Munaga Venkataramiah vs P. Bujjama and another

Mishra, J.—A person claiming to be a creditor has moved a petition to declare the debtor-first respondent insolvent. A learned single Judge

of this court has found that the petitioner has been able to show that the debt due by the debtor is a liquidated sum amounting to more than Rs.

500/- and the debtor has committed an act of insolvency within three months before the date of presentation of the petition but has dismissed the

petition on two grounds; (i) that the debtor has got the capacity to discharge the debts due by her in the event of the same being decreed by a

competent forum and (ii) that the application is not bona fide. On the first, that is to say, as to the capacity of the debtor to discharge the debts the

learned single Judge has taken notice of the suit O.S. No. 23 of 1987 on the file of the Subordinate Judge''s Court, Nellore, by the

petitioner/appellant for recovery of the debt amount due and the contest of the debtor first respondent by filing written statement and disputing the

liability. He has, on that basis, said,

Worthy it is to note here that when the debtor contested the suit by filing written statement and disputing her liability, the creditor filed the present

petition with the oblique motive of bringing pressure on her to discharge the debt or otherwise her flourishing business in rice would be ruined, in

the event of her being adjudged as an insolvent.

He has also said,

No doubt, the evidence on record, in the shape of D.W.1 her husband would throw flood of light as regards the flourishing rice business of the

debtor. His evidence would reveal that the turnover is about a few lakhs of rupees per year and this aspect"" of the matter also had been candidly

admitted by P W. 1 in his evidence. If the evidence of D.W.1 as regards the family owning ancestral house and landed properties, besides financial

support received from the sons is not taken into account as a relevant factor or is discountenanced as not supported by the production of the best

evidence in the shape of documents for the coming on the aspect of these matter, even then it cannot be stated that the debtor is not having the

requisite capacity and financial status to discharge the alleged debt due by her to the creditor, when especially the rice business she is dealing in is a

flourishing trade giving her a sizable amount of income.

On the point that the application is not bona fide, the learned single Judge has said,

the act of the creditor in filing the present petition is nothing but sheer abuse or misuse of process of law to coerce the debtor to make the payment

of the debt due to him immediately, thereby making it clear that the action of the insolvency resorted to have been taken by the creditor is not a

bona fide one, which by itself is sufficient for not adjudging the debtor as an insolvent.

Learned Single Judge has said so in the background of the fact that when the debt is disputed in the written statement filed on behalf of the first

respondent in O.S. 23 of 1987 and act of sale transaction of a house property by the debtor-first respondent for a sum of Rs. 7,35,000/- is sought

to be used as an act of insolvency. In this respect the learned single Judge has noticed the evidence of D.W. 2, the power of attorney agent for the

transferee that he made due enquiries before entering into the transaction of purchase of the house property by the transferee as regards the debts

of the debtor and that he obtained an encumbrance certificate and from that he was able to understand that the house property was not having any

encumbrance other than the mortgage debt in favour of one C.M. Ramamurthy, which debt has admittedly been discharged by making payment of

by means of a cheque. The evidence of this D.W.2, according to the learned single Judge, shows that the income tax clearance certificate had been

obtained for the purpose of the house property and such being the case it cannot be said that the house property had been purchased for a song.

Learned counsel for the appellant has, however, drawn our attention to a judgment of a Division Bench of this court in the case of Lakshmi

Ammal and Others Vs. Ratna Naicker, , a case under the Provincial Insolvency Act, 1920, in which it is observed.

It has been suggested that the petition is a vindictive one and there seems some foundation for the imputation. But we have no concern with the

petitioner''s motives, or whether the adjudication is likely to benefit him. He has satisfied the condition imposed by the Act for filing a petition and

for basing the debtors adjudicated on that petition. The appeal is accordingly allowed.

He has on that basis submitted that the Court should not attach any meaning to the bona fide or mala fide in the making of the application if

conditions under S. 12 of the Presidency-Towns Insolvency Act, 1989 (hereinafter referred to as ''the Act'') are satisfied. He has on that basis

contended that it is not a case in which the petitioner has not satisfied the requirement of proving the debt and the act of insolvency and once these

facts are found no further investigation is necessary. This argument, however, is advanced in ignorance of a specific provision in S. 13 of the act

which reads as follows:

Proceedings and Order of Creditor''s Petition.-(1) A creditors petition shall be verified by affidavit of the creditor, or of some person on his

behalf having knowledge of the facts.

(2) At the hearing the Court shall require proof of-

(a) The debt of the petitioning creditor, and

(b) The act of insolvency or, if more than one act of insolvency is alleged in the petition, some one of the alleged acts of insolvency.

(3) The Court may adjourn the hearing of the petition and order service thereof on the debtor.

(4) The court shall dismiss the petition-

(a) If it is not satisfied with the proof of facts referred to in sub-S.(2) or

(b) If the debtor appears and satisfied the court that he is able to pay his debts, or that he has not committed an act of insolvency or that for the

sufficient cause no order ought to be made.

(5) The court may make an order of adjudication if it is satisfied with the proof above referred to, or if on a hearing adjourned under sub-S.(3) The

debtor does not appear and service of the petition on him is proved, unless in its opinion the petition ought to have been presented before some

other court having insolvency jurisdiction.

(6) Where the debtor appears on the petition and denies that he is indebted to the petitioner, or that he is indebted to such an amount as would

justify the petitioner in presenting a petition against him, the court, on such security (if any) being given as the court may require for payment to the

petitioner of any debt which may be established against the debtor in due course of law, and of the costs of establishing the debt, may, instead of

dismissing the petition, stay all proceedings on the petition for such time as may be required for trial of the question relating to the debt.

(7) Where proceedings are stayed, the court may, if by reason of the delay caused by the stay of proceedings or for any other cause it thinks just,

make an order of adjudication on the petition of some other creditor, and shall thereupon dismiss on such terms as it thinks just, the petition on

which proceedings have been stayed as aforesaid.

(8) A creditor''s petition shall not, after presentation be withdrawn without the leave of the court.

It is thus not merely on the proof of the facts referred to in sub-S.(2) of S. 13 of the Act, viz. that the debt of the petitioning creditor is not

proved and the act of insolvency or, if more than one act of insolvency is alleged in the petition some of the alleged acts of insolvency are not

proved that the Court shall dismiss the petition but also for the reasons that (i) the debtor satisfies the court that he is able to pay his debts or that

he has not committed an act of insolvency or that for other sufficient cause no order ought to be made In the instant case, the learned single Judge

has found that the debtor is able to pay her debts. This finding, however, is questioned by the learned counsel for the appellant on the basis of a

Bench Judgment of the Calcutta High Court in Pratapmal Rameshwar Vs. Chunilal Jahuri, in which it is observed,

The circumstances that a man has assets and the assets are not liquid assets and therefore he cannot pay his debts is circumstance which stands in

favor of having a liquidation and not against having a liquidation. The judgment to be exercised on his ground in connection with petition for

adjudication is exercised on very much the same lines as the discretion to annul adjudication on the ground that the debts have been paid or that the

debtor ought never to have been adjudicated. It was never the intention of the statute that a men, having a petitioning creditor''s debt and proving

and are of bankruptcy, should be told that no provision whatever will be made for the payment even of his debt, and that the petition is to be

dismissed on the"" ground that the debtors are able to pay all their debts. If, to a petitioning creditor who her-knowledge of an act of bankruptcy

tender of money is made for his own debt, he is not, in a usual case, at all obliged the receive the money and have the petition dismissed. Because

may very well be that other creditors may proceed in insolvency and that the payment will be held had against the Official Assignee. But, if coupled

with such offer, it can be shown this there is no other debts or that the debtors are prepared an able to pay off all the other debts, then no doubt a

strong as arises for dismissal of the petition.

These observations in the Calcutta High Court''s Judgment, we are satisfied, in no way mean that unless the debtor is ready with liquid money to

pay off all the debts as and when demanded the court shall find in favour of the creditor and accept the application of bankruptcy. What has been

indicated in the above judgment is that the offer of the debtor should not be to the creditor who has petitioned alone but it should be in respect of

all the debts if the debtor is prepared and able to pay off all the other debts. In the instant case, the learned single Judge has noticed that transfer of

the immovable (house) property was intended to discharge a mortgage debt. He has noticed that the debt of the petitioning creditor has been

disputed by the debtor in C.S. No. 23 of 1987 and there is nothing to show that there are so many debtors that the assets in the hands of the

debtor-first respondent are not enough to cover their debts. The learned single Judge has rightly found of a the basis of more than one authorities,

viz Vemuri Nagiah and Another Vs. Vasi Reddi Venkata Satyanarayana Prasad and Others, S.A. Ramalinga Mudaliar Vs. T.K. Ratna Mudaliar

and Another, that when an insolvency petition is presented by a creditor not bona fide with a view that the debtor''s assets should be distributed

proportionately amongst his creditors, but with the object of bringing the latter to the insolvency Court, the petition will amount to an abuse of the

process of the court and the court will have the power to refuse to make an order of adjudication notwithstanding the fact that the petition was well

founded. It is a case in which absence of bona fide in the conduct of the petitioning creditor is writ large in the fact that he has chosen to file the

petition for a declaration that the first respondent-debtor is insolvent only after the first respondent has in C.S. 23 of 1987 denied the debt and has

chosen to contest the liability. The appellant herein, on his own showing, is an unsecured creditor. He could, for the reason of any apprehension of

the debtor trying to remove the properties from out of the jurisdiction by an act such as the transfer of the house property, apply in C.S. No. 23 of

1987 for attachment of security to his debt. Instead, he decided to invoke the proceedings in insolvency. The learned single Judge has rightly found

that the petition is not bona fide. We find no merit in the appeal and it is accordingly dismissed.