Case: The Exchange Bank of India &amp; Africa Limited (In Liquidation) Vs. Laxmichand Kuverji Shah

1. The appellant is a Banking Company, the Exchange Bank of India and Africa Ltd. through its liquidator. The respondent was aof the above Banking company before it went in liquidation. On 20th February 1955 a balance order was made as regards the call liability of the respondent in respect of the shares held by him. Under this order he was called upon to pay Rs.74,125/to the Company. As he did not pay the amount, a notice under O.21, R.22 was issued to him. That notice was made absolute in November 1958. On 25th February 1959 the liquidator got issued an insolvency notice under Section 9A of the Presidency Towns Insolvency Act. This notice called upon the respondent to pay Rs.74,125/or to furnish security for the payment of this sum within 35 days after service of the notice. This notice was served upon the respondent on 15th August 1959. On 14th September 1959 he took out a notice of motion for setting aside the insolvency notice. Section 11 of the Presidency Towns Insolvency Act states that the Court shall not have jurisdiction to make an order of adjudication, unless the debtor, within a year before the date or the presentation of the insolvency petition, has ordinarily resided or had a dwelling house or has carried on business either in person or through an agent within the limits of the ordinary original civil jurisdiction of the Court. Rule 3 of the Bombay Insolvency Rules framed by this Court provides that the forms in Appendix I shall be used with such variations as circumstances may require. Form 1A is the form prescribed for making an application for the issue of an insolvency notice. Under(b), in para 2 of the form, words have to be inserted showing the Courts jurisdiction in terms of Section 11 of the Act. The respondent had not resided within the jurisdiction of this Court during 12 months before the date of the presentation of the application for the issue of the insolvency notice. It was therefore contended by the respondent that the Court had no jurisdiction to issue the insolvency notice. This contention was accepted by Mr. Justice K.K. Desai, who heard the notice of motion. It was, however, urged before him by the appellant that even though the Court may not have been able to issue the insolvency notice under the provisions of the Presidency Towns Insolvency Act and the rules framed thereunder, it had jurisdiction to issue such notice under Section 45B of the Banking Companies Act, 1949. This argument was rejected by Mr. Justice Desai. In the result, therefore, he made absolute the notice of motion taken out by the respondent and set aside the insolvency notice. Against the order made by him, the Company has come in appeal.

Court's reasoning:
6. One of the questions, which under Section 45B the High Court alone is competent to decide, is the question of priorities. Under Section 7 of the Presidency Towns Insolvency Act and the corresponding provisions contained in the Provincial Insolvency Act, the insolvency Court alone has power to decide all questions of priorities. If it is held that the High Court has no jurisdiction to entertain an insolvency petition, in cases in which the debtor of a banking company resides outside the limits of its jurisdiction the question of priorities will have to be decided by the insolvency Court and not by the High Court. This will be contrary to the provisions of S.45B, under which all questions of priorities in respect of claims by or against the banking company are to be decided by the High Court.7. The views which we are inclined to take would also result in carrying out the object of the Legislature, which is to provide for a machinery for the expeditious and speedy disposal of proceedings in liquidation. A banking company may have a large number of debtors and if insolvency applications were entertained by the large number of Courts, within the jurisdiction of which the debtors may be residing the winding up proceedings may be considerably delayed. This will not be in accordance with the scheme of the Act, which is to secure speedy termination of the winding upis clear from Section 45A, which provides that Section 45B would apply, notwithstanding anything contained in any other law for the time being in force. There is also no force in the argument of Mr. Nariman that an insolvency proceeding is not a civil proceeding. Section45B does notalso restrict the jurisdiction of the High Court to civil proceedingsmay be so, but if the whole proceeding can be said to relate to the winding up of a company, then Sectionwill in terms apply. As I have pointed out above by the insolvency notice the debtor is called upon to pay the debt specified. Consequently in taking out such a notice the liquidator of the company is making an attempt to recover the debt due to the company. It can therefore be said to relate to the winding up of theargument cannot be accepted in view of the decision of the Supreme Court in Ram Narain v. Simla Banking and Industrial Co., AIR 1956 SC 614  , in which at p.619 it was observed:"There has been some faint argument before us that the questions that arise in execution in this case and particularly the question relating to attachment which has been effected by the Bombay High Court, are not questions which fall within the scope of Section 45B. In our opinion this contention is so obviously untenable, in view of the very wide and comprehensive language of the Section that, it requires no more than to be mentioned and rejected.We are accordingly of the opinion that when an insolvency notice is taken out by a banking company in liquidation, the matter relates to the winding up of the company and consequently the High Court alone can entertain and decide the application for the issue of such a notice, notwithstanding the fact that the debtor does not reside within the limits of its jurisdiction. The Orissa High Court has taken the same view in the case of an insolvency petition made by a debtor of a banking company in H. Naik v. Jitendranath Das, AIR 1954 Orissa 139.13. In this view, it is not necessary to consider the other question whether issue of the Insolvency notice in this case was improper, because the respondent did not reside within the jurisdiction of this Court during 12 months before the presentation of the application for the issue of the Insolvency notice.