This is a revision preferred under the second proviso to Section 75 of the Provincial Insolvency Act, 1920 (for short ‘the Act’), as extended to the State of Andhra Pradesh under the Provincial Insolvency (Andhra Pradesh Extension and Amendment) Act, 1965.

The revision is directed against the judgment and decree dated 23-03-2006 of the learned II-Additional District Judge, West Godavari District at Eluru in A.S.No.169 of 2001, reversing the judgment and decree in I.P.No.7 of 1998 dated 14-08-2001 passed by the learned Additional Senior Civil Judge, Eluru. The appellate Court allowed the appeal; set aside the order of the trial Court adjudged the 1st respondent as insolvent; and appointed the Official Receiver, West Godavari District as Receiver to administer the petition schedule properties.

The facts leading to the Revision:

The 2nd respondent (the insolvency petitioner), filed I.P.No.7 of 1998 initially against the 1st respondent (Gutta Nageswara Rao) and Gutta Prapoorna. The revision petitioner was brought on record as the 3rd respondent and the legal representative of Gutta Prapoorna, who died pending the insolvency proceedings, by the order dated 21-06-2001 in I.A.No 2656 of 1999.

The insolvency petitioner pleaded that Gutta Nageshwar Rao had borrowed Rs.40,000-00 from her on 19-01-1997 for his business and executed a promissory note in her favour. However with an intention to defraud and delay the discharge of this debt, Nageshwar Rao sold the petition schedule property to Prapoorna, the 2nd respondent, under a registered sale deed dated 25-11-1997 and thereby committed an act of insolvency. The insolvency petition hence sought a declaration that the 1st respondent be declared an ‘insolvent’ and for other incidental reliefs.

Nageshwar Rao in his counter denied having borrowed Rs.40,000-00 in January, 1997 or on any other date; denied execution of the promissory note; claimed that the insolvency petitioner had contrived the promissory note by using his blank signatures on a promissory note; claimed that the insolvency petitioner had contrived the promissory note by using his blank signatures on a promissory note furnished by him as collateral security in connection with his paddy commission business; claimed to have sold the plaint schedule property in public knowledge including of the insolvency petitioner, for discharging his general debts including those due to the insolvency petitioner and denied having committed acts of insolvency.

The revision petitioner after coming on record as the legal representative of Prapoorna filed a counter claiming that Prapoorna had purchased the petition schedule property from Nageshwar Rao and his mother Smt. G.V. Subbamma for valuable consideration; that Prapoorna is a bona fide purchaser of the petition schedule property for valuable consideration, without notice of the alleged dues by Nageshwar Rao to the insolvency petitioner; and that there are no grounds to declare Nageshwar Rao an insolvent.

The trial Court concluded that G. Nageshwar Rao had not committed any act of insolvency on account of selling the petition schedule property to Prapoorna and rejected the insolvency petition. Aggrieved thereby A.S.No.169 of 2001 was filed by the insolvency petitioner. By the order impugned herein the appeal was allowed by the learned II-Additional District Judge, Eluru.

The appellate Court concurred with the trial Court to the extent that it found on the analysis of evidence that there was a debtor-creditor relationship between the appellant and Gutta Nageshwar Rao, particularly in view of the fact that in his counter (in the insolvency petition) Nageshwar Rao had pleaded that he sold property to discharge the debts due to the creditors including the debt due to the insolvency petitioner. The lower appellate Court also found that there is no dispute as to the subsistence of the said debt; about the fact that the debt was not barred by limitation at the time of presenting the i