The Official Receiver vs Vedappa Mudaliar

This is an appeal by the Official Receiver of Tanjore in an insolvency matter in which the Official Receiver applied to have a release deed or a

transfer deed executed by the insolvent in favour of his father within two years of the insolvency to be declared void u/s 53 of the Provincial

Insolvency Act V of 1920. The learned District Judge disposed of the case, we think, somewhat summarily; he fell into the initial error of thinking

that, as at the time the release deed was executed all the previous creditors had been paid off and there were no creditors in existence, the deed

could not be said to be in fraud of creditors and the subsequent creditors could not impugn it. We cannot accept this as a correct statement of the

law. It has been laid down so early as 1742 in Steleman v. Ashdown (1742) 26 E.R. 688 that ""It is not necessary that a man should actually be

indebted at the time he enters into a voluntary settlement to make it fraudulent for if a man does it with a view to his being indebted at a future time,

it is equally fraudulent, and ought to be set aside."" A man can commit what may be termed compendiously ""anticipatory fraud"" and effect a transfer

of his properties with a view to get debt and prevent his creditors getting at his property. The view that was laid down in 26 Eng. Rep. 688 haa

been followed in Thomas Pillai v. Muthuraman Chettiar (1910) 33 Mad. 205 and Hoosain Bhai v. Haji Ismail (1903) 5 Bom. L.R. 255. It follows

therefore that one of the chief grounds taken by the District Judge for not setting aside this alienation is not good in law.

The second point; the District Judge mentions is that in the present ease there was consideration for the alienation, namely, the payment of debts

and the maintenance of the executant and his wife and children. This might be no doubt some consideration for the transaction, but the question that

has to be considered in such oases is the bona fides of the transaction. If the consideration is inadequate or is such that it shows that it was not real

consideration it certainly may be taken as one item for deciding whether the transaction itself was bona fide or not. Now, u/s 53 of the Act what

has to be proved is that the transfer was in good faith and for valuable consideration if the transfer is within two years of the insolvency the burden

being on the person asserting it to prove it. Every transaction which an insolvent enters into within two years previous to his insolvency is treated by

the Act as prima facie invalid and it lays the burden on the insolvent or the alienee to show that the transaction is a valid and bona fide one. Both

good faith and valuable consideration have to be proved by the alienee or by the person who supports the transfer. On the side of the respondent

some Indian and English cases were cited to us viz.; Denny (Trustee) v. Deney and Warr (1919) 1 K.B. 583, Ebrahim Bhai v. Ful Bhai (1902) 26

Bom. 577, Re Tetley; Ex. parte Jeffery (1896) 75 L.T. 165 and Edward Russel William Bayward v. Elizabath Hammond (1737) 26 E.R. 9. It will

be noticed that in all these oases the learned Judges were able to come to the conclusion on the facts and circumstances of those oases that the

transaction or alienation were bona, fide, made in good faith and for valuable consideration. The circumstances under which the deed came to be

executed, the covenants made in the deed and the conduct of the parties both at the time and subsequently have all to be taken into consideration;

and if it can be held that the transfer at the time was really intended to be carried out and was made bona fide for saving the insolvent from

incurring debts and running himself, it may be that the transfer would not be interfered with. But if, on the other hand, there are circumstances to

show that the transferor was actually screening his properties from the reach of his future creditors, there will be good ground for holding that the

transfer is a fraudulent one. As the learned Judge of the Bombay High Court in 26 Bom. 577 points out in determining the question whether the

transfer was really bona fide or was intended merely for the purpose of screening the property from probable or possible creditors, the Court must

take into consideration all the circumstances which surrounded the transaction and the conduct, contemporaneous and subsequently of the parties.

It is after examining the position fully that conclusion should be come to by the Court on the question. In this case we think that we should send this

case back for a fuller trial of the matter. No doubt the father of the insolvent had an opportunity of adducing all his evidence, but it is possible that

be was misled as the learned District Judge was taking a strong view in his favour. We are willing to give him a further opportunity of adducing

fresh evidence to show how far the transaction in question is a bona fide one. The Official Receiver will also have leave to adduce whatever

evidence he wishes to adduce in rebuttal of the alienee''s case.

We therefore set aside the order of the District Judge and remand the case for a fresh disposal in the light of the observations made by us

above. Costs will abide and follow the result.