Bombay High Court
Rajesh D. Vora vs Aarti Mehra & Others on 14 October, 2013
Bench: Dr. D.Y. Chandrachud, M.S. Sonak
DSS app 537.13
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL NO.537 OF 2013
IN
NOTICE OF MOTION NO.33 OF 2011
IN
INSOLVENCY PETITION NO.31 OF 2002
Rajesh D. Vora .. Appellant
vs.
Aarti Mehra & others ...Respondents.
....
Mr. Simil Purohit i/b. Mr. Ganesh K. Gole for the Applicant.
Dr. Virendra Tulzapurkar, Senior Counsel with Mr. Sandeep Parik,
Mr. Ayaz Bilawala i/b. Bilawal & Co. for the Respondent.
Ms. Kavita A. shah for Oficial Assignee.
Mr. M.D. Narvekar, Official Assignee with Mr. G.G. Ketkar, Dy.
Official Assignee are present.
....
CORAM : DR.D.Y.CHANDRACHUD, AND
M.S.SONAK, JJ.
14 October 2013.
ORAL JUDGMENT: (PER DR.D.Y.CHANDRACHUD,J.)
1. The learned Single Judge in exercise of the jurisdiction
conferred by Section 34 of the Presidency Towns Insolvency Act,
1909, has directed that the Appellant be committed to civil prison for
a period of six months on the ground that he had removed the
properties in his possession without the leave of the Official
Assignee.
DSS app 537.13
2. The Respondent, Marine Container Services Private Limited
has a decree in its favour which was passed in a summary suit on
31 March 2000 for an amount of Rs.17.75 Lakhs together with
interest on the principal sum. The decree has not been satisfied.
The Appellant was adjudged as an Insolvent on 5 August 2003.
Since the Appellant was not cooperating with the Official Assignee,
Rule Nisi was taken out, which was made absolute on 4 December
2006. A warrant of arrest was issued on 2 December 2009. Inspite
of the warrant, the office of the Sheriff and the Cuffe Parade Police
Station were unable to arrest the Insolvent. On 6 May 2010 the
Court was informed by the Deputy Sheriff and by the PSI attached
to Cuffe Parade Police Station that the orders of the Court would be
complied with within two weeks by the arrest of the Insolvent. The
Insolvent appeared before the Court and the order of arrest was
stayed on his assurance that he would attend the office of the
Official Assignee twice in a week and would cooperate with the
Official Assignee.
3. The Official Assignee had taken possession of an industrial
gala at Sewree, belonging to the Insolvent. A Motion was taken out
in the insolvency proceeding by third parties alleging that the
Insolvent had sold the gala to them under an agreement dated 7
September 2007. The third parties, thereafter instituted a suit before
DSS app 537.13
this Court, seeking reliefs in respect of the gala. An affidavit was
filed by them annexing a Memorandum of Understanding dated 20
September 2006 with the Insolvent, showing a consideration of
Rs.22.50 Lakhs. The final agreement of sale, however, reflected a
consideration of Rs.11.50 Lakhs. The third parties stated before the
Court that after the gala had been sealed by the Official Assignee,
the Insolvent issued a cheque in favour of an unnamed payee on 31
May 2010 for a sum of Rs.22.51 Lakhs.
4.
The second allegation against the Insolvent pertains to a
residential flat at Cuffe Parade ad-measuring 3000 square feet,
being flat No.151/B, Makers Towers. During the course of his
examination on 7 January 2004 the Insolvent informed the Official
Assignee that he was residing in the flat which stood in the name of
an HUF. The Insolvent avoided handing over the share certificate of
the residential flat and eventually when it was produced on 11
October 2010, it transpired that the flat stands in the names of three
persons viz. (i) Hakimchand B. Vora; (ii) the Insolvent ; and (iii)
Shalin M.Vora. An MOU had been entered into on 23 November
2006 for the sale of the flat to Spire Builders Private Limited for a
consideration of Rs.19.50 Crores, of which an amount of Rs.2.51
Crores was paid as earnest money. The amount of Rs.2.51 Crores
was deposited in a new bank account opened in Karur Vysya Bank
DSS app 537.13
in the names of the Insolvent and his parents. Though, the advocate
for the Insolvent had informed the Court that at least an amount of
Rs.30 Lakhs would be deposited in Court, nothing had been
deposited.
5. On these facts, a motion was taken out by the Petitioning
Creditor under Section 34 of the Presidency Towns Insolvency Act,
1909 for committing the Insolvent to civil prison, on the ground that
he had violated the provisions of Clause b and c of sub-section 1.
The learned Single Judge has, while allowing the motion, held that
the Insolvent had dealt with both the residential flat at Cuffe Parade
and the industrial gala at Sewree, thus removing valuable properties
from his possession without the leave of the Official Assignee or of
the Court. The learned Single Judge held that by an agreement for
sale dated 7 September 2007, the Insolvent had disposed of the
gala for an amount of Rs.11.50 Lakhs while under the earlier MOU
dated 20 November 2006, the stated consideration was Rs.22.50
Lakhs. Infact the cheque issued by the Insolvent in favour of an
unnamed payee was in an amount of Rs.22.51 Lakhs. The learned
Single Judge has also held that by an MOU dated 23 November
2006 the Insolvent alongwith his father has disposed of the flat at
Cuffe Parade, in which admittedly the Insolvent has a substantial
right in pursuance of which, an amount of Rs.2.50 Crores was
DSS app 537.13
realised as earnest money, which was concealed from the Official
Assignee. The learned Single Judge has held that the Insolvent thus
removed these properties being the gala and the flat (in which the
Insolvent had a share) with a view to removing them from the
control of the Official Assignee and that the Insolvent had concealed
the receipt of an amount of Rs.2.50 Crores on account of the sale of
the residential flat.
6. On these facts, the learned Single Judge was of the view that
the Court would not be a mute spectator to the brazen conduct of
the Appellant and that it was necessary for the Court to step in and
take appropriate steps to stop such unhealthy trends, failing which
the faith of the common person in the institution of the judiciary as a
means of redressal of grievances would be corroded. The learned
Single Judge took into account the fact that the Appellant has
deposited an amount of Rs.5.50 Lakhs realised from the sale of
gala with the Official Assignee, but held that this would be no
ground to show leniency. The learned Single Judge held that the
Court would be doing grave injustice to the creditors by showing
leniency; the creditors have been put through a long and protracted
round of litigation over a period of more than one decade to recover
their legitimate dues. On these findings an order of commitment of
the Appellant to civil prison was passed.
DSS app 537.13
7. Learned Counsel appearing on behalf of the Appellant
submits that :
(i) Section 34 (1) does not stipulate any specific
period of commitment to civil prison and hence the
sentence must be commensurate with the nature of the
violation;
(ii) The past acts of the Insolvent which led up to the
issuance of Rule Nisi and a warrant of arrest ought not to
be taken into consideration since the Insolvent has
thereafter purged the consequences of his conduct by
cooperating with the official assignee and remaining
present at the hearing;
(iii) Subsequent events had taken place as a result of
which the Insolvent would be willing to settle the dues of
the Petitioning Creditor by the repayment of the principal
amount; and
(iv) As regards the dealings in the two properties viz.
the industrial gala at Sewree and the flat at Cuffe Parade,
learned Counsel submits that a mistake was committed
by the Insolvent in dealing with those properties, but
there are several mitigating circumstances, which ought
to have been considered by the learned Single Judge:
DSS app 537.13
A. As regards the sale of the industrial gala, it was urged that :
(i) An amount of Rs.6 Lakhs was paid by the
purchaser to the cooperative society; and
(ii) An amount of Rs.5.50 Lakhs was deposited
in the court and the gala is available with the
Assignee.
B. As regards the residential flat at Cuffe Parade, it was urged
that :
(i)
The MOU was entered into by the father of
the Appellant as a Karta of the HUF and by the
Appellant as a Member of the HUF ;
(ii) The HUF consists of 130 members;
(iii) There is no finding that the right of the
Appellant in his individual capacity was sold under
the MOU;
(iv) An amount of Rs.2.51 Crores was realised as
earnest money, which was paid over to the HUF;
(v) The purchaser had taken out proceedings
against the Appellant, in pursuance of which he
was sentenced to imprisonment for three months;
and
(vi) The other co-owners have taken out a
DSS app 537.13
Motion expressing their readiness and willingness
to the flat being sold.
8. On the other hand learned Senior Counsel appearing on
behalf of the Respondents submits that :
(i) Inspite of the decree dated 31 March 2000, the
Petitioning Creditor is yet to realise any part of the
decretal amount and despite the opportunities which
were granted to the Appellant for the payment of the
amount in installments on 25 September 2001, nothing
has been paid;
(ii) The Appellant, as was recorded in the order of the
learned Single Judge, has admitted to have dealt with
both the properties, i.e., the gala and the residential flat
and the plea of mistake is not a bona fide explanation.
Assuming that a mistake was committed when the earlier
MOU was entered into on 20 November 2006, it is
inconceivable that the same conduct would persist on 7
September 2007;
(iii) The contention that the Appellant had not sold his
individual interest in the residential flat, but had signed
the MOU only as a member of the HUF cannot stand
scrutiny in view of the statement of the advocate
DSS app 537.13
recorded in the paragraph 15 of the order of the learned
Single Judge;
(iv) In any event, there can be no disputing the position
that the Appellant has signed the MOU as a member of
an HUF in which flat admittedly he has an interest;
(v) Though the MOU in respect of the flat, of 23
November 2006 was by the father as a Karta of the HUF
and by the Appellant as a member of the HUF, the share
certificate of the society shows that the flat stands in
three individual names; and
(vi) The manner in which the industrial gala was dealt
with, clearly shows the attempt of the Appellant to
remove the gala from the possession of the Official
Assignee. The first MOU of 20 November 2006 was for a
stated consideration of Rs.22.50 Lakhs, the subsequent
agreement dated 7 September 2007 was for Rs.11.50
Lakhs, whereas the Appellant had, thereafter, returned a
cheque drawn in favour of an unnamed payee for
Rs.22.50 Lakhs. These facts are sufficient to indicate that
the stated consideration was much in excess of what
was reflected in the agreement and an effort was made
to spirit away the proceeds from the control of the Official
DSS app 537.13
Assignee.
Hence, it was urged that despite knowledge of the adjudication of
insolvency and the fact that the property was under the control of the
Assignee, who held it for the benefit of the general body of the
creditors, the Appellant has dealt with the two properties. Hence, the
learned Single Judge was justified in taking action under Section 34
(1) (c) and infact the sentence which has been imposed is
considerably lenient, having regard to the nature of the violation.
9.
The rival submissions now fall for consideration.
10. Section 34(1) of the Presidency-Towns Insolvency Act, 1909
provides as follows
34. Arrest of Insolvent.-
(1) The Court may, either of its own motion or at the
instance of the Official Assignee or of any creditor, by
warrant addressed to any police officer or prescribed
officer of the Court, cause an Insolvent to be arrested,
and committed to the civil prison or if in prison to be
detained until such time as the Court may order, under
the following circumstances, namely:--
(a) if it appears to the Court that there is
probable reason for believing that he has
absconded or is about to abscond with a view of
avoiding examination in respect of his affairs, or of
otherwise avoiding, delaying or embarrassing
proceedings in insolvency against him; or
(b) if it appears to the Court that there is
probable reason for believing that he is about to
remove his property with a view of preventing or
delaying possession being taken of it by the official
assignee, or that there is probable reason for
believing that he has concealed or is about to
conceal or destroy any of his property or any
DSS app 537.13
books, documents or writings which might be of
use to his creditors in the course of his insolvency;
or
(c) if he removes any property in his possession
above the value of fifty rupees without the leave of
the Official Assignee.
11. Clause c of sub-section 1 of Section 34 empowers the Court
to cause the Insolvent to be arrested and committed to civil prison
for a period which the Court may order, if the Insolvent removes any
property in his possession above the stated value without the leave
of the Official Assignee. The properties of the Insolvent are under
the control of the Official Assignee who holds them for the benefit of
the general body of creditors. The legislature has considered the
removal of the property of the Insolvent without the leave of the
Official Assignee as a serious matter, which would require in an
appropriate case the commitment of the Insolvent to civil prison.
Section 34 (1) vests a discretion in the Court. The judicial discretion
has to be exercised by the Court having due regard to all the facts
and circumstances, including the nature of the infraction or the
conduct which has been complained of.
12. In the present case, the fact that the Insolvent dealt with both
the properties consisting of the industrial gala and the residential
flat, was admitted before the learned Single Judge. This is evident
from paragraph 15 of the judgment, which records the submissions
DSS app 537.13
of the Advocate appearing on behalf of the Appellant, thus :
"15. The Learned Advocate appearing for the Insolvent
has submitted that though it is true that the insolvent,
without informing the Official Assignee and without
seeking leave of this Court, has disposed of the said gala
and by an MOU dated 23rd November 2006 also created
third party rights in respect of the said flat in favour of
Spire Builders Private Limited and has received part sale
consideration of Rs.2,50,00,000/-, this Court whilst
sentencing him to imprisonment should bear in mind the
fact that that he has deposited an amount of
Rs.5,50,000/- with the Official Assignee being part sale
consideration of the said gala and has himself not
withdrawn the amount of Rs.2,50,00,000/- deposited with
Karur Vysya Bank being part sale consideration of the
said flat."
13. Now, as regards the industrial gala, the agreement for sale
dated 7 September 2007 reflects a stated consideration of Rs.11.50
Lakhs. The MOU which was produced before the court by the
purchaser dated 20 November 2006 refers to a consideration of
Rs.22.50 Lakhs. Infact, thereafter, the Appellant issued a cheque in
the amount of Rs.22.51 Lakhs dated 31 May 2010 where the name
of the payee was left blank. Admittedly, there was a dealing in the
gala after the declaration of insolvency.
14. As regards the residential flat, the share certificate in respect
of the flat stands in three individual names including of the
Appellant. Under an MOU dated 23 November 2006, the residential
flat was sought to be transferred and sold for a consideration of
Rs.19.50 Crores. The vendors to the agreement were the father of
DSS app 537.13
the Appellant as karta of the HUF and the Appellant as a member of
the HUF. It is not in dispute that in any event, by the MOU the
Appellant purported to transfer a substantial interest, which he held
in the flat in favour of a third party for consideration and in
pursuance thereof an amount of Rs.2.51 Crores was paid by the
purchaser. The learned Single Judge noted that the amount was
deposited in the bank account which was opened in the Karur
Vysya Bank in the names of the Insolvent and his parents.
15.
The mitigating circumstances, which have been relied upon
by the Appellant cannot possibly come to the aid of the Appellant.
There is absolutely no merit in the contention that what was sold by
the Appellant was not his individual right in the flat at Cuffe Parade,
but only his interest as a member of the HUF. The share certificate
of the flat stands in the individual names of the Appellant and of two
others. Even otherwise, the Appellant has by and under the
transaction dealt with his interest in the flat for valuable
consideration. None of the circumstances detracts from the brazen
conduct of the Appellant.
16. The learned Single Judge was justified in our view in coming
to the conclusion that a case for initiating action under section 34
(1)(c) was made out. The conduct of the Appellant is brazen. The
learned Single Judge was justified in taking the view that such
DSS app 537.13
conduct has to be dealt with strictly since creditors, such as the
Respondents have been pursuing rounds of litigation while the
Appellant has dealt with two valuable properties, one consisting of
an industrial gala and the other a residential flat at Cuffe Parade,
with scant regard to the due course of law. The finding of breach, it
must be clarified is not based on prior circumstances which led to
the issuance of the Rule Nisi by the Court and the warrant of arrest
on a previous occasion. The admitted facts indicate that there was a
breach of the provisions of law by the Insolvent having removed two
valuable properties in his possession without the leave of the
Official Assignee. The sentence which has been imposed is
commensurate with the violation. The learned Single Judge has
tempered the quantum of imprisonment with judicial restraint and
the order of six months commitment to civil prison can by no means
be regarded as disproportionate or as not being commensurate with
the nature of the violation. This is not a matter which concerns only
the Official Assignee and the Insolvent since the acts which are
complained of, are liable to affect the interest of the large body of
creditors.
17. The learned Counsel appearing on behalf of the Official Assignee
has stated that the dues of the general body of the creditors are in excess
of Rs.34 Crores.
18. The correctness of the order of the learned Single Judge has
DSS app 537.13
to be necessarily assessed with regard to the violation on the basis
of which the jurisdiction under Section 34 was invoked. If the
Appellant, has any bona fide offer for settlement of the dues of the
creditors, this order would not come in the way of an appropriate
examination being made of the bona fides of the proposal by the
Official Assignee and by the Insolvency Court. However, that cannot
be a ground to hold that the exercise of the jurisdiction by the
learned Single Judge was improper. For these reasons, we find no
reason to interfere with the order of the learned Single Judge. The
Appeal shall accordingly stand dismissed. There shall be no order
as to costs.
19. During the pendency of the appeal, ad-interim relief was
granted in favour of the Appellant. On the conclusion of the
judgment, learned Counsel appearing on behalf of the Appellant
seeks continuation of the ad-interim order to enable the Appellant to
seek recourse to his remedies against this judgment. We
accordingly direct that the ad-interim order shall continue to remain
in operation till 25 November 2013.
(Dr. D.Y. Chandrachud, J.)
(M.S.Sonak, J.)
