Case BriefsSupreme Court

Supreme Court: Dismissing a half a century old litigation (started in 1971), having five rounds of litigation at the stage of execution of a simple money decree, the Division Bench of Hemant Gupta and V. Ramasubramanian*,  JJ., put an end to what appeared as a never ending litigation by holding that res judicata is applicable on execution proceedings and the judgment debtor cannot be allowed to raise objections in instalments.

Background

The appellants-judgment debtor had challenged the impugned order whereby the High Court had confirmed the order of the Executing Court dismissing their application under Section 47 of the Code of Civil Procedure, 1908.

One Rama Rani Devi had filed a simple suit for recovery of money in Money from the appellant-judgment debtor (deceased) for recovery of a sum of Rs.3000. The suit was decreed ex parte and an execution petition was filed praying for the attachment and sale of 17 decimal of land (approximately about 7450 Sq.ft.) of the appellant-judgment debtor. Pursuant to which a sale proclamation was issued by the executing court after which the appellant-judgment debtor filed an application assailing the sale proclamation on the ground of material irregularity and fraud, but the same was dismissed and the auction was held.

Compromise between Judgment debtor and Auction Purchaser

 Initially, the judgment debtor had filed an under Order XXI, Rule 90 read with Section 152 of CPC praying for setting aside the auction sale on the ground of irregularities in the sale proclamation, however, he subsequently entered into a compromise with the auction purchasers. The memo of compromise reads as follows:

“ The petitioner and the auction purchaser Opp. party do settle the suit mutually in the following manner.

1) If the petitioner debtor pays the entire money due to the auction purchaser opposite part in cash within 15th December or if he deposits it in their credit in the court and the auction shall be revoked and the original execution case shall be disposed on full satisfaction.

2) Otherwise that is if the petitioner debtor does not pay the entire money due to the auction purchaser opposite party in cash within 15th December on deposits that amount in court within that date then the said auction shall remain effective and this present suit shall be dismissed with costs.”

Findings of the High Court

Noticeably, the amount of money deposited by the auction purchasers into court was Rs.5500/, but the decree debt was around Rs.3360/. Though the compromise memo did not refer to the decree debt, but repeatedly mentioned the words, “entire money due to the auction purchasers”, the judgment debtor admittedly deposited only a sum of Rs.3700 on the basis of the calculation provided by the court officer in terms of Order XXI, Rule 89 of CPC. Consequently, after several rounds of litigation, it was held by the High Court that the judgment debtor had failed to honour the commitment made in the compromise memo to deposit the entire amount due to the auction purchasers and that therefore the auction sale should be confirmed in favour of the auction purchasers.

Contention of the Judgment debtor

The only mantra, by the recitation of which the appellants hoped to succeed was Order XXI, Rule 64 of the Code, which enables an executing court to order “that any property attached by it and liable to sale or such portion thereof as may seem necessary to satisfy the decree, shall be sold and that the proceeds of such sale or a sufficient portion thereof 10 shall be paid to the party entitled under the decree to receive the same”.

It was the contention of the appellants that Order XXI, Rule 64 casts not a discretion, but an obligation, to sell only such portion of the property as may be sufficient to satisfy the decree.

Opinion and Analysis

Noticeably, the executing court had ordered the issue of notice of attachment under Order XXI, Rule 54 of the Code and it was only thereafter that the court directed the issue of sale proclamation under Order XXI, Rule 66; which was in conformity with proviso to sub rule (2) of Rule 66 gives a discretion to the court to dispense with a second notice to the judgment debtor of the date to be fixed for settling the terms of the proclamation of sale under Order XXI, Rule 66(2).

The sequence of events showed that the judgment debtor had sufficient opportunity to object to the inclusion of the entire property when an order was passed under Order XXI, Rule 54. Subsequently he had an opportunity to object to the inclusion of the whole of the property, by taking advantage of the amended clause (a) of sub rule (2) of Rule 66 of Order XXI, which speaks about sale of a part of the property that would be sufficient to satisfy the decree. But the judgment debtor despite filing a petition under Section 47, did not point out how the property being a vacant land of an extent of 17 decimals could have been divided.

Noticing that the objection relating to Order XXI, Rule 64 had been raised by the appellants-judgment debtor for the first time in the 5th round of litigation in execution, and that the 2nd round was kickstarted with a suit for a declaration that the auction sale was void despite the express bar of a separate suit, under Section 47(1) of CPC. The Bench remarked,

“…the appellants have  now exhausted almost all provisions available to a judgment debtor to stall execution and the case on hand is fit to be included in the syllabus of a law school as a study material for students to get equipped with the various provisions of the Code relating to execution.”

Findings and Conclusion

In the backdrop of above, the Bench held that the appellants could not be allowed to raise the issue relating to the breach of Order XXI, Rule 64 for the following reasons:

  1. A judgmentdebtor cannot be allowed to raise objections as to the method of execution in instalments. After having failed to raise the issue in four earlier rounds of litigation, the appellants could not be permitted to raise it;
  2. The original judgmentdebtor himself filed a petition under Section 47, and what was on hand was a second petition under Section 47 and, hence, it was barred by res judicata. The Bench explained that post insertion of Explanation VII under Section 11 of CPC by Act 104 of 1976 the provisions of res judicata will apply to a proceeding for the execution of a decree;
  3. The observations of the High Court that, “none of the parties shall have any claim whatsoever as against the applicant in respect of the purchased property which shall be deemed to be his absolute property on and from the expiry of 15th December, 1980”, had attained finality;
  4. Section 65 of the Code says that, “where immovable property is sold in execution of a decree and such sale has become absolute, the property shall be deemed to have vested in the purchaser from the time when the property is sold and not from the time when the sale becomes absolute”.
  5. The sale of a property becomes absolute under Order XXI, Rule 92(1) after an application made under Rule 89, Rule 90 or Rule 91 is disallowed and the court passes an order confirming the same, hence, the Court has to grant a certificate under Rule 94 indicating the date and the day on which the sale became absolute.

“…a conjoint reading of Section 65, Order XXI, Rule 92 and Order XXI, Rule 94 would show that it passes through three important stages (other than certain intervening stages). They are, conduct of sale; (ii) sale becoming absolute; and (iii) issue of sale certificate. After all these three stages are crossed, the 4th stage of delivery of possession comes under Rule 95 of Order XXI.”

Since, the appellants had raised the objection relating to Order XXI, Rule 64 at the 4th stage and it was not the case that the appellants were not aware of the fact that the property in entirety was included in the proclamation of sale, the claim on the basis of Order XXI, Rule 64 was rightly rejected by the High Court. In view of the above, the appeal was dismissed.

[Dipali Biswas v. Nirmalendu Mukherjee, 2021 SCC OnLine SC 869, decided on 05-10-2021]


Kamini Sharma, Editorial Assistant has put this report together 


Appearance by:

For the Appellants: Advocate RAUF RAHIM

For the Respondents: Advocate SATISH KUMAR


*Judgment by: Justice V. Ramasubramanian

Know Thy Judge | Justice V. Ramasubramanian

Case BriefsSupreme Court

Supreme Court: A Division Bench of Indira Banerjee and V. Ramasubramanian, JJ. held that there is no bar in law to amendment of pleadings in an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 or to filing of additional documents apart from those initially filed, at any time until a final order either admitting or dismissing the application has been passed.

The Court also held that an application under Section 7 for imitation of corporate insolvency resolution process against a corporate debtor is not be barred by limitation if there is an acknowledgement of the debt by the corporate debtor before expiry of the limitation period. Such acknowledgment can be by way of statement of accounts, balance sheets, financial statements and offer of one time settlement.

Moreover, a final judgment and/or decree of any court or tribunal or any arbitral award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7.

Factual Matrix and Timeline

In 2011, Dena Bank sanctioned a term loan of to the Corporate Debtor, which was to be repaid in 24 quarterly installments. The Corporate Debtor defaulted in repayment and their account was declared Non Performing Asset (“NPA”) in December 2013. In 2014, the Bank sent a letter to the Corporate Debtor to repay the outstanding dues. However, no payment was made.

In 2015, the Bank initiated proceedings before the Debts Recovery Tribunal (“DRT”) for recovery of outstanding dues from the Corporate Debtor. By a letter dated 5 January 2015, the Corporate Debtor requested the Bank to restructure the loan. Again, on 3 March 2017, while proceedings were pending before DRT, the Corporate Debtor gave an offer for one time settlement of the term loan account, which  was rejected by the Bank. On 27 March 2017, DRT passed an order against the Corporate Debtor for recovery of outstanding dues to the Bank. In May 2017, DRT issued a Recovery Certificate in favour of the Bank. Thereafter in June 2017, the Corporate Debtor once again gave the Bank a proposal for one time settlement to mutually settle the loan amount.

In October 2018, the Bank sought initiation of corporate insolvency resolution process against the Corporate Debtor. It filed a petition under Section 7 of the Insolvency and Bankruptcy Code (“IBC”) before the National Company Law Tribunal, Bengaluru. Thereafter, twice in 2019, the Bank filed applications for permission to place additional documents on record. Both these applications were allowed by NCLT. In March 2019, NCLT passed an order to admit the Section 7 petition filed by the Bank.

Appeal

The Corporate Debtor challenged the order of NCLT in an appeal under Section 61 IBC before the National Company Law Appellate Tribunal. The NCLAT allowed the appeal reversed the order of NCLT. Aggrieved, the Bank approached the Supreme Court.

Issues

Three questions arose for consideration of the Court:

(i) Whether a petition under Section 7 IBC would be barred by limitation, on the sole ground that it had been filed beyond a period of three years from the date of declaration of the loan account of the Corporate Debtor as NPA, even though the Corporate Debtor might subsequently have acknowledged its liability to the appellant Bank, within a period of three years prior to the date of filing of the Section 7 petition, by making a proposal for a one time settlement, or by acknowledging the debt in its statutory balance sheets and books of accounts.

(ii) Whether a final judgment and decree of DRT in favour of financial creditor, or the issuance of a Certificate of Recovery in favour of financial creditor, would give rise to a fresh cause of action to financial creditor to initiate proceedings under Section 7 IBC within three years from the date of the final judgment and decree, and/or within three years from the date of issuance of the Certificate of Recovery.

(iii) Whether there is any bar in law to the amendment of pleadings, in a petition under Section 7 IBC, or to the filing of additional documents, apart from those filed initially, along with the Section 7 petition in Form-1 given in the Annexure to the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (“2016 Adjudicating Authority Rules”).

Analysis and Observations

Interpretation of the Code

Discussing the object of IBC, the Court observed that it is imperative that provisions of IBC and Rules and Regulations framed thereunder be construed liberally, in a purposive manner to further the objects of enactment of the statute, and not be given a narrow, pedantic interpretation which defeats its purposes.

Permissibility of amending Section 7 petition for filing additional documents

On a careful reading of IBC provisions and in particular the provisions of Section 7(2) to (5) read with the 2016 Adjudicating Authority Rules, the Court reached a conclusion that there is no bar to the filing of documents at any time until a final order either admitting or dismissing the application has been passed.

The Court noted that under Section 7(2) IBC, a financial creditor is required to apply for initiation of corporate insolvency resolution process against a corporate debtor in the prescribed Form-1 under the 2016 Adjudicating Authority Rules. Since a financial creditor is required to apply under Section 7 IBC in statutory Form-1, the financial creditor can only fill in particulars as specified in the various columns of the Form. There is no scope for elaborate pleadings. The Court observed:

An application to the Adjudicating Authority (NCLT) under Section 7 of the IBC in the prescribed form, cannot therefore, be compared with the plaint in a suit. Such application cannot be judged by the same standards, as a plaint in a suit, or any other pleadings in a Court of law.

The Court summed up the discussion on this point by mentioning that there is no bar in law to amendment of pleadings in an application under Section 7 IBC, or to filing of additional documents, apart from those initially filed along with application under Section 7 in Form-1. It was observed:

In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that NCLT committed any illegality or error in permitting the Bank to file additional documents.

However, the Court added that depending on the facts and circumstances of the case, when there is inordinate delay, the adjudicating authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order.

Lastly, it was clarified that Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries (P) Ltd., (2020) 15 SCC 1 is not an authority for the proposition that there can be no amendment of pleadings at the fag end of NCLT proceedings. Moreover, in the instant case, the amendments were not made at the fag end of the proceedings but within 2/3 months of their initiation, before admission of the petition under Section 7 IBC.

Limitation and effect of acknowledgment of debt

Under the scheme of IBC, the insolvency resolution process begins when a default takes place, in the sense that a debt becomes due and is not paid. Before considering the main point, the Court noted that there can be no dispute with the proposition that in terms of Article 137 of Limitation Act, 1963, the period of limitation for making an application under Section 7 IBC is three years from the date of accrual of the right to sue, that is, the date of default.

However, as per Section 18 of Limitation Act, an acknowledgement of present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, has the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. The acknowledgement must be made before the relevant period of limitation has expired. Relying on Sesh Nath Singh v. Baidyabati Sheoraphuli Coop. Bank Ltd., 2021 SCC Online SC 244 and Laxmi Pat Surana v. Union Bank of India, 2021 SCC Online SC 267, the Court reiterated that there is no reason to exclude the effect of Section 18 of the Limitation Act to proceedings initiated under IBC.

Relying further on Asset Reconstruction Co. (India) Ltd. v. Bishal Jaiswal, 2021 SCC Online SC 321, the Court noted that:

It is well settled that entries in books of accounts and/or balance sheets of a Corporate Debtor would amount to an acknowledgment under Section 18 of the Limitation Act.

In view of such law, the Court concluded that NCLAT’s finding that there was nothing on record to suggest that the Corporate Debtor acknowledged the debt within three years and agreed to pay debt, was not sustainable in law in view of the statement of accounts/balance sheets/financial statements for the years 2016-2017 and 2017-2018 and the offer of one time settlement including in particular the offer of one time settlement made on 3 March 2017.

In the instant case, Rs 1.11 crore had been paid towards outstanding interest on 28 March 2014 and the offer of one time settlement was within three years thereafter. In any case, NCLAT overlooked the fact that a Certificate of Recovery was issued by DRT in favour of the Bank on 25 May 2017. The Corporate Debtor did not pay dues in terms of the Certificate of Recovery. The Court held:

The Certificate of Recovery in itself gives a fresh cause of action to the Appellant Bank to institute a petition under Section 7 of IBC. The petition under Section 7 IBC was well within three years from 28th March 2014.

The Court relied on Jignesh Shah v. Union of India, (2019) 10 SCC 750 for concluding that a final judgment and/or decree of any court or tribunal or any arbitral award for payment of money, if not satisfied, would fall within the ambit of a financial debt, enabling the creditor to initiate proceedings under Section 7 IBC.

Before concluding, the Court considered that when the petition under Section 7 IBC was filed, the date of default was mentioned as 30 September 2013 and the date of declaration of term loan account of the Corporate Debtor as NPA was stated as 31 December 2013. However, according to the Court, it was not correct to say that there was no averment in the petition of any acknowledgment of debt. Such averments were duly incorporated by way of amendment, and NCLT rightly looked into the amended pleadings to admit the petition of Bank. The Court reiterated:

Even assuming that documents were brought on record at a later stage … the Adjudicating Authority was not precluded from considering the same. The documents were brought on record before any final decision was taken in the petition under Section 7 of IBC.

Decision

For the reasons discussed above, the Supreme Court held that the Section 7 IBC petition filed by Dena Bank was admissible. The impugned judgment of NCLAT was unsustainable which was set aside. [Dena Bank v. C. Shivakumar Reddy, 2021 SCC OnLine SC 543, decided on 4-8-2021]


Tejaswi Pandit, Senior Editorial Assistant has reported this brief.

Case BriefsHigh Courts

Kerala High Court: A Division Bench of A. Hariprasad and T.V. Anilkumar, JJ., while addressing a review petition,  reiterated that the relevant date which makes a postdated cheque payable is the date which the cheque bears.

In the appeal, the money decree in the respondent’s favour was confirmed rejecting the appellant’s plea that the suit was barred by limitation. It was held that the relevant article in the Limitation Act that applied to the suit was not Article 19 but Article 35 of the said Act.

Court had laid down the law that the appropriate Article which applied to the suit instituted on a dishonoured cheque is Article 35 of the Limitation Act, 1963.

It is trite law that a review is not an appeal in disguise.

Bench stated that it is true that the cheques were presented to the Bank for encashment after the passage of hardly seven years, since the date of delivery.

As per Section 84(2) of the Negotiable Instruments Act, the reasonableness of time to be taken for presentation from the date of issue of cheque, shall be determined with due regard to the nature of the instrument, the banking and trade usage and also the facts of each particular case.

In the opinion of the Court, the provision in Section 84(1) of the Negotiable Instruments Act, 1881 contemplating time of issue of the cheque as the starting point for determining the reasonable time required for the presentation of cheque, can be given effect to without having regard to the Scheme and purpose of Section 138 NI Act.

Date on which a cheque is drawn may not be confused with date of issue but must be understood as the date mentioned on the face of the document.

The reasonable period stipulated in Section 84(1) and (2) of the NI Act shall be read harmoniously with the time prescribed in proviso (a) to Section 138 NI Act.

“…what determines the time of commencement of period of presentation is the date of the cheque and not the date of delivery of the cheque.”

Bench further observed that the date of issue of cheque mentioned in Section 84(1) is not irrelevant and capable of rejection in cases where the date of cheque appearing on its face and the date of issue are one and the same.

In the instant case, cheques were postdated and they became payable only from the dates endorsed. Even though the dates of presentation and dishonour were not pleaded, the cheques were presented within the period of 2 months since they became payable.

The review fails in the instant matter as the issue of cheques was as early as in 2001, the presentation made in 2007 in accordance with Section 138(a) cannot be said to offend Section 84(2) of NI Act.

High Court partly allowed the review petition and ordered that the following sentence which was under review shall stand deleted.

“One of us (Justice A.Hariprasad) had occasion to hold in an unreported decision in Puthenveettil Malathy v. Kuttilakandy Balakrishnan [A.S.No.436 of 2002] that Article 35 is the appropriate provision applicable to a suit brought for recovery of money on dishonour of a cheque issued in discharge of liability of the debtor.”

[Subanamma Ninan v. George Veeran, 2020 SCC OnLine Ker 4151, decided on 18-09-2020]

Case BriefsHigh Courts

Punjab and Haryana High Court:  Augustine George Masih, J. upheld the decision of the lower court as there was no evidence on record to prove the contentions made by the appellant.

An appeal was made against the judgment and decree passed by the Additional District Judge whereby the suit filed by the appellant-plaintiff for recovery of the amount from the respondent-defendant had been set aside by allowing the appeal and dismissing the suit of the appellant-plaintiff.

S.S. Bedi, Counsel for the appellant argued that the judgment and decree passed by the trial court was based upon proper appreciation of the evidence and the document on record. He contended that the respondent had acted upon the certificate of the Assistant who had been placed under the suspension and thus did not have authority to issue the certificate. He contended that the suit for recovery preferred by the appellant-plaintiff was based upon a departmental inquiry which was held against the respondent-defendant. Thus it was argued that the judgment passed by the Lower Appellate Court is based upon erroneous assumptions overlooking the facts on record and the evidence which has been produced by the parties. He, thus, contends that the appeal deserves to be allowed by setting aside the judgment and decree passed by the Lower Appellate Court and restoring that of the trial Court.

The Court opined that contention of the appellant that the report of the departmental inquiry was enough to establish the shortage cannot be accepted as no stock shortage had been proved on record and assertion that the respondent-defendant was required to himself verify the stock will not suffice as the same was not made in any rules or regulations as such. It was further held that unauthorized person having issued the certificate could not have been acted upon as it did not have any legal sanctity; moreover, no record was produced to show that any payment in the presence of the commission agent was made at the time of purchase of the stock. Merely relying upon the inquiry report would not be enough in a suit for recovery. Actual loss having occurred by the Corporation has to be established which is absent here as no evidence has been produced on record to substantiate such an assertion and, therefore, the contention of learned counsel for the appellant that the respondent-defendant had acted upon a certificate issued by an unauthorized person, cannot be accepted. Thus the Judgment of the lower court was upheld.[Punjab State Warehousing Corpn. Ltd. v. Paramjit Singh, 2019 SCC OnLine P&H 1229, decided on 15-07-2019]

Case BriefsHigh Courts

Bombay High Court: A Single Judge Bench comprising of S.B. Shukre, J. allowed a writ petition filed against the order of District Judge whereby he stayed the execution of a money decree passed in favour of the petitioner.

The said order was challenged on the ground that the District Judge while granting the order of stay did not discuss and adjudicate upon the material facts which ought to have been done. Furthermore, it was submitted that the District Judge, while imposing conditions for stay a money decree, could not have imposed very lenient conditions as was done by him. it is pertinent to note that the claim amount on which the decree was passed amounted to Rs 96 lakhs. While staying its execution, the Judge had directed the respondent to deposit a paltry sum of Rs. 5 lakhs. This according to the petitioner, was nothing but a travesty of justice.

The High Court referred to Sihor Nagar Palika Bureau v. Bhablubhai Virabhai & Co., (2005) 4 SCC 1 wherein it was held that a money decree should not be ordinarily stayed unless some exceptional reasons were given. Furthermore, in Malwa Strips (P) Ltd. v. Jyoti Ltd., (2009) 2 SCC 426, it was held that even though there is a discretion for staying the execution of the decree, by imposing suitable conditions, the discretion must be exercised judiciously. In the instant case, it was noted that the District Judge had not given any reason for grant of stay. Further, the condition of depositing Rs 5 Lakhs imposed on respondent as mentioned above was not found satisfactory by the Court. In such circumstances, the petition was allowed. The order impugned was set aside and the matter was remanded back to the District Judge for reconsideration. [Aloka Jaigopal Biswas v. Dalia,2018 SCC OnLine Bom 4051, dated 23-10-2018]

Case BriefsHigh Courts

Delhi High Court: A Single Judge Bench comprising of Rajiv Sahai Endlaw, J., dismissed an execution first appeal filed against the order of Additional District Judge whereby appellants objection to the execution of a money decree sought by decree-holder against the judgment-debtor was dismissed.

It was contended by the appellant-objector that she was the sole owner of the two properties attached in the execution and the judgment-debtor, her son, had no right over them. The Executing Court dismissed the objections of the appellant holding that in proof of her title to the said properties, the appellant filed only a Power of Attorney of her husband in her favour which wasn’t sufficient. Counsel for the appellant submitted that there was a family settlement, however, neither was any such settlement pleaded in the objections nor any document filed in that regard.

The High Court was of the view that it appeared that the purpose was to delay the execution. The appellant and the judgment-debtors were hand-in-glove with each other and were not making a clean breast of state of affairs. In Court’s opinion, it was an attempt to fabricate the documents. Furthermore, one of the judgment-debtors had already left India. The court observed that appellant-objector could not on one hand claim arms length distance from judgment-debtors and on the other hand represent their interest. The appeal was held to be an abuse of process of Court and thus dismissed.[Charanjit Kaur Virk v. Premlata Sharma,2018 SCC OnLine Del 12020, dated 15-10-2018]