TaxTMI 
TaxTMI 
2026 (7) TMI 832
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....a, AOR, Mr. Nishe Rajen Shonker, AOR, Mrs. Anu K Joy, Adv., Mr. Alim Anvar, Adv., Mr. Santhosh K, Adv. JUDGMENT PER DIPANKAR DATTA, J. 1. The issue in the present appeal, at the instance of HDFC Bank Limited [Appellant-Bank], is whether an insolvency notice under Section 9(2) of the Presidency Towns Insolvency Act, 1909 [Insolvency Act] can be issued on the basis of a recovery certificate issued by a Debts Recovery Tribunal [DRT]. 2. At the threshold, Section 9(2) of the Insolvency Act is reproduced below for ease of understanding: 9. Acts of insolvency. - (1) ... (2) Without prejudice to the provisions of sub-section (1), a debtor commits an act of insolvency if a creditor, who has obtained a decree or order against him for the payment of money (being a decree or order which has become final and the execution whereof has not been stayed), has served on him a notice (hereafter in this section referred to as the Insolvency notice) as provided in sub-section (3) and the debtor does not comply with that notice within the period specified therein: ... (3) ... (4) ... (5) ... (emphasis ours) 3. In brief, Secti....
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....ggrieved, the Appellant-Bank preferred the present appeal [arising out of SLP (Civil) No. 18860/2008], whereupon leave was granted on 4th May, 2010. Vide order dated 11th July, 2008, this Court had stayed the proceedings in Notice of Motion No. 40 of 2007 and such stay was continued vide order dated 4th May, 2010. 5. During pendency of the appeal, the original respondent died on 20th May, 2024. Application dated 11th August, 2024 of the Appellant-Bank for substitution of the legal representatives of the original respondent (since deceased) was allowed by the Registrar on 10th February, 2025. Respondents 1.1 to 1.4 were substituted in place of the deceased original respondent. They are his three sons and wife. 6. The Single Judge as well as the Division bench of the High Court relied on the decision of this Court in Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC 322, wherein the issues involved were: whether an arbitration award is a "decree" for the purpose of Section 9, and whether insolvency proceedings under Section 9(2) of the Insolvency Act can be initiated based on an arbitral award. This Court answered both the questions in the negative and held that the words "dec....
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.... counsel for some of Respondents opposed the contentions while praying for dismissal of the appeal. 10. Having perused the reasoning given in Paramjeet Singh Patheja (supra) as also the reasoning given by the Single Judge and the Division Bench, inter alia, following the said decision, we find no reason to disagree with the same. 11. True it is, the question involved in Paramjeet Singh Pathreja (supra) arose with respect to an arbitral award; nevertheless, its ratio rests on wider principle. This Court noted that: (i) the Insolvency Act must be strictly construed as insolvency has grave civil consequences; (ii) the term "decree or order" must be understood in light of the definition contained in the Code of Civil Procedure, 1908; and (iii) insolvency notice is not a mode of execution/enforcement. Relevant excerpts from the decision are reproduced below: 17. We are of the view that the Presidency Towns Insolvency Act, 1909 is a statute weighed down with the grave consequence of "civil death" for a person sought to be adjudged an insolvent and therefore the Act has to be construed strictly. The Arbitration Act was in force when the PTIA came ....
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....ing all proceedings therein, initiated in a court of law". Obviously therefore Parliament had in mind debts due to "litigants" i.e. debts due by reason of decrees of courts. It is well settled that courts, unlike arbitrators or Arbitral Tribunals, are the third great organ under the Constitution- legislative, executive and judicial. Courts are institutions set up by the State in the exercise of the judicial power of the State, which will be seen from the cases mentioned hereinbelow: ... 41. Issuance of a notice under the Insolvency Act is fraught with serious consequences: it is intended to bring about a drastic change in the status of the person against whom a notice is issued viz. to declare him an insolvent with all the attendant disabilities. Therefore, firstly, such a notice was intended to be issued only after a regularly constituted court, a component of the judicial organ established for the dispensation of justice, has passed a decree or order for the payment of money. Secondly, a notice under the Insolvency Act is not a mode of enforcing a debt; enforcement is done by taking steps for execution available under CPC for realising monies. 12. Accordingly, this Co....
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....rging from the present appeal must be decided on the basis of the law as it stood when the litigation commenced. 16. To support this conclusion, we rely on Rameshwar v. Jot Ram AIR 1976 SC 49, which quoted P. Venkateswarlu v. Motor & General Traders AIR 1975 SC 1409: "it is basic to our processual jurisprudence that the right to relief must be judged to exist as on the date a suitor institutes the legal proceeding". This Court further went on to observe that it is an emphatic statement that the right of a party is determined by the facts as they exist on the date the action is instituted. Granting the presence of such facts, then he is entitled to its enforcement. Later developments cannot defeat his right because, had the court found his facts to be true the day he sued he would have got his decree. The Court's procedural delays cannot deprive him of legal justice or right crystallised in the initial cause of action. 17. To similar effect is the decision in Beg Raj Singh v. State of U.P. (2003) 1 SCC 726. The relevant passage from such decision reads as follows: 7. ... The ordinary rule of litigation is that the rights of the parties stand crystall....
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....l) 23495 of 2007 but subsequently, vide order dated 23rd April, 2015 Civil Appeal No. 485 OF 2008, a 3-Judge Bench of this Court felt that "that the judgment delivered in the case of Paramjeet Singh (supra), does not require any reconsideration." 22. Before parting, we record that Mr. Mehta is also right in pointing out that Section 19(22A), even if it were to apply on its very terms, the Appellant-Bank is not entitled to any relief. The phrase "recovery certificate issued by ... under ... shall be deemed to be decree or order for ... initiation of ... insolvency proceedings ... under any law for the time being force ..." has been emphasised by him in support of the proposition that the stage of initiation of proceedings did not fructify because the notice of insolvency itself, issued under Section 9(2) of the Insolvency Act, stood quashed by the High Court. 23. We, thus, dismiss the present appeal. The proceedings in notice of motion before the Single Judge, if pending, will stand closed qua the deceased original respondent. 24. Along with the deceased original respondent, his two sons (Respondents 1.2 and 1.3) were also certificate debtors. However, the Appellan....