1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN INSOLVENCY INSOLVENCY PETITION NO.46 OF 2008 Re:1. M/s. Patel Corporation, a partnership firm, Mumbai 400 002 2. Bhikha Gulabchand Patel of Mumbai ..Judgment Debtors. Ramnik Pasu Gala of Indian Inhabitant, prop. of M/s.Anand Cutpiece Corner, Mumbai 400 069 ..Petitioning Creditors. WITH INSOLVENCY PETITION NO.48 OF 2008 Patel Corporation & Anr. ..Judgment Debtors. Ex-parte Ramnik Pasu Gala ..Judgment Creditor. Mr.Niranjan Parikh i/b.Mansukhlal Hiralal & Co. for the Petitioning Creditors. Mr.Kishore Jain i/b.Tushar Goradia for Debtor no.2. CORAM : S.J. VAZIFDAR, J. DATE : 3RD MARCH, 2009. ORAL JUDGMENT : 2 The petitioning creditor seeks an order of adjudication of insolvency against debtor no 1 in the first petition and against debtor no.2 in the second petition. Debtor no.1 is M/s.Patel Corporation, a partnership firm of which debtor no.2, Bhikha G.Patel, and his brother Suresh Patel were partners. 2. By an order and judgment dated 20.1.2005 in Summons for Judgment No.100 of 2004 in Summary Suit No. 4082 of 2003 this court passed a decree against the debtors and the said Suresh Patel in the sum of about Rs. 57,60,388 together with interest at 12% per annum on the principal sum of Rs.40,00,000. 3. Suresh Patel challenged the said decree by filing Appeal No 814 of 2005. The Appeal Court has stayed the decree against Suresh Patel subject to the condition of his depositing Rs. 20,00,000 which he did. 4. On 19.4.2008 the petitioning creditor took out Insolvency Notice N/22 and served the same upon the debtors. Only debtor no. 2 took out a Notice of Motion for setting aside the insolvency notice being Notice of Motion No. 47 of 2008. The same was dismissed by an order dated 12.11. 2008. 5. Mr. Jain, the learned counsel appearing on behalf of the 3 debtors, submitted that the petitions are liable to be dismissed on certain grounds. Alternatively he submitted that I ought to adjourn the hearing of this petition till after the appeal filed by the said Suresh Patel and the execution proceeding adopted by the petitioning creditors are finally decided. I do not agree. 6. Mr. Jain submitted that the petitioning creditor is guilty of having suppressed important facts namely that the petitioning creditor had already taken out execution proceedings wherein an order for the attachment of certain properties has been passed. 7. An order dismissing the petition is not warranted even assuming that the petitioning creditors had failed to mention in the insolvency notice the facts regarding the execution proceedings. The same cannot be attributed to any mala-fide motives especially in the facts and circumstances of this case which I will refer to hereafter. There was nothing to be gained by the Petitioner doing so and I do not see the Petitioner having done so to gain any advantage. 8. Mr. Jain submitted that in view of the attachment order passed in the execution proceedings taken out by the petitioning creditors the petitioning creditors are deemed to be secured creditors within the meaning of that expression in section 12 of the 4 Presidency Towns Insolvency Act, 1909 which reads as under : - “12. Conditions on which creditor may petition. —(1) ......................................................... ................................................................................ (2) If the petitioning creditor is a secured creditor, he shall in his petition either state that he is willing to relinquish his security for the benefit of the creditors in the event of the debtor being adjudged insolvent or give an estimate of the value of the security. In the latter case he may be admitted as a petitioning creditor to the extent of the balance of the debt due to him after deducting the value so estimated in the same way as if he were an unsecured creditor.” 9. Admittedly the property attached in the execution proceedings was not independently secured in favor of the petitioning creditor as security for the payment of his dues from the judgment debtor’s. The expression “secured creditor” in section 12 (2) does not include an unsecured creditor who has obtained a decree and at whose instance the executing court has attached the property of the judgment debtor. Such a petitioning creditor is not a secured creditor in respect of the property so attached. The sale proceeds of such property does not enure to the benefit of the judgment creditor alone. It is to be distributed in the manner provided by the CPC. 10. It is also important to note that although the judgment creditor contends that the property attached belongs to the 5 judgment debtor no.2, he denies the same. The wife of judgments debtor no 2 has taken out a chamber summons to raise the attachment contending that she is the owner of the flat and not her husband. Judgment debtor no 2 himself supports this contention. In that view of the matter it is not open to the judgment debtors to resist this petition on the ground that the petitioning creditors are secured creditors. 11. Mr. Jain submitted that the insolvency court ought to tilt in favor of a debtor and against passing an order adjudicating him an insolvent. 12. I will for the purpose of this judgment proceed on that basis as a general proposit. In the facts of this case I see no reason to deny the order of adjudication. 13. Mr. Jain submitted that enormous prejudice would be caused to the judgment debtors if this petition is allowed and ultimately it is held in the execution proceedings that the flat belongs to the judgment debtor no.2 and not to his wife and the petitioning creditors claim under the decree is satisfied from out of the sale proceeds of the said flat. Mr.Jain submitted that I ought to either dismiss the petition or adjourn the same till after the appeal filed by the said Suresh Patel is decided and the execution 6 proceeding adopted by the petitioning creditors are finally decided. He relied upon sections 13 (4) (b) and 90 of the Act which read as under : - “13. Proceedings and order on creditor’s petition.— (4) The Court shall dismiss the petition— (a) if it is not satisfied with the proof of the facts referred to in sub-section (2); or (b) if the debtor appears and satisfies the Court that he is able to pay his debts, or that he has not committed an act of insolvency or that for other sufficient cause no order ought to be made. (emphasis supplied) 90. Powers of the Court.—(1) In proceedings under this Act the Court shall have the like powers and follow the like procedure as it has and follows in the exercise of its ordinary original civil jurisdiction : Provided that nothing in this sub-section shall in any way limit the jurisdiction conferred on the Court under this Act. (2)……………………………………………… …..…………………………….....……………… …. (3) The Court may at any time adjourn any proceedings before it upon such terms, if any, as it thinks fit to impose.” 14. This argument would have had some substance and I may have exercised my discretion as suggested by Mr.Jain if the judgment debtor had contended that the flat belongs to him and that the petitioning creditor is at liberty to sell the same and satisfy 7 his claim under the decree from out of the sale proceeds. In a given case the Court may well exercise its discretion especially under Section 90(3) where the judgment debtor asserts his right over any property even if another denies the same. This would depend upon the facts of the case including the Court being satisfied at least prima-facie about the debtors claim in respect of the property. 15. Quite the contrary is the case here. Judgment debtor no.2 denies that he owns the property and contends that it belongs to his wife. If the contention is upheld and it is found that judgment debtor no.2 does not own the flat and the execution proceedings are dismissed the order of adjudication in this case would obviously not prejudice the judgment debtor. If on the other hand it is found that the flat belongs to the judgment debtor and the decree is satisfied from out of the sale proceeds thereof an order of adjudication in this case would still not be unjust. It would be a consequence of a false and dishonest stand taken by the judgment debtor to defeat the rights of his creditors by falsely contending that the property does not belong to him. He then would have only himself to blame for the predicament that he may find himself in. I see no reason to exercise my 8 discretion in favor of such a judgment debtor. 16. Thus irrespective of the outcome of the execution proceedings in the facts of this case, there is no warrant for denying an order adjudicating the judgment debtors as insolvents. 17. Nor am I inclined to use my discretion to adjourned the matter till after the disposal of the appeal filed by Suresh Mehta. As stated above Notice of Motion No. 47 of 2008 was dismissed by an order dated 12.11.2008. The learned judge observed that the stay of the decree granted in the said appeal cannot enure to the benefit of these judgment debtors. I will assume that I am not bound by this observation. I am however in respectful agreement with it. The appeal has been filed not by the firm but by one of the partners namely the said Suresh Mehta. Judgment debtor no 2 has not challenged the decree. Thus even if Suresh Mehta were to succeed in the appeal the decree would still be valid and binding against the judgment debtors herein. Thus no purpose would be served by adjourning the hearing of this petition till after the disposal of the said appeal. 18. In the circumstances both the petitions are made absolute in terms of prayers (a) and (b). 19. The operation of this judgment and order is stayed till 9 30.4.2009.