LAXMAN DHONDU BADGUJAR Vs. D.M. PARANJAPE

JUDGEMENT

(1.) THE opponent obtained a decree on January 21, 1951, in suit No. 95 of 1951 of the file of the Civil Judge (J.D) at Chalisgaon directing the petitioners to pay Rs. 5,000 and costs of the suit with future interest on Rs. 4,000, by annual instalments of Rs. 705. The decree contained a default clause. The petitioners did not pay the instalments as directed by the decree. The opponent thereafter lodged an insolvency notice under Section 6 -A of the Provincial Insolvency Act in the Court of the Civil Judge (S. D.), Jalgaon, on May 3, 1954, in the form prescribed by rules framed by this Court under Section 79 of the Provincial Insolvency Act. The notice was duly served upon the petitioners. The petitioners appeared in answer to the notice and contended that the decree was not enforceable and the notice was liable to be set aside. The learned Civil Judge rejected the contentions raised and by his judgment dated October 11, 1954, made the notice absolute. On October 22, 1954, the opponent filed a petition in the Court of the Civil Judge (S. D.), at Jalgaon, being insolvency application No. 15 of 1954 for adjudicating the petitioners insolvents on the plea that the petitioners having failed to comply with the insolvency notice had committed an act of insolvency. The petitioners contended that the application for adjudication was not presented within the time prescribed by Section 9(1)(c) of the Provincial Insolvency Act. The learned Insolvency Judge held that the application satisfied the condition prescribed by Section 9(1)(c) of the Act, and adjudicated the petitioners insolvents. In appeal No. 45 of 1955 to the District Court of East Khandesh the order passed by the trial Court was confirmed. Against that order, this revision application has been filed, and it is urged that the application for adjudication did not comply with the condition prescribed by Section 9(1)(c), and that rule III -A(10) framed by this Court, which makes the date of disposal of an application to set aside an insolvency notice the date on which the act of insolvency is complete is ultra vires this Court.

(2.) IN order to appreciate the contentions raised by Mr. Chandrachud we may refer to the relevant provisions of the Provincial Insolvency Act and the rules framed thereunder. Section 6 of the Provincial Insolvency Act prescribes what conduct of a debtor constitutes an act of insolvency. Transfer by a debtor of all or substantially all his property to a third person for the benefit of his creditors or transfer by a debtor of his property or any part thereof with intent to defeat or delay his creditors, or transfer of his property which may be regarded as a fraudulent preference, or departing or remaining out of India or secluding himself or submitting an application for adjudication as an insolvent or giving notice to creditors that the debtor had suspended or is about to suspend payment of his debts or that the debtor is imprisoned in execution of the decree of any Court for payment of money are amongst other acts of insolvency. The Bombay Legislature has by Section 6(i) of the Provincial Insolvency Act enacted that a debtor commits an act of insolvency if he fails to comply with a notice of insolvency within the period prescribed thereby. That was enacted by Bombay Act XV of 1939 which was amended by ActNo. 1XVIII of 1948. Clause (i) to Section 6, which has been added by the Bombay Act XV of 1939, provides that a debtor commits an act of insolvency if after a creditor has served an insolvency notice on him under the Act in respect of a decree or an order for the payment of any amount due to such creditor, the execution of which is not stayed, the debtor does not, within the period specified in the notice which shall not be less than one month, comply with the requirements of the notice or he does not satisfy the Court that he has a counter claim or set -off which equals or exceeds the decretal amount or the amount ordered to be paid by him, and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him. The Bombay Amending Acts have also added Section 6 -A to the Act. That section provides that an insolvency notice shall be in the prescribed form and shall be served in the prescribed manner, and further prescribes the contents of the notice. By Sub -section (2) it is provided, that such notice shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due, unless the debtor within the time allowed for payment gives notice to the creditor that he disputes the validity of the notice on the ground of such mis -statement; but if the debtor does not give such notice, he shall be deemed to have complied with the insolvency notice if within the time allowed he takes such steps as would have constituted compliance with the notice had the actual amount due been correctly specified therein. Section 9(2) prescribes conditions on which a creditor may petition for adjudicating a debtor insolvent. Condition (c) which is material states that a creditor shall not be entitled to present an insolvency petition against a debtor unless the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition. Section 79 of the Provincial Insolvency Act gives power to the High Court to make rules for carrying into effect the provisions of the Act.

(3.) MR . Chandrachud contends, however, that the Court may hold an inquiry and be satisfied that the debtor has a counter -claim or set -off of the nature described in Section 6 -A(1) and the Court may also hold an inquiry on the application for setting aside the insolvency notice whether the debtor has paid the amount or furnished security for payment of the amount to the satisfaction of the creditor or his agent, but the Court is incompetent to hold an inquiry on an application for setting aside the notice on any other ground. Counsel says that the Legislature has not contemplated any such enquiry and the rule framed by this Court enabling an application to be made for setting aside an insolvency notice on any other justifiable ground is ultra vires the powers conferred upon this Court. As a corollary to that argument, it is contended that Clause (10) which provides that an act of insolvency shall be deemed to have been committed on the disposal of the application for setting aside the insolvency notice, is also ultra vires. It is urged that the High Court in framing Rule III -A, Clauses (10) and 9(c) has trespassed upon the functions of the Legislature, by enacting an exception to Section 9(2)(c) of the Provincial Insolvency Act.