Simhadri Venkatanarasayya vs The Official Receiver

Odgers, J.—The first point urged in this case by Mr. Lakshmanna for the appellant is one of law and the appeal is from the order of the

District Judge of Godavari on a petition u/s 53 of the Provincial Insolvency Act asking for the cancellation of a certain mortgage deed executed by

the insolvent in favour of the respondent on the 26th of July, 1920, Exhibit I. The point of law is that although the mortgage deed in question was

executed on the 26th of July 1920 and the adjudication was on the 24th of October, 1922 the petition for adjudication is dated the 25th of April

1922 or within two years of the execution of the mortgage deed in question. So that it comes to this; that if the provisions of Section 28(7) of the

Provincial Insolvency Act, which says that an order of adjudication shall relate back to, and take effect from, the date of the presentation of the

petition on which it is made, are to be applied to Section 53, then the transaction in question is clearly within the section. . If, on the other hand, the

provisions of Section 28(7) are not to be applied to Section 53 then the transaction is out of reach of the Insolvency Court by reason of having

taken place more than two years from the date of the adjudication. Now Mr. Lakshmanna frankly admits that there is one case of this Court T.V.

Sankaranarayana Aiyar Vs. Alagiri Aiyar and Others, against him, which was a decision of a Bench consisting of Oldfield and Sadasiva Aiyar, JJ.,

under the old Provincial Insolvency Act (III of 1907), the wording of which however, as far as is material, is precisely the same as in the Act of

1920. There the learned Judges have held that having regard to Section 16(6) of the Act of 1907 the adjudication referred to in Section 36 must

be treated as made on the date of presentation of the petition in which the insolvency proceedings originated. Two other High Courts have,

however, apparently come to an opposite view, namely, the Bombay High Court, in Nayindas v. Gordhandas ILR (1925) B 730 and the Lahore

High Court in Ghulam Muhammad v. Panna Ram 72 IndCas 433. So that, what Mr. Lakshmanna asks us to do is that in view of these two

decisions to refer the matter to a Full Bench to see if the decision of this Court already referred to in T.V. Sankaranarayana Aiyar Vs. Alagiri Aiyar

and Others, is correct or not. It has to be pointed out that the decision in T.V. Sankaranarayana Aiyar Vs. Alagiri Aiyar and Others, receives a

further support from a recent case before Devadoss and Sundaram Chetti, JJ., Rachamadugu Rangiah and Others Vs. Y.V. Appaji Rao, . In that

case the learned judges came to the conclusion that the decisions of the Bombay and Lahore High Courts referred to above could not be

supported. There is further the authority of the Calcutta High Court in Rakhal Chandra Purkait v. Sudhindranath Bose ILR (1919) C 991 and of

Sheonath Singh v. Munshi Ram ILR (1920) A 433 which supports the view hitherto taken in Madras. The Calcutta decision was under the old

Provincial Insolvency Act, but, as already pointed out, the wording of the two as regards this point is the same. The same remark will apply to the

Allahabad case. Now a word must be said about the Bombay case which is relied on to cast a doubt on the soundness of the Madras decisions.

The reasoning turns on the difference in language which undoubtedly exists between Sections 53 and 54. The learned Chief Justice of Bombay

says that he cannot infer that owing to the difference in language in the two sections Section 53 was intended to attract the provisions of Section

28(7). He also seems to base his decision on Section 42 of the English Act which runs

any settlement of property . . . shall, if the settlor becomes bankrupt within two years after the date of settlement, be void against the trustee in

bankruptoy.

and the decision of Wright, J., is quoted in Ex parte Clough (1904) 1 KB 451 to the effect that the words ""becomes bankrupt"" mean a date on

which an available act of bankruptcy has been committed by the bankrupt. With great deference 1 do not see how this construction of the English

Bankruptcy Act helps the construction contended for by the learned Chief Justice, because if the commencement of bankruptcy or an insolvency is

to be the date of an available act of bankruptcy it appears to me that that must occur at some time, however short, before the presentation of a

petition in insolvency which must, if it is going to have any weight at all, be based on an allegation of an available act of bankruptcy or insolvency in

this country. The learned Chief Justice seems to realise that harm and injustice might result from taking the opposite view, but he says that any such

fear cannot provide sufficient grounds for interpreting the words in Section 53 otherwise than according to their clear meaning. It appears to me

that the object of both Sections 53 and 54 is really to decide (as in fact the heading at the top of Section 51 makes clear, i. e., what is the effect of

insolvency on certain antecedent transactions by the insolvent) what property is to vest in the Receiver and it is clear that you must set some limit of

time with respect to transactions which you are going to allow to be impeached on the ground that they are in fraud of creditors and that the

properties sought to be alienated ought in fact to form part of the assets of the insolvent which on his adjudicating pass to the Official Receiver of

his estate. So that, if you are going to make the date of adjudication the crucial test, as pointed out in Rachamadugu Rangiah and Others Vs. Y.V.

Appaji Rao, this may take place a very long time after not only the presentation of the petition but any act of bankruptcy committed by the

insolvent. In the face of two clear authorities in this Court and of the authorities mentioned in Calcutta and Allahabad, it seems to me quite clear

that the provisions of Section 28(7) are attracted to Section 53. I have not referred in detail to the decision in Lahore, Ghulam Muhammad v.

Panna Ram 72 IndCas 433, which approves of Jokhan Singh v. Deputy Commissioner, Fyzabad (1913) INDCAS 924, a judgment by one of the

Commissioners of the Nagpur Court disapproving of the body of authority which I have referred to, namely, T.V. Sankaranarayana Aiyar Vs.

Alagiri Aiyar and Others, , Sheonath Singh v. Munshi Ram ILR (1920) A 433 and Rakhal Chandra Purkait v. Sudhindranath Bose ILR (1919) C

The learned Judges in the Lahore case observed that the act cannot be interpreted with reference to what the framers of the Act intended to

do and based their decision on the difference in the language of the sections. In face of all this authority in favour of the incorporation of Section

28(7) in Section 53 I must say that, speaking for myself, I entertain no doubt as to the correctness of the Madras decisions reinforced as they are

by the opinions of Calcutta and Allahabad and I see no reason for referring this case to a Full Bench.

Now on the question of merits, the alienee is the brother-in-law of the insolvent. It is proved that attachments were about to be made on his

property. The mortgage which is executed on old stamp papers is sought to be supported as far as consideration goes by several promissory

notes, Exhibits 2, 3 and 4. The promissory notes were in favour of the father of the mortgagee and the learned Judge comes to the conclusion that

Exhibits 3 and 4 have been recently prepared for the purpose of showing consideration for Exhibit I. As to the amount of Rs. 250 said to have

been borrowed by the respondent from R. W. 4, this witness states that the respondent told him that he was borrowing the money in order to lend

to his brother-in-law. There is an entry in a Day Book, Exhibit 6; there is no entry in the corresponding ledger, Ex. G, the explanation being that the

loan was paid off within a short time. This does not appear to me to be a satisfactory explanation and it was an explanation which was not

accepted by the learned Judge. The insolvent and the respondent are both stated to maintain accounts. They are both Komaties and they are both

persons carrying on business. The likelihood therefore is that they did maintain accounts, but their accounts are not forthcoming. The learned

District Judge has come to the conclusion that Exhibit 1 was executed in hot haste in order to make the attachment before judgment a nullity and in

my opinion we have been shown nothing here on appeal or in the evidence which would enable one to say that he was not justified in coming to

that conclusion. In my opinion the appeal must be dismissed with costs.

Curgenven, J.

I agree and have very little to add to what my learned brother has said on the first point raised with regard to the applicability of Section 53 of

the Provincial Insolvency Act. The question is whether the two years provided by that section should be reckoned from the date of the alienation

up to the date of the petition or up to the date of the adjudication. For the former view we have specially been referred to Nagindas v. Gordhandas

ILR (1925) B 730 that decision lay in a comparison between the language of Section 53 and Section 54. There is no doubt that that is a

consideration to be weighed, but having regard to the existence and terms of Section 28(7) I do not think it can be called a conclusive test. The

view that time should run up to the date of adjudication appears to me to have nothing in reason to recommend it. It seems incontestable that the

critical date should be, if not, as in English law, the point of time when the debtor becomes bankrupt, then at latest when the petition is filed. The

length of the interval thereafter up to adjudication depends largely upon accidental circumstances which can have no logical connection with the

conduct of the debtor up to the time when his affairs passed into the hands of the Insolvency Court. It is true that it is not for us to say what the law

should be, but we are entitled in case of doubt to reject an alternative which must lead to undesirable if not to anomalous results. The other

alternative is to read Section 28(7) with Section 53, and for this course we have the authority of the judgments of two Benches of this Court, T.V.

Sankaranarayana Aiyar Vs. Alagiri Aiyar and Others, and Rachamadugu Rangiah and Others Vs. Y.V. Appaji Rao, besides the views of the

Calcutta and Allahabad High Courts. I respectfully express my preference for this view over that taken by the High Courts of Bombay and Lahore.

With regard to the merits, the mortgage bond purported to have been executed on 26th July, 1920, but it was not registered until the 30th.

Notwithstanding the presence of a stamp vendor at the place of execution it was engrossed upon papers the stamps of which bore the names of

third parties. At about the same time, the creditor, P.W. 1, was taking steps to attach this property, which by then was the sole property remaining

to the debtor. The mortgagee was not only the debtor''s brother-in-law but he was also the junior member of the family to which he belonged. All

these circumstances raise, I think, a strong suspicion that the document was got up for the purpose of defeating creditors, as they stood at the time,

and accordingly it lies very strongly upon the insolvent to prove that it was executed in good faith and for consideration. The appellant relied upon

certain promissory notes which certainly by themselves afford no proof as they might have been got up between himself and his brother-in-law at

any time. The oral evidence carries little weight, and there are only two pieces of documentary evidence which, I think, deserve any serious

consideration. One of these is a post card, Ex. 5, which was written by the insolvent to the appellant in 1914. It no doubt contains a request to

have Rs. 400 ready for him, but it neither shows that Rs. 400 was actually lent nor that it found the subject-matter of either of the promissory

notes. The most it may show is that there were money dealings. The other piece of evidence is an account produced by R. W. 4 in order to

substantiate a loan of Rs. 250, which he is alleged to have made to the mortgagee as part of the consideration under one of the notes. The learned

District Judge has discredited the evidence of this witness and of his account, but even assuming that the account entry is true and evidences a true

loan, there is again nothing to show that this money was lent to the mortgagee for the purpose of making the loan. The parties are Komaties and

their own failure to produce accounts is certainly not without significance. 1 agree that the onus to show that the transaction was in good faith and

for consideration has not been discharged and that the Civil Miscellaneous Appeal should be dismissed with costs.