High Court erred in upholding transfer by Official Receiver; Supreme Court restores trial court order and annuls sale deed

A bench of Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar heard appeals arising from competing claims over a one-anna partnership share and the validity of a transfer effected by the Official Receiver under the Provincial Insolvency Act, 1920. The appeals challenged a Karnataka High Court judgment that set aside an Additional District Judge’s order and held that a registered transfer deed executed in 1983 by the Official Receiver was saved by Section 37 of the Act despite subsequent annulment of adjudication of insolvency.

The Court allowed the primary appeals and dismissed the connected appeals, holding that the High Court had committed both factual and jurisdictional errors in reversing the District Court’s detailed findings. The Court emphasised that protection under Section 37 depends on the finality of the acts of the Court or Receiver and on whether sales and dispositions were duly concluded. The Court, in its reasoning, observed: The Supreme Court also noted that the High Court had wrongly proceeded on the assumption that the earlier District Court order of 04.01.1983 and the subsequent registered transfer deed “continued to subsist”, when that order had been set aside and remanded for fresh consideration.

Background The dispute arose from the reconstitution of a partnership firm (M/s Gavisiddheshwara & Co.) and competing claims to a one-anna share inherited by Singamasetty Bhagavath Guptha and his mother following the death of an earlier partner. Correspondence of March 1975 (Ex.P4–P6) formed the basis of an application by Allam Karibasappa before the District Court seeking direction to the receiver to accept Rs.95,000 and transfer the share. Insolvency proceedings had been initiated against the family in 1975 and adjudication followed; the Official Receiver executed a registered transfer deed on 11.03.1983 pursuant to a District Court order dated 04.01.1983.

Appellants challenged that order and obtained a stay; later the insolvency adjudication was annulled on 20.04.1996 under Section 35, and the High Court on 13.02.1997 set aside the 04.01.1983 order and remitted I.A. No. XV for fresh adjudication. On remand the Additional District Judge, Bellary, after extensive evidence appraisal, held Ex.P4 and Ex.P6 to be “got up” and fabricated, found numerous contradictions and failure to produce originals, and dismissed I.A. No. XV on 16.02.2004 while ordering cancellation of the transfer deed. The District Court reasoned that the registered instrument could not be allowed to stand unreversed because it would cause “unwarranted confusion and consequences” and restored the insolvent’s legal position after annulment.

The High Court, however, reversed the District Court, relying on precedents including Babu Ram v. Indra Pal Singh and Arora Enterprises Ltd. v. Indubhushan Obhan, concluding that acts of the Official Receiver were saved by Section 37 and that the 1983 sale deed remained valid, though it held the deed bound only the appellant and not his mother insofar as her consent was lacking. The Supreme Court found this approach flawed: the High Court did not reappreciate the District Court’s factual findings about fabrication and finality and ignored that the 04.01.1983 order had been set aside and remanded. The Supreme Court restored the District Court’s 16.02.2004 judgment and allowed Civil Appeal Nos. 12048–12049 of 2018, while dismissing Civil Appeal Nos. 12050–12053 of 2018. Earlier interim directions of the High Court (including a deposit of Rs.50,61,000 and account furnishing) remained subject to final outcome.

Case No.: CIVIL APPEAL NO(S). 12048-12049 OF 2018 (connected CIVIL APPEAL NO(S). 12050-12053 OF 2018) Case Title: Singamasetty Bhagavath Guptha & Anr. v. Allam Karibasappa (D) by LRs./Allam Doddabasappa (D) by LRs. & Ors. Appearances: For the Petitioner(s): Mr. A.D.N. Rao, Senior Advocate; Mr. Annam Venkatesh, Advocate For the Respondent(s): Mr. Basava Prabhu S. Patil, Senior Advocate; Mr. Abdul Azeem Kalebudde, Advocate