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J.P. Tiwari Vs. Bhimraj Harlalka - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai High Court
Decided On
Case NumberAppeal No. 14 of 1958 and Insol. No. N/356 of 1957
Judge
Reported inAIR1959Bom357; (1958)60BOMLR963; ILR1958Bom1344
ActsPresidency Towns Insolvency Act, 1909 - Sections 13; Code of Civil Procedure (CPC), 1908 - Sections 2, 2(2) and 118; Bombay High Court Rules - Rule 289; Bombay Insolvency Rules, 1910 - Rule 52 B(5)
AppellantJ.P. Tiwari
RespondentBhimraj Harlalka
Appellant AdvocateS.V. Gupte and ;N.K. Gamadia, Advs.
Respondent AdvocateM.P. Laud, Adv.
Excerpt:
.....the insolvency law is requisitioned into assistance and that principle of insolvency law is that a decree passed by a civil court is not binding upon the msolvency court, that even though the decree may become final and may be binding as between the parties to it, the insolvency court being a court of conscience, can go behind the decree and ascertain for itself whether in fact any amount was due to the creditor. it is perfectly true, as pointed out by mr. therefore the very basis of the act of insolvency is noncompliance with the insolvency notice, which means that a judgment has been passed against the debtor, that judgment has not been satisfied and although called upon to satisfy the judgment, the debtor fails to do so within the time mentioned in the notice and thereby commits an..........the appellant has come in appeal. 2. two points have been urged by mr. gupte the first is that the decree passed by this court is not executable, and, therefore, an insolvency notice cannot be founded on that decree. it is well settled that if there is any impediment in the way of a judgment creditor executing the decree or if the decree is not presently executable, no insolvency notice can be founded on such a decree. it is not necessary that execution of the decree should be stayed formally by the executing court. even without any such formal order of stay, if the judgment creditor is not in a position to satisfy the insolvency court that he has a right to execute the decree in praesenti, the insolvency notice taken out by the judgment debtor must fail. relying on these principles,.....
Judgment:

Chagla, C.J.

1. An interesting point under the Insolvency law arises in this appeal. A summary suit was filed by the Respondents against M. and T. Films Ltd. and the appellant, who is the Managing Director of that company. The suit was on a promissory note dated the 5th of June 1952 for Rs. 63,358-5-9. Leave to defend was given to the Defendants, and the litigation went through certain vicissitudes which we need not deal with, and ultimately Mr. Justice Coyajee passed a decree for the amount claimed against both the Defendants. It may be stated in passing that although the appellant made an attempt to get the hearing of the suit adjourned on the ground of his illness the adjournment was refused, and the learned Judge passed the decree on merits. It may also be mentioned that the appellant actual cross-examined the witness of the Plaintiff, although he did not give any evidence himself. The judgment was passed on 22-7-1957. An insolvency notice based upon that judgment was taken out by the Respondents on 19-11-1957. A notice of motion was taken out by the appellant to set aside that insolvency notice. That notice of motion was dismissed by Mr. Justice Shelat, and the appellant has come in appeal.

2. Two points have been urged by Mr. Gupte The first is that the decree passed by this Court is not executable, and, therefore, an insolvency notice cannot be founded on that decree. It is well settled that if there is any impediment in the way of a judgment creditor executing the decree or if the decree is not presently executable, no insolvency notice can be founded on such a decree. It is not necessary that execution of the decree should be stayed formally by the executing court. Even without any such formal order of stay, if the judgment creditor is not in a position to satisfy the insolvency court that he has a right to execute the decree in praesenti, the insolvency notice taken out by the judgment debtor must fail. Relying on these principles, what is urged by Mr. Gupte is that the decree was for a certain amount and interest and taxed costs and the insolvency notice calls upon the judgment debtor to satisfy the decree only to the extent of the principal and interest and not with regard to costs. It is said that under the Civil Procedure Code, when a decree is passed by the High Court on its Original Side for a certain amount and costs, the decree is not executable with regard to the amounts unless the Court has given express leave to the judgment creditor to execute the decree only in respect of the amount with interest leaving out the provision with regard to costs, and for this purpose reliance is placed on Section 118 of the Civil Procedure Code. That Section provides that where any such High Court-and our High Court is such High Court-considers it necessary that a decree passed in the exercise of its original civil jurisdiction would be executed before the amount of the costs incurred in a suit can be ascertained by taxation, the Court may order that the decree shall be executed forthwith, except as to so much thereof as relates to the costs. Now, let us understand the principle of this rule. On the Original Side of the this High Court, we have a dual system and we have a system of taxation and when taxed costs are awarded, it takes a considerable time before the costs are taxed. In order not to permit the judgment debtor from holding up execution of a decree, Section 118 provides that the Court may permit the execution of the decree except as to so much thereof as relates to costs. Now, a decree, is the formal expression of the adjudication made by the Court with regard to the question that arose for determination, and when a Judge on the Original Side passed in favour of the plaintiff a judgment for certain amount and costs, the decree being the formal expression of that judgment must embody the whole of that judgment and therefore necessarily the provision with regard to costs. Till such formal expression has been given to the judgment of the court, the decree is not executable, and in order to obviate, the difficulty arising a case where the taxation of the costs would take some time, Section 118 permits the judgment creditor, as it were, to execute a decree which strictly does not constitute the formal expression of adjudication inasmuch as the provision with regard to cost has not been embodied in that decree, and it is perfectly true that an order from the court for a decree to be executed, is required if it is a decree not in the proper sense of the term as defined by Section 2 of the Code. But what is overlooked in putting forward this argument is Rule 289 of the High Court Rules and that Rules provides that whenever costs are awarded, and either party is desirous of having the decree or order drawn up before the same are taxed, the award of the costs of the suit or order, as the case may be, will be inserted, followed by the words 'when taxed and noted in the margin hereof'. Therefore, Rule 289 permits a judgment creditor to draw up a decree without inserting in it the provision with regard to costs. Therefore under Rule 289, an adjudication which does not include in it the adjudication with regard to costs has been constituted a decree within the meaning of Section 2 of the Civil Procedure Code and if such an adjudication has been constituted a decree, then that decree is executable and Section 118 has no application. When it is permissible to a decree-holder to draw up a decree as provided under Rule 289 and the decree is so drawn up once it is sealed by the seal of the Court, it becomes a formal adjudication contemplated by Section 2, it has all the indicia of a decree and it becomes executable. We cannot accept Mr. Gupte's contention that Rule 289 was only enacted in order to permit drafting of a decree in a particular manner. The drafting of a decree has no significance unless the draft as permitted under the rules is constituted a decree within the meaning of the Code capable of execution. The result of Rule 289 therefore, is that a decree without a provision for costs being drawn up and sealed is capable of execution, and as we said before Section 118 has no application to such a decree. If Rule 289 had not been enacted, undoubtedly a specific order of the court would have been necessary in a case where a judgment creditor wanted to execute a decree which did not contain the provision for costs and that permission would have been necessary because the decree could not have been drawn up and the seal could not have been put upon the decree unless the provision with regard to cots was inserted in it. Therefore, to look at from another point of view, Rule 289 obviates the necessity on the part of a party who obtains a decree from the Court from applying for an order contemplated by Section 118 of the Code.

3. The second contention urged by Mr. Gupte is that he wanted to satisfy the learned Judge below that notwithstanding the decree no debt was due by him to the Respondent, and, therefore, the msolvency notice was not well-founded. In support of this contention the well-known principle of the insolvency law is requisitioned into assistance and that principle of insolvency law is that a decree passed by a civil court is not binding upon the msolvency court, that even though the decree may become final and may be binding as between the parties to it, the insolvency court being a court of conscience, can go behind the decree and ascertain for itself whether in fact any amount was due to the creditor. Now, what we have to consider is whether this principle is applicable to an insolvency notice, when the insolvency notice is being challenged as not having been properly taken out. it is perfectly true, as pointed out by Mr. Gupte, that an act of insolvency is committed not by reason of the existence of a judgment against the debtor but by reason of the fact that an amount is due under or in respect of that judgment, which amount has not been paid by the debtor on his being called upon to pay it. Therefore the very basis of the act of insolvency is noncompliance with the insolvency notice, which means that a judgment has been passed against the debtor, that judgment has not been satisfied and although called upon to satisfy the judgment, the debtor fails to do so within the time mentioned in the notice and thereby commits an act of insolvency.

4. Mr. Gupte says that if the Insolvency Court can go behind the decree, there is no reason why the Insolvency Court should not go behind the decree when it considers the validity of the insolvency notice and says Mr. Gupte that if the judgment debtor contends before the Insolvency Court that, notwithstanding the judgment against him nothing is due by him to the judgment creditor, it is open to the Insolvency court to consider that contention of the debtor. Now, the rules framed under the Insolvency Act provide for the grounds on which an insolvency notice can be challenged. It is open to a debtor to challenge an insolvency notice on the ground that he has a counter-claim which is equal or exceeds the amount claimed in the notice. He may also in the language of Rule 52B(5) (c) challenge on any other ground which would in law entitle him to have the notice set aside. In our opinion, this ground cannot be a ground which challenges the very validity of the decree. For the purpose of the insolvency notice the Court must accept the decree as final and binding upon the judgment debtor. The ground contemplated by this sub-rule is an entirely different ground and we will presently explain what that ground can be. Notwithstanding the passing of a decree, nothing may be due to the judgment creditor under that decree. Notwithstanding the passing of the decree, the decree may be satisfied or adjusted. In cases like these, it is open to the judgment debtor at the stage of the insolvency notice to urge that there is no debt under the decree or in respect of the decree which he can be called upon to pay and in respect of which it could be said that he had committed an act of insolvency. In this connection, powers of the Insolvency Court are very wide. The Insolvency Court may go into the question as to what amount is due by a judgment debtor, which the executing court cannot. The Insolvency Court take oral evidence which it is not open to the executing Court to take. It would not be bound merely to look at the decree itself. But the power of the Insolvency Court at this stage is confined to determining whether any amount is due under the decree to the judgment creditor. It would not be open to the Insolvency Court at this stage to permit the debtor to challenge the very validity of the decree. Now, in this case that is exactly what the judgment debtor is attempting to do. He does not say that he has satisfied the decree or the decree has been adjusted or that nothing is due under the decree. His contention is that the decree has been adjusted or that nothing is due under the decree. His contention is that the decree was not validly and properly passed against him, in other words, he seeks to go behind the decree; and in our opinion at this (stage it is not open for him to do so, and the reason is obvious because the very object of providing for an insolvency notice and for constituting a non-compliance with the insolvency notice an act of insolvency is that a valid and binding decree having been passed against the debtor, the debtor must satisfy that decree on peril of his committing an act of insolvency. This does not mean that at no stage and in no circumstances the Insolvency Court cannot go behind the decree, because when a petition is presented under Section 13 of the Insolvency Act for the adjudication of the insolvent on the ground that he has committed an act of msolvency by not complying with the insolvency notice, it would be open to the judgment debtor to contend that notwithstanding the decree, no debt is due to the creditor, because Section 13 requires before an order can be made on a creditor's petition that not only should there be an act of insolvency but that there should be a debt of the petitioning creditor, and therefore, at that stage without challenging the validity of the decree in the sense that it is not binding upon him for the purpose of the act of insolvency the debtor could well contended that if the court were to go behind the decree, the Court would find that nothing was due to the creditor. Undoubtedly-and we wish to make it clear-it is discretionary with the court to go behind the decree and it would be very rarely that the Insolvency Court would be very rarely that the Insolvency Court would exercise that discretion. It would depend upon the circumstances of each case and we cannot lay down any general principle to guide the discretion of the Insolvency Court. Mr. Gupte has urged before us that if it is open to the Insolvency Court to go behind the decree at the stage of the petition for insolvency, there is no reason why we should hold that the insolvency court should not do the same at the stage of the insolvency notice. But as we have already pointed out the two stages are entirely different and the legal implications of the two stages are also different. At the stage of considering the validity of the insolvency notice, the Court is confined to considering the question as to whether the judgment debtor can in law challenge that insolvency notice. At the stage of the petition for adjudicating the debtor, the Court is not concerned with that question alone. It is also concerned with the other and important question whether apart from the judgment debt, there is a creditor's debt on which the petition for insolvency can be based.

5. Reference was made to a judgment of the English Court reported in In re, Fraser, Ex parte, Central Bank of London, 1982 2 Q. B. 633, and that in our opinion really brings out the same principles which we are attempting to enunciate. Now, in the first place, it must be borne in mind that this decision place, it mst be borne in mind that this decision deals with the stage of the insolvency petition and the Court held that it was open to the msolvency court to go behind the judgment, but the learned Master of the Rolls point out that the existence of the judgment is no doubt prima facie evidence of a debt, although the Insolvency Court is entitled to enquire whether there really is a debt due to the petitioning creditor, and the whole principle is summed up in the concluding sentence at p. 637 by the learned Masters of the Rolls:

'The present question is whether, the judgment standing as a good judgment, the debt can in the Court of Bankruptcy constitute a good petitioning creditor's debt.'

Therefore, a clear distinction is drawn between a good judgment on which an insolvency notice can be founded and a good petitioning creditor's debt which may require more proof and on failure of which, notwithstanding a good judgment debt, the petitioning creditor's petition might fail.

6. In our opinion, the order passed by the learned Judge was right and must be sustained.

7. The result is that the appeal fails and will be dismissed with costs.

8. Liberty to the Respondents to withdraw the sum of Rs. 500/- deposited in Court.

9. Appeal dismissed.


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