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The Official Receiver of Trichinopoly Vs. S.A. Somasundaram Chettiar and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported in34Ind.Cas.602; (1916)30MLJ415
AppellantThe Official Receiver of Trichinopoly
RespondentS.A. Somasundaram Chettiar and ors.
Cases ReferredKhoo Kwat Siew v. Wool Taik Kwat I.L.R.
Excerpt:
.....no claim to the surplus amount. ii, which, one of the debtors somasundaram chetty executed in favour of the above mentioned trustees on 4th january 1911 by which he handed over to the trustees the whole of his properties described in the document as well as any other properties which might have been omitted. srinivasagopalachariar, contends that the effect of the making of the adjudication order was to vest all the properties of the insolvents in the official receiver under section 16 of the provincial insolvency act, that the official receiver is alone entitled to administer the estate, and that the district judge was in error in holding that the trustees were 'transferees in good faith and for valuable consideration. ' 15. it appears to be clear that the trustees acted in good faith...........so far as regards the property, (a house,) not transferred to them under the trust-deeds, the official receiver is entitled to take possession of it notwithstanding the promise of most of the creditors made to the insolvents not to proceed against it for realization of their claims.3. section 16 clause 2(a), no doubt, makes the whole of the property of the insolvents 'to be vested in the court or in a receiver as hereinafter provided.'2. but on the execution of exs. 2 and 3, the properties mentioned therein had ceased to be the property of the insolvents and had become vested in the three creditors as trustees and hence it seems to me that section 16 clause 2 (a) which vests only the property of the insolvents in the court or the receiver cannot by itself transfer those properties.....
Judgment:

Sadasiva Aiyar, J.

1. The question in this case is whether the trustees under Exs. II and III are purchasers for valuable consideration. In Narayan Coomari Debi v. Shajani Kanta Chatterjee I.L.R. (1894) C. 14, it was held that a contract to pay remuneration to a person appointed as an executor was a contract for valuable consideration proceeding from the person appointed as an executor. The learned Judges say at page 18 'The plaintiff who was not legally bound to accept the office of executor,...applied for probate as executor, and having obtained probate, he performed duties of the executor.' 'There was thus, we think, a clear consideration for the alleged contract. (See Indian Contract Act, Section 2(d), Addison on Contracts, page 2, 9th Edition, and Pollock on Contracts, 5th Edition, page 176).' A responsibility therefore taken by a person to whom properties are transferred in consideration of his taking such onerous work seems to me to fall within the expression 'valuable consideration' found in Section 38 and Section 38(c) of the Provincial Insolvency Act, Hence the three creditors who undertook to be trustees of the insolvents' properties for the benefit of all the creditors and have admittedly been discharging the duties of trustees do come in my opinion within the protection afforded to transferees for valuable consideration' in Sections 36 and 38.

2. So far as regards the property, (a house,) not transferred to them under the trust-deeds, the Official Receiver is entitled to take possession of it notwithstanding the promise of most of the creditors made to the insolvents not to proceed against it for realization of their claims.

3. Section 16 Clause 2(a), no doubt, makes the whole of the property of the insolvents 'to be vested in the Court or in a receiver as hereinafter provided.'

2. But on the execution of Exs. 2 and 3, the properties mentioned therein had ceased to be the property of the insolvents and had become vested in the three creditors as trustees and hence it seems to me that Section 16 Clause 2 (a) which vests only the property of the insolvents in the court or the receiver cannot by itself transfer those properties to the receiver.

3. The words 'receiver as hereinafter provided 'seem to refer to the succeeding Section 18 which says that the Court may appoint a receiver for the property of the insolvents and that such property shall thereupon vest in the receiver. Section 19(2) says 'where any Official Receiver has been appointed for the local limits of the jurisdiction of any Court having jurisdiction, under this Act, he shall be the receiver for the purpose of every order appointing a receiver issued by any such Court.' Reading then Sections 16, 18 and 19 together, it seems to me that it is the duty of the Court, if it intends the Official Receiver to become vested with the title to the insolvents property to make an order under Section 18 appointing a receiver. The practice which (I am informed) obtains in the mofussil of treating the Official Receiver as vested with the properties of the insolvents as seen us an adjudication order is made without preliminary order under Section 18 appointing a receiver seems to be illegal.

4. In the present case, it does not appear that there was an order under Section 18 passed by the District Court appointing a receiver. Assuming that there was such an order and that the Official Receiver by the force of Section 19 became the receiver of the insolvents' properties, the properties mentioned in Exs. 2 and 3 had ceased to be the insolvents' properties long before the date of adjudication and unless Exs. 2 and 3 are cancelled or are void against the receiver he cannot claim any right to deal with them.

5. In this case the insolvents were adjudicated on their own petition and not on the petition of any creditor. Under Section 6 Clause 3 of the Insolvency Act, the debtor cannot avail himself of the transfer of his property to a third person for the benefit of his creditors generally as an act of insolvency entitling him to be adjudicated as an insolvent. Under Section 6 Clause 4(c), a creditor can so avail himself of such transfer (see Section 4 Clause (a)), provided the transfer occurred within three months before the presentation of the petition. It has been held, in Manmohan Das v. N.C. Macleod I.L.R. (1902) B. 765 that, on the general principles enunciated by the Privy Council in Khoo Kwat Siew v. Woo Taik Hwat I.L.R. (1891) C. 223. the assignment of the whole of the property of a trade to trustees for the benefit of the creditors is void as against the Official Assignee. In that case, the assignment took place (1) within three months of the petition for adjudication (2) which was presented by a creditor (3) who did not assent to the assignment. Jenkins, J, distinguishes Dhanjibhai Kharsetji Ratnagar's case (1873) 10 B.H.C.R. 327 which held that such a transfer was not void in insolvency proceedings on the ground that the assignment in the case did not constitute the act of insolvency on which the adjudication was based, the adjudication in that case having been made on the insolvents' own petition. The learned Judge however seems not to have thought much of that distinction by the use of the phrase 'the distinction for what it may be worth' (see page 776). Russell, J. says at page 768 'as to conveyance in trust for all creditors, it has been held from the earliest times of bankruptcy law that as the effect of such a conveyance must be to delay or defeat creditors, the law will presume an intention to delay or defeat creditors, and the conveyance would therefore be invalid as against, and perhaps even without reference to the policy of the bankruptcy laws.'

6. Their Lordships of the Privy Council in Khoo Kwat Siew v. Wooi Talk Hwat I.L.R. (1891) C. 223 : L.R. 19 IndAp 15, say broadly that the well-known rule of law is 'that if a trader assigns all his property except on some substantial contemporaneous payment, or some substantial undertaking to make payment in futuro, that is an act of bankruptcy and is void against the creditors and the assignee.' But can a creditor for whom that act is not available as a ground for the petition to adjudicate the debtor as an insolvent treat it as void as against him? A creditor cannot present a petition for adjudication if the act of bankruptcy on which he relies is one to which he was himself a privy. See Williams on Bankruptcy pages 4, 5 and 46, 11th Edition, If again the transfer for the benefit of creditors has taken place more than three months before the petition, no creditor can avail himself of if. I do not think their Lordships of the Privy Council intended to hold that a transfer to trustees executed (say) 7 years before the adjudication, should be treated as void against the creditors and the assignee. I at first thought that as Section 4(a) of the Provincial Insolvency Act says that the transfer of property for the benefit of creditors must be made to a third person in order to constitute an act of insolvency, the transfer made to three of the creditors themselves is not such an act. Though I am unable to fully appreciate the object of the Legislature in using the expression 'third person', I do not think it was intended to mean more than 'to a person who is not a trustee for the debtor himself.' (Section 24 of Statute 11 and 12 Victoria, Chapter 21 uses the expression 'shall voluntarily convey assign, transfer...any estate real and personal...to any creditor or other person whomsoever or to any person in trust for or to or for the benefit of any creditor or other person whomsoever.') In the Bankruptcy Act of 1883, Section 4(1)(a), 46 and 47 Viet, the expression is 'he makes a conveyance of property to a trustee or trustees for the benefit of his creditors generally.' I therefore do not think that the words 'third person' in Section 4(a) were intended to exclude the conveyance to some of the creditors themselves as trustees for the general body of creditors. The question again was not argued before us. Further while Section 4(a) of the Provincial Insolvency Act of 1907 mentions 'transfer of the debtor's property,' the corresponding section of the Presidency Insolvency Act of 1909' (Section 9 Clause (a) uses the. expression 'transfer of all or substantially all his property.' If it be held that as Section 4 Clause (b) of the Provincial Insolvency Act refers to a transfer of the debtor's property or any fart thereof whereas Section 4(a) refers to 'transfer of his property,' Section 4(a) applies only where the transfer is of all his, property without a single exception, then it is arguable that the transfer under Exs. 2 and 3 in this case is not an act of insolvency as a house was retained by the debtors. This point also was not argued and as at present advised I think that Section 9(a) of the Presidency Towns Insolvency Act and Section 4(a) of the Provincial Insolvency Act mean the same thing though the words 'all or substantially all' were introduced in the Presidency Towns Insolvency Act of 1909 at the suggestion of the Bengal Chamber of Commerce which seems to have thought that Section 4(a) of the Provincial Insolvency Act was, ambiguous.

7. Though Section 36 of the Provincial Insolvency Act states that certain transfers are void against the receiver, it has been held in Khan Sahib Bangi Abdul Khadar Saheb v. The Official Assignee of Madras (1914) M.N.W. 247 that the similar expression used in Section 55 of the Presidency Towns Insolvency Act means that such transfers are only voidable and not void. I respectfully concur with that opinion especially as in Section 36 there is a provision for annulling such a transfer by the Court which annullation will be unnecessary if it is void and not merely voidable.

8. There is besides no injury to the general body of creditors by not treating as void transfers to trustees for the benefit of all creditors made more than three months before the petition in insolvency, provided that the trustees are honest and capable. On the other hand, it saves the creditors the burden of the Official Receiver's fees. Even, where the trustees appointed under the private twist-deed are found dishonest or incapable there are provisions in Sections 57, 58, 61, 73, etc. of the Trusts Act under the beneficiaries (the creditors) can protect their interests by taking proper proceedings. On the whole, after having given anxious consideration to the subject and not without hesitation, I have come to the conclusion that the transfer made bona fide to trustees by the debtor cannot be cancelled under Section 36 and I would confirm the order of the District Judge. The creditors 12 to 14 will have their costs out of the trust properties in their hands and the appellant (Official Receiver) out of the property in his hands.

Moore, J.

9. I agree with the conclusion arrived at by my learned brother whose judgment I have had the advantage of perusing.

10. The facts are shortly these:

Two traders named S.A. Somasundaram Chetti and S.A. Muthukumara Chetti being unable to pay their debts convened a meeting of their creditors, and on January 2nd 1911, entered into an agreement Ex. I with the majority (about four-fifths) of their creditors. The agreement provided inter alia that all the properties of the debtors should be handed over to three trustees, who were themselves creditors of the debtors. The trustees were to realise the outstandings due to the debtors, sell their properties, pay such creditors as were willing to receive the amount due to them pro rata and retain with them the dividends due to such of the creditors as had not assented to the arrangement. The creditors were to be satisfied with the dividends so distributed, and the debtors were to have no claim to the surplus amount.

11. The terms of the arrangement were embodied in a trust-deed Ex. II, which, one of the debtors Somasundaram Chetty executed in favour of the above mentioned trustees on 4th January 1911 by which he handed over to the trustees the whole of his properties described in the document as well as any other properties which might have been omitted. In Ex. II it is staled that the debtors had executed a mortgage to the trustees in respect of a house which they had been allowed as an act of grace to retain as a residence.

12. The other debtor executed a similar trust deed Ex. Ill in favour of the same three persons confirming the agreement of 2nd January 1911.

13. The trustees it appears took possession of the properties and distributed a dividend to the majority of the creditors. The amounts due to the creditors, who had not assented to the arrangement, were, it is said, deposited in the Indian Bank on 9th October 1912, that is, within 2 years of the execution of Exs. II and III, The debtors presented an insolvency petition to the District Court, and were adjudged insolvents by the Official Receiver on 17th December 1912.

14. The question for determination is whether the trust deeds are void as against the Official Receiver, and whether the latter is entitled to an order calling upon the trustees to deliver over the properties of the insolvents in order that he may distribute it among the creditors. Mr. Srinivasagopalachariar, contends that the effect of the making of the adjudication order was to vest all the properties of the insolvents in the Official Receiver under Section 16 of the Provincial Insolvency Act, that the Official Receiver is alone entitled to administer the estate, and that the District Judge was in error in holding that the trustees were 'transferees in good faith and for valuable consideration.' The District Judge has not dealt with the question whether the trust deeds were void in a satisfactory manner, and merely observes that 'the consideration was the obtaining as much as possible of their claims for the whole body of creditors.'

15. It appears to be clear that the trustees acted in good faith. The word 'purchaser' in the section is used not in the ordinary legal sense of one who has bought a property under a contract of sale and purchase but means a person who has given valuable consideration Hance v. Harding (1888) 20 Q.B.D. 732 .

16. I was at first inclined to doubt whether the trustees could be regarded as transferees or purchasers for valuable consideration but on further consideration I agree with my learned brother that the undertaking of the duties of trustees was a good consideration. The act or promise in the definition of consideration in Section 2 Clause (d) of the Contract Act has been described in certain English cases which have been followed in India as something advantageous to the promisor or to a third person or which is onerous or disadvantageous to the promisee. See Currie v. Misa (1875) L.R. 10 Ex. 153 and Muhammad Unnisa v, J.C. Bachelor I.L.R. 29 B. 128.

17. The learned vakil for the appellant has referred us to Manmohan Das v. N.C. Macleod I.L.R. 26 B. 765 in which it was held that the assignment pi the whole of his property by a trader to trustees for the benefit of creditors was void as against the Official Receiver, but in that case the assignment took place within three months of the petition for adjudication which was presented by a creditor. It appears to be clear from Section 4(c) of the Provincial Insolvency Act that a creditor cannot treat a transfer by a debtor of his property to a third person as constituting an act of insolvency entitling the creditor to present the insolvency petition unless such transfer has occurred within three months before the presentation-of the petition.

18. Exs. II and III were executed, nearly two years before the presentation of the insolvency petition and I do not think that their Lordships of the Privy Council in Khoo Kwat Siew v. Wool Taik Kwat I.L.R. 19 C. 223, intended to lay down that a transfer by debtors to trustees for the benefit of creditors should in all cases be treated as void as against the creditors and the assignee. I agree that the term 'void' in Section 86 of the Provincial Insolvency Act means 'voidable'. There is a further difficulty in this case.

19. No order appears to have been passed by the District Court under Section 18 of the Provincial Insolvency Act. So far as experience goes, it is the practice in the mofussil to forward insolvency petitions presented by debtors to the Official Receiver, and after the adjudication order, the properties are treated as having vested in the official Receiver, no order appointing a receiver being passed by the Court under Section 18 of the Act.

20. This practice appears to be illegal, and I think that the word 'receiver' in Section 19(2) means a receiver appointed under Section 18(1) and that the words 'receiver as hereinafter provided in Section 16(2)(a)' refer to the succeeding Section 18. I agree that the transfers Exs. II and III haying been made bona fide and for valuable consideration cannot be cancelled and that the District Judge's order should be confirmed and in the order as to costs which my learned brother proposes to make.


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