Poka Venkatadri (Died) v. Tanneeru Narayanamma

Judgment

The Civil Miscellaneous Second Appeal is filed under section 75 of the Provincial Insolvency Act, 1920 (in short “the P.I. Act”) against the judgment and decree dated 07.12.2012 allowing A.S.No. 174 of 2009 on the file of the Court of Principal District Judge, Ongole, filed against the judgment and decree dated 30.05.2009 allowing the insolvency petition in I.P. No.6 of 1990 on the file of the Court of Senior Civil Judge, Markapur, filed under Section 9 of the P.I. Act.

#2. The I.P. was filed by seven (7) creditors against one debtor / R1 and four (4) other respondents (R2 to R5) to adjudge R1 as an insolvent, to award costs and to pass such other order in the interest of justice. Pending the adjudication of the petition, some of the petitioners (P2, P3, P4, and P6) died. P8 to P11 were added as the legal representatives of the deceased P2. P12 to P18 were added as the legal representatives of the deceased P3. P19 to P23 were added as the legal representatives of the deceased P4. It seems that no steps were taken after death of the P6 to add his legal representatives. Pending the adjudication of the petition, R2 died. R5 to R10 were added as his legal representatives. Then, his wife / R6 died pending the adjudication of the petition. Her legal representatives were on the record. R4 remained ex parte.

#3. The appeal against the order in the I.P. was filed by R3, R5 and R7 to R10 therein. R1 to R23 in the first appeal are P 1 to P23 (2, 3, 4, and 6 died) in the I.P. Since R1 / P1 died, his son is on record as R24. R25 to R28 in the first appeal are R1, R2 (died), R4, and R6 (died) in the I.P. In the judgment in the first appeal, it was noted that the appeal against R1 was abated, but R24 is his son. In the judgment in the first appeal, it was noted that R21 also died, no other steps were recorded. 3 BSB, J C.M.S.A.No.18 of 2014 The first appeal against R11 was dismissed for default in payment of batta and heard ex parte against R25 and R27 (co-respondents in the I.P. with the appellants).

#4. This second appeal was filed by R7 to R19 and R21 to R24 against seventeen (17) respondents. As the appellant No. 1 died pending this appeal, his legal representatives were added as the appellants Nos. 18 to 21. R1 to R6 herein are the appellants Nos.1 to 6; R7 to R13 herein are R1 to R6 and R20, and R14 to R17 are R25 to R28 before the first appellate Court. R18 and R19 were added here as the legal representatives of R2, who died pending this appeal.

#5. This case has a chequered history. Initially, the I.P. was allowed on 25.03.1995 adjudging R1 as an insolvent and setting aside the sale deeds and the gift deed. Against this order, an appeal in A.S.No.112 of 1995 was filed before the Court of II Additional District and Sessions Judge, Ongole. The appeal was dismissed on 22.06.2006. Challenging the same, a second appeal in C.M.S.A. No.61 of 2006 was filed before the then High Court of Andhra Pradesh. As it was contended that the appeal was allowed after setting the respondents ex parte as their advocate reported no instructions, and the other challenges were raised, on 28.12.2006, the High Court allowed the second appeal only insofar as it relates to the sales covered by Exs. A3 and A4 on condition of depositing Rs. 10,000/- by the appellants within the stipulated time and on such deposit, the trial Court shall proceed to dispose of the matter, confining its adjudication to the validity of the sales under Exs. A3 and A4. It was further ordered the amount shall be proportionately distributed among the creditors and that in case the sales under Exs. A3 and A4 are upheld, the appellants shall be entitled to have a charge over the other properties of R24. Thus, the second 4 BSB, J C.M.S.A.No.18 of 2014 order dated 30.05.2009 of the insolvency Court in I.P.No.6 of 1990 and

the second judgment dated 07.12.2012 of the first appellate Court in A.S.No. 174 of 2009 are the subjects of this appeal.

#6. The parties are arrayed in the same manner as before the insolvency Court for the purpose of convenience. The case of the petitioners briefly stated is as follows: a. R1 borrowed different amounts on different dates from different petitioners and executed promissory notes undertaking to repay the amount with interest as shown below- S.No. Creditor Date Amount (in Rs.) Rate of interest

#8. Petitioner No.1

01.12.1985 900/- 18% p.a. Petitioner No.1

28.05.1989 3,000/- 24% p.a. Petitioner No.2

05.10.1987 650/- 18% p.a. Patti Chinna Kotaiah (Transferred to Petitioner No.3 for consideration)

15.02.1988 4,000/- 24% p.a.

11.06.1989 Petitioner No.4

06.08.1989 2,900/- 24% p.a. Petitioner No.5

30.08.1989 Petitioner No.6

17.09.1989 500/- 600/- 18% p.a. 24% p.a. Petitioner No.8

16.12.1986 3,000/- 18% p.a. On 30.11.1988, by making part payment of Rs.50/- to P1, R1 made an endorsement of the part payment on the back side of the promissory note dated 01.12.1985. R1 executed a renewal promissory note on

02.12.1989 for an amount of Rs.4,600/- in favour of P7 without making any payment. He failed to pay any amount outstanding as due to any 5 BSB, J C.M.S.A.No.18 of 2014 petitioner. (There are the same mistakes in the narration of facts in the order of the trial Court and the judgment of the first appellate Court.) b. R2 is the son of the junior paternal uncle of R1. R3 is the daughter-in-law of R2. R4 is the wife of R1. Conspiring with the R2 to R4, to defeat the claims of the creditors, R1 executed colourable deeds in their favour, without actually parting with them. Thus, he executed a sale deed dated 21.03.1990 in favour of R2, registered vide document No. 95 of 1990 of Sub-Registrar’s office, Markapur, and on the same day another sale deed in favour of R3, registered vide document No. 96 of 1990 of the same office, both regarding substantial part of his properties. On the same day, he executed a gift deed in favour of R4, registered vide document No. 97 of 1990 of the same office, regarding his some other properties. He retained with him a vacant site and a hayrick yard. The very old house and the vacant site retained by him fetch not more than Rs.5,000/- and are not sufficient to discharge the liabilities to the petitioners. In the sale deeds, there is a reference of discharge of a false mortgage to Potti Venkata Subbaiah with the amount of the sale consideration. The mortgage deed was brought into existence to claim a preferential secured debt to defeat the debts of the petitioners. Thus, R1 committed acts of insolvency. Unless the sale deeds and the gift deed are set aside, it is not possible to realise the debts due by R1 to the petitioners.

#7. a. R1 filed a counter averring his case briefly stated as follows: Besides the debts due to the petitioners, this respondent is indebted to the others whose debts are given in the schedule annexed to the counter to a tune of Rs.1,19,675/-. 6 BSB, J C.M.S.A.No.18 of 2014 Name of the creditor Tanneeru Chennaiah Thanneerupalle S.No. 1. 2. Garni Bangaraiah -do- Thanneru Bodaiah -do- 3. -do- 4. Challa Velugondaiah 5. Challa Akkaiah -do- 6. Thanneru Yellamanda -do- 7. Challa Pitchaiah -do- 8. Challa Pedda Subbarayudu -do- 9. Challa China Subbarayudu -do- 10. Putta Kotaiah Venkatapuram 11. Thota Venkaiah Venkatapuram 12. Batchu Chandra Sekharam Pothalapadu 13. Gorantla Ramaiah Pedda Yachavaram 14. Thanneeru Velugondaiah Pedda Yachavaram 15. Thanneru Peddaiah -do- 16. Thanneru Venkateswarlu -do- 17. Dudekula Pedda Beebulu -do- 18. Marathu Yogaiah -do- 19. Potti Bala Subbaiah Bodapadu 20. Chinna Ramaiah Bodapadu 21. Dugempudi Laxmaiah Rajupalem 22. Grandhe Mallikarjunarao Markapur 23. Vallapuneni Laxmaiah Pedda Yachavaram 24. Kandepu Mallaiah Markapur 25. Cheemakurthi Rama Rao Markapur 26. Cheemakurthi Ramulu Mannemvaripalle 27. Rayalaseema Grammena Bank, Gajjalakonda 28. Gorantla Velugondaiah Pedda Yachavaram 29. Tangutur Subbaiah Markapur 30. Kongaleeti Joseph Pedda Yachavaram 31. Thanneru Venkateswarlu Thannerupalle 32. Vulavala Sivaiah Mallampeta Total Amount Rs.10000=00 Rs.6500=00 4975=00 1000=00 1200=00 6000=00 1600=00 1000=00 5000=00 2000=00 3000=00 7000=00 5000=00 1200=00 200=00 300=00 400=00 700=00 1000=00 1000=00 1200=00 300=00 500=00 11000=00 2000=00 3000=00 8000=00 7000=00 600=00 6000=00 10000=00 10000=00 1,19,675=00 b. Tanneeru Kodanda Ramulu, the son of R2 and the husband of R3 and later impeaded as R5, contested for the post of Sarpanch of the Grampanchayat, Pedda Yachavaram three years ago. At his request, this respondent financially helped him by borrowing from others. He won 7 BSB, J C.M.S.A.No.18 of 2014 the election. To get back the money, this respondent became his follower and was under his control. As the creditors were compelling to discharge the loans, R5 drove this respondent into a well-laid trap to execute the sale deeds in favour of his father and his wife without paying the consideration amount nor paying any amount to discharge the mortgage loan, pretending as helping this respondent to settle the issues with the creditors. The attestors of the sale deeds are his henchmen. The mortgage debt was settled at and redeemed by paying Rs.12,000/-, out of which Rs.6,000/- was paid by K. Joseph and Rs.6,000/- was paid by Tanneeru Chennaiah S/o. Kotaiah of Thanneerupalle and the cancelled mortgage deed was kept with K. Joseph as he and R5 conspired to defraud this respondent. Under the guise of the sale deeds, R5 took possession of the land and making unlawful gain by raising crops. The sale deeds executed in favour of R2 and R3 are liable to be set aside and those landed properties be sold in public auction and the sale proceeds be distributed to all the creditors. He prayed to adjudge him as insolvent and vest the properties under those sale deeds on a receiver appointed by Court. c. Since this respondent used the stridhana jewels of his wife / R4 for his personal purpose and for the election of R5, out of love and affection for her, he executed the gift deed in her favour transferring Ac.0.83 cents in S.No.221/1 of Yachavaram village and put her in possession of it.

#8. R2 and R3 filed a counter averring their case briefly stated as follows: The petition is unjust and not maintainable. It is not true that the recitals in the sale deeds are false and these documents are bogus, 8 BSB, J C.M.S.A.No.18 of 2014 colourable and not real transactions and that they were not acted upon and were intended to defeat the debts due to the petitioners. It is false that the debt under mortgage to Potti Venkata Subbaiah is not true and that it was created to defeat the claims of the petitioners. R1, joining with the petitioners, created the debts allegedly due to the petitioners. These respondents have no knowledge of these debts. These debts were not there when the lands were purchased from R1. These respondents are bona fide purchasers having purchased the lands for valuable consideration and discharged the mortgage debt. Prayed to dismiss the petition.

#9. R4 filed a counter adopting the counter filed by her husband, R1, and further stating that this respondent sold away this property to Tanneeru Galaiah on 15.02.1990 under a registered sale deed for valuble consideration of Rs.2100/- to discharge her debt due to P. Pedda Velugondaiah and put the purchaser in possession of it and praying to exclude the land sold to him and award costs.

#10. Initially, P.Ws. 1 to 4 and Exs.A1 to A12 were marked on behalf of the petitioners. On behalf of the respondents, R1 was examined as R.W.1. After remand of the matter, additional evidence was adduced by both the parties. The petitioners examined P.Ws. 5 to 7 and filed Exs. A12 and A13. The respondents examined R.Ws. 2 to 7 and filed Exs. B1 and B7 and Exs. X1 to X8. For Petitioners P.W.1 J.Subbaiah For Respondents R.W.1 Tanner Muslaiah P.W.2 Vadlamudi Kasaiah R.W.2 T.Kodanda Ramulu P.W.3 Arepalli Venkata Rangam R.W.3 T.Narayanamma P.W.4 Dudekula Pedda Hussain R.W.4 A.Narayana 9 BSB, J C.M.S.A.No.18 of 2014 P.W.5 Poka Venkaiah R.W.5 K.Joseph P.W.6 C.Veeraiah R.W.6 M.Veeranarayana P.W.7 Vadlamudi Venkateswarlu R.W.7 M.Chenna Reddy (V.R.O) Ex.A1 Ex.A2 Ex.A3 Ex.A4 Ex.A5 Ex.A6 Ex.A7 Ex.A8 Ex.A9 DOCUMENTS MARKED FOR PETITIONERS Pronote dt.15.2.1988 Transfer endorsement on pronote, dt.15.2.1988 Sale deed, dt.23.01.1990 Sale deed, dt.23.01.1990 Gift deed, dt.23.01.1990 Pronote, dt.01.12.1985 The endorsement on Ex.A6, dt.30.11.1988 Pronote dated 28.5.1989 Pronote Dt.05.10.1987 Ex.A10 Pronote, Dt.06.08.1989 Ex.A11 Ex.A12 Ex.A13 Ex.A14 Ex.B1 Ex.B2 Ex.B3 for Rs.600/- favour of 5th petitioner on favour of 5th petitioner Pronote 17.9.1989 Pronote 30.8.1989 Pronote executed by Tanneru Musalaiah in favour of Venkatadri Dt.02.12.89 for Rs.4600/- Registered sale deed vide document No.210, dt.15.2.1990 executed by Tanneru Guramma W/o. Musalaiah in favour of T.Galaiah S/o. Pedaramaiah for Rs.500/- on DOCUMENTS MARKED FOR RESPONDENTS Certificate issued by Sarpanch of Grama Panchayat, Pedayachavaram, dt.05.01.2009 True copy of Adangal extracts pertaining to respondent No.1 in Sy.No.179 of Peddaraveedu village issued by V.R.O., Naidupalli True copy of Adangal extracts pertaining to respondent No.1 in S.No.222/01 of Peddaraveedu village issued by V.R.O., Naidupalli 10 BSB, J C.M.S.A.No.18 of 2014 True copy of Adangal extracts pertaining to respondent No.1 in S.No.222/01 of Peddaraveedu village issued by V.R.O., Naidupalli village, Dt.08.02.2009 C.C. of dt.22.01.1990 executed by P.V.Subbaiah in favour of R1 Adangal extract for the fasli 1417, dt.12.2.2009 registered cancellation deed of mortgage, C.C. of registered mortgage deed document No.1789, dt.16.10.1989 executed by Tanneru Musalaiah in favour of R1 DOCUMENTS MARKED ON COURT SIDE Attested copy extract of Peda Yachavara D.No.3-31 pertaining to the house of R1 Attested extract of 10(1) register Attested extract of 1(b) register in respect of S.No.220 of Yachavaram village Extract of 10(1) register in respect of S.No.220/1 the corresponding register in respect of 221/1 in the name of Jala Subbaiah True extract of 1(B) register in respect of S.No.221/1 and True extract of 10(1) register True extract of relevant entries in 1(b) register Attested extract of 1(b) register in respect of 221/1 Ex.B4 Ex.B5 Ex.B6 Ex.B7 Ex.X1 Ex.X2 Ex.X3 Ex.X4 Ex.X5 Ex.X6 Ex.X7 Ex.X8

#11. Though the scope of remand is to decide the sales under Exs. A3 and A4, insolvency Court framed following points consideration covering the aspect of ‘act of insolvency’ as well.

#1. Whether the first respondent committed acts of insolvency?

#2. Whether R1 created Ex. A3 and A4 sale deeds in order to evade payment to his creditors?

#3. Whether the vendees of Exs.A3 & A4 are bona fide purchasers?

#4. To what relief? 11 BSB, J C.M.S.A.No.18 of 2014 After hearing afresh, the insolvency Court allowed the petition as follows: “In the result, this petition is allowed with costs. Respondent No.1 is adjudicated as insolvent. The sale deeds covered under Ex. A3 and Ex. A4 and the gift deed covered under Ex. A5 are hereby set aside and the properties there in are vested with the official receiver Ongole for proper adjudication. Time for discharge one (1) year. The office is directed to inform about set aside of Exs. A3 to A5 documents to the concerned authorities. Charge is created over the property of Respondent No.1 in respect of Rs. 10,000/- (Rupees ten thousand only) deposited by Respondent No.2 and Respondent No.3.”

#12. Thus, the insolvency Court not only decided beyond the scope of the remand by adjudicating the insolvency of R1 and setting aside the gift deed, but also set aside the documents simultaneously with adjudication of insolvency in a petition under Section 5 of the P.I. Act without following the procedure under Part-III of the P.I. Act consisting of Sections 45 to 50 and also Sections 53, 54 and 54A of the P.I. Act.

#13. The appeal in A.S. No. 174 of 2009 was preferred mainly contending that the evidence was not properly appreciated with regard to the collusion in creating the alleged debts; the properties of R1 available with him; and the bona fide transfer of properties to R2 to R4. After hearing the contesting parties, the appellate Court held that R1 discharged the mortgage debt with the amount given by R2 and R3 in consideration of which the sale deeds under Exs. A3 and A4 were executed in their favour and thus R2 and R3 are bona fide purchasers and therefore the sales cannot be set aside. It was specifically 12 BSB, J C.M.S.A.No.18 of 2014 mentioned that the appeal was disposed of in terms of the directions of the High Court in C.M.S.A. No. 61 of 2006 confining adjudication to the validity of the sale deeds under Exs. A3 and A4. Since the sale deeds were held valid, it was further observed that the appellants have a charge over the other properties of R 24 (C.M.S.A. No. 61 of 2006) who is R25 in the appeal (A.S. No. 174 of 2009).

#14. The present second appeal was filed by the aggrieved parties relating to the creditors as noted above. It was contended that the judgment impugned in this appeal is not according to law, facts of the case and the evidence on record; that the appellate Court failed to hold that R1 had developed an evil idea to defeat the debts to the petitioners by showing a false mortgage debt and transferring the high value properties in collusion with his close relatives and his wife, and his other properties are insufficient to discharge the dues to the petitioners and went beyond the directions of the High Court and set aside the well considered order of the insolvency Court. It was further contended that the appellate Court ought to have seen that R1 committed acts of insolvency and that the appellate court decided the validity of the sale deeds and held about the charge without points for consideration regarding them.

#15. The learned counsel for the appellants submitted that the first appellate Court had given its own findings without reversing / upsetting the well considered findings of the trial Court and that such failure to exercise its jurisdiction is a substantial question of law in the second appeal. He referred to a decision of the Supreme Court in Santoshi Hazari Vs. Purushottam Tiwari 1 which has been followed by the 1 (2001) 3 SCC 179 13 BSB, J C.M.S.A.No.18 of 2014 Supreme Court in its recent decision in Mahender Pal Chabra and another Vs. Subhash Aggrawal 2 . He further referred to another decision of the Supreme Court in V. Prabhakara Vs. Basavaraj K. (dead) by L.Rs., and another3. The decision of this High Court in Dara Mohan Muralidhar and others Vs. B. Nirmala Devi and others4 was referred by the counsel regarding the procedure to be followed in I.P. and the proposition that there is no need to get a decree against a debtor to maintain a petition seeking declaration of debtor as insolvent. He further submitted arguments as mentioned in the grounds of appeal.

#16. The learned counsel for the contesting respondents submitted that there was no act of insolvency committed by R1 / debtor as transfer of property to a third party i.e., a person other than a creditor, is not an act of insolvency as held by this High Court in Gutta Nirmala Vs. Gutta Nageswara Rao and others5 and Boddeti Rameswaram and others Vs. Polamarasetti Trimurthulu and others6 wherein the decision in Gutta Nirmala (supra) was followed and that the appellate Court had rightly appreciated the evidence and came to the conclusion that the sales were bona fide and supported by consideration as the mortgage debt of R1 under a registered deed had been discharged by R1 just a day before the execution of the sale deeds and a registered deed of cancellation of mortgage had also been executed. She further submitted that some of the debts were time barred as on the date of filing of the 2 3 2024 SCC OnLine SC 331 (2022) 1 SCC 115 2016 (6) ALT 762 4 5 2011 (5) ALD 498 6 2011 (6) ALD 736 14 BSB, J C.M.S.A.No.18 of 2014 petition and the properties left in the hands of R1 are sufficient to meet the small amounts of enforceable claims of the creditors, even if they are true. She further argued that any deed of transfer by a debtor cannot be set aside or annulled by the insolvency Court in a petition under Section 9 of the P.I. Act filed to declare a debtor as insolvent for commission of an act of insolvency and that it is only after declaration of a debtor as insolvent, debt is to be proved before an official receiver appointed by the insolvency Court and annul a transaction amounting to act of insolvency by following the procedure under Sections 45 to 50, 53, 54 and 54A of the P.I. Act and only on the application of the official receiver under Section 53 or on his failure to do so, on appropriate petition to get it annulled, the insolvency Court can annul the transaction at that stage. She referred to the decisions of this High Court in Gutta Nirmala (supra), Dara Mohan Muralidhar (supra); and further Gounda Mohammed Yousuf and others Vs. Shaik Saheb and others7 and Tatiparthy Satyanarayana Vs. Palacherla Vijayalakshmi and others8.

#17. In reply the learned counsel for the appellants submitted that act of insolvency cannot be decided now as the scope of the remand order is limited to fresh adjudication of the sales under Exs. A3 and A4 only.

#18. In Santosh Hazari (supra), the scope of jurisdiction of the appellate Courts to concur with or reverse the findings in the judgment impugned in appeal was held as follows: 2015 (6) ALD 166 7 8 2015 (6) ALD 15 15 BSB, J C.M.S.A.No.18 of 2014 “15. … The first appellate court has, in a very cryptic manner, reversed finding on question of possession and dispossession as alleged by the plaintiff as also on the question of adverse possession as pleaded by the defendant. The appellate court has jurisdiction to reverse or affirm the findings of the trial court. First appeal is a valuable right of the parties and unless restricted by law, the whole case is therein open for rehearing both on questions of fact and law. The judgment of the appellate court must, therefore, reflect its conscious application of mind and record findings supported by reasons, on all the issues arising along with the contentions put forth, and pressed by the parties for decision of the appellate court. The task of an appellate court affirming the findings of the trial court is an easier one. The appellate court agreeing with the view of the trial court need not restate the effect of the evidence or reiterate the reasons given by the trial court; expression of general agreement with reasons given by the court, decision of which is under appeal, would ordinarily suffice (See Girijanandini Devi v. Bijendra Narain Choudhary [AIR 1967 SC 1124] ). We would, however, like to sound a note of caution. Expression of general agreement with the findings recorded in the judgment under appeal should not be a device or camouflage adopted by the appellate court for shirking the duty cast on it. While writing a judgment of reversal the appellate court must remain conscious of two principles. Firstly, the findings of fact based on conflicting evidence arrived at by the trial court must weigh with the appellate court, more so when the findings are based on oral evidence recorded by the same Presiding 16 BSB, J C.M.S.A.No.18 of 2014 Judge who authors the judgment. This certainly does not mean that when an appeal lies on facts, the appellate court is not competent to reverse a finding of fact arrived at by the trial Judge. As a matter of law if the appraisal of the evidence by the trial Court suffers from a material irregularity or is based on inadmissible evidence or on conjectures and surmises, the appellate court is entitled to interfere with the finding of fact. (See Madhusudan Das v. Narayanibai