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2007 Supreme(Online)(KER) 19520
HIGH COURT OF KERALA
P.R.RAMAN, J
T.K. MOHAMMED SHAFI – Appellant
Versus
DISTRICT COLLECTOR, KASARGODE – Respondent
WP(C)/7411/2005
Sri.T.K.PANKAJASHAN PILLAI, Sri.SAJI PANKAJAKSHAN
The title to property vests in the insolvency court upon adjudication, restricting creditor actions against it without court approval.
Headnote:
Insolvency - Insolvency Act - Sections 28(2), 42 - The Court interpreted that upon adjudication as insolvent, property vests in the court or receiver, preventing creditors from proceeding against it without court sanction, influencing the dismissal of the petition.
Fact of the Case:
The petitioner filed an insolvency petition claiming to be insolvent along with another partner. The State contended that the petitioners were tax defaulters, and thus the filing was to escape liability. A dispute arose over whether certain property could be sold for tax recovery despite ongoing insolvency proceedings.
Finding of the Court:
The court found that the property in question was not included in the insolvency schedule and therefore, without evidence to the contrary, the State could proceed with the sale for tax recovery without violating the insolvency proceedings.
Issues: Whether the property is subject to sale by the State for tax recovery despite the insolvency proceedings.
Ratio Decidendi: The existing insolvency declaration prohibits creditors from selling the debtor's property without court permission, as the property vests in the insolvency court.
Final Decision: The writ petition is dismissed without prejudice to the petitioner's rights.
JUDGMENT
Petitioner has filed an Insolvency Petition No.6/1987 before the Subordinate Judge's Court, Kochi for a declaration that he is an insolvent. He is one of the partners of the firm "Asian Trading Company". The other partner is one A.T.M.Shafi. In the insolvency proceedings, Ext.P1(a) dated 28/2/2000 adjudication order was passed by the Insolvency Court as per which A.T.M. Shafi as well as T.K.M. Shafi were adjudged as insolvents. T.K.M.Shafi is the petitioner herein. The order also reveals that the State was already made as one of the respondents in the said proceedings. 23rd respondent was a Tahsildar, Cochin Taluk, who raised the contention that the petitioners are defaulters of sales tax and the total amount defaulted is Rs.67,57,829/- and with a view to escape from the liability, the insolvency petition was filed. It was after hearing all the parties that the Insolvency Court passed the order adjudging the petitioners as insolvents. Subsequently, the petitioner has filed a petition also for discharge under Section 42 of the Insolvency Act , which is pending consideration before the Insolvency Court. In the above circumstances, the only question that arises for consideration in this original petition is as to whether the property belonging to the petitioner could be proceeded to be sold by the State for realisation of the sales tax arrears due under the Revenue Recovery Act. A Division Bench of Court in State of Kerala v. R.V.S.Mani & others (1995 (2) KLJ 110) held that on the making of an order of adjudication, the insolvent loses title to the property which vests in the court or in the Receiver. The intendment and purpose of Section 28 (2) is to make the entire estate of the insolvent vest in the court or in a receiver the moment an order of adjudication is made and to make it available for distribution among the body of creditors and to prohibit any creditor of the insolvent from proceeding against his property in respect of his debt or commence any suit or other legal proceeding, without the leave of the insolvency court during the pendency of the insolvency proceedings. In view of the declaration of the law by this Court as aforesaid, it has to be held that no creditor can proceed against the property included in the insolvency proceedings for realisation of any amount due to that creditor without obtaining sanction from the Insolvency Court. Therefore, the crucial question is whether the property now proceeded against by the State is included in the schedule of property in the I.P.
2. The learned Government Pleader appearing on behalf of the State would contend based on Ext.P5 order passed by the Commissioner of Land Revenue, Thiruvananthapuram that the property in question put for sale is not one included in the insolvency petition. It was contended on behalf of the petitioner that the land should be considered for sale and proceedings should be initiated only after obtaining leave of the court. 16/97 share over an extent of 17.65 acres held by his late father alone was reported to be attached. The District Collector reported that none of the properties attached were included in the schedule of plaint IP.6/87.
3. Therefore, in the absence of any details furnished to this Court by the petitioner as to whether subsequent to the death of father this property is also included in the assets owned by the petitioner for distribution in the insolvency proceedings, I am unable to hold that the property is not liable to be sold. As the matter stands and in the absence of such materials placed on record showing that the property is also included in the assets for distribution, no relief can be granted to the petitioner. In case the petitioner prefers to include this property also before the Receiver concerned, it will be open to the petitioner to seek for appropriate relief based on the dictum laid down by the Division Bench.
In the result, this writ petition is dismissed without prejudice to such right of the petitioner.
P.
