Pothene Puthan Vittil Kunhu Pothu Nassiar vs Adrasseri Raru Nair and Others

Oldfield, J.—I agree with the order proposed by my learned brother and can add nothing to his reasons for it.

Ramesam, J.

The facts out of which this second appeal arises may be briefly stated as follows: The plaintiff obtained on the 31st March, 1914, a decree in

Original Suit No. 500 of 1912, against the present defendants 3 and 4 and in execution of the decree attached the suit properties. The defendants

1 and 2 relying on a sale-deed (Exhibit III dated 5th October 1914) preferred a claim objecting to the attachment (M.P. No. 328 of 1918). The

claim was allowed on 21st February 1918 (ExhibitA). The present suit was filed on 10th August 1918 for a declaration that the sale under Exhibit

III was made with intent to defraud creditors and cannot affect plaintiff''s right to attach the properties. On 24th February 1918 (three days after

the disposal of the claim petition) the property was purchased from defendants land 2 by defendants 5 and 6 under Exhibit VI. They contend that

they are bona-fide purchasers for consideration and without notice of the intention to defraud, if any, on the part of the parties to Exhibit III. The

Courts below have held that Exhibit III was executed as alleged by the plaintiff. As to defendants 5 and 6, they held relying on Krishnappa Chetty

v. Abdul Khader Sahib 26 M.L.J. 449 that their sale under Exhibit VI was void against plaintiffs as being made pendente lite and did not express

any opinion on the question whether they are bona fide purchasers for value. Defendants 5 and 6 appeal. The finding that Exhibit III is voidable by

the plaintiff is not challenged in Appeal.

It is contended on behalf of the appellants that the case in Krishnappa Chetty v. Abdul Khader Sahib 26 M.L.J. 449 is not correctly decided,

that it has been dissented from in Pethu Aiyar v. Sankaranarayana Pillai 32 M.L.J. 374 and that a finding should be called for from the lower

appellate Court on the question whether defendants 5 and 6 are bona fide purchasers for value.

It is contended for the respondent that, even if the sale to defendants 5 and6 is not vitiated by the doctrine of Us pendens, it is unnecessary to

have a finding on its bona fides as the proviso to Section 53 of the Transfer of Property Act does not protect bona fide purchasers for

consideration from a fraudulent transferee but protects only bona fide purchasers for consideration from the first transferor. In support of this

contention he relied on Basti Begum v. Banarsi Prasad I.L.R.(1907) 30 All. 297. The conclusion stated at page 308 of that case "" Basti Begum

took the transfer subject to all defects in the title of her transferors and cannot in equity set up the fictitious document against a bona fide mortgage.

The fictitious instrument received, we think, no new force against the plaintiff from the transfer. The proviso to Section 53 of the Transfer of

Property Act, which was relied on by Mr. Dillon, does not appear to us to help his client. That proviso was intended to safe-guard rights which

have been already acquired "" seem to support the respondent, though the last sentence is not quite intelligible. In this case, the first transaction is a

mortgage, but, as I do not see any reason to distinguish between a mortgage and a sale or between a mortgage of Immovable property and one of

moveables in the application of Section 53 of the Transfer of Property Act, the case requires further consideration. A number of English cases

were cited in it. In the first one Halifax Joint Stock Banking Company v. Gledhill the provisions of 13 Eliz. Ch. V were referred to; but the

conclusion of Kay J. does not support the conclusion in Basti Begum v. Banarsi Prasad ILR (1907) All. 297 and no reasons are given in the latter

to show how the former was intended to be got over. I will refer to this case again. The other cases cited in Basti Begum v. Banarsi Prasad ILR

(1907) All. 297 fall into two groups: In the first group consisting of Cockell v. Taylor (1951) 15, Beav. 103 Ogilvie v. Jeafcrson (1860) 2 Giff.

353, Parker v. Clarke (1861) 30 Beav. 54, the second transaction, though bona fide did not prevail; in the second group consisting of French v.

Hope (1887) 56 L.J. (Ch) 363, Bicherton v. Walker (1885) 31 Ch. D. 151 And Rice v. Rice (1853) 2 Drew 73, the second transaction was

upheld on the ground that it was a bona fide transaction for consideration without notice of the prior equity. In all these six cases there is no

question of the application of 13 Eliz. Ch. V. or 27 Eliz Ch. 4. The earlier transactions in the first three cases were not valid even as between the

parties Collett was defrauded by Taylor in Cockell v. Taylor, Ogilvie was defrauded by his solicitor in Ogilvie v. Jefferson and Cruchley executed

the mortgage while in prison and under the undue influence of Thomas in Parker v. Clarke. In each of the other three cases the first transaction was

perfectly valid there being no fraud or undue influence vitiating it. The second transferees obtained valid titles by estoppel. It seems to me these six

cases are illustrative of the rule now embodied in India in Section 41 of the Transfer of Property Act. In the first three cases there was not the free

consent of the original owner so as to confer a title by estoppel on the second transferee. 1 do not think it is necessary to say, as Kekewich, J.

thought in French v. Hope (1887) 56 L.J. (Ch) 363 that Parker v. Clarke (1861) 30 Beav. 54 was overruled by Bickerton v. Walker (1885) 31

Ch.D. 151. I may also add that the Vice Chancellor''s summary of the facts in Ogilvie v. Jefferson (1860) 2 Giff. 353 shows that the second

transferee in that case cannot be regarded as a bona fide purchaser for value. However this may be, I do not think any of those cases are a guide

in the discussion of Section 53 of the Transfer of Property Act. It seems to me that the conclusion in Basti Begum v. Banarsi Prasad I.L.R.(1907)

All. 297 is not justified by the cases cited in it.

The case of Doe, D. Bothell v. Martyr (1805) 1 Bos Pul. 332 is similar to the case above cited and does not help us. On the other hand there

are a number of other English cases on 13 Eliz Ch. V and 27 Eliz. Ch. IV, which will now be considered. I will divide them into two groups.

(a) Those decided with reference to 27 Eliz Ch. IV (i) Prodgers v. Langhan 1 Keb 486 where it was held that the feoffee for valuable

consideration from the first feoffee whose feoffment was coverious has a good title against a second feoffee from the original owner. This case was

followed by Lord Eldon in George v. Millbanke (1859) 3 De G. J. 614 cited below.

The case of Lloyd v. Attwood (1805) 9 Ves. Jun. 190 seems to decide differently (see especially, Turner L.J. 655 and Knight Bruce L.J. 647);

but in that case the two Misses Attwood parted with the title deeds and their mortgage has lost its priority by reason of their laches and the Misses

Medley who obtained a sub-mortgage and could have asked for and known the absence of the title deeds cannot be regarded as Bona fide

transferees for value. Nor did Turner, L.J. and Knight Bruce L.J. regard them as bona fide transferees for value. I doubt if the passage in May on

Fraudulent Conveyances, page 254 relating to this case is justified, especially in view of the cases cited at page 253.

(b) Cases decided on 13 Eliz Ch V.

(1) George v. Millbanke (1805) 9 Ves. Jun 190. For the purposes of the decision the fact that until the Voluntary Conveyance Act of 1893, all

voluntary convenyances, though made without a fraudulent intention were void against creditors, does not make a difference. This case supports

the appellant.

(2) Payne v. Mortimer (1859) 4 Deg. & J. 447. In this case Turner, L.J. says "" Lord Eldon however, in George v. Millbanke, did not put the case

upon the statute of Elizabeth. He had regard no doubt, and indeed the report shows, although but obscurely, that he had regard, to the provision in

the statute which protects alienees for value only in the case of absence of notice, and he puts the case upon the ground of the assignee for value

having a better equity than the general creditors of the settlor. That principle seems to me to reach the present case.

(3) Halifax Joint Stock. Banking Company v. Gledhill (1899) 1 Ch. 831. On the facts, the settlor''s reservation of an interest not being tainted by

intent to defraud creditors the point does not seem to arise but Kay J.''s opinion is in favour of the appellant. He also seems to think that Turner

L.J.''s opinion in Payne v. Mortimer (1859) 4 Deg. & J. 447 is to the same effect.

(4) In re Moreat the opinion of Sterling, J. at p 834 in favour of the appelant is only an obiter dictum.

(5) Morewood and Bayne v. The South Yorkshire Railway and River Dun Co. 3 H. & N. 798. The opinion of the Court (Pollock, C.B., Watson

and Bramwell, B.B.) is in favour of the appellant.

Generally, I am unwilling to refer to American decisions. But, having regard to the paucity of authority in India and the somewhat inconclusive

nature of the English cases, I now refer to two of the American Cases. In Lee v. Abbe 2 Roor 359: 1 Am Dec., 78 and in Anderson v. Roberts 18

John 513: 9 Am Dec. 235 it was held that bona fide purchases from a fraudulent grantee without notice of the fraud will be protected. I agree with

the remarks of Spencer C.J. at page 241, "" again, the proviso is general, it exempts any conveyance upon good consideration and bona fide to any

person (not having notice of the fraud or collusion from the effects of the enacting clause. And why should not its benefits be extended to any bona

fide purchaser for valuable consideration, whether he purchases from the fraudulent grantor or the fraudulent grantee? I think it has sufficiently

appeared that this fraudulent grantee takes the entire interest of the fraudulent grantor, and that the deed is voidable at the instance of the creditor,

not legally and strictly void. "" He then refers to Marshall, C.J. ''s decision in Fletcher v. Peck (20) to show that a bona fide purchase from the

fraudulent grantor, is protected and proceeds ""It is in vain that we search for any difference between a conveyance by a fraudulent grantor whose

intention was to deceive subsequent purchasers and a conveyance by a fraudulent grantor when the intention was to defraud present or future

creditors. "" He then refers with approval to Prodyers v. Langham (1663) 1 Sid 133.

I am therefore of opinion that the appellants'' contention is right and that we must have a finding on the question whether they are bona fide

purchasers lor consideration and without notice of the fraud relating to Exhibit; III. The question of Us pendens will be decided if necessary after

the finding is returned. The finding will be returned with reference to the evidence on record. Six weeks are allowed for* finding and ten days for

objections.

In compliance with the order contained in the above judgment the District Judge of South Malabar at Calicut submitted the finding that the

defendants 5 and 6 were bona fide purchasers for consideration and without notice of the fraud relating to Exhibit III.

This Second Appeal coming on for final hearing after the return of the finding of the lower appellate Court upon the issue referred by this Court

for trial, the Court delivered the following.

The lower Court was called on to find on the question whetthe appellants (5th and 6th defendants) were bona fide purchasers for

consideration without notice of the fraud involved in Exhibit III. In returning its finding it has dealt separately with the question whether the 5th and

6th defendants were bona fide purchasers and whether they had notice. The attempt to separate these two questions is not Usually sound. For it is

seldom possible to form an adequate or correct opinion of the conduct of a transferee without considering whether his good faith extends to his

possession of actual or constructive notice with reference to the whole circumstances of the case. It is however sufficient for us to deal with the

portion of the finding which relates to the 5th and 6th defendants'' possession of notice. For the lower Court has, in our opinion, entirely mistaken

the legal position created by the facts.

The lower Court says that the 5th and 6th defendants would not, even if they made enquiries, have obtained information from the 1st and 2nd

defendants'' witnesses or the mortgagee Narayana Nair, because the 1st and defendants'' witnesses of course would not disclose any fraud, and

Narayana Nair equally would not do so, as he was to get mortgage, redeemed by them. The lower Court then goes on :-- ""The document which

the defendant 6 says he saw would tell him nothing"" and that may be correct. But then it goes further and says that the defendants were not bound

to pursue the matter of the claim petition and ascertain what objections to the claim were raised by the decree-holder. This, in our opinion, is

entirely wrong. The decree-holder, the person who was alleging fraud in connection with Exhibit III was the person, to whom enquiries as to any

objections to the title to the property would naturally be addressed, and he would certainly be in the best position to say what objections in the

shape of fraud were available against the title. The lower Court says also that, even if the 6th defendant knew of the claim petition, that would tell

him nothing ; on the other hand the order allowing the claim would lead him to think that the title of the claimants was good: This is an absolute

misrepresentation of the effect of the order, Exhibit A; and even if this were the only objection to the lower Court''s finding we should be unable to

accept that finding on account of it. Exhibit A after stating the facts and the case of the decree-holder as being that Exhibit III evidences a

fraudulent and collusive transaction, goes on to say that the claimant must establish his case in a regular suit properly framed for the purpose. That

statement is presumably made with reference to authority, as it: then stood, that a transfer can be impeached as fraudulent, not by way of a plea in

defence, but in a suit properly framed for the purpose. True, the next sentence in Exhibit A is to the effect that the claimants have established a

bona fide title to the properties, whatever that may mean. But it is clear that the effect to Exhibit A, as a whole, was simply to decide in favour of

the continuance of the attachment and that the order did not, and indeed could not, do more than make the title to the attached property contingent

on the result of the suit, if any, which might be brought within a year. That being the real effect of Exhibit A and the possession being with the 5th

and 6th defendants, they have on their own showing failed to make any enquiry of the person, who could have given them the best information as

to the defects in the title. We cannot hold that they were transferees in good faith without notice. We must therefore reject the lower Court''s

finding.

The result is that the appeal fails and is dismissed with costs.