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IN THE HIGH COURT OF ANDHRA PRADESH
B.S. BHANUMATHI, J.
Karri Venkata Reddy and Others - Appellant
Versus
Sathi Nagi Reddy and Others - Respondents
Civil Miscellaneous Second Appeal No. 3 of 2012
Decided on : 22-01-2025
(A) Provincial Insolvency Act, 1920 - Sections 2(f), 54, 54-A, and 78 - Appeal against the judgment and decree regarding insolvency petition - The appellate court partly allowed the appeal, setting aside the trial court's order adjudging the respondent as insolvent and declining annulment of certain transactions - The court found that the transactions did not constitute a transfer of property under the Act. (Paras 13, 24, 28)
(B) Limitation - The court held that the limitation period for filing the insolvency petition commenced from the date of execution of the sale deeds, not the earlier agreements, as the latter did not create any interest in the property. (Paras 20, 24)
Facts of the case:
The petitioners filed an insolvency petition against the respondent, alleging fraudulent transfer of property to defeat creditors' rights. The trial court dismissed the petition as barred by limitation.
Findings of Court:
The appellate court found that the transactions in question did not amount to a transfer of property and thus upheld the dismissal of the insolvency petition.
Issues: The main issues were whether the respondent was insolvent and whether the transactions constituted a transfer of property under the Act.
Ratio Decidendi: The court ruled that the agreements did not convey any title or interest in the property, thus not constituting a transfer under the Act.
Result: Appeal dismissed.
JUDGMENT:
B.S. BHANUMATHI, J.
This appeal under Section 75 of the Provincial Insolvency Act, 1920, by the respondents 3 to 6 in I.P.No.17 of 2005 on the file of the Court of the Senior Civil Judge, Ramachandrapuram, against the judgment and decree, dated 02.11.2011, passed in A.S.No.197 of 2009 on the file of the Court of 1st Additional District Judge, Rajahmundry, allowing the appeal in part setting aside the order, dated 03.08.2009, of the Senior Civil Judge, Ramachandrapuram, in I.P.No.17 of 2005 adjudging the 1st respondent in the insolvency petition as insolvent and granting six months time for discharge while declining the relief of annulment of transactions covered by originals of exhibit P2 and P3 passed by the trial Court.
2. During the pendency of this appeal, the 9th respondent died and respondents 12 to 14 have been brought on record as legal representatives of the deceased 9th respondent, vide order, dated 20.11.2024, in I.A.No.3 of 2024.
3. Heard Sri N.Siva Reddy, learned counsel for the appellants and Sri P. Rajesh Babu, learned counsel for the respondents No.1, 2, 3, 4, 5, 6, 8, 12, 13 and 14. In spite of service of notice, there is no appearance for respondents No.10 & 11.
4. The parties shall hereinafter be referred to as they are arrayed in the insolvency petition before the trial Court.
5. The facts, in brief, are as follows:
a. The petitioners/creditors filed the petition under Section 9 of the Provincial Insolvency Act, to adjudge the respondent No.1 as insolvent and to annul the registered sale deeds dated 09.03.2005 executed by the respondents 1 and 2 through the respondents 3 and 4 to the respondents 5 and 6 in respect of petition ‘A’ and ‘B’ schedule house and land properties. It is alleged that the respondent No.1 borrowed certain amounts from the petitioners on different dates and executed promissory notes in their favour as shown below:
| Sl. No. | Borrowed from | Amount | Date |
| 1 | 1st petitioner | 60,000 | 29-09-2002 |
| 2 | 2nd petitioner | 70,000 | 10-10-2003 |
| 3 | 3rd petitioner | 72,000 | 11-11-2003 |
| 4 | 4th petitioner | 70,000 | 25-09-2002 |
| 5 | 5th petitioner | 90,000 | 09-01-2004 |
| 6 | 6th petitioner | 1,10,000 | 25-02-2004 |
| 7 | 7th petitioner | 30,000 | 15-12-2004 |
| 8 | 8th petitioner | 65,000 | 04-02-2005 |
| 9 | 9th petitioner | 1,00,000 | 10-01-2005 |
b. In spite of demands, the respondent No.1 did not repay the said amounts. The respondent No.1, with a fraudulent intention to defeat the rights of the petitioners, the respondent No.1 created possessory sale agreements-cum-general power of attorney in the name of the respondents No.3 and 4 who, in turn, executed sale deeds, dated 09.03.2005 in favour of the respondents 5 and 6 for the petition ‘A’ and ‘B’ schedule properties. The sale deeds are not supported by consideration. In fact, the respondents 3 and 4 were never in possession and enjoyment of the properties but the respondents 1 and 2 are only in possession and enjoyment of the schedule properties. ‘A’ and ‘B’ schedule properties are ancestral house and land properties. The respondent No.2 is father of the respondent No.1 and the respondents No.1, 3 and 4 are the business associates and the respondents No.5 & 6 are closely related to the respondents No.1 and 2. Thus, in order to defeat the rights of the petitioners and delay the repayment, the respondent No.1 transferred the whole property owned and possessed by him to other respondents.
6. The respondents 1 and 2 remained ex parte before the trial Court.
7. The respondents 5 and 6 filed common counter and the same was adopted by the respondents 3 and 4. In the counter filed by the respondents 5 and 6, it was mainly contended as follows:
The material averments were denied. The pronotes were brought into existence by the petitioners and they are collusive transactions. The respondents 5 and 6 purchased the property from the respondents 3 and 4, who are the GPA holders who got agreements of sale from the respondents 1 and 2 for a valuable consideration and obtained delivery of possession. The petitioners are not entitled to any relief against these respondents.
The court established that agreements of sale and power of attorney do not constitute a transfer of property under the Provincial Insolvency Act, affecting the limitation period for insolvency petiti....
A creditor must establish the existence of a debt through prior adjudication before initiating insolvency proceedings against a debtor under the Provincial Insolvency Act.
Insolvency law requires the burden of proof for insolvency claims to rest with creditors, and purchasers must demonstrate bona fide acquisition under the Provincial Insolvency Act.
The burden of proof lies on the creditor to establish fraudulent intent in property transfers to declare a debtor insolvent; mere non-payment of debt is insufficient.
The Insolvency Court lacks jurisdiction to annul transactions if the debtor has not been legally adjudicated as insolvent, rendering such annulments void.
The central legal point established in the judgment is the requirement for a valid debtor-creditor relationship and the need to prove the act of insolvency before adjudication under the Provincial In....
The main legal point established in the judgment is that the interpretation and application of the legal provisions of the Provincial Insolvency Act, including Section 9(1)(c) and Section 10, are cru....
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