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Kashi Nath and anr. Vs. Official Receiver - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtAllahabad
Decided On
Reported inAIR1931All142a
AppellantKashi Nath and anr.
RespondentOfficial Receiver
Excerpt:
.....the insolvent had stated that he was paying off all the debts due by him as mentioned in the mortgage deed and that the defendants, namely, the appellants, had no knowledge of any other debts and they had acted in good faith in getting the mortgage executed and for full consideration. for a transfer by the insolvent is to be set aside merely on the ground that ho had made the transfer with the view of giving preference to one creditor over the other creditors and it is immaterial whether the transferee acted in good faith or not. 14. the first question that we have to decide is whether the order passed by the learned district judge annulling a document as void, and holding it to be a good document in part, is a good order under section 54, insolvency act. the law has been clearly..........the order passed by the learned district judge is as follows:it is ordered that the mortgage deed dated 28th november 1927, executed by the insolvent be declared to be void and fraudulent and be cancelled. the said mortgage deed be cancelled except for rs. 933.3. then follows an order as to costs.4. the official receiver of benares presented an application on 18th june 1928, purporting to be under section 54, prov. insol. act. the application in para. 4 stated that as the insolvent had executed a mortgage deed within three months of the date of adjudication it was void as against the receiver.5. paragraph 5 of the application stated that the transfer was made in preference to some of the creditors of the insolvent and therefore the necessity of the application for setting.....
Judgment:

Banerji, J.

1. This is an appeal by one Kashi Nath and another against an order of the District Judge of Benares exercising insolvency jurisdiction.

2. The order passed by the learned District Judge is as follows:

It is ordered that the mortgage deed dated 28th November 1927, executed by the insolvent be declared to be void and fraudulent and be cancelled. The said mortgage deed be cancelled except for Rs. 933.

3. Then follows an order as to costs.

4. The Official Receiver of Benares presented an application on 18th June 1928, purporting to be under Section 54, Prov. Insol. Act. The application in para. 4 stated that as the insolvent had executed a mortgage deed within three months of the date of adjudication it was void as against the receiver.

5. Paragraph 5 of the application stated that the transfer was made in preference to some of the creditors of the insolvent and therefore the necessity of the application for setting aside the simple mortgage deed dated 28th November 1927, and declaring it as void.

6. The facts are that one Jittu Sahu executed a simple mortgage for Rs. 2,700 in favour of the appellants before us hypothecating a house, and the consideration for the mortgage was paid as follows:

Rupees 50 were paid in cash to Jittu Sahu; Rs. 983, which was due to the mortgagee and was the subject of suit No. 2477 of 1927, in the Court of Small Causes at Benares; Rs. 734 left with the mortgagee for payment to two creditors of Jittu, namely, Munni Lal Rupees 425-4-0 and Jai Narain and Sheo Narain Rs. 308-12-0.

7. There was a previous mortgage in favour of Bala Prasad of 13th March 1923, and a sum of Rs. 933 was paid out of the sum of Rs. 2,700.

8. Jittu Sahu finding, he was unable to pay the debts due by him, on 24th February 1928 presented an application to be declared an insolvent, and on 4th May 1928 he was adjudged an insolvent by an order of that date and the Official Receiver was directed to take charge of his property.

9. We have set out above the application out of which this appeal has arisen.

10. The defence of the appellants was that Section 54, Insolvency Act, did not apply to the suit and that only a portion of the mortgage money of the mortgage deed sought to be cancelled was paid to the defendants. The rest of the mortgage money was left with the mortgagee for payment to the creditors and the creditors had been duly paid. It was also stated that at the time of the execution of the mortgage in favour of the defendants the insolvent had stated that he was paying off all the debts due by him as mentioned in the mortgage deed and that the defendants, namely, the appellants, had no knowledge of any other debts and they had acted in good faith in getting the mortgage executed and for full consideration.

11. Issues were framed by the learned District Judge and his finding were that the consideration entered in the mortgage deed was duly paid and that the mortgage deed was executed for valuable consideration.

12. The learned Judge says as follows:

For a transfer by the insolvent is to be set aside merely on the ground that ho had made the transfer with the view of giving preference to one creditor over the other creditors and it is immaterial whether the transferee acted in good faith or not.

13. In the final part of his order he finds that the mortgage deed was executed by the insolvent within three months of the presentation of the insolvency petition with the object of giving preference to certain of his creditors over 'others and he therefore declared the mortgage deed to be fraudulent and void as against the Official Receiver.. The learned Judge then goes on to say:

The portion of the mortgage money (paid to the prior mortgagee) was paid by the opposite party to a prior mortgagee who was obviously a secured creditor, and is covered by Clause (2), Section 4.

and he held that the opposite party, namely the appellants before us, would be deemed to be secured creditors as regards this amount. He then goes on to say:

With this exception the mortgage deed dated 28th November 1927 is hereby annulled.

14. The first question that we have to decide is whether the order passed by the learned District Judge annulling a document as void, and holding it to be a good document in part, is a good order under Section 54, Insolvency Act. We are of opinion the: Clause (2), Section 54, Insolvency Act, has no application to the facts of this case.

15. It is admitted by the learned Counsel for the respondent, the Official Receiver, that this form of decree is incorrect, and we are asked to pass a decree declaring the whole of the document to be null and void as a fraudulent transfer by the insolvent in favour of the appellants.

16. It appears to us that the application filed by the Official Receiver is an inartistic document and does not show what were the grounds on which the Official Receiver asked for the document of 28th November 1927 to be declared void as against the receiver. Section 54 (1) lays down four conditions which a receiver has to prove before an order should be passed by the Court annulling a document. They are:

(1) That the debtor must, at the date of the transaction, be unable to pay from his own money his debts as they fall due.

(2) The transaction must be in favour of a creditor.

(3) That the debtor must have acted with the view of giving such creditor a preference over his other creditors;

(4) The debtor must be adjudged an insolvent on the insolvency petition presented within three months after the date of the transaction sought to be impeached

17. In this case the second and fourth conditions are proved and admitted. There is no proof in this case that the debtor at the date of the transaction was unable to pay from his own money his debts as they fell due. In the view we are taking of the transaction which we will state presently we do not think it is necessary to send the case back to the Court below for a finding on the point. It seems that the point escaped the attention of the Court, the Official Receiver and the counsel appearing for the appellants in the Court below. The law on the subject is perfectly clear and there is no ambiguity in Section 54, Insolvency Act, about what an Official Receiver has got to prove to get a document annulled by the Court. A number of cases were cited by Mr. Kamla Kant Verma, but in our opinion it is unnecessary to refer to all the cases cited by him. The law has been clearly set out in the case of Bhagwan Das and Co. v. Chuttan Lal A.I.R. 1921 All. 41 at p. 431 (of 43 All.). It appears to us that there has been no doubt as to what a receiver has to prove to get a document annulled either in England or in this country. The law in England under the Bankruptcy Act is the same as the law in India and the law has been unaltered from the year 1869 down to the present day. We therefore think that no useful purpose would be served by repeating what has been repeatedly stated to be the points which a receiver has to prove under Section 54 If any reference was necessary we would refer to the case of Nripendra Nath Sahu v. Ashutosh Ghosh [1915] 29 I.C. 128, and Nripendra Nath Sahu v. Ashutosh Ghosh [1916] 43 Cal. 640.

18. The real point that has to be decided in this case is whether the transfer made to the appellants by the insolvent was 'with the view of giving' the appellants a preference over the other creditors.

19. The onus of proving that the transfer was with the view, namely with the intention of preferring one creditor to others lies on the Official Receiver. In this case, we may mention that the Official Receiver led no reliable evidence at all. He called one witness, Anrudh Tewari, servant of one Narotam Das, who has been, in our opinion, rightly disbelieved by the learned District Judge.

20. It is urged by the learned Counsel for the appellants that the transfer by the insolvent although it had the effect of giving a preference to the appellants was not made with the intention of giving preference to his clients. The evidence which was relied on by the learned Counsel for the appellants was that the document itself and the statement therein show that pressure was being brought by some of the 'creditors for payment to them, and hence the mortgage. The learned Counsel for the respondent has argued that the document in question could not be looked at on the ground that it was not admissible in evidence under the Evidence Act. We are of opinion that under Section 21, Evidence Act, this document was admissible in evidence. The Court has to decide what was the intention on the date of the transfer and in our opinion the document by which the purpose of seeing what was the prima facie intention of the insolvent. It may be that facts may be proved to show that the statements in that document were incorrect or false, but in this case there is no evidence to suggest that the statements of the insolvent in the document in question were false or incorrect. Moreover, it is proved that although the initiative about the mortgage deed came from the insolvent there was a suit pending, namely Suit No. 2477 of 1927, by which the appellants had claimed Rs. 983 as against the insolvent. We are unable to hold that there was no pressure on the insolvent when he entered into the transaction that is in question and that although the document had the effect of giving a preference to the appellants that was not the object or intention of the insolvent.

21. The result is that we allow the appeal, set aside the order and decree of the District Judge and dismiss the application of the Official Receiver . dated 18th June 1928. The appellants will have their costs of both Courts from the estate of the insolvent.


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