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Judgment
Pandalai, J.—These petitions are by respondents 5 and 6 to a petition filed by the special receiver appointed in I.P. No.20 of 1925 in which
respondents 1 to 4 were adjudicated insolvents to avoid a transfer by the insolvents, Ex. 1, dated 19th July 1925 of a decree obtained by them to
respondent 5 and also a sub transfer by respondent 5 of the same decree by Ex. 2, dated 9th April 1926 to respondent 6 on the ground that Ex. 1
was a fraudulent transfer voidable against the receiver u/s 53 and that Ex. 2 was also a transfer without consideration and invalid against the
receiver. Certain dates are important. Ex. 1 is as already stated dated 19th July 1925. The insolvency petition was dated 13th August 1925 and
the adjudication followed on 9th February 1926.
The subtransfer by respondents 5 to 6 was on 9th April 1926 and the present petition to avoid the transfer and retransfer was filed on 3rd May
1926. The learned Subordinate Judge who heard the petition dismissed it holding that the transfer Ex. 1 was supported by consideration to the full
extent expressed upon it, viz., Rs. 3,000 that the consideration was adequate because the decree transferred although ex facie for an amount of
about Rs. 7,500 had been partially satisfied to the extent of Rs. 4,000; that there were no circumstances showing want of bona fides and so far as
Ex. 2 the subtransfer was concerned, on the ground that it was not a transfer which could be annulled under the Provincial Insolvency Act. For this
opinion he relied upon the decision in Ponnammai Ammal Vs. District Official Receiver and Another, . He also held that the subtransfer was also
supported by consideration and good faith. The receiver appealed to the learned District Judge of Tinnevelly. He reversed the Subordinate Judge''s
decision holding that the Rs. 3,000 mentioned in Ex. 1 was not an adequate consideration even if it should be supposed that that sum was paid
which however he seems to have left without expressing a decided opinion thereon.
On the question of good faith the learned Judge came to the conclusion that the transfer Ex. 1 was not executed on the date it bears but must
have been antedated. For this he relied upon certain letters, Ex. C., series, produced by the receiver through the insolvents which the Subordinate
Judge had held to be not free from doubt. The Judge has not stated when in his view the transfer Ex. 1 was executed but says that it was
fraudulently brought into existence after the insolvency petition was filed to screen the insolvent''s estate from its creditors. As to the subtransfer Ex.
2 he merely said that there was nothing to assign. On these findings he reversed the order of the lower Court and declared both Exs. 1 and 2
invalid.
In these petitions three objections are taken: (1) that the decision of the lower appellate Court proceeded on the view of the burden of proof in
such cases which was generally accepted at the time but which has since been declared to be erroneous by the Privy Council. It is urged that the
erroneous approach to the case has prejudiced the petitioners. The second ground is that the learned Judge has in his judgment not kept clear the
two grounds to be considered u/s 53, viz., consideration and good faith. It is said that he has discussed the adequacy of the consideration as if it
were by itself fatal to the transfer, that he has not in fact found whether the Rs. 3,000 was paid under Ex. 1 and that without coming to a decision
upon that point it was impossible to decide the case properly. Lastly it is urged that he has allowed his judgment very largely if not almost entirely
to depend upon an allegation of antedating as to Ex. 1 which was never made by the receiver in his petition and to meet which the petitioners never
had an opportunity. The third objection is that the learned Judge''s view that the subtransfer Ex. 2 must fall along with Ex. 1 is erroneous and that
according to the decisions upon the subject even though Ex. 1 may be avoided by the receiver u/s 53 of the Act, still if respondent 6 could show
that he was a bona fide transferee for value without notice of the infirmities attaching to Ex. 1 he is entitled to succeed. On this point it is also urged
that proceedings u/s 53 are not an appropriate method of attacking transfers by transferees from insolvents.
On the first question as to burden of proof it is undoubtedly the case that until the decision of the Privy Council reported in AIR 1931 75 (Privy
Council) following the case in Official Assignee of the Estate of Cheah Soo Tuan v. KhooSaw Cheon A.I.R.1930 P.C.265 the prevailing view of
the Indian Courts was that it lay upon the transferees to establish that they were bona fide transferees for value. This view has now been
authoritatively set aside and the correct view is that it is upon the receiver (petitioner) who wants to avoid the transfers u/s 53 to establish that the
transfers are invalid, for want of consideration and bona fides. Although neither of the decisions in this case in the Courts below refers to the
burden of proof, it is quite plain from the proceedings that they adopted what was at that time believed to be the correct view. The respondents to
the petition, i.e., the transferees were asked to begin. They led evidence. The receiver followed. The discussion in the two judgments is upon the
footing that the burden is upon the transferees to prove their case. The question is, whether, that being now shown to be wrong, it is a ground for
this Court to interfere. The learned advocate for the receiver says that where evidence on both sides has been given in a case and the Court has
considered that evidence, the question of burden of proof is only one of academic interest and that the decision of the lower Court cannot be
disturbed on the ground of its having followed a wrong rule as to burden of proof. The decisions of the Privy Council which are well known, viz.,
Sethuratnam Aiyar v. Venkatachela Goundan A.I.R.1920 P.C.67 , Sivaprakasa Pandara Sannadhi v. Veerama Reddi A.I.R.1922 P.C.292 and
AIR 1927 238 (Privy Council) have been cited. But on this very question in connexion with a case exactly similar to the present, the Privy Council
have said in The Official Assignee of the Estate of Cheah Soo Tuan v. Khoo Saw A.I.R.1930 P.C.265;
The fact that the wrong party was called upon to begin, taken alone, might not be sufficient ground for a new trial. Here however there was more.
The trial Judge had taken an erroneous view as to the law in regard to onus. His mind was coloured by that view, and he was thereby disabled
from weighing evenly the evidence. Thus the respondent was placed at a disadvantage as the direct result of the trial Judge''s error.
The whole of this passage applies exactly to the decision of the lower appellate Court in this case; and also to that of the first Court with this
difference that that Judge came to a conclusion in favour of the present petitioners and therefore they had no grievance about it. In the Privy
Council case from which I have just quoted the Judge in the first Court had said that he considered the transaction tainted with fraud intrinsically
apart from the question of the onus of proof. The Judge in the first appellate Court considered that a mere casual expression of that kind with
nothing to support it could not cure so serious a defect as there was in that trial, and set aside the decision of the first Court. The Privy Council
upheld that view. It seams to me that the judgment of the lower appellate Court having proceeded upon the view that unless the petitioners proved
what it was not their duty to prove according to the latest decisions, they should lose, the judgment must be held to be coloured by that view and
the learned Judge must be held thereby to be disabled from weighing evenly the evidence. I think that the decision of the District Judge must be set
aside on that ground alone.
As to the second objection that the learned Judge''s discussion as to consideration and bona fides was not clear in itself and was further mixed
up with matter which the petitioners had no opportunity to meet, I do not propose to go more into it in view of the fact that the whole case will
have to be judged upon a new orientation, i.e., from the point of view whether the receiver has proved what he ought to prove. I will only add that
the allegation that the transfer Ex. 1 was antedated, was not made in the petition filed by the receiver, and that therefore the evidence of the
respondents (present petitioners) contains practically no reference to it or attempt to meet it. If that circumstance is considered to be material, the
present petitioners must have an opportunity of meeting it.
The third and last objection arises in this way. The receiver contends that on the facts of this case, as soon as the transfer Ex. 1 is avoided u/s
53, the receiver''s title to the property relates back to the date of the petition, viz., 13th August 1925, and that therefore any subsequent transfer by
respondent 5, such as Ex. 2 dated 9th April. 1926 which is subsequent to the date of adjudication automatically falls to the ground without more.
For this, reliance is placed upon the decision of the English Court of Appeal in Gunsbourg, In re [1920]2 K.B.426 which has followed
Dombrowski, In re [1923]92 L.J. Ch.415, and on the decision of the Calcutta High Court in Lukhipriya v. Rao Kissori [1916] 34 I.C.435. On
the other hand respondent 6 contends that the case is governed by the decision in Ponnammai Ammal Vs. District Official Receiver and Another,
and the English decision in Hart, In re, Green Ex parte [1912]3 K. B.6. The question raised by these respective contentions would only arise for
decision when it is found as a fact that respondent 6 is a bona fide transferee for value without notice from respondent 5. The learned District
Judge has not dealt with the question. If it is found that respondent 6 was not a bona fide transferee, the question may never arise for decision at all
and I therefore refrain from expressing an opinion upon it.
The further point arising upon this contention is that it is incompetent for the Court in proceedings u/s 53 to inquire into the validity of transfer by
transferees from insolvents. In one sense that is so; in the sense that the section itself deals with only dealings by insolvents. Indeed Sections 53, 54
and 55 alike deal with only dealings by insolvents. But that does not dispose of the question whether in proceedings properly framed under those
sections it may not be convenient and sometimes necessary to have the parties before the Court whose interests will necessarily be affected by the
decision. For that the answer is to be sought, not in the Insolvency Act, but in the general rules of procedure. If authority were wanted there is a
decision of this Court in ''agannatha Ayyangar v. Narayana Ayyangar [1919] 52 I.C. 761 where one learned Judge approved of the procedure
adopted in this case. It would indeed be extremely inconvenient and expensive if when transfers are sought to be avoided Under Sections 53 to
55, transferees from those transferees even though the subtransfers were subsequent to the petition or as in this case the order of adjudication
could maintain that they should not be impleaded and that the receiver should proceed against them by a separate suit. Such a rule would make
proceedings in insolvency practically interminable and still more ineffective than they already are. The power of the Court u/s 4 to decide all
questions arising in insolvency is undoubted and it is only a matter of discretion whether the procedure under the Act should be adopted or a suit
be directed. I have myself no hesitation in thinking that in the present case it would be far more conducive to justice to have the matter of
respondent 6''s subtransfer dealt with by the Court of insolvency. Without therefore deciding whether respondent 6 would, even if he established
his plea of a bona fide purchaser for value without notice, be able to maintain his purchase against the receiver, the contention that the proceedings
against him were incompetent must be rejected.
The result is that the decision of the learned District Judge must be reversed and the appeal remitted to him for fresh disposal in the light of the
above remarks. Both parties will have liberty to adduce fresh evidence. The costs of these petitions will abide and be provided for in the revised
order to be made.