M/s. Balaji Finance Syndicate vs S.M. Bhakthavatchalam

This petition is for adjudicating the respondent-insolvent on the ground that he has committed act of insolvency under Sec. 9(2) of the

Presidency Towns Insolvency Act.

The allegations in the petition may be summed up as follows:-- In respect of the finance agreement entered into at Madras between the parties,

the petitioner obtained a decree after contest against the respondent on 1-12-1983 in C.S. No. 391 of 1981, on the file of this Court for a sum of

Rs. 1,48,152-30 with interest. As the respondent did not settle the decree amount, the petitioner filed Insolveny Notice No. 43 of 1986 on the file

of this Court. However, the respondent filed Application No. 78 of 1987 to set aside the said notice. But the said application was dismissed on

29-11-1988 without paying the amount decreed. The respondent is carrying on business at No. 36, Meeran Sahib Street, Mount Road, Madras-2

for the last 10 years and the security created under the decree in favour of the petitioner over the area rights and collections of the Tamil picture

Varti-maiyin Niram Sivappu for the amount decreed is not available to the petitioner as the time under the distribution agreement between the

respondent and the original producer must have been expired in the usual trade course. Therefore, the respondent has committed an act of

insolvency under S. 9(2) of the above said Act.

2A. The counter-statement filed by the respondent may he summed up as follows:--The respondent is not liable to pay any amount to the

petitioning creditor and the transaction is not a genuine transaction. The petitioning creditor, being a secured creditor, cannot file this Insolvency

Petition unless he gives up the security or values the security at less than the amount due to him and states to that effect in the petition. Against the

dismissal of Application No. 78 of 1987, O.S.A. No. 9 of 1989 was filed by the respondent and the said O.S.A. was dismissed on 18-1-1989

and the respondent is taking up the matter to the Supreme Court of India. The respondent has not committed any act of insolvency since the

insolvency notice had not been issued in accordance with S. 9(3)(d) of the Act. The respondent is a man of means and is carrying on film

distributiom business in Madras for the past several years and is assessed to Income Tax and wealth-lax. He is also owner of a house bearing

Door No. 10, Chellammal Street, Shenoyunagar, Madras along with his wife, his share therein being 2/ 3rd. He is also possessed of 18 grounds of

land in R.S. No. 199(2) in Koyambedu village. The immovable properties possessed by thc respondent are worth more than a crore of rupees. He

is also a lessee of Kapali Theatre, Madras City, wherein the debtor is paying Rupees 20,000/- per month as lease amount. The petitioning creditor

is well aware of the above properties and it can realise the amount by proceeding against any one of those properties. The Supreme Court has held

in Sarat Chandra Roy Vs. Harak Chand Damani and Another, , that non-payment of the decree promptly by itself cannot be a ground to

adjudicate a person as insolvent. The decree is defective. The Insolvency Petition is liable to be dismissed under S. 13(6) of the Act as the debtor

disputes the quantum of the amount claimed and is able to pay his debts.

The husband of the Managing Partner of the petitioning creditor-firm was examined as P.W. 1. Ex. P-2 is the certified copy of the above and

decree and Ex. P-3 is the above referred to insolvency notice given. He also deposed that the time given to the distributor for dealing with the

exploitation rights of any picture was 5 years from the date of release. He also deposed that on the date of filing the petition Rs. 2,47,170/- was

due from the respondent and that further interest also had accrued. In the cross-examination of P.W. 1, an attempt was made to elicit from P.W. 1

that the respondent was owning properties.

The respondent examined himself as R.W. 1. Inter alia, he deposed in chief-examination that he was running a theatre on lease and doing the

business of film distribution and real estate and was assessed to income tax and wealth tax and was also owning property in Koyetnbedu Village.

He marked Ex. R-1 dt. 4-8-1969 to show his title to the said property, which is said to be of 20 grounds in extent. He also marked Ex. R-2. The

certificd copy of the sale deed in respect of the above referred to Chellammal Street Property, which is said to be 23/4 grounds in extent. With

reference to another property in the same Chellammal Street of an extent of 3376 Sq. ft. Ex. R-3 title deed was marked. Ex. R-4, the agreement

dt. 25-6-1986 for taking Kapali Theatre on lease on payment of Rs. 3,00,000/- as deposit amount by the respondent, was also marked. Fx. R-5

the assessment order on the respondent and Ex. R-6, the copy of the wealth tax return for 1987-88, were also marked. In the chief examination he

also deposed that he was paying Rs. 20,000/- per month by way of lease amount in respect of Kapali Theatre.

In cross-examination, R.W. 1 admitted that the rights of the picture for Madras City or any other place had elapsed and that on 5-12-1988

(date of this I.P.), he did not have right over the picture. Further, to the question whether he was in a position to pay the decree amount, he only

said that he asked the petitioning creditor to allow him to pay the sum due on instalment basis, but the petitioning creditor refused to receive the

amount accordingly. Further, to the question by the Court, as to whether he sent the decree amount by way of instalment, he admitted that he did

not send so, but only told that he would send. He also admitted, that there was another liability to the extent of Rupees 1,00,000/-, namely, the

deposit accepted by him for running a stall in the cinema theatre. With reference to certain other loan items aggregating to Rs. 35,43,750/-, though

he has slated that the said liability has been discharged, he has not placed any evidence to prove the d ischarge. Yet another liability also was

pointed out to him from the wealth tax records for 1987-88, to the extent of Rupees 45,00.000/-. To that he only replied that certain assets cover

this loan. It was also pointed out to him that while the above said liability was Rs. 35,00,000/- in 1985-86, it increased to Rs. 45,00,000/- in

1987-88 and that the said increase showed that the said liability was not discharged. He also admitted that he was producing the picture and was

in difficulty, even though he claimed that he made a profit of Rs. 15 to 20 lakhs from 1986 to 1988. He only deposed that he offered to pay the

decree amount in question in instalment basis. Further, with reference to the above referred to Chellammal Street property, even though he was

asked to produce the original title deed, he only produced a certified copy thereof, despite the suggestion that he had created security with the

original document. Though R.W. 1 stated that the value of the above referred to land in Koyam-bedu was rupees one crorc, he did not produce

any valuation certificate or other acceptable document regarding the said value. Further, the wealth tax return for the year 1987-88 shows the

value of the said land only at Rs. 5.000/-. Further, even to the question as to what is his income from 1883 till date in his picture business, he only

said ""I have to ask my auditor."" Even though he admitted that there is a deed with reference to the lease of Kapali Theatre, he did not produce the

said lease deed.

On the respondent''s side, R.W. 2, a Chartered Engineer was also examined and he said in the chief examination that the value of the property

at No. 10, Chellammal Street, Shenoy Nagar, owned by the respondent and his wife was Rs. 25,52,421/-. In cross-examination he deposed that

he fixed that value based on the acquisition made by the Income Tax Department in Anna Nagar in 1987. But he admitted that he had no

information or records to refer from the Income Tax Department and that he had no independent report relating to the value of the land in Shenoy

Nagar.

The first contention of the learned Counsel for the debtor-respondent is that the petitioner was a secured creditor and no attempt was made by

it to realise the security and that no averment, as required under S. 12(2) of the Presidency Towns Insolvency Act is there in the petition and that

hence the petition is not maintainable. But, paragraph 6 of the petition states that the security created under the above said decree dt. 1-12-1983 in

C.S. No. 391 of 1981 on the file of this Court in favour of the petitioner, over the area rights and collections of the Tamil picture ""Varu-maiyin

Niram Sivappu"" for the amount decreed is not available to the petitioner. That means, the petitioner is not a secured creditor on the date of the

petition. That apart as already stated, R.W. 1, the respondent himself admitted in cross-examination that the above said rights had lapsed and as

on 5-12-1988, the date of the Insolvency Petition, the respondent did not have the said rights over the picture. So, no question of application of S.

12(2) of the Act arises, because, on the very admission of the respondent, the petitioning creditor is not a secured creditor, at any rate, as on the

date of petition. Therefore, the decision cited by the learned Counsel for the respondent in S. Neela Kanta Sarma Vs. K. Govindarajulu and

Another, has also no application to the facts of the present case.

So far as the liability in question, there is no dispute. In fact, the decree for a sum of Rs. 1,48,152/- with interest was passed as early as 1-12-

1983 and admittedly, there is no appeal against the said decree and it is stated that as on Dec., 1988, as much as Rupees 2,47,170/- was due

under the decree. Admittedly, Insolvency Notice 43 of 1986 was given and yet, no amount was paid till to-day. Even the Application No. 78 of

1987 filed by the debtor-respondent to set aside the Insolvency Notice, was dismissed on 29-11 -1988 and even the appeal O.S. A. No. 9 of

1989 filed against the said dismissal dated 29-11-1988, was also dismissed on 18-1-1989 and I am also told that the Supreme Court Leave

Petition filed against the petition of the said O.S.A. was also dismissed on 5-4-1989. However, the learned Counsel for the respondent contends

that his client is a man of means and he is able to pay the debt in question and that hence under S. 13(4) of the Presidency Towns Insolvency Act,

this petition should be dismissed. First of all, if S. 13(4) of the Act could be invoked, the respondent-debtor must be able to pay all his debts at

once and not only the debt involved in the Insolvency Petition. The term used is ""Debts"" in S. 13(4) of the Act. The decision reported in Shadi

Ram Ram Sarap Dass and Others Vs. Ravi Chander Xazigla and Others, also holds so, thus: --

.....The debtor must, therefore, satisfy the Court that he has the ability to discharge his debts presently........ The expression ''debts'' refers to all

the debts that he is legally bound to discharge at once and which he has failed to discharge.

In the present case, there is no such proof. Even with reference to the debt due to the petitioning creditor in this Insolvency Petition, R.W. 1, the

respondent''s admission is that he asked the petitioning creditor to allow him to pay the sum due on Instalment basis, but the petitioning creditor

refused to receive the amount accordingly. Further, to the question put by the Court, as to whether he sent the decree amount at least by way of

instalments, he admitted that he did not send so, but only told that he would send. This clearly shows that he was unable to pay even the debt due

to the petitioning creditor. As mentioned above, the above said decision of the Delhi High Court also points out that the debtor must prove that he

has ability to discharge the debts ""at once"". But in the present case, the respondent himself admits more than once in his evidence that he requested

for payment by instalment and that he never attempted to pay in instalments. This clearly shows that he was and is unable to pay the amount due all

at once.

Further, as stated above, it is brought out from R.W.1''s own evidence that there were several other liabilities. With reference to one liability to

the extent of Rs. 35,43,750/-though he deposed that the said liability had been discharged, he has not placed any evidence to prove the discharge.

Even with reference to another liability of Rupees 45,00,000/-, he only vaguely replied that certain assets would cover the said sum. Further, when

it was pointed out that the said liability was Rs. 35 lakhs in 1985-86, it got increased to Rs. 45 lakhs in 1987-88 and that the said increase showed

that the said liability was not discharged, he only simply said that it was false, but did not make any attempt to substantiate his statement. Further,

though he made a tall claim that he was making a profit of Rs. 15 to 20 lakhs from 1986 to 1988, he did not substantiate it by producing any

records. Further, even to the question as to what is his income from 1983 till date, in his picture business, he only said ""I have to ask my auditor"".

Further, with reference to the Chellammal Street property, he did not produce the original title deed, but only produced a certified copy thereof,

despite the suggestion put to him that he had created security with the original document. Further, even though R.W. 2, the Chartered Engineer and

approved valuer stated that the value of the said property was Rs. 25,52,421/-, he only said that he fixed that value based on the acquisition by the

Income Tax Department in Anna Nagar in 1987. But he admitted that he had no information or records from the Incom-tax Department and that

he had no independent report relating to the value of the land in Shenoy Nagar. So, no reliance can be placed on his evidence regarding the said

value. With reference to Koyambdedu property, though R.W. 1 simply stated that its value was rupees one crore, he did not produce any

valuation certificate or other acceptable document showing the said value. On the other hand Ex. R-6 the wealth tax return for the year 1987-88

shows the value of the said property only at Rs. 5,000/-. Further, even though he also deposed that as a lessee of Kapali Theatre, he was paying

as much as Rs. 20,000/- by way of monthly rent he did not produce the said lease deed, nor other records, showing the same.

At any rate, the law is, as also laid down in Pratapmal Rameshwar Vs. Chunilal Jahuri, , that what the statute means by ability to pay debts is

not merely that the man has assets which, if liquidation proceeds, may, in the result provide sufficient money to discharge his debts. It means that he

is not so em-barrased that he cannot meet his debts in the ordinary way by making legal tender and discharging his debts. The circumstance that a

man has assets and the assets are not liquid assets and therefore he cannot pay his debts is a circumstance which stand in favour of having a

liquidation and not against having a liquidation. Likewise is the decision in AIR 1937 127 (Nagpur) The above said decision in Pratapmal

Rameshwar Vs. Chunilal Jahuri, is also relied on in M. Ratchaganadan Vs. Kishindas Shamadasunder and Another, . No doubt, in the said

Madras decision, on the facts which were before the Court in that case, the Court held that the debtor was able to pay the debts, but, the

principles laid down in Pratapmal Rameshwar Vs. Chunilal Jahuri, was only approved. The decision reported in Anand Prakash v. T. N.

Shanmugam, (1981) 95 MLW 88 cited by the respondent''s Counsel also will not support the respondent. It was only held there that it was

enough if the debtor proved his ability to pay and actual payment of the debts was not necessary.

The learned Counsel for the respondent also relied on the decision reported in Sarat Chandra Roy Vs. Harak Chand Damani and Another, .

But, that decision is also not applicable to the facts of the present case. There, it was only held that non-payment of a decree ""promptly"" by itself,

cannot be a ground to adjudicate a person insolvent. But, in the present case, as already stated, the decree agatst the respondent was obtained as

early as 1983 and even though more than 6 years have passed, the decree amount remains unpaid. Further, in the said decision, it was observed

on facts emerged therein, that there was no satisfactory proof about the debts of the insolvent other than the debt due to the petitioning creditor

therein. But, it cannot be said so in the present case, in view of what has been mentioned above with reference to the other debts of the respondent

herein.

I was also urged by the learned counsel for the respondent that the motive of the petitioning creditor in the present case was some thing

extraneous to insolvency proceedings and that on that aceount, the petition should be dismissed. In this connection, he drew my attention to the

decisions reported in Yenumula Mallu Dora Vs. Peruri Seetharatnam and Others, and S.A. Ramalinga Mudaliar Vs. T.K. Ratna Mudaliar and

Another, to show that motive as relevant. No doubt, as per these decisions, motive is relevant. But, in the present case, it cannot be said that the

motive of the petitioning creditor was any thing extraneous or collateral or inequitable such as putting pressure upon the debtor or for extorting

money from him. If only, the petitioning creditor wanted to extort money, he would have easily executed the decree. It is clear that it is only the

debtor''s conduct that is highly blame-worthy, in having not paid the huge decree amount all these 6 years or so, despite his claim that he was

earning huge income and owning properties worth more than a crore of rupees.

As already stated, this is a case under S. 9(2) of the Presidency Towns Insolvency Act. The said sub-section of Section 9 was introduced in

the Act on 15-6-1979 and as observed in K.S.D. Radhakrishnan v. Dei-vanai Achi, (1989) 103 MaD 368 ""it enabled the creditor who has

obtained a money decree to issue a notice as provided in sub-s. (2) of S. 9 of the Act requiring the debtor to pay the money within a particular

time and if he fails to pay it, that amounts to an act of insolvency. ""Therefore, this is a clear case, where the respondent should be adjudicated

insolvent.

I, therefore, hereby adjudicate the respondent insolvent and allow the Insolvency Petition as prayed for, with costs. The cost is to come out of

the estate. Application No. 483 of 1988 for appointment of receiver is unnecessary in view of the above orders and hence dismissed.

Orders accordingly.