Necessary To Consider Due Conclusion Of Sales & Payment Before Examining Consequences Of Annulment U/S. 37 Of Provincial Insolvency Act: Supreme Court

The appeals before the Apex Court were filed against the reversing judgment of the Karnataka High Court, setting aside the common order passed by the Additional District Judge under the Provincial Insolvency Act, 1920.

The Division Bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar held, “For operation of Section 37, it is fundamental that there must in fact be a finality of transactions. In other words, there must be conclusion of sales, dispositions of property and/or the payments made in that regard. Section 37 proceedings cannot partake the character of a civil court deciding a suit for specific performance of an agreement.”

“Before examining the consequences of annulment as contemplated under Section 37 of the Act, it is necessary to enquire whether sales and dispositions of the property, and payments done are duly made or not”, it added.

Factual Background

The case dates back to the year 1963 when a partnership in the name of M/s Gavisiddheshwara & Co. came to be constituted by late Allam Karibasappa (original applicant before the District Court) and Agadi Laxminarayana Setty, the convenor of the firm. The said firm was reconstituted with the inclusion of three more person including the father of the present appellant. The appellant, in view of his family’s indebtedness at the relevant time, was alleged to have sent a letter to the convenor of the firm offering to sell his share. While the parties were in the process of deliberations, some of the creditors of the appellants filed insolvency proceedings in which the appellant and his mother were arrayed as parties.

The District Court declared appellant and his mother insolvent and appointed a receiver to take over appellant’s assets. Later on, the District Court’s orders, the official receiver transferred the share of the appellant and the appellant’s mother, and the transfer came to be registered on March 11, 1983. The first Respondent claimed that he is the owner of the share of the appellant by virtue of the transfer deed dated executed by the official receiver. The appellants preferred an application under Section 35, before the District Court on the ground that the appellants had discharged the liabilities towards most of the creditors. The said application came to be allowed and the insolvency process as a whole, was annulled. In 1997, the appeal directed against the District Court was allowed by the High Court, and the matter was remanded.

The appellant and his mother preferred an application under Section 151 of the Code of Civil Procedure, 1908, seeking cancellation of the sale deed executed by the official receiver. The District Court ordered the official receiver to execute a registered instrument after cancelling the transfer deed. Aggrieved, the respondents preferred appeals before the High Court. The High Court directed the respondents to deposit a sum of Rs. 50,61,000 being the share of the appellant, and also to furnish the accounts. The High Court allowed the appeals of the respondents and held that the sale deed executed on March 11, 1983, was valid. Aggrieved thereby, the appellants approached the Apex Court.

Reasoning

The Bench noted that the transfer deed was executed on the basis of the order passed by the District Court and when the said order was set aside and the matter was remanded back to the District Court for reconsideration in view of the subsequent annulment order, the High Court was not justified in reversing the findings of the District Court on the ground that the transfer deed remained unchallenged. As per the Bench, the High Court committed a serious error in drawing these conclusions.

“Apart from the mistake, as indicated hereinabove, the High Court also committed a jurisdictional error in not reappreciating the evidence adduced before the trial court, which as an appellate court the High Court was bound to undertake. All that the High Court did to reverse the findings of facts arrived at by District Court was simply to say that, “the learned District Judge has proceeded on the basis that Exs.P4 to P7 are concocted and fabricated. The said finding is based upon surmises and conjectures”. There is no independent reasoning based on the evidence on record”, it added.

The Bench also noticed that the High Court simply proceeded on the premise that the appellants were bound by the transaction as the execution of the transfer deed, had become final. As per the Bench, for operation of Section 37, there must be a finality of transactions. It was thus held that the High Court committed a serious error in reversing the findings of the District Court in its judgment. Thus, allowing the Civil Appeal, the Bench restored the judgment of the Additional Judge.

Cause Title: Singamasetty Bhagavath Guptha v. Allam Karibasappa (D) by Lrs./allam Doddabasappa (D) by Lrs. (Neutral Citation: 2025 INSC 1159)

Appearance

Appellant: Senior Advocates Basava Prabhu S. Patil,D N Rao, AOR Abdul Azeem Kalebudde, AOR Annam Venkatesh, Advocates Rahul Mishra, Amit Prakash Shahi, Agrimaa Singh, Satyarth Singh

Respondent: AOR V. N. Raghupathy, AOR Annam Venkatesh,

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