Insolvency Petition No.92 of 2006,Notice of Motion No.206 of 2006,Notice of Motion No.57 of 2007,Insolvency Petition No.109 of 2007

4th July, 2008

Petitioner Counsel: Mr. C. S. KAPADIA,Mr. DINESH SHAH,Lilani Shah & Co.,Mr. PRATEEK SEKSARIA,Mr. Ashok Varma
Respondent Counsel: Mr. J. P. SEN,KIRAN JAIN & NITA SOLANKI,Mr. KUKREJA

Cases Cited:
Modadugula Sreeramulu Vs. Perakam Singayya, 1967 Andhra Weekly Reporter 329 [Para 15]
M. Ratchaganadan Vs. M/s. Kishindas Shamadasunder by Shayam Sunder, AIR 1967 Mad 279 [Para 15]
Sarat Chandra Roy Vs. Hararak Chand Damani, AIR 1972 SC 2127 [Para 15,19]
P. K. Venkateswaran Vs. R. Shanmugam, AIR 1987 Mad 143 [Para 15]

JUDGMENT

JUDGMENT :- Insolvency Petition No.92 of 2006 is presented by Kamlesh Mulchand Hemrajani for an order of adjudication against the debtor i.e. Manghandas Paramanand, a partnership Firm having its office at the address mentioned more particularly in the cause title, one Jairam Manghandas Jashnani and one Tulsi P. Jashnani.

2. It is alleged that the petitioning creditor is a Karta and Manager of Kamlesh Mulchand Hemrajani (HUF). Debtor No.1 is a partnership firm and debtor Nos.2 and 3 are partners of the said firm.

3. On 16th February, 2005 debtor Tulsi Jashnani as a Karta and Manager of Tulsi P. Jashnani (HUF) drew an on-demand bill of exchange in the sum of Rs.1,50,000/- in favour of the petitioning creditor. The said bill of exchange was accepted by the debtors as acceptors. It is stated that debtor Tulsi Jashnani has paid to the petitioning creditor discount commission at the rate of 12% p.a. till 14th February, 2006. On 15th February, 2006 and thereafter several attempts were made by the petitioning creditor to present bill of exchange for payment to the debtors but their office was found locked. No responsible person was found in the said office. The petitioner also made attempt to present bill of exchange to Jairam Jashnani but they were not available at their business or residential address. Thus, debtors have failed and neglected to pay the petitioning creditor the sum of Rs.01,50,000/-. Thereafter, an advocate's letter was addressed to the debtors which was duly received but neither the same has been replied nor amount claimed therein paid.

4. The debtors Tulsi Jashnani and Jairam Jashnani are Directors of one Jashnani Leasing and Finance Ltd. The said company allegedly duped the creditors and Investors of an amount exceeding Rupees Four crores. Therefore, Tulsi Jashnani and Jairam Jashnani so also another Director Haresh Jashnani had been proceeded against in criminal Courts by the Economic Offence Wing of the Crime Branch of Bombay Police. There were several complaints and to avoid their arrest, Tulsi Jashnani and Haresh Jashnani absconded. They left India for a long period. However, after considerable pressure was mounted on them they surrendered by coming back to India. Debtor Jairam was also arrested but presently enlarged on bail. The petitioner therefore submits that debtors are heavily indebted to many persons/creditors. They are unable to pay and discharge their liabilities. To avoid payment of liability the debtors have avoided to meet their creditors. They have kept themselves away from them. Thus, with an intent to defeat or delay the claims of all creditors they have remained out of State and/or India for nearly 8 months. They have departed from their respective dwelling house or usual place of business and thus, they have committed acts of insolvency and are liable to be adjudged as insolvent.

5. Insolvency Petition No.109 of 2006 is presented by one Gopal K. Chawla against Haresh and Tulsi Jashnani. The case of Gopal Chawla is that on 17th October, 2005 a similar bill of exchange was drawn in his favour by the firm of which one of the debtor is partner. This is an on-demand bill of exchange in the sum of Rs.10,00,000/-. This was for valuable consideration and in lieu of the firm receiving a sum of Rs.10,00,000/- by cheque. The bill of exchange was presented on 18th January, 2006 but came to be dishonoured by non-payment. A demand was raised but there was no response. Ultimately, an advocate's letter dated 11th February, 2006 was addressed and subsequently a summary suit being Summary Suit No.831 of 2006 came to be filed in this Court. The Writ of Summons was duly served. Some of the defendants filed their appearance Debtors did not appear. A summons for judgment was taken out in the said suit. The petitioning creditor is dealing separately with the contents of the affidavit in reply filed to the said summons for judgment. However, there is sum of Rs.11,52,383.56 paise due and payable.

6. More or less similar allegations have been made against the debtors by the petitioning creditor. That they owe several crores of rupees to creditors, they have defrauded banks and individuals, they are in the process of disposing of or transferring their office premises and abscond from the country are the allegations made in paras 8 and 9 of the petition. Thereafter, in para 10 it is contended that debtors by their conduct have given notice of suspension of payments to their creditors. It is in these circumstances and alleging several acts of insolvency that the petition is filed claiming a relief that debtors be adjudged Insolvent.

7. To both the petitions there are replies filed. In the reply affidavit which is filed in Insolvency Petition No.92 of 2006 it is stated by Jairam that the petition is an abuse of the process of the Court. There are no acts of insolvency which are committed. Once there are no acts of insolvency committed, then, petition is not maintainable. It is pointed out that the liability under the alleged bill of exchange is disputed i.e. not something which can be gone into in this petition. Infact, Jairam alleges that the petition is filed in collision with debtor No.3 by the petitioning creditor in Petition No.92 of 2006.

8. He has contended that when bill of exchange was presented i.e. on 15th February, 2006, Jairam was in police custody. After investigation and interrogation was over, it was apparent that Jairam is not connected with the alleged criminal acts of the debtor Nos.1 and 2 hence he was enlarged on bail on 20th March, 2006. After his release on bail Jairam suffered from several diseases and was hospitalised on 24th March, 2006. He was discharged on 30th March, 2006. He submits that in the meanwhile he could not have access to the records and therefore once he was enlarged on bail, he started looking after his business affairs that is how he became aware of several notices and proceedings against debtor Nos.1 and 2. He states that he is residing in flat No.702, L'Amore, Turner Road, Bandra (W), Mumbai since more than 30 years. He states that he has neither departed nor stayed out of India for a long time much less 8 months. He submits that he was called for interrogations when the acts of the debtor No.3 had been detected. He submits that his passport was also handed over. He submits that there are disputes between the partners interse.

9. In such circumstances, the petition should be dismissed. He submits that this is not a case where the Court can be called upon to exercise its powers to adjudge the debtors as insolvent. He submits that a summary suit is filed for recovery of monies. The summons for judgment were withdrawn by the petitioning creditor-original plaintiff. In such circumstances and from the material that is produced before this Court, no inference can be drawn with regard to any act much less an act of insolvency so as to enable the petitioning creditor to have a adjudication order passed in his favour.

10. Petition No.92 of 2006 has been argued by Mr. Chetan Kapadia. He has invited my attention to the averments in the petition. Further, he has contended that paras 7 and 10 of the affidavit in reply which is filed in this petition and other petition would denote that there are acts which are continuously committed by the debtors from which it can be straightway concluded that they should be adjudged as insolvent. He has adopted the arguments of Mr. Prateek Seksaria appearing in Petition No.109 of 2006.

11. Mr. Kukreja appearing for debtor Nos.1 and 2 in Petition No.92 of 2006 submitted that the present petition is not maintainable. He has taken me through sections 9, 12 and 13 of the Presidency Towns Insolvency Act, 1909 (for short 'PTI Act'). He submits that language thereof is clear. The provisions are mandatory. He submits that the affidavit in reply would indicate that the debtor Nos.1 and 2 are not party to any transactions. He submits that the transactions are not that of the firm and there is no liability of the firm in any manner. No cheque is issued by debtor Nos.1 and 2. Infact, the debtor Jairam has been made scapegoat in the deal struck by other debtors. There are criminal cases pending. Further, he submits that there are no acts of insolvency proved in this case. This is a case where the petition is barred by limitation. He has invited my attention to notice (Exhibits B, page 17) of the petition paperbook and has contended that the same has been issued on 9th June, 2006. However, the present petition is filed on 15th September, 2006 which is beyond the stipulated period of three months. In such circumstances, the petition be dismissed on this ground alone.

12. The affidavit of Jairam has been read out to me by Mr. Kukreja in great details. He has placed reliance upon paras 10 and 15 so also annexures to the said affidavit including the letters addressed by Jairam. He submits that it is the act of the other debtors which are being made foundation of the proceedings. In such circumstances and when the cheques, copies of which are annexed to the affidavit have not been signed, then, no liability can be fastened on to Jairam nor can he be adjudged an Insolvent. Mr. Tulsi debtor No.3 has also filed affidavit in this petition and has urged some of the identical grounds. However, Mr. Sen appearing on his behalf contended that merely because some disputes and differences have been referred to by Mr. Jairam does not mean that Mr. Tulsi should be declared as insolvent. There is a clear case where monies are sought to be recovered by resorting to such proceedings. There is no admitted liability and there is clear suppression of material facts. It is contended that Tulsi and Haresh were absconding. Further, those persons who had initiated criminal cases and had some legitimate grievances have come forward and settled the dispute with Tulsi and Haresh. In such circumstances, the petition should not be entertained.

13. In Petition No.109 of 2006 Mr. Seksaria contended that the claim is as set out in the petition. There are several acts which come within the purview of section 9 of the Act which are alleged and substantiated. Mr. Seksaria has invited my attention to the affidavit of Geeta Jashnani and has contended that selected creditors or group thereof have been chosen for preference by the debtors. This is a case where an MOU has been entered into and some of the creditors were given preference. The Committee which is referred to in the MOU has been put in charge of funds and disbursement is permitted to very few and chosen creditors. In such circumstances, the ingredients of the relevant statutory provisions are attracted and therefore, this Court should pass appropriate orders. He also contended that staff members have given affidavits. He has relied upon these affidavits to urge that debtor Nos.1 and 2 i.e. Haresh and Tulsi have not been attending the office and infact were out of India. Relying upon section 9(1)(c), (d) and (g) of the Act Mr. Seksaria has taken me through the notice issued by the advocates and the affidavit filed by Tulsi in reply to the Notice of Motion.

14. Mr. Sen appearing for the debtor in this petition has contended that the petition which is filed does not meet the statutory requirements at all. He submits that when an order adjudication is sought the pleading must be clear. Further, the acts of insolvency must be alleged and proved. There cannot be a pleading of the nature in the present case to claim relief which is drastic in nature. He submits that once material facts are suppressed and the pleading and proof is lacking, then, no order under section 9 can be passed. He has invited my attention to the fact that all summons for judgment are withdrawn and the summary suits are pending. In such circumstances, the petition be dismissed.

15. Mr. Kukreja appearing in Petition No.92 of 2006 has relied upon the following decisions in support of his contentions :-

(1) 8 Bombay Law Reporter 648 (sic) (Abu Haji Suleman Vs. Hajijan Mahomed Haji Mahomed);

(2) 1967 Andhra Weekly Reporter, 329 (Modadugula Sreeramulu Vs. Perakam Singayya & Ors.);

(3) AIR 1967 Madras 279 (M. Ratchaganadan Vs. M/s. Kishindas Shamadasunder by Shayam Sunder & Anr.);

(4) AIR 1972 SC 2127 (Sarat Chandra Roy Vs. Hararak Chand Damani & An.);

(5) AIR 1987 Madras 143 (P. K. Venkateswaran & Ors. Vs. R. Shanmugam).

16. Section 9 of the PTI Act falls in Part II. Part II is entitled as "Proceedings From Act Of Insolvency To Discharge". Section 9 sets out the act of insolvency.

17. A bare perusal of section 9 would indicate that a debtor commits an act of insolvency if he indulges in any of the acts or commits any of the acts which are enlisted in section 9(1), (a) to (h).

18. In the instance cases what has been pressed is sub-clause (c), (d) and (g) of sub-section (1) of section 9. They read thus :-

"(a) .....

(b) ......

(c) if, in the [States] or elsewhere, he makes any transfer of his property or of any part thereof which would, under this or any other enactment for the time being in force, be void as a fraudulent preference if he were adjudged as insolvent;

(d) if, with intent to defeat or delay his creditors,-

(i) he departs or remains out of the [States].

(ii) he departs from his dwelling-house or usual place of business or otherwise absents himself.

(iii) he secludes himself so as to deprive his creditors of the means of communicating with him;

(e) .....

(f) .....

(g) if he gives notice to any of his creditors that he has suspended, or that he is about to suspend, payment of his debts;"

19. Mr. Seksaria in all fairness has stated that petitioning creditor in Petition No.109 of 1996 does not press sub-clause (b) of section 9(1). He does not seek an order of adjudication on this ground. As has been held repeatedly that the proceedings for declaring and adjudging debtor as insolvent are rather drastic. There consequences being such that the Hon'ble Supreme Court has held that non-payment of dues cannot be a ground to adjudge a person insolvent. Insolvency proceedings cannot be an alternative to execution proceedings. In the case of Surat Chandra Roy (supra) which has been relied upon by Mr. Kukreja the following observations are pertinent:

".... We fail to see how the creditor was interested in the adjudication of the appellant as an insolvent even after the entire amount due to him was tendered. The court was not justified in maintaining the adjudication of the appellant under the circumstances of the case. From the records we are satisfied that there was no justification for initiating the insolvency proceedings in question. Non-payment of a decree promptly by itself is no ground to adjudicating a person insolvent. Appellant appears to be a person of substantial means. In this case insolvency proceedings appear to have execution proceedings."

20. The Madras High Court has also taken a view that insolvency is a status to which no person should be reduced, unless an act of insolvency is fully established to the satisfaction of the Court. A creditor ought not be permitted to utilise this mode of obtaining an adjudication of insolvent as a kind of pressure in order to realise a debt more economically or by swifter means.

21. The present case would have to be decided on the touchstone of these principles. It is clear that what is alleged is transfer of property or any part thereof which would be void as a fraudulent preference if person were to be adjudged as insolvent. Further, what is alleged is intent to defeat or delay creditors by departing or remaining out of the State, departing from dwelling house or usual places of business or otherwise remain absent or seclusion with a view to deprive his creditors of the means of communication with him. There is no material as far as suspension of payment of debts.

22. As far as transfer of property is concerned, in Insolvency Petition No.92 of 1996 what is alleged is that debtors Tulsi and Jairam Jashnani are Directors of Jashnani Leasing and Finance Ltd. This Company has duped its creditors and/or investors. Thereafter, it is alleged that Tulsi, Jairam and Haresh having duped the creditors to the extent of crores of rupees there are criminal complaints which have been filed. With a view to avoid arrest they were absconding. Tulsi Jashnani and Haresh Jashnani were absconding. Debtor Jairam Jashnani was arrested but released on bail. In para 7 it is alleged that they are heavily indebted to many persons/creditors. From a bare perusal of paras 6 and 7 of this petition, I am of the opinion that no case has been made out of the acts of insolvency as alleged. Once the position in law has been referred to above so also the settled legal principles it is apparent to me that mere reproduction of the sections is not enough to hold that a debtor has committed the act of insolvency. Once this is the clear position, them, the power to adjudged which is conferred by the Act after it is proved that the debtor commits an act of insolvency, cannot be exercised at the instance of the present petitioners. When the creditor makes a petition he has to fulfil the conditions stipulated by section 12. Section 12 opens with the words "that a creditor should not be entitled to present an insolvency petition against the debtor unless he satisfies the condition stipulated therein. The Petition No.92 of 2006 wholly lacks in the particulars. What has been annexed to the said petition is a notice dated 9th June, 2006 addressed by M/s. Lilani Shah and Co. Advocates. Apart from the bill of exchange and the date of the same being present and being dishonoured by non payment all that is alleged is that despite attempts the debtors could not be contacted. The petition is the reproduction of the notice addressed by the advocate. Each of these allegations have been denied. Tulsi and Haresh have stated that they are back in India and are defending the legal proceedings against them. For a brief period they were facing allegations and apprehending arrest is not by itself enough to draw a conclusion in terms of statute.

23. Mr. Kukreja is therefore right in urging on behalf of Jairam that noting has been alleged as against him which would enable this Court to conclude that he has committed an act of insolvency. The affidavit filed by Jairam has been perused by me.

24. It is undisputed that summary suits have been filed for recovery of sums on the basis that the bill of exchange come within the purview of Negotiable Instruments Act. They would also satisfy the requirement of Order 37 of the Code of Civil Procedure, 1908. Further, it is undisputed that summons for judgments have been moved therein but the same have been withdrawn. In such circumstances and when there is dispute raised to the debt so also the fact set out in the affidavit of Jairam being not controverted to the satisfaction of the Court, it would not be safe to rely upon the version of the petitioning creditor.

25. As is rightly contended, the differences and disputes between the partners interse would not in the facts of this case furnish a cause for declaring the partnership firm and the partners as insolvent. These are matters which cannot be adjudicated in the limited jurisdiction of this Court. Unless the acts fall within the purview of acts of insolvency stipulated by PTI Act, there is no question of taking cognizance of the same.

26. As far as the Petition No.109 of 2006 is concerned, Mr. Gopal Chawla has referred to the bill of exchange drawn in his favour and accepted by the partners. He has also relied upon the dishonour of the same. He has also relied upon the dishonour of the same. He has also thus sought to claim an amount under the bill of exchange. He does not dispute filing of a summary suit. However, what is projected in the petition is that summons for judgment No.344 of 2006 in Summary Suit No.831 of 2006 is pending. That apart, affidavits filed by Geeta have also been referred to. Once again these are disputed claims. The averments in paras 8 to 10 of this petition also are vague. There are no particulars. Merely because some of the debtors had gone out of India and allegedly a notice was issued so as to ward everybody concerned of their acts of omission and commission does not mean that presumption can be drawn that they have committed the acts of insolvency. They have returned to India. Criminal cases are pending. Even the factum of some MOU being executed and the committee of persons being put in charge of funds is disputed. The committee has filed an application and an affidavit in support thereof pointing out that it is not being put in funds. There may be claims which are due and payable. However, before a conclusion can be drawn as above, the petitioning creditor must substantiate the pleas. Mere reproduction of the section and pointing out vaguely that the creditors have not been paid does not mean that the petition should be entertained.

27. In the peculiar facts of this case, I find substance in the contention of Mr. Sen that both petitions do not disclose the acts of insolvency as would be required to set out and substantiated in law.

28. In the result, no orders can be passed in favour of the petitioning creditor on these petitions. Consequently, both petitions fail and are accordingly dismissed.

29. In the light of dismissal of the petitions and the direction being that both Motions and Petitions be taken up together, nothing would survive in the Notices of Motion and they stand disposed of accordingly.

30. At this stage, a request is made to continue the ad-interim order dated 29th November, 2006 in Notice of Motion No.206 of 2006 in Insolvency Petition No.109 of 2006 for some period to enable the petitioning creditors to challenge this order further. From a perusal of the order it appears that this Court has accepted the statement of the debtors that no third party rights shall be created in respect of property 227-G, NarNarayan Mandir pending further orders of this Court. This statement is continued till date. No prejudice will be caused if the statement recorded in this order is continued for a period of 6 weeks from today.

31. Further this Court has directed that the corpus of Rs.2 crores lying with the Committee should be protected. The corpus or any part thereof shall not be disbursed by the Committee was the further order. Now there is a dispute in as much as the Committee says that amount was not deposited with it. Be that as it may and these proceedings being no remedy to resolve that dispute, even that direction can continue for the aforesaid period of 6 weeks.

32. However, it is clarified that continuance of the ad-interim order is without prejudice to the rights and contentions of all parties and merely because the same is continued does not mean any rights are created in favour of petitioning creditor. In the circumstances, however, there shall be no orders as to costs.

Ordered accordingly.