Case: Johrilal Soni Vs. Smt. Bhanwari Bai

The insolvent Pyarelal Gupta appears to have executed a deed of gift in favour of his wife on November 7, 1961. About seven years later i.e. on April 1, 1968 an application under s. 10 of the, Provincial Insolvency Act hereinafter to be referred for short as the Act"-was made for adjudging Pyarelal as an insolvent. On April 5, 1968 the appellant Zohri Lal Soni an Advocate was appointed receiver by the Court. On October 15, 1960 Pyarelal was on his own application adjudged as an insolvent by the Additional District Judge, Jodhpur. On January 4, 1969 the appellant who was the receiver moved the Court under S. 4 of the Act for declaring the deed of gift dated November 7, 1961 as void and inoperative inasmuch as it was a sham transaction. On March 3, 1972 the Insolvency Court of the Additional District Judge, Jodhpur, after making an inquiry, upheld the plea of the receiver/appellant and declared the deed of gift dated November 7, 19.61 as being void and inoperative. Thereafter the respondent Smt. Bhanwari Bai (donee) went up in appeal to the High Court assailing the judgment of the Insolvency Court on the ground that it was legally erroneous. The plea of the respondent Bhanwari Bai seems to have found favour with the High Court of Rajasthan which allowed the appeal and act aside the judgment of the Insolvency Court declaring the deed of gift as void by its judgment dated September 26, 1973. The appellant thereafter applied for grant of certificate of fitness for leave to appeal to this Court which was granted by the High Court on October 27, 1975, and. this is how the appeal has been brought to this Court.The High Court was of the opinion that in view of the express provision of S. 53 of the Act, the Insolvency Court had no jurisdiction to determine the question of title, nor could it go into the question of the validity of a transfer which was made more than two years before the Insolvency proceedings had started. According to the High Court, while S. 4 of the Act undoubtedly conferred a power on the Insolvency Court to decide questions of title, but this power could not be exercised in respect of transfers made during a period beyond two years of the insolvency proceedings.

Court's reasoning:
It would be seen that the section has been couched in the widest possible terms and confers complete and full powers on the Insolvency Court to decide all questions of title or priority, or of, any nature whatsoever, which may arise in any case of insolvency. The only restriction which is contained in s. 4 is tha- these powers are subject to the other provisions of the Act. In other words, the position is that where any other section of the Act contains a provision which either runs counter to s. 4 or expressly excludes the application of s.4, to that extent s. 4 would becomeis no doubt true that the words "within two years after the date of the transfer" being voidable as against the receiver does fix a time-limit within which the transfer could be annulled by the Court. But a plain construction of s. 53 would manifestly indicate that the words "within two years after the date, be voidable as against the receiver, and shall be annulled by the Court" clearly connote that only those transfers are excepted from the jurisdiction of the Court which are voidable. The section has, therefore, made a clear distinction between void and voidable transfers-a distinction which is well- known to law. A void transfer is no transfer at all and is completely destitute of any legal effect: it is a nullity and does not pass any title at all. F or instance, where a transfer is nominal, sham or fictitious, the title remains with the transferor and so does the possession and nothing passes to the transferee. It is manifest, therefore, that such a transfer is no transfer in the eye of the la w. Such transfers, therefore, clearly fall beyond the purview of s. 53 of the Act which refers only to transfers which are voidable. It is well settled that a voidable transfer is otherwise a valid transaction and continues to be good until it is avoided, by the party aggrieved. For instance, transfers executed by the transferor to delay or defraud his creditors may be, avoided under s. 53 of the Transfer of Property Act. Similarly transfers made under coercion, fraud or undue influence may be avoided by the party defrauded. It is only such transfers which, if they take place beyond two years of the date of transfer, cannot be enquired into by the Court by virtue of s. 53 of the Act. This appears to us to be the plain and simple interpretation of the combined reading of ss. 4 and 53 of the Act. Indeed if a different interpretation is given, it will render the entire object of the section nugatory, because the Court would be powerless to set at naught transfers which are patently void, merely because they had been made at a particular point ofour opinion transactions of this nature must be challenged, if at all, in an ordinary civil Court and not in the insolvency Court. With dud respect, however, we are unable to agree with the view expressed by the learned Judges of the Chief Court Oudh, because they seem to overlook the distinction made by s. 53 between a void and a voidable transaction. Moreover, the Oudh Chief Court was concerned with a benami transaction and it is not necessary for us to say anything about such a transaction, because in the instant case we are concerned with a transfer which was sought to be challenged on the ground that it was a nominal and sham transaction and thus a void transaction which clearly falls within the four comers of s. 4 of the Act and is not covered by s. 53 of the Act so as to deprive the Insolvency Court of its jurisdiction to determine the question of title of the transfer.For these reasons, therefore, we are clearly of the opinion that in the present case the Additional District Judge was right in holding that the Insolvency Court had complete jurisdiction to decide the validity of the transfer when it was challenged on the ground that it was a sham and a fictitious transaction which need not have been set aside and a declaration that the transfer was void was sufficient. The view taken by-the High Court is legally erroneous and is not in consonance with the correct interpretation of ss. 4 and 53 of the Act.