Applicants sought reduction in the interest rate from 18% to 6% for a claim by a creditor who successfully annulled their insolvency. The court held that Rule 23 of the Presidency Town Insolvency Act, 1909 applies, but Section 80 of the Negotiable Instruments Act authorizes the higher rate for dishonoured cheques, dismissing the Notice of Motion.
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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
IN INSOLVENCY
NOTICE OF MOTION NO. 26 OF 2008
IN
INSOLVENCY PETITION NO. 43 OF 2002
Vijay Khanna & Anr. ..Erstwhile Insolvents/
Applicants
Ex-parte :-
Mrs. Deepa Bajaj ..Petitioning Creditor
versus
The Official Assignee
of Bombay & Anr. ..Respondents
Ms. Rekha Shukla for claimant.
Mr. Anil P. Bagve for the Applicants.
Mr. Y. C. Parekh, O.A. present.
CORAM : S. A. BOBDE, J.
DATE : 16TH SEPTEMBER, 2008.
ORAL ORDER :
. Heard.
2. By this Notice of Motion, the Applicants
against whom the Insolvency was annulled have
applied for reduction in the rate of interest
determined by the Official Assignee while holding
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that the claimant has proved her claim. The main
objection of the learned counsel is that the
Official Assignee has determined interest at the
rate of 18% per annum from the date of dishonour of
cheques till payment.
3. The applicants were declared insolvents.
Thereafter, the insolvency was annulled. At the
time of annulment, an Indemnity Bond dated
31.10.2006 was submitted to this court that the
Official Assignee may indemnify against any claim
which may be received or included in the Schedule or
any other creditor of the Official Assignee. One
Vandana S. Tejwani, i.e. respondent No. 2
accordingly made a claim in the petition. She
submitted that the cheque dated 30.11.2000 was
dishonoured on 19.4.2001 and she is entitled to sum
of Rs.50,000/- along with interest at the rate of
18% per annum. Another claim under another cheque
for the said amount was also made by her with the
same rate of interest.
4. At the hearing before the Official Assignee,
the advocate for the erstwhile insolvents left it to
the Official Assignee to do the needful in the
matter. Since the matter pertains to dishonour of
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cheques, the Official Assignee relied on the
principles enumerated in Section 80 of the
Negotiable Instruments Act and granted the claim
with 18% per annum.
5. According to the learned counsel for the
applicants, grant of interest was governed by Rule
23 of the Schedule II to the Presidency Town
Insolvency Act, 1909, which reads as follows:-
"Interest.- (1) On any debt or sum certain
wherein interest is not reserved or agreed,
or, and which is overdue when the debtor is
adjudged an insolvent and which is provable
under this Act, the creditor may prove for
interest at a rate not exceeding six per
centum per annum-
(a) if the debt or sum is payable by virtue
of a written instrument at a certain time,
from the time when such debt or sum was
payable to the date of such adjudication;
or
(b) if the debt or sum is payable otherwise,
from the time when a demand in writing has
been made giving the debtor notice that
interest will be claimed from the date of
the demand until the time of payment to the
date of such adjudication.
(2) Where a debt which has been proved in
insolvency includes interest or any
pecuniary consideration in lieu of interest,
the interest or consideration shall, for the
purposes of dividend, be calculated at a
rate not exceeding six per centum per annum
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without prejudice to the right of a creditor
to receive out of the debtor’s estate any
higher rate of interest to which he may be
entitled after all the debts proved have
been paid in full."
According to the aforesaid Rule, the creditor is
entitled to prove interest at a rate not exceeding
6% per annum when the debtor is insolvent. The
occasion to prove interest in the present case arose
at a stage after applicants had ceased to be
insolvents by the annulment of their insolvency. In
the circumstances, the case is covered by Sub Rule 2
aforesaid. While determining what the highest rate
of interest ought to be the Official Assignee has
not committed any error of law in relying on the
rate prescribed by Section 80 of the Negotiable
Instruments Act since the claim arises out of a
dishonour of cheques.
6. In the result, the Notice of Motion is
dismissed.
(S. A. BOBDE, J.)
2 issues framed by the court
Whether the rate of interest payable by an erstwhile insolvent declared bankrupt via annulment is governed by the Presidency Town Insolvency Act or the Negotiable Instruments Act.
Whether the Official Assignee committed an error of law in determining interest at 18% per annum under Section 80 of the Negotiable Instruments Act instead of the 6% limit in Rule 23 of the Presidency
2 provisions across 2 enactments
Vijay Khanna & Anr.
The Official Assignee of Bombay and Anr.
S. A. BOBDE
As recorded by the court registry
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