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IN THE HIGH COURT OF JUDICATURE AT MADRAS
P.T. ASHA, J.
T. Senthilvelan - Appellant
Versus
A. Senthil Kumar & Others - Respondent
C.M.S.A. No. 13 of 2019
Decided On : 19-04-2022
Insolvency - Creditor's Approach to Insolvency Court - Section 6(1)(b) of the Provincial Insolvency Act - Summary of Acts and Sections: Section 6(1)(b), Section 9(1)(c), Section 24 - The court discussed the creditor's approach to the Insolvency Court without obtaining a decree, the act of insolvency alleged, and the requirements under the Provincial Insolvency Act. The court analyzed the evidence presented, the legal precedents, and the burden of proof on the creditor to establish the debt and act of insolvency. The court emphasized the need for a valid debtor-creditor relationship and the requirement to prove the act of insolvency before adjudication.
Fact of the Case:
The petitioner extended a loan to the 1st respondent, who subsequently transferred his property to his wife without making provisions for his debts. The petitioner filed an insolvency petition under Section 9 of the Provincial Insolvency Act, alleging an act of insolvency based on the transfer of property.
Finding of the Court:
The court found that the petitioner failed to prove the borrowal and passing of consideration, essential for establishing the debtor-creditor relationship and the act of insolvency. The court emphasized the need for a valid debtor-creditor relationship and the requirement to prove the act of insolvency before adjudication.
Issues: The key issues were whether the petitioner proved the borrowal and passing of consideration, and whether the act of insolvency was established based on the transfer of property.
Ratio Decidendi: The court held that the petitioner's failure to prove the borrowal and passing of consideration undermined the establishment of a valid debtor-creditor relationship and the act of insolvency. The court emphasized the need for a valid debtor-creditor relationship and the requirement to prove the act of insolvency before adjudication.
Final Decision: The Civil Miscellaneous Second Appeal was dismissed, affirming the decision of the I Additional District Judge, Salem. No costs were awarded.
JUDGMENT
(Prayer: Civil Miscellaneous Second Appeal is filed under Section 75 (2) of Provincial Insolvency Act, read with Section 100 of the CPC against the Judgment and Decree passed in C.M.A.No.26 of 2016 on the file of the I Additional District Judge, Salem dated 31.08.2018 reversing the Fair and Final Order dated 11.11.2013 passed in I.P.No.37 of 2008 on the file of the Principal Subordinate Judge, Salem.)
1. The point in issue in this Civil Miscellaneous Second Appeal is whether the creditor can directly approach the Insolvency Court to have the borrower adjudged an Insolvent without obtaining a decree. This issue has to be answered in order to consider the substantial question of law that has been framed in this Civil Miscellaneous Second Appeal, namely,
When it is proved that the first respondent/debtor had admittedly borrowed money from the petitioner by executing a pronote as security for the borrowal and subsequently transferred his only property in favour of his wife without consideration and without making provision for his debts, is not the act of the respondent would amount to an act of insolvency?
2. The parties are referred to in the same ranking as before the Insolvency Court.
3. The Civil Miscellaneous Second Appeal has been filed in the following circumstances. The petitioner had filed I.P.No.37 of 2008 on the file of the Principal Subordinate Court, Salem invoking the provisions of Section 9 of the Provincial Insolvency Act.
4. It is the case of the petitioner that on 19.12.2007, the 1st respondent has borrowed a sum of Rs.5,00,000/- in cash from the petitioner to meet his urgent family expenses, for which he had executed a pronote as a security. The 1st respondent had assured that the said amount would be repaid on demand and that interest would be paid every month without a demand being made for the same.
5. The petitioner would contend that despite his repeated demands, the 1st respondent had not come forward to clear the outstanding and had also not paid any amount towards interest. While so, the petitioner came to learn that the respondents were joining hands to create a sham and nominal deed in respect of the 1st respondent’s immovable property. A gift settlement deed dated 11.08.2008 is executed by the 1st respondent in favour of the 2nd respondent. The 2nd respondent is the wife of the 1st respondent. Their attempt was to cheat and defraud the lawful claim of the petitioner as well as the other general body of creditors. With this malafide intentions, the 1st respondent had executed a gift deed in favour of the 2nd respondent in respect of the immovable property which is the only property of the 1st respondent.
6. The petitioner would contend that the 2nd respondent was fully aware about the legally enforceable debt of the 1st respondent to the petitioner and to the other body of creditors. Therefore, the petitioner had come forward with the petition to adjudge the 1st respondent as an insolvent.
7. A counter was filed by the 1st respondent which was adopted by the 2nd respondent. The respondents have denied the very borrowal and the execution of the pronote. It is their case that the pronote is a rank forgery and concocted one. The respondents have also contended that the petitioner did not have the wherewithal to pay such a huge amount of Rs.5,00,000/-. The respondents would submit that no act of insolvency had been committed by them and that they do not owe any money to the petitioner or any other body of creditors.
8. The Insolvency Court, namely, the Principal Subordinate Court, Salem by its order dated 11.11.2013 held that the 1st respondent had committed an act of insolvency by transferring his property in favour of his wife without consideration to defeat and defraud his creditor, namely, the petitioner. The learned Judge has come to the above conclusion by relying upon the evidence of P.W.2, who is said to have witnessed the execution of the pronote.
9. The respondents took up the order on appeal
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 burden of proving the contrary in insolvency proceedings is on the debtor, and the legal provisions create a presumption that the debtor has committed an act of insolvency if he fails to comply w....
The first appellate Court should follow proper procedures for additional evidence or remit the matter back to the trial Court for fresh consideration, and the appeal was maintainable under Section 75....
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 Judgment Debtor's failure to comply with the Insolvency Notice and subsequent Notice of Motion led to the adjudication of insolvency under Section 9(2) of the Insolvency Act.
The Insolvency Court lacks jurisdiction to annul transactions if the debtor has not been legally adjudicated as insolvent, rendering such annulments void.
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