Ramasami Nayakar and Others vs Venkatasami Naicker, a creditor on behalf of himself and Others

Burn, J.—The Subordinate Judge of Tuticorin dismissed an application by the Official Receiver of Tinnevelly to set aside an alienation under

Sections 53 and 54 of the Provincial Insolvency Act. In appeal, the District Judge of Tinnevelly reversed the decision of the Subordinate Judge and

declared the alienation void as against the Official Receiver under both Sections 53 and 54 of the Act.

No second appeal lies in such a case vide Alagiri Subba Naick v. The Official Receiver, Tinnevelly ILR (1931) 54 Mad. 989 : 61 M.L.J. 820

and therefore the C.M.S.A. No. 60 of 1929 must be dismissed.

Civil Revision Petition No. 591 of 1929 is said to be based upon the same ground as C.M.S.A. No. 60 of 1929 though it is obvious that the

considerations which arise in revision are not the same as those which arise in a second appeal. In revision u/s 75 of the Provincial Insolvency Act

it is only necessary to ascertain whether the decision of the learned District Judge is in accordance with law. As to this it can be said at once that

considered simply as a technical matter, the order of the learned District Judge is strictly according to law. The alienation attacked is a simple

mortgage executed on the 29th of June, 1923, by certain persons who were adjudicated insolvents on a creditor''s petition presented on the 6th

September, 1923. The mortgage was in favour of three persons to whom the insolvents were heavily indebted. The learned District Judge has

recorded findings that the mortgage was not fully supported by consideration, and that the alienees did not act in good faith when they took the

transfer. He has also found that the insolvents in executing the mortgage acted with a view to prefer the mortgagees over their other creditors. On

these findings, the mortgage is voidable under both Sections 53 and 54 of the Provincial Insolvency Act and the order of the learned District Judge

is the only order which according to law he could pass.

Mr. Varadachariar for the petitioners, the mortgagees, contends, however, that the finding of the learned District Judge is vitiated by serious

mistakes of facts, by a wrong view as to the onus of proof in a question u/s 54 and by a wrong view as to law governing an alienation made in

favour of creditors when the alienation is accompanied by a fresh loan. He contends also that since the mortgage in question was executed by the

insolvents in pursuance of an agreement entered into more than three months before the insolvency petition was presented, the transaction cannot

be avoided u/s 54.

I am not satisfied that the learned District Judge made any mistake of fact of so serious a nature as to vitiate his conclusions. The most serious

mistake alleged is that the learned District Judge went on treating the partnership between the insolvent Venkatasami and his brother-in-law

Ayyappa as if it were still subsisting in 1923, whereas in fact it had been dissolved in 1921. But as Mr. T.M. Krishnaswami Aiyar points out, the

evidence as to the dissolution of partnership is extremely vague and unsatisfactory. No deed of dissolution was produced, no accounts were

produced to show what liabilities each incurred and what assets each took over. On the other hand, it was proved that both together borrowed

Rs. 10,000 from a bank in Madura in April, 1923, and in January, 1923, Venkatasami and Ayyappa jointly borrowed Rs. 10,000 from the

Imperial Bank at Tuticorin, each endorsing a pronote for Rs. 5,000 executed by the other (vide Exs. E and E-1). In the settlement of debts which

took place after the execution of the mortgage in question, it is alleged that Ayyappa took over Venkatasami''s share in the debt due to the Madura

Bank while Venkatasami took over Ayyappa''s share in the debts due to the Imperial Bank. The learned District Judge emphasized the fact that

Ayyappa though available did not go into the witness-box to explain these and other transactions, nor did he produce his accounts. In these

circumstances I cannot see that the learned District Judge made any serious error in omitting to refer to the alleged dissolution of partnership

between Venkatasami and Ayyappa. The whole matter is left extremely obscure. Other mistakes attributed to the District Judge are of very minor

importance.

The contention that the learned District Judge held a wrong view as to the onus of proof is based on paragraph 13 of the judgment where the

learned District Judge observes as follows:

These facts combined with the fact that the insolvents had practically no other tangible assets than the property hypothecated and that they owed

Rs. 37,000 in addition to the debts the discharge of which is provided for in the mortgage made it highly incumbent on the mortgagees to satisfy the

Court that the mortgage was a bona fide transaction.

I do not think this indicates a wrong view as to onus. It only indicates that in the opinion of the learned District Judge the onus which lay initially

on the Official Receiver had been shifted to the mortgagees.

It is contended, relying upon the case of The Official Assignee of Madras v. T.B. Mehta & Sons ILR (1918) 42 Mad. 510 : 36 M.L.J. 190,

that, since the alienation was made in order to secure not only past debts but also fresh loans made at the time of the alienation, the alienation

cannot be avoided as a fraudulent preference. The decision relied upon, The Official Assignee of Madras v. T.B. Mehta & Sons ILR (1918) 42

Mad. 510 : 36 M.L.J. 190, does not lay down any such proposition. It was found in that case that there was no transfer of all or substantially of

the debtors'' properties and that there was no view to prefer one creditor over others. In the present case the transfer was of practically the whole

of the debtors'' properties and the learned District Judge has found that there was a view to prefer the mortgagees over the other creditors.

Mr. Varadachari relies on Ex parte Hodgkin, In re Softley (1875) L.R. 20 Eq. 746 for his proposition that the mortgage having been executed

in pursuance of a prior agreement cannot be avoided as a fraudulent preference. The prior agreement is the yadast, Ex. J, said to have been

executed on the 2nd April, 1923. I cannot see any similarity between Ex. J and the undertaking referred to in the English case quoted, nor between

the general circumstances of that case and this. In Ex. J the debtors did not offer anything definite as security. They merely made a vague promise

to execute a mortgage but what they would offer as security they did not state. Moreover, the decision of Sir James Bacon, C.J., in the case

quoted begins with these words:

This is a case which, as I conceive, must come under the 92nd section of the Bankruptcy Act, and not under the 2nd sub-section of the 6th

section. I think the transaction in question cannot, under any circumstances, be treated as an act of bankruptcy. It was not a transfer of the whole

of the debtor''s estate, and no single fact has been stated, no argument has been addressed to me which would induce me to say that it was a

fraudulent transfer of a part of the debtor''s estate.

In the case I am now dealing with the transfer was an act of bankruptcy. It was a transfer of practically the whole of the debtors'' estate and

there are many facts which have induced the learned District Judge to say that it was a fraudulent transfer. Here is a case of a simple mortgage

executed by the insolvents in favour of a relative (respondent 3) and his two sons-in-law, respondents 1 and 2. Except a quite negligible fraction

the whole of the debtors'' property is mortgagad for Rs. 46,500. Debts due to others to the extent of Rs. 37,000 are left unprovided for. A loan of

Rs. 16,000 is made, or purports to be made, to the insolvent Venkatasami at a time when his business had actually come to a standstill. Terms for

repayment, which the learned Subordinate Judge called ""easy terms,"" but which were really quite impossible terms, were arranged. There are

ample materials to support the findings of the learned District Judge regarding the lack of consideration, want of good faith and a view to prefer. I

find no ground for interfering with the findings of the learned District Judge in revision and dismiss this petition with costs.

The 1st respondent will recover also the costs of printing charges in C.M.S.A. No. 60 of 1929.