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Messrs. Bhagwan Dass and Co. Vs. Chuttan Lal and anr. - Court Judgment

LegalCrystal Citation
CourtAllahabad
Decided On
Judge
Reported in62Ind.Cas.732
AppellantMessrs. Bhagwan Dass and Co.
RespondentChuttan Lal and anr.
Cases ReferredSharp v. Jackson
Excerpt:
.....the 28th of february 1920, the result of which is that, according to the view of the official receiver, chuttan lal was independently running the transport business from about the end of may 1919, chuttan lal and the insolvent have been elsewhere described as partners, but we do not think it necessary to express any opinion as to the precise legal relationship created by the agreement between them, the relevant fast for this purpose being that, whether chuttan lal was the sole proprister as the receiver seems to think, or the dominant partner, he allowed t in other words, the result of the arrangement was that chuttan lal, although himself the owner, held out rod well as being still the owner of the business and of the cars. the case before us is very like the case which was decided..........the 28th of february 1920, the result of which is that, according to the view of the official receiver, chuttan lal was independently running the transport business from about the end of may 1919, chuttan lal and the insolvent have been elsewhere described as partners, but we do not think it necessary to express any opinion as to the precise legal relationship created by the agreement between them, the relevant fast for this purpose being that, whether chuttan lal was the sole proprister as the receiver seems to think, or the dominant partner, he allowed the business to be continued just as it was before, so that members of the general public who were not acquainted with the domestic arrangements of the business, and who did business with the firm, would suppose that rod well was in.....
Judgment:

1. This is an appeal from an order of the District Judge, sitting in insolvency, declaring invalid a transaction by which the insolvent transferred to one Bhagwan Das, a banker, his interest in a payment warrant due to the insolvent from the Divisional Distributing Officer for the month of June in respect of the transport services rendered by motor ears by the insolvent. The transaction has been declared invalid as a fraudulent preference under Section 54 of the Provincial Insolvency Act. The only point decided by the District Judge was whether a new creditor, who only became a creditor in respect of the transaction which gave rise to the question as to whether it was a fraudulent preference, can be a creditor within the meaning of Section 54. We agree with the District Judge that he could be a creditor within the meaning of that section, as for example, where a transaction consists of two independent parts, firstly, the consideration passing to the debtor, thereby creating a debt from the debtor to the creditor, and the second part where the debtor independently and voluntarily makes a transfer in respect of the debt. We think, however, that it is not possible to take that view of the facts in this case, because our view is that the transaction which resulted in this transfer was one complete transaction in itself, but the case raises other questions which are not considered in the judgment under appeal and the real question before us is, whether this transaction under the circumstances of the ease was a fraudulent preference, or if not, whether it is protested by Section 55, which protests bona tide transactions with the debtor in spite of impending insolvency. It is quite clear that in the early part of the year in question, namely 1919, the insolvent Rod well, who had been carrying on this transport business under the name of Smith Rod well and Co., had got into serious difficulties. His debts wore ultimately estimated at something like a lakh and some thousand rupees. He came into contact with one Chuttan Lal, the present respondent and a creditor in the insolvency, who seeks to upset this transaction, and the result of that association was an agreement under which, in substance, Chuttan Lal became the proprietor of the business, The relevant facts relating to the arrangement between Chuttan Lal and the insolvent are set out in a very clear and able report by the Receiver in the insolvency, dated the 28th of February 1920, the result of which is that, according to the view of the Official Receiver, Chuttan Lal was independently running the transport business from about the end of May 1919, Chuttan Lal and the insolvent have been elsewhere described as partners, but we do not think it necessary to express any opinion as to the precise legal relationship created by the agreement between them, the relevant fast for this purpose being that, whether Chuttan Lal was the sole proprister as the Receiver seems to think, or the dominant partner, he allowed the business to be continued just as it was before, so that members of the general public who were not acquainted with the domestic arrangements of the business, and who did business with the firm, would suppose that Rod well was in fact the true owner. in other words, the result of the arrangement was that Chuttan Lal, although himself the owner, held out Rod well as being still the owner of the business and of the cars. The result was that though as between Chuttan Lal and Rodwell the earnings of the business in the month of June, which is the material month in this case, belonged, as the Receiver properly reported, to Chuttan Lal, the document under which Smith Rodwell and Co. were entitled to claim payment from the Divisional Distributing Officer was in the name of Smith Rodwell alias Rodwell, so as to make him the legal owner thereof as regards the debtor and the person entitled to claim payment. It is obvious that, armed with this warrant, Rodwell was in a position to make arrangements for his own benefit behind the back of Chuttan Lal, Rodwell in fact petitioned to bo made insolvent on the 1st of September and was adjudicated insolvent on the 22nd of November. He approached the present appellants who describe themselves as bankers (Bhagwan Das & Co., Bankers of Dehra Dun), and obtained in July at any rate the promise of a loan of Rs. 2,500. At that date the amount due from the Divisional Distributing Officer to the business of Smith Rodwell & Co. for the month of June was Rs. 5,401 and a document was filled up and signed by the parties on the 22nd of July providing for a cash loan. It appear, however, from what took place between the 22nd of July and the 24th of July, on which date the cash was actually handed over to Rodwell, that Messrs. Bhagwan Das & Co. were not prepared to make a loan to Rodwell at all unless they could obtain for themselves some security. Telegrams passed between the D.D.0. and Rodwell, namely, a telegram from Rodwell on the 22nd July, the date that Messrs. Bhagwan Das expressed their willingness to make the loan, requesting the D.D.0. to make payment to Bhagwan Das, and a reply from the D.D.O to Rodwell, dated the 24th of July, the date of the actual cash advance, stating that there was no objection Under these circumstance's the only possible inference to ha drawn is that unless the Distributing Officer had consented to the security which Rodwell was prepared to make, namely, an assignment of the debt due under the payment warrant, to Bhawan Das to secure the loan of Rs. 2,500, the loan would never have been made at all and Messrs. Bhagwan Das would never have become creditors. This is the transaction which is assailed by Chuttan Lal and which the learned Judge has held to be a fraudulent preference. It should be observed that the Official Receiver seems to have performed his duty in a proper way in investigating this matter, and he reported in favour of the transaction which appeared to him to be a bona fide one. Now, the section provides that every transfer made by a person unable to pay his debts who is adjudged insolvent within three months after the transfer shall be deemed fraudulent and void if made by him 'with a view to giving a creditor a preference over the other creditors.' The ordinary inference to drawn from the transaction which we have just recited is fairly clear. So far from intending to prefer Bhagwan Das at the time that he made this transfer of payment warrant, the dominant motive or object which must have influenced Mr. Rodwell was the desire to possess himself of the cash which Bhagwan Das was ready to advance, and inasmuch as it is clear that Bhagwan Das & Co. would not have made the advance without the transfer of the payment warrant, it is impossible to say that the object of Rodwell was to prefer them or to confer any benefit on them but rather to acquire the benefit for himself in the shape of cash.

2. Having regard to the importance of the Courts of Insolvency investigating all such transactions and satisfying themselves that they do not in fact offend against the insolvency law, we have taken the trouble to examine the history of this section, which has been adopted from the English Law. The actual language of the section is taken verbatim from the English Bankruptcy Acts and has been unaltered since the year 1869 down to the present date. The case before us is very like the case which was decided under the same section, Hodgkin, Ex parte, Softley, In re (1875) 20 Eq. 746 : 44 L.J. Bk. 107 : 33 L.T. 62 : 24 W.R. 68, where a similar transaction was held not to offend against the section. The leading base on the subject in England is reported as New, France and Garrard's Trustee v. Hunting (1897) 2 Q.B. 19 : 66 L.J.Q.B. 554 : 45 W.R. 577 : 76 L.T. 742 : 13 T.L.R. 269 : 4 Manson 103 affirmed in the House of Lords under the name of Sharp v. Jackson (1899) A.C. 419 : 68 L.J.Q.B. 866 : 80 L.T. 841 : 6 Manson 264 : 15 T.L.R. 418. In delivering judgment in the Court of Appeal in that case the Master of the Rolls used this language:--'The question is whether in fact he had the intention to prefer certain creditors, It has been argued that the debtor must be taken to have intended the natural consequences. of his act. I do not think that is true for this purpose, I think one must find out what be really did intend,.... It appears to me obvious that he was not actuated by any feeling of bounty towards those in whose favour the deed was made, but was doing what he did for his own benefit.'

3. That dictum was approved by the Lord Chancellor in the House of Lords and Lord Macnaghten used this expression in the course of his judgment:

I doubt whether the debtor had any intention of preferring creditors, I think he only regarded himself. If he regarded the creditors at all it was only with a very secondary view.

4. Those authorities compel as to hold that this transaction cannot be treated as having bean a fraudulent preference under Section 54.

5. It is only necessary to refer to one other point raised incidentally in the course of the argument. It was suggested at one time that inasmuch as this warrant for payment was the property of the insolvent or at any rate under his disposition, it necessarily became the property of the Receiver; but it is clear that the appellants are within the protection of Section 55 of the Act, which protests all transactions, unless of course they are in themselves acts of insolvency or fraudulent preference, entered into with the insolvent by third persons for valuable consideration and bona fide, namely, bona fide in the sense, that the person with whom such transaction takes place had not, at the time, notice of the presentation of any insolvency petition by the debtor. That section differs very materially from the correlative section in the English Act, and differs in favour of the person contracting with the insolvent. In England it is sufficient to avoid a transaction of this kind to show that Rodwell was known by the creditor to have committed an act of insolvency, which he undoubtedly had, by transferring the whole of his assets to Chuttan Lal, but in India it has to be shown that there was notice of the act of presentation of the petition; and inasmuch as no petition was presented up to the 1st of September, some six weeks after the transaction assailed in this case, no objection to the transaction would lie under that section, It is a pity, but it cannot be helped, inasmuch as it is provided by the Legislature that a competing creditor should be allowed to endeavour to upset a transaction of this kind. This case at any rate shows that the Insolvency Courts may, on the whole, well trust the Official Receiver when he has investigated the transaction. The Official Receiver was quite satisfied that this was a bona fide transaction which could not be upset. The learned Judge would have done well to have taken that view of the matter. It is not desirable to encourage other creditors to come into the battlefield and endeavour to upset transactions between an insolvent and a competing creditor when the Receiver is the person who is really empowered by law to investigate the matter and is satisfied that there is no ground for objection.

6. The appeal must be allowed and the appellants are entitled to a declaration that the transfer of the payment warrant of June 1919 is a good security for the amount of the loan, and interest thereon made by them on the 24th of July to the insolvent. The respondents must pay the costs of this appeal and in the Court below. Costs in this Court will include fees on the higher scale.


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