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Judgment
This appeal arises out of a suit to recover Rs. 27,666-6-9 with costs and further interest alleged to be due on a mortgage executed on 1st
November, 1921 by the 1st defendant in favour of the plaintiffs. The first defendant was adjudicated an insolvent in the Bombay High Court in
March, 1922. The date of adjudication does not appear, but it was some time between the 7th and the 15th of March, 1922. The Official
Assignee of Bombay is the 2nd defendant in the suit. The 3rd defendant, the Madura Mills Company, were the lessees of the mortgage properties;
But their lease expired and they have disclaimed all interests, so that it is unnecessary to consider them any further.
First defendant died after suit and his widow has been brought on record as his legal representative. The Official Assignee who contested the
suit raised several defences. The first was that no money was due on the mortgage as no consideration was paid. The second was that the
mortgage was executed really benami for the first defendant (insolvent) and therefore conferred no right on the plaintiffs. In paragraph 7 of his
written statement it was stated that the first defendant was adjudicated an insolvent in the Bombay High Court and that the mortgage, having been
executed within two years prior to adjudication and not being bona fide and without any consideration, is void as against the Official Assignee u/s
55 of the Presidency Towns Insolvency Act. Paragraph 8 runs as follows:
Some of the creditors of the insolvent have moved this defendant to apply to the Bombay High Court under the abovesaid section for getting the
suit hypothecation deed annulled, and this defendant intends to apply under the above section as soon as possible as the Bombay High Court has
re-opened on the 8th January, 1922 after the Christmas holidays.
Paragraph 9 is as follows:
As this defendant intends to make an application to the Bombay High Court u/s 55, this defendant prays that this Court may be pleased to post this
suit to a date two months hence so as to enable this defendant either to get it stayed till the disposal of the application or to get it transferred to the
Bombay High Court to be tried along with the application.
No application was made. The issues raised were:
Is the plaint bond true, valid and supported by consideration? or
Is it only a nominal transaction intended to defraud 1st defendant''s creditors?
To what relief, if any, are plaintiffs entitled?
The Subordinate Judge on a careful consideration of the evidence and the accounts filed came to the conclusion that the plaint mortgage was
fully supported by consideration and that it was not a nominal transaction intended to defraud first defendant''s creditors. No issue was raised as to
whether, even if there was consideration, the transaction could be void as falling within Section 55 of the Presidency Towns Insolvency Act, being
within two years of the adjudication and not being bona fide, probably because this matter was reserved. as mentioned in the written statement, to
the Bombay High Court. The Subordinate Judge having found that the transaction was not benami and was for consideration, considered the
provisions of law applicable in the suit as framed before him whether, u/s 53 of the Transfer of Property Act, on the finding that there was
consideration, the fact that preference was given to one creditor over another would make the transaction void or voidable in a suit between the
mortgagor and the mortgagee. He relied on the decision of the Privy Council in Musakar Sahu v. Lala Hakim Lal ILR (1915) C 521 : 1915 30
MLJ 116. On appeal the learned Advocate-General did not argue that the document was not supported by consideration. The only point as
regards consideration which he said was suspicious and which requires scrutiny was Item 10. As regards this item, the Subordinate Judge deals
with it at page 19 of his judgment. The account book of the mortgagee and the day book and ledger of the mortgagor agree as regards the amount,
but the way in which the money was appropriated differs. We cannot on these circumstances alone, without any further evidence and also in view
of the fact that there was a settlement of accounts which is not impeached before us hold that this item has been proved. Admittedly the amount
was received and a difference in the entries between the book of the mortgagor and that of the mortgagee would not make the debt not due. For
the purpose of the appeal we have to treat it on the footing that this document is fully supported by consideration. If the case was to be decided u/s
53 of the Transfer of Property Act without reference to the Insolvency Act, we think the Subordinate Judge was right in holding that the transaction
could not be said to be void on the ground that it was intended to defeat or defraud creditors. All we can hold on the evidence is that one creditor
was more diligent than others in getting a security for the money due to him. The main ground of the argument put forward by the learned
Advocate-General was that the Subordinate Judge was wrong in thinking that the question of bona fides ought to be decided only with reference to
the Transfer of Property Act and not with reference to Section 55 of the Presidency Towns Insolvency Act. His argument is that in dealing with the
question with reference to the Insolvency Act we must take all the circumstances into consideration, and we must see whether the man was at that
time really in involved circumstances unable to meet his debts and whether this is not a transaction which is a fraudulent preference in favour of one
creditor putting the property out of reach of the general body of creditors in favour of one who had at the date of transaction no special reason for
getting the preference. He points out that it is not shown that any money was borrowed for the purpose of the business to be conducted, that the
actual lending of the money stopped at the settlement of the accounts in 1919, that subsequently till we come to the date of the transaction we find
only interest being credited in the book and then on the date of the transaction a small sum of Rs. 500 is shown as paid in cash for the bond and
Rs. 150 for the stamp expenses and that there is no evidence that this Rs. 500 was paid for any business or anything that would indicate the bona
fides of the transaction. He also points out that admittedly there were other dealings between the mortgagor and the mortgagee which on the books
produced in Court showed that monies were due by the mortgagee to the mortgagor at the date of the execution of the mortgage. No doubt these
sums were unascertained and had to be ascertained by looking into the accounts. But he points out that between 1919, the date of the settlement,
and the date of the mortgage there was ample time to look into the accounts especially as dealings stopped shortly after 1919 and that where a
person who is unable to pay his debts chooses to execute a mortgage in favour of one creditor without looking into the accounts which show that
some amount is due to him from the creditor and without setting off the amount due to him against the amount due by him, the transaction could not
be prima facie said to be bona fide especially when the mortgagee was a partner with the plaintiff with regard to the unsettled accounts.
It is argued by Mr. C.V. Ananthakrishna Aiyar for the respondent that considerations based upon the voidability of a transaction u/s 55 of the
Presidency Towns Insolvency Act cannot be gone into by any Court except an Insolvency Court constituted under the Presidency Towns
Insolvency Act and the Subordinate Judge had no jurisdiction to declare the transaction voidable u/s 55. We are of opinion that this argument is
well founded. So far as the decisions under the Provincial Insolvency Act are concerned it has been held that no Court except an Insolvency Court
having jurisdiction could declare a transaction voidable u/s 53 of the Provincial Insolvency Act. This is clear from the decision in Mariappa Pillai v.
Raman Chettiar ILR (1918) M 322 and the decision in The Official Receiver, Coimbatore v. Palaniswami Chetti ILR (1925) M 750 : 49 MLJ
The latest decision, The Official Receiver of Coimbatore Vs. Palaniswami Chetti alias Ponnuswami Chettiar and Another, , goes so fully into
the question that it is unnecessary for us to do anything further than to refer to the decision as laying, down the law on the subject so far as the
Provincial Insolvency Act is concerned. Our attention was drawn to an unreported decision in S. A. No. 360 of 1916; but this decision was
dissented from in Mariappa Pillai v. Raman Chettiar ILR (1918) M 322 and we are not prepared to follow it. The question therefore is whether
the same principle has to be applied when the case falls under the Presidency Towns Insolvency Act.
The main argument of Mr. Bhashyam Aiyangar is that in Section 53 the concluding words are:
be voidable as against the Receiver and may be annulled by the Court.
and Section 54 also contains the words
be deemed fraudulent and void as against the Receiver, and shall be annulled by the Court
whereas in Section 55 of the Presidency Towns Insolvency Act the words are
be void against the Official Assignee
and in Section 56 the words are also
and void as against the Official Assignee.
He argues that as the words are different, the two Sections 55 and 56 can only be declaratory leaving the jurisdiction unaffected thus enabling
him to raise the question in all Courts when he wants to avoid a transaction specified in those two sections. He refers us to N.N.L. Ramaswami
Chettiar Vs. Mallappa Reddiar, which is a Full Bench decision of this Court dealing with Section 53 of the Transfer of Property Act where it was
held that a representative suit was not necessary and the right was retained to any creditor if the case fell within the scope of that section and that
same principle has to be applied to a case under the Insolvency Act. We do not think that the omission of the words ""may be annulled by the
Court"" in Sections 55 and 56 makes any difference in dealing with the provisions of the Presidency-Towns and Provincial Insolvency Acts. We
cannot distinguish the two decisions The Official Receiver of Coimbatore Vs. Palaniswami Chetti alias Ponnuswami Chettiar and Another, and
Mariappa Pillai v. Raman Chettiar ILR (1918) M 322 on this ground. The Presidency Towns Insolvency Act constitutes a special tribunal or forum
for the determination of questions arising under the Act. The Courts having Jurisdiction in insolvency under this Act are the High Courts of
judicature at Fort William, Madras, Bombay and Rangoon and the Court of the judicial Commissioner of Sindh. Section 4 says:
All matters in respect of which jurisdiction is given by this Act shall be ordinarily transacted and disposed of by or under the direction of one of the
Judges of the Court, and the Chief justice or (Judicial Commissioner) shall from time to time assign a Judge for that purpose.
Section 7 of the Act says:
Subject to the provisions of this Act, the Court shall have full power to decide all questions of priorities, and all other questions whatsoever,
whether of law or fact which may arise in any case of insolvency coming within the cognizance of the Court, or which the Court may deem it
expedient or necessary to decide for the purpose of doing complete justice or making a complete distribution of property in any such case.
We think that the language is clear and that when a special forum is constituted by a special Act, questions arising under that Act"" must, in the
absence of anything to the contrary in the Act or any other enactment, be determined by the forum constituted by the Act, so that any question as
to the voidability of a transaction in so far as it is raised by the Official Assignee under the special provisions of that Act has to be determined by
the Court constituted by that Act which would have jurisdiction to determine that question. Sections 55 and 56, we may point out in this
connection, are special provisions relating to insolvency and it is only in insolvency that these transactions can be impeached as voidable if they do
not fall u/s 53 of the Transfer of Property Act, so that a transaction not falling under the Transfer of Property Act can only be avoided by Sections
55 and 56 of the Presidency Towns Insolvency Act. It is therefore difficult to say that on principle there is any reason to draw any distinction
between the provisions of the Provincial and the Presidency Towns Insolvency Acts in so far as questions falling exclusively within Sections 55 and
56 of the Presidency Towns Act and Sections 53 and 54 of the Provincial Act are concerned. This being so, we think that the Subordinate Judge
had no jurisdiction to go into the question as to whether on the facts the transaction would be void u/s 55. We think the correct procedure is for
the Official Assignee to move the Bombay High Court under this Section 55 for an order. As we are of opinion that the Subordinate Judge had no
jurisdiction to go into this question there Can be no plea of res judicata or any difficulty on the Official Assignee, though a party to the suit, moving
the Bombay High Court. In these circumstances. we think that the only course is to affirm the decree of the Subordinate Judge and to hold that the
mortgage was executed for consideration and was not benami for the mortgagor, leaving it open to the Official Assignee to apply to the. Bombay
High Court to set it aside if he could show that the case falls within Section 55. As the Subordinate Judge had no jurisdiction to go into that
question we in appeal have equally no jurisdiction to give any opinion on the contention of the Advocate-General which may or may not be right.
The result is the appeal fails and is dismissed with costs to be paid by the Official Assignee out of the assets of the insolvent.