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Kunj Behari Lal Rastogi Vs. Babu Madhsodan Lal - Court Judgment

LegalCrystal Citation
CourtAllahabad
Decided On
Judge
Reported inAIR1919All348; 50Ind.Cas.117
AppellantKunj Behari Lal Rastogi
RespondentBabu Madhsodan Lal
Excerpt:
.....steps for a proceeding of this kind, which is a serious matter and in the nature of a suit. the learned judge assumed bid faith with out the slightest evidence of it, whereas his legal duty would be to assume good faith in the case of a transaction supported by valuable consideration as this is. in an ordinary case where there had been a miscarriage of this kind we could not refuse to the receiver the right to have the case sent back in order to attack the transaction, if he could do so with any hope of success. but, of course, if he chose to take that burden upon himself and failed, he would render himself liable to pay costs of the proceedings not out of the estate but out of his own pocket. he had better reconsider his position in the light of what has now been said and value his..........when called upon to defend his legal position, desired the assistance of a legal gentleman. the learned judge gave him the opportunity, if it can be called one, of asking a gentleman to argue the case then and there of which he knew nothing, but refused adjournment. the learned judge jumped a little too soon and the proceeding which we have described, would alone be sufficient to nullify the order and would necessitate our sending the case back for re-consideration. but the learned judge has dealt to some extent with the merits and in doing so we are bound to point out that he has confused sections 36 and 37. while purporting to set aside this transaction under section 36, he has really given reasons which are only applicable to section 37. the finding at which he has arrived on the.....
Judgment:

1. It is impossible to support the order in this case. In the first place, the learned Judge acted upon his own motion without any proceedings on behalf of the Receiver calling upon the Court to adjudicate as to this mortgage between the estate and the mortgagee. We do not wish to say anything to discourage the intervention of the Court in insolvency matters where no Receiver is appointed, and the duty of the Court is to be astute to look after the insolvency proceedings so as to ascertain whether anything can be saved for the creditors, but where a Receiver is appointed and he is a gentleman of legal training, as in this case a Vakil, it is better to leave him to take the initiatory steps for a proceeding of this kind, which is a serious matter and in the nature of a suit.

2. The only notice which the mortgagee got, seems to have been a verbal notice in Court in a proceeding in which he was not in the least concerned, or at any rate in respect of which he had received no specific notice. He not unnaturally, when called upon to defend his legal position, desired the assistance of a legal gentleman. The learned Judge gave him the opportunity, if it can be called one, of asking a gentleman to argue the case then and there of which he knew nothing, but refused adjournment. The learned Judge jumped a little too soon and the proceeding which we have described, would alone be sufficient to nullify the order and would necessitate our sending the case back for re-consideration. But the learned Judge has dealt to some extent with the merits and in doing so we are bound to point out that he has confused Sections 36 and 37. While purporting to set aside this transaction under Section 36, he has really given reasons which are only applicable to Section 37. The finding at which he has arrived on the scanty materials before him amounts to this, that more than three months before the commencement of the insolvency but within two years of the order of adjudication this mortgage was granted by the debtor to the creditor in lieu of old debts. Prima facie old debts constitute good consideration the adequacy of which the Courts have always refused to enter into, and there is no reason in the world for imputing bad faith to a mortgagee who takes an ordinary security for his debt merely because some two years or eighteen months afterwards his debtor becomes an insolvent. The learned Judge assumed bid faith with out the slightest evidence of it, whereas his legal duty would be to assume good faith in the case of a transaction supported by valuable consideration as this is. In an ordinary case where there had been a miscarriage of this kind we could not refuse to the Receiver the right to have the case sent back in order to attack the transaction, if he could do so with any hope of success. But, of course, if he chose to take that burden upon himself and failed, he would render himself liable to pay costs of the proceedings not out of the estate but out of his own pocket. That is probably the reason why the Receiver has not run the risk of making an apparently hopeless attack upon the transaction in this particular instance. Mr. Sital Prasad Ghose representing the Receiver has in our view exercised a right discretion in refusing on behalf of the Receiver to take that burden upon himself. The result is that on the facts before us it is our duty to declare that the creditor is a secured creditor in respect of this mortgage. He had better reconsider his position in the light of what has now been said and value his security so as to give the Receiver an opportunity either of accepting such valuation, and allowing the creditor to prove for the balance or of making another attempt to sell the property subject to the charge. Under the circumstances, though it seems rather hard upon the creditor, the appeal must be allowed and the declaration made to which we have referred, but the creditor must pay his own costs. There will be no costs of these proceedings either here or in the Court below. The Receiver will be allowed his costs in both Courts out of the estate.


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