The Supreme Court of India in Singamasetty Bhagavath Guptha & Anr. v. Allam Karibasappa (D) by LRs. & Ors. (Civil Appeal Nos. 12048–12049 of 2018, decided on 25 September 2025) delivered a significant ruling that clarifies the ambit of Section 37 of the Provincial Insolvency Act, 1920. The Court held that fabricated or concocted documents cannot be granted protection under Section 37, which otherwise validates bona fide acts of receivers or courts during the pendency of insolvency proceedings.
This judgment not only reiterates the principle that insolvency law cannot be a cloak for fraudulent claims but also underscores the duty of appellate courts to carefully reappreciate evidence while reversing trial court findings.
Background of the Case
Constitution of the Partnership
In 1963, a partnership firm M/s Gavisiddheshwara & Co. was established with five partners, including Allam Karibasappa and members of the Singamasetty family. The shares were distributed, with Karibasappa holding a substantial portion. Over time, the firm became profitable, and changes occurred in its partnership composition.
In 1974, one partner retired, and his share was purchased by Karibasappa, enlarging his stake. In February 1975, one of the partners, Singamasetty Subbarayudu (father of the appellants), died, leaving behind debts. His son, Singamasetty Bhagavath Guptha, was inducted as a partner in his place.
The Alleged Agreement
It was alleged that due to mounting family debts, the appellant expressed willingness to sell his one-anna share in the partnership. According to Karibasappa, he accepted this offer through correspondence dated March 1975, and a deal was struck for ₹95,000.
However, insolvency proceedings soon overtook the matter. In June 1977, the District Court at Bellary adjudged the appellant and his mother as insolvents.
Receiver’s Transfer
During insolvency, Karibasappa sought directions for the transfer of the appellant’s partnership share. In January 1983, the District Court allowed his application (I.A. XV), and on 11 March 1983, the official receiver executed a transfer deed in his favour.
This deed became the foundation of decades-long litigation.
Procedural History
Annulment of Insolvency (1996):
The District Court annulled the insolvency after the appellant demonstrated repayment of creditors, thereby restoring his legal standing.
High Court Remand (1997):
The Karnataka High Court set aside the 1983 transfer order and remanded the matter for reconsideration.
District Court Order (2004):
Upon detailed evaluation, the District Court dismissed Karibasappa’s claim, holding that the correspondence (Exhibits P4–P7) forming the alleged contract was fabricated documents.
High Court Appeal (2011):
The High Court reversed the District Court, holding that Section 37 of the Insolvency Act protected the receiver’s acts, including the transfer deed, even after annulment of insolvency.
Supreme Court Appeal (2025):
The appellants approached the Supreme Court, challenging the High Court’s ruling.
Issues Before the Supreme Court
- Whether the transfer deed executed in 1983 pursuant to fabricated documents could be protected under Section 37 of the Provincial Insolvency Act, 1920.
- Whether the High Court was correct in reversing the District Court without reappreciating the evidence.
- What is the scope of Section 37 regarding acts of receivers during insolvency when annulment subsequently occurs?
Legal Framework
Section 37 of the Provincial Insolvency Act, 1920
“Where an adjudication is annulled, all sales and dispositions of property and payments duly made, and all acts theretofore done, by the Court or receiver, shall be valid…”
This provision ensures certainty of transactions conducted by a receiver during insolvency proceedings, even if insolvency is later annulled. However, its protection applies only to duly made transactions.
Supreme Court’s Analysis
1. Requirement of Bona Fides under Section 37
The Court clarified that Section 37 cannot sanctify transactions rooted in fraud or fabrication. The phrase “duly made” implies that the act must be lawful, genuine, and in good faith. If the underlying documents themselves are fabricated, the transfer deed cannot be validated.
The Court observed that Section 37 is not meant to function like a decree of specific performance. Instead, it only safeguards valid and bona fide acts of the receiver or court during insolvency.
2. District Court’s Findings on Fabrication
The District Court had meticulously examined the alleged offer letter (Ex. P4) and acceptance letter (Ex. P6). It noted several anomalies:
- Originals were never produced despite repeated notices.
- Contradictions existed in the dates of offer and acceptance.
- A subsequent power of attorney (April 1975) contradicted the existence of the alleged March 1975 offer.
- Even the official receiver doubted the authenticity of the documents, calling them “got-up” or fabricated.
The trial court concluded that the documents were concocted, possibly signed on blank papers under financial distress, and not enforceable.
3. High Court’s Error
The Supreme Court found that the High Court committed two major errors:
- Failure to Reappreciate Evidence: The High Court merely dismissed the trial court’s findings as “surmises” without analysing evidence afresh. An appellate court reversing factual findings must engage with the reasoning of the trial court, as emphasised in Santosh Hazari v. Purushottam Tiwari (2001).
- Assumption of Finality: The High Court wrongly assumed that the 1983 transfer deed had attained finality. In fact, it was nullified when the earlier order was set aside in 1997 and remanded.
4. Consequence of Annulment
The Court reiterated established law: annulment wipes out insolvency proceedings retrospectively, revesting property in the debtor. However, bona fide acts of the receiver remain protected. Since the transfer deed was based on fabricated documents, it could not be treated as a bona fide act “duly made.”
Thus, fabricated or fraudulent transactions cannot gain legitimacy under Section 37.
Judgment
The Supreme Court allowed the appeals, set aside the High Court’s judgment, and restored the District Court’s order of 2004.
Key rulings:
- Fabricated documents cannot be shielded by Section 37.
- Protection under Section 37 extends only to bona fide, duly made transactions.
- High Courts, as appellate courts, must carefully reappreciate trial court findings, especially when reversing them.
Significance of the Judgment
1. Reinforcing Integrity in Insolvency Proceedings
The judgment prevents the misuse of insolvency laws to legitimise fraudulent claims. It sends a strong signal that insolvency is not a route to gain advantage through fabricated documents.
2. Clarifying the Scope of Section 37
The decision draws a clear line between genuine transactions and fraudulent ones. Only the former are protected under Section 37.
3. Upholding the Role of Appellate Courts
By emphasising that appellate courts must engage with trial court findings, the Supreme Court strengthened the principle of judicial discipline in the appellate process.
4. Broader Implications
- For insolvency practitioners: diligence is required to ensure the authenticity of documents.
- For creditors, it safeguards rights against fraudulent dispossession.
- For courts, it provides clarity in handling annulment proceedings.
Conclusion
The Supreme Court’s ruling in Singamasetty Bhagavath Guptha v. Allam Karibasappa reaffirms a fundamental legal principle: fraud vitiates everything. Insolvency law, particularly Section 37, cannot be invoked to sanctify fabricated documents. The judgment ensures that only bona fide, duly made acts of receivers are protected, thereby preserving both the integrity of insolvency proceedings and the faith of creditors.
By restoring the trial court’s order, the Court reinforced judicial discipline and struck a decisive blow against fraudulent claims. This case will serve as a vital precedent in insolvency jurisprudence, ensuring that fabricated documents find no shelter under the Provincial Insolvency Act.
Important Link
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