Andhra HC (Pre-Telangana)
Pinnamshetty Kavitha vs Gajelli Gangadhar And Anr. on 1 February, 2007
Equivalent citations: AIR2007AP239, 2007(2)ALD677, 2007(2)ALT535, AIR 2007 ANDHRA PRADESH 239, 2007 (5) ALL LJ NOC 756, 2007 (5) AKAR (NOC) 632 (AP), 2007 A I H C (NOC) 441 (AP), (2007) 54 ALLINDCAS 611 (AP), 2007 (54) ALLINDCAS 611, (2007) 2 ANDH LT 535, (2007) 2 ANDHLD 677
Author: G. Rohini
Bench: G. Rohini
ORDER G. Rohini, J.
1. This revision petition is directed against the order, dated 7-11-2006 in I.A. No. 59 of 2006 on the file of the Court of the Senior Civil Judge at Jagital.
2. The facts, in brief, are as under:
The 2nd respondent herein - Kutkam Sangaiah filed I.P. No. 25 of 2005 under Sections 7 and 10 of the Provincial Insolvency Act, 1920 (for short "the Act"), to adjudicate him as an insolvent. The 1st respondent herein has been arrayed as respondent No. 5 in I.P. No. 25 of 2005 being one of the creditors to whom the 2nd respondent herein is indebted.
3. Pending I.P. No. 25 of 2005 the 5th respondent/1st respondent herein filed I.A. No. 59 of 2006 under Section 4 of the Act to adjudicate the genuineness of a Gift Deed executed by Katkam Sangaiah in favour of his daughter Pinnamshetty Kavitha alleging that the same was nominal and fictitious and brought into existence only to defraud the creditors. It is contended by him that the house property bearing Door No. 2-1-113 which was conveyed under the said Gift Deed dated 7-7-2005 is liable to be included in the Schedule-B properties to LP. No. 25 of 2005 for making complete distribution of property of Katkam Sangaiah. The beneficiary under the said document Pinnamshetty Kavitha was arrayed as respondent No. 2 to I.A. No. 59 of 2006. She filed a counter opposing the said application and denying the allegation that the gift deed dated 7-7-2005 was only nominal and fictitious.
4. The Court below, after hearing both the parties, allowed I.A. No. 59 of 2006 holding that the Gift Deed dated 7-7-2005 was nominal fictitious and not binding on the respondents in LP. No. 25 of 2005. Aggrieved by the same, this revision petition is filed by Pinnamshetty Kavitha.
5. I have heard the learned Counsel for both the parties and perused the material on record.
6. Whereas the learned Counsel for the revision petitioner contended that the question whether the Gift Deed dated 7-7-2005 is nominal and fictitious can be decided only after adjudging the transferor as insolvent and therefore the Court below ought not to have entertained I.A. No. 59 of 2006, the learned Counsel for the respondent while relying upon the decision of the Supreme Court in Johrilal Soni v. Smt. Bhanwari Bai , submitted that the order under Revision does not suffer from any infirmity.
7. At the outset, it is relevant to refer to Section 4 of the Provincial Insolvency Act, 1920 which reads as follows:
4. (1) 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 and whether involving matters of law or of fact, which may arise in any case of insolvency coining within the cognizance of the Court, 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.
8. A mere perusal of the above provision shows that the Court is empowered to decide all questions whether of title or priority or of any nature whatsoever for the purpose of doing complete justice or making a complete distribution of the property. However, Section 4 contains a non-obstante clause and, therefore, the power conferred on the Court is subject to other provisions of the Act.
9. The learned Counsel for the petitioner while referring to Section 53 of the Act contended that the power of the Court under Section 4 is subject to Section 53 of the Act and therefore the Court can go into the genuineness of the Gift Deed only after the transferor is adjudged as insolvent. Thus, according to the learned Counsel, the power under Section 4 is not available and I.A. No. 59 of 2006 cannot be maintained at this stage.
10. For proper appreciation of the above contention, Section 53 of the Act may be extracted hereunder:
53. Any transfer of property not being 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.
11. As can be seen, subject to two exceptions specified thereunder, any transfer of property in case an Insolvency Petition is presented within two years after the date of such transfer, shall be voidable as against the Receiver and the Court may annul the same.
12. In Johrilal Soni's case (supra), the Supreme Court while agreeing with the view expressed by a Full Bench of Bombay High Court in Padmasi Premchand v. Laxman Vishnu Deshpande AIR 1949 Bom 129, held that the transactions which are challenged on the ground of their being fictitious or nominal do not fall within the ambit of Section 53 and therefore in such circumstances the Insolvency Court has jurisdiction to decide whether the transactions were in fact nominal or fictitious. The Supreme Court explained that it is only such transfers which are voidable, if take place beyond two years of the date of transfer cannot be enquired into by the Court by virtue of Section 53 of the Act.
13. In the case on hand, admittedly, the transaction in question took place on 7-7-2005, whereas the Insolvency Petition was filed on 14-11-2005. Since the transaction took place within two years of the presentation of the Insolvency Petition and since the same did not come under the two exceptions specified under Section 53 of the Act, it is true that the transfer is voidable as against the Receiver and may be annulled by the Court.
14. However, the gift transaction in question was sought to be challenged not only on the ground that it took place within two years of the presentation of Insolvency Petition but also on the ground that the transfer being nominal and fictitious and was brought into existence only to defraud the creditors is a void transaction.
15. If that be so, as explained by the Supreme Court in Johrilal Soni's case (supra), Section 53 of the Act which deals with only voidable transactions has no application. Consequently, the gift transaction falls within the ambit of Section 4 of the Act which confers jurisdiction on the Insolvency Court to decide all questions whether of title or priority. Hence, the contention of the learned Counsel for the petitioner that I.A. No. 59 of 2006 cannot be entertained even before adjudging the transferor as insolvent is without any substance.
16. It is also relevant to note that the question with regard to genuineness of the Gift Deed dated 7-7-2005 has a direct bearing for deciding the issue in the Insolvency Petition whether the petitioner is an insolvent or not and therefore requires to be considered at the threshold.
17. A Division Bench of this Court in Dasari Srihari Rao v. Talluri Harinadha Babu , in identical circumstances observed as under:
Thus, Section 13(1)(e) of the Act imposes an obligation on the debtors making the application, to furnish the particulars of all his property in his application and as could be seen from the opening words of the section which mandates by the use of the expression 'shall'. Though mere use of the expression 'shall' do not by itself is the determinative factor to decide whether the provision is mandatory or directory, having regard to the fact that one of the questions in an insolvency application being that the debtor is unable to pay his debts, could only be ascertained on prima facie view of the fact that the value of the debts of the debtor exceeded his assets and as such he is unable to discharge them and also in view of the fact that the assets of the insolvent vest in the Court on making the order of adjudication under Section 28(2) of the Act, the prescription under Section 13(1)(e) of the Act is mandatory. Under Section 25 of the Act, the Court is empowered to dismiss the application if the Court is not satisfied of the debtor's right to present the petition. Thus, a cumulative reading of the above provisions makes it clear without any ambiguity that the debtor shall show that he is unable to discharge his debts and satisfy one of the conditions stipulated in Section 10 and on his furnishing all the information as is required by Section 13, he can be adjudicated as an insolvent. If on the failure of the above, the application is liable for rejection under Section 25(2) of the Act.
18. In the light of the ratio laid down in the above decision and for the reasons explained above, the Court below cannot be said to have committed any error in entertaining and deciding I.A. No. 59 of 2006.
19. Even on merits, I do not find any error in the conclusion of the Court below that the document in question is nominal and fictitious and not binding on the respondents in I.P. No. 25 of 2005. As a matter of fact, the allegation that the said transaction was nominal and fictitious and the document was brought into existence only to defraud the creditors was not even denied by the transferor (petitioner in Insolvency Petition) and he did not even choose to file any counter opposing I.A.No. 59 of 2006 nor challenged the order under revision.
20. For the aforesaid reasons, the interference by this Court in exercise of the supervisory jurisdiction under Article 227 of the Constitution of India is not warranted.
21. Accordingly, the civil revision petition is dismissed. No costs.