Bombay High Court
Akshay D Thakar vs Kotak Mahindra Bank Limited And ... on 31 March, 2021
Bench: S.J. Kathawalla, P. K. Chavan
Swaroop Digitally signed
by Swaroop S.
S. Phadke
Phadke
Date: 2021.04.01
17:30:01 +0530 APP 583 OF 2019.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
IN ITS INSOLVENCY JURISDICTION
APPEAL NO.583 OF 2019
WITH
INTERIM APPLICATION NO.1729 OF 2020
IN
NOTICE OF MOTION NO.22 OF 2018
IN
INSOLVENCY PETITION NO.5 OF 2010
Akshay D. Thakkar, )
having his office at A 228, Antop Hill, )
Warehousing Complex, Vidyalankar )
College Road, Wadala (E), Mumbai - 400 037 )...Appellant
IN THE MATTER BETWEEN :
Akshay D. Thakkar, )
having his office at A 228, Antop Hill, )
Warehousing Complex, Vidyalankar )
College Road, Wadala (E), Mumbai - 400 037 )...Insolvent
Versus
1. Kotak Mahindra Bank Limited, )
a Banking Company within the meaning )
of Banking Regulation Act, 1949, )
having its Office at 6th Floor, 12 - BKC, Plot )
No.C-12, "G" Block, Bandra Kurla Complex, )
Bandra (E), Mumbai - 400 051 )
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2. Manipal Finance Corporation Limited, )
Having Reg. Office at Manipal House, )
Manipal & Branch Office at 105/106, )
Shyamkamal "D" Building, BN Agarwak )
Market, Vile Parle (E), Mumbai - 400 057. )...Respondents
Mr.Akshay D. Thakkar, Appellant present in person.
Mr.Rohit Gupta with Mr. Nikhil Rajani i/by V. Deshpande and Co., for Respondents.
CORAM: S.J. KATHAWALLA &
PRITHVIRAJ K. CHAVAN, JJ.
RESERVED ON : 3rd NOVEMBER, 2020
PRONOUNCED ON : 31st MARCH, 2021
JUDGMENT : ( PER S.J.KATHAWALLA, J. )
1. By an Order dated 22nd April, 2010 in Insolvency Petition No.5 of 2010, the
Appellant - Akshay B. Thakkar was adjudicated insolvent.
2. Thereafter, by an Order dated 3rd December, 2014 passed in Notice of
Motion No.52 of 2014, the Order of adjudication dated 22 nd April, 2010 was annulled
under Section 22(1) of the Presidency Towns Insolvency Act, 1909 ("Insolvency
Act").
3. Respondent No.1 Bank i.e. Kotak Mahindra Bank Ltd., filed a Notice of
Motion No.22 of 2018 seeking recall of the Order of annullment dated 3 rd December,
2014 primarily on the ground that the Appellant deliberately concealed from the
Court, the fact that the Respondent Bank herein was one of the creditors, having a
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recovery certificate from the Debts Recovery Tribunal ("DRT") and therefore,
without considering the Respondent's claim, the Order of annulment ought not to
have been passed.
4. By an Order dated 18th September, 2018, the learned Single Judge allowed
Notice of Motion No.22 of 2018 filed by the Bank i.e. the Order of annulment dated
3rd December, 2014 was recalled.
5. By the present Appeal, the Appellant / Insolvent has impugned the Order
dated 18th September, 2018 passed by the learned Single Judge in Notice of Motion
No.22 of 2018 recalling the Order of annulment dated 3 rd December, 2014. The
Order dated 18th September, 2018 shall thereafter be referred to as 'the impugned
Order'.
6. Before going into merits of this Appeal, it is necessary to record certain facts
which have transpired after filing of the present Appeal.
7.1 By an Order dated 25th February, 2020, this Court (Appeal Court) stayed the
impugned Order and admitted the above Appeal.
7.2 Being aggrieved by the aforesaid stay order, the Respondent herein preferred
Special Leave Petition Nos. 7380 of 2020 and 7381 of 2020 challenging the Order
dated 25th February 2020 passed by this Court. The Special Leave Petitions were
disposed of by the Supreme Court by its Order dated 27 th August 2020 which reads
thus :
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"From the perusal of the order passed by the learned Single Judge, it
could be seen that the order is well reasoned. It also appears from the
order of the learned Single Judge that there was suppression of some
material facts before the learned Single Judge. In such circumstances,
the learned Division Bench ought to have considered the matter from
this perspective.
It appears from the impugned interim order that the division Bench
has not considered the suppression of material facts before the learned
Single Judge. We request the Division Bench of the High Court to
reconsider the issue of interim order. We also request the High Court
to consider the impact of suppression and also consider the reason
given by the learned Single Judge.
We further request the High Court that if it considers appropriate to
decide the matter finally instead of deciding the question of interim
relief, the same may be done within a period of one month from today.
We are inclined to pass such order taking into consideration the huge
public money involved in the litigation.
Accordingly, the Special Leave Petitions are disposed of."
8. We have gone through the impugned Order, the pleadings and Written
Submissions filed by the parties.
9. Mr. Thakkar, appearing in person made submissions and contended that the
Appellant seeks to challenge the impugned Order primarily on the ground that the
claim of the Respondent Bank is a claim arising out of recovery certificate issued by
the DRT and therefore; it is not a claim based on which insolvency proceedings can be
commenced, as it is not a "decree" as contemplated under the provisions of the
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Insolvency Act. Therefore, according to him, the Order dated 03 rd December 2014 was
rightly passed. It was further submitted that in view of this legal position, the
Appellant was correct in his submission that at that stage there was no other creditor.
In order to substantiate his contentions, the Appellant placed reliance on the judgment
of this Court in the matter of HDFC Bank Ltd. & Anr Vs. Kishore K Mehta & Ors. 1.
In his Written Submissions, the Appellant also contended that the NOM filed by the
Respondent Bank was at a belated stage and only to pressurize the Appellant. That the
Respondent Bank's conduct is vindictive in nature and insolvency proceedings cannot
be permitted to be initiated with ulterior motives.
10. As opposed to the aforesaid submission, Mr. Gupta, appearing for the
Respondent Bank, has drawn our attention to the impugned Order and submitted that
no interference is required in respect thereof. The issue in the matter of Kishore
Mehta is completely different from the issue in hand. In view of the law laid down in
Kishore Mehta's case, the Respondent Bank is not entitled to initiate proceedings for
Insolvency if they have a recovery certificate from DRT as the same is not considered
as a "decree" as contemplated under the Insolvency Act. However, the Respondent
Bank will still remain a creditor for the purpose of the Insolvency Act and no Order of
annulment can be passed without taking into consideration the claim of the
Respondent Bank. Mr. Gupta further submitted that Kishore Mehta's case dealt with
1 2008 (6) Bom. C.R.340
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the scope of Section 9(2) of the Insolvency Act, where this Court has held that based
on recovery certificate, no insolvency proceedings can be initiated. In the present case,
the issue is of annulment, where, as per Section 21(2) of the Insolvency Act, an
Insolvent is required to satisfy the debts of all creditors and not just those having a
decree from the Civil Court. In order to support this contention, reliance was placed
on Sections 2(a), 2(c) and 46 of the Insolvency Act. It is his submission that the word
"creditor" and "debts" as defined under the Insolvency Act are wide enough to
include the Respondent Bank's debt.
11. Prior to dealing with the merits of this Appeal, it would be necessary to set-
out the following facts as already narrated by the learned Single Judge in the impugned
Order :
"6. ..........
Before I proceed further, it will be useful to give a few chronology of
dates and events.
During 1994-1998, State Bank of India ("SBI") sanctioned certain
credit facilities to one Duck Tarpaulins Limited ("Borrower").
Insolvent was one of the guarantors for the said facilities. In 2003,
SBI filed an Original Application being Original Application No. 90
of 2003 before the Hon'ble Debts Recovery Tribunal, Ahmedabad
(hereinafter referred to as "DRT") for recovery of dues and
enforcement of the securities created in its favour. On 23rd March
2006, SBI assigned the debts due from the Borrower to Kotak
Mahindra Bank Limited (Applicant) along with all the underlying
securities.
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7. On 20thMay 2009, DRT was pleased to allow the said Original
Application directing the Borrower and guarantors to jointly and
severally pay Applicant a sum of Rs. 9,60,97,800.69/- with simple
interest at the rate of 8% per annum from the date of filing till
realization along with cost and charges. Pursuant to the same,
Recovery Proceeding (RP) was initiated.
On 22ndApril 2010, Insolvent was adjudicated an Insolvent in the
Insolvency Petition No. 5 of 2010.
On 13th August 2010, DRT attached two properties, inter-alia,
belonging to Insolvent.
On 25th April 2011, insolvent filed an application dated 25th April, 2011,
seeking to set aside the attachment order. DRT was pleased to issue
Notice under Section 28(4A) for disclosure of assets. Insolvent,
however, did not bring to notice of DRT that he had been declared
insolvent vide order dated 22nd April 2010.
On 18th May 2011, Insolvent filed further affidavit informing that he has
been declared insolvent by an order dated 22nd April 2010.
On 8thDecember 2011, Applicant filed an Application before DRT
seeking to bring Official Assignee on record.
On 24th February 2012, Official Assignee, High Court, Bombay was
brought on record in place of Insolvent in the said RP.
On 12th October 2012, Applicant issued letter dated 12th October 2012
and served the copies of the application filed before DRT and Order
dated 24th February 2012 to the Official Assignee.
On 6th November 2012, Official Assignee's letter issued to DRT seeking
time to take direction from this Court to appoint an advocate.
In 2014, Applicant approached DRAT to transfer the said RP to DRT,
Mumbai.
On 1st October 2014, Notice of Motion No. 52 of 2014 filed for
annulment.
On 3rd December 2014, the Order of adjudication dated 22.04.2010
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declaring Mr. Akshay Thakkar as Insolvent, was annulled. Dues of the
Original Petitioning Creditor were paid by a well-wisher of Insolvent
who had also given an undertaking to this Hon'ble Court to pay all
other creditors, if required. The relevant portion of the Indemnity
Cum Undertaking Bond is reproduced herein below :-
".....I also undertake that if any creditor came forward and
claimed any amount from the Official Assignee on or before the
passing of the order of annulment against the insolvent i.e.
Akshay D. Thakkar I will deposit the said amount of the said
creditor with the Official Assignee...."
8. The Official Assignee, however, failed to bring to the notice of this
Hon'ble Court the fact of the order and judgment by DRT being passed
against Insolvent which remained unpaid on that date despite Insolvent
being represented by the Official Assignee in the pending Recovery
Proceeding (RP). On 28thJanuary 2015, the Official Assignee issued
letter informing the DRAT about the annulment order dated 3rd
December 2014. A copy of the said letter was also marked to advocate
of Applicant. According to applicant, it never received the said letter.
On 13th January 2016, DRAT allowed application for transfer and the
RP was transferred to DRT, Mumbai.
On 22nd December 2017, Demand Notice was issued by DRT Mumbai
to all the parties including the Official Assignee, Mumbai.
On 15th December 2017, Official Assignee issued a letter informing that
the said Insolvent is no longer Insolvent and the order of adjudication
has been annulled by this Court, vide an order dated 3rd December
2014.
On 15th January 2018, Applicant issued letter dated 15th January 2018
to the Official Assignee informing about its dues and requesting him
to call upon the well-wisher of Insolvent to pay the dues of Applicant.
In January 2018, applicant filed the present notice of motion."
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12. A perusal of the above narrated facts demonstrates the following :
(i) On 20th May, 2009 there was already an Order passed by the DRT
holding that the Insolvent is liable to pay an amount of Rs.9.61 Crores to the
Respondent Bank together with interest thereon @ 8% p.a.;
(ii) The Insolvent was well aware about the Order being passed by the DRT
and was appearing before the DRT;
(iii) The Order of Insolvency dated 22nd April, 2010 was initially not brought
to the knowledge and attention of the DRT. The Insolvent later on brought this fact to
the knowledge and attention of the DRT;
(iv) The Official Assignee was brought on record in the Recovery
Proceedings before the DRT and the Official Assignee was well aware about the fact of
the Judgment and Order being passed by the DRT and Respondent Bank being one of
the creditors of the Insolvent.
(v) Despite the aforesaid facts being to the knowledge of the Appellant,
these facts were not brought to the notice of the Court at the time of passing of the
Order dated 03rd December 2014.
(vi) In fact, paragraph 3 of the impugned Order takes note of the Affidavit
filed by the Appellant at the time of applying for Annulment which reads as under : -
"3. ...............I say that other than the above Creditor I do not
have any creditor payable either jointly or personally.
(emphasis supplied)"
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13. The learned Single Judge in paragraphs 4 and 5 of the impugned Order
also took note of the Order passed on 03rd December 2014, which reads as follow :
"4. In view of this statement made by the insolvent, this Court
believed the averments made by the insolvent and recorded in the
order dated 3rd December 2014 in paragraphs 2 and 3 which read as
under :
"2. The learned Advocate for the Insolvent states that the Insolvent
has set out the name of his Creditor in the Affidavit- in-Support of
the above Notice of Motion and the Petitioning Creditor M/s.
Manipal Finance Corporation Ltd., is the only creditor of the
Insolvent. It is further stated that the claim of the Petitioning
Creditor has been duly settled by the well-wisher of Insolvent.
Mr. Varma also states that the Insolvent has also complied with
the requisitions raised in the above Rule Nisi.
3. Mr. Ramesh Jain, Advocate for the Petitioning Creditor states
that the claim of his client has been duly settled by the well-
wisher of the Insolvent. 1 st Assistant to the Official Assignee
states that the claim of the Petitioning Creditor whose name is
disclosed by the Insolvent in the Schedule of Assets and
Liabilities has been settled and there are no claims pending with
the Office of the Official Assignee. However, she has stated that the
original receipt is not lodged with the Office of the Official
Assignee."
(emphasis supplied)
5. Therefore, the Counsel for the insolvent and the 1st Assistant to the
official assignee had made a statement to the Court that apart from
Manipal Finance Corporation Limited, there are no other creditors.
Of course the Official Assignee has qualified by saying ".....disclosed by
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the insolvent in the Schedule of Assets and liabilities.............". Therefore,
if not disclosed the Official Assignee also would not know. One
Madan K. Salve, the alleged well-wisher of the insolvent has also filed
undertaking-cum-indemnity bond with the official assignee that he has
paid off the creditors in full and final settlement and also given an
undertaking to pay/deposit all additional amount if subsequently it
comes to light that there are other creditors."
14. A perusal of the aforesaid pleadings and averments make it abundantly
clear that though the Respondent Bank was one of the creditors of the Appellant, this
fact was never disclosed to the Court at the stage of annulment and instead; an ex-facie
incorrect statement was made that there was no other creditor. Had it been the
Appellant's case since the outset that the Respondent Bank is not a creditor as
contemplated under the Insolvency Act, he ought to have specifically said so in the
Application filed for annulment. However, the Application is absolutely silent in this
regard. This omission, in our opinion, clearly demonstrates that the stand now taken
by the Appellant is an afterthought and therefore merits rejection on this count alone.
15. In any event, even on merits, we do not subscribe to the Appellant's
submissions. Prior to arriving at our reasoning, the following provisions of Insolvency
Act are relevant -
Section 2(a): "Creditor" includes a decree-holder.
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Section 2(b):"Debt" includes a judgment- debt, and "debtor" includes
a judgment-debtor.
Section 9 (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.
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Section 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.
Section 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
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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 a 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
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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.
16. Section 21 as reproduced hereinabove, specifically provides that the
debtor (Insolvent) is required to prove to the satisfaction of the Court that the debts of
the Insolvent are paid in full. Under Section 21, there is no distinction made with
respect to the debt being adjudicated or non-adjudicated.
17. Furthermore, Section 21(2) mandates that the Insolvent is required to
secure even disputed debts in order to seek an Order of annulment. As opposed to
such disputed Debts, the Respondent Bank's debt duly adjudicated by the DRT stands
on a much higher footing.
18. Further, Section 46(3) of the Insolvency Act even provides for present or
future, certain or contingent liabilities to be proved in Insolvency proceedings. The
Insolvency Act defines the word "Creditor" as well as the word "Debt". The
Definition of the word "Creditor" as well as the word "Debt" is a wide definition
which would in our opinion, include the Respondent Bank's claim.
19. When read as a whole, the provisions of Insolvency Act clearly
demonstrate that whilst a specific class of creditors are permitted to initiate
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proceedings under the Act, all creditors must be taken into consideration whilst
passing an Order of annulment.
20. In this regard, it would be apposite to reproduce the following reasons of
the learned Single Judge : -
"11. Therefore, under the insolvency act, a creditor includes a decree-
holder. It is an inclusive definition. A debt includes a 'judgment debtor'
which is an inclusive definition. Merely because applicant was not
entitled to serve an insolvency notice based on the recovery certificate
issued by the DRT, does not lead to the conclusion that the applicant
cannot, relying upon an act of insolvency, proceed with the petition for
adjudication in substitution of the petitioning creditor. When the claim
of Manipal Finance Corporation was settled, in my view, applicant
could have stepped in as a substituting creditor. The only bar against
the applicant relying upon the recovery certificate issued by DRT was
to serve a notice under Section 9(2) of the Insolvency Act. There is no
bar against such a creditor from proving its claim in insolvency.
The inability of the creditor to serve an insolvency notice under
Section 9(2) does not reflect upon such creditor's right to even present
an insolvency petition. Section 10 of the Insolvency Act entitles an
insolvency petition to be presented, inter-alia, by a creditor in the event
of a debtor committing an act of insolvency. Section 10 is not restricted
only to the creditors contemplated under Section 9(2). To be entitled
to present an insolvency petition, a creditor must fall within the ambit
of the expression "creditor" under Section 2(a) of the Insolvency Act.
The Apex Court in Yenumula Maluoora Vs. Peruri Seetharathnam &
Ors.2 has held that an act of insolvency is available to all the creditors
of the debtor. Paragraph 6 of the said judgment reads as under :
2 AIR 1969 SC 918
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"6 An act of insolvency once, committed cannot be explained or
purged by subsequent events. The insolvent cannot claim to wipe it off by
paying some of his creditors. This is because the same act of insolvency
is available to all his creditors. By satisfying one of the creditors the act
of insolvency is not erased unless all creditors are satisfied because till
all creditors are paid the debtor must prove his ability to meet his
liabilities. In this case the petitioning creditors had their own decrees. It
was in the decree of another creditor that the payment was made but
only after the act of insolvency was committed. Besides the petitioning
creditors there were several other creditors to whom the appellant owed
large sum of money and his total debts aggregated to Rs. two lakhs. It
is plain that any of the remaining creditors, including the petitioning
creditors, could rely upon the act of insolvency even though one or more
creditors might have been paid in full. The act of insolvency which the
appellant had committed thus remained and was not purged by payment
of decretal amount after the sale in execution of the money decree.
(emphasis supplied)"
12.Therefore, if the insolvent had disclosed that applicant was
another creditor and given notice to applicant and not made false
statement in the affidavit in support, certainly applicant would have
stepped in as a substitute to the petitioning creditor and continued
to maintain and prosecute the petition. In Ram Avtaar Kunjilal
Gupta & Anr. - Judgement Debtors and Ex-parte Sicom Ltd. -
Petitioning Creditor3, paragraph 12 reads as under :
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
32009 (3) Mh. L.J. 901
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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."
If the submission of Shri Bhure is accepted, in cases where the original
petitioning creditor and judgment debtor settle their dispute, the
claims of all creditors except of those entitled to serve notice under
Section 9(2) would be barred.
I find support for this view in the judgment of a Single Judge of this
Court in Jayantilal Khandwala & Sons & Ors. - Debtors, Ex-parte
Neebha Kapoor & Anr.4
13.A similar view was taken in Mandvi Co-operative Bank Ltd. &
Anr. Vs. Anant V. Hegade5, where it was contended that under Section
9A of the Insolvency Act, the claim of a creditor prosecuting an
insolvency proceeding should be based on a decree or order of a
competent court and that, therefore, a claim under a hire-purchase
agreement did not amount to a valid claim. Rejecting the contention,
the learned Judge held as follows :
"2. An affidavit in reply has been filed on behalf of the Debtor to the
Insolvency Petition. The first line of defence is that under Section 9A
of the Presidency Towns Insolvency Act, 1909, the claim of a creditor
who is prosecuting an insolvency proceeding should be based on a
4 Insolvency Petition No.10 of 2007 dt. 03.09.2016
5 AIR 2007 Bom. 50
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decree and order of the Competent Court. Hence, it has been
submitted that the claim under a hire purchase agreement did not
amount to a valid claim in the eyes of law. Now in the present case,
the proceedings in insolvency were initiated by the Bank, based on an
award of the Co-operative Court. The act of insolvency was complete
on 20th July 2004, on the expiry of the statutory period after the
service of the Insolvency Notice. The substituted Petitioning Creditor is
entitled in law to pursue the proceedings on the basis of the act of
insolvency as originally committed by the Debtor since the
consequence thereof would enure to the benefit of the general body of
Creditors. The substituted Petitioning Creditor is required to meet the
definition of the expression "creditor" in the Presidency Towns Insolvency
Act, 1909 and it is to be noted that Section 2(a) defines the expression
"creditor" to include a decree holder. Therefore, once an Insolvency
Notice was validly issued by the original Petitioning Creditor and the
act of insolvency was complete upon the failure of the Debtor to
comply with the requisition contained therein, the consequence of the
commission of an act of insolvency must enure to the benefit of the
general body of Creditors. The fact that the original Petitioning
Creditor has lost interest in the proceedings would not make any
difference to the position in law; for the substituted Petitioning
Creditor steps into the shoes of the original Petitioning Creditor in
pursuing the insolvency proceedings. The contention that there was no
decree or order in favour of the substituted Petitioning Creditor is, as
already noted above, without any merit since the expression "creditor" is
defined to include a decree holder. Section 13(2) postulates that at the
hearing of the Petition, the Court shall require proof of the debt of the
Petitioning Creditor and of the act of insolvency or if more than one
act of insolvency is alleged in the petition, some one of the alleged acts
of insolvency. Apart from the claim of the Petitioning Creditor which
is crystallised in an adjudication by the Co operative Court, the claim
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of the substituted Petitioning Creditor has also been crystallised in an
arbitral award." It has, therefore, been held in the above judgment
that a substituted petitioning creditor is required to meet the
definition of the expression 'creditor' as contained in section 2(a) of
the said Act. Apart from being bound by, I am in respectful agreement
with the judgment in Mandvi Co-operative Bank Limited vs. Anant
Hegade. I would only add a few words in support of this view."
(emphasis supplied)
Therefore, the substituted petitioning creditor (it would have been the
applicant in our case) was entitled in law to pursue the proceedings on
the basis of the act of insolvency as originally committed by the Debtor
since the consequence thereof would enure to the benefit of the general
body of creditors. The substituted petitioning creditor is only required
to meet the definition of the expression "Creditor" in the Insolvency
Act and Section 2(a) defines the expression "Creditor" to include a
decree holder.
15. Further, under Section 46 of the Insolvency Act, sub-section 3
which provides "...................all debts and liabilities, present or future,
certain or contingent to which the debtor is subject to when he has adjudged
as an insolvent......................shall be deemed to be its debts provable in
insolvency". The definition of the word 'debt' in Section 2(b) read with
Section 46(3) makes it clear that any debt which is present or future,
certain or contingent can be proved in insolvency proceedings. It may
be that the order passed by DRT, may not be a decree or order under
Sub-section 2 of Section 9 of the Insolvency Act, but there was a debt
payable by the insolvent to the applicant. In order to seek an
annulment, all the debts which can be proved are required to be proved
before the order of insolvency can be annulled by an order of the
Court.
15. In view of the settled legal position and the provisions of the
Insolvency Act, it is abundantly clear that in order to seek an order of
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annulment, a Debtor is required to discharge all his Creditors which
include the decree holders also. However, the same will not be
restricted only to the decree holders. While it may that a decree holder
is the only person entitled to file a Petition under Section 9(2) of the
said Act, it is not necessary for a creditor to hold a decree for proving
its claim once a person is adjudged as an insolvent. The Legislature
has consciously permitted a specific class of creditors who have
obtained an adjudicated claim from a competent Civil Court to file
proceedings under the Insolvency Act, i.e., to issue a notice under
Section 9(2). However, at the same time, the Legislature has
consciously permitted all the creditors to prove their claim once the
petition is admitted and the act of insolvency is committed. At the
same time, when it comes to annulment, the debtor is required to
discharge all his debts and not just the claim of the Creditor who had
initiated the proceedings for insolvency."
21. We are in complete agreement with the aforesaid view adopted by the
learned Single Judge.
22. If the Appellant's interpretation is to be accepted, an Insolvent will be
in position to settle the debts of only certain creditors and seek annulment whereas
other creditors will remain outstanding. Such interpretation will be contrary to the
law laid down by the Supreme Court in Yenumula Maluoora Vs. Peruri Seetharathnam
& Ors. (supra) wherein it was held that settlement of only some creditors is not
permissible as the Insolvency Act is available for the benefit of all creditors.
23. As far as Kishore Mehta's case is concerned, the Division Bench of this
Court in paragraph no. 2 of the judgment recorded the issue under consideration.
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The said paragraph reads as under:
"2.Since common questions of law and facts arise in both these
appeals, they were heard together and are being disposed of by this
common judgment. The short but very important point which
arises for consideration in both these appeals is whether an
insolvency notice can be issued under section 9(2) of the
Presidency-Towns Insolvency Act, 1909, hereinafter called as
"the Insolvency Act", on the basis of a recovery certificate
issued under the provisions of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1994, hereinafter called
as "the RD Act".
(emphasis supplied)
24. The issue as recorded was whether a notice under Section 9(2) of the
Insolvency Act can be issued based on a recovery certificate. On this count alone, the
said decision in Kishore Mehta is wholly distinguishable and inapplicable to the facts
of this case. In any event, the law as laid down is that an Insolvency Notice (as
contemplated under Section 9 of the Insolvency Act) cannot be issued on the basis of a
recovery certificate issued under The Recovery of Debts Due to Banks and Financial
Institutions Act, 1993. This is not the question of law that has arisen for determination
before us. We are concerned with Section 21 and not Section 9 of the Insolvency Act.
25. In our opinion, in order to seek an order of annulment, the Appellant
was required to discharge the debts of all his Creditors including the Respondent
Bank. The contemplation is not restricted to such creditors who are entitled to file a
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Petition under Section 9(2) of the Insolvency Act. The Ld. Single Judge has rightly
remarked that the Legislature has consciously permitted a specific class of creditors
who have obtained an adjudicated claim from a competent Civil Court to file
proceedings under the Insolvency Act, i.e., to issue a notice under Section 9(2).
However, at the same time, the Legislature has consciously permitted all the creditors
to prove their claim once the petition is admitted and the act of insolvency is
committed. At the same time, when it comes to annulment, the debtor is required to
discharge all his debts and not just the claim of the Creditor who had initiated the
proceedings for insolvency.
26. In our considered opinion, 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.
27. Whilst none of the parties have brought to our notice a decision of a
learned Single Judge of this Court in Ramavatar Gupta vs. Sicom Ltd.,6 we have learnt
that a similar view was also adopted in the said decision. The relevant extracts read as
under:
"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
6 2009 SCC online Bom 102
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1989 against the insolvent.
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. 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.
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
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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.
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 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.
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.
Notice of Motion dismissed."
28. We are once again in agreement with the aforesaid view and are therefore
unable to accept the Appellant's contentions.
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29. As far as the Appellant's argument with respect to delay is concerned,
the same has no merit. It was the Appellant's duty to inform the Court regarding the
pending claim of the Respondent Bank. A perusal of the facts set-out above
demonstrate that in response to the notice issued by DRT on 22 nd December 2017, the
Official Assignee informed the DRT as well as the Respondent by its letter dated 15 th
December 2017 that the Appellant is no longer insolvent. It was on receiving this
intimation that the Respondent Bank approached the Court on 1 st February 2018.
There is therefore no delay which would be sufficient to defeat the Respondent Bank's
rights. The further contention of the Appellant that the Respondent Bank's actions
were undertaken with ulterior motives and are vindictive in nature also merit no
appreciation. Barring vague averments, there is nothing on record to substantiate such
allegations.
30. In respect of the issue of suppression of facts, on a perusal of the record,
it is evident that the Appellant was aware about the recovery certificate issued in
favour of the Respondent Bank, yet he decided not to disclose this fact. On the
contrary, a statement was made on oath that the Appellant has no other creditor. It is
based on this representation that the Order of annulment came to be passed albeit
incorrectly. This ex-facie amounts to suppression of material facts and therefore; we
agree with the view adopted by the learned Single Judge.
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31. In our considered opinion, the impugned Order has been passed after
taking into consideration all relevant provisions of the Insolvency Act as well as the
applicable law. In our opinion, there is no legal infirmity in the impugned Order which
requires interference by us.
32. For the reasons aforestated, the above Appeal is dismissed. Interim
Application No.1729 of 2020 also stands disposed off.
( PRITHVIRAJ K. CHAVAN, J. ) ( S.J.KATHAWALLA, J. )
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