- (1.) THIS civil misc. appeal has been filed against the order dated 14.08.2002, whereby the learned District Judge, Alwar has dismissed the appellant -applicant's (hereinafter 'the applicant') application under Section 7 of the Provincial Insolvency Act, 1920 (hereinafter 'the Act of 1920') to have the respondents -opposite party (hereinafter 'the opposite party') declared as insolvent.
(2.) MR . Ashok Mehta, counsel for the applicant, submits that the learned lower court has erred in invoking the exception under Section 8 of the Act of 1920 to shut out the application filed by the applicant. Counsel submits that Section 8 of the Act of 1920 only provides exemption of corporation or association or company registered under any statutory enactment from insolvency proceedings but the insolvency proceedings laid by the applicant were founded upon the failure of the opposite party to repay as directors and guarantors in their individual capacity the amount loaned by the applicant -Bank to M/s Ishwar Industries Ltd. and decreed by the competent court. It is submitted that in this view of the matter, the proceedings were personal to the opposite party and not against the company of which they were directors and therefore the benefit of exemption under Section 8 of the Act of 1920 ought not to have been given to them. Heard the counsel for the applicant and perused the impugned order dated 14.08.2002, passed by the lower court.
(3.) IN my considered opinion, there is little substance in the argument raised by the counsel for the applicant. For one, a bare perusal of the judgment and decree dated 11.02.1994 does not indicate that the decree was passed against the opposite party as guarantors of the loan advanced by the applicant -Bank to M/s. Ishwar Industries Ltd. The very foundation of the proceedings under the Act of 1920 therefore lay in the judgment and decree dated 11.02.1994 passed by the civil court against the company M/s. Ishwar Industries Ltd. and the opposite party as its directors. Aside of the aforesaid, a bare look at Section 6 of the Act of 1920 defines "acts of insolvency" in respect of which petitions can be laid under Section 7 thereof and be adjudicated. For facility of reference "acts of insolvency" as set out in Section 6 of the Act of 1920 is being detailed hereinbelow : 6.Acts of insolvency. [1] A debtor commits an act of insolvency in each of the following cases, namely: - (a) if, in India or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally; (b) if, in India or elsewhere, he makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors; (c) if, in India 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 an insolvent; (d) if, with intent to defeat or delay his creditors, - (i) he departs or remains out of the territories to which this Act extends, (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) if any of his property has been sold in execution of the decree of any Court for the payment of money; (f) if he petitions to be adjudged an insolvent under the provisions of this Act; (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; or (h) if he is imprisoned in execution of the decree of any Court for the payment of money. [2] Without prejudice to the provisions of sub -section (1), a debtor commits an act of insolvency if a creditor, who has obtained a decree or order against him for the payment of money (being a decree or order which has become final and the execution whereof has not been stayed), has served on him a notice (hereafter in this section referred to as the insolvency notice) as provided in sub - section (3) and the debtor does not comply with that notice within the period specified therein: Provided that where a debtor makes an application under sub -section (5) for setting aside an insolvency notice - (a) in a case where such application is allowed by the District Court, he shall not be deemed to have committed an act of insolvency under this sub -section; and (b) in a case where such application is rejected by the District Court, he shall be deemed to have committed an act of insolvency under this sub -section on the date of rejection of the application or the expiry of the period specified in the insolvency notice for its compliance, whichever is later: Provided further that no insolvency notice shall be served on a debtor residing, whether permanently or temporarily, outside India, unless the creditor obtains the leave of the District Court therefor. [3] An insolvency notice under sub - section (2) shall - (a) be in the prescribed form; (b) be served in the prescribed manner; (c) specify the amount due under the decree or order and require the debtor to pay the same or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent; (d) specify for its compliance a period of not less than one month after its service on the debtor or, if it is to be served on a debtor residing, whether permanently or temporarily, outside India, such period (being not less than one month) as may be specified by the order of the District Court granting leave for the service of such notice; (e) state the consequences of non - compliance with the notice. [4] No insolvency notice shall be deemed to be invalid by reason only that the sum specified therein as the amount due under the decree or order exceeds the amount actually due, unless the debtor, within the period specified in the insolvency notice for its compliance, gives notice to the creditor that the sum specified in the insolvency notice does not correctly represent the amount due under the decree or order: Provided that if the debtor does not give any such notice as aforesaid, he shall be deemed to have complied with the insolvency notice if, within the period specified therein for its compliance, he takes such steps as would have constituted a compliance with the insolvency notice had the actual amount due been correctly specified therein. [5] Any person served with an insolvency notice may, within the period specified therein for its compliance, apply to the District Court to set aside the insolvency notice on any of the following grounds, namely: - (a) that he has a counter -claim or set -off against the creditor which is equal to or is in excess of the amount due under the decree or order and which he could not, under any law for the time being in force, prefer in the suit or proceeding in which the decree or order was passed; (b) that he is entitled to have the decree or order set aside under any law providing for the relief of indebtedness and that - (i) he has made an application before the competent authority under such law for the setting aside of the decree or order; or (ii) the time allowed for the making of such application has not expired; (c) that the decree or order is not executable under the provisions of any law referred to in clause (b) on the date of the application. Explanation. - - For the purposes of this section the act of an agent may be the act of the principal. Counsel for the applicant could not point out as to whether and when the insolvency notice in the prescribe format compliant with clauses (a) (e) of Section 6(3) of the Act of 1920 was issued to the opposite party. That to my mind is a fundamental lacunae in view of the fact that Section 9(1)(c) of the Act of 1920 provides that a creditor shall not be entitled to present an insolvency petition against a debtor unless the act of insolvency on which the petition is grounded has occurred within three months before the presentation of petition. The period of three months under Section 9(1)(c) of the Act of 1920 is a pre -condition and without satisfaction of the said pre -condition, the insolvency petition itself under the Act of 1920 is not maintainable. There is nothing in the judgment of the lower court or in the memo of appeal filed before this Court to establish that when the insolvency notice under Section 6(3) of the Act of 1920 was issued or for that matter when the act of insolvency arose and, if so whether the insolvency petition was filed within the period of three months from the act of insolvency as warranted by Section 9 (1)(c) of the Act of 1920. (5) In my considered opinion, for the aforesaid reasons, there is no force in this appeal and the same is liable to be dismissed. Dismissed accordingly.;