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2020 Supreme(Bom) 418
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S.C. Gupte, J.
Ravikiran Aggarwal - Petitioner
Versus
Pujit Ravikiran Aggarwal - Respondent
Petition No. 21 of 2019, Insolvency Petition No. 22 of 2019
Decided On : 26-05-2020
Mr. Vekatesh Dhond, Senior Counsel with Kausar Banatwala with Ms.Gauri, Sakhardande i/b. Tushar Goradia for Objectors, Mr.Cherag Balsara with Mr.Vibhor Kapoor i/b. Rajani Associates, Mr.Gaurang Mehta with Mr.Ashish Parwani with Dikshat Mehra with Vibhor Kapoor with Ms.Ruta Shah, Mr.Rakesh Singh with Mrunmayee Kolpalliwar i/b. M.V. Kini Law Firm for LIC Creditor., Ms. M.P. Kunte, Insolvency Registrar
A debtor's petition requires only an allegation of inability to pay debts, and once the conditions are satisfied, an order of adjudication should follow as a matter of course.
Headnote:
Insolvency - Debtors' Petitions - Presidency Towns Insolvency Act, 1909 - Section 14, Section 15
Fact of the Case:
Debtors, directors of a wound-up company, apply for insolvency claiming heavy indebtedness. Objectors oppose, alleging false statements and abuse of process of law. Additional objections raised regarding non-compliance with insolvency act provisions and systematic siphoning of assets.
Finding of the Court:
The court found that the debtors complied with all legal requirements for presenting their petitions, alleged inability to pay their debts, and fulfilled the conditions of Section 14. The court held that the debtors were entitled to an order of adjudication.
Issues: Debtors' compliance with insolvency act provisions, allegations of false statements, abuse of process of law, and systematic siphoning of assets.
Ratio Decidendi: The court clarified that a debtor's petition only requires an allegation of inability to pay debts, while entitlement to present the petition must be proved. The court emphasized that once the conditions are satisfied, an order of adjudication should follow as a matter of course.
Final Decision: Both Insolvency Petitions were allowed, and the Official Assignee was appointed for the properties of the debtors. The court rejected the application for stay of the adjudication order.
Based on the provided legal document, the key points are as follows:
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A debtor's petition under the relevant insolvency law requires only an allegation of inability to pay debts. The petitioner must satisfy certain statutory conditions to be entitled to present the petition, such as owing a minimum amount of debt or having an order of attachment or arrest against their property (!) (!) .
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The debtor must prove their entitlement to present the petition by satisfying one of the specific conditions outlined in the law, but the allegation of inability to pay itself does not require proof at this stage (!) (!) .
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Once the debtor satisfies the conditions for entitlement and alleges inability to pay, the court's role is largely to verify the fulfillment of these conditions. The court's discretion to refuse adjudication is limited, and the order of adjudication should follow almost automatically once the statutory requirements are met (!) (!) (!) .
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The court emphasizes that the presentation of a debtor's petition constitutes an act of insolvency, and the law intends for adjudication to follow as a matter of course if conditions are satisfied, without the court needing to probe into the debtor's actual ability or inability to pay at this stage (!) (!) (!) .
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The law also provides mechanisms for objectors to challenge the adjudication, such as demonstrating misconduct or abuse of process, but mere allegations or technical non-compliance do not automatically prevent adjudication if the statutory conditions are fulfilled (!) (!) .
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The court's primary concern is to ensure that the statutory conditions for insolvency are met before adjudication, and acts of bad faith or misconduct are relevant only in subsequent proceedings, such as when the debtor applies for discharge (!) (!) .
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The order of adjudication is a statutory right once the conditions are satisfied, and courts are generally bound to issue such an order, unless there are clear grounds for annulment or annulment proceedings are initiated (!) (!) .
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The law mandates that the adjudication order be advertised appropriately, and it should not be stayed or delayed unless specific procedural or substantive grounds are established (!) .
In summary, the legal principles outlined reinforce that a debtor's petition for insolvency should be granted if the statutory criteria are met, primarily focusing on the fulfillment of conditions and the allegation of inability to pay, with the court's role being to verify these conditions and facilitate adjudication accordingly.
JUDGMENT :
These two insolvency petitions are debtors’ petitions filed by a father and son duo. Both are on a similar footing and contested by the objectors on similar grounds. Both are accordingly being disposed of by this common order.
2. The debtors claim to be heavily indebted, both Petitioners claiming to be indebted under a consent decree dated 12 June 2015 in Suit No.345 of 2015 (read with another additional consent terms dated 29 September 2016 in Execution Application (Lodging) No.2034 of 2016 and consent minutes of order dated 30 October 2018) in a principal sum of over Rs.56 crores to the plaintiff, Vardhaman Developers Ltd., together with interest and penalties. In addition, both Petitioners have disclosed particulars of various other debts owed by them to other creditors. The particulars of these liabilities have been reflected in their financial statements including balance sheets and income tax returns. The debtors are directors of Orbit Corporation Ltd., a company ordered to be wound up by this court on 12 April 2018. The debtors are personal guarantors of various banks and financial institutions against facilities obtained by this company. Recovery Certificates have been issued against them by DRT, Mumbai, under which sums of Rs.278 and Rs.106 crores with further interest are payable by them, respectively, to Life Insurance Corporation of India and LIC Housing Finance Ltd. So far as other banks and financial institutions are concerned, proceedings under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) are under way against the company, where after the banks and financial institutions are likely to invoke the personal guarantees of the debtors. The claims of the consortium of State Bank of India and Union Bank of India, and of Axis Bank, for which SARFAESI proceedings have been issued, are to the tune of over Rs.135 crores and Rs.161 crores, respectively. In these circumstances, both debtors apply for an order of adjudication of insolvency.
3. The petitions are opposed by objectors, including the decree holder, M/s.Vardhaman Developers Ltd., on various grounds. It is submitted that the debtors have made various false statements and even sought to create fictitious liabilities. It is submitted that the debtors have not made full and complete disclosure. It is submitted that the deeds of guarantee referred to are not genuine and, in any event, there is no certainty as far as the debtors’ liabilities there under are concerned. It is submitted that the debtors are guilty of committing breach and wilful disobedience of various orders passed by this court and also of contempt. The sum and substance of what the objectors submit is that the insolvency petitions are an abuse of the process of law; the debtors are thereby using the machinery of this court for extraneous purposes and for frustrating orders passed earlier by this court.
4. In their additional affidavit in reply filed by Vardhaman Developers Ltd., further objections have been raised. These are to the effect that the debtors have not complied with the provisions of Sections 14 and 15 of the Presidency Towns Insolvency Act, 1909; they have not disclosed that they had systematically siphoned away assets, both movable and immovable; they were holding these assets, which far exceed their debts, in the names of various fronts, bogus companies, partnerships and individuals; the debtors have not given any reason or produced any material to show why they were unable to pay their debts. Various false statements purportedly made by the debtors in the petitions have been particularized in this additional affidavit.
5. The scheme of the Presidency Towns Insolvency Act, 1909 (“PTI Act”), firstly, provides for acts of insolvency on the part of a debtor which call for an adjudication in insolvency (Section 9). Clause (f) of Section 9 provides that petitioning to be adjudged an insolvent is itself one such act
