The revision petitioner, who is the second respondent in I.P.No.26 of 2001 has in this civil revision petition impugned the fair and decreetal orders, dated 26.04.2004, made in C.M.A.No.3 of 2004, on the file of the District Court, Karur, reversing the fair and decreetal orders, dated 09.09.2003, made in I.P.No.26 of 2001, on the file of the Sub Court, Karur.
2. The said I.P.No.26 of 2001 has been laid by the respondents 1 and 2 , under
Section 9 of the Provincial Insolvency Act, 1920 (hereinafter, referred to as ?the Act?).
3. The case of the respondents 1 and 2 is that the third respondent herein had borrowed a sum of Rs.1,00,000/- from the first respondent on 03.11.1999 and in evidence of the same he had executed a promissory note agreeing to repay the same with interest thereon and further, the third respondent herein had borrowed a sum of Rs.1,00,000/- from the second respondent on 19.01.2000 and executed a promissory note agreeing to repay the same with interest thereon and despite several requests and demands, the third respondent had not cared to repay any amount either towards principal or interest and while so, without taking any steps to discharge the above mentioned debts, the third respondent, who is the absolute and exclusive owner of the B-Schedule property detailed in the petition with an intention to defeat and defraud the respondents 1 and 2 and the other creditors and it is stated that to the best knowledge of the respondents 1 and 2, there are several creditors to the third respondent, schemingly had sold the B-Schedule property under a registered Sale Deed, dated 25.05.2001, in favour of the revision petitioner and the said sale deed is only a make believe document and sham and nominal with an intention to defeat the creditors and to escape from the clutches of the creditors and the above said sale is not true and not binding on the creditors and further under the above said sale deed, the revision petitioner cannot derive any title to the B-Schedule property and as the sale deed had been undervalued, the document had not been handed over to the revision petitioner and hence, prayed for to adjudicate the third respondent as insolvent and to order the B-Schedule property be vested with the official receiver for further process.
4. The third respondent remained ex parte in the insolvency petition proceedings.
5. The revision petitioner has filed a counter contending that the respondents 1 and 2 are put to strict proof that the third respondent had borrowed amounts under the promissory notes as put forth in the insolvency petition and it is false to state that there are several creditors to the third respondent. The revision petitioner had purchased the B-Schedule property from the third respondent for a valuable consideration and he is a bona fide purchaser and he has paid sum of Rs.1,02,870/- to the Housing Society and Rs.30,000/- to the third respondent in person out of the sale price of Rs.2,00,000/- to discharge his debts and the balance amount of Rs.67,130/- is due to be paid to the Housing Society and it is false to state that the Sale Deed taken by the revision petitioner, on 25.05.2001, is created with an intention to defeat and defraud the creditors and it is false to state that under the above said Sale Deed, the title of the B-Schedule property does not vest with the revision petitioner and it is false to state that the Sale Deed had not been handed over to the revision petitioner and the same had been impounded by the Registering Authority. The revision petitioner has paid the sufficient stamp duty for the said sale deed and received the original sale deed from the Registrar Office and there is no cause of action for the respondents 1 and 2 to lay the insolvency petition and hence the same is liable to be dismissed.
6. In support of the case of the respondents 1 and 2, P.Ws.1 to 4 were examined and Exs.P1 to P4 were marked and on the side of the revision petitioner, R.Ws.1 and 2 were examined and Exs.R1 to R5 were marked.
7. On a consideration of the oral and documentary evidence adduced by the respective parties, the Trial Court was pleased to adjudicate the third respondent as insolvent asfar as the first respondent is concerned and in other respects, dismissed the petition. Impugning the same, the respondents 1 and 2 preferred the appeal in C.M.A.No.3 of 2003. The Appellate Court, on a reappraisal of the materials placed by the respective parties, allowed the appeal, in other words, allowed the insolvency petition in toto as prayed for by the respondents 1 and 2. Challenging the same, the present civil revision petition has been preferred.
8. The insolvency petition has been preferred by the respondents 1 and 2 against the third respondent and the revision petitioner to adjudicate the third respondent as insolvent and also for vesting of the B-Schedule property with the official receiver for further necessary action. According to the respondents 1 and 2, the third respondent had availed loans from them under the promissory notes and had not cared to repay the same despite several requests and demands and the third respondent is also indebted to various persons, like, the respondents 1 and 2 and while so, the third respondent, who was owning the B-Schedule property, with an an intention to defeat and defraud the creditors, like, the respondents 1 and 2, had alienated the said property in favour of the revision petitioner on 25.05.2001 and hence, according to them, the above said sale deed is not true and it is a sham and nominal document created for the purpose of defeating and defrauding the creditors and by virtue of the same, the title to the B-Schedule property would not pass on the revision petitioner legally and inasmuch as the sale deed had been undervalued, the said document is also impounded and hence, prayed for the reliefs sought for.
9. Opposing the petition filed by the respondents 1 and 2, according to the revision petitioner, as regards the claim of the respondents 1 and 2 that the third respondent is indebted to them has to be established by them with strict proof and further according to them, he had purchased the B-Schedule property belonging to the third respondent for a valuable consideration and he is a bona fide purchaser of the same without notice of the debts of the third respondent and further by purchasing the property, he has undertaken to discharge the debts due to the Housing Society and already he had paid a substantial sum to the Society and also been paying the installments regularly, which is found to be paid as per the terms of the sale deed and also handed over Rs.30,000/- to the third respondent to discharge his other debts and therefore, according to the revision petitioner, inasmuch as he has purchased the property bona fidely, the said insolvency petition deserves rejection.
10. The Trial Court had allowed the insolvency petition partly i.e., adjudicated the third respondent as insolvent asfar as the first respondent is concerned and dismissed the insolvency petition in other respects. However, the Appellate Court had reversed the order of the Trial Court and allowed the insolvency petition in toto. The same is challenged in this civil revision petition.
11. As regards the order of the Trial Court declining the relief to the second respondent with reference to his prayer to declare the third respondent as insolvent, it is found that the Trial Court, on the basis that the promissory note said to have been executed by the third respondent in favour of the second respondent had become time-barred, the same having been marked as Ex.P4 and inasmuch as the second respondent had not levied any legal action on the basis of the said promissory note, had held that the second respondent is not entitled to seek the adjudication of the third respondent as insolvent. However, the Trial Court has accepted the case of the first respondent and accordingly, adjudicated the third respondent as insolvent asfar as the first respondent is concerned. In this connection, the Trial Court has placed reliance upon the debt documents produced on the side of the respondents 1 and 2 marked as Exs.P2 and P3. Therefore, it is the contention of the learned counsel for the respondents 1 and 2, when the acts of insolvency has been established even asfar as the first respondent is concerned, the same would be applicable even to the second respondent and therefore, according to them the Trial Court has erred in holding that the second respondent is not entitled to seek the adjudication of the third respondent as insolvent.
12. The above contention of the respondents 1 and 2 is found acceptance by the Appellate Court. The Appellate Court has rightly held that once the act of insolvency has been established as regards the first respondent is concerned, merely because the promissory note executed in favour of the second respondent by the third respondent has become time-barred, it cannot be held that the second respondent is not entitled to seek the adjudication of the third respondent as insolvent. As rightly determined by the Appellate Court, the third respondent has not disputed the execution of the promissory note marked as Ex.P4 in favour of the second respondent and also not disowned its liability to pay the amount under the said promissory note in favour of the second respondent. As seen above, the third respondent has remained ex parte in the insolvency proceedings and not contested the claim of the respondents 1 and 2. Such being the position, as rightly found by the Appellate Court, when the act of insolvency has been established even as regards one of the parties, the same would accrue even to the other creditor in the proceedings and considering the above facts and circumstances, it is found that the Appellate Court has rightly held that even the second respondent is entitled to seek the order of adjudication of the third respondent as insolvent and accordingly allowed the insolvency petition adjudicating the third respondent as insolvent as prayed for.
13. The case of the respondents 1 and 2 is that the third respondent is liable to pay the borrowed sums to them and further, the third respondent is also indebted to various persons and according to them, with a view to defeat their debts and the debts of the other creditors, the third respondent schemingly conveyed the B-Schedule property owned by him to the revision petitioner under a Sale Deed, dated 25.05.2001 and according to them, the above said sale transaction had been done with a view to defeat and defraud the creditors and hence, the same is not a true transaction and it is only a sham and nominal transaction and by virtue of the same, the revision petitioner could not derive any valid title in respect of the property comprised therein and further, it is also contended that the revision petitioner knowing about the debts of the third respondent to various persons with open eyes purchased the litigation i.e., B-Schedule property and also not parted with the valid consideration for the sale and therefore, it is stated that the revision petitioner is not a bona fide purchaser and hence, the B-Schedule property should be vested with the official receiver for further action.
14. However, according to the revision petitioner, he had purchased the B- Schedule property from the third respondent under Ex.R1 Sale Deed bona fidely without any knowledge about the debts and hence, his purchase should be protected under the Act and hence, the respondents 1 and 2 are not entitled to seek for any relief as regards the purchase made by him in respect of the B-Schedule property from the third respondent under Ex.R1.
15. Even as per the case of the revision petitioner as put forth in the counter, it is found that the revision petitioner is well aware of the various debts that had been incurred by the third respondent at the time of the sale deed marked as Ex.R1. Even as per the recitals contained in the sale deed, it is found that the third respondent at that point of time itself is indebted to the Housing Society to a sum of Rs.1,70,000/- and further, it is recited therein that the third respondent is indebted to others under promissory notes and hand-loan transactions amounting to Rs.30,000/-. Therefore, it is found that even on the date of Ex.R1, the revision petitioner is well aware of the various debts incurred by the third respondent and therefore, with open eyes it is found that he had ventured to purchase the B-Schedule property under Ex.R1.
16. Further, it is found that as held by the Appellate Court, even though the guideline value of the property has been stated to be Rs.2,54,000/-, as rightly held, the revision petitioner and the third respondent had ventured and completed the sale transaction under Ex.R1 only for a sum of Rs.2,00,000/-. Further, as seen from the evidence of the property broker examined as R.W.2, it is found that the market value would be normally higher than the guideline value and from his evidence and also the evidence of R.W.1 it is found that B-Schedule property is located in a prime locality and also in a developing area and therefore, it is found that the property would fetch more value than the value recited in the document as guideline value. Further, even the said transaction has not been carried out for the guideline value, on the other hand, it has been completed for a lesser value only for a sum of Rs.2,00,000/-. Even with reference to the passing of the said consideration of Rs.2,00,000/-, there is no material forthcoming. R.W.2 has deposed that he is not aware of the actual sale transaction made between the petitioner and the third respondent and he was not present at the time of execution of the sale deed and not aware of the passing of consideration under the same. Therefore, it is not clear as to whether at all the amount of Rs.2,00,000/- had been really passed on as consideration under the sale transaction Ex.R1.
17. As per the case of the revision petitioner, he had parted with a sum of Rs.30,000/- to the third respondent for paying the same to his sundry creditors. However, there is no evidence placed to show that the said amount had been actually appropriated for the sundry debts incurred by the third respondent and therefore, the same is also a suspicious circumstance to believe the case of the petitioner.
18. Even as per the case of the petitioner, he is still liable to pay huge sum to the Society and when there is no material that he had honoured his commitment by paying the remaining sum to the Society amounting to Rs.67,130/- as rightly determined by the Appellate Court, the revision petitioner had purchased only the litigation knowing fully well about the debts incurred by the third respondent from various parties. Therefore, the Appellate Court has rightly held that the case of the revision petitioner that he has purchased the B-Schedule property from the third respondent bona fidely without any knowledge about the debts incurred by the third respondent as such cannot be accepted. Further, as seen above, the petitioner has also not established that he had purchased the property for a valid consideration and also by fixing the correct value for the sale transaction. The revision petitioner has not endeavoured to sustain his case by calling upon his vendor i.e., the third respondent to tender evidence in support of his case. Further, as seen from the evidence of the revision petitioner, it is found that he had ventured to purchase the property without any proper verification of the encumbrance with reference to the same from the Registrar Office concerned and also not cared to ascertain the true value of the property. It is admitted by the revision petitioner he had not verified the records of the Registrar Office before his purchase under Ex.R1. Further, it has also been admitted by him that he has not ascertained the value of the construction on the property by obtaining any report from the Engineers. Therefore, it could be seen that in a hasty manner and without proper verification, the revision petitioner seems to have purchased the B-Schedule property from the third respondent and accordingly, it could be seen that the above facts also would only lead to the conclusion that the said transaction had been brought out in a hurried manner with a view to defeat and defraud the creditors, like, the respondents 1 and 2. This factor also would only to lead to the conclusion that the revision petitioner is not a bona fide purchaser without knowledge of the debts of the third respondent. Therefore, as seen from the discussions above made and also as rightly analyzed by the Appellate Court, it is found that considering the above facts in toto, it is found that the revision petitioner having knowledge about the various debts incurred by the third respondent even at the time of Ex.R1 transaction definitely he would be in the know of things even about the debts incurred by the third respondent from the respondents 1 and 2 also and accordingly, in such view of the matter, the case of thepetitioner that he has no knowledge about the debts incurred by the third respondent and therefore, his purchase of the B- Schedule property from the third respondent under Ex.R1 is a bona fide transaction as such cannot be countenanced. Therefore, the determination of the Appellate Court that the third respondent is not a bona fide purchaser of the B-Schedule property under Ex.R1 is upheld.
19. In the light of the above factors, inasmuch as the revision petitioner has not established his case that he is a bona fide purchaser as per law, the decisions relied upon by him reported in (2003) 3 MLJ 162 (SC) [Sankar Ram and Co. vs. Kasi Naciker and others] and 2012 (6) CTC 543 [R.Venkatesh vs. Kalliammal and others], as rightly put forth by the learned counsel for the respondents, would not be applicable to the facts and circumstance of the case at hand. Equally, it is found that the revision petitioner has not established that he is entitled to seek the benefit of
Section 55 of the Act as he has failed to establish that he is a bona fide purchaser as pleaded by him.
20. In view of the foregoing reasons, the Appellate Court has considered all the facets of the case in the right perspective both factually as well as legally and therefore, the impugned order does not call for any interference from this Court.
21. Resultantly, the fair and decreetal orders, dated 26.04.2004, made in C.M.A.No.3 of 2004, on the file of the District Court, Karur, reversing the fair and decreetal orders, dated 09.09.2003, made in I.P.No.26 of 2001, on the file of the Sub Court, Karur, are confirmed and the civil revision petition is dismissed with costs.
To:
1.The District Judge, Karur.
2.The Sub Judge, Karur.
.