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T.S. Ramaswami Iyengar, Official Receiver of Madura Vs. Chinnathambi Kone - Court Judgment

LegalCrystal Citation
SubjectCivil;Property
CourtChennai
Decided On
Reported inAIR1932Mad459; 140Ind.Cas.463
AppellantT.S. Ramaswami Iyengar, Official Receiver of Madura
RespondentChinnathambi Kone
Cases ReferredBhagwan Das & Co. v. Chuttan Lal A.I.R.
Excerpt:
- - i found as a fact, that the debtors were in such a hopeless state, that they could not have expected by making the transfer, to avert any impending disaster. it was argued for the trustee that the debtor was anxious to do his solicitor a good return as he had lent him 200 pounds and that there was thus a motive for fraudulently preferring him. on the facts proved, i am prepared to hold that the transferee acted in good faith within the meaning of this section......fraudulently preferring him. this argument was rejected. the court held that the bankrupt paid his solicitor 87 pounds under the apprehension that unless he did so he would not get the 200 pounds at all. in re arnott ex parte barnard 6 morrell 215, is another case, where the effect of a similar payment was considered. the debtor gave to his solicitor a charge on his house for costs, the solicitor at the same time agreeing to obtain for the debtor an advance of 250 pounds on such charge. the debtor was adjudicated bankrupt and the trustee sought to set aside the charge as being a fraudulent preference. held that the object of the debtor being to benefit himself by getting the 250 pounds and not to benefit the solicitor, the transaction was not a fraudulent preference. the following.....
Judgment:

Venkatasubba Rao, J.

1. The question to be decided is, whether the order of the lower Court, refusing to annul Under Sections 53 and 54, Prov. Insol Act, the mortgage executed by the insolvents, is right or not. It was executed on 24th May 1923 in favour of one Ravuthar, the consideration being Rs. 6,500 of which Rupees 4,000 was to be retained by him for paying off certain debts of the insolvents, Rs. 1,611-2-8 represented the amount due to himself and the balance of Rupees 888-13-4 was paid to the insolvents in cash. The mortgage was assigned by the said Ravuthar on 17th September 1923 in favour of the respondent. The debtors were adjudged insolvents on a petition presented within three months of the original mortgage. I may observe that the respondent admits that the mortgage is enforceable only to the extent of Rs. 2,500, the sum of Rs. 4,000 retained in the hands of the Ravuthar not having been subsequently paid as originally intended.

2. The first point to decide is whether the transaction constitutes a fraudulent preference Under Section 54 to the extent of Rs. 1,611-2-8. The debtors were admittedly unable to pay their debts as they became due. The transfer was thus made on the eve of insolvency. The evidence shows that the creditor was demanding his debt from September 1922 and that he was exerting considerable pressure. In April 1923, another creditor filed a suit against the insolvents and got a house of theirs attached before judgment. This was shortly before the mortgage. In July 1923, some time after the mortgage, three other suits were filed against them and applications were made for attachment before judgment. The debtors were residents of Madura, whereas the Ravuthar belonged to Tinnevelly. From there he proceeded to the debtors' place, having heard of their condition, and under threat of legal proceedings obtained the mortgage in question. It has been held that the word 'preference' in Section 54 implies an act of free will. Lord Cairns observes in Butcher v. Stead [1875] 7 H.L. 839: at 846.

The use of the word 'preference' implying an act of free will would of itself make it necessary to consider whether pressure had or had not been used.

3. It follows from this, that an act done under pressure is not an act of free will. In other words, what was the state of mind of the persons who made the transfer?: see New Prance & Gerrard's Trustee v. Hunting [1897] 2 Q.B.19. To avoid a transaction as a fraudulent preference, it is not sufficient that the creditor was preferred: it must further be shown that the transfer was made with the view of giving him preference over the other creditors. It is settled law that it is not necessary that it should have been the sole view: it is enough that it was the dominant or substantial view or in the words of Bowen, L. J., 'the operative effectual view' [Ex parte Hill In.re Bird [1883] 23 Ch.D. 695]. If the view to prefer a particular creditor was only a 'secondary view,' the transaction is not treated as a fraudulent preference. In each case then, what the Court has to find is, whether the insolvent has pre ferred the creditor, with the dominant view of giving him preference over the other creditors. If the dominant view in making the transfer was to protect himself from legal proceedings, the transaction would not be a fraudulent preference. In this case, I agree with the lower Court that the debtor granted the mortgage with a view to protect himself. Indeed, I cannot even hold, that the insolvents were to any extent actuated by a desire to benefit the creditor. The question therefore of what the secondary view was, does not arise at all.

4. Mr. Appuswami Aiyar, the learned Counsel for the petitioner, relies upon my judgment in Arunachalam v. The Official Receiver of Tanjore : AIR1925Mad1089 . In that case, on the evidence, I held, that the motive that operated on the mind of the debtors was not the safeguarding of their own interests. I found as a fact, that the debtors were in such a hopeless state, that they could not have expected by making the transfer, to avert any impending disaster. In such circumstances, the pressure could not be said to be real, as it could nob be in fact the motive for the preference. This view is in accordance with the English cases on the point: see Mulla's Law of Insolvency, 1930 Edition, p. 447. In the present case, the insolvent's position was on the date of the transfer far from desperate, although no doubt several suits were file against them subsequently.

5. It must then be considered, whether the fact that the creditor paid the insolvents in cash Rs. 888-13-4 makes any difference. Does it show that the debtor was induced by this payment to confer in return a benefit on the creditor? I must hold on the evidence that the creditor was driven to make this payment, for, without it, the insolvents would not have granted the mortgage. There was no intention to benefit the creditor by reason of this payment, but, taking advantage of their position, the debtors benefited themselves to that extent. On this point Ex parte Boyle, Re Collett [1871] 25 L.T.550 is a very instructive case. A fortnight previous to the debtor's filing his petition for liquidation his solicitor lent him 200 pounds on the security of a bill of sale. At the same time as he handed the debtor a cheque for this amount, he presented him with his bill of costs, which amounted to 87 pounds, and the debtor paid it out of the money advanced. Held that the payment of 87 pounds did not constitute a fraudulent preference. It was argued for the trustee that the debtor was anxious to do his solicitor a good return as he had lent him 200 pounds and that there was thus a motive for fraudulently preferring him. This argument was rejected. The Court held that the bankrupt paid his solicitor 87 pounds under the apprehension that unless he did so he would not get the 200 pounds at all. In re Arnott Ex parte Barnard 6 Morrell 215, is another case, where the effect of a similar payment was considered. The debtor gave to his solicitor a charge on his house for costs, the solicitor at the same time agreeing to obtain for the debtor an advance of 250 pounds on such charge. The debtor was adjudicated bankrupt and the trustee sought to set aside the charge as being a fraudulent preference. Held that the object of the debtor being to benefit himself by getting the 250 pounds and not to benefit the solicitor, the transaction was not a fraudulent preference. The following sentence from the argument of the trustee's counsel is worth quoting:

The bankrupt at first demurred until Pulbrook (the solicitor) dazzled his eyes with the bait of the promised loan for 250 pounds.

6. This argument was repelled, the Court observing that the debtor intended by this transaction to put some money into his own pocket and not to benefit his solicitor. A similar view was taken in Bhagwan Das & Co. v. Chuttan Lal A.I.R.1921All.41: [see also Mulla's Law of Insolvency 1930 Edition p. 448]. I have therefore come to the conclusion that the mortgage to the extent of Rs. 1,611-2-8, the debt due to Ravuthar, did not constitute a fraudulent preference Under Section 54.

7. There remains the question, whether the transfer is liable to be annulled Under Section 53 to the extent of the balance of Rs. 888-13-4, the cash paid at the execution of the mortgage. On the facts proved, I am prepared to hold that the transferee acted in good faith within the meaning of this section.

8. Before concluding I must advert to another circumstance. The respondent to whom Ravuthar transferred the mortgage was a relation of the insolvents. From this it is argued, that it was probable that the original mortgage was itself the result of collusion between the insolvents and Ravuthar. I however find it stated in the lower Court's judgment that this suggestion was not made in the Courts below and I must therefore reject this contention. The civil revision petition is dismissed with costs.


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