended and unamended provisions. In support of this submission Mr. Chinoy drew out attention to the decision of the Supreme Court in Municipal Council Palai through the Commissioner of Municipal Council, Palai v. T.J. Joseph, . He pointedly drew our attention to paragraph 6 of the said report. It is true that the Supreme Court has observed :

"But it is an equally well settled principle of law that there is a presumption against an implied repeals."

There can be no dispute about the said proposition. The question before the Supreme Court was as regards the existing Act and the new Act which has repealed the earlier act. In the case before us the amendment to substantive provision in Section 9 is effected by incorporating the provisions contained in Rule 52-B(5)(a) and (b) and excluding Clause (c) thereof. In our considered view the substantive provisions contained in Section 9(5) of the Act, which sets out the grounds on which the insolvency notice can be challenged, must prevail over Rule 52-B(5). The legislature in its wisdom by Amended Act..No. 28 of 1978,.restricted the grounds of challenge to the insolvency notice in terms of Section 9(5) of the Act. The decision of the Supreme Court in Municipal Council, Pilai (supra), is, therefore, clearly distinguishable.

6. Mr. Chinoy also drew our attention to another judgment of the Supreme Court in Northern India Caterers (Private) Ltd. and Co. v. State of Punjab and Anr.", A.I.R. 1963 S.C. 290. He urged that repeal by implication is not generally favoured by the courts. In our opinion, this decision is again distinguishable on the legal position that emerges from Amendment Act No. 28 of 1978. The learned trial Judge has discussed these aspected very correctly in his judgment and we see no reason to take and different view of the matter."

(emphasis supplied)

12. The reliance placed by the learned Single Judge on Article 372 is clearly misplaced. Even if the law is saved by Article 372, the Parliament is still competent to make a law. If law made by the Parliament occupies the same field in respect of law made by the State then by virtue of Article 254, the law made by the Parliament must prevail over the State law. It is well settled that even where the Parliament intends that its legislation to be complete and exhaustive code relating to the subject, it shall be taken that the union law has replaced the State legislation relating to the subject see Tikaramji v. State of U.P., , State of Assam v. Horizon Union, and Deepchand v. State of U.P. . Section 9 occupies the field in so far as discharge of notice is concerned. Therefore it is only on the grounds available in Section 9(5) a notice can be discharged on a Notice of Motion taken out by the judgment debtor.

13. The reliance placed by Mr. Sen on the judgment of the Division Bench of this Court in Ganeshnarayan Jagdamba Prasad v. Indian Textile Sybdicate, , is totally misplaced. This decision turns on the interpretation of the provisions of Order 21, Rule 50 which provides that in case of partners who have not been served, the decree cannot be executed against them without leave of the Court and it is open to the partners to. dispute their liability under the decree and if they so dispute their liability, has to be determined as if it was a dispute in the suit itself. The Division Bench following certain English cases held that in the case of a decree against a firm, the fact that the partner has not been served personally operates as stay of execution of the decree against him and prevent issuance of insolvency notice against such partner. This decision has no application to the facts of the present case.

14. In our opinion the position of law as it stands today it that it is those grounds which are available under Section 9(5) would be the grounds available top a debtor to seek setting aside or discharge of an insolvency notice. Reference is answered accordingly. Notice of Motion may be placed before the learned Single Judge for passing appropriate orders.