B. Padmavathi vs Chinnammal and Others

K. Govindarajan, J.—The respondents 1 and 2 filed a petition in I.P.No. 19 of 1983 on the file of Sub Court, Udumalpet, to adjudicate the

3rd respondent as insolvent. According to them, the 3rd respondent herein has executed a promissory note on 22.3.81 in favour of the

respondents 1 and 2 for a sum of Rs. 14,000 and a notice was issued on 26.9.81 demanding the 3rd respondent to pay the said amount. On

15.7.83 the 3rd respondent herein has executed a sale deed in favour of the appellant herein. According to the respondents 1 and 2, such an

alienation was only with a view to defraud the creditor with fraudulent intention and saving the property for himself without meeting the obligations

to the creditors. On that basis, they have stated that the 3rd respondent herein had committed an act of insolvency.

The appellant herein filed a counter objecting to the averments in the petition stating that the property originally was settled in favour of the minor

children under Ex. B1 dated 8.10.79. The property was sold under Ex.A3 dated 15.7.83 in their favour for himself and minor sons it cannot be

said that it amounts to an act of insolvency.

The trial court in its order dated 3.12.85 rejected the petition and the appeal filed by the respondents 1 and 2 in C.M.A. 47 of 1986, the

District Court allowed the appeal and declared the 3rd respondent herein as insolvent. Aggrieved against the same, the appellant has filed the

above appeal.

Admittedly, the 3rd respondent and his brother purchased the properties under Ex.A4 dated 28.6.65. But the 3rd respondent alone has settled

all the properties in favour of the minor children showing their mother as a guardian under Ex. B1 dated 8.10.79. Thereafter, the 3rd respondent

borrowed money from the respondents 1 and 2 under Ex.A2 dated 22.3.81. Subsequently under Ex.A3 dated 15.7.83, the 3rd respondent sold

the properties in favour of the appellant for himself and for minor children. The sale under Ex.A3 has been stated as an act of insolvency. On that

basis, the petition was filed.

Learned counsel for the appellant has submitted that the sale in favour of the appellant was on 15.7.83. The petition filed by the respondents 1

and 2 was on 18.10.83. Relying u/s 9(1)(c) of the Provincial Insolvency Act, 1920 the learned counsel has submitted that the act of insolvency on

which the petition is grounded has occurred within three months before the presentation of the petition. On the other hand, the learned counsel for

the respondents 1 and 2 has submitted that though the document was executed on 15.7.83, the document was registered on 18.7.83. So the

petition is filed within three months from the act of insolvency. In view of his submission, the learned counsel appearing for the respondents relied

on the judgment in Firm Mukand Lal Veer Kumar and Another Vs. Purushottam Singh and Others, which reads as follows;

It was contended on behalf of the appellants that u/s 47 of the Indian Registration Act a registered document operates from the date of its

execution even though it may require registration and consequently the registration of the document should be taken to date back to the date of

execution by a fiction of law. It was therefore submitted that the starting point of the three months'' period prescribed u/s 9(1)(c) of the Act should

be the date of execution of the deed of gift and not the date of registration. We are unable to accept this argument as correct. Section 123 of the

Transfer of Property Act states that for the purpose of making a gift of immovable property the transfer must be effected by a registered instrument

in the prescribed manner. Under this section therefore a gift of Immovable property is not valid unless it is effected by a registered instrument. It is

true that u/s 47 of the Indian Registration Act once a document is registered, the effect begins to commence from the date of execution, but if the

document is not registered it can never have any legal effect as a deed of gift. u/s 49 of the Indian Registration Act, it is provided that no document

required by Section 17 or by any provision of the Transfer of Property Act, 1882 to be registered shall affect any Immovable property comprised

therein unless it has been registered. The section necessarily implies that such a document by reason of its execution alone cannot have the effect of

transferring the property. In the present case, therefore, the deed of gift executed by Mukand Lal in favour of Veer Kumar dated 31st October,

1957 cannot be considered to be an act of insolvency unless a valid transfer of property was made by that document and such a ""valid transfer

could be said to have been made only when the document was registered on 11th March, 1958. The question in the present case is not what was

the effect of the registration of the deed of gift, but when did the event take place which effectively transferred, the property. We are not concerned

with the point of time from which the document became operative but with the point of time at which the deed of gift became legally effective. The

contrary view point for which the appellant contends would ignore the circumstance that if the registration of the deed of gift was not effected

within the period of three months the creditor would be deprived of his remedy of relying upon the act of transfer as constituting an act of

insolvency. Such an interpretation should be avoided as it would nullify the intention of the statute.

On this question there has been divergence of opinion among the various High Courts. In Lakshmi Chand v. Kesho Ram, it was held by the Full

Bench of the Lagore High Court that when a petition was presented alleging that a debtor had committed an act of insolvency by a registered

deed, the period of limitation prescribed by Section 9(1)(c) of the Act ran from the date of the registration of the deed and not from the date of the

execution thereof. The same view was expressed by the Madras High Court in Sarvathada Iswarayya v. Kuruba Subbanna. In that case, the

execution of the sale deed was relied upon as an act of insolvency by a petitioning creditor and it was held by Madhavan Nair and Bards well, JJ,

that the three months'' period prescribed by Section 9(1)(c) of the Act must be calculated from the date of the registration of the deed not and not

from the date of its execution. The same view was also enunciated by the Allahabad High Court in District Board, Bijno v. Mohammad Abdul

Salam. A contrary view has been taken by the Full Bench of the Rangoon High Court in U On Maung v. Maung Shwe Hpaung. It was held that

the period of three months referred to in Section 54, Provincial Insolvency Act, began to run from the date of execution of the transfer provided it

had been properly registered within the specified time. But for the reasons already expressed we hold that the decisions in Lakshmi Chand v.

Kesho Ram, in Sarvathada Iswarayya v. Kuruba Subbanna, and in District Board, Bijnor v. Mohammad Abdul Salam, correctly state the law on

the point.

In view of the above decision of the Apex Court, the contention of the learned counsel appearing for the appellant that the petition is not

maintainable cannot be sustained.

The learned counsel further submitted that the burden is on the respondents 1 and 2 to prove that the settlement in favour of minor children was

not sham and nominal. The appellate court went into that question and held that the settlement in favour of the minor children is nothing but a sham

and nominal document. Under Ex. B1, the 3rd respondent has shown his wife as a guardian for the minors. Having settled the property in favour of

the minors under Ex.A3, it is specifically stated that he is the owner of the property along with minor children and he has been enjoying the same.

On the basis of the said document, we can come to the conclusion that the document executed under Ex. B1 was nothing but a sham and nominal

and not acted upon. Moreover, in the said document, the debts of the 3rd parties were directed to be discharged by the purchaser. The evidence

P.W. 1 also said that the minors are not the owners.

In view of the above, I do not find any substantial question of law to be decided in this case. I do not find any merit in the appeal and the same is

dismissed accordingly. No costs.