MANDVI CO-OPERATIVE BANK LTD. vs ANANT V. HEGADE

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2006 Supreme(Bom) 1720

IN THE HIGH COURT OF BOMBAY
(Dr. D. Y. Chandrachud, J.)
MANDVI CO-OPERATIVE BANK LTD. - Petitioning Creditor.
MANIPAL FINANCE CORPORATION LTD. - Substituted Petn. Creditor
Versus

ANANT V. HEGADE - Debtor
Insolvency Petition No. 141 of 2004
Decided on 17-10-2006
Advocates appeared
For petitioning creditor: D. R. Talankar
For supporting petitioning creditor: Kishore Jain
For debtor: P. C. Kansara

Headnote:Presidency Towns Insolvency Act, 1909 - Sections 2(a) and 9-A - Insolvency proceedings - Purchase agreement - Claim of substituted petitioning creditor - Insolvency notice - issued by petitioning creditor validly - Debtor failed to comply with requisition of notice - Enure to benefit of body of creditors - Absence of decree or order in favour of substituted petitioning creditor pleaded - Not tenable - As expression "creditor" includes a decree holder. - The proceedings in insolvency were initiated by the Bank, based on an award of the Co-operative Court. The act of insolvency was complete on 20th July, 2004, on the expiry of the statutory period after the service of the Insolvency Notice. The substituted petitioning creditor is entitled in law to pursue the proceedings on the basis of the act of insolvency as originally committed by the debtor since the consequence thereof would enure to the benefit of the general body of creditors. The substituted petitioning creditor is required to meet the definition of the expression "creditor" in the Presidency Towns Insolvency Act, 1909 and it is to be noted that Section 2(a) defines the expression "creditor" to include a decree holder. Therefore, once an Insolvency Notice was validly issued by the original petitioning creditor and the act of insolvency was complete upon the failure of the debtor to comply with the requisition contained therein, the consequence of the commission of an act of insolvency must enure to the benefit of the general body of creditors. The fact that the original petitioning creditor has lost interest in the proceedings would not make any difference to the position in law; for the substituted petitioning creditor steps into the shoes of the original petitioning creditor in pursuing the insolvency proceedings. The contention that there was no decree or order in favour of the substituted petitioning creditor is, as already noted above, without any merit since the expression "creditor" is defined to include a decree holder.
Sick Industrial Companies (Special Provisions) Act, 1985 - Section 22(1) - Sick Industrial Company - Benefit of Section 22(1) - Insolvency proceedings - Initiation of, against debtor - Debtor, a guarantor of Industrial Company declared as Sick Industrial Company - Not barred by virtue of Section 22(1) of Act. - It cannot be said that the proceedings in insolvency against the debtor would militate against the provisions of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

ORAL JUDGMENT :- The Insolvency Petition was filed by the Mandvi Co-operative Bank Ltd., on the basis of an award of the Co-operative Court dated 7th August, 2000. Based thereon, an Insolvency Notice was taken out on 9th May, 2003 under which the amount that was due and payable was quantified at Rs. 94.07 lakhs with future interest on the principal sum of Rs. 69.21 lakhs from 1st July, 2002. The Insolvency Notice was served on the Debtor on 24th December, 2003. The Debtor took out a Notice of Motion (Notice of Motion 17 of 2004) for setting aside the Insolvency Notice. The Motion was dismissed in default on 20th July, 2004. Subsequently, in Notice of Motion 174 of 2004, the earlier Motion was restored to file. In Notice of Motion 17 of 2004 which was for setting aside the Insolvency Notice, Consent Terms were arrived at between the Bank and the Judgment Debtor under which the Debtor admitted the claim of the Bank in the amount of Rs. 1.07 crores together with interest at the rate of 12.5% per annum on the principal sum of Rs. 69.21 lakhs from 1st December, 2004. There was a default on the part of the Judgment Debtor in complying with the Consent Terms. In the meantime, Manipal Finance Corporation Ltd. was brought on the record as substituted Petitioning Creditor. The claim of the substituted Petitioning Creditor was in respect of the amount due and payable under a hire purchase agreement dated 30th September, 1995 and. according to the substituted Petitioning Creditor, the claim against the Debtor was in the amount of Rs. 25.43 lakhs together with future interest from 1st August, 1999.

2. An affidavit in reply has been filed on behalf of the Debtor to the Insolvency Petition. The first line of defence is that under section 9A of the Presidency Towns Insolvency Act, 1909, the claim of a creditor who is prosecuting an insolvency proceeding should be based on a decree and order of the Competent Court. Hence, it has been submitted that the claim under a hire purchase agreement did not amount to a valid claim in the eyes of law. Now in the present case, the proceedings in insolvency were initiated by the Bank, based on an award of the Co-operative Court. The act of insolvency was complete on 20th July, 2004, on the expiry of the statutory period after the service of the Insolvency Notice. The substituted Petitioning Creditor is entitled in law to pursue the proceedings on the basis of the act of insolvency as originally committed by the Debtor since the consequence thereof would enure to the benefit of the general body of Creditors. The substituted Petitioning Creditor is required to meet the definition of the expression "creditor" in the Presidency Towns Insolvency Act, 1909 and it is to be noted that section 2(a) defines the expression "creditor" to include a decreeholder. Therefore, once an Insolvency Notice was validly issued by the original Petitioning Creditor and the act of insolvency was complete upon the failure of the Debtor to comply with the requisition contained therein, the consequence of the commission of an act of insolvency must enure to the benefit of the general body of Creditors. The fact that the original Petitioning Creditor has lost interest in the proceedings would not make any difference to the position in law; for the substituted Petitioning Creditor steps into the shoes of the original Petitioning Creditor in pursuing the insolvency proceedings. The contention that there was no decree or order in favour of the substituted Petitioning Creditor is, as already noted above, without any merit since the expression "creditor" is defined to include a decree holder. Section 13(2) postulates that at the hearing of the Petition, the Court shall require proof of the debt of the Petitioning Creditor and of the act of insolvency or if more than one act of insolvency is alleged in the petition, some one of the alleged acts of insolvency. Apart from the claim of the Petitioning Creditor which is crystallised in an adjudi

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2006 Supreme(Bom) 1720

Cases Referred (2)