The Official Receiver vs Neminadha Mudaliar

Horwill, J.—This Civil Miscellaneous Second Appeal and the Civil Revision Petition have been filed against the order of the District Judge of

West Tanjore on an application by the Official Receiver to set aside a usufructuary mortgage executed by three insolvents in favour of the

respondent and also a payment to him of Rs. 2,800. The learned District Judge agreed with the trial Court that the transactions in question were

fraudulent preferences. The transactions were therefore set aside as far as the insolvents'' share in the property was concerned but not with regard

to the shares of certain members of the insolvents'' family who had not been declared insolvents. The Official Receiver also claimed mesne profits,

which was granted by the District Judge from the date of order and not, as the Official Receiver claimed, from the date of his application to set

aside the alienations. The appeal and civil revision petition have been filed by the Official Receiver because of the refusal of the District Judge to set

aside the mortgage as far as the shares of those who were not insolvents were concerned, and also because of the disallowance of mesne profits

from the date of application. A memorandum of cross objections has been filed by the alienee, contending that there was no sufficient justification

for the finding of the Courts below that the transactions were in fraudulent preference of the transferee. It is also contended that the lower Court

was wrong in ordering the respondent to repay the whole of the Rs. 2,800 paid to him.

Since the order of the first Court was u/s 54 of the Act no second appeal lies. The application was no doubt filed u/s 4 also; but it was not

necessary for the lower Court to invoke the provisions of Section 4 in passing the orders it did. No second appeal therefore lies. As however the

Official Receiver has taken the precaution to file a civil revision petition also, and the questions raised are questions of jurisdiction, the matters

raised both in the civil miscellaneous second appeal, civil revision petition, as well as in the memorandum of cross-objections, can be considered.

With regard to the main point in appeal, I am satisfied that the lower appellate Court was right, though there has been some difference of opinion

in this Court as to the law to be applied. Kuppuswami Ayyar, J., in Jashi Parvalhavardhanamma v. Adusumalli Venkataramiah (1944) 1 M.L.J.

19, pointed out that Sections 53 and 54 applied to transfers of property by an insolvent and that if, therefore, the transfer was by an insolvent and

others, the Insolvency Court would have jurisdiction only with regard to the shares of the insolvent. In this conclusion he followed the decision of

Sundaram Chetti, J., in Subramania Chettiar v. Subbaraya Goundan (1934) M.W.N. 801. Pandrang Row, J., in Palaniappa Chetli v. Official

Receiver, Maduraa,in considering the arguments of Sundaram Chetti, J., pointed out that although Section 53 dealt with transfers by insolvents, a

Hindu father had power to transfer not only his own share but also the share of his undivided sons and that the transfer could therefore be wholly

set aside. Kuppuswami Ayyar, J., considered that the decisions of Sundaram Chetti, J., and Pandrang Row, J., were necessarily inconsistent, and

he preferred the decision of Sundaram Chetti, J., as being more in accord with the later decisions of this Court. There is, however, no necessary

conflict between the law laid down by Sundaram Chetti, J., and that laid down by Pandrang Row, J. If it appears from the document of transfer

that the insolvent was transferring the share of his son by virtue of his right as an undivided father, the principle of law enunciated by Pandrang

Row, J., might perhaps be applied. If, on the other hand, the document showed that the son was himself a party to the transaction, then the father

was not purporting to exercise his right as a father.

If we examine Ex. I, we find that the mortgage deed was executed by the three insolvents, who are a father and two sons, and by three

grandsons who were not insolvents. Of these, one Subramania Chetti was a major and the other two were minors. The document indicates that the

fathers were executing this document for themselves and as guardians of the minors. If they executed the document as guardians of the minors, they

could not have been executing it merely as undivided fathers with a right to transfer their sons'' shares, in which case it would not have been

necessary to make the minors parties to the transaction. Moreover, as already pointed out, one of the grandsons was a major, and as he

represented himself in this document his father could not have purported to transfer his share by virtue of his right as an undivided father. There is

therefore no doubt that the insolvents in this case were not exercising their rights as Hindu fathers to sell their sons'' shares. The Insolvency Court

had jurisdiction to deal only with the shares of the insolvents.

Section 54 of the Provincial Insolvency Act does not in itself give power to th� Insolvency Court to award mesne profits; but I have no doubt

that the Insolvency Court has the same jurisdiction as the ordinary Civil Courts to pass such orders as equity may require. In Palanivelu Odayar, by

guardian Kunju alias Vijayalakshmi Vs. The Official Receiver, , Madhavan Nair and Jackson, JJ., held that the Insolvency Court had jurisdiction to

pass an order for payment of mesne profits. Other cases referred to in another connection show that the mesne profits have been awarded in

insolvency cases, though their jurisdiction to do so was not specifically in question.

The question is whether, as the learned District Judge thought, the Court had no power to grant mesne profits for any period prior to its order

annulling the transaction or whether the Court had power to award mesne profits from the date of the execution of the deed or the date of the filing

of the petition by the Official Receiver to set aside the alienations. Section 54 says that on a petition presented by the Official Receiver within three

months of the transfer, the transfer shall be deemed to be fraudulent and void against the Receiver and shall be annulled by the Court. The question

has been considered in many cases whether the word "" void "" here really means void or it means voidable; but there is now no room to doubt that

it means voidable. The mere fact that the Court has to annul the transaction is itself a sufficient indication that the transaction is only a voidable one.

If it was void ab initio there would have been no necessity for the Court to annul it. The learned District Judge argues that since the transaction was

only a voidable one and was not void until set aside, mesne profits could only be granted from the date when the Court passed the ordef annulling

the transaction. There is some force in this argument, and it receives support from the decision in Balakrishnan v. Digambardas AIR 1936 Nag.

But this logical argument overlooks the power of the Court to do equity. Mesne profits can be granted wherever the other party has been in

wrongful possession; and possession obtained by fraud is wrongful possession. If a transaction is fraudulent and the transaction is set aside, the

Court in its equitable juris diction attempts to put the parties in the same positioh as if the fraud had not been committed. That can only be done in

this case by awarding mesne profits from the date of the transaction as if it were a void transaction--or at any rate from the date of the petition,

when the Official Receiver exercised his option to avoid the document. There is no analogy between a case like this and the setting aside of an

alienation by a manager of the family, where it has been found that the alienation was not for family necessity. In such a case, not only is the loss of

mesne profits balanced by the profit arising from the use of the money which was the consideration for the sale, but there is no fraud, and therefore

no necessity for the Court to attempt to put the parties in the position they would have occupied, had the alienation not been made. As to the right

of a plaintiff, upon a transaction, being set aside on the ground of fraud, to mesne profits, their Lordships of the Privy Council in Satagur Prasad v.

Mahant Har Naraindas (1932) 62 M.L.J. 451 : L.R. 59 1083. IndAp 147 : ILR 7 Luck. 64 say:

.... their Lordships think that the plaintiff is entitled to succeed in his claim (to mesne profits) upon general principles of equity. So it is stated in Kerr

on Fraud and Mistake (6th edition, page 469) dealing with the doctrine of''restitutio in integrum that ''a party exercising his option to rescind is

entitled to be restored as far as possible to his former position.'' For this proposition there is ample authority. In Queen v. Saddltirs Co. (1863) 10

H.L.C. 404 : 11 E.R., Lord Blackburn says, '' Fraud, as I think, renders any transaction voidable at the election of the party defrauded; and if,

when it is avoided, nothing has occurred to alter the position of affairs, the rights and remedies of the parties are the; same as if it had been void

from the beginning.

In Mulhallan v. Marum 3 Dr. and War. 317 a similar question was considered. There, since the application had been mads very late, mesne profits

were granted only from the date of the application to avoid the transaction. The appellant in this case will be granted that�share of the mesne

profits from 17th July, 1933, which can be attributed to the shares of the insolvents.

I have little doubt that the Rs. 2,800 paid to the respondent was paid from the joint family funds and that therefore this respondent would have

to repay only the Shares of those who were adjudicated insolvents. The order of the lower Court will therefore be modified by ordering the

respondent to repay only that share of Rs. 2,800 which can be attributed to the insolvents. The interest awarded will naturally be on the lesser

amount.

The other questions raised in the memorandum of cross-objections are questions of fact which I am not prepared to reconsider in revision. As

both parties have failed and succeeded in part there will be no order as to costs either in the Civil Revision Petition or in the memorandum of

cross-objections.