1 nmis5-10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN INSOLVENCY NOTICE OF MOTION NO.5 OF 2010 IN INSOLVENCY NOTICE NO.N/40 OF 2009 M/s.Shiva Trading Corporation & Ors. ....Judgment Debtors Ex-parte : Ashok Agarwal ....Judgment Creditor Mr.Gaurav Joshi i/b Mr.H.V. Chande for the Judgment Debtors. Ms.Sharmila V.Deshmukh for the Judgment Creditor. CORAM : S.J. VAZIFDAR, J. DATE : 17TH AUGUST, 2010. ORAL JUDGMENT :- 1. This is a motion for setting aside the insolvency notice No.N/40 of 2009 served on the three Applicants, the judgment debtors. The insolvency notice refers to judgment debtor Nos.2 and 3 by their names – Gulab S. Daga and Jatin Devi Daga and states that they carry on business as the partners of judgment debtor No.1, M/s.Shiva Trading Corporation. 2. Summary Suit No.2824 of 1999 was filed only against the said firm i.e. judgment debtor No.1. On 4.9.2001 a decree was passed for a sum of Rs.31,12,500/- together with interest at 15% p.a on Rs.30,00,000/- from the date of the filing of the suit i.e. 13.4.1999 till payment. It is not necessary to refer to the proceedings regarding the stay of the auction of 2 nmis5-10 the property of the Defendants pursuant to the execution proceedings taken out by the judgment creditor. 3. The decree not having been satisfied, the judgment creditor took out the said insolvency notice and served the same upon the three judgment debtors. Judgment debtor Nos.2 and 3 were not impleaded in the suit. They denied that they were partners in the firm – judgment debtor No. 1. It is not disputed that qua them leave under order 21 rule 50 (2) of the Code of Civil Procedure has not been obtained. Order 21 rule 50 reads as under :- “50. Execution of decree against firm.—(1) Where a decree has been passed against a firm, execution may be granted— (a) against any property of the partnership; (b) against any person who has appeared in his own name under Rule 6 or Rule 7 of Order XXX or who has admitted on the pleadings that he is, or who has been adjudged to be, a partner; (c) against any person who has been individually served as a partner with a summons and has failed to ap- pear: Provided that nothing in this sub-rule shall be deemed to limit or otherwise affect the provisions of [Section 30 of the Indian Partnership Act, 1932 (9 of 1932)]. (2) Where the decree-holder claims to be entitled to cause the decree to be executed against any person other than such a person as is referred to in sub-rule (1), clauses (b) and (c), as being a partner in the firm, he may apply to the Court which passed the decree for leave, and where the liability is not disputed, such Court may grant such leave, or, where such liability is disputed, may order that the liability of such person be tried and determined in any manner in which any issue in a suit may be tried and determined. (3) Where the liability of any person has been tried and determined under sub-rule (2), the order made thereon shall have the same force and be subject to the same con- ditions as to appeal or otherwise as if it were a decree. 3 nmis5-10 (4) Save as against any property of the partnership, a decree against a firm shall not release, render liable or otherwise affect any partner therein unless he has been served with a summons to appear and answer. [(5) Nothing in this rule shall apply to a decree passed against a Hindu undivided family by virtue of the provisions of Rule 10 of Order XXX.]” Mr.Joshi, the learned counsel appearing on behalf of the judgment debtors relied upon the judgment of a Division Bench of this Court in Ganeshnarayan Jagdamba Prasad v. Indian Textile Syndicate, AIR 1954, Bombay 91 to contend that the procedure under order 21 rule 50(2) not having been followed the insolvency notice could not have been issued/served upon judgment debtor Nos.2 and 3. The judgment supports the submission. This is not seriously disputed. 4. It was contended that the judgment is contrary to the judgment of another Division Bench of this Court to which I was a party, in the case of Hemant M. Nabar & Ors. v. Farohar & Co. & Ors.2005(5) Bom.C.R. 234. The submission is not well founded. The question in that case was whether the insolvency notice under section 91 of the Act of 1909 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 C.P.C. Order 21 rule 22 is entirely different from order 21 rule 50. The purpose of the two provisions are also entirely different. The judgment of the Division Bench in Ganeshnarayan Jagdamba Prasad v. Indian Textile Syndicate, AIR 1954, Bombay 91 was noted in the latter judgment. Paragraph 13 of the judgment in Hemant M. Nabar’s case reads as under :- “13. The reliance placed by Mr.Sen on the 4 nmis5-10 judgment of the Division Bench of this Court in Ganeshnarayan Jagdamba Prasad v. Indian Textile Sybdicate, A.I.R. 1954 Bom.91, 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.” 5. Thus the Division Bench in Hemant M. Nabar’s case expressly held that the judgment had no application to that case. Conversely the judgment in Hemant M. Nabar’s case can have no application to the present case which falls clearly within Order 21 rule 50. In the present case, there is no admission that judgment debtor Nos.2 and 3 at the relevant time were partners of judgment debtor No.1. Nothing is said about judgment debtor No.3. Judgment debtor No.2 who has filed the affidavit in support of the Notice of Motion has stated that he was never personally a partner of M/s.Shiva Trading Corporation i.e. judgment debtor No.1. He further states that the S.L. Daga, HUF was a partner of judgment debtor No.1 and the Karta of the HUF was the said S.L. Daga when he was alive. The said S.L. Daga died on 11.5.1992. Upon his death, judgment debtor No.2 became the Karta of the said HUF. Judgment debtor No.2 submits in his affidavit that he was never and is not now a partner of the said firm. 6. I will assume that the said S.L. Daga when he was alive was whether as the Karta of the HUF or otherwise a partner of the firm 5 nmis5-10 judgment debtor No.1. However, that would not ipso-facto make judgment debtor No.2 a partner of the firm upon the death of the said S.L. Daga. This point is covered by the judgment of the Supreme Court in Rashiklal & Co. v. Commissioner of Income Tax, Orissa, (1998) 2 SCC 49, where the Supreme Court held as under :- “12. An HUF cannot be in a better position than a firm in the scheme of the Partnership Act. The reasons that led this Court to hold that a firm cannot join a partnership with another “individual” will apply with equal force to an HUF. In law, an HUF can never be a partner of a partnership firm. Even if a person nominated by the HUF joins a partnership, the partnership will be between the nominated person and the other partners of the firm. Having regard to the definition of “partnership” and “partners” and in view of the principle laid down in Dulichand case it is not possible to hold that an HUF being a fluctuating body of individuals, can enter into a partnership with other individual partners. It cannot do indirectly what it cannot do directly. If a Karta or any other member of the HUF joins a partnership, he can do so only as an individual. His rights and obligations vis-à-vis other partners are determined by the Partnership Act and not by Hindu law. Whatever may be the relationship between an HUF and its nominee partner, in a partnership, neither the HUF nor any member of the HUF can claim to be a partner or connected with the partnership through a nominee. Where the Karta of an HUF enters into a partnership agreement with a stranger, the Karta alone in the eye of law is the partner. If any payment by the firm to a partner is prohibited by law, the Karta cannot be heard to say that the payment was received by him not as a partner but in some other capacity. Within the partnership, the Karta is a partner like any other partner with whom he has entered into a partnership agreement individually. It is essential to have an agreement between the partners to form a partnership. An HUF not being a “person” cannot enter into an agreement of partnership. If the Karta of an HUF enters into partnership with a stranger, upon the death of the Karta, the partnership will stand dissolved. In the absence of a contract to the contrary, another member of the family cannot step into the shoes of the Karta claiming that the Karta was merely representing the HUF and the real partner was the HUF. A Karta who enters into a contract of partnership with a stranger may be accountable to the 6 nmis5-10 other members of the HUF for the profits received from the partnership business. But that is something between the Karta and the HUF. But so far as the partnership firm is concerned, the Karta is a partner like any other partner. If a commission is paid to a partner who happens to be a nominee of an HUF, the commission is not paid to the HUF. It is paid by the firm to one of its individual partners. The partner may have to account for the monies received from the firm to another person or another firm or an association of persons or an HUF. But that will not alter the fact that commission was paid by the firm to one of its partners.” 7. In view of the pleadings in this case, there is nothing to indicate in the present proceedings that judgment debtor Nos.2 and 3 were the partners of the firm. The judgment creditor must therefore adopt appropriate proceedings in this regard, if he so desires. The insolvency notice as against judgment debtor Nos.2 and 3 must therefore be set- aside. 8. There is however no ground for setting aside the insolvency notice as against judgment debtor No.1. Mr.Joshi submitted that the insolvency notice ought to be set-aside even against judgment debtor No.1 on the ground that the amount mentioned in the insolvency notice is incorrect. The submission is not well founded in fact I will not therefore consider whether or not it is valid in law. 9. To support this contention Mr.Joshi referred to the particulars of claim as stated by the Insolvency Registrar in the insolvency notice. The particulars of claim referred to Rs.20,00,000/- as having been adjusted against interest. Mr.Joshi contended that the amount of Rs.20,00,000/- was paid towards the principal and not towards interest. I do not agree. 10. The petitioning creditor is entitled to adjust the amount 7 nmis5-10 received first towards interest and then towards the principal unless the tender is made on the condition that it be first adjusted towards the principal. There is nothing on record which indicates that the tender of Rs. 20,00,000/- was to be adjusted first towards the principal and not towards interest. The fact that the amount of Rs.20,00,000/- may have been paid during the pendency of the proceedings under section 138 of the Negotiable Instruments Act would make no difference whatsoever. I am not inclined to infer from this fact that the tender was made subject to the condition that it would be adjusted first towards the principal. The sum of Rs.20,00,000/- was paid between the years 2006 and 2008. During this period the interest was more than Rs.20,00,000/- as the decretal amount was Rs.31,12,500/- and interest was payable on the sum of Rs.30,00,000/- at 15% p.a. Thus the sum of Rs.20,00,000/- was not sufficient to cover the interest which had accrued upto the date of its payment. There is therefore, no discrepancy between the amounts stated in the insolvency notice and the amount actually paid. 11. The notice of motion is therefore allowed only in respect of judgment debtor Nos.2 and 3 and not judgment debtor No.1. However, with a view to affording judgment debtor No.1 an opportunity of making full payment, the following order is passed :- i). In the event of judgment debtor No.1 paying the judgment creditor, the entire decretal amount together with interest on or before 28.2.2011, the insolvency notice shall stand set-aside against judgment debtor No.1. ii). In the event of judgment debtor No.1 failing to pay the said 8 nmis5-10 amount, the notice of motion shall stand dismissed without further orders of the Court. iii). The notice of motion as against judgment debtor Nos.2 and 3 is made absolute in terms of prayer (a). The judgment creditor is at liberty to adopt appropriate proceedings against judgment debtor Nos.2 and 3 under order 21 rule 50 of the C.P.C. or otherwise. There shall be no order as to costs.