AI Structured Summary
Not yet generated for this judgment
Judgment
Varadachariar, J.—This litigation is an off shoot of certain proceedings that took place in the insolvency of one N.S. Swaminabhan Chetti, a
trader of Mannargudi, who was adjudicated insolvent in October 1922. The present suit was brought by one, who may be conveniently referred to
by the vilasam P.S., against certain defendants, who may be referred to by their vilasam S. A., for recovery of a sum of money which the plaintiff
claimed had become repayable to him by reason of the decision of the insolvency Court in O. P. No. 46 of 1924, in the insolvency of N.S. The
lower Court gave the plaintiff a decree as prayed for and hence this appeal by the defendants. To understand the question raised before us, it is
necessary to state a few facts: P.S. was indebted to N.S. and N.S. was in turn indebted to S A. On the eve of the insolvency of N.S., an
arrangement is said to have been come to whereby, in payment of the debt due from N.S. to S.A., P.S. was persuaded to give a promissory note
in favour of S. A. for the amount due from P.S. to N.S. That promissory note has been marked as Ex. B, in this suit and was given in March 1922.
In O. P. No. 46 of 1924, the Official Receiver appointed in the insolvency of N.S. attacked this arrangement as unreal and collusive and in any
event as amounting to a fraudulent preference. It may be mentioned in passing that the parties are related to each other by marriage; and on
investigation of true nature of the transaction, the Court by its judgment in O. P. No. 46 of 1924 held that the arrangement in pursuance of which
the undertaking was given by P.S., in favour of S. A., was probably not real or bona fide and that in any event it amounted to a fraudulent
preference.
It would however appear that after the adjudication and after notice given by the Official Receiver to P. S demanding payment of the moneys
due from P.S. to N.S. and prohibiting payments to S.A., P.S. made certain payments to S. A.; these payments are endorsed on Ex. B. The first of
these payments is said to have been made on 14th May 1923, by way of assignment to S.A. of promissory notes in favour of P.S. to the extent of
Rs. 10,800 and odd. Payments in cash to the extent of about Rs 6,000 are shown to have been made between 11th July 1923 and 4th February
1924. When this fact of payments having been made was brought to the notice of the insolvency Court, the learned District Judge observed that,
even if the payment was a fact, it was made with eyes open and knowing the nature of the transaction, and that P.S. could not plead such
payments in answer to the claim of the Official Receiver. When the matter was carried to this Court on appeal in C. M. A. No. 279 of 1925, the
learned Judges who heard the appeal, expressed themselves even more strongly as to the nature of the arrangement. With reference to the alleged
novatio, they said that they had no hesitation in holding that the transactions were not real transactions but were only a make-believe in order to put
the property of the insolvent out of the reach of the creditors. With reference to the alleged payments by P.S. to S.A., they laid stress on the fact
that the payments, if any, were made after the notice from the Official Receiver questioning the transaction and that P.S. must be left to his own
remedies at law to recover such sums as he might have paid to S. A. The plaint in the present suit was filed after the judgment of the District Judge
and pending the C. M. A. in this Court. It may however be mentioned that both the parties to this litigation have proceeded on the footing that the
payments endorsed on the promissory note were in fact made and are not fictitious. The question nevertheless remains whether, assuming the
payments to be true, the plaintiff has a cause of action to claim the moneys back. In para. 8 of the plaint, it is merely stated that under the decision
in O. P. No. 46 of 1924 the defendants are bound to return to the plaintiff the amount paid by the plaintiff in pursuance of Ex. B. As we have
already stated, the decision itself, far from containing any such direction, throws considerable doubt upon the plaintiff''s right, and the judgment of
this Court merely left the matter open. The learned Subordinate Judge upheld the plaintiff''s claim to recover on two grounds: one based upon
Section 65, Contract Act and the other on the theory of failure of consideration. It seems to us that neither of these grounds is tenable. Section 65,
Contract Act relates to a case where an agreement is discovered to be void. As the learned Judge himself points out in another connection, an
arrangement which amounts to a fraudulent preference is not one that is ""void"" as between the parties, in the sense in which that term is used in
Section 65, Contract Act. It is at best only voidable at the instance of the Official Receiver and as against the creditors. We do not therefore think
that the case really falls u/s 65, Contract Act. If anything, reliance should be placed only on Section 64 which deals with rights arising out of the
avoidance of a voidable contract. But Section 64 provides for repayment only by the person at whose option the contract is rescinded. Here, it is
the Official Receiver who applied to the Court to rescind the contract and not S. A. On the other hand, S. A. wanted to stand by it. The plaintiff
cannot therefore call in aid either the principle of Section 64 or that of Section 65, Contract Act.
With reference to the theory of failure of consideration, the argument of the lower Court rests upon a confusion of ideas. As explained in the
judgment of the Court of Common Pleas in Balfour v. The Sea, Fire, Life Assurance Co. (1858) 3 CB (NS) 300, it is necessary to keep the
question of motive distinct from the question of consideration. So far as consideration for Ex. B and the payments made in pursuance thereof are
concerned the consideration is that S. A. should forego his claim against N.S. This has never failed. The learned Subordinate Judge observes that
the consideration for P. S''s undertaking to S. A. was the discharge of his own liability to N.S. This way of looking at the position is no doubt
supported by an observation of the Lahore High Court in Balkishen Das-Dhanpat Rai v. Devi Saran 1922 62 IC 929 but as explained by the
Court of Common Pleas in the case referred to above, the discharge of the plaintiff''s liability to N.S. was only the motive for his entering into the
transaction and not the consideration for it in the sense in which that term must be understood in law. This is made clear by the definition of
consideration"" in the Contract Act; for the purpose of the contract, consideration is what moves from the promisee, whether it be an advantage to
the promisor or detriment suffered by the promisee. In this case, the consideration is of the latter kind, namely the promisee foregoing his claim
against N.S. Both the grounds relied on by the learned Subordinate Judge thus proving untenable, the only possible alternative on which the
plaintiff''s claim may be possibly sustained is one based on the ground of mistake, falling u/s 72, Contract Act. This aspect of the matter is also
adverted to in the Lahore case. But as explained in the Common Pleas case also, there has really been no mistake in the present case and on the
conclusion come to in the enquiry before the insolvency Court that P.S., N.S. and S. A., were parties to a fraudulent transaction for the bringing
into existence of nominal book entries and adjustments, it is impossible to support the plaintiff''s claim on any theory of mistake of fact. The appeal
must therefore be allowed and the plaintiff''s suit dismissed with costs throughout recoverable from the plaintiff''s estate. The memorandum of
objections must also be dismissed.