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Ramasubba Sastry and ors. Vs. Official Receiver Mysore and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtKarnataka High Court
Decided On
Case NumberCivil Revn. Petn. Nos. 809, 963 and 964 of 1960
Judge
Reported inAIR1963Mys257
ActsProvincial Insolvency Act, 1920 - Sections 6, 9, 9(1) and 54; Transfer of Property Act, 1882 - Sections 53
AppellantRamasubba Sastry and ors.
RespondentOfficial Receiver Mysore and anr.
Appellant AdvocateK. Swami Rap, Adv. in C. R. P. No. 809 of '60, ; and V. Krishnamurthy, Adv. in C. R. P. No. 963 and 964 of '60
Respondent Advocate M.A. Gopalaswamy Iyengar, Adv. for Respondents 1, 5 to 7 (a) in C. R. P. Nos. 809, 963 and 964 of '60
Excerpt:
.....ex. the application to ad-judge boriah an insolvent was filed well with in three months from the date of the registration of ex. ' 7. learned counsel contends that in view of the provisions of this section, as soon as registration was effected on 19-8-1942, the sale deed executed on 3-7-1942 became operative and legally effective from 3-7-1942. there is no doubt that this proposition is well founded, but in the present case, we are not concerned with the question of the 'operation' of the deed of sale; 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. it keeps the transfer intact but destroys its effect on the creditors of the transferor whose debts were..........is urged on behalf of the petitioners that the relevant date is the date of execution and not the date of registration. on this question, the arguments on behalf of the petitioners (in this court) proceeded thus: though the value of the property sold under ex. p-4 was more than rs. 100/- at the time of the execution of ex. p-4 and therefore the sale deed had to be registered, yet under section 47 of the registration act, once a document is registered, the registration of the document becomes operative from the date of its execution, and hence ex. p-4 became effective from the date of its execution; therefore the relevant date is the date of execution of ex. p-4 and not in registration. it was further urged that once a document is executed then the executant need not do anything more;.....
Judgment:
ORDER

K.S. Hegde, J.

1. These are connected revision petitions. They arise from Insolvency Case No. 16 of 1943-44 on the file of the learned Subordinate Judge, Mysore. Civil Revision Petitions Nos. 809 and 954 of 1960 arise from the Order in I. A. No. 3 in that Insolvency Case which was an application filed by the Official Receiver under Section 54 of the Mysore Insolvency Act, to be hereinafter referred to as the 'Act' to set aside the alienations in favour of the respondents therein who are the petitioners in this Court. That application was allowed and the alienations were set aside. Civil Revision Petition No. 963 of 1960 arise from I. A. No. 4 which was an application filed under Section 35 of the 'Act' by some of the alienees. That application was dismissed. The Orders of the Insolvency Court in I. A. Nos. 3 and 4 were affirmed by the learned Additional District Judge, Mysore in Regular Appeals Nos. 47, 48 and 56 of 1958 on his file. Regular Appeal No. 48 of 1958 was filed against the order in I. A. No. 4. Regular Appeals Nos. 47 and 56 of 1958 were filed by the alienees against the order in I. A. No. 3.

2. Though in the Courts below several contentions had been urged on behalf of the petitioners, in this Court, the learned Counsel for the petitioners urged only two grounds, i.e., (i) on A true interpretation of Section 9(I)(c) of the 'Act' the Courts below should have held that the Insolvency Petition was filed beyond the time mentioned in that provision and therefore the same is not sustainable; and (ii) the alienation under Ex. P-4 which was made the basis of adjudication is no alienation in the eye of the law and therefore the same could not have afforded a ground for adjudication.

3. To properly appreciate the contentions advanced, it is necessary to set out in brief the material facts. Insolvent K. C. D. Boriah was the owner of the properties involved in these proceedings. He was heavily indebted. To defraud his creditors, he sold all his properties to one Srikantiah on 25-3-1936 as per the sale deed Ex. P-I. One of his creditors viz., Venkatachar filed O. S. No. 32/1 1937-38 on the file of the learned subordinate Judge, Mysore, praying for a declaration that the alienation in question is void as it was effected to defeat or delay the creditors of Boriah. That suit was dismissed in the trial Court, but in appeal (R. A. No. 83/41-42) (Mys) the High Court set aside the decree and judgment of the trial Court and granted the declaration prayed for. There after the other creditors of Boriah also obtained decrees against him. Venkatachar realised a portion of the amount decreed in his favour, in execution of his decree. At that time, Srikantiah purported to take another sale deed from Boriah on 20-9-1943 (Ex. P-4). The said sale deed was registered on 8-4-1944. Under that sale deed, the very properties which had been previously sold to Srikantiah under Ex. P-I were again sold to him. Soon thereafter, two creditors of Boriah viz., Ningamma and Thimmegowda filed an Insolvency Petition on 15-5-1944 praying for adjudicating Boriah as an insolvent. Boriah was adjudged as an insolvent. Thereafter the Official Receiver filed I. A. No. 3 to set aside the alienation in favour of Srikantiah as well as alienations effected by Sri kantiah to other subsequent to the execution of Ex. P-4. The petitioners in C. R. P. No. 809/60 are the alienees from Srikantiah. The other facts are not material for our present purpose.

4. The first contention urged by Sri V. Krishnamurthy, the learned Counsel for some of the petitioners which contention was supported by Sri K. Swamy Rao, the learned Counsel appearing for the other petitioners is that the Insolvency Petition having been filed more than 90 days after Ex. P-4 was executed, the same cannot be validly entertained. Section 9 (I) (c) of the 'Act' reads:

'A creditor shall not be entitled to present an insolvency petition against a debtor unless the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition.'

It has been uniformly held by Courts that the condition that a petition for adjudging a person insolvent should be filed within three months from the date the act of insolvency on which the petition is grounded has occurred is a condition precedent. Thus far there is no difficulty. But the real controversy in this case is as to when exactly the act of insolvency on which the petition is grounded took place. Is the execution of Ex. P-4, the act of insolvency or its completion by registration? Admittedly, the properties sold were worth very much more than Rs. 100/-. The alienation was effected by means of a deed which is required to be registered. The application to ad-judge Boriah an insolvent was filed well with in three months from the date of the registration of Ex. P-4, but beyond the period of three months from the date of its execution.

It is urged on behalf of the petitioners that the relevant date is the date of execution and not the date of registration. On this question, the arguments on behalf of the petitioners (in this Court) proceeded thus: though the value of the property sold under Ex. P-4 was more than Rs. 100/- at the time of the execution of Ex. P-4 and therefore the sale deed had to be registered, yet under Section 47 of the Registration Act, once a document is registered, the registration of the document becomes operative from the date of its execution, and hence Ex. P-4 became effective from the date of its execution; therefore the relevant date is the date of execution of Ex. P-4 and not in registration. It was further urged that once a document is executed then the executant need not do anything more; the registration of the document can be done even without his co-operation and therefore the transaction of sale is complete so far as he is concerned on the date he executes the sale deed.

In support of this contention, the learned Counsel for the petitioners read to me the decision of the former High Court of Mysore in R. A. No. 34 of 1939-40 (Mys). Therein, a Bench of that High Court presided by Reilly, C. J., following the decisions of the Calcutta High Court in Rama Nanda Paul v. Pankaj Kumar : AIR1938Cal417 held that the relevant date for the purpose of Section 9 is the date of the execution of the document and not its registration. This decision was neither reported nor followed in subsequent cases. At present all the High Courts in India are unanimous in their view that the relevant date is the date of the registration, if the document in question is required to be registered and not the date of its execution. But before proceeding to examine the decided cases, we may deal with the merits of the contention advanced on the basis of Section 47 of the Registration Act. In doing so, it will be useful to quote a passage from the judgment of a Bench of the Allahabad High Court in District Board, Bijnor v. Mohammad Abdul Salam, AIR 1947 All 383 at p. 385 with which I respectfully concur. The Judgment of the Bench was delivered by Wali Ullah, J., and the passage with which we are concerned is found at paragraphs 6 and 7 of that judgment.

This is what the learned Judge says:

'With regard to the first question it is obvious that the terminus a quo from which the limitation of three months begins to run is the time when the act of insolvency occurs. 'The crucial question, therefore, is to determine when exactly the act of insolvency occurs in a particular case. The act of insolvency alleged in the present case is a transfer of property by the debtor with a certain intent. The question at issue, therefore, resolves itself into the question when exactly the transfer of property took place. Here a written deed of sale was executed on 3-7-1942, but as the property involved was worth more than Rs. 100/-., the deed could operate as an effective sale deed only when it was registered. Till registration it could not have any legal effect as a sale deed. This is clear from the provisions of Section 49, Registration Act read with Section 54 T. P. Act. It follows that title to the property does not pass so long as registration is not effected. The 'transfer of property' therefore occurs only when -- and not till then -- registration is effected. The crucial event I on which the transfer of property hinges is therefore the fact of registration. Admittedly the registration in the present case was effected on 13-8-1942. In our judgment, therefore, the point of time when the transfer took effect is the point of time when the event of registration occurred which caused the transferee to become the owner of the property. Learned Counsel for the opposite party has drawn our attention to the provisions of Section 47, Registration Act. That section provides:

'47--A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration.' 7. Learned Counsel contends that in view of the provisions of this section, as soon as registration was effected on 19-8-1942, the sale deed executed on 3-7-1942 became operative and legally effective from 3-7-1942. There is no doubt that this proposition is well founded, but in the present case, we are not concerned with the question of the 'operation' of the deed of sale; but with the point of time when the event happened which made the deed of sale legally effective. Care has to be taken to keep the question of the operation of the deed distinct from the question of the point of time when the event which gives it legal effect takes place. That event alone must, in our judgment, determine the commencement of the limitation of three months provided for in Section 9, Provincial Insolvency Act .........'

5. Now turning to decided cases, the decision in R. A. No. 34739-40 (Mys) referred to above, was mainly if not solely influenced by the decision of the Calcutta High Court in Rama Nanda Paul's case : AIR1938Cal417 . The ratio of the decision in Rama Nanda Paul's case ILR : AIR1938Cal417 did not commend itself to another Bench of the Calcutta High Court. See: Indo Burmah Traders Bank Ltd. v. Barada Charan : AIR1944Cal370 . Therein their Lordships held that for purposes of Section 9 Sub-section (I) Clause (c) of the Provincial Insolvency Act, 1920, which is same as Section 9 (I) (c) of the 'Act', time is to be reckoned from the date of the registration of the transfer deed, where the Transfer of Property Act requires a registered instrument for the transfer which is alleged to constitute the act of insolvency. Their Lordships distinguished Rama Nanda Paul's case : AIR1938Cal417 on the ground that it was a decision rendered under Section 54 of the Provincial Insolvency Act, which distinction appears to me to be a distinction without difference. But their Lordships made it clear that they do not express their concurrence with the reasons given in Rama Nanda Paul's case : AIR1938Cal417 . No subsequent decision of the Calcutta High Courts following the decision in Rama Nanda Paul's case : AIR1938Cal417 was brought to my notice.

Even in the former High Court of Mysore, the decision in R. A. No. 34 of 1939-40 (Mys) as mentioned earlier was not followed. In M.P. Basappa v. P. Channappagowda, AIR 1954 Mys 189. Vasudevamurthy, J., held that for an application by a creditor under Section 9, where the act of insolvency alleged against the debtor is the execution of a sale deed or other alienation which required registration, the period of three months for presenting the petition for adjudication should be computed from the date of registration of the sale deed and not from the date of its execution. His Lordship also observed that if it is held that the period of three months provided under Section 9 begins to run from the date of execution and not from the date of registration of a sale deed, that section can be easily rendered nugatory by the insolvent or the alliance merely deferring presentation of the document for registration till the last day of the four months within which the document may normally be registered or to the eight months available under some special circumstances referred to in Section 24 of the Registration Act. In this decision there is no reference whatsoever to the decision in R. A. No. 34 of 1939-40 (Mys).

6. The Madras High Court has consistently taken the view that when an alienation effected by means of a deed which is required to be registered, is made the basis for an insolvency petition, the relevant date under Section 9 (I) (c) is the date of registration and not its execution. In Muthiah Chettiar v. Official Receiver of Thinnevelly, 64 Mad LJ 382 : (AIR 1933 Mad 185), Madhavan Nair, J., held that the period of three months specified in Section 9 should be calculated not from the date of the execution of the document of transfer but from the date of its registration in cases where a registered deed is necessary to effect a valid transfer of property. This decision was cited with approval by a Division Bench of that Court in S. Iswarayya v. Kurubasubbanna : AIR1934Mad637 . The decision in Muthiah Chettiar's case, 64 Mad LJ 382 : (AIR 1933 Mad 185) was again followed by another Bench of the Madras High Court in Venkadari Somappa v. The Official Receiver of Hillary, 1938-2 Mad LJ 362 : (AIR 1938 Mad 801).

7. A Full Bench of the Lahore High Court, in Lakhmi Chand v. Kesho Ram, AIR 1935 Lah 565 (FB), overruling the decision of Dalip Singh, J., in Ratan Chand v. Small, AIR 1933 Lah 821, held that when a petition is presented alleging that a debtor has committed an act of insolvency by a deed registered, the period of limitation prescribed by Sub-section (I) (c) to Section 9 of the Act runs from the date of its registration and not from the date of its execution.

8. As seen earlier, the Allahabad High Court in AIR 1947 AH 383 has held that the relevant date is the date of registration.

9. The Nagpur High Court has also taken the view that the limitation for presentation of an application by a creditor for adjudging a debtor insolvent on his committing an act of insolvency by effecting a transfer of his property, begins to run from the date of the registration of the deed of transfer and not from the date of its execution. See: G. W. Godbole v. Marotisa Balusa, AIR 1937 Nag 197 and Balkisan v. Bhanu Prasad, ILR (1939) Nag 377 : (AIR 1938 Nag 454).

10. The Andhra Pradesh High Court has agreed with the view taken by Madras, Lahore, Allahabad and Nagpur High Courts. See: N. Ramarao v. Srikrishnamurthi, : AIR1962AP226 .

11. From the foregoing, it is clear that the contention of Sri V. Krishnarnurthy cannot be accepted either in principle or on authority. The point in controversy is concluded by stare decisis. Hence I will not be justified in acceding to the request of Sri V. Krishnarnurthy to refer that question to a Bench.

12. This takes us to the question as to what is the effect of a decision that an alienation is void against the creditors of the alienor. Does the alienation in question become void for all purposes or is it only void against the creditors of the alienor vet continuing to be valid for all other purposes? Section 53(I) of the Transfer of Property Act, the provision under which the alienation under Ex. P-I was declared to be void against the creditors of Boriah reads:

'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.'

Under this provision, the choice is left to the creditor or creditors to avoid a transfer of immoveable property made with intent to defeat or delay the creditors of the transferor. There is no doubt that a relief given under Section 53 T. P. Act enures to the benefit of all the creditors of the transferor whether those creditors are parties to the suit wherein the alienation is challenged or not. But it does not go further. It does not wipe out the transaction. It keeps the transfer intact but destroys its effect on the creditors of the transferor whose debts were intended to be defeated or delayed, At this stage, I may usefully refer to the language of Section 64 C. P. C. which says:

'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 monies contrary to such attachment, shall be void as against all claims enforceable under the attachment.'

A transfer coming within the mischief of Section 64 C. P. C. is only void as against all claims enforceable under the attachment previously made. Section 64, C. P. C. deals with alienations of properties attached while Section 53 T. P. Act deals with alienations effected with the intention to defeat or delay the creditors. In the former case the alienation becomes void as against the claims arising under the attachment while in the latter case, it is void as against the creditors of the transferor. Neither under Section 64 C. P. C. nor under Section 53 T. P. Act, the transaction as such can be set aside. A transaction coming under Section 53 T. P. Act is not a sham transaction. It is real but is effected with a view to delay or defeat the creditors of the transferor. Therefore, if it is avoided under Section 53 the effect is merely to wipe out the fraud intended to be perpetrated while retaining the validity of the transaction in question in other respects.

13. As regards the true effect of a decision under Section 53 T. P. Act, judicial opinion is unanimous. As early as in the year 1921, a Bench of the Lahore High Court held in Abdul Razak v. Fazal Ilahi, AIR 1921 Lah 333 that a transaction avoided under Section 53 is ineffectual as against the creditors of the transferor but it is otherwise good. A Full Bench of the Madras High Court in Chidambaram Chettiar v. Sellakumara, AIR 1941 Mad 903 (FB) held that where property has been transferred by a deed which falls within the mischief of Section 53 and the transferor becomes insolvent, the property does not form part of the insolvent's estate; a suit under Section 53 is not a suit in respect of the property of the insolvent, but is a suit in respect of property which had been the property of the insolvent and which he had transferred in fraud of his creditors; such a suit does not fall within the prohibition of the Insolvency Act. Once a declaration under Section 53 T. P. Act is obtained, the property does not become the property of the insolvent and automatically vests in the Official Assignee or Official Receiver as the case may be. This view was reiterated by that High Court in Kallubandi Nanjamma v. Kethe Rangappa, : AIR1954Mad173 . Therein Venkata-rama Ayyar, J., (as he then was) held that when a transfer is void as against the creditors under Section 53 T. P. Act, the result is not to annul it altogether but only to render it inoperative as against creditors and that too only to the extent necessary to satisfy their claims, but subject to their claims the transaction is valid and 'enforceable.

Similar is the view taken by the Travancore-Cochin High Court in Anantha Raman Pillai v. Arunachalam, AIR 1952 Travancore-Cochin 105. The Bombay High Court took the same view in Abdullakhan v. Purshottam, AIR 1948 Bom 265. Similar is the view taken by the Nagpur High Court in Narayan v. Maruti Nago, AIR 1936 Nag 207 and the Punjab High Court in Ronaqmal Chinnamal v. Kasturimal, .

14. From the above discussion, it is clear that the decision in R. A. No. 83 of 1940-41 (Mys) cannot be considered as having set aside the alienation under Ex. P-I. The effect of that decision is that Ex. P-I became ineffective as against the claims of the creditors of the transferor.

15. But it is urged by Sri M. A. Gopalaswamy lyengar, the learned Counsel for the first respondent, that rightly or wrongly, the High Court in R. A. No. 83 of 1940-41 in fact set aside the transaction; that decision is binding on the appellants and therefore it is not now open to them to contend that Ex. P-I continued to be valid to any extent. I do not think that there is any basis for this contention. We have already noticed the legal effect of a decision under Section 53 T. P. Act. In that case, the High Court merely purported to act under Section 53 T. P. Act. It is seen from the judgment that the learned Counsel for the creditors in that case tried to persuade the High Court to hold that the impugned transaction was a sham transaction. But the High Court did not hold that it was a sham transaction. On the other hand, Reilly, C. J., who spoke for the Bench observed as follows:

'In my opinion, the plaintiff ought to succeed in this suit, the appeal should be allowed and a decree should now be made declaring that the sale under Ex. V (Ex. B-I in this case) is void as against the creditors of defendants 2, 3 and 4 other than Srikantiah (alienee under Ex. P-I) and that the plaintiff is entitled to exercise his decree in G. S. No. 146 on the file of the First Munsif of Mysore against the property attached by him but that on items I to 6 defendant-I, Srikantiah, will have a charge for Rs. 4450/-. He cannot have a charge for the whole of his mortgage amount, because his own case shows that he has been satisfied in effect to the extend of Rs. 1550/-, otherwise under the sale deed, Ex. VIII.'

The above passage makes it clear that the High Court did not purport to set aside the impugned transaction. It merely declared that it is void as against the creditors of defendants 2, 3 and 4, excepting Srikantiah. It is true that it gave a charge on some of the suit properties to Srikantiah the transferor under Ex. P-I for the amount found due to him. This relief no doubt is somewhat incongruous as Srikantiah continued to be the owner of the property over which the charge is created. Despite this confusion there cannot be any doubt about the true nature of the relief granted.

16. But the difficulties of the petitioners in those proceedings do not stop there. As noticed earlier, the vendor and the vendee under Ex. P-I have entered into a new transaction of sale on 20-9-1943, as per Ex. P-4. The very properties sold under Ex. P-I were again sold under Ex. P-4 From this it follows that the vendor and the vendee had by mutual agreement cancelled the transaction under Ex. P-T and had entered into a fresh transaction. This document (Ex. P-4) was evidently executed with a view to defeat the claims of the creditors of Boriah. But for this document there was no difficulty for the creditors of Boriah. The execution of Ex. P-4 is certainly an act of insolvency affording a cause of action to file a petition under Section 9 of the 'Act'. It is also an alienation coming within the mischief of Section 54. It may be that Ex. P-4 was executed as a result of some misconception as to the effect of the decision in R. A. No. 83 of 1940-41. But that does not change the legal position. The parties to it intended the same to be a new alienation.

17. No other contention was urged before me.

18. In the result, the above petitions fail and they are dismissed with costs. Advocate's fee Rs. 25/- in each of the petitions.


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