N.L.N. Lakshman Chettiar (Died) and Others vs Jayarama Chettiar and Another

Veeraswami, C.J.—Defendants 1 and 2 are the appellants. They purchased the suit property on 15th December 1953 from the legal

representatives of one Krishnaswami Pathar. The plaintiff in execution of a decree obtained against Krishnaswami Pathar purchased the very

property on 8th February 1960. The defendants having obstructed and succeeded,a suit was brought to set aside the summary order. Both the

courts below have concurred in finding that the sale in favour of the defendants was a fraudulent preference within the meaning of Section 53 of the

Transfer of Property Act. In coming to that decision they were largely influenced by Abdul Majid Lebbai Vs. Papathi Ammal and Another, . They

understood that decision as laying down the proposition that the test of fraudulent preference was to see whether the debtor retained with him any

amount,however small,for his benefit,so that to that extent the creditors stood to be defeated. When the second appeal came before Alagiriswami

J. in the first instance,he too perhaps thought that that was the effect of the decision and,on that view, he considered that the decision must be

reconsidered. He, therefore, referred the matter to a Division Bench.

It seems to us that the courts below as well as Alagiriswami J. were not entirely correct,if we may say so,in understanding, Abdul Majid Lebbai

Vs. Papathi Ammal and Another, in that way. The judgment in that case does not show that however small the benefit may be that was retained by

the debtor, may be that was retained by the debtor, that would, in itself be proof of fraud. It would be obvious from the judgment that what

influenced the decision in that case was the fact that the vendor had been arrested,but on payment of a small sum was released and the execution

petition was pending. The court thought that the fact that the sale deed was executed after his arrest and before the adjourned date of the execution

petition clearly suggested that it was executed with a deliberate intent to frustrate the appellant in that case and defeat and delay the creditors of the

second respondent in that case. That was the main reason the sale was held to be a fraudulent preference. But, in addition to that fact reliance was

also placed on retention with the debtor of a sum of Rs. 78/- out of the sale consideration of Rs. 600. The intention of, Abdul Majid Lebbai Vs.

Papathi Ammal and Another, was not to lay down a proposition that, however small the benefit retained by the debtor out of the sale consideration

might be, it would be sufficient by itself to hold the transaction to be a fraudulent preference. As a matter of fact,Errachi Reddiar v. Vellayya

Reddiar, 81 MLW 27 : AIR 1968 Mad 256 made a correct approach to, Elumalai Vs. Sri Kandaswami Devasthanam Tiruporur, . Whether any

transaction is a fraudulent preference will depend upon the facts in each case.

Where a debtor has several creditors and some property and if he transfers that property to one of the creditors without any further

circumstances appearing, that may be a preference, but it cannot be said to be a fraudulent preference. It has been repeatedly held that it is not

improper for debtor to prefer his creditor among the many in order to discharge his debt by transfer of property. There should be something more

than mere preference and the facts must establish that the preference is a fraudulent one. In Mushar Sahu v. Lala Hakimlal, ILR 43 Cal 521 : AIR

1915 PC 115, the Privy Council observed:--

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 for the benefit of the debtor. The debtor must not retain a benefit for himself. He may pay one creditor, and leave

another unpaid.

That is how in Abdul Majid Lebbai Vs. Papathi Ammal and Another, reference was made to the retention of a benefit by the debtor. The emphasis

in that case was not that however small the benefit may be, it would be sufficient to hold the transaction to be a fraudulent preference. In the Privy

Council case it was found that the transfer made was for adequate consideration in satisfaction of genuine debts and it was without reservation of

any benefit to the debtor. It was held that no ground for impeaching it was made out, though, of course, by that transaction other creditors stood to

lose.

In the instance case, the sale was for a sum of Rs. 5,000/- out of which Rs. 4,000/- was appropriated in discharge of a decree debt due to the

purchasers. The genuineness of this decree was never questioned. Out of the balance, Rs. 600/0 went in discharge of another decree. This decree

again was not in attack. A sum of Rs. 150 was recited to have been borrowed in connection with the funeral expenses of Krishnaswami Pathar. It

may be assumed that the remainder was retained by the vendor. Apart from these facts, the sale deed was registered actually on 26th Dec. 1953.

In between the plaintiff instituted the suit on the 18th and obtained an attachment before judgment. In our opinion, these facts hardly prove any

fraudulent intent on the part of the debtor. They do not show an intent on his part of fraudulent preference of the defendants in order to defeat and

delay the other creditors.

The second appeal is allowed with costs.

Appeal allowed.