S. Neela Kanta Sarma vs K. Govindarajulu and Another

Insolvent is the applicant This application is filed under S. 21 of the Presidency Towns Insolvency Act, for annulling the order of adjudication

dated 6-10-1975 on the ground that the Petitioning creditor was a secured creditor, and when he had not complie with the requirements under S.

12(2) of the Act, the order of adjudication secured by him itself was without jurisdiction, and therefore the present application is maintainable. In

the supporting affidavit, insolvent states as follows: He was adjudged an insolvent on 6-10-1975, on a Petition filed by the first respondent herein,

who is a secured creditor. u/s 12(2) of the Act, the Petitioning creditor shall state in his petition that he either relinquishes his security for the benefit

of the creditors or give an estimate of the value of the security in which event alone, he would be entitled to present a petition under the ''Act and

when the first respondent had not fulfilled any of the conditions mentioned in Section 12(2) of the Act, the order secured by him, would not be

binding on the applicant herein. As the applicant was not aware of the full facts earlier, he could not file the application for annulment and that he

filed an application for discharge in Appln. No. 316 of 1979, which was dismissed on 1-2-1980. As he ought not to have been adjudicated as an

insolvent, the present attempt made to bring to sale the property in which he had already released his life interest in favour ''of his wife in 1962, is

without jurisdiction and therefore the sale of the property deserves to be set aside and the order of adjudication be annulled.

First 1-iespondent in his counter would state that the present application is an abuse of process of Court, that the petitions came to be filed

because of the failure of the applicant to pay the monthly rent of Rs. 200 on and from1-7-1972, which formed part of the consolidated order of

the High Court dated 18-4-1975 made in Applns. No. 1911 of1973 and 2311 of 1973. Since the applicant did not comply with the order Passed

in the aforesaid applications, the first respondent herein filed Appln. No. 1 '' 775 of 1974 for executing the order for payment of rent in respect of

the mortgage property, and it was granted by this Court by order dated20-8-1974.It is, thereafter, E. P. No. 9 of 1975 in 0. S. 18 of 1972 was

filed for attach ment of moveables at premises No. 82Habibullah Road, and the order of at attachment was effected on 1-4-1975,which continued

to be in force for more than 21 days which itself amounted to an act of insolvency. It is on this act ofinsolvency, I. P. No. 46 of 1975, came to be

filed and by order dated 6-101975, the applicant herein was adjudged as an insolvent.

It is true that the first respondent Is holding a mortgage decree in C. S. No. 18 of 1972, with reference to which he has preferred his claim

before the official Assignee which has been admited in a sum of Rs. 60,462-33. The applicant was fully aware of the nature of application filed,

and he cannot plead that he is ignorant of the contents of the application, When he filed an application for discharge, he was fully aware of the

circumstances under which the application had been filed. Having acquiesced in the proceedings, he cannot now turn round and plead that the

order of adjudication was illegal. He had failed to file an appeal, therefore. that order of adjudication has become final. He cannot now challenge

the same as one passed without jurisdicdiction. The claim that he has released his life interest in the property is untrue. No document of release was

ever produced. The suit filed by his wife in 0 S. No. 5029 of 1976 in the City Civil Court, claiming title to the property was dismissed. His son had

now filed 0. S. No. 4066 of 1980, for an injunction and claiming title to the property and all these go to show that the only aim of the applicant is

to protract the proceedings and defeat the right of the first respondent to secure relief in insolvency Court.

In the reply affidavit, the applicant would state that even in the report submitted by the Official Assignee (second respondent herein), in Appln.

No. 316 of 1979, he had stated that only one secured claim had been admitted in a sum of Rs. 60432.63, and it relates to the claim made by the

first respondent herein. The first respondent had not filed any claim for any unsecured debt. Even in the report, it has been stated that the applicant

may be discharged on the ground can work out solvency and editor has filed a claim in the estate the insolvent may be granted discharge. When

the insolvency petition had been filed without anywhere stating that he is in unsecured creditor, the present plea that he is also an unsecured

creditor in respect of the rental amount is unacceptable. As for the present application, it is maintainable u/s 21 of the Act.

When the application came before this Court for hearing, at one stage, it was felt that the applicant may file an application for review in respect

of the orders passed on 6-10-1975,and thereafter the review application filed, tout it had been dismissed.

Mr. Gopalraj. counsel for the applicant, would first state that when the basic requirement contemplated u/s 12(2) of the Act is not existing

merely because an order of adjudication had been passed, it would deprive the insolvent to seek for an order of annulment, when S. 21(1) of'' the

Act enables him to secure an order of annulment. if he is also to show that such an order ought not to have been passed. in this case, according to

him, even if the insolvent had not raised the objections regarding the maintainability of the petition, during the earlier stages of the proceedings,

when he filed application for annulment, the right to bring to the notice of the Court about the lack of jurisdiction to entertain the petition is in no

manner taken away by any provisions under the Act and the aspect of jurisdiction can also be canvassed by the insolvent for securing an order of

annulment under S. 21 of the Act. He states that the applicant herein was not aware of the contents of the insolvency petition and that is only now

he realises about the illegality committed by the first respondent in filing a petition without fulfilling the conditions contemplated u/s 12(2) of the Act.

Therefore, he would contend that the aspect of jurisdiction is not totally lost to the insolvent-applicant herein, and that in an application filed for

annulment it is well open to him to show that the insolvency petition itself was not properly instituted.

Counsel for the first respondent would plead that when the applicant had acquiesced in the proceedings during the past five years, he cannot

any, longer plead that the order of adjudication was passed without Jurisdiction in that, the first respondent was only a secured creditor, who had

not complied with the requirements of S. 12(2) of He would also plead that first is not only a secured creditor, but is also an unsecured creditor the

rental amount, which was bound to pay, and failed to pay on time as directed by this Court by order dated 18-4-1975 in Applns. Nos. 1911 &

2311 of 1973, and hence, when execution was taken for realising the said amount, it only represents an unsecured debt and therefore, the petition

was properly laid by an unsecured creditor.

It is not in dispute that first respondent is holding a mortgage decree in C. S. 18 of 1972, and it is in respect of that mortgage transaction, there

was the obligation on the part of the applicant herein to pay the monthly rent of Rupees 200 as ordered in Appln. No. 1911 of 1973 and Appln

No. 3211 of 1973 by order dated 18-4-1975, and it was not complied with by the applicant herein. This claim of rent formed an integral part of

mortgage transaction. A perusal of the petition discloses that first respondent had relied upon the act of insolvency under S. 9(e) of the Act, in that,

the order of attachment effected on 1-4-1975 had continued for more than 21 days. It was secured because of the default committed in payment

of rents. In paragraph 12 he had reserved his right to proceed against the properties by enforcement of the mortgage decree passed already in his

favour.

The contention that the applicant herein was not aware about the claim made by the first respondent in the said insolvency cannot be accepted.

He was aware that the petition was filed by a secured creditor, He was also aware that the petitioning creditor had reserved his right in respect of

the enforcement of the mortgage decree. He had participated in the proceedings right through, being fully aware of the claim made as against him.

The very fact that he filed Appln. No. 316 of 1979 for discharge speaks that he knew that the petition was filed by the first resp6ndent who was a

secured creditor.

Counsel for the first respondent contends that when with full knowledge of the applicant herein, an order of adjudication had been obtained, he

cannot now turn round and plead to the contra, and himself being bound by the order of adjudication, he cannot question the right of the first

respondent to maintain the petition. It is indisputable, as stated earlier, that the applicant was fully aware of the nature of proceedings taken by him.

But would it prevent him from seeking for annulment of the proceedings by demonstrating to Court that the proceedings initiated was without

jurisdiction at a time when the proceedings are pending in Court?

When proceedings already initiated are pending in court, it would not be proper to hold that the affected party cannot even bring to the notice

of the Court about lack of jurisdiction in the institution of the proceedings mainly because he had not, at the earlier stages of the proceedings, raised

any objection on the aspect of jurisdiction.

In so far as Presidency Towns Insolvency Act is concerned, under S. 8(1) of the Act, the court may review, rescind or vary any order made

by it under -its insolvency jurisdiction. By claiming that the applicant had acquiesced in the proceedings and thereby disentitled himself to file the

present application, can the first respondent insist that the insolvency proceedings be further continued, even though he had not complied with the

requirements of S. 12(2) of the Act?

A Full Bench of this Court in P.R.S.A.R. Periakaruppan Chettiar Vs. P.S.A.R.A.R. Arunachalam Chettiar and Others, , had taken the view

that S. 15 of the Provincial Insolvency Act empowers the court to annul the adjudication, if in the opinion of the court, a debtor ought not to have

been adjudged insolvent. This section is identical to S. 21 of the Presidency Towns Insolvency Act. It was held in the above said decision that this

section contains no restriction on the power of the court to set aside the adjudication, where it is shown that the debtor ought not to have been

adjudged insolvent, and the fact that a debtor does not object to an order of adjudication being passed against him is not a, bar to the granting of

an application for an order setting aside the adjudication under the provisions of Section 35 and that when an adjudication has taken place under

the Provincial Insolvency Act, and it has been shown that no act of insolvency has been committed, the Court has no discretion in the matter and it

must annul the adjudication, and that the word used is ''shall'' and the section in this differs from S. 21 of the Presidency Towns Insolvency Act

where the word ''may'' is used (S. 21 as it stands now. uses the word ''shall''.)

Therefore, even though the applicant herein had been aware of what had been pleaded in the main petition and he had also filed an application

for discharge, while filing applications for annulment, it is well open to him to demonstrate before Court that the order of adjudication itself was

without jurisdiction. It is the bounden duty of the first respondent herein to satisfy the Court even now, that he could have filed the petition for

adjudication. If it be shown that he had no right to institute the petition under S. 21 of the Act, an order of annulment has to be necessarily granted,

when one of the circumstances contemplated therein is for the debtor to show that ""he ought not to have been adjudged insolvent.,, Hence on the

first point about applicant having been fully aware of the first respondent being a secured creditor, and whether because of acquiescence, he can

not maintain the present application, it has to be held, following the Full Bench decision that, as and when it is shown to Court that the petition itself

was filed without jurisdiction, an order of annulment is the only proper order that may be passed..

The second point taken to oppose the present application is that, there is no power in this Court, at this stage, to take into account the aspect

of jurisdiction. It is stated that when the applicant has failed to prefer an appealas against the order of adjudication, it has become final and binding

upon him Review petition filed by him in 1980 had been dismissed. Therefore it is pleaded that an order of annulment is not the, proper relief that

can be granted under the circumstances of this case.

As for the powers that can be exercised by this Court, as held by the Full Bench stated supra, the court has wide powers to grant relief and

more so when S. 8 of the Presidency Towns Insolvency Act enables the court to review, rescind or vary an order made by it under its insolvency

jurisdiction. 21(1) of the Act is to the effect that it the court is of the opinion that a debtor ought not to have been adjudged insolvent, then it shall,

on an application by any person interested pass an order of annulment to the adjudication.

In dealing with a case which arose under provincial Insolvency Actin V.R.K.M. Kumarappa Chettiar Vs. K.M.V.R. Chidambaram Chettiar

and Another, , it was held that what is required to be ascertained is whether the court acted without jurisdiction unsecured when it passed order of

adjudication and if it is found that it has so acted then there being no act of insolvency on which the adjudication order could be passed the court

has no jurisdiction to adjudicate and therefore the relief can be granted

18.The powers that can be exercised undeabsence of a similar provision under the Provinnecessary relief has to be granted by the same filed the

petition without fulfilling the condition creditor, the petition itself was filed without jurisdiction applicant herein is able to establish that an order of

adjudication ought not to have been passed thus enabling him to secure an order of annulment.

The third point taken by the counsel for the first respondent is that, it is not correct to contend that the first respondent is only a secured

creditor when the attachment was secured only on the ground of failure to pay the monthly rents covered by the mortgage transaction. It is

indisputable that the first respondent is a secured creditor, who has also secured a decree on the basis of the mortgage executed in his favour. It is

in respect of the mortgaged property and the mortgage transaction, at the stage of insolvency. Therefore first respondent was only a secured

creditor and he has not complied there was liability on the part of the with the requirements of Section 12(2) of the Act.

In paragraph 14 of the petition, he had reserved his right to proceed on the basis of the mortgage dent to contend that this claim can be decree

already passed in his favour. When such is the clear stand taken by the first respondent, that he is segregated from the mortgage decree. In only a

secured creditor, the objection taken by the applicant herein that he is not an unsecured creditor and fact, he had only made that the first

respondent is only a secured creditor has to be upheld.

By referring to the decision in G. Gurusami Pillai v. Shri C. C. Co-op. Society Bank Ltd., AIR 1954 Trav ed creditor, Such being the nature

of Co 419, it was sought to be contended that in respect of rental portion, it would be an unsecured debt. But it was, held therein that the term

''secured creditor'' is to be understood as confined to his capacity ''qua'' the secured debt and not comprehending his capacity as regards debts for

which there is no security, where as in the instant case, the collection of rental amount is not independent of the mortgage transaction which forms

part of the secured debt. Therefore, it is only because of this nature of transaction existing between, the parties, first respondent did not file any

claim petition as an unsecured creditor. Hence the first respondent had filed a report on respondent cannot now resile from his stand and claim that

he is; also an unsecured creditor.

22.For all the reasons above stated the applicant has clearly established that first respondent is a secured creditor who had not fulfilled the

requirements of section 12(2) of the Act before instituting I.P.No 46 of 1975 and therefore it was a proceeding instituted with out jurisdiction and

hence the applicant herein ought not to have been adjudged as in insolvent and therefore he would be entitled to an order of annulment u/s 21 of

the Act.

In the result the application is ordered as prayed for no costs.

Order accordingly.