Full Judgment Text
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PETITIONER:
JOHRILAL SONI
Vs.
RESPONDENT:
SMT. BHANWARI BAI
DATE OF JUDGMENT01/08/1977
BENCH:
FAZALALI, SYED MURTAZA
BENCH:
FAZALALI, SYED MURTAZA
UNTWALIA, N.L.
CITATION:
1977 AIR 2202 1978 SCR (1) 231
1977 SCC (4) 59
ACT:
Provincial Insolvency Act 1920-Section 453-Whether transfers
effected more than 2 years prior to commencement of
insolvency proceedings can be declared void and inoperative
by insolvency court-Difference between void and voidable
transfers.
HEADNOTE:
Pyare Lal Gupta, an insolvent, executed a deed of gift in
favour of his wife about 7 years before an application under
s. 10 of the Provincial insolvency Act 1920 was made for
adjudging him as an insolvent. The appellant was appointed
as a Receiver by the Court. He made an application under s.
4 of the Act for declaring the deed of gift as void and
inoperative on the ground that it was a sham transaction.
The Insolvency Court upheld the plea of the appellant and
declared the deed of gift as being void and inoperative.
The respondent donee filed an appeal to the High Court
challenging the judgment of the Insolvency Court on the
ground that s. 53 of the Act does not authorise an
Insolvency Court to decide questions about title or validity
in respect of transfers made during a period beyond two
years of the commencement of the Insolvency proceedings.
The High Court upheld the contention of the respondent.
In an appeal by certificate the appellant contended that the
High Court had taken an erroneous view of s. 53 of the Act.
Section 53 merely deals with voidable transfer and not void
transfer. The respondent contended that since the gift was
made about 6 1/2 years before the insolvency proceedings
began, the Insolvency Court could not examine the question
of title.
Allowing the appeal,
HELD : Section 4 of the Act empowers the Insolvency Court to
decide all questions whether of title or of priority or of
any nature whatsoever which may arise in any case of
insolvency. The said provision is, however, subject to the
other provisions of the Act. Under s. 53 any transfer of
property not being made before and in consideration of
marriage or made in favour of a purchaser or encumbrance in
good faith and for valuable consideration shall if the
transferor is adjudged insolvent on a petition presented
within two years after the date of the transfer, is
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voidable, against the Receiver and may be annulled by the
court. Section 53 only deals with transfers which are
voidable. There is a well known distinction between a void
and a voidable transfer. 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, 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. Such a transfer clearly falls
outside the purview of s. 53. The limitation of two years
imposed by s. 53 applies only to voidable transfers. [23314,
234A-E]
Haji Anwar Khan v. Mohammad Khan & Ors. AIR [1929] All.
105, referred to.
Madan Kumar and Anr. v. M/s. Hart Narain Agrawal & Ors.
A.I.R. [1977] All. 141; Padamsi Premchand and Ors. v.
Laxman.Vishnu Deshpande and Ors. AIR [1949] Bom. 129; Radha
Krishna Thakur and Anr. v. Official Receiver AIR [1932] Cal.
642; Biseswar Chaudhuri v. Kanhai Singh AIR [1932] Pat. 129;
G. N. Godbole v. Mi. Nani Bai AIR [1938] Nag. 546 and Budha
Mal v. Official Receiver AIR [1930] Lah. 122, approved.
232
Amjad Ali Ors, v. Nand Lal Tandon and Ors. AIR [1930] Oudh.
314, over-ruled.
JUDGMENT:
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 149 of 1976.
From the Judgment and Order dated 26-9-1973 of the
Rajasthan High Court in D. B. Civil Insolvency Appeal No. 50
of 1972.
Badri Das Sharma and S. R. Srivastava for the Appellant.
O. P. Verma for the Respondent.
The Judgment of the Court was delivered by
FAZAL ALI, J.-To what extent is S. 4 of the Provincial
Insolvency Act, 1920 controlled by s. 53 of the said Act in
the matter of determination of the question of title of a
property transferred by the insolvent before he was declared
insolvent is the serious question of law which is involved
in this appeal by certificate. 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
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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.
233
In support of the appeal, learned counsel for the appellant
submitted that the High Court had taken an erroneous view of
the law and had misconstrued the scope and ambit of s. 53 of
the Act. Learned counsel for the respondent, however,
supported the stand taken by the High Court and submitted
that as the gift was made about 61 years before the
proceedings began, the Insolvency Court could not examine
the question of title. A number of authorities have been
cited by counsel for the parties in support of their
respective submissions, but we think the question lies
within a very narrow compass. It would appear that s. 4 of
the Act was not there in the Insolvency Act of 1907, but was
introduced for the first time by Act 5 of 1920. Before
1920, the Provincial Insolvency Act did not contain any such
provision as a result of which there was a serious
divergence of judicial opinion on the question as to whether
or not an Insolvency Court could determine a question of
title regarding a transfer made by the insolvent. Act 5 of
1920, however, set at rest this controversy and gave wide
powers to the Insolvency Court to determine questions of
title.
We now proceed to interpret the provisions of s. 4 itself,
the relevant part of which may be extracted thus
"4. (1) Subject to the provisions of this Act,
the Court shall have full power to decide all
questions whether of title or priority, or of
any nature whatsoever, and whether involving
matters of law or of fact, which may arise in
any case of insolvency coming within the
cognizance of the Court, or which the Court
may deem it expedient or necessary to decide
for the purpose of doing complete justice or
making a complete distribution of property in
any such case."
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 that- 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
become inapplicable. Counsel for the respondent strongly
relied on the provisions of s. 53 which runs thus
"53. Any transfer of property not being a
transfer made before and in consideration of
marriage or made in favour of a purchaser or
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incumbrancer in good faith and for valuable
consideration shall, if the transferor is
adjudged insolvent on a petition presented
within two years after the date of the
transfer, be voidable as against the receiver
and may be annulled by the Court."
It was submitted that the effect of s. 53 of the Act clearly
is that it bars the jurisdiction of the Insolvency Court to
determine the validity
4-768SCI/77
234
of any transfer made beyond two years of the transferor
being adjudged insolvent. It is 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. For 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 law. 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 of time.
Reliance was placed by counsel for the appellant on a Full
Bench decision of the Allahabad High Court in Haji Anwar
Khan v. Mohamad Khan & Ors(1) where the following two
questions were referred for the decision of the Full Bench :
" (1 ) Whether an insolvency Court can try a
question of title raised on the basis of a
transfer which took place more than two years
prior to the adjudication, having regard to
the provisions of s. 53, Insolvency Act ?
(2) Would it make any difference if the
receiver alleges that no transfer had been
intended from the very beginning and no title
had passed, the transaction being a mere
paper transaction and void
After discussing a large number of authorities, Dalal, J.,
answered the first question in the affirmative and held that
an Insolvency Court could try a question of title raised on
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the basis of a transfer which
(1) A.I.R. 1929 All. 115.
235
took place two years prior to the adjudication, but the
learned Judge, however, refrained from giving any opinion on
the other question, which in our opinion was the most
pertinent question to be answered having regard to the
specific distinction made by s. 53 between void and voidable
transactions. Sen, J., appears to have sounded a discordant
note in observing as follows :
"My answer to the reference is (1) An
insolvency Court cannot try a question of
title relating to a transfer which has taken
place more than two years before the order of
adjudication having regard to the provisions
of s. 53, Insolvency Act.
(2) Where the transfer was intended not to
be operative from the beginning and the
insolvent had remained in possession of the
property the receiver may apply for its
annulment. But where the transfer was
executed by a proper instrument and duly
registered and was intended to put the
property beyond the reach of the creditors and
a third party is claiming under the transfer,
such a transaction cannot be treated as a mere
paper transaction."
We feel that the view of Sen. J., appears to be based on a
correct interpretation of ss. 4 and 53 of the Act. King,
J., agreed with Dalal, J., and observed as follows
"I see no difficulty, therefore, in giving a
meaning and effect to the words "subject to
the provisions of this Act" without construing
them in the restrictive sense suggested by my
learned brother Sen, J. In my opinion they do
not bar the jurisdiction of the insolvency
Court to decide a question of title under the
ordinary law when the special provisions of
the Act do not apply."
In a later decision of the Allahabad High Court in Madan
Kumar and Anr. v. M/s. Hari Narain Agrawal and Ors (1)
following the Full Bench decision referred to above, it was
observed as follows
"As observed earlier, Section 53 refers to
transfers which are only voidable and it does
not cover a case where the transfer is claimed
to be void since its inception. The bar of tw
o
years provided for in Section 53 should not
therefore, apply to a transaction which is
claimed to be void."
We are of the opinion that the learned Judge has laid down
the Correct law on the subject. A Full Bench of the Bombay
High Court in Padamsi Premchand and others v. Laxman Vishnu
Despande and others(2) has taken the same view, which we
have taken. In that
(1) A.I.R. 1977 All. 141.
(2) A.I.R. 1949Bom. 129.
236
case, and which we feet is based on a correct and true
interpretation of ss. 4 and 53 of the Act, after considering
the history of the Act,,. Chagla, C. J., speaking for the
Court observed as follows :
"It is perfectly true that S. 4 is merely
declaratory of the junsdiction of the
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insolvency Court.......... Therefore, Mr.
Desai is right when he says that if a
transaction falls within the ambit of s. 53,
then it can only be challenged provided the
conditions laid down in that section are
satisfied......
In our opinion transactions which are
challenged on the ground of their being
fictitious or nominal do not fall within the
ambit of s. 53, then s. 4 is wide enough to
confer upon the insolvency Court jurisdiction
to decide whether these transactions were in
fact nominal or fictitious."
We find ourselves in complete agreement with the view
expressed by Chagla, C.J., in the aforesaid decision. The
Bombay High Court further pointed out that the same view was
taken by the Calcutta High Court in Radha Krishna Thakur and
Anr v. Official Receiver,(1) by the Patna High Court in
Biseswar Chaudhuri v. Kanhai Singh (2) the Nagpur High Court
in G. N. Godbole v. Mt. Nani Bai,(3) and the Lahore High
Court in Budha Mal v. Official Receiver.(4) The only
decision which appears to have taken a contrary view is of
the Oudh Chief Court in Amjad Ali and others v. Nand Lal
Tandon and others(5) which appears to be the shoot-anchor of
the argument of the learned counsel for the respondent. The
Oudh Chief Court observed as follows
"We do not consider that where in s.
5 3 which is governed by this heading the Act
gives the Court power to annul transactions
entered into, within two years we should go
out of our way to find that a general section
in the same Act gives power to the Court to
annul transactions which may have been
entered into at any time and which are void able
under the ordinary law under s. 53, T. P. Act.
In our 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
(1) A.I.R. 1932 Cal. 642.
(2) A.I.R. 1932 Pat. 129.
(3) A.I.R. 1938 Nag. 546.
(4) A.I.R. 1930 Lah. 122.
(5) A.I.R. 1930 oudh. 314.
237
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.
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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.
We, therefore, allow the appeal, set aside the judgment of
the High Court and remit the case back to it for a fresh
disposal of the appeal on merits. We make no order as to
costs.
P.H.P.
Appeal allowed.
238