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Madras High Court · body

2014 DIGILAW 2248 (MAD)

R. Balamurugan v. Ponnusamy

2014-07-25

R.KARUPPIAH

body2014
Judgment This Civil Revision Petition is filed against the decree and judgment made in C.M.A.No.44 of 2007, dated 09.01.2009, on the file of the Additional District Court-cum-Fast Track Court No.II, Salem reversing the order passed in I.P.No.5 of 2004, dated 24.07.2006 on the file of the Subordinate Court, Sankari. 2. For the sake of convenience, the Petitioner/Creditor in I.P.No.5 of 2004 is referred as first respondent. The respondents 2 to 4/debtors in the Petition are referred as respondents 2 to 4. The fourth respondent/purchaser of the property in the petition is referred as revision petitioner hereafter. 3. On a perusal of the records reveal that respondents 2 to 4/debtors along with other co-owners executed a sale deed in favour of the revision Petitioner/purchaser through a sale deed, dated 23.02.2004. On 18.05.2004, the first respondent herein had filed a petition in I.P.No.5 of 2004 against the respondents 2 to 4/debtors and also the revision Petitioner/purchaser. In the above said Insolvency Petition, all the three debtors did not appear and they remained ex-parte and only the revision Petitioner as a purchaser of the property contested the case. 4. The Subordinate Judge, Sankari passed an order on 24.07.2003 in the above said Insolvency Petition in I.P.No.5 of 2004 in which declared the respondents 2 to 4/debtors as Insolvents but the above said court rejected the claim in respect of vesting the property to the official receiver which was purchased by the revision Petitioner/purchaser under sale deed, dated 23.02.2004 prior to the filing of the Insolvency Petition. Aggrieved by the above said order passed in I.P.No.5 of 2004, all the three debtors/respondents 2 to 4 not preferred any appeal. Only the first respondent/creditor preferred an appeal in C.M.A.No.44 of 2007 against the order in respect of dismissing the claim of vesting the revision Petitioner's property to the official receiver. The appellate Court passed decree and judgment in C.M.A.No.44 of 2007 on 09.01.2009 and ordered to vest the property which was purchased by the revision Petitioner to the official receiver. Aggrieved by the above said decree and judgment, passed by the appellant Court in C.M.A.No.44 of 2007, the revision Petitioner/purchaser from debtors and others preferred this Civil Revision Petition. 5. Heard the learned counsel appearing for the revision Petitioner and respondents and perused the materials available on record. 6. Aggrieved by the above said decree and judgment, passed by the appellant Court in C.M.A.No.44 of 2007, the revision Petitioner/purchaser from debtors and others preferred this Civil Revision Petition. 5. Heard the learned counsel appearing for the revision Petitioner and respondents and perused the materials available on record. 6. The learned counsel appearing for the revision Petitioner mainly contended that even prior to the filing of the Insolvency Petition in I.P.No.5 of 2004, the revision Petitioner purchased the property in question on 23.02.2004 itself for valuable sale consideration and the trial Court has correctly considered the above said fact and declared the respondents 2 to 4 as solvents but rejected the prayer of the first respondent that to order the petition mentioned property to vest with the official receiver. But the appellate Court has not properly considered the fact that even prior to the filing of the Insolvency Petition, the revision Petitioner had purchased the property for valuable sale consideration and also the appellate Court has not properly considered the legal provisions and wrongly allowed the above said appeal and directed the Petition mentioned property to vest with the official receiver and therefore prayed for to set aside the above said order passed by the appellate Court. 7. Per contra, the learned counsel for the first respondent submitted that the respondents 2 to 4/debtors have not filed any appeal and only the revision Petitioner who is the purchaser from the respondents 2 to 4 alone challenged the findings of the first appellate court and therefore the Civil Revision Petition is not at all maintainable. The learned counsel has further submitted that the revision Petitioner had purchased the property worth about Rs.75 lakhs for minimal value of Rs.39,100/- and also the revision Petitioner has not proved the payment of sale consideration and handed over the possession of the property under Ex.P3 and therefore the revision Petitioner is not entitled to any protection under Section 55 of the Provincial Insolvency Act, 1920. Further the learned counsel submitted that once the debtors have been declared as Insolvents and their properties are automatically vest in the Court or with the receiver as per Section 28 of the Act, 1920. Further the learned counsel submitted that once the debtors have been declared as Insolvents and their properties are automatically vest in the Court or with the receiver as per Section 28 of the Act, 1920. Further the learned counsel pointed out that under Section 53 or Section 54 of the Provincial Insolvency Act, after the order of adjudication, the official receiver has to file a petition before the Insolvency Court for annulment of the transfer and therefore the judgment and decree passed by the appellate Court is valid in law and there is no need to interfere in the above said findings. 8. It is not in dispute that the first respondent herein filed the Insolvency Petition in I.P.No.5 of 2004 only on 08.05.2004. Even prior to the filing of the above said petition, the revision Petitioner had purchased the petition mentioned property on 23.02.2004 for sale consideration of Rs.39,100/- from respondents 2 to 4 and also other co-owners. But the first respondent has not impleaded the other co-owners in the insolvency proceedings, except respondents 2 to 4. 9. The main contention of the first respondent is that the respondents 2 to 4 in order to defeat the lawful claim of the first respondent created the alleged sale deed, dated 23.02.2004 as a shame and nominal document and it is not acted upon and therefore the revision Petitioner cannot claim any right under the above said sale deed. On a careful reading of the order passed by the trial court in Insolvency Petition reveals that the trial Court, on consideration of both sides oral and documentary evidence, finally held that the above said Ex.P3 sale deed, dated 23.02.2004 as a genuine document and it was executed for valuable consideration even prior to the filing of the Insolvency Petition. Further, the trial Court has held that the first respondent has failed to prove that the above said sale deed was executed only as a shame and nominal document to defeat the interest of the first respondent. Therefore the trial Court has declared the debtors i.e., R2 to R4 herein as Insolvents but rejected the prayer to entrust the property to the official receiver. 10. The appellate Court has held that the above said sale deed executed after execution of the alleged pro-notes and hence the above said sale deed executed only to defeat the creditor. Therefore the trial Court has declared the debtors i.e., R2 to R4 herein as Insolvents but rejected the prayer to entrust the property to the official receiver. 10. The appellate Court has held that the above said sale deed executed after execution of the alleged pro-notes and hence the above said sale deed executed only to defeat the creditor. The above said finding of the first appellate Court is a perverse finding as rightly pointed out by the learned counsel for the revision Petitioner. The appellate court has not at all considered the fact that even prior to the filing of the Insolvency Petition, the above said Ex.P3-Sale deed has been executed by the respondents 2 to 4 and others. Except the averments made in the Petition, filed by the first respondent, no other evidence to prove that the property purchased by the revision Petitioner is worth more than Rs.75 lakhs and the sale consideration amount of Rs.39,100/-is very low. 11. From both sides contentions and on a perusal of the materials available on record, it is clearly revealed that the above said sale deed executed by the respondents 2 to 4 and others in favour of the revision Petitioner under Ex.P3-sale deed, dated 23.02.2004 is a genuine document as rightly held by the trial Court. 12. The learned counsel for the revision Petitioner further submitted that under Section 55 of the Provincial Insolvency Act, 1920, the first respondent is not entitled to any relief in respect of the property purchased by the revision Petitioner prior to the filing of the Insolvency Petition, but the first appellate Court has miserably failed to consider the above said legal aspect and therefore prayed for to set aside the above said order. 13. The learned counsel for the first respondent would submit that as per Section 54 of the Provincial Insolvency Act, only transferor/debtor is adjudged as insolvent on a petition presented within three months after the date of transfer to be deemed fraudulent and void as against the receiver and may be annulled by the Court and hence Ex.P3-sale deed can be set aside under Section 54 of the Act at the instance of the official receiver. The learned counsel further pointed out that till then, the property continued to belonging to the Insolvent even though it might stand in the name of the alienee. The learned counsel further pointed out that till then, the property continued to belonging to the Insolvent even though it might stand in the name of the alienee. The learned counsel further submitted that after the order of adjudication, the official receiver has to file a petition before the Insolvent Court, for annulment either under Section 53 or under Section 54 of the Act. Therefore the revision Petitioner is not entitled to any protection under Section 55 of the 'Act'. It is relevant to extract the relevant provisions of Section 53, 54, 55 and 56 of the Act, which reads as under: "53. Restriction of rights of creditors under execution:-- (1) Where execution of a decree has issued against the property of a debtor, no person shall be entitled to the benefit of the execution against the official assignee, except in respect of assets realised in the course of the execution by sale or otherwise before the date of the admission of the insolvency petition. (2) Nothing in this section shall affect the right of a secured creditor in respect of property against which a decree is executed. (3) A person who in good faith purchases the property of a debtor under a sale in execution shall in all cases acquire a good title to it against the official assignee 54. Duties of Court executing decree as to property taken in execution:-- Where execution of a decree has issued against any property of a debtor which is saleable in execution and before the sale thereof notice is given to the Court executing the decree that an order of adjudication has been made against the debtor, the Court shall, on application, direct the property, if in the possession of the Court, to be delivered to the official assignee, but the costs of the execution shall be a first charge on the property so delivered and the official assignee may sell the property or an adequate part thereof for the purpose of satisfying the charge. 55. Avoidance of voluntary transfer:--Any transfer of property not being a transfer made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration, shall, if the transferor is adjudged insolvent within two years after the date of the transfer, be void against the official assignee. 56. 55. Avoidance of voluntary transfer:--Any transfer of property not being a transfer made before and in consideration of marriage, or made in favour of a purchaser or encumbrancer in good faith and for valuable consideration, shall, if the transferor is adjudged insolvent within two years after the date of the transfer, be void against the official assignee. 56. Avoidance of preference in certain cases:--(1) Every transfer of property, every payment made, every obligation incurred, and every judicial proceedings 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 official assignee. (2) This Section shall not affect the rights of any person making title in good faith and for valuable consideration through or under a creditor of the insolvent." 14. In the instant case, as already discussed, the revision Petitioner had purchased the property from respondents 2 to 4 and other co-owners on 23.02.2004 even prior to the filing of the Insolvency Petition. As already discussed, the revision petitioner has proved the fact that the above said sale deed is a genuine document and purchased for a valuable consideration. The first respondent has not at all impleaded the other vendors, who had executed Ex.P3-sale deed, in the above said proceedings. Therefore as rightly pointed out by the learned counsel for the revision Petitioner as per Section 55 of the above 'Act', the revision Petitioner's right is protected. 15. The learned counsel for the first respondent relied on the following decisions in support of his contentions. 1. In AIR 1960 Supreme Court 70(Rm.NI.Ramaswami Chettiar and others .vs. The Official Receiver, Ramanathapuram at Madurai, in which, para 28 reads as follows: "28. That this is the intention of the legislature is also made clear by the other provisions of the Act vis-a-vis transfers. The Act provides for three stages: (1) Transfers made before the presentation of the insolvency petition; (2) transfers made after the presentation of the petition and before the order of adjudication; and (3) transfers made after adjudication. A transfer made after adjudication is not binding on the Receiver. The Act provides for three stages: (1) Transfers made before the presentation of the insolvency petition; (2) transfers made after the presentation of the petition and before the order of adjudication; and (3) transfers made after adjudication. A transfer made after adjudication is not binding on the Receiver. A transfer by an insolvent after the filing of the petition is also not binding on the Receiver subject to a protection clause. A purchase in good faith under a sale in execution (S.51(3)) and a transfer inter vivoce in good faith for valuable consideration (S.55) fall within the protected class of transactions. A transfer before the filing of the petition is binding on the Receiver unless it is annulled under Sections 53, 54, 54-A of the Act. The scheme of the Act in regard to transfers clearly demonstrates that transfers before the filing of the Petition are good unless they are annulled in the manner prescribed in the Act and even the doctrine of relating back of the order of adjudication does not reach them as they fall on the other side of the line." 2. The learned counsel for the first respondent also relied on another decision reported in 2005-4 L.W.133 (Ms. ICICI Venture Funds Management Limited, Bangalore vs. M/s. Neptune Inflatables Limited, Chennai), in which, it confirmed the law laid down by the earlier decision in AIR 1960 Supreme Court 70(Rm.NI.Ramaswami Chettiar and others .vs. The Official Receiver, Ramanathapuram at Madurai. 3. The learned counsel for the first respondent also placed reliance on an another decision reported in (2003) 11 Supreme Court Cases 699 (Sankar Ram and Co vs. Kasi Naicker and others), in which, para 8 reads as under: "8. Proviso to Section 55 of the Act protects bona fide transactions mentioned in clauses (a) to (d) of Section 55. As per the proviso, in order to give protection to transactions mentioned in the said section, two conditions are to be satisfied: (1) that any such transaction takes place before the date of the order of adjudication, and (2) that the person with whom such transaction takes place has not at the time of notice of the presentation of any insolvency petition by or against the debtor. By implication flowing from the said proviso, any transaction that takes place after the date of the order of adjudication does not get protection of the proviso to Section 55 whether or not the person with whom such transaction takes place has any notice of the insolvency petition by or against the debtor......" 4. A careful perusal of the law laid down by the Honourable Supreme Court in the above said decisions reveal that in the instant case, the property of the revision Petitioner cannot be hand over to the official receiver as prayed for by the first respondent since the revision Petitioner proved that Ex.P3-Sale deed is a bona-fide transaction and also the transaction was effected even prior to the filing of the Insolvency Petition. Therefore the above said decisions relied on by the learned counsel for the first respondent are not helpful to the first respondent since the facts are differs. 16. In the instant case, admittedly, the first respondent or the official receiver has not at all applied to the Court to annul Ex.P3-Sale deed and also the property not vested with Official receiver. From the evidence, it is revealed that the property purchased by the revision Petitioner is in his possession as per Ex.P3-sale deed. In the above said circumstances, as rightly pointed out by the learned counsel for the revision Petitioner, until the order of annulment, the revision Petitioner is a bona-fide purchaser and therefore the findings of the appellate Court are invalid and perverse. 17. The learned counsel for the revision Petitioner also relied on several decisions in support of his contention. The first decision reported in AIR 1979 Calcutta 344(Amit Mukherjee .vs. Smt.Bibhabati Dasi and others) and relevant portion of Para 6 reads as under: "6.......There is no provision in the Provincial Insolvency Act that after an order of adjudication is made the receiver shall take possession of the property and also mutate his name in the municipal records as the owner thereof. The receiver has no power to remove any person from the possession of the property. It is only the Court which can dispossess an insolvent or any person from the possession of the insolvent's property. The principal duty of the receiver is to realise the assets of the insolvent and distribute them amongst the creditors. The receiver has no power to remove any person from the possession of the property. It is only the Court which can dispossess an insolvent or any person from the possession of the insolvent's property. The principal duty of the receiver is to realise the assets of the insolvent and distribute them amongst the creditors. The duties and powers of the receiver have been enumerated in Section 59 of the Act. Such duties and powers do not include the taking of possession of any immovable property of the insolvent by dispossessing him. The doctrine of ostensible ownership, therefore, does not apply to a transfer of immovable property by a person who has been adjudicated an insolvent." The second decision reported in 2010(2) CTC 565 (Jaisankar vs. Ramadevi), in which, para 10 reads as under: "10. In the light of the above precedents on the legal provisions, one has to see whether the petitioner has made out any case in order to attract Section 9(1)(b) of the PTI Act. The Petitioner ought to prove that the debtor had made transfer of his property or any part thereof with intent to defeat or delay his creditors. There is no iota of evidence for coming to such a conclusion even in the absence of the respondent/debtor. The third decision reported in 2012(6) CTC 396 (D.J. Rajendran vs. Dr. K. Kathirvel and another) in which, in para 7, it is held as follows: "7. According to me, only after the order of adjudication is passed and the Official Receiver is appointed to take the charge of the properties of the insolvent, the Official Receiver has to apply to the Court to annul the sale of properties and only after the annulment order is made, the property will vest with the Official Receiver and till such time, the property remains the property of the Debtor. Further, it is also open to the Revision Petitioner to contend that no such annulment order shall be made and he is the bona fide purchaser for valuable consideration." The fourth decision reported in 2012(6) CTC 543 (R. Venkatesh .vs. Kalliammal and others), in which, in para 19, it is held as follows: "19. Further, it is also open to the Revision Petitioner to contend that no such annulment order shall be made and he is the bona fide purchaser for valuable consideration." The fourth decision reported in 2012(6) CTC 543 (R. Venkatesh .vs. Kalliammal and others), in which, in para 19, it is held as follows: "19. Further, Section 55 of the Provincial Insolvency Act, gives protection to the bona fide purchasers and the scope of Section 55 has been dealt with by the Honourable Supreme Court in the judgment reported in the case of Sankar Ram and Co .vs. Kasi Naicker and others, 2003(11) SCC 699, held as follows:- 8. Proviso to Section 55 of the Act protects bona fide transactions mentioned in clauses (a) to (d) of Section 55. As per the proviso, in order to give protection to transactions mentioned in the said section, two conditions are to be satisfied: (1) that any such transaction takes place before the date of the order of adjudication, and (2) that the person with whom such transaction takes place has not at the time of notice of the presentation of any insolvency petition by or against the debtor. By implication flowing from the said proviso, any transaction that takes place after the date of the order of adjudication does not get protection of the proviso to Section 55 whether or not the person with whom such transaction takes place has any notice of the insolvency petition by or against the debtor. ..We may add that Sections 28 and 55 must be read together harmoniously. As already noticed above, these Sections are designed and intended to serve different purposes. In the Proviso to Section 55 itself, there is reference to the order of adjudication and the presentation of Insolvency Petition are two different events essentially referring to two different dates. When in the same proviso, the legislature consciously made a clear statement as to two different dates, they should be given effect to. In the Proviso to Section 55 itself, there is reference to the order of adjudication and the presentation of Insolvency Petition are two different events essentially referring to two different dates. When in the same proviso, the legislature consciously made a clear statement as to two different dates, they should be given effect to. If the intention of the Proviso to Section 55 of the Act was not to protect even a bona fide transferee for valuable consideration without notice of presentation of Insolvency Petition before an order of adjudication was made, the legislature could have simply said-any transaction taking place after the date of presentation of any Insolvency Petition by or against the debtor instead of qualifying the transaction that takes place before the date of the order of adjudication. In this situation, the said Proviso which is intended to service a definite purpose should be given full meaning and effect. It is not possible to ignore a part of the provision, namely, "any such transaction takes place before the date of the order of adjudication." It stands to reason as well, that a bona fide transfer for valuable consideration without the knowledge of the presentation of Insolvency Petition on the date of transfer of property is to be protected." 18. On a careful reading of the above said decisions relied on by the revision Petitioner reveal that the revision Petitioner is a bona-fide purchaser for valuable consideration even prior to the filing of the Insolvency petition and therefore the first respondent is not entitled to the above said relief and the trial Court has correctly rejected the prayer of the first respondent that to pass an order to vest the petition mentioned property with the official receiver. But the first appellate court has wrongly set aside the above said order and directed to entrust the property to the official receiver and the above said finding is illegal and perverse as rightly pointed out by the learned counsel for the revision Petitioner. Therefore the above said order passed by the first appellate Court is to be set aside and the revision Petition is to be allowed. 19. In the result, the Civil Revision Petition is allowed and the decree and judgment passed by the first appellate court are set aside and the order and decretal order passed by the trial Court are confirmed. Consequently, connected Miscellaneous Petition is closed. 19. In the result, the Civil Revision Petition is allowed and the decree and judgment passed by the first appellate court are set aside and the order and decretal order passed by the trial Court are confirmed. Consequently, connected Miscellaneous Petition is closed. There is no order as to costs.