Case: Bharat Chandulal Nanavati Vs. United Commercial Bank

( 2 ) THE 1st respondents had filed a suit being O. O. C. J. Suit No. 1313 of 1975 against a private limited company called Mona Traders Private Ltd. and the appellants, who were its directors. On 4th March, 1976 the 1st respondents obtained andecree. Thereunder the limited company was ordered and decreed to pay to the 1st respondents the sum of Rs. 17,94,156. 68 and interest thereon as therein stated; and the appellants were ordered and decreed to pay to the 1st respondents slightly smaller sums with interest thereon as therein stated. The decree also required that the goods hypothecated to the 1st respondents be sold and the net sale proceeds applied for satisfaction of the 1st respondents claim. The sale was to be effected by the Commissioner for Taking Accounts. It was also ordered that the decrees passed against the appellants were not separate decrees and that they would be entitled to credit for any money paid by the limited company in respect of the decree passed against it as also by reason of the date of the hypothecated goods. Partial satisfaction of the decree was noted on 18th July, 1985 in the sum of Rs.paid by the Official Liquidator after selling the moveable property of the limited3 ) ON 15th October, 1985 the 1st respondents issued a notice under Order XXI, Rule 22 of the Code of Civil Procedure for execution of the decree and the notice was made absolute on 9th January, 1987.( 4 ) ON 22nd April, 1987 the 1st respondents issued to the appellants an insolvency notice calling upon them to make payment within 35 days from service of the amount then due under the said decree. The insolvency notice was served on 28th April, 1987. The period of 35 days therefrom expired on 3rd June, 1987 and the act of insolvency then became complete. On 13th August, 1987 the 1st respondents filed against the appellants the petition for adjudicating them insolvent. It was based on the ground of the act of insolvency committed pursuant towith the insolvency notice. On 5th July, 1988 an affidavit in reply was filed by the 1st appellant. It was contended, firstly, that the petition was time barred and liable to be dismissed in view of the decision of the learned Single Judge of this Court in (Re. Bhimji Nanji and Co) 71 Bom. L. R. 688. It was contended that thedecree passed on 4th March, 1976 had becomeon 3rd or 4th March, 1988 and there was no debt existing against the appellants under section 12 of the Presidency Towns Insolvency Act. Secondly, the affidavit contended that the decree was secured by hypothecation of goods which had neither been given up or valued as required by section 12 (2) of the Act. Thirdly, it was contended that the hypothecated goods had not been sold and the proceeds thereof had not been credited so that the amount due under the decree was not ascertainable. No affidavit in rejoinder was filed. The petition was made absolute, as aforestated by the judgment and order under appeal. The learned Single Judge noted that the main contention on behalf of the appellants (the judgment debtors before him) was that, the decree being not executable on the date of the hearing of the petition and at the time when the order of execution had to be passed, the petition was not maintainable. Reliance in this behalf was placed upon the judgment in Bhimji Nanjis case. The learned Judge considered the judgment and found himself unable to understand some parts of it. To his mind the judgment would create "an untenable position". He "would rather say that this case should be confined to the facts of that case only. " The learned Judge held that after service of an insolvency notice it was for the judgment debtor to make an application for discharge thereof within the time prescribed. It was in that notice that he had to make out a case as to why the decree was not executable. It was at that stage for the Court to consider whether the decree was not executable for any reason under any law, including the question of limitation, if any. If the judgment debtor failed to make any such application and failed to have the notice set aside it had necessarily to be held that the judgmentdebtor did commit an act of insolvency on the expiry of the period mentioned in the insolvency notice and if the judgment creditor filed a petition under section 10 read with section 12 of the Act he became entitled to an order of adjudication in the ordinary course. In such a case there was no question of the judgment creditor having to prove any debt or any act of insolvency as required under section 13 (2) of the Act inasmuch as the decree itself was proof of the debt and the failure on the part of the debtor in having the insolvency notice set aside was proof of the act of insolvency. There could be no further enquiry under section 13 whether the decree was executable or not at the time of hearing of the petition or at the time of passing an order of adjudication. The question whether a decree was executable or not was relevant in an application made by theto have the insolvency notice set aside but it was not relevant at the hearing of the petition or at the time of passing an order of adjudication. Accordingly, the learned Judge held that in the present case, as on the date of presentation of the petition, the debt coult not be said to be barred by the law of limitation. Since the appellants had not made any application for having the insolvency notice set aside the order of adjudication had to follow as a matter of course. The learned Judge held that in any event, the decree was noton the date of the hearing of the petition. He also held that since the security had been given by the limited company and not by the appellant, the appellants had no right to raise the contention that the 1st respondents had not given up the security hypothecation. Before we deal with the merits of the appeal before us we wish to say that judicial discipline requires a Court to follow a judgment that is beiding upon it or, if it is inclined to disagree with a binding judgment, to refer the matter before it to a larger Bench. The Court cannot disregard the binding nature of a judgment by saying that it should be confirmed to its own facts.

Court's reasoning:
Therefore, the debt upon which the creditor is entitled to present an insolvency petition and which he must prove at the hearing of the petition must be a debt which is noton the date upon which the debtor commits the act of insolvency based upon which the order of adjudication is made againstlearned Judge rejected the argument that his view would cause great hardship to the judgment creditor if in the meantime his debt becameon account of the exigencies of Court work. The learned Judge said that it would be open to the judgment creditor to keep the debt alive by means of an acknowledgement oror by filing a suit in respect10 ) WITH respect, we cannot agree with the learned Judge that great hardship would not be caused to aif his view as accepted. Thehas the right under the Act to have the judgment debtors resources husbanded so that he recovers at least some fraction of his debt. We cannot give an interpretation to the provisions of the Act which will imply that he loses that right by reason of a delay over which he has noso, in our view, having regard to the provisions of section 13 (2) (a), the judgment debtor would be entitled to rebut that presumption at the hearing of the petition. To that extent we do not agree with the judgment under15 ) HAVING regard to the view that we take, it is not necessary to examine whether the debt in the present case was barred by limitation on the date on which the petition was heard by the learned Judge. It is not the case of the appellants that the debt was barred on the date on which the act of insolvency was committed.( 16 ) THIS brings us to the last contention. It is based upon section 12 (2) which reads thus:" (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. "in the petition the 1st respondents have said that neither they nor any body on their behalf "hold any security on the estate of the said Debtors or any part thereof for payment of the said sum. " The affidavit in reply of the appellants we have already adverted to. It is there submitted that the petition was liable to be dismissed because it was based on a decree which was secured by hypothecation of goods which was neither given up nor valued as required by section 12 (2 ). No affidavit in rejoinder was filed. It was submitted by Mr. Shah that the debt was secured by the hypothecation of goods as indicated by the decree, and that in the absence of an averment in the petition giving up that security or valuing the security the petition was liable to be17 ) IN our view, the provisions of section 12 (2) apply only in relation to security which the petitioning creditor can relinquish for the benefit of the general body of creditors in the event of the debtor being adjudicated insolvent. In the present case the security was provided by the limited company. It would have, if realised, enured for the benefit of the limited company and the appellants but the 1st respondents could not have relinquished that security in favour of the general body of the appellants creditors. In our view, therefore, there is no merit in this submission.