Doctrine of precedent is applicable to insolvency proceedings.

 In Ramavatar Kunjilal Gupta & Anr. Vs. SICOM Ltd. 2006 6LJSOFT (URC)11 a Division Bench of this court to which I was a party held that the doctrine of precedent applies to insolvency proceedings. The Division Bench held as under: - "13. Mr. Shah, the learned Senior Counsel appearing on behalf of the Appellants submitted that we are not bound by the

judgment of the Division Bench dated 29th March, 2005. According to him, the judgment dated 29th March, 2005 is wrong in law and has been incorrectly decided. Mr.Shah submitted that though the doctrine of precedent would normally apply disentitling a Court of co-ordinate jurisdiction to take a different view, the rule would not apply in insolvency proceedings. He based the submissions on the ground that the consequences of a person being declared an insolvent are drastic.

14. We are unable to agree with this submission. Even assuming that the judgment of the Division Bench is incorrect and wrongly decided, we are bound by the same. We see no justification or reason to hold that the doctrine of precedent does not apply to insolvency matters. Mr.Shah has not invited our attention to any provisions of law or precedent in this regard either.

Merely because the consequences of orders and judgments are drastic would not negate the doctrine of precedent.

Bombay High Court

Belatedly vs Unknown on 2 April, 2009

Bench: S.J. Vazifdar

1. The insolvent who has taken out this Notice of Motion for various reliefs restricted his case to prayer (I) wherein he has sought an order of annulment of the insolvency under section 21 of the Presidency Towns Insolvency Act, 1909.

2. This Notice of Motion raises the following : 2 :
questions of law :-
(A). Does a debtor who is adjudged an insolvent fall within the meaning of the expression "any person interested" used in section 21 of the Presidency - Towns Insolvency Act, 1909 ?
(B). Is a person interested entitled to maintain an application for annulment under section 21 of the Presidency - Towns Insolvency Act, 1909 on the ground that he ought not to have been adjudged insolvent in cases where the order of adjudication is passed by or confirmed by the Appeal Court or the Supreme Court of India ?

3. Mr.Raghwan submitted that the insolvent is entitled to an order annulling the insolvency, as the entire proceedings were based on an award made and published under the Arbitration and Conciliation Act, 1996. Relying upon the judgment of the Supreme Court in Paramjeet Singh Patheja v. ICDS Ltd., 2006 AIR SCW 5718, he submitted that the order of adjudication in respect of the insolvent is void.
4(a). The arbitration award, made and published on : 3 :
24.2.1999 directed the insolvent to pay the Petitioning Creditor a sum of Rs.38,54,087=32 along with interest at the rate of 18% on Rs.24,41,675/- from 29.8.2000 till payment.
(b). Based on the award, Insolvency Notice bearing No.82 of 2000 was issued by this Court on 26.9.2000. The notice was served on the insolvent on 3.10.2000. (c). On 21.11.2000 the insolvent belatedly took out Notice of Motion No.1127 of 2000 for setting aside the notice.
(d). On 29.1.2001, the petition was filed for an order of adjudication of insolvency against the debtor/insolvent. The Petition was filed before Notice of Motion No.1127 of 2000 was disposed of probably because the Notice of Motion was taken out belatedly.
(e). On 24.4.2001, the Petitioner filed an Arbitration Petition challenging the award. By an order and judgment dated 25.8.2001, the Arbitration Petition was dismissed.
(f). On 4.9.2001, Notice of Motion No.1127 of 2000 for setting aside the Insolvency Notice was withdrawn : 4 :
unconditionally.
(g). On 6.11.2001, D.K. Deshmukh, J. disposed of the Insolvency Petition by the following order :- . "P.C. :
This petition is filed by the Petitioning Creditors for adjudication of the Debtor as Insolvent. The Insolvency Notice is based on an Award made by the Arbitrator. The Notice of Motion challenging the Insolvency Notice has been withdrawn. Even the challenge raised to the Award on which the Insolvency notice was based has failed. There is also no affidavit in reply filed. Hence this petition is granted in terms of prayers (a) and (b). Petition is disposed of."
. Prayer (a) was for an order of adjudication of insolvency and prayer (b) was for costs.
5. The insolvent challenged the order by filing an Appeal being Appeal No.1231 of 2001. The Appeal was dismissed by an order and judgment dated 27.3.2002.
. The Division Bench held that the prayers in the Petition were required to be granted in view of the above facts. Various contentions raised on behalf of the insolvent were rejected. The Division Bench held that the order dated 6.11.2001 was in conformity with law and required no interference.
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6. Mr.Raghwan submitted that in view of Section 21 and the judgment of the Supreme Court in Patheja's case (supra), the insolvent is entitled to an order annulling the insolvency. Section 21 of the Act reads as under :-

21. Power for Court to annul adjudication in certain cases.- (1) Where, in the opinion of the Court, a debtor ought not to have been adjudged insolvent, or where it is proved to the satisfaction of the Court that the debts of the insolvent are paid in full, (the Court shall, on the application of any person
interested,) by order annul the adjudication and the Court may, of its own motion or on application made by the official assignee or any creditor, annul any adjudication made on the petition of a debtor who was, by reason of the provisions of sub-section (2) of
section 14, not entitled to present such
petition.
(2) For the purposes of this section, any debt disputed by a debtor shall be considered as paid in full, if the debtor enters into a bond, in such sum and with such sureties as the Court approves, to pay the amount to be recovered in any proceeding for the recovery of or concerning the debt, with costs, and any debt due to a creditor who cannot be
found or cannot be identified shall be considered as paid in full if paid into
Court."
. Mr.Raghwan submitted that the insolvent is a person interested within the meaning of that expression in Section 21. He further submitted that the Petitioner is entitled to avail of three remedies in respect of the orders dated 6.11.2001 and 27.3.2002 viz. a right to file an application for a review of the order of the Division Bench dated 27.3.2002, a : 6 :
right to challenge the order of the Division Bench before the Supreme Court and a separate and independent right under Section 21 of the said Act to have the order of insolvency dated 6.11.2001 passed by the learned single Judge annulled.
(A). Does a debtor who is adjudged an insolvent fall within the meaning of the
expression "any person interested" used in section 21 of the Presidency - Towns Insolvency Act, 1909 ?

7. A preliminary objection as to the maintainability of an application under Section 21 was raised on behalf of the creditors who have opposed the application. It was submitted that the person against whom the order of adjudication of insolvency is passed is not entitled to maintain an application under Section 21 as the words "any person interested" does not include within its ambit an insolvent.
8. No authorities or commentaries were cited by any of the counsel in this regard. After I reserved judgment on an earlier occasion, I noticed the provisions of Section 35 of the Provincial Insolvency Act, 1920, which reads as under :-
"35. Power to annul adjudication of
Insolvency. - Where, in the opinion of
the Court, a debtor ought not to have
: 7 :
been adjudged insolvent, or where it is
proved to the satisfaction of the Court
that the debts of the insolvent have
been paid in full, the Court shall, on
the application of the debtor, or of any
other person interested, by order in
writing, annul the adjudication (and the
Court may, of its own motion or on
application made by the receiver or any
creditor, annul any adjudication made on
the petition of a debtor who was, by
reason of the provisions of sub-section
(2) of Section 10, not entitled to
present such petition.)"

9. Whereas section 35 of the Provincial Insolvency Act, 1920 uses the expression " the debtor or of any other person interested" Section 21 of the Presidency - Towns Insolvency Act, 1909 uses the expression "any person interested". The question that occurred to me was as to why the legislature had used different expressions in cognate Acts.

10. I have been unable to find an answer on the basis of the limited material I was able to access while tracing the legislative history of both these Acts. The corresponding sections in the Acts that preceded each of these Acts and the Bills that preceded such Acts contained the same language. I have been unable to find the reason for this difference in the language from the notes on clauses, the Statement of Objects and Reasons and the Reports of the Select Committee on the earlier bills of the Acts preceding both these Acts.
: 8 :

11. I, therefore, placed the matter for further arguments, furnished the counsel the above material and invited them to make further submissions. However, even at the further hearing, my attention was not invited to anything in this regard. I must therefore decide the matter on principle.
12. On the question of maintainability of an application under Section 21 of the Presidency - Towns Insolvency Act by a insolvent, it is necessary to note the difference in language used therein and the language used in Section 35 of the Provincial Insolvency Act, 1920. Section 21 permits an application thereunder to be made inter-alia by "any person interested" whereas section 35 of the Provincial Insolvency Act permits an application thereunder to be made by "the debtor, or of any other person interested". Section 35 specifically permits "the debtor" to make an application for annulment of the adjudication, whereas Section 21 permits "any person interested". The question is whether the provisions of section 35 indicate that the legislature intended debarring the debtor from making an application for annulment of the adjudication under Section 21 of the Presidency Towns Insolvency Act. : 9 :

13. It may be suggested that the legislature having under section 35 specifically permitted "the debtor or of any other person interested " to make an application for annulment of the adjudication drew a distinction between a debtor and persons interested to wit the legislature did not include within the scope of the expression "any other person interested" a debtor and therefore, specifically provided that a debtor would also be entitled to make an application for annulment. In that event the legislature having used the limited expression "any person interested" in section 21 consciously excluded debtors therefrom.
14. The answer however, to my mind lies in the use of the word "other" in section 35. The use of the word "other" indicates that a debtor is also a person interested for otherwise the legislature would have used the words "the debtor or any person interested" and not the words "any other person interested". The word "other" in the expression "any other person interested" indicates that the legislature considered the debtor also to be a person interested.
15. I have come to the conclusion therefore that a debtor falls within the scope of the expression "any person interested" in section 21. The Notice of Motion is therefore maintainable. The preliminary : 10 :
objection is rejected.
(B). Is a person interested entitled to maintain an application for annulment under
section 21 of the Presidency - Towns Insolvency Act, 1909 on the ground that he ought not to
have been adjudged insolvent in
cases where the order of adjudication is passed by or confirmed by the Appeal Court or
the Supreme Court of India ?

16. Mr.Raghwan submitted that where the conditions stipulated in section 21 are satisfied, the Court has no discretion in the matter and is bound to annul the adjudication. In other words, according to him, where the Insolvency Court is of the opinion that a debtor ought to have been adjudged insolvent or where it is proved to the satisfaction of the Court that the debts of the insolvent are paid in full, the Court has no discretion in the matter and shall annul the adjudication. In the present case, he submits that in view of the judgment of the Supreme Court in Patheja's case, the Insolvency Court is bound to form the opinion that the debtor ought not to have been : 11 :
adjudged insolvent and consequently the Insolvency Court is bound to annul the adjudication.
17. The submission that section 21 is mandatory to the extent suggested is well founded. This is established by the fact that prior to 1950, the Courts had discretionary powers under section 21. The words in section 21 prior to the amendment were "the Court may on the application of any person interested". By section 3 of Act 3 of 1950, section 21 was amended with effect from 18.2.1950 by substituting the word "may" with the word "shall". The legislative intent therefore is clear viz. that if the Court is of the opinion that a debtor ought not to have been adjudged insolvent, the Court shall by an order annul the adjudication. The Court now has no discretion in the matter.

18. The matter however does not rest there. In the present case, the order of annulment was carried in appeal. The Appeal Court confirmed the order. Thus the order of the learned single Judge stood merged in the order of the Appeal Court.

19. Mr.Raghwan submitted that even where a larger bench of the court or even the Supreme Court has adjudged a person insolvent, the insolvency court is : 12 :
bound to annul the order if in its opinion the order ought not to have been made. I am not inclined to accept the submission stated so broadly.

20. Under section 21 the court shall by order annul the adjudication where in its opinion the debtor ought not to have been adjudged insolvent. The term "opinion" is synonymous with the term "view" in normal usage. In the context of section 21 I am unable to ascribe to the term opinion merely its lexical definition. The term opinion in section 21 cannot possibly mean the personal opinion or view of the court. To ascribe to the term opinion in section 21 merely its lexical definition would entitle a single judge of the High Court to sit in appeal over the judgment of a larger bench of the court or even of the Supreme Court.

21. Under section 2 (h) of The Presidency -Towns Insolvency Act, 1909 the expression "the court" means the Court exercising jurisdiction under the Act. Section 4 of the Act reads thus: - "4. Jurisdiction to be exercised by a Single Judge. - All matters in respect of which jurisdiction is given by this Act shall be ordinarily transacted and disposed of by or under the direction of one of the Judges of the Court, and the Chief Justice shall, from time to time, assign a Judge for that purpose."
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22. Mr.Raghwan's submission militates against the doctrine of precedent. It would permit a single judge of the High Court to hold contrary to the judgment of a larger bench of the court or even the Supreme Court. I find it difficult to ascribe an intention on the part of the legislature to make the doctrine of precedent inapplicable to applications under section
21.

23. This would not only be contrary to the doctrine of precedent but would denude the entire judicial system under the Presidency - Towns Insolvency Act of any certainty and indeed, taken to its logical conclusion, ensure that there is no end to insolvency proceedings so long as an order of annulment is not passed. The submission would permit any person entitled to maintain an application under section 21 to keep making applications under section 21 to annul an adjudication till a judge, on the basis of his personal opinion, even contrary to the decision of a larger bench or of the Supreme Court annuls it. It would matter not the number of judges who in the past had refused to annul the order. Indeed it would matter not that the opinion of the judge is contrary to the judgment of a larger bench of the High Court or of the Supreme Court. Thus not only would there be no certainty but there would be no end to proceedings for : 14 :
annulment till an order of annulment is made. Section 21 does not apply to a converse case to wit, where the petition for adjudication is rejected.

24. What then is the scope of the term "opinion" in section 21? In my view it is an opinion which is capable of being translated into an order of the court enforceable as such.

25. Every judge is entitled to his own, personal opinion or view on questions of law or of fact or even otherwise. The doctrine of precedent does not preclude a judge or any other person from having a personal view on a matter be it on a question of law or of fact or otherwise even if it is contrary to a decision which is binding on him in the exercise of his judicial functions.

26. In the exercise of his judicial function however a judge is bound by the doctrine of precedent. While exercising powers under section 21 a judge obviously discharges his judicial function. This he is not entitled to do on the basis of his personal opinion or view. The term "opinion" in section 21 thus cannot and does not include within its scope the personal opinion or view of the judge. A Judges personal view contrary to a binding judgment is not : 15 :
capable of being translated into an order of the court as a judge is not entitled to ignore a binding precedent and follow his personal opinion. The opinion under section 21 must be based on judicial principles including the doctrine of precedent.
27. In Ramavatar Kunjilal Gupta & Anr. Vs. SICOM Ltd. 2006 6LJSOFT (URC)11 a Division Bench of this court to which I was a party held that the doctrine of precedent applies to insolvency proceedings. The Division Bench held as under: - "13. Mr. Shah, the learned Senior Counsel appearing on behalf of the Appellants submitted that we are not bound by the
judgment of the Division Bench dated 29th March, 2005. According to him, the judgment dated 29th March, 2005 is wrong in law and has been incorrectly decided. Mr.Shah submitted that though the doctrine of precedent would normally apply disentitling a Court of co-ordinate jurisdiction to take a different view, the rule would not apply in insolvency proceedings. He based the submissions on the ground that the consequences of a person being declared an insolvent are drastic.
14. We are unable to agree with this submission. Even assuming that the judgment of the Division Bench is incorrect and wrongly decided, we are bound by the same. We see no justification or reason to hold that the doctrine of precedent does not apply to insolvency matters. Mr.Shah has not invited our attention to any provisions of law or precedent in this regard either.
Merely because the consequences of orders and judgments are drastic would not negate the doctrine of precedent. We know of no rule of law or precedent to support this contention."
: 16 :

28. It is neither possible nor necessary to enumerate the cases in which an application under section 21 is maintainable and cases in which it is not. This must be determined according to the facts and circumstances of each case.

29. If a particular aspect of law or of fact has been decided and that point has attained finality either in appeal or otherwise it cannot be considered by the insolvency court once again. That, as I have stated earlier, would entitle a judge to sit in appeal over the judgment of his own court, a larger bench of the court and even of the Supreme Court.

30. The remedy of the person aggrieved by such a decision is either by filing an application for review or carrying the matter in appeal. Indeed the "person interested" is not without a remedy. Section 8 of the Presidency Towns Insolvency Act provides a remedy and reads as under :-
"8. Appeals in insolvency. - (1) The Court may review, rescind or vary any order made by it under its insolvency jurisdiction.
(2) Orders in insolvency matters, shall at the instance of any person aggrieved, be subject to appeal as follows, namely :-
(a) an appeal from an order made by an
officer of the Court empowered under
section 6 shall lie to the Judge
assigned under section 4 for the
transaction and disposal of matters in
: 17 :
insolvency and no further appeal shall
lie except by leave of such Judge ;
(b) save as otherwise provided in clause
(a), an appeal from an order made by a
Judge in the exercise of the
jurisdiction conferred by this Act shall
lie in the same way and be subject to
the same provisions as an appeal from an
order made by a Judge in the exercise of
the ordinary original civil jurisdiction
of the Court.

31. I do not consider it necessary for me to deal with cases where the order passed by a single judge is without jurisdiction and the matter rested there to wit, it was not carried in appeal. In such cases it may be possible for a "person interested" within the meaning of that expression in section 21, to maintain an application for annulling the adjudication. Thus had the present matter rested with the judgment of the learned single Judge allowing the petition the result may well have been different in view of the judgment of the Supreme Court in Patheja's case.

32. In the present case however the order of adjudication was challenged in appeal and the appellate court confirmed the order of the learned single judge. I intend therefore restricting my judgment to such a case.

33. In the present case the application is not maintainable as the petition for adjudication, which : 18 :
was contested by the parties including the insolvent who has taken out the present notice of motion, was decided by the insolvency court and the decision was affirmed by the Appeal Court. Thus the decision of the learned single judge stood merged in the decision of the Appeal Court. An order of annulment in the present notice of motion would be contrary to and constitute an interference with the order and judgment of the Appeal Court which is not permissible.
34. This does not militate against the provisions of section 21 whereby it is mandatory for the court to annul the adjudication where it is of the opinion that the debtor ought not to have been adjudged insolvent. To reiterate, it is not open in these circumstances for the court to form an independent opinion as to whether or not the debtor ought to have been adjudged insolvent the question having already been not merely decided by the learned single judge but the decision of the learned single judge having been confirmed by the appellate court resulting in a merger of the judgment of the former in the judgment of the latter.
35. The suggestion that this view would render section 21 a "dead letter" qua a debtor is not justified. There are several circumstances in which a debtor may avail the benefit of section 21 vis-a-vis : 19 :
the provision that the order of adjudication ought not to have been made. For instance a debtor may legitimately avail of section 21 in this respect when the order was obtained fraudulently or where the debtor has a valid explanation for not having remained present when the order was passed.

36. In this manner I find that the provisions of sections 8 and 21 of the Presidency - Towns Insolvency Act and the doctrine of binding precedent are reconciled. A view to the contrary would bring about constant confrontation especially between the provisions of section 21 and the doctrine of binding precedent.

37. The Notice of Motion is dismissed. In the circumstances of this case however there shall be no order as to costs.