ORDER
Bharucha, J.
1. By the judgment and order under appeal the appellants were adjudicated insolvent upon the petition filed by the 1st respondents.
2. The 1st respondents had filed a suit being OOCJ Suit No. 1313 of 1975 against a private limited company called Mona Traders
Private Ltd. and the appellants, who were its directors. On 4th March 1976 the 1st respondents obtained an ex parte decree. Thereunder the limited company was ordered and decreed to pay to the 1st respondents the sum of Rs. 17,94,156.63 and interest thereon as therein stated; and the appellants were ordered and decreed to pay to the 1st respondents slightly smaller sums with interest thereon as therein stated. The decree also required that the goods hypothecated to the 1st respondents be sold and the not sale proceeds applied her satisfaction of the 1st respondents’ claim. The sale was to be effected by the Commissioner for taking Accounts. It was also ordered that the decrees passed against the appellants were not separate decrees and that they would be entitled to credit for any money paid by the limited company in respect of the decree passed against it as also by reason of the sale of the hypothecated goods. Partial satisfaction of the decree was noted on 18th July 1985 in the sum of Rs. 4,785/- paid by the Official Liquidator after selling the moveable property of the limited company.
3. On 15th October 1985 the 1st respondent assued a notice under Order XXI Rule 22 of the Code of Civil Procedure for execution of the decree and the notice was made absolute on 9th January 1987.
4. On22nd April 1987 the 1st respondents issued to the appellants an insolvency notice calling upon them to make payment within 35 days from service of the amount then due under the said decree. The insolvency notice was served on 28th April 1987. The period of 35 days therefrom expired on 3rd June 1987 and the act of insolvency then became complete. On 13th August 1987 the 1st respondents filed against the appellants the petition for adjudicating them insolvency. It was based on the ground of the act of insolvency committed pursuant to non-compliance with the insolvency notice. On 5th July 1988 an affidavit in reply was filed by the 1st appellant. It was contended, firstly, time the petition was time-barred and liable to be dismissed in view of the decision of the learned single judge of this court in Bhimji
Nanji & Co., 71 Bom LR 638. It was contended that the ex partc decree passed on 4th March 1970 had become time-barred on 3rd or 4th March 1988 and there was no debt existing against the appellants under S. 12 of the Presidency-towns Insolvency Act. Secondly, the affidavit contended that the decree was secured by hypothecation of goods which had neighter been given up or valued as required by S. 12(2) of the Act. Thirdly, it was contended that the hypothecated goods had not been sold and the proceeds thereof had not been credited so that the amount due under the decree was not ascertainable. No affidavit in rejoinder was filed.
5. The petition was made absolute, as aforestated by the judgment and order under appeal. The learned single judge noted that the main contention on behalf of the appellants (the judgment-debtors before him) was that, the decree being not executable on the date of the hearing of the petition and at the time when the order of execution had to be passed, the petition was not maintainable. Reliance in this behalf was placed upon the judgment in Bhimji Nanji’s case. The learned judge considered the judgment and found himself unable to understand some parts of it. To his mind the judgment would create “an untenable position”. He “would rather say that this case should be confined to the facts of that case only. “The learned judge held that after service of an insolvency notice it was for the judgment-debtor to make an application for discharge thereof within the time prescribed. It was in that notice that he had to make out a case as to why the decree was not executable. It was at that stage for the court to consider whether the decree was not executable for any reason under any law including the question of limitation, if any. If the judgment-debtor failed to make any such application and failed to have the notice set aside it had necessarily to be held that the judgment-debtor did commit an act of insolvency on the expiry of the period mentioned in the insolvency notice and if the judgment creditor filed a petition under Section 10 read with Section 12 of the Act he became entitled to an order of adjudication in the ordinary course. In such a case there was
no question of the judgment-creditor having to prove any debt or any act of insolvency as required u/S. 13(2) of the Act inasmuch as the decree itself was proof of the debt and the failure on the part of the debtor in having the insolvency notice set aside was proof of the act of insolvency. There could be no further enquiry u/S. 13 whether the decree was executable or not at the time of hearing of the petition or at the time of passing an order of adjudication. The question whether a decree was executable or not was relevant in an application made by the judgment-debtor to have the insolvency notice set aside but it was not relevant at the hearing of the petition or at the time of passing an order of adjudication. Accordingly, the learned judge held that in the present case as on the date of presentation of the petition the debt could not be said to be barred by the law of limitation. Since the appellants had not made any application for having the insolvency notice set aside the order of adjudication had to follow as a matter of course. The learned judge held that in any event the decree was not lime-barred on the date of the hearing of the petition. He also held that since the security had been given by the limited company and not by the appellants, the appellants had no right to raise the contention that the 1st respondents had not given up the security hypothecated. Before we deal with the merits of the appeal before us we wish to say that judicial discipline requires a court to follow a judgment that is binding upon it or if it is inclined to disagree with a binding judgment, to refer the matter before it to a larger bench. The court cannot disregard the binding nature of a judgment by saying that it should be confined to its own facts.
6. It was contended by Mr. Shah, learned counsel for the appellants, that the debt ought to be existent on the date of hearing of the insolvency petition, If on that date the debt was time-barred the petition had to be dismissed. Mr. Shah drew support for this contention from the judgment in Bhimji Nanji’s case.
7. We must first look at the relevant provisions of the Act. S. 9 as amended in 1978
provides in sub-sec. (2) that a debtor commits an act of insolvency if a creditor who has obtained a decree or order against him for the payment of money has served on him a notice, referred to as an insolvency notice, and the debtor does not comply with that notice within the period specified therein. Sub-sec. (3) of S. 9 provides for the contents of the notice. S. 10 says that if a debtor commits an act of insolvency an insolvency petition may be presented either by a creditor or by the debtor and the court may on such petition make an order (called an order of adjudication) adjudging him and insolvent. S. 11 provides for the jurisdiction of the court in such matters and is not relevant for our purposes. S. 12 says that a creditor shall not be entitled to present an insolvency petition against a debtor unless –
“(a) the debt owing by the debtor to the creditor, or, if two or more creditors join in the petition, the aggregate amount of debts owing to such creditors, amounts to five hundred rupees, and
(b) the debt is a liquidated sum payable either immediately or at some certain future time,
(c) the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition. Sub-sec. (1) of S. 13 requires a creditor’s petition to be verified by affidavit. Sub-sec. (2) is relevant for our purpose and reads thus :
“(2) At the hearing the Court shall require proof of-
(a) the debt of the petitioning creditor, and
(b) the act of insolvency or, if more than one act of insolvency is alleged in the petition, some one of the alleged acts of insolvency.”
Section. 17 sets out the effect of an order of I adjudication. It says that on the making of an order of adjudication, the property of the insolvent wherever situate shall vest in the official assignee and shall become divisible among his creditors, and thereafter, except as directed by the Act, no creditor to whom the insolvent is indebted in respect of any debt
provable in insolvency shall, during the pendency of the insolvency proceedings, have any remedy against the property of the insolvent in respect of the debt. S. 51 provides that the insolvency of a debtor shall be deemed to have relation back to and to commence at the time of the commission of the act of insolvency on which an order of adjudication is made against him.
8. It appears to us clear upon an interpretation of the relevant provisions of the Act, that at the hearing of the petition the court shall require proof of the debt of the petitioning creditor which has to be mentioned in his petition by reason of the provisions of S. 12(1)(a) and (b); similarly, of the act of insolvency on which the petition is grounded u/S. 12(1)(c). S. 51 provides that the insolvency of a debtor relates back to and commences on the date on which the debtor has committed the act of insolvency based upon which the order of adjudication is made. S. 17 debars any creditor of the insolvent from any remedy against the insolvent in respect of any debt provable in insolvency except as provided by the Act. A debt provable in insolvency is a debt which is not time-barred upon the day to which the insolvency relates back. Therefore, the debt upon which the creditor is entitled to present an insolvency petition and which he must prove at the hearing of the petition must be a debt which is not time-barred on the date upon which the debtor commits the act of insolvency based upon which for order of adjudication is made against him.
9. This brings us to Bhimji Nanji’s case. The learned single Judge noted the arguments and passage in Mulla’s book on Insolvency (at page 40 of the edition before him) which ran as follows :
“…..In a Bombay case it was held that a creditor can prove a debt which is barred by limitation at the date of the order of adjudication of an insolvent, but is not so barred at the date of the act of insolvency on which the adjudication is founded. That view was based on the fact that the insolvency commences on the commission of the act of insolvency and from the date the property would vest in the
Official Assignee”.
The learned Judge upheld the contention on behalf of the judgment-debtors that the debt on the basis of which a petition for adjudication is presented by the creditors under the Act must be subsisting not only at the date of the presentation of the petition but also at the date of its hearing and the date on which the order of adjudication was proposed to be passed. S. 13(2) required proof of a subsisting debt, subsisting on the date of the hearing of the petition and upto the time of making of the order of adjudication. The learned judge also took the view that S. 13(4)(b) gave the court discretion to adjudicate a judgment-debtor insolvent or not to do so, and that the discretion ought to be exercised in favour of the judgment-debtor if the petitioning creditor’s debt had become time-barred on the date of the hearing of the petition. The learned judge rejected the argument that his view would cause great hardship to the judgment creditor if in the meantime his debt became time-barred on account of the exigencies of court work. The learned judge said that it would be open to the judgment creditor to keep the debt alive by means of an acknowledgement or part-payment or by filing a suit in respect thereof.
10. As we have held, the debt upon which a petition can be based is a debt which is not time-barred on the day on which the act of insolvency on which the petition is founded takes place.
11. With respect, we cannot agree with the learned judge that great hardship would not be caused to a judgment-creditor if his view was accepted. The petitioning-creditor has the right under the Act to have the judgment-debtor’s resources husbanded so that he recovers at least some fraction of his debt. We cannot give an interpretation to the provisions of the Act which will imply that he loses that right by reason of a delay over which he has no control.
12. A Division Bench of this court, in Modern Dekor Painting Contracts Pvt. Ltd. v. Jenson Micholson (India) Ltd., 1984 MLJ 988, noted a contention similar to the
contention advanced before us by Mr. Shah and said :
“Even otherwise if the contention of the learned Counsel were to be accepted and the petition which was maintainable at the date of its filing was to become not maintainable because of the debt becoming barred by limitation at the date of the hearing, over which he has no control, the same would for no fault of his work to the great prejudice of the creditor.”
13. Mr. Shah relied upon this Division Bench judgment as upholding the view taken in Bhimji Nanji’s case. We do not agree. The case is mentioned but it cannot be said to have been approved.
14. Where a petition is based upon an insolvency notice the court would be entitled to presume that the debt was not barred on the date of the act of insolvency for otherwise the judgment-debtor would have pointed this out in an application to have the insolvency notice set aside. Even so, in our view, having regard to the provisions of S. 13(2)(a), the judgment-debtor would be entitled to rebut that presumption at the hearing of the petition. To that extent we do not agree with the judgment under appeal.
15. We draw support for the view that we have taken from the judgment of the Division Bench of this court in Byramji Bomaji Talati v. The Official Assignee, Bombay, 38 BLR 71 : (AIR 1936 Bom 130) in which it was held that it was well settled that debts which were barred by limitation were not provable in insolvency because the debtor was not subject to such debts; and the question that had to be determined was the date on which time ceased to run in favour of the insolvent. If the material date was the date of the order of adjudication, then the claimant’s debt was not provable; but if the material date was the date of the commission of the act of insolvency, then the debtor was still subject to the debt at the time at which he was adjudged, and the debt was provable. In the court’s opinion, the principle on which this question ought to be determined was well settled. U/Ss. 17 and 51 of the Act the insolvency commences on the
commission of the act of insolvency and at that date the property of the insolvent vests in the Official Assignee, whose duty it is to administer it, and distribute it amongst the creditors who prove their debts. As from that date the Limitation Act had no application, and the relationship of debtor and creditor ceased to exist.
16. Having regard to the view that we take, it is not necessary to examine whether the debt in the present case was barred by limitation on the date on which the petition was heard by the learned judge. It is not the case of the appellants that the debt was barred on the date on which the act of insolvency was committed.
17. This brings us to the last contention. It is based upon S. 12(2) which reads thus :
“(2) If the petitioning creditor is a secured creditor, he shall in his petition either state that he is willing to relinquish his security for the benefit of the creditors in the event of the debtor being adjudged insolvent or give an estimate of the value of the security. In the latter case he may be admitted as a petitioning creditor to the extent of the balance of the debt due to him after deducting the value so estimated in the same way as if he were an unsecured creditor.”
In the petition the 1st respondents have said that neither they nor anybody on their behalf “hold any security on the estate of the said Debtors or any part thereof for payment of the said sum.” The affidavit in reply of the appellants we have already adverted to. It is there submitted that the petition was liable to be dismissed because it was based on a decree which was secured by hypothecation of goods which was neither given up nor valued as required by S. 12(2). No affidavit in rejoinder was filed. It was submitted by Mr. Shah that the debt was secured by the hypothecation of goods as indicated by the decree, and that in the absence of an averment in the petition giving up that security or valuing the security the petition was liable to be dismissed.
18. In our view, the provisions of S. 12(2) apply only in relation to security which the
petitioning creditor can relinquish for the benefit of the general body of creditors in the event of the debtor being adjudicated insolvent. In the present case the security was provided by the limited company. It would have, if realised, enured for the benefit of the limited company and the appellants but the 1st respondents could not have relinquished that security in favour of the general body of the appellants’ creditors. In our view, therefore, there is no merit in this submission.
19. In the result, the appeal is dismissed. Mr. Shah’s oral application for leave to appeal to the Supreme Court is rejected.
On the application of Mr. Shah, the order of adjudication shall remain stayed for a period of six weeks from today. Mr. Shah on behalf of the appellants undertakes to court not to deal with or dispose of or encumber any of their immoveable properties. He also undertakes to court on their behalf not to deal with or dispose of any of their moveable properties except in the ordinary course. He also undertakes to court that they shall not leave the jurisdiction of this court without its prior permission. The undertakings shall be placed on affidavit by both the appellants within one week from today.
The office to issue certified copies of this order expeditiously to both the parties.
20. Order accordingly.