The interpretation of the Insolvency Act and its effect on the rights of a secured creditor, particularly in relation to the date of adjudication and the creation of a charged decree.

Aggrieved by order dated 12.6.2014 in E.A. 105 of 2014 in E.P. 70 of 2010 in O.S. 117 of 2006, the first respondent before the court below has come up with this Original Petition under Article 227 of the Constitution of India.

2. Respondents 6, 7 and 8, who were judgment debtors 3, 7 and 8, filed the above E.A. under Section 151 of the Code of Civil Procedure to have the execution petition filed for executing the decree in favour of the petitioner herein dismissed as not maintainable.

3. The petitioner claims to have obtained a money decree against the judgment debtors.

4. The claim of the petitioners before the court below was that some of the creditors had filed an insolvency petition in which an adjudication order was passed and therefore, the entire assets belonging to the judgment debtor came to vest with the Insolvency Court. The properties involved in this proceedings are scheduled in the insolvency petition in respect of which the court below ordered for the ratable distribution of the assets. Contending that the petitioner before this Curt cannot proceed with the execution petition, the petition was laid.

5. The petitioner, who is the decree holder, resisted the petition. According to him, the entire insolvency proceedings were collusive and as a result of material suppression of fact. He claims that he was not made a party to the proceedings and the proceedings are not binding on him. It is also contended that much prior to the adjudication order in the insolvency petition, the property had been attached and a charge decree has been given in favour of the petitioner and if that be so, he qualifies as a secured creditor who falls outside the ambit of insolvency proceedings. On these grounds, he filed a petition.

6. The court below, even though found that adjudication order was passed after the decree in the suit, held that an adjudication of a person as insolvent relates back to the date of petition. Accordingly, the petition was allowed and the E.P. was dismissed.

7. Learned counsel appearing for the petitioner contended that the court below was not justified in dismissing the execution petition. The attachment of the property was made long before the insolvency proceedings were initiated and ultimately the suit came to be decreed making the property involved in the suit liable for a debt due to the petitioner before this Court. The petitioner was qualified to be a secured creditor as defined under Section 2 (f) of the Insolvency Act, 1995 and if that be so, under Section 28(6) of the Act, he can stand outside the insolvency proceedings. It is, accordingly, contended that the order cannot stand.

8. Even though the respondents were served with notice, they have not entered appearance.

9. It appears that there was considerable controversy before the court below as to whether the decree obtained by the petitioner before this Court was a charged decree or not. The decree as it now stands only enables the petitioner before this Court to proceed against the property involved in the proceedings. Whether that amounts to a charged decree is a much debated point by the court below.

10. Even though the court below did not enter a positive finding in that regard, the court was carried away by the fact that since adjudication order was made and it related back to the date of the petition, and since as on the date of the petition the petitioner did not have a charged decree, it could not be said that he is entitled to benefit under Section 28(6) of the Act.

11. The question is how far the court below was justified in its conclusion. There can be no manner of doubt that by the mere process of attachment, a charge is not created over the property nor can it be said that when subsequently charge is created, it relates back to the date of attachment. This is evident from the decision reported in State of Kerala v. Mani (1995(2) K.L.T. 568) wherein it was held as follows:

"Only if the amount claimed is arrears of public revenue on land,