Full Judgment Text
*IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CM(M) No.163/2004
th
% Date of decision:17 February, 2010
S. DALIP SINGH ..... Petitioner
Through: Mr. Daljinder Singh, Advocate
Versus
THE U.P.F.C. & ORS. ..... Respondents
Through: Mr. A.K. Singh with Mr. Shiv Khanna,
Advocates
CORAM :-
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? YES
2. To be referred to the reporter or not? YES
3. Whether the judgment should be reported YES
in the Digest?
RAJIV SAHAI ENDLAW, J.
1. This petition under Article 227 of the Constitution of India has been
nd
preferred with respect to the order dated 22 November, 2003 of the
Additional District Judge allowing the appeal of the respondent Uttar
st
Pradesh Financial Corporation (UPFC) against the order dated 31 March,
2001 of the Insolvency Judge, Delhi. The Insolvency Judge had overruled
the objection of the respondent/UPFC to the petition for insolvency under
CM(M) No.163/2004 Page 1 of 6
the provisions of the Provincial Insolvency Act, 1920 filed by the petitioner
and allowed the petition and adjudged the petitioner as insolvent in terms of
Section 7(1) of the Insolvency Act. The Additional District Judge on appeal,
finding that the only debts owed by the petitioner were to the
respondent/UPFC and the State of UP to which arrears of sales tax were
owed, held an insolvency petition to be not maintainable qua the debts owed
to the government and dismissed the petition. This Court vide ex parte order
th
dated 4 February, 2003, while issuing notice of the petition, stayed the
operation of the order of the Additional District Judge. The effect of the
interim order of this Court is that the petitioner during the pendency of the
petition before this Court remained adjudged as an insolvent.
2. The petitioner applied under Section 7 of the Insolvency Act for being
adjudged as an insolvent. It was inter alia the case of the petitioner that he
owed monies to UPFC and which had issued a certificate for recovery of
Rs.2,53,595.45 against him; that the Assistant Collector was demanding the
said amount from the petitioner and upon non-payment, threatening to arrest
the petitioner. It was also stated in the petition that besides the aforesaid
debt to UPFC, a certificate for recovery of Rs.24,000/- has also been issued
by the State of UP towards arrears of sales tax. Thus, the only debts owed
by the petitioner were to UPFC and State of UP and which the petitioner
claims to be unable to pay. UPFC and state of UP only were impleaded as
respondents to the said insolvency petition.
3. UPFC opposed the aforesaid insolvency petition on the ground of the
same being barred by Section 8 and Section 44 of the Insolvency Act.
CM(M) No.163/2004 Page 2 of 6
Section 8 of the Insolvency Act prohibits insolvency petitions from being
presented against any corporation or against any association or company
registered under any enactment. Both, the Insolvency Judge and the
Additional District Judge in appeal have rightly held the said provision to be
inapplicable. No error can be found with the said reasoning. An insolvency
petition can be presented by the debtor as well as the creditor. Section 8 is
intended to prevent the creditors of a corporation from presenting a petition
for having a corporation adjudged as insolvent. Section 8 has application
where the debtor is a corporation and has no application where the creditor is
a corporation, as in the present case.
4. The argument of respondent/UPFC was/is that since Section 44 of the
Insolvency Act saves the government dues even upon discharge of insolvent,
insolvency petition cannot be presented when the only dues owed are to the
government. The counsel for UPFC has pointed out that by amendment of
th
the Section 44 of the Insolvency Act as applicable to UP w.e.f. 10
December, 1976, the discharge of an insolvent does not release the insolvent
also from any debt or liability recoverable from him as arrears of land
revenue under the Uttar Pradesh Public Monies (Recovery of Dues) Act,
1972. The Insolvency Judge held that the provisions of Section 44 do not
show that insolvency petition is not maintainable when the debts owed are to
the government. Reliance was placed on Aswini Kumar Pramanik Vs.
Dominion of India AIR 1952 Calcutta 251 where also protection under the
Insolvency Act was sought qua the dues of income tax and the Division
Bench held that no distinction could be made in the debts owed to the
government and others and the protection under the Provincial Insolvency
CM(M) No.163/2004 Page 3 of 6
Act extended to the debts to the government towards income tax also.
However, the Additional District Judge on appeal differed with the said
reasoning and interpreted Section 44 of the Insolvency Act as excluding the
application of the Insolvency Act qua the debts to the government and which
was held to include UPFC which had been declared to be a State by the
Supreme Court in Gujarat State Financial Corporation v. Lotus Hotels Pvt.
Ltd. AIR 1983 SC 848. The counsel for UPFC before this Court also relied
on Shiv Parshad Vs. Punjab State AIR 1957 P&H 150 where the Division
Bench of that Court has held that Section 44 is designed to carry out a public
purpose and for government dues insolvent does not get any discharge.
5. This Court is unable to read Section 44 of the Provincial Insolvency
Act as laying down that no claim of insolvency can be made vis-à-vis debts
owed to the government. Rather, when Section 44 of the Insolvency Act
provides that an order of discharge (which otherwise absolves the insolvent
from all dues) shall not release the insolvent from any debt due to the
government and in UP from any debt recoverable as arrears of land revenue,
it means that insolvency can be claimed against government dues and dues
recoverable as arrears of land revenue also. Had it not been so, there would
have been no occasion to save the same on discharge of the insolvent. There
is no provision in the Insolvency Act to distinguish the government debts
from other debts or to show that a petition claiming insolvency cannot be
filed when the debts due are to the government only.
6. However, though not agreeing with the reasoning of the Additional
District Judge, this Court is still of the view that the insolvency petition did
CM(M) No.163/2004 Page 4 of 6
not lie vis-à-vis the debts owed to respondent/UPFC. UPFC is a creation of
the State Financial Corporations Act, 1951 and is covered by the provisions
thereof. Section 46 B of the said Act provides that the provisions of the said
Act and of any rules and orders made therein shall have effect
notwithstanding anything inconsistent therewith contained in any other law
for the time being in force. The State Financial Corporations Act is later to
the Insolvency Act. Section 31 of the State Financial Corporations Act
permits a State Financial Corporation, as UPFC is, to apply to the District
Judge inter alia for enforcing the liability of any surety, as the petitioner is.
Section 32 G of the State Financial Corporation Act further provides that
where any amount is due to the Financial Corporation, without prejudice to
its other remedies, it may make an application to the State Government for
recovery of amount due to it and if the State Government is satisfied after
following such procedure as may be prescribed, that the amount is so due, it
may issue a certificate for that amount to the Collector and the Collector
shall proceed to recover that amount in the same manner as arrear of land
revenue. The said provisions of the State Financial Corporation Act i.e.
Sections 31 & 32 G (supra), will in terms of Section 46 B have effect
notwithstanding anything inconsistent therewith contained in the Provincial
Insolvency Act. The provisions of Section 31 of the Provincial Insolvency
Act which entitle a person adjudged as insolvent, to apply for protection
from being arrested or detained in prison for any debt to which the order
applies, are found to be inconsistent with those of Sections 31 & 32 G of the
State Financial Corporation Act. The provisions of the State Financial
Corporation Act appear to have escaped the attention of the learned
Additional District Judge.
CM(M) No.163/2004 Page 5 of 6
7. I thus find that though the objection of UPFC to the insolvency
petition preferred by the petitioner on the basis of Section 8 and Section 44
of the Insolvency Act was misconceived and there is nothing in the
Insolvency Act to bar an insolvency petition being preferred qua the debts
owed to a State Financial Corporation but owing to the precedence given by
Section 46 B of the State Financial Corporation Act, the adjudication of the
petitioner as insolvent would still not be a bar to the recovery from him of
the amounts owed to respondent/UPFC under the provisions of Section 32 G
of the Act as arrears of land revenue. The petitioner cannot under Section 31
of the Insolvency Act claim direction / protection qua the same. Since the
major debt owed is to respondent/UPFC only and the only other debt being
of arrears of sales tax and further since no arguments have been addressed
qua the said debt towards sales tax, no purpose would be served in adjudging
the petitioner as insolvent and the order of the Additional District Judge
dismissing the petition of the petitioner under Section 7 of the Insolvency
Act is upheld. The petition is accordingly dismissed with costs of
Rs.11,000/- payable to the respondent/UPFC.
RAJIV SAHAI ENDLAW
(JUDGE)
February 17, 2010
gsr
CM(M) No.163/2004 Page 6 of 6
+ CM(M) No.163/2004
th
% Date of decision:17 February, 2010
S. DALIP SINGH ..... Petitioner
Through: Mr. Daljinder Singh, Advocate
Versus
THE U.P.F.C. & ORS. ..... Respondents
Through: Mr. A.K. Singh with Mr. Shiv Khanna,
Advocates
CORAM :-
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
1. Whether reporters of Local papers may
be allowed to see the judgment? YES
2. To be referred to the reporter or not? YES
3. Whether the judgment should be reported YES
in the Digest?
RAJIV SAHAI ENDLAW, J.
1. This petition under Article 227 of the Constitution of India has been
nd
preferred with respect to the order dated 22 November, 2003 of the
Additional District Judge allowing the appeal of the respondent Uttar
st
Pradesh Financial Corporation (UPFC) against the order dated 31 March,
2001 of the Insolvency Judge, Delhi. The Insolvency Judge had overruled
the objection of the respondent/UPFC to the petition for insolvency under
CM(M) No.163/2004 Page 1 of 6
the provisions of the Provincial Insolvency Act, 1920 filed by the petitioner
and allowed the petition and adjudged the petitioner as insolvent in terms of
Section 7(1) of the Insolvency Act. The Additional District Judge on appeal,
finding that the only debts owed by the petitioner were to the
respondent/UPFC and the State of UP to which arrears of sales tax were
owed, held an insolvency petition to be not maintainable qua the debts owed
to the government and dismissed the petition. This Court vide ex parte order
th
dated 4 February, 2003, while issuing notice of the petition, stayed the
operation of the order of the Additional District Judge. The effect of the
interim order of this Court is that the petitioner during the pendency of the
petition before this Court remained adjudged as an insolvent.
2. The petitioner applied under Section 7 of the Insolvency Act for being
adjudged as an insolvent. It was inter alia the case of the petitioner that he
owed monies to UPFC and which had issued a certificate for recovery of
Rs.2,53,595.45 against him; that the Assistant Collector was demanding the
said amount from the petitioner and upon non-payment, threatening to arrest
the petitioner. It was also stated in the petition that besides the aforesaid
debt to UPFC, a certificate for recovery of Rs.24,000/- has also been issued
by the State of UP towards arrears of sales tax. Thus, the only debts owed
by the petitioner were to UPFC and State of UP and which the petitioner
claims to be unable to pay. UPFC and state of UP only were impleaded as
respondents to the said insolvency petition.
3. UPFC opposed the aforesaid insolvency petition on the ground of the
same being barred by Section 8 and Section 44 of the Insolvency Act.
CM(M) No.163/2004 Page 2 of 6
Section 8 of the Insolvency Act prohibits insolvency petitions from being
presented against any corporation or against any association or company
registered under any enactment. Both, the Insolvency Judge and the
Additional District Judge in appeal have rightly held the said provision to be
inapplicable. No error can be found with the said reasoning. An insolvency
petition can be presented by the debtor as well as the creditor. Section 8 is
intended to prevent the creditors of a corporation from presenting a petition
for having a corporation adjudged as insolvent. Section 8 has application
where the debtor is a corporation and has no application where the creditor is
a corporation, as in the present case.
4. The argument of respondent/UPFC was/is that since Section 44 of the
Insolvency Act saves the government dues even upon discharge of insolvent,
insolvency petition cannot be presented when the only dues owed are to the
government. The counsel for UPFC has pointed out that by amendment of
th
the Section 44 of the Insolvency Act as applicable to UP w.e.f. 10
December, 1976, the discharge of an insolvent does not release the insolvent
also from any debt or liability recoverable from him as arrears of land
revenue under the Uttar Pradesh Public Monies (Recovery of Dues) Act,
1972. The Insolvency Judge held that the provisions of Section 44 do not
show that insolvency petition is not maintainable when the debts owed are to
the government. Reliance was placed on Aswini Kumar Pramanik Vs.
Dominion of India AIR 1952 Calcutta 251 where also protection under the
Insolvency Act was sought qua the dues of income tax and the Division
Bench held that no distinction could be made in the debts owed to the
government and others and the protection under the Provincial Insolvency
CM(M) No.163/2004 Page 3 of 6
Act extended to the debts to the government towards income tax also.
However, the Additional District Judge on appeal differed with the said
reasoning and interpreted Section 44 of the Insolvency Act as excluding the
application of the Insolvency Act qua the debts to the government and which
was held to include UPFC which had been declared to be a State by the
Supreme Court in Gujarat State Financial Corporation v. Lotus Hotels Pvt.
Ltd. AIR 1983 SC 848. The counsel for UPFC before this Court also relied
on Shiv Parshad Vs. Punjab State AIR 1957 P&H 150 where the Division
Bench of that Court has held that Section 44 is designed to carry out a public
purpose and for government dues insolvent does not get any discharge.
5. This Court is unable to read Section 44 of the Provincial Insolvency
Act as laying down that no claim of insolvency can be made vis-à-vis debts
owed to the government. Rather, when Section 44 of the Insolvency Act
provides that an order of discharge (which otherwise absolves the insolvent
from all dues) shall not release the insolvent from any debt due to the
government and in UP from any debt recoverable as arrears of land revenue,
it means that insolvency can be claimed against government dues and dues
recoverable as arrears of land revenue also. Had it not been so, there would
have been no occasion to save the same on discharge of the insolvent. There
is no provision in the Insolvency Act to distinguish the government debts
from other debts or to show that a petition claiming insolvency cannot be
filed when the debts due are to the government only.
6. However, though not agreeing with the reasoning of the Additional
District Judge, this Court is still of the view that the insolvency petition did
CM(M) No.163/2004 Page 4 of 6
not lie vis-à-vis the debts owed to respondent/UPFC. UPFC is a creation of
the State Financial Corporations Act, 1951 and is covered by the provisions
thereof. Section 46 B of the said Act provides that the provisions of the said
Act and of any rules and orders made therein shall have effect
notwithstanding anything inconsistent therewith contained in any other law
for the time being in force. The State Financial Corporations Act is later to
the Insolvency Act. Section 31 of the State Financial Corporations Act
permits a State Financial Corporation, as UPFC is, to apply to the District
Judge inter alia for enforcing the liability of any surety, as the petitioner is.
Section 32 G of the State Financial Corporation Act further provides that
where any amount is due to the Financial Corporation, without prejudice to
its other remedies, it may make an application to the State Government for
recovery of amount due to it and if the State Government is satisfied after
following such procedure as may be prescribed, that the amount is so due, it
may issue a certificate for that amount to the Collector and the Collector
shall proceed to recover that amount in the same manner as arrear of land
revenue. The said provisions of the State Financial Corporation Act i.e.
Sections 31 & 32 G (supra), will in terms of Section 46 B have effect
notwithstanding anything inconsistent therewith contained in the Provincial
Insolvency Act. The provisions of Section 31 of the Provincial Insolvency
Act which entitle a person adjudged as insolvent, to apply for protection
from being arrested or detained in prison for any debt to which the order
applies, are found to be inconsistent with those of Sections 31 & 32 G of the
State Financial Corporation Act. The provisions of the State Financial
Corporation Act appear to have escaped the attention of the learned
Additional District Judge.
CM(M) No.163/2004 Page 5 of 6
7. I thus find that though the objection of UPFC to the insolvency
petition preferred by the petitioner on the basis of Section 8 and Section 44
of the Insolvency Act was misconceived and there is nothing in the
Insolvency Act to bar an insolvency petition being preferred qua the debts
owed to a State Financial Corporation but owing to the precedence given by
Section 46 B of the State Financial Corporation Act, the adjudication of the
petitioner as insolvent would still not be a bar to the recovery from him of
the amounts owed to respondent/UPFC under the provisions of Section 32 G
of the Act as arrears of land revenue. The petitioner cannot under Section 31
of the Insolvency Act claim direction / protection qua the same. Since the
major debt owed is to respondent/UPFC only and the only other debt being
of arrears of sales tax and further since no arguments have been addressed
qua the said debt towards sales tax, no purpose would be served in adjudging
the petitioner as insolvent and the order of the Additional District Judge
dismissing the petition of the petitioner under Section 7 of the Insolvency
Act is upheld. The petition is accordingly dismissed with costs of
Rs.11,000/- payable to the respondent/UPFC.
RAJIV SAHAI ENDLAW
(JUDGE)
February 17, 2010
gsr
CM(M) No.163/2004 Page 6 of 6