The Supreme Court held that for a sale by an Official Receiver to be protected under Section 37 of the Provincial Insolvency Act, 1920 upon annulment, the underlying transaction must be valid and attain finality. A transfer based on a fundamentally flawed and fabricated agreement is not a “duly made” disposition and does not survive the annulment of insolvency, requiring the property to revert to the debtor.
Facts Of The Case:
The case originated from a partnership firm, M/s Gavisiddheshwara & Co. Following the death of partner Singamasetty Subbarayudu, his son (the appellant) was inducted. Due to family indebtedness, the appellant was alleged to have offered his inherited one-anna share for sale via a letter. Respondent Allam Karibasappa claimed to have accepted this offer, asserting a concluded contract. However, the appellant and his mother were subsequently declared insolvent, and their assets, including the partnership share, vested in a court-appointed Receiver. Based on the alleged pre-insolvency agreement, the District Court directed the Receiver to transfer the share to Karibasappa, which was done in 1983. Later, the appellants secured an annulment of their insolvency after repaying their debts. The key legal dispute was whether the 1983 sale of the partnership share by the Official Receiver survived this annulment. The respondents argued it was protected under Section 37 of the Provincial Insolvency Act, 1920. The District Court, on remand, found the foundational agreement was fabricated and dismissed the respondent’s claim. The High Court reversed this, validating the sale. The Supreme Court ultimately set aside the High Court’s judgment, restoring the District Court’s decision and ruling the sale invalid.
Procedural History:
The case’s procedural journey began when the District Court in Bellary, under the Provincial Insolvency Act, 1920, initially allowed an application (I.A. No. XV) and directed the Official Receiver to transfer the appellant’s partnership share to Respondent No. 1, which was executed via a registered deed in 1983. The appellants successfully challenged this order before the High Court, which set aside the District Court’s 1983 order and remanded the matter for fresh adjudication. Concurrently, the appellants secured an annulment of their insolvency from the District Court. On remand, the District Court meticulously re-examined the evidence, dismissed the respondent’s application, and ordered the cancellation of the 1983 transfer deed. Aggrieved by this reversal, the respondents appealed to the High Court, which allowed their appeals and reinstated the validity of the sale deed. This led to the final appeal before the Supreme Court, which ultimately set aside the High Court’s judgment and restored the decision of the District Court, concluding the lengthy litigation.
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Court Observation:
In its observations, the Supreme Court firmly held that the protection offered to transactions under Section 37 of the Provincial Insolvency Act, 1920, is not absolute. The Court emphasized that for a sale or disposition of property by a Receiver to be considered “duly made” and thus survive the annulment of insolvency, the underlying transaction must be valid and have attained finality. It found that the High Court committed a grave error by ignoring the District Court’s detailed finding that the foundational agreement for the sale was based on fabricated documents, which vitiated the entire transaction. Consequently, the transfer deed of 1983, being a nullity, could not be saved by Section 37. The Supreme Court also criticized the High Court for its failure, as a first appellate court, to properly re-appreciate the evidence and provide reasoned findings for reversing the Trial Court’s well-considered judgment.
Final Decision & Judgement:
The Supreme Court allowed the appeals filed by Singamasetty Bhagavath Guptha and dismissed the connected appeals filed by the legal heirs of Allam Karibasappa. The Court set aside the impugned judgment of the Karnataka High Court and restored the judgment and order of the Additional District Judge, Bellary, dated 16.02.2004. Consequently, the dismissal of I.A. No. XV (which sought the transfer of the partnership share) was upheld, and the order directing the cancellation of the 1983 transfer deed was reinstated. The Court held that the sale of the appellant’s share was invalid and did not survive the annulment of insolvency, thereby restoring the appellant’s rights to his one-anna share in the partnership firm.
Case Details:
Case Title: Singamasetty Bhagavath Guptha & Anr. VERSUS Allam Karibasappa (D) By Lrs./Allam Doddabasappa (D) By Lrs. & Ors. Citation: 2025 INSC 1159 Civil Appeal No(s).: 12048-12049 of 2018 Date of Judgement: September 25, 2025 Judges/Justice Name: Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar