INSOLVENCY ACT No Insolvency acts committed by debtor as per sec. 6 of Insolvency Act = merely because a preference was given to a particular creditor, who evidently is not related to the debtor, it cannot be said that there is an act of insolvency. Merely because, the debtor has filed subsequently a debtor insolvency petition is also not a ground to interfere with the unsuccessful challenge made by the petitioners. - the sale of property in favour of a particular person is not an act of insolvency when it is supported by consideration and it was for the discharge of the debt of the debtor. The preference given to a particular debtor cannot be treated as an act of insolvency. Therefore, for all the above reasons, there are absolutely no merits in the revision.; = Powers of Revision Court / second appeal court = the High Court while acting under Section 75(1) of the Act has no right to interfere with the findings of fact.

published in http://hc.ap.nic.in/csis/MainInfo.jsp?mtype=CRP&mno=1180&year=2005
CRP 1180 / 2005

CRPSR 6133 / 2005
PETITIONERRESPONDENT
BODDETI RAMESWARAM AND 5 OTHERS  VSPOLAMARASETTI TRIMUUTHULU AND 6 OTHERS
PET.ADV. : ANANDRESP.ADV. : SREENIVASA RAO
SUBJECT: INSOLVENCYDISTRICT:  WEST GODAVARI
THE HON’BLE SRI JUSTICE N.R.L. NAGESWARA RAO

C.R.P.No. 1180 of 2005

ORDER:

The revision is filed against the judgment dated 29.12.2004 in A.S.No.183 of 2003 on the file of the III Additional District Judge (Fast Track Court), Bhimavaram, whereunder the application to declare the respondent as insolvent was dismissed and the appeal also confirmed the said order. 

Originally Insolvency Petition was filed in I.P.No.2 of 2001 by the petitioners herein, who are the creditors 
to declare that 
the 1st respondent has borrowed several amounts from the petitioners and 
the respondents 2 to 4 are the wife and children of the 1st respondent and the 1st respondent borrowed the money for the benefit of the family and 
with a dishonest intention and with an ulterior motive to defeat or delay the genuine creditors, alienated the schedule property in favour of the 5th respondent. 

As can be seen from the allegations in the petition
the petitioners formed into a committee just before the alienation and held a meeting on 05.11.2000 and 
the first item was to be purchased by the 5th respondent at a consideration of Rs.6,50,000/- with a promise to clear the debts of the petitioners 
but the property was sold for a sum of Rs.2,30,000/- only and 
a collusive transaction was entered into and the 1st respondent received a consideration of Rs.6,50,000/- and 
thereby committed an act of insolvency.  
The 1st respondent also filed I.P.No.27 of 2000. 
The 1st respondent filed a counter disputing all the allegations in the petition and contending that there is no collusion of fraud.  
According to him, he was indebted to Unikili Cooperative Society and for the discharge of the mortgage debt to the said society, the land was sold to the 5th respondent and there is no fraud in the alienation.  

The respondents 2 and 3 denied the allegations.  
The 5th respondent filed a counter contending that the alleged borrowing from the petitioners is not true and he has purchased the property for valuable consideration and for the discharge of the debts due by the 1st respondent and, therefore, the petition is liable to be dismissed. 

After considering the evidence on record, the learned Judge found that the petitioners are aware of the sale transaction and there is no proof that the property is more valuable. 

It was further contended by the 5th respondent, which was accepted by the Court that the 1st respondent has got some other properties and there is no intention to defeat or delay the lawful debts of the petitioners.  
Furthermore, according to the case of the respondents, the sale of the property was for the discharge of the debt due to the society.  He claims to have paid a sum of Rs.2,27,000/- and odd under Exs.B-4 to B-8 to the society and he also obtained the Encumbrance Certificate.  
Though, it was sought to be canvassed before the lower Court that the 5th respondent agreed to discharge the debts of the petitioners, there is absolutely no material.  
Therefore, accordingly, the Insolvency Petition was dismissed.  
The lower appellate Court also taking into consideration the settled proposition of law and also taking into consideration that giving mere preference to a particular person, who is not a creditor, cannot be said to be an act of insolvency.  
The lower appellate Court also found that there is no proof of intention to defeat or delay the creditors. 

Though the matter should have been treated as a Second Appeal arising out of the judgment of the lower Court, it was filed as a Civil Revision Petition.  It is needless to say that whether in Second Appeal or in the Civil Revision Petition the power of the Court to interfere with the findings of fact are very limited.  
The finding of fact recorded by both the Courts is that 
the 5threspondent has purchased the property and discharged the debts due to the society, 
merely because a preference was given to a particular creditor, who evidently is not related to the debtor, it cannot be said that there is an act of insolvency.  
Merely because, the debtor has filed subsequently a debtor insolvency petition is also not a ground to interfere with the unsuccessful challenge made by the petitioners. 

In this connection, the learned counsel for the respondents relied upon a decision reported in the case of Malini Ayyappa Naicker (now dead) through L.R. etc. v. Seth Manghraj Udhavadas Firm[1]
while dealing with the powers of the Appellate Court in an application under Section 53 of the Provincial Insolvency Act (5 of 1920) (for short “the Act”), wherein it was held that the High Court while acting under Section 75(1) of the Act has no right to interfere with the findings of fact. 

The learned counsel for the respondents also relied upon the decisions reported in the cases of D.Chakradhara Rao v. P.Koteswara Rao[2] and P.Lakshmipathi Chetty v. P.Janardhana Chetty and others[3] with regard to the power of the Court to interfere with the insolvency proceedings. 

It is also useful to refer to the decision reported in the case of Gutta Nirmala v. Gutta Nageswara Rao[4]
wherein after considering several decisions, this Court held that the sale of property in favour of a particular person is not an act of insolvency when it is supported by consideration and it was for the discharge of the debt of the debtor.  The preference given to a particular debtor cannot be treated as an act of insolvency.  Therefore, for all the above reasons, there are absolutely no merits in the revision.

Accordingly, the Civil Revision Petition is dismissed.  No costs.
________________________
N.R.L. NAGESWARA RAO, J

Date: 19-08-2011
MR




 



THE HON’BLE SRI JUSTICE N.R.L. NAGESWARA RAO







































C.R.P.No. 1180 of 2005






19-08-2011

MR


[1] 1969 Supreme Court Cases 688
[2] 1996 (3) ALT 34
[3] 2007 (5) ALD 723
[4] 2011 (4) ALT 171

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