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Angappa Chetty and anr. Vs. G. Nanjappa Row and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported in(1908)18MLJ189
AppellantAngappa Chetty and anr.
RespondentG. Nanjappa Row and ors.
Excerpt:
.....been guilty of an act of bad faith in not including in his schedule the monthly allowance of rs. gore langton, as matters now stand, has failed to establish his right to proceed against this fund under his assignment. even if it were in fraud of his lights, i do not see how the transaction could be treated as an 'act of bad faith regarding the matter of^ the application' within the meaning of section 351, c. on the evidence, as it stands, i should feel a difficulty if we had to decide wether the appellants were solvent or insolvent in 1905. but, in my view, it is not necessary to decide this question since i am satisfied that in entering into the compromise the view of the respondents was to make the best arrangement they could for themselves and not the view to prefer rungiah goundan...........bakely coffee estate. on july 20th, 1887 the respondents mortgaged the tudor valley estate to mr. gore langton for rs. 25,000 and a further advance of rs. 10,000 was afterwards made. on march 23rd, 1891, the respondents agreed to sell the tudor valley estate to rangiah goundan for rs. 77,500 of which rs. 25,000 was to be appropriated in discharge of mr. gore langton's mortgage. this agreement resulted in protracted and costly litigation between rangiah goundan and the respondents. rangiah goundan took possession of the tudor valley estate and both sides filed suits for possession whilst rangiah goundan also filed a suit for specific performance of the agreement to sell. these suits ultimately resulted in favour of the respondents. on july 19th, 1892, rangiah goundan took a transfer of.....
Judgment:

Charles Arnold White, C.J.

1. This is an appeal by creditors against an. order made under Section 351 of the Code of Civil Procedure, declaring the respondents insolvents and appointing a Receiver. Anything like a satisfactory administration of the insolvency provisions of the Code is always a matter of difficulty, and in this particular case the difficulty is increased by the facts being somewhat complicated and the evidence being incomplete. For the purposes of the questions raised in this appeal, so far as they can be gathered from the evidence before this Court, the facts may be briefly stated as follows: The respondents are planters and were the owners of two estates known as the Tudor Valley Estate and the Bakely Coffee Estate. On July 20th, 1887 the respondents mortgaged the Tudor Valley Estate to Mr. Gore Langton for Rs. 25,000 and a further advance of Rs. 10,000 was afterwards made. On March 23rd, 1891, the respondents agreed to sell the Tudor Valley Estate to Rangiah Goundan for Rs. 77,500 of which Rs. 25,000 was to be appropriated in discharge of Mr. Gore Langton's mortgage. This agreement resulted in protracted and costly litigation between Rangiah Goundan and the respondents. Rangiah Goundan took possession of the Tudor Valley Estate and both sides filed suits for possession whilst Rangiah Goundan also filed a suit for specific performance of the agreement to sell. These suits ultimately resulted in favour of the respondents. On July 19th, 1892, Rangiah Goundan took a transfer of Mr. Gore Langton's mortgage and in 1896 he brought a suit on the mortgage against the respondents (O.S. No. 74 of 1896). In the same year the respondents brought a suit (O.S. No. 82 of 1896). against Rangiah Goundan for mesne profits for the five years during which the latter had been in unlawful possession of the estate. On April 15th, 1896, the respondents mortgaged the Tudor Valley Estate and the Bakely Estates to Mr. Gore Langton for 2,000 and on October 29th, 1900, Mr. Gore Langton assigned his mortgage to Messrs. Arbuthnot and Latham. On August 27th, 1901, the respondents executed a second mortgage on the two estates to Messrs. Stanes & Co., to secure an advance of Rs. 15,000 odd and further advances not exceeding Rs. 20,000.

2. The suits of 1896 were carried to the High Court with the result that Rangiah Goundan obtained a decree against the respondents for Rs. 78,000 and the respondents obtained a decree for Rs. 1,25,000 against him. Both parties obtained leave to appeal to the Privy Council. At this stage a compromise was agreed to Rangiah Goundau paid Rs. 30,000 into the High Court and on March 15th, 1905, leave was given to both parties to withdraw 'their appeals to the Privy Council. On July 7th, 1903, the respondents assigned to Mr. Gore Laugton by way of further security but without any fresh advance their claim in their pending suit for mesne profits. On July 9th, 1903, the respondents assigned to Messrs. Stanes & Co., by way of further I security and subject to the assignment to Mr. Gore Langton the same claim.

3. In 1899 one Angappa Chetty brought a suit against the respondents (O.S. No. 31 of 1899) and obtained a decree for 'Rs. 7,000 odd. In November 1904, in execution of this decree and prior to the compromise, he attached the decree which had been obtained by the respondents in their suit for mesne profits. He subsequently attached the Rs. 30,000 in the hands of the Registrar of this Court. The Rs. 30,000 was transferred from this Court to the Coimbatore District Court. The points raised in support of the appeal were (1) that the compromise of March 1905 was in fraud of the rights of Augappa Chetty as an attaching creditor; (2) that the compromise operated as an unfair preference to Rangiah Goundan and also to Mr. Gore Langton and Messrs. Stanes & Co., and was given at a time when the respondents knew they could not pay their debts in full; (3) that the two assignments of 1903 were unfair preferences to Mr. Gore Langton and Messrs. Stanes & Co., respectively, and were given at times when the respondents knew they could not pay their debts in full; (4) that the respondents recklessly contracted debts when they knew they could not pay their debts in full; (5) that the 1st respondent had been guilty of an act of bad faith in not including in his schedule the monthly allowance of Rs. 65 which he had been receiving from Messrs. Staues & Co.

4. As regards (I), Angappa Chetty's judgment-debt was for Rs. 7,000 odd. The amount of the respondents' decree which Angappa Chetty attached was Rs. 1,25,000. In pursuance of the fempromise Rs. 30,000 was paid into Court. It was suggested that, in the application to this Court for leave to withdraw. the Privy Council appeals in pursuance of the compromise, the attention of the Court was not called to the fact that the decree had been attached by Angappa Chetty. This does not appear to be so. Angappa Chetty obtained in the High Court an order of attachment in respect of this Rs. 30,000 and the money was transferred from this Court to the Coimbatore District Court presumably for the purpose that Angappa Chetty's claims under his attachment might be adjudicated on by that Court. Mr. Cowdell on behalf of the insolvents stated that Angappa Chetty had been paid the whole of his judgment-debt out of the Rs. 30,000. Mr. Sankaran Nair on behalf of the appellants was not in a position to disprove this statement and admitted that, at any rate a substantial sum had been paid out of Court to Angappa Chetty towards the satisfaction of his debt. On the other hand an application to this Court on November 1st, 1905, that Angappa Chetty's attachment should be raised, and that Rs. 6,640 should be paid out to the parties in whom Mr. Gore Langton's interest under the assignment is now vested, was dismissed on the ground that there was no consideration for the assignment and no assignment of an actionable claim.

5. Mr. Stanes stated in his evidence that he intended to file a suit on behalf of Mr. Gore Langton to establish his claim. Whether this has been done or not I do not know. But, as matters stand at present, Angappa Chetty has established his right to proceed against the funds in Court under his attachment, whilst Mr. Gore Langton, as matters now stand, has failed to establish his right to proceed against this fund under his assignment. The practical result of the compromise, so far as Angappa Chetty was concerned, was that instead of being in the position of an attaching creditor of an unexecuted decree, he was in a position to proceed against tangible assets in Court. It cannot be said that the compromise was in fraud of Angappa Chetty's rights or that he was prejudiced thereby. Even if it were in fraud of his lights, I do not see how the transaction could be treated as an 'act of bad faith regarding the matter of^ the application' within the meaning of Section 351, C.P.C. I may add that this point appears to have been an after-thought since it does not seem to have been taken in the Court below.

6. As to (2). At the date of the compromise the respondents had a decree for Rs. 1,25,000 against Rungiah Goundan whilst Rungiah Goundan had a decree for Rs. 78,000 against them. It would appear from the schedule to the insolvency petition that at that time the respondents had other judgment - creditors for considerable amounts - amounts which exceed Rs. 47,000 - the difference between the amounts of the two decrees. On the evidence, as it stands, I should feel a difficulty if we had to decide wether the appellants were solvent or insolvent in 1905. But, in my view, it is not necessary to decide this question since I am satisfied that in entering into the compromise the view of the respondents was to make the best arrangement they could for themselves and not the view to prefer Rungiah Goundan.

7. As the parties had apparently been trying each to ruin the other by persistent litigation, Rungiah Goundan was the last person they would have wished to prefer. No doubt the compromise was followed almost immediately by the presentation of the insolvency petition and under the compromise the respondents relinquished the chance of finally emerging from the struggle some Rs. 47,000 to the good, but they freed the Tudor Hill Estate from Rungiah Goundan's mortgage, they got a deposit of Rs. 30,000 in Court, and they escaped the risks and expenses attendant on fighting Rangiah Goundan's appeal and prosecuting their own appeal before the Privy Council. I hold, without hesitation, that the compromise was not an unfair preference of Rungiah Goundan. It seems to me to be equally clear that it was not an unfair preference of Mr. Gore Langton and Messrs. Stanes & Co. The object of the transaction was to put an end to the ruinous litigation - not to benefit Mr. Gore Langton and Messrs. Stanes & Co., though it may be that the transaction was in fact beneficial to them.

8. As regards (3). I express no opinion as to whether the respondents were insolvent to their own knowledge in 1903. For the purposes of this case, I am prepared to assume that they were. I do not think it necessary to consider whether any legal distinction can be drawn between an 'unfair preference' under Section 351 of the Code and a 'fraudulent preference' under the English Bankruptcy Acts. Neither do I think it necessary to consider whether as a matter of law, the words 'unfair preference' which appear to be taken from an enactment of 1861, are to be construed with reference to the principles on which the cases prior to the act of 1869 and the earlier cases under the Act of 1869 were decided, or whether the more stringent test applied in the later cases under the Act of 1869, and in the cases under the Act of 1883, should be applied here. I am prepared to apply the test laid down in such cases as ex-parte Hill In re Bird (1883) 23 Ch. 695, viz., that it is sufficient to constitute an unfair preference if preferring the creditor was the substantial, effectual or dominant view with which the debtor made the preference, and that it is not necessary that it should have been the sole view, and in such cases as In re Bell (1892) 10. Mor15 viz., that notwithstanding the payment might never have been made but for pressure it is an unfair preference if it is also the fact that the payment never would have been made but for the desire to prefer if it is the fact that a desire to prefer was a substantial view operating in the mind of the person who pays in such a sense that it can be said to be the dominant view; and in such cases as In re, Exparte Dyer (1901) 1 K.B. 710 Lake viz., that 'if a man on the eve of bankruptcy makes a payment to a particular creditor, the presumption immediately arises that he makes that payment with the dominant view of giving a preference to that creditor over his other creditors. There is no need or any evidence that that view was expressed in so many words by the bankrupt : it is a presumption which would arise from the transaction. No question of payment is involved in the all edged unfair preference in the present case, but the assignments of the 'actionable claim' were no doubt, 'dispositions of property' and the same principles seem to me to be applicable. It is, of course, an important element in the case that no fresh advances were made either by Mr. Gore Langton or Messrs. Stanes & Co. in 1903. Mr. Staues's evidence not very full but it is as follows:

We have been Mr. Gore Langton's agents for ten or fifteen years. Re-examined. 'Nanjappa Row owed us money, a little over four thousand rupees in 1891. We have been advancing him money since then for his litigation expenses and for the up keep of the estates. The money that he owes us is for those litigation expenses and up-keep. I don't know that he could get money elsewhere for those purposes. He applied to us for money and we advanced it. In the years 1891 to 1895, we did not advance money for the up-keep of the estates because Rangiah Goundan was in possession then. Since 1896 we have advanced for the up-keep of the estates. The statements in the two assignment deeds of the 7th and 9th July 1903 are all quite true. At that time Nanjappa Row owed us twenty thousand rupees and' owed Mr. Gore Langton 1,900 principal and 680 towards interest. We had only a second mortgage subject to Mr. Gore Langton's. Our assignment was also subject to Mr. Gore Langton's. We pressed for further security tilling Nanjappa Row that if he did not give it we could not continue mf to finance him. We had authority from Mr. Gore Langton to demand further security for him too.

9. This evidence is uncontradicted. Messrs. Stanes & Co. were the agents for Mr. Gore Langton and the Ist respondent stated in his evidence that when Messrs. Stanes & Co. asked him (in 1903) for further security for Mr. Gore Langton and for themselves, they said they would not finance him further if it was not given.

10. I am of opinion that the dispositions of property made by the respondents in 1903 were not made with the dominant view of 1 preferring Mr. Gore Langton and Messrs. Stanes & Co. or either of them, but that they were made with the object that the respondents might continue to receive financial support from these creditors and that they were made under pressure by these creditors in circumstances which negative a preference being the dominant view with which the dispositions were made.

11. As regards (4) the evidence mainly relied upon by the appellants as showing that the respondents had recklessly contracted debts at a time when they knew themselves to be insolvents was a judgment in a suit in which the minor son and brothers of the Ist respondent were the plaintiffs and in which they asked for a declaration that a decree was void as the debt for the recovery of which the suit had been instituted had been contracted by the Ist respondent for unnecessary and immoral purposes. Even assuming that the judgment be evidence against the respondents, it is not, in my opinion, evidence that the Ist respondent recklessly contracted debts so as to disentitle him to an order under Section 351, and I think the lower Court was right in holding that the respondents had not recklessly contracted debts within the meaning of the section.

12. As to (5). I am of opinion that the omission to include in the schedule the monthly allowance of Rs. 65 received by the Ist respondent, is not an act of bad faith regarding the matter of the application which disentitles the respondents to the benefit of the section.

13. I am of opinion that the appeal should be dismissed with costs.

Miller, J.

14. I concur in dismissing the appeal and desire only to add a few words on two of the questions raised.

15. I think that the charge of reckless borrowing is the most effective weapon ready to the hand of the appellants, but that even with its assistance they must fail. The debts dealt with in the judgment, Exhibit I, were contracted long before the insolvency, before the year 1899, and do not affect the present question. The judgment merely shows that several years ago Nanjappa Row was extravagant in his habits. But there are other debts which invite examination; there are the debts described as contracted on pro-notes of unknown dates, and these I amount to about Rs. 12,000. If they were contracted after the decrees in 1903 and if at that time Nanjappa Row was insolvent to his knowledge, it would lie upon him to justify them. There is no evidence to prove the dates of borrowing and in one case only is there anything to indicate such date, the counter-petition of Jacob Pillai; but assuming that all these debts were contracted after July 1903, still I do not think that the evidence shows that Nanjappa Row was hopelessly insolvent before 1905 when by the compromise he finally settled the amount of his assets. If the Privy Council had decided that Rangiah Goundan's application for execution was governed by Article 179 and not by Article 178 of the 2nd schedule to the Limitation Act, Nanjappa Row would have had a reasonable prospect of paying all his debts in full, and there is nothing to indicate that Nanjappa Row did not believe in his appeal, or did not mean to prosecute it. In such circumstances, I do not think that the borrowing of a sum of Rs. 4,000 from Jacob Pillai, or even of Rs. 12,000 can bring Nanjappa Row within Section 341.

16. The only other question on which I have anything to say is whether Nanjappa Row is guilty of an act of bad faith in omitting from his schedule the monthly payment of Rs. 65 which was made to him by Messrs, Stanes and Co. for managing the coffee estates. If this were a salary provided by Messrs. Stanes and Co. there might be justification for the attack on the good faith of the insolvent, but as the payment is presumably an advance against the estates it is in fact a part of the working expenses of the estates and its omission from the schedule was not an act of bad faith.


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