THE HON'BLE SRI JUSTICE L.NARASIMHA REDDY
Civil Revision Petition No. 998 of 2012
08.11.2012
Pulipati Anjaneyulu.
Polepalli Subbaiah and others.
Counsel for the petitioner: Sri Narasimha Rao Davuluri
Counsel for respondents: Meherchand Noori
<GIST:
>HEAD NOTE:
?Cases referred:
ORDER:
The petitioner filed O.S.No.238 of 2000 in the Court of Principal Junior
Civil Judge, Markapur, against the respondents for recovery of certain amount.
The 1st respondent is the father and respondents 2,3, and 4 are his sons.
The
suit was decreed and an item of immovable property viz., a house at Markapur was
attached.
Steps were initiated for sale of the property, by filing E.P.No.2 of
2010.
The 1st respondent raised an objection in the E.P., stating that he filed
I.P.No.1 of 2009 in the Court of Senior Civil Judge, Darsi to declare him as an
insolvent and
though the I.P. was dismissed by the trial Court,
A.S.No.52 of
2009 filed in the Court of VI Additional District Judge (Fast Track Court),
Markapur was allowed, through order dated 17.08.2009.
Placing reliance upon
Sub-
Section (2) of Section 28 of the Provincial Insolvency Act, 1920 (for short 'the
Act')
it was urged that all the properties of a person declared as insolvent
have to be handed over to the official liquidator and if so advised, the
petitioner has to seek enforcement of the decree, in accordance with the
provisions of the Act.
The Executing Court sustained the objection, raised the
attachment and dismissed the E.P. by recording a finding that the respondents do
not have any saleable interest in the schedule property.
Hence, this revision.
Sri Narasimha Rao Davuluri, learned counsel for the petitioner submits
that
the very representation made by the 1st respondent that he filed an I.P. is
incorrect and the said I.P. was filed by a creditor in respect of a small amount
of Rs.25,000/-.
He submits that one item of property was shown in the schedule
in the I.P. and the house, which is mentioned in the E.P. herein, was not
included at all.
He further submits that the arrangement contemplated
under Sub-
Section (2) of Section 28 of the Act ensues, only where a debtor himself files
the I.P. and gets himself declared as an insolvent and not where one creditor
files an I.P. and only one item of the property held by the person declared as
insolvent is brought under the purview of those proceedings.
Alternatively, he
submits that even if there was any impediment, to proceed against the 1st
respondent, the E.P. could have been continued vis--vis respondents 2 to 4 who
too figured as judgment debtors 2 to 4.
He relied upon certain decided cases.
Sri Meherchand Noori, learned counsel for the respondents submits
that the
Act does not differentiate between the proceedings instituted by a creditor and
a debtor and the consequences provided for under Section 28 are common to any
proceedings instituted under the Act.
He further submits that a factual mistake
as to the nature of the insolvency proceedings was rectified by filing a memo.
Another submission of the learned counsel is that respondents 2 to 4 do not have
any independent stand vis--vis the properties of the joint family.
The petitioner filed the suit for recovery of amount against the
respondents and obtained a decree on 11.02.2004.
Since the decree was not
complied with, he filed the E.P. and made an attempt to bring an item of
immovable property to sale.
The respondents resisted the attempt by citing the
fact that the 1st respondent was declared as insolvent in I.P.No.1 of 2009.
Though a serious factual error has crept into the order, may be on account of a
misrepresentation made by the 1st respondent, the fact remains that one Sri
Garnepudi Lingaiah claiming himself to be creditor, filed the I.P. against the
1st respondent stating that the latter borrowed a sum of Rs.25,000/- by
executing promissory note and when demand was made for repayment, he replied
expressing his inability.
The basis for inclusion of an item of immovable
property in the schedule was that the 1st respondent had an agreement of sale
for it and the trial Court dismissed the I,P., by taking the view that the
liability is not proved and that mere agreement of sale does not confer any
right upon the 1st respondent.
In an appeal preferred by the petitioner in the
I.P., a different view was taken and it was allowed. The respondents are not
able to inform this Court as to
whether the debt was cleared or whether the
property mentioned in the I.P. was brought to sale.
The allegation of the
petitioner that the I.P. was collusive in nature and was just a devise to cheat
others cannot be totally brushed aside.
Be that as it may, the respondents wanted to avoid their liability under
the decree in O.S.No.238 of 2000 by placing reliance upon Sub-Section (2) of
Section 28 of the Act. The provision reads:
"28. Effect of an order of adjudication:-
(1) On the making of an order of
adjudication, the insolvant shall aid to the utmost of his power in the
realization of his property and the distribution of the proceeds among his
creditors.
(2) On the making of an order of adjudication, the whole of the property
of the insolvent shall vest in the Court or in a receiver as herinafter
provided, and shall become divisible among the creditors, and thereafter, except
as provided by this Act, no creditor to whom the insolvent is indebted in
respect of any debt provable under this Act shall during the pendency of the
insolvency proceedings have any remedy against the property of the insolvent in
respect of the debt, or commence any suit or other legal proceeding except with
the leave of the Court and on such terms as the Court may impose. "
From a perusal of this, it is evident that once an order of adjudication
is passed by a Court declaring a person as insolvent, the entire property of the
person so declared shall vest in the Court or in the Receiver and shall become
divisible among the creditors.
It is a matter of common knowledge that
the Act provides for institution
of proceedings by the creditor under Section 9 of the Act and by the debtor
himself, under Section 10 of the Act.
The parameters for adjudication of these
two categories of petitions are totally different.
In a petition filed by a
debtor under Section 10 of the Act, he shall be under obligation to furnish the
list of his creditors on the one hand and the properties and assets held by him
on the other hand.
In addition to that, if a debtor omits to mention the names
of any creditors or items of property held by him, it shall always be open to
the concerned person, to get them included.
Every effort is made to ensure that
the properties are not shielded and collusion is avoided.
If after thorough
examination, the petitioner in such proceedings is declared as insolvent, his
financial status comes to be pronounced and all the creditors shall be made to
share the proceeds of the assets held by the debtor.
The petition filed by the creditor under Section 9 of the Act
however
stands on a different footing.
The effort or endeavour in such petition shall
be only with reference to the debts, which the debtor owes to him.
The inclusion
of the properties would also be to the extent it can serve the debt.
The
creditor does not have the necessity, nor he is entitled, to include all the
assets of the debtor.
The declaration in such petition,
that the debtor is
insolvent would only be vis--vis the amount, which he owes to the petitioner in
such I.P.
It does not tell upon the obligation of the debtor towards others, who
are not made parties.
In certain cases of this nature also, it may be possible
to have almost universal declaration, if a debtor who figures as a respondent
volunteers to furnish the list of all his credits and his assets.
If any effort
in this direction is made, the declaration may be qualitatively the same as the
one made in an I.P. filed under section 10 of the Act.
In the absence of such a
comprehensive effort, the order passed in an I.P. filed under Section 9 of the
Act by creditor cannot be equated to the one passed in an I.P. filed under
Section 10 of the Act by the debtor himself, when it comes to the question of
the consequences provided for under Section 28 of the Act.
Any other different
approach would tantamount to give a licence to a debtor to arrange for filing of
a collusive O.P. under Section 10 of the Act by a fictitious person and to block
all the efforts made by the real creditors by taking shelter under Section 28(2)
of the Act.
Assuming that such a distinction cannot be maintained and
the order passed
in I.P.No.1 of 2009 would attract Section 28(2) of the Act also,
the fact
remains that the necessity to make over the properties held by a person declared
as insolvent, to the Court or to the Receiver, would arise only when the claim
of the creditor in such an I.P. remains unsatisfied.
That was not even the plea
in the instant case.
The petitioner in the I.P. did not have any grievance that
his claim was not satisfied.
The very fact that nothing is said about those
proceedings gives strength to the allegation that the proceedings were
fictitious in nature.
Even otherwise, the order in the I.P. would, at the most,
galvanize the 1st respondent.
It is not in dispute that respondents 2 to 4 are
equally the judgment debtors and they had their own right vis--vis the
property, which was sought to be sold.
Therefore, the view taken by the
executing Court cannot be sustained.
Therefore, the civil revision petition is allowed and the order under
revision is set aside. The Executing Court is directed to proceed with the sale
of the attached item of property.
The miscellaneous petition filed in this civil revision petition shall
also stand disposed of. There shall be no order as to costs.
____________________
L.NARASIMHA REDDY, J
Date: 08.11.2012
