Vasireddi Raja Lakshmamma and Another vs Gopu Raghavayya and Others

Alfred Henry Lionel Leach, C.J.—The question in this appeal is whether a creditor can take action u/s 54-A of the Provincial Insolvency

Act after the insolvent has been given an absolute discharge.

On the 3rd January, 1929, one Pretumbaka Venkatappayya and his four sons applied to be adjudicated insolvents and on the 9th January,

1930, an order of adjudication was passed. On the 24th July, 1934, the insolvents applied for their discharge and on the 28th September, 1936, it

was granted unconditionally. On the 27th July, 1926, by a registered instrument, Venkatappayya settled 5.10 acres of land on his two daughters as

provisions for their marriages. The elder daughter had already been married and the younger daughter was about to be married. The Official

Receiver was moved by the respondent to take action with a, view to obtaining from the Court an order setting this deed aside, but the Official

Receiver refused to take action and intimated his refusal in an order dated the 13th December, 1932. On the 26th July, 1935, the respondent

himself applied u/s 54-A of the Provincial Insolvency Act for permission to take action in respect of the deed of settlement. The section says that a

petition for the annulment of a transfer u/s 53 or of a transfer, payment, obligation or judicial proceeding u/s 54, may be made by the receiver or,

with the leave of the Court, by a creditor who has proved his debt and who satisfies the Court that the receiver has been requested and has

refused to move the Court. On the nth August, 1936, the Court gave, the first respondent leave to take action u/s 53, but he did not in fact file the

petition until the 19th January, 1937, that is until four months after the insolvents had been granted their discharge.

In his petition asking the Court to set aside the transaction the first respondent coupled Section 4 with Section 53. It is obvious why he did this.

It was impossible for the Court to set aside the transaction u/s 53 because the deed of settlement had been executed more than two years before

the presentation by the insolvents of the petition asking for their adjudication. The object was to get. the Court to hold u/s 4 that the transaction

was a sham and therefore did not require to be set aside; in other words the deed was of no effect and the property automatically devolved upon

the Official Receiver when the order of adjudication was passed. The Subordinate Judge dismissed the first respondent''s petition on the ground

that the transaction was genuine, but on appeal his order was reversed by the District Judge, who held that the transaction was fraudulent and

consequently set it aside. This appeal is from the order of the District Judge.

We consider that the appeal is well founded. In the first place an application u/s 54-A did not lie once the insolvents had been granted an

unconditional discharge. The property referred to in the deed of settlement did not vest in the Official Receiver on the adjudication. The deed may

have constituted a fraud on the creditors, but nevertheless it operated to convey a title to the daughters and until set aside the Official Receiver had

no claim to the property. If the property had devolved on the Official Receiver, different considerations might have arisen but as it had not

devolved upon him action u/s 54-A was not open. Support for this opinion is to be found in the decision of this Court in C.D. Desikachari Vs. The

Official Receiver and Others, .

There is a further reason why the appeal should be allowed. The transaction not being void but merely voidable, it can only be set aside under

the provisions of Section 53 of the Provincial Insolvency Act or Section 53 of the Transfer of Property Act. Section 53 of the Provincial

Insolvency Act did not apply because the property was conveyed to the daughters more than two years before the date of the insolvency petition

and it is stated that no action was taken u/s 53 of the Transfer of Property Act. In these circumstances, it is not necessary for us to decide whether

the transaction was bona fide or mala fide. If the transaction was in fact fraudulent, as the District Judge held it to be, the creditors have only

themselves to blame. The only person to move in the matter was the first respondent and he did not file his petition u/s 54-A until seven years after

the date of adjudication.

The order of the Subordinate Judge will be restored with costs throughout in favour of the appellants.