Provincial Insolvency Act – Fabricated Offer and Acceptance Cannot Support Transfer; Section 37 Protects Only Valid Transactions

Case Name: Singamasetty Bhagavath Guptha & Another v. Allam Karibasappa (D) by LRs. & Others

Citation: Civil Appeal Nos. 12048–12049 of 2018; with Civil Appeal Nos. 12050–12053 of 2018; 2025 INSC 1159

Date of Judgment: 25 September 2025

Bench: Justice Pamidighantam Sri Narasimha and Justice Atul S. Chandurkar

Held: The Supreme Court held that fabricated documents purporting to evidence an offer and acceptance cannot form the basis of a valid transfer under insolvency proceedings. Section 37 of the Provincial Insolvency Act, 1920 saves only those sales, dispositions, and acts of the receiver that are duly made and valid, not transactions founded on concocted documents. The High Court erred in overlooking the District Court’s findings of fabrication and in protecting a transfer deed that had no legal foundation.

Summary: The dispute arose out of partnership rights in M/s Gavisiddheshwara & Co., where the appellants’ predecessor held one-anna share. Following insolvency proceedings initiated against the appellants in 1975, the official receiver executed a transfer deed on 11.03.1983 in favour of respondent Allam Karibasappa, based on alleged letters of offer (20.03.1975) and acceptance (25.03.1975). The District Court in 2004, after remand, found these documents to be fabricated and dismissed the respondent’s claim. However, the Karnataka High Court in 2011 reversed this, holding that under Section 37 of the Act, acts of the receiver during insolvency stood protected even after annulment.

The Supreme Court disagreed, stressing that Section 37’s protection applies only to valid transactions. Since the District Court had conclusively found Ex.P4 (offer) and Ex.P6 (acceptance) fabricated, there was no valid foundation for the transfer deed of 1983. The High Court failed in its appellate duty by not re-appreciating evidence and merely dismissing the trial court’s findings as conjectural. Citing Santosh Hazari v. Purushottam Tiwari (2001) 3 SCC 179, the Court emphasized that an appellate court reversing findings must closely engage with the trial court’s reasoning and assign its own reasons, which the High Court failed to do.

Decision: The Supreme Court allowed Civil Appeal Nos. 12048–12049 of 2018, restored the District Court’s judgment dated 16.02.2004 dismissing the respondent’s claim, and dismissed the connected Civil Appeals Nos. 12050–12053 of 2018. It reaffirmed that fabricated documents cannot ground valid transfers and that Section 37 cannot save such acts.