2003 (7) TMI 701 - SC - Indian Laws

Purchase of shares - Whether protection provided in the proviso to Section 55 of the Provincial Insolvency Act, 1920 is available to a bonafide transferee for valuable consideration after the presentation of any insolvency petition but before the date of passing of the order for adjudication without notice of the presentation of the insolvency petition by or against the debtor - HELD THAT - In the case on hand on the facts found, it is clear that the shares were transferred in favour of the appellant before the date of the order of adjudication was made on the insolvency petition filed by Kasi Naickar and the appellant had no knowledge at the time of purchasing the shares as to the presentation of the insolvency petition, the transfer of shares was for valuable consideration and such transfer was bona fide. In this view, the appellants did satisfy the requirements of proviso to Section 55 of the Act and hence they are entitled for the claim made by them. We may add that Sections 28 and 55 must be read together harmoniously. As already noticed above, these Sections are designed and intended to serve different purposes. In the proviso to Section 55 itself, there is reference to order of adjudication and the presentation of any insolvency petition. Order of adjudication and presentation of insolvency petition are two different events essentially referring to two different dates when in the same proviso, legislature consciously made a clear statement as to two different dates, they should be given effect to. If the intention of the proviso to Section 55 of the Act was not to protect even a bona fide transferee for valuable consideration without notice of presentation of insolvency petition before an order of adjudication was made, the legislature could have simply said any transaction taking place after the date of presentation of any insolvency petition by or against the debtor instead of qualifying the transaction that takes place before the date of the order of adjudication. In this situation, the said proviso which is intended to serve a definite purpose should be given full meaning and effect. It is not possible to ignore a part of the provision, namely, any such transaction takes place before the date of the order of adjudication . It stands to the reason as well, that a bona fide transferee for valuable consideration without the knowledge of the presentation of insolvency petition on the date of transfer of property is to be protected. Thus, we are unable to sustain the impugned judgment of the High Court affirming the order of the district court. We answer the question set out above in the affirmative and in favour of the appellant. Hence, the appeal is allowed. The impugned judgment of the High Court affirming the order of the District Judge is set aside and that of the trial court is restored. Parties to bear their own costs.

Summary

Issues Involved:
1. Whether the protection provided in the proviso to Section 55 of the Provincial Insolvency Act, 1920 is available to a bona fide transferee for valuable consideration after the presentation of any insolvency petition but before the date of passing of the order for adjudication without notice of the presentation of the insolvency petition by or against the debtor.
2. Whether the amount Rs. 25,155.40 remitted by the insolvent on 24.8.78 with the Bank of Thanjavur belongs to Srinivas Naicker, proprietor of Krishna Stores, or to the Petitioner Shankar Ram & Co.
3. Whether the Insolvency Court has jurisdiction to decide this claim.
4. Whether the petitioner Shankar Ram & Co. is entitled to file this petition u/s 55 of the Provincial Insolvency Act.

Summary:

Issue 1: Protection under Section 55 of the Provincial Insolvency Act, 1920
The primary issue was whether the protection provided in the proviso to Section 55 of the Provincial Insolvency Act, 1920 is available to a bona fide transferee for valuable consideration after the presentation of any insolvency petition but before the date of passing of the order for adjudication without notice of the presentation of the insolvency petition by or against the debtor. The court concluded that the appellant satisfied the requirements of the proviso to Section 55 of the Act, as the shares were transferred before the date of the order of adjudication and the appellant had no notice of the presentation of the insolvency petition. Therefore, the appellant is entitled to the protection under Section 55 as a bona fide transferee.

Issue 2: Ownership of the Amount Remitted
The District Judge recorded findings in favor of the appellant, concluding that the amount Rs. 25,155.40 remitted on 24.8.78 belonged to the appellant and not to Srinivas Naicker. This finding was not challenged further and thus attained finality.

Issue 3: Jurisdiction of the Insolvency Court
The District Judge also found in favor of the appellant regarding the jurisdiction of the Insolvency Court to decide the claim. This finding was not contested and thus attained finality.

Issue 4: Entitlement to File Petition u/s 55
The District Judge held against the appellant on the point of entitlement to file the petition u/s 55 of the Act. The High Court affirmed this view, but the Supreme Court disagreed, stating that Sections 28 and 55 must be read together harmoniously. The court emphasized that the protection provided for bona fide transfers in Section 55 is an exception to Section 28(7). The court concluded that the appellant, having satisfied the requirements of Section 55, is entitled to the claim made.

Conclusion:
The Supreme Court allowed the appeal, set aside the judgment of the High Court affirming the order of the District Judge, and restored the order of the trial court. The appellant was granted relief, and the parties were directed to bear their own costs.