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.

JUDGMENT

Civil Miscellaneous Second Appeal is filed against the judgment and decree dated 12.06.2019 in C.M.A.No.11 of 2018 on the file of the Principal District Court, Namakkal, reversing the fair and decretal order dated 09.07.2018 in I.P.No.54 of 2007 on the file of the Principal Subordinate Court, Namakkal.

2. The first respondent herein (creditor) has filed I.P.No.54 of 2007 under Sections 6 and 9 of the Provincial Insolvency Act to adjudge the second respondent herein as an insolvent, stating as follows:

The second respondent herein borrowed Rs.1,40,000/- on 12.11.2005 from the first respondent-creditor, for his family expenses, urgent need and for his business and executed a Promissory Note agreeing to repay the amount with interest @ 18% per annum. Inspite of repeated demands, the second respondent herein had not repaid any amount either towards interest or principal amount. The second respondent, with a view to delay and defeat his creditors, including the first respondent herein, sold his only property that belongs to him to the appellant herein on 28.09.2007 for Rs.75,000/-, but the fact remains that the property is more worthy. The second respondent herein had under-valued the property and sold it to the appellant herein. The above transfer of property is liable to be set aside under Section 53 of the Provincial Insolvency Act. The second respondent herein is not available in his usual place of residence and he has secluded himself, thereby depriving his creditors of the means of communicating with him. As the acts of the second respondent are the acts of insolvency, it is necessary to adjudge him as an insolvent.

3. The appellant herein has filed counter before the trial Court stating as follows:

The borrowal of Rs.1,40,000/- and also the execution of Promissory Note, are denied by him. The Promissory Note is created for the purpose of the case. The loan and non-re-payment of the amount are also denied. The appellant herein, before purchase of the property from the second respondent herein, enquired regarding the encumbrance, if any on the property and the liability of the second respondent to pay any amount. Only after confirming that there are no encumbrances in the property and that there are no loans for the second respondent herein, the appellant purchased the property as a bona-fide purchaser for valuable consideration and is in possession of the property. The factum of not residing in his usual address to defraud the creditors, is denied. Both the respondents herein collusively filed the petition before the trial Court only to grab money from the appellant herein by creating a false Promissory Note. The first respondent herein has no right to challenge the sale in favour of the appellant. The first respondent is not entitled to any relief in respect of the property purchased by the appellant. There is no mention of any property in the petition. The second respondent has got other properties also and so, the I.P. is not maintainable. The second respondent herein has already executed a sale agreement on 31.10.2003 with one Thangaraj and the same was cancelled and the advance amount was repaid. Only then, the appellant purchased purchased the property from the second respondent on 28.09.2007. The second respondent has paid the advance amount after cancelling the sale agreement from the sale amount paid by the appellant. After purchase of the property, the appellant transferred the Patta in his name and is in possession and paying tax.

4. Before the trial Court, the first respondent herein was examined as P.W.1 and Exs.A-1 and A-2 were marked on his side. On the side of appellant herein, he was examined as R.W.1, besides R.W.2 and Exs.R-1 to R-6