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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