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Judgment
Ramalingam, J.—The two petitioning creditors Achanta Bhimasankaram and Achanta Lakshmi Suryakantam have filed this petition u/s 9(g), 10, 11, 12 and 13 of the Presidency Towns Insolvency Act against the three respondents namely the first respondent Messrs. Sugesan Finance Investment of which the second respondent Bipin K. Sheth and the 3rd respondent Manoj Sheth are partners. The first respondent is a registered firm of partnership in which the respondents 2 and 3 are partners. The first respondent firm is carrying on business in finance, investments by way of receiving deposits from public and agreeing to repay them with stipulated interest on a stipulated dale in the name and style of the first respondent, at door No. 38, Rajaji Salai, Madras-1. The petitioners made 5 deposits. Out of the five, two were term deposits for a sum of Rs. 10,000 each which have been matured on 31-8-1985 and 2-11-1985 respectively. The remaining three are cash certificates each for Rs. 3,000 which have matured on 9-10-1985. Of the two term deposits one is T.D.R. No. 33548 dated 31-8-1984 which had matured on 31-8-1985. On its maturity the first petitioner wrote a letter dated 30-7-1985 enclosing the T.D.R. No. 33548 dated 31-8-1984 for Rs. 10,000. A xerox copy of the said letter is marked Ex.P3. The first respondent made a reply to the effect that the principle as well as the accruing interest will be paid to the first petitioner within 150 days from the date of maturity. A xerox copy of the reply letter dated 7-8-1985 marked as Ex.P2. The first petitioner sent a reply stating that the respondent was never instructed to pay after 150 days from the date of maturity and the amount should be paid on the date of maturity itself. Thereafter the first petitioner wrote a letter dated 9-9-1985 enclosing the three cash certificates bearing Nos. 2626, 2627, 2628 each for Rs. 3,000 respectively maturing on 9-10-1985, and requested the respondent to send the maturity amount by way of a demand draft. A xerox copy of the said letter is marked as Ex.P4 dated 9-9-1985. The first respondent made a reply under the original of Ex.P5 dated 20-9-1985 informing the first petitioner to the officer on that the repayment of the deposit amount along with the accrued interest will be sent within 150 days from the due date. The petitioners also sent another letter dated 3-10-1985 marked as Ex.P6 enclosing the term deposit No. T.D.R. 33967 dated 2-11-1984 for a sum of Rs. 10,000 maturing on 2-11-1985 and requested the first respondent to send the maturity value by way of demand draft drawn on anyone of the nationalised bank at Visakapatnam. The first respondent replying to Ex.P6 under the original of letter Ex.P7 dated 10-10-1985 that the amount due under the term deposit No. 33967 will be paid within 150 days from the due date namely 2-11-1985. Thereafter, the petitioners sent a notice dated 18-11-1985, a xerox copy of which is marked as Ex.P8, demanding the amounts due to them and informing the respondents that they have never instructed the respondents to pay the matured amount within 150 days from the date on which each and every one of the deposit matures. The respondents wrote a letter dated 10-12-1985 a xerox copy of the same is marked as Ex.P9 informing the petitioners that they are writing the original of Ex.P9 in continuation of the first petitioner''s visit to the respondents office on 5-11-1985 in connection with the repayment of the deposits and conveyed their wish that the respondents would start releasing payments in instalments of Rs. 500 per month, starting for May/June 1986 as their liquidity position did not permit them to pay earlier. They also assured the first petitioner that the payments should be kept flowing without any interruption by way of post dated cheque either 1988 or 1989 as they are doing to all their depositors. The respondents also requested the first petitioner to bear with them till then, and regretted very much for the inconvenience caused to the first petitioners. On receipt of Ex.P9, the petitioners filed this petition within the stipulated time on the ground the respondents have suspended payments of the amount due to them till May 1986. The further case of the petitioners is that the respondents have not paid any instalments as stated in Ex.P9. According to the respondents, the contents of Ex.P9 dated 10-12-1985 will not give a cause of action for the petitioners to move the Insolvency Court and that the contents of Ex.P9 will not constitute an act of insolvency. P.W.1 power agent of the petitioning creditors gave evidence. Exs.P1 to P9 have been marked on behalf of the petitioning creditors. The third respondent Manoj Sheth gave evidence on behalf of the respondents and marked exhibits R1 to R15.
The question that arises for consideration is whether the contents of Ex.P9 reply letter dated 10-12-1985 constitute notice of suspension of payment as contemplated under S.9(g) of the Presidency Towns Insolvency Act (hereinafter referred to as the Act) S.9(g) runs as follows:
A debtor commits an act of insolvency if he gives notice to any of his creditors that he has suspended or that he is about to suspend, payment of his debts.
According to the learned counsel for the petitioning creditors that the contention of Ex.P9 fall well within the provision of S.9(g) of the Act. Whereas the contention of the learned counsel for the debtors is that Ex.P9 only shows a mere declaration of inability to pay debts and that will not amount to an act of insolvency. In other words, according to him Ex.P9 is merely an expression of desire to postpone the payment of debts because of the circumstances connected with the debtors business and as such, such an expression would not tantamount to an act of insolvency within the meaning of S.9(g) of the Act.
With a view to find out whether the debtors have committed an act of insolvency. It is necessary to take the statement of the debtors along with other circumstances and see whether the statement taken with the other circumstances should produce an impression on the minds of the creditors that the debtor is going to suspend payment of debts.
A perusal of the oral and documentary evidence in this case clearly proves that the debtors have committed an act of insolvency. Of the five deposits made by the petitioning creditors two are term deposits, the other three are cash certificates. The term deposit which had matured on 2-11-1985 was originally deposited on 29-8-1981. The date of maturity was 29-9-1984. The term deposit which matured on 31-8-1985 was originally deposited on 22-4-1981 to be matured on 22-4-1984, but it was renewed on 31-8-1984 to be matured on 31-8-1985. This renewal according to the petitioning creditors was�a result of inducement made by the debtors, Ex.P8 shows this information. All the aforesaid amounts have been properly claimed by the petitioning creditors as per the rules and regulations made by the debtors. The is made clear from the cross-examination of R.W.1 the third respondent herein.
Whenever any deposit becomes mature the depositor is required to give advance information to take his money back?
"Yes"
"Even before the amounts become mature the depositors have to surrender his deposit receipts with you?"
"Yes"
Accordingly the petitioning creditor has sent Ex.P3 dated 30-7-1985 with reference to T.D.R. No. 33548 maturing on 31-8-1985. With reference to T.D.R. 33967 maturing on 2-11-1985, the petitioning creditor has sent Ex.P6 notice enclosing along with Exs.P3 and P6 the term deposits duly discharged. With reference to Exs.P3 and P6, the petitioning creditor received Exs.P2 and P7 reply respectively. With reference to the cash certificates maturing on 9-10-1985 the petitioning creditor received Ex.P5 reply dated 20-9-1985. In Exs.P2, P5 and P7 replies, the debtors made a stereo type reply. The common reply in all the aforesaid exhibits is as follows:
As instructed, repayment of the above deposit amount along with accrued interest will be sent to you within 150 days from the due date.
The third respondent had admitted in his cross-examination that there is no rule which gives the debtors the right to keep the money for 150 days after it becomes due and payable and also admitted that the petitioning creditors have intimated the debtors in advance under Exs.P3, P4 and P6 in time. Since the debtors have not honoured their commitment, the petition creditors sent a notice dated 18-11-1985. A xerox copy of which is marked as Ex.P8. The debtors without mentioning the receipt of the original of Ex.P8 sent a letter dated 10-12-1985. A xerox copy of which is marked as Ex.P9. Ex.P9 shows there was a personal discussion between the first petitioner and the first respondent on 5-11-1985. Ex.P8 confirms such meeting between the first petitioner and the first respondent and also states that the first respondent promised to settle the petitioning creditor by 20th November, 1985.
As stated earlier the question that arises for consideration in this case is, whether the contents of Ex.P9 to the effect that the debtors would start releasing payments in instalments of Rs. 500 per month only from May/June 1986 would constitute an act of insolvency since the debtors'' liquidity position did not permit them to start any earlier payment. The further question that arises for consideration is whether the statement in Ex.P9 that post dated cheques either 1988/1989 would be released by the debtors to all their depositors would produce an impression on the minds of the creditors that the debtors are going to suspend payment of their debts.
My answer to both the questions raised above is that the oral evidence as well as the contents of Ex.P9 clearly proves an act of insolvency on the part of the debtors. All the debts due to the petitioning creditors matured on 31-8-85, 2-11-85 and 9-10-85. The 3rd respondent has accepted that there is no rule which gives the debtors the right to keep the money payable to the creditors 150 days after it becomes due and payable. That statement itself constitutes Suspension but the suspension should be suspension of payment of debts due to alt the creditors. The following statement in Ex.P9 namely that payments in instalments of Rs. 500 per month would be kept flowing without any interruption in respect of matured deposits by post dated cheques dated either of the year 1988 or of the year 1989 to all their depositors clearly indicate suspension to all the creditors. The words "all our depositors" indicate the entire body of creditors. As far as the petitioning creditors are concerned the suspension is upto May or June 1986, to the rest of the creditors it would be either the beginning of 1988 or the middle of 1988 or the end of 1988 or the beginning of 1989 or the middle of 1989 or the end of 1989. Even to the petitioning creditors the debtors have not acted as stated in Ex.P9. P.W.1 has stated that the debtors have not paid any instalment as undertaken in Ex.P9 and as such they filed the insolvency petition on 6-3-1986.
The 3rd respondent R.W.1 has no regard for truth. He denied having received Ex.P3 notice. Ex.P2 falsifies his denial. Ex.P3 is the advance notice given by the petitioning creditor with reference to term deposit No. 33548 dated 31-8-84 for Rs. 10000 maturing on 31-8-85. Ex.P2 refers repayment of the aforesaid term deposit and also refers to Ex.P3 letter dated 30-7-1985 and conveys the intention of the debtor that repayment of the term deposit with accrued interest will be sent to the creditor within 150 days after 31-8-1985. However, the 3rd respondent accepted Ex.P5 dated 20-9-1985 reply concerning the cash certificate Nos. 2626, 2627, 2628 matured on 9-10-1985. Wherein also the debtors have stated that the amounts will be paid with accrued interest within 150 days from 9-10-1985. To the same effect is Ex.P7 letter dated 10-10-1985, with reference to term deposit No. 33967 matured on 2-11-1985.
The further cross-examination of R.W.1 clearly shows that the debtors hive siphoned money collected from various depositors to their sister concerns and failed to honour their commitment to the body of creditors. There are 1400 depositors and the first respondent owes a sum of Rs. 90,00,000 according to R.W.1. The further case of the 3rd respondent in his evidence is that three months prior to the filing of this petition he has cleared nearly Rs. 12,50,000 approximately. In support of his case he has marked Exs.R1 to R15. Ex.R1 is a xerox copy of the statement of account of Federal Bank Ltd., Always for the period beginning from 1-8-1985 to 20-2-1986 showing cheques issued to the depositors by way of interest, Ex.R2 is a computerised extract of statement of account of Federal Bank for the period from 2-8-1985 to 19 2-1986 showing interest paid to various depositors. Ex. R3 is a xerox copy of statement of account of State Bank of India, Madras-1 for the period from 20-10-1985 to 31-7-1986. Ex.R4 is a computerised extract of the statement of account of State Bank of India for the period beginning from 21-10-1985 to 31-7-1986 showing payment of interest to various depositors. Ex. R5 is a xerox copy of statement of account of United Commercial Bank, Madras-1 for the period from 29 5 1986 to 31-7-1986. Ex.R6 is a computerised extract of statement of account of United Commercial Bank, Madras-1 for a period from 29-5-1986 to 31-7-1986 showing payment of interest to various depositors. Ex.R7 is a xerox copy of the statement of account of Bank of Madurai; Madras for the period from 29-7-1985 to 28-11-1985. Ex. R8 is a xerox copy of statement of account of the same bank for the period beginning from 29-11-1985 to 9-4-1986. Ex.R9 is a xerox copy of the statement of the same bank for the period from 9-4-1986 to 10-11-1986 Ex.R10 is a computerised consolidated extract of statement of account of Bank of Madurai for the period beginning from 1-10-1985 to 31-7.1986 showing payment of interest to various depositors as well repayment of principle to various depositors. Ex.R11 is a xerox copy of statement of account of State Bank of Hyderabad, Madras for the period from 1-7-1985 to 30-9-1985. Ex.R12 is a xerox copy of statement of account of the same bank for the period beginning from 30-9-1985 to 30-11-1985. Ex.R13 is a xerox copy of statement of account of the same bank for the period from 2-12-1985 to 31-3-1986. Ex.R14 is a xerox copy of statement of account of the aforesaid bank for the period from 1-4-1986 to 31-7-1986. Ex.R15 is a consolidated computerised extract of statement of account of State Bank of Hyderabad, Madras showing payment of interest as well as repayment of principal to various depositors. From these, the case of the debtors is that they are paying the principal amount as well as interest to various depositors and they have not suspended payment to all their creditors. Exs.R5, R7, R8, and R9 do not contain the seal of the bank, Ex.R11 to R14 are xerox copies of statement of account of State Bank of Hyderabad. There is nothing to indicate the authority of the aforesaid exhibits since the initial of the bank officer is not found. The cross-examination of the 3rd respondent shows that the first respondent has got 25 sister concerns and one of the sister concerns name is O.M.S.S. Private Limited. He has admitted that he has withdrawn Rs. 27,500 on 4-10-1985 and paid it to the said firm. Similarly on 3-10-1985 Rs. 50,500 had been withdrawn and given to the said firm. In the same way on 11-10-1985 Rs. 27,600 has been withdrawn and given to O.M.S.S. Private Limited. On 12-10-1985 they has Withdrawn Rs. 13,500 and paid to O.M.S.S. Private Limited. On 17-10-1985 a sum of Rs. 10,000 has been withdrawn and paid to O.M.S.S. Private Limited. On 1-10-1985 they have withdrawn Rs. 75,000 and R.W. 1 is not in a position to say as to how the cash has been utilised. On 7-10-1985 the first respondent has withdrawn Rs. 37,000 and R.W.1 is not in a position to say as to how the cash has been utilised. On 8-10-1985 they have withdrawn Rs. 50,500 and R.W.1 is not in a position to explain as to how the cash has been utilised. He has also admitted that he could not explain the cash payments without verifying his books, and that amounts have been siphoned to their sister concerns. With reference to the account with the State Bank of India, Madras-1 he has admitted that a sum of Rs. 6,000 has been withdrawn on 13-12-1985 for payment to a sister concern. Similarly on 2-1-1986 a sum of Rs. 20,000 has been withdrawn and paid to Sugesan Private Limited. On 3-1-1986 a sum of Rs. 10,000 has been withdrawn and was given to one of the sister concerns. He has admitted on 4-1-1986 much amounts have been withdrawn and were given to sister concerns.
Similarly with reference to Ex.R2 statement of account with reference to Federal Bank Limited, R.W.1 is not in a position to state as to how the withdrawals of Rs. 13,000 and Rs. 20,000 on 19-12-1985 have been utilised. A sum of Rs. 21,500 has been withdrawn on 22-1-1986 and a sum of Rs. 18,500 has been withdrawn on 23-1-1986. On 4-2-1986 a sum of Rs. 6,500 has been withdrawn and given to one of their sister-concerns, namely S.C.R. Tools, R.W.1 is not in a position to explain as to how 60 to 70 per cent of Rs. 2,45,299 has been Utilised. He has not given the list of depositors whose deposits have matured. Similarly he has dot given the list of persons whose cash certificates have been matured. He has admitted that cheques issued by the first respondent for small amounts like Rs. 200 and Rs. 250 have been bounced .
A perusal of the evidence of the 3rd respondent clearly proves that the first respondent firm has lured gullible persons by making attractive advertisements tempting attractive interests and created an impression of financial soundness and thereby collected amounts which the first respondent could not have collected through proper means and wanted to enrich the family members of the first respondent, so as to enable them to lead a luxurious life. The gullible persons, both educated and uneducated, have fallen a prey to the advertisements made by the first respondent, without realising that the advertisements are nothing but a trap to Hell. A court of equity should not extend its helping hands to persons like the respondents who have contributed to the prevailing abnoxious inflation which is rocking not only the economy of the Nation but also the honest, as a result of manipulation of the money, which the respondents have collected in the manner aforesaid.
The decision cited by the learned Counsel for the respondents, namely Seth Gokuldas Lalchand v. Krishnamurti 79 L.W. 504= 1966-11 M.L.J. 381 and A.V. Iron Traders v. M. Jhamandas 91 L.W. 326= 1978-11 M.L.J. 356, far from helping the respondents, are in support of the petitioners. In the result, I find that the respondents have committed an act of insolvency as contemplated under S.9(g) of the Act. As such I allow the petition and adjudicate the respondents as insolvent and direct the Official Assignee of this Court to realise all the assets of the respondents and distribute the same among its creditors, which costs and interest. This order will take effect from the 14-3-1988.