2023 (11) TMI 315 - HC - FEMA

Enforcement Directorate cannot issue insolvency notice while appeal pending under Section 9(2) Presidency Towns Insolvency Act

Enforcement Directorate, (Foreign Exchange Regulation Act now FEMA) Rep. by its Deputy Director, Chennai Versus T.T.V. Dhinakaran And T.T.V. Dhinakaran Versus The Collector of Chennai District, Chennai, The Tahsildar, The Directorate of Enforcement, Rep. by Deputy Director, Directorate of Enforcement

Enforcement Directorate, (Foreign Exchange Regulation Act now FEMA) Rep. by its Deputy Director, Chennai Versus T.T.V. Dhinakaran And T.T.V. Dhinakaran ... Issues Involved:1. Definition and scope of 'creditor,' 'debt,' and 'debtor' under the Presidency Towns Insolvency Act, 1909.2. Interpretation of 'decree or order' in Section 9(2) of the Presidency Towns Insolvency Act, 1909.3. Grounds for setting aside insolvency notice under Section 9(5) of the Presidency Towns Insolvency Act, 1909.4. Competence of the Enforcement Directorate to initiate insolvency proceedings.5. Validity of invoking Section 9(2) before the decree or order becomes final.Summary:Point 1: Definition and Scope of 'Creditor,' 'Debt,' and 'Debtor'The court held that the terms 'creditor,' 'debt,' and 'debtor' as defined in Sections 2(a) and 2(b) of the Presidency Towns Insolvency Act, 1909, should be given a wider meaning. The inclusive definitions are intended to cover a broader range of liabilities, not just decreed debts or judgment debts. The court emphasized that various legal developments and the establishment of different tribunals and alternative dispute resolution mechanisms necessitate a broader interpretation to include orders passed by these bodies.Point 2: Interpretation of 'Decree or Order'The court concluded that the term 'decree or order' in Section 9(2) of the Presidency Towns Insolvency Act, 1909, should include orders passed by any empowered authority under a statute following an adjudicatory process. The court disagreed with the restrictive interpretation that limits 'decree or order' to those passed by civil courts, noting that this would be unfair and unjust in today's legal context.Point 3: Grounds for Setting Aside Insolvency NoticeThe court found that the grounds for setting aside an insolvency notice under Section 9(5) are specific and do not include questioning the existence of a debt. The court noted that the grounds set out in the application for setting aside the insolvency notice did not fall within the ambit of Section 9(5). However, the court held that the insolvency notice issued on 28.02.2001 was invalid because the order imposing the penalty had not become final, as the appeal was still pending.Point 4: Competence of the Enforcement DirectorateThe court did not venture to answer the competence of the Enforcement Directorate to initiate insolvency proceedings, as it became academic in light of the conclusion that the insolvency notice was invalid due to the pending appeal.Point 5: Validity of Invoking Section 9(2)The court held that Section 9(2) of the Presidency Towns Insolvency Act, 1909, requires that the decree or order must have become final and its execution not stayed. Since the appeal was pending when the insolvency notice was issued, the notice was deemed invalid.Writ Petition:The court allowed the writ petition, setting aside the notice issued under Section 29 of the Tamil Nadu Revenue Recovery Act. The court held that the Tamil Nadu Revenue Recovery Act cannot be used to recover monies due to the Central Government. The correct enactment for such recovery would be the Revenue Recovery Act, 1890, and the notice should have been issued by the Commissioner of Customs, not the District Collector.Conclusion:The appeal (OSA.No.124 of 2005) was dismissed, and the writ petition (W.P.No.20492 of 2008) was allowed. The court upheld the order of the Hon'ble Single Judge on the ground that the insolvency notice was unsustainable due to the pending appeal. The findings regarding the nature of the order passed by the adjudicating authority were set aside, allowing the Enforcement Directorate to take proceedings afresh if advised.