1. This is an appeal from an order under Section 53 of the Provincial insolvency Act, 1920 passed by the District Judge of Ganjam rejecting an application made by a Receiver of the Estate of the Insovent for annulling eight sale deeds said to have been executed by the insolvent in favour of some transferees. The two respondents who are brothers were adjudged insolvents on the application of some of the creditors filed under Sections 9(1) and 13(2) of the aforesaid Act on 14-9-55. The order of adjudication was passed on 14-7-1956, and one Satyanarayan Padhy was appointed Receiver to take charge of the Insolvents' estate. The application for annulling the alienations was filed by the Receiver on 8-5-57 Eight different applications were filed in respect of eight alienations but they were all heard together. The first two alienations are dated 15-10-54 and 7-1-55 in favour of Sita Devi and Abhiram Das. These appear to be isolated transactions and Mr. D. Mohanty for the appellants frankly conceded that he would not challenge the findings of the lower court as regards the genuineness of these alienations. The remaining 6 alienations took place on 8-7-55 and 9-7-55 as detailed below ;
(i) Sale deed dated 8-7-55 in favour of Bauri Sahu for Rs. 500/- in respect of Order 41 acres in Gondola Mouza.
(ii) Sale deed dated 8-7-55 in favour of Narayan Sabata for Rs. 500/- in respect of Order 35 acres of land in Gondola Mouza.
(iii) Sale deed dated 8-7-55 in favour of Rahasa Beharani for Rs. 2500/- in respect of 1.80 acres of land in Gondola Mouza.
(iv) Sale deed for Rs. 1000/- dated 9-7-55 in favour of Sua Sahuani in respect of Order 96 acres of land in Gondola Mouza.
(v) Sale deed dated 9-7-55 for Rs. 1500/- in favour of Gouranga Sahu, in respect of 1.33 acres of land in Gondola Mouza.
(vi) Sale deed dated 9-7-55 for Rs. 2000/- in favour of Kalu Sahu in respect of three houses belonging to the insolvent and situated in Gondola Mouza.
2. It will be noticed that these alienations are all of two dates viz. 8-7-55 and 9-7-55 just one year and a few days prior to the date of the order of adjudication of the respondents as insolvents and they are hardly within two months and few days prior to the date on which some of the creditors filed the application under Section 9(1) and 13(2) of the Insolvency Act. It should be further mentioned that it was specifically alleged in the creditors' application that the Insolvents had made these transfers of the properties with a view to defeat the claims of the creditors. Schedule D attached to their application gives a full description of these alienations. While adjudging the respondents as insolvents the learned District Judge also by his order dated 14-7-56 observed that from the evidence of the applying creditors he was satisfied that the insolvents had been going on executing fictitious sale deeds in favour of their friends, relatives and others and no less than seven such transactions had been entered into during a period of three months preceding the filing of these petitions. It is true that this finding was arrived at in the absence of the alienees on whom special notices were not issued though there was only a general notice published in the gazette.
3. Neither Gouranga Sahu nor Kalu Sahu (alienees in respect of items (v) and (vi) mentioned in the preceding page cared to enter appearance to challenge the application of the Receiver. The alienation in favour of Kalu Sahu dated 9-7-55 was in respect of two houses of the insolvents and from the evidence of Narayan Sabat (witness No. 4 for the alienee) it is clear that the houses are still in the possession of the insolvent. Hence, in any case the lower Court ought to have annulled this alienation. The same comment can be made in respect of the alienation made in favour of Gouranga who has also not cared to enter appearance.
4. The law regarding burden of proof in an application under Section 53 of the Provincial Insolvency Act has been recently laid down by their Lordships of the Supreme Court in Subramania Iyer v. Official Receiver, Quilon, AIR 1958 SC 1. There the earlier view taken by the Privy Council in Mahomed Siddique v. Official Assignee of Calcutta, AIR 1943 PC 130 which was based on a construction of the provisions of the Presidency Towns Insolvency Act 1909 was not fully endorsed but was distinguished, and it was observed that any finding that might have been arrived at by the Insolvency Court while adjudging a person as an insolvent would not be res judicata in a subsequent annulled proceeding. The burden would still lie on the Receiver in the first instance who seeks to annul the alienations, to show that the necessary ingredients of Section 53 of the Provincial Insolvency Act were present. That is to say he must show that the alienations in favour of the purchaser were not made in good faith and for valuable consideration. Their Lordships of the Supreme Court further explained the true significance of these words in the following terms (in paragraph 7) as follows :
'If the burden lay on the' Receiver, in our opinion, his application for annulment can be allowed on proof either that there was no consideration, or that the consideration was so inadequate as to raise the presumption of want of good faith.
Alternatively the Receiver may also succeed in showing that though there was valuable consideration for the transaction impeached there was want of good faith in the sense that the transferee knowing all the circumstances of the transferor who had been adjudged an insolvent, entered into the transaction with a view to screening the assets of the insolvent from the Receiver in whom the property of the insolvent vests for the benefit of the creditors.
Such will be mostly cases of benami transactions in favour of some relative of the insolvent or a person in whom he has full confidence that he will hold it ultimately for the benefit of the insolvent or of persons in whom he may be interested. Or it may be that a man finding himself over head and ears in debts wishes to convert his assets into liquid assets with the collusion or connivance of the transferee.
In both cases the intention clearly is to shield the assets against the claims of creditors and in such cases though the transfer may have been for consideration, either adequate or otherwise, but having been entered into with a view to defraud or delay his creditors, the transferor and the transferee sharing the common intention, the transaction must be annulled and the assets must be brought into the common hotchpot for benefit of the insolvent's creditors.'
5. Following the aforesaid decision therefore I would hold that the observation of the Insolvency Court made in his order of adjudication dated 14-7-56 to the effect that the impugned alienations were sham transactions executed by the insolvent, may not operate as res judicata,
6. But there are certain telling circumstanceswhich go against the genuineness of these transactions. Six sale deeds were executed on two datessuccessively -- a few months prior to the application of the creditors for adjudging the respondentsas insolvents and by these six deeds all the properties of the insolvents were sold away, as admitted by Raghunath Sahu (witness No. 2 for the purchaser). Even the residential houses of the insolvents were sold away though the insolvents arestill in possession of the same. In all these transactions except the sale deed in favour of NarayanSabata (item (ii) of the alienations listed above)there is a recital on the back of the sale deed toshow that the entire consideration or a portionthereof was paid in the presence of the Sub-Registrar. This artificial attempt to show that thesale deeds were all for valuable consideration itself makes the whole transaction suspicious. Moreover, it is unchallenged that when the sale deedsof 8-7-55 were placed before the Sub-Registrar forthe purpose of registration, some of the creditorsobjected before him but the latter overruled theirobjection (see Ext. 2) saying that registration couldnut be refused merely because of objections fromcreditors.
In all these transactions it is mentioned that the alienations were made for the purpose of satisfying the creditors -- though it is admitted that in fact the creditors were not satisfied. Bauri Sahu (purchaser in respect of item (i)) who appeared as witness No. 3 for the purchaser further admitted in cross-examination that when he was returning after registration, the insolvent Narayan Sahu told him that his Sahukars were after him and some payments had to be made to them. It is clear therefore that these purchasers were fully aware of the pressure by the creditors on the alieners. Moreover some of the alienees were close relatives of the insolvents. Thus Sua Sahuani is the wife of Raghunath Sahu (witness No. 2 for the purchasers), nephew of the insolvent Narayan Sahu. Similarly Gouranga Sahu is the father-in-law of the insolvent's sister. Kalu Sahu is also a relation of the insolvent Raghunath Sahu being his uncle-in-law's brother.
Thus all the alienations of 9-7-55 were made in favour of relatives of the insolvent. As regards the alienations of 8-7-55 though the alienees are not relations of the insolvent the evidence of one of the creditors Krushna Dabata shows that Rahas Beherani's husband Juro Behera is a sworn friend of the insolvents. The other two alienees namely Bauri and Narayan Sabata are co-villagers of the insolvents. It is true that these alienees have come forward as witnesses to show that the transactions were genuine and that they paid consideration money. But the creditors also examined themselves and one of the villagers named Trinath Sahu, to show that all the lands covered by these sale deeds are still in possession of the insolvents.
7. In judging between the two conflicting versions one very important circumstance was overlooked by the lower court. The creditors and the alienees were undoubtedly highly interested persons but Trinath Sahu appears to be a disinterested witness. He has lands very close to the lands of the insolvents and he has stated clearly that all the lands of the insolvents are still in their possession and that the two houses in the village, are also in their possession. Though some suggestions were made, nothing has been brought out against this witness, and that part of his evidence relating to the insolvents' continued possession of their residential houses has been corroborated by the evidence of Narayan Sabata in his cross examination. The lower court has not given any reason as to why the evidence of Trinath Sahu was not given due weight.
In my opinion this Trinath Sahu is the most disinterested witness in the case and his evidence, apart from the other circumstances noticed above, is conclusive on the question that the properties said to have been alienated still remain in the possession of the insolvents. This is the best proof of the fact that the transactions were either sham transactions or benami transactions. His evidence should not have been discarded merely because some of the alienees came forward as witnesses and stated that they paid the consideration money and that they are in possession of the properties alienated in their favour. Their interested testimony cannot prevail over this witness's testimony.
8. Believing the evidence of Trinath Sahu and taking into consideration the various circumstances mentioned above I would hold in disagreement with the learned lower court that the Receiver has discharged the initial burden that lay on him to show that these alienations were not made in good faith and for valuable consideration. On the other hand the very fact that all the properties of the insolvents were alienated by these six sale deeds executed on two successive dates, though possession was not delivered to the alienees, leads to the reasonable conclusion that the main object was to screen the property from the clutches of the creditors by transferring them in the name of friends, relatives and co-villagers of the insolvents.
Moreover, as already pointed out, even in the application for insolvency the creditors had expressly referred to these alienations and alleged that they were sham transactions; and on the date of the first three alienations, namely 8-7-55 some of the creditors went to the Sub-registrar's office to object. The alienees in respect of these transactions were thus fully aware that the genuineness of the transactions was objected to by the creditors and they never took the precaution of paying the consideration money to the creditors, instead of to the insolvent, though it was recited in the sale-deeds that the alienations were made for the purpose of discharging debts.
9. For the aforesaid reasons the appeal is allowed, the order of the lower court is set aside, and all the aforesaid six alienations dated 8-7-55 and 9-7-55 in favour of (i) Bauri Sahu (ii) Narayan Sabata (iii) Rahasa Beharani (iv) Sua Sahuani (v) Gouranga Sahu and (vi) Kalu Sahu are annulled. The appeal is however dismissed so far as the alienations dated 15-10-54 and 7-1-55 in favour of Sita Devi and Abhiram Das respectively are concerned. The lower Court's order is confirmed in other respects.
The appeal is allowed in part. Both partieswill bear their own costs throughout.