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S.K Gangadhara Vs. Ramachandra - Court Judgment

LegalCrystal Citation
CourtKarnataka High Court
Decided On
Case NumberRegular Second Appeal No. 265 of 2011 (RES)
AppellantS.K Gangadhara
(prayer: this appeal is filed under section 100 of cpc, against the judgment and decree dated 18.01.2011 passed in on the file of the presiding officer, fast track court, bhadravathi, dismissing the appeal and confirming the order dated 31.07.2010 passed on i.a.iv in ex.42/2008 on the file of the senior civil judge and jmfc, bhadravathi, rejecting the i.a.iv filed under order xxi rule 58 and 97 of cpc.) 1. the appellant herein entered into a registered sale agreement dated 01.07.2004, which culminated into a sale deed dated 12.04.2007 under which he purchased the house property no.1092, khatha no.1066 within the local limits of city municipality, bhadravathi from his vendor sri b.m.krishna. the respondent herein filed a suit in on 01.07.2004 against the.....

(Prayer: This Appeal is filed under Section 100 of CPC, against the Judgment and Decree dated 18.01.2011 passed in R.A.No.195/2010 on the file of the Presiding Officer, Fast Track Court, Bhadravathi, dismissing the appeal and confirming the Order dated 31.07.2010 passed on I.A.IV in Ex.42/2008 on the file of the Senior Civil Judge and JMFC, Bhadravathi, rejecting the I.A.IV filed under order XXI Rule 58 and 97 of CPC.)

1. The appellant herein entered into a registered sale agreement dated 01.07.2004, which culminated into a sale deed dated 12.04.2007 under which he purchased the House property No.1092, Khatha No.1066 within the local limits of City Municipality, Bhadravathi from his vendor Sri B.M.Krishna. The respondent herein filed a suit in O.S.No.133/2004 on 01.07.2004 against the said Sri B.M.Krishna for recovery of money. In the said suit the respondent herein also filed an I.A. under Order XXXVIII Rule 5 CPC seeking for attachment of the very same property before judgment. The Court before which the suit was pending, granted the conditional order of attachment on 02.07.2004. The suit was ultimately decreed on 01.02.2008.

2. The respondent herein accordingly levied the execution proceedings in Ex.No.42/2008 against Sri B.M.Krishna, the judgment debtor. Since the aforestated property was already attached, the Executing Court ordered the spot sale on 24.01.2009 and the Court sale on 21.02.2009. It is at that stage the appellant herein who was the owner of the property, claiming knowledge appeared before the Executing Court as objector by filing the application under Order XXI Rules 58 and 97 read with Section 151 CPC. The respondent herein opposed the same. The Executing Court after considering the same, rejected the application by the order dated 31.07.2010. The appellant claiming to be aggrieved was before the Lower Appellate Court in R.A.No.195/2010. On consideration, the Lower Appellate Court has dismissed the appeal by the order dated 18.01.2011. The appellant is therefore before this Court in this second appeal filed under Section 100 of CPC.

3. This Court while admitting the appeal has framed the following substantial question of law,

“Whether attachment of land in question by Court order which is subsequent to the sale agreement would stall the right of purchaser (as per the sale agreement) and what is the effect of subsequent attachment ?”

4. Ultimately the consideration would be to the effect as to whether the Lower Appellate Court despite noticing that only Section 64 of CPC was relevant in the instant case, was justified in not properly construing the provision and further was it justified in applying Section 53 of the Transfer of Property Act (‘TP Act for short) in the present execution proceedings, though no suit as contemplated in the said provision was filed by the creditor. Even if Section 53 of TP Act is applied, whether on facts the transfer is valid or not.

5. In the above backdrop, I have heard Sri B.K.Manjunath, learned counsel for the appellant and Sri Prasanna.B.R., learned counsel for the respondent and perused the appeal papers including the records received from the Court below.

6. At the outset, to put in perspective the nature of consideration, it is to be kept in view that the appellant is not a party to the suit and the order of attachment is not passed against him, but it is against his vendor in respect of the property which the appellant has purchased. Apart from the fact that the appellant as objector is seeking to contend that he is a bonafide purchaser for consideration, the fact that sale agreement had been entered into, at a point prior to the date of the order of attachment and in that view, what is the legal effect of the same, is also the issue that calls for determination. Therefore, the fact that sale deed is executed on a day subsequent to the date of attachment itself cannot be the only consideration. Whether the order of attachment was within the knowledge of the appellant herein or not is also one of the aspects to be considered.

7. Primarily, what requires consideration is as to whether the transaction under which the appellant has purchased the property falls within the mischief of Section 64 of CPC since what is provided therein is that the transfers which are contrary to the said provision would be void. The provision as contained in Section 64 of CPC reads as hereunder:

“64.Private alienation of property after attachment to be void.- (1) Where an attachment has been made, any private transfer or delivery of the property attached or of any interest therein and any payment to the judgment debtor of any debt, dividend or other moneys contrary to such attachment, shall be void as against all claims enforceable under the attachment.

(2) Nothing in this section shall apply to any private transfer or delivery of the property attached or of any interest therein, made in pursuance of any contract for such transfer or delivery entered into and registered before the attachment.”

8. Sub-section (2) to Section 64 noticed above would indicate that what is of importance is as to whether the sale was pursuant to the contract which was entered prior to the order of attachment. In the instant case, there is no dispute to the fact that the order of attachment was passed on 02.07.2004 while the registered agreement of sale was entered into on 01.07.2004. Such position was considered by the Honble Supreme Court in the case of Vannarakkal Kallalathil Sreedharan –vs- Chandramaath Balakrishnan and another (1990 (3) SCC 291) relied on by the learned counsel for the appellant, wherein it is held that though Section 64 of CPC was intended to protect the attaching creditor, but if the subsequent conveyance is in pursuance of an agreement for sale which was before the attachment, the contractual obligation arising therefrom must be allowed to prevail over the rights of the attaching creditor. The rights of the attaching creditor shall not be allowed to override the contractual obligation from an antecedent agreement for sale of the attached property. The attaching creditor cannot ignore that obligation and proceed to bring the property to sale as if it remained the absolute property of the judgment debtor. Hence, in the instant case, the Courts below have erred in that regard in applying the said provision to the benefit of decree holder though it cannot be done in the instant facts.

9. In order to consider the effect of the provision contained in Section 53 of T.P. Act as it is the next aspect, for better appreciation, it is appropriate to reproduce the same which is as hereunder:

“53. Fraudulent transfer.- 1) Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed.

Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration.

Nothing in this sub-section shall affect any law for the time being in force relating to insolvency.

A suit instituted by a creditor (which term includes a decree holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor shall be instituted on behalf of, or for the benefit of, all the creditors.

(2) Every transfer of immovable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee.

(3) For the purposes of this sub-section, no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made.”

10. A perusal of the same would indicate that by the said provision, a right has been created in favour of a creditor to secure any fraudulent transfer of immovable property to be avoided as not binding. From the provision, it is clear that every transfer made by a debtor is not void-ab-initio, but it is only voidable on a suit being instituted by the creditors and if it is established that such transfer of immovable property is made to defeat or delay the creditors. Until such suit is instituted by the creditors and the transfer is avoided by securing it to be declared as not binding, the transfer will remain valid in law even as against the creditors. Hence, the option available to the creditors could be exercised in the circumstances stated therein, while the transferee can sustain the transfer by showing that the same is in good faith and for consideration. If this aspect of the matter is kept in view, taking note of the fact that the issue arose for consideration in an execution proceedings wherein the transferee was the objector and the application filed under Order XXI Rules 58 and 97 CPC and the validity of the transfer was being considered, the contention urged herein is as to whether the objections raised to the application by the decree holder who is one of the creditors is by itself sufficient to invoke Section 53 of T.P.Act to avoid the sale transaction as not binding without an independent suit being filed in that regard.

11. The learned counsel for the appellant with reference to the fourth part of Section 53(1) of T.P.Act has vehemently contended that since such transfers are stated to be voidable, it can only be declared void by filing a suit and it cannot be done so in the execution proceedings while deciding an application under Order XXI Rule 58 of CPC wherein the right claimed by the objector is the only aspect to be noticed.

12. In that context, I find that an issue had arisen before the Full Bench of the High Court of Madras in the case of N.N.L.Ramaswami Chettiar –vs- Mallappa Reddiar (AIR 1920 Madras 748 –FB) in a reference relating to the defence taken in a suit filed under Order XXI Rule 63 of CPC as the provision stood prior to the amendment and deletion of the said provision. Such suit was available to be filed against the adjudication order made under Order XXI Rule 58 of CPC. The question referred to the Full Bench was as to whether the attaching creditor, i.e., the defendant in such suit, can plead as defence that the transfer, on which the claimant relies, offends Section 53 of T.P. Act or whether he can raise such plea only in a suit to be instituted by him for its avoidance. In answer to the said reference, the Full Bench has held that it is open to an attaching decree holder to plead in defence to a suit by the alienee from the judgment debtor whose claim has been rejected, that the transfer to him was fraudulent under Section 53 of T.P.Act, without the creditor himself filing a suit to avoid the transfer.

13. A similar question arose for consideration before the Honble Supreme Court in the case of C.Abdul Shukoor Saheb –vs- Arji Papa Rao (deceased) by LRs and others (AIR 1963 SC 1150). The Honble Supreme Court after taking into consideration the decision of the High Court of Madras referred supra, has approved the same and has held as hereunder:

“(29). The learned judges based their conclusion on this and on several other lines of reasons which we consider unnecessary to set out, but it is sufficient to say that we are entire agreement with all of them. There is therefore no substance in the point; that there is anything in S. 53(1) as it originally stood which precluded a defence by an attaching- creditor to a suit to set aside a summary order under O. 21, R. 63, that the: sale in favour of the plaintiff is vitiated by fraud of the type specified in the earlier quoted provision and the amendment has admittedly made no change in this matter.

(30). It was next urged that the third paragraph of the amended S. 53 (1) has, effected a change in the law and that thereafter transfers voidable under 1st paragraph of S. 53 (1) could be avoided only in suits filed by a defeated or delved creditor as plaintiff suing on behalf of himself and other creditors. We consider that there is no substance in this objection either.

(31). We shall first refer to the purpose of the amendment. In decisions rendered prior to the amendment, there were a large number in which it was held, following certain English cases decided with reference to-13 Eliz., Ch. 5, on which S. 53(1) was based, that suits by creditors for avoiding a transfer under S. 53 (1) was a representative action. To that general rule however, an exception was recognised in a number of' decisions when the suit was to set aside a summary order under O. 21. R. 63, and was brought by an attaching decree-holder against whom an adverse order had been made in the summary proceedings, it being held that such a suit need not be in a representative capacity. The decisions on this point were however not uniform. It was merely to have a uniform rule and to avoid these conflicting decisions that the third paragraph was inserted so that after the amendment the rule that a suit by a creditor should be brought in a representative capacity would apply as much to a suit set aside a summary order under O. 21, R. 63, as to other suits. It was not suggested that there was anything in the terms of the amended S. 53 (1) which referred to a defence to a suit and, in fact, learned Counsel did not contend that if a defence under S. 53 (1) could be raised by defeated attaching-creditor such a defence had to be in a representative capacity, and we consider that learned Counsel was correct in this submission. From a provision as to how a plaintiff, if he filed a suit, should frame it, we can see no logical process by which it could be held that a defendant cannot impugn the validity of the sale which is voidable at his instance. We have, therefore, no hesitation in rejecting the legal point urged on behalf of the appellant.”

(emphasis supplied)

14. No doubt, in the decisions referred supra, it is noticed that proceedings under Order XXI Rule 58 of CPC is summary in nature and the sufficiency of defence was held when it is taken in a suit filed by the transferee after he had failed in the application filed under Order XXI Rule 58 of CPC. It is true that on deletion of Rule 63 from Order XXI, the consideration of the matter in a full fledged suit would not be available. However, taking into account the discussion based on which the above noted decisions have been rendered, I am of the considered opinion that in a situation where the transferee comes before the Executing Court as objector under Order XXI Rule 58 of CPC, it is enough if the decree holder- creditor invokes Section 53 of T.P.Act by way of defence and satisfies the ingredients to succeed in securing dismissal of the application though it is a summary proceedings. If the application is rejected, it is for the transferee to avail his remedies against such orders as provided in law. However, on the other hand, even after the decree holder invokes Section 53 of T.P.Act as defence, yet, if the application under Order XXI Rule 58 Of CPC is allowed in favour of the transferee and against the decree holder, as a creditor he can still exercise the option of filing a properly constituted suit as provided in the fourth part of Section 53(1) of T.P.Act. Hence, the contention of the learned counsel for the appellant that the validity of the transfer in the light of Section 53 of T.P.Act cannot be considered in the proceedings under Order XXI Rule 58 of CPC but only in a suit under all circumstances cannot be accepted and is accordingly rejected.

15. Having arrived at the above conclusion on the legal aspect, in the instant facts, the transferee having failed in the application filed under Order XXI Rule 58 ofCPC and having availed the remedy provided in law is before this Court and in that view, keeping in perspective the substantial question of law as framed, the correctness of the adjudication as made by the Executing Court needs consideration herein even if Section 53 of T.P. Act is invoked.

16. The manner of consideration which is necessary based on the facts arising herein therefore is as to whether the transferee has purchased the property concerned in good faith and for consideration. This is so because the second part of Section 53(1) of T.P.Act indicates that nothing contained in the Section would impair the right of the transferee in good faith and for consideration. In fact, keeping in view the provision for filing a suit by the creditor, a Division Bench of this Court in the case of Basavegowda and others vs. S.Narayana Swamy by Lrs and ors (AIR 1986 Kar 225) has held that in a suit by the creditor for declaration that the transfer of property made by the debtor was fraudulent and as such was not binding on them, the onus to prove want of good faith in the transferee is on the creditor who impugns the transaction. But, where fraud on the part of the transferor is established i.e., in the terms of Section 53(1), the burden of proving that the transferee fell within the exception is upon him and in order to succeed, the transferee must establish that he was not a party to the design of the transferor and that he did not share the intention with which the transfer had been effected but, he took the sale honestly believing that the transfer was in the ordinary and normal course of business.

17. In the instant case, since the application filed was by the transferee, he was examined as PW.1 but that will not take away the burden cast in law to establish the ingredients. Insofar as the transferor, the fact that the sale deed was executed by him subsequent to the order of attachment being within his knowledge is evident, but the fact is also that he had executed a registered agreement of sale prior to the order of attachment before judgment and the sale was as per the earlier contract as he was bound to honour the same. The question that would therefore arise is also as to whether the transferee had knowledge of the attachment as on the date of obtaining the sale deed or was he a party to the design of transferor and did he share the intention to defraud. As PW.1, the transferee filed his affidavit wherein he has stated with regard to the agreement of sale being registered in his favour on 01.07.2004 on paying the amount of Rs.2,00,000/- as against the total sale consideration of Rs.2,50,000/- due to which the agreement was registered. He has also stated that the balance Rs.50,000/- was to be paid and the transferor had agreed to execute the sale deed within a period of three years. Accordingly, the balance amount was paid and the sale deed was executed on 12.04.2007.

18. The transferee therefore claims to be in possession of the property from the said date based on a bonafide purchase for consideration. Since in the objection to the application the decree holder had stated with regard to the transferee having been informed of the attachment through a notice dated 16.08.2006, PW.1 has stated that he has not received such notice and the address is wrongly stated even as per the copy produced before the Court. Hence, he claims that even as on the date of sale deed, he did not have knowledge of the pending suit or the attachment. In the cross examination, he has maintained with regard to the appropriate value being paid for the property, the notice not being received by him and that he did not have knowledge of the order of attachment. Though he has stated that the transferor was known to him for the last 10 to 12 years and they belong to the same caste, he has stated that they are not related to each other. He has denied the suggestion that the transferor and he had colluded with each other in entering into the sale transaction. He has stated that the sale consideration was paid by cash in the presence of one Sri Prakash.

19. The said Sri Prakash has been examined as PW.2. In his evidence, PW.2 has stated that he is known to both the transferor and transferee and as such was present when the negotiation was held and the sale consideration was paid in his presence. In his cross examination, there is no doubt he has stated that he was not present when the document was signed and registration was done. The cross-examination has been directed to the effect that he is deposing falsely to help the transferee. However, what is to be noticed is that it has been suggested to him that the transferee has paid amounts to many persons. The said suggestion appears to be the case of the decree holder that the amount paid was for a different purpose and not as sale consideration. By such suggestion, the fact that the amount has been paid is impliedly accepted, but it is stated that the same was for a different purpose but no case has been made out by the decree holder that the transferee is a money lender and also one of the creditors and that the impugned transaction was in lieu of repaying the same.

20. In that light, a perusal of the evidence of the decree holder as RW.1 would disclose that among others, he has also stated therein that the judgment debtor has left the place and shifted to Bangalore and as such he would not be able to recover if the property in question is not available for sale in the execution proceedings. This would indicate that the transferee has in fact been put in possession of the property pursuant to the sale deed in the year 2007 itself. Hence, in any case, it cannot be considered as a sham transaction for no consideration even if the evidence of RW.1 to the effect that the revenue documents continue to subsist in the name of the transferor is kept in view.

21. The evidence of RW.1 is more in the nature of indicating that the transferor in order to defeat the claim had entered into the agreement and despite knowledge of the attachment has sold the property, but there is nothing substantial to indict the transferee of being a part of such design, if any. While the transferee is seeking to protect his purchase and the initial burden is on the creditor, it was necessary that sufficient evidence was tendered by RW.1 to the effect that the transferee had colluded with the transferor and entered into the transaction to defeat his claim. When there is no specific pleading to that effect by way of objection and evidence to allege fraud with material particulars, the reliance placed by the learned counsel for the respondent to the case of Ramachandra Singh vs. Savithridevi and ors [(2003) 8 SCC 319] would not be of assistance.

22. The only noticeable attempt made by the decree holder to contend that the transferee despite having knowledge of the pendency of suit and order of attachment has secured the sale deed is by placing reliance on Exhs.R4 and R5 viz., a notice dated 16.08.2006 claimed to have been issued by the advocate on behalf of the decree holder informing the transferee about the pendency of the suit and the attachment made therein. Ex.R5 is the certificate of posting seeking to contend that the notice at Ex.R-4 was dispatched. The transferee had categorically denied the receipt of such notice and the address indicated was contended to be not pertaining to him. The Courts below have however assumed that it has been served on him though he had pointed out that the address indicated therein itself is not appropriate. Having perused the documents at Exhs.R4 and R5, in my opinion, the very documents would raise a serious doubt as to whether such notice was sent at all as the circumstances suggest that it has been fabricated subsequently to create a document.

23. I am of such opinion for the reason, firstly, in a matter of the present nature, the notice is stated to have emanated on 16.08.2006 though the attachment was dated 01.07.2004. The sudden need to issue the notice at that stage and the manner in which the decree holder gained knowledge of the transferee intending to purchase the property is not satisfactorily explained. Secondly, the name of the transferee in Ex.R5 (certificate of posting) is evidently a subsequent insertion which is visible to the naked eye. Thirdly, the first addressee in Ex.R5 is not a person who is a party to the present transaction and when a certificate of posting would be a document which may be necessary to be produced as proof, it is difficult to understand how an advocate would send two different notices of different cases to totally unconnected persons under one certificate merely because the dispatcher is one. Therefore, it appears that in respect of a certificate of posting issued to one Sri H.M.Lingaraja, which was available, the same has been made use by inserting the address of the transferee therein by creating a copy of the notice. This is also clear from the handwritten endorsement in the same certificate where the numerical ‘1 has been altered as ‘2. Further the certificate even if accepted as genuine can only act as a proof for dispatch and not as acknowledgment for service. No evidence is produced either by way of endorsement from the postal authorities or in any other manner to show that it has been delivered to the transferee. In a normal situation, if such a notice was being issued from the chambers of an advocate, certainly it would have been dispatched under Registered Post Acknowledgment due. Hence, when there are so many discrepancies including the ambiguity in the address, it would have to be held that such notice was not served on the transferee and the knowledge attributed to the transferee by such document cannot be accepted.

24. The protection to a creditor under Section 53 of T.P.Act is applicable as rule of justice, equity and good conscience and to seek such benefit one should also approach the Court with clean hands and good concience. However, having noticed the manner in which the decree holder sought to putforth a make believe case about notifying the transferee about the pendency of the suit and attachment so as to contend that the transfer is not in good faith would disentitle the benefit to the decree holder in the present circumstance. The analysis of the Courts below to come to the conclusion that the notice had been served and as such the transfer is bad is also not justified.

25. That apart, the Courts below have also made much about the timing of the suit being filed and the sale agreement being registered thereafter. Except the assumption made there is no evidence even to the effect that the transferor had knowledge of the suit being filed on 01.07.2004 and to suggest that the transferee also connived and therefore agreement was also registered on the same day. If registration is assumed for that purpose and if the payment of sale consideration was not made as contended by the decree holder, then would not a sale deed itself have been registered and was there the need to register a sale agreement and thereafter the sale deed? Further, the Courts below have found the payment of the stamp duty on 26.06.2004 as objectionable since the agreement was registered on 01.07.2004 and the statement of PW-1 in his cross examination that he paid the registration charges on 01.07.2004 is found fault with. However, what is necessary to be noticed is the distinction between the stamp duty and the registration fee. The amount of Rs.200/- paid on 26.06.2004 is the payment vide SBM Bank challan for purchase of the stamp paper and such purchase of stamp paper at a stage when the proposal is there cannot be faulted and it is common knowledge that a sale transaction does not fructify overnight. In fact as rightly asserted in the evidence, the registration fee was paid on 01.07.2004, in all amounting to Rs.270/-, as seen on the reverse of Ex-P1.

26. Therefore, contrary assumptions alone cannot constitute fraud so as to set aside a transaction. If fraud is alleged by the creditor, it is to be established by the creditor. It is not the conduct of the transferor we are concerned in the present consideration, but to find out the bonafide of the transferee if he has entered into transaction in good faith and for consideration. The well established legal position is that, however suspicious a transaction may be, the Courts decision must rest not upon suspicion, but on legal grounds based on evidence. In the instant case, I find no such evidence to establish that the transferee with the knowledge of the suit being filed against the transferor had colluded with him in bringing about the transfer.

27. In view of the above, the question of law framed and noticed herein above is answered in favour of the appellant since the agreement entered into on 01.07.2004 is not shown to be by design to defeat the claim of the respondent herein. In any event the transferee being a party to such design, if any, is not established.

28. In the result, the following;


(i) The order dated 31.07.2010 in Ex.No.42/2008 on I.A. Nos. IV and V, as also the order dated 18.01.2011 in R.A.No.195/2010 are set aside.

(ii) Consequently, the I.A.Nos. IV and V filed under Order XXI Rules 58, 59 and 97 of CPC are allowed and the sale of the property purchased by the appellant herein under sale deed dated 12.04.2007, in Ex.No.42/2008 is held not permissible.

(iii) The appeal is allowed in the above terms.

(iv) Parties to bear their own costs.

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