Sellappa Gounder vs Marappa Gounder and Others

Swamikkannu, J.—The legal proposition, upon which Learned District Judge had allowed the appeal preferred against the judgment of the trial Court holding that the release deed is a transfer, which will squarely come within the purview of Section 6(b) of the Provincial Insolvency Act (V of 1920), herein after referred to as the Act. In this regard, learned Counsel for the Respondents would submit that the lower appellate Court viz., the learned District Judge, has exercised properly the discretion versed with him under the appellate powers that he is exercising and has come to a connect conclusion in relying upon the observation made by A.H. Khan J., in paragraph 11 at page 17 of the decision in Hiralal v. firm S.S.G. Bangle Merchants AIR 1951 M.P. 15 as follows:

Regarding the release deed, Mr. Bhagwan Das Gupta, contends that it is not a transfer. But I am unable to agree with this contention because the release is a sort of surrender of rights in favour of another person and for all intents and purposes it is a transfer of the rights. It has been contended that the land was bought by-the insolvents for the Appellants and that the building on this land was made by the Appellants. But the Appellant have again not produced their account-books to show that at the time of the purchase of the land. they paid the money, or that the building was constructed by the money, which they supplied. In this view of the matter the conclusion of the trial Court that the release deed is also a fraudulent preference is correct.

In the instant case, Section 6(b) of the Act that had been actually applied so far exhibit A-2, release deed, dated 19th January, 1976 is concerned. The promissory note had been executed on 20th August, 1975. Learned Counsel for the Respondents would submit that exhibit A-2 had come into existence after about five months and as such the conclusion arrived at by the trial Court is correct and it has correctly reversed the judgment of the learned Subordinate Judge, Erode in Insolvency Petition No. 30 of 1976, This civil revision petition is filed by the third Respondent in Civil Miscellaneous Appeal No. 53 of 1979 on the file of the Court of the District Judge of Perilya District at Erode against the judgment of the learned Subordinate Judge, Erode in Insolvency Petition No, 30 of 1976. It is relevant to note that the first Respondent this revision petition, viz., Marappa Kounder, filed Insolvency Petition No. 30 of 1976 before the learned Subordinate Judge, Erode against Respondents 2 and 3 herein, viz., Ramaswamy son of Mara Naicker and Mara Naicker son of Mara Naicker on the basis of the act of insolvency committed by them, in that they jointly executed exhibit A-2 in favour of the revision Petitioner herein, viz., Sellappa Kounder son of Kuppana Kounder.

Mr. A. K. Kumaraswami, learned Counsel for the revision Petitioner herein submits that the learned Subordinate Judge of Erode bas rightly held that no act of insolvency had been commit-tad asd as such, Insolvency Petition No. 30 of 1976 had to be dismissed and accordingly dismissed correctly in view of the fact that long prior to the date of exhibit A-2 there had been a court sale in which the property, which is the subject-matter of exhibit A-2 was sold in favour of the present revision Petitioner, viz., Sellappa Kounder, which sale also subsequently confirmed. Under these circumstances, when there had been a court sale with respect to the subject-matter of exhibit A-2, reliance of the say document by the lower appellate Court viz., exhibit A-2 holding the same as not in any way standing in the way of allowing the petition against Respondents 2 and 3 herein is wrong and as such this Court has got right to interfere with the said decision rendered by the lower appellate Court, viz., the Court of the learned District Judge under the provisions of sec ion 115 of the Code of Civil Procedure.

The point for consideration in this civil revision petition;

Whether the judgment delivered in Civil Miscellaneous Appeal No. 53 of 1,979 by the learned District Judge is revisable u/s 115 Civil Procedure Code, when he had reversed the judgment of the learned Subordinate Judge, Erode in Insolvency Petition No. 30 of 1976 holding that an act of insolvency had been committed by Respondents 2 and 3 herein, which facilitates that Court to allow the petition under the provisions of Section 6(b) of the Provincial Insolvency Act (Act v. of 1920)?

It is relevant to note the portion of exhibit A-2 reads as follows:

The above portion occurring in exhibit A-2 shows that though the executants of the same, viz, the Respondents 2 and 3 herein bad no interest in the property, which is the subject-matter of the said exhibit A-2, yet, they are executing the said deed for purchasing peace. This particular aspect will, according to learned Counsel for the revision Petitioner herein, make the document, exhibit A-2 as one, which has no substance. In other words, there is no alienation of any interest of the subject-matter of the property in exhibit A-2, and as such, the learned District Judge in having relied on the contents of exhibit A-2 bad committed an error in holding that there had been an act of insolvency contemplated u/s 6(b) of the Provincial Insolvency Act (V of 1920) committed by Respondents 2-and 3 herein and had allowed the petition adjudicating them as insolvents.

On the other hand, as already mentioned, learned Counsel for the Respondents would submit that the decision Hiralal v. Firm S.S.G. Bangle Merchants has been relied on by the learned District Judge in a proper way and the ratio decedent that bad evolved itself in the said judgment bad been applied properly and as 6uch there is no interference or revision requited to be indulged in by this Court by virtue of Section 115, Code of Civil Procedure. In other words, he submits that there is no infirmity available in the appellate judgment in holding that the Respondents 2 and 3 have committed act of insolvency and as such they should be adjudged as insolvents and, therefore, the revision petition has to be dismissed.

Section 6(b) of the Provincial Insolvency Act (V of 1920) enumerates that a debtor commits an act of insolvency, if in India or elsewhere, he makes a transfer of this property or any part there of with intent to defat or delay his creditors. Section 7 enables the debtor or a creditor to present an insolvency petition. u/s 24, the Court requires proof of the fact that the Petitioner is entitled to present the petition and, further, that the debtor has committed the act of insolvency alleged against him. Then u/s 25, if the Court is not satisfied of any of these facts, the petition is dismissed; otherwise an order of adjudication is made u/s 27.

In a case where only one act of insolvency is alleged and it falls within Clause (b) of Section 6, it will be impossible to say that a finding can be given only u/s 53 because that stage can never teach unless an order of adjudication is made and that order cannot be unless made and until there is a finding that the debtor committed the alleged act of insolvency u/s 6(b). The scope of inquiry u/s 53. It is the intention and conduct of the debtor, in making the transfer, which determines, whether it constitutes or not an act of insolvency. But on an application for avoidance of a transfer u/s 53 that is to be established is want of good faith of the transferee. Section 53 runs thus:

Any transfer of property not being a transfer made before and in consideration of marriage or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration shall, if the transferor is adjudged insolvent (on a petition presented) within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court.

A transfer may be for adequate consideration and the transferee may accept the transfer in good faith, but the intention of the debtor may be to defeat or delay his creditor. In such a case although the transfer is an act of insolvency within the meaning of Section 6(b), the transfer cannot be avoided u/s 53. u/s 53 the principal test is whether the transferee, at the time of the transfer, did or did not honestly know that the transfer was so heavily burdened that there was no property left for him more than what was needed to discharge his obligation towards his creditors. And if there are indications sufficient to prove that the transferee had such knowledge, it cannot be said that the transferee when taking the transfer acted in good faith.

In the instant case, the release is said to be in favour of the revision Petitioner herein, who had already purchased the subject matter of exhibit A-2 under court sale in 1972. Exhibit B-1 is the certified copy of the petition and orders in Execution Petition No. 34 of 1973, dated 12th June, 1973. Exhibits B-2 is the 188/3-50 certified copy of the petition and order in Insolvency Petition No. 81 of 1973 on the file of the Additional Subordinate Judge, Erode. It is common ground that the sale with respect to the property involved in Original Suit No. 844 of 1972 was the subject matter of court sale and that the same had been purchased in court sale, which was validity conducted and confirmed subsequently also by means of a sale certificate, which has not been filed before the lower Court. The said transaction is also not spoken to by any one. This aspect, it is relevant to note, though formed part of the contentions of exhibit A-2 yet, the court sale cannot be considered as a fact proved in the instant case. It is relevant that the documents relating to the court sale have to be filed in order that a decision may be arrived at whether exhibit A-2 is a true or sham and nominal document on which any decision can be arrived at relating to an act of insolvent alleged to have been committed by Respondents 2 and 3. This aspect has not been properly approached by both the learned Subordinate Judge as well as the learned District Judge. Under these circumstances, this act itself facilitates this Court to remand back the matter to the Subordinate Judge, Erode, for taking the matter afresh on his file and give opportunity to both sides to adduce evidence, both oral and documentary and give a decision in accordance with law. Under these circumstances, the civil revision petition is allowed the judgment and decree of the lower appellate Court are set. aside and the matter is remitted back to the learned Subordinate Judge, Erode for fresh disposal according to law and in the light of the observations contained in this judgment. The learned Subordinate Judge has to take the matter on file and dispose of the same within a month from the date of receipt of the records from this Court. Under the circumstances of the case, there is no order as to costs.