List of Current Affairs

Source: Supreme Court 

Why in News? 

The bench of Justices B.V. Nagarathna and R. Mahadevan in the case of L.K. Prabhu @ L. Krishna Prabhu (Died) Through LRs v. K.T. Mathew @ Thampan Thomas & Ors. (2025) held that attachment before judgment cannot extend to property already transferred prior to suit filing, and that allegations of fraudulent transfer must be determined through proceedings under Section 53 of the Transfer of Property Act rather than claim petition procedures. 

What was the Background of L.K. Prabhu @ L. Krishna Prabhu (Died) Through LRs v. K.T. Mathew @ Thampan Thomas & Ors. (2025) Case? 

• L.K. Prabhu (original applicant) entered into an agreement for sale on 10.05.2002 with V. Ramananda Prabhu (Defendant No. 3), who acknowledged liability of Rs. 17,25,000/-. 
• The agreement stipulated that in case of default, Defendant No. 3 would convey 5.100 cents of property with building in Ernakulam Village for Rs. 35 lakhs. 
• After partial payments (Rs. 3 lakhs cash and Rs. 2.5 lakhs by cheque on 25.06.2004), a registered sale deed was executed on 28.06.2004 in favor of the original applicant. 
• The original applicant took possession and used the property as 9 guest houses recognized by the Tourism Department. 
• On 18.12.2004, K.T. Mathew (plaintiff/Respondent No. 1) filed a suit for recovery of Rs. 43,82,767/- from Defendant Nos. 2-4. 
• Along with the suit, an application was filed under Order XXXVIII Rule 5 CPC seeking attachment before judgment of the property, claiming it belonged to Defendant No. 3. 
• The property was attached on 13.02.2005, nearly six months after the sale deed execution. 
• The original applicant learned of the attachment in 2007 and filed a claim petition under Order XXXVIII Rule 8 CPC seeking release of the property. 
• The plaintiff resisted, alleging the transfer was fraudulent and intended to defeat creditors. 
• The trial Court dismissed the claim petition on 24.02.2009, holding the transfer was fraudulent under Section 53 of the Transfer of Property Act, 1882. 
• The High Court of Kerala upheld this decision on 13.02.2023 while directing determination of any amount payable to the purchaser. 

What were the Court's Observations? 

On Scope of Attachment Before Judgment: 

• The Court held that Order XXXVIII Rule 5 CPC can only attach property belonging to defendant on the date of suit institution—property already transferred prior to suit cannot be attached. 
• Attachment before judgment is merely a protective measure and does not create any charge or ownership in favor of plaintiff. 
• Order XXXVIII Rule 10 protects pre-existing rights of non-parties, which remain unaffected by attachment. 

On Fraudulent Transfer and Procedural Limitations: 

• Allegations of fraudulent transfer require independent proceedings under Section 53 TPA, not claim petition procedures under Order XXXVIII Rule 8 CPC. 
• While Amendment Act 104 of 1976 enlarged scope of adjudication under Order XXI Rule 58, this mechanism cannot transform attachment procedure into substantive enquiry under Section 53 TPA. 
• The burden to establish fraudulent intent lies upon the party alleging fraud—mere suspicion, inadequacy of consideration, or relationship between parties cannot constitute proof. 

On Facts of Present Case: 

• The registered sale deed was executed on 28.06.2004, several months before suit filing on 18.12.2004, thus the essential condition for attachment was absent. 
• Documents did not demonstrate original applicant was party to any collusion—the sale was supported by antecedent agreement, payment endorsements, and registered deed with possession transfer. 
• Past liability under the 2002 agreement constituted valid consideration under Section 25 of Indian Contract Act. 
• Respondent No. 1 failed to produce cogent evidence showing transfer's dominant purpose was to defeat creditor rights—circumstances relied upon gave rise to suspicion but suspicion cannot substitute legal proof. 

On Protection of Prior Rights: 

• The Court reiterated that agreement for sale creates equitable obligation attached to property ownership. 
• Attaching creditor is entitled to attach only the right, title and interest of judgment-debtor—attachment cannot override contractual obligations from antecedent agreements. 
• Execution of sale deed, even if registration follows later, operates to transfer property prior to attachment.

What is Section 53 of TPA? 

About: 

• Section 53 of the Transfer of Property Act, 1882 (TPA), pertains to fraudulent transfers and principally concerns the intentional transfer of property with the aim of defrauding creditors.  
• As outlined in Section 53, a property transfer is considered voidable, allowing any defrauded creditor the option to void the transfer, unless the transferee acquired the property in good faith and for valuable consideration.  
• Additionally, the section outlines a procedure for nullifying such transfers. 
• The section also provides a mechanism for setting aside the transfer. 

Text of Section 53: 

• Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed. Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration. 
  • For example:– When ‘A’ transfers his property to ‘B’ without giving him his ownership of the property with the intention to keep his assets out of reach of his creditor, such a transfer is called a fraudulent transfer. 
• A fraudulent transfer of property gives rise to a civil cause of action. The court may set aside a fraudulent transfer at the request of the defrauded creditor. 

Essentials: 

• The transferor carries out the conveyance of immovable property without receiving any consideration.  
• The purpose behind the transfer is to deceive a future transferee and hinder or postpone the rights of creditors.  
• This type of transfer can be void which means it is voidable at the discretion of the subsequent transferee. 

Exceptions: 

• Good Faith under Section 53(a):  
  • If the person receiving the property (transferee) acted in good faith and had no notice of the fraudulent intent of the transferor, the transfer is not voidable.  
  • Good faith here implies an honest belief and lack of knowledge about any fraudulent intention on the part of the transferor.  
  • If the transferee can prove that they acquired the property without any knowledge of the fraudulent intent, the transfer may be considered valid.   
• Insolvency of the Creditor under Section 53(b): 
  • Another exception is when the transferor was not rendered insolvent by the transfer, and the transfer was made for adequate consideration.  
  • If the transferor remains solvent even after the transfer, and the transfer was made for a legitimate purpose with adequate consideration, it may not be considered fraudulent even if it prejudiced the creditor. 

Framing of suit under fraudulent transfer: 

• Privity of contract is followed, which means that only the parties to the contract can sue. Hence, no third party can sue on the creditor’s behalf who is not a party to the suit.  
  • The suit is instituted by the creditor on the ground that the transfer is made to defeat or delay the creditors of the transferor. 
• The suit is instituted in the representative category or for the benefit of all creditors.  
  • This is to avoid a multiplicity of suits against the same opposite party/parties on the same subject. Dismissing a creditor’s lawsuit would be binding on all creditors. 

Case Laws 

• Karim Dad v. Assistant Commissioner (1999):  
  • If the whole transaction is based on fraud and misrepresentation, then no valid title can be passed to the transferee by using a forged and fabricated deed. 
• Musahar Sahu v. Lala Hakim Lal (1951): 
  • It will not be fraud if the debtor chooses to pay one creditor and leave others unpaid provided that he must not retain any benefit. 

Source: Supreme Court

Why in News?

The bench of Justices JB Pardiwala and R Mahadevan in the case of Hindustan Construction Company Ltd. v. Bihar Rajya Pul Nirman Nigam Limited and Others (2025) held that no review or appeal lies against an order appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996.

What was the Background of Hindustan Construction Company Ltd. v. Bihar Rajya Pul Nirman Nigam Limited and Others (2025) Case? 

• A dispute arose from a 2014 contract between Hindustan Construction Company (HCC) and Bihar Rajya Pul Nirman Nigam Limited (BRPNNL). 
• The arbitration clause in the contract had been invoked previously in an earlier dispute, which resulted in a final award that was honored by both parties. 
• When a second dispute emerged, HCC invoked the same arbitration clause and requested the BRPNNL Managing Director to appoint an arbitrator. 
• Following the Managing Director's failure to act on the request, HCC approached the Patna High Court under Section 11 of the Arbitration and Conciliation Act. 
• In 2021, the Patna High Court appointed Justice Shivaji Pandey (Retd.) as the sole arbitrator to resolve the dispute. 
• Both parties actively participated in the arbitration proceedings for over three years, attending more than 70 hearings. 
• The parties jointly sought extensions of the arbitrator's mandate under Section 29A of the Act on multiple occasions. 
• In early 2024, when arguments were virtually complete, BRPNNL filed a review petition before the High Court challenging the existence of the arbitration agreement itself. 
• The Patna High Court accepted the review petition, suspended the ongoing arbitration proceedings, and subsequently dismissed HCC's original Section 11 petition. 
• Aggrieved by this decision, HCC filed an appeal before the Supreme Court.

What were the Court's Observations? 

• The Court held that once the Patna High Court appointed the arbitrator in 2021 under Section 11(6), it became functus officio and could not reopen or review its own order. 
• The Court clarified that while High Courts possess limited review powers, such power is extremely circumscribed in arbitration matters and can only be exercised to correct an error apparent on the face of the record or address an overlooked material fact, not to revisit findings of law. 
• The Court observed that there is no statutory provision for review or appeal from an order under Section 11, reflecting a conscious legislative choice that once an arbitrator is appointed, the arbitral process must proceed unhindered. 
• The Court noted that the proper remedies available to BRPNNL were to invoke Section 16 before the tribunal or file a Special Leave Petition under Article 136, not to pursue a review petition. 
• Having participated fully in arbitral proceedings for three years, including joint applications for extending the arbitrator's mandate, BRPNNL was estopped from reopening the matter through review. 
• The Court emphasized that the High Court's retrospective invalidation of its own appointment order undermined certainty, diluted the sanctity of judicial orders, and contradicted the principle of minimal judicial interference in arbitration. 
• The Supreme Court set aside the Patna High Court's review order and allowed the appeal, permitting arbitration proceedings to continue.

What is Section 11 of the Arbitration and Conciliation Act, 1996? 

• Nationality of Arbitrators:  
  • Any person of any nationality can be an arbitrator, unless the parties agree otherwise. 
  • Appointment procedure:  
  • Parties are free to agree on a procedure for appointing arbitrators, subject to subsection (6). 
  • In the absence of an agreement, for a three-arbitrator tribunal, each party appoints one arbitrator, and the two appointed arbitrators select the third (presiding) arbitrator. 
• Role of Arbitral Institutions:  
  • The Supreme Court and High Courts can designate graded arbitral institutions for appointing arbitrators. 
  • In jurisdictions without graded institutions, the Chief Justice of the High Court may maintain a panel of arbitrators. 
  • These arbitrators are deemed to be arbitral institutions and are entitled to fees as specified in the Fourth Schedule. 
• Appointment in case of failure:  
  • If a party fails to appoint an arbitrator within 30 days of receiving a request, or if the two appointed arbitrators fail to agree on the third within 30 days, the appointment is made by the designated arbitral institution. 
  • For international commercial arbitration, the Supreme Court designates the institution; for other arbitrations, the High Court does so. 
• Sole arbitrator appointment:  
  • If parties fail to agree on a sole arbitrator within 30 days, the appointment is made as per subsection (4). 
• Failure to act under agreed procedure:  
  • If a party, the appointed arbitrators, or a designated person/institution fails to perform under the agreed procedure, the court-designated arbitral institution makes the appointment. 
• Disclosure requirements:  
  • Before appointing an arbitrator, the arbitral institution must seek a written disclosure from the prospective arbitrator as per Section 12(1). 
  • The institution must consider any qualifications required by the parties' agreement and the contents of the disclosure. 
• International commercial arbitration:  
  • For sole or third arbitrator appointments in international commercial arbitrations, the designated institution may appoint an arbitrator of a nationality different from the parties. 
• Multiple appointment requests:  
  • If multiple requests are made to different institutions, the one receiving the first request is competent to appoint. 
• Time frame for appointment:  
  • The arbitral institution must dispose of an application for appointment within 30 days of serving notice on the opposite party. 
• Fees determination:  
  • The arbitral institution determines the arbitral tribunal's fees and payment manner, subject to rates in the Fourth Schedule. 
  • This doesn't apply to international commercial arbitrations or where parties have agreed on fee determination as per arbitral institution rules. 
• Non-delegation of judicial power:  
  • The designation of a person or institution by the Supreme Court or High Court is not considered a delegation of judicial power.