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Rm. N.L. Kr. Ramanathan Chettiar Vs. Unnamalai Achi and anr. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1942Mad632; (1942)2MLJ213
AppellantRm. N.L. Kr. Ramanathan Chettiar
RespondentUnnamalai Achi and anr.
Cases ReferredRangiah Chetty v. Vajravelu Mudaliar
Excerpt:
.....of the common law for avoiding fraudulent conveyances have been given effect to by the high courts of india, and have properly guided their decisions in administering law according to equity and good conscience. vajravelu mudaliar air1918mad557 ,it was there held that though by reason of section 2 (d) of the transfer of property act, the act does not apply to sales in execution, yet the principle of section 36 of the act which embodies a rule of justice, equity and good conscience can be applied and rent apportioned from day to day as between a lessor and the transferee of his right in execution in the course of a year of the lease......collusive, its object being to defeat the attachment which she had effected in execution of the decree obtained by her in o.s. no. 56 of 1934, and (ii) a decree setting aside the sale to the appellant. the plaint did not purport to be filed tinder the provisions of section 53 of the transfer of property act, but the first respondent sought and obtained leave of the court to bring the suit on behalf of all the creditors. the district munsif held that the appellant's suit had been filed for the purpose alleged by the first respondent and that both the appellant and the second respondent were parties to the fraud. accordingly he granted the declaration asked for and set aside the sale. the appellant appealed to the subordinate judge who agreed with the district munsif. the appellant has.....
Judgment:

Alfred Henry Lionel Leach, C.J.

1. This appeal discloses a case of gross fraud and a fraud practised on the Court. The appellant was a party to this fraud and seeks to retain the benefit of his fraudulent conduct on a technical plea, but it is a source of satisfaction that this technical plea avails him of nothing.

2. The first respondent instituted a suit (O.S. No. 56 of 1934) in the Court of the Subordinate Judge of Devakottai to recover moneys said to have been deposited by her with a money-lending firm carried on by the second respondent's father at Pyabwe in Burma. The second respondent contested the claims and said that he was only an agent and not a partner in the firm. On the 23rd January, 1935, the Court granted the first respondent a decree for Rs. 5,318-13-9, limited so far as the second respondent was concerned to his share in the family estate, as there was no proof that he was a partner. , On the 24th July, 1935, the first respondent commenced proceedings in execution and these proceedings were still pending on the 31st July, 1936. On the 1st April, 1936, the appellant filed a suit in the Court of the District Munsif of Devakottai to recover from the second respondent a sum of Rs. 1,000 and interest which he claimed to be due on a promissory note executed by the second respondent in his favour. On the 28th April, 1936, he obtained a decree and in execution thereof he attached a house belonging to the second respondent. This house was already under attachment in the execution proceedings instituted by the first respondent to enforce payment of the decree which she had obtained against the second respondent. On the 27th July, 1936, the house was sold in the execution proceedings instituted by the appellant and bought by him for the sum of Rs. 1,811. The amount of the decree was only Rs. 1,221-2-0 and the balance of the Rs. 1,811 was paid out to the second respondent.

3. Thereupon the first respondent filed in the Court of the District Munsif of Devakottai the suit out of which this appeal arises for (i) a declaration that the suit instituted by the appellant was fraudulent and collusive, its object being to defeat the attachment which she had effected in execution of the decree obtained by her in O.S. No. 56 of 1934, and (ii) a decree setting aside the sale to the appellant. The plaint did not purport to be filed tinder the provisions of Section 53 of the Transfer of Property Act, but the first respondent sought and obtained leave of the Court to bring the suit on behalf of all the creditors. The District Munsif held that the appellant's suit had been filed for the purpose alleged by the first respondent and that both the appellant and the second respondent were parties to the fraud. Accordingly he granted the declaration asked for and set aside the sale. The appellant appealed to the Subordinate Judge who agreed with the District Munsif. The appellant has now appealed to this Court. In the first place he contends that there was no evidence on which the Subordinate Judge could find that he and the second respondent were guilty of fraud. In the second place he says that the suit must be treated as having been filed under the provisions of Section 53 of the Transfer of Property Act and that section does not apply to a transfer made under an order of Court.

4. There was ample evidence on the record to justify the finding that the appellant and the second respondent, who are related by marriage, were parties to a gross fraud on the first respondent, and incidentally on the Court. There being evidence to support the finding of the Subordinate Judge, his decision is conclusive on the point. This was not seriously challenged. The appellant really relies on the plea founded on Section 53 of the Transfer of Property Act.

5. Section 2(d) of that Act says that nothing contained in it shall be deemed to affect, save as provided by Section 57 and Chapter IV, a transfer by operation of law or by, or in execution of, a decree or order of a Court of competent jurisdiction. Section 5 says that in the sections which follow it the expression 'transfer of property' means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, or to himself and one or more other living persons. As the transfer of the property to the appellant was made by an order of the Court, his learned advocate says that these sections operate to prevent the first respondent from filing a suit under Section 53. This is no doubt the case. Mr. Bhashyam Aiyangar on behalf of the first respondent has in fact agreed that Sections 2 (d) and 5 prevent Section 53 operating in the case of a transfer under an order or decree of Court. Moreover the preamble says that the Act only relates to the transfer of property by act of parties. But this does not mean that a creditor in the position of the first respondent is without a remedy.

6. In the course of his argument Mr. Bhashyam Aiyangar quoted the following passage from Kerr on 'Fraud and Mistake' (6th edn., page 424):

A judgment or decree obtained by fraud upon, a Court binds no such Court or any other and its |nullity upon this ground, though it has not been set aside or reversed, may be alleged in a collateral proceeding. Shedden v. Patrick 1 Macq. 535 : 149 R.R. 55, The Queen v. Saddlers' Company (1863) 10 H.L.C. 404 : 138 R.R. 217 : 11 R.R. 1083 : 32 L.J.Q.B. 337 'Fraud' said De Grey, C.J., is an intrinsic, collateral act, which vitiates the most Solemn proceedings of Courts of justice. Lord Coke says it avoids all judicial acts ecelesi-astical and temporal' Bex v. Duchess of Kingston 20 How. St. Tr. 544 : 2 Smith, L.C. 687. In applying, this rule, it matters not whether the judgment impugned has been pronounced by an inferior or by the highest Court of judicature in the realm, but in all cases alike it is competent for every Court, whether superior or inferior, to treat as a nullity any judgment which can be clearly shown to have been obtained by manifest fraud. Shedden v. Patrick 1 Macq. 535 : 149 R.R. 55.

In The Queen v. Saddlers' Company (1863) 10 H.L.C. 404 : 138 R.R. 217 : 11 E.R., one of the authorities on which the learned author relies for the above statement, Willes, J., said:

a judgment or decree obtained by fraud upon a Court binds not such Court, nor any other; and its nullity upon this ground, though it has not been set aside or reversed, may be alleged in a collateral proceediing, Philipson v. The Earl of Egremont 32 L.J.Q.B. 337, Lord Bandon v. Becher (1835) 3 Clark & Fin. 479 and Shedden v. Shedden 1 Macq. 535 : 149 R.R. 55.

A decision which is very much in point is that given in Abdul Hye v. Mir Mohammad Mozaffar Hossein , where the question was whether a deed of gift was fraudulent and void as against creditors. At the time the Transfer of Property Act had not come into force, but nevertheless the Privy Council affirmed the decree which had been passed setting aside the transaction. In the course of the judgment in that case, Lord Fitzgerald said:

By statute 13 Eliz., c. 5, all covinous conveyances, gifts, and alienations of lands or goods whereby creditors might be in anywise disturbed, hindered, delayed, or defrauded of their just rights, are declared utterly void.

Whether or not that statute (which may not extend to or operate in the mofussil in India) is more than declaratory of the common law, so far as it avoids transactions intended to defraud creditors, there seems to be no doubt that its principles and the principles of the common law for avoiding fraudulent conveyances have been given effect to by the High Courts of India, and have properly guided their decisions in administering law according to equity and good conscience.

These observations have full force here, and the principle which underlies them was applied by a Full Bench of this Court in Rangiah Chetty v. Vajravelu Mudaliar : AIR1918Mad557 , It was there held that though by reason of Section 2 (d) of the Transfer of Property Act, the Act does not apply to sales in execution, yet the principle of Section 36 of the Act which embodies a rule of justice, equity and good conscience can be applied and rent apportioned from day to day as between a lessor and the transferee of his right in execution in the course of a year of the lease.

7. What the appellant in effect says is that where a person has obtained a transfer of property under an order of the Court as the result of a gross fraud, the Court is powerless to remedy the injustice caused unless Section 53 of the Transfer of Property Act can be invoked. To follow this argument to its logical conclusion means that all a debtor has to do in order to defeat his creditors is to induce some equally fraudulently minded person to bring a false suit against him, say on a promissory note, obtain a decree and attach and buy in the defendant's property at the Court auction. The Court certainly has full power to remedy such an injustice and the Courts below have applied the proper remedy. It is indeed regrettable that the appellant, having been found guilty of fraud against the first respondent, should have persisted in this appeal. The finding of the Subordinate Judge that he was a party to the gross fraud was conclusive, but it may be added that we agree with his finding.

8. The appeal will be dismissed with costs in favour of the first respondent.


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