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TMI Blog1962 (11) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... m and by that time it had contracted quite a large volume of debts, the tannery business there proving a loss. The two partners accordingly entered into a deed of dissolution dated March 31, 1949, in which it is stated that the book-debts, stock in trade, immovable properties and other assets including the goodwill of the firm were of the value of ₹ 2,90,000/-, and at the same time that the partnership which was admitted to be suffering losses owed debts to the extent. of ₹ 2-1/2 lakhs. It was agreed between the partners that the 3rd defendant Abdul Shukoor Saheb should go out of the partnership taking with him one item of property in Vaniyambadi valued at ₹ 20,000/- while- the suit tannery which was estimated as of the same value was to become the sole property of the 4th defendant who was described in the deed as the continuing partner . Soon after this deed of dissolution the 4th defendant entered into an agreement with the plaintiff for the sale to him of the suit property for a sum of ₹ 19,000/-, and later executed the deed of sale on May 20, 1949. The plaintiff was, however, advised that it would be safer to have the conveyance in his favour executed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urt and the learned judges reversed the decision of the trial-judge and directed the dismissal of the plaintiff s suit. It is the correctness of this decision that is challenged in this appeal. Learned counsel for the appellant raised four principal points in support of the appeal : (1) that on a proper construction of the written statement the only real and effective defence that was raised was that the sale in favour of the appellant was sham and nominal and that the Courts below were in error in proceeding on the basis that the sale was in the alternative impugned as brought about to defeat or delay creditors within s. 53 (1) of the Transfer of Property Act; (2) that on the facts and circumstances of the case it had not been established that the sale in favour of the appellant was vitiated by fraud against creditors falling within s. 53 (1) of the Transfer of Property Act; (3) that in any event, the plaintiff was a purchaser in good faith and for valuable consideration and was therefore protected even on the basis that the transferor intended, by the alienation, to defraud his creditors; (4) that on a proper construction of s. 53 (1) of the Transfer of Property Act, as it now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was, having Tegard to the circumstances stated, a fraud upon the creditors and therefore voidable at his instance. Though the pleading in the Written Statement was in this form, the issues struck did not raise the two defenses as distinct pleas but rolled both of them into a single plea raising the question whether the plaintiff hid title to the suit property and whether the claim order was liable to be set aside. Notwithstanding the indefiniteness in the frame of the issues it could not be said that when the parties proceeded to adduce evidence the same was not directed to both the above defences. As we have necessarily to consider thus evidence in dealing with the submissions made to us regarding the correctness of the dismissal of the plaintiff s suit by the High Court it is unnecessary to set out the details of the evidence which indicates that the defence based upon s. 53 of the Transfer of Property Act was borne in mind. At the, stage of the arguments before the trial Judge it was the subject of keen contest between the parties. The learned trial judge first dealt with the question as to whether the sale was real as pleaded by the plaintiff or whether it was without co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der this question because they were satisfied that the decision on the other points might be sufficient to dispose of the appeal,yet they made passing observation which appeared to throw doubt on the reality of the sale. Again, learned Counsel pointed out that though they had formulated the two questions viz., (1) assuming the sale to be real whether the sale was intended by the transferor to defeat or delay creditors, and (2) assuming the sale was voidable under s. 53(1) of the Transfer of Property Act whether the plaintiff was a bona fide purchaser in good faith, as distinct and separate questions, in the discussion which followed they did not keep these two points separate. Besides, it was urged that there were some statements or assumptions made in the judgment which were entirely not, warranted by the facts. We cannot say that there is not some force in these submissions. In view of this, the course which we intimated to the teamed Counsel that we would adopt was that we would ourselves consider the entire evidence on the record and arrive at our own conclusions on such evidence in regard to the two issues: (a) whether the sale was in fraud of creditors, and (b) whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plaintiff, the plaintiff did not choose to examine him as a witness in order to elucidate this matter or otherwise explain the circumstances in which the impugned sale was effected. The next feature to be noticed is that the plaintiff and the 4th defendant were both members of the same community labbais of North Arcot district, a fairly small and wellknit community several of whom are engaged in the hides and skins business. The learned judges of the High Court have referred to the plaintiff and the 4th defendant as natives of ,the same place and as relatives. Learned Counsel for the Appellant pointed out that whereas the-4th defendant was a native of Vaniyambadi, the plaintiff was, native of Parnambet and the suggestion made that they were relatives had been denied,-in the evidence. Learned Counsel might be right on these matters but we consider that not much turns on them. Both of them were conducting business in Madras and the plaintiff had also a business in Vizianagaram though it was in bidis and not in hides and skins. In these circumstances we consider that it matters little whether they were relatives or not. The significance of the plaintiff and his vendors being mem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nate the suit property and we have a letter from the 4th defendant to the plaintiff as early as February 5, 1949, which evidences negotiations for the sale of the property. There was apparently some giggling about the price which caused some delay and a few days after the attachment was ordered, on April 27, 1949, a formal agreement of sale was entered into between the plaintiff and the 4th defendant under which he agreed to purchase the property for a sum of ₹ 19,000/and the agreement recited that the purchaser, i. e., the plaintiff had paid a sum of ₹ 10,000/- in advance as earnest money and the sale deed itself was executed on May 20, 1949. In pursuance of the order dated April 21, 1949, Damayanti attached the suit property as already stated on June 8, 1949 and thereupon the plaintiff filed a claim under O. XXI, r, 59, Code of Civil Procedure, for raising the attachment but this, however, was dismissed on November 16, 1950, and thereafter the amount of the decree was paid up by the judgment-debtor just a few days before tile expiry of the one year period of limitation for filing the suit under O. XXI, r. 63, Code of Civil Procedure. A suggestion was made to the plain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as irrelevant the circumstance that the document was registered at Madras. The next feature of the case to which. we must direct attention relates to the purpose for which the sale was executed. As regards this, there is no evidence led to indicate why exactly the 4th defendant desired with some urgency to dispose of the property at that juncture. The relevant circumstance in the present case is that there was a great deal of pressure from creditors, who not having been paid the amounts due to them as and when they became due, were forced to file suits and those which were decreed were those which were not defended and the firm was mulcted with costs under each of these decrees. In the circumstances one would expect an explanation as to why the sale was being effected. Ordinarily in circumstances such as in this case there could only be two alternatives : (1) a sale in order to pay the creditors out of the proceeds obtained; and (2) a sale in order to convert immovable property which was capable of being attached and brought to sale for the realisation of the amounts due to the creditors into cash, which could either be secreted or used for the vendor s own purposes. If the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could have been thrown by the 4th defendant being called as a witness, the plaintiff did not choose to take the step, nor indeed did he even summon the production of the accounts of the firm which might have disclosed the true state of affairs. Each of these circumstances might be capable of some explanation consistent with the case that the transfer now impugned was effected in the normal and ordinary course of business by the 4th defendant for some purpose which did not involve an intention to defeat or delay his creditors, but the question we have to consider is their cumulative effect and so viewed the conclusion appears irresistible that the object of the transaction was to put the property out of the reach of the creditors. The transfer was therefore plainly within the terms of the 1st paragraph of s. 53 (1) of the Transfer of Property Act and was voidable at the instance of the 1st defendant who was a decree-creditor. The next question is whether the plaintiff is a bona fide purchaser for value so as to be protected by the second paragraph of s. 53 (1) reading : Nothing in this section impairs the rights of the transferee in good faith and for consideration. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from the creditors, the plaintiff was, as much a party to the secrecy as the transferor. (4) One matter which would be of considerable relevance and significance in this connections would be the enquiries that the plaintiff made before he took the transfer. He no doubt led evidence to show that he consulted his lawyers about the title-of the vendor; but any attempt at an enquiry of the 4th defendant as to why he was effecting the sale of the only immovable property of the firm which was alloted to him under the-deed of dissolution is significantly absent. In the circumstances, it stands to reason that; the plaintiff must be fixed with notice of the design in pursuance of which the transfer was effected. If the object of a transferor who is heavily indebted was to convert his immovable property into cash for keeping it away from his creditors and knowing it the transferor helped him to achieve that purpose it has naturally to be held that he shared that intention and was himself a party to the fraud. In this connection, there is one circumstance which is rather significant. Even when the plaintiff was fixed with notice that the firm s business had been running at a loss and had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e transfer may be presumed to have been made with such intent as aforesaid. Nothing contained in this section shall impair the rights of any transferee in good faith and for consideration. after the Amending Act, 11929. transferor shall be voidable at the option of any creditor so defeated or delayed. Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration. Nothing in this subsection shall affect any law for the time being in force relating to insolvency. A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied fore execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor, shall be instituted on behalf of, or for the benefit of, all the creditors. Two points were made by the learned Counsel in support of this submission; the first being independent of the amendment effected by the Act of 1929 and the other based on the provision as amended.The former was based on the impact of the nature G. of the proceedings under O. 21, rr. 58 to 61, Code of Civil Procedure, and of the order that would be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the property in his own right and not on behalf of the judgment-debtor, when a transfer is real, though it is liable to be impeached as a fraud on creditors, and the tranferee has entered into possession, he would succeed in the summary proceedings, with the result-that it is the defeated attaching creditor who would have to figure as a plaintiffq If he figures as a plaintiff the suit would have to be in a representative capacity, that is, under O. 1, r. 8, Code-of Civil Procedure. In every case, therefore, when a transfer is real but is liable to be set aside under s. 53 (1) on the provisions of O. XXI, rr. 58 to 61, Code of Civil Procedure,the transferee is bound to succeed in the summary proceedings and the attaching decree holder would have to figure as a plaintiff and the suit would be a representative suit. From this it is said that it follows that in no case can an attaching creditor who defends a suit to set aside a summary order in his favour resist it on the plea of fraud under s. 53(1). It would however be seen that, this last step, which is vital for the argument to have force does not follow for the argument does not proceed on any construction of the terms of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed, rejecting the claim of the transferee, the same would nevertheless be an order which would have to be set aside by a suit by the defeated transferee and he cannot ignore it. It would thus be seen that the entire argument as regards the impact of the nature of the enquiry under O. 21, r. 59,on the defences which would be open in a suit under O. 21, r. 63, depends on two factors: (1) the summary order being passed on the merits and not because the making of the claim was designedly or unnecessarily delayed, and (2) the summary order being right on the merits and strictly in conformity to the provisions of the Code. As we have already pointed out, the points urged before us as regards the scope of the enquiry into claim petitions was also the subject of elaborate argument and consideration by the learned judges of the Madras High Court in the Full Bench. Sadasiva Ayyar, J., classified the cases of transferees who failed in their claim petitions and had to file suits to set aside summary orders under O. 21, r. 63, under three heads : (a) -Where the transferee was a mere benamidar; (b) Where he was a fraudulent transferee in possession; and (c) Where he was a fraudulent tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty free from attachment in execution by the judgments. The learned judges based their conclusion on this and on several other lines of reasons which we consider unnecessary to set out, but it is sufficient to say that we are enentire agreement with all of them. There is therefore no substance in the point ;that there is anything in s. 53(1) as it originally stood which precluded a defence by an attachingcreditor to a suit to set aside a summary order under O. 21, r. 63, that the: sale in favour of the plaintiff is vitiated by fraud of the type specified in the earlier quoted provision and the amendment has admittedly made no change in this matter. It was next urged that the third paragraph of the amended s. 53 (1) has, effected a change in the law and that thereafter transfers voidable under 1st paragraph of s. 53 (1) could be avoided only in suits filed by a defeated or delved creditor as plaintiff suing on behalf of himself and other creditors. We consider that there is no substance in this objection either. We shall first refer to the purpose of the amendment. In decisions rendered prior to the amendment, there were a large number in which it was held, following cert ..... X X X X Extracts X X X X X X X X Extracts X X X X
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