1992 (9) TMI 366 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the Insolvency Notice.
2. Compliance with the Insolvency Notice.
3. Definition and applicability of "Secured Creditor."
4. Grounds for setting aside the Insolvency Notice.
5. Technical defects in the Insolvency Notice.

Issue-wise Detailed Analysis:

1. Validity of the Insolvency Notice:
The judgment debtor sought to set aside the Insolvency Notice No. N/108 of 1991 dated 27th August 1991. The creditors, Industrial Credit & Investment Corporation of India Ltd. and Industrial Finance Corporation of India, had issued the notice following a decree passed in their favor for recovery of sums due, which the debtors failed to pay or secure. The court noted that the decree had become final and the execution was not stayed by any court.

2. Compliance with the Insolvency Notice:
The debtors failed to comply with the Insolvency Notice, neither paying the decretal amount nor furnishing the required security. The court referred to Section 9 of the Presidency-Towns Insolvency Act, 1909, which enumerates acts of insolvency, including non-compliance with an Insolvency Notice. Rule 52-A of the Bombay Insolvency Rules, 1910, further stipulates that non-compliance with the notice within the specified period constitutes an act of insolvency. The court emphasized that the grounds for setting aside an Insolvency Notice are now codified under Section 9(5) of the Act, and the debtors did not satisfy any of these grounds.

3. Definition and Applicability of "Secured Creditor":
The court examined whether the creditors could be considered "secured creditors" under the relevant insolvency laws. Section 2(g) of the Presidency-Towns Insolvency Act, 1909, and Section 2(e) of the Provincial Insolvency Act, 1920, define a secured creditor as one holding a mortgage, charge, or lien on the debtor's property. The court concluded that the creditors did not hold any security over the judgment debtors' property, thus they could not be treated as secured creditors for the purpose of insolvency proceedings.

4. Grounds for Setting Aside the Insolvency Notice:
The court reiterated that the grounds for setting aside an Insolvency Notice are specified in Section 9(5) of the Act, which includes having a counter-claim or set-off, entitlement to set aside the decree under any law for the relief of indebtedness, or the decree being non-executable. The debtors did not present any valid grounds under Section 9(5). The court also dismissed the argument that the holding of securities by the creditors from a third party (Krimpex Synthetics Ltd.) precluded the issuance of the Insolvency Notice.

5. Technical Defects in the Insolvency Notice:
The debtors argued that the Insolvency Notice was technically defective as it was a composite notice issued by two decree holders for separate claims. The court referred to the judgment of the Court of Appeal in In re Wheeler and other relevant cases, concluding that the notice was valid as it followed the pattern of a single decree in favor of both creditors. The court rejected the argument as hypertechnical and beyond the scope of Section 9(5) of the Act.

Conclusion:
The notice of motion to set aside the Insolvency Notice was dismissed with costs. The court stayed the operation of the order for four weeks to allow the debtors to seek further relief if desired. The issue of a certified copy was expedited.