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N.L.N. Lakshman Chettiar (Died) and ors. Vs. Jayarama Chettiar and anr. - Court Judgment

LegalCrystal Citation
SubjectCommercial
CourtChennai High Court
Decided On
Case NumberSecond Appeal No. 546 of 1965
Judge
Reported inAIR1972Mad34; (1971)2MLJ292
ActsTransfer of Property Act - Sections 53
AppellantN.L.N. Lakshman Chettiar (Died) and ors.
RespondentJayarama Chettiar and anr.
Cases ReferredIn Mushar Sahu v. Lala Hakimlal
Excerpt:
transfer of property act (iv of 1882), section 53-fraudulent preference-what is- mere preference of one creditor to others by debtor will not be fraudulent preference-for preference to be termed fraudulent there must be something more than mere transfer in favour of one creditor in preference to others. ;whether any transaction is a fraudulent preference will depend upon the facts in each case. where a debtor has several creditors and some property and if he transfers that property to one of the creditors without any further circumstances appearing, that may be a preference, bat it cannot be said to be a fraudulent preference. it is not improper for a debtor to prefer his creditor among the many in order to discharge this debt by transfer of property. there should be something more than..........both the courts below have concurred in finding that the sale in favour of the defendants was a fraudulent preference within the meaning of section 53 of the transfer of property act. in coming to that decision they were largely influenced by abdul majid lebbai v. papathiammal, . they understood that decision as laying down the proposition that the test of fraudulent preference was to see whether the debtor retained with him any amount,however small,for his benefit,so that to that extent the creditors stood to be defeated. when the second appeal came before alagiriswami j. in the first instance,he too perhaps thought that that was the effect of the decision and,on that view, he considered that the decision must be reconsidered. he, therefore, referred the matter to a division bench.2......
Judgment:
1. Defendants 1 and 2 are the appellants. They purchased the suit property on 15th December 1953 from the legal representatives of one Krishnaswami Pathar. The plaintiff in execution of a decree obtained against Krishnaswami Pathar purchased the very property on 8th February 1960. The defendants having obstructed and succeeded,a suit was brought to set aside the summary order. Both the courts below have concurred in finding that the sale in favour of the defendants was a fraudulent preference within the meaning of Section 53 of the Transfer of Property Act. In coming to that decision they were largely influenced by Abdul Majid Lebbai v. Papathiammal, . They understood that decision as laying down the proposition that the test of fraudulent preference was to see whether the debtor retained with him any amount,however small,for his benefit,so that to that extent the creditors stood to be defeated. When the second appeal came before Alagiriswami J. in the first instance,he too perhaps thought that that was the effect of the decision and,on that view, he considered that the decision must be reconsidered. He, therefore, referred the matter to a Division Bench.

2. It seems to us that the courts below as well as Alagiriswami J. were not entirely correct,if we may say so,in understanding, in that way. The judgment in that case does not show that however small the benefit may be that was retained by the debtor, may be that was retained by the debtor, that would, in itself be proof of fraud. It would be obvious from the judgment that what influenced the decision in that case was the fact that the vendor had been arrested,but on payment of a small sum was released and the execution petition was pending. The court thought that the fact that the sale deed was executed after his arrest and before the adjourned date of the execution petition clearly suggested that it was executed with a deliberate intent to frustrate the appellant in that case and defeat and delay the creditors of the second respondent in that case. That was the main reason the sale was held to be a fraudulent preference. But, in addition to that fact reliance was also placed on retention with the debtor of a sum of Rs. 78/- out of the sale consideration of Rs. 600. The intention of, was not to lay down a proposition that, however small the benefit retained by the debtor out of the sale consideration might be, it would be sufficient by itself to hold the transaction to be a fraudulent preference. As a matter of fact,Errachi Reddiar v. Vellayya Reddiar, 81 Mad LW 27 = (AIR 1968 Mad 256) made a correct approach to, . Whether any transaction is a fraudulent preference will depend upon the facts in each case.

3. Where a debtor has several creditors and some property and if he transfers that property to one of the creditors without any further circumstances appearing, that may be a preference, but it cannot be said to be a fraudulent preference. It has been repeatedly held that it is not improper for debtor to prefer his creditor among the many in order to discharge his debt by transfer of property. There should be something more than mere preference and the facts must establish that the preference is a fraudulent one. In Mushar Sahu v. Lala Hakimlal, ILR 43 Cal 521 = (AIR 1915 PC 115), the Privy Council observed:--

"The transfer which defeats or delays creditors is not an instrument which prefers one creditor to another, but an instrument which removes property from the creditors for the benefit of the debtor. The debtor must not retain a benefit for himself. He may pay one creditor, and leave another unpaid."

That is how in reference was made to the retention of a benefit by the debtor. The emphasis in that case was not that however small the benefit may be, it would be sufficient to hold the transaction to be a fraudulent preference. In the Privy Council case it was found that the transfer made was for adequate consideration in satisfaction of genuine debts and it was without reservation of any benefit to the debtor. It was held that no ground for impeaching it was made out, though, of course, by that transaction other creditors stood to lose.

4. In the instance case, the sale was for a sum of Rs. 5,000/- out of which Rs. 4,000/- was appropriated in discharge of a decree debt due to the purchasers. The genuineness of this decree was never questioned. Out of the balance, Rs. 600/0 went in discharge of another decree. This decree again was not in attack. A sum of Rs. 150 was recited to have been borrowed in connection with the funeral expenses of Krishnaswami Pathar. It may be assumed that the remainder was retained by the vendor. Apart from these facts, the sale deed was registered actually on 26th Dec. 1953. In between the plaintiff instituted the suit on the 18th and obtained an attachment before judgment. In our opinion, these facts hardly prove any fraudulent intent on the part of the debtor. They do not show an intent on his part of fraudulent preference of the defendants in order to defeat and delay the other creditors.

5. The second appeal is allowed with costs.

6. Appeal allowed.


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