Madrasreserved High Court · 2025

A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 APPLICATIONS under Orders IX & XIV Rules 2 and 3 of the Insolvency Rules read with Sections 7, 55, 58 and 68 of the Presidency Towns Insolvency Act praying to (i) to declare that the sale deed dated 03.10.2018 registered as Document No. 3760 of 2018 on the file of Sub-Registrar, Kodambakkam for Rs.1,03,00,000/- made within two years from the date of adjudication of the insolvents viz. C.Periyasamy, C.Ramesh, C.Balasubramaniam and C.Rajendran as null and void under Section 55 of the Presidency Towns Insolvency Act and continue to be the property of the said C. Periasamy, C.Ramesh, C.Balasubramaniam and C.Rajendran and vest in the Official Assignee, High Court, Madras (A.No.92 of 2020);(ii) to consequently declare that the mortgage deed dated 29.11.2018 and registered as Document No.4542 of 2018 before the S.R.O., Kodambakkam executed by the purchasers 5th and 6th respondents viz. Paramasivam and his wife Muthulakshmi in favour of the 8th respondent - Syndicate Bank as null and void (A.No.93 of 2020);(iii) to order directing the 8th respondent herein - Syndicate Bank, Aminjikarai Branch to hand over all the title deeds relating to 2/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 the property deposited with them on 29.11.2018 to the Official Assignee or suitable warrant of seizure may be issued in favour of the Official Assignee to seize the documents of title and the property held by the 8th respondent (A.No.94 of 2020);(iv) to declare that the preferential payment of Rs.2,00,000/- three months prior to the date of insolvency by adjustment in the sale consideration on 03.10.2018 by 5th respondent is void against the Official Assignee and consequently direct the respondents 5 and 6 to return the sum of Rs.2.00.000/- with interest at 18% p.a. from 30.10.2018 till realization to the estate for the benefit of general body of creditors (A.No.95 of 2020);(v) to order of injunction restraining the respondents 5 to 8, their agents, men, servants or anybody else claiming through them from alienating the property viz land and building at Old No.8 and New No.6, Thirukumarapuram 4th Street, Arumbakkam Chennai-106 measuring to an extent of 2,040 sq.ft. more fully described in the schedule to the application pending disposal of the above petition under Sections 55 and 56 of the Presidency Towns Insolvency Act (A.No.96 of 2020); and 3/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 (vi) to permit an order of the Official Assignee to sell the property at Old No.8 and New No.6, Thirukumarapuram 4th Street, Arumbakkam, Chennai-106 measuring to an extent of 2,040 Sq.ft. more fully described in the schedule to the application for the benefit of the General Body of Creditors (A.No.97 of 2020).Schedule(Description of Property)All that piece and parcel of property, comprised in T.S.No.4/2, Patta T.S.No.4/7, Block No.1, measuring an extent of 2,040 sq.ft. land with building bearing old door No.8, new door No.6, plot No.3, Thirukumarapuram 4th Street, Arumbakkam, Chennai-600106 situated at No.109, Puliyur Village, Egmore Taluk, Chennai District.North by: Plot No.2, T.S.No.4/2South by:Plot No.3A, T.S.No.4/3AEast by:Thirukumarapuram 4th StreetWest by: T.S.No.5measuring North : 79 feet, South : 76 feet, East : 29 feet & West : 24 feetin all total measuring an extent of 2,040 sq.ft. land with building situated within the Sub-Registration District of Kodambakkam and Registration District of Chennai Central. 4/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 For Applicant in all the applications: Mr.K.V.AnanthakrushnanFor R1 to R4 inall the applications :Mr.V.Raghavachari, SC forMr.C.RameshFor R5 & R6 in all the applications:Mr.J.SenthilkumarCOMMON ORDERThese applications have been filed by the Official Assignee seeking for a declaration to declare the sale deed dated 03.10.2018 registered as doc.No.3760 of 2018 on the file of the Sub-Registrar, Kodambakkam as null and void under Section 55 of the Presidency Towns Insolvency Act, 1909 (for short, the Act) and for other consequential reliefs. 2. During the pendency of these applications, Syndicate Bank was merged with Canara Bank. Therefore, at the instance of the Official Assignee, the cause title was amended by a common order dated 09.2.2024 in Appln.Nos.266 to 271 of 2023.3. Heard both.5/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 4. The case of the applicants are as follows :(i) Respondents 1 to 4 owned a property at old door No.8, new door No.6, plot No.3, Thirukumarapuram 4th Street, Arumbakkam, Chennai-106 measuring an extent of 2,040 sq.ft (hereinafter called the subject property). They sold the subject property in favour of respondents 5 and 6 through a sale deed dated 03.10.2018 registered as doc.No.3760 of 2018 on the file of the Sub-Registrar, Kodambakkam. Thereafter, they filed I.P.No.32 of 2018 on 30.11.2018 and by order of this Court dated 13.12.2018, they were adjudicated as insolvents. Consequent upon the order of adjudication, the assets of the insolvents vested with the Official Assignee for realization and distribution among the general body of creditors. (ii) Pursuant to the said adjudication order, the insolvents disclosed in their statement that they owned the subject property and that they had mortgaged it with the 7th respondent bank. The fifth respondent was also a creditor of the insolvents. In order to recover the amounts paid to them, the fifth respondent forced and coerced them to sell away the subject property so that the money due and payable to him would be adjusted in the sale consideration. Hence, the sale deed dated 03.10.2018 was executed under coercion in favour of 6/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 both the fifth respondent as well as the sixth respondent, who is none other than the wife of the fifth respondent.(iii) Out of a total sale consideration of Rs.1.03 Crores, a sum of Rs.2 lakhs, which was due and payable to the fifth respondent, was adjusted. Thus, the preferential payment was also made in favour of the fifth respondent. (iv) It was under those circumstances, the above applications came to be filed before this Court by the Official Assignee seeking to declare the sale deed dated 03.10.2018 as null and void and for other consequential reliefs. 5. The fifth respondent filed a counter for himself and on behalf of the sixth respondent wherein they took the following stand :(i) Respondents 5 and 6 belong to the same locality. The insolvents, who were facing the proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity, the SARFAESI Act) initiated by the 7th respondent bank, approached respondents 5 and 6 with a request to sell away the subject property and to settle the loan availed from the 7th respondent bank. On such a request made by the insolvents, the 7/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 fifth respondent approached the Branch Manager of the 7th respondent bank and after verification, it was confirmed that the loan amounts were outstanding and that if the entire amount was paid, the 7th respondent bank would be willing to cancel the mortgage and issue the receipt.(ii) Pursuant to that, the fifth respondent approached his banker namely the 8th respondent bank and applied for a loan. On processing the papers, the fifth respondent was found to be eligible for an amount of Rs.70 lakhs. Further, the 8th respondent bank also transferred the said sum of Rs.70 lakhs to the 7th respondent bank and the mortgage was cancelled on 01.10.2018 vide four deeds of cancellation registered as doc.Nos.3728 to 3731 of 2018 on the file of the Sub-Registrar, Kodambakkam. (iii) After the mortgage was discharged and upon acknowledging the total sale consideration of Rs.1.03 Crores, the insolvents executed the sale deed dated 03.10.2018 in favour of respondents 5 and 6. (iv) Respondents 5 and 6 claimed to be the bona fide purchasers for value and they questioned the intention of the insolvents in suppressing the fact of pendency of the proceedings under the SARFAESI Act and discharge of the loan amount by the fifth 8/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 respondent. Apart from that, respondents 5 and 6 also took a stand that they spent more than Rs.25 lakhs in improving the subject property and that they were also repaying the loan amount that was taken from the 8th respondent bank for the discharge of the loan amount of the insolvents. Ultimately, they sought for dismissal of these applications. 6. The matter was sent to the Master for recording evidence. the Assistant Section Officer in the office of the Official Assignee, High Court, Madras was examined as P.W.1 and Ex.A1 to Ex.A8 were marked on the side of the applicant. The fifth respondent was examined as R.W.1 and Ex.R1 to Ex.R9 were marked on the side of respondents 5 and 6. 7. Thereafter, the above applications were placed before this Court for final arguments.8. The learned counsel appearing on behalf of the Official Assignee submitted as follows :9/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 (a) While assailing the sale deed dated 03.10.2018 executed in favour of respondents 5 and 6, the first ground that was raised was that the fifth respondent was already a creditor of the insolvents since they owed a sum of Rs.2 lakhs to the fifth respondent. According to him, since the insolvents made preferential payment to one of the creditors within a period of three months of presenting the petition to adjudge themselves as insolvents, such payment is deemed to be fraudulent and void as against the Official Assignee in terms of Section 56 of the Act. (b) The second ground that was raised was that any transfer of property made by the insolvents within two years of they being adjudged as insolvents would be considered as a void transfer in terms of Section 55 of the Act. (c) Even though Sections 56(2) and 57 of the Act protect the rights of a person, who has acted in good faith and for a valuable consideration, the case in hand clearly demonstrates the fact that there were no bona fides on the part of respondents 5 and 6, that the subject property has been undervalued, that the transaction had taken place within two months of presenting their own petition to adjudge themselves as insolvents and that by order dated 13.12.2018, they 10/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 were also adjudged as the insolvents. In fine, he prayed for allowing all the above applications with costs.9. Per contra, the learned counsel appearing for respondents 5 & 6 submitted as follows :(a) The subject property was already entangled in the proceedings under the SARFAESI Act. Since the insolvents desperately tried to discharge the loan of the secured creditors, they approached the fifth respondent, who, in turn, has taken a loan from the 8th respondent bank, discharged the loan of the insolvents and purchased the subject property for a total sale consideration of Rs.1.03 Crores. Under such circumstances, the Proviso to Section 17 of the Act will come into play and by equity of redemption, respondents 5 and 6 will step into the shoes of the 7th respondent bank. In view of the same, the transaction cannot be held to be void. (b) The insolvents have attempted to cheat respondents 5 and 6 by managing to get the loan discharged and immediately thereafter filed the petition before this Court on their own to adjudge themselves as insolvents. Such a conduct on the part of the insolvents is stained with malice. The insolvents took a false stand before this Court in the 11/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 petition to adjudge themselves as insolvents that they were coerced to sell away the subject property in favour of respondents 5 and 6. Accordingly, he sought for dismissal of all the above applications.10. This Court has carefully considered the submissions of the learned counsel on either side and perused the materials available on record. 11. The short issue that arises for consideration is as to whether there was any preferential payment made in favour of respondents 5 and 6 and as to whether the same can be avoided by the Official Assignee under Section 56 of the Act and also as to whether the sale of the subject property in favour of respondents 5 and 6 can be rendered void in the light of Section 55 of the Act. 12. Ex.R1 to Ex.R4 marked on the side of respondents 5 and 6 would show that the insolvents had mortgaged the subject property while availing a loan facility from the 7th respondent bank. Thus, the insolvents owed money payable to a secured creditor. It is quite evident from these documents that the loan amount was discharged 12/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 and that the mortgage was cancelled and registered as doc.Nos.3728 to 3731 of 2018 dated 01.10.2018. 13. In the sale deed dated 03.10.2018, which was executed by the insolvents in favour of respondents 5 and 6, there is a specific recital at page No.11 that they were selling the subject property in order to meet urgent family expenses and for settling the loan that was availed by them. The total sale consideration was fixed at Rs.1.03 Crores. The manner, in which, the sale consideration was paid/ adjusted is extracted as hereunder :'Nkw;gb fpiua njhifapid jhq;fs; ,UtUk; vq;fs; ehy;thplk; nrYj;jpa tptuk; gpd;tUkhW :1. Nkw;fz;l fpiua njhifapypUe;J &gha; 2>00>000/- (vOj;jhy; &gha; ,uz;L yl;rk; kl;Lk;)-j;jpid fle;j fhyj;jpy; ntt;NtW Njjpfspy; jq;fs; ,UthplkpUe;J nuhf;fkhfTk;> 2. ,e;j nrhj;jpid jhq;fs; ,UtUk; fpiuak; ngWtjw;fhf jhq;fs; ,UtUk; rpd;bNfl; tq;fp> mike;jfiu fpisapd; thapyhf fld; ngWk; njhifapypUe;J rpd;bNfl; tq;fp epWtdNk jq;fs; 13/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 ,UtUila rhh;ghf &gha; 70>00>000/- (vOj;jhy; &gha; vOgJ yl;rk; kl;Lk;)-j;jpid fldhfTk; kw;Wk; Vw;fdNt jhq;fs; ,UtUk; Nkw;fz;l tq;fpapy; jhq;fs; ,UtUk; ,Ug;G itj;jpUf;Fk; njhifapidAk; Nrh;j;J Mf nkhj;jk; kPjKs;s fpiua njhifahd &gha; 1>01>00>000/- (vOj;jhy; &gha; xU NfhbNa xU yl;rk; kl;Lk;)-j;jpid ehq;fs; ehy;tUk; ,Ug;G itj;jpUf;Fk; rpd;bNfl; tq;fp Nfhlk;ghf;fk; fpisf;F> jyh &gha; 25>25>000/- (vOj;jhy; &gha; ,Ugj;jp Ie;J yl;rj;J ,Ugj;jp Ie;jhapuk; kl;Lk;)-j;jpid vq;fs; ehy;thpd; tq;fp fzf;fpw;F gz ghpkhw;wk; nra;Jk;> Mf nkhj;jk; Nkw;fz;l fpiua njhifahd &gha; 1>03>00>000/- (vOj;jhy; &gha; xU NfhbNa %d;W yl;rk; kl;Lk;)-j;jpid Nkw;fz;lthW> ehq;fs; ehy;tUk; jdp jdpahf jq;fs; ,UthplkpUe;J ngw;Wf;nfhz;L vq;fs; ehy;tUila trk; gw;whfptpl;lgbahy;> ,d;Nw ,jd;fPo; nrhj;J tptuj;jpy; tpthpf;fg;gl;Ls;s jq;fs; ,Uthpd; ngaUf;F fpiuak; nra;Jk; jq;fs; ,UtUila RthjPdj;jpYk; xg;gilj;Jk; tpl;Nlhk;."14. It is quite clear from the above extracted portion in the sale deed dated 03.10.2018 that the total sale consideration of Rs.1.03 14/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 Crores consisted of a major portion amounting to a sum of Rs.70 lakhs, which was the loan availed by the insolvents from the 7th respondent bank and which was settled by respondents 5 and 6. The sale consideration also had a minuscule portion of Rs.2 lakhs, which was said to have been borrowed from respondents 5 and 6 by the insolvents on various dates. 15. In so far as the subject property is concerned, it is quite evident from the valuation report marked as Ex.A.7 that the total value of the subject property including the land and building was Rs.1,89,91,000/-. This valuation report was prepared on 30.8.2019 whereas the sale deed was executed on 03.10.2018 and at that point of time, the subject property was mortgaged with the 7th respondent bank. Further, steps were already initiated for recovering the amount under the SARFAESI Act. Hence, in such a scenario, the value of the subject property will obviously be lesser than what it was valued after more than a year when it was free from any encumbrance. In other words, the value of the subject property is bound to differ when it is under encumbrance and when it is free from encumbrance.15/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 16. The insolvents, while filing I.P.No.32 of 2018, conveniently concealed the fact that the loan amount payable to the 7th respondent bank was discharged by respondents 5 and 6. The insolvents also took a stand before this Court that the fifth respondent forced them to execute a sale deed to discharge the loan taken from the 7th respondent bank. The stand taken by the insolvents within two months of selling away the subject property in favour of respondents 5 and 6 is unbelievable and is not well intended. No reasonable thinking man will believe that a creditor, to whom the insolvents owe a sum of Rs.2 lakhs, will force the insolvents to sell away the subject property, for which, the creditor, apart from adjusting the said sum of Rs.2 lakhs, also paid a sum of Rs.1.01 Crores. This stand taken by the insolvents is so unnatural and cannot at all be sustained. 17. As stated supra, there is no dispute with regard to the fact that the insolvents had taken loan from the 7th respondent bank and that the subject property had been mortgaged. If the subject property had not been sold in favour of respondents 5 and 6, the secured creditor namely the 7th respondent bank would have proceeded further to recover the loan amount by bringing the subject property for 16/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 sale. Under such circumstances, the Proviso to Section 17 of the Act would have come into play. This Proviso, which acts as an exception to the main provision, makes it clear that even if an order of adjudication has been passed, that will not affect the power of any secured creditor to realize or otherwise deal with the security in the same manner as it would have been entitled to realize or deal with the subject property if this Section had not been passed. 18. Hence, if the subject property had not been sold in favour of respondents 5 and 6 and the insolvents were adjudged by the order of this Court dated 13.12.2018, even thereafter, the 7th respondent bank would be entitled to recover the amount and deal with the subject property. Instead, respondents 5 and 6 discharged the loan taken by the insolvents from the 7th respondent bank and the amount was adjusted towards total sale consideration. While making the adjustment in the sale consideration, a small sum of Rs.2 lakhs, which was due and payable by the insolvents to the fifth respondent, was also adjusted. This will not tantamount to preferential payment to one of the creditors. That is the reason as to why Section 56(2) of the Act protects the rights of any person acting in good faith and for valuable 17/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 consideration. 19. Respondents 5 and 6 had availed the loan from the 8th respondent bank and out of the loan amount that was sanctioned by the 8th respondent bank, the loan amount payable by the insolvents to the 7th respondent bank was discharged. Towards the said loan taken by the respondents 5 and 6 from the 8th respondent bank, the subject property has been given as a security by deposit of title deeds. This is evident from Ex.R6. Before the loan amount was sanctioned by the 8th respondent bank, the subject property was valued and the loan amount was sanctioned as per the valuation. Thus, the entire transaction was done in a transparent manner. 20. During the cross examination of P.W.1, she stated that the Official Assignee was aware that the property in question was a secured asset of the insolvents. She also admitted the fact that the sale consideration was utilized towards discharge of the loan availed by the insolvents from the 7th respondent bank. 18/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 21. In the cross examination of R.W.1, he spoke about the loan amount in the 7th respondent bank, which was discharged and which was adjusted towards the sale consideration and the mortgage of the subject property with the 8th respondent bank subsequently. R.W.1 also stated that he was not aware of the fact that the insolvents were indebted to several persons. 22. On a cumulative reading of the evidence recorded and the documents marked, the following facts emerge :The subject property was already mortgaged with the 7th respondent bank. As there was some default in the repayment of the loan, the proceedings were initiated under the SARFAESI Act by the 7th respondent bank to recover the loan availed by the insolvents. During the pendency of the proceedings under the SARFAESI Act, the insolvents wanted to discharge the loan amount and hence, approached respondents 5 and 6, who also discharged the loan amount availed by the insolvents with the 7th respondent bank and the amount was adjusted towards sale consideration. This amount was paid by respondents 5 and 6 by availing a loan from the 8th respondent bank and the subject property was given as a security for 19/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 the loan availed by them with the 8th respondent bank. 23. In such circumstances, the transfer of property made in favour of respondents 5 and 6 must be held to be a transaction made in good faith and for a valuable consideration. Therefore, it cannot be held to be a void transaction under Section 55 of the Act. 24. Section 57 of the Act comes into play in the present case. Section 55 of the Act grants protection to transfers made by an insolvent provided the conditions specified under it are satisfied. The exception will operate where the transfer was for a valuable consideration and the transferee did not have the notice of presentation of the insolvency petition by or against the debtor. 25. In the case in hand, the insolvents managed to file the petition to adjudicate themselves as solvents within two months of selling away the subject property in favour of respondents 5 and 6. 26. No doubt, the transaction in itself is an act of insolvency unless the party acted in good faith. In other words, bona fide 20/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 transactions are saved/protected under Section 57 of the Act. The bona fides of a transaction will depend upon the facts and circumstances of each case. 27. This Court finds that the subject property purchased by respondents 5 and 6 is a bona fide transaction made in good faith and for a valuable consideration. Hence, the protection under Section 57 of the Act will lean in favour of respondents 5 and 6. It must also be kept in mind that respondents 5 and 6 have virtually redeemed the subject property, which was mortgaged in favour of the 7th respondent bank. Once the amount is settled, equity of redemption will also go in their favour and they will virtually step into the shoes of the 7th respondent bank. This is yet another ground that is found in favour of respondents 5 and 6.28. The mere fact that a minuscule element of the sale consideration to the tune of Rs.2 lakhs, which was payable by the insolvents to the fifth respondent and which was adjusted towards the sale consideration, by itself, will not fall foul of Section 56 of the Act and it cannot be treated as a preferential payment made in favour of 21/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 one of the creditors. Section 56(2) of the Act will come into play. In the light of the above discussions, this Court does not find any merits in these applications. 29. Accordingly, all the above applications are dismissed. 10.10.2025Index : Yes Neutral Citation : Yes RS22/23 https://www.mhc.tn.gov.in/judis A.Nos.92 to 97 of 2020in I.P.No.32 of 2018 N.ANAND VENKATESH,JRSA.Nos.92 to 97 of 2020in I.P.No.32 of 2018 10.10.202523/23