DSK Legal successfully represented Prime Securities Ltd. before the Bombay High Court

DSK Legal successfully represented Prime Securities Ltd. before the Bombay High Court

DSK Legal advised, assisted, represented and appeared for Prime Securities Ltd. (“Prime”) before the Bombay High Court in Notice of Motion No. 17 of 2017 (“NOM”) filed by Prime in the Insolvency Petition No. 40 of 1999 (“Petition”).

The Petition was filed by one of the creditors for insolvency of Mr. Anil Mithalal Shah (“Insolvent”) who was declared insolvent in the year 1999, on account of which the Official Assignee, Bombay High Court (“OA”) took into possession the assets of the Insolvent. Prime filed a NOM seeking a direction to OA to hand over vacant and peaceful possession of the Flat in Nepean Sea Road, Mumbai (“Flat”) which OA claimed to form a part of the estate of the Insolvent.

Held:

The Bombay High Court vide Judgment dated 05.10.2023 has allowed Prime’s NOM directing the OA to handover vacant and peaceful possession of the Flat to Prime within a period of 2 weeks.

Brief Background:

Prime has in its favour an Arbitral Award dated 21.12.1992, a Decree dated 23.04.1993 and a Deed of Pledge dated 31.12.1992 whereby the Flat was constituted as a security for payment of decretal dues of Rs. 4,29,44,000/- with interest thereon by the Insolvent to Prime. On account of the inability of the Insolvent to pay decretal dues, Insolvent & his wife entered into Memorandum of Understanding and thereafter an Agreement for Sale in the year 1995 for transfer of Flat in favour of Prime. Prime submitted the original Share Certificate of the Flat for effecting the transfer of the Flat in favour of Prime, however on account of some other ongoing proceedings against the Insolvent, the Society did not transfer the Flat to Prime.

Four years later, in 1999, the Insolvent was adjudicated Insolvent and OA sought physical possession of the Flat in some execution proceedings filed against the Insolvent. Vide Order dated 30.08.2006, OA was directed to take physical possession of the Flat. Prime filed an appeal against this Order wherein this Order was set aside by consent of the parties therein. Despite this, OA failed to hand over the possession of the Flat to Prime. Therefore, Prime approached the Court in those proceedings wherein the OA was directed to not alter status quo in respect of the Flat and Prime was allowed to pay maintenance charges in respect of the Flat. In the year 2017, Prime learnt of the dismissal of the execution proceedings for want of prosecution on account of which all interim orders passed in those proceedings came to an end. Therefore, the NOM was filed by Prime in 2017.

Significance:

I. The legal position that a secured creditor stands outside the insolvency proceedings has been upheld. Further, a secured creditor is entitled to sit upon his security for realization of dues and is required to prove his debt only if the security held is insufficient.

II. OA inter alia contended that Agreement for Sale is invalid-

• For want of NOC from Society

• For want of registration

• For want of consideration

All the above contentions were rejected by the High Court. The Court held that it cannot go behind the decree as sought to be contended by OA and the consideration is the decretal dues owed to Prime. The Court upheld the legal position that a flat on which equitable mortgage is created by deposit of share certificate can be transferred without permission of the society. With respect to registration, it was contended on behalf of Prime that registration was not mandatory at the relevant time and reliance was placed on judgment of Usha Arvind Dongre v. Suresh Ragunath Kotwal (1989 SCC Online Bom 284). These contentions were accepted by the Court.

III. The argument advanced by OA that on account of Section 17 of the Presidency Towns Insolvency Act, 1909, the property of the Insolvent vests in the OA on the making of the order of adjudication was not upheld by the Court in the facts of the present case. It has been held that Section 17 has no application since Prime had obtained decree prior to appointment of OA and deposit of title deed satisfied the decree.

The matter was argued by Senior Counsel J.P. Sen and Counsel Darshit Jain led by the DSK Legal team comprised of Prachi Garg (Associate Partner) and Anuj Savla (Article Clerk).

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