* THE HONOURABEL SRI JUSTICE GHULAM MOHAMMED AND * THE HONOURABLE SRI JUSTICE P. SWAROOP REDDY + CIVIL MISCELLANEOUS APPEAL No.4 OF 2008 % Date 19-10-2010 # Smt. Gadiraju Satyavathi W/o. Venkata Rama Raju aged 66 years, Stridhanam, Padmakshi Apartments, Secunderabad. …. Appellant v. $ Jampana Venkata Satya Narayana Raju S/o. Venkata Suryanarayana Raju, R/o. Near State BankofIndia, Juvvalapalem, Kalla Mandal, West Godavari District & 4 others …. Respondents ! Counsel for the Petitioner : Sri Sharad Sanghi ^ Counsel for Respondent No.1 : Sri Venkateshwara Rao Gudapati ^ Counsel for Respondent Nos.2 to 5 : Sri Adinarayana Raju < GIST: > HEAD NOTE: ? Cases referred 1. 1996(3)ALT 34 C/15 HONOURABLE SRI JUSTICE GHULAM MOHAMMED AND HONOURABLE SRI JUSTICE P. SWAROOP REDDY CIVIL MISCELLANEOUS APPEAL No.4 OF 2008 JUDGMENT: (Per Hon’ble Sri Justice Ghulam Mohammed) This Civil Miscellaneous Appeal is filed against the order in I.P. No.20 of 2000 dated 18-04-2007 passed by the learned Senior Civil Judge, Bhimavaram. 2. Appellant – creditor filed the I.P. seeking to declare and adjudge respondent No.1 – debtor as insolvent and consequently cancel the sale deeds dated 28-08-2000, 29-08-2000, 02-09-2000 and 04-09-2000 executed by respondent No.1 in favour of respondent Nos.2 to 5 as collusive and void and to direct the Official Receiver of West Godavari District to take possession of the properties and administer and distribute the estate of respondent No.1 to the appellant and other creditors, if any, by selling the same. 3. For the sake of convenience, appellant is referred to as creditor and respondent No.1 as debtor. 4. The case of the creditor before the trial Court is that debtor borrowed Rs.65,000/- from her on 03-06-1998 and executed a promissory note agreeing to repay the amount with compound interest at 24% per annum and he also borrowed Rs.40,000/- on 05-06-1998, Rs.75,000/- on 28-09-1998, Rs.75,000/- on 29-09-1998, Rs.75,000/- on 30-09-1998 and another Rs.75,000/- on 01-10-1998 and Rs.86,800/- on 02-10-1999 by executing promissory notes for the respective amounts on the respective dates agreeing to repay the same with compound interest at 24% per annum. Thus, altogether debtor borrowed a sum of Rs.4,86,800/- from the creditor. The debtor put the creditor under the impression that he will repay the amount by selling his properties and shares within short time. Subsequently, on coming to know that debtor is indebted to several lakhs to several persons and collusively alienated his landed property in favour of the relatives of one Gokaraju Madhava Varma of Juvvalapalem by creating sale deeds in their favour to defraud creditors, creditor got issued a legal notice on 17-09-2000, which the debtor purposefully avoided to receive, hence she filed the I.P. to declare the debtor as insolvent and administer and distribute his properties to her and other creditors, if any, by selling the same. 5. Debtor filed counter denying receipt of the amounts from the creditor and execution of promissory notes in her favour. He also denied that he is indebted to several persons and issuance of legal notice by the creditor to him. He further denied that the transactions in favour of respondent Nos.2 to 5 are collusive and without consideration. 6. Respondent Nos.3 and 4 filed a joint counter denying the allegations against them. Respondent Nos.2 and 5 adopted the counter filed by respondent Nos.3 and 4. 7. To substantiate her case, creditor got examined herself as PW.1 and an independent witness as PW.2 and got marked Exs.A-1 to A-8. On behalf of the respondents, husband of respondent No.2 was examined as RW.1 and an independent witness, who is an attestor in some of the sale deeds executed by the debtor in favour of respondent Nos.2 to 5, was examined as RW.2 and got marked Exs.B-1 to B-33. 8. Based on the pleadings and material on record, the following points were framed for trial by the trial Court : “1. Whether R-1 can be adjudicated as insolvent ? 2. Whether the sale deeds executed by R-1 in favour of R-2 to R-5 can be annulled ? 3. To what relief ?” 9. Based on the oral and documentary evidence on record and after an elaborate consideration of the same, trial Court holding that still the debtor has got properties to discharge the debt of the creditor and merely because debtor is indebted to some persons, he cannot be adjudged as insolvent and further relying on the decisions of this Court i n D. CHAKRADHARA RAO v. P. KOTESWARA RAO[1] and MODUGULA SRIRAMULU v. PERKAM SINGHAIAH (1967 DB 329), where it is held that when the debtor has got properties to discharge the debt of the creditor, mere transfer of certain property does not amount to an act of insolvency, dismissed the I.P. Aggrieved of the same, this appeal is filed by the creditor. 10. Now, learned counsel for the creditor (appellant) contends that the sale deeds executed by the debtor in favour of respondent Nos.2 to 5, who are closely related to the debtor, are without consideration and they are only to defraud the creditor and his other creditors and the same are hit by Section 53 of the Provincial Insolvency Act, 1920 (for short “the Act”), as such, the same are liable to be annulled. He further contends that creditor filed O.S. Nos.92 and 123 of 2001 and her daughter Smt. G. Radha Raju filed O.S. No.67 of 2001 against the debtor for recovery of the amount and the same were decreed and no appeals are preferred by the debtor against the same, as such, they became final. He also contends that trial Court erroneously held that the debtor has got capacity to repay the debts of the creditor and failed to appreciate the fact that he did not repay even a part of the debt even after seven years at least to prove his bona fides. He further contends that immediately after dismissal of the impugned I.P., debtor filed I.P. No.23 of 2007 before the very same Court to declare him as insolvent, but the trial Court, though the debtor remained ex parte and did not adduce any evidence, without appreciating the facts and the law dismissed the I.P. on mere assumptions and presumptions. 11. On the other hand, learned counsel appearing for respondent Nos.2 to 5 supported the judgment of the trial Court stating that the debtor sold the properties to them for valid consideration and executed sale deeds in their favour, but they are not collusive and that trial Court gave valid and cogent reasons for dismissing the I.P. He further contends that the subsequent event of filing I.P. by the debtor immediately after dismissal of the creditor’s I.P. for declaring him insolvent cannot be looked into. 12. Now the point for consideration is whether there are any grounds for allowing this appeal ? 13. Coming to the question of selling the properties by the debtor in favour of respondent Nos.2 to 5 without valid consideration by colluding with them to defraud the creditor and his other creditors, though learned counsel for the creditor contended that respondent Nos.2 to 5 are close relatives to the debtor, it is revealed that in fact debtor is the son of the elder sister of the creditor and the same is not disputed by the creditor. On the other hand, creditor failed to produce any material to show that respondent Nos.2 to 5 are relatives of the debtor. PW.2, who is an independent witness and examined on behalf of the creditor, though stated in his affidavit in chief-examination that the debtor has sold the properties in favour of respondent Nos.2 to 5 with a mala fide intention to defraud the creditors, admitted in his cross-examination that the debtor sold his properties to discharge his (debtor’s) debts. Further, it is also the evidence that out of the sale consideration of Ex.B-1 sale deed, debtor cleared his ten debts, out of the sale consideration of Ex.B-20 sale deed, he cleared a debt of the State Bank of India, Juvvalapalem Branch and a debt covered by a promissory note and out of the consideration of Ex.B-23 sale deed, he cleared debts covered by five promissory notes. Further, it is also the evidence that the debtor having executed the sale deeds in favour of respondent Nos.2 to 5, delivered possession of the properties covered by the sale deeds to the respective purchasers. Thus, evidence of PW.2 and the recitals of the sale deeds and also the voucher documents etc., clinchingly established that the sales made by the debtor in favour of respondent Nos.2 to 5 are for valid consideration and not collusive or to defraud the creditor or his any other creditors. On the other hand, creditor failed to place any material either oral or documentary before the Court or to show that the debtor has transferred his landed properties in favour of respondent Nos.2 to 5 collusively with an intention to defraud her and his (debtor) other creditors. Apart from the above, creditor filed a suit against the debtor for recovery of a sum of Rs.1,00,000/- covered by three promissory notes dated 03-06-1998, 03-06-1998 and 05-06-1998 together with interest of Rs.72,052/- and the same was decreed vide Ex.A-8 and the daughter of the creditor also filed a suit against the debtor for recovery of the amount and the same was also decreed and for recovery of the decretal amount, creditor filed E.P. and in the affidavit filed in support of that E.P., she stated that debtor has got financial capacity to repay the E.P. amount and the same is admitted by her in her cross- examination. Further, in the I.P., creditor has shown three items of immovable properties i.e., an extent of 400 square yards of site with a terraced house near State Bank of India abutting to Elurupadu road, another 400 square yards of site with a tiled house in Juvvalapalem and another 400 Square yards with a cattle shed in Juvvalapalem, totally worth more than Rs.18.00 lakhs. This circumstance shows that even according to the creditor herself, still the debtor has got properties to discharge her debt. During the cross-examination of the creditor as PW.1, it is also elicited that the debtor has property of an extent of 350 square yards of site at Kondapur of Ranga Reddy District worth of more than Rs.5,00,000/-. These circumstances and the evidence of the creditor herself and her admissions show that still the debtor has got capacity to discharge his debts. Therefore, we hold that sale of landed property by the debtor in favour of respondent Nos.2 to 5 is immaterial since it is established the same are not with an intention to defraud the creditor or any other creditors of the debtor and still he has capacity to discharge his debts as he has properties worth more than the value of the amount borrowed from the creditor as revealed from the evidence of the creditor herself. Further, PW.2 admitted in his cross-examination that the debtor sold his properties to discharge his (debtor’s) debts, which clinchingly establishes that the sales made by the debtor are for valid consideration and not to defraud the creditor or his any other creditors. Thus, there is material to show that the sales made by the debtor in favour of respondent Nos.2 to 5 are neither collusive nor without valid consideration and there is not even a piece of material to declare the debtor as insolvent. Therefore, we are of the view that the debtor is a solvent and he cannot be adjudged insolvent. 14. Coming to the question of annulling the sale deeds executed by the debtor in favour of respondent Nos.2 to 5, as per Section 53 of the Act, which says that “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 on a petition presented within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court,” it is clear that only on adjudication of a debtor as insolvent, the sales/transfers made by him can be annulled and in the present case when the debtor is not adjudged insolvent, the sales made by him in favour of respondent Nos.2 to 5 cannot be annulled. 15. For the aforesaid reasons, we find no infirmity or illegality in the order passed by the trial Court warranting interference of this Court. Thus, there are no merits to allow this appeal and the same is liable to be dismissed. 16. Accordingly, the Civil Miscellaneous Appeal is dismissed. No order as to costs. _______________________ GHULAM MOHAMMED, J October 19, 2010. ______________________ P. SWAROOP REDDY, J PV [1] 1996(3)ALT 34