*1* nmis.37.09.inpt.55.06.22 kps IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION NOTICE OF MOTION NO.37 OF 2009 IN INSOLVENCY PETITION NO.55 OF 2006 SICOM Ltd.. ..Petitioning Creditor -Versus- V.J.Prasad & others. ..Insolvents/Judgment Debtors .......... Mr.J.P.Sen a/w M.A.Shah i/b Kavita A. Shah, for the Insolvents/ Judgment Debtors. Mr.K.Setalwad with Mr.Prakash Panjabi i/b Prakash Panjabai & Company, for the Petitioning Creditor. Mr.Y.C.Parikh, Official Assignee, present in person. .......... CORAM : S.C.DHARMADHIKARI, J. DATE : 18th January, 2011. P.C. 1 By this Notice of Motion, the Insolvents/ Judgment Debtors are seeking the following reliefs:- “(a) That the delay, if any, in taking out the above Notice of Motion be condoned; (b) That this Hon’ble Court be pleased to set aside and/or recall and/or review and/or rescind the ex-parte order of adjudication dated 3rd October, 2006 passed by this Hon’ble Court in the above Insolvency Petition No. 55/2006 and dismiss the petition; (c) In the alternative to prayer (b) above, this Hon’ble Court be pleased to annul the Order of Adjudication dated 3rd October, 2006 passed in the above Insolvency Petition No. 55/2006; (d) That this Hon’ble Court be pleased to set aside the Insolvency Notice No.N/33 of 2006 dated 28th February, 2006 issued to the Debtors; *2* nmis.37.09.inpt.55.06.22 (e) In the alternative to prayer (d) above, this Hon’ble Court be pleased to order and declare that the Insolvency Notice No.N/33 of 2006 dated 28th February, 2006 is null and void ab initio and of no effect whatsoever and that no legal consequences much less any act of insolvency resulted as a result of non compliance thereof; (e-1) That this Hon’ble Court be pleased to rescind and vary the order dated 20.01.2009 passed by the Hon’ble Court in Notice of Motion No.56 of 2008.” 2 It is contended by Mr.Sen, learned counsel appearing on behalf of the Judgment Debtors in support of this Notice of Motion, that the decree in this case was passed in Summons For Judgment No. 917/1997 in Summary Suit No.2980/1997. On 31.01.2006 the Petitioning Creditor “The State Industrial & Investment Corporation of Maharashtra Limited” (in short “SICOM”) filed an application in the Insolvency Registry for issuance of Insolvency Notice. That application was made on the basis that the decree is passed in a summary suit, that the Petitioning Creditor has not received any amount under the said decree and that the execution of this decree has not been stayed. On the basis of this Insolvency Notice, the Insolvency Registry took further steps and the Insolvency Petition No. 55/2006 was placed before a learned Single Judge of this Court, who on 03.10.2006 made it absolute in terms of prayer clauses (a) and (b). 3 Mr.Sen submits that an application by way of Notice of Motion No.56/2008 was made in this Insolvency Petition No.55/2006 but on 20.01.2009 that application of the Judgment Debtor was dismissed with liberty to file a fresh Notice of Motion. The order dated 20.01.2009 reads thus:- “1. The decree passed in favour of SICOM has not yet been set aside. In the circumstances, the present Notice of Motion which seeks relief under Section 21 cannot be allowed. 2. The Notice of Motion is, therefore, dismissed with liberty *3* nmis.37.09.inpt.55.06.22 to file a fresh Notice of Motion, if necessary.” 4 Mr.Sen submits that, the above Notice of Motion was dismissed may be with observations that the decree passed in favour of the SICOM has not yet been set aside, the relief which is sought under Section 21 of the Presidency Towns Insolvency Act, 1909 cannot be granted; however, that does not prevent the Judgment Debtor moving the present Notice of Motion praying for setting aside the order dated 03.10.2006 and dismissal of the Insolvency Petition itself because the requirement of Section 9(2) of the Presidency Towns Insolvency Act, 1909 has not been satisfied at all. Although, Mr.Sen would concede that first part of Section 9 has been satisfied namely, there is a decree passed by the Civil Court in Summary Suit on 05.02.2003, that decree could not have been executed by the Civil Court by virtue of notification dated 23.02.2004 under which the SICOM has been declared as a Public Financial Institution. The moment it is so declared, then, the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (in short RDDB Act, 1993) are attracted. The remedy of the Petitioning Creditor to execute the subject decree, was making an application to the competent Debts Recovery Tribunal seeking recovery certificate and only on the strength of such recovery certificate, the decree of this Court would have been executed through the mechanism and machinery provided by the RDDB Act, 1993. Once the Civil Court lost jurisdiction to execute the subject decree and it could have been executed only by the Debts Recovery Tribunal, then, the date on which the Insolvency Notice came to be issued and the date on which it was made absolute, the Court had no jurisdiction. Mr.Sen submits that the proceedings under Section 9(2) of the Presidency Towns Insolvency Act, 1909 (in short PTI Act, 1909) are initiated for execution of the decree. Relying on the judgment of this *4* nmis.37.09.inpt.55.06.22 Court reported in 2008(6) Bom.C.R. 340 (HDFC Bank Ltd. & another Vs. Kishore K. Mehta & others), it is contended by Mr.Sen that this Court must set aside the order dated 03.10.2006 and dismiss the Insolvency Petition itself. Mr.Sen submits that this being a defect of jurisdiction, pleas raised in the present Notice of Motion and particularly in the affidavit in support are capable of being raised at this stage and there is no substance in the contentions on the point of maintainability of the present Notice of Motion. 5 In support of the submissions afore noted, Mr.Sen relied upon a decision of the Division Bench in case of HDFC Bank (supra), the observations of the Hon’ble Supreme Court in case of Punjab National Bank vs. Chajju Ram & others reported in AIR 2000 SC 2671 and a decision of the Division Bench of this Court in case of the Bank of India v/s Shree Satya Corporation & others reported in 2000(4) Mh.L.J. 657. 6 In support of his contentions that the issuance of notification declaring the SICOM as a public financial institution, no execution proceedings could have been initiated in this Court and that notification itself operates as a statutory stay of execution; Mr.Sen relied upon a Division Bench decision of this Court reported in AIR 1954 Bombay 91 (Ganeshnarayan Jagdamba Prasad Vs. Indian Textile Syndicate). 7 On the other hand, Mr.Setalwad, learned counsel appearing on behalf of the Petitioning Creditor SICOM opposed this Notice of Motion and submitted that the order dated 03.10.2006 is final. On the date of passing of the said order, the notification dated 23.02.2004 was already issued and was in force, therefore, all objections which are being raised today, could have been raised at that point of time and the Judgment Debtors chose not to remain present despite service of the Insolvency Notice. Further it was open to them to raise all pleas when they argued *5* nmis.37.09.inpt.55.06.22 the Notice of Motion No.56/2008 but that was dismissed on 20.01.2009. Once that application was allowed to be dismissed and that was held to be not maintainable because the decree in a summary suit has not been set aside, then, the condition precedent under the order dated 20.01.2009 is not satisfied. In these circumstances and when the decree is not set aside, then, second round is not permissible and the instant motion should be dismissed by applying the principles of res-judicata or any principles analogous thereto. Mr.Setalwad submits that such is understanding of the order of this Court by the Judgment Debtor. In that behalf, Mr.Setalwad invites my attention to paragraph No.5 of the affidavit in support of the Notice of Motion. In addition, he invites my attention to Section 19 of the RDDB Act, 1993 to urge that the SICOM may file an application seeking recovery certificate but there was no mandate for doing so. Mr.Setalwad submits that the Division Bench judgment of this Court in HDFC Bank (supra) will have no application because the ratio therein is that a recovery certificate issued under the RDDB Act, 1993 is not a decree or order of the Civil Court and therefore, the proceedings under Section 9 of the PTI Act, 1909 could not have been instituted. He submits that such is not the case here. Admittedly, and it is conceded that there is a decree of the competent Civil Court passed in a summary suit in this case. The execution of that decree has not been stayed. In such circumstances, all ingredients of Section 9(2) of the PTI Act, 1909 are satisfied and the Motion is misconceived and should be dismissed. Mr.Setalwad submits that the judgment of the Division Bench is, therefore, distinguishable on facts. Lastly, Mr.Setalwad submits that there is no substance in the contention of Mr.Sen that the proceedings under Section 9(2) of the PTI Act, 1909 are akin to or on par with the execution proceedings. For all these reasons, Mr.Setalwad submits that, the motion be dismissed. *6* nmis.37.09.inpt.55.06.22 8 With the assistance of the learned counsel appearing for the parties I have perused the affidavit in support, so also, the affidavit in reply of the Petitioning Creditor dated 07.07.2009. 9 As far as objection of maintainability of this Notice of Motion raised by Mr.Setalwad is concerned, the orders passed by this Court on 03.10.2006 and 20.01.2009 are clear. If at all any reliefs which are identical to the prayers in Notice of Motion No.56/2008 are claimed, yet, the true effects of the order dated 20.01.2009 which is reproduced herein above, is that the Court has not gone into any controversy nor has adjudicated or concluded it. The motion was held to be not maintainable at that stage but at the same time, it came to be dismissed with liberty to file a fresh Notice of Motion. In my view, such an order by itself and without anything more will not prevent the Judgment Debtor from filing the instant Notice of Motion. Hence, this Notice of Motion is maintainable. 10 With the assistance of the learned counsel appearing for the parties, I have perused Section 9 of the PTI Act, 1909 which appears in Part-II titled “Proceedings from Act of Insolvency to Discharge” with sub- heading “Acts of Insolvency” and below which Section 9 appears and in this very part. Section 9 reads thus:- “9. Acts of insolvency:- [(1)] A debtor commits an act of insolvency in each of the following cases, namely;-- (a) if, in the States or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally; (b) if, in the States or elsewhere, he makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors; (c) if, in the States or elsewhere, he makes any transfer of his property or of any part thereof, which would, under this or any other enactment for the time being in force, be void as a fraudulent preference if he were adjudged an insolvent; *7* nmis.37.09.inpt.55.06.22 (d) if, with intent to defeat or delay his creditors,-- (i) he departs or remains out of the States, (ii) he departs from his dwelling-house or usual place of business or otherwise absents himself, (iii) he secludes himself so as to deprive his creditors of the means of communicating with him; (e) if any of his property has been sold or attached for a period of not less than twenty-one days in execution of the decree of any Court for the payment of money; (f) if he petitions to be adjudged an insolvent; (g) if he gives notice to any of his creditors that he has suspended, or that he is about to suspend, payment of his debts; (h) if he is imprisoned in execution of the decree of any Court for the payment of money. [(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 therefor. *8* nmis.37.09.inpt.55.06.22 (3) An insolvency notice under sub-section (2) shall-- (a) be in the prescribed form; (b) be served in the prescribed manner; (c) specify the amount due under the decree or order and require the debtor to pay the same or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent; (d) specify for its compliance a period of not less than one month after its service on the debtor or, if it is to be served on a debtor residing, whether permanently or temporarily, outside India, such period (being not less than one month) as may be specified by the order of the Court granting leave for the service of such notice; (e) state the consequences of non-compliance with the notice. (4) No insolvency notice shall be deemed to be invalid by reason only that the sum specified therein as the amount due under the decree or order exceeds the amount actually due, unless the debtor, within the period specified in the insolvency notice for its compliance, gives notice to the creditor that the sum specified in the insolvency notice does not correctly represent the amount due under the decree or order: Provided that if the debtor does not give any such notice as aforesaid, he shall be deemed to have complied with the insolvency notice if, within the period specified therein for its compliance, he takes such steps as would have constituted a compliance with the insolvency notice had the actual amount due been correctly specified therein. (5) Any person served with an insolvency notice may, within the period specified therein for its compliance, apply to the Court to set aside the insolvency notice on any of the following grounds, namely:-- (a) that he has a counter-claim or set off against the creditor which is equal to or is in excess of the amount due under the decree or order and which he could not, under any law for the time being in force, prefer in the suit or proceeding in which the decree or order was *9* nmis.37.09.inpt.55.06.22 passed; (b) that he is entitled to have the decree or order set aside under any law providing for the relief of indebtedness and that-- (i) he has made an application before the competent authority under such law for the setting aside of the decree or order; or (ii) the time allowed for the making of such application has not expired; (c) that the decree or order is not executable under the provisions of any law referred to in clause (b) on the date of the application.] Explanation.--For the purposes of this section, the act of an agent may be the act of the principal, even though the agent have no specific authority to commit the act.” 11 A perusal of Section 9 would demonstrate that sub-section (2) opens with the words “Without prejudice to the provisions of sub- section (1)” and it further speaks that 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 as contemplated in sub-section (3) and termed as “Insolvency Notice”. In the instant case it is not necessary to enter into any wider controversy in the light of concession given by Mr.Sen that a decree in a summary suit dated 05.02.2003 is a decree or order against the Judgment Debtor for payment of money and passed by the competent Civil Court. His contention is that there are two requirements of Section 9(2) namely a decree or order which has become final and the execution whereof has not been stayed. Therefore, according to him, even if the execution proceedings have not been commenced by the Petitioning Creditor SICOM, yet, by virtue of notification dated 23.02.2004 the same could not *10* nmis.37.09.inpt.55.06.22 have been initiated and commenced in this Court, but, the SICOM will have to approach the Debts Recovery Tribunal by invoking Section 31-A of the RDDB Act, 1993, therefore, second requirement has not been satisfied according to Mr.Sen. 12 It is not possible to accept this contention of Mr.Sen for obvious reasons. Section 9(2) of the PTI Act, 1909 contemplates passing of a decree or order for payment of money, which decree or order has gained finality and execution whereof has not been stayed. It is not the case of Mr.Sen that execution of this decree or order has been stayed by the Court. According to him, issuance of notification dated 23.02.2004 would operate as a statutory stay of execution, therefore, Insolvency Notice could not have been issued and made absolute by this Court. It is not possible to accept this contention either. The judgment of the Division Bench of this Court in Ganeshnarayan J. Prasad Vs. Indian Textile Syndicate reported in AIR 1954 Bom. 91 was rendered in peculiar facts. There a suit was instituted against a dissolved firm having several partners out of which only one partner was served with a writ of summons and a decree was passed against the firm and the creditor took out an insolvency notice against the firm calling upon the firm to pay the decreetal amount within a specified time. The Division Bench noticed Order 21 Rule 50(2) of the Code of Civil Procedure, 1908 and held that there is a statutory stay of execution of the decree against the partners other than those who have been served in that case. In that case, one partner has been served and the insolvency notice could not be moved against other partners. Therefore, no notice could have been taken out against all partners of the firm. It has not been clarified as to how these observations are of any assistance in this case. By issuance of notification declaring the SICOM as a public financial institution and without anything more or identical to Order-21 *11* nmis.37.09.inpt.55.06.22 Rule 50 of the Code of Civil Procedure, 1908 being brought to my notice, it is not possible to hold that there is statutory stay on execution of the decree. If that would have been the case it was not necessary for Mr.Sen to labour the point further by inviting my attention to the RDDB Act, 1993 and the judgment of the Division Bench of this Court in case of HDFC Bank (supra). His argument proceeds on the basis that an application for execution of decree was admittedly not made by the SICOM but if it could have been made, it would have to be filed in the Debts Recovery Tribunal and once it was so made to the Debts Recovery Tribunal, the SICOM would have had to obtain a recovery certificate, which recovery certificate could not have been termed as “decree or order” and therefore, on that basis, the Insolvency Notice could not have been issued. All these are the matters of clear conjectures. There is no execution application filed in the Civil Court. There is no stay of execution issued either. Insolvency Notice can be, therefore, clearly filed and was maintainable. There was nothing in law which prevented the learned Single Judge from passing the order dated 03.10.2006 making that Insolvency Notice absolute. Mr.Sen’s argument to be accepted would require me to read into the provision a mandate to file an Execution Application or else no Insolvency Notice can be issued. That is not contemplated by the plain words of the section. The requirement is the execution should not have been stayed. In the instant case, it is not stayed as held above. 13 Further, Execution proceedings and Insolvency proceedings cannot be equated. Insolvency proceedings are not an alternative to Execution Proceedings. (see AIR 1972 SC 2127 Sarat Chandra Roy v/s Harakchand Damani and another). 14 Once the above conclusion is reached, it is not necessary to consider other submissions of Mr.Sen but having canvassed and invited *12* nmis.37.09.inpt.55.06.22 my attention to the judgments of this Court, I deem it my duty to deal with them. 15 The Division Bench was considering the controversy as to whether a recovery certificate issued in favour of the HDFC Bank under the provisions of the RDDB Act, 1993 is a decree or order so as to enable the HDFC Bank to apply for reliefs in terms of Sections 9(2) and 9(3) of the PTI Act, 1909. Noticing the legal provisions in the field and particularly the scheme of the RDDB Act, 1993 and the judgment of the Hon’ble Supreme Court in case of Allahabad Bank Vs. Canara Bank reported in AIR 2000 SC 1535; the Division Bench held thus:- “19. The above discussion and decisions of the Apex Court leave no scope for any doubt that the term “decree” in Section 9 (2) of the Insolvency Act refers to the decree for payment of money issued by a Civil Court. If the term 'decree' is to be understood as defined in CPC, obviously, there is no justification to apply different criteria to understand the meaning of the term 'order' in the said Section. The term 'order' has been defined in CPC in Section 2 (14) to mean “the formal expression of any decision of a Civil Court which is not a decree”. It specifically refers to an order by a Civil Court. Obviously, therefore, considering the decisions referred to above, the same criteria has to be adopted while understanding the term “order” as is applied to understand the term 'decree' and obviously, therefore, it would refer to a 'decree or order' passed by a Civil Court. 20. In fact, the above point is well settled by the decision of the Apex Court in Patheja's case read with the observations in Harinagar Sugar Mills case. It is true that Patheja's case was delivered while dealing with the point as to whether the arbitration award is a decree for the purpose of Section 9 of the Insolvency Act and whether insolvency notice can be issued on the basis of an arbitral award. While dealing with the said issue, the Apex Court has considered the scope of the term 'decree and order' under Section 9 (2) of the Insolvency Act and has clearly *13* nmis.37.09.inpt.55.06.22 held that the said terms have to be understood as defined under the provisions of the CPC. As already seen above, the definition 'decree or order' in terms of CPC necessarily refers to the one issued by the Civil Court and not by any Tribunal as such, unless it is so provided under the statute under which the Tribunal is constituted. 21. It