Wednesday, 15 April 2020

Whether the court should hold an enquiry about the fraudulent transfer as per 53 of TP Act in execution of decree?

 In Alamelu Ammal Vs. Chinnaswamy Reddiar MANU/TN/0296/1988, it was held that in view of amendment of Order XXI Rule 58, the attaching creditor need not file a separate suit under Section 53 of the Transfer of Property Act to put forth his case that the transfer was in fraud of creditors and the decree holder is entitled to plead so by way of a defence in the claim proceedings.

10. The view of the Division Bench of the High Court of Bombay is found to be the same in SBI Home Finance Ltd. Vs. Credential Finance Ltd. MANU/MH/0148/2001 : AIR 2001 Bom 179. To the same effect are the judgments of the Division Bench of Kerala in Rajan alias Rajan Gopinathan Vs. Dr. D. Jayashree Nayar MANU/KE/0677/2009 and of the High Court of Karnataka in S.K. Gangadhara Vs. Ramachandra MANU/KA/2000/2015 and the High Court of Andhra Pradesh in Ayitam Venkata Anjani Vs. Ganeshula Uma Parvathi MANU/AP/0579/2015.

11. I respectfully concur and do not find any reason to interpret the fourth paragraph of Section 53(1) of the Transfer of Property Act pedantically, by holding that the creditor and which term includes a decree holder, instead of having the questions under Section 53 adjudicated in execution, be relegated to a separate suit.

IN THE HIGH COURT OF DELHI

EX. P. 43/2019 and EX. P. 44/2019

Decided On: 15.01.2020

Rajeev Kumar Batra  Vs. Kewal Krishan Kumar

Hon'ble Judges/Coram:
Rajiv Sahai Endlaw, J.




1. Execution in both the petitions, is sought of money decree against the same judgment debtor (JD) i.e. Kewal Krishan Kumar.

2. Both Execution Petitions came up first before this Court on 10th May, 2019, when vide ex-parte ad-interim orders, warrants of attachment of (i) property No. WZ-123, C-1, 3rd Floor, Tihar Village, New Delhi-110018; (ii) property No. 15/61, West Punjabi Bagh (West), New Delhi-110026; (iii) property No. E-202, Ramesh Nagar, New Delhi-110015, (iv) monies lying in Bank Account bearing account number 588010100005043, Axis Bank Ltd., Lok Vihar Branch, Delhi; and, (v) monies lying in Bank Account bearing account number 601701010011191, Vijaya Bank, Ansari Road Branch, Delhi in the name of Kewal Krishan Kumar, were ordered to be issued.

3. On 1st August, 2019, the counsel for the decree holders (DHs) stated that the DHs were agreeable to removal of attachment with respect to property No. WZ-123, C-1, 3rd Floor, Tihar Village, New Delhi, and sought to file reply to the objections preferred qua property No. E-202, Ramesh Nagar, New Delhi.

4. Objections vide these applications, to the attachment of property No. E-202, Ramesh Nagar, New Delhi have been filed by Divyarth Kumar, son of the JD, stating, (a) that the objector Divyarth Kumar is the absolute lawful owner in possession of 1/3rd undivided share of entire built up property No. E-201 and E-202, Ramesh Nagar, New Delhi; (b) that property No. E-201 and E-202, Ramesh Nagar, New Delhi was originally purchased by the grandmother of the objector, who died intestate on 13th September, 1989, leaving three daughters and three sons as legal heirs; (c) that the three daughters released their share equally in favour of their brothers, including the JD, making the JD and his two brothers owner of 1/3rd undivided share each in property No. E-201 and E-202, Ramesh Nagar, New Delhi; (d) that the JD, vide Sale Deed dated 1st April, 2016 sold his 1/3rd undivided share to his son i.e. the objector, for sale consideration of Rs. 56,50,000/- and put the objector in possession of the portion of the property under his occupation; (e) that thus the objector is the owner of 1/3rd undivided share in the property, with the other 2/3rd undivided share being owned by the two brothers of the JD; and, (f) that the objector is the bona fide purchaser of 1/3rd undivided share in the property.

5. The DHs, in reply to the said objections, has pleaded (i) that the amount of the decree under execution was given as loan by the DHs to the JD between September, 2015 and 10th April, 2015; (ii) that there was no dispute between the parties till March, 2016, because the JD continued to pay interest on the loan amount at the agreed rate; (iii) that after March, 2016, the JD started defaulting in paying interest to the DHs; (iv) that it is immediately thereafter the JD has transferred his 1/3rd share in the property in favour of his son who has filed objections to the attachment of property No. E-201 and E-202, Ramesh Nagar, New Delhi; (v) that this is clearly an attempt to alienate the property to escape from the liability of repayment of the loan; (vi) that the sale pleaded is a sham transaction and the son of the JD i.e. the objector stands in a fiduciary capacity towards the JD and is holding the property in trust and for the benefit of the JD; (vii) that the amount reflected as payment by the son of the JD to the JD, by way of sale consideration, has been re-rooted by the JD through the bank accounts of companies held and controlled by the JD; and, (viii) that the objections have been filed to defeat the decree.

6. The counsel for the DHs and the counsel for the JD were heard on 16th October, 2019, when being of the opinion that the defence of the DHs to the objections was of fraudulent transfer within the meaning of Section 53 of the Transfer of Property Act, 1882, as under:

"53. Fraudulent transfer--(1) Every transfer of immoveable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed.

Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration.

Nothing in this sub-section shall affect any law for the time being in force relating to insolvency.

A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor, shall be instituted on behalf of, or for the benefit of, all the creditors.

(2) Every transfer of immoveable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee.

For the purposes of this sub-section, no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made.",

(emphasis added)

and which provides for a suit to be instituted to avoid a transfer on the ground that it had been made with intent to defeat or delay the creditors of the transferor, as expressly provided therein, these applications by way of objections of the son of the JD were allowed, the attachment of 1/3rd share of property No. E-201 and E-202, Ramesh Nagar, New Delhi which belonged to the JD/his son, was vacated and liberty granted to the DHs to institute a suit under Section 53 supra.

7. However, while correcting and finalizing the order and researching on Section 53 of the Transfer of Property Act, certain judgments, holding that enquiry within the meaning of Section 53 supra can be adjudicated under Order XXI Rule 58 of the Code of Civil Procedure, 1908 (CPC), came to the notice of the undersigned and neither counsel having been heard on this aspect, the applications/objections were ordered to be re-listed.

8. The Division Bench of the High Court of Madras, in Messrs. Southern Steelmet and Alloys Ltd. Vs. B.M. Steel, Madras MANU/TN/0220/1978, held (i) that after the amendment of the CPC of the year 1976, there has been a drastic change in the mode of approach and method by which a decision should be arrived at and which should be adopted by a Civil Court when an application under Order XXI Rule 58 of the CPC comes up for adjudication; (ii) that while under the earlier law, such an investigation of claim and objection to attachment of property was summary in nature, the present law provides for a significant departure in the matter of disposal and adjudication of such claims; (iii) that the rule contemplates a full enquiry into all questions including questions relating to rights, title or interest in the property attached, which arose between the parties to the proceeding and mandates that the Court enquiring such a claim petition shall determine such questions; there is also an embargo on the institution of a separate suit for the determination of such questions; (iv) that after the claim or objection has been adjudicated, the order made thereon has the same force and is subject to the same conditions as to appeal or otherwise as if it were a decree; (v) that though perforce an order is contemplated to be passed under Order XXI Rule 58 of the CPC, that order has the legal effect of a decree; (vi) that such an order is a substitute for a decision resulting in a decree in an ordinary litigation; and, (vii) that such being the intendment of the amendment of the year 1976 to Order XXI Rule 58 CPC, the enquiry contemplated under Order XXI Rule 58 of the CPC, is no longer of a summary nature.

9. In Alamelu Ammal Vs. Chinnaswamy Reddiar MANU/TN/0296/1988, it was held that in view of amendment of Order XXI Rule 58, the attaching creditor need not file a separate suit under Section 53 of the Transfer of Property Act to put forth his case that the transfer was in fraud of creditors and the decree holder is entitled to plead so by way of a defence in the claim proceedings.

10. The view of the Division Bench of the High Court of Bombay is found to be the same in SBI Home Finance Ltd. Vs. Credential Finance Ltd. MANU/MH/0148/2001 : AIR 2001 Bom 179. To the same effect are the judgments of the Division Bench of Kerala in Rajan alias Rajan Gopinathan Vs. Dr. D. Jayashree Nayar MANU/KE/0677/2009 and of the High Court of Karnataka in S.K. Gangadhara Vs. Ramachandra MANU/KA/2000/2015 and the High Court of Andhra Pradesh in Ayitam Venkata Anjani Vs. Ganeshula Uma Parvathi MANU/AP/0579/2015.

11. I respectfully concur and do not find any reason to interpret the fourth paragraph of Section 53(1) of the Transfer of Property Act pedantically, by holding that the creditor and which term includes a decree holder, instead of having the questions under Section 53 adjudicated in execution, be relegated to a separate suit.

12. I may notice that Supreme Court in C. Abdul Shukoor Saheb Vs. Arji Papa Rao MANU/SC/0048/1962 : AIR 1963 SC 1150 was concerned with the question, whether a transfer which is voidable under Section 53(1) of the Transfer of Property Act, can be made void only by a suit filed by a creditor impugning the transfer on behalf of himself and the other creditors and not by way of defence to a suit under Order XXI Rule 63 of the CPC by a claimant whose application has been rejected in summary proceedings under Order XXI Rules 58 to 61 of CPC. It was held that there is nothing in Section 53(1) which precludes a defence by an attaching creditor to a suit to set aside a summary order under Order XXI Rule 63 of the CPC that the sale in favour of the plaintiff is vitiated by fraud.

13. Today, the counsel for the objector states that he is not controverting the position that a plea of Section 53 of the Transfer of Property Act can be adjudicated also in objections under Order XXI Rule 58 of the CPC. It is however stated that the DHs, in reply to the applications, have not pleaded the necessary ingredients of Section 53 of the Transfer of Property Act, for an issue to be framed qua the same and the same be put to trial. It is contended, (i) that under Section 53(1) of the Act, the transfer is only voidable at the option of the creditor and not void per se; (ii) that the creditor, being the decree holder in the present case, has not exercised the said option; (iii) that the decree holder, in the reply to the applications, has not pleaded that the transfer was made with intent to defeat or delay the creditors; and, (iv) that the onus of proving so is on the decree holder and cannot be placed on the applicant/objector. Reliance is placed on Sharfuniya Begum Sahiba Vs. (Sayyad) Pacha Sahim & Ors. MANU/TN/0524/1927 : AIR 1928 Mad 793, holding that if it is sought to make out that the transaction is really in fraud of creditors, it must be distinctly alleged and proved and that the onus is on the creditor.

14. The counsel for the DHs has drawn attention to paragraph 3 of the reply, where it is pleaded that it was strange that immediately after the default committed by the JD in repayment of dues of the DHs, the JD transferred his share in the property to his son and that the attempt to alienate the property was made to escape from the liability of repayment of the loan and that the said facts reveal that the transaction was of a sham nature.

15. I have considered the contentions. Mulla, in his 12th Edition of Treaties on Transfer of Property Act, in paragraph titled "No Presumption of Fraud" under Section 53, summarised that the burden initially lies on the creditors to make out a case under this section; however when they have proved facts which are sufficient to show prima facie that the intention of the debtor was to defeat or delay the creditors, it is for the debtor to meet the case and to explain fully. Here, on the pleadings, the DHs have been able to make out a prima facie case under Section 53 of the Transfer of Property Act, of the transfer by the JD of his 1/3rd share in property No. E-201 and E-202, Ramesh Nagar, New Delhi in favour of his son, being fraudulent. Thus, the objections have to be put to trial and the following issues are framed:

(I) Whether the transfer made by the judgment debtor of his one-third undivided share in the property No. E-201-202, Ramesh Nagar, New Delhi-110015 in favour of his son Divyarth Kumar was with the intent to defeat or delay the creditors of the judgment debtor, including the decree holder? OPDH

(II) Whether the transfer of one-third share aforesaid by judgment debtor to his son Divyarth Kumar is in good faith and for consideration? OP Objector (Divyarth Kumar)

(III) Whether the decree holder is entitled to execute the decree, including from the one-third share of judgment debtor since transferred to his son Divyarth Kumar, in property No. E-201-202, Ramesh Nagar, New Delhi-110015? OPPr.

16. The counsel for the applicant/objector has contended that the claim of the DHs under Section 53 of the Transfer of Property Act is barred by time.

17. On enquiry, which Article of the Limitation Act, 1963 applies, attention is drawn to Article 59. On further enquiry, whether there is a plea that the DH, three years prior to seeking attachment, knew of the transfer by the JD in favour of the applicant/objector, of his 1/3rd share in the property aforesaid, the answer is in the negative. It is however contended that since the transfer is by a registered document, of which there is a public notice, the DHs are deemed to have noticed.

18. I am unable to agree.

19. In the absence of the JD or the applicant/objector taking a plea that the DHs are not entitled to have the contract of transfer by JD in favour of his son rescinded for the reason of the transfer being known to the DHs for three years prior to the execution, the question of limitation does not arise.


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