Case Note & Summary
The matter involved an insolvency petition filed under the Presidency Towns Insolvency Act, 1909 by the original petitioning creditor against the debtor. After the original creditor's claim and that of the fourth substituted creditor were settled, the present substituted petitioning creditor sought to prosecute the petition. The critical question was whether a substituted creditor could maintain the petition when his claim was barred by limitation on the date he was substituted, even though it was not barred on the date the act of insolvency was completed. The debtor argued that the petition was not maintainable because the substituted creditor's claim was time-barred on the date of substitution. The substituted creditor relied on a later Division Bench judgment that held the relevant date was the act of insolvency. The court analyzed both precedents and found that the earlier Division Bench decision in Sunder Parmanand Lalvani v. Shreepad Moreshwar Velkar directly addressed the issue and held that maintainability must be determined as of the date of substitution. Being a single judge, the court bound by that precedent dismissed the petition, staying the order until a specified date to allow further challenge. No costs were awarded.
Headnote
A) Insolvency Law - Substituted Petitioning Creditor - Limitation Bar - Presidency Towns Insolvency Act, 1909, Sections 51, 91, 92 - In insolvency proceedings, the substituted petitioning creditor sought an order of adjudication against the debtor; his claim was time-barred on the date of substitution. The court held that following the Division Bench judgment in Sunder Parmanand Lalvani v. Shreepad Moreshwar Velkar, the relevant date for maintainability is the date of substitution, not the date of act of insolvency. Held that no order of adjudication can be passed if the claim is barred on that date; petition dismissed. (Paras 1-9)
Issue of Consideration
Whether an insolvency petition is maintainable at the instance of a substituted creditor if his claim is barred by limitation on the date on which he was substituted, even if it was not barred by limitation on the date on which the act of insolvency was completed
Final Decision
Petition dismissed; order stayed up to and including 31st December 2010; no order as to costs
Law Points
- An insolvency petition is maintainable at the instance of a substituted creditor only if his claim is not barred by limitation on the date he was substituted
- even if it was not barred on the date the act of insolvency was committed
- in view of Division Bench ruling in Sunder Parmanand Lalvani v. Shreepad Moreshwar Velkar
Case Details
2010 LawText (BOM) (10) 110
Insolvency Petition No. 7 of 1994
Devang H. Shah, J.P. Sen, Kavita Shah, Arvind G. Shah
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Nature of Litigation
Insolvency petition seeking order of adjudication against debtor
Remedy Sought
Substituted petitioning creditor sought an order of adjudication against the debtor
Filing Reason
Original petition filed after service of insolvency notice and commission of act of insolvency; substitution sought after settlement of original and fourth substituted creditor's claims
Previous Decisions
Insolvency Notice No.120/1993 issued on 21-08-1993, served on 26-11-1993; act of insolvency committed on 01-11-1994; original petition filed 25-01-1994; order of adjudication passed 03-12-1996 at instance of fourth substituted creditor; debtor filed appeal, stay granted, appeal admitted, order set aside and petition restored on 10-08-2005 with conditions; present substitution allowed on 01-12-2009, limitation plea kept open
Issues
Whether an insolvency petition is maintainable at the instance of a substituted creditor if his claim is barred by limitation on the date on which he was substituted, even if it was not barred by limitation on the date on which the act of insolvency was completed
Submissions/Arguments
Debtor argued that the claim of the substituted petitioning creditor was time-barred on the date of substitution application, hence petition not maintainable
Substituted petitioning creditor relied on Bharat Chandulal Nanavati vs. UCO Bank contending that the relevant date is the date of act of insolvency, and his claim was within limitation on that date
Ratio Decidendi
Following the Division Bench judgment in Sunder Parmanand Lalvani v. Shreepad Moreshwar Velkar, an insolvency petition presented by a substituted petitioning creditor is not maintainable if his claim is barred by limitation on the date of substitution, even if it was not barred on the date of the act of insolvency.
Judgment Excerpts
The question that arises for consideration is whether an insolvency petition is maintainable at the instance of a substituted creditor if his claim is barred by limitation on the date on which he was substituted, even if it was not barred by limitation on the date on which the act of insolvency was completed. I find myself compelled to answer the question in the affirmative in view of a judgment of a Division Bench of this court.
... the relevant point of time for consideration would be August 23, 1985 which is the date on which the substituted petitioning creditor comes to the Court seeking an order of adjudication. On that day if his claim against the debtor was not subsisting, then, in our opinion, no order of adjudication can be subsequently passed.
However, the judgment in the case of Sunder vs. Shreepad deals directly with the question under consideration and I do not consider it appropriate sitting as a single Judge not to follow it and instead to refer the matter to the learned Chief Justice.
Procedural History
Insolvency Notice No.120/1993 issued on 21-08-1993; served on debtor on 26-11-1993; act of insolvency committed on 01-11-1994; original petition filed on 25-01-1994; original petitioner's claim settled; order of adjudication passed on 03-12-1996 at instance of fourth substituted petitioning creditor; debtor filed Appeal No.1318/1996 on 05-12-1996; ad-interim stay on 07-01-1997; appeal admitted on 04-03-1997; appeal court directed deposit of Rs.5,00,000/- on 01-08-2005; order of adjudication set aside and petition restored on 10-08-2005 with further deposit of Rs.2,00,000/-; fourth substituted creditor's claim settled; present substituted creditor applied for substitution on 15-10-2007; allowed on 01-12-2009 with limitation plea kept open.
Acts & Sections
- Presidency Towns Insolvency Act, 1909: 12(1)(a), 12(1)(b), 12(1)(c), 17, 51, 91, 92
