S.M. Shah, J.
1. This notice of motion to set aside a certain transfer of the property and assets of certain businesses including tenancy rights belonging to the debtor has been taken out by the Official Assignee. The notice of motion has been taken out under Section 55 of the Presidency-towns Insolvency Act, which says that
Any transfer of property, not...made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, shall, if the transferor is adjudged insolvent within two years after the date of the transfer, be void against the official assignee.
2. The facts leading to this notice of motion are shortly as follows:
The debtor was doing business in Bombay, Lucknow, Calcutta and Cawnpore in the name of Bagri Bros, prior to October 1952. From the schedule filed by the debtor in his Insolvency it appears that during the years 1950 to 1952 he had incurred heavy debts to the tune of about Rs. 40,000. In respect of these debts suits were filed by the creditors and decrees were obtained against the debtor. One of these suits was filed by a creditor named Saraswati Devi S. Mohatta to recover about Rs. 29,000 against the debtor in this Court on October 11, 1952. Curiously enough, within about 16 days of the filing of this suit by Saraswati Devi, the debtor floated a company named Bagri Bros, Ltd. with an authorised capital of Rs. 2,00,000 and with himself and his wife, Sumitra Devi, as the first directors of the company. Subsequent to the incorporation of this company, an agreement for purchase by the company of all the businesses carried on by the debtor at Bombay, Lucknow, Calcutta and Cawnpore along with all the assets, goodwill and tenancy rights in respect of those businesses was entered into on December 2, 1952 between Bagri, the debtor, on the one hand and the company represented by the debtor and his wife as its directors on the other. This agreement was undoubtedly shown to the Registrar of Companies on December 19, 1952 and a copy thereof was filed with the Registrar. Prior to this date, however, it appears, the board of directors by their resolution dated November 10, 1952 decided to allot 2000 fully paid up shares, each of Rs. 100 to Bagri, the debtor, or his nominees as he might direct, in consideration of the purchase by the company of all his businesses as aforesaid. Out of these shares 750 shares worth Rs. 75,000 were allotted to the debtor's mother, Chanabai, in complete discharge of her claim for a sum of Rs. 20,000 borrowed by the debtor from her in 1944 in connection with his business, 500 shares of the value of Rs. 50,000 were allotted to the debtor's wife, Sumitra Devi, in discharge of her claim for remuneration for personal services rendered by her to the debtor in connection with the latter's business from the year 1946 and the remaining 750 shares were allotted to the debtor himself. These allotments appear to have been approved by the resolution of the board of directors dated November 20, 1952.
3. It appears that the agreement of purchase by the company of the debtor's businesses as aforesaid was at first intended to be executed on November 3, 1952, but as a matter of fact, it was executed on December 2, 1952 by the debtor as the vendor and the company represented by its directors, the debtor and his wife Sumitra Devi, as the vendee. It is inter alia recited in this agreement that the company had been formed with a nominal capital of Rs. 2,00,000 divided into 2000 shares of Rs. 100 each with a view amongst other things to the acquisition of 'the business of running a restaurant and of manufacturing and selling ice and ice-cream in the firm name and style of 'Bagri Bros.' at Lucknow, Kanpur and Bombay' which was then being carried on by the debtor and that by Clauses 3 and 2 respectively of the memorandum and articles of association of the company it was provided that the company shall enter into agreement therein referred to 'being this agreement.' Clause 1 of this agreement provides that the vendor shall sell and the vendee shall purchase first, the said business as of the vendor of the-restaurant and manufacture and sale of ice-cream and ice carried on by the vendor at Lucknow, Kanpur and Bombay and all the right, title and interest of the vendor in the said business as a going concern. Clause 2 of the agreement enumerates the things that had been agreed to be sold by the vendor to the vendee company. Clause 2 of the agreement sets out the consideration for the sale of the vendor's business as being the sum of rupees two lacs fully paid up shares ordinary which shall be paid and satisfied as follows:
(a) The sum of Two lacs fully paid up ordinary shares shall be paid by allotment to the vendor or his nominee or nominees in the capital of the company.
Sub-clause (b) of this clause provides for allotment of 750 fully paid up shares out of these 2000 shares to the vendor's mother for the consideration mentioned therein and Clause (c) provides for the allotment of 500 fully paid up shares to his wife Sumitra Devi in discharge of her claim, for remuneration for the personal service rendered by her in connection with the vendor's business from the year 1946. Then Clause 3 of the agreement provides that the purchase shall be completed within two months from the date of incorporation of the company and the vendee company shall without further investigation, objection or requisition, accept such title as the vendor had to the said premises 'hereby agreed to be sold'. It may be recalled that the company was incorporated on October 27, 1952 and taking the period of two months from that date as provided in Clause 3 of the agreement as aforesaid, the purchase was intended to be completed by December 27, 1952. Clause 4 of the agreement is rather ambiguous inasmuch as it contemplates the incorporation of the company 'within the time mentioned above' whereupon 'the agreement shall be adopted by the said vendee company through its directors and on the said vendee company adopting the said agreement, the vendor shall execute the necessary assignments of the said business in the name of the said vendee company,' whereas, as a matter of fact, prior to the date of this agreement the company was already incorporated on October 27, 1952. Clause 5 of the agreement, however, appears to have removed this ambiguity by providing that the assignment shall be completed within two months from the formation of the said company which provision seems to be in conformity with the provision contained in Clause 3 of the agreement as aforesaid. It thus appears to be clear that the parties to the agreement provided for the completion of the purchase by the company of the vendor's businesses by necessary deed of assignment within two months from October 27, 1952 on which date the company was incorporated. By Clause 6 the agreement provides that pending the completion of the assignment, the vendor shall put the vendee in possession of the premises as and when required by the vendee and the vendee shall have the right to carry on the said business on its own account and shall not hold the vendor responsible for any loss or be accountable to him for any profits. Then the next clause of the agreement is an important one, inasmuch as it provides that the vendor shall pay, satisfy and discharge all his debts, liabilities, claims and demands including the income tax, super tax, excess profit tax and other liabilities in connection with the said business 'prior to the execution of these presents and shall keep the vendee indemnified from and against all proceedings, claims and demands in respect thereof'. From this clause it will appear as if the company had taken over possession of the business as from the date of the execution of the agreement and that the vendor was to be responsible for all his debts and liabilities in respect of that business up to that date. Clause 11 of the agreement, however, strikes a little discordant note in regard to the rents, rates, taxes, assessments and other out-goings in respect of that business, inasmuch as, it provides that these rents, rates etc. shall be paid by the vendor 'upto the completion of the sale' and not 'only upto the execution of this agreement'. Clause 9 of the agreement seems to make the confusion more confounded because it provides for the liability of the company to pay the salary of the employees 'from the date it takes over possession of the premises'. This provision would imply that the company had not taken over possession of the vendor's business on the date of the agreement. The company had yet to exercise its right to call upon the vendor to hand over possession 'of the premises' conferred upon it by Clause 6 referred to above. It will appear from the several clauses of this agreement that all that was provided for was that the vendor had agreed to sell to the company his businesses and all things appertaining thereto for a consideration of a sum of Rs. 2,00,000 which was agreed to be paid to the vendor in form of 2000 ordinary shares of the company of the value of Rs. 100 each, and that the sale had to be completed by a deed of assignment within two months of the date of incorporation of the company, i.e. by December 27, 1952, and that pending the completion of the sale the company had the right to call upon the vendor to put it in possession of 'the premises' as and when it so chose to do. At any rate, it does not appear from this agreement that either the company had called upon the vendor to put it in possession 'of the premises' or that the vendor had actually transferred the possession of 'the premises' to the company on the date of this agreement.
4. The deed of assignment which was contemplated by this agreement was, however, not executed within two months as provided in that agreement, but it came to be executed as late as on June 16, 1954, and it was restricted only to the business which was being carried on by the vendor in Bombay. After describing the nature and the names of the business and the places at which that business was being carried on by the vendor in Bombay and after reciting the fact that an agreement dated December 2, 1952 wrongly described in the deed of assignment as dated November 3, 1952 was entered into between the debtor and the company and also reciting that in part performance of the said agreement the debtor had on or about November 17, 1952 put the assignee (the company) in possession of 'the said two businesses of 'Magnolia Restaurant' and 'Delicia Icecreams' together with all their stock-in-trade, plant, machinery, furniture, fixture, etc.' and further reciting that in pursuance and in performance of the said agreement the company had on or about November 3, 1952 allotted 2000 ordinary shares of the face value of Rs. 2,00,000 to the debtor and/or his nominee or nominees and that it had been agreed between the debtor and the assignee that the value of the said two businesses of the debtor in Bombay was Rs. 25,000 and that the assignee had called upon the debtor to assign in favour of the assignee the said two businesses carried on by the debtor in Bombay together with all their goodwill and the firm names of 'Magnolia Restaurant' and 'Delicia Icecreams' and also together with the benefit of the monthly tenancy rights of the said respective premises which were rented in the name of Bagri Bros, and that the debtor had agreed to execute a deed of assignment in respect of the said two Bombay businesses, the deed of assignment by Clause 1 thereof provides for the transfer by the vendor to the company of the said two businesses as going concerns together with their goodwill, interest and the connection of the vendor in and concerning the said businesses etc. but excluding, in reference to the business carried on in the name of 'Magnolia Restaurant', all book debts and other debts and liabilities of the assignor in respect of the said business of Bagri Bros, and/or 'Magnolia Restaurant' 'incurred prior to the execution of these presents' and also excluding, in reference to the business carried on in the name of 'Delicia Icecreams', all book debts and other debts and liabilities of the assignor in respect of the said business of Bagri Bros, and/or 'Delicia Icecreams' 'incurred prior to the execution of these presents'. Pausing here for a moment, it will appear that though by Clause 7 of the agreement dated December 2, 1952 the debtor was to be responsible for all his debts and liabilities in respect of the two businesses up to the date of that agreement, by this clause of the deed of assignment it was provided that the debtor had to be responsible for all the debts and liabilities in respect of the two businesses up to the date of the execution of the deed of assignment, i.e. June 16, 1954. From this provision in the deed of assignment, therefore, it seems to be clear that until the date of execution of the deed of assignment the two businesses in Bombay were being carried on by the debtor himself on his own account despite the earlier recital therein that the debtor had put the company in possession of the said two businesses as far back as on November 17, 1952. This position seems to have been made abundantly clear by the provisions made in the other clauses of this deed of assignment. Clause 3 of this deed sets out the covenants which the debtor as the assignor had made with the company as the assignee and Sub-clause (a) in terms provides that the debtor will be liable for and pay and discharge all debts and liabilities of the said two businesses incurred 'upto the date hereof' including the liability for income-tax, E.P. Tax, and sales tax etc. and he shall indemnify and keep indemnified the company from and against any proceedings, costs, claims, expenses and liabilities whatsoever of and in respect of the said two businesses 'incurred prior to the date and till the execution of these presents'. Sub-clause (b) of Clause 3 of the deed of assignment removes all possible doubts as to whether the company had at all taken over and carried on the said two businesses of the debtor on its own account as from November 17, 1952 up to the date of the execution of this deed of assignment, because in terms it says as follows:
The outstanding book-debts is respect of the said two businesses corned on by the assignor upto this day shall be recovered and collected by the assignor and the assignee will have nothing to do with the said outstandings.
This sub-clause, in my opinion, leaves no possible room for a contention on behalf of the company that the deed of assignment that was executed on June 16, 1954 was only a formal document and that the title of the company to the said two businesses including the tenancy rights had been completed as far back as on November 17, 1952 when, as recited in the earlier part of the deed of assignment, the debtor had put the company in possession of the said two businesses. Even if it be assumed that the company was put in possession of those two businesses on November 17, 1952, as recited in the deed of assignment, in view of Clause 1 and Sub-clauses (a) and (b) of Clause 3 of the deed of assignment, it must be held that the company carried on the said two businesses entirely for the benefit of the debtor. As a matter of fact, the debtor being one of the directors of the company could himself take possession of the businesses on behalf of the company if the possession of the businesses was given by the debtor to the company on November 17, 1952 as recited in the deed of assignment and it was he who alone could have carried on the said businesses on behalf of the company until the execution of the deed of assignment. That the said businesses were, however, not carried on by the debtor on behalf of the company, but on his own behalf, has; been made abundantly clear by the provisions of Clause 1 and Sub-clauses (a) and (b) of Clause 3 of the deed of assignment which I have given above. Clause 4 of the deed of assignment makes this position still more clear, because by that clause the debtor declared that he had paid to the landlords of the respective premises in which the said two businesses were carried on, rents up to April 1954 and that he had observed and performed the terms, conditions and stipulations of the tenancy of the said premises. It will appear from this clause that it was not the company but the debtor himself who had paid the rent of the premises in which the businesses had been carried on, up to April 1954 and not only up to October or November 1952. Further, by Clause 7 of the deed of assignment it was provided that the debtor shall not from the date of the deed of assignment carry on the said restaurant businesses in Bombay in the firm names of 'Magnolia Restaurant' and 'Delicia Icecreams', but that he shall be entitled to recover his outstanding recoverable by him in respect of the said businesses carried on by him 'prior to the date and till the execution of these presents'. This provision again emphasises the fact that it was the debtor and not the company who was carrying on the said two businesses up to the date of the execution of this deed of assignment. By Clause 11 of the deed of assignment the company covenanted with the debtor that it will from time to time 'after the of June 1954 pay the rent in respect of the said premises'. This provision again shows that the company was to be responsible for the rents of the premises in which the businesses were carried on by the debtor until the date of the execution of this assignment only as from June 1954 and not earlier. Thus, it will be clear that it was only by this deed of assignment which was executed by the debtor as the proprietor of the said two businesses in favour of the company represented by the debtor and his wife Sumitra Devi as its only directors that the said two businesses of the debtor were really transferred to the company for the first time on June 16, 1954.
5. It was, however, contended on behalf of the company that separate accounts were being maintained by the company in respect of the said two businesses as from October 28, 1952 and that, therefore, it must be held that the businesses were actually transferred by the debtor to the company on October 28, 1952 and that the deed of assignment dated June 16, 1954 was only a formal document intended to complete the title of the company to the said businesses including the tenancy rights in respect of the premises in which the said two businesses were being carried on. In this connection, it may be noted that the accounts in respect of these businesses were written as from October 28, 1952 in the same boobs which were maintained by the debtor in respect of the said businesses up to that date. Apart from that, however, in view of the categorical provisions made in the deed of assignment with regard to the time up to which the debtor was carrying on the said two businesses and the time up to which he was liable for the debts and liabilities in respect of those businesses, no reliance, in my opinion, can at all be placed upon the fact that separate accounts were being maintained by the company in respect of those two businesses as from October 28, 1952. What we are concerned with in this case is not an agreement to transfer a business which was undoubtedly entered into on December 2, 1952, but an actual transfer of the businesses which, as I have pointed out above, was effected by a registered deed of assignment on June 16, 1954.
6. In the suit that was filed by Saraswati Devi in this Court to which I have referred in the earlier part of the judgment, a consent decree was passed on January 27, 1954. The debtor having failed to pay the amount of the decree, an Insolvency notice dated October 11, 1955 was served by Saraswati Devi upon the debtor. The debtor in his turn took out a notice of motion to set aside the insolvency notice, but it was dismissed by this Court on January 17, 1956. Thereafter, on January 27, 1956 Saraswati Devi filed a petition for adjudication of the debtor as an insolvent and the debtor was adjudged insolvent on March 20, 1956 and this notice of motion was taken out by the Official Assignee on April 12, 1960 to set aside the transfer of the debtor's businesses by the deed of assignment dated June 16, 1954. That the deed of assignment was executed and the debtor's businesses were transferred to the company, within two years prior to the date of his adjudication cannot be disputed. The question that arises, however, is as to whether this transfer is one which has not been made in good faith and for valuable consideration, so that it could clearly be void against the Official Assignee under Section 55 of the Presidency-towns Insolvency Act.
7. In support of the notice of motion Mr. Advani, the learned Counsel for the Official Assignee, urged that in the circumstances of this case it must be held that the transfer of the two businesses by the debtor in favour of the company was neither made in. good faith nor for valuable consideration. He contended that the company, though a legal entity in law, was not for all practical purposes different from the debtor himself and that the debtor had himself, and with the obvious intention of withholding his assets from his creditors, promoted the company so as to have recourse to an argument that the company being a legal entity and the transfer having been made to the company by him for valuable consideration in the shape of 2000 fully paid up shares the transfer could not be interfered with by the Court. On the other hand, Mr. Thakkar, the learned Counsel for the company, contended that inasmuch as the company was a legal entity and the transfer was effected by the debtor in favour of the company, whatever might have been the intention of the 'debtor, it could not be attributed to the company and that, therefore, so far as the company was concerned, the transfer was perfectly bona fide and for valuable consideration.
8. Two questions arise on these rival contentions, firstly, as to whether the debtor had transferred his businesses to the company mala fide with the dishonest intention of withholding his assets from his creditors and, secondly, if so, whether the company could be said to have had notice of the debtor's mala fide and dishonest intention.
9. As regards the first question, as I have already observed in the earlier part of this judgment, it was only within 16 days of the filing of the suit by Saraswati Devi to recover about Rs. 29,000 from the debtor that the debtor promoted the company with a nominal capital of only Rs. 2 lacs and with himself and his wife Sumitra Devi as the only directors of the company, with the sole intention of transferring his concerns to the company. Besides, all the 2000 shares of the company of Rs. 100 each were allotted as fully paid up to, the debtor by a resolution passed by himself and his wife as the only directors of the company in consideration of the agreement of sale by him of all his concerns to the company. It was not as if any capital was raised for the company from any members of the public or otherwise for the purpose of financing the purchase by the company of the debtor's concerns. All that the debtor received as and by way of consideration for his agreeing to transfer his concerns to the company were the shares of the company as if they were fully paid up and as if they had any money value at all. As a matter of fact, the consideration that the debtor received was all paper and nothing else. Further, despite the agreement to transfer his concerns to the company and despite the allotment of all the fully paid up shares of the company to him, the debtor continued to carry on his concerns as evidenced by the deed of assignment upto June 16, 1954. It is certainly true that during the interval between the date of the agreement and the date of the deed of assignment, the debtor had got allotted to his wife and his mother a large part of his shares for questionable consideration and also transferred 40 of his remaining shares to one K.J. Karia for a paltry consideration of Rs. 400 and 700 shares to his wife's sister for an alleged debt of Rs. 5,000, Nevertheless, it must be noted that no return of the original allotment of shares was filed by the company as provided in Section 104 of the Companies Act, nor does it appear that any return with regard to the transfer of his own shares to Karia and his wife's sister was filed with the Registrar of Companies, Be that as it may, it does appear clear to me that the assignment of his two concerns by the debtor to the company by a registered deed of assignment should not have been really delayed for nearly a year and a half after the agreement dated December 2, 1952 if he was allotted 2000 fully paid up shares of the company in consideration of the transfer of all his concerns by him to the company, and the debtor himself should not have really carried them on his own account and for his own benefit until the date of the assignment. The fact, however, that the execution of the deed of assignment and the transfer of his two concerns was so much delayed is ample evidence of his dishonest intention in withholding his assets from his creditors under the pretext that his concerns were already transferred to the company which was a different entity from himself in law. The shares, which he obtained from the company, could not possibly be said to have any money value at all and despite the allotment of those shares he managed to continue to carry on those businesses for his own benefit until after the decree in favour of Saraswati Devi was passed on January 27, 1954. The claim that was decreed in that suit was a very heavy one and apart from other claims that his other creditors had against him on that date, in view of the decree for the large amount that was passed in favour of Saraswati Devi, he, who had himself promoted the company as far back as in October 1952, seems to have thought better of the situation and decided to expedite the transfer of his concerns to the company by a registered deed of assignment, so as to escape the attachment of the assets and property of his two businesses in execution of that decree. In these circumstances, I have no doubt whatever that the debtor transferred his two concerns to the company by a registered deed of assignment in June 1954 with the dishonest intention of defeating the claims of his creditors and in fraud of his creditors.
10. The next question is as to whether the company could be said to be affected with the notice of this fraudulent and dishonest intention of the debtor so as to render the transfer of the debtor's two concerns in its favour 'One not made in good faith and for valuable consideration'. The answer to this question depends upon the extent to which the debtor can be identified with the company in regard to its promotion, incorporation and management. It may be recalled that it was the debtor who had promoted this company. It was the debtor who had got it incorporated and it was the debtor who along with his wife had become the director of the company. It was the debtor who wanted to transfer his own concerns to the company which was his own creation and it was again the debtor who managed to get all the shares of the company as fully paid up shares in consideration of his agreeing to transfer his concerns to the company. At the date of the incorporation and even thereafter, nobody had subscribed for the shares of the company, nor was any money raised by the issue of those shares for the purpose of financing the purchase of his concerns. Further the agreement dated December 2, 1952 was executed by himself as the vendor and again by himself and his wife as representing the company as its directors. The deed of assignment dated June 16, 1954 was also executed by himself as the vendor in favour of himself and his wife as representing the company as its directors as the vendee. As a matter of fact, in. all these transactions the debtor acted as agent of the company along with his wife who was only his stooge and the entire benefit of this transaction went to himself. In these circumstances, it is clear that whatever intentions he had in transferring his business to the company were known to him as agent of the company and, therefore, the company could well be said to have had notice of the dishonest intention of the debtor in transferring his concerns to the company. Again, it cannot be said that the company got the transfer of the debtor's concerns for any valuable consideration. As I have already pointed out above, the whole consideration that the company gave to the debtor consisted of its fully paid up shares of Rs. 100 each which constituted the whole of its nominal capital. I have already observed that these shares had no value at all and it was all paper. Accordingly, in my opinion, the company cannot be said to have acquired the two businesses of the debtor for any valuable consideration.
11. Mr. Advani, the learned Counsel for the Official Assignee, invited my attention to Fasey, In re. Trustees, Ex parte  2 Ch. 1. That was a case in which a builder, in embarrassed circumstances, against whom numerous creditors had obtained judgments, entered into an agreement on July 29, 1921, with an agent on behalf of a company to be formed, whereby he agreed to sell to the company all his property (including his business) with certain exception of inconsiderable value, in consideration of 30,000 to be satisfied by the allotment to the vendor or his nominee of 30,000 fully paid 1 shares in the capital of the company, the appointment of the vendor as governing director at a salary 2,500 a year, and an undertaking by the company with the vendor to pay and discharge the business debts and liabilities of the vendor and indemnify him against the same. The company having been incorporated and having adopted the agreement, the vendor and his solicitor became the directors and were the only shareholders of the company. They allotted to the vendor 10,000 shares and to his solicitor 20,000 shares, being the whole of the issued capital. That allotment to the solicitor was in pursuance of a prior agreement made in March, 1921, whereby the vendor agreed to allot those shares to his solicitor in satisfaction of the amount alleged to be owing to him by the bankrupt on an account stated. The vendor was adjudicated bankrupt on April 11, 1922, on a judgment creditor's petition. On an application by the trustees in the vendor's bankruptcy impeaching the agreement of July 29, 1921, under the statute 13 Eliz. c 5; it was held that the facts showed that the whole object of the agreement was, under the cloak of a company, to remove the assets of the bankrupt from the reach of his creditors and to retain for the bankrupt the benefit of them and thereby defeat and delay his creditors within the meaning of the statute of Elizabeth. It was further held that the fact that one of the creditors incidentally obtained a benefit from the transaction did not prevent the transaction from being void under the statute. It may be observed that the facts in our case are stronger than in this English case. The agreement in the latter contained a provision that the company should pay the debts incurred by the bankrupt in connection with his business and it was contended that on account of this provision it could not be said that there was any fraudulent intention on the part of the bankrupt in effecting the transfer in favour of the company within the meaning of the statute. In our case, however, the deed of assignment does not provide for any payment by the company of the debts and liabilities incurred by the debtor in connection with his business. On the contrary, it provides that the debtor shall be responsible for all the debts and liabilities incurred by him in connection with his two concerns up to the date of the execution of the deed of assignment dated June 16, 1954. In connection with the contention, however, that was raised in the English case as aforesaid, Lawrence J. observed as follows (p. 8):.I think that there is a complete fallacy underlying this contention. Apart altogether from, the fact that these business debts were never paid by the company, and apart from the inference which I draw that there was never the slightest intention, on the part of the company to pay these business debts at all, it is clearly settled that such an agreement is not enforceable by the business creditors, and therefore does not amount to a provision for these creditors. It might have been otherwise had the bankrupt assigned the property to the company as a trustee upon trust to apply it in the payment of the business debts, in which case the business creditors might have enforced the trust. The fact that since the bankruptcy the trustees stand in the shoes of the assignor, has, in my opinion, no bearing on this point : the question which I am considering at present is, whether in July, 1921, the bankrupt made an assignment of his property with the intent of delaying or defeating his creditors generally; and I have no hesitation in finding that he did.
Then again, while dealing with the contention that the company could not be said to have had any knowledge of the intention of the bankrupt to withhold his assets from his creditors, the learned Judge observed as follows (p. 9):
On the facts here, it is quite plain that the company had full knowledge of everything that was being done in this case. As its sole directors and shareholders were the bankrupt and Mr. Timbrell, they were the principals concerned in the fraudulent intent.
In my view this is a barefaced attempt to cheat the creditors of the bankrupt by a conveyance of the bankrupt's property to the bankrupt himself and to his solicitor, and thereby withdrawing from those creditors the only assets which were really worth having. The company itself, in the circumstances of this case, cannot possibly stand in any better position than the bankrupt; it is really but a name which has been changed.
On appeal against the judgment of Lawrence J. in that case, Lord Sterndale M.R. in this connection observed (p. 13):.It seems to me that you could hardly have a more transparent attempt to withdraw the assets from the control and rightful seizure by the creditors, unless it can be said that because the transfer was to a limited company, it cannot be interfered with or unless you can say that, even assuming that the transaction was for the purpose of hindering, delaying or defrauding creditors, the fact that one creditor, the solicitor, got a benefit by the transaction, prevents it from coming within the statute. I do not think you can say either of those things.
Now what was the position? I do not wish to use any such word as 'cloak' or 'mockery' or any similar metaphorical term, because I think that the use of such words is very often apt to lead one astray, but in my opinion the main object of this transaction was to enable the bankrupt by means of the company and, his interest in the company and under-I am afraid I must use the word-the 'cloak' of the company, to retain for himself the benefit of the business, and under the name of the company to carry on the business which he had himself previously been carrying on and so to obtain the benefit of all the assets which were transferred to that company, and removed from the reach of his creditors.
12. While dealing with the question as to how far the company being a separate entity could be affected by the intention of the bankrupt, the Master of the Rolls further observed on the same page:.I do not ignore for the moment, nor do I think the learned judge did, although some of the expressions he used might seem to have that effect, the fact that a company, although it may be composed of one man only, the transferor himself, in this case of two, the transferor and his solicitor, is a separate entity. The bankrupt is not the company and the company is not the bankrupt, but it may very well be that the transaction of the transfer to the company is for the purpose of enabling the bankrupt under the name of the company, really and substantially himself, to get the benefit of the goodwill and assets of the business which he has transferred to the company. What was the position here? The bankrupt was one of the two and only shareholders of the company, the other being his solicitor. He was the managing director at a salary of 25001. a year payable out of the assets, which but for this transaction would have been available for his creditors. It is true, as I have said, that the solicitor, for either a real or an unreal debt, also obtained some of the shares himself; it is also true that the creditors would, if bankruptcy had not supervened, have had a right to take the shares of the bankrupt in execution, and possibly if they had exercised that right, they would have been able by means of a winding up, or some other proceedings, to get at the assets of the company, because they would then have been shareholders in the company. If to put them to that way of getting their debts paid was not to hinder them, I do not quite know what hindering is. It seems to me quite clear that the whole object of this transaction was to remove these assets out of the reach of the creditors, some of whom had obtained judgments against the bankrupt and were in a position to issue execution, in order that the benefit of the assets might be kept for the bankrupt himself, although under the name of a company.
Dealing with the question as to whether the intention of the bankrupt to defeat and delay his creditors could be said to be the intention also of the company Atkin L.J. observed as under (p. 17):
The question that arises in this case, I think, is whether this transaction by which the issued shares were to be allotted to the debtor,...can be within the statute of Elizabeth. I think it can. It depends of course on the intent of the parties, and I think the learned judge has meant to find and has found that the intent of both the parties-that is to say, of the bankrupt on the one side, and the bankrupt and the solicitor, who were the directors of the company and the only persons who can represent the mind of the company, on the other side-was that the creditors should be defeated and delayed.
13. The several observations quoted above lend considerable support to the decision that I have reached on the facts of this case, that not only the debtor had the dishonest intention of defrauding his creditors while in embarrassed circumstances at the date when he promoted the company and also at the time when he entered into the agreement with the company on December 2, 1952 and executed the deed of assignment in favour of the company on June 16, 1954, but the company too, whose mind was represented both by the debtor and his wife, who were the only directors of the company, had the same intention. As a matter of fact, as observed by the Master of the Rolls in the English case cited above, the debtor in this case has used the company as a mere cloak for the purpose of removing his assets from the clutches of his creditors. I hold that the debtor under the cloak of the company retained both of his concerns for his own benefit despite the allotment of the company's shares to himself and that the company could not stand in any better position than the debtor. It is really but a name which has been changed.
14. It was, however, contended by Mr. Thakkar, the learned Counsel for the company, that the case relied upon by Mr. Advani related to a transfer sought to be set aside on the ground that the debtor had intended to delay and defeat his creditors and that, therefore, it would have no application to the facts of the present case, where the transfer is sought to be set aside under Section 55 of the Presidency-towns Insolvency Act on the ground that it was not made in good faith and for valuable consideration. If was urged that the intention of the debtor to defeat and delay his creditors did not come in for consideration under that section and that a regular suit should be filed by the Official Assignee for the purpose of setting aside this transfer on the ground of its having been effected, with a view to defeat and delay the creditors of the debtor under Section 53 of the Transfer of Property Act. I am afraid, this contention cannot be upheld. The transfer of a property in order that it may not be hit by the provisions of Section 55 of the Presidency-towns Insolvency Act must be found to have been made in good faith, and for valuable consideration and the good faith that has been contemplated by that section, in my opinion, is the good faith of the person making the transfer and such good faith cannot be said to have been established where the person making the transfer had done it with a view to delay and defeat his creditors. Assuming', however, that the expression 'good faith' in that section has a reference to the transferee or both the transferor and the transferee, I have already held that in the present case the debtor had transferred his two concerns to the company with a view to achieve his dishonest intention of removing his assets from the reach of his creditors and that the company, whose mind was represented by the debtor himself and his wife, had the notice of such intention. In either event, therefore, the transfer of the debtor's concerns in this case cannot be said to have been made in good faith and, as I have already held, nor can it be said to have been made for valuable consideration.
15. In the result, the notice of motion is made absolute in terms of prayer (a). The respondent shall pay the costs of the notice of motion to the Official Assignee taxed according to the Rules.