Jose Thomas v. Leena Jaimon and P.A. Prakash

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT** ## **THE HONOURABLE MR. JUSTICE AMIT RAWAL** **TUESDAY, THE 17TH DAY OF DECEMBER 2019 / 26TH AGRAHAYANA, 1941** **CRP.No.515 OF 2017** **AGAINST THE ORDER/JUDGMENT IN CMA 68/2016 DATED 29-06-2017 OF DISTRICT COURT & SESSIONS COURT,KOTTAYAM** **AGAINST THE ORDER/JUDGMENT IN IP 3/2008 DATED 03-02-2011 OF SUB COURT, PALA** ## **REVISION PETITIONER/2ND RESPONDENT/2ND COUNTER PETITIONER :-** **JOSE THOMAS S/O.SEBASTIAN, AGED 41 YEARS, RESIDING AT KORATTIYIL HOUSE, NARIYANGANAM VILLAGE,MENNACHIL TALUK,KOTTAYAM DISTRICT.** **BY ADVS. SRI.M.NARENDRA KUMAR SRI.SAJU RAGHAVAN** **RESPONDENTS/APPELLANT & IST RESPONDENT/PETITIONER & COUNTER - PETITONER NO. 1 :** |**1**|**P.A.PRAKASH**| |---|---| ||**S/O.APPUKUTAN,AGED 46 YEARS,**| ||**RESIDING AT VADAKKEDATHU HOUSE,KADANADU**| ||**KARA,VELLIAPALLY VILLAGE,MEENACHIL TALUK,**| ||**KOTTAYAM DISTRICT.**| |**2**|**LEENA JAIMON**| ||**W/O.JAIMON JOSE,AGED 43 YEARS,**| ||**RESIDING AT KORATTIYIL HOUSE,**| ||**POOVARANI.P.O,URULIKUNNAM KARA,**| ||**ELIKULAM VILLAGE,KANJIRAPPALLY TALUK,**| ||**KOTTAYAM.**| **R1 BY ADV. SRI.K.ARJUN VENUGOPAL R1 BY ADV. SRI.P.CHANDRASEKHAR R1 BY ADV. SMT.V.A.HARITHA R1 BY ADV. SRI.JEEVAN RAJEEV R1 BY ADV. SMT.MARY RESHMA GEORGE R1 BY ADV. SMT.P.M.MAZNA MANSOOR** **THIS CIVIL REVISION PETITION HAVING BEEN FINALLY HEARD ON 17.12.2019, THE COURT ON THE SAME DAY PASSED THE FOLLOWING:** **CRP.No.515 OF 2017** **2** ## **O R D E R** **Dated this the 17th day of December 2019** The present revision petition is directed against the order dated 29.09.2017 of the Additional District Judge-1, Kottayam, whereby the appeal CMA.68/2016 preferred by the first respondent/petitioner against the order of the trial court dismissing the insolvency petition under Sections 7 and 9 of the Insolvency Act, 1995, for declaring the second respondent herein as insolvent and for annulling Exts.A1 and A2 sale deeds dated 27.11.2007 and 09.01.2008 in favour of the revisions petitioner has been allowed. 2. As per the facts, I.P.No.3 of 2008 was preferred by the first respondent/petitioner against Smt.Leena Jaimon, first counter petitioner and the revision petitioner/second counter petitioner under Sections 7 and 9 of the Kerala Insolvency Act on the premise that Smt.Leena Jaimon, the first counter petitioner had borrowed a sum of Rs.15,00,000/- **CRP.No.515 OF 2017** **3** between March 2006 and August 2006 and in lieu thereof, issued a cheque of Rs.15 lakhs drawn on Indian Bank, Palai Branch dated 07.09.2006. On presentation of the cheque, it was dishonoured resulting into institution of a complaint bearing No.S.T.612 of 2007 under Section 138 of the Negotiable Instruments Act and also a recovery suit as O.S.No.14 of 2008 dated 07.01.2008. During the pendency of the suit, the Court ordered for attachment before judgment of the immovable property of the first counter petitioner consisting of the 6.07 ares in re-survey No.98 of 12 in block No.80 of Lalam village. 3. Smt.Leena Jaimon, the first counter petitioner raised objections, disclosing that the property owned by her which is sought to be attached, was sold to the second counter petitioner and left with no other property to pay off the debts. She was indebted to many other persons and different banks, but did not disclose the particulars except that of one Union Bank of India, **CRP.No.515 OF 2017** **4** Kottayam branch, to whom she had a liability of Rs.9 lakhs including interest, which will come to Rs.11 lakhs. Disclosing the aforementioned facts, the first respondent/petitioner alleged before the Trial Court that Smt.Leena Jaimon had committed acts of insolvency by transferring the properties to defeat the right of the creditors and sought the annulment. The revision petitioner, the second respondent before the Court below, raised objection on the maintainability of the petition that it is on the instigation of Smt.Leena Jaimon, the respondent No.1/petitioner filed the petition before the trial court. 4. There was no interim stay on attachment before the judgment in a civil suit, therefore, the first respondent i.e.Smt.Leena Jaimon had a right to sell into the petitioner, ie., second respondent in the Trial Court. 5. The Trial Court on the basis of oral and documentary evidence on record, that is Exts.A1 to **==> picture [440 x 13] intentionally omitted <==** **CRP.No.515 OF 2017** **5** exhibits, despite examination of three witnesses for the petitioner and one by the counter petitioner, dismissed the insolvency petition. 6. Having been aggrieved, the petitioner in the Trial Court preferred an appeal styled as C.M.A.No.68 of 2016 before the learned District Judge-1, Kottayam. Noticing all the contentions and particularly the fact that the Smt.Leena Jaimon did not step into the witnesses box, under Section 140 of the Indian Evidence Act, annulled the transfers, after passing the order of adjudication declaring Smt.Leena Jaimon as insolvent. 7. Shri.M.Narendra Kumar, the learned counsel appearing on behalf of the revision petitioner/second respondent before the Trial Court, in support of the petition raised numerous contentions :- 1. Section 7 and 9 of the Insolvency Act, 1955 do not empower any jurisdiction on the Insolvency Court declaring the transfers annulled. 2. The jurisdiction, on plain and simple language of Section 53, vests with the **CRP.No.515 OF 2017** **6** receiver. 3. In support of the submissions referred to judgment of Hon’ble Supreme Court in _**RM.NL.Ramaswami Chettiar and others v. the official receiver [AIR 1960 SCC 70]**_ to contend that it is the receiver only who would within two years from the declaration of the insolvency of any debtor, petition under Section 53 can be filed. This aspect has not been looked into by the lower appellate court rendering the findings to be fallacy much less vexatious. There is not even a whisper of Section 53, the procedure only scheme provided therein. 8. Per contra, the learned senior counsel Shri.P.Chandrasekhar, supported the order saying that Smt.Leena Jaimon was wholly indebted not only to the first respondent herein but many other private persons including the banks. Such kind of debts would, as a necessary corollary, entailed affected party to institute petition as per the custody provisions of 1955 Act. It was not only a _malafide_ act but an act of collusion between the **CRP.No.515 OF 2017** **7** first and second respondents before the Trial Court in defeating the rights not only from recovery of the amount as per the pendency of the proceedings under negotiable instrument and as well a civil suit, thus, in such circumstances, a cause of action arose for declaration under the provisions of the Insolvency Act and in support, relied following judgment where in _**Amir Ahmad v. Syed Hasan [AIR 1935 All 671],**_ where it was held that : "This is a plaintiff's appeal arising out of a suit for partition in which a question arose as to the title of the rival claimants. On 2nd February, 1925, one Abdul Ghani, who was heavily in debt sold his share in the house in question to one Abdul Qaiyum. On 19th October 1926, Abdul Ghani himself applied for being adjudicated an insolvent and he was declared an insolvent on 21st December 1926. On the following day, namely 22nd December 1926, Abdul Quaiyum sold the property to the present defendant, Saiyid Hasann on 25th June 1927. On an application made by the official receiver the sale deed of 2nd February 1925, which **CRP.No.515 OF 2017** **8** had been executed by the insolvent in favour of Abdul Quaiyum was annulled by the Court. In that proceeding Abdul Qaiyum alone had boon impleaded and did not appear, the subsequent transferee, Saiyid Hasan was not impleaded by the official receiver at all. After having obtained the order of annulment: the official receiver on 4th August 1927, transferred the property to the present plaintiff Amir Ahmad. As Amir Ahmad did not obtain possession of the house, the present suit was instituted by him on 21st August 1930, for partition and separation of his share". 9. I heard the learned counsel for the parties and also appraised the paper book and as well as the case laws cited at bar. Before giving findings on the respective arguments, I am of the view, it would be necessary to reproduce the provisions of section 6, 7 and 9 and as well as 54 of the Insolvency Act. **6** . **Acts of Insolvency** - A debtor commits an act of insolvency in each of the following cases, namely:- **==> picture [311 x 10] intentionally omitted <==** **CRP.No.515 OF 2017** **9** substantially all his property to a third person for the benefit of his creditors generally. (b) If he makes a transfer of his property or of any part thereof, with intent to defeat or delay his creditors: (c) If he makes any transfer of his property or of any part thereof, which would, under this or any other enactment for the time being inforce, be void as fraudulent preference if he were adjudged an insolvent: (d) If, with intent to defeat or delay his creditors (i) he departs or remains out of the State, (ii) he departs from his dwellinghouse or usual place of business or otherwise absents himself. (iii) he secludes himself so as to deprive his creditors of the means of communication with him; (e) If any of his property has been sold in execution of the decree of any Court for the payment of money. (f) If he petitions to be adjudged an insolvent under the provisions of this Act; (g) If he gives notice to any of his creditors that he has suspended, or that he is about to suspend, payment of his debts, or (h) If he is imprisoned in execution of the decree of any Court for the payment of money. Explanation:- for the purposes of this section the act of agent may be the act of the principal. ## **7. Petition and adjudication** – Subject to the **CRP.No.515 OF 2017** **10** conditions specified in this Act, if a debtor commits an act of insolvency, an insolvency petition may be presented either by a creditor or by the debtor, and the Court may on such petition make an order (hereinafter called an order of adjudication) adjudging him an insolvent. Explanation:- The presentation of a petition by the debtor shall be deemed an act of insolvency within the meaning of this section, and on such petition the Court may make an order of adjudication. ## **9. Conditions on which creditor may petition** :- (1) A creditor shall not be entitled to present an insolvency petition against a debtor unless- (a) the debt owing by the debtor to the creditor, or if two or more creditors join in the petition, the aggregate amount of debts owing to such creditors, amounts to five hundred rupees, and (b) the debt is a liquidated sum payable either immediately or at some certain future time, and (c) the act of insolvency on which the petition is grounded has occurred within three months before the presentation of the petition. Provided that where the said period of three months referred to in clause(c)expires on a day when the court is closed, the insolvency petition may be presented on the day on which the Court re-opens. (2) If the petitioning creditor is a secured creditor he shall in his petition either state that he is willing to relinquish his security for the benefit of the creditors in the event of the debtor being adjudged insolvent, or give an estimate of the value of the security. In the latter case, he may be admitted as a petitioning creditor to the extent of the balance of the debt due to him after deducting the value so estimated in the same way as if he **CRP.No.515 OF 2017** **11** were an unsecured creditor. **54. Avoidance of voluntary transfer** :- Any transfer of property not being a transfer made before and in consideration of marriage or made in favour of a purchase or encumbrance in good faith and for valuable consideration shall, if the transferor is adjudged insolvent on a petition within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court. 10. On plain and simple reading of provisions of Section 7 and 9 it is axiomatic, the procedure to file the petition is provided under Section 7 and conditions giving cause to a affected party the creditor to institute the petition. On the other hand, Section 54 unambiguously disciples that declaring the transfers to be avoidable, if the transferor is adjudged insolvent on a potential petition presented within two years. I am afraid the aforementioned provisions of the Act cannot be read in isolation but have to be in conjunction with Section 53 which enjoins upon an obligation, any cause of action, to receiver to institute the petition for annulment of the transfer, the debtor has to be declared insolvent by prescribing a period **CRP.No.515 OF 2017** **12** of two years. Institution of petition and appeal is a continuation of suit. 11. The entire genesis of the impugned order do not reflect any iota of reference or discussion to the provisions of Section 53 ibid. As far as the question of possession or otherwise or protection of Section 41 in my view would not raise in the present revision petition but would lie elsewhere. 12. I am afraid reliance of the learned counsel for respondent on the aforementioned judgment would not come to his rescue. It was a clear case where the debtor had already been declared insolvent, an application for annulment for transfer was moved by the receiver and the question arose whether the third party which had come into existence having purchased the property from the transferee was required to be impleaded. For the reasons aforementioned, I am of the view that the impugned order to the extent of declaring the transfers by sale seeds dated 27.11.2007 and 09.01.2008 to be annulled is set **CRP.No.515 OF 2017** **13** aside. However, the rest of the order declaring Smt.Leena Jaimon as insolvent is maintained. The provisions of the erstwhile Insolvency Act i.e. the provincial Insolvency Act, 1920 wherein the provisions of Section 53 were almost identical to the present Act except for the period. The Hon’ble Supreme Court held the transfer would be valid till annulled in the manner prescribed under the relevant provisions of the Act. Similar situation has arisen in the present case as it would be in the domain of the receiver to institute the petition relying on the provisions of Section 53. Accordingly, the Revision Petition is allowed to the aforementioned extent. **Sd/-** **AMIT RAWAL JUDGE** ## **SMA**