TaxTMI 
TaxTMI 
2026 (7) TMI 466
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....ourt or whether the claim can be adjudicated or satisfied on the basis of documents submitted by the Claimant with the official assignee after a person is declared as insolvent without there being any Decree or Order of the Court to that effect ?" BACKGROUND: 2. A claim was lodged by the creditor with the official assignee. The official assignee relying on certain orders of this Court stated that unless claim is adjudicated by a Court or competent authority, she cannot consider the same. This was objected by the counsel for the insolvent. It was on this backdrop that above question came to be framed. 3. This Court requested Mr. Mehta and Mr. Darshit Jain, learned counsel to assist the Court in resolving the above question. Both graciously accepted and ably assisted the Court. The Court appreciates assistance rendered by both counsel in answering the question. 4. Mr. Mehta appearing for Insolvent No.1 in Insolvency Petition No.82 of 2002 has made following submissions in support of his proposition that no decree is required for making a claim before the official assignee. SUBMISSIONS OF MR. MEHTA 5. Mr. Mehta explained the scheme of the Presidency-Towns Insolvency ....
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....of the Act which deals with the power of the Court to annul adjudication. He submits that on a reading of Section 21(1) and (2), even if a debt which was earlier disputed, on execution of a bond for payment of the same and on the Court approving the same an order of annulment can be passed since the disputed amount is now admitted by the debtor and he undertakes to make payment and therefore an order of annulment follows. This indicates non-requirement of a decree. 14. Mr. Mehta relied upon Section 24 of the Act and made reference to Form-23 which is a schedule, verified by affidavit of insolvent, about the assets and liabilities of the insolvent. He submitted that, on a perusal of Form-23 and various lists referred to therein, there is no reference made to a decree but the reference is only to a debt. He specifically emphasized the estimate to be made of the value of bills of exchange etc. on the assets side. The schedule refers to unsecured and secured creditors but there is no reference to a decree or an adjudicated claim. The reference to bills of exchange etc. in Form-23 can be found not only on the asset side but also on the liability side. 15. Mr. Mehta further relied ....
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....avit should also state whether the creditor is a secured creditor or an unsecured creditor. Second Schedule to the Act further specifies the deduction to be made from the proof of debts. Form No.45 deals with proof of debt, wherein the creditor has to state on oath the consideration and amount of debt which remains unpaid on the date of the order of adjudication. The said Form also requires the creditor to annex original copies of promissory notes, bills of exchange etc, and various other proofs in support of his claim. 18. Mr. Mehta, thereafter, relied upon Section 49 of the Act which provides for priority of debts. Even in Section 49 the emphasis is on debts and not on a decree. 19. Mr. Mehta pressed into service Section 53 and 54 of the Act and contended that it is only in these two sections that the phrase "decree" has been promulgated. He submits that, on a reading of these Sections it is clear that the contention that there has to be a decree for making a claim before the official assignee is contradictory to the Scheme of the Act. 20. Mr. Mehta, thereafter, referred to Section 68(1)(d) of the Act which deals with powers of the official assignee and submitted that, w....
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....official assignee has the power of examining the claim and for that to take evidence on record. The official assignee, thereafter, has to take a decision on whether to accept or reject the claim. This clearly indicates that a claim made with the Official Assignee need not be only on the basis of a decree. 23. The learned counsel, Mr. Mehta further relied upon the decision of this Court in the case of Mandvi Co-operative Bank Ltd. & Anr. Vs. Anant V. Hegade AIR 2007 Bombay 50. The issue before the Court was that an adjudication order was passed on a petition by a creditor. Subsequently, the said creditor's claim was settled. Whether, in these circumstances, the other creditors can be substituted in place of the original petitioning-creditor, who had filed the original petition. The Court, after analyzing various provisions of the Act, came to the conclusion that once an order of adjudication is passed, then that order is for the benefit of not only the petitioning creditor, but also for all the creditors and, therefore, even if the petitioning creditor may have settled his claim, the proceedings have to continue qua the other creditors. Similar view was taken by another decis....
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....nder the present Act is passed against a person declaring him to be an insolvent on a petition filed by even one creditor, effect would be that such an order would be an order in rem and thereafter it will be for the benefit of all the creditors of that insolvent. 28. Learned counsel, therefore, submitted that even on this ground, the decision of this Court in the case of Amarpreet Kaur Chadha (supra) cannot be said to be good law. He, therefore, pleaded that for making a claim before the official assignee, there is no requirement of having a decree or final adjudication order by a Competent Court and same is neither borne out from the provisions of the Act or Rules but on the contrary such an insistence would be contrary to the Scheme of the Act. ANALYSIS AND CONCLUSIONS:- 29. The present controversy arose because the official assignee relied upon certain orders of the Insolvency Court and contended that unless there is a decree or order of the appropriate Court/adjudicating authority, the claim made by the creditor cannot be considered. It was on this backdrop that the above question of law was framed for consideration of this Court. 30. At the outset, it is made clea....
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....tion 18 of the Act provides that if there are any proceedings pending against the insolvent in any Court, then the same may be stayed subject to the superintendence of the Court. Section 21 of the Act provides for annulment of adjudication order in certain cases. 37. Section 24 of the Act provides for Schedule of assets and liabilities to be furnished by an insolvent to the official assignee. Section 26 of the Act deals with meeting of creditors which may be called either by the creditor or the official assignee for dealing with the property of the insolvent. Thereafter, Section 27 of the Act provides for public examination of the insolvent. 38. Section 38 of the Act provides for the discharge of the insolvent and Section 39 provides for cases in which the Court must refuse an absolute discharge. 39. Part III of the Act comprising Sections 46 to 76 of the Act deals with administration of property. Section 46 provides for debts which have to be proved in insolvency proceedings. If the official assignee is not able to estimate the value of the debt or liability, then a certificate to that effect has to be issued. Section 48 read with the Second Schedule of the Act and the Ru....
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....hereinafter. 45. Section 2 (a) of the Act defines "creditor" to include a decree holder. If the intention of the legislature was that only a decree-holder creditor should make a claim, then the definition clause would have expressly said so and would have been very restrictive. The definition is inclusive and, therefore, not only a decree holder, but also all other persons who claim to be a creditor of the insolvent would be governed by the provisions of the Act. Similarly, the definition of debt is an inclusive definition and so is the definition of debtor which includes a judgment debtor and all three definitions need to be interpreted harmoniously. The scheme of the Act from the time of filing petition to its closing refers to creditor and not decree-holder. 46. The definition of creditor has also to be interpreted in line with definition of "liability" in Explanation to Section 46 of the Act dealing with administration of property, which is very widely worded to include every possible debt due by the insolvent. 47. The decision of this court in the case of Mandvi Co-op Bank Ltd. (supra) has interpreted section 2(a) of the Act and observed that same being inclusive defi....
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.... from making a claim. Insistence of a decree or a final order would make Insolvency Court as Execution Court which is not the purpose of the enactment of the Insolvency Act. 51. Section 9(1) of the Act provides for various acts of insolvency. Section 9(2) provides for an act of insolvency when a debtor does not satisfy the decree. The scheme of Section 9 gives a clue that it is not in all cases that a creditor should be a decree holder, but it is only one of the cases mentioned in Section 9 for commission of an act of insolvency. The reference to a decree in Section 9(1) can be found only in clauses (e) and (h) and not in other clauses. Though provision of section 9 provides for acts of insolvency, the necessity of holding a decree under section 9(2) is only one of the act and not the only act and that too is in addition to those provided in section 9 (1) of the Act. 52. Section 12 of the Act provides for the conditions on which a creditor may file a petition of insolvency and the condition is that the debt owing by the debtor to the creditor should amount to five hundred rupees and the debt is a liquidated sum payable immediately or at some future time and the act of insolve....
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....f holding a decree for making a claim. If contention of the official assignee is to be accepted then such creditors who have not initiated legal proceedings would never be able to recover because section 17 prohibits them from initiating legal proceedings for recovery and the official assignee will not entertain their claim de hors the decree. Such an interpretation cannot be accepted and would run contrary to the object and scheme of the Act and would take away rights of such creditors which can never be the object of the Act. 56. The insolvent has to submit a Schedule under Section 24 of the Act of his assets and liabilities in Form-23. On a perusal of the said Form, the insolvent has to provide details of all the creditors, liabilities, assets etc and not only of a decree holder. The object of this Schedule is to assist the official assignee to realize the assets of the insolvent for distribution amongst the creditors. List A of the said Form provides for details of the unsecured creditors. The particulars of any bills of exchange etc held by any creditors should be mentioned below the name and address of the creditor. Similarly List G provides for details of bills of exchang....
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....which clearly indicates that the creditor need not be a decree holder only. Section 29(4) provides that if the Court is of the opinion that the proposal or scheme of arrangement is not for the benefit of general body of creditors then the Court shall refuse to approve the proposal. The phrase "to benefit general body of creditors" clearly directs to all creditors including a person holding a decree. 61. Section 33 of the Act provides that an insolvent shall provide a list of debtors and creditors and all the debts due to and from them respectively and assist the official assignee in realizing his property for distribution of the proceeds amongst his creditors. Section 33 of the Act nowhere provides that the insolvent has to give details only of a decree holder-creditor and such decree holder-creditor is only entitled to distribution of the proceeds. The phrase used in Section 33 of the Act is "creditor" which is defined in Section 2 (a) of the Act to include not only a decree holder but even other creditors as analyzed by me above while dealing with the definition. 62. Section 39 of the Act provides for situation in which the Court must refuse an absolute discharge of insolve....
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....n writing to the creditor. This also indicates that a creditor who does not hold a decree can make a claim before the official assignee and prove his debt and the official assignee after examining the proof of debt can either accept or reject the same. This would govern only those cases where there is no decree. If submission of official assignee is to be accepted then this provision would become redundant. 66. Rule 123 of the Bombay Insolvency Rules provides that every bills of exchange, hoondee, promissory note etc. shall be exhibited before payment of dividend and the amount of dividend paid shall be endorsed thereon. This indicates that claim based on these instruments can be considered by the Official Assignee without there being a decree of Competent Court. 67. The issue as to whether the official assignee can adjudicate the claim came up for consideration before the Madras High Court in the case of The Official Assignee, High Court, Madras. VS. P. Veerasamy and Others 2007 SCC OnLine MAD 542. Paragraph 30 of the said decision is reproduced hereinunder: "30. Further, the scheme of the Act shows that the Official Assignee is entitled to proceed by way of motion ....
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....ng final adjudication order from competent authority can make a claim with official assignee on that basis. The creditor would inform the official assignee of such proceedings. This course would be adopted if the court is of the opinion that claim would require detailed trial which the official assignee is not empowered and/or competent to conduct as per the scheme of the Act. The Act does not empower the official assignee with all the powers of the civil court for adjudicating complex claims. The decision relied upon by Mr. Mehta in the case of Abdul Shakoor (supra) also supports the analysis done by me above but on the contrary the Hon'ble Supreme Court observes that even if there is a judgment, in insolvency proceedings it can be examined whether same was obtained by fraud etc. However this judgment cannot be relied upon in support of the submission that pending proceedings get transferred to the official assignee or insolvency court for adjudication. It is only in certain exceptional cases, the official assignee can reject decree. 71. It is important to note that the role of the official assignee is not to accept the claim made by the creditor mechanically and without any ve....
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....s including originals in support of his claim. The details of consideration and the manner in which the consideration arose should also be specified. The affidavit should also specify if the creditor is holding any security. This indicates that even a secured creditor can make a claim in the insolvency proceedings and such a secured creditor need not hold a decree. The creditor lodging a proof is also entitled to examine the proof of other creditors. Rule 1 of Second Schedule of the Act refers to every creditor to lodge the claim and not only a decree-holder. 74. Section 49(5) of the Act provides that after complying with sub-section (1) dealing with priority of debts, all debts proved in insolvency shall be paid rateably according to the amounts of such debts without any preference. The phrase "all debts" shows that it is not only a decree holder but also a creditor who has proved his debt according to Second Schedule who would be entitled to the proportionate amount. 75. Section 53 of the Act contemplates a situation where the amount realized prior to the date of admission of insolvency petition pursuant to execution of a decree will not be disturbed but the benefit of such....
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....icates that even if a creditor has not proved his debts but if the conditions of Section 72 are satisfied then he would be entitled to a dividend and lastly Section 74 provides that no suit for dividend shall lie against the official assignee except on an application made by the creditor, and on the Court permitting so. 81. Therefore, in my view, a creditor need not be a decree holder for making a claim of his dues with the official assignee on the day the order of adjudication is passed against a debtor declaring debtor as an insolvent. On a reading of the Act as a whole along with the Schedule, Rules and Forms and the object of the insolvency proceedings, in my view, a creditor who has not initiated any legal proceedings on or before the date of the adjudication order can make a claim before the official assignee and the official assignee is statutorily required to examine the same independently before admitting or rejecting the claim and any such decision should be in writing, supported by reasons. If rejected, then same can be appealed against and the Court if it accepts rejection may or would permit the creditor to initiate legal proceedings by exercising its discretion and....
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....arrive at settlement etc. However, certainly the stay cannot be forever and same have to be lifted on appropriate progress being made and after considering the time of the insolvency proceedings. 85. There is no provision in the Insolvency Act where all the pending proceedings before any forum can be transferred to the official assignee nor does the official assignee has the power of the Civil Court or any other forum for adjudication of the pending proceedings. It is the exclusive domain and jurisdiction of the forum before whom the proceedings are pending to adjudicate the same. Also matters pending before various specialised Forums can never be transferred to Civil Court. The Insolvency Court may request the forum for expeditious disposal keeping in mind the completion of the insolvency proceedings and distribution of dividend in accordance with the Act. Delegation of powers under section 6 would not include power to decide matters pending before other forums. 86. Section 21 (2) of the Act also gives a clue that if the proceedings are pending on the date of adjudication order and the insolvent prays for annulment, then on furnishing a bond to pay the amount to be recovered....
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....reed upon. This also indicates that the pending proceedings have to be carried further by the appropriate forum and cannot be transferred to the official assignee and on being finally adjudicated upon can be considered by the official assignee for satisfaction of the claim at the time of distribution of dividend but certainly at the time of making claim, creditor need not have final adjudication order. 90. On adjudication order being passed, the official assignee may be sued by the name of the official assignee. This indicates that the proceedings post adjudication order have to be by making official assignee, a party. This supports the reasoning that pending matters have to be decided by the competent forum and not by official assignee and same can be considered for dividend distribution. 91. Section 71 of the Act provides for calculation of dividend for distribution of dividend. Sub-section (1) of Section 71 provides that the official assignee shall retain sufficient assets to meet debts not yet determined and disputed proofs or claims. This also indicates that even if there is no decree or adjudication order by competent authority on the date of calculation of dividend, of....
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....orm the official assignee about the claim and it being pending before the appropriate forum and based on the outcome of the appropriate forum's adjudication claim can be settled. 95. Therefore even in situation B, after adjudication order under the Act is made, creditors whose legal proceedings are pending should inform the official assignee and make a claim which would be considered at the time of making payment of dividend based on final adjudication order to be passed by the forum before whom proceedings were pending. Therefore, official assignee should entertain the claim pending final adjudication but to await final outcome of the proceedings before distribution of dividend or to keep aside certain amounts for satisfying future claim arising out of adjudication orders to be passed by the competent authority. 96. Now I propose to deal with precedents relied upon by the parties. CONSIDERATION OF DECISIONS RELIED UPON BY MR. MEHTA 97. The decisions of the Madras High Court in the case of Mangalambal (supra) and Om Prakash Nihalani (supra) relied upon by Mr. Mehta are not applicable to the issue raised for consideration before this Court. In both these decisions the is....
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....aim if the creditor succeeds by obtaining an order from the appropriate forum. However this decision does not support the submission that in case of pending proceedings same should be transferred to the official assignee for adjudication. I have already discussed the decision in case of Abdul Shakoor (supra) in earlier part of this order. CONSIDERATION OF DECISIONS RELIED UPON BY THE OFFICIAL ASSIGNEE 100. The first decision relied upon by the official assignee is in the case of Vikas Jhunjhunwala Vs. Northwest Enterprises and Anr. Insolvency Petition No.15 of 2016 decided on 6 March 2019. In this case, the insolvent entered into consent terms with the petitioning-creditor which were taken on record. In paragraph 6, the Court observed that there is one more claim lodged with the official assignee by a private entity for recovery of the price of goods alleged to be sold to the debtor. However, no suit was filed and the invoices were of 2014. The Court was of the prima facie view on the facts of that case that said claim cannot be accepted simply on presentation of invoices since the debtor firm may have various defences including limitation and on merits. It was in these circu....
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....led their claims before the official assignee. The learned judge relying upon the decision of the Hon'ble Supreme Court in the case of Sarat Chandra Roy vs. Harak Chand Damani & Anr. (1973) 3 SCC 187 rejected the contention of the other creditors to continue with proceedings and the order of insolvency was set aside and insolvency petition was also dismissed. 102. In my view, above decision cannot be of any assistance in support of the submissions made by the official assignee for insisting upon a decree before entertaining the claim by a creditor. This decision was rendered in the context of Section 9(2) of the Act which provides for act of insolvency on the basis of non-satisfaction of a decretal amount. Furthermore, the learned judge rejected the contention of other creditors for continuation of the insolvency order. Two prior decisions of this Court in the case of Mandvi Co-operative Bank Limited (supra) and Ramavatar Gupta (supra) were not brought to the notice of the learned judge. These two decisions lay down that once an insolvency order is passed and even if the petitioning-creditor is settled, the insolvency order against the debtor continues qua other creditors. The C....
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....r the specified date, whether an order of adjudication can still be allowed to continue. The Hon'ble Supreme Court observed that delay in promptly paying decretal amount is no ground for continuing insolvency proceedings. From the facts narrated in paragraph 1, it is not clear whether there were other creditors who had made a claim with the official assignee. The issue before the Supreme Court was not whether the official assignee is empowered to insist upon a decree for considering the claim of a non-decree holder creditor. Therefore, this decision also cannot be of any assistance in support of the submission of the official assignee that there has to be a decree for making a claim. The decision in the case of Sarat Chandra Roy (supra) is distinguishable on facts. The decision in the case of Sarat Chandra Roy (supra) is prior to the year 1978. Section 9(2) has been introduced after the year 1978. Furthermore, it is settled that it is the ratio of the decision which is binding and not what logically follows therefrom. The question raised for my consideration was not before the Hon'ble Supreme Court and, therefore, same cannot be read to mean that in all cases the decision of the Ho....