Judgment This is a revision preferred under the second proviso to Section 75 of the Provincial Insolvency Act, 1920 (for short ‘the Act’), as extended to the State of Andhra Pradesh under the Provincial Insolvency (Andhra Pradesh Extension and Amendment) Act, 1965. The revision is directed against the judgment and decree dated 23-03-2006 of the learned II-Additional District Judge, West Godavari District at Eluru in A.S.No.169 of 2001, reversing the judgment and decree in I.P.No.7 of 1998 dated 14-08-2001 passed by the learned Additional Senior Civil Judge, Eluru. The appellate Court allowed the appeal; set aside the order of the trial Court adjudged the 1st respondent as insolvent; and appointed the Official Receiver, West Godavari District as Receiver to administer the petition schedule properties. The facts leading to the Revision: The 2nd respondent (the insolvency petitioner), filed I.P.No.7 of 1998 initially against the 1st respondent (Gutta Nageswara Rao) and Gutta Prapoorna. The revision petitioner was brought on record as the 3rd respondent and the legal representative of Gutta Prapoorna, who died pending the insolvency proceedings, by the order dated 21-06-2001 in I.A.No 2656 of 1999. The insolvency petitioner pleaded that Gutta Nageshwar Rao had borrowed Rs.40,000-00 from her on 19-01-1997 for his business and executed a promissory note in her favour. However with an intention to defraud and delay the discharge of this debt, Nageshwar Rao sold the petition schedule property to Prapoorna, the 2nd respondent, under a registered sale deed dated 25-11-1997 and thereby committed an act of insolvency. The insolvency petition hence sought a declaration that the 1st respondent be declared an ‘insolvent’ and for other incidental reliefs. Nageshwar Rao in his counter denied having borrowed Rs.40,000-00 in January, 1997 or on any other date; denied execution of the promissory note; claimed that the insolvency petitioner had contrived the promissory note by using his blank signatures on a promissory note; claimed that the insolvency petitioner had contrived the promissory note by using his blank signatures on a promissory note furnished by him as collateral security in connection with his paddy commission business; claimed to have sold the plaint schedule property in public knowledge including of the insolvency petitioner, for discharging his general debts including those due to the insolvency petitioner and denied having committed acts of insolvency. The revision petitioner after coming on record as the legal representative of Prapoorna filed a counter claiming that Prapoorna had purchased the petition schedule property from Nageshwar Rao and his mother Smt. G.V. Subbamma for valuable consideration; that Prapoorna is a bona fide purchaser of the petition schedule property for valuable consideration, without notice of the alleged dues by Nageshwar Rao to the insolvency petitioner; and that there are no grounds to declare Nageshwar Rao an insolvent. The trial Court concluded that G. Nageshwar Rao had not committed any act of insolvency on account of selling the petition schedule property to Prapoorna and rejected the insolvency petition. Aggrieved thereby A.S.No.169 of 2001 was filed by the insolvency petitioner. By the order impugned herein the appeal was allowed by the learned II-Additional District Judge, Eluru. The appellate Court concurred with the trial Court to the extent that it found on the analysis of evidence that there was a debtor-creditor relationship between the appellant and Gutta Nageshwar Rao, particularly in view of the fact that in his counter (in the insolvency petition) Nageshwar Rao had pleaded that he sold property to discharge the debts due to the creditors including the debt due to the insolvency petitioner. The lower appellate Court also found that there is no dispute as to the subsistence of the said debt; about the fact that the debt was not barred by limitation at the time of presenting the insolvency petition; that the debt is in excess of Rs.500-00; and is in a liquidated sum. The lower appellate Court held that the petition schedule property was the exclusive property of Gutta Nageshwara Rao, the creditor (notwithstanding that Ex.A.1 sale deed was signed by Gutta Nageshwar Rao and his mother-G.V. Subbamma as executants), since it was clearly recited in Ex.A.1 that Nageshwar Rao’s mother had co-signed Ex.A.1 not since she held title to the property along with G. Nageshwar Rao, but to avoid future litigation; and in view of the further averment in Ex.A.1 that the schedule property was exclusively that of G. Nageshwa Rao. The lower appellate Court opined that G. Nageshwar Rao sold the schedule property by executing Ex.A.1 sale deed on 25-11-1997, after he discharged the debt due to the State Bank of India, Bazaar Branch, Eluru, on 14-11-1997. The lower appellate Court opined that G. Nageshwar Rao sold the schedule property by executing Ex.A.1 sale deed on 25-11-1997, after he discharged the debt due to the State Bank of India, Bazaar Branch, Eluru, on 14-11-1997. The lower appellate court concluded from this chronology of events that the debt due to the State Bank of India, was not discharged by Nageshwar Rao from out of the sale proceeds received under Ex.A.1 transaction. The lower appellate Court also observed that discharge of the debt due to the State Bank of India by Nageshwar Rao, even assuming the debt was discharged out of the proceeds of Ex.A.1, constitutes a preferential discharge, to the detriment of the insolvency petitioner and since Nageshwar Rao had no other substantive properties (other than the properties covered by Ex.A.1 from which he could discharge the debt due to the insolvency petitioner), it should be inferred that Nageshwar Rao sold his only available property under Ex.A.1 and thereby committed an act of insolvency. Prapoorna’s claim to being the bona fide purchaser for valuable consideration was also negatived by the lower appellate Court. The lower appellate Court held that the property was purchased by Prapoorna on 25-11-1997 under a registered sale deed and questioning the said transaction the insolvency petitioner had filed the petition on 21-02-1998, within three months from the date of alienation. As a result the lower appellate Court declared that Nageshwar Rao had committed an act of insolvency and should be declared as an insolvent; allowed the appeal and appointed the Official Receiver, West Godavari District, to administer the petition schedule properties. Heard Sri A. Ramalingeswar Rao, the learned counsel for the revision petitioner and Sri Kunuku Durga Prasad, learned counsel for the 1st respondent – the debtor. The insolvency petitioner (the 2nd respondent herein) is not represented by the counsel though she is served notices in this Revision. She is the principal aggrieved party by this revision. Heard Sri A. Ramalingeswar Rao, the learned counsel for the revision petitioner and Sri Kunuku Durga Prasad, learned counsel for the 1st respondent – the debtor. The insolvency petitioner (the 2nd respondent herein) is not represented by the counsel though she is served notices in this Revision. She is the principal aggrieved party by this revision. The order is assailed on several grounds including that the lower appellate Court erred in failing to consider that the Prapoorna was a bona fide purchaser for valuable consideration and the sale is not liable to be set aside; that irrespective of the recitals in Ex.A.1, the sale deed having been executed jointly by Nageshwar Rao and his mother – Subbamma, Gutta Nageshwar Rao could not be adjudged as an insolvent; and that Nageshwar Rao had not indicated any preference in discharging debt due to the State Bank of India thereby inviting declaration as an insolvent. Sri Ramlingeswara Rao would further urge that in any event the transaction under Ex.A.1 would not amount to an act of insolvency under the provisions of the Section 6 of the Act. In oral argument, Sri Ramalingeswar Rao, the learned counsel for the petitioner contends that the order of the lower appellate Court is additionally unsustainable for having invalidated the sale by Nageshwar Rao in favour of Prapoorna, now represented by the revision petitioner. In support of this contention, reliance is placed on the decisions in Appi Reddi v. Chinna Appi Reddi (AIR 1992 Madras 246); in Ramayya v. Sreenivasayya (AIR 1935 Madras 634); and the decision in Pydimarri Venkateswarlu v. Pydimarri Jalamma (AIR 1969 A.P.318). Brief restatement of relevant facts and analysis: The insolvency petitioner filed I.P.No.7 of 1998 claiming to have borrowed Rs.40,000-00 from Nageshwar Rao on 19-01-1997 under a promissory note executed in her favour; that Nageshwar Rao intended to defraud and delay the discharge of the above debt due to her and in furtherance of such intention sold the petition schedule property (the only substantive property available with Nageshwar Rao) to Prapoorna under Ex.A.1— registered sale deed dated 25-11-1997; that Nageshwar Rao has no other property except the schedule property and therefore the committed an act of insolvency and should be declared as such. I.P.No.7 of 1998 was filed under Section 9 of the Act. I.P.No.7 of 1998 was filed under Section 9 of the Act. In view of the quantum of debt allegedly due to the insolvency petitioner from Nageshwar Rao under the promissory note (Rs.40,000-00) and since it is a definite amount payable on demand, the two conditions (Section 6(1)(a) and (b) of the Act) are satisfied. The third ingredient i.e., of the insolvency petition, having been filed within three months from the date of execution of the registered sale deed, is also satisfied. The petition was therefore maintainable. The core issue however is whether Nageshwar Rao had committed an act of ‘insolvency’. In the factual matrix of the case, the provisions of Section 6 (1)(a to c) of the Act are relevant. These provisions read: 6. Acts of Insolvency: -- (1) A debtor commits an act of insolvency in each of the following cases, namely: (a) If, in (the Provinces) or elsewhere, he makes a transfer of all or substantially all his property to a third person for the benefit of his creditors generally; (b) If, I (the Provinces) or elsewhere, he makes transfer of his property or of any part thereof with intent to defeat or delay his creditors; (c) If, in (the Provinces) or elsewhere, he makes any transfer of his property, or of any part thereof, which would, under this or any other enactment for the time being in force, be void as a fraudulent preference if he were adjudged an insolvent. The primary conclusion: The trial Court declared that Nageshwar Rao did not commit any act of insolvency by selling the petition schedule property to Prapoorna under Ex.A.1. For coming to this conclusion, the trial Court held that from out of the amounts received by Nageshwar Rao from Prapoorna, presumably earlier to the execution of Ex.A.1—sale deed and in cash, Nageshwar Rao might have discharged the debt due to the State Bank of India on 14-11-1997 and therefore no mala fides can be attributed. For coming to this conclusion, the trial Court held that from out of the amounts received by Nageshwar Rao from Prapoorna, presumably earlier to the execution of Ex.A.1—sale deed and in cash, Nageshwar Rao might have discharged the debt due to the State Bank of India on 14-11-1997 and therefore no mala fides can be attributed. The appellate reasons and conclusion: The Court below in its appellate analysis observed that in order to seek adjudication of any person as an insolvent, the creditor must prove (a) the existence of a debt which is subsisting and is not time barred at the time of presenting the insolvency petition; (b) that the debt due is not les than Rs.500-00; (c) that the sum due is a liquidated sum; and (d) that the debtor has committed the act of insolvency within three months from the date of presenting the satisfied. The essential ingredients for maintaining the insolvency petition were present. The only question is whether the conduct of Nageshwar Rao constitutes an act of insolvency? The appellate Court in its analysis held that though Ex.A.1-sale deed was executed jointly by Nageshwar Rao and his mother, having regard to the recitals in Ex.A.1, the property exclusively belongs to Nageshwar Rao and his mother had joined as an executrix only to avoid future litigation and therefore there is a debtor-creditor relationship between the insolvency petitioner and Nageshwar Rao, and the sale of the property constitutes an essential ingredient for adjudicating whether Nageshwar Rao had committed an act of insolvency. The lower appellate Court held that the debt due to the State Bank of India was discharged on 14-11-1997, while Ex.A.1 –sale deed was executed on 25-11-1997. Further there is no recital in Ex.A.1 that Nageshwar Rao had sold the property for discharging the debt due to the State Bank of India or that he had received the sale consideration or a part of it, for Ex.A.1, prior to its execution. As per the recitals in Ex.A.1, Nageshwar Rao received the entire consideration on the date of execution of Ex.A.1 i.e., on 25-11-1997. In view of the documentary evidence, the lower appellate Court disbelieved the oral evidence led by Nageshwar Rao to support his contention that the debt due to the State Bank was discharged out of the sale proceeds under Ex.A.1. In view of the documentary evidence, the lower appellate Court disbelieved the oral evidence led by Nageshwar Rao to support his contention that the debt due to the State Bank was discharged out of the sale proceeds under Ex.A.1. The appellate Court concluded that since Nageshwar Rao preferred to discharge the debt due to the State Bank, the conduct amounts to an act of insolvency. Analysis of the relevant provisions of the Act: Section 6(1)(b) of the Act enjoins that if a debtor makes a transfer of his property or of any part thereof with intent to defeat or delay his creditors, the conduct amounts to an act of insolvency. In Pydimarri Venkateswarlu (3 supra) interpreting the provisions of Section 6(1)(b) of the Act, this Court held that for a transfer to be brought under clause (b), it is necessary that it should have been effected with an intent to defeat or delay the whole body of creditors and not a single creditor. This clause is not applicable where the transfer was affected to defeat or delay a single creditor, held this Court. In Sanjeevi Reddy v. Ellappa Reddy ( AIR 1967 AP 243 ) interpreting the provisions of Section 6 (1)(b) of the Act, Gopal Rao Ekbote, J (as his Lordship then was) held that the provision applied only where a debtor transferred his property to defeat or delay all his creditors as a whole and not one of them alone. It was held that where a debtor transferred his property to any creditor of his and paid out of the sale proceeds some of his creditors, the transfer not being with intent to defeat or delay all the creditors, did not amount to an act of insolvency within the meaning of Section 6(1)(b) of the Act. On the interpretation of clause (c) of section 6(1) of the Act, Ekbote, J held that for the provision to apply, it must be ascertained whether the transfer is void as a fraudulent preference, if the transferor were adjudged as an insolvent and that for the purpose of ascertaining whether it is void for the reason given, one has to consider the provisions of the Act or any other enactment. Section 54 of the Act deals with “Avoidance of preference in certain cases” and enjoins that every transfer of property, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money in favour of any creditor, with a view of giving that creditor a preference over the other creditors, shall, if such person is adjudged insolvent on a petition presented within three months after the date thereof, be deemed fraudulent and void as against the receiver and shall be annulled by the Court. Subsection (2) of Section 54 of the Act enacts that this section shall not affect the rights of any person who in good faith and for valuable consideration has acquired a titled through or under a creditor of the insolvent. In Pydimarri Venkateswarlu (3 supra) the Court held that the wider provisions of Section 54 of the Act will have to be read in the context of the provisions of Section 6(1) (c) of the Act. Since Section 6(1)(c) refers to transfer of property alone, the provisions of Section 54 (1) read in the context of Section 6(1)(c) must mean every transfer of property in favour of any creditor with a view to giving that creditor a preference over the other creditors, shall, if such person is adjudged insolvent on a petition presented within three months after the date thereof, be deemed fraudulent and void. The Court held that under Section 54 of the Act for the purpose of a transfer of property to be void for fraudulent preference, the transfer should be in favour of a creditor. Analyzing the provisions of Section 6(1)(a) of the Act, Vaidya, J in Pydimarri Venkateswarlu (3 supra) held that to bring a transfer within the provisions of clause (a) of Section 6 of the Act, there should be an endeavor on the part of the debtor to put his property into a course of distribution among his creditors. A transfer in favour of a class of creditors is not an act of insolvency because in such a case there is no endeavor to put the property in a course of distribution among the creditors. A transfer in favour of a class of creditors is not an act of insolvency because in such a case there is no endeavor to put the property in a course of distribution among the creditors. Vaidya, J observed that the transfer in favour of a class of creditors would not constitute an act of insolvency within the meaning of Section 6(1)(a) of the Act, though may constitute an act of bankruptcy since it would be an attempt to divide the property in a manner different from that which would take place under the bankruptcy law and without the safeguards which that law provides. This Court further held that an out and out sale in favour of a third person cannot be a transfer for the benefit of creditors, even though such transfer is for the purpose of paying off all the creditors and transferee retains consideration for that purpose. In the case on hand, the transfer of his property by Nageshwar Rao in favour of Prapoorna under Ex.A.1 sale deed does not fall within the provisions of Section 6(1)(b) of the Act, since it is not a transfer with intent to defeat or delay the whole body of creditors. The lower appellate Court while observing that the sale proceeds under Ex.A.1 could not have been employed by Nageshwar Rao to discharge the debt of State Bank of India, alternatively observed that even if the State Bank of India’s debt was discharged from out of the sale proceeds under Ex.A.1, the same would amount to an act of preference. Since the transaction is neither pleaded nor established to have been with an intention to defeat or delay the whole body of Nageswar Rao’s creditors and since the specific pleading and assertion of the insolvency petitioner was that the sale under Ex.A.1 was only to delay and defeat the debt due by Nageshwar Rao to her, the claim per se falls outside the purview of Section 6(1)(b) of the Act in view of the decision of this Court in Pydimarri Venkateshwarlu (3 supra). The transaction is also outside the purview of Section 6 (1)(c) read with Section 54 of the Act since the sale under Ex.A.1 is not in favour of a creditor, Prapoorna admittedly not being a creditor of Nageshwar Rao, as held in Sanjeeva Reddy and Pydimarri Venkateswarlu (4 and 3 supra). The transaction is also outside the purview of Section 6 (1)(c) read with Section 54 of the Act since the sale under Ex.A.1 is not in favour of a creditor, Prapoorna admittedly not being a creditor of Nageshwar Rao, as held in Sanjeeva Reddy and Pydimarri Venkateswarlu (4 and 3 supra). The alternative enquiry is whether the transaction falls within the province of Section 6 (1)(a) of the Act. As pointed out in Pydimarri Venkateswarlu (3 supra), for a transfer to fall within clause (a) of Section 6(1) of the Act, it should constitute an endeavor on the part of the debtor to put his property into a course of distribution among his creditors; a transfer in favour of a class of creditors would not be an act of insolvency since in such a case there is no endeavor to put the property into a course of distribution among the creditors; it may constitute an act of bankruptcy as an attempt to distribute the property in a manner different from that which would take place under the bankruptcy law and without the safeguards of that law, but an act of insolvency it is not. In the case on hand, the sale under Ex.A.1 by Nageswar Rao to Prapoorna (a third party and not a creditor) would not constitute a transfer for the benefit of the creditors even though such transfer may have been for the purpose of paying off the debt due by Nageswar Rao to the State Bank of India or even if it be for the purpose of paying off all the creditors including the insolvency petitioner or even if Nageswar Rao had retained the consideration received under the sale transaction either for himself or for the purpose of paying off all or some of his creditors. In Ramayya (2) supra the issue was whether the decision of the insolvency Court on whether a sale was fraudulent on a petition for adjudication, constitutes res judicata. On facts of this case (which was a decision in a second appeal), the appellant had filed a suit to establish his right to attach certain properties in execution of a decree in O.S.No.1051 of 1926, on the ground that the sales of those properties in favour of defendant Nos.1 and 2 were void as being intended to defraud the creditors. The suit was resisted on several grounds, but the trial Court by the judgment dated 25-01-1928 and the appellate Court by the judgment dated 15-03-1929, held concurrently and inter alia on the preliminary ground, that the issue whether the sale in favour of defendant Nos.1 and 2 were intended to defraud the creditors was barred by the principles of res judicata, in view of the order of the insolvency Court dismissing I.P.No.3 of 1925. I.P.No.3 of 1925 was filed by the appellant and defendant Nos.1 and 2 in O.S.No.1051 of 1926 were arrayed as respondent Nos.4 and 5 in I.P.No.3 of 1925. The plaintiff sought an adjudication that defendant Nos.3 to 5 in the present suit (O.S.No.1051 of 1926) were insolvent and the acts of insolvency alleged being the sales of the plaint properties by them in favour of defendant Nos.1 and 2. The insolvency Court dismissed I.P.No.3 of 1925 holding that the sales are not fraudulent and the intention to defraud the creditors was not established. The defendants contended that finding of the insolvency Court constitutes res judicata to bar O.S.No.1051 of 1926. In Ramayya (2 supra) Pandrang Row, J held that the order dismissing I.P.No.3 of 1925 does not constitute res judicata so as to bar the present suit (O.S.No.1051 of 1926) and therefore is not a bar to the hearing of the suit on its own merits. Row, J opined that the finding of the insolvency Court, that it is not satisfied with the proof of fraudulent nature of alienation does not amount to a determination by the insolvency Court that they were not fraudulent alienations; and held further that the question whether any alienation by a debtor is fraudulent or not is not one that has to be, or can be decided by the insolvency Court, before adjudication. That question can be decided only after adjudication and that too, only after an application by the official Receiver or when the Official Receiver is unwilling to act by another person who is authorized by the insolvency Court to do so. The Madras High Court held in conclusion that the incidental determination of this question for the purpose of deciding whether adjudication should be ordered or not cannot be regarded as a final determination. The Madras High Court held in conclusion that the incidental determination of this question for the purpose of deciding whether adjudication should be ordered or not cannot be regarded as a final determination. Reliance was placed for this conclusion on the decision of a Full Bench of the Calcutta High Court in Ketokey Charan v. Sarat Kumari Dabee (1917 Cal 39) and of the Madras High Court in Chithammal v. Ponnusamy (1926 Madras 363). On an analysis of the precedents, Pandrang Row, J categorically ruled that the jurisdiction of the adjudicating Court (insolvency Court) is only to decide whether a case has been made out for adjudication; the decision on a petition for adjudication is an incidental determination for the purpose of deciding whether adjudication should be ordered or not; and cannot be regarded as a final determination. Relying upon the decisions in Appi Reddi and Ramayya (1) and (2) supra, Sri Ramalingeswar Rao, learned counsel would contend that the lower appellate Court could not have declared the invalidity of Ex.A.1 sale deed and that the jurisdiction in insolvency proceedings is initially limited only to a declaration of insolvency, if the facts and evidence on record in this case, support that conclusion. In Appi, Reddi (1 supra), two creditors of one Chandavaram Ramayya and his three undivided sons (respondent Nos.1 to 4) petitioned that (1) they be declared insolvent and (2) that certain alienations made by respondent Nos.1 to 4 in favour of respondent No.5 be declared invalid and cancelled. The alienation occurred a month before the presentation of the insolvency petition. The learned District Judge adjudged respondent Nos.1 to 4 as insolvents and also declared the sale deeds under which the alienations were effected as cancelled. The alienations were declared by the District Judge to be transfers with intent to defraud or delay creditors. The learned Division Bench of the Madras High Court, following the judgments of the Patna High Court in Hemraj Champa Lal v. Ramkishen Ram (1916 2 Patna L.J 101); and of the Allahabad High Court in Kauleshar Ram v. Bhawan Prasad (1917 42 I.C. 845) held, that in view of Section 53 of the Act which provides that such transfers as are therein specified shall be voidable as against the Receiver and may be annulled by the Court, it is clear that the action is contemplated to be by the Receiver. As, at the time the order for cancellation of sale deeds was passed by the District Judge, the Receiver was not appointed, but was later on appointed though on the same day, the Appireddi (1 supra) held that until the Receiver refuses or declines to act, no one could do so, since he is the person to set the proceedings under Section 53 of the Act in motion. Since it was for the Receiver to take action under Section 53 of the Act and not for the Court on a petition for adjudication of insolvency, the High Court reversed that part of the order of the learned District Judge pertaining to cancellation of the sale deeds in favour of the 5th respondent. Another contention by the petitioner to assail the order of the lower appellate Court is that the order is illegal and contrary to the decision of this Court in Appi Reddi (1 supra); for having set aside the sale of property by Nageshwar Rao in favour of Prapoorna (under Ex.A.1). This contention is untenable. The lower appellate Court (vide-paragraph 22 of the judgment) only observed that the disposal of the property by Nageshwar Rao in favour of Prapoorna constituted an act of preference in favour of some of the creditors excluding the insolvency petitioner and thus constituted an act of insolvency. Consequently, Nageshwar Rao was declared as an ‘insolvent’; the order dated 14-08-2001 rejecting I.P.No.7 of 1998 set aside; and the Official Receiver, West Godavari District appointed to administer the petition schedule property. The lower appellate Court did not simultaneously pass an order of adjudication and set aside or declared invalid the sale deed – Ex.A.1, contrary to the law spelt out in Appi Reddi (1 supra), where under it is declared that the validity of an alienation must be considered after an appropriate application is made by the Official Receiver under Section 53 of the Act. In view of the preceding analysis and the conclusion that the sale of property under Ex.A.1 by Nageshwar Rao in favour of Prapoorna, does not constitute an act of insolvency under any of the provisions of Section 6 read with Section 54 of the Act, the judgment of the lower appellate Court dated 23-03-2006 in A.S.No.169 of 2001 (setting aside the order dated 14-08-2001 in I.P.No.7 of 1998; declaring the 1st respondent -Nageshwar Rao to be an insolvent; and appointing the Official Receiver, West Godavari District to administer the property), is unsustainable and is accordingly set aside. The revision petition is allowed with costs throughout and the order dated 14-08-2001 dismissing. I.P.No.7 of 1998 confirmed, but for the reasons recorded herein.