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SATYANARAYANA MURTHY CIVIL MISCELLANEOUS SECOND APPEAL No. 50 of 2006 JUDGMENT: This civil miscellaneous second appeal is preferred challenging the judgment in A.S.No.59 of 2005 dated 07.07.2006 passed by the I Additional District Judge, Anantapur, reversing the findings of the Additional Senior Civil Judge, Anantapur in I.P.No.26 of 2002 dated 21.04.2005. The petitioners-creditors filed I.P.No.26 of 2002 under Section 9 of the Provincial Insolvency Act, 1920 (for short, “the Act”) to adjudge the 1st respondent therein as insolvent and to appoint official receiver to administer her assets alleging that the 1st respondent borrowed an amount of Rs.70,000/- from the 1st petitioner on 20.05.2000, Rs.85,000/- from the 2nd petitioner on 12.10.2000 and Rs.58,000/- from the 3rd petitioner on 16.02.2001 by executing promissory notes and agreed to repay the same together with interest @ 24%, 18% and 24% per annum, respectively. Despite demands made by the petitioners, the 1st respondent did not discharge the debt due. While the matter stood thus, the 1st respondent with a view to delay and defeat the claims of the petitioners executed a registered sale deed conveying ‘A’ schedule property for nominal price of Rs.85,000/- to the 2nd respondent therein on 11.03.2002, though, the market value of the property is more than Rs.1,50,000/- by then and she has no absolute necessity to alienate the property to the 2nd respondent. Apart from ‘A’ schedule property, the 1st respondent owned land worth Rs.30,000/- at Tagguparthy village. Thus, the 1st respondent alienated the substantial part of the property with an intention to defeat and delay the legitimate claims of the petitioners-creditors and it is an act of insolvency, whereby the sale deed executed by the 1st respondent in favour of the 2nd respondent is to be annulled and prayed to adjudge the 1st respondent as insolvent. The 1st respondent remained ex-parte. The 2nd respondent filed counter denying the material allegations of the petition inter alia contending that she is not aware about the debts pleaded in the petition while contending that the 1st respondent has no necessity to borrow any amount, as she is residing along with her son, and she is in affluent circumstances. She also denied alienation of ‘A’ schedule property with an intention to defeat and delay the claims of the petitioners-creditors. She specifically contended that she is a bona fide purchaser for valuable consideration and purchased the property as per the prevailing market value. Therefore, the transaction is genuine and such alienation does not amount to an act of insolvency and prayed for dismissal of the petition. During the course of enquiry, on behalf of the petitioners PWs.1 to 7 were examined and got marked Exs.A1 to A5 and on behalf of the respondents RW.1 – B.Subbamma was examined and got marked Exs.B1 to B9. Upon hearing the argument of both the counsel and considering the oral and documentary evidence, the trial Court dismissed the petition having concluded that the petition is a collusive one and that the 1st respondent possessed sufficient means to discharge the debt. Aggrieved by the said order, the unsuccessful petitioners preferred appeal before the appellate Court in A.S.No.59 of 2005, wherein the appellate Court set aside the order of the trial Court holding that the 1st respondent committed an act of insolvency and adjudged her as insolvent while ordering vesting of the schedule property to the official receiver. Challenging the order passed in the appeal, the present appeal is filed on various grounds and as seen from the grounds urged in the memorandum of grounds of appeal, most of them are based on factual aspect, but, however, this Court having considered the submissions made by the Advocate came to the conclusion that ground Nos.2, 3 and 4 relate to substantial questions of law. During the hearing, the learned counsel for the appellants contended that the reversal of finding by the appellate Court ignoring the evidence itself is sufficient to conclude that there is a substantial question of law and placed reliance on a judgment of the Apex Court in Abdul Raheem vs. Karnataka Electricity Board and others. The main endeavour of the counsel for the appellants is that the appellate Court totally ignoring the findings of the trial Court, without assigning any reasons, reversed the findings and such a reversal is sufficient to frame a substantial question of law and that too there is clinching evidence on record that the present petition is the outcome of collusion between the petitioners and the 1st respondent, but without assigning any reasons the appellate Court set aside the order and finally prayed to set aside the order passed by the appellate Court in A.S.No.59 of 2005 dated 07.07.2005, dismissing the petition, while confirming the order passed by the trial Court. Per contra, the counsel for the respondents would contend that the evidential admissions in the evidence of PW.1 with regard to the details of property and means to pay the consideration etc., are sufficient to conclude that the transaction covered by Ex.B3 is a collusive document executed by the 1st respondent in favour of the 2nd respondent with a view to delay and defeat the claims of the petitionerscreditors and prayed to dismiss the appeal. From a perusal of the order passed by the trial Court in I.P.No.26 of 2002, it is evident that the petition was dismissed on two grounds. The first ground is that the 1st respondent possessed sufficient means to discharge the debts and it is a ground to dismiss the petition under Section 25 of the Act. The second ground is that the petition is a collusive one between the petitioners and the 1st respondent. The appellate Court, after re-appraising entire evidence more particularly based on the evidence of the 2nd respondent, concluded that Ex.B3 was executed only to defeat and delay the claims of the petitioners-creditors. POINTS: The first question is whether possessing means by the 1st respondent to discharge the debt due to the petitioners-creditors is sufficient to dismiss the petition when the 1st respondent-debtor did not contest the petition. The second question is whether the finding of the appellate Court with regard to genuineness of Ex.B3 is based on any evidence, if not, the judgment of the appellate Court be sustained. POINT No.1: One of the grounds for dismissal of the petition by the appellate Court is possessing means by the 1st respondent to discharge the debt due to the petitioners-creditors. Section 25 of the Act, enables the Court to dismiss the petition in three circumstances: In the case of a petition presented by a creditor, where the Court is not satisfied with the proof of his right to present the petition; or Nonservice of notice on the debtor about admitting the petition; and Where the Court is satisfied that the debtor is able to pay his debts, or that for any other sufficient cause. It is not the case of the 2nd respondent that no notice was served on the debtor about admitting the petition or the petitioners-creditors failed to prove their right to present the petition. But, the trial Court based on the evidential admissions on record, concluded that the 1st respondent-debtor possessed sufficient means to pay the debts due to the petitioners-creditors and dismissed the petition on this ground alone. The 1st respondent-debtor remained ex-parte. The alinee alone contested the matter by filing counter. There is a pleading that the 1st respondent-debtor owned and possessed some property and able to discharge the debt, but such a plea is not open to the 2nd respondent-alinee when the 1st respondent-debtor is not contesting. The similar question came up before this Court and this Court relying on a judgment reported in Vemulla Rosaiah and another vs. P. Subramanyam and another placing reliance on Harnam Singh vs. Gopal Das held that, the ground that the debtors is to pay the debts is not open to the debtor’s transferee, but only to the debtor. Likewise, in Gadi Bhikaji vs. Govindrao Bapuji the same issue had came up before the Nagpur Court and held that the petition cannot be dismissed when the debtor did not contest the matter, under Section 25 of the Act. In the first judgment of the our High Court, the 1st respondent-debtor remained ex-parte, the transferee-2nd respondent contested the matter and raised a ground that the debtor is able to discharge the debt due to the petitioners-creditors, but this Court declined to set aside the order holding that it is not open to the debtor’s transferee to raise such a plea. Therefore, on this ground the dismissal order of the trial Court is to be reversed. Under Section 25 of the Act, the Court can dismiss a petition for any other sufficient reasons. What is “sufficient reason” is not explained under Section 25 of the Act, but in Y. Malludore vs. P. Seetharathnam similar question came up for consideration and the Supreme Court ruled as follows: “In addition, the Court has been given a discretion to dismiss the petition if it is satisfied that there is other sufficient cause for not making the order against the debtor. The last clause of the section need not necessarily be read ejusdem generis with the previous ones, but even so there can be no sufficient cause if after an act of insolvency is established, the debtor is unable to pay his debts. The discretion to dismiss the petition can only be exercised under very different circumstances. What those cases would be, it is neither easy nor necessary to specify, but examples of sufficient cause are to be found when the petition is malicious and has been made for some collateral or inequitable purpose such as putting pressure upon the debtor or for extorting money from him, or where the petitioning creditor having refused tender of money, fraudulently and maliciously filed the application. An order is sometimes not made when by the receiving order the only asset of the debtor would be destroyed such as a life interest, which would cease on his bankruptcy. Cases have also occurred where a receiving order was not made because there were no assets and it would have been a waste of time and money to make a receiving order against the debtor. These examples merely illustrate the grounds on which orders are generally made in the exercise of the discretion conferred by the last clause of Section 25.” The trial Court did not
