TaxTMI 
TaxTMI 
2025 (11) TMI 2046
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.... Krishna Prabhu) and remanded the matter to the trial Court to determine the extent, if any, of the purchaser's entitlement towards recovery from the debtor, including any part of genuine sale consideration, with a direction to dispose of the same, within two months from the date of appearance of the parties. 3. The brief facts of the case are as follows: 3.1. The predecessor-in-interest of the appellants, L.K. Prabhu @ L. Krishna Prabhu (original applicant) entered into an agreement for sale on 10.05.2002 with Defendant No. 3, V. Ramananda Prabhu. The agreement proceeds to state that Defendant No. 3 acknowledged his liability of Rs. 17,25,000/- to the original applicant and undertook to discharge the same within three years. It was further stipulated that, in the event of default, Defendant No. 3 would convey 5.100 cents of property with a building situated in Ernakulam Village to the original applicant, for a consideration of Rs. 35 lakhs, upon receipt of the balance sale consideration. 3.2. According to the appellants, endorsements on the reverse of the agreement show the receipt of Rs. 3,00,000/- (by cash) and Rs. 2,50,000/- (by cheque) on 25.06.2004. As Defendant No. ....
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....ths from the appearance of the parties. 3.7. Being dissatisfied with the judgment of the High Court, the appellants are before this Court with the present appeal. 4. The learned senior counsel for the appellants, at the outset, contended that attachment before judgment could not have been ordered against a property that had already been transferred prior to the institution of the suit. Relying on the principles laid down by this Court in Hamda Ammal v. Avadiappa Pathar (1991) 1 SCC 715, it was urged that where execution of a sale deed is complete on the date of institution of the suit, an application under Order XXXVIII Rule 5 CPC is not maintainable. The Court, while dealing with such an application, has no jurisdiction to go into the nature of the transaction or to declare a sale deed collusive under Section 53 of the T.P. Act, for that would be beyond the scope of jurisdiction in proceedings under Order XXXVIII Rule 5 CPC. The only remedy available to a decree-holder, who alleges that a transfer effected before the institution of the suit is fraudulent or collusive is to file an independent suit under Section 53 of the T.P. Act. 4.1. Continuing further, it was argued th....
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....hs due to the claimant, with a stipulation to convey 5.100 cents of property in case of default. The endorsements on the reverse of the agreement evidenced receipt of Rs. 3 lakhs in cash and Rs. 2.5 lakhs by cheque on 25.06.2004, pursuant to which the registered sale deed was executed on 28.06.2004. In law, a registered sale deed prevails over a subsequent order of attachment. In this background, the sale deed in favour of the claimant, it was submitted, is unassailable and the courts below exceeded their jurisdiction by virtually converting the attachment proceedings into a full-fledged trial of a suit under Section 53 of the T.P. Act. 4.5. It was also contended that the finding of the courts below regarding delay in filing the claim petition is equally unsustainable. The observation that the original applicant came to know of the attachment in 2005 but filed the claim petition only on 12.04.2007 and that such delay strengthened the allegation of fraud is perverse and arbitrary. In rendering such a finding, the courts below overlooked the principles of the law of limitation. According to the learned senior counsel, as on the date of attachment and much earlier, the original app....
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....where debtors, in collusion with third parties, effect transfers with the intent to defeat legitimate claims. In the present case, both the trial Court and the High Court, upon analysing the evidence, correctly held that the transfer of the subject property in favour of the original applicant was a fraudulent transaction squarely falling within the ambit of Section 53 of the T.P. Act. 5.3. The learned senior counsel further submitted that the appellants' reliance on Hamda Ammal v. Avadiappa Pathar (supra) is misplaced. In that decision, this Court observed that Order XXXVIII Rule 5 would not apply where a sale deed had already been executed prior to the institution of the suit. However, the Court carved out an express exception for cases involving Section 53 of the T.P. Act, thereby recognising that fraudulent transfers stand on a different footing and may be adjudicated within the framework of attachment proceedings. 5.4. Therefore, it was urged that the consistent judicial interpretation has been to safeguard the rights of creditors. A narrow construction of Order XXXVIII Rules 5 and 8 read with Order XXI Rule 58 would render creditors remediless, thereby enabling debtors t....
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....the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him,- (a) is about to dispose of the whole or any part of his property, or (b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court, the Court may direct the defendant, within a time to be fixed by it, either to furnish security, in such sum as may be specified in the order, to produce and place at the disposal of the Court, when required, the said property or the value of the same, or such portion thereof as may be sufficient to satisfy, the decree, or to appear and show cause why he should not furnish security. (2) The plaintiff shall, unless the Court otherwise directs specify the property required to be attached and the estimated value thereof. (3) The Court may also in the order direct the conditional attachment of the whole or any portion of the property so specified. Inserted by Act No. 104 of 1976 sec. 85 (w.e.f. 1-2-1977) [(4) If an order of attachment is made without complying with the provisions of sub-rule (1) of this rule such attachment shall be void.] ....
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....he attachment to be withdrawn. Rule 7 prescribes that such attachment shall be made in the same manner as in execution under Order XXI. Rule 8 directs that any claim or objection to property attached before judgment shall be adjudicated as if it were a claim in execution. Rule 9 provides for withdrawal of attachment when the defendant furnishes security or when the suit is dismissed. Rule 10 safeguards the rights of strangers by clarifying that attachment before judgment does not affect pre-existing rights of non-parties nor create any proprietary interest in favour of the plaintiff. Thus, the scheme of Rules 5 to 10 is self-contained, balancing the plaintiff's right to secure the decree with safeguards for the defendant and protection of third-party rights. Attachment before judgment is therefore only a protective measure and does not create any charge or ownership in favour of the plaintiff. 10.2. A significant change was introduced by the Amendment Act 104 of 1976. Order XXI Rule 58 was substituted to enlarge the scope of adjudication of claims and objections. Earlier, a claimant was required to institute a separate suit under Order XXI Rule 63 or invoke Section 53 of the T.P....
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.... he claims to the property in dispute; but, subject to the result of such suit, if any, an order so refusing to entertain the claim or objection shall be conclusive." Thus, the effect of the amended Rule 58 is that the Executing Court shall adjudicate all questions relating to right, title, or interest of the property attached between the parties to the claim proceedings, and its determination has the force of a decree. By virtue of Rule 8, this scheme applies equally to claims regarding property attached before judgment, thereby ensuring that third parties asserting independent rights in such property have their claims adjudicated on merits, without being driven to a separate suit. Rule 10 further reinforces this position by clarifying that an attachment before judgment does not affect pre-existing rights of strangers nor does it create any substantive charge in favour of the plaintiff. 10.3. Section 53 of the T.P. Act deals with fraudulent transfer and reads as follows: "53. Fraudulent transfer.- (1) Every transfer of immoveable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated o....
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.... of the suit; property already transferred prior to the suit cannot be attached under this provision. In cases where such prior transfer is alleged to be fraudulent, the remedy lies under Section 53 of the T.P. Act and not under Order XXXVIII Rule 5 CPC. 11.2. Rule 8 incorporates the adjudicatory mechanism of Order XXI Rule 58 CPC in respect of claims to property attached before judgment. While the amended Rule 58 of Order XXI CPC enlarges the scope of inquiry, such adjudication must nonetheless be based on proper pleadings and evidence. 11.3. The combined reading of Rules 5 to 10 makes it clear that Rule 5 operates at the stage of ordering attachment, while Rule 8 read with Order XXI Rule 58 governs the stage of adjudication of third-party objections. Rule 10 emphasises that attachment before judgment does not create any charge or proprietary interest for the plaintiff and that pre-existing rights of strangers remain unaffected. Thus, attachment before judgment is only an ancillary, protective relief to secure the decree, subject to adjudication of independent claims, and cannot prejudice pre-existing rights or confer any substantive advantage upon the plaintiff beyond secur....
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....ode and settled principles governing attachment before judgment. 15. The onus to establish that the transfer was made with an intent to defeat or delay creditors lies squarely upon the party alleging fraud. Mere suspicion, inadequacy of consideration or the existence of a relationship between the parties, cannot, by themselves, constitute proof of such intent. Moreover, while the conclusion for fraud must rest on established facts and legitimate inferences drawn therefrom, every device or artifice need not be fully unravelled to sustain a finding of fraud. In the present case, Respondent No. 1 (creditor) has failed to produce cogent evidence showing that the dominant purpose of the impugned transfer was to defeat his rights. The circumstances relied upon, such as community ties, financial difficulties of Defendant No. 2, and partial cash consideration, may give rise to suspicion, but suspicion cannot substitute legal proof. The property was transferred for stated consideration under a duly registered deed and possession duly followed. There is no evidence to prove that the transfer rendered the transferor insolvent or that the creditor suffered any actual and irretrievable preju....
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....not parties to the suit. Under Section 40 of the Transfer of Property Act, a purchaser under a contract of sale of land is entitled to the benefit of an obligation arising out of that contract and it provides that that obligation may be enforced inter alia against a transferee with notice. Section 91 of the Trusts Act also recognises this principle that the transferee with notice of an existing contract of which specific performance can be enforced must hold the property for the benefit of the party to the contract. These are equitable rights though not amounting to interest in immovable property within the meaning of Section 54 of the Transfer of Property Act which declares that a contract of sale does not create an interest in the property. On this line of reasoning it has been held by the Madras High Court that the purchaser of an antecedent agreement gets good title despite attachment. See Paparaju Veeraraghavayya v. Killaru Kama Devi and others, AIR 1935 Mad. 193, Veerappa Thevar & Ors. v. C.S. Venkataramma Aiyar & Ors., AIR 1935 Mad. 872 and Angu Pillai v. M.S.M. Kasiviswanathan Chettiar, AIR 1974 Mad. 16. 6. There is a useful parallel from the decision of the Calcut....
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....ment for sale of the attached property. The attaching creditor cannot ignore that obligation and proceed to bring the property to sale as if it remained the absolute property of the judgment-debtor. We cannot, therefore, agree with the view taken by the Punjab and Haryana High Court in Mohinder Singh's case AIR 1971 P & H 381." 18. The principle that attachment before judgment cannot override a prior completed transfer was categorically laid down in Hamda Ammal v. Avadiappan Pathar (supra). In that case, the appellant purchased the suit property under a sale deed executed on 09.09.1970, though the deed was registered later on 26.10.1970. Meanwhile, the creditor had filed a suit on 13.09.1970 and obtained attachment before judgment on 17.09.1970. The issue before this Court was whether the prior executed though subsequently registered sale deed would prevail over the attachment. Answering in favour of the purchaser, this Court held that execution of the sale deed, even though registration followed later, operated to transfer the property prior to attachment. It was held thus: "2. ... Order XXXVIII Rule 5 CPC... would not apply where the sale deed has already been ....
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....achment but this plea was rejected by the Subordinate Judge on the ground that the attachment does prevail over the pre-existing contract to sell even though the attaching creditor has no notice of a contract to sell. The very same plea was advanced before the learned Single Judge of the High Court but the same was not considered as the decision was taken in the matter having regard to non-compliance with Section 136 of the Code of Civil Procedure and the learned Single Judge felt that it was not necessary for him, in this case, to consider that plea. 19. As we have taken a contrary view regarding Section 136, the matter has to go back to the learned Single Judge to consider the plea raised by the respondents regarding the two agreements allegedly executed by them. It may be noted that as regards the question whether the agreement entered into by the judgment-debtor prior to the attachment of property in execution of a decree would prevail over the attachment itself, was considered by this Court in Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan [(1990) 3 SCC 291] and this Court approved the views expressed in Paparaju Veeraraghavayya v. Killaru Kamala Devi....