In Re: T.V. Lakshmanaswamy Chetty<BR>Official Assignee of Madras

Kumaraswami Sastri, J.—This is an application by the Official Assignee to expunge the proof of respondent V.K. Natesa Chetty, to declare

that he, the respondent, has no (mortgage or charge over the estate of the insolvent and that the alleged mortgage in favour of the said Natesa

Chetty is fraudulent and void as against him, to direct the respondent to pay him Rs. 14,500 and Rs. 2,870 or such other sum as may be found due

by Natesa Chetty on the taking of the accounts, for costs and other reliefs.

The facts of the case are shortly these: A vesting order was made on 1st October 1920. On 22nd November 1919 the insolvent executed a

promissory note for Rs. 5,000 in favour of the respondent and on 8th September 1920 another promissory note for Rs. 2,590 and deposited

certain deeds as security, these being deeds of mortgage executed by third persons. The Official Assignee in the usual course wrote for particulars

of the claim when a claim was made to him and the claim was notified on 22nd October 1920. A proposal was made by the respondent to the

Official Assignee to realize the securities and pay the respondent what was due to him and the Official Assignee consented to that course. Decrees

were obtained upon these securities by the Official Assignee and it was agreed between the Official Assignee and the respondent that these

decrees should be assigned over to the respondent for the debt due to him and a sale-deed was executed on 16th December 1925.

The sale-deed recites that the insolvent was indebted to the transferee in the sum of Rs. 7,500 and interest thereon due in respect of two

promissory notes executed in his favour by the insolvent, one for Rs. 5,000 and the other for Rs. 2,500 carrying interest at the rate specified in the

promissory notes, that to secure the amounts due on the promissory notes the insolvent created an equitable mortgage in favour of the transferee

by the deposit of certain securities (which consisted of certain simple mortgage-deeds executed in favour of the insolvent as manager of the joint

family consisting of himself and his two brothers) and that there is a sum of nearly Rs. 12,895 due to the transferee on the footing of the said

mortgage.

It goes on to state that the Official Assignee admitted the claim of the transferee as such secured creditor and the transferee requested the

Official Assignee to collect the amounts due on the mortgage on his behalf and pay over the same to him and that by an arrangement entered into

between the parties it was agreed (with the consent of the insolvent''s brothers) that the transferrer (the Official Assignee) should realize the

amounts due on the mortgage on his behalf and pay them to him, in consideration of the transferee paying the necessary expenses incurred for such

collection and the commission payable to the transferrer.

It recites that the transferrer obtained mortgage decrees on the several mortgage-deeds handed over to him by the transferee which are

described in the schedule and that it was thought expedient to transfer those decrees to the transferee in consideration of the amount due to him.

Then the deed runs as follows:

Now this indenture witnesseth that in pursuance of the said arrangement and in consideration of the sum of Rs. 10,500 already-payable to the

transferee as aforementioned, the expenses incurred and the usual commission as arranged having been paid, the transferror hereby conveys,

transfers and assigns absolutely to the transferee, all his rights and interests in the decree described in the schedule attached hereto; the transferee

will hereafter recover and realize the amounts of the decrees either by proceedings in execution or otherwise at his own expense and responsibility

and the transferrer will have hereafter no manner of claim or right in the said decrees or against the several judgment-debtors under the decrees.

The transferrer shall deliver all the copies of the decrees to the transferee. Then follows the usual covenant that no moneys have been recovered by

the transferrer. The schedule contains 11 decrees.

The present application is based on the ground that there was really no debt due to the respondent, that he fraudulently claimed moneys which

were not due and that the Official Assignee was by fraud induced to execute the sale-deed. A preliminary objection is taken as to the

maintainability of this application in the insolvency Court and it is argued that the proper remedy is by way of a regular suit.

There can be little doubt that if the matter had rested upon the proof of claim it is open to the Official Assignee to come in at any stage and have

the proof expunged and there would be no question of limitation. But in this case the matter has gone further and a sale-deed has been executed by

the Official Assignee and these decrees transferred. If the vendee was a stranger and was not a creditor of the insolvent there can be little doubt

that a suit would be the only remedy and it has been held that a sale by the Official Assignee or an Official Receiver is in no better position than by

the insolvent himself: see Cheda Lal v. Lakshman Prasad [1917] 39 All. 267; G. Narasimhayya v. M. Veeraghavalu [1917] 41 Mad. 440,

Avanashi Chetti v. Muthukaruppan Chetty [1918] 7 M.L.W. 406 and Mg. Lu. Maung v. Mg. Maung Pu [1914] 7 L.B.R. 88.

The question is whether the fact that the person to whom the property is sold is a creditor of the estate makes any difference. I have not been

referred to any section in the Insolvency Act which entitles the Court on an application under the Insolvency Act to set aside a sale-deed executed

by the Official Assignee. I think the only remedy of the Official Assignee where he has parted with property by a registered sale-deed is to have

the sale-deed set aside by a regular suit.

It is argued that in this case as the Official Assignee has admitted the proof of claim, that makes a difference. I do not see what difference it

makes. If an ordinary transferrer of property discovers that no money was due to the transferree which formed the basis of consideration for the

transfer, a suit for a simple declaration that no money was due would not lie. What the transferrer should do to avoid the sale is to sue for a

declaration that the sale-deed is not valid and it should be cancelled and if possession has passed, to sue for recovery of possession. The

admission of the claim by the Official Assignee has in my opinion no greater effect than the admission by a party that money is due and which forms

the basis of consideration for the transfer. I do not think the mere fact that the Official Assignee admits that a debt is due puts the case on a

different footing than the admission of any other transferee that money was due which formed the consideration for the transfer.

Reference has been made to Rules 24, 25 and 26, Schedule 2, Presidency Towns Insolvency Act as regards proof of claim and to a decision

of this Court in The Official Assignee of Madras v. Sambanda Mudaliar [1920] 43 Mad. 739. I do not think these rules touch the present question

before me, namely whether the Insolvency Court can on an application set aside the sale deed even assuming that if the matter rested upon mere

proof of claim and payment in pursuance there of, I could cancel the proof and demand repayment. The decision in Ex parte Harper, In Re: Tait

[1883] 21 Ch.D. 537, does not go further. It seems to me that where the matter has gone beyond that stage and a conveyance of property has

been effected, the remedy is to have the sale-deed set aside. In the present case the allegation is that the Official Assignee was induced to execute

the sale-deed by fraudulent representation that a debt was due by the insolvent to the respondent while no such debt existed.

I do not see why in a suit to set aside the document the Court should not go into the question whether that representation was true or false. As

pointed out in The Official Assignee of Madras v. Sambanda Mudaliar [1920] 43 Mad. 739 the admission of the Official Assignee that a debt was

due does not amount to an adjudication by a competent Court. The case is one of first impression. It seems to me that where the adequate and

proper"" remedy would be to have the sale set aside on the ground of fraud or failure of consideration, the Court ought not even if it has got power

to give a simple declaration that consideration did not pass or no debt was due. I refer the Official Assignee to a regular suit and decide nothing on

the merits. The taxed costs of both sides will be paid out of the estate of the insolvent.