Dismissed

Gudlur Alivelumanga v. Koppuravuri Santha

Telangana HC5 Sept 2011AS/683/2003

Case brief

AI extract

What is this about?

Appellants, defendants in a specific performance suit involving property where the second defendant was later adjudicated insolvent, challenged the lower court decree. The High Court dismissed the appeal, holding that the suit was instituted before the adjudication order and the sale occurred before the notice of insolvency petition to the bona fide plaintiffs.

What did the court decide?

Appeal dismissed; parties to bear own costs.

Gudlur Alivelumanga Vs Koppuravuri Santha — Company and Corporate | Telangana HC (2011)

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IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH AT HYDERABAD

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Monday, September 05, 2011.

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Present:

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The Hon’ble Sri Justice B. Chandra

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Kumar

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A.S. No. 683 of 2003

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Between:

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Gudlur Alivelumanga and another

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..Appellants

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and

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Koppuravuri Santha and others

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…Respondents

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The Hon’ble Sri Justice B. Chandra Kumar

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A.S. No. 683 of 2003

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J u d g m e n t:

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This appeal is directed against the judgment and decree dated: 30—01—2003 in O.S.No. 204 of 1996 passed by the learned Additional Senior Civil Judge, Ongole. The appellants herein are the defendants in the main suit. Respondent Nos. 1 and 2 herein are the plaintiffs and the third respondent is the Official Receiver. The parties herein would be referred to as they are arrayed before the trial court.

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2. (i) The case of the plaintiffs is that they have entered into an agreement of sale dated:17-11-1995 with the defendants to purchase the suit schedule property for a total sale consideration of Rs.4,60,000-00. The first defendant is the wife of the second defendant. She is the owner of half of the suit schedule property under Ex A-6 and second defendant is the owner of the remaining half under Ex A-7. The plaintiffs have paid Rs.45,000-00 on 15-111995 and Rs.30,000-00 each under two separate demand drafts on 16-11-1995 to the first defendant and similarly they have also paid a sum of Rs.45,000-00 on 15-11-1995 and Rs.40,000-00 each under two separate demand drafts on 16.11.1995 to the second defendant. Subsequently the plaintiffs have also paid Rs.80,000-00 each to defendants No.1 and 2 – thus in all the plaintiffs have paid Rs.4,00,000-00 to the defendants out of the total sale consideration of Rs.4.60 Lakhs, agreeing to pay the balance sale consideration of Rs.60,000-00 on or before 17—3—1997. It is the further case of the plaintiffs that they were always ready and willing to perform their part of contract and were making demands personally and also through their General Power of Attorney agent; but the defendant Nos.1 and 2

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were evading to perform their part of contract.

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ii) It is the further case of the plaintiffs that subsequently the second defendant filed I.P.No. 27 of 1996 and the third defendant was appointed as Official Receiver in the said proceedings. Therefore, the plaintiffs were constrained to file this suit seeking a direction to defendant Nos.1 and 2 to receive the balance sale consideration; execute a regular sale deed and deliver possession of the suit schedule property.

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3. The first defendant filed her written statement contending that she purchased a piece of land of 24 gadis (one gadi = 74 square feet); subsequently constructed a two storied building; she never executed any agreement of sale along with her husband agreeing to sell the property for Rs.4,60,000-00 and she also denied that they have received an amount of Rs.4.00 Lakhs Thus her specific case is that the agreement of sale alleged to have been executed by her is a rank forgery.

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4. The second respondent also filed a separate written statement contending inter alia that Northern side part of the suit schedule property fell to his share and the Southern portion fell to the share of his wife, the first defendant. It is also his case that since he was indebted to several persons, he had borrowed a sum of Rs.3.00 Lakhs from Koppuravuri Venkteswralu i.e., the General Power of Attorney of the Plaintiffs and offered to sell the property and they entered into an agreement of sale on 17.11.1995 for Rs.3.000 with Koppuravuri Venkateswralu having received Rs.2.4 Lakhs as an advance and also purchased some demand drafts in the name of his wife and deposited the original sale deed of the property with the said Venkateswralu. It is also his case that he sustained heavy loss in the business and therefore, he was constrained to file I.P.No. 27 of 1996

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to declare him as an insolvent. Thus the second defendant also denied the execution of agreement of sale in favour of the plaintiff and alleged that it is a rank forgery.

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5. On the basis of the above pleadings, the trial court settled the following issues for trial:

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i) Whether the plaintiff is entitled to a decree for specific performance of suit contract dated:17.11.1995 as prayed for?

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ii) Whether the suits contract of sale is true and valid and binding on the defendants?

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iii) To what relief?

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5. On behalf of the plaintiffs, their General Power of Attorney holder was examined as PW-1; the first plaintiff was examined as PW-2, apart from examining PWs 3 to 6 and Ex A-1 to Ex A-7 were marked. On behalf of the defendants, the first defendant was examined as DW-1 and DWs 2 to 5 were examined and Exs B-1 to B-4 were marked. Apart from that Exs X-1 to X-11 and Ex G-1 was also marked.

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6. On appreciation of the oral and documentary evidence, the lower court came to the conclusion that the plaintiffs have proved the execution of Ex A-2 agreement of sale by the defendants; they are entitled to the relief of specific performance of the contract and accordingly decreed the suit. Challenging the same, the present appeal has been filed by the defendants.

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7. Sri Ravi Shankar Jandhyala learned counsel appearing for the appellants submitted that the second defendant has already been declared as insolvent and in view of the same the lower court ought not to have decreed the suit. It is also his submission that the lower court failed to appreciate the evidence in proper perspective and the

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evidence of Expert is also not properly appreciated. Relying on the judgment of this court in K. Namaiah v. G. Narasimhaia h^[1] it is submitted that the plaintiffs are not secured creditors and therefore the decree obtained by them does not acquire any precedence over the claim of the creditors listed in the insolvency proceedings. It is his further submission that only bona fide purchaser may claim benefit under section 55 of the Provincial Insolvency Act, 1920 (for short ‘the Act”) and the plaintiffs do not come within the meaning of bona fide purchaser. His main submission is that one Uma Maheshwara Rao, respondent No. 12 in the insolvency proceedings had brought it to the notice of the court conducting the insolvency proceedings that he had filed O.S.No. 242 of 1997 and the property was already attached in the said suit and once the property has been attached, the sale of that property is prohibited under section 64 C.P.C. It is also his submission that insolvency petition was filed on 6.7.1996 and the present suit has been filed after institution of the insolvency proceedings on 18.11.1996 and that the second defendant was adjudicated as an insolvent on 14.2.2000. Therefore the judgment of the Hon’ble Supreme Court in Sankar Ram v. Kasi Kaicker^[2] is not applicable to the facts of the present case. It is also submitted by the learned counsel that though the Official Receiver was made as a party, as he did not contest the matter, the action of the Official Receiver is detrimental to the interest of the creditors.

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8. Sri M.V.Suresh Kumar, learned counsel appearing for the respondents submitted that the agreement of sale was executed on 17.11.1995; no proceedings were pending as on that day; the insolvency petition was filed on 6.7.1996; the plaintiffs were not made as parties to the said proceedings; the entire suit schedule property was not shown in the insolvency proceedings; and as the

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plaintiffs having come to know about filing of the insolvency petition; they filed the present suit by impleading the Official Receiver as third defendant and during the pendency of the present suit, the insolvency petition was decreed and copy of the said decree is marked as Ex P-3. It is his main submission that though much has been argued about O.S.No. 242 of 1997 by other side, the defendants have never referred about O.S.No.242 of 1997 at any time and now a new plea has been taken at this stage stating that the property was attached in the said suit and having not pleaded this fact before the lower court, now they cannot agitate this issue before this court at this stage. His main submission is that the pleadings are the basis of litigation and without making a specific plea in the pleadings, no evidence can be adduced nor any plea raised at a subsequent stage can be entertained. It is also his submission that admittedly the suit – O.S.No.242 of 1997 was filed in the year 1997 i.e., much after the defendants entering into the agreement of sale and after filing of the suit by the present plaintiffs even if any attachment order is there in that suit, that will not come to the rescue of the defendants and S. 64 of the CPC will not apply to the facts of the present case and the argument advanced by the other side is absurd on this point. It is also his submission that the lower court has also discussed the issue in its judgment.

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9. Relying on the judgment of the Hon’ble Supreme Court in Sankar Ram case (2 supra) it is submitted that the bar provided under section 28 (2) of the Act will not apply to a suit which has been instituted prior to the date of adjudication. 10. Now the points that arise for consideration are whether the transaction would get the protection of proviso to S. 55 of the Act and also whether S. 64 CPC is applicable to the facts of the case. 11. The facts are not in dispute. Admittedly, the plaintiffs entered into agreement of sale on 17.11.1995; insolvency petition

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was filed by the second defendant on 6.7.1996; the plaintiffs are not made as parties to the said insolvency proceedings; that apart the suit schedule property i.e., the open land of the second defendant is shown as one of the items in the insolvency proceedings; but the entire property is not shown probably for the reason that the remaining half of the premises in which the house is constructed belongs to the first defendant. But whatever it may be, the fact that the agreement of sale is much prior to the date of filing of the insolvency petition is not in dispute. Admittedly the plaintiffs have filed the suit on 17.11.1995 and insolvency petition was ordered on 14.2.2000. It is also not in dispute the defendants in suit have not whispered about O.S.No. 242 of 1997 and have not taken any specific plea about the same and therefore, they cannot seek protection on the plea that the property was attached in O.S.No.242 of 1997. Moreover, as contended by Sri M.V. Suresh Kumar, it is crystal clear that the said suit was filed in the year 1997. Though the date of attachment is not available, it is clear that the attachment was made after filing of the suit in the year 1997. Admittedly, the present suit is of the year 1996 and the insolvency proceedings were also initiated in the year 1996, of course, some time prior to the filing of the suit. But it is clear that the defendants cannot take shelter under the said attachment, since it is of the year 1997. 12. Now coming to the aspect of protection under section 55 of the Act, it is clearly stated that Sections 28 and 55 of the Act have to be read together.

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Section 28 reads as follows:

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28. Effect of an order of adjudication.-

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(1) On the making of an order of adjudication, the insolvent shall aid to the utmost of his power in the realisation of his property and the distribution of the proceeds among his creditors.

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(2) On the making of an order of adjudication, the whole of the property of the insolvent shall vest in the Court or in a receiver as hereinafter provided, and shall become divisible among the creditors, and thereafter, except as provided by this Act, no creditor to whom the insolvent is indebted in respect of any debt provable under this Act shall during the pendency of the insolvency proceedings have any remedy against the property of the insolvent in respect of the debt, or commence any suit or other legal proceeding, except with the leave of the Court and on such terms as the Court may impose.

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(3) For the purposes of sub- section (2), all goods being at the date of the presentation of the petition on which the order is made, in the possession, order or disposition of the insolvent in his trade or business, by the consent and permission of the true owner, under such circumstances that he is the reputed owner thereof, shall be deemed to be the property of the insolvent.

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(4) All property which is acquired by or devolves on the insolvent after the date of an order of adjudication and before his discharge shall forthwith vest in the Court or receiver, and the provisions of sub- section (2) shall apply in respect thereof.

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(5) The property of the insolvent for the purposes of this section shall not include any property (not being books of account) which is exempted by the Code of Civil Procedure, 1908 (5 of 1908 ), or by any other enactment for the time being in force from liability to attachment and sale in execution of a decree.

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(6) Nothing in this section shall affect the power of any secured creditor to realise or otherwise deal with his security, in the same manner as he would have been entitled to realise or deal with it if this section had not been passed.

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(7) An order of adjudication shall relate back to, and take effect from, the date of the presentation of the petition

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on which it is made.

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Section 55 reads as follows:

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55. Protection of bona fide transactions.- Subject to the foregoing provisions of this Act 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--

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(a) any payment by the insolvent to any of his creditors;

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(b) any payment or delivery to the insolvent;

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(c) any transfer by the insolvent for valuable consideration; or

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(d) any contract or dealing by or with the insolvent for valuable consideration:

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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.

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13. A reading of the words used in Sub sections (1) and (2) of Section 28 makes it clear that only on making an order of adjudication, the property vests in the court or in the Receiver and shall become divisible among the creditors. Subsequently the words used “thereafter” also makes it clear that no creditor to whom the petitioner is indebted in respect of any debt provable under the Act shall during the pendency of the insolvency proceedings have any

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remedy against the property of the insolvency in respect of the debt or commence any suit or other legal proceedings, except with the leave of the court on such terms as the court may impose.

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14. A reading of section 55 also makes it clear that the transactions made before the date of adjudication and even if made subsequent to the date of adjudication but without the notice of presentation of any insolvency proceedings are saved. Therefore even any transfer has been made by the petitioner after presentation of the insolvency petition, the transfer cannot be said to be void ab initio; but its validity or otherwise depends upon the consideration of the question whether the conditions specified in S. 55 of the Act are satisfied or not.

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15. Admittedly the agreement of sale was entered into between the parties on 17.11.1995 and the Insolvency petition was filed on 6.7.1996 i.e., much after the date of execution of the agreement of sale. Therefore, protection under section 64 (2) CPC is available to the plaintiffs.

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16. In Padala Bulli Bhami Reddy v. Sura Nagabhushan Ra o^[3] this court considered the legal position and while referring to subsection (6) of Section 28 it is categorically observed “what is barred is the institution of a suit or other legal proceedings after making an order of adjudication except with the leave of the court, but there is no provision under the Act, which bars an already instituted suit or other legal proceedings.” So it is not in dispute that the second defendant was adjudicated as an insolvent on 14.2.2000 and the present suit has been instituted on 18.11.1996. Therefore when the suit has been instituted long before the date of adjudication, the bar has no application to the present suit.

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17. The Hon’ble Supreme Court in Sankar Ram’s case (2 supra) after referring to S. 28 (2) and S. 55 of the Act held:

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“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 the 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.”

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18. I have also considered the entire evidence on record and the relevant contentions. Though it is argued that the lower court failed to consider the expert evidence (Ex B-4), but, in view of the fact that there is no specific denial about receiving of the demand drafts or encashing of the demand drafts by the defendants, it is clear that having received the entire sale consideration through demand drafts dated:15.11.1995 and 16.11.1995 and having executed the agreement of sale dated: 17-11-1995 now the defendants wants to take shelter on the proceedings subsequently instituted by the second defendant and therefore they cannot take advantage of these proceedings.

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19. In view of the facts and circumstances discussed above, there are no merits in the appeal and the appeal is accordingly dismissed. The parties are directed to bear their own costs.

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________________________

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B. CHANDRA KUMAR, J.

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*September 5, 2011. BVS

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[1] 2005 (2) ALT 574

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[2] AIR 2003 SC 4156

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[3] 2006 (4) ALD 30

Gudlur Alivelumanga v. Koppuravuri Santha

Case brief

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Gudlur Alivelumanga v. Koppuravuri Santha

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