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1976 Supreme(All) 257

Allahbad High Court
K.N.SETH
Madan Kumar - Appellant
Versus
Hari Narain Agrawal - Respondent
Decided On : 08/03/1976

Advocates:
B.N. Agrawal, for the Appellants; S.N. Verma, for Respondents.

The insolvency court has jurisdiction under Section 4 of the Provincial Insolvency Act to adjudicate upon the validity of transfers made by an insolvent, even if they were made more than two years prior to the date of insolvency, if the transfers are claimed to be void since their inception.

Headnote:

PROVINCIAL INSOLVENCY ACT, 1920 - SECTION 4 - JURISDICTION OF INSOLVENCY COURT - CREDITORS' APPLICATION TO DECLARE TRANSACTIONS VOID - VALIDITY OF GIFT DEED MADE MORE THAN TWO YEARS PRIOR TO INSOLVENCY.

Fact of the Case:

Vishnu Narain, an insolvent, executed a gift deed in favor of his minor sons on 16-4-1963, a sale deed in favor of his brother-in-law Hari Krishna on 27-9-1965, and his mother, acting as guardian, executed a sale deed in favor of Madan Kumar on 7-9-1966. Creditors alleged that these transactions were sham and fictitious to defeat their claims and applied under Section 4 of the Provincial Insolvency Act to declare them void.

Finding of the Court:

The courts below found that the gift deed and sale deeds were sham and fictitious transactions.

Issues: 1. Whether creditors can make applications under Section 4 of the Provincial Insolvency Act to declare transactions void? 2. Whether the court has jurisdiction to declare the gift deed and sale deeds null and void? 3. Whether the bar of two years provided in Section 53 of the Act applies to a transaction claimed to be void?

Ratio Decidendi: 1. Section 4 of the Provincial Insolvency Act does not prescribe any application for relief under that Section. It defines the limits of jurisdiction of courts exercising powers in insolvency. When a question of title of the insolvent to any property is raised, the court is competent to decide that controversy. 2. A creditor can invoke the jurisdiction of the insolvency court under Section 4 of the Act. Section 54-A, which requires a creditor to obtain prior leave of the court before making an application to annul certain transfers, does not apply to fictitious or nominal transactions. 3. Section 53 of the Act, which provides a period of two years within which a transfer may be declared voidable and annulled by the court, does not apply to a transaction claimed to be void since its inception.

Final Decision: The appeals were dismissed with costs.

JUDGMENT :- These two appeals arise out of insolvency proceedings initiated by Vishnu Narain who made an application to the Insolvency Judge on 9-8-1966, for declaring him insolvent. The court by its order dated 15-1-1968 declared him insolvent. Respondents Nos. 1 to 5 in these appeals made applications under Section 4 of the Provincial Insolvency Act alleging that the disputed house and the shop were the assets of the insolvent and the transactions relating to them were sham and fictitious and hence void. It was alleged that on 16-4-1963 Vishnu Narain executed a gift deed in favour of his minor sons relating to the house in question. The mother of the minors, acting as their guardian, executed a sale deed dated 7-9-1966 in favour of Madan Kumar, appellant in S. A. F. O. No. 1 of 1973 Vishnu Narain executed a sale deed in favour of his brother-in-law Hari Krishna, appellant in S. A. F. O. No. 2 of 1973, on 27-9-1965 covering the shop in question. According to the respondent-creditors both these transactions were entered into with a view to defeat the claims of the creditors. They prayed that the gift dead dated 16-4-1963 and the two sale deeds be declared null and void. It was alleged that the insolvent continued to remain in possession of both the properties even after the sale deeds. It was also asserted that the fair market value of the house was Rs. 20,000/- but the sale consideration was shown to be Rs. 4000/- which further indicated the true nature of the transaction.

2. The courts below have recorded concurrent findings that the gift deed in favour of the minors and the sale deeds relating to the two properties were sham and fictitious transactions. I have carefully considered the reasoning adopted by the learned Judge in arriving at the conclusion that these transactions were sham and fictitious and I am of the opinion that the findings arrived at are fully justified and they must be affirmed. The learned counsel in fact did not challenge these findings before me.

3. Learned Counsel urged that the creditors were not competent to make the applications under Section 4 of the Provincial Insolvency Act and the court had no jurisdiction to declare the gift deed and the two sale deeds null and void. It was contended that an application to declare the transactions void could be made either by the Receiver or by a creditor after prior permission of the Court. The argument is wholly misconceived. Section 4 of the Provincial Insolvency Act does not prescribe for any application for relief under that Section. This section defines the limits of jurisdiction of courts exercising powers in insolvency. When a question of title of the insolvent to any property is raised, the court is competent to decide that controversy. It is necessary for the court to find out the assets of the insolvent with a view to make a complete distribution of the property of the involvent among the creditors. The jurisdiction of the court may be invoked by a creditor. I see nothing in Section 4 of the Act to debar a creditor from invoking the jurisdiction of the court for adjudication of the title of the creditor to the disputed property. The opening words of the section "subject to the provisions of this Act" only mean that Section 4 may not be exercised in such a manner as would be in conflict with any other provisions of this Act. I do not find any provision in the Act which puts a bar in the way of a creditor to invoke the jurisdiction of the insolvency court under Section 4 of the Act. Learned counsel for the appellant referred to Section 54-A and urged that a petition for the annulment of any transfer under Section 53 or of any transfer, payment, obligation or judicial proceeding under Section 54 could be made either by the Receiver or by a creditor with the leave of the court and since the present creditors had not obtained the prior leave of the court before making the application, the court was not competent to declare that the transfers complained of






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