Facts
In 1963, a partnership was formed in the name of M/s Gavisiddheshwara & Co. by Allam Karibasappa and others. The father of the appellants, Singamasetty Subbarayudu, was taken into the partnership. After Subbarayudu passed away in 1975, his son (the appellant) was inducted thereafter. Allegedly, due to indebtedness, he offered to sell his share of one anna in the partnership. Karibasappa allegedly accepted the offer, stated he would pay ₹95,000, and sought the transfer thereafter. Insolvency proceedings were initiated against the appellant and his mother in 1977. Karibasappa applied before the District Court for recognition of his rights. In 1983, the District Court allowed the transfer of the said share to Karibasappa, which was then registered. Later, in 1996, the insolvency was annulled. After remand, the District Court (2004) wrote that the alleged offer and acceptance had been fabricated, cancelled the transfer deed, and restored the appellant’s share in the partnership. The Karnataka High Court writing in 2011, and reversing the District Court’s judgment, accepted the transfer as valid under Section 37 of the Provincial Insolvency Act, 1920.
Issues
- The legitimacy of the transfer deed dated 11.03.1983 made by the Official Receiver on behalf of the Karibasappa, when the insolvency was discharged at that point.
• Whether the documents invoked in support of the offer and counteroffer (Exs. P4 – P7) were duly executed.
• Whether the High Court was correct in reversing the detailed conclusions of the District Court without a proper re-assessment of the evidence.
Legal Provisions
– Provincial Insolvency Act 1920: Sections 4, 5, 35, 37, 55
– Civil Procedure Code 1908: Sections 144, 151, 94
– Relevant cases: Babu Ram v. Indra Pal Singh (1998) 6 SCC 358; Arora Enterprises Ltd v. Indubhushan Obhan (1997) 5 SCC 366; Santosh Hazari v. Purushottam Tiwari (2001) 3 SCC 179
Arguments
Respondent
The respondents contended that Section 37 of the Provincial Insolvency Act, 1920 safeguards all actions that were validly taken by the Court or the Official Receiver, prior to the annulment of the insolvency. They argued that the transfer deed dated 11.03.1983 was issued as a result of a District Court order, therefore, it was a proper and valid disposition and could not be unwound just because the issues surrounding the insolvency were later revoked. They argued that the annulment does not retrospectively invalidate valid acts of the Receiver undertaken at the time of insolvency. The respondents supported their position with reference to Babu Ram v. Indra Pal Singh (1998) and Arora Enterprises Ltd. v. Indubhushan Obhan (1997), both of which recognized the simple idea that bona fide dealings to change position during insolvency proceedings are validated even if the adjudication is subsequently annulled.
Appellant
The appellants contended that the entire claim of the respondents rested on fabricated and unreliable documents purporting to show an offer and acceptance of the sale of their share in the partnership. The District Court, on remand, had meticulously examined the documentary and oral evidence and found that the alleged letters of offer and acceptance (Exs. P4–P7) were concocted and did not establish any concluded agreement. The appellants contended that, as the substance of the transfer was spurious, the deed made in 1983 was not a “duly made” disposition for the purposes of s. 37 of the Act. They further argued that the judge had made an error by overlooking these findings of fact and then merely stating and presuming the existence of a transfer deed as valid only because it had been executed during the window of insolvency proceedings. The appellants stated the judge’s consideration was superficial as there was no reappraisal of evidence, and that it was all different to the settled principles for an appeal.
Analysis
- Section 37 protects only “sales and dispositions duly made” by the Court/Receiver. To obtain protection, there must be evidence of the commercial nature and completion of the transaction.
- The District Court thoroughly addressed and assessed the alleged offer/acceptance and deemed it created, inconsistent and therefore disallowed the respondents claim.
- The High Court erroneously construed the transfer deed as finalized, even though it initially declared parts of the District Court 1983 judgment as void under its remand order
- As per Santosh Hazari, when an appellate court is to relive, reverse or set aside factual findings, it must provide detailed reasons which the High Court did not regard or apply.
Judgment
The Court allowed the appellants appeals, set aside the High Court of Karnataka judgment (25.02.2011) and restored District Court decision of 2004 declaring the transfer deed cancelled. The connected appeals from the respondents were dismissed.
Conclusion
The Court reaffirmed Section 37 of the Provincial Insolvency Act applies only to valid and duly concluded transactions. There cannot be protection to fabricated or doubtful documents from insolvency proceedings. The judgment reiterates court concerns regarding the duty of appellate courts to reappreciate evidence – evidencing what may reverse trial courts findings and clarifies that without finality of annulled insolvency documents, normal rights of the debtor are once restored, unless parties prove bona fide transactions.
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Written by- Anwesha Anant
For reading more: Singamasetty Bhagavath Guptha & Anr. v. Allam Karibasappa (D) by LRs.
