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L. Rathu Mal and ors. Vs. B. Kunj Behari Lal and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtAllahabad
Decided On
Reported inAIR1937All4; 166Ind.Cas.801
AppellantL. Rathu Mal and ors.
RespondentB. Kunj Behari Lal and ors.
Excerpt:
.....section 9 by the employees working in schools which are established and administered by the cantonment board. [deolali cantonment board v usha devidas dongre, 1993 mah.lj 74; 1993 lab ic 1858 overruled]. - no doubt it is well settled that where the official receiver or the trustee in bankruptcy challenges the validity of a payment made by the insolvent to his creditors under section 54, provincial insolvency act, or under the corresponding section of the english bankruptcy act......on 25th october 1929 the aforesaid debtors were adjudged insolvent and on 18th january 1930, the official receiver applied to the court for setting aside the transfers above referred to under section 54, insolvency act. the insolvency court dismissed the application of the official receiver, holding that the debtors had made the transfers in question in order to meet the pressing demand of their creditors. the learned judge observed that:the debtors were ready to make similar settlement with kacheru mai and other creditors, but they did not agree to it and wanted cash payment.2. in appeal the learned district judge has found that the transfers were made in order to give preference to the transferee creditors and that the said transfers must be deemed fraudulent as against the official.....
Judgment:

1. This is a second appeal from an order of the Additional District Judge of Meerut which was passed on 21st April 1934, in an insolvency matter. It appears that on 12th March 1929, one Kacheru Mal instituted a suit against Kannu Mal and Jagannath and obtained an injunction to restrain the defendants from alienating their immoveable property; and that injunction was served upon the said Kannu Mal and Jagannath on the 14th of March. On the 15th of March the two debtors executed a mortgage for Rs. 15,000 in favour of one Bhola Nath and executed a sale-deed in respect of seven houses for Rs. 10,000 in favour of one Raghubar Dayal. We are not concerned at present with those transfers, but certain other transfers were effected by the debtors on the 2nd of April and the 5th of April 1929 and these are the transfers with which the present appeal is concerned. On the 2nd of April the debtors assigned two mortgage bonds in favour of Rahtu Mal, a decree in favour of Sheo Singh Rai, a mortgage-bond in favour of Harbans Lal and Shankar Lal and a mortgage-bond in favour of Bishambhar Sahai; and on the 5th of April they assigned a mortgage-bond in favour of Hardeo Sahai. Meanwhile on the 4th of April certain creditors, whose debts amounted to Rs. 18,000, presented a petition for the adjudication of Kannu Mal and Jagannath as insolvents. On 25th October 1929 the aforesaid debtors were adjudged insolvent and on 18th January 1930, the Official Receiver applied to the Court for setting aside the transfers above referred to under Section 54, Insolvency Act. The Insolvency Court dismissed the application of the Official Receiver, holding that the debtors had made the transfers in question in order to meet the pressing demand of their creditors. The learned Judge observed that:

The debtors were ready to make similar settlement with Kacheru Mai and other creditors, but they did not agree to it and wanted cash payment.

2. In appeal the learned District Judge has found that the transfers were made in order to give preference to the transferee creditors and that the said transfers must be deemed fraudulent as against the Official Receiver. Against that order this second appeal has been presented. A preliminary objection has been taken by learned Counsel for the respondents to the effect that no second appeal lies from the said order. This Court has very wide powers of revision under the Insolvency Act, and it is immaterial whether we treat this case as an appeal or as a revision; we have to satisfy ourselves in any event whether the order of the Additional District Judge was or was not according to law. On behalf of the appellants it is pleaded before us that the lower appellate Court has wrongly cast the onus upon them and that no fraudulent preference can be inferred from the facts. As regards the burden of proof, the learned Judge relies upon the case in Official Receiver v. Kewalmal Ajumal A.I.R. 1926 Sind. 123 for the proposition that where a transfer has been executed on the eve of bankruptcy the onus shifts to the transferor to prove that there was no intention of making a fraudulent preference. The learned Judge who decided that case observed as follows:

No doubt it is well settled that where the Official Receiver or the trustee in bankruptcy challenges the validity of a payment made by the insolvent to his creditors under Section 54, Provincial Insolvency Act, or under the corresponding section of the English Bankruptcy Act...the onus is in the first instance cast on the Official Receiver or the trustee in bankruptcy of proving that the dominant or the substantial or effective, though not necessarily the sole, motive the insolvent had in view in making such payments was to prefer that particular creditor.... But the onus is shifted on to the bankrupt to prove the contrary when he makes such payments on the eve of his bankruptcy....

3. Under Section 54, Insolvency Act, a transfer is only voidable if the person making it is adjudged insolvent on a petition presented within three months after the date of such transfer and therefore in the very nature of things any transfer to which this section applies must be made on the eve of bankruptcy. It would be difficult to say that any particular date within this brief period of three months was other than on the eve of bankruptcy.' The petition for adjudication in this case was presented by creditors and not by the debtors themselves, and it cannot be said with any certainty that the debtors knew or had reason to know that any such petition was about to be presented. If the view taken in the Sind case be correct, it would follow according to our view as to what constitutes the 'eve of bankruptcy' that in proceedings under Section 54 of the Act the onus is at the outset on the debtor. With the greatest respect to the learned Judge, who tried the case cited above we are of opinion that there is no sufficient justification for qualifying in this manner the meaning to be attached to the pronouncement of their Lordships of the Privy Council in Sime, Darby & Co. Ltd. v. Official Assignee of the Estate of Lee Pang Sang A.I.R. 1928 P.C. 77, where they laid down that:

In determining the question whether a transfer is to be deemed fraudulent and void as against the official assignee in bankruptcy, the onus is on the assignee to show that the case is within the statute.

4. The same rule was laid down by the House of Lords in Sir William Henry Peat v. Gresham Trust, Ltd. (1934) A.C. 252. In that case an order was made for the compulsory winding up of a debtor company and it was held that:

The onus was on the liquidator to satisfy the Court that the dominant intention of the company in withdrawing its opposition to the application for an extension of time was to prefer the respondents and, there being no direct evidence of such an intention, an intent to prefer, could not be inferred.

5. There can be no doubt whatever that the onus lies primarily on the Official Receiver to show that the transfer was made with a view of giving preference to the creditor in whose favour it was made; but when once that has been proved, such transfer will be deemed fraudulent and void as against the receiver if the debtor is adjudged insolvent upon a petition presented within three months of the date of such transfer. The words 'with a view of giving that creditor a preference' have been interpreted as meaning that, what the debtor did was an act of free will and that his dominant intention in performing that act was to prefer such creditor : vide T.S. Ramaswami Iyengar v. Chhinnathambi Kone : AIR1932Mad459 and Bashiran v. Moti Ram : AIR1933All431 . Thus there can be no doubt that the onus lay primarily upon the Official Receiver in this case to show that Kannu Lal and Jagannath effected those transfers with the dominant object of preferring those creditors in whose favour the transfers are made. It is true that in Sime, Darby & Co. Ltd. v. Official Assignee of the Estate of Lee Pang Seng A.I.R. 1928 P.C. 77, referred to above, their Lordships observed that

When all the circumstances have been ascertained, so far as the parties have thought fit to ascertain them, discussion on the point (i.e., on the burden of proof) becomes immaterial and the decision must be come to on the whole of the circumstances so ascertained; and the question of onus only becomes important if the circumstances are so ambiguous that a, satisfactory conclusion is impossible without resort to it.

6. In the present case, however, we are of opinion that all the circumstances have not been sufficiently ascertained and there are certain issues which the Courts below ought to have determined; and without a finding upon them it is impossible for us satisfactorily to dispose of this revision. We accordingly remit the following issues for decision to the lower appellate Court : (1) What was the amount of debt which Kannu Mal and Jagannath owed to each of the creditors to whom transfers were made on 2nd April 1929, and on 5th April 1929? (2) What was the value, at the date of their transfer, of the mortgage deeds and the decree which were thus transferred? (3) Of what property were the debtors possessed after making such transfers apart from the property which was mortgaged to Bbola Nath and the houses which were sold to Raghubar Dayal? (4) What was the total indebtedness of Kannu Mal and Jagannath immediately before the transfers of 2nd April and 5th April 1929? (5) What amount of debt was due from Kannu Mal and Jagannath to Bhola Nath and Raghubar Dayal and what debts were liquidated by such transfers? (6) Whether Hardeo Sahai, to whom the transfer was made on 5th April 1929, was aware of the fact that a, petition for the adjudication of the debtors had been presented to the Court on the 4th April? The parties will be at liberty to adduce such evidence as may be relevant to the above issues. The Court below should submit its findings within three months from this date. Thereafter the usual 10 days will be allowed for filing objections.

7. On receipt of the findings of the lower Court, their Lordships delivered the following judgment.


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