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Babubhai and ors. Vs. Gangji Jesang Cheda - Court Judgment

LegalCrystal Citation
SubjectCivil;Limitation
CourtMumbai High Court
Decided On
Case NumberO.O.C.J. No. 16 of 1969
Judge
Reported inAIR1983Bom54; 1983MhLJ107
ActsPresidency-towns Insolvency Act, 1909 - Sections 7, 55 and 57; Limitation Act, 1963 - Schedule - Article 137
AppellantBabubhai and ors.
RespondentGangji Jesang Cheda
Appellant AdvocateG.A. Thakkar ;and H.V. Chande, Advs.
Respondent AdvocateU.J. Makhija and;D.C. Metha, Advs.,;Shah, Adv. for Vithaldas alias Sabubhai Govindji Thakkar,;Atul Doongarsi & Co.,;S.V. Rajeshwar, Adv. for Varsha Traders and;A.G. Revankar, Adv. for;Bai Ratanba
Excerpt:
.....was a transfer which could be avoided by the official assignee under section 55 of the presidency-towns insolvency act, 1909 only on an application on that behalf.;b) the court adjudged that the transfer by fraudulent transferee after the order of adjudication was not protected under presidency -towns insolvency act, 1909.;c) the court adjudged that section 7 of the presidency-towns insolvency act, 1909 conferred that insolvency court had jurisdiction to decide the question of title.;d) the case questioned whether the application filed by the official assignee under section 55 of the presidency -towns insolvency act, 1909 was within time - the family arrangement was challenged in the petition for order of adjudication and was declared fraudulent at the time, when the order of..........of the official assignee in respect of these shop premises.6. under section 55 of the presidency-towns insolvency act any transfer of property, not being, inter alia, a transfer made in favour of a purchaser 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. in the present case, the transfer the made by the insolvent of the tenancy right of the shop premises in favour of bai ratanbai has been held to be a transfer not in favour of a transferee in god faith and for valuable consideration. in fact, the learned single judge who passed the order of adjudication as well as the learned judges sitting in appeal held that this transfer was a fraudulent transfer made.....
Judgment:
ORDER

1. This is an application by the Official Assignee for a declaration that the family arrangement dated 30th October 1967 under which the tenancy rights of two shops bearing Nos. 4 and 5 situate at 177, Dogri Street, Bombay belonging to the insolvents were allotted to Bai Ratanbai Morarji Kanji, and which arrangement has been declared as a fraudulent transfer by a judgment of this Court dated 8-10-1971 confirmed in appeal by this Court on 13-1-1981, be set aside, and the Official Assignee may be ordered to taken possession of these shops and to proceed thereafter with the sale thereof either by public auction or by private treaty as the Official Assignee may deem fit and proper. The Official Assignee has also prayed that the 'transfers' and made by Bai Ratanbai in respect of the said shops under an agreement dated 11-4-1974 to Atul Doongarsi & Co., and under an agreement dated 13-10-1078 to Varsha Traders as well as a partnership deed dated 23-12-1968 between Bai Ratanbai Morarji and Babubhai Govindji Thakkar be declared as null and void and not binding on the Official Assignee.

2. In the present case the relevant facts are as follows: The debtors, namely, Babubhai Jadavji Thakkar. Mithabai Jadavji Thakkar and Jayantilal Dwarkadas Thakkar, all carrying on business in the firm name and style of Messrs Morarji Kanji & Co., and Messrs. Jayantilal Jadavji & Co., were adjudicated Insolvents on 8-10-1971 on a petitioner dated 31-1-1969 filed by the petitioner creditor. One of the acts of insolvency which was alleged was family arrangement of 30th October 1967 under which the insolvents purported to transfer their tenancy rights in Shops Nos. 4 and 5 situate on the ground floor of Ismail Dossa Building, 177/79, Dongri Street, Bombay-9 in favour of Bai Ratanbai Morarji Kanji, who is a grant-mother of two of the debtors. By its judgment and order dated 2-10-1971 this court held that the so-called family arrangement under which the tenancy rights in respect of the said shop were transferred to Bai Ratanbai were fraudulent transfers and that there transfers themselves constituted an act of insolvency. The Court passed an order of adjudication upon the debtors. From this order the transferee Bai Ratanbai preferred an appeal to a division bench of this judgment and order dated 13-1-1981.

3. After the order of adjudication, the transferee Bai Ratanbai entered into an agreement dated 11-4-1973, with M/s. Atul Doongarsi & Co. The agreement is an agreement to leave and licence between the transferee Bai Ratanbai and M/s. Atul Doongarsi & Co. under which M/s. Atul Doongarsi & Co. have been permitted to use a portion of shops Nos. 4 and 5 of the purpose of storing their goods on the terms and conditions mentioned in that agreement. Prior to the execution of this agreement, there is a recording letter from M/s. Atul Doongarsi & Co. addressed to Bai Ratanbai and dated 31-3-1973, under which they have declared that they have on 31st March, 1973 surrendered vacant possession of the said premises to Bai Ratanbai that they have no right whatsoever in respect of the use and occupation of the said shop premises. Bai Ratanbai has also entered into an agreement dated 13-10-1978 with M/s Varsha Traders under which the said M/ s. Varsha Traders have been permitted to occupy such portion of the said shop premises as may be convenient for storing their goods.

4. Prior to the order of adjudication the transferee Bai Ratanbai entered into a Deed of Partnership dated 23-12-1968, with Babubhai Govindji Thakkar, the husband of the transferee's grand-daughter,. Under the Deed of Partnership it was provided that the partnership business shall be carried on at the said shop premises. Clauses 3 of the said Deep of a Partnership, however, provided that the transferee Bai Ratanbai was the tenant of the said shops and had allowed the use of the said shops only for the purpose of business of the partnership and only during the continuance of the partnership. The clause expressly provided that the tenancy and the possession of the said shops are of and belonging to the transferee Bai Ratanbai.

5. In view of these agreement which have been entered into by the transferee pertaining to these shops, I have to consider what are the right of the Official Assignee in respect of these shop premises.

6. Under Section 55 of the Presidency-towns Insolvency Act any transfer of property, not being, inter alia, a transfer made in favour of a purchaser 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. In the present case, the transfer the made by the insolvent of the tenancy right of the shop premises in favour of Bai Ratanbai has been held to be a transfer not in favour of a transferee in god faith and for valuable consideration. In fact, the learned single Judge who passed the order of adjudication as well as the learned Judges sitting in appeal held that this transfer was a fraudulent transfer made deliberately to the knowledge of the transferee with a view to shield the said property from the creditors of the insolvents. In view of this finding, it is not necessary for me to again re-examine whether the family arrangement of 30th October 1967 is a fraudulent transfer or not. Since the fraudulent transfer itself constitutes an act of insolvency on which the debtors have been adjudged insolvents. it is a transfer which can be avoided by the official assignee under Section 55 of the Presidency-towns Insolvency Act . A formal application by the official assignee is, however, necessary for this purpose.

7. In the case of Ramaswami v. Official Receive reported in : [1960]1SCR616 , the Supreme Court held that even where the order of adjudication is based on an act of insolvency constituted by a transfer of property found to a fraudulent preference, the transfer stands till it is set aside. A separate order annulling the transfer would be necessary even in such a case. Similarly in the case of Shah Sukrai v. Official Assignee, Madras reported in : AIR1978Mad197 , a Division Bench of the Madras High Court following the above Supreme Court decision held that once a particular transfer has been found to be an act of insolvency and the adjudication is based on that transfer. though it is necessary for the Official Assignee to file a separate application to avoid the transfer, the moment such an application has been filed, the annulling of the transfer must follow as matter of course of proof of the order of adjudication itself without anything more. In other words, an order of adjudication itself does not annul the transfer, a separate order on an application made by the Official Assignee is necessary of annulling the transfer. But once such an application is made the order of annulling follows as a matter of course on proof of adjudication itself.

8. In view of these judgment it was necessary for the Official Assignee to make the present application for annulment. However, in view of the ratio of these judgment the annulment must follow as a matter of course in the present case inasmuch as the transfer in question itself is the basis of the order of adjudication.

9. Mr. Makhija, learned counsel for one of the transferees has, however, argued that this is not a case where the Official Assignee is claiming the property from the transferee of the insolvents. In the present case the transferee has herself transferred the property to third parties. He has submitted that these third parties are bona fide transferees for valuable consideration. The Official Assignee, he submits, cannot claim the property from such bond fide transferees of the transferee. In this connection it is important to bear in mind that the insolvency law is a code by itself. Under the Presidency-towns Insolvency Act, there are express provisions which protect certain kinds of transfers made to persons who can be considered as bona fide purchasers for valuable consideration. Thus, for example, under Section 55 itself protection in given to transfers which have been made by in insolvent in favour of a purchaser in good faith and for valuation consideration. Similarly, under Section 57 certain bona fide transactions are protected for example, the section provides that any transfer by the insolvent for valuable consideration or any contract or dealing by or with the insolvent for valuation consideration will not become invalid in the case of the insolvency provided that such a transaction has taken place before the date of the order of adjudication and the person with whom such a transaction has taken place did not have at the item notice of the presentation of any insolvency petitioner by or against the debtor. Only certain transfers are thus expressly protected under the Presidency-towns Insolvency Act. In view of these provisions it is not possible to protect other types of transfers not protected by the Act by resorting to provisions of other Acts or by resorting to principles or equity,. There is no provisions under the insolvency law which will protect transfers made by a fraudulent transferee after the order of adjudication.

10. Under Section 51 of the Presidency-towns Insolvency Act the insolvency of a debtor shall be deemed to have relation to and to commence at the time of the commission of the act the time of the commission of the act of insolvency on which an order of adjudication is made against the debtor. Under Section 52 of the Presidency-towns Insolvency Act the property of the insolvent which vested in the Official Assignee shall comprise of such property as may belong to or be vested on the insolvent at the time of commencement of the insolvency. In the present case therefore, the insolvency is deemed to have commenced at the time of entering into the family arrangement dated 30-101967 by which certain fraudulent transfers were sought to be made. The property of the insolvent as at the date of the family arrangement. therefore, vests in the Official Assignee and is available if or distribution amount his creditors. This would include the tenancy rights in respect of the shop premises Nos. 4 and 5 which then belonged to the insolvents. The tenancy rights in respect of these shops vest in the Official Assignee. Therefore, under the provisions of the Presidency-towns Insolvency Act after the order of adjudication there can be no title left in the transferee Bai Ratanbai under which she can create any rights in favour of any third party. If the transferee herself did not have any right in respect of the shop premises, she could not have created rights in favour of any third parties. The transferees of Bai Ratanbai, therefore, in the present case documents not have any right, title or interest in respect of the shop premises as against the Official Assignee.

11. Mr. Makhija relied upon a decision of the Supreme Court in the case of Mahabir Gope v. Harans Narain Singh reported in : [1952]1SCR775 , as well as the observation of the court of Chandcery Division in the case of Sanguinutti v. Stuckey's Banking Co. reported in (1895) 1 Ch 176 and the decision in the case of In respondent Slobodinsky reported in (1903) 2 KB 517, at Presidency-towns Insolvency Act. 520. He relied upon these case in support of his submission that the of would take the property subject to all equities in favour of the subsequent transferees. Unfortunately none of these authorities deal with the rights of the transferees of the transferees. The decision of the Supreme Court does not deal with the provisions of the insolvency law at all. It deals with the rights of a mortgagee to create a lease in respect of the mortgaged land. In has no bearing on the present case.

12. The decision in Sanguinutti's case dealt with the question whether the settlement created by the bankrupt, which had been by consent declared as void against the trustee in bankruptcy at the instance of the plaintiff who was one of the secured creditors of the bankrupt enured for the benefit of the secured creditors of for the benefit only of the trustee in bankrupt who would hold the property for the benefit of the unsecured creditors. The discussion in that case does not throw any light on the question at issues in the present case. The decision in Slobodinsky's case dealt with the transfers which were effected by the insolvent and which were sought to be challenged by the trustee in bankruptcy. Certain transfers in that case were held to be in favour of the transferees who has taken the property bona fide and for valuable consideration and hence these transfers were held to be good transfers, This decision again is of on assistance in the present case.

13. None of these case deal with the rights of bona fide transferees from a fraudulent transferee. As I stated earlier, there is no provision under the insolvency law which protects bona fide transfers by a fraudulent transferee, especially when these bona fide transferees have obtained transfers after the order of adjudication.

14. In the present case, moreover I do not find anything in the agreements which have been disclosed by the parties which would go to show that there have been transactions which can even be constructed as transfers in favour of these third parties. The property in question consists of tenancy rights in respect of the two shop premises. Under the Deed of Partnership dated 23-12-68, which is the first documents executed by the transferee Bai Ratanbai, the tenancy right continued to vest in Bai Ratanbai, as stated earlier,. Under the Deed of Partnership, therefore, no transfer is effected of the tenancy rights in respect of these shop premises at all.

15. The next document is the agreement of 11-4-1974 in favour of M/s. Atul Doongarsi & Company. This purports to be a leave and licence agreement in favour of M/s. Atul Doongarsi & Co. This agreement is not protected under any provisions of the Bombay Rent Act. Since it has been executed after 1st February, 1973, and is not protected under the provisions of the Bombay Rent Act. M/s Atul Doongarsi & Co. did not have any right to the premises prior to 11-4-1973, and if they had any right, they had surrendered it prior to the agreement of 11-4-1973. The letter which is executed by Adul Doongarsi & Co. on 31-5-1975 makes it clear that they surrendered vacant possession of the said premises to Bai Ratanbai on 31st March, 1973 and that they had no right whatsoever in respect of the use and occupation of the said premises from that date,. Similarly, the agreement of leave and licence with Varsha Traders is also executed in October 1978, and is not protected under any provisions of the Bombay Rent Act. These agreements, therefore, documents not create any interest in favour of Atul Doongarsi & Co. or Varsha Traders in the tenancy rights in respect of the shop premises. Such persons cannot be described as transferees of Bai Ratanbai. In any case the persons from whom these parties claim to derive their title had herself on right to create any interest in favour of any third party in respect of these premises since she herself had no right, title or interest in these shop premises.

16. Mr. Makhija submitted that the title to M/s Atul Doongarsi & Co. and M/s. Varsha Traders as against Bai Ratanbai was a matter which could not be investigate by the insolence court. He submitted that this is matter which is within the exclusive domain of the Court of Small Causes at Bombay under the provisions of Section 28 of the Bombay Rent Act. Under Section 7 however, of the Presidency-towns Insolvency Act the insolvency court has full power to decide all question of priorities and all other questions of whatsoever, whether of law of fact. which may arise in any case of insolence coming within the cognisance of the Court, or which the court may deem it expedient or necessary to decide for the purpose of doing complete justice of making a complete distribution of property in any such case. It is true that there is a difference in the language of Section 7 of the Presidency-towns Insolvency Act 1909 as compared to Section 4 of the Presidency-towns Insolvency Act , 1920. Under Section 4 of the Presidency-towns Insolvency Act, the court has full power to decide all question whether of title or priority of any nature whatsoever, etc. Thus, an express power is conferred on the insolvency court to decide question of title under Section 4 of the Presidency-towns Insolvency Act. Mr. Makhija submitted that since the words 'question of title: are not expressly present in Section 7 of the Presidency-towns Insolvency Act the powers of the court under the Presidency-towns Insolvency Act are somewhat narrower and the court cannot investigate a question of title under the Presidency-towns Insolvency Act. This submission has no merit. The Presidency-towns Insolvency Act is an earlier Act of 1909. When the Presidency-towns Insolvency Act was enacted later in 1920. in order to avoid all controversies, question of title were expressly included in Section 4 of the Presidency-towns Insolvency Act. A later Act cannot, implication, excluded the question of title from the purview of an earlier Act Section 7 of the Presidency-towns Insolvency Act is couched in the widest possible terms to include all question of whatsoever nature, whether of facts of or law. It must necessarily include question of title also.

17. Mr. Makhija also submitted that even dehors the family arrangement dated 30-10-1967 Bai Ratanbai as the widow of Morarji Kanji was one of the heirs of Morarji Kanji and would have a share in the tenancy rights of these two shops. This submission was made across the bar for the first time while arguing the present case. It has been nobody's case up-till now that Bai Ratanbai was otherwise entitled to the tenancy right of these shops premises or was otherwise entitled to create any third party rights in respect of the tenancy right of the shop premises. throughout these proceedings, Bai Ratanbai has claimed the tenancy rights in respect of these shop premises on the basis of the family arrangement. She has not, and even now she does not lay claim to tenancy rights in the said shop premises in any other capacity except as a transferee under the family arrangement. Her transferees cannot now improve upon her title by making oral submission across the bar.

18. It was lastly submitted by Mr. Makhija that the application by the Official Assignee is barred by the law of limitation. he submitted that the family arrangement dated 30-10-1967 could not be now avoided by the Official Assignee. This argument has no substance because the family arrangement was challenged in the petitioner for an order of adjudication and it was declared as fraudulent within two years of the family arrangement. In fact it was so declared when an order of adjudication was passed. The present application is, therefore, only consequential to the order of adjudication. This order the adjudication was challenged by the transferee Bai Ratanbai in appeal and the appeal of Bai Ratanbai was finally decision only on 13th January 1981. Thereafter the Official Assignee had made the present application on 22nd June 1982. It cannot be said that this application is barred by the law of limitation. It is true that during the pendency of appeal no stay had been obtained or order of adjudication. But the transaction was the subject-matter of challenged before the court of Appeal by the transferee. In view of the circumstance. the period of limitation can run only from the date of the order in appeal viz., 13-1-1981.

19. My attention was drawn to the observations in the case of Hurdatrai Jugdish Prasad v. Official Assignee of Calcutta reported in ILR (1949) Cal 1. There, the court observed that no period of limitation is prescribed under the insolvency laws for an application to set aside the transfer as fraudulent by the Official Assignee . The court observed that the intention of the legislature seems to be that such proceedings could be instituted so. long as the insolvency continues and that is the reason why no fixed period of limitation has been prescribed far such an application either by the Insolvency Act or the Limitation Act. These observations, however, are based on the provisions of the Limitation Act as it was then in force. Under Article 181 of the old Limitation Act of 1908, application under the Insolvency Act were not covered. The present Article 137 of the Limitation Act, 1963 application however, not merely to application under the Code of Civil Procedure but to all application. This article therefore, applies to application by the Official Assignee also. In any case I need not examine this aspect further in view of the fact that in present case even assuming that Article 137 applies, the application by the Official Assignee is made within 3 years of the order of the appellant Court dated 13-1-1981 dismissing the transferee's appeal and is, therefore, within time.

20. In the premises, it is clear that the family arrangement dated 30-10-1967, Ex. D to the report of the Official Assignee, in so far as it declares that the tenancy in respect of shop numbers 4 and 5 on the ground floor of the property bearing S. No. 177, Dongri Street, shall belong absolutely to Bai Ratanbai is null being and the Official Assignee is entitled to the tenancy rights in respect of shop. Nos. 4 and 5 situate at 177, Dongri Street, Bombay-9 the purported agreement made by Bai Ratanbai in favour of M/s Atul Doongarsi & Co and M/s Varsha Traders dated 11-4-1974 and 13-10-1978, respectively are null and void and of no effect as against the Official Assignee; under the Deed of Partnership dated 23-12-1968 the firm of M/s Mulraj & Co and/or Babubhai Govindji Thakkar have no right, title or interest in the tenancy, right in respect of the said shop premises; and the Official Assignee is directed to take possession of the said shops from Bai Ratanbai Mulraj, M/s Atul Doongarsi & Co. Varsha Traders Babubhai Govindji Thakkar and/or M/s Mulraj & Co. for the benefit of the general body of unsecured creditors of the insolvents.

21. There will be no order as to costs.

22. At the request of Mr. Makhija, the Official Assignee, is directed not to take possession of the shop premises till 30th August 1982. Ad interim injunction in terms of prayer (Constitution) to continue till 30th August, 1982, in view of the directions given to the Official Assignee not to take possession till that date.

23. Application allowed.


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