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Laxman Dhondu Badgujar Vs. D.M. Paranjape - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtMumbai High Court
Decided On
Case NumberCivil Revision Application No. 1951 of 1955
Judge
Reported in(1957)59BOMLR96
AppellantLaxman Dhondu Badgujar
RespondentD.M. Paranjape
Excerpt:
.....of time at which an act of insolvency may be deemed to be committed by failure to comply with the insolvency notice, and that point of time is the disposal of the application where an application for setting aside the insolvency notice has been made. there being no provision in the provincial insolvency act, 1920, which relates expressly to the point of time at which an act of insolvency may be deemed to be committed, the bombay high court, exercising powers under section 79 of the act, was competent to frame a rule providing for a point of time at which an act of insolvency may be deemed to be committed for failure to comply with an insolvency notice.; section 6(i) of the provincial insolvency act, 1920, does not restrict an inquiry made by the court only to the questions relating to..........india or secluding himself or submitting an application for adjudication as an insolvent or giving notice to creditors that the debtor had suspended or is about to suspend payment of his debts or that the debtor is imprisoned in execution of the decree of any court for payment of money are amongst other acts of insolvency. the bombay legislature has by section 6(i) of the provincial insolvency act enacted that a debtor commits an act of insolvency if he fails to comply with a notice of insolvency within the period prescribed thereby. that was enacted by bombay act xv of 1939 which was amended by actno. 1xviii of 1948. clause (i) to section 6, which has been added by the bombay act xv of 1939, provides that a debtor commits an act of insolvency if after a creditor has served an insolvency.....
Judgment:

Shah, J.

1. The opponent obtained a decree on January 21, 1951, in suit No. 95 of 1951 of the file of the Civil Judge (J.D) at Chalisgaon directing the petitioners to pay Rs. 5,000 and costs of the suit with future interest on Rs. 4,000, by annual instalments of Rs. 705. The decree contained a default clause. The petitioners did not pay the instalments as directed by the decree. The opponent thereafter lodged an insolvency notice under Section 6-A of the Provincial Insolvency Act in the Court of the Civil Judge (S. D.), Jalgaon, on May 3, 1954, in the form prescribed by rules framed by this Court under Section 79 of the Provincial Insolvency Act. The notice was duly served upon the petitioners. The petitioners appeared in answer to the notice and contended that the decree was not enforceable and the notice was liable to be set aside. The learned Civil Judge rejected the contentions raised and by his judgment dated October 11, 1954, made the notice absolute. On October 22, 1954, the opponent filed a petition in the Court of the Civil Judge (S. D.), at Jalgaon, being insolvency application No. 15 of 1954 for adjudicating the petitioners insolvents on the plea that the petitioners having failed to comply with the insolvency notice had committed an act of insolvency. The petitioners contended that the application for adjudication was not presented within the time prescribed by Section 9(1)(c) of the Provincial Insolvency Act. The learned Insolvency Judge held that the application satisfied the condition prescribed by Section 9(1)(c) of the Act, and adjudicated the petitioners insolvents. In appeal No. 45 of 1955 to the District Court of East Khandesh the order passed by the trial Court was confirmed. Against that order, this revision application has been filed, and it is urged that the application for adjudication did not comply with the condition prescribed by Section 9(1)(c), and that rule III-A(10) framed by this Court, which makes the date of disposal of an application to set aside an insolvency notice the date on which the act of insolvency is complete is ultra vires this Court.

2. In order to appreciate the contentions raised by Mr. Chandrachud we may refer to the relevant provisions of the Provincial Insolvency Act and the rules framed thereunder. Section 6 of the Provincial Insolvency Act prescribes what conduct of a debtor constitutes an act of insolvency. Transfer by a debtor of all or substantially all his property to a third person for the benefit of his creditors or transfer by a debtor of his property or any part thereof with intent to defeat or delay his creditors, or transfer of his property which may be regarded as a fraudulent preference, or departing or remaining out of India or secluding himself or submitting an application for adjudication as an insolvent or giving notice to creditors that the debtor had suspended or is about to suspend payment of his debts or that the debtor is imprisoned in execution of the decree of any Court for payment of money are amongst other acts of insolvency. The Bombay Legislature has by Section 6(i) of the Provincial Insolvency Act enacted that a debtor commits an act of insolvency if he fails to comply with a notice of insolvency within the period prescribed thereby. That was enacted by Bombay Act XV of 1939 which was amended by ActNo. 1XVIII of 1948. Clause (i) to Section 6, which has been added by the Bombay Act XV of 1939, provides that a debtor commits an act of insolvency if after a creditor has served an insolvency notice on him under the Act in respect of a decree or an order for the payment of any amount due to such creditor, the execution of which is not stayed, the debtor does not, within the period specified in the notice which shall not be less than one month, comply with the requirements of the notice or he does not satisfy the Court that he has a counter claim or set-off which equals or exceeds the decretal amount or the amount ordered to be paid by him, and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him. The Bombay Amending Acts have also added Section 6-A to the Act. That section provides that an insolvency notice shall be in the prescribed form and shall be served in the prescribed manner, and further prescribes the contents of the notice. By Sub-section (2) it is provided, that such notice shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due, unless the debtor within the time allowed for payment gives notice to the creditor that he disputes the validity of the notice on the ground of such mis-statement; but if the debtor does not give such notice, he shall be deemed to have complied with the insolvency notice if within the time allowed he takes such steps as would have constituted compliance with the notice had the actual amount due been correctly specified therein. Section 9(2) prescribes conditions on which a creditor may petition for adjudicating a debtor insolvent. Condition (c) which is material states that a creditor shall not be entitled to present an insolvency petition against a debtor unless the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition. Section 79 of the Provincial Insolvency Act gives power to the High Court to make rules for carrying into effect the provisions of the Act.

3. In this case the application was filed within ten days of the date on which the insolvency notice was made absolute by the Court which served the insolvency, but it was not filed within three months from the date of the expiry of the period within which the debtor was called upon to comply with the requirement of the notice. It was urged in the Courts below that as the application for adjudication was not filed within three months of the date on which the period prescribed by the notice for complying with the requirement of notice expired, it did not fulfil the conditions prescribed by Section 9(1)(c) of the Provincial Insolvency Act and the application for adjudication was, therefore, not maintainable. The learned Judges in the Courts below negatived these contentions relying upon certain rules, which have been framed by this Court under the Act. Rule III-A which deals with insolvency notices prescribes by Clause (3) what the notice shall contain. By Clause (6) it is provided that non-compliance by the debtor with therequirements of the notice within the specified period will be treated as an act of insolvency on the debtor's part. Clause (9) provides that:

Any person served with an insolvency notice may within the time allowed for compliance with that notice or such further time as the Court may for sufficient reasons see fit to allow apply to the Court to set aside the insolvency notice:-

(a) on the ground that he has paid the amount claimed or furnished security for the payment of the amount to the satisfaction of the creditor or his agent;

(b) on the ground that he has a counter-claim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made; or

(c) on any other ground which would in law entitle him to have the notice set aside.

Clause 10 provides that:

Where an application to set aside the insolvency notice has been made and it cannot be disposed of until after the expiry of the time specified in the notice as the day on which the act of insolvency will be complete, no act of insolvency shall be deemed to have been committed under the notice until the application shall be disposed of.

Under Clause (i) of Section 6 of the Act, an act of insolvency is deemed to be committed if a creditor has served an insolvency notice on the debtor and the debtor does not within the period specified in the notice comply with the requirements of the notice or satisfy the Court that he has a counter-claim or set off which equals or exceeds the decretal amount. Compliance with the requirements of the notice or satisfaction of the Court contemplated by the section has, it appears, to be within the period specified in the notice. But Sub-section (2) of Section 6-A of the Act enables a debtor within the time allowed to give notice to the creditor that he disputes the validity of the insolvency notice on the ground that the sum set out in the notice exceeds the amount actually due. It is evident from the terms of Clause (i) of Section 6 and Sub-section (2) of Section 6-A that the Legislature has not provided that on the expiry of the period specified in the notice an act of insolvency shall be deemed to be committed. The Legislature has contemplated that an enquiry shall be made by the Court at the instance of the debtor that the requirements of the notice are complied with or that the debtor has a counter-claim or set-off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him. The debtor is also entitled to resist the notice on the ground that the amount claimed by the notice exceeds the amount which is actually due and that he may do so by giving a notice to the creditor stating that he disputes the validity of the notice on the ground of mis-statement or by paying the amount actually due by him. It is contemplated that enquiry be made by the Court through which the notice is served before that Court makes an order declaring that the requirements of the notice have not been complied with. The rules framed by this Court provide that the insolvency notice must be served through the Insolvency Court in the prescribed manner and after it has been duly served it is open to the debtor within the time allowed for compliance or such further time as the Court may for sufficient reasons see fit to allow apply to set aside the insolvency notice on certain grounds. It is also provided that the act of insolvency shall be deemed to be committed only on the notice being disposed of by the Court which has served the notice. It is conceded before us that an act of insolvency is not committed in all oases on the expiry of the period specified in the insolvency notice and that concession has, in our judgment, been rightly made. An act of insolvency will not be deemed to be committed if the debtor satisfies the Court that there is a counter claim or set-off of the nature described in that clause: or if the debtor satisfied the Court on an application made in that behalf that he has complied with the requirements of the notice, that he has given the notice contemplated by Section 6-A(2) or that he has paid the amount actually due by him.

4. Mr. Chandrachud contends, however, that the Court may hold an inquiry and be satisfied that the debtor has a counter-claim or set-off of the nature described in Section 6-A(1) and the Court may also hold an inquiry on the application for setting aside the insolvency notice whether the debtor has paid the amount or furnished security for payment of the amount to the satisfaction of the creditor or his agent, but the Court is incompetent to hold an inquiry on an application for setting aside the notice on any other ground. Counsel says that the Legislature has not contemplated any such enquiry and the rule framed by this Court enabling an application to be made for setting aside an insolvency notice on any other justifiable ground is ultra vires the powers conferred upon this Court. As a corollary to that argument, it is contended that Clause (10) which provides that an act of insolvency shall be deemed to have been committed on the disposal of the application for setting aside the insolvency notice, is also ultra vires. It is urged that the High Court in framing Rule III-A, Clauses (10) and 9(c) has trespassed upon the functions of the Legislature, by enacting an exception to Section 9(2)(c) of the Provincial Insolvency Act.

5. Section 6 of the Provincial Insolvency Act sets out the conduct or acts of a debtor which may be regarded as acts of insolvency. But the section does not purport to state at what point of time an act of insolvency shall be deemed to be committed. In each case at what point of time an act of insolvency shall be deemed to be committed is a question to be decided on evidence. For instance transferring of all or substantially all his property by the debtor to a third person for the benefit of creditors generally is an act of insolvency, but as to when the property is transferred either wholly or substantially is a question which must be decided on evidence. Similarly seclusion by a debtor with intent to defeat or delay his creditors so as to deprive the creditors of the means of communicating with him is an act of insolvency, but as to when it may be deemed that the debtor secluded himself is a question which must be decided on evidence. It is true that certain acts of insolvency from their very nature occur at some definite point of time. Where a debtor petitions to he adjudged an insolvent or where a debtor gives a notice to his creditor that he has suspended or that he is about to suspend payment of his debts the act of insolvency is complete when the petition is filed or the notice is given. Section 6(i) which has been added by the Bombay Amending Act does not purport to set out the point of time at which the act of insolvency may be committed by reason ofnon-compliance with the insolvency notice. It only provides that an act of insolvency may be committed by failure to comply with the insolvency notice. The High Court was, therefore, competent to frame rules under Section 79 of the Provincial Insolvency Act to prescribe the point of time at which an act of insolvency may be deemed to be committed by failure to comply with the notice. By Clause (10) that point of time is the disposal of the application where an application for setting aside the insolvency notice hasbeen made. There being no provision in the Act which relates expressly to the point of time at which an act of insolvency may be deemed to be committed, this Court exercising powers under Section 79 is competent, in our judgment, to frame a rule providing for the point of time at which an act of insolvency may be deemed to be committed for failure to comply with an insolvency notice.

6. We are unable to agree with the contention of Mr. Chandrachud that there is anything in Section 6(i) which restricts an inquiry made by the Court on an application for setting aside the notice only to the questions relating to compliance with the requirement of the notice or the existence of a counter-claim or set off described in that clause. It is, in our judgment, open to a debtor to make an application for setting aside the notice challenging the right of a creditor to serve an insolvency notice on the ground that he is not a creditor or that there is no order for payment of money or that the execution of the decree has been stayed or that the amount claimed is not due and also on the ground that the requirement of the notice have been complied with or that the debtor has served a notice contemplated bys, 6-A(2) or that he has made payment of the amount due under the decree or order though a larger amount has been claimed by the notice. If that be the true view, Rule III-A 9(c) which enables an application to be filed to set aside the insolvency notice on any other ground which would in law entitle a debtor to have the notice set aside is, in our judgment, intra vires. In our view this Court in framing Clauses 9(c) and 10 of Rule III-A did not purport to extend the time prescribed by Section 9(1)(c) of the Provincial Insolvency Act., This Court in exercise of its rule making authority enacted a provision for ascertaining the point of time from which the period for the fulfilment of the condition prescribed in the section is to be calculated and in our view no provision of the Act is violated by framing Clauses 9(e) and 10 of Rule III-A. The learned Judges in the Courts below were, in our judgment, right in holding that Rule 10 is intra vires this Court.

7. The rule will, therefore, be discharged with costs.


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