ATTACHMENT BEFORE JUDGEMENT-SPECIFIC PERFORMANCE SUIT-REG.AGREEMENT OF SALE PRIOR TO ATTACHMENT

THE HON'BLE SRI JUSTICE V.V.S. RAO

Second Appeal No.783 of 2009

29-04-2010

Gopisetti Venkata Lakshmi Narasimharao, S/o.Venkata Ramayya

M/s.Sri Satya Financial Services, Narsapuram, represented by its Proprietor, Sri Meka Sreedhar Chowdary, Narsapuram

And another

Counsel for appellant: Mr.A.V.Sesha Sai

Counsel for Respondents: Smt.Bobba Vijaya Lakshmi

:ORDER:

The dispute in this second appeal is regarding the validity of attachment of land admeasuring Acs.2.38 (out of Acs.4.20) in R.S.No.628/1 situated at Sarva, H/o.Lakshmaneswaram Village of Narsapuram Mandal in West Godavari District (hereafter, schedule property). Originally the second respondent herein (J.Dr) was owner of the property. She obtained a loan from M/s.Sri Satya Financial Services, Narsapuram (hereafter, D.Hr). When the D.Hr brought the schedule property for sale, in the facts and circumstances of the case narrated hereafter, appellant herein (hereafter, purchaser) filed E.A.No.387 of 2005 under Order XXI Rule 58 of Code of Civil Procedure, 1908 (CPC). The same was dismissed. Against the said order and decree, he preferred A.S.No.178 of 2007 on the file of the Court of District Judge, West Godavari, Eluru. The appeal was also dismissed on 21.2.2008, aggrieved by which the present second appeal is filed. Some more necessary factual aspects may be noticed by referring to the parties as named hereinabove.

The D.Hr advanced amounts to J.Dr. She executed promissory note on 22.2.2001. When there was a default, D.Hr filed O.S.No.134 of 2003 on the file of the Court of the Senior Civil Judge, Narsapur, for recovery of Rs.3,46,415/- (Recovery suit). D.Hr also obtained an order of attachment before judgment on 22.8.2003. Ultimately the suit was decreed on 13.10.2003. D.Hr then filed E.P.No.101 of 2004 for sale of attached property. The purchaser filed claim petition being E.A.No.387 of 2003 under Order XXI Rule 58 of CPC for raising attachment. He alleged that he entered into registered agreement of sale dated 27.3.2003 agreeing to purchase schedule property for Rs.2,46,500/-, that he paid earnest money of Rs.2,00,000/-, that he agreed to pay balance of Rs.46,500/- towards sale consideration in eight months and obtain registered sale deed. When the J.Dr failed to execute the sale deed, he filed O.S.No.124 of 2004 on the file of the Court of Senior Civil Judge, Narsapur, for specific performance of agreement of sale (specific performance suit). The same was decreed on 17.11.2006. He also alleged that the said Court executed sale deed on 17.7.2007 and the Court Amin delivered possession on 16.9.2007. He contended that agreement of sale in his favour being one executed by the J.Dr prior to attachment of property to D.Hr, registered agreement must prevail and, therefore, schedule property cannot be attached nor can be sold. In E.A.No.387 of 2005, the purchaser gave evidence as P.W.1 and marked Exs.A1 to A3. The Managing Partner of D.Hr gave evidence as R.W.1 and marked Exs.B1 to B4 besides examining R.W.2. After considering the evidence, the trial Court came to the conclusion that the purchaser failed to prove the sale transaction and payment of consideration to his vendor. Therefore the finding was recorded that sale without consideration is not binding on D.Hr. The application was dismissed. The appellate Court reconsidered the evidence and confirmed the order of trial Court.

In this appeal under Section 100 CPC, the counsel for purchaser submits that the Courts below are not justified in going to validity of the proceedings in specific performance suit. According to him, attachment before judgment of schedule property does not affect the rights of purchaser existing prior to such attachment and, therefore, schedule property cannot be sold. He placed reliance on Madhavarapu Haranadhababa v Kaligineedi Mahalakshmamma (died) per LR R31 and Adinarayana v S.Gafoor Sab2.

The counsel for D.Hr submits that transaction between appellate and second respondent under Ex.A1 is not supported by valid consideration and, therefore, Ex.A1 is fraudulent document created by them to get over the liability of J.Dr to D.Hr. She nextly contends that appellant and second respondent are known to each other, that second respondent did not come to Court and, therefore, adverse inference has to be drawn. She placed reliance on Teluguntla Venkateswara Rao v Teluguntla Sundara Satyanarayana3.

The point that arises for consideration is that whether property sold prior to attachment can be sold in execution of decree and whether in such event the executing Court can go into verdict of proceeding, in suit based on such agreement of sale?

Order XXXVIII Rule 10 of CPC reads as under.

ORDER XXXVIII:ARREST AND ATTACHMENT BEFORE JUDGMENT

10. Attachment before judgment not to affect rights of strangers, nor bar decree-holder from applying for sale

Attachment before judgment shall not affect the rights, existing prior to the attachment, of persons not parties to the suit, nor bar any person holding a decree against the defendant from applying for the sale of the property under attachment in execution of such decree.

On a plain reading of the above rule would show that if a person acquires right under a valid document/transaction prior to any attachment before judgment, rights of such person are not affected if such person is not a party to the suit. If the person having rights under prior transaction obtains any decree, subsequent attachment of property does not bar the execution of any decree obtained by such person. This is supported by two judgments of this Court which are relied on by the counsel for appellant. In Madhavarapu Haranadhbaba (supra) in the context of Section 53 of Transfer of Property Act, 1882 (TP Act) and Section 6 of Provincial Insolvency Act, 1920, relying on Hamda Ammal v Avadiappa Pathar4, this Court observed as under.

There is one another remedy. Section 6 of the Provincial Insolvency Act defines acts of insolvency. If a debtor makes a transfer of his property or any part thereof with intent to defeat or delay his creditors, he would be committing one of the acts of insolvency enumerated in the above provision. If an act of insolvency is committed, the remedy of the affected creditor is to present a petition against the debtor within a period of three months from the date of the debtor committing an act of insolvency to get the order of adjudication of debtor as an insolvent. These two remedies are available to the affected creditor. In a claim application filed by the purchaser the court is not entitled to consider and decide whether the transaction is a collusive, fraudulent or sham transaction and whether it is intended to defeat or delay the creditor. Such a question falls for consideration either in a proceeding launched under the provisions of Provincial Insolvency Act or in a suit field under Section 53 of Transfer of Property Act to avoid the transaction in question. It is necessary to emphasise that the proceedings invoking the provisions either in Section 53 of Transfer of Property Act or in Provincial Insolvency Act are to be instituted in a representative capacity and they are intended to benefit not a particular creditor but to benefit all the creditors of the transferor. It is thus clear that both the courts below committed a serious error in considering in a claim application the question whether the transaction covered by Ex.A.1 is a collusive transaction, etc., and on the basis of the findings recorded on that issue dismissing the claim application.

In Adinarayana (supra), this Court considered Order XXXVIII Rule 10 of CPC and Sections 40 and 64 of TP Act and referring to Hamda Ammal (supra) and other judgments, held that the agreement of sale prior to attachment before judgment would prevail over attachment and, therefore, property cannot be brought to sale.

Whether executing Court can go into validity of suit filed by agreement holder prior to attachment before judgment. This aspect of the matter has been considered by this Court in T.Nabi Saheb v V.P.Sivaiah5, wherein it was observed as under.

In the foregoing facts and circumstances, I am of the opinion, that, the Executing Court in said EP No. 41 of 1994, and in the present EA No. 449 of 1999, could not and ought not to have probed into, and much less, decided upon the validity and legality of either of the alleged agreement of sale, dated 15- 6-1990, alleged to have been executed by the J.Dr. in favour of the claim petitioner, or the Decree, that followed in pursuance thereof, in the suit OS No. 56 of 1992 etc. ... ... ... Even otherwise, I am of the opinion, that, the Executing Court, under Sub-rule (2) Rule 58 of Order XXI, CPC, cannot declare the validity and legality of a judgment and Decree, passed by a competent Court of Law, in the original suit proceedings.

The counsel for first respondent/D.Hr relies on Teluguntla Venkateswara Rao (supra) in support of her contention that the Court is not powerless to attach the property if the decree obtained is sought to be defeated by fraudulent transaction. In the said case, first defendant borrowed amounts from the plaintiff and executed promissory notes. The plaintiff issued notice. In reply suit debt was admitted but he set up an agreement to sell vacant site at Rs.250/- per Sq.yard to discharge the amount due. Since the same was not materialized, another notice was issued to honour the agreement, in vain. O.S.No.263 of 1970 was instituted before the Subordinate Court for recovery of the amount and the same was decreed. During the pendency, there was interim attachment of immovable property. In the mean while, second defendant who is wife of first defendant filed suit for recovery of Rs.20,000/- under promissory note dated 01.4.1966 allegedly executed by her husband. The same being O.S.No.108 of 1971 was filed on 20.3.1971. A consent decree was passed on 02.4.1971. Second defendant filed Execution Petition and in the Court auction purchased the property with the leave of the Court and at the same time as pauper she filed O.P.No.58 of 1972. Third defendant also filed a suit being O.S.No.1319 of 1973 before the District Munsif Court and obtained decree against second defendant. In the execution of the decree, the property was again brought to sale. Therefore plaintiff filed O.S.No.108 of 1971 for declaration that the decree obtained by second defendant is collusive, fraudulent and illegal and for a permanent injunction restraining third defendant from proceeding with E.P. before the District Munsif. The suit was opposed. The Subordinate Court after regular trial dismissed the suit holding that the suit which had been filed by plaintiff against first defendant was itself collusive and that the second defendant's suit was not collusive. Against the same, appeal was filed before this Court. A question arose as to whether second defendant's suit against first defendant is collusive and whether it amounts to playing fraud on the Court. It was held in the affirmative and this Court further observed that the subsequent decree and sale do not convey any right to second defendant. The relevant observations are as follows. I have already pointed out that the relationship between the first defendant and the second defendant is that of wife and husband and that the second defendant did not have the capacity to advance the money and that the suit was filed on 20-3-1971 and within a period of 12 days decree was passed on the consent made by the first defendant. The plaintiff was not even aware of the proceedings initiated by the second defendant. It is as a result of secret arrangement between the first and second defendants in order to segregate the property from the hands of the plaintiff. Therefore, the purpose for which the suit was filed and the decree was obtained is to defraud the plaintiff and to retain the property for themselves. The claim of the first and second defendants is fictitious, the contest over it is unreal and the decree passed therein is a mere mask having judicial determination. Hence, the decree is collusive and the first and second defendants incidentally also played fraud on the Court. Since the decree in O.S.No. 108/71 is collusive and vitiated by fraud, the subsequent sale and confirmation of sale do not convey any right in the property to the second defendant.

Reverting to the admitted position in this case, second defendant executed registered agreement of sale dated 27.3.2003 in favour of appellant 7 months prior to the filing of the suit by the D.Hr. The order of attachment before judgment was obtained on 22.8.2003. Therefore the rights of appellant are not in any way affected by the said attachment. The counsel for D.Hr however submits that legal notice was issued by first respondent on 26.2.2003 and only after coming to know about impending suit proceedings for recovery of amount, second respondent executed agreement of sale, which is sham and collusive. This cannot be accepted. Admittedly appellant filed specific performance suit. The same was decreed on 17.11.2006. The Court also executed sale deed in favour of appellant. The effect of accepting submission of counsel for first respondent would be to sit in appeal over the judgment in suit for specific performance. As held by this Court in T.Nabi Saheb (supra), the Court below could not have gone into validity of the proceedings. Both the Courts below went into the question of payment of consideration by the appellant to second respondent. When second respondent did not come forward to give evidence, it would not be safe to assume or infer that the agreement-Ex.A1, which has been accepted by the Court in specific performance suit is sham and collusive. In that view of the matter both the Courts below failed to appreciate the law correctly and also failed in applying correct law to the admitted facts.

In the result, for the above reasons, the Second Appeal is allowed. E.A.No.387 of 2005 accordingly stands allowed as prayed. The parties shall bear their own costs.

?1 2004 (1) ALD 416 : 2004(1) ALT 655

2 AIR 2004 AP 377 : 2004 (2) ALD 736 : 2004 (2) ALT 780 3 1996(3) ALT 322

4 (1991) 1 SCC 715

5 2004 (6) ALD 488 : 2004 (2) ALT 751