The judgment clarified the provability of debts in insolvency and the entitlement of secured creditors to prove their dues for the balance in insolvency.

This Notice of Motion has been taken out by the insolvent for an order annulling and/or setting aside an order dated 21.6.2005 adjudicating them insolvents; for an order discharging the Official Assignee and for a declaration that there is no claim of whatsoever nature due on the basis of an ex-parte decree dated 30.6.1989 passed in Summary Suit No.3646 of 1989 against the insolvent.

2. It is not necessary to set out in detail the proceedings which led to the said order dated 21.6.2005 adjudicating the judgment debtors as insolvents. Suffice it to state that the insolvency notice was based on a decree obtained by the judgment creditor in the sum of Rs.38,04,080/- in the said Summary Suit.

3. Thereafter, the judgment debtors settled the Petitioning creditors claim. The petitioning creditor has confirmed that it now has no claim against the judgment debtors. The judgment debtors filed a schedule of assets and liabilities disclosing the Canara Bank and the IDBI Bank (Erstwhile United Western Bank Ltd.) as their creditors. It appears that the claim of IDBI Bank has also been settled.

4. Canara Bank filed O.A. No.256 of 2001 in the Debts Recovery Tribunal, Mumbai, against several parties, including the judgment debtors who were Respondent nos.2 and 3 therein. By a judgment dated 5.9.2005 the claim of Canara Bank was adjudicated for the sum of Rs.69,90,782.58 together with further interest thereon at 12% per annum from the date of the filing of the O.A. till realisation. The Debts Recovery Tribunal also recognised the charge on the properties in favour of Canara Bank.

5. The present Notice of Motion has been taken out under Section 21 of the Presidency Town Insolvency Act, 1909. I will for the purpose of this judgment, proceed on the basis that the Notice of Motion under Section 21 is maintainable at the instance of the judgment debtors.

6. Mr. Bulchandani submitted that Canara Bank could not have taken out a notice under Section 9(2) of the said Act on the basis of the recovery certificate issued by the D.R.T. in view of the judgment of the Supreme Court in the case of Paramjeet Singh Patheja v. ICDS Ltd. JT 2006(10) SC 41 = (2006)13 SCC 322 and in view of an unreported judgment of a learned Single Judge of this Court in the case of Re: Kishore K. Mehta dated 4.9.2007 in a group of Notices of Motion, the first of which is Notice of Motion No.40 of 2007 in Notice No.N/224 of 2006. He submitted that Canara Bank therefore cannot intervene in the proceedings or oppose this Notice of Motion. It was thereafter contended that the judgment debtors are entitled to the reliefs claimed in the Notice of Motion despite the claim of Canara Bank not having been satisfied on the ground that Canara Bank is a secured creditor. It was also contended that in any event the value of securities held by the Canara Bank are more than adequate to meet the claim of the Canara Bank against the judgment debtors.

7. The Petitioning Creditor was indeed entitled to take out the insolvency notice under the provisions of Section 9(2) of the said Act, which reads as under: -

“Section 9. Acts of insolvency.[(1)]

..............

.........................................................................

[(2) 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 (hereafter in this section 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:

Provided that where a debtor makes an application under sub-section (5) for setting aside an insolvency notice—

(a) in a case where such application is allowed by the Court, he shall not be deemed to have committed an act of insolvency under this sub-section;

and

(b) in a case