UNION OF INDIA versus RAJESWARI AND CO, & ORS.

Citation: [1986] 3 S.C.R. 175 · Decided: 15-07-1986 · Supreme Court of India · Bench: R.S. PATHAK · Disposal: Dismissed

Judgment (excerpt)

I 
i 
UNION OF INDIA 
v. 
RAJESWARI AND CO, & ORS. 
JULY 15, 1986 
[R.S. PATHAK AND SABYASACHI MUKHARJI, JJ.] 
Transfer of Property Act, 1882-s. 53-Applicability of-Pro-
ceeds arising upon transfer of assets of an assessee company employed 
fully in paying off some creditors-Transaction whether invalid and 
inoperative-Transfer in favour of a person not a creditor-validity of. 
Constitution of India, Art. 136--Questions of fact-Whether could be 
raised before the Court. 
A public limited company, working at a loss, having come to know 
of the proposal of the Department to reopen its income-tax assessments 
for the previous years, disposed of its assets to the respondent firm, 
with which it had a partnership business, and employed the proceeds in 
paying off the debts dne to various creditors, with the result that no-
A 
B 
c 
D 
thing was left for paying off the tax arrears of the company. 
E 
A suit under s. 53 of the Transfer of Property Act, 1882 was 
instituted by the Union of India-appellant for a declaration that the sale 
deed in favour of the respondent firm was invalid, inoperative and not 
binding on the appellant and other creditors of the transferor company 
and alleging fraudulent intent to defeat legitimate claims, which was 
F 
decreed by the trial court. The High Court, however, allowed the ap-
peal holding that the appellant had failed to satisfy the provisions. of s. 53 
inasmuch as the evidence showed that the company had utilised the 
proceeds arising upon the transfer of its assets in paying off all its other 
creditors, and that even if the company had done so in order to avoid 
payment of its income tax dues no relief could be granted to the 
G 
appellant. 
In this appeal by special leave it was urged for the appellant that 
the transfer was effected in favour of a person who was not a creditor, 
that the assets had been undervalued and that there was evidence to 
show that the benefit of the sale proceeds was enjoyed by the directors 
H 
176 
SUPREME COURT REPORTS 
[1986] 3 S.C.R. 
A 
·of the company, who were also partners of the respondent firm. 
B 
Dismissing the appeal, the court, 
HELD: It is open to a debtor to prefer one or more creditors over 
the others in the payment of his debts, and so long as he retains no 
benefit in' the property the mere circumstance that some creditors stand 
paid while others remain unpaid, does not attract the provision of s. 53 
oftheTramferof Property Act. [180A-B] 
Musahar Sahu and Another v. Hakim Lal and another, L.R. 43 
Indian Appeals 104, In re Moroney, [1888] L.R. 21 Ir. 27, 62, Middle-
C 
ton y. Pollock, [1876] 2 Ch.D. 104, 108 and MA PWA MAY and 
another v. S.R.M.M.A. Chettyar Firm, 56 Indian Appeals 379, referred 
to. 
In the instant case, there was no finding by the High Court in 
support of the contention that some of the debts discharged were owed 
D 
to persons who were also directors of the company or that the consid-
eration which passed for the sale of the assets was inadequate and that 
the assets had been undervalued. This Court will not permit such ques-
tions of fact to be raised unless there is material evidence which has 
been ignored by the High Court or the finding reached by the Court is 
perverse. [ 180B-C] 
E 
It has been found by the High Court that the sale was effected for 
the purpose of discharging genuine debts payable by the company and 
that the sale proceeds were really employed for paying off the creditors 
of the company. Once it was also fonnd that the consideration was not 
inadequate, it was immaterial that the transfer was effected in favour of 
F 
apersonwhowasnotacreditor. [1800-E] 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1689 
Of 1974 
From the Judgment and Order dated 31st August, 1972 of the 
G 
Madras High Court in Appeal No. 357 of 1965. 
B.B. Ahuja and Ms. A. Subhashini for the Appellant. 
A.T.M. Sampath and P.N. Ramalingam for the Respondents. 
H 
The Judgment of the Court was delivered by 
I 
r 
\ 
/ 
U.0.1. v. R. &CO. [PATIIAK,J.] 
177 
,.. 
PATIIAK, J, This appeal by special leave arises out of a suit 
A 
' 
instituted by tbe appellant for a declaration that a sale-deed of im· 
moveable properties and the transfer of moveables belonging to the 
respondent limited company in favour of the respondent firm are in-
valid, inoperative and not binding on the appellant and other creditors 
of the respondent limited company. 
B 
A suit was instituted by the Union of India, the appellant before 
I 
us, 

Excerpt shown. Read the full judgment & AI analysis in Lexace.