Case Note & Summary
The case involves a Notice of Motion filed by the judgment debtors, Jayantilal Khandwala & Sons, seeking condonation of a 1156-day delay in setting aside Insolvency Notice No. 268 of 2006 issued by the judgment creditor, Miss Ritu Sethi, on 19 October 2006. A decree was passed on 31 July 2006 in favor of Ms. Sethi against the debtors. The Insolvency Notice was served on 31 October 2006, and the act of insolvency was completed on 5 December 2006. The Insolvency Petition was filed on 12 January 2007 by Mrs. Neebha Kapoor, who availed of the insolvency. The debtors contended that the entire decretal amount was paid after a delay of only one day and that they should not face harsh consequences under the Presidency Towns Insolvency Act, 1909. However, the Court noted that the debtors did not comply with the notice or take steps under Section 9(4) of the Act, and they waited four years to file the motion. The debtors explained the delay by stating that they paid an additional amount on 9 February 2007 and took out Chamber Summons to have the decree marked satisfied, which were disposed of on 6 May 2009. They also settled the claim of the original petitioning creditor, Mrs. Neebha Kapoor, and by an order dated 2 September 2008, Kaushik Shah Shares & Securities Pvt. Ltd. was substituted as the petitioning creditor limited to debtor No.2. The substituted creditor was allowed to be heard. The Court held that the application was an attempt to delay and frustrate the petition and would seriously prejudice the rights of the general body of creditors, including the substituted creditor. The delay was inordinate and unexplained, and the motion was dismissed with costs.
Headnote
A) Insolvency Law - Condonation of Delay - Setting Aside Insolvency Notice - Presidency Towns Insolvency Act, 1909, Section 9(4) - The judgment debtors sought condonation of 1156 days delay in filing a Notice of Motion to set aside an Insolvency Notice, arguing that the decretal amount was paid only one day late. The Court held that the application was unsustainable as it would prejudice the rights of the general body of creditors, including a substituted creditor. The delay was inordinate and unexplained, and the matter was no longer limited to the dispute between the judgment debtors and the original judgment creditor. (Paras 1-8)
Issue of Consideration
Whether the delay of 1156 days in filing a Notice of Motion to set aside an Insolvency Notice should be condoned, and whether the judgment debtors are entitled to have the Insolvency Notice set aside after payment of the decretal amount with a one-day delay.
Final Decision
The Notice of Motion is dismissed with costs.
Law Points
- Insolvency proceedings are not merely between judgment debtor and judgment creditor but involve general body of creditors
- Delay in challenging insolvency notice cannot be condoned if it prejudices other creditors
- Section 9(4) of Presidency Towns Insolvency Act
- 1909 requires steps to be taken within prescribed time
Case Details
2010 LawText (BOM) (06) 86
Notice of Motion No.9 of 2010 in Insolvency Petition No.268 of 2006
Mr.K.P. Jain i/b Mr.P.V. Shah for the Applicant, Mr.J.P. Sen with Mr.Vivek Kantawalla i/b Vivek Kantawalla & Co. for the Judgment Debtors, Mr.Sanjay Jain for the Supporting Creditor
Jayantilal Khandwala & Sons
Miss Ritu Sethi (Judgment Creditor) and Kaushik Shah Shares & Securities Pvt. Ltd. (Applicant/Intervenors)
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Nature of Litigation
Insolvency proceedings - Notice of Motion for condonation of delay and setting aside Insolvency Notice
Remedy Sought
Judgment debtors sought condonation of 1156 days delay and an order setting aside Insolvency Notice No. 268 of 2006
Filing Reason
Judgment debtors failed to comply with the Insolvency Notice and delayed filing the motion by 1156 days
Previous Decisions
A decree dated 31.7.2006 was passed in favor of Ms. Ritu Sethi against the debtors. Insolvency Notice was issued on 19.10.2006 and served on 31.10.2006. Act of insolvency completed on 5.12.2006. Insolvency Petition filed on 12.1.2007 by Mrs. Neebha Kapoor. Chamber Summons for marking decree satisfied were disposed of on 6.5.2009. By order dated 2.9.2008, Kaushik Shah Shares & Securities Pvt. Ltd. was substituted as petitioning creditor limited to debtor No.2.
Issues
Whether the delay of 1156 days in filing the Notice of Motion to set aside the Insolvency Notice should be condoned.
Whether the judgment debtors are entitled to have the Insolvency Notice set aside after payment of the decretal amount with a one-day delay.
Submissions/Arguments
Judgment debtors argued that the entire decretal amount was paid after a delay of only one day and that they should not be visited with harsh consequences under the Presidency Towns Insolvency Act, 1909.
Judgment debtors contended that the delay was due to taking out Chamber Summons to have the decree marked satisfied and settling the claim of the original petitioning creditor.
The Court noted that the application was unsustainable and would prejudice the rights of the general body of creditors, including the substituted creditor.
Ratio Decidendi
In insolvency proceedings, the matter is not limited to the dispute between the judgment debtor and the original judgment creditor; the rights of the general body of creditors, including substituted creditors, must be considered. A delay in challenging an insolvency notice cannot be condoned if it would prejudice other creditors who have already substituted in the proceedings. The judgment debtors' failure to take steps under Section 9(4) of the Presidency Towns Insolvency Act, 1909 and the inordinate delay of 1156 days rendered the application unsustainable.
Judgment Excerpts
It takes little to realize that the application is unsustainable and the submission in support thereof totally irrelevant.
The application is an attempt at delaying and frustrating the petition and prejudicing the rights of the other creditors.
If granted, it would seriously prejudice the rights of the general body of creditors including the substituted creditor, as well as the rights of other creditors, who have also made an application for substitution.
The effect of any order in this Notice of Motion is not on the judgment creditor who was paid one day late but on the general body of the debtors creditors.
Procedural History
A decree was passed on 31.7.2006 in favor of Ms. Ritu Sethi against the debtors. Insolvency Notice No. 268 of 2006 was issued on 19.10.2006 and served on 31.10.2006. The act of insolvency was completed on 5.12.2006. The Insolvency Petition was filed on 12.1.2007 by Mrs. Neebha Kapoor. The judgment debtors paid an additional amount on 9.2.2007 and took out Chamber Summons Nos. 582 and 583 of 2007 to have the decree marked satisfied, which were disposed of on 6.5.2009. By order dated 2.9.2008, Kaushik Shah Shares & Securities Pvt. Ltd. was substituted as petitioning creditor limited to debtor No.2. The present Notice of Motion No.9 of 2010 was filed for condonation of delay and setting aside the Insolvency Notice.
Acts & Sections
- Presidency Towns Insolvency Act, 1909: Section 9(4)
