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Jagannatha Ayyangar Vs. Narayana Ayyangar and anr. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Judge
Reported in52Ind.Cas.761
AppellantJagannatha Ayyangar
RespondentNarayana Ayyangar and anr.
Cases ReferredKumarappa Chettiar v. Murugappa Chettiar
Excerpt:
.....insolvency act (iii of 1907), sections 36, 36, 37 - transfer by debtor's transferee, avoidance of--official receiver, right of--applicability of section 36 where first transferee is only benamidar for his transferee--colourable transaction--enquiry by court--joinder of subsequent transferee as party--appeal against court's order by creditor, legality of--remand, order of--right of creditor appellant to be represented in further proceedings--enquiry on report of official receiver, validity of--madras high court rules under provincial insolvency act, rule 2(7)--procedure. - - 6. in dealing with the case the lower court will be well advised to have the transferee under exhibit iii, thiruvengadatha ayyansrar, made a party in order to avoid or reduce litigation in future. hence, a purchaser..........regular petition. this objection is justified by rule 2 (7) of the rules passed by this court for official receivers. but, it has, so far as appears, never been relied on either in the lower court or when the case was heard here at an earlier stage we are not prepared in these circumstances to treat the proceedings as invalid in toto. they will be allowed to go on conditionally on the official receiver converting his report into a properly stamped petition in proper form. '2. on the merits we read the report as embodying a request to the court to avoid the transfers evidenced by two documents, referred to by the official receiver as exhibits iii and iv. exhibit iii is a transfer by the debtor to one thiruvengadatha ayyangar and exhibit iv by the latter to the present respondent. the.....
Judgment:

Oldfield, J.

1. An attempt has been made to support the lower Court's order without reference to its merits, on the ground that it should not have been passed and the proceedings should not have been regarded as validly instituted on the Official Receiver's report without any regular petition. This objection is justified by Rule 2 (7) of the rules passed by this Court for Official Receivers. But, it has, so far as appears, never been relied on either in the lower Court or when the case was heard here at an earlier stage We are not prepared in these circumstances to treat the proceedings as invalid in toto. They will be allowed to go on conditionally on the Official Receiver converting his report into a properly stamped petition in proper form. '

2. On the merits we read the report as embodying a request to the Court to avoid the transfers evidenced by two documents, referred to by the Official Receiver as Exhibits III and IV. Exhibit III is a transfer by the debtor to one Thiruvengadatha Ayyangar and Exhibit IV by the latter to the present respondent. The lower Court has refused relief on the ground that Section 35, Provincial Insolvency Act, under which the application was made, authorises only the avoidance of transfers by the debtor, not by his transferees.

3. The first answer to this is that the Official Receiver's case in his report was that there was no real transfer by Exhibit III, but only a concealment of the insolvent's property in the name of another person and that, therefore, Exhibits III and IV should have been regarded altogether as a device for a transfer by the debtor to the respondent. The lower Court should have dealt with the case on this basis and must now do so. If this is established and there was no real transfer to any intermediate transferee, the respondent's objection to the evidence' of Exhibit IV will be met.

4. Next I am prepared to agree with the lower Court that Section 36 does not cover transfers by transferees from the insolvent, since its wording excludes them. The contrary is contended for because in England, as for instance in Brown, Ex parte; In Re: Vansittart (1893) 2 Q.B. 377 : 62 L.J.Q.B. 279 : 10 Morrell 44 and Norton, Ex parte; In Re: Brail (1893) 2 Q.B. 381 : 62 L.J.Q.B. 457 : 69 L.T. 323 : 41 W.R. 623: 10 Morrell 166 such transfers were set aside with reference to the similarly worded Section 47 of the Bankruptcy Act, 1883. That, however, is not conclusive, because the trustee concerned in those oases was able, under the English rule 6 (e). to move the Court by application in respect of any settlement and there was no question on his proceeding by suit, as, in the absence of such a rule, the Official Receiver must proceed against third parties in India and as he will be able, if necessary, to proceed in this case.

5. But even if Section 36 does not authorise the Official Receiver's employment of the special procedure provided by the Act in respect of Exhibit IV, we have been shown no reason why he' was not entitled to employ it to obtain the avoidance of Exhibit III, and thus to lay the foundation for legal proceedings in respect of the former document. If then the lower Court rejects the contention already referred to as to the colourable character of Exhibit III, it must still deal with the Official Receiver's substantive contention as regards it.

6. In dealing with the case the lower Court will be well advised to have the transferee under Exhibit III, Thiruvengadatha Ayyansrar, made a party in order to avoid or reduce litigation in future.

7. A preliminary objection to the hearing of the appeal was taken on the ground that it was not presented by the Official Receiver, but by the creditor. The objection was unsustainable in view of the decision in Kumarappa Chettiar v. Murugappa Chettiar 36 Ind. Cas. 771. This, however, we may observe, will rot entitle appellant to the conduct of the petition in the lower Court, when it is dealt with there in pursuance of this order.

8. We set aside the lower Court's decision and remand the Official Rsceiver's application for readmission and re disposal in the light of the foregoing. Costs to date will abide the result and be provided for in the order to be passed.

Seshagiri Aiyar, J.

9. I agree bat only wish to add a few words upon two of the legal questions argued before us. The learned Vakil for the respondent took the preliminary objection that the whole proceeding was ultra vires, because the District Judge was not moved by the Official Receiver by a petition. I am inclined to the view that the learned Judge should have called on the Official Receiver to embody the points on which he wanted a decision in a petition. Clause 7, Rule 12, of this Court's rules contemplates a direction by the District Judge to the Official Receiver to present such a petition, when a report is submitted. In the Bankruptcy Act in England a motion in open Court is the procedure prescribed. See Robson's Law of Bankruptcy, page 946. But the District Judge has been allowed to pass orders without demur on the report. Although on the last occasion an objection was taken in this Court against that procedure, either the point was not argued or the learned Judges did not. uphold this purely technical objection. At the same time in order that the proceedings may be made regular, I agree with my learned brother that the District Judge should now call upon the Official Receiver to present a formal petition. I am also of opinion that notice should go to Thiruvengadatha Ayyangar.

10. As regards the contention that Sections 36 and 37 of the Provincial Insolvency Act do not contemplate action being taken against transferees from the first transferee, I am not clear that the word insolvent would not include persons who have derived title from him. In England, it seems to have been taken for granted that subsequent transferees are equally within the mischief intended to be guarded against Under Section 47 of the Bankruptcy Act of 1883, corresponding to Section 36 of our Act, applications against subsequent transferees were entertained without objection. See Brown, Ex parte; In Re: Vansittart (1893) 2 Q.B. 377 : 62 L.J.Q.B. 279 : 10 Morrell 44 and Norton,, Exparte; In Re: Brail (1893) 2 Q.B. 381 : 62 L.J.Q.B. 457 : 41 W.R. 623: 10 Morrell 166 and Carter and Kenderdine's Contract Act In Re: (1897) 1 Ch. 776 : 76 L.T. 476 : 66 L.J.Ch. 408 : 45 W.R. 484 : 4 Manson 34. May in Fraudulent Conveyances summarises the law thus: 'A voluntary settlement within Section 47 is void against the trustee in the bankruptcy not from the date of the settlement, but from the date at which the title of the trustee has accrued, that is, the date of the act of bankruptcy, to which the title of the trustee relates back. Hence, a purchaser in good 'faith from the donee under the settlement of property comprised therein, who has purchased before the date at which the trustee's title accrued, has a good title to the property as against the trustee even though he purchased with notice that his vendor had acquired the property by means of a voluntary conveyance.'

11. It must, however, be mentioned that a rule was passed in England under the Act in these terms: Applications to sat aside or avoid any settlement, conveyance, transfer, security or payment or to declare for or against the title of the trustee to any property adversely claimed may be made, &c.;' This rule is wide enough to cover application against a subsequent transferee, as he can be said to claim adversely against the trustee. It may be advisable to enact a similar rule under the Provincial Insolvency Act. In the absence of such a rule and having regard to the words of Sections 36 and 37, it is open to doubt whether the Official Receiver can ask that the subsequent transfer be annulled as against him.

12. In any event, I think that with reference to Section 53 of the Transfer of Property Act, there must ordinarily be a suit against the subsequent transferee to recover possession, because contentions as to his being a bona fide transferee for value without notice from an ostensible owner can be raised by the transferee. With these remarks I agree with my learned brother that the case should be remitted to the lower Court for further consideration. I also agree that the District Judge should have considered whether Thiruvenga-datha Ayyangar was only a benamidar. If he came to that conclusion, the second transfer should be regarded as made by the insolvent. The fact that it was not made directly by him but through the agency of his nominee should not affect the enquiry under Sections 36 and 37 of the Act.


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