1 inpt92.05.doc ast IN THE HIGH COURT OF JUDICATURE AT BOMBAY IN INSOLVENCY INSOLVENCY PETITION NO. 92 OF 2005 Re:1. Ajay Surendra Tanna and 2. Smt. Leela Surendra Tanna. .. Debtors. Ex-parte: SICOM Ltd. .. Petitioning Creditors. Mr. J.P.Sen i/b. Mr. A.G.Shah for debtors. Mr. Kishor Jain i/b. P.V.Shah for Petitioning Creditors. CORAM: S.C.DHARMADHIKARI, J. DATED: MARCH 1, 2011 P.C. 1 This is a Petition for adjudication filed by the SICOM Ltd.. 2 The Petitioning Creditors have stated that the Debtors owe to the Petitioning Creditors a sum of Rs.4,59,54,965.50 with further interest on Rs.1,50,00,000/- @ 22% p.a. from 7th December, 2004 till payment and/or realisation, being the balance amount due under Insolvency Notice No.N/393 of 2004 dated 24th December, 2004 and under the Decree dated 18th June, 2003, obtained by the Petitioning Creditors against the Debtors in Summary Suit No.285 of 2 inpt92.05.doc 2001. 3 It is then contended that Notice was issued against the Debtors on the application of the Petitioning Creditors. Notice of Motion No.25 of 2005 was taken out by the Debtors to set aside Insolvency Notice. That was dismissed on 15th March, 2005. The Debtors failed and neglected to pay and by not complying with the requisitions of the Insolvency Notice, they committed an act of insolvency on 15th March, 2005, that is the date of the dismissal of their Notice of Motion. In these circumstances, when there is no security held, the order of adjudication may be made against the Debtors. This Petition is filed on 2nd June, 2005. 4 There is an affidavit filed in reply, in which issue of jurisdiction of this Court has been raised but on instructions, it is stated by Mr. Sen, Counsel appearing on behalf of the Judgment Debtors that issue of jurisdiction is not being pressed. Therefore, the said affidavit in reply need not be adverted to. 5 There are further affidavits, which have been filed on behalf of the Petitioning Creditors and once again, it is not necessary to advert to them because they mainly pertain to the issue of jurisdiction of this Court. 3 inpt92.05.doc 6 At the hearing of this Petition, Mr. Sen, Counsel appearing for the Judgment Debtors contended that the decree was passed in the Summary Suit on 18th June, 2003. While it is true that on the date on which the decree came to be passed by this Court in the Summary Suit against M/s. Suprapti Plastics Ltd(company), the principal debtor it was not before BIFR. On 24th January, 2004 there was a fresh reference registered by the Company before BIFR. There was letter dated 3rd March, 2004 from BIFR to the Company informing that the reference has been registered as case No.135 of 2004. Shri Sen submits that Insolvency Notice No.N/393 of 2004 was taken out on 24th December, 2004. On the date on which the Insolvency Notice was taken out, a reference within the meaning of the said term under the Sick Industrial Companies(Special Provisions) Act, 1985, was pending. In the light of Section 22(1) of the said Act, it is clear that the proceedings for winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate 4 inpt92.05.doc Authority. Shri Sen submits that on the date on which the Insolvency Notice was taken out the execution against properties of the Industrial company or for appointment of receiver in respect thereof and no suit for recovery of money or enforcement of security against the Industrial company or of any guarantee in respect of loan or advance granted to the Industrial company could have been maintained or proceeded with further. In other words, on the date when the Insolvency Notice was taken out, the decree could not have been executed against the Company and the guarantee could not have been enforced against the Judgment Debtors. There was a statutory stay to the execution of the decree. In these circumstances, Insolvency Notice could not have been taken out as the conditions prescribed with regard to the same under section 9 of the Presidency Towns Insolvency Act 1909 have not been satisfied. Once they are not satisfied, then, this Court could not have proceeded with the proceedings in insolvency. Therefore, present Petition being based on such Insolvency Notice, is not maintainable and deserves to be dismissed. 7 In support of his contentions, he relies upon a Judgment of the Division Bench of this Court in the case of Ganeshnarayan Jagdamba Prasad reported in AIR 1954 Bombay page 91. 5 inpt92.05.doc 8 In support of his contentions that the Insolvency Notice could not have been issued when execution proceedings in respect of the subject decree cannot be proceeded with in view of the statutory stay under section 22 of the SICA, Mr. Sen relied upon the judgment of the Hon'ble Supreme Court in the case of Paramjeet Singh Patheja vs. ICDS Ltd.[Civil Appeal No.4130 of 2006] decided on 31st October, 2006 and reported in JT 2006 (10) SC page 41. 9 Shri Sen, learned Counsel for the Judgment Debtors submits that the controversy as to whether the suit, in the present case could have been proceeded with against the guarantors is concerned, that is a subject matter of reference before a larger bench of the Supreme Court and it is pending. For all these reasons, he submits that this petition be dismissed. 10 On the other hand Mr. Jain, Counsel appearing on behalf of the Petitioning Creditors points out that the Judgment debtors cannot raise this issue again and again. They have moved the Notice of Motion which Notice of Motion came to be dismissed by a Single Judge of this Court. The order of the Single Judge on the said Notice of Motion has become final. Once the said order has become final and not challenged by the Judgment Debtors any 6 inpt92.05.doc further, then, very same argument should not be entertained. Shri Jain relied upon the order dated 15th March, 2005 in the Notice of Motion No.25 of 2005 in the present proceedings, namely, Notice No. N/393 of 2004. 11 In rejoinder Mr. Sen submits that the issue raised by him is not identical to one raised before Dr. Justice D.Y.Chandrachud, when he dealt with and disposed of the Notice of Motion No.25 of 2005 by order dated 15th March, 2005. In any event, he submits that principle of res judicata cannot be applied in this case because even at this stage it is open for the Judgment debtors to raise the issue that the decree passed in the instant case was not capable of being executed and enforced on the date on which the Insolvency notice was taken out. In support of this position, he relies upon the Judgment of the Hon'ble Supreme Court in the case of Sushil Kumar Mehta vs. Gobind Ram Bohra(dead) through his Lrs. reported in (1990) 1 SCC page 193. 12 With the assistance of Mr. Sen and Mr. Jain, I have perused the Petition and the annexures including the order dated 15th March, 2005. 13 When the Insolvency Notice was taken out and duly served on the Judgment Debtors, they moved Notice of Motion No. 7 inpt92.05.doc 25 of 2005 to set aside this Insolvency Notice. This Notice of Motion was moved on 17th February, 2005. It was placed before the learned Single judge Dr. Justice D.Y.Chandrachud, and by his Judgment and Order dated 15th March, 2005 he dismissed the same. While dismissing the same, he dealt with the arguments of the Judgment Debtors. The arguments were on the basis that the Judgment Debtors before the Court are guarantors. The loan was advanced by the Petitioning Creditors to a company M/s. Suprapti Plastic Ltd.. Present Judgment Debtors are guarantors being the directors of the said Company. They urged only two submissions. Firstly, they urged that the proceedings cannot be pursued any further since a reference has been made before the BIFR on 3rd March, 2004 and that provisions of section 22 of the SICA must apply. 14 While dealing with these submissions, learned Judge held thus: “2. In so far as the first submission is concerned, the relevant dates are thus : The decree was passed on 18th June, 2003. The reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 was made on 3rd March, 2004. The Insolvency Notice was issued on 24th December, 2004. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 inter alia covers - (i) a suit for the 8 inpt92.05.doc recovery of money; (ii) a suit for the enforcement of any security against the industrial company; (iii) a suit for the enforcement of any guarantee in respect of any loans or advances granted to the industrial company. Such suit shall not lie or be proceeded further except with the consent of the BIFR or as the case may be the AAIFR. In the present case, the prohibition contained in Section 22 of the Act would not be attracted for the simple reason that the suit has been decreed on 18th June, 2003 much prior to the reference and there is no question, therefore, of the suit being instituted or being proceeded with further. 3. In Dewal Singhal v. State of Maharashtra (2001 Vol.106 Company Cases 587), a Division Bench of this Court held that as far as proceedings against a guarantor of a loan to an industrial company are concerned, the bar under Section 22 is restricted only to a suit and does not apply to any other proceeding. The only proceeding against the guarantor of a loan to an industrial company which is barred under Section 22 is a suit and nothing else. The Division Bench held that an insolvency notice is not a suit and therefore, the said proceeding was not barred. In a subsequent decision in Kailash Nath Agarwal v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd (2003(2) SCALE 160), the Supreme Court held that there was no reason for widening the scope of the word ’suit’ in Section 22 so as to cover proceedings against the guarantor of an industrial company. The Court held that the object of the SICA and for introducing the 1994 amendment was to facilitate the rehabilitation or the winding up of sick industrial companies and it is not the stated object of the Act to protect any other object or body. The Court held that if a 9 inpt92.05.doc creditor enforces a guarantee in respect of a loan granted to the industrial company, the provisions of the Act would not be rendered nugatory and all that could happen would be that the guarantor would step into the shoes of the creditor vis-a- vis the company to the extent of the liability met. Explaining the earlier judgment of the Supreme Court, in Patheja Bros. Forgings & Stampings v. ICICI Ltd. 2000(6) SCC 545), the Court held that the observations therein could not be read to hold that protection of the guarantors of loans to a sick company is an object of the 1994 amendment which must colour the interpretation of the amendment. Till 1994 no protection was afforded to the guarantors under the Act at all. A limited protection has been given in 1994. Hence, the Supreme Court held that the expression used being clear and unambiguous, it was not for the Court to question the legislature and/or to give a wider protection than it did. The judgment of the Division Bench and of the Supreme Court provide a clear answer to the first submission.” 15 In my view the argument now raised before me by Mr. Sen, is nothing but another facet of the same controversy, which was dealt with by the learned Single Judge. It is urged that the execution of decree dated 18th June, 2003 was stayed on the date on which the Insolvency Notice was taken out by virtue of section 22 of SICA. It is stated that the execution could not have been proceeded with because of the statutory stay. Therefore, two conditions prescribed by section 9(2) of the Presidency Towns 10 inpt92.05.doc Insolvency Act, 1909 are not satisfied. The learned Judge dealing with the Motion, held that the Suit has been decreed much prior to reference and therefore, the Suit could have been instituted and proceeded further. 16 As far as the execution proceedings are concerned, the reference was registered on 3rd March, 2004. The reference was made by the Company. Insolvency Notice has been taken out against the guarantors. Section 22 of the Act states that no suit for recovery of money or for enforcement of security against the Industrial Company or of any guarantee in respect of loan or advance granted to Industrial company, shall lie or be proceeded with. This aspect has been dealt with by Dr. Justice D.Y. Chandrachud and he held that the Suit was instituted and decreed prior to the reference being registered. The only argument is that no proceedings for execution /distress or like against any of the properties of the industrial company could have been proceeded with in the light of the registration of the reference. However, there is nothing in section 22(1), which would enable the guarantors to resist the Insolvency Notice. The guarantors have been proceeded with on the basis that the decree in the summary suit is passed also against them and binds them. That the said decree has been passed against them is clear from the observations made by Dr. 11 inpt92.05.doc Justice D.Y.Chandrachud. That is how they applied for setting aside Insolvency Notice. That they committed act of insolvency because the decree was passed against them for payment of money and as far as the execution thereof is concerned, qua the guarantors, the same has not been stayed. In such circumstances, merely because the reference was registered on 3rd March, 2004, is no ground for the Judgment Debtors before me to resist Insolvency Notice. The Insolvency Notice was not vitiated as against these Judgment Debtors even though execution of the decree, if at all, was stayed against the properties of the company. In such circumstances, no assistance can be derived from this fact by the Judgment Debtors before me. 17 Equally, untenable is the reliance placed on the Judgment of the Supreme Court in the case of Paramjeet Singh Patheja(supra). As has been rightly pointed out, the said Judgment dealt with a distinct controversy and particularly, whether an 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 such an Arbitration Award. It is while dealing with this controversy that the observations, which have been relied by Shri Sen, have been made. They must be seen in the backdrop of the Controversy before the Supreme Court and 12 inpt92.05.doc namely, whether the Arbitration award is a “decree” within the meaning of Section 9(2) of the Presidency Towns Insolvency Act, 1909. The conclusions rendered are that Insolvency Notice cannot be issued on the basis of an arbitration award because it is neither a decree nor an order for payment of money within the meaning of section 9(2). That the term ‘decree or order’ means adjudication in a suit which starts with a plaint and culminates in a decree. The adjudication must be formal and final and must be given by a civil or revenue court and an award does not satisfy any of the requirements of a decree and therefore it cannot be construed to be a decree. It is in that context, all the observations have been made and that is why the conclusions recorded in paragraphs-60- (vii) and (viii) are of no assistance to the Judgment Debtors. 18 Similarly, reliance placed on the Division Bench Judgment of this court is misplaced because therein the statutory say operating on account of the Order 21 Rule 50(2) of the C.P.C. Execution therein was against the partners other than those who have been served in the suit. Therefore, the Insolvency Notice could not be served in respect of the decree against the other partners, who have not been served in the suit. It is on that count the statutory stay operated and that is why the Court held that the Insolvency Notice was not maintainable. In such circumstances, 13 inpt92.05.doc not only because of the order passed by Dr. Justice D.Y.Chandrachud in the Notice of Motion but for the additional reasons that have been set out herein above, I am of the opinion that the Judgment Debtors herein cannot resist the Present Petition for their adjudication as insolvents. As a result of the aforesaid discussion, this Petition is made absolute in terms of prayer clause (a) and (b). No order as to costs. 19 At this stage, Mr. Sen, Counsel appearing on behalf of the Judgment Debtors prays for stay of this order. He prays for stay of 8 weeks. This request is opposed by Shri Jain. In the peculiar facts of this case and when the matter is pending for last more than five years, operation of the present order is stayed for a period of four weeks. (S.C.DHARMADHIKARI, J.)