CMA/840/2005 of S. PRABHAKAR REDDY Vs BUSI REDDY GARI NAGESWAR REDDY AND 13 OTHERS on 31 December 2020

ORDER:

HON’BLE SRI JUSTICE M. VENKATA RAMANA

C.M.A.No.840 OF 2005

This Civil Miscellaneous Appeal is directed against order of learned Principal District Judge, Kurnool, in I.P.No.12 of 2001 dated 27.06.2005.

2. The petitioner in I.P.No.12 of 2001 is the appellant. The respondents are the respondents therein.

3. It was a petition filed under Sections 6 and 10 read with Section 74 of Provincial Insolvency Act, by the appellant to adjudge him an insolvent and discharge him from debts shown in petition – A schedule.

4. The case of the appellant is that he suffered heavy loss in lorry business on account of mismanagement and inexperience and for the purpose of his business he had to borrow various amounts from the respondents, who are his creditors. He has set out the amounts due and payable to the respondents in petition – A schedule, which are, in all Rs.11,73,000/-.

5. The appellant also referred to a loan raised from the second respondent finance corporation and that the first respondent filed E.P.No.9 of 2001 in O.S.No.21 of 1998 on the file of the Court of learned Senior Civil Judge, Nandikotkur. The appellant also stated that the fifth respondent filed O.S.No.145 of 2000 on the file of the Court of learned Principal Senior Civil Judge, Kurnool and that the fourth respondent filed O.S.No.1050 of 1999, which then was pending on the file of the Court of learned II Additional Junior Civil Judge, Kurnool. These are all the money claims against him, according to the appellant. He further stated that except the loan shown in petition – B schedule worth Rs.2,00,000/-, MVR,J

he did not have any other property and that the assets held by him did not meet the demands of the loans borrowed by him. Instances are relied on by him as acts of insolvency, he requested the relief in the petition.

6. The second respondent-State Finance Corporation resisted the claim of the appellant, mainly on the ground that his mother, who is respondent No.8 stood as surety offering security of petition – B schedule properties to a terms loan of Rs.2,99,000/- and a short loan of Rs.49,800/- sanctioned to one Sri D.Ananda Rao on 09.11.1990 to acquire a lorry AP 21 T 654, which was hypothecated to it. It also contended that the eighth respondent had offered security of another plot at Kurnool by deposit of title deeds on 06.03.1991. It also contended that the outstanding balance as on 31.10.2001 payable on this loan account was Rs.6,64,416/- on account of default committed by Sri D.Ananda Rao, the principal borrower. It is the contention of the second respondent that it is entitled to seize the vehicle and sell in exercise of its rights under Section 29 of State Financial Corporations Act. It also contended that petition B – schedule property, since mortgaged to second respondent is not at the disposal of the appellant, which cannot be taken possession by the official receiver, if the appellant stood adjudged an insolvent.

7. The contentions of respondents 3, 5 and 9 are of identical nature where while asserting their claims against the appellant stated that other respondents are all nominal creditors based on fictitious transactions. Contending that the appellant has sufficient funds at his disposal and means to discharge all these debts, questioning his bona fides in filing an application for adjudging him as insolvent, they resisted his claim.

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8. Learned District Judge, Kurnool, by the impugned order dismissed the above petition mainly on the ground that the appellant had suppressed the material facts and approached the Court with unclean hands. Thus observing that there is violation of Section 13 of Provincial Insolvency Act on account of suppression of properties and business transactions, the relief sought, was rejected.

9. Sri J.Janakirami Reddy, learned counsel for the appellant addressed arguments and whereas none represented the respondents in this matter.

10. Now, the points for determination are,

“ 1. Whether the appellant has made out the grounds under Section 10 of Provincial Insolvency Act to adjudge him an insolvent? 10 of Provincial Insolvency Act to adjudge him an insolvent?

2. Whether learned District Judge, Kurnool is right in his observations in the order under appeal in rejecting the claim of the appellant? the appellant?

3. To what relief?”

11. POINT No.1:In terms of Section 10 of Provincial Insolvency Act, a debtor should establish that his debts amount to rupees five hundreds or he is under arrest or imprisonment in execution of a money decree of any Court or if there is an order of attachment in execution of a money decree and is subsisting against his property.

12. Section 6 of Provincial Insolvency Act, sets out acts of insolvency in different forms, as different instances. In terms of Section 6(f), if a debtor’s petitions to the adjudged an insolvent under the Provincial Insolvency Act, it is an act of insolvency.

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13. Therefore, very presentation of petition under Section 10 of Provincial Insolvency Act amounts to an act of insolvency. However, for such purpose, a debtor is required to substantiate his stand in terms of Section 10 of this Act.

14. Material on record discloses that the appellant alone was examined in the course of enquiry before the insolvency Court. His deposition is in terms of the averments in this petition in his examination in chief. Cross-examination of the appellant on behalf of the second respondent is with reference to liability to State Finance Corporation and the appellant admitted that he is liable to pay Rs.2,50,000/- to it. He also admitted that he deposited Ex.R1 and Ex.R2 pattadar pass book and book of title deed in respect of an agricultural land in Sy.No.166/2 of Kadumuru village of Miduthuru Mandal under Ex.R3 memorandum of deposit of title deeds. In cross-examination on behalf of the 14[th] respondent, the appellant stated that when he was running transport business, he was an income tax assessee and further stated that he did not produce corresponding cash books and ledgers with reference to this business in this case. His version in the course of enquiry was also that the lorries owned by him were seized by the financiers and that they were also sold. He denied the suggestions of other respondents that his attempt to adjudge an insolvent was only collusive and that he suppressed material facts without disclosing the assets held by him.

15. Learned District Judge was predominantly impressed by the fact that the appellant did not produce the material relating to seizure and sale of lorries and that the sale proceeds therefrom should have been shown as his assets in the petition. Another circumstance considered was a decree obtained by the first respondent against him in O.S.No.21

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of 1998 on the file of the Court of learned Senior Civil Judge, Nandikotkur and executing the same in E.P.No.9 of 2001 for sale of property. Another reference is made in the order under appeal, of O.S.No.657 of 2001 filed on the file of the Court of learned Junior Civil Judge, Nandikotkur and execution of the decree therein in E.P.No.24 of 2004.

16. These instances were considered by the insolvency Court as the attempts of the appellant to defeat the genuine creditors. Questioning thus the bona fides of the appellant, it was held that the insolvency petition was not maintainable.

17. The insolvency Court did not consider the claim of the appellant against the second respondent in proper perspective. In the sense, the State Finance Corporation is not amenable to jurisdiction of a insolvency Court. Section 8 of Provincial Insolvency Act declares of exemption of Corporations etc., from insolvency proceedings. It is desirable to extract Section 8 hereunder for convenience.

“Exemption of Corporation, etc., from insolvency proceedings: No insolvency petition shall be presented against any Corporation or against any association or company registered under any enactment for the time being in force.”

18. Therefore, the appellant could not have included the second respondent as a party to the insolvency petition, since it is clearly barred under Section 8 of this Act. Unfortunately, this statutory objection was not raised before the insolvency Court on behalf of the second respondent. The counter of the second respondent is to the effect that the petition – B schedule property belonged to the eighth respondent, who is none other than the mother of the appellant, who in fact offered security of this property to the loan of Sri D.Ananda Rao. In MVR,J

the light of these averments in the counter of second respondent, it is rather unfortunate to find that in cross-examination on his behalf, it was elicited from the appellant that this property was mortgaged to it by him, evidenced by Ex.R3.

19. Thus, while the material on record makes out that the petition – B schedule property cannot be subjected to any proceedings under this Act, it remains a secured property for the purpose of the loan of the second respondent, which is a secured creditor. Therefore, there cannot be any order in the insolvency application filed by the appellant against the second respondent and consequently his claim there for against second respondent, is not maintainable. Therefore, petition – B schedule property is insulated from the fold of application of the provisions of this Act.

20. Nonetheless, in as much as the uncontroverted testimony of the appellant as P.W.1 discloses that there are decrees passed against him by different courts. When steps are taken for sale of the property belonging to him, they stand as instances covered by Section 10 of the Act.

21. Therefore, in view of what is stated above, the order under appeal has to be set aside, since the matter was considered by the insolvency Court unmindful of effect of aforestated provisions of Insolvency Act and by reasons of improper application.

22. Thus, this point is held in favour of the appellant.

23. POINT No.2: In view of the findings on point No.1, the order under appeal requires interference and it has to be set aside.

24. POINT No.3: In view of findings on points 1 and 2, this Civil Miscellaneous Appeal has to be allowed.

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25. In the result, this Civil Miscellaneous Appeal is allowed adjudging the appellant an insolvent. However, the insolvency petition against the second respondent is dismissed and petition – B schedule property stands excluded from being taken over by the Official Receiver. Time for discharge is three (3) months. No costs. All pending petitions stand closed.

Dt:31.12.2020 Rns

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M. VENKATA RAMANA, J

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HON’BLE SRI JUSTICE M. VENKATA RAMANA

C.M.A.No.840 OF 2005

Rns

Date: 31.12.2020