Allowed

Pegadan Abdusalim v. Kannanthodi Bushra

Kerala HC22 Sept 2021Ex.FA/30/2019

Case brief

AI extract

What is this about?

The High Court of Kerala set aside the trial court order allowing a wife's claim petition under Order XXI Rule 58 CPC. The Court held that the Insolvency Court committed a jurisdictional error by dismissing a debtor petition for non-prosecution and deemed the proceedings continued under the Insolvency Act.

What did the court decide?

Claim petition under Order XXI Rule 58 CPC dismissed; insolvency proceedings restored and execution stayed.

Pegadan Abdusalim Vs Kannanthodi Bushra — Insolvency and Bankruptcy | Kerala HC (2021)

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE MR. JUSTICE P.SOMARAJAN

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WEDNESDAY, THE 22^ND DAY OF SEPTEMBER 2021 / 31ST BHADRA, 1943

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EX.FA NO. 30 OF 2019

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AGAINST THE ORDER DATED 29/03/2019 IN E.A.NO.62/2018 IN

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E.P.NO.172/2013 IN OS 360/2012 OF SUB COURT, MANJERI, MALAPPURAM

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APPELLANT/RESPONDENT NO.1 IN EA/DECREE HOLDER

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IN EP/PLAINTIFF IN O.S.:

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PEGADAN ABDUSALIM AGED 42 YEARS S/O. MAMMU, RESIDING AT VALLUMBRAM AMSOM, MUTHIRPARAMBA DESOM, P.O.VALLUMBRAM, MALAPPURAM DISTRICT,PIN-673 642

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BY ADVS. P.B.KRISHNAN P.B.SUBRAMANYAN SABU GEORGE MANU VYASAN PETER

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RESPONDENTS/CLAIM PETITIONER & RESPONDENT NO.2 IN E.A./CLAIM

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PETITIONER & JD IN EP/NOT PARTY & DEFENDANT IN O.S.:

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1 KANNANTHODI BUSHRA

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D/O. HASSAN HAJI, CHAKKINGAL HOUSE, OORAGAM AMSOM, DESOM, OORAKAM KEESHUMURI P.O., THIRURANGADI TALUK, MALAPPURAM DISTRICT-676 306

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2 PARAYANGADAN HYDROSE, S/O. MUHAMMED, RESIDING AT VALLUMBRAM AMSOM, MUTHIRIPARAMBA DESOM, P.O.VALLUMBRAM, MALAPPURAM DISTRICT,PIN-673 642

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R1 BY ADVS. SRI.K.M.SATHYANATHA MENON SMT.KAVERY S THAMPI

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THIS EXECUTION FIRST APPEAL HAVING COME UP FOR HEARING ON 22.09.2021, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

EX.FA NO. 30 OF 2019

JUDGMENT

The wife of judgment debtor came up with a claim petition under Order XXI Rule 58 C.P.C. in E.A.No.62/2018 in E.P.No.172/2013 during the course of execution of a decree dated 29/08/2013 in O.S.No.360/2012 for recovery of an amount of Rs.15 lakhs with interest, against the attachment of 50.5 cents by order dated 15/12/2012. Her claim is based on a decree of the Family Court in O.P.No.1042/2012 (renumbered as O.P.No.901/2013 of the Family Court, Malappuram) in her favour, for realization of gold ornaments alleged to have been given at the time of her marriage and also claiming maintenance, in which, her husband remained ex parte. The abovesaid property was sold in execution of the said ex

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parte decree in E.P.No.39/2015 dated 14/07/2015 and bid the property by her and obtained delivery on 26/10/2015, hence the claim under Order XXI Rule 58 C.P.C.. It was

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allowed by the execution court, against which

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the decree holder in O.S.No.360/2012 came up.

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Earlier, the husband/judgment debtor

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approached the Insolvency Court by maintaining

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a debtor petition, I.P.No.1/2013, but subsequently he remained absent and not proceeded with the insolvency petition. Consequently, the insolvency petition was dismissed for non-prosecution on 23/1/2018,

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after the passing of ex parte decree in favour of his wife for recovery of gold ornaments and maintenance and the sale of the property in execution on 14/07/2015, confirmation of sale on 15/09/2015 and delivery effected on 26/10/2015, which according to the decree

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holder is a collusive decree obtained by the

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EX.FA NO. 30 OF 2019

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wife in collusion with her husband. It is

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submitted that the insolvency proceedings were initiated only to camouflage and facilitate the passing of the said collusive decree and to cause sale of the property in the name of

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his wife fradulently and to defraud the creditor, the decree holder herein. It is further submitted that he was a party respondent in the insolvency proceedings and the wife of the judgment debtor was also a party respondent (37^th respondent) in the said proceedings and hence, the execution court is not justified in allowing the claim petition overlooking the fraud actively played by the judgment debtor with his wife.

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Indisputably, the marriage relationship between the judgment debtor and the claimant is still subsisting. None of them approached

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any competent court either to get a decree of

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divorce or judicial separation. Both of them

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EX.FA NO. 30 OF 2019

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are still living as husband and wife. If that

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be so, the wife has to explain what actually prompted her to institute a suit against her husband, that too, without a cause of action for recovery of gold ornaments, if any given at the time of marriage and also for maintenance. The husband remained ex parte so as to enable his wife to translate her claim into a decree. This would show the collusive nature of the suit by the wife of judgment debtor, wherein the husband/judgment debtor conveniently remained absent and caused to

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pass an ex parte decree. It was put in execution and the only immovable property belonged to him caused to be sold in court auction at the instance of his wife and got it in her name in court sale. By its very nature,

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it is clear that it is a collusive decree and

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the judgment debtor remained ex parte so as to

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facilitate passing of a decree in favour of

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his wife and under that decree, the property

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was sold in execution in favour of his wife. It appears that all these were done at the instance of husband, who remained ex parte all along till the property was transferred in court sale in the name of his wife. In order to facilitate all these fraudulent acts, he had adopted yet another device by way of an insolvency petition as against the decree holder and various creditors, wherein his wife was also made as a co-respondent/creditor. It was maintained before the Insolvency Court till the passing of a decree in the collusive suit and its after effect by way of sale of immovable property in favour of his wife and thereafter remained absent and caused to dismiss the same for non-prosecution/default. The entire facts of the case would clearly reveal the way in which the judgment debtor had played fraud on the decree holder and

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other creditors by resorting to a fraudulent suit at the instance of his wife and an

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insolvency petition, which was later on not

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proceeded with causing its dismissal for nonprosecution.

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The Insolvency Court has committed a

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very serious mistake by dismissing an insolvency petition for non-prosecution and thereby defeated its legal consequences over the property, which was submitted to its jurisdiction. It is true that there is no challenge against the dismissal of insolvency petition for non-prosecution. But, there is no

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provision for dismissal of an insolvency

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petition for non-prosecution or for non-

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appearance of debtor petitioner. Unlike a civil suit, insolvency proceedings cannot be

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withdrawn without the leave of the court

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either by the debtor petitioner or by the creditor petitioner. The restriction imposed

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under Section 14 of the Insolvency Act mandating leave of court for withdrawal of a petition presented by the debtor or a creditor should be read along with Section 16 and 17 of

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the Act. By virtue of Section 16 of the Act, the Insolvency Court can substitute any creditor to whom the debtor may be indebted in the place of original petitioner when it is found that the petitioner does not proceed with the case with due diligence. Section 16 is a special provision authorising the Insolvency Court to substitute any other creditor in the place of original petitioner so as to proceed with the matter, for which, there need not be any application from any of the parties. The Insolvency Court can do it by

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itself or at the instance of any of the

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parties. Likewise, Section 17 is yet another

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special provision, which enables the court to proceed with the insolvency proceedings even

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after the death of debtor for the purpose of

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revitilisation and distribution of the property of the debtor. This would show the extra ordinary jurisdiction vested with the Insolvency Court to deal with the property of a debtor for safeguarding the interests of various creditors. By virtue of Section 4 of the Act, the Insolvency Court will have full power to decide all questions of title or claim of priority of any nature, which may arise in the case of insolvency inclusive of a liability crystallized into a decree. The court can dismiss a debtor petition when it is found not in accordance with the mandate under Section 10 or for the reasons enumerated under Section 25 of the Act that the debtor is

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able to pay off his debts without the intervention of Insolvency Court or on any

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other sufficient grounds. If there is no dismissal either under Section 10 or under

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Section 25, the court is bound to pass an

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order of adjudication. An application can be maintained by a creditor when there is an “act of insolvency”,which is a condition precedent.

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But in so far as a debtor petition is concerned, he is bound by Section 10 of the

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Act and he can maintain an insolvency petition only on the grounds specified therein, which are extracted below for reference:

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“10. Conditions on which debtor may petition – (1) A debtor shall not be entitled to present an insolvency petition,unless he is unable to pay his debts; and

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(a) his debts amount to five hundred rupees; or

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(b) he is under arrest or imprisonment in execution of the decree of any court for the payment of money' or

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(c) an order of attachment in execution of such a decree has been made, and is subsisting, against his property.

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(2) A debtor in respect of whom an order of adjudication made under this Act has been annulled, owning to his failure to apply, or to prosecute an application for his discharge, shall not be entitled to present an insolvency petition without the leave of the Court by which the order of adjudication was annulled. Such Court shall not grant leave unless it is satisfied either that the debtor was prevented by any reasonable cause from presenting or prosecuting his application, as the case may

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be or that the petition is founded on facts substantially different from those contained in the petition on which the order of adjudication was made.”

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25 of the Act would show that a debtor

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petition can be dismissed only on non-

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compliance of requirements under Section 10 or on the reasons enumerated under Section 25 of

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the Act. There cannot be a dismissal for nonprosecution and it is against the very spirit of the Act, especially Sections 14, 16 and 17 of the Act. The Insolvency Act is really a social legislation to protect the interests of creditors and debtors as well based on the principle of securing personal liberty and freedom to a debtor and at the same time to discharge the liability to the creditors proportionately out of the estate of the debtor. When a debtor petition is submitted,

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all the properties – immovable or movable

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would stand submitted to the jurisdiction of

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Insolvency Court and thereafter the Insolvency Court would stand stepped into the shoes of

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debtor with all his rights, interests and

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ownership over the said property so as to enable proportionate distribution of

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properties to the creditors, for which, even the question of title, claim of priority or any other question pertaining to the property can be decided by the Insolvency Court by

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virtue of the powers under Section 4 of the

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Act. An interim Receiver as mandated under Section 20 of the Act has to be appointed for safeguarding the movable or immovable property of the debtor, capable of taking possession by

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the Receiver. After the submission of the property under a debtor petition to the

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jurisdiction of Insolvency Court, the property

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will stand vested with the jurisdiction of

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Insolvency Court in all respects. Hence there

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cannot be dismissal of the insolvency petition

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either for non-prosecution or for nonappearance of petitioner/debtor. This might be

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the reason why the legislature has incorporated provision for obtaining leave of court even in the case of withdrawal. When it was not prosecuted with due diligence or nonappearance of petitioner, the Insolvency Court has to follow the mandate under Sections 16 and 17 of the Act and to proceed further in the matter till the completion of distribution of property and cannot pass any order of dismissal for non-prosecution or for nonappearance of the petitioner. Hence, the order of dismissal of the insolvency petition for non-prosecution is without any jurisdiction and against the provisions contained in the Act, which would certainly offend the mandate under Sections 16 and 17 of the Act and hence non est in the eye of law. Necessarily, there

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need not be any challenge against the abovesaid order, which is non est in the eye of law and the insolvency proceedings are deemed to be continued irrespective of order of dismissal for non-prosecution before the concerned Insolvency Court and all the movable and immovable properties of the debtor will stand continued to be vested with the jurisdiction of the Insolvency Court.

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It is within the jurisdiction of the

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Insolvency Court to decide any priority under Section 4 of the Act including all disputes and questions whether of title or priority or of any nature whatsoever whether involving matter of law or of fact, which are necessary and expedient to decide for the purpose of doing complete justice or making a complete distribution of property. Necessarily, a liability covered by a decree would also come within the scope of Section 4 of the Act when

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the decree holder is also a party to the

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debtor petition/creditor petition. Hence, the court sale under the decree in favour of the wife of judgment debtor after the submission of insolvency petition would stand subject to

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the decision that may be taken under Section

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4 of the Act by the Insolvency Court. As such, it is within the jurisdiction of Insolvency Court to decide whether the decree is a collusive one or whether there is any subsisting liability or any disputed question of title, priority or any nature whatsoever pertaining to the property.

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The next question to be addressed is whether this Court can go into the legal

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validity of insolvency proceeding in an appeal

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preferred against the order in a claim

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petition under Rule 58 of Order XXI C.P.C., in

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the absence of an appeal against the said

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proceeding or any order passed thereof.

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The scope of jurisdiction under Rule 33 of Order XLI C.P.C. is so wide enough to do complete justice to the parties and it can be even extended based on any subsequent events.

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The Apex Court in Om Prakash Gupta v. Ranbir

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B. Goyal (AIR 2002 SC 665) had explained the jurisdiction of the appellate court to mould reliefs in accordance with subsequent events, which were brought to the notice of the

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appellate court. The scope of jurisdiction of appellate court under Rule 33 of Order XLI C.P.C. was also laid down by the Apex Court in

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Mahant Dhangir and another v. Madan Mohan and

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others (AIR 1988 SC 54) that it is wide enough to determine the questions not only between the appellant and respondent, but also

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between respondent and co-respondents and laid down the following:

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“The sweep of the power under R.33 is wide enough to determine any question not only between the appellant and respondent,

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but also between respondent and corespondents. The Appellate Court could pass any decree or order which ought to have been passed in the circumstances of the case. The appellate court could also pass such other decree or order as hte case may require, the words “as hte case may require” used in R.33 of O.41 have been put in wide terms to enable hte Appellate Court to pass any order or decree to meet the ends of justice. The only constraint on the power are these : That the parties before the lower Court should be there before the appellate Court. The question raised must properly arise out of the judgment of the lower court. If these two requiremens are there, the appellate court could consider any objection against any part of the judgment or decree of the lower court. It may be urged by any party to the appeal.”

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The legal position being settled so, it is clear that Rule 33 of Order XLI C.P.C. is wide enough to do complete justice to the parties, when the rights of parties were camouflaged under an order, which is non est in the eye of law due to lack of jurisdiction or being an order suffered by jurisdictional error and it would be a matter closely connected with the impugned order and relevant

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for its adjudication, though it was not

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specifically raised before the execution court.

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The order passed by the Insolvency

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Court on 23/01/2018 being non est in the eye of law, the insolvency proceedings deemed to

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be continued in that court till it is

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concluded in terms of the provisions of the Insolvency Act and as such, it is not at all necessary for this Court to resort to Rule 33 of Order XLI C.P.C., but can very well take

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notice of the deemed continuation of

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insolvency proceedings before the Insolvency Court in I.P.No.1/2013 by virtue of provisions

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in the said Act and its legal consequences on the dispute involved in the appeal.

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The wife of judgment debtor was

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respondent No.37 in the insolvency

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proceedings. Hence, she is bound by the

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jurisdiction of the Insolvency Court in

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respect of the decree she had obtained and the court sale thereof.

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As discussed in the earlier

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paragraphs, the decree obtained by the wife of judgment debtor and the court sale are the

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result of collusion between husband and wife, that too, without a cause of action. It is a self serving decree at the instance of both the husband and wife, wherein the husband remained absent and caused to pass a decree as claimed by the wife and brought the property on sale under the said decree.

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Hence, the order of the trial court allowing the claim petition under Order XXI Rule 58 C.P.C. is hereby set aside and the claim petition will stand dismissed, without prejudice to the right of parties to agitate the issue under Section 4 of the Insolvency

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Act in the insolvency proceedings in I.P.No.1/2013 of Sub Court, Manjeri. The

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Insolvency Court shall proceed further with the case by restoring the case on file as if there were no order of dismissal for non-

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prosecution on 23/01/2018, by giving notice to all parties. The parties in this appeal shall

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appear before the Sub Court, Manjeri (Insolvency Court) on 11/11/2021 and also before the Execution Court on 12/11/2021. The execution court shall keep the execution proceedings in abeyance till the completion of insolvency proceedings either under Section 10 or Section 25 of the Act or by complete distribution of assets.

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The appeal is allowed accordingly.

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The Registry is directed to forward a copy

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of this judgment to the Sub Court, Manjeri (Insolvency Court) forth with.

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Sd/-

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JUDGE

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