Karnataka High Court

Sri M Mohan vs Karnataka Cashew on 5 December, 2023

Author: B M Shyam Prasad

Bench: B M Shyam Prasad

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                                                 NC: 2023:KHC:43836
                                               WP No. 51555 of 2016




            IN THE HIGH COURT OF KARNATAKA AT BENGALURU

             DATED THIS THE 5TH DAY OF DECEMBER, 2023

                                  BEFORE
             THE HON'BLE MR JUSTICE B M SHYAM PRASAD
                 WRIT PETITION NO. 51555 OF 2016 (GM-CPC)
            BETWEEN:

            SRI M MOHAN
            S/O LATE M VEERAPPA,
            AGED ABOUT 62 YEARS,
            R/AT NEKKARE MARU HOUSE, UJJODI,
            KANKANADY, MANGALURU
                                                ...PETITIONER
            (BY SRI. SANATH KUMAR SHETTY K., ADVOCATE)

            AND:

            1.    KARNATAKA CASHEW
                  DEVELOPMENT CORPORATION,
                  KRISHNA TOWERS,
                  LADY HILL,
Digitally         MANGALURU-575004
signed by
NARASIMHA         REPRESENTED BY ITS MANAGING DIRECTOR
MURTHY
VANAMALA
Location:   2.    SRI B JAYAKAR
HIGH
COURT OF          S/O LATE BABU,
KARNATAKA         AGED ABOUT 65 YEARS,
                  R/AT DOOR NO.15-23-1447,
                  LOWER BENDOOR,
                  MANGALURU-575003

            3.    SRI S V AMIN
                  S/O LATE G VENKATAPPA,
                  AGED ABOUT 55 YEARS,
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                                     NC: 2023:KHC:43836
                                  WP No. 51555 of 2016




     R/AT SAUGANDHI,
     DOOR NO.855/3,
     NEAR MONAPPA COMPOUND,
     MARNAMI KATTE,
     MANGALURU-575004

4.   SRI SUJUTH KUMAR N
     S/O NIRMAL PADMANABHA,
     AGED ABOUT 48 YEARS,
     R/AT DOOR NO.16-73-731,
     INDU PADMA,
     NEAR NAZARATH CONVENT,
     BALMATTA,
     MANGALURU-575003
                                ...RESPONDENTS
(BY SRI. NATARAJA BALLAL, ADVOCATE FOR R1,
     V/O, DTD 03.10.2016 NOTICE TO R2 TO R4 ARE
     D/W)


     THIS WP IS FILED UNDER ARTICLE 227 OF
THE CONSTITUTION OF INDIA PRAYING TO
INTERFERE WITH THE ORDER DTD.15.6.2016
PASSED ON I.A.NO.2 IN EX.CASE NO.41/2002 VIDE
ANNEX-A AND THE ORDER DTD.8.9.2016 PASSED
ON I.A.NO.3 IN EX.CASE NO.41/2002 VIDE ANNEX-
B AND THE ORDER DTD.19.9.2016 PASSED ON
I.A.NO.4 IN EX.CASE NO.41/2002 VIDE ANNEX-C
ON THE FILE OF THE PRL. SENIOR CIVIL JUDGE,
MANGALURU, D.K. AND SET ASIDE THE IMPUGNED
ORDER PASSED VIDE ANNEX-A TO C.

    THIS   PETITION,  COMING    ON   FOR
PRELIMINARY HEARING IN B GROUP, THIS DAY,
THE COURT MADE THE FOLLOWING:
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                                            NC: 2023:KHC:43836
                                        WP No. 51555 of 2016




                       ORDER

The petitioner is the third judgment debtor in

Ex.No.41/2002 on the file of the Principal Senior Civil

Judge, Mangaluru, Dakshina Kannada [for short 'the

executing Court']. The petitioner has impugned the

executing Court's three orders and the details of

these orders are as follows:

I.A.No.2 filed by the first respondent under Order XXI Rule 22 read with 151 of the Code of Civil Procedure, 1908 [CPC] is allowed vide order dated 15.06.2016.

I.A.No.3 filed by the first respondent under Order VI Rule 17 and Section 151 of CPC is allowed vide order dated 08.09.2016.

I.A.No.4 filed by the petitioner under Section 151 of CPC is dismissed vide order dated 19.09.2016.

2. Sri. Sanath Kumar Shetty, the learned

counsel for the petitioner, and Sri. Nataraja Ballal,

the learned counsel for the first respondent, are

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heard for final disposal in the light of the admitted

fact that after the award in the arbitral proceedings

in Arbitral Suit No.03/1999, the petitioner, as also

the second to fourth respondents, have been declared

insolvents by the order dated 20.02.2010 [Annexure-

F] in the proceedings in I.C.No.3/2003 under the

provisions of the Provincial Insolvency Act, 1920 [for

short, 'the Insolvency Act']. It is after this order dated

20.09.2010, that the present execution application

Ex.No.41/2002 is filed for enforcement of the award

in the arbitral proceedings.

3. The first respondent has filed I.A.Nos.2

and 3 for attachment of the petitioner's properties

and for amendment of the execution petition to

include the aforesaid properties in the execution

application. The executing Court by the Order dated

15.06.2016 has allowed the first respondent's

application [I.A.No.2] attaching the petitioner's

immovable properties, and the petitioner has filed his

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application [I.A.No.4] for recall of the order dated

15.06.2016. According to the first respondent, it is

only after the order dated 20.09.2010 in

I.C.No.3/2003, the first respondent has learnt that

the subject properties have devolved onto the

petitioner and therefore, it would be necessary to

bring the said properties into the fold of the

enforcement proceedings and initiate measures to

recover the amounts due from the petitioner from the

sale of these properties.

4. However, Sri. Sanath Kumar Shetty points

out that once a person is declared an insolvent, all

the assets held by such person as of the date of the

application would vest with the Court and these

assets will have to be liquidated for a rateable

distribution of the proceeds amongst the creditors.

Sri. Nataraj Ballal also submits that this proposition

would also apply in equal force when the properties

devolve on a person who is declared insolvent, and

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the learned counsel contends that this becomes

indisputable in view of the provisions of Section 28(4)

of the Insolvency Act.

5. The executing Court has proceeded to

pass the impugned orders without considering the

provisions of Section 28 of the Insolvency Act, which

read as under:

"28. Effect of an order of adjudication.--

(1) On the making of an order of adjudication, the insolvent shall aid to the utmost of his power in the realisation of his property and the distribution of the proceeds among his creditors.

(2) On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding except with the leave

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of the Court and on such terms as the Court may impose.

(3) For the purposes of sub-section (2), all goods being at the date of the presentation of the petition on which the order is made, in the possession, order or disposition of the insolvent in his trade or business, by the consent and permission of the true owner, under such circumstances that he is the reputed owner thereof, shall be deemed to be the property of the insolvent.

(4) All property which is acquired by or devolves on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or receiver, and the provisions of sub-section (2) shall apply in respect thereof.

(5) The property of the insolvent for the purposes of this section shall not include any property (not being books of account) which is exempted by the Code of Civil Procedure, 1908 (5 of 1908), or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree.

(6) Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would

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have been entitled to realise or deal with it if this section had not been passed.

(7) An order of adjudication shall relate back to, and take effect from, the date of the presentation of the petition on which it is made."

The proposition canvassed by both Sri. Sanath

Kumar Shetty and Sri. Nataraja Ballal would be

undeniable in the light of the express provisions and

the first respondent, must necessarily work out its

remedies under the Insolvency Act.

6. If the first respondent is permitted to

prosecute the execution proceedings notwithstanding

the express provisions of Section 28(4) of the

Insolvency Act, it would enable the petitioner to step

out of the proceedings under the aforesaid Act and

recover amount from the petitioner and the others

who are declared insolvent and that would be

impermissible in law. On this score, not only the

impugned orders should be set aside but also the

executing Court must be called upon to close the

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execution proceedings observing that closure of the

proceedings cannot in any manner undermine the

rights that the first respondent would have under the

Insolvency Act. Hence, the following:

ORDER

The petition is allowed in part, and

the executing Court's impugned orders are

quashed. The executing Court is called

upon to close the execution proceedings in

the light of this Court's order. The

respondents shall be liberty to enforce their

claim as permissible in law as against the

petitioner and others, who are declared

insolvents.