Karnidan Sarda and Another vs Sailaja Kanta Mitra and Another

Wort, J.—This is an appeal by defendants 2 and 3 and arises out of a suit in which a fund, which has been paid into Court by the Bengal Nagpur Railway is in dispute. The fund represents sums of money owing by the Bengal Nagpur Railway to defendant 1 for contract business done by defendant 1 for the Railway Company. The plaintiff''s claim to the fund is based on a deed of hypothecation dated 12th February 1935. The defendant-appellants'' right to this money is based upon an attachment obtained by them on or about 3rd April 1935 in execution of a decree for Rupees 43,000 odd.

It will be necessary, in order to indicate the points raised in the Court below as also in this Court, to state the facts briefly. On 13th September 1933, the defendant, appellants brought a suit (Money Suit No. 120 of 1933) and obtained attachment before judgment of defendant l''s immovable properties and the bills passed in his favour for payment.

The ad interim attachment was obtained on 14th September 1933; but on 6th November 1933, in the presence of defendant 1, these bills were released from attachment, although the attachment of other immovable properties was confirmed. The suit was eventually decreed on 3rd April 1935, and it was upon that date (the actual date is not before me) that this attachment, upon which the defendants-appellants rely, was made. On 12th July 1935, the present plaintiff put in a claim case under Order 21, Rule 58, Civil P.C. It was the case of the plaintiff that he had advanced sums of money to defendant 1 to finance his contracting business which he was carrying on for the Bengal Nagpur Railway.

The claim case which the plaintiff started was supported by hatchitha representing the sums of money alleged to be advanced by the plaintiff to defendant 1. The case came on for hearing in January 1936, and after evidence had been adduced, the plaintiff (claimant) asked for leave to withdraw his claim and the Court granted the leave asked for on 11th January 1936. Two days later the claimant (plaintiff) withdrew from the Court the hatchitha which as I have stated he adduced in evidence to support his claim case.

The surrounding circumstances are variously stated, but it was quite clearly the case of the defendant-appellants that they were of the opinion (rightly or wrongly) that this hatchitha was a forged document, and that they proposed to petition the Court to make an inquiry with a view to prosecuting the plaintiff.

Their case was that it was in consideration of their not proceeding with their petition in this regard that the plaintiff withdrew his claim and agreed not to bring a suit under Order 21, Rule 63, Civil Procedure Code. Whether that is so or not has to be determined. In any event the suit out of which this appeal arises was commenced seven days after the withdrawal of the hatchitha from the Court by the plaintiff, i.e., on 20th January 1936.

In the meantime certain transactions had taken place between defendant 1 and the plaintiff. Item 1 of the hatchitha account was on 11th January 1934, that is, four months after the defendants had instituted their suit against defendant 1 for money being Rs. 40,000 odd. Details of the case, apart from those I have already stated, are quite irrelevant for the purpose of this appeal. On 26th February 1934 the plaintiff and defendant 1 entered into a deed, described as the deed of partnership (Ex. 6), and then on 12th February of the following year the deed of hypothecation was executed. It recites amongst other things that

Where as the total sum of Rs. 9500 is now due and owing by the mortgagor to the mortgagee as per details hereinbefore mentioned now this indenture witness seth that the mortgagor in consideration of the premises doth hereby agree and promise to repay the said sum of Rs. 9500 with interest thereon at the rate of Rs. 12 per cent, per annum;

and then later:

That as security for the said loan the mortgagor doth hereby hypothecate all the bills both final and on account submitted to the Railway Company for the contract works already done and also the bills that will be submitted to the Bengal Nagpur Railway Company Limited for the works at hand as per details given in schedule hereto.

It was recited in that hypothecation deed that the deed of partnership entered into on 26th February had not been carried out. The actual words are:

Whereas By An Indenture Of Partnership executed between the parties hereto on twenty-sixth day of February one thousand nine hundred and thirty-four but it was never carried into effect nor was it acted upon by the mortgagee except for the purposes of advancing money in order to enable the mortgagor to carry on the business and the said partnership has since dissolved, etc. etc.

It was upon this deed of hypothecation that this suit was brought.

A number of points were argued in the Court below and they are argued in this appeal. The learned Judge in the Court below overruled the contentions of the defendant-appellants and has given a decree to the plaintiff. Hence this appeal.

The first point argued was that the suit was not maintainable by reason of the relationship of partners which existed between the plaintiff and defendant 1 and by reason of the agreement arrived at in the claim case between the plaintiff and defendants 2 and 3 (appellants). The agreement in the claim case was, as I have said, that the plaintiff undertook not to bring a suit under Order 21, Rule 63, Civil P.C. Secondly it is contended that this deed of hypothecation is nothing more than an arrangement to delay and defeat creditors within the meaning of Section 53, T.P. Act.

The last question, apart from the question of fact, to which I shall refer, is that the so-called deed of hypothecation gave no rights to the plaintiff whatever, and that unless there was an assignment of these bills the plaintiff would have no right or title to them, and therefore there would be no priority in favour of the plain, tiff with regard to them; and indeed the defendant, appellants by reason of their attachment were entitled to them.

One of the main contentions to which I shall refer, before dealing with the points which I just stated, is a question of fact, more particularly relating to the allegation that this was a case of preference of one creditor to the other, or a preference by reason of which the creditors of defendant 1 were delayed, was that these sums of money alleged to be advanced by the plaintiff to the defendant were fictitious; that it was merely an arrangement made between defendant 1 and the plaintiff for the purpose of defrauding defendants 2 and 3, who had obtained an attachment against defendant 1.

In my judgment the evidence with regard to this matter is one-sided. Sir Manmatha Nath Mukherjee appearing on behalf of the appellants took us through the hatchitha and pointed out what appeared to be certain discrepancies. He also contended that the Court ought to have drawn the inference from the hatchitha itself that the sums of money alleged to be advanced by the plaintiff to defendant 1 were non existing. It was pointed out that (as evidenced by the hatchitha) the Bengal Nagpur Railway paid cheques to defendant 1, and therefore it is quite impossible to conclude that there was any reason why the plaintiff should advance the sums alleged to defendant 1.

In my judgment the argument may be dismissed by one reason alone. If there was anything in the hatchitha account which was questionable or raised doubt in any sense of the term, the only person or persons who could explain those matters was the plaintiff or his witnesses. Now, although the plaintiff was cross, examined at considerable length, the defendant-appellants consistently avoided asking questions on these particular matters. It cannot be too strongly emphasized that the system of administration of justice allows of cross-examination of opposite party''s witnesses for the purpose of testing their evidence, and it must be assumed that when the witnesses were not tested in that way, their evidence is to be accepted unless of course there are any inherent improbabilities.]

If we were to come to a conclusion that the argument presented to us by the appellants in this matter should be accepted, it would be impossible to support such a judgment by any juristic reasons. In my judgment, so far as the appellants'' case depends upon any question of fact, it must be decided in the same sense as the learned Judge in the Court below has decided it, and I must come to the conclusion that these sums of money were in fact advanced by the plaintiff to defendant 1.

Now I come to the question of partner, ship. The appellants rely upon the decision in Bhugwandas v. Rivvet-Carnac (1899) 23 Bom 544. The substance of that decision is that a Court cannot order partnership moneys recovered from the debtors of the firm to be paid over by the receiver to one partner to the exclusion of the others without taking accounts of the partnership.

There can be no dispute in my judgment in regard to that proposition. But the contention that this action cannot be maintained by reason of the existence of the relationship of partnership between the plaintiff and defendant 1 cannot be supported for more than one reason. The first reason and the one which appears to me to be most conclusive is that of the existence of the recital in the hypothecation bond or ''Indenture of Mortgage'' (as it is described) of 12th February 1935. It is recited there (as I have already said and do not intend to repeat in detail) that the partnership was not acted upon.

The evidence with regard to this matter was one-sided. There is no suggestion by the appellants that there is anything in the case which would lead us to the conclusion that the recital in that bond is anything but true. That would be a complete answer to the plaintiff''s contention. But there are other answers. The document of 26th February 1934, on a proper construction, does not disclose the relationship of partners between these parties.

It is trite law to state that it is not the description given by the parties to the deed that determines the question but the provisions contained therein, on a proper construction placed on them. Section 4, Partnership Act (9 of 1932) defines ''partnership'' as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Section 6 of the Act provides:

In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.

Explanation 1:--The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of it self make such persons partners.

Explanation 2.�The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with profits earned by a business, does not of itself make him a partner with the persons carrying on the business,

Clauses (b), (c) and (d) of Expln. 2 are not relevant to the matter before us. The provisions of this so called partnership deed were as follows : the defendant first party undertook to keep accounts; the plaintiff was entitled to supervise the work from time to time; books of account kept by the first defendant were to be inspected by the plaintiff from time to time; and there were even other provisions which gave the plaintiff a certain control with regard to the business of the defendant first party.

Then Clause (v) of the partnership deed says:

That the said Sailaja Kanta Mitra of the second part will keep proper accounts of all moneys advanced by him and the payments received by him on account of the bills,

and Clause (vi) provides:

That the said Sailaja Kanta Mitra of the second part will deduct the amounts advanced by him with interest at rupees twelve per cent, per annum from the amounts that will be collected by him and the amount of interest received will be his share of the profits in the said contract business.

We are not concerned with the other provisions. Looking at this document in the light of the provisions of Section 4 and Section 6, Partnership Act, it is first to be observed that there is no share in the profits as such. The plaintiff was to be paid interest on his advances at 12 per cent, per annum.

It was certainly described as his share of the profits. But whatever name the parties gave to it, it could not possibly be said that this was a share of the profits. The defendant might have been insolvent, he might have been carrying on the business at a loss, even so the plaintiff would be still entitled to his 12 per cent, interest, that interest not depending in any way on whether profits were made. To repeat myself, it would be impossible to come to the conclusion in those circumstances, that there was a share of the profits and even had there been, a partnership would not have been necessarily brought into existence having regard to what Section 6, Partnership Act, lays down--a section which substantially reproduces the English law with regard to this matter. There was a certain control which the plaintiff was to exercise over the business.

Now in this connexion, and with regard also to another point urged by Sir Manmatha Nath Mukherjee reliance was placed upon the decision in (72) IAS 86 Mollow, March & Co. v. The Court of Wards. There the Rajah who was alleged to be a partner of the firm of British merchants had certain control over the business. Even so, their Lordships of the Judicial Committee of the Privy Council held that no partnership existed.

The appellants rely more particularly upon the last two paragraphs of the judgment in that case where reference is made to the question of agency, and it is contended by the learned advocate who appeared on behalf of the appellants that as the plaintiff here was an agent for the first defendant for some purposes, it necessarily followed that the relationship of partners existed between them. The provisions relied upon are those contained in Clause (iv) of the Indenture of Partnership:

That all the bills for the works already done or that will be done hear after in connexion with the said contract business will be made in the name of the said Raj Gobind Singh of the first part but the said Sailaja Ranta Mitra of the second part alone is authorized to take payments of all the bills that have already been submitted or that will be submitted hereafter and on receipt of payments therefor, grant receipts in his own name as agent for and on behalf of the said Raj Gobind Singh and such receipts will exonerate the company from all liabilities under the bills for which the receipts will be granted.

Now, the inclusion of that provision in the so-called partnership deed in my judgment is one of the most conclusive arguments against the suggestion here that the partnership existed.

The agency of the partners arises not by reason of contract but by reason of the existence of partner, ship, and the fact that it was necessary to include a provision of this kind rather indicates that the persons were not partners, or, at any rate, whatever they may have called themselves they understood that that relationship did not exist between them. The authority to which I have referred is no authority for the case argued; and the passage in the judgment on which reliance is placed by the appellants does not support the contention put forward, as that passage is prefaced by the following observation of Sir Montague Smith who delivered the judgment of their Lordships of the Privy Council:

It was strongly insisted for the appellants that if ''a true partnership'' had not been created under the agreement, the Watsons were constituted by it the agents of the Raja to carry on ,the business, and that the debt of the plaintiffs was contracted within the scope of their agency.

It is in relation to that matter that the last two paragraphs of the judgment which are relied upon by the appellants were uttered. In my judgment there was no relationship of partners between these par-ties by reason of this deed; and, secondly, even if the partnership existed, it had not been acted upon, to use the words of the parties at the time the hypothecation deed was entered into. These observations answer the contention that the suit is not maintainable by reason of this alleged relationship. Now I come to the question of the agreement made by the plaintiff of not pursuing his remedy under Order 21, Rule 63, Civil P.C. In the view that I take of the matter, the appellants are on the horns of a dilemma with regard to this matter. The claim under Order 21, Rule 58 was heard. The Judge said towards the end of his order dated 11th January 1936:

Case closed. Arguments of both parties heard. Subsequently claimant files a petition praying for permission to withdraw the claim when the Court is about to rise. Ordered: claim be withdrawn. No costs.

On 13th January 1936, two days after the order which I have just read, there is this order:

Claimant files a petition praying for return of documents exhibited in this case. Opposite party has got no objection to it. Ordered: let the document be returned.

The document referred to is the hatchitha. Karnidan Sarda, who was witness 1 for the defendant, made this statement:

After the arguments I compared such stamps with the 1934 stamp and found it to be different and the type of the stamp affixed to the hatchitha was found on enquiry not to be in vogue at the time or year of its execution. I instructed my pleaders Suresh Babu and Manindra Babu accordingly....I instructed the pleader to file petition in Court. Thereafter Lalit Babu''s son and Profullo Babu, advocate, came to my pleaders. Haridas Babu and Profulla Babu both said they would withdraw the claim, Thereafter the petition withdrawing the claim was filed as the Court was going home after rising. It was on a Saturday. Kamal Babu on behalf of claimant filed petition on next Monday for taking back the documents. Again says the petition, was objected to. Thereafter I proposed to the plaintiff that the petition would not be allowed to be filed unless plaintiff gave me undertaking that he would never institute a suit. My petition of objection was not filed because plaintiff gave me an undertaking in writing to the Court that he would not file any suit (I assume it means that, although the words recorded are--''he would not file any institute'').

Jatindra Mohan Dutta, one of the pleaders called on behalf of the defendant, made this statement:

I met Haridas Babu, son of Lalit Babu, and requested him to insert such undertaking in order to avoid criminal prosecution of his brother and unpleasantness of this kind. But Haridas Babu did not agree to pay Rs. 10 as fee paid by Karnidan to his pleader Amar Babu. At my request Amar Babu returned his fee which I made over to Karnidan and thus the matter was brought to a close. The petition for a contemplated criminal action was withheld accordingly. The other petition containing such undertaking was filed in. Court.

The witness in cross-examination said: "I did not read the petition for contemplated prosecution but I was told by somebody about it." Witness 3 for the defendant, Amrendra Nath Mukharji, states:

I remember that in January 1936, when I was in Subdivisional Magistrate''s Court, defendant 2 gave me a petition and vakalatnama to be moved before this Court with a view to have some hatchitha or chithas filed by Sailaja Mitter to be kept in Court''s custody for Court''s enquiry because it was a suspicious piece of document.

I must say that I find it difficult to ascertain from that evidence, which I read in detail purposely, exactly what the facts were. It seems to me, judging by the statement which I have read, that the agreement to withdraw the application under Order 21, Rule 58 was made on 11th January 1936, and if any agreement was arrived at at all with regard to not bringing a suit, it must have been arrived at on 13th January, two days afterwards, when the question arose as to the withdrawal from the Court of this hatchitha which the defendants had suspected.

It is difficult to see how any consideration existed at all with regard to this agreement that the plaintiff would not bring a suit. One thing is quite clear that apart from the petition of the plaintiff dated 13th January 1936, there is no agreement in writing by him not to bring a suit. The petition dated 13th January 1936 runs thus:

In the above suit it is submitted on behalf of the claimant that as the claimant has withdrawn his claim and he won''t sue against the decree-holders under Order 21, Rule 63, Civil P.C., and as it is necessary to take back the exhibits of the said case, it is therefore prayed that all the papers etc produced by the claimant may be returned.

Apart from that petition there is nothing (as I was saying) in writing to suggest that any such agreement was made. It is quite clear that even if such an agreement was made, it was made on 13th January, and it was made in consideration of the defendants allowing the plaintiff to withdraw the hatchitha.

I cannot myself see how there could be any consideration at all. The plaintiff was absolutely entitled to withdraw the hatchitha; no consent of the defendants was necessary; and if there was any consideration at all it must be deemed to have been an agreement by defendants 2 and 3 not to proceed with their petition which they were about to present to the Court, calling upon the Court to investigate the question of the hatchitha which they contended was a forgery. If we are to take the evidence of the defendants at its face value, lit seems to me that the necessary conclusion is that if an enforceable agreement was made--enforceable in the sense that ''consideration passed--it was an agreement by the defendants not to pursue their case with regard to a criminal prosecution.

It is contended by the respondents that such an agreement is met by Section 23 and Section 28, Contract Act. Section 23 of the Act provides:

The consideration or object of the agreement is lawful, unless it is forbidden by law, or is of such a nature that, if permitted, it would defeat the provisions of any law, or is fraudulent; or involves or implies injury to the person or property of another; or the Court regards it as immoral, or opposed to public policy. In each of these cases the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

The appellants in this connexion rely upon a decision of this Court in AIR 1917 Pat 454 Bukhdeo Das v. Mangal Chand. There the decision was that when an agreement was come to on a mere threat to prosecute or on an apprehension that prosecution would take place, such threat or apprehension would not be sufficient to vitiate the agreement. The learned Judges there (Chapman and Jwala Prasad JJ.) quite clearly laid down that:

Where the consideration for an agreement is a .promise not to prosecute for an offence which is not compoundable, the agreement is not enforcible by law, but this limitation of freedom of contract should only be enforced where it is quite clear that the consideration for the agreement was such an illegal promise.

I have come to the conclusion that this agreement, whether there was a mere threat to prosecute or the prosecution had actually started, (if we are to rely upon the defendants'' case) was in consideration of the fact that the defendants would not press their petition asking the Court not to enquire into the genuineness of this hatchitha produced by the plaintiff. Now the leading case with regard to this matter is (1892) 1 Ch 173 Jones v. Merionethshire Permanent Benefit Building Society followed by the Privy Council in Kamini Kumar Basu v. Birendra Nath Basu . In the latter case the plaintiff complained against various persons, being some of the principal defendants in the suit, alleging that they had committed certain non-compoundable offences.

The Magistrate directed the complainant to prove his Case, and then disputes between the parties were referred to arbitration. The Subordinate Judge in trying the suit came to the conclusion that the agreement was not for the purpose of getting a judicial decision but was merely brought into existence to placate one of the parties named Birendra and to induce him to withdraw the criminal proceedings. The High Court, however, came to an opposite conclusion and held that there was no attempt to tamper with the administration of justice. The Judicial Committee, however, came to an opposite conclusion. I might at this stage add that one of the contentions was that there could not be any question that there had been any illegal consideration, because it could not be said to be prosecution unless a summons had been taken out against the parties complained of.

Their Lordships of the Privy Council made this observation:

It may well be said that a prosecution only commences if the summons is issued and that before that stage is reached a complainant cannot be said to have dropped a prosecution.

But their Lordships went on to observe that they did not decide that question. What they were called upon to decide was whether any part of the consideration of the reference or the ekrarnama was unlawful, and not whether any prosecution within the meaning of the Code of Criminal Procedure had been started or not. If it was an implied term of the reference or ekrarnama that the complainant would nob be further proceeded with, then in their Lordships'' opinion the consideration of the reference or ekrarnama as the case may be was unlawful.

And then they proceeded to rely upon the Case in (1892) 1 Ch 173 Jones v. Merionethshire Permanent Benefit Building Society. I should have said that in this connexion reference was also made to Golap Jan v. Bholanath (1911) 38 Cal 880. Later they proceeded to say, though not in express terms, that in consideration of the executants admitting the share of the plain, tiffs they would not proceed with the charges laid against the accused. If any authority is needed, this in my judgment is the clearest possible authority on the point contended for by Sir Manmatha Nath Mukherji that (evan if we are to hold contrary to his contention on that point, as regards the necessity of starting a prosecution) it was not an illegal consideration. In my judgment this agreement, if made by the plaintiff, was an agreement for consideration which was illegal and therefore not binding upon him.

The other contention of the respondents in the circumstances it is unnecessary to determine. That was whether Section 28, Con-tract Act, was a bar to the enforcement of the agreement. Section 28 provides:

Every agreement, by which any party thereto is restricted absolutely from enforcing his rights under or in respect o� any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which ha may thus enforce his rights, is void to that extent.

A number of cases were relied upon. The first was the Full Bench decision of the Allahabad High Court in Anant Das v. Ashburner and Co. (1875) 1 All 267. There the agreement was in consideration of the respondents giving the appellant time to satisfy a decree against him. The appellant agreed not to appeal and in breach of this agreement he did appeal. It was held that Section 28 did not apply. Reliance was also placed on Moonshee Ameer Ali v. Maharanee Inderjeet Singh (1870) 14 MIA 203.

In that case a preliminary objection was raised before, their Lordships of the Judicial Committee on the footing of a certificate given by the High Court of Port William in Bengal to the effect that in consideration of the Court deciding the matter on appeal before them on one point only, that is the validity of the Mooktearnamah, the appellant agreed not to appeal. Their Lordships of the Judicial Committee of the Privy Council held : But confining it to the deoision upon the Mooktearnamah, it was really substituting a nonsuit for an adverse verdict, leaving it open to Baboo Bishchen Singh and the appellant himself, if he can get a new and genuine document in his favour to bring a fresh suit.

Another deoision relied upon was Protap Chunder Das v. Arathoon (1882) 8 Cal 455. There, a decree had been obtained, execution had been taken out and the judgment-debtor had been arrested. The debtor filed a petition agreeing not to proceed in appeal, and the decree-holder agreed to have him released. In contravention of this arrangement the judgment-debtor filed an appeal.

The learned Judges held that Section 28 had no application to such an undertaking. But incidentally I might observe that they gave no reason for the conclusion that that section did not apply. In Anant Das v. Ashburner and Co. (1875) 1 All 267 to which I first referred, the learned Judges held that that section did not apply and made this observation:

The provisions (of Section 28) appear to embody a general rule recognized in the English Courts which prohibits all agreements purporting to oust the jurisdiction of the Courts, but notwithstanding this rule it was long since determined that, if a person after mature deliberation enters into an agreement for the purpose of compromising a claim bona fide made to which he believes himself to be liable....the compromise of such a claim is a sufficient consideration for the agreement, and the agreement is valid.

The next decision relied upon is in Gajendra Singh Vs. Durga Kumari where the learned Judges came to the conclusion that the agreement arrived at was substantially a case of Order 23, Rule 3. The case was complicated by the other point, namely the criminal prosecution, but the learned Judges came clearly to the decision that the agreement was not invalidated by Section 23 or Section 28, Contract Act. It seems to me however that this matter is concluded, so far as this Court is concerned, by the decision of Fazl Ali and James JJ., in AIR 1934 Pat 644 Bhirgunath Prasad v. Mt. Annapurna Dai where similar agreement set out in the judgment of my learned brother Fazl Ali was held not to come within the mischief of Section 28, Contract Act.

I have referred to these cases somewhat briefly because I have already come to the conclusion that the agreement is invalid by reason of Section 23, Contract Act. Two more questions were raised, one was whether the deed of hypothecation delayed or defeated the creditors u/s 53, T.P. Act. The leading case with regard to that matter is AIR 1915 PC 115 Musahar Sahu v. Hakim Lal, the well-known judgment of Lord Wrenbury, where this observation was made:

The transfer which defeats or delays creditors is not an instrument which prefers one creditor to another, but an instrument which removes property from the creditors to the benefit of the debtor.

Sir Manmatha Nath Mukherji contended in this case that the object of the plaintiff was to delay or defeat the creditor of defendant 1.

When met with the decision of their Lordships of the Privy Council in the case to which I have just referred he said that the circumstances bad to be taken into consideration, and then drew our attention to a number of decisions. But he contended that when the plaintiff was seen entering into this deed of hypothecation at a time when he know that defendant 1 was already heavily indebted and involved in litigation, it must be assumed that it was to defeat and delay the creditors, amongst others defendants 2 and 3. With great respect to Sir Manmatha Nath Mukherji, that is an argument which I fail to under, stand. Either the sums were advanced to defendant 1 or not, and I quite clearly come to the conclusion, as did the learned Judge in the Court below, that they were. What happened in the circumstances was that defendant 1 was preferring the plaintiff (one of his creditors) to the others. That he is entitled to do, as held by their Lord-ships of the Judicial Committee.

A number of authorities were quoted including the case in Ghunsham Das v. Umapershad AIR (1919) PC 6, a decision of the Privy Council. This authority gives no assistance to the appellants. It is a case quite clearly contemplated by the words which I have read of Lord Wrenbury in the leading case. Their Lordships observed there that the entire usufruct was for the benefit of his (debtor''s) family and there-fore indirectly for himself. That case also involved the question of insolvency as it was found that the debtor had stopped payment : Chidambaram Chettiar v. Sami Aiyar (1907) 30 Mad 6 was another authority relied upon. The importance of that decision was that Section 53, T.P. Act, did not apply to transfers of moveable property. But as an analogy the learned Judges referred I might add to the statute of 13 Elizabeth, c. 5 and to Section 53, T.P. Act, and made this observation:

We are equally satisfied that no money was due to Chidambaram. We think that there can be no doubt that the arrangement effected by the assignment, though partly entered into for the purpose of discharging debts really due by Sami Aiyar, was also clearly intended to secure a sum of over Rs. 7000 to the assignor himself or to persons in whom he was interested, but who were not his creditors....The assignment therefore operated to screen some 60 per cent, of his assets from being taken by his other creditors.

The learned Judges also made this statement:

As observed by the Judicial Committee of the Privy Council in Corlett v. Radclifle (1860) 14 MPC 121 ) each case must depend upon its own circumstances, and in all the question is one of fact, whether the transaction was bona fide or was a contrivance to defraud creditors.

As I have already said they applied by analogy the provisions of the English statute of 13th Elizabeth c. 5 and Section 53, T.P. Act. But the statute of 13th Elizabeth does not apply to the mofassal and if it is rightly decided that Section 53 does not apply to moveable properties, then the defendant appellants'' right at common law under or as the rule of equity, justice and good conscience can certainly be no higher than those which he might have u/s 53, T.P. Act.

For at common law a debtor is entitled to dispose of his property how he will and to prefer one creditor to another if he so desires. In my judgment, there is no substance in the contention that this is met by the provisions of Section 53 or the analogous provisions of law. The last point is the question of the rights of the plaintiff under the deed of hypothecation. Section 130, T.P. Act, provides:

The transfer of an actionable claim whether with or without consideration shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, and shall be complete and effectual upon the execution of such instrument, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not.

The remaining provisions of the section are not relevant for our purpose. Section 134 provides:

Where a debt is transferred for the purpose of securing an existing or future debt, the debt so transferred, if received by the transferor, or recovered by the transferee, is applicable, first in payment of the costs of such recovery; secondly, in or towards satisfaction of the amount for the time being secured by the transfer, and the residue, if any, belongs to the transferor or other person entitled to receive the same.

It is contended first of all on behalf of the appellants that this was a mere deed of hypothecation; that the plaintiff got no rights thereunder; that no notice was served on the Railway Company and therefore there was no question of the plaintiff having any priority over the defendant appellants. A number of English authorities were relied upon.

I do not propose to quote them because they are based on the Judicature Act of England which is materially different. I need only say, as has been said so many times, that before the Judicature Act, in the Courts of law as distinguished from the Courts of equity assignments of the choses in action were not recognized; the Court of Chancery did recognize them. The Chancery Court would enforce such rights as between the parties. Then came the Judicature Act which made certain provisions entirely different from the provisions of Section 130. The only resemblance is that they both relate to transfers of actionable claims. Section25 of the Judicature Act expressly excludes transfers by way of security; Section 130, T.P. Act, expressly recognize them. u/s 25, Judicature Act, notice is necessary, while u/s 130, T.P. Act, no notice is necessary.

That there is a hypothecation of these actionable claims there is no doubt. But the question which arises is, what has the plaintiff got by that hypothecation? Their Lordships of the Privy Council in Mulraj Khatau v. Vishwanath Prabhuram Vaidya (1918) 37 Bom 198 decided that Section 130, T.P. Act, which provided that the transfer of an actionable claim shall be effected only by an instrument in writing, applied not only to absolute assignments but also to assignments by way of charge, and the deposit without writing of a document of title to such a claim does not create any equitable charge. The action there was brought by the respondent against the London and Lancashire Life Assurance Co., with regard to a policy on the life of a person who had died.

The plaintiff''s claim was based upon a deposit of the policy with him by the assured some time about the end of the year 1904. There was no instrument in writing. The defendant''s claim was based upon a deed of assignment of the policy executed in his favour five years later, that is, in 1909, of which notice was given to the company. The trial Judge came to this conclusion:

On the contest between the owner of the legal estate and the prior equitable mortgagee, as nothing has been proved which should have put the owner of the legal estate on inquiry, and as it has not been proved that be had notice actual or constructive of the prior equitable charge, It follows that the owner of the legal estate must succeed.

The High Court, i.e., the Court of appeal, held that the person with whom the policy had been deposited had the prior claim. Their Lordships of the Judicial Committee overruled this decision.

During the course of the judgment Lord Moulton first of all referred to the provisions of Section 130(1) and then proceeds to say:

It is admitted that the right to the moneys becoming due under the policy is an actionable claim. Their Lordships are also of opinion that the Section covers transfers by way of security as well as absolute transfers. If any doubt existed on either of these two points it would be set at rest by the second illustration to the Section which is given in the Act.

The learned Law Lord then proceeded to dispose of the claim made by the respondent in the appeal based upon a deposit and observes:

The Section specifically enacts that such a proceeding shall not have any such effect and a charge can only be created by a written document, and then decided in favour of the person who had the assignment by way of charge.

This decision has always been understood to mean that to deal with a chose in action by way of security amounts to an assignment within the meaning of the Section. The decision of the Madras High Court in Gopalkrishna Aiyer v. Gopalkrishna Iyer (1910) 33 Mad 123 decides:

Where a creditor hypothecates a debt due to him, and authorises the person to whom the debt is hypothecated by power of attorney in writing to recover the debt from the debtor, the debt is absolutely transferred to the transferee u/s 130, T.P. Act.

The learned Judges observed:

That the transfer of the debt by way of security as in this Case is good under the Transfer of Property Act, has not been seriously questioned at the bar as it could hardly be in the face of Section 134. Even in the sense of the English law, the assignment under Exs. A and E would be an absolute assignment.

In the decision in Mutbukrishna Aiyar v. Veeraraghava, Iyer AIR (1915) Mad 1031 the learned Judges followed the decision in 40 IA 2416 to which I have referred. The Chief Justice made this observation:

Under Ex. A the defendants mortgaged to the plaintiffs a house and a promissory note which had been executed to the defendants, by a third party as security for money owing by the defendants to the plaintiffs. The promissory note was not endorsed to the plaintiffs....

and then observed later:

The mortgage thereof was in my opinion, a transfer of an actionable claim within the meaning of Section 130, T.P. Act, which vested in the transferee the rights and remedies of the transferor, subject to the equities which remained in the transferor by reason of the fact that the transfer was by way of security.

This is in accordance with the decision of their Lordships of the Judicial Committee in Mulraj Khatau v. Vishwanath Prabhuram Vaidya (1918) 37 Bom 198. The conclusion therefore at which I arrive is that although the deed was stated to be a deed of hypothecation, in law and in fact it operated as a deed of assignment within the meaning of Section 130, T.P. Act. If that be so, there is no question of priority of title, and the attachment therefore by the defendant-appellants has no meaning whatever. For those reasons, somewhat elaborately expressed, I am of the opinion that the decision of the learned Judge in the Court below is right and the appeal fails and must be dismissed with costs.

Manohar Lall, J.

I entirely agree.