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The Mercantile Bank of India Limited and anr. Vs. the Official Assignee of Madras and Two ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Judge
Reported in(1916)ILR39Mad250
AppellantThe Mercantile Bank of India Limited and anr.
RespondentThe Official Assignee of Madras and Two ors.
Cases ReferredShears v. Goddard
Excerpt:
.....it may be argued with some force that a transaction, which may be contrary to the policy of the bankruptcy law, is a good transaction unless it can be impugned under some express statutory enactment. , 517 in which we find very strong observations of mr. and although the words 'in good faith' do not occur in the section they must be deemed to be inserted, because in all former acts those words have been inserted, and it has been since held that the omission was not intended to make any difference, and that the person who takes the conveyance of a debtor's property cannot claim the benefit of section 49 if he had notice of anything wrong or anything that really put him upon enquiry. , 58, a decision to the effect that a creditor who takes a transfer of the whole of the property of his..........protect them. they rely on section 57 of the insolvency act which corresponds to section 49 of the english bankruptcy act.5. it is useful to compare section 57 with the section of the english act because it is taken direct from the english act although there are one or two variations of some importance. in section 49 of the english act there are two conditions which must be complied with before the party who relies on the protection of the section can claim the benefit of the section. the first condition is that the transaction should be before the date of the receiving order; and the second is that the person who seeks the protection of the section should have had no notice of any available act of bankruptcy committed by the bankrupt before the transaction. in the indian act the.....
Judgment:

Arnold White, C.J.

1. I think in this case we may apply the observation made by Lord Justice Williams in one of the cases cited in the course of the argument: it is a difficult case both on the facts and on the law.

2. The first question we have to consider is, did the property in these skins pass from Messrs. Rosham M.A. Mannulla Hussain Saib Company to the insolvents before the commencement of the insolvency

[After stating that the insolvents filed their petition for insolvency on the 20th December 1911 His Lordship, on a consideration of the oral and documentary evidence on this point, held, as follows:]

On the whole, as regards this question of fact, I am not prepared to differ from the conclusion at which Mr. Justice Wallis arrived, that the property in these goods did pass to the insolvents before the commencement of the insolvency. If the property passed to the insolvents it is not necessary to consider whether Messrs. Rosham and Company were the true owners of the goods and whether the goods were in the possession of the insolvents with their consent within the meaning of Section 52 of the Indian Insolvency Act. It is also unnecessary for us to consider whether the evidence which was relied upon by Messrs. Rosham and Company as evidence of custom is sufficient to oust the operation of reputed ownership.

3. I now pass to the case as between the Official Assignee and the Mercantile Bank and I deal with that case on the assumption that the property in the goods as between Messrs. Rosham and Company and the Official Assignee passed to the insolvents before the commencement of the insolvency. The question we have to consider with reference to the case as between the Official Assignee and the Mercantile Bank is--are the Bank entittled to the possession of these goods by virtue of their letters of lien and by virtue of what they did in pursuance of their letters of lien, as against the general body of creditors? The first point to consider is, did Mr. Short's statement to the manager of the Bank amount to an act of insolvency within the mcaning of Section 9(g) of the Insolvency Act? I do not think it was seriously contended that Mr. Short was not the agent of the insolvents. But the question is, did Mr. Short's statements to the representative of the Bank amount to a notice that the insolvents had suspended or were about to suspend payments of their debts? It is not suggested that Mr. Short said in so many words 'My clients Venkatasami Naidu and Sons are about to suspend payment.' It is a matter of inference. Mr. Grant has contended that instead of drawing the inference which the Official Assignee asks us to draw we might just as well draw the inference that all that Mr. Short gave notice of, to put it at the highest, was that Venkatasami Naidu and Sons were insolvent; and he relies on Clough v. Samuel (1905) A.C., 442 as showing that this is not an act of insolvency. I agree: an intimation to a creditor that a debtor is insolvent is, in my opinion, not an act of an insolvency. But I think we have something more in this case, I think the most reasonable inference to be drawn is that Mr. Short intended to convey to the manager of the Bank the intimation and the manager of the Bank knew that Mr. Short's intention was to convey the intimation--that the insolvents were about to suspend payment of their debts. In this connection it is material to observe that immediately on the receipt of the information the Bank did an act by putting up their board on the premises of the insolvents the effect of which was to put it out of the power of the insolvents to continue to carry on business. This to my mind auggest that the manager of the Bank knew that Mr. Short intended to convoy to him not only that Venkatasami Naidu and Sons were in embarrassed circumstances but that they were about to suspend payment. I do not deny that this is a matter of inference and I think we may perhaps be going further than the Courts have gone in any reported eases. But taking into consideration the fact that the general trend of the decisions is certainly in the direction of giving a very liberal interpretation to the words in question and also to the fact that it is in accordance with public policy that a liberal interpretation should be given to these words, I have come to the conclusion that Mr. Justice Wallis on the evidence which he sets out in his judgment--and which I need not repeat here--was right in his conclusion. The doubts which I had in this matter were caused by the judgment of Lord Halsbury in Clough v. Samuel (1905) A.C., 442.

4. I agree with Mr. Justice Wallis that the Bank were the true owners and that the goods were in the possession of the insolvents, as reputed owners, up to the 19th up to the time when the Bank put up their board on the premises of the insolvents The object of the Bank was to put an end to the consent of the true owners to the goods remaining in the possession of the reputed owners. We may take it that as from some hour on the 19th the goods were no longer in the possession of the insolvents in such circumstances that they were the reputed owners thereof. There can be no question that if there was an available act of insolvency prior to the time when the Bank put up their board on the premises of the insolvents the title of the Official Assignee under Section 51 of the Act would relate back to that act of insolvency. In the view that the giving of the information by Mr. Short amounted to an act of insolvency, an act of insolvency had been committed before the Bank took the goods out of the reputed ownership of the insolvents. There can be no question that the Bank had notice of this act of bankruptcy on the 19th before they put up their board because it was Mr. Short's information which caused the Bank to put up their board. In this state of things the trustees' title would prevail unless the Bank can rely upon any provision of law which would protect them. They rely on Section 57 of the Insolvency Act which corresponds to Section 49 of the English Bankruptcy Act.

5. It is useful to compare Section 57 with the section of the English Act because it is taken direct from the English Act although there are one or two variations of some importance. In Section 49 of the English Act there are two conditions which must be complied with before the party who relies on the protection of the section can claim the benefit of the section. The first condition is that the transaction should be before the date of the receiving order; and the second is that the person who seeks the protection of the section should have had no notice of any available act of bankruptcy committed by the bankrupt before the transaction. In the Indian Act the conditions are to be found in the proviso (1) that the transaction takes place before the date of the order of adjudication (that corresponds with the first condition of the English Act because we have no receiving order here) and (2) that the person with whom the transaction takes place had not at the time notice--not, as under the English law, of any available act of bankruptcy, but notice of the presentation of any insolvency petition by or against the debtor. It may be a matter for regret that the Indian legislature has departed from the English law; but we have to administer the law as we find it,

6. The questions we have to consider, are, can Mr. Grant bring himself within the protecting words of the section? (For a moment I leave out of consideration the question of bona fides.) If so, is his protection cut down by the words of the proviso? It is clear that if Mr. Grant brings himself within the protection of the section, his protection is not in any way affected by the proviso. Under the English law it would be otherwise, because at the time of the transaction he had notice of an act of bankruptcy. It is contended that the transaction is protected because Mr. Grant's clients did not have notice of the presentation of an insolvency petition (as a matter of fact the petition was not presented till after the transaction). The question is, was the transaction a contract or dealing by or with the insolvent for valuable consideration? We have been referred to the decision of the Court of Appeal in In re Wright, Exparte Arnold (1876) 3 Ch. D., 70. There the holder of a bill of sale took possession of the property comprised in the bill of sale after the filing of the petition. It was argued that there was no consideration for the taking possession of the property by the creditor. With reference to this point Lord Justice Mellish says: 'In my opinion a taking of goods out of the bankrupt's possession under the power conferred by a bill of sale, which was originally given to secure a debt, is a dealing for valuable consideration and is therefore within the protection of Section 94.' On the authority of that case I hold that this transaction or dealing, which took place on the 19th of December, was a transaction with the insolvent for valuable consideration. Mr. Chamier has ingeniously tried to distinguish the facts of the present case on the ground that here all that the bank had power to do under the letters of lien was to call upon the debtor to deliver the goods whereas In re Wright, Ex parte Arnold (1876) 3 Ch. D., 70 the creditor had power to take possession. But for the purposes of the question we have to decide, I think, with all respect to Mr. Ghamier, that this is a distinction without a difference. If this transaction with the insolvents was for valuable consideration, the bank is not hit by the proviso because they had no notice of the presentation of a petition, since no insolvency petition had been presented.

7. Then we come to the question of bona fides. That seems to me to be the most difficult point in the case. In the corresponding section of the English Act of 1849 and of the English Act of 1869 we find the word 'bona fide' or words to that effect, in the body of the section. In Section 49 of the English Act of 1883 and in Section 57 of the Indian Act we do not find the word 'bona fide,' although we find it in the marginal note. It seems to me a reasonable view, a view which I at one time in the course of the argument was disposed to take, that the only question of bona fides which could arise in connection with the construction of Section 57 of the Indian Act would be the question whether the transaction was a real transaction, and, if so, whether it was protected by the words of the section. It may be argued with some force that a transaction, which may be contrary to the policy of the Bankruptcy law, is a good transaction unless it can be impugned under some express statutory enactment. But, having regard to the English authorities, I do not think we can take this view. I need scarcely say that when we are construing an Act which in many instances is taken, word for word, from an English Act and when we are dealing with a branch of law which is essentially English law, though we may not be actually bound by, yet we ought certainly to pay the greatest respect to, the decisions of the English Court of Appeal. Our attention has been called to authorities to show that the Court is bound to consider whether a transaction is contrary to the policy of the Bankruptcy law, although it does not come within the four corners of any particular section. I propose to deal with the authorities very shortly.

8. Mr. Justice Wallis referred to the observations of the Court of Appeal in In re Wright, Exparte Arnold (1876) 3 Ch. D., 70 They are obiter and they were no doubt made in a case decided at a time when giving notice that a man was going to suspend payment was not in itself an act of bankruptcy.

9. We have also some other authorities. There is In re Slobodinsky, Exparte Moore (1903) 2 K.B., 517 in which we find very strong observations of Mr. Justice Wright, on page 525: 'The effect of the trustee's title by relation back under Section 43 is excluded by Section 49 of the Bankruptcy Act, if there has been a contract, or conveyance, or assignment for valuable consideration, provided that the transferee has not at the time notice of any available act of bankruptcy; and although the words 'in good faith' do not occur in the section they must be deemed to be inserted, because in all former Acts those words have been inserted, and it has been since held that the omission was not intended to make any difference, and that the person who takes the conveyance of a debtor's property cannot claim the benefit of Section 49 if he had notice of anything wrong or anything that really put him upon enquiry.' We have In re Jukes, Ex parte Official Receiver (1902) 2 K.B., 58, a decision to the effect that a creditor who takes a transfer of the whole of the property of his debtor in payment of a past debt with notice that there are other creditors, cannot be said to be acting in good faith and is therefore not entitled to the protection of Section 49 of the Bankruptcy Act. No doubt in this case the transaction was held bad as a fraudulent preference. Mr. Justice Wright in distinguishing Shears v. Goddard (1896) 1 K.B., 406 says with reference to the purchasers there: 'They were purchasers in good faith and for valuable consideration. But I cannot help thinking that if a creditor of a debtor takes the whole, or substantially the whole of the property of his debtor in payment of a past debt, and knowing that there are other creditors he cannot be said to be acting in good faith. On the whole, therefore, I hold that the transaction in this case is not protected by Section 49 of the Act.'

10. There is another case--In re Badham, Exparte Palmer (1876) 10 Morrell, 252. There it was contended that the transaction which would have been a fraudulent preference if it had been carried out before the commencement of the bankruptcy was not a fraudulent preference because it was carried out after the commencement of the bankruptcy, the party relying on the transaction having had no notice of any act of bankruptcy. Mr. Justice Vaughan Williams says at page 257: 'I wholly dispute and deny that because Section 48 defines the circumstances under which I may avoid a fraudulent preference, it follows that I am bound to accord the protection of Section 49 to those cases which fall outside Section 48. It is in effect said that in every case which does not fall within Section 48 I am bound to give the benefit of Section 49. I do not agree. In my opinion I am not bound to give the benefit of Section 49 to any transaction which is contrary to the policy of the Bankruptcy laws.' Later the learned Judge says: 'It is, in effect, a common law fraud to make a payment contrary to the. Bankruptcy laws, and I do not intend to give the benefit of the protecting section to any such transaction.' Mr. Grant on behalf of the bank called our attention to a later decision of Mr. Justice Bigham in In re Dunkley and Son, Ex parade Waller (1906) 2 K.B., 683, in which it would seem the learned Judge followed the judgment in In re Badham, Ex parte Palmer (1876) 10 Morrell, 252 rather reluctantly.

11. But the learned Judge, in upholding the transaction in the case before him observed that the transaction not being tainted with bad faith as appeared to have been the case in In re Badham, Ex parte Palmer (1876) 10 Morrell, 252 he saw no reason why the creditor should not have the benefit of the protection afforded by Section 49.

12. Now in view of those English authorities I do not think we can hold that a creditor who enters into a transaction with his debtor with the knowledge that that debtor had committed an act of bankruptcy, at the time the transaction was entered into can claim the benefit of Section 57 of the Indian Act.

13. It was contended by Mr. Chamier on behalf of Messrs Rosham and Company that this transaction under which the bank took possession of these goods was a fraudulent preference. This question need not be considered, but I do not think the transaction was a fraudulent preference, See Ex parte Symmons. In re Jordan (1880) 14 Ch. D., 693. Then there was a good deal of argument with reference to Section 178 of the Contract Act. In the view we take in this case that question does not arise for consideration.

14. The result will be that Mr. Chamier's appeal on behalf of Messrs. Ronham and Company and Mr. Grant's appeal on behalf of the bank must both be dismissed but without costs. The Official Assignee will be allowed to take his costs out of the estate; costs on the original side scale.

Sankaran Nair, J.

15. I concur.


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