Andhra Pradesh High Court - Amravati
T V V Satyanarayana, E.G.Dist Anr vs Kuchimanchi Satyanarayana Murthy, ... on 30 November, 2023
THE HON'BLE DR. JUSTICE K. MANMADHA RAO
C.M.A.No.476 OF 2016
JUDGMENT:
The appellants/ petitioners has been filed the present Civil
Miscellaneous Appeal before this Court, aggrieved by the order
dated 23.02.2016 in I.P.No.9 and 2009 on the file of Court of the III
Additional District Judge, Kakinada, (in short 'the court below')
which is filed under Section 9 of Provincial Insolvency Act seeking
to declare the 1st respondent as insolvent and to set aside the sale
deed dated 22.04.2008 in favour of the 2nd respondent as it is a
nominal and collusive transaction to defraud the creditors.
2. Heard Sri T.V.Jaggi Reddy, learned counsel for the
appellants and none appears for respondents, though notices have
been served on the respondents.
3. During hearing learned counsel for the appellant
vehemently reiterated the contentions as urged in the grounds of
appeal and mainly contended that the court below ought to have
seen that by filing a Ex.A7, the 2nd appellant proved the debt and
hence the transaction through a sale deed dated 22.04.2008 in
between 1st respondent and 2nd respondent is liable to be set aside
and before filing of the insolvency petition, the appellants got
issued legal notices to the respondents. It is further contended that
existence of debt is sufficient to invoke Section 9 of Provincial
Insolvency Act to declare the person as insolvent, consequently to
set aside the said registered sale deed as sham and nominal
document. If any other properties are available, the debtor has to
plead and prove and in the absence of the same, the court below
ought to have allow the insolvency petition. It is further contended
that the court below ought to have seen the Ex.A7 and decree in
O.S.No. 76 of 2008 filed by the 2nd appellant herein against the 1st
respondent herein and that there is collusion between the
respondents. But the court below without taking into consideration
of said aspects and simply dismissed the Insolvency Petition.
Therefore, the C.M.A is liable to be allowed.
4. Perused the record.
5. During hearing learned counsel for the appellants placed
on record the decision of the Hon'ble Apex Court in "Yenumula
Mallu Dora v. Peruri Seetharatnam and Others"1, wherein it
was held as follows:
"5. Under s. 7, a creditor is entitled to present a petition
in the Insolvency Court against a debtor if he has committed an
act of insolvency provided [as laid down in s. 9(i)(e)] the petition
(1966) AIR (SC) 918 = (1966) 2 AnWR 53
is made within three months of the act of insolvency on which
the petition is grounded. In this case both these conditions are
fulfilled. There is thus no doubt that the petitioning creditors'
application under s. 7 complied with s. 6(e) and s. 9(1)(c) of the
Provincial Insolvency Act. The petitioning creditors alleged that
the appellant was indebted to the extent of Rs. two lakhs and
this was not denied by the appellant. In the trial of one of the
execution petitions filed against him by a decree-holder the
appellant admitted that he had "no means to pay the decree
debt" because "all his properties" were "under attachment and
were being brought to sale". He also stated that he was not "in a
position to discharge the debts". It is, therefore, clear that the
appellant who was in more than embarrassed pecuniary
circumstances was unable to pay his debts. It was also clear
from the evidence, which the District Court and the Subordinate
Judge have concurrently accepted, that he had made some
transfers to screen his properties from his creditors and had
suffered a decree for maintenance in a suit by his wife. In view
of these facts, which the appellant cannot now deny, he is
driven to support his case by argument on law. The argument,
as we have seen, is two-fold. We are not inclined to accept either
leg of the argument.
6. An act of insolvency once committed cannot be
explained or purged by subsequent events. The insolvent cannot
claim to wipe it off by paying some of his creditors. This is
because the same act of insolvency is available to all his
creditors. By satisfying one of the creditors the act of insolvency
is not erased unless all creditors are satisfied because till all
creditors are paid the debtor must prove his ability to meet his
liabilities. In this case the petitioning creditors had their own
decrees. It was in the decree of another creditor that the
payment was made but only after the act of insolvency was
committed. Besides the petitioning creditors there were several
other creditors to whom the appellant owed large sum of money
and his total debts aggregated to Rs. two lakhs. It is plain that
any of the remaining creditors, including the petitioning
creditors, could rely upon the act of insolvency even though one
or more creditors might have been paid in full. The act of
insolvency which the appellant had committed thus remained
and was not purged by payment of decretal amount after the
sale in execution of the money decree".
In "Vemula Rosaiah and Another v. P. Subramanyam
and Another", wherein the learned Single Judge of erstwhile High
Court of Andhra Pradesh held as follows:
"4....
.....An analysis of Section 25(1) shows that there are
three circumstances in which the petition made by the creditor
must be dismissed, viz., (1) absence of right of creditor to make
application; (2) failure to serve debtor with notice of admission of
petition, and (3) ability of debtor to pay his debts. In addition to
these circumstances, 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. But one
important aspect that has to be noted is, whether such a plea
can be taken only by the debtor......
6. Learned counsel for the appellants have painstakingly
taken this Court through records of the case and presented his
respective points of view very ably. It is the contention of the
learned counsel for the appellants that the appellants discharged
their burden by placing cogent evidence. Further the 1st
respondent having remained exparte and no cogent evidence is
placed by the respondents to disprove the Governments and
evidence available on record qua the debts. The suit in O.S.No. 76
of 2008 on the file of the court of IV Additional District Judge,
Kakinada filed by the 2nd appellant against the 1st respondent,
which is Ex.A7 and filed C.C.No. 980 of 2008 on the file of V
Additional Judicial Magistrate of I Class, Kakinada i.e Ex.A8.
Therefore, learned counsel for the appellants pleaded that the
appellants have proved their case and filed the copies of the
judgments to substantiate their claim, but the same was not
looked into by the court below is the respective contention of the
learned counsel for the appellants.
7. The 1st respondent remained exparte and the court below
in its judgment held that the 2nd respondent in cross examination is
able to establish that the 1st petitioner for the reasons best known to
him failed to prosecute his suit for recovery of amounts against the
1st respondent and the 2nd petitioner in another proceeding has
clearly stated that the amount was not advanced on 27.01.2006.
But the petitioners except pleading about the pronote transaction,
failed to explain the cross-examination elicited situations are giving
raise to doubting circumstances on the claim of the petitioners.
Howsoever, as the petitioners are not adjudicated creditors, in the
light of the above authority, their claim seeking adjudication against
the 1st respondent found not tenable".
8. Further the court below opined that as per evidence of
PW-3 there are other properties to the 1st respondent and 1st
appellant knows about the same. Therefore the 1st respondent is
having other properties, the appellants claim that the petition 'A'
schedule property is not the only property, as such, the contention
that the only property sold away and it is an act of insolvency
cannot be accepted.
9. In Yenumula Mallu Dora's case (cited supra-1) wherein
the Hon'ble Apex Court categorically held that "An act of insolvency
once committed cannot be explained or purged by subsequent
events. The insolvent cannot claim to wipe it off by paying some of
his creditors. This is because the same act of insolvency is
available to all his creditors. By satisfying one of the creditors the
act of insolvency is not erased unless all creditors are satisfied
because till all creditors are paid the debtor must prove his ability
to meet his liabilities. In this case the petitioning creditors had
their own decrees. It was in the decree of another creditor that the
payment was made but only after the act of insolvency was
committed."
10. In the instant case, admittedly there was a decree and
judgment in favour of the appellants. Therefore the court below
ought to have considered the same, but the same is not reflected in
its Order. Since there is sufficient proof and evidence is available
on record, the court below ought to have considered the same and
decide the issue on merits. Therefore the impugned order is cryptic
and bereft of any reasons and is therefore liable to be set aside.
11. Following the decisions cited supra and considering the
submissions of learned counsel for the appellants, this Court is
setting aside the impugned order dated 23.02.2016 with a direction
to the court below to conduct de novo enquiry after affording
opportunity of hearing to both parties and pass appropriate orders
on merits in accordance with law.
12. With the above direction, the C.M.A is allowed. There
shall be no order as to costs.
As a sequel, miscellaneous applications pending, if any, shall
also stand closed.
___________________________
DR.K. MANMADHA RAO, J
Date: 30.11.2023
KK
THE HON'BLE DR. JUSTICE K. MANMADHA RAO
C.M.A.No.476 OF 2016
Date: 30.11.2023
KK
