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ANDHRA PRADESH HIGH COURT
M. Satyanarayana Murthy, J.
Tadikamalla Venkata Ramana Kishore & Anr. —Appellants
versus
Padarthi Santhakumari & Ors. —Respondents
Civil Miscellaneous Second Appeal No.29 of 2011
Decided on 24.6.2015
IMPORTANT POINTS
1. Before filing petition for annulment of transaction, the petitioner must approached the official receiver and prove his debt as contemplated under Part-III of the Act.
2. A fraudulent transfer under Section 53 of the Act and transaction to give fraudulent preference under Section 54 are void against the receiver and they shell be annulled on the petition filed within specific time.
Headnote:(A) Provincial Insolvency Act, 1929, Sections 9, 53 and 54- Petition for adjudgement as insolvent and annulment of transaction- The first condition for annulment of transaction was that he should have been adjudged as insolvent- Since the petitioner was not even adjudged as insolvent, the petition for annulment will not be maintainable- Petitioner not approaching official receiver to prove his debt as contemplated under the Act- The order annulling the sale transaction, held not proper and illegal. (Para 15 to 21)
(B) Provincial Insolvency Act, 1929- Sections 53 and 54A- Fraudulent transfer- A fraudulent transfer under Section 53 of the Act and transaction to give fraudulent preference under Section 54 are void against the receiver and they shell be annulled on the petition filed within specific time- Under Section 54A for annulment of transfer, it is duty of the petitioner to prove debts before the official receiver as required under Section 49 of the Act. (Para 19, 21 and 22)
Facts of the case:
Where there were three creditors including the Municipality, but the tax liability of the Municipal Corporation, Guntur and debt due to Shaik Mohammad Rafee was discharged by respondent Nos. 2 and 3 appellants herein having found that their claims are genuine, but did not discharge the debt due to the sole creditor, petitioner before the trial Court on the ground that her claim is not genuine. Alienation of property in favour of respondent Nos. 2 and 3 by the first respondent under registered sale deeds dated 10.03.2004 vide document Nos. 2605 of 2004 and 2606 of 2004 is not in dispute. When the debtor alienates the whole or substantial part of the property, it constitutes act of insolvency under Section 6 (1) (b) of the Act, such petition can be dismissed only on the grounds enunciated under Section 25 of the Act. But here, the debtor-first respondent did not contest the matter. Therefore, respondent Nos. 2 and 3 were incompetent to raise any of the grounds under Section 25 of the Act.
Finding of the Court:
In view of the language used in Sections 53 and 54 of the act, more particularly, the words “if the transferor is adjudged insolvent” under Section 53 of the Act and “if the person is adjudged insolvent” under Section 54 of the Act indicates that for annulling transaction of transfer, the debtor must be an adjudged insolvent. So, to annul a transaction of transfer, a precondition is adjudging the debtor as an insolvent. But, here the petition was filed by the creditor seeking two reliefs both under Sections 9 and 53, 54 of the Act avoiding a fraudulent preference and annul the transactions covered by sale deeds dated 10.03.2004 vide document Nos. 2605 of 2004 and 2606 of 2004. Thus, he sought for two reliefs simultaneously and the relief claimed by the petitioner/creditor is against the spirit of language used under Sections 53, 54 and 54-A of the Act.
Therefore, the debt shall be proved by following necessary procedure contemplated under Section 49 of the Act, after entrusting the matter to Official Receiver duly adjudging the debtor as insolvent. Part-III of the Act from Sections 45 to 50 laid down procedure for proof of debts. Following of such procedure under Sections 45 to 50 of the Act would arise only after adjudging the debtor as insolvent. But here, the relief under Section 53, 54 of the Act was claimed simultaneously with the relief of adjudging the debtor as insolvent. The conditions laid down under Section 54-A of the Act, were not complied by the petitioner to get the transaction covered by sale deeds dated 10.03.2004 annulled. Therefore, findings of the trial court and appellate court set aside to the extent of annulling the sale deed however, the order adjudging the first respondent as insolvent upheld. (Para 20 to 27)
Result: Appeal partly allowed.
M. Satyanarayana Murthy, J.—Respondent Nos.2 and 3 in I.P.No.26 of 2004 on the file of I Additional Senior Civil Judge, Guntur preferred this appeal questioning the judgment and decree in A.S.No.16 of 2009 passed by II Additional District Judge, Guntur, dated 29.04.2011.
2. For convenience of preference, the ranks given to the parties in I.P.No.26 of 2004 before I Additional Senior Civil Judge, Guntur will be adopted throughout the judgment.
3. The petitioner (first respondent herein) filed I.P.No.26 of 2004 under Section 9 of Provincial Insolvency Act, 1920 (for short, the Act) contending that the first respondent borrowed Rs.40,000/- on 17.10.2001, Rs.20,000/- on 24.10.2001 and Rs.10,000/- on 06.08.2002 from her, under three promissory notes executed on the even dates for his family and other necessities, agreeing to repay the same together with interest. Despite the demands made by the petitioner, the first respondent did not discharge the debt and on the other hand, the first respondent offered to sell the only property he own and possessed and thereupon, the second respondent issued a paper publication from the public calling objections, if any, from the public. Immediately, the petitioner on noticing the publication, came to know that the first respondent is trying to alienate the schedule property only to evade payment of debt due under the promissory notes and therefore, she immediately got issued a notice dated 21.01.2004 demanding the first respondent to pay the debt due while informing the second respondent that he would be liable for debts due under the promissory notes in case he purchases the property. In spite of notice, respondent Nos.2 and 3 purchased the petition schedule property under sale deeds dated 10.03.2004 for Rs. 8,40,000/- and Rs. 1,40,000/- vide document Nos.2605 of 2004 and 2606 of 2004 respectively. The value of the property is more than Rs.15,00,000/- as on the date of sale and the sale is only with a view to defeat and delay the claims of the creditors. Thus, the first respondent transferred substantial part of her property with a view to defeat and delay the creditors and prayed to adjudge her as insolvent annulling the sale transactions dated 10.03.2004 vide document Nos.2605 of 2004 and 2606 of 2004 vesting the property on the Official Receiver.
4. Respondent No.1 remained ex-parte.
5. Respondent Nos.2 and 3 filed counter denying material allegations while contending that the second respondent is working as a Medical Area Manager at Vijayawada in Mano Pharmaceuticals for the last six years, possessing sufficient amount to purchase the property and proposed to purchase the property from the first respondent and the publication, dated 20.01.2004 issued in Eenadu Daily News Paper calling upon objection from the public against proposed purchase. Thereupon, the petitioner issued a notice dated 21.01.2004 through her advocate informing that the first respondent borrowed Rs.40,000/-, Rs. 20,000/- and Rs.10,000 under three promissory notes. One Shaik Mohammad Rafee also issued a notice informing that he filed a suit O.S.No.1439 of 2003 on the file of III Additional Senior Civil Judge, Guntur for recovery of money of Rs. 28,800/-. Respondent Nos.2 and 3 could know about the tax liability to Guntur Municipal Corporation and the debt due to Mohammad Rafee and the petitioner only after paper publication issued and having satisfied with the debt of Shaik Mohammad Rafee and the tax liability to Guntur Municipal Corporation, they discharged the debt due, while denying to discharge the debt due to the petitioner on the ground that it is collusive debt. Thus, they are bona fide purchasers for valuable consideration and therefore, the first respondent cannot be adjudged as insolvent and prayed for dismissal of the petition.
6. During the course of enquiry, on behalf of the petitioner, the petitioner himself was examined as PW.1 and marked Exs.A.1 to A.12. On behalf of the contesting respondents, RWs.1
