Ithakku Abraham vs Kesavan Damodaran and Others

P.C. Balakrishna Menon, J.—This second appeal by a claimant under Order 21 R. 58 CPC was admitted on the following question of law:

"Whether Ext. A2 partition is voidable at the instance of a subsequent creditor is the substantial question of law arising in the case."

The deceased 1st respondent instituted a suit O. S. 61/1971 against one Ithakku Joseph on 22-5-1971 for recovery of the principal and interest due under a promissory note for Rs. 6500/-. The suit was decreed ex parte on 30-6-1971. The decreeholder filed E. P. No. 146/1972 for sale of the judgment debtor''s half share in 1.75 acres of land in various sub divisions of Sy. No. 86 attached before judgment in the suit. Then the attached properties were brought to sale, the appellant preferred a claim under Order 21 Rule 58 of the CPC (as it then stood) contending that the properties attached and sought to be Sold in execution of the decree do not belong to the judgment-debtor and had been separately allotted to the claimant in partition Ext. A2 dated 31-7-1957 between the claimant and the judgment debtor. The decreeholder opposed the claim contending that the partition Ext. A2 and a contemporaneous salt-deed Ext. A3 conveying the properties allotted to the judgment debtor to the claimant are both fraudulent and are intended to defeat the creditors of the judgment debtor. The defence to the claim petition was based on Sec. 53 of the Transfer of Property Act.

The trial court accepting the partition Ext. A2 as valid and binding between the parties thereto upheld the claim for the reason that the property attached had been allotted to the Claimant. In appeal by the decreeholder the lower appellate court has found Ext. A2 partition is a fraudulent transaction intended to defeat the creditors of the judgment debtor, the decreeholder is therefore entitled to avoid the transaction and proceed to execute the decree try sale of the properties attached before judgment.

The promissory note on the basis of which the decreeholder obtained a decree is of the year J969, and is after the partition Ext. A2 between the judgment debtor and the claimant. But Exts. B5 to B13 documents relied on by the lower appellate court show the prior dealings between the decreeholder and the judgment debtor and the promissory note sued on was apparently one executed on settlement of accounts between the parries. Even if the decreeholder is to be considered as a subsequent creditor, there is nothing precluding him from resorting to the provisions of sec. 53 of the T. P. Act to avoid a transaction intended to defeat the creditors of the judgment debtor. A Division Bench of the Madras High Court in the decision reported in Umar Sait and Others Vs. Union of India and Another, :

It is now well settled that for the purpose of avoiding a transfer by a debtor u/s 53 of the T. P. Act it is not necessary that the transferor should have been actually indebted at the time he makes the transfer. A transfer intended to cheat future creditors would be equally voidable at their instance.

This decision was followed by the Orissa High Court in the decision reported in Jayakrishna Debata Vs. Chaitan Pani, .

Counsel for the claimant has raised a contention that a creditor seeking relief under sec. 53 T. P. Act is required by law to file a suit to avoid transactions of the judgment debtor in a representative capacity on behalf of all the body of creditors of the judgment debtor. Reliance is placed on the decision of Govinda Nair J., as he then was reported in Velama v. Raya Shenoy (1962 KLT 801) wherein it is held that a suit under Order 21 rule 63 CPC (as it then stood) by a creditor decreeholder to avoid a transaction by the judgment debtor as intended to defeat the creditors should be in a representative capacity on behalf of all the creditors of the judgment debtor. Reliance is also placed on the decision in Chogmal Bhandari and Others Vs. Deputy Commercial Tax Officer, II Division, Kurnool, in support of the proposition that it is not open to a creditor without recourse to a suit in a representative capacity under sec. 53 T. P. Act to straight away proceed against the properties already transferred by the judgment debtor. The question in Bhandari''s case was as to whether the sales-tax authorities were entitled to ignore a deed of Trust created by the defaulter as fraudulent and intended to defeat the revenue which was the main creditor and proceed to recover the tax under the provisions of sec. 17 of the Andra Pradesh General Sales-tax Act as a first charge on the assessee''s property. The Supreme Court stated at page 661:-

In the special and peculiar facts of the present case which have been catalogued above, in our opinion, this is not a fit case in which the sales tax authorities can be allowed to hold that the deed of trust executed by the settlers was hit by Section 53 of the Transfer of Property Act. It may be noted that u/s 53 of the Transfer of Property Act if a transfer is made with intent to defeat or delay the creditors it is not void but only voidable. If the transfer is voidable, then the sales tax authorities cannot ignore or disregard it but have to get it set aside through a properly constituted suit after impleading necessary parties and praying for the desired relief.

There is, however, authority for the proposition that a plea based on sec.53 of the T. P. Act can be raised by way of defence and if raised as n defence, there is no need to defend the suit in a representative capacity on behalf of all the creditors of the judgment debtor. The Supreme Court in C. Abdul Shukoor Saheb Vs. Arji Papa Rao and Others, :-

(31) We shall first refer to the purpose of the amendment. In decisions rendered prior to the amendment, there were a large number in which it was held, following certain English cases decided with reference to 13 Eliz. Ch. 5 on which S. 53 (1) was based, that suits by creditors for avoiding a transfer under S. 53(1) was a representative action. To that general rule however, an exception was recognised in a number of decisions when the suit was to set aside a summary order under Order XXI R. 63 and was brought by an attaching decree-holder against whom an adverse order had been made in the summary proceedings, it being held that such a suit need not be in a representative capacity. The decisions on this point were however not uniform. It was merely to have a uniform rule and to avoid these conflicting decisions that the third paragraph was inserted so that after the amendment the rule that a suit by a creditor should be brought in a representative capacity would apply as much to a suit to set aside a summary order under O. XXI R.63 as to other suits. It was not suggested that there was anything in the terms of the amended S.53 (1) which referred to a defence to a suit and, in fact, learned Counsel did not contend that if a defence under S.53 (1) could be raised by a defeated attaching-creditor such a defence had to be in a representative capacity, and we consider that learned Counsel was correct in this submission. From a provision as to how a plaintiff, if he filed a suit, should frame it, we can see no logical process by which it could be held that a defendant cannot impugne the validity of the sale which is voidable at his instance.

In the present case the plea based on sec.53 of the T. P. Act is raised by way of defence to the claim petition filed by the claimant under Order 21 R. 58 C. P. C. R 58 as amended by the C. P. C. Amendment Act 104/1976 expressly provides that all questions (including questions relating to right, title or interest in the property attached) arising between the parties to a proceeding or their representatives under the rule and relevant to the adjudication of the claim or objection, shall be determined by the Court dealing with the claim or objection and not by a separate suit (vide sub-rule 2). An order made under sub-rule (3) shall have the same force and be subject to the same conditions as to appeal or otherwise as if it were a decree vide sub-rule (4)). In this case even though the claim was instituted prior to the amendment it was pending on 1-2-1977, the date on which the Amendment Act came into force. The pending claim petition does not fall under any of the exceptions in sub-see.(2) of sec. 97 of the Amendment Act and, as provided for in sub-sec (3), the claim had to be adjudicated upon in accordance with the provisions of R 58 as amended. Since the claim is to be adjudicated on all questions relating to right, title or interest in the property attached, the claimant is in the position of a plaintiff and the decreeholder who opposes the claim is in the position of a defendant in a suit where the question relating to the right, title or interest in the property attached is to be determined. The decreeholder is therefore entitled to defend the claim on grounds available to him under sec.53 of the T. P. Act and such a defence need not be in a representative capacity on behalf of all the creditors of the judgment debtor. It is true that the burden is on the decreeholder to establish that the transaction Ext. A2 is with intent to defeat or delay the creditors of the judgment-debtor, Even though a partition as such is not a transfer, a Full Bench of this Court in the decision reported in Thattaliyath Panchali and Others Vs. Cheruvari Panniyodan Manni and Others, :-

(7) It is true that the preponderance of authority is in favour of a partition being treated as a transfer for the purposes of sec. 53 of the Transfer of Property Act, 1882. The correct view, as pointed out by Mulla, should be that a partition is not a transfer, and therefore, not strictly within that section; but that the principle of the section will apply to a fraudulent partition, the object of which is not merely to give a sharer his rightful shares in the family property, but to effect the partition in such a way that such sharer would be able to defeat the creditors.

In the present case, however, the partition Ext. A2 in substance and effect is a transfer of the judgment-debtor''s rights in the property to the claimant. Ext. A2 deals with three sets of properties viz. (a) the properties left behind by Ithakku Mariam the grandmother of the judgment-debtor and the claimant, (b) the properties left behind by Ithakku Rosa, mother of the parties and obtained by her by way of gift from her brother and (2) the prorty gifted to the judgment-debtor and his sister Susi by father Ettukku. The claimant and the judgment-debtor are the only executants of Ext. A2. The claimant has no right to the properties gifted to the judgment debtor and his sister Susi under Ext. B2 gift deed by father Ithakku. The only property allotted to the judgment debtor under Ext. A2 is a portion of Ext. B2 property. The remaining portion of Ext. B2 properly is seen allotted to sister Susi. The properties in which the judgment-debtor and the claimant had equal rights are those obtained from the grandmother and the mother. All those properties are allotted to the claimant Exclusively. The document in substance and effect is therefore a transfer of the judgment-debtor''s rights in the properties to the claimant. Even his share in Ext. B2 properties allotted to him is seen transferred on the same day to the claimant under Ext. B3 sale deed. If the parties had intended even properties separately acquired under gift deeds to be brought into the common pool for division among them, there was no justification for the exclusion of properties gifted by father Ithakku to the claimant under Ext. B1 gift deed from Ext. A2 partition. Ext. A2 was executed at a time when the judgment-debtor''s interests in the properties were under attachment in execution of the decrees in O S Nos. 57 and 58 of 1967 obtained by a third party as can be seen from Ext. B4 attachment Kaichit. Ext. B3 assignment by the judgment-debtor to the claimant of a portion of Ext. B2 properties allotted o him under Ext. A2 partition requires the transferer claimant to discharge his decree debt amounting to Rs. 2000/- in O.S. Nos. 57 and 58 of 1967. There is nothing on records to show that the claimant had discharged the decree debt in those suits. Ext- B14 to B 27 produced in this case would show that the amounts due under those decrees were paid by the judgment-debtors in those cases in instalments during the course of execution of those decrees. Counsel for the respondents relies on the decision in Bhandar''s case referred to above in support of the proposition that the burden is on the creditor to prove that the impugned transaction was in fraud of creditors and would fall within sec. 53 of the T. P. Act. The Supreme Court sates at page 660:-

(7.......... u/s 53 of the Transfer of Property Act a person who challenges the validity of the transaction must prove two facts -- (I) that a document was executed by the settlor: and (2) that the said document was executed with clear intention to defraud or delay the creditors. How the intention is proved would be a matter which would largely depend on the facts and circumstances of each case.

The circumstances adverted to above and relied on by the lower appellate court are sufficient to discharge the burden on the decreeholder to prove that the impugned transaction Ext. A2 was with intent to defeat or delay the creditors of the judgment-debtor Exts. B5 to B13 adverted to earlier in this judgment will also show that the promissory note, on the basis of which the decreeholder had filed the suit and had obtained a decree, was itself in settlement of the earlier liabilities of the judgment-debtor. I am also in respectful agreement with the view expressed by the Madras High Court in Umar Suit''s (supra) case that there is no bar against a subsequent creditor seeking to avoid a transfer as provided for in sec.53 of the T.P. Act.

For the aforesaid reasons I answer the question formulated against the appellant and dismiss the second appeal. In the circumstances of the case there will be no order as to costs.