Ajit India Pvt. Ltd. vs Raghava and Veera and Others

This is an application by the debtors in the insolvency Notice No. 28 of 1983 to set aside the said insolvency Notice.

The averments in the affidavit are as follows: -

The first debtor is a partnership firm and it ceased to do any business from the year 1977. Two insolvency petitions viz., I.P.No. 129 of 1976 and

I.P.No. 66 of 1977, were filed *to adjudicate the firm as insolvent. The firm has been adjudicated as insolvent along with its two partners, viz.,

second and third debtors in I.P.No. 129 of 1976. The order of adjudication was confirmed in the Appeal O.S.A.No. 80 of 1977. A further

appeal to the Supreme Court in SLP No. 2020 of 1978 has been admitted and is pending as a civil appeal in which all further proceedings have

been stayed. The act of insolvency alleged in this application is under Ss. 9(d)(iii) and 9(g) of the Presidency Towns Insolvency Act III of 1909,

hereinafter referred to as the Act. After the adjudication by the Insolvency Court, the first debtor/firm had stopped doing business. In order to give

a valid insolvency notice, the creditor must prove under S. 9(2) of the Act that the debtor/firm was carrying on business either in person or through

an Agent within the limits of the original jurisdiction of this Court and that such debtor/firm was carrying on business within a year before the

presentation of the Insolvency notice. In this case, the notice of insolvency was presented on 22-8-1983. For six years prior to the date of notice

the firm had not been doing business. The 2nd contention is that the second debtor viz., Raghava Reddy, has left India in 1978 and is now a

permanent resident of U.S.A. He has not returned to India so far. Hence this Court has no j jurisdiction under S. I (b) of the Act to adjudicate the

second debtor as insolvent. Under the circumstances the respondent is only entitled to prove its claim in the prior insolvency proceedings and is not

entitled to a fresh adjudication.

3 . In the counter-affidavit the following contentions are raised : -

The application to set aside the notice of insolvency is barred by time in view of the fact the same had not been filed within 35 days from the

date of service of the notice of insolvency.

Since the allegation that the firm had not been doing business for six years is denied, the firm is deemed to be carrying on business as per the

view taken by the Division Bench of this Court;

In view of the fact the debtors are indebted for a liquidated sum to the Creditor the insolvency notice cannot be set aside;

The points for determination on the basis of the plea raised by both sides are as follows: -

(i) Whether the first applicant/firm was carrying on business within a year before the presentation of the petition?

(ii) Whether this Court has jurisdiction to adjudicate the second applicant as insolvent'',

(iii) Whether this application is barred by time?

The first contention raised on behalf of the applicants by Mr. K. N. Balasubramamarn is that in view of the earlier adjudication in I.P.No. 129 of

1976 on 25th Aug 1977, the applicant''s viz., the firm and its partners, had been adjudicated and the appeal filed against that adjudication viz.,

O.S.A.No. 80 of 1977, was also dismissed. In another I.P.No. 66 of 1977, filed by another creditor, the order of appointment of an Interim

Receiver was made and the same is pending in the appeal. Tile case of the applicants is that ever since the filing of I.P.No. 129 of 1976 they

stopped business. Official Assignee represents that in pursuance of the order of this Court in I.P.No. 66 of.1977 he had taken possession of the

premises in which the business was carried on, two other items of Immovable properties and a garden land. The Official Assignee had not carried

on the administration further in view of the orders of stay passed by the Supreme Court. Considering the facts of this case it cannot be said that the

applicants have carried on the business even after the order of adjudication passed by this Court. From the statement of the Official Assignee, it is

seen that he had taken possession of the business premises. When the business premises was taken over, the business cannot be carried on unless

it is shown that the applicants are carrying on business in some other premises. No such evidence is forthcoming in this application. There is no

difficulty in coming to the conclusion that the applicants are not carrying on business after the order of adjudication passed against them. On behalf

of the respondent reliance is placed upon the case reported in B.C. Munirathinam Naidu Vs. Meena Financiers, Madras and Another, , where a

Division Bench of this Court has held that the debtor is deemed to have carried on business as long as liability in respect of the trade debt remains

undercharged. In that case, the debtor is an individual and not a firm. The Division Bench of this Court merely reiterated the principles laid down in

G. Narasimulu and Others Vs. P. Basava Sankaram and Others, and Tbeophile v. Solicitor General (1950) 1 AJI ER 405. In the case reported in

Gokuldoss Goverdhan Doss (dead) and Another Vs. Dwarakadoss Goverdhan Doss (dead) and Others, one of the creditors obtained a decree

against the debtor and threatened to file insolvency proceedings. One of the partners of the firm filed a suit for dissolution of the firm and had

Receiver appointed and subsequently contended that since the Receiver had taken possession of the business the debtors are not carrying on the

business and hence unless the debtors are shown to have carried on the business within one year before the presentation of the petition they cannot

be adjudicated as insolvent. On these facts the Division Bench of this Court came to the conclusion that the Receiver carrying on the business will

amount to the debtors carrying on the business and hence the debtors are, deemed to be carrying on business. In the case reported in Theophile v.

Solicitor General, (1950) 1 All ER 405 the debtor who left England and settled in Ireland contended that he is not carrying on the business. The

House of Lords held that till the trade debts are discharged, he will be deemed to be carrying on the business. In both. the above cases the

conduct of the business had not been put an end to by any order of the Court whereas in this case there is an order of adjudication and taking

possession of the business premises by the Official Assignee, which clearly shows that the continuance of business is not possible. Hence the

principle laid down in Gokuldoss Goverdhan Doss (dead) and Another Vs. Dwarakadoss Goverdhan Doss (dead) and Others, and in Theophile

v. Solicitor General, 1 All ER 405 cannot be applied to the facts of this case. In B.C. Munirathinam Naidu Vs. Meena Financiers, Madras and

Another, , the principles from the above two decisions are simply quoted and the circumstances leading to adjudication are not stated. Since the

application of the above principle depends upon the facts of the case, the above decision cannot be readily applied to the facts of this case.

Considering the entire circumstances the contention of the respondent that the applicants will be deemed to be carrying on business till the debts

are discharged in spite of their earlier adjudication and consequent investing of the business and the properties in the Official Assignee, cannot be

upheld.

The second point to be considered in this case is whether the second applicant viz., Raghava Reddy, can be adjudicated as insolvent since he is

said to be now residing in U.S.A. It is stated further that he has gone to U.S.A. for medical treatment. On behalf of the applicants, it is contended

that he has not permanently settled in U.S.A. and he had gone there temporarily. Further, evidence as to whether he has become the citizen of

U.S.A. is also not forthcoming. Hence the argument based upon residence will have to be negatived.

The third point to be considered is whether the application is barred by time. In this case, the insolvency notice was issued on, 22-6-1983. It

was served on 1-9-1983 and the application to set aside the insolvency notice was filed on 27-9-1983, after 26 days after the service of

insolvency notice. Hence this application is in time.

In the result, in view of my conclusion on the first point the applicants cannot be adjudicated as insolvents under S. 9(2) of the Act.

Consequently the insolvency notice No. 28 of 1983 is set aside and this application is allowed. There will be no order as to costs.

Petition allowed.