The need for strict interpretation of insolvency proceedings and the requirement for strong evidence to support allegations under the relevant sections of the PTI Act.

1. Heard the petitioner.

2. This Petition has been filed by the petitioning Creditor under Sections 9(1)(b), 9(1)(d) (ii), 10, 11, 12 and 13 of the Presidency Towns Insolvency Act, 1909 (for short PTI Act), praying to adjudicate the Debtor as insolvent.

3. The Petitioning Creditor sold to the debtor one number of 6 colour Flexo Printing machine with cylinders, for which the debtor did not make payment. Hence the petitioning creditor issued notice to the debtor. The respondent sent a reply sating that she will pay the amount if the interest is waived. The petitioning creditor agreed for the same, but the debtor did not make payment.

4. Therefore, the petitioning Creditor has filed this Insolvency Petition under Sections 9 (1)(b) and 9 (1)(d)(ii) of the PTI Act alleging that the respondent/debtor did not make payment and hence she committed the act of insolvency. Sections 9(b) and 9(d)(ii) reads as follows:

“9. Acts of insolvency.- (1) A debtor commits an act of insolvency in each of the following cases, namely:-

(b) if, in the States or elsewhere, he makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors;

(d)(ii) he departs from his dwelling-house or usual place of business or otherwise absents himself,”

5. When the matter was taken up for enquiry, since the respondent was absent, she was set ex parte. The matter was directed to be posted before the Master for recording evidence. The petitioning Creditor has filed proof affidavit, dated 02.07.2009 and marked four documents as Exs.P.1 to P.4. Ex.P.1 is the invoice for Rs.17,49,300/- for supplying the machinery. Ex.P.2 is the notice to the respondent. Ex.P.3 is the reply from the respondent and Ex.P.4 is the notice on the Insolvency Petition.

6. In order to attract the provisions of Sections 9(1)(b) ad 9(1)(d)(ii) of the PTI Act, the following averments have been made in the proof affidavit:

“3. … She was never available at her residence as well as in the factory premises whenever I tried to contact her personally, the debtor departed from her dwelling house or otherwise absented herself. … On subsequent days also I tried to contact her but she departed her dwelling house or otherwise absent….

4. The respondent with mala fide intention to defeat me and others absented herself from the dwelling house or usual place of business otherwise absented herself.”

7. This Court in its judgment in P.V. Ganghi v. M/s. Gitanjali and others, AIR 1973 Mad. 115, dealt with the scope of Section 9(1)(b) of the PTI Act. The following passage found in paragraph 10 may be usefully extracted below:

“10. … If the transfer is made for the purpose of enabling the debtor to continue the business, it would not constitute an act of insolvency, even though the whole of the debtor’s property is alienated. But, if the transfer is just a cloak to defeat the other creditors, it would constitute an act of bankruptcy. In dealing with this question, the Court of Appeal in Ex parte Johnson In re Chapman, (1884) 26 Ch D 338 observed that the true test is, was the fresh advance made by the lender with this intention of enabling the borrower to continue his business and had he reasonable grounds for believing that the advance would enable the borrower to do so? If these questions can be answered in the affirmative, the execution of the deed, even if it comprises of the whole of the debtor’s property, would not be an act of insolvency. The validity of a mortgage by a trading partnership of all its assets arose for consideration before the Privy Council in Khoo Kwat Shew v. Wooi Taik Hwat, 1892 ILR 19 Cal 223 (PC). It is pointed out that if a trader assigns all his property, except on some substantial contemporaneous payment, or substantial undertaking to make a subsequent payment, that would be an act of insolvency and it would be void against the creditors on his insolvency for the reason that nothing would be left to carry on the business. That principle