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Vadamala Sanjeevi Reddy Vs. K. Ellappa Reddy and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAndhra Pradesh High Court
Decided On
Case NumberCivil Revn Petn. No. 109 of 1965
Judge
Reported inAIR1967AP243
ActsProvincial Insolvency Act, 1920 - Sections 6, 6(B), 6(C) and 54
AppellantVadamala Sanjeevi Reddy
RespondentK. Ellappa Reddy and ors.
Appellant AdvocateK. Subramanya Reddy, Adv.
Respondent AdvocateA. Bhujanga Rao and ;K. Peddi Reddi, Advs.
Excerpt:
.....attracted to the present case. i am clearly of the opinion that section 6(b) applies only when a debtor transfers his property with a view to defeat or delay all the creditors. subrahmanya reddy, the learned counsel for the petitioner, that the petitioning creditor has failed to prove that the debtor was unable to pay his debts. this argument was founded on clause (c) of section 6 read with section 54 as well as on section 25 of the act. apart from not taking that position in the counter, at no stage of the trial a list of the properties was filed by the debtor to clearly show that there is some property left with the debtor and that he is able to pay the debt. it is clearly found by the commissioner that s. i am therefore, satisfied that the finding of the learned district judge that..........attracted to the present case. i am clearly of the opinion that section 6(b) applies only when a debtor transfers his property with a view to defeat or delay all the creditors. where therefore a debtor transfers his property to any creditors of his and pays out of the sale proceeds some of his creditors the transfer not being one with an intent to defeat or defraud all the creditors, the transfer does not amount to an act of insolvency on the part of the debtor within the meaning of section 6(b) of the act.(8) what remains then to be seen is whether the provisions of clause (c) are attracted as is held by the learned district judge. it was contended by mr. subrahmanya reddy, the learned counsel for the petitioner, that in order to bring a case within the purview of that clause it is.....
Judgment:
ORDER

(1) This revision petition is filed under Section 75 of the Provincial Insolvency Act (hereinafter called the Act) by the defendant. I. P. 5/58 was filed by a petitioning creditor, 1st respondent, to adjudicate the petitioner herein as an insolvent. The grounds on which the adjudication was sought were that the first respondent executed a sale deed Ex A-5 and also executed a mortgage, Ex. A-6 thereby delaying and defrauding the petitioning creditor and that in view of this act of insolvency he should be adjudicated insolvent.

(2) This petition was resisted by the petitioner mainly on the ground that he has not committed any act of insolvency. I am not concerned with the other questions dealt with by the Courts below as they were not pressed before me, nor anything turns upon them in so far as this revision petition is concerned.

(3) The trial Court dismissed the petition after a proper enquiry holding that the sale deed executed by the petitioner is supported by consideration and that the mortgage deed is supported by consideration except to the extent of Rs. 1,500. It was found by the trial court that as there was only one creditor left at the time of these transfers the petitioner could not be said to have committed an act of insolvency within the meaning of Section 6(b) of the Act.

(4) Aggrieved by that judgment the petitioning creditor carried the matter in appeal. The Additional District Judge, Chittoor, allowing the appeal held that the petitioner herein has committed an act of insolvency. Although the learned District Judge agreed with the conclusion of the trial court that the petitioner did not commit an act of insolvency under section 6(b)of the Act, he held that by the said transfers he has given fraudulent preference to some of the creditors as against the petitioning creditor and thereby committed an act of insolvency under section 6(c) of the Act. It is this view of the learned District Judge that is now assailed in this revision petition.

(5) The question which has to be determined in this case is whether the facts as found by the Courts below attract the provisions of Section 6(b) or Section 6(b) of the Act. Section 6(b) and Section 6(c) are in the following terms:--

'6. A debtor commits an act of insolvency in each of the following cases namely:--

(b) if, in India or elsewhere, he makes a transfer of his property or any part thereof with intent to defeat or delay his creditors:

(c) if, in India or elsewhere, he makes any transfer of his property, or of any part thereof, which would, under this or any other enactment for the time being in force, be void as a fraudulent preference if he were adjudged an insolvent:'

A careful reading of the Section, particularly the above said two provisions, would reveal that the Section is exhaustive with regard to what constitutes an act of insolvency. It is therefore plain that nothing can be considered as an act of insolvency unless it can be brought under one or the other clauses of Section 6. Adjudicating a person an insolvent results in bringing about serious consequences. It becomes therefore necessary to take particular care to see that the provision of law is observed strictly and correctly applied. The Section discloses that the condition precedent to adjudicate a debtor insolvent on the petition of a creditor is that the debtor must have committed one or the other of the acts of insolvency set out in Section 6. It is, therefore, necessary before he is adjudicated an insolvent that the facts alleged must constitute and act of insolvency within the meaning of Section 6.

(6) Now in order to establish an act of insolvency under Clause (b) of Section 6 it is necessary for the petitioning creditor to prove that the transfer or transfers relied on by him were made with an intent to defeat or delay the creditors. This clause must clearly be distinguished from Clause (c). These two clauses provide separately for two different acts of insolvency. Under Clause (c) what is required to be established is that the debtor had made transfers with a view to give some of the creditors preference over the others, that being the dominant intention in making those transfers. It has further to be proved that when he made the transfers in question, he was unable to pay the debts.

(7) Let me then take Clause (b) first for consideration. Under that clause it is necessary that the debtor should have made a transfer of his property or any part thereof with intent to defeat or delay his creditors. Both the Courts below have found on an appreciation of evidence that both the above said transfers were made with an intent to deprive the petitioning creditor alone of his debt. It was further found by both the Courts below that on the day of the said two transfers the petitioning creditor was one of the creditors of the debtor. The language of the said clause clearly indicated that the effect of the transfers must be to defeat the whole body of creditors and not one of the creditors alone. A mere finding that the effect of a transfer would be to defeat one creditor obviously is insufficient. It must be proved, if that provision is to be attracted, that as a matter of fact the transfer was made with an intent to defeat the creditors as a whole. What was however argued was that if the intention is to defeat a single creditor out of several creditors, it is enough to attract the provisions of Section 6(b) of the Act.

My attention was drawn in support of this contention to a decision of this Court in Bhaskara v. Creditors of Piler, Khasim Saheb, : AIR1965AP68 . That was a case under Section 53 of the Transfer of Property Act. It undoubtedly lays down that Section 53 of the Transfer of Property Act applies even where a debtor disposes of his property with the intention of defeating one single creditors. It is however plain from a reading of the judgment that in that case there was only one creditor and in order to deprive him the transfer was made. The contention was that as the word 'creditors' is used, it is not applicable to a case where there is only one creditor. That contention was repelled. The said case therefore does not support the proposition argued before me. It does not lay down that in a case where there are more than one creditor and the transfer is intended to defeat only one creditor out of them, even then such a transfer would fall within the mischief of Section 6(b) of the Act. That the transfer should be made with an intention to delay or defraud the whole body of the creditors is the correct law gathers support for the following two decisions:--

(a) People's Bank of Northern India Ltd. V. Yusaf Ali Ismailji, AIR 1937 Lah 495.

(b) Niyati Bhusnan v. Bejoychandra, : AIR1958Cal319 .

I am therefore clear in my opinion that since the finding of both the Courts below is that the intention was not to defeat only the petitioning creditor, the provisions of Section 6(b) cannot be attracted to the present case. I am clearly of the opinion that Section 6(b) cannot be attracted to the present case. I am clearly of the opinion that Section 6(b) applies only when a debtor transfers his property with a view to defeat or delay all the creditors. Where therefore a debtor transfers his property to any creditors of his and pays out of the sale proceeds some of his creditors the transfer not being one with an intent to defeat or defraud all the creditors, the transfer does not amount to an act of insolvency on the part of the debtor within the meaning of Section 6(b) of the Act.

(8) What remains then to be seen is whether the provisions of Clause (c) are attracted as is held by the learned District Judge. It was contended by Mr. Subrahmanya Reddy, the learned Counsel for the petitioner, that in order to bring a case within the purview of that clause it is necessary that the transfer should in favour of any creditor this case is not hit by Section 6(c). He relied in support of this contention on the following two cases:

(a) (Firm) Baijnath Rameshwar Lal v. Atal Prasad Kumar, firm AIR 1937 Pat 134.

(B) Dammu Vighnesam v. Lakshmi Narasingha Murty, AIR 1940 Pat 187.

(9) In order to make Clause (c) applicable it must be shown that the debtor was unable to pay his debts at the time of the transfer, that the transfer was with a view to give the creditor preference and that it has taken place within three months of the date of the presentation of the petition, because only then such a transfer would be void under Section 54 of The Act. In order to apply Clause (c) the transfer must be void under the Act or any other enactment for the time being in force, as a fraudulent preference if the debtor were adjudged an insolvent. It is not in dispute that in so far as the Act is concerned it is Section 54 which makes a transfer made with an intention to fraudulently prefer a creditor void. S. 54 of the Act in so far as is relevant, is as follows:--

54 (1) Every transfer of property, every payment made, every obligation incurred and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money in favour of any creditor, with a view of giving that creditor a preference over the other creditors shall, if such person is adjudged insolvent on a petition presented within three months after the date thereof, be deemed fraudulent and void as against the receiver and shall be annulled by the Court.

An analysis of that section would reveal that such a transfer would be void for the purposes of Section 6(c) as stated earlier. When it is shown that firstly there was a transfer by the debtor to a creditor or creditors; that secondly the debtor was unable to pay his debts at the time of the transfer; that thirdly the transfer was with a view to give the creditor or creditors preference and that lastly the transfer was within three months of the date of the presentation of the petition. That is what is laid down in the two cases cited by the learned counsel for the petitioner. Both the Courts below are concurrent in their opinion that the said two transfers were made with an intent to give a fraudulent preference to other creditors over the petitioning creditor. That being a question of fact it is obvious that it cannot be agitated in a revision petition, and in fairness I must say that the learned counsel for the petitioner did not question the correctness of that finding. His only contention was that since both the transfers were made in favour of strangers and not the creditors, the debtor cannot be said to have committed an act of insolvency within the meaning of Section 6(c) read with Section 54 of the Act.

(10) Now in so far as the sale deed is concerned the vendee was not a creditor either prior to the sale deed or even under the sale deed. Although it is found that the sale deed is supported by cash consideration, the transfer not being in favour of a creditor even if it is made with an intention to give fraudulent preference to other creditors as against the petitioning, creditor, it does not amount of an act of insolvency within the meaning of S. 6(b) of the Act. This is not doubted.

(11) The case with regard to the mortgage however is different. The mortgage admittedly would be a creditor on the day when the mortgage was executed in his favour. I have no doubt that a new creditor who became a creditor only in respect of the transaction which gives rise to the question as to whether that transfer was a fraudulene preference, can be a creditor within the meaning of Section 54 of the Act. It is not necessary that the creditor should have been in existence prior to the transfer on the basis of which it was alleged that the debtor has committed an act of insolvency. The creditor can be a new creditor and in respect of the same transaction which has given rise to the contention that that transfer amounts to a fraudulent preference within the meaning of Section 6(b) read with Section 54 of the Act. This conclusion is supported by a decision of the Allahabad High Court. See Bhagwan Das and Co. V. Chuttan Lal, AIR 1921 All 41. The mortgage therefore although was a new creditor, the transfer was in favour was a new creditor, the transfer was in favour of a creditor, the transfer was in favour of a creditor and it would certainly attract the provisions of Section 54 read with Section 6(b) of the Act. I have therefore no hesitation in agreeing with the conclusion of the Court below that the mortgage in favour of such a creditor made with an intent to fraudulently prefer other creditors as against the petitioning creditor amounts to an act of insolvency within the meaning of Section 6(b) of the Act.

(12) It was finally contended by Mr. Subrahmanya Reddy, the learned counsel for the petitioner, that the petitioning creditor has failed to prove that the debtor was unable to pay his debts. This argument was founded on Clause (c) of Section 6 read with Section 54 as well as on Section 25 of the Act. For the purposes of both these section it is necessary to prove that the debtor was not left with any property or means to pay the debts of the creditors then left out. It was argued that the learned District Judge has found that the debtor still has 41/2 acres of land, the value of which is such that he can easily pay the debt of the petitioning creditor, which is Rs. 3,395-14-0 on the relevant date. First of all that the debtor is possessed of any such property is not mentioned in the counter. There is no inclination shown at any stage of the trial that the debtor had sufficient property and that he could have paid the debt. The learned District Judge therefore correctly observed that if he had any such property, he could have without any hesitation paid the amount of the petitioning creditor. In the face of a clear finding that the debtor transferred the properties with a view to fraudulently prefer other creditors as against the petitioning creditor, it can hardly be contended that the debtor had sufficient property and was always ready to pay and was capable of paying the debt of the creditor. Apart from not taking that position in the counter, at no stage of the trial a list of the properties was filed by the debtor to clearly show that there is some property left with the debtor and that he is able to pay the debt. It is no doubt true that R. W. 11 and R. W. 12 speak of some property as belonging to the debtor. Now that property is of two kinds. One and a half acres is said to be wet land. No title deed in regard to this property has been filed. Except the depositions of R. Ws. 11 and 12 there is no other evidence to show that the said one and a half acres really belong to the debtor, or is there any satisfactory evidence to show the real market price of that property.

The learned District Judge therefore rightly did not place much reliance upon the oral evidence adduced by the debtor. The next property comprises of 21/2 acres of dry land. This property consists of four items. It is clearly found by the Commissioner that S. 144/11 consisting of 22 cents belongs to a third person and not to the debtor. In regard to the three other items, S. Nos. 149/2, 22/2 and 15/3, no document showing the title as belonging to the debtor has been filed. There is no satisfactory record to show that the property belongs to the debtor and what its real market value is. Reliance was placed in this respect on the report of the Commissioner. Even according to the Commissioner's report the total value of the said property is Rs. 860. Curiously the Commissioner was not asked to report about 11/2 acres of wet land. This omission on the part of the debtor is not without significance. Assuming therefore that the said property belongs to the debtor, even then in view of its value of Rs. 860/- it cannot be said that the debtor was able to pay the present creditor. I do not think that the learned District Judge has held think that the learned District Judge has held that the property, as is contended by the petitioner before me, really belongs to the debtor. I am therefore, satisfied that the finding of the learned District Judge that the debtor was unable to pay the debt and that therefore the requirements of Section 6(b) and Section 25 of the Act were satisfied cannot be said to be inconsistent with the record. As no other question was argued, the result is that this petition fails and is dismissed with coats.

(13) FJ/JRM/G.G.M.

(14) Petition dismissed.


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