“53. Avoidance of voluntary transfer:-- Any transfer of property not being a transfer made before and in consideration of marriage or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration shall, if the transferor is adjudged insolvent on a petition presented within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court.” 18. As per the impugned order of the trial Court, the trial Court went beyond its scope and proceeded with the matter under Section 53 of the Act which, in my view, is erroneous. The lower Appellate court also did not clarify the same, but carried away erroneously while confirming the orders of the trial Court. At this juncture, it is pertinent to note that the petitioners in their petition clearly asserted that they will take necessary steps to get the sale deed set aside under Section 53 of the Act after the first respondent is adjudicated as insolvent. Therefore, by asserting the same, the petitioners are aware that they have to take necessary steps under Section 53 of the Act for vesting the property with the official receiver after the first respondent is adjudicated as insolvent. Admittedly the I.P. is filed under Sections 7 to 9 of the Act. But the trial Court did not look into the same and extended the relief beyond the scope of the petition and granted the relief to administer the properties under Section 53 of the Act which mandates the filing of the petition for annulment of the transaction. Therefore, in any view of the matter, the finding of the Courts below granting the relief without filing the petition under Section 53 of the Act, is not sustainable and the same is liable to be set aside. 19. However, as observed above, the finding of the Courts below adjudicating the first respondent as insolvent is sustainable and the same is, accordingly, confirmed. 20. Therefore, the impugned orders of the Courts below to the extent of directing the official receiver to administer ‘A’ schedule property and to distribute the sale proceeds among the petitioners is not sustainable, and it is accordingly, set aside. However, it is made clear that the petitioners in the I.P. may take appropriate steps, if any, against the respondents therein, if they are otherwise entitled as per law. 21. With the above modification of the impugned order, the Civil Revision Petition is disposed of. No costs.


HON’BLE SRI JUSTICE K.S. APPA RAO
C.R.P.No.4957 of 2006
ORDER:
        This Civil Revision Petition is filed against the order, dated 24-03-2006 passed in A.S.No.81 of 2004 on the file of the Principal District Judge, Eluru, West Godavari District, confirming the order dated 27-09-2001 passed in I.P.No.13 of 2000 on the file of the Senior Civil Judge, Tadepalligudem.
The petitioner herein is respondent No.2 and the respondents are the petitioners in I.P.No.13 of 2000.  For convenience sake, the parties hereinafter will be referred to as they are arrayed in
the I.P.
        2.     The brief facts of the case, which are necessary for disposal of the present Civil Revision Petition, are as follows:
        I.P.No.13 of 2010 was filed by the petitioners (creditors) under Sections 7 to 9 of the Provincial Insolvency Act, 1920 (for short ‘the Act’) to adjudicate the first respondent as an insolvent.  The allegations in the petition are that the first respondent borrowed an amount of Rs.5,000/- from the first petitioner on 19-07-1998 and executed a pronote and failed to discharge the same, and therefore, the first petitioner filed S.C.No.14 of 1999. The first respondent also borrowed an amount of Rs.15,000/- from the second petitioner on
17-04-1998 and executed a promissory note, and as he failed to discharge the same, O.S.No.189 of 1999 was filed before the Principal Junior Civil Judge’s Court, Tadepalligudem. 
The first respondent also borrowed a sum of Rs.7,000/- from the third petitioner on 21-04-1997 and executed a promissory note, but failed to discharge the same, therefore, the third petitioner filed S.C.No.59 of 1999.  The first respondent also borrowed an amount of Rs.8,000/- from the fourth petitioner on 19-04-1998 and executed a promissory note and failed to repay the same, therefore, the fourth petitioner filed S.C.No.38 of 2000.  The petitioners issued notices to the respondents, who also replied for the same.  Subsequently, the respondents colluded together and brought into existence the sale deed dated 26-06-1999. Therefore, the petitioners filed the I.P. as stated above.
        3.     The first respondent remained ex parte.
The second respondent filed counter denying the allegations made in the petition. 
        4.     During the course of trial, the petitioners themselves were examined as PWs.1 to 4 and got marked Exs.A-1 to A-10.  On behalf of the respondents, RWs.1 to 5 were examined and Exs.B-1 to B-10 were got marked.
        5.     After evaluating the evidence on record, the trial Court allowed the petition adjudicating the first respondent as an insolvent and ordered to administer the ‘A’ schedule property by official receiver and distribute the sale proceeds ratably among the petitioners.  Aggrieved by the same, the second respondent filed A.S.No.81 of 2004 before the District Judge, West Godavari, Eluru, and the learned District Judge, after elaborate enquiry, dismissed the appeal.  Aggrieved by the same, the present Civil Revision Petition is filed.
        6.     Learned counsel appearing for the second respondent-revision petitioner herein advanced arguments mainly on the ground that the Courts below failed to appreciate the facts and oral and documentary evidence in right perspective while determining the case.  He further argued that petitioners have no right to file creditors I.P. for adjudication of the first respondent as insolvent and for setting aside the alienation in favour of the second respondent; that the first respondent has not committed any act of insolvency; that the requirements of Sections 7 and 9 of the Act are not satisfied and the creditors I.P. is not maintainable; that Courts below erred in allowing the I.P. and passing the order adjudicating the first respondent as insolvent and straightaway directing the official receiver to administer ‘A’ schedule property and distribute the sale proceeds among the petitioners; that the Courts below simply overlooked the provision of Section 53 of the Act and failed to see that the necessity for giving direction to administer the property did not arise at the time of passing the order in the creditors I.P; that the second respondent is a bona fide purchaser for a valuable consideration and the alienation is not at all fraudulent or collusive and it is fully supported by valid consideration, and that throughout the Courts below failed to see that the first respondent owns and possesses other valuable house property, which is adequate to discharge the debts of the petitioners, and therefore, the impugned order is not sustainable and it is liable to be set aside.
7.     The learned counsel appearing for the petitioners-respondents herein contends that the Courts below were right in passing the impugned order adjudicating the first respondent as insolvent and the alienation of the property under Ex.A-2 is only with a view to defraud the petitioners, and therefore, in any view of the matter, the orders passed by the Courts below are sustainable in all respects.  In support of his arguments, he placed reliance on the decision reported in BHAGAT SINGH v. JASWANT SINGH [1], and further contended that where a claim has been never made in the defence presented, no amount of evidence can be looked into upon a plea which was never put forward.
        The leaned counsel further argued that the trial Court gave a positive finding that Ex.A-2 is a collusive one to defraud the creditors and therefore, any amount of credence shall be given to the said finding for adjudicating the executant therein as insolvent. Further, he placed reliance on the decision reported inPADAMSI PREMCHAND v. LAXMAN VISHNU [2], and argued that Ex.A-2 transaction is invalid as the same is nominal and fictitious and do not fall under the ambit of Section 53 of the Act, and in such a case, Section 4 of the Act is wide enough to confer upon the insolvency Court jurisdiction to decide whether these transactions were in fact nominal or fictitious.  If the transaction is fictitious or nominal, it is not necessary to set aside, it was void ab initio.
        He also placed reliance on the decision reported in P. GITHAVARDHANA RAO v. ANDHRA BANK LTD [3], and urged that the intendment and purpose of section 28(2) is broadly two fold i.e., (i) to make the entire estate of the insolvent vest in the Court or in a Receiver the moment an order of adjudication is made and to make it available for distribution among the body of creditors, and (ii) to prohibit any creditor of the insolvent from proceeding against his property in respect of his debt or commence any suit or other legal proceeding, without the leave of the Insolvency Court during the pendency of the insolvency proceedings.  The vesting of the estate of the insolvent in the receiver or Court which is contemplated under Section 28(2) of the Act is automatic.  From that moment, it is the Insolvency Court or the receiver, but not the insolvent, that is competent to represent the latter’s estate.
        He further placed reliance on KALAMALLA BABAKKA v. OFFICIAL RECEIVER, CUDDAPAH [4] with regard to the proposition of law under Section 28 of the Act, wherein it was held that the effect of adjudication is that it divests the insolvent of all rights in the properties till then held or possessed by him.  When sub-section (2) is read along with sub-section (7) the effect of such adjudication relates back to and takes effect from the date of the presentation of the petition.  No separate order of vesting is contemplated so far as the Court is concerned for, the vesting is automatic the moment the adjudication order is made.  It is open to the Court to simultaneously under the same order vest the properties of the insolvent in the receiver or make an order subsequently vesting the properties in him.
        The learned counsel further placed reliance on the decision reported in JOHRI LAL SONI v. BHANWARI BAI [5], with regard to the proposition of law under Section 53 of the Act, wherein it was observed that a plain construction of Section 53 would manifestly indicate that the words “within two years after the date, be voidable as against the receiver, and shall be annulled by the Court” clearly connote that only those transfers are excepted from the jurisdiction of the Court which are voidable. The section has, therefore, made a clear distinction between void and voidable transfers – a distinction which is well-known to law.
8.     While placing reliance on the above decision in BHANWARI BAI’s case (5 supra), the learned counsel argues that the Insolvency Court cannot try a question of title raised on the basis of a transfer which took place more than two years prior to the order of adjudication having regard to the provisions of Section 53 of the Act, and in the present case on hand, the case of the revision petitioner falls well within the stipulated time as enunciated under Section 53 of the Act.
The learned counsel appearing for the second respondent-Revision petitioner herein placed reliance on the decision reported in PINNAMSHETTY KAVITHA v. GAJELLI GANGADHAR [6] on the proposition of law under Section 53 of the Act, wherein it was held that in case of challenges on the ground of nominal and fictitious to defraud the creditors, Section 53 has no application.
9.     In view of the rival contentions, now the point for consideration is whether the orders of the Courts below adjudicating the first respondent as insolvent and ordering to administer ‘A’ schedule property by the official receiver and distribute the sale proceeds among the petitioners is sustainable?
POINT:
        10.    Though the first respondent remained ex parte in the petition, he was examined as RW-2 and Ex.B-6 to B-10 were marked.  During the course of cross-examination, he admitted that he received notices in the I.P., but did not contest the same.  He also admitted that petitioner Nos.1 to 4 filed the suits for recovery of the amount basing on the pronotes executed by him and the suits were decreed.  He also admitted that the second respondent is his brother-in-law and the schedule property is the only property belonging to him. 
He positively asserted that there is no house in his name in Kadiyedda and it is in the name of his father-in-law, and so it is not his house.
        11.    In view of the clear admission of the first respondent that except the schedule property, he has no other property and the alleged house property does not belong to him and it belongs to his father-in-law, it can be said without any ambiguity that the first respondent has no other property except the suit schedule property covered under Ex.A-2. 
If that be the case, the contention raised by the contesting second respondent that the first respondent has another house has no legs to stand much less without any positive proof. 
It is also an admitted fact that the second respondent is none other than the brother-in-law of the first respondent.  The first respondent remained ex parte in the petition, but gave evidence supporting the evidence of the second respondent.  The evidence of the second respondent is only an afterthought to suit the defence of the first respondent collusively. Therefore, the finding of the Courts below declaring the first respondent as insolvent, in my view, is justified and sustainable in view of the detailed discussion on the validity of Ex.A-2, transaction.
        12.    So far as the direction to the official receiver to administer ‘A’ schedule property is concerned, admittedly the petitioners filed the petition under Sections 7 and 9 of the Act to adjudicate the first respondent as insolvent.   Sections 7 and 9 of the Act read as follows:
7. Petition and adjudication:-- Subject to the conditions specified in this Act, 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 (hereinafter called an order of adjudication) adjudging him as insolvent.

Explanation:--The presentation of a petition by the debtor shall be deemed an act of insolvency within the meaning of this section, and on such petition the Court may make an order of adjudication.”
9. Conditions on which creditor may petition:--
(1) 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, and
(c)      the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition:
         
Provided that where the said period of three months referred to in Clause (c) expires on a day when the Court is closed, the insolvency petition may be presented on the day on which the Court re-open.

          (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 even 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.” 

        13.    The trial Court, in the operative portion of the order, directed the official receiver to administer ‘A’ schedule property and distribute the sale proceeds among the petitioners.   However, a perusal of the above two provisions, it is not mandated the necessity to invoke the provision under Section 53 of the Act.
14.    Before going into the factual matrix of the case, it is pertinent to refer to clauses (a) to (c) of Section 6(1) of the Act, which reads as follows:
6. Acts of insolvency:-- (1) A debtor commits an act of insolvency in each of the following cases, namely:
(a)      If, in India or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally;
(b)      If, in India or elsewhere, he makes a transfer of his property or of any part thereof, with intent to defeat or delay his creditors;
(c)      If in India or elsewhere, he makes any transfer of his property or of any part thereof, which would, under this or any other enactment for the time being in force, be void as a fraudulent preference if he were adjudged an insolvent.”

        15.    As per the impugned order, the first respondent has committed the act of insolvency by selling the petition schedule property to the second respondent under Ex.A-2 by defrauding the creditors i.e., the respondents herein.  It is also the finding of the trial Court that the conduct of the first respondent in selling the property to his own kith and kin is collusive.  The trial Court finally on analysis, adjudicated the first respondent as insolvent on the ground that there is existence of debt, which is subsisting and not time barred at the time of presenting the insolvency petition.
16.    At this juncture, it is pertinent to refer to the operative portion of the order of the appellate Court which reads as under:
“When once it is clear that the said sale is only with a view to defraud the creditors, no doubt the same can be annulled by holding the principal debtor as an insolvent. I do not find any merits in the appeal preferred by the appellant and the same is liable to be dismissed.”

        The appellate Court, though confirmed the orders of the trial Court, did not answer whether the orders of the trial Court directing the official receiver to administer ‘A’ schedule property and to distribute the sale proceeds among the petitioners is correct or not, which is the crux of the issue.
        17.    Now let us see the provision under Section 53 of the Act, which reads as follows:
53. Avoidance of voluntary transfer:-- Any transfer of property not being a transfer made before and in consideration of marriage or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration shall, if the transferor is adjudged insolvent on a petition presented within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court.”

18.    As per the impugned order of the trial Court, the trial Court went beyond its scope and proceeded with the matter under Section 53 of the Act which, in my view, is erroneous.  The lower Appellate court also did not clarify the same, but carried away erroneously while confirming the orders of the trial Court.  At this juncture, it is pertinent to note that the petitioners in their petition clearly asserted that they will take necessary steps to get the sale deed set aside under Section 53 of the Act after the first respondent is adjudicated as insolvent.  Therefore, by asserting the same, the petitioners are aware that they have to take necessary steps under Section 53 of the Act for vesting the property with the official receiver after the first respondent is adjudicated as insolvent. Admittedly the I.P. is filed under Sections 7 to 9 of the Act.  But the trial Court did not look into the same and extended the relief beyond the scope of the petition and granted the relief to administer the properties under Section 53 of the Act which mandates the filing of the petition for annulment of the transaction. Therefore, in any view of the matter, the finding of the Courts below granting the relief without filing the petition under Section 53 of the Act, is not sustainable and the same is liable to be set aside.
19.    However, as observed above, the finding of the Courts below adjudicating the first respondent as insolvent is sustainable and the same is, accordingly, confirmed.
20.    Therefore, the impugned orders of the Courts below to the extent of directing the official receiver to administer ‘A’ schedule property and to distribute the sale proceeds among the petitioners is not sustainable, and it is accordingly, set aside.  However, it is made clear that the petitioners in the I.P. may take appropriate steps, if any, against the respondents therein, if they are otherwise entitled as per law.
21.    With the above modification of the impugned order, the Civil Revision Petition is disposed of.  No costs.  

_______________
K.S. APPA RAO, J
Date: 20-01-2012
YCR


[1] AIR 1966 SC 1861
[2] AIR (36) 1949 BOMBAY 129
[3] 1972 (II) Andhra Weekly Reporter 202
[4] AIR 1973 AP 312
[5] (1977) 4 SCC 59
[6] 2007(2) ALT 535

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