Bombay High Court
M/S. Shree Steel Centre & Ors. vs Union Bank Of India on 2 December, 2000
Author: D. G. Deshpande
Bench: D.G. Deshpande
JUDGMENT D. G. Deshpande, J.
In all the notices of motion common question of law is involved, therefore they were heard together with the consent of the Advocates and I am passing a common order, copy of which should be separately kept in each matter.
1. Judgment debtors to the suit, filed by the Union Bank of India, have taken out this notice of motion for setting aside the Insolvency Notice being Notice No. N/10 of 2000, dated 16.2.2000 and served on the judgment debtor on 15.3.2000. Obviously, the notice of motion is opposed strongly by the judgment creditors i.e. Union Bank of India
2. Main bone of the contention of the Judgment debtors is that Union Bank of India filed a suit against them in respect of a Bill of Exchange accepted by the judgment debtors some time on 25.11.1992 and 27.11.1992. The Bank obtained an exparte decree against the judgment debtors on 5.2.1996. The judgment debtors engaged advocates to defend them in the said suit, however, their advocates did not inform them about the progress of the suit and ultimately an exparte decree came to be passed against them.
3. Thereafter the judgment creditors got Issued insolvency notice and served it on 15.3.2000. Thereafter judgment debtors have taken out this notice of motion for setting aside the insolvency notice. The objection to the Insolvency notice i.e. raised by the Judgment debtors is that even though the bank obtained decree on 5.2.1996 they did not start execution proceedings within two years or at any time till the insolvency notice was served or even till today and therefore since the period of two years has elapsed from the passing of the decree, under Order XXI Rule 22 of C. P. C. it was necessary for the bank - judgement creditors to apply to the Court for leave to execute the decree and since that has not been done the Insolvency notice cannot be proceeded with and is required to be set aside. Counsel for the judgment debtors drew my attention to Insolvency Laws Amendment Act, 1978 (Act of 28 of 1978) wherein section 5 of the said Act and in particular 5(c). Section 5 reads as under :
"(5) Any person served with an insolvency notice may. within the period specified therein for its compliance, apply to the Court to set aside the insolvency notice on any of the following grounds, namely :-
(a) that he has a counter-claim or set off against the creditor which is equal to or is in excess of the amount due under the decree or order and which he could not, under any law for the time being in force, prefer in the suit or proceeding in which the decree or order was passed;
(b) that he is entitled to have the decree or order set aside under any law providing for the relief of indebtedness and that-
(i) he has made an application before the copetent authority under such law for the setting aside or the decree or order; or
(ii) the time allowed for the making of such application has not expired;
(c) that the decree or order is not executable under the provisions of any law referred to in clause (b) on the date of the application."
4. Section 5(c) provides that a person served with the insolvency notice may apply for setting aside the insolvency notice on the ground that decree or order is not executable under the provisions of any law referred to in clause 9(b) on the date of the application and sub-section (b) of section 5 permits such a person to point out that he is entitled to have the decree or order set aside under any law for the relief of indebtedness. Counsel for the judgment debtor also relied upon Order XXI Rule 22 of the C. P. C. which provides:
"that wherein an application for execution is made more than two years after the date of the decree, the Court executing the decree shall issue a notice to the person against whom execution is applied for requiring him to show cause, on a date to be fixed, why the decree should not be executed against him."
On the basis of these provisions, counsel for the judgment debtors contended that decree has become unexecutable because the judgment creditor did not apply within two years for execution of the decree and in that case the insolvency notice should not have been issued. Counsel for the judgment deb.tors also relied upon the unreported judgment of Justice Dhanuka in Notice of Motion No. 23 of 1994 in Notice No. N/162 of 1993 (Re : Harshah Shah-Judgment debtor Ex-parte: Kauasmaneck Chemicals Pvt. Ltd.- Judgment creditors). In that case also a decree was passed by this Court in terms of award under section 17 of the Arbitration Act, 1940. The decree was not executable on 19.1.1994 i.e. the dale on which insolvency notice was issued by the Insolvency Registrar and in that background it was held by Justice Dhanuka that it was necessary for the decree holder to adopt proceedings as contemplated under Order XXI Rule 22 of the C. P. C. or to obtain an order from the Chamber Judge dispensing with the requirement of the service of the said notice and therefore in that background insolvency notice could not have been issued on the day when it was issued. Justice Dhanuka also relied upon the observations made by the Division Bench of this Court, in J. B. Tiwari v. Bhimrai Harlalka, and also another judgment in M/s. Bhurmal Kapurchand and Co. v. M/s. Premier Machine Tools Co.,
5. As against this. Mr. P. V. Shah relied upon Judgment of Madras High Court reported in Madras Law Journal Reports page 250 T.R. DeluanaiAchi. Petitioning Creditor v. K. S. D. Radhakrishnan. Debtor, and another judgment of Justice Dhanuka in Sharad R. Khanna and Others., Judgment Debtors v. Industrial Credit and Investment Corp. of India Ltd. and Others., and contended that not initiating proceedings for execution of the decree within two years of the passing of the decree does not make the decree unexecutable and at any rate the insolvency notice cannot be and should not be set aside on that ground.
6. Now Insolvency Act, 1909 Part II Section 9, in a sense defined as to what were the acts of insolvency. Those acts of Insolvency are as under :
"9(i) A debtor commits an act of insolvency in each of the following cases, namely :-
(a) if, in the States 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 the States or elsewhere, he makes a transfer of his properly or of any part thereof with intent to defeat or delay his creditors;
(c) if, in the States 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 adjudged an insolvency;
(d) if, with intent to defeat or delay his creditors.-
(i) he departs or remains out of the States,
(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 or attached for a period of not less than twenty-one days in execution of the decree of any Court for the payment of money;
(f) if he petitions to be adjudged an insolvent;
(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;
(h) if he is imprisoned in execution of the decree of any Court for the payment of money.
However, Insolvency Laws Amendment of 1978 and sub-section 2 was added thereto to section 9 which is as under :
Without prejudice to the provisions of sub-section (1) a debtor commits an act of insolvency if a creditor, who has obtained a decree or order against him for the payment of money (being a decree or order which has become final and the execution whereof has not been stayed) has served on him a notice (hereinafter referred to as "the insolvency notice"), as provided in sub-section (3) and the debtor does not comply with that notice within the period specified therein."
7. Relying upon this amended section 9 sub-section (2) and the amended section 5. it was contended by the counsel for the Judgment debtor that even though the bank - judgment creditor has obtained a decree against the judgment debtor, the decree was not executable on the date when the insolvency notice was issued because two years period as prescribed by Order XXI Rule 22 has elapsed and if after the period of two years, the judgment creditor wanted to execute the decree they would have been required to ontain leave of the Court and since that has not been done, the decree has become unexecutable and if the decree has become unexecutable then it cannot be said that the judgment debtors committed act of insolvency referred to in section 9 sub-section (2) would not arise against the judgment debtors.
8. It is difficult to accept this argument at least in its entirety. It is true that Order XXI Rule 22 provides that if an application for execution is made more than two years after the date of the decree, the Court executing the decree shall issue a notice to the judgment debtors requiring him to show cause. But it cannot be said that if a decree holder does not follow this procedure then the decree obtained by him becomes or can be treated as unexecutable decree. The decree can become amongst other reasons unexecutable if the execution is filed after 12 years or after the decree is fully satisfied. But decree does not become unexecutable because no application is made within two years as contemplated by Order XXI Rule 22 of C. P. C. A decree obtained is a decree enforceable till the period of limitation expires or till it is fully satisfied and it cannot in any case be treated as an unexecutable decree.
9. The object of the Legislature in making provision in the form of Order XXI Rule 22 i.e. of the Court to give notice to the judgment debtor if the execution is started after two years is to give an opportunity to the judgment debtor to satisfy the decree before other coercing methods of execution and realisation of the decretal amount are resorted to. It has to be said that Order XXI Rule 22 is a rule of caution and does not in any manner affect executability of the decree, the decree is executale but the only rider put on the judgment creditors is to get a show cause notice issued against the Judgment debtors. Therefore, this argument of the counsel for the judgment debtor in that regard has to be rejected.
10. However, the question is issuance of insolvency notice for non-satisfaction of the decree that is passed against judgment debtors, it is true that Justice Dhanuka in the similar circumstances has held that it was necessary for the decree holder to adopt proceedings as contemplated under Order XXI Rule 22 of C. P. C. But in none of the Judgments even referred to by Mr. P. V. Shah the object of issuance of notice under Order XXI Rule 22 is discussed and so far as Order XXI Rule 22 vis-a-vis insolvency laws amended is concerned, the judgment debtor cannot be said to have committed an act of insolvency unless an opportunity is given to him by Executing Court if the execution of the decree is started after two years by issuing show cause notice and failure of the judgment debtor to give any satisfactory reply or satisfy the Court why the decree should not be executed against them.
11. In the notice of motion taken out by the judgment debtor this Court is mainly concerned with the act of insolvency committed by the Judgment debtor so as to enable the Judgment creditor to get Insolvency notice issued. Therefore in order to find out whether the Judgment debtor has committed an act of insolvency after passing of the exparte decree, the criteria would be whether there is a failure on the part of the judgment debtor to pay the decretal amount in spite of notice from the Court under Order 21 Rule 22. As rightly argued by the counsel for the Judgment debtors issuance of insolvency notice against a person is a matter of serious consequences and such a notice should not be received at the behest of the judgment creditors merely because they ask for it. Matter has to be carefully scrutinised and examined in order to find out whether the judgment debtor has committed any act of insolvency.
12. Therefore, even though not starting proceedings for execution of a decree within two years does not make the decree unexecutable, for the purpose of deciding whether the judgment debtor has committed an act of insolvency or not particularly in case where a decree is not sought to be executed by starting any proceedings, the Insolvency Court or the Court dealing with matters will have to see whether there was failure on the part of judgments debtor to satisfy the decree even after the show cause notice being issued by the executing decree under Order XXI Rule 22 of the C. P. C.
13. Section 9 of the Insolvency Laws Amendment Act, 1978. no doubt lays down that the debtor commits an act of insolvency if a creditor who has obtained a decree or order against him for payment............ has served on him a notice as provided in sub-section (3) and the debtor does not comply with that notice within the period specified therein, Admittedly, in the instant case the insolvency notice was issued and served on 15.3.2000 and prior to that no notice was served upon the judgment debtors right from the date of obtaining ex parts decree against them. Similarly, no notice was served upon the Judgment debtors cither at the instance of any Court or at the instance of the judgment creditors from the date of passing of the decree till issuance of the insolvency notice. It is an admitted fact that the Insolvency notice came to be issued more than 2 years after passing of the decree and therefore I am constrained to uphold the contention of the judgment debtors that if the Judgment creditor has started execution proceedings after two years, then they were required under Order XXI Rule 22 to get a show cause notice issued against the judgment debtors and if that was done then only that could have been constituted as an act of insolvency.
14. In this background I am constrained to accept the submissions made by counsel for the judgment debtors that if the protection given to the judgment debtors under Order XXI Rule 22 C. P. C. is not resorted to then any creditor i.e. person having a decree in his favour may not start execution proceedings for 7, 8, 10 years and suddenly on one fine morning gel an insolvency notice served on the gound of non-satisfaction of the decree or on the ground of having committed act of insolvency. It is in this background that the submission made by the counsel for judgment debtor has to be accepted that Order XXI Rule 22 has to be read in conjunctions with the provisions of the Insolvency Act and those provisions arc required to be used for the protection of the judgment debtors and since protection of the interest of the judgment debtor is the main object of introducing Order XXI Rule 22 by giving him an opportunity to show cause then such a protection has to be afforded to the judgment debtors in all eventualities particularly when proceedings under the Insolvency Act are sought to be initiated. Therefore, it is in this background and for this reason that I have accepted the submission made by the counsel for the petitioner though I do not agree with him that decree becomes unexecutable if proceedings are not initiated within two years.
15. In the result, I pass the following order :
ORDER (1) Prayer (a) of the Notice of Motion No. 52 of 2000 is allowed and made absolute. Insolvency Notice No. N/10 of 2000, dated 16.2.2000 and served on the judgment debtors on 15.3.2000 is set aside. Notice of motion disposed of. No order as to costs.
(2) Prayer (a) of the Notice of Motion No. 58 of 2000 Is allowed and made absolute. Insolvency Notice No. N/11 of 2000, dated 16.2.2000 and served on the judgment debtor Nos. 1 and 2 on 15.3.2000 is set aside. Notice of motion disposed of. No order as to costs.
(3) Prayer (a) of the Notice of Motion No. 59 of 2000 is allowed and made absolute. Insolvency Notice No. N/12 of 2000, dated 16.2.2000 and served on the judgment debtor Nos. 1 and 2 on 15.3.2000 is set aside, Notice of motion disposed of. No order as to costs. Certified copy expedited.