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Kalyani Ammal Vs. the Official Receiver of North Arcot and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai High Court
Decided On
Reported in(1974)2MLJ340
AppellantKalyani Ammal
RespondentThe Official Receiver of North Arcot and anr.
Cases ReferredHans Raj v. Rattan Chand
Excerpt:
.....are satisfied and that it would then be not open to the receiver to say that though the transaction falls under section 53 and he could not challenge it under that section (because he could not satisfy the conditions) he would fall back upon section 4 and invoke the wider jurisdiction conferred by that section. under the proviso to the said section such an application has to be filed within 21 days from the date of the act or decision complained of. it has been pointed out that as section 4 says that the powers of the court defined thereunder are subject to the other provisions in the act, the application which squarely fell under section 68 ought to have been filed within 21 days of the act complained of. 8. both the revision petitions fail and they are accordingly dismissed......the transaction. if the court ultimately finds that the transaction is really a sham and nominal one, then there is no need to set aside the transfer for the simple reason that there was no transfer at all under the transaction, it being a sham and nominal or a fictitious one. if it is sham and nominal or fictitious, the transaction is void ab initio. but it is for the court to decide whether it is a sham and nominal transaction or whether it is a fraudulent transfer.7. under these circumstances, i see no merit in the contention raised by the learned counsel. no point was raised in c.r.p. no. 3142 of 1973 which is against the order of the district court dismissing the application for receiving certain documents as additional evidence.8. both the revision petitions fail and they are.....
Judgment:
ORDER

N. S. Ramaswami, J.

1. These two revision petitions are filed by the second respondent in I.A. No. 68 of 1970 in Insolvency Petition No. 11 of 1968 on the file of the Court of the Subordinate Judge, Vellore. The first respondent to that application was adjudged insolvent in I.P. No. 11 of 1968 on 6th April, 1970. The Official Receiver, in whom the insolvent's properties came to be vested, filed I.A. No. 68 of 1970 for setting aside two alienations made by the insolvent, under Section 53 of the Provincial Insolvency Act, hereinafter referred to as the Act, one in favour of the second respondent therein and the other in favour of the third respondent therein. The first respondent to the application is the insolvent. Both those alienations were within two years prior to the presentation of the insolvency petition. The Insolvency Court (Subordinate Judge's Court, Vellore) allowed the said application in respect of both the alienations. The third respondent to the application did not file any appeal. Only the second respondent to the said application filed C.M.A. No. 109 of 1972 on the file of the District Judge of North Arcot at Vellore. He also filed I.A. No. 317 of 1973, in the said civil miscellaneous appeal for reception of certain documents as additional evidence. The appellate Judge dismissed the civil miscellaneous appeal as well as the said application for reception of additional evidence. Hence the second respondent i n the application under Section 53 of the Act, has filed the present two revision petitions, one against the dismissal of her civil miscellaneous appeal and the other against the dismissal of the application for reception of additional evidence. These two revisions are under the proviso to Section 75 of the Act.

2. The point taken by Mr. V. Ratnam, the learned Counsel for the revision petitioner second respondent in I.A. No. 68 of 1970 on the file of the Insolvency Court is that on the finding of the Insolvency Court and that of the appellate Judge who heard the civil miscellaneous appeal, I.A. No. 68 of 1970 is not maintainable. It is pointed out that the Courts below have held that the alienation which is a sale dated 2nd August, 1968 in favour of the revision petitioner is a sham and nominal one, and that being so, there is no transfer of property as contemplated under Section 53 and that therefore the question of setting aside the transfer as one being in fraud of creditors does not arise. The learned Counsel is right in his contention that when a transaction is declared as sham and nominal there is no transfer of property under the transaction, and that therefore there is no need to set aside the same, and Section 53 of the Act would not apply. However, the question is whether the application filed by the Official Receiver should not have been entertained by the insolvency Court. Under Section 4 of the Act it is provided that the Court shall have full power to decide all questions whether of title or priority, or of any nature whatsoever and sub -section (2) thereof provides that such decision of the Court shall be final and binding for all purposes as between the debtor and the debtor's estate on the one hand and all claimants against him OP the other. However, the section makes it clear that the power of the Court to decide the questions mentioned therein is subject to the other provisions of the Act. The question whether a sale deed executed by the insolvent is sham and nominal is certainly a matter which would be covered by Section 4. In fact such a position is not disputed by the learned Counsel for the revision petitioner. However, the contention is that there is no provision in the Act for the Official Receiver to file an application to the Insolvency Court for declaring a sale transaction to be a sham and nominal one, that Section 4 itself does not contemplate the filing of an application by either the Official Receiver or any other person, that the said section only defines the Jurisdiction of the Court and that, therefore, the Insolvency Court is not entitled to give a decision regarding the sham and nominal nature of the transaction on an application which was purported to be under Section 53 of the Act. As noticed earlier, the Official Receiver filed the application under Section 53 contending that the transfer in question is in fraud of creditors. But in the said application there are also averments that the transaction is a sham and nominal one. Of course, the two averments, namely that the sale is a transfer in fraud of creditors and that the sale is only a sham and nominal one cannot stand, together. Though the Official Receiver has pleaded both the grounds, the Insolvency Court and the appellate Judge have held that the sale is not a real sale and that the same is a sham and nominal one. The question is whether under an application which purported to be under Section 53 of the Act, the Courts below are entitled to decide that the transaction is a sham and nominal one.

3. Padamsi Premchand v. Laxman Vishnu : (1949)51BOMLR28 is a case where the transfers were more than two years prior to the presentation of the insolvency petition. The Official Receiver filed an application to the Insolvency Court contending that the said transfers were sham and nominal and fictitious. The Full Bench of the Bombay High Court held that the Insolvency Court had jurisdiction under Section 4 to decide whether the transactions were nominal and fictitious. It was pointed out in that case that if a transaction falls within the ambit of Section 53, then it can be challenged only if the conditions laid down in the section are satisfied and that it would then be not open to the Receiver to say that though the transaction falls under Section 53 and he could not challenge it under that section (because he could not satisfy the conditions) he would fall back upon Section 4 and invoke the wider jurisdiction conferred by that section. But the Full Bench further held that if the transaction is fictitious or nominal, it does not fall within the ambit of Section 53 and that then Section 4 is wide enough to confer upon the Insolvency Court jurisdiction to decide whether these transactions are in fact nominal or fictitious. In Gulab Chand v. Lachuman Sah : AIR1955Pat413 , a Division Bench has taken the view that the Insolvency Court has jurisdiction to entertain an application under Section 4 filed by a third party. Saraswathi v. Krishnier : AIR1964Mad501 also proceeds on the footing that an application under Section 4 is maintainable. Paramatmuni Hanumantha Rao v. Official Receiver : AIR1970AP38 , is also to the same effect.

4. A perusal of Section 75 of the Act goes to show that the Act contemplates an application to be filed under Section 4 of the Act. The second proviso to Section 75(1) of the Act speaks of decision of a Subordinate Court under Section 4 of the Act. Under that proviso, an aggrieved person is entitled to file an appeal to the High Court on any of the grounds mentioned in Sub-section (1) of Section 100 of the Code of Civil Procedure, 1908 against the decision of the District Court on appeal from a decision of a Subordinate Court under Section 4 of the Act. With regard to matters not falling under Section 4, there is no second appeal (as in the case of the second proviso), but under the first proviso to Section 75(1), the Court has jurisdiction to call for the records and interfere if an order made in any appeal decided by the District Court was not according to law.

5. However, Mr. Ratnam, the learned Counsel for the revision petitioner contends that in Hans Raj v. Rattan Chand : [1967]3SCR365 , it has been held that no application under Section 4 can be filed either by the Official Receiver or by any other party. But a perusal of that judgment would show that it docs not decide that under no circumstances an application under Section 4 can be filed. That was a case where the Official Receiver proceeded against certain property and took possession of the same, treating it as that of the insolvent. The appellant before the Supreme Court claimed that the property was his and not that of the insolvent. It is obvious under those circumstances that his remedy against the act of the Receiver in taking possession, is to file an application to the Insolvency Court under Section 68 of the Act. Under the proviso to the said section such an application has to be filed within 21 days from the date of the Act or decision complained of. The appellant before the Supreme Court did not file his application before the Insolvency Court within the said period of 21 days. The contention raised on behalf of the appellant was that his application should be treated as one under Section 4 of the Act. Their Lordships of the Supreme Court held that the appellant cannot be allowed to get over the period of limitation fixed under Section 68 by claiming that the application was one under Section 4. Therefore, the observations made in that judgment have to be understood in the light of the facts of that case. It has been pointed out that as Section 4 says that the powers of the Court defined thereunder are subject to the other provisions in the Act, the application which squarely fell under Section 68 ought to have been filed within 21 days of the act complained of. Their Lordships finally concluded that the application being one under Section 68, the same was incompetent on the ground of limitation after the lapse of 21 days from the relevant date.

6. The learned Counsel for the revision petitioner contends that if according to the Official Receiver, the transaction is a sham and nominal one, he could have simply proceeded against the property treating the same as that of the insolvent allowing the aggrieved party (the revision petitioner herein) to move the Insolvency Court under Section 68 of the Act. It is contended that in this case only on such an application under Section 68, the jurisdiction of the Insolvency Court to decide the question whether the transaction is sham and nominal or not (conferred by Section 4) can be invoked. However, I am unable to agree with this contention. There may be cases where the Official Receiver is not sure whether the transaction amounted to a fraudulent transfer or whether it is only a sham and nominal one. Supposing he proceeds against the property treating the transaction as a sham and nominal one and it ultimately turns out to be a fraudulent transfer coming within the purview of Section 53, then there is the possibility of the remedy of the Official Receiver being barred by limitation. Under Section 53, the application to set aside a transfer has to be made within two years of the presentation of the insolvency petition. Therefore, the Official Receiver cannot take the risk of not filing an application before the Insolvency Court to avoid the transaction. If the Court ultimately finds that the transaction is really a sham and nominal one, then there is no need to set aside the transfer for the simple reason that there was no transfer at all under the transaction, it being a sham and nominal or a fictitious one. If it is sham and nominal or fictitious, the transaction is void ab initio. But it is for the Court to decide whether it is a sham and nominal transaction or whether it is a fraudulent transfer.

7. Under these circumstances, I see no merit in the contention raised by the learned Counsel. No point was raised in C.R.P. No. 3142 of 1973 which is against the order of the District Court dismissing the application for receiving certain documents as additional evidence.

8. Both the revision petitions fail and they are accordingly dismissed. However, there will be no order as to costs. But the Official Receiver can take the cost from the estate. Counsel's fee Rs. 100.


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