THE HON’BLE SRI JUSTICE N.R.L.NAGESWARA RAO CIVIL MISCELLANEOUS SECOND APPEAL No.26 OF 2006 JUDGMENT: The petitioner in I.P.No.48 of 2000 on the file of the II Additional Senior Civil Judge, Vijayawada, is the appellant herein. 2. The Insolvency Petition was filed stating that the petitioner has become insolvent as he could not discharge the debts and in that application about ten respondents were shown and the 1st respondent is the Municipal Corporation and the appellant is said to be a tenant of the premises and has to pay more than Rs.9,00,000/- towards the arrears of lease amount. The Corporation claimed that the insolvency petition is not maintainable under Section 8 of the Provincial Insolvency Act (for short, ‘the Act’). Accepting the contention, the Insolvency Court declared the petitioner as insolvent so far as the respondents 2 to 10 are concerned and dismissed the claim against the 1st respondent. The appellate Court also confirmed the said order. 3. The present appeal is filed questioning as to whether the 1st respondent does not come within the purview of the Provincial Insolvency Act? 4. POINT: This is a pure question of law which is to be answered and the Courts below relying upon the provision under Section 8 of the Provincial Insolvency Act granting exemption to Corporations and Companies from the provisions of the Insolvency Act, held that the 1st respondent is a Corporation and consequently Section 8 of the Act is attracted. But, however, it is the contention of the appellant that the 1st respondent is a State within the meaning of Article 12 of the Constitution, Section 8 is not attracted and the insolvency maintainable even against the debts due to the Government and therefore, the dismissal of the application against the 1st respondent is not valid. In fact, the lower Court relied on a decision reported in G.Subba Rao V. The Food Corporation of India and others[1], wherein the provisions of Section 8 of the Act were applied and held the insolvency proceedings are not maintainable. 5. But, however, in this case, as can be seen from the Hyderabad Municipal Corporation Act, which is applicable to Vijayawada also, Municipal Corporation is held to be a local authority and is a State within the meaning of Section 12 of the Constitution. It is useful to refer to a decision reported in Syed Moose Quadri V. Special Officer, Municipal Corporation of Hyderabad[2] and also Commissioner, Nagar Palika Nigam V. Rama Sharma[3]. Under Section 61 of the Act, there is only priority of debts to the crown or local authority. Section 61(1)(a) of the Act is as follows: “61(1)(a) all debts due to the Crown or to any local authority; and” 6. Therefore, when once the Municipal Corporation is a local authority it can only claim a priority over the distribution of the debts, but it is not totally exempted from the provisions of the Act. Therefore, the dismissal of the application against the 1st respondent is not legal and the lower courts have misapplied the principles and the provisions of Section 8 of the Act. The petitioner will be entitled to the protection from the Insolvency Court even with regard to the amount if any due to the 1st respondent. Accordingly, the appeal is allowed and order of the Insolvency Court and appellate Court is set aside insofar as the refusal of relief as against the 1st respondent and dismissal of the application. The order in I.P.No.48 of 2000 also covers the 1st respondent. Accordingly points are answered. 7. In the result, the Civil Miscellaneous Second Appeal is allowed holding that the 1st respondent also come within the purview of the Insolvency Act and the appellant is entitled for the protection. ________________________ N.R.L.NAGESWARA RAO,J Date:06.07.2011 INL [1] AIR 2004 AP 16 [2] AIR 1987 AP 6 [3] AIR 1987 MP 1