the sale of property in favour of a particular person is not an act of insolvency when it is supported by consideration and it was for the discharge of the debt of the debtor. The preference given to a particular debtor cannot be treated as an act of insolvency.Merely because, the debtor has filed subsequently a debtor insolvency petition is also not a ground to interfere with the unsuccessful challenge made by the petitioners.

THE HON’BLE SRI JUSTICE N.R.L. NAGESWARA RAO

C.R.P.No. 1180 of 2005

ORDER:

The revision is filed against the judgment dated 29.12.2004 in A.S.No.183 of 2003 on the file of the III Additional District Judge (Fast Track Court), Bhimavaram, whereunder the application to declare the respondent as insolvent was dismissed and the appeal also confirmed the said order. 

Originally Insolvency Petition was filed in I.P.No.2 of 2001 by the petitioners herein, who are the creditors to declare that the 1^st respondent has borrowed several amounts from the petitioners and the respondents 2 to 4 are the wife and children of the 1^st respondent and the 1^st respondent borrowed the money for the benefit of the family and with a dishonest intention and with an ulterior motive to defeat or delay the genuine creditors, alienated the schedule property in favour of the 5^th respondent. 

As can be seen from the allegations in the petition, the petitioners formed into a committee just before the alienation and held a meeting on 05.11.2000 and the first item was to be purchased by the 5^th respondent at a consideration of Rs.6,50,000/- with a promise to clear the debts of the petitioners but the property was sold for a sum of Rs.2,30,000/- only and a collusive transaction was entered into and the 1^st respondent received a consideration of Rs.6,50,000/- and thereby committed an act of insolvency.  The 1^st respondent also filed I.P.No.27 of 2000. 

The 1^st respondent filed a counter disputing all the allegations in the petition and contending that there is no collusion of fraud.  According to him, he was indebted to Unikili Cooperative Society and for the discharge of the mortgage debt to the said society, the land was sold to the 5^th respondent and there is no fraud in the alienation.  

The respondents 2 and 3 denied the allegations.  The 5^th respondent filed a counter contending that the alleged borrowing from the petitioners is not true and he has purchased the property for valuable consideration and for the discharge of the debts due by the 1^st respondent and, therefore, the petition is liable to be dismissed. 

After considering the evidence on record, the learned Judge found that the petitioners are aware of the sale transaction and there is no proof that the property is more valuable. 

It was further contended by the 5^th respondent, which was accepted by the Court that the 1^st respondent has got some other properties and there is no intention to defeat or delay the lawful debts of the petitioners.  Furthermore, according to the case of the respondents, the sale of the property was for the discharge of the debt due to the society.  He claims to have paid a sum of Rs.2,27,000/- and odd under Exs.B-4 to B-8 to the society and he also obtained the Encumbrance Certificate.  Though, it was sought to be canvassed before the lower Court that the 5^th respondent agreed to discharge the debts of the petitioners, there is absolutely no material.  Therefore, accordingly, the Insolvency Petition was dismissed.  The lower appellate Court also taking into consideration the settled proposition of law and also taking into consideration that giving mere preference to a particular person, who is not a creditor, cannot be said to be an act of insolvency.  The lower appellate Court also found that there is no proof of intention to defeat or delay the creditors. 

Though the matter should have been treated as a Second Appeal arising out of the judgment of the lower Court, it was filed as a Civil Revision Petition.  It is needless to say that whether in Second Appeal or in the Civil Revision Petition the power of the Court to interfere with the findings of fact are very limited.  The finding of fact recorded by both the Courts is that the 5^threspondent has purchased the property and discharged the debts due to the society, merely because a preference was given to a particular creditor, who evidently is not related to the debtor, it cannot be said that there is an act of insolvency.  Merely because, the debtor has filed subsequently a debtor insolvency petition is also not a ground to interfere with the unsuccessful challenge made by the petitioners. 

In this connection, the learned counsel for the respondents relied upon a decision reported in the case of Malini Ayyappa Naicker (now dead) through L.R. etc. v. Seth Manghraj Udhavadas Firm[1], while dealing with the powers of the Appellate Court in an application under Section 53 of the Provincial Insolvency Act (5 of 1920) (for short “the Act”), wherein it was held that the High Court while acting under Section 75(1) of the Act has no right to interfere with the findings of fact. 

The learned counsel for the respondents also relied upon the decisions reported in the cases of D.Chakradhara Rao v. P.Koteswara Rao[2] and P.Lakshmipathi Chetty v. P.Janardhana Chetty and others[3] with regard to the power of the Court to interfere with the insolvency proceedings. 

It is also useful to refer to the decision reported in the case of Gutta Nirmala v. Gutta Nageswara Rao[4], wherein after considering several decisions, this Court held that the sale of property in favour of a particular person is not an act of insolvency when it is supported by consideration and it was for the discharge of the debt of the debtor.  The preference given to a particular debtor cannot be treated as an act of insolvency.  Therefore, for all the above reasons, there are absolutely no merits in the revision.

Accordingly, the Civil Revision Petition is dismissed.  No costs.

________________________

N.R.L. NAGESWARA RAO, J

Date: 19-08-2011

MR

 

THE HON’BLE SRI JUSTICE N.R.L. NAGESWARA RAO

C.R.P.No. 1180 of 2005

19-08-2011

MR

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[1] 1969 Supreme Court Cases 688

[2] 1996 (3) ALT 34

[3] 2007 (5) ALD 723

[4] 2011 (4) ALT 171

the transferee court must put the parties to the notice: pecuniary jurisdiction is to be consider in the insolvency proceedings also= there is nothing on record to show that after transfer of the said I.P. from the District Court, Vizianagaram to the Court of Senior Civil Judge, Parvathipuram, there was any notice to the appellant i.e., the appellant had no information about transfer of the said I.P. from the District Court, Vizianagaram to Court of Senior Civil Judge, Parvathipuram and also the date of hearing and hence, the appellant cannot be put to any blame nor can the case be dismissed as such, that too, for default Hence, C.M.A.No.296 of 2001 is allowed and the order, dated 29.12.2000, passed by the Senior Civil Judge, Parvathipuram, Vizianagaram District, in I.P.No.1 of 1999 is set aside.=On perusal of the material on record, we find that there is no dispute as regards the valuation of the Insolvency Petition i.e., Rs.11,68,657/-. Hence, necessarily the matter has to be disposed of only by the District Court as per Section 3 of the Provincial Insolvency Act, 1920.

THE HONOURABLE SRI JUSTICE B.PRAKASH RAO

AND

THE HONOURABLE SRI JUSTICE R.KANTHA RAO

CIVIL MISCELLANEOUS APPEAL Nos.296 of 2001

and 453 of 2010

COMMON JUDGMENT: (per the Hon’ble Sri JusticeB.Prakash Rao)

          Since both the appeals are between the same parties and relate to the same matter, they are heard together and are being disposed of by a common judgment.

C.M.A.No.296 of 2001 is filed against the order, dated 29.12.2000, passed by the Senior Civil Judge, Parvathipuram, Vizianagaram District, in I.P.No.1 of 1999, whereunder the said I.P. was dismissed for default.

C.M.A.No.453 of 2010 is filed against the order, dated 11.10.2000, passed by the District Judge, Vizianagaram District, in I.P.No.1 of 1999, whereunder the said I.P. was made over to the Court of Senior Civil Judge, Parvathipuram, for disposal in accordance with law.

In C.M.A.No.296 of 2001, the grievance of the appellant, who filed the Insolvency Petition, is to the effect that originally, the said I.P. was filed before the District Judge, Vizianagaram. However, the same was made over by the District Judge, Vizianagaram to the Court of Senior Civil Judge, Parvathipuram, Vizianagaram District. Subsequent to the said transfer, the appellant had no notice of the same, yet the matter was taken up and the case was dismissed for default, which is not correct.

Heard learned counsel appearing on either side and perused the material available on record.

We are of the view that admittedly, there is nothing on record to show that after transfer of the said I.P. from the District Court, Vizianagaram to the Court of Senior Civil Judge, Parvathipuram, there was any notice to the appellant i.e., the appellant had no information about transfer of the said I.P. from the District Court, Vizianagaram to Court of Senior Civil Judge, Parvathipuram and also the date of hearing and hence, the appellant cannot be put to any blame nor can the case be dismissed as such, that too, for default  Hence, C.M.A.No.296 of 2001 is allowed and the order, dated 29.12.2000, passed by the Senior Civil Judge, Parvathipuram, Vizianagaram District, in I.P.No.1 of 1999 is set aside.

In C.M.A.No.453 of 2010, the grievance of the appellant is as regards the transfer of the said I.P. from the District Court, Vizianagaram to the Court of Senior Civil Judge, Parvathipuram.

The objection raised by the appellant is to the effect that having regard to the valuation of the very Insolvency Petition i.e., a sum of Rs.11,68,657/-, the question of making over the said I.P. to the Court of Senior Civil Judge, Parvathipuram by the District Judge, Vizianagaram, does not arise and the order is wholly unsustainable.

On perusal of the material on record, we find that there is no dispute as regards the valuation of the Insolvency Petition i.e., Rs.11,68,657/-. Hence, necessarily the matter has to be disposed of only by the District Court as per Section 3 of the Provincial Insolvency Act, 1920.

For the foregoing reasons, C.M.A.No.453 of 2010 is allowed and the order, dated 11.10.2000, passed by the District Judge, Vizianagaram District, in I.P.No.1 of 1999 is set aside and the matter is remanded to the District Court, Vizianagaram, for fresh disposal on merits and in accordance with law, after giving notice and opportunity to both the parties.

Accordingly, both the appeals are allowed and the impugned orders therein are set aside. However, there shall be no order as to costs.

_________________________

JUSTICE B.PRAKJASH RAO

_______________________

JUSTICE R.KANTHA RAO

10^th June 2010

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