ORDER
F.I. Rebello, J.
1. The petitioning creditor has moved the Court by way of notice under section 9(2) of the Presidency Towns Insolvency Act which hereafter shall be referred to as ‘the Act’. By the present Notice of Motion the judgment debtor Nos. 1 and 2 have prayed that the Notice of Insolvency served on judgment Debtors Nos. 1 and 2 be set aside. A few facts may be set out which will assist the Court in deciding the issue in controversy.
2. An Award was passed in arbitral proceedings between the judgment creditor, judgment Debtors and others. The judgment creditor has been identified in the Award as belonging to MSB Group. Shri Bijaysingh Mansingh Baid, Sunderdevi Bijaysingh Baid, Jaykumar Bijaysingh Baid, Aruna Ajaykumar Baid, Sanjaykumar Bijaysingh Baid, Minakshi Sanjaykumar Baid and Vinaykumar Bijaysingh Baid are described as belonging to BSB Group. Similarly, Tejsingh M. Baid and Samta Tejsingh Baid are described as belonging to TSB Group. The matter was referred for the decision of the Sole Arbitrator by three separate writings as reflected in the Award. The relevant part of the award which will be necessary for the purpose of the present discussion is as under :—
“I hereby award and direct that Shri Mansingh Baid, Shri Tejsingh Baid and Smt. Samtadevi Tejsingh shall transfer and assign the shares standing in Uniflex Cables Pvt. Ltd. in their respective names to the nominees of the BSB Group at face value by handing over the share certificate and executing appropriate transfer forms and shall execute further papers as may be required. I hereby award and direct that the members of the BSB Group shall pay to Tejsingh Baid the credit balance with interest as shown in his name in the book of account of Uniflex Cables Ltd. within 15 days of the date of this Award.”
11. JEWELLERY & ORNAMENTS :
“I hereby award and allot Jewellery and Ornaments listed, in Annexure 1 hereto as under:—
i) Jewellery and ornaments listed in List A of the Annexure 1 will belong to Shri Mansingh Baid.
ii) Jewellery and ornaments listed in List BI of the Annexure 1 will belong to the members of BSB Group. I hereby direct Mansingh Baid to handover the same to the members of BSB Group.
iii) Jewellery and ornaments listed in List B2 of the Annexure 1 well belong to the members of TSB Group. I hereby direct Mansingh Baid to handover the same to the memebrs of BSB Group.
iv) I hereby award and direct the Jewellery and Ornaments listed in list “C” and “D” of Annexure I will belong to each of the party here i.e. MSB, BSB Group and TSB Group in 1/3 proportion. I hereby direct Shri Mansingh Baid either to distribute the actual Jewellery and ornaments in 1/3 proporation or the value thereof in the same proportion among the parties hereto.”
“12. I hereby award and direct that members of BSB Group shall pay Upto Shri Mansingh Baid a sum of Rs. 1,57,70,000.00 (Rs. One Crore Fifty Seven lacs Seventy Thousand Only) within one month from the date of this award failing which the memebrs of the BSB Group will be bound and liable to pay to Shri Mansingh Baid compensation at the rate of 2% per month for the first three month when the default continues and thereafter at the rate of 3% per month. The said sum of Rs. 1,57,70,000.00 (Rs. One Crore Fifty Seven lacs Seventy Thousand Only) from the date of this Award until the payment and/or realisation thereof.
Meanwhile, to secure the payment of the said sum of Rs. 1,57,70,000.00 (Rs. One Crore Fifty Seven lacs Seventy Thousand only) payable by members of BSB Group to Shri Mansingh Baid, I further award that Shri Mansingh Baid shall have charge on the shares held by members of BSB Group in Uniflex Cables Ltd. I direct the memebrs of BSB Group to handover the said shares to Shri Mansingh Baid which Shri Mansingh Baid will hold as security and on receipt of the said sum Rs. 1,57,70,000.00 (Rs. One Crore Fifty Seven Lacs Seventy Thousand only) together with the amount of compensation, if any, Shri Mansingh Baid will return the said shares to the memebrs of BSB Group.”
3. The Debtors in the affidavit in support of the Notice of Motion have principally contended as under :—
1) That there has been suppression of material facts by the petitioning creditor and on this count alone the notice of Insolvency should be dismissed and motion made absolute. The petitioning creditor has suppressed the fact that he is a secured creditor as his claim is secured by the Award. Secondly, the petitioning creditor has deliberately averred as under:
“That the execution of the said Decree in terms of Award has not been stayed and no execution proceedings in respect of the said Decree in terms of Award are pending in any other Court.”
It is contended that had these facts been brought to the attention of the Insolvency Registrar, no Notice would have been issued. Reliance has been placed in judgment of the Apex Court in the case of S.P. Chengalvaraya Naidu (dead) by L.Rs. v. Jagannath (dead) by L.Rs. & others, : in the case of Agarwal Industries Ltd. v. Golden Oil Industries (P) Ltd., an unreported judgment dated 22nd April, 1991 in Appeal No. 332 of 1991 along with Appeal (Lodg.) No. 278 of 1991 and along with Appeal (Lodg.) No. 310 of 1991.
2) The Debtors have filed various suits for recovery of properties and also for partition of property. The shares in the properties would satisfy the claim of the petitioning creditor. The Debtors could not raise this by way of counter claim before the Arbitrator and as such section 9(5) of the Presidency Towns Insolvency Act is attracted.
3) The petitioning creditor is a secured creditor in terms of the Award and the consequential decree. Being a secured creditor no Insolvency Notice could have been issued by the Petitioning creditor.
4) The petitioning creditor had on 29th November, 1996 applied for execution by way of attachment and sale and on 3rd July, 1998 execution of the Decree by arrest of the judgment Debtors under Order 21, Rule 37. It is contended that the Insolvency Petition is by way of an equitable execution and as such the petitioning creditor could not have executed the Decree simultaneously both by way of attachment and sale and by way of imprisonment without taking permission of the Court under Order 21, Rule 21 of the Code of Civil Procedure. Reliance for that purpose have been placed in the judgment of the learned Single Judge of this Court in the case of M/s. Bhurmal Kapurchand and Co. v. M/s. Premier Machine Tools Co., A.I.R. 1977 Bom. 305 to contend that proceedings by way of Insolvency Petition is an equitable mode of execution. In the instant case as permission of the Court was not taken as required under Order 21, Rule 37, the petition should be dismissed. Reliance was also placed in the case of Sharad R. Khanna & others v. Industrial Credit and Investment Corporation of India Ltd. & others, , to contend that in so far as challenge to the notice is concerned, the Court could even at the stage of the challenge to the Notice still consider whether the judgment creditor was secured and that challenge does not have to wait for the hearing of the petition itself.
(5) The decree contemplates reciprocal acts on the part of the parties. The judgment creditor in this case has not fulfilled his reciprocal obligations and in that context the Notice should be dismissed.
4. We may now address ourselves to these contentions. The first contention is based on the fact that the judgment creditor had suppressed and/or falsely stated some facts, namely that there was no security at the time of filing of the petition and secondly at the time of making application for issue of Insolvency Notice that there was no pending execution proceedings whilst in fact they were pending.
The present Notice of Motion is filed under section 9(5) of the Presidency Towns Insolvency Act (hereinafter referred to as “the Insolvency Act”). Sections 9(2) to 9(5) have been introduced by Act No. 28 of 1978. Reference may be made to the scheme of the section as it is necessary for disposing this contention as well as some other contentions which have arisen herein. Section 9(2) provides that without prejudice to sub-section (1), a debtor commits an act of insolvency if a creditor, who has obtained a decree or order for the payment of money which has become final and the execution whereof has not been stayed: serves on the debtor notice as provided in sub-section (3) and the debtor does not comply with that notice within the period specified therein. Therefore, what is required is that when a judgment creditor seeks to invoke the provisions of section 9(2) there must be a decree which has become final and which has not been stayed. The Judgment creditor must cause a notice to be served on the debtor as provided in sub-section (3) of section 9; and inspite of service of the notice under sub-section (3) of section 9 the debtor fails to comply with the requirement of sub-section (3). Subsection (3) contemplates that the notice must be in the prescribed form, served in the prescribed manner and specify the amount due under order or decree and require the debtor to pay the same or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent. Under Rule 52-A, when a creditor desires that an Insolvency Notice may be issued, he must produce before the Insolvency Registrar a certified copy of the decree or order on which the Notice is founded and file the notice together with request for issue. The creditor shall at the same time lodge with the Insolvency Registrar true copy of the Insolvency Notice to be sealed and issued for service. Therefore, a co-joint reading of the section 9 and the relevant rules it is not mandatory that the judgment creditor must disclose whether there are any execution proceedings pending. In so far as security is concerned, the debtor on service of notice if he wants to avoid consequences must give security to the satisfaction of the creditor. Mere existence of some security at the stage of taking out a Motion to challenge the notice of insolvency is not sufficient. Can it therefore be said that, as in the present case, because the judgment creditor either did not disclose or made incorrect statements that the Insolvency Notice should be set aside. On a construction of the provisions, it is not possible to so hold.
Let us now examine whether the authorities cited have laid down what is contended as a proposition of law applicable to all cases. I have gone through the judgments cited at the Bar. I am of the opinion that those judgments would not apply in so far as challenge to a Notice issued under section 9 of the Insolvency Act. In the case of S.P. Chengalvaraya Naidu (dead) by L.Rs. (supra) what was in issue before the Apex Court was a case where a party had obtained a preliminary decree by playing fraud on the Court. It is in that context that the Apex Court set out that fraud avoids all judicial acts and that any judgment or decree obtained by playing fraud on the Court is nullity and non est in the eyes of law. In the instant case the judgment creditor was not required, considering section 9(3) on the judgment Debtors failing to comply with the requirement of section 9(3) to aver that there was security and/or for that matter that there were execution proceedings pending. The debtor if he failed to comply with the notice is still entitled to take out a Notice of Motion to challenge the Notice as set out in section 9(5) of the Act. The Insolvency Registrar has no power to refuse issuance of Notice. I am, therefore, of the opinion that the ratio of S.P. Chengalvaraya Naidu (dead) by L.Rs. (supra) is not attracted to the facts of the present case. In so far as the judgment in the case of Agarwal Industries Ltd. (supra) is concerned, that was a matter of injunction and the case of an unreported Judgment in Appeal No. 332 of 1991 (supra) was a matter of appointment of Receiver. It is well known proposition of law that the grant of injunction or appointment of a Receiver require exercise of discretion and no Court will exercise discretion in favour of parties who either suppress facts or do not come with clean hands before the Court. It is in that context that the courts have refused to exercise their discretion. In the present case there is no question of the Court exercising any discretion in so far as issuing of notice is concerned. Notice had to be issued on the judgment creditor fulfilling the requirement as contemplated under the Rules. These two judgments are therefore of no assistance for proposition canvassed. In that light of the matter the first contention is rejected.
5. That brings us to the second contention namely whether the Debtors were precluded from raising counter claim in respect of the property in dispute and if so whether section 9(5) is attracted. Section 9(5) of the Insolvency Act contemplates that the Notice issued under sub-section (3) can be challenged on the grounds contained therein. The challenge, however is subject to the statutory restrictions imposed by section 9(5). One of the requirements is that the debtor must have a counter claim or set off against the creditor which is equal to or is in excess of the amount due under the decree or order and which he could not, under any law for the time being in force, prefer in the suit or proceedings in which the decree or order was passed. The contention is that judgment debtor No. 2 has now filed a suit against the judgment creditor in respect of what is said to be a Streedhan property in the hands of the judgment creditor and of which according to judgment debtor No. 2 the value will work upto Rs. 54,59,000/-. The judgment creditor has filed an affidavit rebutting the said contention. It is his contention that apart from jewellery which is a subject matter of the Award there is no other jewellery in the hands of the judgment creditor. There is no documentary evidence or any other admission produced by the judgment debtor No. 2 in support of the said contention that any Streedhan property belonging to judgment debtor No. 2 is in the hands of the judgment creditor. It may also be material to note that the award was passed on 24th June, 1995. The Award was challenged. That challenge was dismissed. An Appeal was preferred, that was also dismissed. An Special Leave Petition was preferred that too also was dismissed. The judgment debtor No. 2 has filed a suit which bears No. 3121 of 1998. In other words the suit is filed much after the Award which is dated 24th June, 1995. Even before the arbitrator all disputes between the parties were in issue. Moveable and immoveable properties were also the subject matter of the arbitration proceedings including jewellery. Prima facie it is difficult to accept at this stage the case of the judgment debtor No. 2 that the property belonging to her in the hands of the judgment creditor could not on account of the prohibition of filing counter-claim before the arbitrator, be filed as a counter-claim. A Counter-claim could be filed if in law it was maintainable as it is not the case that the cause of action arose after the passing of the Award. All the three parties had gone before the arbitrator. There were three separate writings invoking the arbitration clause. There was no prohibition in law in asking for an arbitration on that count. Even assuming that not to be so there was no prohibition in law in filing a counter-claim. The arbitrator is appointed to decide disputes referred to by the parties. He will decide only those disputes referred and not disputes not referred. It is difficult therefore to accept that the notice on that count must be rejected. Prima facie, looking at the conduct of the judgment Debtors and the various suits they have filed subsequent to the passing of the Award, that this is yet another attempt to frustrate enforcement of the decree. I am, therefore, of the considered opinion that contention must also be rejected.
6. That leads us to the third contention that the judgment creditor was a secured creditor. I have already reproduced the relevant portion of the Award under which the shares of Uniflex Cables Pvt. Ltd. were to act as security in favour of the judgment creditor. The decree requires that members of BSB Group to hand over possession of the shares to the judgment creditor. Admittedly, till date the shares have not been handed over by the members of the BSB Group. In that context even if it could be said that the issue of being a secured creditor could be considered at the stage of challenge to the Notice, yet the shares had not been handed over and therefore could not have acted as a security. The judgment creditor in paragraph 9 of his affidavit-in-reply to the affidavit in support by judgment Debtors has set out that till date the shares have not been handed over either to him or to the Receiver. The judgment creditor has also set out that he craves leave to refer to and rely on the various proceedings and the orders made by the Court. Reference in that context may gainfully be made to the affidavit of the judgment creditor in answer to the statement in affidavit of judgment debtor No. 1 in paragraph 7. I have referred to this as in another matter being Notice No. 1169 of 1998 in Arbitration Petition No. 180 of 1598 in Award No. 208 of 1995 in an order passed on 23rd April, 1999 a statement was recorded on behalf of the judgment Debtors that the shares of the B.S.B. Group were sold in November, 1994 and/or the shares then held had been offered as security to various financial institutions for repayment of the Company’s dues. To my mind that would be no security even if the plea of being secured could have been considered. In so far as the jewellery is concerned, that is the subject matter of the award and the judgment creditor has in his affidavit set out that he is willing to comply with the terms of the award. Even other wise the value of the security is not such as to act as security for the amount claimed by the judgment creditor. In so far as Streedhan jewellery is considered, I have dealt with the same earlier. The suit for partition of ancestral property also cannot be said to be security for payment of debt.
7. Having so held I must still consider the issue as to whether it can be contended on behalf of a party that if the creditor is secured he is entitled to challenge to the issuance of the notice itself. Statutory challenges to a notice of insolvency are set out in section 9(5) of the Act. We are not concerned with a situation where after notice is issued under section 9(3) of the Act the debtor agrees to give security, which is rejected by the creditor. In the Instant case admittedly no security was offered after notice was given under section 9(3) of the Act. It is however contended that the issue of the creditor being secured can be raised even at the stage of challenge to the Notice. In support of that proposition, learned Counsel relies on the observations of a learned Single Judge in the case of Sharad R. Khanna & others (supra). I will advert to the facts of the case as it is necessary to high light some issues therein. Before that I may briefly advert to section 9(5) of the Insolvency Act. As set out section 9(5) has been introduced by Amending Act of 1978 under which without prejudice to what is stated under sub-section (1) of section 9 a new ground has been introduced under which on failure to comply with the notice for payment of the amount due under a decree which has become final and not stayed, an act of insolvency has been committed after a notice is served in the manner required and containing specific particulars and the debtor fails to comply or give security to the satisfaction of the creditor. The amended section specifically sub-sections (3), (4) and (5) set out the mechanism under which the notice can be issued what the debtor has to comply with and in case of challenge to the notice what are the various grounds. It is, therefore, clear that in so far as the notice is concerned, the challenge would be restricted to sub-section (5) of section 9. This is so because under sub-section (3) of section 9 after the notice is issued a duty is cast on the judgment debtor to either pay the amount or to secure the judgment creditor to his satisfaction or that of his agent. If that be the case, the contention that the creditor is secured seems to be no ground in so far as the challenge to the notice is concerned. For the sake of repetition it may be clarified that on Notice being issued under section 9(3) of the Act if the debtor agrees to give security which is rejected by the creditor, it will be open to the Court to consider whether the security offered was sufficient and adequate to protect the interest of the creditor. In all other cases where no security is offered after notice is served under section 9(3), at the highest if and at all it will be open for the Court to consider the challenge at the stage of deciding the insolvency petition, whether a case has been made out for passing an order of adjudication.
Does the judgment in Sharad R. Khanna (supra) support the debtor’s contentions. In para 10 the learned Judge was considering the issue of security and has observed as under:—
“The learned Counsel for the Debtors has submitted that this provision contained in section 9(3)(c) of the Presidency Towns Insolvency Act, 1909 provides a clue and justification for its submission that no Insolvency notice can be taken out by the decree-holder creditor if the decree-holder creditor already holds adequate security for payment of the debt whether such security is provided by the judgment debtor under the decree or someone else. This argument appeared to me at the first blush to be attractive. However, I have found no merit in this submission on proper security thereof.”
The same proposition has been reiterated thereafter in paragraph 19 where the learned Judge has observed as under:—
“Since the grounds on which the insolvency notice can be set aside are codified by section 9(5) of the Act, there is no scope for evolving a new grounds for setting aside of insolvency notice on equitable consideration or by analogy.”
It is thus clear that learned Judge was clear, as the judgment reflects, that the grounds as contained in section 9(5) alone were the grounds under which an Insolvency Notice could be challenged. It is, however, true that in paragraph 16 the Court did consider whether the contention of secured creditor could be raised at the time of the notice itself. That was because an argument was so advanced by and on behalf of the judgment debtor. In that case on the facts the judgment creditor was not admittedly a secured creditor. The observation therefore in paragraph 16 cannot be said to be the ratio of the judgment. It was not required to be decided at least after the observations in para 10 and para 19 where the learned Judge has clearly held that the challenge to a notice can only be under grounds set out under section 9(5). I need not further dwell on that subject as I have held that the judgment creditor was not secured. That contention must therefore also has to be rejected. If mere security was sufficient, at the stage of challenging the notice, the provisions in the Act requiring the debtor to pay or secure to the satisfaction of the creditor would be otiose.
8. That leads us to the last contention in so far as Order 21, Rule 21 is concerned. The contention is that a petition for Insolvency in fact is an equitable mode of execution and if that be so no decree-holder could have without the permission of the Court under Order 21, Rule 21 seek to execute the Decree at the same time by two different ways i.e. both by sale and arrest. The facts may be set out as under :—
On 29th November, 1996 an application for execution was lodged by the judgment creditor being Execution Application No. 281 of 1996 for attachment and sale. The said application has since been withdrawn on 8th September, 1998. The Notice was taken out on 23rd June, 1998. The second application for execution by way of imprisonment was taken out on 3rd July, 1998. Therefore, before the notice on 23rd June, 1998 there were in fact two applications for execution. The question, however, is whether the application for issuance of Insolvency Notice can be construed to be a petition for Insolvency and secondly whether the provisions of Order 21, Rule 21 would be attractive in so far as section 9(2) of the Insolvency Act is concerned. Strong reliance was place on behalf of the Judgment Debtors in the case of M/s. Bhurmal Kapurchand & Co. (supra). It may be said that this judgment is before the amendment to the Insolvency Act by Act of 1978. What the learned Judge was considering were the provisions of the Presidency Towns Insolvency Act as amended in the State of Maharashtra by amendment to section 9. Section 9(1)(i) was introduced which reads as under :—
“(i) if, after a creditor has served an insolvency notice on him under this Act in respect of a decree or an order for the payment of any amount due to such creditor, the execution of which is not stayed, he does not, within the period specified in the notice which shall not be less than one month, either comply with the requirements of the notice or satisfy the Court that he has a counter claim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceedings in which the decree or order was made against him.”
Section 9(1) therefore was a part of section 9 itself which provides that a debtor commits an act of insolvency in each of the cases set out there. Section 9(1) as introduced in the State of Maharashtra also contemplated a service of the Notice and it required the judgment to either satisfy the Notice or satisfy the Court that he has a counter claim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceedings in which the decree or order was made against him.
Similarly, section 9-A was introduced which reads as under :—
“9-A. Insolvency notice.—(1) An insolvency notice under this Act shall be in the prescribed form and shall be served in the prescribed manner. It shall require the debtor to pay the amount due under the decree or order, or to furnish security for the payment of such amount to the satisfaction of the creditor or his agent, or to satisfy the Court that he has a counter claim or set off which equals or exceeds the decretal amount or the amount ordered to be paid by him and which he could not lawfully set up in the suit or proceeding in which the decree or order was made against him and shall state the consequence of non-compliance with the notice.
(2) Such notice shall not be invalidated by reason only that the sum specified in the notice as the amount due exceeds the amount actually due, unless the debtor within the time allowed for payment gives notice to the creditor that he disputes the validity of the notice on the ground of such misstatement; but if the debtor does not give such notice, he shall be deemed to have complied with the insolvency notice if within the time allowed he takes such steps as would have constituted a compliance with the notice had the actual amount due been correctly specified therein.”
A reading therefore of section 9(l)(i) and 9-A does not provide for challenge to the notice unlike section 9(5) as introduced by the Central Act. It is only on a decree being obtained which has become final and notice taken out under sub-section (3) and if the application taken out by the debtor for setting aside the Notice is rejected, is he deemed to have committed an act of insolvency on the date of rejection of the application or the expiry of the period specified in the insolvency notice. It is only at that stage where a petition for insolvency can be filed. The date of insolvency in so far as section 9(1) as was applicable in the State of Maharashtra is distinct in so far as section 9(2) as introduced by the Central Act is concerned. Section 9(2) therefore will have to be considered in the context of Act of 28 of 1978. Once it is so read, it has to be considered as a new ground by itself. It is on the happening of such a deemed insolvency that a petition can be maintained by the petitioning creditor. The deemed insolvency is therefore by operation of law. It may also be noted that section 9(1) and 9-A as in the State of Maharashtra when Act 28 of 1978 came into operation are partly engrafted in Clauses (2), (3), (4) and (5) of section 9(2). Once there is a Central legislation then the Central Legislation must prevail when both the Parliament and the State Assembly can legislate in the field. Once that being so to my mind the ratio of the judgment in the case of M/s. Bhurmal Kapurchand & Co. (supra) would not apply to the facts of the present case.
It is therefore clear that grounds to challenge a petition for Insolvency are distinct from grounds to challenge a Notice taken out under section 9(2). The ratio of the judgment in the case of M/s. Bhurmal Kapurchand & Co. (supra) would apply to a petition for insolvency and not to a challenge to a notice under section 9(3) as introduced by the Act of 1978. Even otherwise, I am not impressed that Order 21, Rule 21 of the Code of Civil Procedure would apply in so far as sub-section 9(2) of the Act is concerned. Whatever be the case, in so far as sub-section 9(1) as was existing in the State of Maharashtra, if by an Act of Parliament a person is deemed to be an Insolvent, it is the deeming provisions that has to be considered. Once an application is taken out to challenge the Notice and the challenge of the notice is rejected it is by operation of law that the debtor becomes a deemed Insolvent. Once a debtor is deemed to be an Insolvent, the question of taking recourse to Order 21, Rule 21 would not arise at all. Having said so, I am of the considered opinion that no case has been made out by the judgment Debtors for quashing the Notice and consequently the Notice of Motion is dismissed.
9. In the circumstances of the case, however, there shall be no order as to costs.
10. Learned Counsel for the judgment Debtors seeks stay of the Order. Considering the Christmas Vacation order stayed for a period of eight weeks from today.
11. Issuance of certified copy expedited.
12. P. A. to give ordinary copy of this order to the parties concerned.
13. Notice of Motion dismissed.