The petitioner filed a creditors' I.P., against the 1st respondent, in the Court of Senior Civil Judge, Kadapa, and the same was numbered as I.P.No.34 of 2001. It was alleged that the 1st respondent is due huge amount to the tune of Rs.9,00,000/- to him, which includes principal and interest, and that with a view to defeat his rights and claims, the
1st respondent has sold away an item of immovable property, through sale deed, dated 09.11.2000, in favour of respondents 2 and 3. It was alleged that the sale was illegal and void, and that the same deserves to be set aside. Respondents 2 and 3 remained ex parte. The 1st respondent alone contested the I.P. He narrated the nature of business relations between himself and the petitioner and stated that the I.P. is not maintainable. According to him, the promissory notes, relied upon by the petitioner, are not supported by consideration, and if at all anything, the 1st respondent has to file separate suits for recovery of the amount. It was also pleaded that he has several immovable and movable properties to meet the claims, if any, proved by the petitioner.
Through its order, dated 21.11.2005, the trial Court allowed the I.P. Aggrieved thereby, the 1st respondent filed A.S.No.27 of 2006 in the Court of Family Judge-cum-Additional District Judge, Kadapa. The appeal was allowed, on 31.08.2009, and the order passed by the trial Court was set aside. Hence, this revision petition, under Section 115 of C.P.C.
Sri V.Jagapathi, learned counsel for the petitioner, submits that the insolvency Court is conferred with ample power under Section 4 of the Provincial Insolvency Act, 1920 (for short 'the Act'), to decide all questions relevant to the claims and that the trial Court has examined the matter in detail. He contends that the promissory notes executed by the 1st respondent were filed in the I.P., and the trial Court recorded clear findings, be it as to the indebtedness of the 1st respondent, or the illegality of the sale effected by him. According to the learned counsel, the lower Appellate Court ought not to have recorded the said findings.
The petitioner wanted the 1st respondent to be declared as insolvent and the sale of an immovable property effected by the latter as invalid. The 1st respondent opposed the I.P., on several grounds. On behalf of the petitioner, PWs.1 and 2 were examined and Exs.A.1 to A.9 were filed. The 1st respondent deposed as RW.1 and Exs.B.1 to B.6 were filed. The trial Court allowed the I.P., but the decree passed by it, was reversed by the lower Appellate Court.
The Act provides facility to a creditor as well as to debtor, to seek declaration that the debtor has become insolvent. Several legal consequences ensue, once an individual is declared as insolvent. Essential conditions for institution of the proceedings under the Act are that (a) the individual, sought to be declared as insolvent must be a debtor and that (b) the properties held by him are insufficient in value, to liquidate the debts. A debtor can approach an insolvency Court, normally when he figures as judgment debtor, in various decrees; the value of which exceeds the value of the properties held by him. In a given situation, a debtor may even approach the insolvency Court to declare him as insolvent, though no decrees, as such, were passed against him. In such cases, an unequivocal declaration made by him, as to his indebtedness, can be taken on its face value.
The I.P. filed by a creditor under Section 9 of the Act, however, stands on a different footing. Before he invokes the jurisdiction of the insolvency Court, there must exist the adjudication of the debt or the debts, vis--vis the proposed insolvent in his favour. That can be in the form of a decree passed by the competent Court of civil jurisdiction or an unequivocal declaration on the part of the proposed insolvent, before the proceedings are instituted. To put it differently, a creditor cannot institute proceedings under Section 9 of the Act, in the absence of any adjudication, as to the debts, or unequivocal admission thereof, by a person proposed to be declared as insolvent.
Reverting to the facts of the case, it is not in dispute that no suits were filed by the petitioner, against the 1st respondent, much less any decrees were obtained against him. Further, the 1st respondent did not suffer any decree in the hands of any other individual. In a way, the petitioner wanted to establish his claim under the promissory notes in the I.P. itself. Such a course is totally impermissible in law.
The jurisdiction of an insolvency Court is delineated under Section 4 of the Act. It empowers the Court to adjudicate the disputes, as to title in relation to the property, which is sought to be proceeded against. Section 4 of the Act reads as under:
"Power of Court to decide all questions arising in insolvency: (1) Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever, and whether involving matters of law or of fact, which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case. (2) Subject to the provisions of this Act and notwithstanding anything contained in any other law for the time being in force, every such decision shall be final and binding for all purposes as between, on the one hand, the debtor and the persons claiming through or under them or any of them. (3) Where the Court does not deem it expedient or necessary to decide any question of the nature referred to in sub-section (1), but has reason to believe that the debtor has a saleable interest in any property, the Court may without further inquiry sell such interest in such manner and subject to such conditions as it may think fit."
Nowhere from the text of the Section, it is evident that the insolvency Court is conferred with the power to determine the liability of a proposed insolvent towards the creditor. Such an adjudication is supposed to exist before the proceedings under the Act are initiated.
Learned counsel for the petitioner has made an endeavour to draw the attention of this Court, to the admission said to have been made by the 1st respondent, as to the execution of the promissory notes, marked as Exs.A.1 to A.4. Firstly, it is not at all the function of an insolvency Court to deal with the truth, legality or other matters, in relation to a promissory note. Secondly, the 1st respondent has categorically stated that the promissory notes are not supported by any consideration. It is only when a suit for recovery of money, on the strength of the promissory note, is filed before a competent Court of civil jurisdiction by paying the requisite amount of Court fee, that an occasion would arise for adjudication thereof. As a matter of fact, the 1st respondent was rightly advised not to reveal his defence, vis--vis the promissory notes, including those of limitation, proof, enforceability etc.
Secondly, the necessity for the petitioner to seek declaration that the 1st respondent is an insolvent would have arisen, if only he made an effort to recover the amount due to him and the properties available with the 1st respondent were found to be inadequate. In his counter, the 1st respondent stated that he holds several movable and immovable properties. Filing of an Insolvency Petition cannot be a maiden effort on the part of a proclaimed creditor. An individual would answer the definition of creditor, if only the person against whom he claims rights was declared as debtor. This naturally must take place in a different set of proceedings and not in the I.P. itself.
Viewed from any angle, the I.P. filed by the petitioner cannot be maintained. The lower Appellate Court has taken the correct view of the matter and reversed the order passed by the trial Court.
The Civil Revision Petition is accordingly dismissed. There shall be no order as costs.
