IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE S.S.SATHEESACHANDRAN FRIDAY, THE 13TH NOVEMBER 2009 / 22ND KARTHIKA 1931 WP(C).No. 33001 of 2008(D) --------------------------------------- IP.NO.9/2005 OF PRL.SUB COURT,KOTTAYAM .................... PETITIONER: ------------------- REENU ZACHARIAH, W/O. ZACAHRIAH KURIAN, RESIDING AT ASHOK BHAVAN, MOUNT WARDHA. BY ADVS. MR.JOSEPH KODIANTHARA, MR.MATHEWS K.UTHUPPACHAN, MR.TERRY V.JAMES. RESPONDENTS: ------------------------ 1. K.I. PHILIPOSE, S/O. IDICULLA, RESIDING AT PEACE VALLEY HOUSE, VADAVATHOOR.P.O, MANGANAM KARA, VIJAYAPURAM VILLAGE, KOTTAYAM TALUM AND DISTRICT. 2. ANNAMMA PHILIPOSE, W/O.K.I. PHILIPOSE, RESIDING AT PEACE VALLEY HOUSE, VADAVATHOOR.P.O, MANGANAM KARA, VIJAYAPURAM VILLAGE, KOTTAYAM TALUK AND DISTRICT. 3. SHINY KORAH, W/O. THOMAS M. JOSHNA, RESIDING AT MALAYIL THAZETHIL HOUSE, PAKKIL KARA, NATTAKAM VILLAGE, KOTTAYAM DISTRICT. 4. K.M. PHILIP, RESIDING AT 12-A, SILVER ARCH, 66, NEPEAN SEA ROAD, MUMBAI - 400 006. W.P.(C). NO.33001/2008-D: 5. DR.K.O. MAMMEN, RESIDING AT 10, WALTON ROAD, BANGALORE - 560 001. 6. P. GEORGE VARGHESE, RESIDING AT O/E/N CONNECTORS LTD., P.B NO. 2, VYTTILA, KOCHI-682 019. 7. ASHOK KURIAN, RESIDING AT ASHOK BHAVAN, MOUNT WARDHA, KANJIKUZHY, MATTAMBALAM.P.O, KOTTAYAM. 8. D.G. NAYAR, RESIDING AT 2 C, ANUGRAHA APARTMENTS -I, 2ND CROSS ROAD, SEETHA NAGAR, NUNGAMBAKKAM, CHENNAI- 600 034. 9. N.D. ACHIAH, C-3 MADURA TENACE, 72, NEW AVADI ROAD, KILPAUK, CHENNAI – 600 010. 10. GEORGE KURUVILLA, RESIDING AT VAIRAMS, 112, THYAGARAJA ROAD, T. NAGAR, CHENNAI – 600 017. R1 TO R3 BY ADV. MR.JOSE PALLATTUKARAN. THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 06/11/2009, THE COURT ON 13/11/2009 DELIVERED THE FOLLOWING: W.P.(C). NO.33001/2008-D: APPENDIX PETITIONERS' EXHIBITS: EXT.P.1: COPY OF THE I.P. NO.9/2005 DTD. 09/08/2005 FILED BY THE RESPONDENTS 1 TO 3 BEFORE THE SUB COURT, KOTTAYAM. EXT.P.2: COPY OF THE JUDGMENT DTD. 22/11/2007 PASSED BY THIS HONOURABLE COURT IN CRP.NO.1220/2005. EXT.P.3.A: COPY OF THE DEPOSIT RECEIPT DTD. 19/09/2000 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.B: COPY OF THE DEPOSIT RECEIPT DTD. 19/12/2000 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.C: COPY OF THE DEPOSIT RECEIPT DTD. 20/02/2001 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.D: COPY OF THE DEPOSIT RECEIPT DTD. 30/06/2001 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.E: COPY OF THE DEPOSIT RECEIPT DTD. 30/11/2001 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.F: COPY OF THE DEPOSIT RECEIPT DTD. 27/03/2002 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.G: COPY OF THE DEPOSIT RECEIPT DTD. 01/06/2002 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.H: COPY OF THE DEPOSIT RECEIPT DTD. 19/03/2004 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.I: COPY OF THE DEPOSIT RECEIPT DTD. 11/05/2004 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.3.J: COPY OF THE DEPOSIT RECEIPT DTD. 28/02/2005 ISSUED BY THE INTEGRATED FINANCE COMPANY LIMITED. EXT.P.4: COPY OF THE WRITTEN OBJECTION DTD. 06/11/2006 TO EXT.P.1. FILED BY THE PETITIONER IN I.P. NO. 9/2005. EXT.P.5: COPY OF THE I.A. NO. 1488/2008 DTD. 03/06/2008 FILED BY THE PETITIONER BEFORE THE SUB COURT, KOTTAYAM. EXT.P.6: COPY OF THE COUNTER AFFIDAVIT DTD. 10/06/2008 FILED BY THE RESPONDENTS 1 TO 3 IN EXT.P.5. W.P.(C). NO.33001/2008-D: EXT.P.7: COPY OF THE I.A. NO.4438/2008 DTD. 22/10/2008 FILED BY THE PETITIONER BEFORE THE SUB COURT, KOTTAYAM. EXT.P.8: COPY OF THE ORDER DTD. 19/08/2006 IN C.P. NO. 169/2005 OF THE HIGH COURT OF JUDICATURE AT MADRAS. EXT.P.9: COPY OF THE ORDER DTD 30/04/2008 IN O.S.A. NO. 308/2006 OF THE HIGH COURT OF JUDICATURE AT MADRAS. RESPONDENTS' EXHIBITS: NIL. //TRUE COPY// P.A. TO JUDGE. Prv. S.S.SATHEESACHANDRAN, J. ----------------------------------- W.P.(C).No.33001 of 2008 - D --------------------------------- Dated this the 13th day of November, 2009 J U D G M E N T Petitioner is the eighth respondent in I.P.No.9 of 2005 on the file of the Sub Court, Kottayam. The above I.P. has been filed by the respondents 1 to 3 under Sections 7 & 9 of the Kerala Insolvency Act, 1956, for passing orders adjudging respondents 1 to 7 in that petition, present petitioner and respondents 4 to 10 in the writ petition, and also for other reliefs. Ext.P1 is the copy of that insolvency petition. Petitioner has filed objections to the above petition in which among other contentions challenging the merit of the petition she has also contended that she has not committed any act of insolvency. It was further contended that the so called debts on the basis of which she was sought to be adjudged as an insolvent in the insolvency petition are due to the petitioners from a company, which has not been made a party to the proceedings and so much so, the petition filed against her is not maintainable under law. Subsequently, she moved two petitions for considering the maintainability of the petition before W.P.(C).No.33001 of 2008 - D 2 proceeding with the other issues canvassed in the insolvency proceedings. Ext.P5 is the copy of the petition for advancing the case to consider the maintainability of the insolvency petition as a preliminary issue. Ext.P7 petition was filed challenging the maintainability of the petition contending that the I.P. does not disclose any cause of action against the respondents and it is barred under the provisions of the Insolvency Act. Without considering the above two petitions, the proceedings of the case are adjourned for evidence, is the grievance espoused by the petitioner for issuing of a writ/order/direction to the court below to consider Exts.P5 and P7 applications and dispose them before continuing with further steps in the insolvency proceedings. 2. Notice being given, respondents 1 to 3, petitioners in the insolvency petition have entered appearance. I heard the counsel on both sides. 3. According to the learned counsel for the petitioner the insolvency petition filed by the respondents 1 to 3 is not maintainable against the petitioner as she was only an employee of a company, namely, Integrated Finance Company Limited, registered under the Companies Act, 1956, in which respondents W.P.(C).No.33001 of 2008 - D 3 1 to 3 have made some investments. Deposit receipts produced by the petitioners in the insolvency petition, true copies of which are produced as Exts.P3(a) to P3(i), it is submitted, reveal that the investments had been collected by the company and not by the petitioner or other respondents in the insolvency petition. Petitioner is not personally liable to repay the amount deposited by the respondents 1 to 3 with the above company and so much so, the insolvency petition filed to adjudge her as an insolvent invoking the provisions under the Insolvency Act, according the counsel, is not maintainable. The Company Law Board is seized of the disputes relating to the company, and it is contended that a scheme of arrangement/compromise, for settlement of liabilities had been framed by the above company with the investors and the same had been placed before the High Court of Madras under the provisions of the Companies Act. Pursuant thereto the scheme was sanctioned by the High Court approving a resolution adopted by the majority of the investors in a meeting convened under orders issued from the court. Ext.P8 is the copy of that order passed in the above company petition filed by the company. Scheme of composition approved by the W.P.(C).No.33001 of 2008 - D 4 learned Single Judge under Ext.P8 order had been set aside by a Division Bench of the High Court of Madras. Ext.P9 is the copy of that judgment. Learned counsel further submits that Ext.P9 order has been challenged before the Apex Court and it is pending consideration. Reliance on Exts.P8 and P9 is placed by the counsel to contend that there is no merit in the case set forth by the respondents 1 to 3, petitioners in the insolvency petition, that the company is a bogus company and the petitioner and other respondents in the I.P. are personally liable for the debts arising out of the investments collected from the general public. Under the above circumstances the question whether the insolvency petition is maintainable against the petitioner and other respondents as canvassed by the petitioners in the insolvency petition (respondents 1 to 3 in the I.P) before proceedings with the enquiry for adjudging any of the respondents in the I.P. as insolvent and also whether in the given facts of the respondents has a cause of action against the respondents named in their petition to maintain the proceedings under the Insolvency Act, according to the counsel, has to be considered as a preliminary issue to advance the ends of justice. W.P.(C).No.33001 of 2008 - D 5 On the other hand, learned counsel appearing for respondents 1 to 3 inviting my attention to the allegations raised in Ext.P1 petition, the I.P. filed under Sections 7 & 9 of the Insolvency Act to adjudge the respondents named therein as insolvents contended that the case set forth by them was that the respondents in the I.P. were conducting private financing business in the name of a bogus company, namely, Integrated Finance Company Limited. Respondents in the I.P. had defrauded the public at large collecting investments in the name of a sham company, and so much so, the proceedings initiated under the Insolvency Act to adjudge them as insolvents as they had failed to discharge their debts to the investors, according to the counsel, is perfectly maintainable. The company, namely, Integrated Finance Company Limited, was a nonexistent one, and it has no assets whatsoever of its own, according to the counsel. Respondents had canvassed deposits from public in the name of a bogus company, and the challenge now raised against the maintainability of the insolvency petition is only to shield their properties from being taken over to discharge their debts. A receiver has already been appointed by the court in the W.P.(C).No.33001 of 2008 - D 6 insolvency proceedings to prepare an inventory of the assets of the respondents and it was then the petitioner challenged the maintainability of the petitioner, it is submitted. The learned counsel for respondents 1 to 3 contends that the question of maintainability if at all arising for consideration should be decided with reference to other issues arising for adjudication in the insolvency proceedings after taking evidence. 4. Having regard to the submissions made by the counsel on both sides with reference to the facts and circumstances presented, I find that in the nature of the allegations raised in the insolvency petition and also the challenges put forth by the eighth respondent/petitioner in the I.P. impeaching the maintainability of the petition against her under the provisions of the Insolvency Act, it is incumbent upon that court to consider and dispose of Exts.P5 and P7 applications before proceeding with further steps in the insolvency petition. Whereas petitioners in the insolvency petition have a case that the respondents are personally liable for the investments collected in the name of the company, Integrated Finance Company Limited, which is disputed as a bogus company, the W.P.(C).No.33001 of 2008 - D 7 eighth respondent contends that the investments had been collected from public by the company and she being only a former employee of that company in the managerial cadre, she had no personal liability and the company alone is liable to the investors. Proceedings under the Companies Act before the High Court of Madras with respect to a scheme arrived at by the company with the investors and Exts.P8 and P9 orders, with further proceedings stated to be pending before the Apex Court, is canvassed to contend that the case advanced by the petitioners in the I.P. that the above company, viz. Integrated Finance company Limited is a bogus company, is hardly susceptible. If the company was liable to the investors for the debt due for the investments collected from them, then, needless to point out, no insolvency petition can be presented against the company in view of the statutory bar under Section 8 of the Kerala Insolvency Act. A company cannot be made insolvent under the insolvency laws, but, a company can be wound up if it is proved to the satisfaction of the court that the company is faced of such a situation. But, whether the company is unable to pay its debts if the execution or other process issued W.P.(C).No.33001 of 2008 - D 8 on a decree or order of any court in favour of a creditor of the company is returned unsatisfied in whole or in part, or whether it has to be regarded as commercially insolvent, are all questions which can be considered only by the competent court in proceedings for its compulsory winding up as envisaged by law. So much so, in an insolvency proceedings in view of the statutory interdiction covered by the Insolvency Act and also under the Companies Act, it is not open to the court dealing with insolvency petition to determine the question whether the company is commercially insolvent or not. Petitioners in the O.P have not impleaded the Integrated Finance Company Limited, in the name of which the respondents in the insolvency petition are alleged to have issued fixed deposit receipts for the investments collected, since their case is that it was a bogus and nonexistent company. Petitioner on the other hand has contended that the company registered under the Companies Act is liable for the investments collected from the public, and as she was only an employee of the company she has no liability at all. She has challenged the maintainability of the insolvency proceedings filed against her seeking consideration of that issue primarily before taking W.P.(C).No.33001 of 2008 - D 9 evidence for adjudging the respondents including her as to whether any of them are to be adjudged as insolvents. The question canvassed by the petitioner under Exts.P5 & P7 petitions, in the given facts of the case, deserves to be examined within the parameters covered by sub rule (2) of Rule (2) of Order XIV of the Code of Civil Procedure. Sub rule (1) of Section 5 of Insolvency Act states that in proceedings under the Insolvency Act, insolvency court shall have the same powers and shall follow the same procedure as it has in the exercise of original civil jurisdiction. So much so, when maintainability of the insolvency petition is canvassed contending that the proceedings as against the respondents in the I.P. are not entertainable and that the petitioners in the I.P. have no cause of action against the respondents or any of them proceeded against the question for determination is whether the challenge canvassed is based on a statutory interdiction or such other cause which can be determined without taking evidence in the case. If the challenge on maintainability can be decided as a pure question of law as to jurisdiction or bar of the proceedings it can be tried as a preliminary issue even if some documents are to be brought on W.P.(C).No.33001 of 2008 - D 10 record. However, where the court finds the disputed question demand to be considered as a mixed question of fact and law requiring evidence for a proper adjudication it is not possible to consider that issue as preliminary issue even if it is canvassed so by any of the persons proceeded against in the proceedings. It is for the court dealing with insolvency petition to consider the scope and merit of Exts.P5 & P7 applications filed by the petitioner with reference to sub rule (2) of Rule (2) of Order XIV of the Code of Civil Procedure. Consideration of those applications and passing of appropriate orders thereof, in accordance with law, complying with the procedural parameters under Rule (2) of Order XIV of the Code of Civil Procedure by the insolvency court, is essential in the nature of the facts and circumstances presented in the case. I make it clear that I am not expressing any opinion with respect to the merit of the insolvency petition nor of the challenge canvassed by the petitioner disputing maintainability of that petition. Reference to the case canvassed by the rival parties has been made in the judgment only for the purpose of pointing out that the challenge canvassed by the petitioner has to be examined W.P.(C).No.33001 of 2008 - D 11 following the procedural safeguards enshrined under sub rule (2) of rule (2) Order XIV of the Code of Civil Procedure. I direct the court below to consider and dispose of Exts.P5 and P7 applications, as expeditiously as possible, taking note of the observations made above and also in accordance with law, at any rate, within a period of three months from the date of receipt/production of a copy of this judgment. Writ petition is disposed as indicated above. S.S.SATHEESACHANDRAN, JUDGE. bkn/-