Calcutta High Court
Samar Ghosh vs Rambaran Singh on 5 October, 2005
Equivalent citations: (2006)1CALLT502(HC), AIR 2006 CALCUTTA 152, 2006 (4) ALL LJ NOC 849, 2006 (4) AKAR (NOC) 454 (CAL), 2007 A I H C (NOC) 143 (CAL), (2006) 2 CAL HN 577, (2006) 1 CAL LJ 258
Author: Bhaskar Bhattacharya
Bench: Bhaskar Bhattacharya
JUDGMENT Bhaskar Bhattacharya, J.
1. This first miscellaneous appeal is at the instance of an alleged debtor in a proceeding under Section 13(2) of the Provincial Insolvency Act ("Act") and is directed against Order No. 3 dated April 1,2005 passed by the Additional District Judge, 9th Court, Alipore in Insolvency Case No. 198 of 2005 thereby allowing an application under Section 20 of the Act by appointing the Official Receiver, South 24-Parganas as interim receiver to the estate of the appellant with a direction to realise a sum of Rs. 2,000/- a month from the salary of the appellant from that month onwards until further order through the disbursing authority, viz., Branch Manager, Bank of Baroda, Camac Street Branch and the disbursing authority was directed to deposit the amount with the Official Receiver month by month.
2. The respondent herein filed an application under Section 13(2) of the Act for adjudicating the appellant as a debtor on the following allegations:
(a) The appellant works for gain at Bank of Baroda, Camac Street Branch. The appellant borrowed a sum of Rs. 75,000/- on 24th April, 2000 from the respondent and executed a promissory note.
(b) The appellant committed the following acts of insolvency:
(i) On repeated demands the appellant had failed to pay any amount to the respondent.
(ii) Whenever the respondent visited the office of the appellant for making demand or personal contact, he with a bad motive and an intention to delay and defeat the payment of dues to his creditors secluded himself for the purpose of depriving his creditors of means of communicating with him and further secluded on 24th December, 2004 at about 10:30 a.m. at his office.
(iii) Lastly, on 3rd January, 2005, when the respondent met at his office at about 11.00 a.m., the appellant told the respondent by way of verbal talk that he had suspended payment of his debts to all his creditors generally, including the respondent in particular, being unable to pay his debts to his creditors and thus, the appellant had committed acts of insolvency under Section 6(d) and 6(g) of the Act.
3. The respondent in connection with the said proceeding came up with an application under Section 20 of the Act thereby praying for appointment of the Official Receiver, South 24-Parganas as receiver for realising Rs. 2,000/- a month from the salary of the appellant through garnisi.
4. It appears from the record that on such application, the learned Trial Judge on 16th March, 2005 issued notice upon the appellant to show cause why the prayer of the respondent should not be allowed. Subsequently, on 1st April, 2005, the Court recorded that notice was although sent by registered post, no return came back. The Court, however, was of the opinion that in view of urgency of the matter it was a fit case for appointment of the Official Receiver, South 24-Parganas for realisation of Rs. 75,000/- due and payable by the appellant and thus, appointed the Official Receiver, South 24-Parganas as interim receiver for realisation of the said amount with the direction upon the Branch Manager, Bank of Baroda, Camac Street Branch to pay the said amount every month.
5. Being dissatisfied, the appellant has come up with the present first miscellaneous appeal under Section 75(3) of the Act.
6. Mr. Prabal Mukherjee, the learned Advocate appearing on behalf of the appellant has raised several questions of law in support of this appeal. Mr. Mukherjee first contends that for simple realisation of the alleged due on promissory note, a proceeding under Section 13(2) of the Act is not maintainable. Mr. Mukherjee, accordingly, contends that in such a proceeding, the learned Trial Judge acted illegally and with material irregularity in appointing the Official Receiver, South 24-Parganas as receiver by mechanically going through the averments made in the application without any application of mind. Mr. Mukherjee contends that even if, all the averments made in the application are taken to be true, such fact does not make out a case of appointment of receiver in terms of Section 20.
7. Mr. Mukherjee next contends that the learned Trial Judge acted without jurisdiction in appointing a receiver over the salary of the appellant without complying with the formalities required under the Act, inasmuch as, the learned Trial Judge totally overlooked that when the creditor is the applicant under Section 13, the appointment of receiver is discretionary and unless the Court records primary satisfaction as to the maintainability of the application under Section 13(2) of the Act, a further application under Section 20 of the Act cannot be entertained. According to Mr. Mukherjee, no case of 'act of insolvency' has been made out in this case. Mr. Mukherjee further contends that when his client, according to the averments made in the application under Sections 13 and 20 of the Act, is regularly attending office, it cannot be said that he has secluded himself from his creditors. Moreover, Mr. Mukherjee continues, there is no indication in the application that, even if, the amount is due and payable, the appellant is unable to pay his debt. Mr. Mukherjee further contends that the notice contemplated in Section 6 of the Act must not be an oral notice simpliciter, but something more than it, though it may not necessarily be in writing. Mr. Mukherjee, thus, contends that the order passed by the learned Trial Judge should be set aside as the appropriate remedy of the respondent is to approach the Civil Court for realisation of the amount, if found due. Mr. Mukherjee further disputes the execution of promissory note by his client.
8. The aforesaid contentions of Mr. Mukherjee are seriously disputed by Mr. Ghosh, the learned Advocate appearing on behalf of the respondent. According to Mr. Ghosh, there being apparently a promissory note executed by the appellant, the learned Trial Judge did not commit any illegality in appointing the Official Receiver over the assets of the appellant. According to Mr. Ghosh, in the applications under Sections 13(2) and 20 of the Act sufficient averments were there indicating that the appellant was avoiding his creditors for the purpose of evading the debts and as such, it was a fit case for appointment of receiver. Mr. Ghosh further contends that oral notice of suspension of payment of debt is sufficient for the purpose of maintaining the proceeding at the instance of creditor. Mr. Ghosh further contends that it is the duty of the appellant to first appear before the learned Trial Court denying the allegations that he executed such promissory note but without denying such fact, he cannot straightaway prefer an appeal before this Court. According to Mr. Ghosh, if a person although staying in his residence or office, deliberately does not meet his creditors, such act on his part amounts to 'seclusion' within the meaning of the Act. He, therefore, prays for dismissal of the appeal.
9. Therefore, the question that falls for determination in this appeal is whether in the facts of the present case the learned Trial Judge was justified in allowing an application under Section 20 of the Act.
10. In order to appreciate the contentions raised by the learned Counsel for the parties and the scope of a proceeding under Section 13(2) of the Act, the following provisions of the Act are relevant and those are quoted below:
'6. Acts of Insolvency.-- A debtor commits an act of insolvency in each of the following cases, namely:
(a) if, in India or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally;
(b) if, in India or elsewhere, he makes a transfer of his property, or of any part thereof with intent to defeat or delay his creditors;
(c) if, in India, or elsewhere, he makes any transfer of his property, or of any part thereof which would, under this or any other enactment for the time being in force be void as a fraudulent preference if he were a judged an insolvent.
(d) if, with intent to defeat or delay his creditors--
(i) he departs or remains out of the territories to which this Act extends,
(ii) he departs from his dwelling house or usual place of business or otherwise absents himself,
(iii) he secludes himself so as to deprive his creditors of the means of communicating with him;
(e) if any of his property has been sold in execution of the decree of any Court for the payment of money;
(f) if he petitions to be adjudged an insolvent under the provisions of this Act;
(g) if he gives notice to any of his creditors that he has suspended, or that he is about to suspend payment of his debts; or
(h) if he is imprisoned in execution of the decree of any Court for the payment of money.
Explanation.--For the purpose of this section the act of an agent may be the act of the principal.
13. Contents of petition.-- (1) Every insolvency petition presented by a debtor shall contain the following particulars, namely:
(a) a statement that the debtor is unable to pay his debts; '
(b) the place where he ordinarily resides or carries on business or personally works for gain, or, if he has been arrested or imprisoned, the place where he is in custody;
(c) the Court (if any) by whose order he has been arrested or imprisoned, or by which an order has been made for the attachment of his property, together with particulars of the decree in respect of which any such order has been made;
(d) the amount and particulars of all pecuniary claims against him, together with the names and residences of his creditors so far as they are known to, or can by the exercise of reasonable care and diligence be ascertained by him;
(e) the amount and particulars of all his property, together with--
(i) a specification of the value of all such property not consisting of money;
(ii) the place or places at which any such property is to be found; and
(iii) a declaration of his willingness to place at the disposal of the Court all such property save in so far as it includes such particulars (not being his books of account) as are exempted by the Code of Civil Procedure, 1908, or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree;
(f) a statement whether the debtor has on any previous occasion filed a petition to be adjudged an insolvent, and (where such a petition has been filed)--
(i) if such petition has been dismissed, the reasons for such dismissal, or
(ii) if the debtor has been adjudged an insolvent, concise particulars of the insolvency, including a statement whether any previous adjudication has been annulled and, if so, the grounds therefor.
(2) Every insolvency petition presented by a creditor or creditors shall set forth the particulars regarding the debtor specified in Clause (b) of Sub-section (1), and shall also specify--
(a) the act of insolvency committed by such debtor, together with the date of its commission; and
(b) the amount and particulars of his or their pecuniary claim or claims against such debtor.
18. Procedure for admission of petition.--The procedure laid down in the Civil Procedure Code, 1908, with respect to the admission of plaints, shall, so far as it is applicable, be followed in the case of insolvency petitions.
19. Procedure on admission of petition.-- (1) Where an insolvency petition is admitted, the Court shall make an order fixing a date for hearing the petition.
(2) Notice of the order under Sub-section (1) shall be given to creditors in which manner as may be prescribed.
(3) Where the debtor is not the petitioner, notice of the order under Sub-section (1) shall be served on him in the manner provided for the service of summons.
20. Appointment of interim receiver.-- The Court when making an order admitting the petition may, and where the debtor is the petitioner ordinarily shall, appoint an interim receiver of the property of the debtor or of any part thereof, and may direct him to take immediate possession thereof or of any part thereof, and the interim receiver shall thereupon have such of the powers conferrable on a receiver appointed under the Civil Procedure Code, 1908, as the Court may direct. If an interim receiver is not so appointed the Court may make such appointment at any subsequent time before adjudication, and the provisions of this section shall apply accordingly.
21. Interim proceeding against debtor.-- At the time of making an order admitting the petition or at any subsequent time before adjudication the Court may either of its own motion or on the application of any creditor make one or more of the following orders, namely:
(1) Order the debtor to give reasonable security for his appearance until final orders are made upon the petition, and direct that, in default in giving such security, he shall be detained in the civil prison;
(2) Order the attachment by actual seizure of the whole or any part of the property in the possession or under the control of the debtor, other than such particulars (not being his books of account) as are exempted by the Civil Procedure Code, 1908, or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree;
(3) Order a warrant to issue with or without bail for the arrest of the debtor, and direct either that he be detained in the civil prison until the disposal of the petition, or that he be released on such terms as to security as may be reasonable and necessary:
Provided that an order under Clause (2), or Clause (3), shall not be made unless the Court is satisfied that the debtor, with intent to defeat or delay his creditors or to avoid any process of the Court, --
(i) has absconded or has departed from the local limits of the jurisdiction of the Court, or is about to abscond or to depart from such limits, or is remaining outside them, or
(ii) has failed to disclose or has concealed, destroyed, transferred or removed from such limits, or is about to conceal, destroy, transfer or remove from such limits, any documents likely to be of use to his creditors in the course of the hearing, or any part of his property other than such particulars as aforesaid.
11. On a plain reading of the aforesaid provisions it is apparent that a proceeding under Section 13(2) of the Act can be filed by a creditor on specifying the acts of insolvency committed by the debtor together with the date of such commission and at the same time, the amount and the particulars of his claim against such debtor should also be indicated. Section 6 of the Act describes the Acts of insolvency giving cause of action for filing a proceeding. In the present case, the respondent has alleged the ingredients of Section 6(d)(iii) and Section 6(g) of the Act and such grounds have been repeated in the application under Section 20 of the Act.
12. We first propose to consider whether on the "basis of averments made in the application under Section 13, a case under Section 6(d)(iii) has been made out. According to the aforesaid provision, it must be established that the debtor secluded himself so as to deprive his creditors of the chance of communicating with him. In the petition, it is clearly stated that whenever the respondent visited the office of the debtor for making demand and personal contact, the appellant secluded himself so as to deprive his creditors of the means of communication and he secluded on a particular date at about 10.30 a.m. at his office. In our view, the aforesaid averments are not sufficient to attract the provisions under Section 6(d)(iii) of the Act. If a person is an employee of a Nationalised Bank and if it is admitted that he regularly goes to office situated at a particular place, such fact on the face of it indicates that he is not secluding himself to deprive his creditor of the means of communication. One can easily before or after the office hours get in touch with him at the door of the office. Merely because, during the office hours he refused to see the respondent, such fact does not necessarily lead to the inference that he is secluding himself. During the office hours, an ideal employee may decide not to see outsiders and strictly speaking, without the leave of the employer, such a meeting is also not permissible. Therefore, the aforesaid averment that on a particular date, at a particular time, he tried to meet the appellant at his office but failed, does not lead to the inference that he was secluding himself particularly when everyday he is going to his office.
13. As regards the other allegation that on a particular date the appellant told the respondent and his agent by way of 'verbal talk' that he had suspended payment of his debts to all his creditors, we are of the view that such statement must be specifically proved at the time of hearing. It is now settled law that notice contemplated under Section 6(g) need not be in writing and may be oral but there must be definite assertion of the debtor that he had suspended the payment of his debts. Therefore, if the notice alleged in the application is an oral one, the Court must be cautious in taking into consideration such allegation and will demand definite proof of such assertion and at the time of hearing of an application under Section 20 of the Act, no receiver should be generally appointed on the basis of such assertion of the applicant unless such allegation is supported by other reliable materials on records. Therefore, in this case, although, the ingredient of Section 6(g) is available, yet, solely on the basis of such oral notice, no receiver should be appointed unless supporting convincing materials are filed along with such application in support of the allegation of the 'oral notice' and other mandatory requirements of the Act are satisfied.
14. But the defect that is glaring on the face of the order impugned is the non-compliance of the conditions mentioned in the proviso to Section 21(3) of the Act. We have already indicated that Section 20 gives power to the Court to appoint interim receiver. If the debtor himself applies under Section 13(1) of the Act, it is obligatory upon the Court to appoint an interim receiver whereas if the applicant is the creditor, the power to appoint receiver is discretionary. Section 21(1) speaks of jurisdiction of the Court to pass direction of giving security upon the debtor and in default, for his detention in the civil prison. Section 21(2) authorises a Court to order the attachment by actual seizure of the whole or any part of the property of the debtor. Sub-section (3) of Section 23 further authorises the Court to issue warrant of arrest during the pendency of the proceedings and according to the proviso to Sub-section (3), an order under Clauses (2) and (3) should not be made unless the Court is satisfied that the debtor, with intent to defeat or delay his creditors or to avoid any process of the Court has absconded or has departed from the local limits of the jurisdiction of the Court, or is about to abscond or to depart from such limits, or is remaining outside them, or that he has failed to disclose or has concealed, destroyed, transferred or removed from such limits, or is about to conceal, destroy, transfer or remove from such limits, any documents likely to be of use to his creditors in the course of the hearing, or any part of his property other than such particulars as aforesaid.
15. When the statute demands satisfaction of the aforesaid facts as indicated in proviso to Section 21(3) of the Act before a Court passes an order of attachment of the property, it necessarily follows that for actual appointment of receiver as mentioned in Section 20 over any part of the property of the debtor at the instance of the creditor, the same ingredients, if not further more, should be present.
16. In the case before us, the Court has not arrived at any such conclusion in terms of proviso to Section 21(3) of the Act nor has the respondent/creditor made any such allegation either in the application under Section 13(2) or in the one under Section 20 of the Act.
17. Therefore, in the absence of any material indicating existence of the circumstances mentioned in proviso to Section 21(3) of the Act the learned Trial Judge acted without jurisdiction in appointing a receiver at the instance of the creditor.
18. We, therefore, set aside the order impugned on the ground that there was no just cause for even attachment of the property of the debtor, not to speak of appointment of a receiver, over the assets of the appellant at the instance of the respondent.
19. The appeal is, thus, allowed. The order impugned is set aside. The amount recovered by the receiver be immediately returned to the appellant. The learned Trial Judge is directed to dispose of the main proceedings as expeditiously as possible. In the facts and circumstances, there will be, however, no order as to costs.
Sadhan Kumar Gupta, J.
20. I agree.