IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 15.7.2011 CORAM THE HON'BLE MR.M.Y.EQBAL, CHIEF JUSTICE THE HON'BLE MR.JUSTICE P.JYOTHIMANI AND THE HON'BLE MS.JUSTICE K.B.K.VASUKI C.M.A. No.1249 of 2009 and M.P.No.1 of 2009 Ramalingam .. Appellant/1st Respondent Vs. 1. Radha 2. The Secretary Pudupet Primary Agricultural Co-operative Bank Limited Pudupet. 3. Ramachandran 4. Singaravel 5. Dhatchinamurthy .. Respondents/Respondents 2 to 5 PRAYER: Appeal filed U/S 75 of the Provincial Insolvency Act 1920 against the fair and final order dated 6.8.2007 passed in I.A.No.240 of 2006 in I.P.No.1 of 2006 on the file of the Principal District Judge, Cuddalore. For Petitioner : Mr.S.K.Rakhunathan For Respondents : Mr.R.Muralidharan for 1st respondent https://hcservices.ecourts.gov.in/hcservices/ ORDER (Delivered by The Hon'ble The Chief Justice, P.JYOTHIMANI,J. and K.B.K.VASUKI,J.) The above Civil Miscellaneous Appeal is filed by the creditor against the interlocutory order dated 6.8.2007 passed in I.A.No.240 of 2006 in I.P.No.1 of 2006 filed by the first respondent in the appeal on the file of the learned Principal District Judge, Cuddalore granting an order of protection restraining the appellant and respondents 2 to 5 from arresting or harassing or threatening the first respondent with both legal and out of court action and from detaining her in prison till the disposal of the insolvency petition. 2. The question that arose for consideration before the learned Single Judge was as to whether the insolvency Court is empowered to pass such interim order of protection before the order of adjudication is made by the insolvency Court. 3. Admittedly, the first respondent has filed the Insolvency Petition to declare herself as insolvent and adjudication has not been commenced. Pending the decision in the Insolvency Petition, she has moved the above said interlocutory application under Section 4 of the Provincial Insolvency Act, 1920 (for brevity, "the Act") for the protection stated above. 4. The learned Single Judge considering that two conflicting views have been taken by two Division Benches – one in Sinnaswami Chettiar v. Aligi Goundan and others, AIR 1924 Madras 893 and another in Nallagatti Goundan v. Ramana Goundan and others, AIR 1925 Madras 170, has referred the matter to the Hon'ble Chief Justice for constituting a Larger Bench to decide the following question: "Whether the insolvency Court constituted under Provincial Insolvency Act of 1920 has power under the law to grant ad-interim protection from 'arrest or detention' before a final adjudication order is made adjudicating the individual as insolvent?" Thus, the matter has been posted before the Full Bench for a decision. 5. In Sinnaswami Chettiar v. Aligi Goundan and others, AIR 1924 Madras 893, a Division Bench has held, by referring to Sections 23 and 31 of the Act, that an insolvent is not entitled to make an application under the Act for protection, before he is adjudicated, unless he has been arrested, since there was no necessity till then for any protection. The Division Bench, therefore, has held that in such event if there is an apprehension of arrest, he should expedite the matter and get his order of adjudication first and then ask for https://hcservices.ecourts.gov.in/hcservices/ protection under Section 31 of the Act. The operative portion of the said decision is as follows: ".. An insolvent is not entitled to make an application under the Act for protection, before he is adjudicated, unless he has been arrested; because, there is really no necessity till then for any protection. If the insolvent wants to apply for protection, he ought to expedite matters, in such a way, as to get his order of adjudication first and then ask the Court to grant protection under Section 31." 6. In Nallagatti Goundan v. Ramana Goundan and others, AIR 1925 Madras 170, while considering Section 5 of the Act, of course without referring to the judgment in Sinnaswami Chettiar case, supra, a Division Bench has held that the District Court has inherent powers under Section 5 of the Act to pass protection order even before adjudication, which is as follows: "... In our opinion, the District Judge has inherent powers under Section 5 of the Provincial Insolvency Act to grant the appellant the protection he has claimed." 7. Even though the matter is stated to have been settled, since a reference has been made and legal position is to be settled, we have taken up the matter. 8. Mr.S.K.Rakhunathan, learned counsel for the appellant would contend that the decision in Nallagatti Goundan case, supra, has not been supported with any reason except stating crisply that the District Judge has inherent powers to grant interim protection even before the process of adjudication is completed and therefore, according to him, it is not a law laid down on principle. 9. According to him, in Sinnaswami Chettiar case, supra, the issue has been discussed in the light of Section 31 of the Act to hold that the insolvent is not entitled to make an application for protection before adjudication. It is his contention that when sufficient protection has been given under Section 31 of the Act after adjudication is made, the general power conferred under Section 5 of the Act cannot be construed to mean that pending adjudication, the insolvency Court will have inherent powers of granting protection. 10. Per contra, it is the submission of Mr.R.Muralidharan, learned counsel appearing for the first respondent that the power given under Section 31 of the Act is distinct, which is available after the adjudication is over, and that cannot take away the inherent power that lies with the Civil Court dealing with the https://hcservices.ecourts.gov.in/hcservices/ insolvency matters in granting interim protection even before adjudication. He would submit that in Nallagatti Goundan case, supra, the Division Bench has, in fact, considered Section 5 of the Act and held that the inherent power lies with the Civil Court and that cannot be abrogated by Section 31 of the Act. 11. We have considered the issue involved in this case carefully with reference to various provisions of the Act. 12. In Sinnaswami Chettiar case, supra, the Division Bench had no occasion to consider anything about Section 5 of the Act, except to refer to Sections 23 and 31 of the Act. 13. In Ramnad District Central Co-operative Bank, through its Secretary v. Official Receiver of Ramnad District, Ramnad at Madura, AIR 1954 Madras 12, another Division Bench of this Court, while referring to Sections 4 and 5 of the Act and the power of the insolvency Court to decide about the questions arising in insolvency and by correlating the corresponding provisions in the English Act relating to the Law of Bankruptcy, has held that there is a discretion vested in the Court in the matter of granting injunction and it cannot be said that there is an absolute prohibition against the grant of injunction. By referring to an observation of Cotton L.J., In re Hart, [1880] 15 Ch.D 223 (C), where an order of injunction was refused, still the learned Judge has observed that the inherent powers of the Court in granting injunction in suitable cases are available, the Division Bench has held as follows: "10. It is seen from these observations that there is a discretion vested in the court in the matter granting injunctions and not that there is an absolute prohibition against the grant of injunction. Though in 'Ex parte Bayly, In re Hart',(1880) 15 Ch. D. 223 (C), the court refused to grant the injunction, still observations in the judgment of Cotton L.J. at pages 226 and 227 do not negative the power inherent in the court to issue the injunction in suitable cases. At page 227 we have the following statement by the learned Judge: "Under such circumstances if the court saw that there was a reasonable case to be tried at the hearing, it would interfere and keep the property 'in medio' until at the hearing the rights of the parties could be decided." 11. It is therefore clear that it cannot be said as an abstract proposition of law that the insolvency court in England never had that power. In India also there are judicial pronouncements as well as views of text books https://hcservices.ecourts.gov.in/hcservices/ writers which do show the existence of such a power. Paragraph 74, at page 56 of the Law of Insolvency by D. P. Mulla is to the following effect: "Injunction. Though the court will not restrain a mortgagee or other secured creditor in the exercise of his legal remedies under Section 18 (sic.) of the Act, it may, it seems, restrain him under Order 39 Rule 1 C.P.C., 1908, if there are substantial grounds for impeaching its title." 14. While referring to the powers of the Court under Section 46 of the Presidency-Towns Insolvency Act, 1909 that during the pendency of the appeal there is no express provision for ad-interim order and therefore, when it was contended that the Court is not competent to pass any interim order, a Division Bench of Calcutta High Court in Abdul Razab v. Basiruddin Ahmed and others, 6 Ind. Cas. 95, held that simply because there is no express provision, the inherent powers of the Civil Court which are already available for passing interim order is not taken away. The operative portion of the said decision is as follows: "2. ...... We are of opinion, therefore, that although there is no express provision on the subject, it is competent to this Court in the exercise of its inherent powers, as a Court of appeal, to make an ad interim order for protection of the appellant and for the appointment of a receiver of his assets during the pendency of the appeal." 15. Mulla on the Law of Insolvency in India, while referring to both the Presidency-Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, has also opined that the insolvency Court possesses inherent powers of a Civil Court to make necessary orders as may be necessary for the ends of justice or to prevent the abuse of process of the Court under Section 151 of the Code of Civil Procedure. 16. Section 4 of the Act, which is as follows: "Section 4. Power of Court to decide all questions arising in insolvency.- (1) Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it https://hcservices.ecourts.gov.in/hcservices/ expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case. (2) Subject to the provisions of this Act and notwithstanding anything contained in any other law for the time being in force, every such decision shall be final and binding for all purposes as between, on the one hand, the debtor and the debtor's estate and, on the other hand, all claimants against him or it and all persons claiming through or under them or any of them. (3) Where the Court does not deem it expedient or necessary to decide any question of the nature referred to in sub-section (1), but has reason to believe that the debtor has a saleable interest in any property, the Court may without further inquiry sell such interest in such manner and subject to such conditions as it may think fit." gives full power to the Court, which is the District Court under the Act having civil jurisdiction, to decide all questions arising in insolvency, which is in effect giving inherent powers of passing interim orders in appropriate cases during the pendency of the insolvency proceedings. 17. In addition to that, Section 5 of the Act, which is as follows: "Section 5. General powers of Courts.- (1) Subject to the provisions of this Act, the Court, in regard to proceedings under this Act, shall have the same powers and shall follow the same procedure as it has and follows in the exercise of original civil jurisdiction. (2) Subject as aforesaid, High Courts and District Courts, in regard to proceedings under this Act in Courts subordinate to them, shall have the same powers and shall follow the same procedure as they respectively have and follow in regard to civil suits." specifically empowers the insolvency Court the same power of the Court of original civil jurisdiction and the powers of trying a civil suit. 18. The Civil Court while trying the civil suit has inherent power of granting interim orders under Section 151 of the Code of Civil Procedure. Simply because Section 23 of the Act enables the https://hcservices.ecourts.gov.in/hcservices/ Court to release the debtor who has been arrested or imprisoned in execution of a decree of any Court for the payment of money, it does not, in effect, take away the power of the insolvency Court to pass interim orders which are preventive in nature, of course in appropriate cases based on the facts and circumstance of the case. 19. Section 31 of the Act dealing with the protection order applies only after the adjudication process is completed. The power of passing interim orders at the instance of the creditor against the debtor is very much available under Section 21 of the Act. 20. Therefore, a combined reading of the provisions as a whole, especially taking note of Sections 4 and 5 of the Act, we are of the considered view that there is no bar for the insolvency Court in exercising its inherent powers of granting interim orders before the adjudication process, as a matter of prevention. 21. While explaining about the scope of inherent powers of the Civil Court, by referring to the judgment of the Supreme Court in Padam Sen v. State of Uttar Pradesh, AIR 1961 SC 218 wherein it was observed that the inherent powers of the Court are in addition to the powers specifically conferred on the Court by the Code of Civil Procedure and therefore, the powers conferred under the Code of Civil Procedure are complementary to the inherent powers already available as mentioned under Section 151 of the Code of Civil Procedure, the Apex Court has held in Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal, AIR 1962 SC 527 while dealing with the powers of the Court in granting order of injunction under Order 39 of the Code of Civil Procedure, in respect of which there has been difference of opinion – one view stating that the power of granting injunction is only under Order 39 of the Code of Civil Procedure and other opinion stating that even in cases which are not covered under Order 39 of the Code of Civil Procedure, if the Court is of the opinion that interest of justice requires issuance of interim injunction, it was held as follows : "18. ..... We are of opinion that the latter view is correct and that the Courts have inherent jurisdiction to issue temporary injunctions in circumstances which are not covered by the provisions of O. XXXIX, Code of Civil Procedure. There is no such expression in s. 94 which expressly prohibits the issue of a temporary injunction in circumstances not covered by O. XXXIX or by any rules made under the Code. It is well-settled that the provisions of the Code are not exhaustive for the simple reason that the Legislature is incapable of contemplating all the possible circumstances which may arise in future litigation and consequently for providing the procedure for them. The https://hcservices.ecourts.gov.in/hcservices/ effect of the expression 'if it is so prescribed' is only this that when the rules prescribe the circumstances in which the temporary injunction can be issued, ordinarily the Court is not to use its inherent powers to make the necessary orders in the interests of justice, but is merely to see whether the circumstances of the case bring it within the prescribed rule. If the provisions of s. 94 were not there in the Code, the Court could still issue temporary injunctions, but it could do that in the exercise of its inherent jurisdiction. No party has a right to insist on the Court's exercising that jurisdiction and the Court exercises its inherent jurisdiction only when it considers it absolutely necessary for the ends of justice to do so." 22. While interpreting the provisions of Section 4 of the Act, the Supreme Court, in the case of Johrilal Soni vs. Bhanwari Bai, A.I.R. 1977 S.C. 2202, observed as follows : "It would be seen that the section has been couched in the widest possible terms and confers complete and full powers on the Insolvency Court to decide all questions of title or priority, or of any nature whatsoever, which may arise in any case of insolvency. The only restriction which is contained in Section 4 is that these powers are subject to the other provisions of the Act. In other words, the position is that where any other section of the Act contains a provision which either runs counter to Section 4 or expressly excludes the application of Section 4, to that extent Section 4 would become inapplicable." 23. After giving our anxious consideration to the matter and in the light of the principles laid down by the Supreme Court, we have no hesitation in holding that even before final adjudication, the insolvency court has inherent power to pass interim orders, of course, such interim order shall be passed depending upon the facts and circumstances of each individual case and to meet the ends of justice. The reference is answered accordingly. Consequently, with due respect, we are unable to agree with the view expressed by the learned Judges of the Division Bench of this Court in the case of Sinnaswami Chettiar vs. Aligi Goundan and others (A.I.R. 1924 Madras 893) and the same stands over-ruled. We further subscribe the views expressed by the Division Bench in the case of Nallagatti Goundan vs. Ramana Goundan and others (A.I.R. 1925 Madras 170) and Ramnad District Central Co-operative Bank, through its Secretary vs. Official Receiver of Ramnad District, Ramnad at Madurai, A.I.R. 1954 Madras 12. Since the parties have settled the dispute out of Court, https://hcservices.ecourts.gov.in/hcservices/ this C.M.A. stands disposed of. Consequently, M.P. No.1 of 2009 is closed. Sd/- Asst. Registrar //True Copy// Sub Asst. Registrar sasi/ab To 1 The Principal District Judge, Cuddalore. 1CC MR.R.MURALIDHARAN, Advocate SR No.42572 C.M.A. No.1249 of 2009 and M.P.No.1 of 2009 JV / 05.08.2011 https://hcservices.ecourts.gov.in/hcservices/