APHC010061762018 IN THE HIGH COURT OF ANDHRA PRADESH (Special Original Jurisdiction) Wednesday, the seventh day of May, two thousand and twenty five The Honourable Ms. Justice B. S. Bhanumathi Civil Miscellaneous Second Between: Pulim Raghunadha Reddy Jonnala Saritha and others Counsel for the appellant: 1. Madhusudhan Reddy Pasunoor Counsel for the respondents: 1. Marella Radha The Court made the following: IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI (Special Original Jurisdiction) Wednesday, the seventh day of May, two thousand and twenty five Present The Honourable Ms. Justice B. S. Bhanumathi Civil Miscellaneous Second Appeal No.12 of 2018 Pulim Raghunadha Reddy ...Appellant and Jonnala Saritha and others ...Respondents Counsel for the appellant: Madhusudhan Reddy Pasunoor espondents: Court made the following: [3311] Wednesday, the seventh day of May, two thousand and twenty five ...Appellant ...Respondents 2 BSB, J C.M.S.A.No.12 of 2018 JUDGMENT: The Civil Miscellaneous Second Appeal is filed under Section 100 of C.P.C. against the judgment and decree dated 11.09.2017 dismissing A.S.No.13 of 2014 on the file of the Court of III Additional District Judge, Guntur, filed against the judgment and decree dated 08.11.2013 dismissing I.P.No.9 of 2011 on the file of the Court of Senior Civil Judge, Mangalagiri filed under Section 9 of the Provincial Insolvency Act, 1920 (hereafter referred as ‘the P.I. Act, 1920’) to adjudge the respondent No.1 as an insolvent and to annul or cancel the registered sale deed dated 22.01.2011 executed by the respondent No.1 in favour of the respondent No.2 in respect of I.P. schedule property. 2. The case of the appellant (herein after referred as 'petitioner') is, briefly, as follows: The petitioner agreed to lend an amount of Rs.3,00,000/- as hand loan at the request of the respondent No.1 and her husband. Accordingly, the petitioner deposited Rs.49,800/- on 05.01.2008 and Rs.49,500/- on 17.05.2008 and Rs.48,500/- on 02.01.2009 in the account of the respondent No.1. Interest payable was fixed at 24% per annum. As the respondent No.1 failed to repay the amount, the petitioner issued legal notice on 05.01.2011. The petitioner also filed O.S.No.13 of 2011 on the file of the Court of IV Additional Senior Civil Judge, Guntur, for recovery of Rs.2,31,843/-. The suit was decreed on 05.06.2013 in favour of the petitioner / plaintiff, with costs, for Rs.2,31,843/- and interest @ 6% per annum on the principal due of Rs. 1,47,800/- from the date of suit till payment. The respondent No.1 executed a sham and nominal document dated 22.01.2011 in favour of 3 BSB, J C.M.S.A.No.12 of 2018 the respondent No.2 in respect of the schedule property. Thus, as the respondent No.1 committed the act of insolvency, the said I.P. was filed. 3. The respondent No.1 filed counter denying borrowal of money from the petitioner and contending contrarily that the petitioner who is a relative had borrowed money from this respondent and the said amount was repaid by depositing it in the account of this respondent. 4. The respondent No.2 filed counter claiming to be a bona fide purchaser and further stating that by taking advantage of the amounts transferred by the petitioner in respect of a chit business between the petitioner and the husband of the 1st respondent, the petition was filed with false claim on account of escalation of prices of the schedule property. 5. The petitioner was examined as P.W.1. The respondent No.2 was examined as R.W.1, Suryadevara Vittal Babu was examined as R.W.2, Vakkalagadda Chandra Sekhar was examined as R.W.3. No documents were marked on behalf of the respondents. The respondent No.1 has not turned up as a witness. The following documents were marked on behalf of the petitioner: Exhibits Date Documents Ex.P1 22.01.2011 Certified copy of the sale deed executed by respondent No.1 in favor of the respondent No.2. Ex.P2 15.02.2011 Office copy of the legal notice along with postal receipts. Ex.P3 - Return notice. Ex.P4 - Postal acknowledgment. 4 BSB, J C.M.S.A.No.12 of 2018 6. After considering the evidence of the 2nd respondent / RW1 and the attestors of the sale deed examined as RWs 2 and 3, the trial Court held that the sale by the 1st respondent in favour of the 2nd respondent is genuine and the 2nd respondent is a bona fide purchaser. The petition was dismissed on 08.11.2013, on the premise that the petitioner had not filed any proof of advancement of the loan by crediting the amounts into the bank account of the 1st respondent or any iota of proof that there exists creditor and debtor relationship between them and that the petitioner had not filed any suit for recovery of the alleged hand loan and there was no adjudication of debt or unequivocal admission of debt by the 1st respondent which is a pre-requisite for maintainability of a petition under Section 9 of the P.I. Act, 1920 as enunciated by this High Court in Gunapati Radha Krishna Reddy Vs. Cheemala Venkata Raman1, wherein it is held as follows: "(6.) The I.P. filed by a creditor under Section 9 of the Act, however, stands on a different footing. Before he invokes the jurisdiction of the insolvency Court, there must exist the adjudication of the debt or the debts, vis-a-vis the proposed insolvent in his favour. That can be in the form of a decree passed by the competent Court of civil jurisdiction or an unequivocal declaration on the part of the proposed insolvent, before the proceedings are instituted. To put it differently, a creditor cannot institute proceedings under Section 9 of the Act, in the absence of any adjudication, as to the debts, or 12010 (3) ALD 721 5 BSB, J C.M.S.A.No.12 of 2018 unequivocal admission thereof, by a person proposed to be declared as insolvent." 7. Aggrieved by the same, the petitioner / appellant herein filed A.S.No.13 of 2014 on the file of the Court of III Additional District Judge, Guntur. The 1st respondent remained ex-parte. The 2nd respondent contested the appeal. During the course of hearing of the appeal, the appellant filed a copy of the judgment in O.S. No. 13 of 2011. After hearing both sides, the appellate Court dismissed the appeal by upholding the decision of the trial Court regarding the bona fide sale in favour of the 2nd respondent and non-adjudication of the debt by a decree as on the date of filing the petition under Section 9 of the P.I. Act, 1920, holding that mere filing of suit in O.S. No.13 of 2011 against the 1st respondent and obtaining decree in the suit subsequent to filing of the petition does not fulfil the requirement as held in the case of Gunapati Radha Krishna Reddy (1 supra). 8. Aggrieved by the judgment of the appellate Court, this appeal was filed by the appellant / petitioner. Here also, the 1st respondent refused to receive the notice in this appeal and remained ex-parte. The 2nd respondent contested this appeal. 9. It is contended by the appellant that both the Courts are wrong in dismissing the petition on the ground of non-adjudication of the debt by a competent civil Court though a decree passed as on the date of filing the petition under Section 9 of the P.I. Act, 1920 by relying on the decision in Gunapati Radha Krishna Reddy (1 supra) the facts of which are different as even no suit was filed therein, ignoring Sections 4, 9, 24, 28(7), 34(2) and Sections 45 to 50 of the P.I. Act, 1920 as per which adjudication of debts shall be done before the Official Receiver 6 BSB, J C.M.S.A.No.12 of 2018 appointed after adjudication of insolvency of the debtor by the insolvency Court in the petition under Section 9 of the P.I. Act, 1920. 10. The learned counsel for the appellant submitted that the insolvency Court has to decide whether the relationship of debtor and creditor exists between the petitioner / creditor and the respondent / debtor independently of the adjudication by a civil Court and that a decree of a civil Court in this regard is not a pre-requisite to file a petition under Section 9 of the P.I. Act, 1920. He referred to various decisions in this regard. He further submitted that the appellate Court failed to decide I.A. No.1615 of 2016 filed to receive additional evidence of certified copy of the judgment, dated 05.06.2013, in O.S. No.13 of 2011, which establishes the debt owed by the 1st respondent. He further submitted that the appellate Court simply confirmed the judgment of the Insolvency Court without application of mind, in-spite of admissions of R.W.1 about the suit filed by the petitioner against the 1st respondent. It was also contended that act of insolvency had been duly established by the petitioner, but the evidence had not been properly appreciated in this regard. 11. The main substantial question of law raised is - whether it is a condition precedent to file insolvency petition under Section 9 of the P.I. Act, 1920 to obtain a decree from a competent forum in respect of the debt regarding which the petition is filed? And nextly, whether the Courts below failed to consider the evidence on record regarding the pendency of the suit filed by the petitioner regarding the debt due by the 1st respondent and the intention of the 1st respondent in disposing of the property to the 2nd respondent to delay and defraud the creditors? 7 BSB, J C.M.S.A.No.12 of 2018 12. In so far as the question whether it is mandatory to obtain a decree regarding the debt before filing of the petition under Section 9 of the P.I. Act, 1920, the following cases cited were referred: a. In Mundla Gangi Reddi Vs. Golla Narasimha Reddi 2 , an insolvency petition was filed by a creditor and later another creditor was substituted. The debtor objected to adjudication at the instance of the said creditor alleging that this creditor had agreed to a composition scheme which had been accepted by other creditors also. The District Judge dismissed the petition on the ground that the case involves the decision of complicated questions of law and fact before it can be hold that a subsisting relationship of creditor and debtor has been satisfactorily established. In this backdrop of the facts, after examining Section 13(6) of the Presidency Towns Insolvency Act and Section 25 of the P.I. Act, 1920, it was held that it is obvious that the dismissal of the insolvency petition out right is wrong, because, even if the petitioning creditor goes to the civil Court and gets a decree against the respondent for the amount claimed, it will be by that time too late for him to bring any insolvency petition. b. In Shriram Latuji Vs. Saolaram Govind3, a creditor filed a petition under Section 9 of the P.I. Act, 1920. The observations in this case relevant to the present case are: “10. The debts alleged by the creditor fall under two heads: (1) judgment debts and (2) debts which form the subject matter of the two suits which may be described as non- 2AIR 1941 Madras 895 3AIR 1954 Nagpur 33 8 BSB, J C.M.S.A.No.12 of 2018 judgment debts. The debtor does not admit any of the debts. Where a debt is alleged and it is denied by a debtor, the duty of the insolvency Court is to examine into the existence of the debt. It cannot refer the creditor to another civil suit. … 11. The main question in this revision is whether it is open to the Insolvency Court to go behind a judgment debt at the instance of a debtor and enquire into his allegations as regards their existence. The provisions of Ss. 9 and 25 are similar to those in the Bankruptcy Act, 1883.” After referring to decisions of English Courts and text books it was held as follows: “16. It will thus be clear that under the Insolvency Act the Court has power to enquire into the genuineness of the debts denied by the debtor. There is no prohibition express or implied under the Act. The power extends to judgment debts also. The enquiry may be made at the instance of the official receiver or the debtor himself. This does not, however, mean that the Court is bound to enquire into the allegations of the debtor in every case. There may be a case in which the debt was contested in a regular suit and upheld. The debtor in such a case cannot ask the Insolvency Court to re-investigate the matter on the same allegations. 17. A judgment is 'prima facie' evidence against a debtor of the existence of a debt. There may be, however, cases in which a debtor is able to satisfy the Court that there is some reason why the judgment debt should not be conclusive. There may be circumstances tending to show that there has been fraud, collusion or miscarriage of justice calling for an enquiry. …” 9 BSB, J C.M.S.A.No.12 of 2018 c. In Devarinti Dasi Reddi Annaji Chinnappa Reddi and ors Vs. Dasari Venkobayya4, it was held as follows : “The learned District Judge was in error in holding that the creditor should prove the debtor's inability to pay his debts. The creditor need do no more than prove his right to present the petition and the alleged act of insolvency and then adjudication must follow unless the Court is satisfied by the debtor that he is able to pay his debts (S. 25 (1) Provincial Insolvency Act). This appeal is accordingly allowed.” d. In Yenumula Mulladora Vs. Peruri Seetharathnam and others5, it was held as follows : “4. The object of the law of insolvency is to seize the property of an insolvent before he can squander it and to distribute it amongst his creditors. It is, however, not every debtor, who has borrowed beyond his assets or even one whose property is attached in execution of his debts, who can be subjected to such control. The jurisdiction of the Court commences when certain acts take place which are known as acts of insolvency and which give a right to his creditors to apply to the Court for his adjudication as an insolvent. The Provincial Insolvency Act lays down in S. 6 what acts are to be regarded as acts of insolvency. It is a long list. Some are 4AIR 1938 Madras 489 5AIR 1966 SC 918, 10 BSB, J C.M.S.A.No.12 of 2018 voluntary acts of the insolvent and some others are involuntary. … 5. Under S. 7, a creditor is entitled to present a petition in the Insolvency Court against a debtor if he has committed an act of insolvency provided (as laid down in S. 9 (1) (c)) the petition is made within three months of the act of insolvency on which the petition is grounded. In this case both these conditions are fulfilled. There is thus no doubt that the petitioning creditors application under S. 7 complied with S. 6 (e) and S. 9 (1) (c) of the Provincial Insolvency Act. … 6. An act of insolvency once committed cannot be explained or purged by subsequent events. The insolvent cannot claim to wipe it off by paying some of his creditors. This is because the same act of insolvency is available to all his creditors. By satisfying one of the creditors the act of insolvency is not erased unless all creditors are satisfied because till all creditors are paid the debtor must prove his ability to meet his liabilities. … “ 13. The learned Counsel for the 2nd respondent, while concurring with the legal position that it is not necessary to obtain a decree to file a petition under Section 9 of the P.I. Act, 1920, contended that the debt had not been proved before the Insolvency Court at all as mere filing of a suit is not the proof of the debt and that the Courts below concurrently held that the sale by the 1st respondent to the 2nd respondent was bona fide based on the evidence on record considering the principle that it is the burden of the person contending that the transaction is not bona fide to establish the same and that the concurrent finding of 11 BSB, J C.M.S.A.No.12 of 2018 bona fide transfer does not call for interference in the second appeal. It was further submitted that the judgment in the suit in O.S.No.13 of 2011 had been considered by the appellate Court, yet, it came to the conclusion that such decree must exist at the time of filing the petition. She further submitted that annulment of a transaction can be done only after a debtor is adjudged insolvent and not before that. She referred to several decisions in support of all her above submissions. The decisions referred by her are as follows: a. In State of Punjab Vs. Rattan Singh 6 , the question fell for consideration was whether the insolvency Court can, at the hearing of a petition by a creditor for declaring a debtor insolvent, determine the liability of the alleged debtor for the payment of the debt for the recovery of which the creditor had obtained an order under the Patiala Recovery of State Dues Act, 2002 BK. Then putting another related question held as follows: “23. The next question then to decide is whether the Insolvency Court can, in spite of the provisions of Section 11 of the Act (Patiala Recovery of State Dues Act, 2002) and the jurisdiction which the head of the department has, under Section 4 as construed by us go into the question whether the alleged debtor sought to be adjudicated insolvent really owed the debt which, has been determined or could be determined only by the head of department under Section 4 of the Act. It is well-settled that the Insolvency Court can, both at the time of hearing 6AIR 1964 SC 1223 12 BSB, J C.M.S.A.No.12 of 2018 the petition for adjudication of a person as an insolvent and subsequently at the stage of the proof of debts, re- open the transaction on the basis of which the creditor had secured the judgment of a Court against the debtor. This is based on the principle that it is for the Insolvency Court to determine at the time of the hearing of the petition for Insolvency whether the alleged debtor does owe the debts, mentioned by the creditor in the petition and whether, if he owes them, what is the extent of those debts. A debtor is not to be adjudged an insolvent unless he owes the debts equal to or more than a certain amount and has also committed an Act of insolvency. It is the duty of the Insolvency Court therefore to determine itself the alleged debts owed by the debtor irrespective of whether those debts are based on a contract or under a decree of Court. At the stage of the proof of the debts, the debts to be proved by the creditor are scrutinized by the Official Receiver or by the Court, in order to determine the amount of all the debts which the insolvent owes as his total assets will be utilised for the payment of his total debts and if any debt is wrongly included in his total debts that will adversely affect the interests of the creditors other than the judgment creditor in respect of that particular debt as they were not parties to the suit in which the judgment debt was decreed. That decree is not binding on them and it is right that they be in a position to question the correctness of the judgment debt. It is on their behalf that the Insolvency Court or the Official Receiver is to scrutinize the proof of debts to be proved 13 BSB, J C.M.S.A.No.12 of 2018 and can even demand proof of the debts on which the judgment debt has been decreed.) The decree is binding only on the parties. The debtor sought to be adjudged is bound by it and so is the creditor. But this binding effect of the decree is only to be respected by the Insolvency Court in circumstances where nothing is reasonably alleged against the correctness of the judgment debt. The Insolvency Court has the jurisdiction to re-open such debts and will do so ordinarily when such judgments have been obtained by fraud, collusion or in circumstances indicating that there might have been miscarriage of justice. On similar grounds it must be held that the determination of the amount of the debt and the liability of the defaulter to pay it could be open for scrutiny by the Insolvency Court in the aforesaid circumstances in spite of the provisions of Section 11 of the Act, which provisions really contemplate a decision of the dispute about the matters covered by it between the same parties, viz, the creditor Bank and the alleged defaulter. The determination of the amount of State dues recoverable from the defaulter under Section 4 of Act can have no better status than the ordinary judgment and decree of a civil court have. The head of the department could not have decided a dispute about the amount of the State dues recoverable from the defaulter between creditors other than the Bank and the defaulter and therefore such a dispute between the creditors in general and the defaulter cannot be a dispute which comes within the mischief of Section 11 of the Act. 14 BSB, J C.M.S.A.No.12 of 2018 27. Subsequent to the adjudication of the debtor as an insolvent, the next stage for the preparation of the schedule of creditors under Section 33 of the Insolvency Act comes. All persons alleging themselves to be creditors of the insolvent in respect of the debts provable under the Act have to tender proof of the respective debts by producing evidence of the amount and the particulars thereof and the Court has then to determine the persons who have proved themselves, to be creditors of the insolvent in respect of such debts and the amount of debts, respectively, and then frame a schedule of such persons and debts. Creditors other than the creditor who had applied for the adjudication of the insolvent may have judgment debts against that insolvent and they will have to prove by evidence the amount and particulars of the debts owed by the insolvent to them. Judgments or decrees may be good evidence for proving of such debts, but it is open to the Court to require independent proof of the debt which had merged in the judgment debt. 28. It is clear from the above provisions of the Insolvency Act that it is the duty of the Insolvency Court and therefore clearly within its jurisdiction to require proof to its satisfaction of the debts sought to be proved at the stage of the hearing of the insolvency petition or subsequent to the adjudication. 15 BSB, J C.M.S.A.No.12 of 2018 29. There is plenty of case law in support of the view that the insolvency Court can go behind the decree of a Court in order to prove into the genuineness of the debt in connection with which the decree is passed.” b. In Raghunath Prasad Vs. Baijnath Dwivedi 7, it was held as follows: “7. In the present case the Court below treated the judgement of the 2nd Subordinate Judge in title Suit No. 166 of 1969 as an evidence of debt. It is a settled law that the insolvency Court is authorised to decide all the questions which may arise in the insolvency proceeding and the decision of the insolvency Court is final. It is also clear from the wordings of S.4(2) of the Act Sec. 4(1) of the Act provides that the insolvency Court shah have full power to decide the question in the insolvency proceeding under S.4(2) of the Act. It is provided that every such decision shall be final and binding. It is also a well settled law that the order passed by the insolvency Court shall be treated as judgement in rem. In this circumstance the creditor is required to prove his debt before the insolvency Court. In this connection reference was made to a decision in Fraser Ex Parte Central Bank of London ((1892) 2 QB 633). In that case Lord Esher M.R. held as follows; 7AIR 1979 Pat 199 16 BSB, J C.M.S.A.No.12 of 2018 "The court of Bankruptcy can go behind the judgement and can enquire whether notwithstanding the judgement, there was a good debt." c. It is therefore clear that apart from the judgement and decree in Title Suit No. 166 of 1969 the insolvency court is entitled to hold an enquiry as to whether there was a real debt or not. This proposition of law has also been supported by the decision of the Supreme Court in the case of Official Receiver Vs. Abdul Shakoor, AIR 1965 SC 920. In that case the Supreme Court held (at p. 924): "The Court has power, however to insist upon proof of the debt apart from the judgement of the negotiable or other instrument." In my opinion the insolvency Court is not bound by the decision of the Civil Court. A complete machinery has been set up by the Act to hold an enquiry about existence of the debt. The Act also provides that the decision of the insolvency Court shall be final between the parties. It is therefore clear that even if there is a decree, the insolvency Court is entitled to hold enquiry as to whether there exists a real debt or not between the parties. The same principle has been reiterated in State of Punjab Vs. Rattan Singh, AIR 1964 SC 1223.” d. In Chilumur Venkata Subba Reddy Vs. Ponnapureddy Srinath Reddy and Ors.8, it was held as follows : 82014 (4) ALT 656 17 BSB, J C.M.S.A.No.12 of 2018 “8. In order to decide the first submission of the learned Counsel, Section 9 of the Act needs to be noticed. It reads as under: 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) xxx The above reproduced provision would leave one in no doubt that specific time is stipulated for bringing an action against the debtor to declare him as an insolvent. The time limit starts from the time of commission of the 'act of insolvency'. … “ 18 BSB, J C.M.S.A.No.12 of 2018 e. In Channa Dhanalakshmi Vs. Rajyalakshmi General Traders and Ors.9, it was held as follows : “21. When the petitioner approached the Court with a specific plea that the 3rd respondent committed an act of insolvency by transfer of immovable property to defeat and delay his creditors, the ordinary rule is that the person who approached the Court he has to prove that the transfer of property is aimed to delay and defeat the creditors under Section 102 of the Indian Evidence Act, 1872. Adjudging a person as insolvent, results in bringing about the serious consequences, therefore, it is necessary to take particular care to see that the provision of law is observed strictly and applied correctly. … 27. In paragraph 6 of the petition, the petitioner contended that the transfer of property was for meagre consideration, though it worth Rs. 11,00,000/-. But this fact was not substantiated. In any view, the plea raised in paragraph 6 of the petition would attract only Section 6(1) (b) of the Act, 1920. In paragraph 7 of the petition also the petitioner contended that the 3rd respondent executed the sale deed for nominal price. Hence, the petitioner did not raise any specific plea to attract Section 6(1) (c) of the Act, 1920. Therefore, the pleadings in the petition would not attract Section 6(1) (c) of the Act, 1920. It is necessary for me to decide the alleged fraudulent preference. In fact, the property was sold to the 4th 9 2017 (3) ALT 767 (S.B.) 19 BSB, J C.M.S.A.No.12 of 2018 respondent when there was imminent threat to sell the same under the provisions of SARFESI Act, which has got overriding effect of other laws, that discharge of debt due to the Bank does not amount to fraudulent preference. Even otherwise, there is no specific plea that the discharge of mortgage debt due to the Bank amounts to fraudulent preference. Hence, the petitioner failed to make out any case that the transfer of property in favour of the 4th respondent by the 3rd respondent to discharge the debt due to the Bank amounts to fraudulent preference within Section 6(1)(c) of the Act, 1920. In the absence of any pleading and proof, it is difficult to accept the contention of the petitioner.” f. In Gounda Mohammed Yousuf and others Vs. Shaik Saheb and others.10, it was held as follows: “23. Curiously, the respondents herein sought for the relief of annulling original of Ex.A4-Gift Deed dated 22.6.2004, but there are pre-conditions to be satisfied for annulling the said document by the insolvency Court. A perusal of language used under Sections 53, 54, 54-A and the mode of proof of debt under Part-III of Insolvency Act (From Sections 45 to 50), it is clear that before moving an insolvency Court to annul transfer of property by a creditor has to satisfy the following conditions : (1) The debtor must be adjudged as insolvent. (2) The creditor should prove his debt by following the procedure contemplated under Part-Ill of Insolvency Act. 102015 (6) ALD 166, 20 BSB, J C.M.S.A.No.12 of 2018 (3) He should have made a request to the Official Receiver for moving insolvency Court for annulling fraudulent transaction and that the Official Receiver refused to move such petition for annulment. 24. According to Section 54-A of the Act when a document is required to be annulled, the debtor must be adjudged as insolvent by the date of moving an application under Sections 53 and 54 read with Section 4 of the Act and apart from that the Official Liquidator alone is competent to file the application under Sections 53 and 54 of the Act to avoid such transfers. If for any reason, the Official Receiver did not come forward to file an application for annulment, the creditor may file the application after prior permission of the insolvency Court on the ground that the Official Receiver declined to file application under Sections 53 and 54 read with Section 4 of the Act. But the trial Court exercised its jurisdiction to annul the original of Ex.A4 - Gift Deed simultaneously, along with adjudging the 1st appellant herein as insolvent while deciding the petition filed under Section 9 of the Act without any application under Sections 53, 54 read with 4 of the Act, the question of filing application by the Official Receiver will also arise only when the creditors whose debts [have been proved] as per the procedure in Part III and Section 54-A of the Act. However, the trial Court simultaneously passed an order annulling the transaction covered by original of Ex.A4 without complying the procedure contemplated under Section 54-A of the Act. 21 BSB, J C.M.S.A.No.12 of 2018 Therefore, the order passed by the trial Court, confirmed by the appellate Court regarding annulment of original of Ex.A4 is erroneous on the face of it and in view of the law laid down by this Court and other Courts. The order passed by the trial Court annulling the original of Ex.A4 is erroneous and the same is liable to be set aside.” 14. Apart from the admitted legal position that there is no need to obtain a decree for the debt to file a petition under Section 9 of the P.I. Act, 1920, the above mentioned decisions cited by both parties and the following discussion demonstrates it as correct. At this juncture, it is pertinent to refer the relevant portions of the decision in Gunapati Radha Krishna Reddy vs. Cheemala Venkata Raman, (1 supra), relied by both the Courts below, wherein it is held at paras 5, 6, 8, 9 and 11 as follows: “5. The Act provides facility to a creditor as well as to debtor, to seek declaration that the debtor has become insolvent. Several legal consequences ensue, once an individual is declared as insolvent. essential conditions for institution of the proceedings under the Act are that (a) the individual, sought to be declared as insolvent must be a debtor and that (b) the properties held by him are insufficient in value, to liquidate the debts. A debtor can approach an insolvency Court, normally when he figures as judgment debtor, referred by the 1st respondent in various decrees; the value of which exceeds the value of the properties held by him. In a given situation, a debtor may even approach the insolvency Court to declare him 22 BSB, J C.M.S.A.No.12 of 2018 as insolvent, though no decrees, as such, were passed against him. In such cases, an unequivocal declaration made by him, as to his indebtedness, can be taken on its face value. 6. The I.P. filed by a creditor under Section 9 of the Act, however, stands on a different footing. Before he invokes the jurisdiction of the insolvency Court, there must exist the adjudication of the debt or the debts, vis-á-vis the proposed insolvent in his favour. That can be in the form of a decree passed by the competent Court of civil jurisdiction or an unequivocal declaration on the part of the proposed insolvent, before the proceedings are instituted. To put it differently, a creditor cannot institute proceedings under Section 9 of the Act, in the absence of any adjudication, as to the debts, or unequivocal admission thereof, by a person proposed to be declared as insolvent. 8. The jurisdiction of an insolvency Court is delineated under Section 4 of the Act. It empowers the Court to adjudicate the disputes, as to title in relation to the property, which is sought to be proceeded against. Section 4 of the Act reads as under: Power of Court to decide all questions arising in insolvency: (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 23 BSB, J C.M.S.A.No.12 of 2018 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. (2) Subject to the provisions of this Act and notwithstanding anything contained in any other law for the time being in force, every such decision shall be final and binding for all purposes as between, on the one hand, the debtor and the persons claiming through or under them or any of them. (3) Where the Court does not deem it expedient or necessary to decide any question of the nature referred to in Sub-section (1), but has reason to believe that the debtor has a saleable interest in any property, the Court may without further inquiry sell such interest in such manner and subject to such conditions as it may think fit. 9. Nowhere from the text of the Section, it is evident that the insolvency Court is conferred with the power to determine the liability of a proposed insolvent towards the creditor. Such an adjudication is supposed to exist before the proceedings under the Act are initiated. 11. Secondly, the necessity for the petitioner to seek declaration that the 1st respondent is an insolvent would have arisen, if only he made an effort to recover the amount due to him and the properties available with the 1st respondent were found to be inadequate. In his counter, the 1st respondent stated that he holds several 24 BSB, J C.M.S.A.No.12 of 2018 movable and immovable properties. Filing of an Insolvency Petition cannot be a maiden effort on the part of a proclaimed creditor. An individual would answer the definition of creditor, if only the person against whom he claims rights was declared as debtor. This naturally must take place in a different set of proceedings and not in the I.P. itself.” 15. In case of Tatiparthy Satyanarayana Vs. Palacherla Vijayalakshmi and others11, it was held at paras 22 to 29 as follows: “22. In Re. Point No. 2: The trial Court annulled Exs. A3 and A4 simultaneously adjudging respondent Nos. 1 and 2 as insolvents but it is impermissible under law. The finding of the trial Court with regards to annulment of Exs. A3 and A4 sale deeds is erroneous ex facie for the reason that order of annulment of sale deeds cannot be passed simultaneously adjudging the debtors as insolvents. 23. To decide the real controversy between the parties, I feel that it is relevant to advert to the provisions of the Act of 1920, more particularly to the provisions of Sections 53, 54 and 54-A of the Act of 1920. According to Section 53 of the Act of 1920, any voluntary transfer made by a debtor, if the transferor is adjudged as insolvent, can be avoided. Section 54 of the Act of 1920 says that every transfer of property, every payment made, every 112015(6) ALD 15 25 BSB, J C.M.S.A.No.12 of 2018 obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money in favour of any creditor, with a view of giving that creditor a preference over the other creditors, shall, if such person is adjudged insolvent on a petition prescribed within three months after the date thereof, be deemed fraudulent and void as against the Receiver, and shall be annulled by the Court saving transactions entered into in good faith and for valuable consideration. 24. A fraudulent transfer under Section 53 of the Act of 1920 and transaction to give fraudulent preference under Section 54 of the Act of 1920 are void against Receiver and they shall be annulled on a petition filed within the specified time. Section 54-A of the Act of 1920 specified procedure for annulment of any transfer under Section 53 or 54 of the Act of 1920. According to it, for annulment of any transfer under Section 53 or 54 of the Act of 1920, a petition may be presented by the Receiver or, with the leave of the Court, by any creditor who has proved his debt and who satisfied the Court that the Receiver has been requested and his refused to make such petition. 25. In view of the language used in Sections 53 and 54 of the Act of 1920, more particularly the words 'if the transferor is adjudged insolvent' under Section 53 of the Act of 1920 and 'if the person is adjudged insolvent' under Section 54 of the Act of 1920, indicates that for annulling transaction of transfer, the debtor must be an 26 BSB, J C.M.S.A.No.12 of 2018 adjudged insolvent. So, to annul a transaction of transfer, the pre-condition is adjudging the debtor as insolvent but, here, the petition was filed by the creditor seeking two reliefs both under Sections 9 and 53 and 54 of the Act of 1920 avoiding a fraudulent preference and annul the transactions covered by sale deeds Exs. A3 and A4. Thus, the petitioner-creditor sought for two reliefs simultaneously but the relief claimed by the petitioner is against the spirit of language used under Sections 53, 54 and 54-A of the Act of 1920. 26. According to Section 54-A of the Act of 1920, it is clear that, before moving Court for annulment of transfer, more particularly covered by sale deeds dated 26.7.2001 and 1.8.2001, it is the duty of the petitioner to prove his debts before Official Receiver as required under Section 49 of the Act of 1920 and then move Court exercising insolvency jurisdiction for annulling transfer if Receiver refuses to make such petition for annulment on the request made by the creditor. So, even according to Section 54-A of the Act of 1920, it is the duty of the creditors to prove the debt before Official Receiver. 27. Section 49 of the Act of 1920 specified procedure to be followed for proof of debt. According to it, a debt may be proved under this Act by delivering, or sending by post in a registered letter, to the Court an affidavit verifying the debt. The affidavit shall contain or refer to a Statement of Account showing the particulars of the debt and shall specify the vouchers (if any) by which the same 27 BSB, J C.M.S.A.No.12 of 2018 can be substantiated. The Court may at any time call for the production of the vouchers. Therefore, the debt shall be proved by following necessary procedure contemplated under Section 49 of the Act of 1920 after entrusting the matter to Official Receiver duly adjudging the debtor as insolvent. 28. Part-III of the Act of 1920 from Sections 45 to 50 of the Act of 1920 laid down procedure for proof of debts. Adherence of such procedure under Sections 45 to 50 of the Act of 1920 would arise only after adjudging the debtor as insolvent but here the relief under Sections 53 and 54 of the Act of 1920 was claimed simultaneously with the relief of adjudging the debtors as insolvents. The conditions lay down under Section 54-A of the Act of 1920 were not complied with by the petitioner to get the transactions covered by Exs. A3 and A4 annulled. A perusal of language used under Sections 53, 54 and 54-A of the Act of 1920 and the mode of proof of debt under Part-III of the Act of 1920 (from Sections 45 to 50), it is clear that before moving an insolvency Court to annul transfer of property, a creditor has to satisfy the following conditions: 1) The debtor must be adjudged as insolvent; (2) The creditor should prove his debt by following the procedure contemplated under Part-III of the Act; and (3) He should have made a request to Official Receiver for moving insolvency Court for annulling 28 BSB, J C.M.S.A.No.12 of 2018 fraudulent transaction and that the Official Receiver refused to move such petition for annulment. 29. In the instant case, by the date of filing petition seeking annulment under Section 53 or 54 of the Act of 1920, respondent Nos. 1 and 2 were not even adjudged as insolvents. So, the first condition was not satisfied. The petitioner did not approach Official Receiver and proved his debt as contemplated under Part-III of the Act of 1920 and did not comply with Section 54-A of the Act of 1920. Therefore, the order of annulling Ex. A3 sale deed dated 26.7.2001 and Ex. A4 sale deed dated 1.8.2001 passed by the trial Court is erroneous ex facie and contrary to the provisions of the Act of 1920. Hence, the order of the trial Court annulling Exs. A3 and A4 is illegal and the same is liable to be set aside. Therefore, I find that the appellate Court did commit no error in reversing the finding of the trial Court. Hence, I find no ground to interfere with the finding recorded by the appellate Court. Accordingly, the finding of the appellate Court is hereby confirmed holding this point in favour of respondent Nos. 3 and 4 and against the petitioner.” 16. Though the point for determination in Tatiparthy Satyanarayana (11 supra) is slightly different from the point for consideration in the present appeal, the detailed analysis of the provisions made in that decision clearly establish that the debt shall be proved as per the provisions under Part III of the Act and that would arise only after adjudicating the debtor as insolvent. Therefore, there is no possibility or occasion obtaining a decree for the alleged debt as on the date of 29 BSB, J C.M.S.A.No.12 of 2018 filing of the petition under Section 9 of the Act. It is pertinent to mention that the proceedings under Section 9 of the Act shall be initiated within ninety (90) days from the date of the commission of the Act of Insolvency by transferring the property. By that time, in many cases, the limitation for initiating the proceedings for recovery of the debt due from the debtor may not expire and the creditor may also not have sufficient time to obtain a decree. Therefore, in this regard, the creditor has to establish prima facie the creditor debtor relationship for the purpose of matters by leading necessary evidence for the purpose of establishing the maintainability of the petition under Section 9 of the Act, whereas the debt is to be proved only under the provisions of Part III, subsequent to adjudication of the insolvency of a debtor. 17. In the decision in Gunapati Radha Krishna Reddy (1 supra), it is only Section 4 of the Act that was dealt with for the purpose of examination of maintainability of proceedings under Section 9 of the said Act. The other relevant provisions and Part III were not discussed. Whereas, in the decision in Tatiparthy Satyanarayana (11 supra) it is only after considering all the relevant provisions, observations were made. That apart, no point for consideration was raised about maintainability of I.P. in the case of Gunapati Radha Krishna Reddy (1 supra). For these reasons, the observations therein do not provide ratio to bind the decision in other cases. As such, there is merit in the finding that the petition under Section 9 of the P.I. Act, 1920 is not maintainable without a decree. Thus, both Courts committed legal error in holding contrarily. 18. Even then the petitioner is not automatically entitled to an order declaring the 1st respondent as insolvent. No evidence has been filed to 30 BSB, J C.M.S.A.No.12 of 2018 prove the debt to establish the jural relationship in spite of the express denial of the debt in the counter of the 1st respondent. Merely because of pleading about the deposits into the account of the 1st respondent, it is not evidence of debt, even if the 1st respondent admitted the deposits, and denied the nature of the deposit as method of lending in this case. Even a civil Court’s decree is not final in so far the proceedings before an Insolvency Court as discussed above in the decisions referred already. The stage of annulment comes only after declaration of insolvency. 19. In so far as the finding regarding the bona fide transaction between the 1st and 2nd respondents is concerned, since both the Courts gave concurrent findings after considering the documentary evidence and oral evidence of not only the parties to the lis but also the attestors (R.W.s 2 & 3) of the sale deed, and it was not shown which material part of the evidence on record was not considered, or how the findings are perverse, this Court cannot interfere with the concurrent findings. 20. For the above reasons, there is no ground to interfere with the result in the appeal. 21. In the result, the appeal is dismissed. There shall be no order as to costs. Pending miscellaneous petitions, if any, shall stand closed. ___________________ B. S. BHANUMATHI, J Dt.07.05.2025 RAR