Tukaram Maruti Bhondave vs Chandulal Kasturchand Shage

K.K. Desai

[After stating the facts the judgment proceeds-]. In this appeal, Mr. Dalvi for the appellants contends that the application of the creditor was not maintainable, that the application having been filed two Tears after the date of the release was barred by limitation and in any event the share of Maruti in the joint family property can be held to have vested in the Receiver and the finding of the trial Court that the interest of the opponents, being sons of Maruti also was available for satisfaction of the debts of the insolvent should be set aside.

In respect of the first contention, Mr. Dalvi submits that the application for declarations claimed in the application exh. 50 in Insolvency Case No. 9 of 1958 could only be filed by Receiver appointed by Insolvency Court. The contention is that a third party and/or a creditor has no right to make such applications. In support of this contention, reliance is placed on provisions in sections 4 and 28 (2) of the Provincial Insolvency Act and certain authorities. Section 4 provides that:

Subject to the provisions of this Act, the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever,.... which may arise in any case of insolvency..or which the Court may deem it expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.

Sub-section (2) of section 28 provides that:

On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided,.and thereafter, except as provided by this Act, no creditor, shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, except with the leave of the Court and on such terms as the Court may impose.

The contention of Mr. Dalvi is that the application of the creditor was under the provisions of section 4. The application related to the recovery of the properties mentioned in the deed of release as part of the estate of the insolvent. The estate must be deemed to have vested under sub-section (2) of section 28 in the Receiver appointed by the Court. For recovering the estate vested in the Receiver creditor can have no right at all. The right if any was vested in the Receiver. For this reason, the application of the creditor was not maintainable. In support of this contention, Mr. Dalvi has relied upon the observations of the High Court of Calcutta in the case of Mt. Garibia Bibi v. Mathura Prosad AIR 1041 Cal. 298 and Sankari Debi and Others Vs. Co-operative Urban Bank and Others, . In the first case, the question which arose before the Court related to subsequent transfer made by a transferee from the in sol vent. The contention was that the transfer made by the insolvent was voluntary transfer, not made in good faith and voidable u/s 53 of the Provincial Insolvency Act. In the application, the subsequent transferee was made a party opponent. The Court held: that as against that subsequent transferee, the proceedings must be deemed to have been instituted u/s 4 and the Insolvency Court had jurisdiction to consider the question of avoiding the original transfer by the insolvent. The Court negatived the contention that the Insolvency Court had no jurisdiction to decide the question which arose also against the subsequent transferee. In connection with the question that a creditor could not maintain the application u/s 4 of the Act, the Court observed as follows (p. 301):

In the present case before us, the creditor Mathura Prosad Rajgharia could not maintain a suit to establish the right of the Official Receiver to the property on the ground that the transfers to Hanif and to Garibia Bibi were fictitious. That being so, we do not think that the provisions of sub-section (2) of section 28 of the Act can affect the matter. The provisions of this sub-section do not create any right of suit which does not otherwise exist; they operate as a bar on the rights of creditors in respect of remedies, suits and proceedings otherwise existing. That bar is in itself subject to an exception, namely that permission of the Court may remove it. But permission of the Court operating as an exception to the bar created by the sub-section certainly cannot give the creditor any right which he has not apart from this sub-section.

Referring to certain Madras decisions, the Court observed that the aspect of the matter as appearing in the above quoted portion of the Court''s judgment had not been considered in the Madras cases. The Court further observed that the right of suit to establish that certain properties were part of the insolvent''s estate lies in the Receiver (p. 301):

...and this is true whether the right is exercised in the insolvency Court itself by virtue of the jurisdiction conferred on it by section 4, or by way of separate suit in the appropriate Court.

The Court, therefore, found that where it was called upon to exercise jurisdiction u/s 4 for declaring a transaction as fictitious, it should be for the Receiver to move the Court in this behalf and that even with the permission of the Court, a creditor should not be allowed to do so in his own name. This case has been cited with approval in the subsequent case in Sankari Debi and Others Vs. Co-operative Urban Bank and Others, . Relying on these decisions, Mr. Dalvi submits that we should make a finding that respondent No. 1 creditor was not entitled to maintain his above application.

In connection with the above observations of the Court, it first requires to be noticed that ordinarily a creditor is entitled to maintain an action against his debtor for a declaration that certain properties were of the ownership of the debtor. Documents executed by the debtor in respect of his properties were in fact sham and bogus documents and had been executed only with intent to defeat creditors. In this case, ordinarily respondent No. 1 creditor had a right to proceed to realise the money-decree obtained by him by proceedings in execution against the undivided right, title and interest of Maruti in the properties mentioned in the deed of release. The ordinary right of creditor to file such a suit is contained in the provisions of section 53 of the Transfer of Property Act. It is difficult to hold that because an order of adjudication intervenes that this ordinary right of the creditor ceases to exist.

In applications for raising attachments very often the attaching creditor raises a contention that the claim made by the third party applicant that he is the owner of attached property should be negatived on the ground that the transfer in favour of such applicant by the judgment-debtor was sham and hollow and consequently the attached property continued to be of the ownership of the judgment-debtor. That question is decided summarily under the provisions of Order XXI of the Code of Civil Procedure. That very question is liable to be raised in a further suit filed on behalf of a defeated attaching creditor. It is thus well recognised that a creditor is entitled to file a suit to raise a contention that the transfers made by a debtor are sham, hollow, fictitious and not binding on him. In suits u/s 53 of the Transfer of Property Act this very question is decided in what is known as a representative suit on behalf of the creditors and for the benefit of all the creditors. This very question admittedly can be raised in an insolvency by the Receiver of the estate of the insolvent for the benefit of the insolvent debtor and consequently for the benefit, of the creditors of the insolvent. It is, therefore, difficult to accept the proposition that similar contention cannot be raised by interested creditor after the relevant debtor is adjudicated an insolvent. In the event of an insolvency, the creditor obviously cannot raise the question only for his personal benefit. The question will be decided for the benefit of the estate of the insolvent and, therefore, for the general benefit of all the creditors of the insolvent. The right of a creditor to institute proceedings under sections 53 and 54 of the Provincial Insolvency Act for avoidance of voluntary transfers and transfers for preference of creditors is recognised in the provisions of section 54A of the Act. The section provides that an application may be made by the Receiver or with the leave of the Court by any creditor who has proved his debt and who satisfies the Court that the Receiver had been requested and had refused to make such application. It is difficult to see why this very right of the creditor who has proved his debt cannot be exercised in connection with the transfers by an insolvent alleged to be sham, hollow and/or fictitious. The first principle that every party interested in relief claimed should have a right of action is recognised in the provisions of section 9 of the Code of Civil Procedure. For every right, there should be a remedy in a person claiming such a right. In so far as augmentation in the total estate of an insolvent benefits each creditor of the insolvent it is difficult to see why a creditor who has proved his debt in insolvency should not be entitled to make an application for a claim that a transfer made by the insolvent in favour of third parties was sham, hollow and / or fictitious and not binding on the estate of the insolvent. The vesting of the property of the insolvent in a Receiver does not, in our view, disentitle a creditor from making a claim of the above kind for the benefit of the estate of the insolvent.

In our view, there is nothing in the last para, of sub-section (2) of section 28 which detracts from the above general position. Possibly it is true that having regard to the provisions in the last para, of sub-section (2) of section 28, before starting any suit or proceedings of the above kind, it is necessary that a creditor should obtain leave of the insolvency Court.

Having regard to what we have discussed above, with regret, we are unable to accept the ratio of the decisions of the High Court of Calcutta in the above two reports. We are unable to accept Mr. Dalvi''s contention that the creditor respondent No. 1 was not entitled to make the application from which the present second appeal has arisen. It requires to be noticed that the creditor applied for granting him permission, to make the above application under sections 4 and 53 of the Provincial Insolvency Act and section 53 of the Transfer of Property Act. By order, made on or about March 16, 1960, the insolvency Court granted permission to the creditor as applied for but at the risk and costs of the creditor. Having regard to the fact of this permission and what we have already discussed above, the first contention made by Mr. Dalvi must fail. In our view, the application Exh. 50 was properly instituted by the creditor with the permission of the insolvency Court and was always maintainable.

Mr. Dalvi informed us that he was unable to contend that the properties mentioned in the above deed of release were not ancestral. He, however, contended that the deed of release was not liable to be set aside because the application (Exh. 50) was beyond the period of time prescribed in section 53 of the Act. It is true that the order of adjudication dated December 31, 1958, was passed on the petition that was filed on April 12,1958. The deed of release is dated December 5, 1955. The petition itself was filed after two years and five months after the date of the deed of release. The insolvency would commence from the date of the act of insolvency on the basis whereof the petition was filed. The act of insolvency must have been within about three months prior to the date of the application. The period. of time that is mentioned in section 53 is two years from the date of the avoidable voluntary transfer. In our view, the question of the period of two years never arose in the matter of the present application. The reason for this is that the case of the creditor was not that there had been a genuine voluntary transfer by the insolvent Maruti in favour of his father Ganpati. The case of the creditor was that the insolvent never wanted effectively or genuinely to transfer any property under the above deed of release. In other words, the creditor''s case was that the transfer was a make believe transfer and was sham and hollow and/or bogus and fictitious transaction. Bogus transfers permit the ownership of the property to continue in the transferor mentioned in such bogus deeds of transfer. The case of the creditor was that the property which was purported to be released under the deed of release was in fact never intended to be released and continued to be in the ownership of the insolvent. The trial Court made a finding to that effect upon appreciation of evidence on record. We have no reason to differ from the finding of the trial Court. The question was not argued before the lower appellate Court. In connection with bogus and fictitious transfers the period of two years is irrelevant and does not arise for consideration. The second contention made by Mr Dalvi accordingly fails.

[The rest of the judgment is not material to this report.]