2001 (1) TMI 1023 - HC - Indian Laws

Appellate Court Reinstates Notice of Motion, Orders Hearing on Merits; Clarifies Attachment Before Judgment Procedures.

SBI Home Finance Limited Versus Credential Finance Limited and Ors.

The appellate court overturned the decision of the learned Single Judge, reinstating the Notice of Motion and ordering that it be heard on its merits. The ... - Issues Involved1. Validity of the transfer of properties under Section 53 of the Transfer of Property Act, 1882.2. Applicability of Order XXXVIII Rule 5 of the Civil Procedure Code for attachment before judgment.3. Necessity of impleading third-party transferees as defendants in the suit.4. Requirement of a substantive suit to avoid a fraudulent transfer under Section 53 of the Transfer of Property Act, 1882.Detailed Analysis1. Validity of the Transfer of Properties under Section 53 of the Transfer of Property Act, 1882The Appellant contended that the transfer of two office premises by the first Respondent to the third and fourth Respondents was intended to defraud creditors and was therefore voidable under Section 53 of the Transfer of Property Act, 1882. The learned Single Judge dismissed this argument without a prima facie finding on the existence of circumstances contemplated by Section 53. The appellate court emphasized that if the Appellant could show that the transfer was fraudulent, the properties would be treated as the first Respondent's and subject to attachment before judgment.2. Applicability of Order XXXVIII Rule 5 of the Civil Procedure Code for Attachment Before JudgmentThe learned Single Judge initially denied the attachment before judgment against the third and fourth Respondents, citing Rule 10 of Order XXXVIII, which protects rights existing prior to attachment. However, the appellate court clarified that if a transfer is voidable under Section 53, the property remains that of the debtor and can be attached before judgment under Order XXXVIII Rule 5. The court held that the issue of whether the transfer was fraudulent should have been adjudicated first.3. Necessity of Impleading Third-Party Transferees as Defendants in the SuitThe learned Single Judge held that no relief could be granted against the third and fourth Respondents unless they were made parties to the suit. The appellate court disagreed, stating that the money suit against the first and second Respondents did not require the third and fourth Respondents to be defendants. The court held that the issue of fraudulent transfer could be adjudicated in the Notice of Motion without making the third and fourth Respondents parties to the suit.4. Requirement of a Substantive Suit to Avoid a Fraudulent Transfer under Section 53 of the Transfer of Property Act, 1882The appellate court referred to various judgments, including those of the Supreme Court, to conclude that a creditor need not bring a substantive suit to avoid a fraudulent transfer under Section 53. The intent to avoid the transfer can be manifested by actions such as seeking attachment before judgment. The court held that the learned Single Judge erred in requiring a substantive suit and that the issue should be adjudicated in the Notice of Motion.ConclusionThe appellate court set aside the order of the learned Single Judge, restored the Notice of Motion, and directed that it be heard on its merits. The court also reinstated the ad-interim order for attachment before judgment. The appeal was allowed with costs to be determined in the suit, and the issuance of a certified copy was expedited.