Heard both sides.
2.This is an application under Sections 7, 55, 59, 69(1) of the Presidency Towns Insolvency Act (for short PTI Act) taken out by a Judges Summons by the Official Assignee (for short OA). The application is filed for the reliefs as set out above. 3.Notice was ordered to the respondents on 4.8.2008. On notice being served the application is resisted by the respondents 4 and 5. They have filed a counter affidavit, dated 3.4.2009 together with a typed set of documents. The other respondents though were served as they have no more stakes in the schedule mentioned property, have neither appeared nor filed any objection.
4.The facts leading to the filing of the application are not in controversy. The schedule mentioned property is a house, ground in premises bearing Door No.2, (plot No.22), Cross Street, Dhandayuthapani Nagar, Kotturpuram, Chennai-85. The first respondent who was the owner of the property was adjudicated as an insolvent in I.P.No.14 of 2007 by an order, dated 25.6.2007. This insolvency petition was brought to this court by his creditors. 5.The said I.P. was signed by the creditors on 31.3.2006 and presented to this court on 9.4.2006. Even before the presentation of this petition, there has been correspondent between the petitioning creditor and the debtor/R1 from 25.10.2004 till 22.7.2005 as evidenced by Exhibits P.4 to P.11 filed in the I.P. 6.It was at that juncture, R1 executed a power of Attorney in favour of R2 and registered it as a document No.208/2006 dt.25.1.2006. Though the property was at Kottur (South Madras), the document was registered in the office of the SRO at Ambattur. Within 7 days after the power was given to R2, he sold one portion of the property to R3 by a Sale deed, dated 1.2.2006 registered with SRO, Adyar. The sale consideration as per the sale deed was Rs.45 lakhs. The other portion of the same property was sold to R3 by R2 by another sale deed dt. 31.5.2006 for a sale consideration of Rs.70 lakhs (Total value Rs.1.15 crores). 7.It is seen from the records that the third respondent within 28 days of his purchasing the property sold it to R4 and R5 for a sale consideration of Rs.1.75 crores by a sale deed, dated 28.6.2006.
8.The first respondent was served with a notice by this court on 25.3.2007. A notice was served on the third respondent on 22.2.2007. The respondents 1 and 3 were set ex- parte on 26.3.2006 and finally, the first respondent was adjudicated as an insolvent by an order dated 25.6.2007. The said adjudication was also published in the news paper dt. 21.12.2007. 9.At the time when the first respondent/insolvent received the notice, he was still residing in the very same property as evidenced from ex.P.13 (proof of service) filed by the creditor. Since the properties were sold on 1.2.2006 and 31.5.2006 by R1 and further sale was effected on 28.6.2006 and since all the transactions were made within 2 years prior to the date of adjudication, the present application is filed by the OA contended that the sale was void as against OA. It was alleged that there can be no appreciation of value of the property within 28 days and there was a difference of Rs.60 lakhs. It was stated that the property was grossly undervalued during the first sale. 10.The OA placed reliance on Section 55 of the PTI Act, which reads as follows:
"55.Avoidance of voluntary transfer:- Any transfer of property, not being a transfer made before and in consideration of marriage, or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, shall, if the transferor is adjudged insolvent within two years after the date of the transfer, be void against the official assignee." 11.In the light of the above legal provision and characterizing the sale as not bona fide, the sale effected was sought to be set aside.
12.It has been held by this Court in Official Receiver, Madurai Vs. Dindigul Co-operative Land Mortgage Bank Ltd. through its Secretary reported in 1974(2) MLJ (NRC) 9 as follows:-
"Once an adjudication is made and that dates back to the date of presentation of the insolvency petition it naturally follows that the vesting of the property in the Official Receiver or the Court, as the case may be, also dates back to the date of presentation of the petition. Once the property is deemed to have vested in the Official Receiver, a sale without notice to him would be one without jurisdiction as far as he is concerned. The Official Receiver steps into the shoes of the judgment-debtor, once the property vests in him. When the Official Receiver is in the position of the judgment-debtor a sale without notice to him is certainly invalid as far as he is concerned."
13.However, Mr.S.Balasubramanian placed reliance upon Section 57 of the PTI Act and contended that in case of bona fide transaction protection is given to such transfer. Section 57 of the PTI Act reads as follows:
"57.Protection of bona fide transaction- Subject to the foregoing provisions with respect to the effect of insolvency on an execution and with respect to the avoidance of certain transfers and preferences, nothing in this Act shall invalidate in the case of an insolvency,- (a)any payment by the insolvent to any of his creditors;
(b)any payment or delivery to the insolvent;
(c)any transfer by the insolvent for valuable consideration; or
(d)any contract or dealing by or with the insolvent for valuable consideration:
Provided that any such transaction takes place before the date of the order of adjudication and that the person with whom such transaction takes place has not at the time, notice of the presentation of any insolvency petition by or against the debtor." 14.The learned counsel placed reliance upon the decision of the Supreme Court reported in AIR 1958 SC 1 (N.Subramania Iyer Vs. Official Receiver, Quilon) to contend that since the purchase was before the adjudication, the OA will have to provide proof for contending that it was not a bona fide transaction to remove the protection given under proviso to Section 57. He placed reliance on the passage found in para 4 of the judgment, which reads as follows: "... if the transaction impeached was a real and not a fictitious one, the receiver could not be said to have brought the case within the section unless he proved that the transferee knew that the transferor was insolvent at the time the transfer was made, even though the transfer was of the entire assets of the transferor. These three decisions of the Judicial Committed settled the law in this country contrary to what had been the concensus of judicial opinion previously, that the initial burden of proving that the transaction impeached had not been made in good faith and for valuable consideration lies on the party seeking to set aside the transaction. The learned counsel for the respondent was not able to adduce any reasons to the contrary and it must therefore be taken that it is settled law in insolvency proceedings that the burden of proof lies on the Official Assignee or Receiver who challenges the transaction." 15.The learned counsel also brought to the notice of this Court a decision of the division bench relating to A.Paranjothi Vs. Official Assignee, High Court, Madras and another reported in 1989 (2) LW 312 to contend that the onus of proof in proving the transfer was not bonafide fell on the OA and it is not enough if mere suspicious circumstances. The following passage found in para 10 may be usefully quoted below: "10. ... In this connection, it will be apt to quote the following statement of law, occurring at page 523 of Mulla's the Law of Insolvency in India" Third edition, 1977.
"615:Onus of proving good faith and consideration: It was held in a number of cases that the burden of proving consideration and good faith lies on the purchaser or incumbrancer but these cases are no longer good law in view of the Privy Council decision where it was held that the burden lies on the Official Assignee or Receiver to prove that there was neither good faith nor consideration. But where detailed allegations are made in the plaint and some of these are admitted, the onus may be shifted. But where, notwithstanding the pleadings, the Receiver at the trial confines his case to the fraudulent preference, he cannot be allowed in appeal to adduce evidence as to the inadequacy of the price. It will not be sufficient for the receiver, in discharging the onus laid on him, merely to point to suspicious circumstances; he must satisfactory establish the facts he alleges." What has to be proved is not the absence of good faith on the part of the insolvent transferor, but the absence of good faith on the part of the transferee. ..."
16.However, both sides never brought to the notice of this court an authoritative pronouncement of the Supreme Court on a similar question which arose under Sections 28 and 55 of the Provincial Insolvency Act, 1920. Those provisions are analogous to Sections 5 and 57 of the PTI Act, 1909. The said decision relating to Sankar Ram & Co. Vs. Kasi Naicker and others reported in 2003 (11) SCC 699. For a complete answer to the questions raised here, the following passages found in paras 6 to 9 may be usefully extracted below: "6.The object of Section 28 of the Act is to secure unrestricted right to dispose of the insolvent's property after an order of adjudication is made. This section clearly states that during the pendency of the insolvency proceedings, the creditor shall not commence any proceeding against the property of the insolvent in respect of his debt without the leave of the Insolvency Court. On making an order of adjudication, the whole of the property of the insolvent shall vest in the court or in a Receiver, as the case may be, in terms of sub-section (2). An obligation is placed upon the insolvent to assist the Official Receiver to realise the assets. When sub-section (1) is read along with sub-section (7), the effect would be an order of adjudication which relates back to the date of presentation of insolvency petition and the order of adjudication takes effect from the date of the presentation of the insolvency petition. Consequently, vesting of property under sub-section (2) also relates back to the date of presentation of the insolvency petition. Combined reading of sub-sections (1),(2) and (7) makes the position clear that the interest of the creditors is safeguarded, parties are put on notice against attempt to transfer the property after the date of presentation of the insolvency petition by the petitioners or others relating to his property and also to warn the intending purchasers or transferees that they are taking the risk of purchasing or getting the property transferred in their names during the pendency of the insolvency proceedings from the date of presentation of the petition itself and even before passing of an order of adjudication. Sections 28 and 55 of the Act are to be read together. Where the transfer has been made by the insolvent after presentation of the insolvency petition, the transfer cannot be held as void ab initio but its validity or otherwise depends upon a consideration of the question whether the conditions specified in Section 55 are or are not satisfied. If the view of the High Court affirming the view of the District Court that the protection of Section 55 was not available to the appellant even on satisfying the requirements of Section 55, the said provision, although is on the statute-book, does not serve any purpose or it is redundant or superfluous. ....
Once the requirements of Section 55 of the Act are satisfied, the appellant is entitled to the protection of the said section as a bona fide transferee. Taking a contrary view takes away the very protective umbrella specifically made available to a bona fide transferee covered by Section 55. Protection provided for bona fide transfer in Section 55 is in a way an exception to Section 28(7). 8.Proviso to Section 55 of the Act protects bona fide transactions mentioned in clauses (a) to (d) of Section 55. As per the proviso, in order to give protection to transactions mentioned in the said section, two conditions are to be satisfied: (1)that any such transaction takes place before the date of the order of adjudication, and (2) that the person with whom such transaction takes place has not at the time notice of the presentation of any insolvency petition by or against the debtor. By implication flowing from the said proviso, any transaction that takes place after the dat of the order of adjudication does not get protection of the proviso to Section 55 whether or not the person with whom such transaction takes place has any notice of the insolvency petition by or against the debtor. 9.In the case on hand on the facts found, it is clear that the shares were transferred in favour of the appellant before the date of the order of adjudication was made on the insolvency petition filed by Kasi Naicker and the appellant had no knowledge at the time of purchasing the shares as to the presentation of the insolvency petition, the transfer of shares was for valuable consideration and such transfer was bona fide. In this view, the appellants did satisfy the requirements of the proviso to Section 55 of the Act and hence they are entitled to the claim made by them. We may add that Sections 28 and 55 must be read together harmoniously. As already noticed above, these sections are designed and intended to serve different purposes. In the proviso to Section 55 itself, there is reference to the order of adjudication and the presentation of any insolvency petition. Order of adjudication and presentation of insolvency petition are two different events essentially referring to two different dates. When in the same proviso, the legislature consciously made a clear statement as to two different dates, they should be given effect to. If the intention of the proviso to Section 55 of the Act was not to protect even a bona fide transferee for valuable consideration without notice of presentation of insolvency petition before an order of adjudication was made, the legislature could have simply said - any transaction taking place after the date of presentation of any insolvency petition by or against the debtor instead of qualifying the transaction that takes place before the date of the order of adjudication. In this situation, the said proviso which is intended to serve a definite purpose should be given full meaning and effect. It is not possible to ignore a part of the provision, namely, "any such transaction takes place before the date of the order of adjudication". It stands to reason as well, that a bona fide transferee for valuable consideration without the knowledge of the presentation of insolvency petition on the date of transfer of property is to be protected." 17.Therefore, if the factual matrix present in this case is seen in the context of Sankar Ram & Co.'s case (cited Supra), it will be seen that both transactions though took place within two years prior to adjudication so as to be covered by Section 55 of the PTI Act, since both transfers had taken place after the insolvency notice, but before the adjudication, the protection under Section 57 of the PTI Act is available to the 4th and 5th respondents. 18.In the application filed by OA only two factors were pointed out for setting aside the sale. The first one was that both sales have taken place within two years prior to adjudication. But Section 55 cannot be read in isolation. As pointed out by the Supreme Court in Shankar Ram & Co.'s case (cited Supra) both sections 55 and 57 of the PTI Act have to be read together for a purposive construction. If read in that light, the first objection must fail. 19.The second objection related to the huge difference in sale consideration to the extent of 60 lakhs so as to throw suspicion. But as pointed out by the Division Bench judgment of this court, which quoted Mulla's Law of Insolvency in India with its approval, inadequacy of price or suspicious circumstances without anything more is not enough to set aside a sale. This is especially in the context that the Supreme Court in Shankar Ram & Co.'s case (cited supra) has held the sale before adjudication is not void but voidable. Further, the division bench has held that the absence of proof of good faith is not to be found on the insolvent, but on the transferee. No such averments have been made against R4 and R5 or found in the application. Hence it is not a fit case where the matter should be sent for recording evidence on this issue in the absence of pleadings. 20.In the light of the above factual backdrop and the legal precedents, the application filed by the OA must fail and the application stands dismissed. Parties are to bear their own costs.
