1. In these two connected cases the Official Assignee has rejected the claims of the petitioners to be entitled to rank as secured creditors against the sale-proceeds of the stock-in-trade of the insolvent which was in his possession and which, after the insolvent had absconded, they took possession of and directed to be sold by the Madras Sales Agency. The sale-proceeds were claimed and recovered by the Official Assignee and subsequently, as I have said, he refused to admit the petitioners' claim to rank as secured creditors and these two notices of motion, though they do not so state expressly, must be regarded as appeals from the decision of the Official Assignee.
2. They-one of them at any rate-raise a question of very considerable importance. Hinduji Jeetaji, the first petitioner, made various advances to the insolvent and obtained promissory notes and, what I may call, letters of hypothecation in which one term was 'we agree to deliver to you the keys of the said business premises and to take from you every morning . the said keys and return them to you every evening. For breach of any stipulation contained herein or failure to pay the money due when demanded it shall be lawful for you without my consent to retain the keys and seize the goods or otherwise take possession of them.'' The effect of these provisions really is to make the mortgagee custodian of the keys out of business hours, and until the happening of the breach referred to, he has apparently no right to intermeddle with the goods even during these hours. There is evidence that that agreement was carried out, and the important question arises whether under this arrangement 'the stock-in-trade was left in the possession or order or disposition of the insolvent in his trade or business by the consent and permission of the true owner under such circumstances that he was the reputed owner thereof'-this is the lauguage ofSection 52 of the Presidency Towns Insolvency Act-and whether this state of things existed at the commencement of the insolvency, the commencement of the insolvency being the date of the first act of bankruptcy according to another section.
3. Now I think it may be said at once that this provision is a product of local ingenuity. From the time of James I down to the present day during which these provisions have been in force, no one, so far as can be ascertained, has ever yet thought that it was enough to defeat the provisions of the Act that every day when the trader locks up his shop and leaves it and goes to bis place of residence, instead of keeping the keys under his own pillow for the night, he should hand them over to the mortgagee and take them, back again in the morning. Such a proceeding is one of which the people trading with the insolvent would be absolutely unaware, so that in the view of everybody the goods would be at the order and disposition of the insolvent and he would be the reputed owner thereof.
4. If this is enough to take the case out of the section, the latter will become very largely a dead letter. As we know, all traders have a very natural objection to its being known that they have had to pledge their stock-in-trade, because it affects their credit. If it be enough to secretly hand over the keys every night in some other part of the town and get them back next morning to prevent the goods from being in the possession, order and disposition of the trader, one can scarcely doubt that this method will be very widely adopted and the object of the legislature defeated. However, if that is the law, I am bound to give effect to it, but I am of opinion that it is not the law. I am of opinion that under this agreement, these goods continued to be in the possession, order or disposition of the trader, notwithstanding that the keys were taken every night to the secured creditor in another part of the town and were taken from him every morning. A case was cited from I.L.R. II C. 451 in which an insolvent obtained an advance and the lender insisted that the stock-in-trade should be given as security and that the key of the godown in which the goods were stored should be delivered to him at once. I think it was the next day the insolvency happened, and it was held that by getting possession of the key the lender had got possession of the goods and that he did all that he could do and that the goods had ceased to be in the possession, order or disposition of the insolvent. But that was, in my opinion, a very different case from this, in which the only right the lender reserved to himself was a right of keeping the keys at night when the premises were shut up and he had not even then any right to intermeddle with the stock until the happening of a breach. In my opinion any possession which the lender had under that arrangement was not a real but a sham possession, and that, as I understand it, is the test. In the case of Exparte National Guardian Assurance Co. : In-re Francis (1878) 10 Ch. D. 408 that is the test which is laid down. Discussing the evidence in that case Lord Justice James said : ' It was not a sham but a real possession, taken for the purpose of giving effect to the security of the company.' And Lord Justice Thessiger also said, at page 415 that it was necessary to arrive at a conclusion whether the possession was a real one or a mere sham. If, as held in the circumstances of that case, the possession of the true owner was a real one, the case is at once taken out of the section, but I am prepared to hold that in this case the possession was a mere sham. Further, I find in the case of Exparte Cohen: In re Sparke (1871) 7. ch. Ap. 20 it is said, of the agreement proved in that case, by Lord Justice James: 'The agreement was evidently concocted for the purpose of evading, if possible, the remedy which the Act, as to bill's of sale, intended to provide for the benefit of the creditors. This attempt at fraud does not, in my opinion, strengthen the position of those who rely upon it to support the assignment. To hold that such an assignment could stand would be a direct encouragement to fraud.' Lord Justice Mellish says: 'It is a device between them for the benefit of the debtor, to enable him to avoid that registration which the Act of Parliament has required.' Similarly in this case, I should be prepared to hold that a device of this sort, under which the debtor was in effect really left in the enjoyment of an effective control of the goods, was simply a device to effect fraud upon the Act, such as spoken of here. A deliberate arrangement such as this to deceive the public differs, in my opinion, entirely from such a case as Hilton v. Tucker (1888) 39 ch. 669.
5. Further, whether I am right in the view I have taken or not, there cannot be the least doubt that, under this agreement, during the working hours of the day those goods were absolutely in the possession, order and disposition of the insolvent. He got the keys in the morning and he returned them late at night, and under the circumstances I hold that they were during the daytime in his absolute order, possession and disposition. Then under the Act the insolvency relates back to the act of bankruptcy, and on sending for the petition upon which the adjudication was madeI found that the adjudication is made on an affidavit which alleges that 'on or about the 13th of December, the said insolvent, with the object of secluding himself so as to deprive his creditors of the means of communicating with him, locked up the place of business and left Madras taking the keys thereof.' And the evidence is that he left for Bombay on that night. Even assuming that before he left for Bombay he had handed the keys to these creditors, still the words of the Act are 'with intent to defeat or delay his creditors he departs from his usual place of business or otherwise absents.' It seems to me that he must have left his place of business on the night of the 13th with the intention of so starting for Bombay and that the act of bankruptcy must be considered as having taken place when he left his place of business on the evening of the 13th without any intention of returning, at a time when, in my judgment, the goods were in his possession, order or disposition with the consent of the true owner, that is to say the hypothecatees.
6. So much for the appeal in the first case of Jeetaji. With regard to the second appeal of Jeevaji the case is not even sostrong because the letter of hypothecation in that case, which recites that the goods have been deposited with the creditor, says nothing whatever about this arrangement of handing over the keys every night and taking them again in the morning. The evidence is that there were two sets of keys, one set of which was handed to Jeetaji every night and the other to Jeevaji. Though these two professed to be absolute strangers to each other-they never heard of each other even-yet they combined in all the steps taken for realizing the goods, and the evidence of there being two sets of keys is of a very unsatisfactory character. I am not prepared to hold that it has been satisfactorily proved that Jeevaji had even the sort of possession which would have resulted to him from the keys being left in his house every night and taken away in the morning. It looks to me more as if this was an alter-thought intended to bring him into line and to put him within as strong a position as Jeetaji. At any rate the onus is distinctly upon him to establish that the goods were in his possession and I hold he has failed to establish that by satisfactory evidence. The result is that both these appeals must be dismissed with costs.