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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 ..... application under Section 9(5) of the Presidency Towns Insolvency Act 1909, thereby 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the management of the property of the respondent. This notice 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions 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 conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 adjudicated to be due would amount to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 would draw out attention to the judgment in Shiv Dutt Rai Rateh Chand and others Vs. Unior of India reported in 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 order as a decree or order of a civil Court. This action of the learned Single Judge according to Mr.AR.L.Sundaresan is uncalled for and does violence to the provisions of Section 9(2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation 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 and debtor in the Presidency Towns Insolvency Act, 1909 extracted supra Mr.AR.L.Sundaresan, learned Additional Solicitor General would contend that all the three being inclusive definitions they are capable of a wider interpretation to include the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ides 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 Sections 50, 51 and 52 of the Foreign Exchange Regulation Act 1973 are quasi criminal in nature and they cannot be termed as pure criminal proceeding and the penalty levied cannot be termed as a fine or punishment imposed for contravention. What is sought to be recovered as penalty und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 should be in executable under the provisions of any law referred to in Clause (b). At the most, the case of the Applicants is that the Debts Recovery Tribunal cannot execute the decrees in view of Section 31-A of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. This contention does not fall under any provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 not a juristic person entitled to recover the penalties. 38. The learned Senior Counsel would also draw our attention to Section 70 which provides for recovery of penalty imposed, heading of which reads as "Recovery of sums due to Government." Relying heavily upon the above provision Mr.B.Kumar, learned Senior Counsel would submit that the notice issued at the instance of the Enforcem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 decree or order appearing in Section 9(2) of the Presidency Towns Insolvency Act 1909 would mean only a decree or order of a civil Court or would it include any order for payment of money passed after an adjudicatory process? 3) Whether the application under Section 9(5) on the grounds mentioned in it is maintainable? 4) Whether the Enforcement Directorate is competent to initiate proceedings in insolvency for failure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 adjudicatory process provided by a statute. It is a consequence of an agreement between the parties and therefore the award of the arbitrator cannot be treated as a decree or order of a Court, in order to enable invocation of Section 9(2) of the Presidency Towns Insolvency Act, 1909 for non-payment of the monies due under the award. 55. In Kotak Mahindra Bank Limited Vs. A.Balakrishnan and another referred to supra, the Hon'ble Supreme Court had pointed out that the judgment in Paramjeet Singh Patheja Vs. ICDS Ltd., referred to supra ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment 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 award for payment of money, if not satisfied, would fall within the financial debt under the Insolvency and Bankruptcy Code. In the light of the definition clause found in the Presidency Towns Insolvency Act, 1909 and in the light of the subsequent pronouncements of the Hon'ble Supreme Court, we do not think that the judgment in Paramjeet Singh Patheja Vs. ICDS Ltd., referred to supra could be taken as a precedent for the proposition that Section 9(2) of the Presidency Towns Insolvency Act, 1909, could be invoked only when there is an order or decree of the civil Court directing payment of money. A ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore 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 levied under Sections 50 and 51 of the Foreign Exchange Regulation Act is a penalty and therefore it cannot be a debt. As we had already adverted to Sections 50 and 51 of the Foreign Exchange Regulation Act, 1973 provides for a mechanism for determination of the penalty payable by a person who violates the provisions of the said Act. Section 56 of the said Act enables prosecution and that is without prejudice to the power to levy penalty. We had already referred to the judgment of the Hon'ble Supreme Court which considered the term penalty. Though the word penalty is used in Section 50 it is not a fine levied on the basis of conviction or a penalty as used u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 due under the decree or order and which he could not, under any law for the time being in force, prefer in the suit or proceeding in which the decree or order was passed; (b)that he is entitled to have the decree or order set aside under any law providing for the relief of indebtedness and that-- (i)he has made an application before the competent authority under such law for the setting aside of the decree or order; or (ii)the time allowed for the making of such application has not expired; (c)that the decree or order is not executable under the provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the stay petition in CMP.No.8587 of 2001 was dismissed as withdrawn. The argument of the learned Additional Solicitor General that as of today the order has become final and therefore the issuance of insolvency notice on 28.02.2001 should be sustained though appears attractive cannot be sustained. 67. The reference to the provisions of Section 138 of the Negotiable Instruments Act and the judgment of the Hon'ble Supreme Court concluding that a complaint filed under Section 138 of the Negotiable Instruments Act before the expiry of 15 days time could still be sustained, if the drawer had not paid the money due under the cheque within 15 days from the date of receipt of summons cannot be applied to the instant case, inasmuch as it i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 since it is an Act to consolidate the law for recovery of land revenue in the State of Tamil Nadu and the public revenue due on the land for the purposes of the Act would only include assessment, quit rent or ground rent and other charges upon the land payable to the State Government, CESS or other dues payable to the State Government on account of water supplied for irrigation, pattam due on Kandukrishi lands in Kanniyakumari District. Therefore, the very Act is intended for recovery of monies due to the State Government and not to the Central Government. More over under Section 70(1)(iii) of the Foreign Exchange Regulation Act, it is the Collector of Customs who is empowered to recover the penalty, as if it is the arrears of land revenue and not the District Co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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