whether Section 621-A is mandatory or whether the said provision confers a discretion on the CLB to refuse to compound the offences where the penalty prescribed, for the offences alleged to have been committed, is merely a fine as, even if this Court were to proceed on the premise that the CLB has the discretion to refuse to compound the offences, such exercise of discretion can only be for just and valid reasons, and refusal to compound the offences cannot be at the mere whim and fancy of the CLB or for reasons which are wholly extraneous or irrelevant to the aspects required to be taken into consideration while exercising such discretion. As noted hereinabove C.C.Nos.394 and 400 of 2009 have not been clubbed with the other five cases (C.C.Nos.395 to 399 of 2009) nor has evidence been recorded in all these seven cases together. All these cases have been dealt with separately, though they are said to be listed on the same day. The letters to which Sri S.Ravi, Learned Senior Counsel, has drawn the attention of this Court to does indicate that the Ministry of Corporate Affairs of the Union of India, the CBI and the SFIO itself had no reason to suspect the involvement of Sri G.Jayaraman, Company Secretary in any of the offences in which the Chairman and Managing Director and other Directors of Satyam Computer Services Limited are said to be involved in. While it may not be appropriate for this Court to examine the authenticity of those letters, which have been relied upon by the appellants, (since these are matters which the CLB is required to examine while exercising its discretion under Section 621-A), it cannot, however, be lost sight of that, in one of the letters addressed by the CBI, it is stated that Sri G.Jayaraman had appeared on behalf of the prosecution, and was examined as a prosecution witness. The submission of Sri S.Ravi, Learned Senior Counsel, that the erstwhile Chairman and Managing Director, and the other erstwhile Directors of the company, are no longer involved in the company’s management; and the company itself was a victim of the fraud played by them, cannot be said to be without merit. These are relevant factors which the CLB should take into consideration while exercising its discretion to compound/not to compound the offences in exercise of its jurisdiction under Section 621A of the Act. Though Section 621A confers discretion on the CLB to also determine the quantum of the compounding fee, Sri S.Ravi, Learned Senior Counsel, would fairly state that the appellant company was ready and willing, if so ordered by the CLB, to pay the maximum amount prescribed under Section 621-A of the Act for compounding of such offences. The impugned orders of the CLB, in C.A.Nos.233 and 234 of 2010 dated 16.12.2011, are set aside, and the said applications are remanded back to the CLB for its consideration afresh in accordance with law. Since the trial in C.C.No.394 and 400 of 2009 is said to be at an advanced stage, it is but appropriate that the CLB decides C.A.Nos.233 and 234 of 2010 at the earliest, in any event not later than four weeks from the date of receipt of a copy of this order. It is made clear that this Court has not expressed any opinion on merits. It has merely noted the contentions, and has broadly indicated the aspects which the CLB should bear in mind while exercising its discretion whether or not to permit compounding of the offences alleged against the appellants in C.C.Nos.394 and 400 of 2009. Both the C.As. are, accordingly, disposed of at the stage of admission. ____________

THE HON’BLE SRI JUSTICE RAMESH RANGANATHAN

COMPANY APPEAL Nos.1 AND 2 OF 2012

ORDER:

          Both these appeals, under Section 10F of the Companies Act, 1956, are filed by the appellants herein aggrieved by the order of the Company Law Board (hereinafter called the CLB) in C.A.Nos.233 and 234 of 2010 dated 16.12.2011.

          The aforesaid two applications were filed before the CLB under Section 621A of the Companies Act, consequent upon a complaint being filed by the department of Serious Fraud Investigation for Economic Offences, Hyderabad, which were subsequently numbered as Calendar Case Nos.394 and 400 of 2009 before the Court of the Special Judge for Economic Offences at Hyderabad.  While C.C.No.400 of 2009 related to violation of the provisions of Section 220(1) read with Section 162 of the Companies Act, C.C.No.394 of 2009 was for violation of the provisions of Section 309 of the Companies Act read with Section 629-A thereof.  The punishments specified under the Companies Act (hereinafter called the “Act”), for the offences alleged in C.C.Nos.394 and 400 of 2009, is only “fine”.

          The applications in C.A.No233 and 234 of 2010, filed before the CLB, were for compounding of the offences alleged against the appellants herein, in C.C.Nos.394 and 400 of 2009; and the jurisdiction of the CLB, under Section 621A of the Act read with Regulation 44(1) of the Company Law Board Regulations, was invoked.  The CLB, in the order under appeal, noted that a total of seven cases were filed against the appellants herein, and the other accused; they had allegedly paid Rs.2.66 Crores as professional charges to one of the Director of the company; this payment was over and above the salary that was being paid to him; failure to obtain approval of the Central Government in this regard had resulted in violation of Section 309(1) of the Act; the said person was appointed as a Director only in order to facilitate siphoning of funds; violation of the statutory provisions under the Companies Act was not merely technical in nature; and the averment, that the company was also a victim of the fraud perpetrated by the erstwhile management, was not a ground to permit compounding of the offence; and it could be ascertained only upon conclusion of the trial.  The CLB further held that the Company Secretary (applicant No.2) was equally responsible for violation of the provisions of the Act; the offence was a continuing one; the same was brought to light only upon investigation; the applicants had not been candid in the matter of placing of materials and facts, and had not complied with the rule of full disclosure; and, as such, the present compounding applications could not be entertained.  The CLB noted that applicant No.2 had admitted that he had committed a bonafide error in not filing the auditor’s report with the balance sheet for the relevant two years thereby violating Section 220(1) of the Act; the Registrar of Companies, Hyderabad, vide letter dated 26.8.2009, had confirmed that the Company’s Balance sheets, in respect of the period 31.3.2006 to 31.3.2008, did not contain several crucial and mandatory details; in the light of the objection raised by the SFIO, these offences could not be termed as purely non-compliance of the laid down provisions; the issue involved was a question of fact which needed to be enquired into during trial; there was considerable force in the contention of the SFIO that there was a fundamental inter-linkage between the seven cases filed by them on the basis of investigation, followed by the confession of Sri B.Ramalinga Raju, Ex-Chairman of the company which revealed large scale falsification of accounts of the company for several years prior to 7.1.2009; and the offences mentioned in C.C.Nos.394 and 400 of 2009 were also required to be tried along with the other cases. The CLB, therefore, declined to exercise its discretion under Sections 621A of the Act, and dismissed both C.A.Nos.233 and 234 of 2010.  Aggrieved thereby, the present appeals.

          Sri S.Ravi, Learned Senior Counsel appearing on behalf of the appellants, would draw attention of this Court to the letter dated 21.7.2011 addressed by the Deputy Director - Ministry of Corporate Affairs, to the Director-Serious Fraud Investigation Office, New Delhi wherein, while drawing his attention to the Ministry’s instruction in its letter dated 13.11.2009, the Deputy Director stated that prosecution for violation of Section 309(1)(b)  read with Section 629-A and Section 220 of the Act, instructed to be filed against the company i.e., company only, may be withdrawn, and an action taken report be furnished after compliance.  Learned Senior Counsel would also draw attention of this Court to the letter addressed by the Joint Director, CBI dated 7.7.2011 informing the present Chairman of the company that the Company Secretary Sri G.Jayaraman had been cited as a prosecution witness in RC.4(S)/2009-Hyd relating to the Satyam Scam case; he had been examined as a prosecution witness, and his cross-examination  had been completed; the investigation carried out by the CBI did not reveal the role of Sri G.Jayaraman in the fraud perpetrated by the then Chairman Sri B.Ramalinga Raju and others in the company; this had no bearing on investigation being carried out by other agencies;  and investigation, with regards diversion of funds of the company by Sri B. Ramalinga Raju and others, was in progress.  Reliance is also placed by the Learned Senior Counsel on the supplementary investigation report of the SFIO dated 23.10.2009, under Section 235 of the Companies Act, wherein it is recorded that their investigation had not revealed the involvement of Company Secretary in the act of falsification; he had signed the said statements believing it to be the true and correct picture of the financial status of the company; as per the terms of his employment he had nothing to do with the preparation of the said accounts; therefore the Company Secretary may be excluded from such proceedings; similarly the company, being a juristic person, had acted through its directors and managerial persons, and was itself a victim of fraud; such directors, and managerial persons, had acted in a malafide manner and had falsified the accounts of the company; and, therefore, the company, being a victim of the fraud, could also be excluded.  Learned Senior Counsel would also draw attention of this Court to the letter addressed by the DIG, CBI, ACZ, Hyderabad to the Chief Finance Officer of Mahindra Satyam that the culpability of Sri G.Jayaraman, Company Secretary, had not come to their notice during the course of investigation.

          Learned Senior Counsel would submit that, as Sri G.Jayaraman, (Company Secretary) was a prosecution witness; and the aforesaid letters disclose that he was not involved in the fraudulent acts of the erstwhile Chairman and Directors of Satyam Computer Services Ltd, the CLB had erred in placing reliance on the other cases, (wherein the erstwhile Chairman and Managing Director and other Directors of Satyam Computer Services Ltd were involved), for refusing to exercise its jurisdiction under Section 621A of the Act.  Learned Senior Counsel would submit that, since M/s Mahindra Satyam had, at the behest of the Central Government, invested in the equity share capital of the company and had taken over its management, it was evident that the company itself was a victim of the fraud; and prosecuting the victim, when Section 621A conferred jurisdiction on the CLB to compound such offences, was wholly illegal.    Placing reliance on Official Liquidator v. Dharti Dhan (P) Ltd[1], Learned Senior Counsel would contend that Section 621 A is mandatory, and does not confer any discretion on the CLB to refuse to compound offences where the punishment prescribed for violation of the specified provisions of the Act was mere fine, and not imprisonment.

          On the other hand Sri M. Ravindran, Learned Addl. Solicitor General appearing on behalf of both the Union of India and the Registrar of Companies, would submit that, while these two case (C.C.394 and 400 of 2009) filed for violation of the provisions of Sections 309 and 220 of the Companies Act read with Section 162 and 629A prescribe a penalty of fine only and not imprisonment, these two applications for compounding of the offences is just a prelude for applications to be filed later by the erstwhile Chairman and Directors of the company who are arrayed as the accused in the five cases in C.C.Nos.395 to 399 of 2009.  Learned Addl. Solicitor General would submit that, while C.C.No.398 of 2009 was filed for violation of the provisions of Sections 205 and 205(8) of the Companies Act which prescribes punishment of fine only, in the other four cases (C.C.No.395 to 397 and 399) the punishment stipulated under the relevant provisions of the Act is fine or imprisonment or both.  Learned Addl. Solicitor General would draw attention of this Court to Section 274(1)(d) of the Act whereunder a person shall not be capable of being appointed as a director of a company if he has been convicted by a Court of any offence involving moral turpitude, and sentenced in respect thereof to imprisonment for not less than six months, and a period of five years has not elapsed from the date of expiry of the sentence.  He would also refer to Schedule XIII of the Act  whereunder no person shall be eligible for appointment as a Managing Director or a Whole-time Director or a Manager of a company unless he satisfies the condition of not being sentenced to imprisonment for any period, or to a fine exceeding of Rs.1000/-, for the conviction of an offence under any of  the sections of the Companies Act. Learned Additional Solicitor General would submit that since a person whose offence is compounded does not suffer the disqualification of a conviction, the CLB has the discretion to refuse to compound the offences in an appropriate case and require the accused to face the trial in the criminal case instituted against him; a discretion is conferred under Section 621A and the CLB is not bound to compound offences in all cases involving fine; and it can, in appropriate cases and for just and valid reasons, exercise discretion to refuse to compound the offences.

          On being asked whether C.C.Nos.394 and 400 of 2009 have either been clubbed, or are being heard together, with the other five cases referred to hereinabove, Learned Addl. Solicitor General would fairly state that evidence was recorded in each of these cases separately, and the other five case are not clubbed either with C.C.No.394 or with C.C.No.400 of 2009. He would also concede that though Sri G.Jayaraman, the Company Secretary, also continues to be the Senior Vice-President of the Company, neither does he fall within the definition of a Managing Director, a Whole-time Director or a Manager of the company. 

The amendment to Section 621A of the Act, by the Companies Second Amendment Act, 2002 (Amendment Act 11 of 2003), has not yet come into force; and, as such, the said provision, as it stood prior to its amendment, is applicable to the cases on hand.  Under Section 621A(1), notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under the Act  (whether committed by a company or any officer thereof) not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may, either before or after the institution of any prosecution, be compounded  by the CLB on payment or credit by the company or the officer, as the case may be, to the Central Government of such sums as that Government may prescribe.  Under the first proviso thereto the sum so specified shall not, in any case, exceed the maximum amount of the fine which may be imposed for the offence so compounded.  Section 220 of the Companies Act (violation of which is alleged in C.C.No.400 of 2009) requires the balance sheet and the profit and loss account to be laid before a company at the Annual General Meeting, and to be filed with the Registrar of Companies within 30 days thereafter.  Failure to comply with Section 220 attracts the penal provision of Section 162 whereunder the company, and every officer of the company who is in default, shall be punishable with fine which may extend to Rs.500/- for every day during which the default continues.  Under the proviso to Section 309(1) of the Act any remuneration for services rendered by any director in any other capacity shall not be so included if (a) the services rendered are of a professional nature and (b) in the opinion of the Central Government, the Director possesses the requisite qualifications for the practice of the profession. 

The case of the prosecution, in short, is that the fees paid to Sri Krishna G Palepu, who was hitherto appointed as the Director of the Company, could not have been paid in the absence of permission being granted by the Central Government under Section 309(1)(b) of the Act.  Under Section 629-A of the Companies Act, where no specific penalty is provided elsewhere in the Act, if a company or any other person contravenes any provision of the Act or any condition, limitation or restriction, the company, and every officer who is in default or such other person, shall be punishable with fine which may extend to Rs.5000/-, and where the contravention is a continuing one with a further fine which may extend to Rs.500/- for every day during which the contravention continues.  Even on conviction by a competent Criminal Court, both Sections 162 and 629A (which are the penal provisions applicable for violation of Section 220 and 309 of the Act), merely require payment of fine, and not imprisonment.  Even if C.C.Nos.394 and 400 of 2009 end in conviction of the accused, the punishment which can be imposed by the Criminal Court is merely imposition of fine, which under Section 621-A of the Act, the CLB itself is empowered to impose on the offences being compounded.  It is no doubt true that, on the offences being compounded by the CLB, the accused, in whose cases the offence is compounded, would not suffer the consequences of a conviction by a competent Criminal Court.  As the first appellant is the company, the consequences of conviction, as stipulated under Section 274(1)(d) and Schedule XIII of the Act, would not be attracted.  Whether the aforesaid statutory provisions would be attracted in case the 2^nd appellant (the company secretary is convicted in C.C.Nos.394 and 400 of 2009) is a matter for the CLB to examine while exercising its discretion under Section 621-A of the Act. 

          It is wholly unnecessary for this Court to go into the question whether Section 621-A is mandatory or whether the said provision confers a discretion on the CLB to refuse to compound the offences where the penalty prescribed, for the offences alleged to have been committed, is merely a fine as, even if this Court were to proceed on the premise that the CLB has the discretion to refuse to compound the offences, such exercise of discretion can only be for just and valid reasons, and refusal to compound the offences cannot be at the mere whim and fancy of the CLB or for reasons which are wholly extraneous or irrelevant to the aspects required to be taken into consideration while exercising such discretion.  As noted hereinabove C.C.Nos.394 and 400 of 2009 have not been clubbed with the other five cases (C.C.Nos.395 to 399 of 2009) nor has evidence been recorded in all these seven cases together.  All these cases have been dealt with separately, though they are said to be listed on the same day.  The letters to which Sri S.Ravi, Learned Senior Counsel, has drawn the attention of this Court to does indicate that the Ministry of Corporate Affairs of the Union of India, the CBI and the SFIO itself had no reason to suspect the involvement of Sri G.Jayaraman, Company Secretary in any of the offences in which the Chairman and Managing Director and other Directors of Satyam Computer Services Limited are said to be involved in.  While it may not be appropriate for this Court to examine the authenticity of those letters, which have been relied upon by the appellants, (since these are matters which the CLB is required to examine while exercising its discretion under Section 621-A), it cannot, however, be lost sight of that, in one of the letters addressed by the CBI, it is stated that Sri G.Jayaraman had appeared on behalf of the prosecution, and was examined as a prosecution witness.  The submission of Sri S.Ravi, Learned Senior Counsel, that the erstwhile Chairman and Managing Director, and the other erstwhile Directors of the company, are no longer involved in the company’s management; and the company itself was a victim of the fraud played by them, cannot be said to be without merit. These are relevant factors which the CLB should take into consideration while exercising its discretion to compound/not to compound the offences in exercise of its jurisdiction under Section 621A of the Act.  Though Section 621A confers discretion on the CLB to also determine the quantum of the compounding fee, Sri S.Ravi, Learned Senior Counsel, would fairly state that the appellant company was ready and willing, if so ordered by the CLB, to pay the maximum amount prescribed under Section 621-A of the Act for compounding of such offences. 

The impugned orders of the CLB, in C.A.Nos.233 and 234 of 2010 dated 16.12.2011, are set aside, and the said applications are remanded back to the CLB for its consideration afresh in accordance with law.  Since the trial in C.C.No.394 and 400 of 2009 is said to be at an advanced stage, it is but appropriate that the CLB decides C.A.Nos.233 and 234 of 2010 at the earliest, in any event not later than four weeks from the date of receipt of a copy of this order.  It is made clear that this Court has not expressed any opinion on merits.  It has merely noted the contentions, and has broadly indicated the aspects which the CLB should bear in mind while exercising its discretion whether or not to permit compounding of the offences alleged against the appellants in C.C.Nos.394 and 400 of 2009.

          Both the C.As. are, accordingly, disposed of at the stage of admission.

                                                                             ____________

                                                                             12-03-2012

Note:

Issue C.C. in one week

B/o

asp

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[1] AIR 1977 SC 740

Suit for prohibitory injunction - Relating to vacant land --Claim for possession based on title - Title of plaintiff disputed - Various complicated questions arose for putting forth a case of title - Suit decreed by trial court - Reversed by first appellate court - High Court in second appeal after recording finding of facts restored the order of trial court - On appeal, held: In the facts and circumstances of the case, the questions which arose for consideration could be decided only in a suit for declaration and consequential reliefs and not in a suit for injunction simplicitor - In absence of prayer for declaration of title, issue regarding title, pleadings required for declaration of title, the parties cannot be said to have an opportunity to have full fledged adjudication regarding title - High Court exceeded its jurisdiction u/s 100 CPC in re-examining questions of fact, by going into the questions which were not pleaded and not in issue, and by formulating questions of law which did not arise in the second appeal - Code of Civil Procedure, 1908 - s.100. Suit for prohibitory injunction - Relating to immovable Property - Scope of - Held: The prayer for injunction will be decided with reference to the finding on possession - In cases of vacant land, it will be necessary to examine and determine the title as a prelude for deciding the de jure possession - If the title is clear and simple, the court may decide the issue of title - But, if a cloud is raised over plaintiff's title, a suit for declaration and possession, with or without a consequential injunction, is the remedy. Respondent/plaintiffs 1 and 2 filed a suit for permanent injunction against the appellant-defendant. They pleaded that they were owners in possession of the suit properties (vacant land) under sale deeds from `R' (their vendor). They alleged that the defendant interfered with their possession. Defendant in his Written Statement stated that the suit property was purchased by him from the brother of the plaintiffs' vendor under a registered sale deed and was put in possession of the property by his vendor and it were the plaintiffs who tried to interfere with his possession. Plaintiffs led evidence to the effect that defendant's vendor had gifted the suit property to his sister in the year 1961 by way of `Pasupu Kumkumam'. Defendant and his vendor denied the plea of gift. Trial Court decreed the suit. First Appellate Court allowed the appeal of the defendant holding that defendant was in possession of the property and the plaintiff had not made out either title or possession over it; that mere suit for injunction was not maintainable and the suit should have be amended to one for declaration and injunction. High Court in second appeal, examining the evidence in detail, recorded the findings of facts and restored the judgment and decree of trial court. It held that plaintiffs had established their title in respect of suit land and drew an inference that possession was presumed to be with them by applying the principle of possession follows title; and that it was not necessary for the plaintiffs to sue for declaration of title as the question of title could be examined incidental to the question of possession. Hence the present appeal. The questions which arose for consideration before this Court were regarding the scope of a suit for prohibitory injunction relating to immovable property; whether plaintiffs were required to file a suit for declaration of title and injunction; and whether the High Court, in a second appeal , could examine the factual question of title which was not the subject matter of any issue and based on a finding thereon, reverse the decision of the first appellate court. Allowing the appeal, the Court HELD: 1.1 Where a cloud is raised over plaintiff's title and he does not have possession, a suit for declaration and possession, with or without a consequential injunction, is the remedy. Where the plaintiff's title is not in dispute or under a cloud, but he is out of possession, he has to sue for possession with a consequential injunction. Where there is merely an interference with plaintiff's lawful possession or threat of dispossession, it is sufficient to sue for an injunction simpliciter. [Para 17] [349-G; 350-A] 1.2 A cloud is said to raise over a person's title, when some apparent defect in his title to a property, or when some prima facie right of a third party over it, is made out or shown. An action for declaration, is the remedy to remove the cloud on the title to the property. On the other hand, where the plaintiff has clear title supported by documents, if a trespasser without any claim to title or an interloper without any apparent title, merely denies the plaintiff's title, it does not amount to raising a cloud over the title of the plaintiff and it will not be necessary for the plaintiff to sue for declaration and a suit for injunction may be sufficient. Where the plaintiff, believing that defendant is only a trespasser or a wrongful claimant without title, files a mere suit for injunction, and in such a suit, the defendant discloses in his defence the details of the right or title claimed by him, which raises a serious dispute or cloud over plaintiff's title, then there is a need for the plaintiff, to amend the plaint and convert the suit into one for declaration. Alternatively, he may withdraw the suit for bare injunction, with permission of the court to file a comprehensive suit for declaration and injunction. He may file the suit for declaration with consequential relief, even after the suit for injunction is dismissed, where the suit raised only the issue of possession and not any issue of title. [Para 12] [345-G; 346-A, B, C, D] 1.3 As a suit for injunction simpliciter is concerned only with possession, normally the issue of title will not be directly and substantially in issue. The prayer for injunction will be decided with reference to the finding on possession. In cases of vacant land, the principle is that possession follows title. If two persons claim to be in possession of a vacant site, one who is able to establish title thereto will be considered to be in possession, as against the person who is not able to establish title. This means that even though a suit relating to a vacant site is for a mere injunction and the issue is one of possession, it will be necessary to examine and determine the title as a prelude for deciding the de jure possession. In such a situation, where the title is clear and simple, the court may venture a decision on the issue of title, so as to decide the question of de jure possession even though the suit is for a mere injunction. But where the issue of title involves complicated or complex questions of fact and law, or where court feels that parties had not proceeded on the basis that title was in issue, the court should not decide the issue of title in a suit for injunction. The proper course is to relegate the plaintiff to the remedy of a full-fledged suit for declaration and consequential reliefs. [Paras 14 and 17] [346-G; 347-A, B, C; 350-A, B] 1.4 However, a finding on title cannot be recorded in a suit for injunction, unless there are necessary pleadings and appropriate issue regarding title (either specific or implied). Where the averments regarding title are absent in a plaint and where there is no issue relating to title, the court will not investigate or examine or render a finding on a question of title, in a suit for injunction. Even where there are necessary pleadings and issue, if the matter involves complicated questions of fact and law relating to title, the court will relegate the parties to the remedy by way of comprehensive suit for declaration of title, instead of deciding the issue in a suit for mere injunction. [Para 17] [350-C, D, E] 1.5 Where there are necessary pleadings regarding title, and appropriate issue relating to title on which parties lead evidence, if the matter involved is simple and straight-forward, the court may decide upon the issue regarding title, even in a suit for injunction. But such cases, are the exception to the normal rule that question of title will not be decided in suits for injunction. But persons having clear title and possession suing for injunction, should not be driven to the costlier and more cumbersome remedy of a suit for declaration, merely because some meddler vexatiously or wrongfully makes a claim or tries to encroach upon his property. The court should use its discretion carefully to identify cases where it will enquire into title and cases where it will refer to plaintiff to a more comprehensive declaratory suit, depending upon the facts of the case. [Para 17] [350-F, G, H; 351-A] Vanagiri Sri Selliamman Ayyanar Uthirasomasundareswarar Temple vs. Rajanga Asari - AIR 1965 Mad. 355; Sulochana Amma vs. Narayanan Nair - 1994 (2) SCC 14; Annaimuthu Thevar v. Alagammal - 2005 (6) SCC 202; Sajjadanashin Sayed Md. Vs. Musa Dadabhai Ummer - 2000 (3) SCC 350- referred to. Corpus Juris Secundum (Vol.50, para 735, p.229) - referred to. 2.1 In the present case, the suit sites were vacant plots. Both sides admitted that defendant's vendor was the original owner and that entire property stood in his name. The defendant claims title through his vendor. The plaintiffs claim title through their vendor, who neither has any deed of title nor any document in support of title or possession. Admittedly, there was no mutation in her name. This means that plaintiffs claim title through someone who claimed to be owner in pursuance of an oral gift in the year 1961 without the property being mutated in her name, whereas the defendant claims title from the person who was admittedly the original owner who was registered as owner in the revenue records. Necessarily, therefore, prima facie it has to be held that defendant had made out possession following title. [Para 20] [352-B, C, D, E] 2.2 The plaintiffs and their witnesses gave evidence to the effect that defendant's vendor represented that his sister (appellants' vendor) was the owner of the plot and negotiated for sale of the several portions thereof in favour of plaintiffs and PW3, and that defendant's vendor had attested the sale deeds in their favour and identified his sister as the vendor-executant before the Sub-Registrar, at the time of registration of the sale deeds. But defendant's vendor in his evidence denied having made the oral gift or having attested the sale deeds in favour of plaintiffs. He also denied having identified his sister at the time of registration of the sale deeds. Whether evidence of appellants' vendor and other plaintiffs' witnesses should be believed or whether evidence of defendant's vendor should be believed on the question of title, can be examined only when there are necessary pleadings and an issue regarding title. Further, where title of plaintiffs is disputed and claim for possession is purely based on title, and the plaintiffs have to rely on various principles of law relating to ostensible ownership and section 41 of Transfer of Property Act, validity of a oral gift by way of `Pasupu Kumkum' under Hindu Law, estoppel and acquiescence, to put forth a case of title, such complicated questions could properly be examined only in a title suit, that is a suit for declaration and consequential reliefs, and not in a suit for an injunction simpliciter. [Para 21] [352-E, F, G, H; 353-A, B, C] 3.1 High Court exceeded its jurisdiction under Section 100 CPC, firstly in re-examining questions of fact, secondly by going into the questions which were not pleaded and which were not the subject matter of any issue, thirdly by formulating questions of law which did not arise in the second appeal, and lastly, by interfering with the well reasoned judgment of the first appellate court which held that the plaintiffs ought to have filed a suit for declaration. [Para 27] [355-G; 356-A, B] 3.2 The High Court, in the absence of pleadings and issues, formulated in a second appeal arising from a suit for bare injunction, questions of law unrelated to the pleadings and issues, presumably because some evidence was led and some arguments were advanced on those aspects. The only averment in the plaint that plaintiffs were the owners of the suit property having purchased the same under sale deeds, did not enable the court, much less a High Court in second appeal, to hold a roving enquiry into an oral gift and its validity or validation of ostensible title under section 41 of Transfer of Property Act. No amount of evidence or arguments can be looked into or considered in the absence of pleadings and issues. [Para 25] [355-A, B, C] 3.3 The High Court while reversing the decision of the first appellate court, examined various aspects relating to title and recorded findings relating to title. It held that gifting a property to a daughter or sister by way of `Pasupu Kumkumam', could be done orally and did not require a registered instrument. Even though there was no independence evidence of oral gift except the assertion to appellants' vendor (which was denied by defendant's vendor), the High Court, held that there was an oral gift in her favour. It also accepted the evidence of PW3 and PW5 and plaintiffs, that defendant's vendor negotiated for the sale of the plots representing that they sbelonged to his sister; and that he attested the sale deeds as a witness and identified his sister as the executant before the Sub-Registrar and therefore, Section 41 of Transfer of Property Act came to the aid of plaintiffs and defendant's vendor was estopped from denying the title of his sister. The High Court in a second appeal arising from a suit for an injunction, could not have recorded such findings, in the absence of pleadings and issue regarding title. [Para 26] [355-D, E, F, G] 3.4 Though driving the plaintiffs to a fresh round of litigation after three decades would cause hardship to them. But the scope of civil cases are circumscribed by the limitations placed by the rules of pleadings, nature of relief claimed and the court fee paid. The predicament of plaintiffs, was brought upon themselves, by failing to convert the suit to one for declaration even when the written statement was filed, and by not seeking amendment of issues to include an issue on the question of title. In the absence of a prayer of declaration of title and an issue regarding title, let alone the pleadings required for a declaration of title, the parties cannot be said to have an opportunity to have a full-fledged adjudication regarding title. [Para 28] [356-B, C, D] D. Mahesh Babu for the Appellant. K. Amareswari, P. Venkat Reddy and Guntur Prabhakar for the Respondents. 2008 AIR 2033, 2008(5 )SCR331 , 2008(4 )SCC594 , 2008(4 )SCALE718 ,

CASE NO.:
Appeal (civil)  6191 of 2001

PETITIONER:
Anathula Sudhakar

RESPONDENT:
P. Buchi Reddy (Dead) By LRs & Ors

DATE OF JUDGMENT: 25/03/2008

BENCH:
R. V. Raveendran & P. Sathasivam

JUDGMENT:
J U D G M E N T
(Reportable)


CIVIL APPEAL NO.6191 OF 2001


R.V. RAVEENDRAN, J.


This appeal by special leave is by the defendant in a suit for
permanent injunction. Puli Chandra Reddy and Puli Buchi Reddy were the
plaintiffs in the said suit. Both are now no more. The Legal Representatives
of Puli Chandra Reddy are Respondents 2 to 5 and Legal Representatives of
Puli Buchi Reddy are Respondent 1 (i) to (iii). The suit related to two sites
bearing no. 13/776/B and 13/776/C  measuring 110 sq. yards and 187 sq.
yards in Matwada, Warangal town, together referred to as the 'suit property'.

2. Plaintiffs 1 and 2 claimed to be the respective owners in possession of
the said two sites having purchased them under two registered sale deeds
dated 9.12.1968 (Exs.A1 and A2) from Rukminibai. The plaintiffs further
claimed that the said two sites were mutated in their names in the municipal
records. They alleged that on 3.5.1978, when they were digging trenches in
order to commence construction, the defendant interfered with the said
work. The plaintiffs, therefore, filed suit OS No.279 of 1978 in the file of
Principal District Munsiff, Warangal, for a permanent injunction to restrain
the defendant from interfering with their possession.

3. Defendant resisted the suit. He claimed that suit property measuring
300 sq. yards in Premises No. 13/776 was purchased by him from K. V.
Damodar Rao (brother of plaintiffs' vendor Rukminibai) under registered
sale deed dated  7.11.1977 (Ex.B1); that he was put in possession of the suit
property by Damodar Rao; that the suit property had been transferred to his
name in the municipal records; that he applied for and obtained sanction of a
plan for construction of a building thereon; and that he had also obtained a
loan for such construction from the Central Government by mortgaging the
said property. According to him, when he commenced construction in the
suit property, the plaintiffs tried to interfere with his possession and filed a
false suit claiming to be in possession.

4. The trial court framed the following issues - (i) whether the plaintiffs
are in exclusive possession of the suit sites (house plots)? (ii) whether the
defendant has interfered with the possession of the plaintiffs over the suit
plots? (iii) whether the plaintiffs are entitled to permanent injunction; and
(iv) to what relief. The plaintiffs examined themselves as PW1 and PW2.
They examined their vendor Rukminibai as PW4. Puli Malla Reddy and
Vadula Ramachandram examined as PW3 and PW5, were the purchasers of
two adjacent sites from Rukminibai. One of them (PW3) was the cousin of
plaintiffs and was also the scribe and attestor in respect of the two sale deeds
in favour of plaintiffs. Plaintiffs exhibited the two sale deeds dated
9.12.1968 in their favour as Ex.A1 and A2 and municipal demand notices
and tax receipts, all of the year 1978 onwards, as Ex.A3 to A11. A plan
showing the sites was marked as Ex.A12. Two letters said to have written by
Damodar Rao were marked as Ex.A13 and A14. The sale deed executed by
Rukminibai in favour of PW3 was marked as Ex.X1 and sale agreement in
favour of PW5 was marked as Ex.X2. The defendant gave evidence as DW1
and examined his vendor Damodar Rao as DW2. He exhibited the certified
copy of the sale deed dated 7.11.1977 in his favour as Ex.B1, a certified
copy of mortgage deed executed by him in favour of Central Government as
Ex.B2, the licence and sanctioned plan for construction of a house in the suit
plot as Ex.B3 and B4 and the loan sanction proceedings as Ex.B5. He also
exhibited a property tax receipt dated 12.2.1978 issued to Damodar Rao
(Ex.B6), water charge bill dated 20.9.1978 for house No. 13/775 and 13/776
issued to Damodar Rao (Ex.B7), and property tax receipts dated 19.2.1972,
14.10.1973, 28.3.1970 and 13.11.1968 in the name of Damodar Rao (Ex. B8
to B11).

5. There was no dispute that the site purchased by the defendant from
Damodar Rao under deed dated 7.11.1977 is the same as the two sites
purchased by plaintiffs from Rukminibai under sale deeds dated 9.1.1968.
There is also no dispute that the suit property is a vacant plot and it was
originally portion of the backyard of the property bearing nos. 13/775 and
13/776, belonging to Damodar Rao, and that he was shown as registered
owner of the said properties No.13/775 and 13/776 in the municipal records.

6. The plaintiffs led evidence to the effect that Damador Rao orally
gifted the backyard portion of No.13/775 and 13/776, (separated from the
main building by a dividing wall) to his sister Rukminibai in the year 1961,
by way of 'Pasupu Kumkumam' (a gift made to a daughter or sister,
conferring absolute title, out of love and affection, with a view to provide for
her); that Rukminibai sold three portions of the gifted site to PW3, plaintiff
No.1, plaintiff No.2 in the year 1968 and they were in possession ever since
1968; and that an agreement of sale was also entered in regard to another
portion with PW5 as per Ex.X2. On the other hand, defendant led evidence
denying that the suit property was given to Rukminibai by way of 'Pasupu
Kumkumam'. His vendor Damodar Rao gave evidence that he was the
owner of the suit property and he sold it to the defendant under deed dated
7.11.1977 and put him in possession thereof. While plaintiffs alleged that
plots were mutated in their names after their purchase, defendant alleged that
the suit property purchased by him was a part of plot No.13/776 which stood
in the name of Damodar Rao in the municipal records. Neither party
produced the order of mutation or any certificate from the municipal
authorities, certifying or showing mutation to their names. They only
produced tax receipts. The tax receipts produced by plaintiffs showed that
they had paid taxes from 1978 onwards, that is for a period subsequent to the
sale by Damodar Rao in favour of defendant. Plaintiffs did not produce any
tax paid receipt to show that the property stood in the name of Rukminibai.
Nor did they produce any tax receipt for the period 9.12.1968 (date of
purchase by plaintiffs) to 7.11.1977 (date of purchase by  defendant). The
defendant produced tax receipts to show that the suit property stood in the
name of his vendor Damodar Rao till the date of sale in his favour.

7. The trial court decreed the suit by judgment dated 31.12.1985.
Relying on the two sale deeds in favour of plaintiffs, the tax paid receipts
and the oral evidence, it held that plaintiffs were in possession of the suit
property from the date of purchase and the defendant had interfered with
their possession. The defendant filed an appeal challenging the judgment and
decree of the trial court before the Addl. District Judge, Warangal. The first
appellate court held that the defendant was in possession of the suit property
and the plaintiffs had not made out, even prima facie, either title or
possession over the suit property. It was of the view that in the
circumstances a mere suit for injunction was not maintainable, and at least
when the defendant filed his written statement denying the title of plaintiffs
and setting up a clear and specific case of title in himself, the plaintiffs ought
to have amended the plaint to convert the suit into one for declaration and
injunction. Consequently it allowed the appeal by judgment and decree dated
9.12.1991 and dismissed the suit. Being aggrieved, the plaintiffs filed SA
No.29 of 1992.

8. The High Court by its judgment dated 18.1.1999 allowed the second
appeal and restored the judgment and decree of the trial court. For this
purpose, the High Court examined the evidence in detail and recorded the
following findings:

(i) There was an oral gift of the backyard portion (No.13/776) by way of
'pasupu kumkumam' by Damodar Rao in favour of his sister Rukminibai  in
the year 1961. As a gift of an immovable property in favour of a daughter or
sister by way of  'Pasupu Kumkuman' could be oral, the absence of any
registered document did not invalidate the gift.

(ii) Damodar Rao negotiated with plaintiffs, for sale of the two sites, on
behalf of his sister Rukminibai, representing that his sister was the owner
thereof and attested the sale deeds executed by his sister Rukminibai in
favour of plaintiffs as a witness and identified her as the executant of the
sale deeds before the Sub-Registrar. Those acts of Damodar Rao supported
the claim of Rukminibai that there was a oral gift. Alternatively, even if
there was no gift in favour of Rukminibai, and Damodar Rao was the owner,
the aforesaid acts of Damodar Rao showed  that with his implied consent,
Rukminibai represented to be the ostensible owner of the suit property and
transferred the same to plaintiffs for consideration. This attracted the
provision of section 41 of Transfer of Property Act, 1882 and therefore the
transfers in favour of plaintiffs was not voidable at the instance of Damodar
Rao or his successor in interest on the ground that Rukminibai was not the
owner of the suit property.

The High Court consequently held that plaintiffs had established their title in
regard to the two vacant sites purchased by them and drew an inference that
possession was presumed to be with them by applying the principle of
possession follows title. The High Court also held that it was not necessary
to plaintiffs to sue for declaration  of title, as the question of title could be
examined incidental to the question of possession.

9. The said judgment is challenged by the defendant, in this appeal by
special leave, on the following grounds :

(a) The suit for permanent injunction without seeking declaration of title
was not maintainable on the facts of the case. At all events, the High Court
ought not to have recorded a finding of fact on a seriously disputed and
complicated issue of title, in a suit for a mere injunction.

(b) The first appellate court held that plaintiffs had neither established
their title nor their possession and their remedy was to file a suit for
declaration and consequential relief. The High Court, in a second appeal,
ought not to have reversed the said decision of the first appellate court, by
the process of examining and recording a finding on title, even though there
was no issue regarding title.

(c) An oral gift by a brother to a sister was not permissible. At all events,
such an oral gift even if permissible, can be made only at the time of a
partition or at the time of marriage of the sister, with a view to making a
provision for her. The High Court erred in holding that the there was a valid
oral gift by Damodar Rao in favour of Rukminibai.

(d) There was no plea in the plaint about the ostensible ownership of
Rukminibai or about any acts of Damodar Rao which demonstrated the
consent of Damodar Rao to such ostensible ownership. Nor was there any
plea about due and diligent enquiries by the plaintiffs regarding title before
purchase. Therefore the High Court erred in holding that the sales in favour
of plaintiffs were protected by section 41 of the Transfer of Property Act,
1882.

(e) In the absence of pleadings and an issue regarding title, the defendant
had no opportunity to effectively lead evidence on the question of title.

(f) The High Court erred in equating plaintiffs' failure to produce title
deeds of their vendor to defendant's failure to produce the title deeds of his
vendor. The High Court overlooked the fact that there was no dispute that
defendant's vendor Damodar Rao was the earlier owner of the suit property
and it was for the plaintiffs who had set up a case that their vendor
Rukminibai derived title from Damodar Rao under an oral gift, to prove the
said claim.

10. On the contentions urged, the following questions arise for our
consideration in this appeal:

(i) What is the scope of a suit for prohibitory injunction relating to
immovable property?

(ii) Whether on the facts, plaintiffs ought to have filed a suit for
declaration of title and injunction ?

(iii) Whether the High Court, in a second appeal under section 100
CPC, examine the factual question of title which was not the
subject matter of any issue and based on a finding thereon, reverse
the decision of the first appellate court?

(iv)    What is the appropriate decision?

Re : Question (i) :

11. The general principles as to when a mere suit for permanent
injunction will lie, and when it is necessary to file a suit for declaration
and/or possession with injunction as a consequential relief, are well settled.
We may refer to them briefly.

11.1) Where a plaintiff is in lawful or peaceful possession of a property and
such possession is interfered or threatened by the defendant, a suit for an
injunction simpliciter will lie. A person has a right to protect his possession
against any person who does not prove a better title by seeking a prohibitory
injunction. But a person in wrongful possession is not entitled to an
injunction against the rightful owner.

11.2) Where the title of the plaintiff is not disputed, but he is not in
possession, his remedy is to file a suit for possession and seek in addition, if
necessary, an  injunction. A person out of possession, cannot seek the relief
of injunction simpliciter, without claiming the relief of possession.

11.3) Where the plaintiff is in possession, but his title to the property is in
dispute, or under a cloud, or where the defendant asserts title thereto and
there is also a threat of dispossession from defendant, the plaintiff will have
to sue for declaration of title and the consequential relief of injunction.
Where the title of plaintiff is under a cloud or in dispute and he is not in
possession or not able to establish possession, necessarily the plaintiff will
have to file a suit for declaration, possession and injunction.

12. We may however clarify that a prayer for declaration will be
necessary only if the denial of title by the defendant or challenge to
plaintiff's title raises a cloud on the title of plaintiff to the property. A cloud
is said to raise over a person's title, when some apparent defect in his title to
a property, or when some prima facie right of a third party over it, is made
out or shown. An action for declaration, is the remedy to remove the cloud
on the title to the property. On the other hand, where the plaintiff has clear
title supported by documents, if a trespasser without any claim to title or an
interloper without any apparent title, merely denies the plaintiff's title, it
does not amount to raising a cloud over the title of the plaintiff and it will
not be necessary for the plaintiff to sue for declaration and a suit for
injunction may be sufficient. Where the plaintiff, believing that defendant is
only a trespasser or a wrongful claimant without title, files a mere suit for
injunction, and in such a suit, the defendant discloses in his defence the
details of the right or title claimed by him, which raises a serious dispute or
cloud over plaintiff's title, then there is a need for the plaintiff, to amend the
plaint and convert the suit into one for declaration. Alternatively, he may
withdraw the suit for bare injunction, with permission of the court to file a
comprehensive suit for declaration and injunction. He may file the suit for
declaration with consequential relief, even after the suit for injunction is
dismissed, where the suit raised only the issue of possession and not any
issue of title.

13. In a suit for permanent injunction to restrain the defendant from
interfering with plaintiff's possession, the plaintiff will have to establish that
as on the date of the suit he was in lawful possession of the suit property and
defendant tried to interfere or disturb such lawful possession. Where the
property is a building or building with appurtenant land, there may not be
much difficulty in establishing possession. The plaintiff may prove physical
or lawful possession, either of himself or by him through his family
members or agents or lessees/licensees. Even in respect of a land without
structures, as for example an agricultural land, possession may be
established with reference to the actual use and cultivation. The question of
title is not in issue in such a suit, though it may arise incidentally or
collaterally.

14. But what if the property is a vacant site, which is not physically
possessed, used or enjoyed? In such cases the principle is that possession
follows title. If two persons claim to be in possession of a vacant site, one
who is able to establish title thereto will be considered to be in possession, as
against the person who is not able to establish title. This means that even
though a suit relating to a vacant site is for a mere injunction and the issue is
one of possession, it will be necessary to examine and determine the title as
a prelude for deciding the de jure possession. In such a situation, where the
title is clear and simple, the court may venture a decision on the issue of
title, so as to decide the question of de jure possession even though the suit
is for a mere injunction. But where the issue of title involves complicated or
complex questions of fact and law, or where court feels that parties had not
proceeded on the basis that title was at issue, the court should not decide the
issue of title in a suit for injunction. The proper course is to relegate the
plaintiff to the remedy of a full-fledged suit for declaration and
consequential reliefs.

15. There is some confusion as to in what circumstances the question of
title will be directly and substantially in issue, and in what circumstances the
question of title will be collaterally and incidentally in issue, in a suit for
injunction simpliciter. In Vanagiri Sri Selliamman Ayyanar
Uthirasomasundareswarar Temple vs. Rajanga Asari AIR 1965 Mad. 355,
the Madras High Court considered an appeal arising from a suit for
possession and injunction. The defendant contended that the plaintiff had
filed an earlier suit for injunction which was dismissed, and therefore the
plaintiff was precluded from agitating the issue of title in the subsequent
suit, being barred by the principle of res judicata. It was held that the earlier
suit was only for an injunction (to protect the standing crop on the land) and
the averments in the plaint did not give rise to any question necessitating
denial of plaintiff's title by the defendant; and as the earlier suit was
concerned only with a possessory right and not title, the subsequent suit was
not barred. There are several decisions taking a similar view that in a suit for
injunction, the question of title does not arise or would arise only
incidentally or collaterally, and therefore a subsequent suit for declaration of
title would not be barred. On the other hand, in Sulochana Amma vs.
Narayanan Nair 1994 (2) SCC 14, this Court observed that a finding as to
title given in an earlier injunction suit, can operate as res judicata in a
subsequent suit for declaration of title. This was on the premises that in
some suits for injunction where a finding on possession solely depended
upon a finding on the issue of title, it could be said that the issue of title
directly and substantially arose for consideration; and when the same issue
regarding title is put in issue, in a subsequent title suit between the parties,
the decision in the earlier suit for injunction may operate as res judicata.
This Court observed :

"Shri Sukumaran further contended that the remedy of injunction
is an equitable relief and in equity, the doctrine of res judicata
cannot be extended to a decree of a court of limited pecuniary
jurisdiction. We find no force in the contention. It is settled law
that in a suit for injunction when title is in issue for the purpose of
granting injunction, the issue directly and substantially arises in
that suit between the parties. When the same issue is put in issue in
a later suit based on title between the same parties or their privies
in a subsequent suit the decree in the injunction suit equally
operates as res judicata."

This was reiterated in Annaimuthu Thevar v. Alagammal 2005 (6) SCC
202.
16. This Court in Sajjadanashin Sayed Md. Vs. Musa Dadabhai Ummer
2000 (3) SCC 350,   noticed the apparent conflict in the views expressed in
Vanagiri and Sulochana Amma and clarified that the two decisions did not
express different views, but dealt with two different situations, as explained
in Corpus Juris Secundum (Vol.50, para 735, p.229):
"Where title to property is the basis of the right of possession, a decision
on the question of possession is res judicata on the question of title to the
extent that adjudication of title was essential to the judgment; but where
the question of the right to possession was the only issue actually or
necessarily involved, the judgment is not conclusive on the question of
ownership or title."

 In Vanagiri, the finding on possession did not rest on a finding on title and
there was no issue regarding title. The case related to an agricultural land
and raising of crops and it was obviously possible to establish by evidence
who was actually using and cultivating the land and it was not necessary to
examine the title to find out who had deemed possession. If a finding on title
was not necessary for deciding the question of possession and grant of
injunction, or where there was no issue regarding title, any decision on title
given incidentally and collaterally will not, operate as res judicata. On the
other hand, the observation in Sulochana Amma that the finding on an issue
relating to title in an earlier suit for injunction may operate as res judicata,
was with reference to a situation where the question of title was directly and
substantially in issue in a suit for injunction, that is, where a finding as to
title was necessary for grant of an injunction and a specific issue in regard to
title had been raised. It is needless to point out that a second suit would be
barred, only when the facts relating to title are pleaded, when a issue is
raised in regard to title, and parties lead evidence on the issue of title and the
court, instead of relegating the parties to an action for declaration of title,
decides upon the issue of title and that decision attains finality. This happens
only in rare cases. Be that as it may. We are concerned in this case, not with
a question relating to res judicata, but a question whether a finding regarding
title could be recorded in a suit for injunction simpliciter, in the absence of
pleadings and issue relating to title.

17. To summarize, the position in regard to suits for prohibitory
injunction relating to immovable property, is as under :

(a) Where a cloud is raised over plaintiff's title and he does not have
possession, a suit for declaration and possession, with or without a
consequential injunction, is the remedy. Where the plaintiff's title is not in
dispute or under a cloud, but he is out of possession, he has to sue for
possession with a consequential injunction. Where there is merely an
interference with plaintiff's lawful possession or threat of dispossession, it is
sufficient to sue for an injunction simpliciter.

(b) As a suit for injunction simpliciter is concerned only with possession,
normally the issue of title will not be directly and substantially in issue. The
prayer for injunction will be decided with reference to the finding on
possession. But in cases where de jure possession has to be established on
the basis of title to the property, as in the case of vacant sites, the issue of
title may directly and substantially arise for consideration, as without a
finding thereon, it will not be possible to decide the issue of possession.

(c) But a finding on title cannot be recorded in a suit for injunction,
unless there are necessary pleadings and appropriate issue regarding title
[either specific, or implied as noticed in Annaimuthu Thevar (supra)]. Where
the averments regarding title are absent in a plaint and where there is no
issue relating to title, the court will not investigate or examine or render a
finding on a question of title, in a suit for injunction. Even where there are
necessary pleadings and issue, if the matter involves complicated questions
of fact and law relating to title, the court will relegate the parties to the
remedy by way of comprehensive suit for declaration of title, instead of
deciding the issue in a suit for mere injunction.    

(d) Where there are necessary pleadings regarding title, and appropriate
issue relating to title on which parties lead evidence, if the matter involved is
simple and straight-forward, the court may decide upon the issue regarding
title, even in a suit for injunction. But such cases, are the exception to the
normal rule that question of title will not be decided in suits for injunction.
But persons having clear title and possession suing for injunction, should not
be driven to the costlier and more cumbersome remedy of a suit for
declaration, merely because some meddler vexatiously or wrongfully makes
a claim or tries to encroach upon his property. The court should use its
discretion carefully to identify cases where it will enquire into title and cases
where it will refer to plaintiff to a more comprehensive declaratory suit,
depending upon the facts of the case.

Re : Question (ii) :

18. Rukminibai did not have any title deed to the suit property. The case
of plaintiffs during arguments was that the gift made in the year 1961, being
by way of 'Pasupu Kumkumam' in favour of a sister by a brother, could be
oral and did not require a registered instrument. But the property allegedly
gifted to Rukminibai was not mutated in the name of Rukminibai in the
municipal records, but continued in the name of  Damodar Rao even after
1961. Damodar Rao was a resident of Warangal and staying in the house
adjoining the suit property. Rukminibai was a resident of Hyderabad.
Therefore, as on the date of sales in favour of the plaintiffs 9.12.1968,
Rukminibai had neither any title deed nor actual possession. Nor was the
property mutated in her name in the municipal records. The tax paid receipts
produced by the plaintiffs related to a period subsequent to the execution of
the sale deeds by Rukminibai in their favour and subsequent to the sale by
Damodar Rao in favour of defendant. On the other hand, the suit property
was sold in favour of the defendant by Damodar Rao who was shown as
registered owner in the municipal records and who even according to the
plaintiffs was the original owner of the property.

19. The first appellate court found that the evidence of plaintiffs and their
witnesses as to the title of plaintiffs' vendor Rukminibai was sketchy and
inconsistent. It referred to three versions as to how Rukminibai got the
property. The first version (as per PW1) was that the suit property belonged
to Rukminibai's father and he had given it to his daughter Rukminibai by
way of 'Pasupu Kumkumam'. The second version (as per PW2) was that
after the death of Rukminibai's father, there was an oral partition between K.
V. Damodar Rao and Rukminibai and at that partition, the suit property was
allotted to Rukminibai. But both PW1 and PW2 admitted that they did not
make any enquiry with Rukminibai about her title. The third version (as per
PW4 - Rukminibai) was that Damodar Rao made an oral gift of the plot in
her favour by way of 'Pasupu Kumkumam' in the year 1961. She admitted
that there was no special occasion for gifting the plot to her in the year 1961,
as she was married long prior to 1961.

20. The suit sites were vacant plots. Both sides admitted that Damodar
Rao was the original owner and that entire property stood in his name. The
defendant claims title through Damodar Rao. The plaintiffs claim title
through Rukminibai who neither has any deed of title nor any document in
support of title or possession. Admittedly, there was no mutation in her
name. This means that plaintiffs claim title through someone who claimed to
be owner in pursuance of an oral gift in the year 1961 without the property
being mutated in her name, whereas the defendant claims title from the
person who was admittedly the original owner who was registered as owner
in the revenue records. Necessarily, therefore, prima facie it has to be held
that defendant had made out possession following title.

21. The plaintiffs and their witnesses gave evidence to the effect that
Damodar Rao represented that his sister Rukminibai was the owner of the
plot and negotiated for sale of the several portions thereof in favour of
plaintiffs and PW3, and that Damodar Rao had attested the sale deeds in
their favour and identified his sister as the vendor executant before the
Sub-Registrar, at the time of registration of the sale deeds. It is no doubt true
that if that was the position, it is possible for them to contend that having
regard to section 41 of Transfer of Property Act, when the ostensible owner
Rukminibai sold the property with the implied consent of Damodar Rao, the
defendant as a transferee from Damodar Rao could not contend that the sales
were not valid. They also alleged that defendant was a close relative of
Damodar Rao and the sale in favour of defendant was only nominal,
intended to defeat their title. But Damodar Rao in his evidence denied
having made the oral gift or having attested the sale deeds in favour of
plaintiffs. He also denied having identified his sister at the time of
registration of the sale deeds. Whether Rukminibai's evidence and other
plaintiffs' witnesses should be believed or whether evidence of Damodar
Rao should be believed on the question of title, can be examined only when
there are necessary pleadings and an issue regarding title. Further, where
title of plaintiffs is disputed and claim for possession is purely based on title,
and the plaintiffs have to rely on various principles of law relating to
ostensible ownership and section 41 of TP Act, validity of a oral gift by way
of 'pasupu kumkum' under Hindu Law, estoppel and acquiescence, to put
forth a case of title, such complicated questions could properly be examined
only in a title suit, that is a suit for declaration  and consequential reliefs, and
not in a suit for an injunction simpliciter.

Re : Questions (iii) and (iv)
 
22. The High Court formulated the following as substantial questions of
law:

"(i) Whether the plaintiffs' suit for permanent injunction without seeking
declaration of title is maintainable under law?

(ii) Whether the acts and deeds of Damodar Rao (DW-2) made the
plaintiffs to believe that Rukminibai is the ostensible owner of the suit
property and thus made them to purchase the suit property for valid
consideration and, therefore, the provisions under Section 41 of the Transfer
of Property Act are attracted and as such DW-2 could not pass on a better
title to the defendant under Ex.B-1?

(iii) Whether the alleged oral gift of the suit property in favour of
Rukminibai by DW2 towards pasupukumkum is legal, valid and binding on
DW2 though effected in contravention of the provisions under Section 123
of the Transfer of Property Act?"

Having regard to the pleadings and issues, only the first question formulated
by the High Court can be said to arise for its consideration in the second
appeal. The second and third questions did not arise at all, as we will
presently demonstrate.

23. The second question of law formulated by the High Court is a mixed
question of fact and law, that is whether the factual ingredients necessary to
claim the benefit of section 41 of the Transfer of Property Act were made
out by plaintiffs. To attract the benefit of section 41 of TP Act, the plaintiffs
had to specifically plead the averments necessary to make out a case under
section 41 of the T.P. Act and claim the benefit or protection under that
section. The averments to be pleaded were :

(a) that Rukminibai was the ostensible owner of the property with the
express or implied consent of Damodar Rao;

(b) that the plaintiffs after taking reasonable care to ascertain that the
transferor or Rukminibai had the power to make the transfer, had acted in
good faith in purchasing the sites for valid consideration; and

(c) that therefore, the transfer in favour of plaintiffs by Rukminibai was
not voidable at the instance of Damodar Rao or any one claiming through
him.

These pleas were not made in the plaint. When these were not pleaded, the
question of defendant denying or traversing them did not arise. In the
absence of any pleadings and issue, it is ununderstandable how a question of
law relating to section 41 of TP Act could be formulated by the High Court.

24. The third question of law formulated by the High Court, is also a
mixed question of fact and law firstly whether there was an oral gift and
secondly whether the alleged oral gift was valid. Here again, there was no
averment in the plaint in respect of any gift, oral or otherwise, by Damodar
Rao in favour of Rukminibai or about its validity. Consequently there was
no opportunity to the defendant to deny the oral gift in his written statement.
There was no issue on this aspect also. Therefore, this question, which could
not have been considered in the suit, could not also have been considered in
the second appeal.

25. The High Court, in the absence of pleadings and issues, formulated in
a second appeal arising from a suit for bare injunction, questions of law
unrelated to the pleadings and issues, presumably because some evidence
was led and some arguments were advanced on those aspects. The only
averment in the plaint that plaintiffs were the owners of the suit property
having purchased the same under sale deeds dated 9.12.1968, did not enable
the court, much less a High Court in second appeal, to hold a roving enquiry
into an oral gift and its validity or validation of ostensible title under section
41 of TP Act. No amount of evidence or arguments can be looked into or
considered in the absence of pleadings and issues, is a proposition that is too
well settled.

26. The High Court while reversing the decision of the first appellate
court, examined various aspects relating to title and recorded findings
relating to title. It held that gifting a property to a daughter or sister by way
of  'Pasupu Kumkumam", could be done orally and did not require a
registered instrument. Even though there was no independence evidence of
oral gift except the assertion to Rukminibai (which was denied by Damodar
Rao), the High Court, held that there was an oral gift in her favour. It also
accepted the evidence of PW3 and PW5 and plaintiffs, that Damodar Rao
negotiated for the sale of the plots representing that they belonged to his
sister Rukminibai and that he attested the sale deeds as a witness and
identified the Rukminibai as the executant before the Sub-Registrar and
therefore, section 41 of TP Act came to the aid of plaintiffs and Damodar
Rao was estopped from denying the title of his sister. The High Court in a
second appeal arising from a suit for an injunction, could not have recorded
such findings, in the absence of pleadings and issue regarding title.


27. We are therefore of the view that the High Court exceeded its
jurisdiction under section 100 CPC, firstly in re-examining questions of fact,
secondly by going into the questions which were not pleaded and which
were not the subject matter of any issue, thirdly by formulating questions of
law which did not arise in the second appeal, and lastly, by interfering with
the well reasoned judgment of the first appellate court which held that the
plaintiffs ought to have filed a suit for declaration.

28. We are conscious of the fact that the suit was filed in the year 1978
and driving the plaintiffs to a fresh round of litigation after three decades
would cause hardship to them. But the scope of civil cases are circumscribed
by the limitations placed by the rules of pleadings, nature of relief claimed
and the court fee paid. The predicament of plaintiffs, was brought upon
themselves, by failing to convert the suit to one for declaration even when
the written statement was filed, and by not seeking amendment of issues to
include an issue on the question of title. In the absence of a prayer of
declaration of title and an issue regarding title, let alone the pleadings
required for a declaration of title, the parties cannot be said to have an
opportunity to have a full-fledged adjudication regarding title.

29. We, therefore, allow this appeal, set aside the judgment of the High
Court and dismiss the suit. Nothing stated herein or by the courts below shall
be  construed  as  expression of any opinion regarding title, in any future suit
for declaration and consequential reliefs that may be filed by the Appellants,
in accordance with law. Parties to bear their respective costs.

At any rate, the primary question is whether the petitioners can be released from the bank guarantee? 9. As already pointed out, the bank guarantee, in fact, stood expired on 03-07-2003. This petition more would appear to be for the purpose of clarity. The learned counsel for the petitioners submitted that the bank has not been releasing the money deposited by the petitioners on the ground that the bank guarantee has still been in force. I, therefore, consider it appropriate to release the petitioners from the bank guarantee where in fact, the bank guarantee stood expired on 03-07-2003 and also where the main insolvency petition stood dismissed on 19-10-2003 itself. 10. Accordingly, this Civil Revision Petition is ordered. The petitioners are released from the bank guarantee. No costs.

                        IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH  
AT HYDERABAD

                        (Special Original Jurisdiction)

PRESENT

THE HON’BLE SRI JUSTICE K.G.SHANKAR

C.R.P.NO.5131 OF 2006

20-12-2010

Between:-

R.Srinivas and others                     

.. Petitioners

And

Pulamati Bai and others

..Respondents

ORDER:-

          The learned III Additional District Judge, Warangal, through the impugned order, declined to release the bank guarantee offered by the petitioners therein.  Aggrieved by the same, the petitioners preferred the present revision.

2.       The respondents were served with notices.  None other respondents appeared.  The case is proceeded in the absence of the respondents.

3.       One Bajjuri Nagaraj, who is the second respondent herein, laid I.P.No.7 of 2001 on the file of the III Additional District Judge, Warangal to adjudicate the first respondent and perhaps the petitioners also as insolvents.  The petitioners and the first respondent were partners in M/s.Manikanta Modern Rice Mills.  The second respondent sought for appointment of an Advocate Commissioner before the Insolvency Court.  I.A.No.153 of 2002 in I.P.No.7 of 2001 was allowed.  An Advocate Commissioner was appointed.  The learned Advocate Commissioner visited the premises, took inventory of the premises in question and locked the same.  The petitioners, as already pointed out, are the partners along with the first respondent in the mill.  The petitioners, who wanted to continue the business, would appear to have sought for the intervention of the Insolvency Court to permit them to conduct business.

4.       It is the case of the petitioners that the Insolvency Court permitted the petitioners to prosecute the business on a bank guarantee of Rs.1,75,000/- for a period of one year.  The bank guarantee was given by the petitioners with effect from                       04-07-2002.  The bank guarantee would stand expired on                   03-07-2003.  It would appear that the petitioners were permitted to conduct business after furnishing of the bank guarantee.

5.       While things stood thus, on 19-10-2003, the insolvency petition was dismissed for non-prosecution.  Neither the second respondent-creditor, nor the first respondent-primary debtor nor the petitioner for that matter filed any petitions or appeals questioning the order of dismissal of the insolvency petition for default dated 19-10-2003.

6.       About two years after the dismissal of the insolvency petition, the petitioners herein filed I.A.No.883 of 2005 to release the bank guarantee.  Through the impugned order, the Insolvency Court dismissed the same.  The petitioners contend that the bank guarantee is liable to be released and that the impugned order is liable to be set aside. 

7.       As pointed out by Sri Ghanshyamdas Mandhani, learned counsel for the petitioners, the bank guarantee expired on             03-07-2003.  The releasing of the petitioners from the bank guarantee, in fact, is automatic when the bank guarantee was not encashed on or before 03-07-2003.  The learned trial Judge held that there was collusion between the insolvency petitioner, namely the second respondent herein, and the petitioners and that the petitioners are not entitled to seek further release of the bank guarantee as they failed to show that they are the partners.  It may be pointed out that when the petitioners claim that they are  the partners and also have furnished bank guarantee, the second respondent cannot now claim that the petitioners are not the partners of the mill where he did not oppose the furnishing of the bank guarantee by the petitioners.  I am satisfied with the contention of the petitioners that they are the partners of M/s.Manikanta Modern Rice Mills. 

8.       At any rate, the primary question is whether the petitioners can be released from the bank guarantee? 

9.       As already pointed out, the bank guarantee, in fact, stood expired on 03-07-2003.  This petition more would appear to be for the purpose of clarity.  The learned counsel for the petitioners submitted that the bank has not been releasing the money deposited by the petitioners on the ground that the bank guarantee has still been in force. I, therefore, consider it appropriate to release the petitioners from the bank guarantee where in fact, the bank guarantee stood expired on 03-07-2003 and also where the main insolvency petition stood dismissed on             19-10-2003 itself. 

10.          Accordingly, this Civil Revision Petition is ordered.  The petitioners are released from the bank guarantee.  No costs.

                    _______________

               K.G.SHANKAR,J

20^th December 2010

AMD

“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