K.K.B. Properties v. Official Assignee

12. It is submitted that on 1st July, 2014, a public notice was issued on behalf of the purchaser through the Advocate inviting objections before entering into the Agreements of Assignment. Thereafter, on the same date a public notice was published in daily Prabhat through Advocate. On 31st July, 2014, a certificate was issued by Advocate Chandan Phartale that he did not receive any objection pursuant to the public notice. Mr. Kshirsagar, would submit that it is only thereafter, that the Agreements to Assignment dated 19th August, 2014 were executed between the Insolvent No. 2 and his wife and the present purchaser in respect of Flat No. E-901 for a total consideration of Rs. 1,03,97,000/- out of which Rs. 77,71,487/- was paid by cheque and in respect of the Flat No. 905 for a total consideration of Rs. 45,91,000/out of which Rs. 42,12,923/- was paid by cheque. Mr. Kshirsagar, would submit that as submitted, these Agreements of Assignment were duly registered with the Sub-Registrar, Haveli No.2. That one of the Clauses of the agreements was that the assignors agreed to cancel the leave and license agreements in respect of the flats in possession of a third party on leave and license basis before execution of the final deeds.

13. On 2nd September, 2014 since the assignors failed to cancel the leave and license agreements as agreed, supplementary agreement in respect of the said Flats was executed. It was agreed that the purchaser would pay monthly installments of the loan to Capital First for August, 2014 on behalf of the Assignor.

14. Thereafter, on 23rd December, 2015, the Co-operative Housing Society issued a No Objection Certificate to the purchaser for purchase of the said Flats No. E-901 and E-905. On 29th March, 2016, the draft Deed of Conveyance was submitted to the Standard Chartered Bank, which had provided home loan to the purchaser to purchase the said Flats. On 16th May, 2016, the Deeds of Transfer and Assignment were registered for a total consideration of Rs. 1,03,97,000/- for Flat No. E- 901 and Rs. 45,91,000/- for Flat No. E-905. It is submitted that said Flats No. E-901 and E-905 were purchased by Insolvent No.2 and his wife for a total consideration of Rs. 1,10,00,000/-, whereas the purchaser had bought these flats for a total consideration of Rs. 1,49,88,000/- in accordance with the market price. That the total contribution of the purchaser for Flat No. 901 was Rs. 14,00,211/- and for Flat No. 905 was Rs. 2,95,307/-

15. Pursuant to the above, on 28th May, 2016, Capital First Limited issued no outstanding dues/ no dues certificate to the Insolvent No.2. That it is only on 28th June, 2017, that Insolvency Notice was served upon the Insolvents who were Judgment Debtors. The date of the act of insolvency is 26th July, 2017, which is 35 days from the date of Insolvency Notice.

16. On 23rd October, 2017, the Insolvency Petition No. 18 of 2017 was filed against M/s K.K. B Properties and Insolvent No. 2 and served upon Insolvent No. 2 on 14th November, 2017. That the order of adjudication pursuant to the said petition was passed on 17th April,

2018. The purchaser has received notice dated 24th June, 2019 from the Official Assignee on 3rd July, 2019.

17. Mr. Kshirsagar, would submit that firstly, the payments made by the purchaser of Rs. 1,49,88,000/- in respect of the two flats is above the purchase price of Rs. 1,10,00,000/- by the Insolvent No. 2 and his wife. The purchaser has paid the stamp duty and registration charges for the same from his own account. Almost the entire payment has been made through the normal banking channels and loans that have been taken to purchase the said Flats, the property tax dues also been paid for by the purchaser. That, therefore, this transaction is not only bona fide but also for valuable consideration.

18. Mr. Kshirsagar, learned Counsel for Purchaser submits that under the Insolvency Act, there are express provisions which protect certain kinds of transfers made to persons who can be considered as bona fide purchasers for valuable consideration. Learned Counsel submits that under Section 55 itself protection is given to transfers which have been made by an Insolvent in favour of a purchaser in good faith and for valuable consideration. That similarly under Section 57 certain bona fide transactions are protected. Learned Counsel submits that the said section provides that any transfer by the Insolvent for valuable consideration has been protected under Section 57 of the Act. And that such transaction will not become invalid in the case of insolvency provided that such a transaction had taken place before the date of the order of adjudication and the person with whom such a transaction has taken place did not have a notice of presentation of any petition by or against the debtor. Learned Counsel would submit that fraudulent transfers after the date of the adjudication are not protected under the insolvency law. It is submitted that the Agreements of Assignment between Insolvent No. 2, his wife and the purchaser in respect of the said two flats are of 19th August, 2014. The registration of the Deeds of Transfer and Assignment is of 16th May, 2016. That Insolvency Notice was for the first time served upon the Judgment Debtors on 28th June, 2017 and even though there may have been a decree against the Judgment Debtors prior to 28th June, 2017, the Notice of Insolvency or that the Judgment Debtors would be declared Insolvents would not be known to them. That the date of the act of insolvency is 26th July, 2017, the petition was filed on 23rd October, 2017 and served upon the Insolvent No. 2 on 14th November, 2017 and the order of adjudication has been passed on 17th April, 2018 and the notice to the purchaser was received on 3rd July, 2019; all this is much after the date of registration or the execution of the Deeds of Transfer and Assignment and neither the Insolvent No. 2 nor the Purchaser could have had notice of those events prior to the execution or registration of the Deeds of Transfer and Assignment.

19. Both, Mr. Bhate, learned Counsel for the Insolvents as well as Mr. Kshirsagar, learned Counsel for the Purchaser would submit that until the receipt of the Insolvency Notice on 20th June, 2017, which is more than a year after the registered Deeds of Transfer and Assignment in favour of the purchaser were executed, neither the Judgment Debtors would have known of the same nor the purchaser, even though the purchaser is the brother-in-law of the Insolvent No. 2. Therefore, in view of the Sections 55 and 57 of the Insolvency Act, this Court validate the said transactions of purchase by the purchaser.

20. Mr. Kshirsagar, learned Counsel for the Purchaser further refers to and relies upon the decision of the Hon’ble Supreme Court in the case of N. Subramania Iyer Vs. Official Receiver, Quilon and Anr.[1] and submits that it is not for the purchaser in the insolvency proceedings to prove that the transaction is bona fide but it is for the Official Assignee to demonstrate the same. Learned Counsel submits that the Hon’ble Supreme Court after considering the judicial opinions of various High Courts as well as Privy Council and the Judicial Committee observed that the burden of proof lies on the Official Assignee or the Receiver who challenges the transaction. Mr. Kshirsagar would submit that the Official Assignee has in her report only referred to Section 55 of the Act with respect to avoidance of voluntary transfer made within two years prior to the adjudication of the insolvency but neither alleged nor demonstrated in any manner whatsoever that the transaction is not bona fide or not for valuable consideration and that, therefore, in view of settled law, the Official Assignee’s request to declare the Deeds of March, 2016 and on 16th May, 2016 between the Insolvent No. 2 and his wife on the one hand and the Purchaser on the other in respect of the said Flats No. E-901 and E-905 situated at 10, Kasturkunj, as null and void be rejected.

21. Mr. Kshirsagar, would submit that therefore in view of Sections 55 and 57 of the Act, applied to the facts of the case, this Court validate the transaction and reject the directions sought for by the learned Official Assignee.

22. I have heard the learned Counsel for the purchaser as well as for the Insolvents and the learned Official Assignee and have also considered the submissions made on their behalf.

23. At the outset, it needs to be clarified that vide order dated 19th December, 2023, in Notice of Motion No. 3 of 2021 in Insolvency Petition No. 18 of 2017, in view of the Consent Terms dated 19th December, 2023, taken on record by order of the same date, the matter with respect to Flats No. E-404 and E-408 has been settled between the Petitioning Creditor and the Insolvents and the said Notice of Motion has been disposed, subject to payment of other claims including income tax dues, which would need to be paid by the Insolvents.

24. Coming to the matter at hand, with respect to Flats No. E-901 and E-905, in Kasturkunj and the prayers of the learned Official Assignee, to declare the purchase of the said two flats by the purchaser as null and void and not binding on the Official Assingee, after considering the rival contentions and after perusing the papers and proceedings and the law on the subject, for the reasons mentioned hereinbelow, this Court is of the view that the said transaction is bona fide and for valuable consideration and stands validated.

25. As can be seen, the facts do not appear to be in dispute. The Official Assignee has relied upon the Section 55 of the Insolvency Act to have the Deeds of Transfer and Assignment dated 29th March, 2016 and 16th May, 2016 between the Insolvent No.2 and his wife on the one hand and the purchaser on the other hand to be declared as null and void and not binding on Official Assignee.

26. Sections 55 and 57of the Act are usefully quoted as under:-

55. Avoidance of voluntary transfer.— Any transfer of property, not being a transfer made before and in consideration of marriage, or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, shall if the transferor is adjudged insolvent within two years after the date of the transfer, be void against the official assignee.

57. Protection of bona fide transactions.— Subject to the foregoing provisions with respect to the effect of insolvency on an execution and with respect to the avoidance of certain transfers and preferences, nothing in this Act shall invalidate in the case of an insolvency— (a) any payment by the insolvent to any of his creditors; (b) any payment or delivery to the insolvent;

(c) any transfer by the insolvent for valuable consideration; or

(d) any contract or dealing by or with the insolvent for valuable consideration:

Provided that any such transaction takes place before the date of the order of adjudication and that the person with whom such transaction takes place has not at the time notice of the presentation of any insolvency petition by or against the debtor. (emphasis supplied)

27. A look at the section 55 indicates that it is a section for avoidance of voluntary transfer by the Official Assignee. It provides that any transfer of property excluding not being a transfer made before and in consideration of marriage, or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, shall be void against the Official Assignee if the transferor is adjudged insolvent within two years after the date of the transfer. This means that if the transferor of a property is adjudged Insolvent then if the transfer was made within two years prior to the said adjudication unless it is a transfer made before and in consideration of marriage or in favour of purchaser or incumbrancer in good faith and for valuable consideration, the same would be voidable at the option of the Official Assignee.

28. In the facts of this case, the Official Assignee has expressed his/her option to avoid this transaction by filing the Official Assignee’s Report and has sought directions as such, mainly on the ground that the transaction falls within the period of two years prior to the adjudication of insolvency and also sought to question the bona fide of the transaction as the purchaser is the brother-in-law of the Insolvent No.2.

29. It is also clear from Section 55 that even if the transaction is within two years of being adjudged Insolvent, if the transaction is made in good faith and for valuable consideration, that would not fall within the avoidance rule.

30. Coupled with this, Section 57 specifically protects bona fide transactions. Section 57 (c) although subject to the earlier provisions of the Act, provides that nothing in the Insolvency Act shall invalidate in the case of insolvency, any transfer by the Insolvent for valuable consideration provided that any such transaction takes place before the date of the order of adjudication and that the person with whom such transaction takes place has not at the time of such transfer, notice of the presentation of any Insolvency Petition by or against the Debtor.

31. In the facts of the present case, it is evident that after a notice inviting objections from the public on 1st July, 2014 and also public notice in daily Prabhat and after a certificate from the Advocate that he did not receive any objection pursuant to the public notice that on 19th August, 2014 Agreements to Assignment between Insolvent No.2 and his wife and the purchaser, came to be executed and registered, where after on 2nd September, 2014, supplementary agreements were entered into, on 23rd December, 2015 No Objection Certificate was issued to the purchaser by the Co-operative Housing Society Limited and on 29th March, 2016 a draft of the Deed was submitted to the purchaser’s bankers and finally on 16th May, 2016, the Deeds of Transfer and Assignment were registered in respect of the said Flats. The steps followed by the purchaser towards purchase of the said Flats commencing from inviting objections by giving a public notice, obtaining certificate from the Advocate prior to entering into Agreements to Assignment, registering them, availing of loans from bank, obtaining No Objection Certificate from Co-operative Housing Society, having the Deed of Transfer and Assignment approved by the lending bank are all steps which demonstrate due care and diligence by a purchaser about to purchase property, establishing bona fides of the purchaser.

32. Further, although the summary suit against the insolvent was filed in 2016 and the Judgment Debtor was obviously aware and the purchaser being the brother-in-law may also have been aware of the said suit, however, it could not be visualized with certainty that the summary suit would be decreed against the Insolvent No.2 on 19th January, 2017, and that the Petitioning Creditor would issue the Insolvency Notice later on 28th June, 2017 as firstly the Suit could also have been dismissed and also that there are several modes by which decrees are executed, it being settled law that issuance of Insolvency Notice or filing of insolvency petition is not a mode of execution of decree.

33. Clearly, therefore, neither the Judgment Debtor No.2/Insolvent No.2 nor the purchaser could have had notice on 16th May, 2016 that the Insolvency Notice was likely to be issued on 28th June, 2017 on behalf of the Judgment Creditor.

34. It is also undisputed that although the said Flats were purchased for consideration of Rs. 1,10,00,000/- by the Judgment Debtor and his wife, the same have been sold to the purchaser for Rs. 1,49,88,000/-, on which stamp duty and registration charges have been paid by the purchaser. These facts have not been disputed by either the learned Official Assignee or by the Petitioning Creditor. The Official Assignee has also not disputed that the purchase value is not the market value or the sale transaction is not in the interest of the general body of the Creditors. Therefore, it cannot be said that the transaction is not for valuable consideration.

35. It is not in dispute that the payments for Flat No. E-901 of Rs. 1,03,97,000/- have been either made by cheque or Demand Draft as under:- Date of Payment Paid by Paid To Bank Name Demand Draft/Cheq ue Amount 26-08-2014 Parag Bora Directly to IDBI Bank Chq. No.201028 1,22,459/- 26-08-2014 Parag Bora Insolvent No.2 No.131748 1,50,000/- 26-08-2014 Parag Bora Arusha Atul IDBI Bank Chq No.131750 1,50,000/- 30-04-2016 Standard Directly to D.D. No.738353 64,73,048/- D.D. No.738354 7,41,247/- D.D. No.738355 Arusha Atul D.D. No.738357 13-05-2016 Parag Bora Directly to IDBI Bank D.D No.017125 7,83,425/- IDBI Bank D.D No.017126 4,94,327 /-

36. Further it is also not in dispute that as far as Flat No. E-905 is concerned, payments of Rs. 45,91,000/- have been made by the purchaser either by cheque or by Demand Draft as under:- Date of Payment Paid by Paid To Bank Name Demand Draft/Cheq ue Amount 26-08-2014 Parag Bora Directly to 67,415/- 26-08-2014 Parag Bora Insolvent No.2 No.131749 1,00,000/- 26-08-2014 Parag Bora Arusha Atul IDBI Bank Chq No.201026 1,00,000/- Directly to D.D. No.738352 33,08,434/- Arusha Atul D.D. No.738356 HDFC Bank D.D No.926178 2,27,622/- 13-05-2016 Parag Bora Insolvent No.2 HDFC Bank D.D No.650310 46,282/-

37. No doubt, the purchaser is the brother of the second Insolvent’s wife. But the relation between the purchaser of the said Flats and the Insolvent No.2 and his wife does not appear to have influenced the value at which the said Flats have been sold to the purchaser, which have been sold for a consideration much higher than the price at which the said flats were purchased. The learned Official Assignee has not brought to my notice any contrary material nor anything to demonstrate that the above purchase consideration is not valuable consideration or below the market value. The Share Certificates standing in the name of the Insolvent No.2 and his wife would therefore not make any difference.

38. The Hon’ble Supreme Court in the case of N. Subramania Iyer Vs. Official Receiver, Quilon and Anr.(supra) has clearly observed that it is settled law that in insolvency proceedings the burden of proof lies on the Official Assignee to challenge the transaction. In the facts of this case, as can be seen no material or evidence has been brought to my notice to demonstrate firstly that the transaction in question was not bona fide or without valuable consideration. The very fact that the financial institution / bank was involved in the purchase of the said flats by Insolvent No.2 and his wife and thereafter, in the sale to the purchaser lends sufficient credibility to the transaction.

39. I am therefore, of the view that failing any evidence or material demonstrating that the transaction is not bona fide or not for valuable consideration and that the transaction having taken place before the order of adjudication and that the purchaser at the time of the transaction viz. on 19th August, 2014 or on 2nd September, 2014 or on 29th March, 2016 or on 16th May, 2016 could not possibly have had notice of the presentation of the Insolvency Petition No. 18 of 2017 on 23rd October, 2017, nor even of the Insolvency Notice dated 28th June, 2017, the date of the act of insolvency being 26th July, 2017, the direction sought by the learned Official Assignee to have the Deeds of March, 2016 and 16th May, 2016 declared null and void and not binding cannot be acceded to as in my view, the said transaction is bona fide and for valuable consideration, the learned Official Assignee not having been able to discharge the burden of proof challenging the transaction.

40. The directions sought in the Official Assignee’s Report, therefore, stand rejected. The transaction evidenced by the Deeds of Transfer and Assignment between Atul Indrakumar Bora, the Insolvent No.2, Mrs. Arushi Atul Bora and Shri Parag Hemraj Bora, dated 29th March, 2016 and 16th May, 2016 and registered on 16th May, 2016 in respect of the residential premises viz. the said Flats: Flats No. E-901 and E-905 situate at 10 Kasturkunj, ICS Colony, Bhosale Nagar, Pune – 411007 stand validated. The Official Assignee’s Report accordingly stands disposed as above. (ABHAY AHUJA, J.)