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HIGH COURT OF KARNATAKA
E.S. Indiresh, J
Priya Roche – Appellant
Versus
G R Shet – Respondent
REGULAR SECOND APPEAL NO.554 OF 2019
For the Appellants/Petitioners: Vishwajith Rai M
For the Respondents: M Sudhakara Pai
A settlement deed executed by a debtor in favor of family members during the pendency of financial liabilities, aimed at shielding property from attachment and creditors, is considered a fraudulent transaction and is voidable in execution proceedings brought by the aggrieved creditor.
Headnote:(A) Code of Civil Procedure, 1908 - Order XXI Rule 58 - Execution proceedings - Fraudulent transfer of property - Debtor executant executed a settlement deed in favour of children including minor daughter to defeat/delay creditors after having availed loan and executing promissory notes - Property in question was the only asset left to satisfy the decree - Appellate Court, upon re-appreciation of evidence, concluded that the transfer was a sham designed to defeat the claim of the creditor - Held, such transfer constitutes a fraudulent act and the appellate court rightly reversed the trial court's order allowing the claim petition.
Facts of the case:
The respondent-creditor (1st respondent) obtained a decree for recovery of money against a partnership firm and its partners (including the appellant's father). Subsequently, the creditor initiated execution proceedings. The appellant, as the daughter of the judgment-debtor, claimed that the attached property had been transferred to her (along with siblings) via a settlement deed executed by her father before the suit was filed. The Trial Court allowed her objection petition, but the First Appellate Court reversed this, finding the settlement deed was a fraudulent device to defeat creditors.
Findings of Court:
There is significant evidence that the father was fully aware of his heavy financial liabilities (bank loans and private credit) and that he, his wife, and children continued to live together in the same premises. The court drew an adverse inference due to the failure of the father to contest the proceedings or testify. The court concluded the transfer was intended to shield the property from execution, and therefore upheld the appellate court's decision to set aside the trial court's order.
Issues: Whether the settlement deed was executed in good faith or as a fraudulent device to defeat/delay creditors, and whether the appellate court was justified in interfering with the finding of fact of the trial court.
Ratio Decidendi: An execution of a settlement deed by a debtor in favor of children, especially when the debtor retains control and resides in the same premises, and does so to avoid satisfying legitimate debts, falls under the category of fraudulent transfers meant to defeat creditors.
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. procedural background of the execution and second appeal. (Para 1 , 2 , 3 , 4) |
| 2. summary of rival contentions regarding the settlement deed and creditor claim. (Para 5 , 6 , 7 , 8 , 9 , 10 , 11) |
| 3. finding that settlement deeds executed to defraud creditors are invalid transfers. (Para 12 , 13 , 14 , 15 , 16) |
| 4. evidence and inference of collusion between debtor and heirs. (Para 17 , 18 , 19 , 20 , 21 , 22) |
| 5. upholding of appellate decision on fraudulent transfer and dismissal of appeal. (Para 23 , 24 , 25 , 26 , 27 , 28 , 29 , 30 , 31) |
This Regular Second Appeal is filed under Section 100 of the Code of Civil Procedure against the judgment and decree dated 21st December, 2018 passed in RA.No.25 of 2018, on the file of the Principal District Judge, D.K. Mangaluru allowing the appeal and setting aside the order dated 06.06.2018 passed in Misc.No. 25 of 2015 on the file of the II Additional Senior Civil Judge and CJM., Mangaluru D.K., allowing the petition filed under Order XXI Rule LVIII of CPC.,
This Appeal coming on for further hearing, this day, the court delivered the following:
J U D G M E N T
This Regular Second Appeal is filed by the petitioner in Miscellaneous Petition No.25 of 2015 on the file of the II Additional Senior Civil Judge and CJM at Mangalore, Dakshina Kannada, whereby the said Miscellaneous Petition came to be allowed by the Trial Court vide its order dated 06th June, 2018 and being aggrieved by the same, the respondent No.1 therein has filed Regular Appeal No.25 of 2018 on the file of Principal Sessions Judge, Mangalore Dakshina Kannada and the First Appellate Court by its Judgment and Decree dated 21st December, 2018, allowed the appeal.
2. For the sake of convenience, the parties in this appeal are referred to with their status before the trial Court.
3. It is the case of the appellant/petitioner that the respondent No.1 herein has filed Original Suit No.359 of 2004 on the file of the Second Additional Civil Judge, Senior Division, Mangalore for recovery of money against the respondent No.3 herein who is the father of the appellant. The said suit was filed by the respondent No.1 herein against the partnership firm M/s. Corporation Tiles Work-Respondent No.2 (for short, hereinafter referred to as ‘Firm’). The respondents No.3 to 5 are the partners to the respondent No.2-Firm. The said suit came to be decreed by the trial Court on 17th December, 2008. The said judgment and decree passed by the trial Court has attained finality. Thereafter, the respondent No.1 has filed Execution Petition No.44 of 2009 on the file of Civil Judge (Sr. Dn.), Mangalore. The said Execution Petition is pending consideration before the trial Court. It is the case of the petitioner that the respondent No.3 has executed settlement deed dated 07th February, 2001 in respect of the subject matter of the suit in favour of the petitioner and therefore, it is the case of the petitioner that as the subject matter of the property has already been settled in favour of the petitioner (appellant herein) and as such, the respondent No.1 herein has no right or claim over the subject matter of the suit and therefore, the petitioner herein has filed Miscellaneous No.25 of 2015 on the file of the II Additional Senior Civil Judge and CJM Under Order XXI Rule 58 of the Code of Civil Procedure for raising the attachment order passed against the schedule property. The said Miscellaneous was resisted by the respondent No.1 by filing detailed objections contending that the respondent No.3 is the father of the petitioner and he had availed loan of Rs.4,10,000/- from the respondent No.1, inter alia, executed on-demand promissory note on 12th March, 1999, and in order to defeat the rights of the creditor/respondent No.1 herein, the third respondent has executed settlement deed dated 07th February, 2001 in favour of his children including the petitioner (appellant herein) who was minor at the time of execution of the settlement deed. The tri
