H.W. Brown and Another vs T.J. Ferguson

In Appeal No. 82 of 1887 on the file of the High Court Mr. Tomlinson''s representative obtained a decree against Messrs. Hinde and Ferguson

on 26th April 1889 for Rs. 17,349-0-5 with interest at 12 per cent, per annum from 29th April 1882 to date of the decree, and with further

interest at 6 per cent per annum till date of payment. He obtained also a declaration that he was entitled to one-fourth of the future profits which

might be derived from certain mining rights called the Aliel Concession. In execution of the decree Tomlinson''s representatives attached certain

moveable properties by Civil Miscellaneous Petition No. 16 of 1890, and on the 28thFebruary 1890, Mr. Ferguson applied u/s 344 of the CPC

to be declared an insolvent. He fixed his liabilities at Rs. 3,20,390-1-11 and his assets at Rs. 2,19,679-7-6 up to the 11th February 1890. Three

of his creditors, viz., Mr. Tomlinson''s representative, Mr. Brown, Messrs. Oakes and Company, and Messrs. Vest and Company opposed his

application. The District Judge, after considering their objections, made an order u/s 351 declaring Mr. Ferguson to be an insolvent. Hence this

appeal.

In the Court below appellants relied in support of their appeal on three grounds of objection, viz., (i) that the balance-sheet prepared for the

year ending 30th June 1889 as compared with respondent''s statement of liabilities and assets annexed to his petition disclosed a discrepancy to

the extent of one lakh of rupees, (ii) that undue preference was shown to Messrs. Arbuthnot and Company by paying them Rs. 10,599-11-2

subsequently to June 1889, and (iii) that respondent executed a mortgage jointly with his partner and co-defendant Mr. Hinde in favour of the

trustees of the wife of the latter over the Plantation house property, which is part of his assets, after the result of the appeal to the High Court had

been ascertained and in order to defeat the judgment-creditors.

As regards the first objection, the Judge considered respondent''s explanation unsatisfactory, but he was satisfied that the statements made in his

petition were substantially true. As for the second objection the Judge accepted respondent''s explanation as sufficient, and as for the third

objection, he held that the mortgage was executed bond fide, though subsequent to the decree in pursuance of previous negotiations and that the

mortgage was not liable to be treated as a transaction designed to defraud or delay the judgment-creditors.

As regards the first objection, we are of opinion that the Judge is right in declining to attach weight to it. As observed by him, respondent is only

bound u/s 351 to show that the statements contained in his application are substantially true and we are referred to no specific evidence indicating

that such is not the case. Appellants'' counsel draws our attention to the discrepancy between the balance-sheet ending 30th June 1889 and the

statement of assets and liabilities contained in his petition. But the Judge has noticed this discrepancy, and after considering the explanations given

by the insolvent and after investigating the accounts, he has come to the conclusion that the statements in his petition are substantially true. The

discrepancy is only material for the purpose of testing the correctness of those statements and not otherwise. As regards the contention that, in

view of the discrepancy, respondent''s accounts should be carefully scrutinized, again, no grounds are shown for considering the scrutiny instituted

by the Lower Court to be defective.

The second ground of objection is that undue preference was shown to Messrs. Arbuthnot and Company. It rests on the ground that in the

balance-sheet A ending 30th June 1889 a sum of Rs. 10,599-11-2 is entered as due to Messrs. Arbuthnot and Company, whereas it does not

appear as a liability in respondent''s present schedule. His explanation is, that on June 29th two bills on England, amounting to �950, were

forwarded to Messrs. Arbuthnot and Company, that the payment was, however, not entered in the books until July 2nd, as the exact equivalent in

Indian money had to be ascertained from Arbuthnot and Company, and that the payment left a balance of Rs. 10,599-11-2 which is accounted for

by several extracts from the account D. The Judge accepted the explanation as satisfactory and we see no reason to come to a different

conclusion.

The next ground of objection is that the mortgage executed in favour of the trustees of Mrs. Hinde in respect of the Plantation house is

fraudulent, and the facts from which this contention arises are shortly these:--Respondent and one Mr. Hinde carried on business as merchants in

co-partnership in London and in this Presidency under the style of Hinde and Company. It was agreed between them in July 1883 that the

partnership was to continue for a period of seven years, but that it might be dissolved by either partner giving six months'' notice to that effect. It

appears from Exhibit XII that Mr. Hinde gave notice on 21st November 1884 of his intention to determine the partnership as from 30th June

1885, that the firm was then indebted to the trustees of the marriage settlement of Mr. Hinde in the sum of Rs. 47,539-11-11 with interest thereon

at 9 per cent, per annum, and to the sisters of Mr. Hinde in the sum of �800 together with interest thereon, and that these two sums had been

invested or otherwise employed in the Indian business of the partnership. With reference to this debt, the deed of dissolution bearing date 1st

January 1886 provided, inter alia, for the execution by Ferguson, if required, of a mortgage of the Plantation house in favour of Richard Hinde to

secure its repayment. This property had already been mortgaged to the Agra Bank (Limited), which had thereon a lien for a sum not exceeding Rs.

30,000. Mr. Ferguson executed a mortgage in favour of the trustees of Mrs. Hinde as a security for the debt due to them on the 2nd January 1889

and the trustees paid off the Agra Bank and obtained an assignment of the prior mortgage on 8th June 1889. It is stated by Mr. Ferguson that he

found himself in October 1889 to be insolvent and ceased from that date to carry on business except such as was necessary for the upkeep of the

several estates with which he was concerned. We may here refer to Original Suit No. 67 of 1885 instituted by Tomlinson against Hinde and

Ferguson on a contract by the latter to give the former 25 per cent, of the profits that might be made from the exercise of mining rights over the

properties of one Aliel Nair called the Aliel Concession, which rights Tomlinson alleged he had secured to them. In June 1885 a disagreement

arose between Tomlinson and the firm of Hinde and Company. In September 1885 Tomlinson brought his suit, and on 8th October 1886 the

District Court of South Malabar dismissed it with costs. From this decision Tomlinson preferred an appeal and the High Court considered his claim

to be valid and called for a finding on 18th December 1888, and finally decreed it, as stated already, on the 26th April 1889. This decree was,

according to Ferguson, the cause of his insolvency, as he could, after that, get no accommodation from other firms and consequently could not

raise money to carry him over that year. He admits that he telegraphed the result of the appeal to Mr. Hinde a day or two after it had been

ascertained in December 1888.

Turning to the correspondence that passed between Ferguson and Mr. Hinde, it appears that the trustees of Mrs. Hinde had asked him to

execute a mortgage and offered to pay the prior mortgage in favour of the Agra Bank (Limited). Exhibit XVI contains extracts from Mr.

Ferguson''s letters, which convey the impression that between July and December 1888 there was a demand on the part of the trustees for the

execution of a mortgage, that they offered to pay off the Agra Bank, and that a draft deed was also forwarded by them. In his letter of 10th

December 1888 Ferguson stated that a conveyance of the Plantation house was necessary from Mr. Hinde to complete the mortgage. The

mortgage was executed by Mr. Hinde on 28th December 1888 and by Mr. Ferguson on 2nd January 1889, and on the 8th June 1889 the Agra

Bank executed an assignment of their mortgage. Upon these facts it is urged by appellants'' counsel that the mortgage was executed for a barred

debt and by way of fraudulent preference.

We see no reason to think that the mortgage was not executed for value. The mortgage right under the deed of assignment B was admitted in

the Court below, nor was it denied in the Court below that money was originally advanced upon the four promissory notes each for Rs. 8,000

dated 17th May 1879, and upon another note of 19th August 1887, which made up the mortgage debt of December 1888. Exhibits VI, VII, VIII

and IX, which are the four promisaory notes, are endorsed as having been paid. Again, when Tomlinson''s representative attached in execution

certain moveable property, the trustees preferred a claim on the mortgage in their favour, which was upheld on the 6th February 1891. In the order

on the claim petition the District Judge recognized their claim to a valid charge on the Plantation house property for Rs. 13,146-2-2 and Mr.

Tomlinson''s representatives have not sued to set aside the order, though more than one year has elapsed since it was passed.

It is then argued on appellants'' behalf that the mortgage was granted as a security for a barred debt. This is so, for, the first four promissory

notes which are payable on demand are dated May 1879, whereas the mortgage was executed by Mr. Ferguson in January 1889. Two letters

were produced as containing acknowledgments, but the Judge rejected them as unstamped and therefore inadmissible in evidence. If, as urged by

respondent''s pleader, they are admissible for the purpose of repelling the fraud imputed to him, they do certainly show that the promissory notes

were acknowledged in 1882 and in 1885 before Tomlinson instituted his suit and when insolvency was not in contemplation. The letter, which was

accepted by the Judge as evidencing a contract on the part of the respondent to pay the barred debt, is that of the 17th August 1888, which was

duly stamped, and there is nothing to show that insolvency was contemplated either at that time. It is true there was no legal obligation to arrange

for paying a barred debt, but there is nothing dishonest in doing so if it was a real debt. As for Tomlinson''s suit, it had then been decided against

him, though an appeal was pending from the decision. Another contention on appellants'' behalf is that the execution of the mortgage of January

1889 was an act of fraudulent preference. In order to constitute such preference, the disposition must be voluntary and not one made under

pressure. Pressure legalizes the disposition, because it rebuts the presumption of an intention on the part of the debtor to act in fraud of the

Bankruptcy law, which provides for the equal distribution of his assets among all his creditors. In the case before us the deed of dissolution (Exhibit

XII, dated 1st January 1886) provided for the execution of a mortgage if required, and no act of bankruptcy had then been committed nor was

bankruptcy then in contemplation as probable. Further, the extracts from Ferguson''s letters marked XVI show that a mortgage had been

demanded and negotiations had been in progress as to the satisfaction of the prior mortgage in favour of the Agra Bank previous to the decision of

the High Court. It is sufficient to constitute pressure if there is a demand by a creditor with an immediate power of enforcing it by taking legal steps.

In Mogg v. Baker 4 M. & W. 350 Lord ABINGER says, if a demand is made by a creditor bond fide, and a transfer takes place in pursuance of

that demand, that takes it out of the case of voluntary transfer contemplated by the Insolvent Act. Again, in Butcher v. Stead. 7 Eng., and Ir. App.,

849 Lord HATHERLEY says, ""I think the Legislature intended to say that if you, the debtor, for the purpose of evading the operation of the

bankruptcy laws and in order to give a fraudulent preference make this payment or this charge, it shall be wholly done away with except in cases

where the person you have favoured is wholly ignorant of your intention to favour him and receives payment simply for valuable consideration and

without notice of any intention on your part to favour one creditor above another."" In this case an obligation to give a mortgage was created on 1st

January 1886 long before there was reason to apprehend insolvency and the trustees of Mrs. Hinde took the mortgage in fulfilment of this

obligation, which negatives a belief on their part that any fraud was committed upon the policy of the Law of Bankruptcy. In Dadapa v. Vishnudas

ILR 12 Bom. 424 where the Bombay High Court followed the principle laid down by Lord HATHERLEY there was no antecedent obligation to

execute a mortgage in favour of Gokuldas the creditor. Beyond the bare possibility of Tomlinson''s appeal succeeding and the original judgment

being reversed, there was no tangible foundation for questioning the transaction of 1886, and such possibility is not a sufficient ground for holding

the transaction of 1886 and the mortgage since executed in consequence of it were fraudulent.

It was certainly irregular on the part of the Judge to have received in evidence extracts from Mr. Ferguson''s letters instead of calling for the

letters themselves, but it does not appear that objection was taken to their admission as evidence in the Court below. Moreover, the irregularity is

not material, there having been an antecedent obligation to execute a mortgage on demand.

The appeal fails and is dismissed with costs.