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TMI Blog2023 (11) TMI 315X X X X Extracts X X X X X X X X Extracts X X X X ..... not - invocation of Section 9(2) before the decree or order becoming final. Definition of the terms creditor, debt and debtor - Section 2(a) of the Presidency Towns Insolvency Act 1909 - HELD THAT:- As could be seen from the definitions, both the definitions are inclusive definitions. In REGIONAL DIRECTOR EMPLOYEES' STATE INSURANCE CORPN. VERSUS HIGH LAND COFFEE WORKS OF PFX. SALDANHA SONS [ 1991 (7) TMI 367 - SUPREME COURT] , the Hon'ble Supreme Court had considered the import of the term 'includes' used in a definition clause, the Hon'ble Supreme Court had held The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occur- ring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include. The word includes as pointed out by the Hon'ble Supreme Court has been used with a intent to impart wider meaning to the terms defined. We should also be alive to the various d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also provides for criminal prosecution without prejudice to the power to levy penalty. The conclusion of the learned Single Judge cannot be agreed upon where he held that an order of the Adjudicating Authority imposing penalty would not create a debt within the meaning of Section 2(b) and the person in whose favour the order is passed could not be creditor within the meaning of Section 2(a), in order to enable them to invoke Section 9(2) of the Presidency Towns Insolvency Act, 1909. Whether the application under Section 9(5) on the grounds mentioned in it is maintainable? - Whether Section 9(2) can be invoked before the decree or order becoming final? - HELD THAT:- The failure to pay, on being served with the notice under Section 9(2) of the Presidency Towns Insolvency Act, 1909, would amount to an act of insolvency to enable the creditor to initiate insolvency proceeding. This is a reason why the grounds set out in Section 9(5) of the Presidency Towns Insolvency Act, 1909 are very relevant. Section 9(5) of the Presidency Towns Insolvency Act, 1909 extracted above would show that the specific grounds have been set out. The question as to whether a debt existed or not is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereby setting aside the insolvency notice issued to the respondent herein. The facts that are necessary for disposal of the appeal are: 2. The respondent was accused of violation of the provisions of the Foreign Exchange Regulation Act, 1973. Since the violation amounted to an offence under the provisions of the said Act and it also made him liable for penalty, proceedings were initiated by the appropriate Authority under the Foreign Exchange Regulation Act, 1973 for adjudication of the penalty. The Adjudicating Authority viz., the Special Director of Enforcement by its order in original dated 06.02.1998 imposed a penalty of Rs.31 Crores. Aggrieved the respondent preferred an appeal in A.No.51 of 1998 before the appellate Authority viz., the Foreign Exchange Regulation Appellate Board. The Appellate Board modified the order dated 05.05.2002 and reduced the penalty as Rs.28 Crores. The respondent had preferred an appeal in CMA.No.914 of 2000 questioning the order of the appellate Board. Even during the pendency of the CMA, the Enforcement Directorate invoked Sub- Section 2 of Section 9 of the Presidency Towns Insolvency Act 1909 and got a notice of insolvency issued on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce is subject matter of challenge in W.P.No.20492 of 2008 primarily on the question of jurisdiction and the powers of the Collector to invoke the Tamil Nadu Revenue Recovery Act for recovery of penalty levied under the Foreign Exchange Regulation Act which is due and payable to the Central Government. 5. We have heard Mr.AR.L.Sundaresan, learned Additional Solicitor General assisted by Mr.Rajnish Pathyil, learned counsel for the appellant in O.S.A.No.124 of 2005 and the 3rd respondent in W.P.No.20492 of 2008 and Mr.B.Kumar, learned Senior Counsel assisted by Mr.A.Jenasenan, learned counsel appearing for the respondent in O.S.A.No.124 of 2005 and the petitioner in W.P.No.20492 of 2008. Mr.S.Silambanan, learned Additional Advocate General assisted by Mrs.C.Sangamithirai, learned Special Government Pleader appearing for the respondents 1 and 2 in W.P.No.20492 of 2008. 6. Mr.AR.L.Sundaresan, learned Additional Solicitor General appearing for the appellant in O.S.A.No.124 of 2005 would vehemently contend that the order of the adjudicating Authority imposing penalty would qualify as an order against the respondent for payment of money and therefore the provisions of Section 9(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of any law referred to in clause (b) on the date of the application.] Explanation.-- For the purposes of this section, the act of an agent may be the act of the principal, even though the agent have no specific authority to commit the act. 9. According to the learned Additional Solicitor General, a bare reading of the above provision would show that non-payment of monies payable pursuant to a decree or order which has become final and execution thereof has not been stayed would per se amount to an act of insolvency. The provision read without any addition or substraction conveys the above. However, there are certain judicial pronouncements which tend to restrict the operation of Section 9(2) of the Presidency Towns Insolvency Act 1909 based on the consequences of an adjudication. The fundamental contention of the respondent before the insolvency Court was that, Section 9(2) of the Presidency Towns Insolvency Act 1909 can be invoked only by the creditor who has been favoured with an order or a decree by a civil Court. Drawing our attention to the language of Section 9(2) of the Presidency Towns Insolvency Act 1909, the learned Additional Solicitor General would cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the insolvency notice set aside on the ground among others that he is entitled to have the decree re-opened under any law relating to relief of debtedness or that the decree is not executable under any such law. iv) The Bill seeks to achieve the above objects. (Gazette of India dated 18.03.1979 pt.II,S.2 Ext.p.188.) 11. According to the learned Additional Solicitor General, the very object of inclusion of Section 9(2) of the said Act was to make non-payment of monies ordered to be paid under the decree or order as an act of insolvency bearing in mind the difficulties in execution of a decree or order. Therefore, according to the learned Additional Solicitor General, to exclude other orders passed by other Forums from the sweep of Section 9(2) of the said Act would only aid defaulters to evade payment. While conceding that the object of the Insolvency law is not to collect the monies due, the learned Additional Solicitor General would submit that a fair interpretation would be one which aids the object of enactment. 12. He would also invite our attention to the meaning of the term debt in various judicial dictionaries to contend that non-payment of monies adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Supreme Court in Commissioner of Wealth Tax, Lucknow Vs. Raja Vishwanath Pratap Singh reported in 1996 (8) SCC 122, wherein, the definition that was set out in Kesoram Industries and Cotton Mills, Ltd., Vs. Commissioner of Wealth Tax (Central), Calcutta referred to supra was quoted with approval. 16. In Muthupalaniappa Chettiar Vs. Alagamai Achi and others reported in 74-LW-145, a Division Bench of this Court had an occasion to consider the term debt and the following observations of the Division Bench are relevant, The term debt no doubt, is commonly used to describe liabilities which have an origin in contract, but we see no reason why we should restrict the connotation of that term to such liabilities only. Anything due and payable is a debt. 17. As regards the meaning that is to be ascribed to the word penalty, the learned Additional Solicitor General would contend that a penalty levied for violation of the statutory provision is different from a fine imposed for an offence. Therefore, a penalty would only lead to a civil liability. 18. In support of the said contention Mr.AR.L.Sundaresan, learned Additional Solicitor General ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t; it merely deprives defendant 9 of a special advantage in case of default. 20. Reliance is also placed by the learned Additional Solicitor General on the judgments in Suborno Bose Vs. Enforcement Directorate and another reported in 2020 (14) SCC 241 and Union of India and another Vs. Shantilal Jewellers and others reported in 2003 SCC Online Bombay 1032, wherein, the Hon'ble Supreme Court and the Bombay High Court had held that penalty imposed under the taxing statute is civil in nature. 21. Summarizing his submissions, the learned Additional Solicitor General would contend that the term debt and the term penalty are wide enough to cover a civil liability arising out of an adjudicatory process. He would further add that all that is required to enable a creditor to invoke sub- Section 2 of Section 9 of the Presidency Towns Insolvency Act 1909 is default in payment of money payable under a decree or order, despite a notice having been issued. Qualifying the term decree or order, according to Mr.AR.L.Sundaresan, learned Additional Solicitor General is impermissible. He would point out that the learned Single Judge had qualified the term decree or orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon'ble Supreme Court pointed out that the said judgment cannot be taken as a precedent as it had dealt with only the effect of an award and it is with regard to the deeming fiction created by Section 36 of the Arbitration and Conciliation Act 1996. While dealing with the definition of the financial debt under Section 5(8) of the Insolvency and Bankruptcy Code, the Hon'ble Supreme Court in Kotak Mahindra Bank Limited Vs. A.Balakrishnan and another referred to supra observed as follows:- It is thus clear that it is a settled position of law that when the word include is used in interpretation clauses, the effect would be to enlarge the meaning of the words or phrases occurring in the body of the statute. Such interpretation clause is to be so used that those words or phrases must be construed as comprehending, not only such things, as they signify according to their natural import, but also those things which the interpretation clause declares that they shall include. In such a situation, there would be no warrant or justification in giving the restricted meaning to the provision. 25. Inviting our attention to the definition of the terms creditor, debt an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eneral would submit that Foreign Exchange Regulation Act provides for both punishment treating the violation of the provisions of the Act as a criminal offence and for levy of penalty by providing for an adjudicatory process. Section 50 of the Foreign Exchange Regulation Act provides for penalty for contravention of certain provisions of the Act. Section 51 empowers the officers of the Directorate of Enforcement to adjudicate and impose a penalty for contravention after conducting an enquiry. Section 52 of the Foreign Exchange Regulation Act provides for an appeal to the appellate Board and the appellate Board as well as the adjudicating officer are invested with all powers of the Civil Court under the Code of Civil Procedure while trying a suit. A further appeal is provided to the High Court under Section 54. Unlike other criminal offences, the proceeding for penalty initiated under Section 50 of the Foreign Exchange Regulation Act, 1973 can continue even after the death or insolvency of the person who is accused of contravening the provisions of the Act. 29. Therefore, according to Mr.AR.L.Sundaresan, learned Additional Solicitor General, the proceedings for penalty under Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (v) that in any case, the decrees have become unenforceable in view of the challenge made to the validity of the same before Debts Recovery Tribunal-I, Chennai and the liberty given by the Division Bench of this Court to agitate those issues before the Tribunal. 32. After considering the rival contentions, the learned Judge observed as follows:- 35. The case of the Applicants does not fall under Clause (a) of sub-section (5) of Section 9, since they do not claim that they have a Counter Claim or set off against the Respondent-Bank. The case of the Applicants would not also fall under Clause (b) of sub-section (5), since the decrees were passed on consent terms . The Applicants do not claim that the decrees were fraudulent. They have not filed any Suit or Application to set aside the decrees. On the contrary, the Applicants claim that payments have been tendered in accordance with the decrees. Therefore, the case will not come under Clause (b) of sub-section (5) of Section 9 of the Act. 36. The case of the Applicants would not also fall under Clause (c), since the pre-requirement to take shelter under Clause (c) of sub-section (5), is that the decree s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Reddy and another referred to supra, will be of no help, since it turned on the interpretation of the provisions of Section 5(8) of the Insolvency and Bankruptcy Code. 36. The learned Senior Counsel would further add that the Enforcement Directorate is not a juristic person and it cannot invoke the provisions of Sections 9(2) of the Presidency Towns Insolvency Act 1909 independent of the Central Government. Relying upon the judgment of this Court in the Director of Enforcement, Madras Vs. Rama Arangannal and another reported in AIR 1981 Mad 80, Mr.B.Kumar, learned Senior counsel would submit that the Director of Enforcement cannot maintain an appeal against the order of the appellate Board reversing his decision. In the said case this Court held that it is only the Central Government who is an aggrieved party and not the Director of Enforcement. 37. Therefore, according to Mr.B.Kumar, learned Senior Counsel Section 50 of the Foreign Exchange Regulation Act, provides for a penalty being levied and the same is payable to the Central Government and therefore it is only the Central Government that can initiate action and not the Enforcement Directorate, which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would submit that even though the order had not become final on the date when the insolvency notice was issued, today the appeal filed by the respondent in CMA.No.914 of 2001 having been dismissed and the SLP against the said order also having been dismissed, there is no prohibition for continuation of the proceedings. The learned senior counsel would rely upon the judgment of the Hon'ble Supreme Court in C.C.Alavi Haji Vs.- Palapetty Muhammed and another reported in 2007(6) SCC 555 rendered with reference to Section 138 of the Negotiable Instruments Act, wherein, it was held that a complaint filed before the expiry of 15 days from the date of receipt of notice need not be thrown out on the ground it is pre-mature, since it was open to the drawer of the cheque to pay the money due under the cheque within 15 days from the date of receipt of the summons issued by the Magistrate. 43. On the above contentions, the following points arise for determination in the appeal. 1) Whether the words creditor, debt and debtor as defined under Section 2A and 2B of the Presidency Town Insolvency Act should be given a restricted conventional meaning? 2) Whether the term d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finitions are inclusive definitions. In Regional Director, Employees State Insurance Corporation Vs. High Land Coffee Works reported in 1991 (3) SCC 617, the Hon'ble Supreme Court had considered the import of the term 'includes' used in a definition clause, the Hon'ble Supreme Court had held as follows:- The word include in the statutory definition is generally used to enlarge the meaning of the preceding words and it is by way of extension, and not with restriction, The word 'include' is very generally used in interpretation clauses in order to enlarge the meaning of words or phrases occur- ring in the body of the statute; and when it is so used, these words or phrases must be construed as comprehending, not only such things as they signify according to their natural import but also those things which the interpretation clause declares that they shall include. 48. The Hon'ble Supreme Court had also considered the purport of the word includes in Kotak Mahindra Bank Limited Vs. A.Balakrishnan and another referred to supra , wherein, it was held as follows:- It is thus clear that it is a settled position of law that when the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable under order of a Court. Point No.2:- 53. Moving to the second question which has been the bone of contention between the parties, while it is the attempt of the Additional Solicitor General to give a widest possible meaning to the words decree or order appearing in Section 9(2) of the Presidency Towns Insolvency Act, 1909, Mr. B.Kumar, learned Senior Counsel appearing for the respondent would attempt to restrict it to a decree or order of a civil Court as defined under Section 2(2) and 2(14) of the Code of Civil Procedure. 54. Heavy reliance is placed by Mr.B.Kumar, learned Senior Counsel on the judgment of the Hon'ble Supreme Court in Paramjeet Singh Patheja Vs. ICDS Ltd., referred to supra. In Paramjeet Singh Patheja Vs. ICDS Ltd., referred to supra, the Hon'ble Supreme Court was concerned with an award passed under the Arbitration and Conciliation Act, 1996 and import of Section 26 of the Arbitration and Conciliation Act,1996 which provides for a deeming fiction that an award of the arbitrator is a decree of a civil Court for the purposes of execution. The Hon'ble Supreme Court mainly pointed out that arbitration is not an adjudicato ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating the value of any derivative transaction, only the market value of such transaction shall be taken into account; (h) any counter-indemnity obligation in respect of a guarantee, indemnity, bond, documentary letter of credit or any other instrument issued by a bank or financial institution; (i) the amount of any liability in respect of any of the guarantee or indemnity for any of the items referred to in sub-clauses (a) to (h) of this clause; 56. While considering this definition the Hon'ble Supreme Court after referring to the inclusive definition, held that the judgment in Paramjeet Singh Patheja Vs. ICDS Ltd., referred to supra being one with regard to legal fiction provided under Section 36 of the Arbitration and Conciliation Act cannot be taken as a precedent for having decided on the effect of various orders that may be passed by various Tribunals or Authorities who are empowered to pass orders imposing financial liability. 57. We must also point out that in Dena Bank Vs. Shivakumar Reddy and another referred to supra, the Hon'ble Supreme Court had held that a final judgment and or a decree of any Court or Tribunal or any arbitral ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Presidency Towns Insolvency Act, 1909, should be a decree or order passed by a civil Court or would it mean to include any order passed by an authority empowered under the statute after following the adjudicatory process. We are therefore of the view that the term decree or order used in Section 9(2) of the Presidency Towns Insolvency Act, 1909, would take within its fold an order passed by an empowered Authority under the statue after following the adjudicatory process. Section 51 of the Foreign Exchange Regulation Act, 1973 provides for a reasonable opportunity and it also invests the powers of the civil Court in the adjudicating Authority and therefore it cannot be denied that an order passed under Section 51 of the Foreign Exchange Regulation Act, 1973 is an order passed after the adjudicatory process. We are therefore of the considered opinion that it will be unfair and unjust to restrict the meaning of the words decree or order only to decrees or orders granted by a civil Court. They would include orders passed by any other Authority viz., the Adjudicating Authority under the Foreign Exchange Regulation Act. 60. We shall now advert to the contention that what is levi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2(a), in order to enable them to invoke Section 9(2) of the Presidency Towns Insolvency Act, 1909. In coming to the above conclusion, we have also taken into account the Tribunalization and promotion of other alternative dispute resolution mechanism by which several new Authorities empowered with statutory power to pass orders for payment of monies have been created and to give a restricted meaning in todays circumstance to the words which were designedly put in an inclusive definition by the legislature way-back in 1909, only with a view to give enlarged meaning to them. Point Nos.3 and 5:- 63. The next question that arises is whether the grounds alleged in an application under Section 9(5) of the Presidency Towns Insolvency Act, 1909 are available to the respondent. Section 9(5) of the Presidency Towns Insolvency Act, 1909 reads as follows:- (5) Any person served with an insolvency notice may, within the period specified therein for its compliance, apply to the Court to set aside the insolvency notice on any of the following grounds, namely:-- (a) that he has a counter- claim or set off against the creditor which is equal to or is in excess of the amount d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solvency Act, 1909. The very jurisdiction to issue an insolvency notice would be in doubt, since the appeal in CMA.No.914 of 2001 was pending on the date when the insolvency notice was sought to be issued. Though Mr.AR.L.Sundaresan, learned Additional Solicitor General would attempt to contend that the word 'and' appearing between the words decree or order which has become final and the execution thereof has not been stayed should be read as 'or', we are unable to agree with the said contention of the learned Additional Solicitor General. In order provide a cause of action for a creditor to seek a notice of insolvency to be issued under Section 9(2) of the Presidency Towns Insolvency Act, 1909, there should be a decree or order which has become final and the execution of it should not have been stayed. Therefore, while concluding that the grounds that are set out in the application for setting aside the insolvency notice are not available to the respondent, we find that since the order imposing penalty had not become final, the insolvency notice issued on 28.02.2001 is not valid, inasmuch as the appeal in CMA.No.914 of 2001 was pending as on that date even though th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Single Judge only on the ground that the insolvency notice issued on 28.02.2001 is unsustainable, in view of the fact that it has been issued when the Civil Miscellaneous Appeal was pending and the order has not become final. The findings of the Hon'ble Judge regarding the nature of the order passed by the adjudicating Authority are set aside. We conclude that the order of the adjudicating Authority would create a debt within the meaning of Section 2(b) of the Presidency Towns Insolvency Act, 1909 and the person against whom the order is made would be a debtor within 2(b) of the said Act and the person in whose favour the order is made would be a creditor within the meaning of Section 2(a) of the Presidency Towns Insolvency Act, 1909. It would be open to the Enforcement Directorate to take proceedings afresh if it is so adviced. 71. Adverting to the writ petition, we find that the contentions of the learned counsel for the petitioner will have to be sustained. The impugned notice has been issued under Section 29 of the Tamil Naud Revenue Recovery Act. It is the contention of Mr.B.Kumar, learned Senior Counsel that the Tamil Nadu Revenue Recovery Act cannot not be applied ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Recovery Act of the year 1890 (The Central Act) it is the Collector of the District who is empowered to recover monies by issuing distraint proceedings. Section 3 of the said Enactment, authorises the Collector to effect recovery through such officer as he deems fit. 74. Mr.AR.L.Sundaresan, learned Additional Solicitor General would contend that even if Section 70(1)(iii) of the Foreign Exchange Regulation Act,1973 is not available. Sub-Section 3 of Section 70 of the said Act enables the Central Government to recover the monies under any other law for the time being in force relating to recovery of debts due to the Government. This provision which is an enabling provision would enable the adjudicating officer to invoke the provisions of Revenue Recovery Act 1890 (the Central Act) and not the State Act. Therefore, the notice impugned in the writ petition will have to be set aside solely on the ground that it is not competent for the Collector to effect recovery of monies due to the Central Government by invoking the State Act. Here again, we will have to reserve the liberty to the Enforcement Directorate to seek recovery under the provisions of Central Act viz., the Revenue Rec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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