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V.E.R.M.K. Krishnan Chettiar by Agent Rama Ayyangar Vs. P.L.P. Devarayan Chettiar - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Reported inAIR1940Mad228; (1940)1MLJ786
AppellantV.E.R.M.K. Krishnan Chettiar by Agent Rama Ayyangar
RespondentP.L.P. Devarayan Chettiar
Cases ReferredArunachalam Chettiar v. Official Receiver
Excerpt:
.....insolvency act in respect of the insolvent's interest in the property yet the transaction must be held to be binding on the shares of the minor sons of the insolvent on whose behalf also he had executed the..........an appeal in the following circumstances. the official receiver of coimbatore applied before the learned subordinate judge of coimbatore under sections 53 and 54 of the provincial insolvency act to annul, on the ground of fraudulent preference a mortgage deed executed by a person whose estate was, after his death, adjudicated insolvent. the mortgage deed was executed on the 7th july, 1931 in favour of the petitioner here who was the respondent in the court of the subordinate judge. the petition to have the mortgagor adjudicated insolvent was presented on the 9th september, 1931. subsequently the mortgagor died, and after his death, adjudication took place after his sons were brought on record to represent his estate. the learned subordinate judge held on the evidence before him that no.....
Judgment:

Kunhi Raman, J.

1. This is a petition to revise the order of the learned District Judge of Coimbatore allowing an appeal in the following circumstances. The Official Receiver of Coimbatore applied before the learned Subordinate Judge of Coimbatore under Sections 53 and 54 of the Provincial Insolvency Act to annul, on the ground of fraudulent preference a mortgage deed executed by a person whose estate was, after his death, adjudicated insolvent. The mortgage deed was executed on the 7th July, 1931 in favour of the petitioner here who was the respondent in the Court of the Subordinate Judge. The petition to have the mortgagor adjudicated insolvent was presented on the 9th September, 1931. Subsequently the mortgagor died, and after his death, adjudication took place after his sons were brought on record to represent his estate. The learned Subordinate Judge held on the evidence before him that no case of fraudulent preference was made out and that the mortgage was executed as a result of pressure which the mortgagee who was a bona fide creditor of the insolvent brought to bear on him. To the mortgage the minor sons of the insolvent were also parties and the point was raised before the learned Subordinate Judge that even if it be found that there was fraudulent preference, the mortgage must be held to be binding on the shares of the minor sons of the insolvent. Since the Subordinate Judge found that there was no fraudulent preference, he states in his judgment that it is unnecessary to consider the second point that was pressed before him on behalf of the mortgagee.

2. As already stated, the proceedings before the Subordinate Judge were started by the Official Receiver of Coimbatore. From the decision of the Subordinate Judge an appeal was preferred to the District Court of Coimbatore. This was done, not by the Official Receiver but by one of the Creditors of the insolvent who it is conceded was entitled to do so. The learned District Judge has allowed the appeal holding that all the Circumstances point to the fact that the insolvent, while unable to pay his debts, had with a fraudulent motive given preference to one of his creditors by executing the mortgage deed. This finding of the learned District Judge is attacked in revision.

3. The learned Advocate for the mortgagee petitioner argues that the lower appellate Court does not seem to have applied its mind at all to one of the most imporant documents relied upon by the petitioner in both the Courts below in support of the contention that there was pressure exercised by the creditor in whose favour the mortgage deed was executed. This document is Ex. V which would show that the mortgagee was pressing the mortgagor for payment of the debts which both the lower Courts have found were lawfully due to him and were in addition old debts due to him by the mortgagor. This letter which bears date 18th June, 1931 shows also that the creditor was threatening to file a suit. In this letter the mortgagor therefore appeals to the creditor not to sue him. He says that he is prepared either to sell or mortgage his lands and points out that even after money is expended in riling a suit and obtaining a decree against him the creditor can ultimately proceed only against these properties. He points out further that when he is willing to give these properties as security there is no need for the creditor to resort to litigation. The genuineness of this letter was not questioned before the lower Courts. The learned Subordinate Judge relied upon this letter and the oral evidence adduced before him. There is the evidence of the Official Receiver's own witness P.W. 3 who was a gumastah employed in the mortgagee's shop on the date the mortgage was executed but whose services were dispensed with subsequently. On the date on which the witness was examined before the Subordinate Judge he was not in the service of the mortgagee. His evidence is that he had attested the mortgage deed Ex. I that the mortgagee had made a demand and that the debtor had said that he would execute a mortgage. The witness said at first in examination in chief that 'no pressure was brought to bear on the debtor'. In cross examination he states that his master's firm was making demands for payment and that it was after that that the mortgage-deed was executed. He also admits that the creditor was threatening to sue the debtor. A day prior to the execution of the mortgage deed a vanthamanam letter was passed by the debtor to the creditor in which the former asked for a month's time to pay off the debt. In spite of that he was made to execute the mortgage on the fallowing day. The respondent's first witness has given an explanation for this expeditious passing of the security and this has been accepted by the learned Subordinate Judge. It was that the witness who was one of the persons responsible for obtaining the mortgage deed was afraid that his master, the creditor, might object to a month's time being given to the debtor to pay his debts and therefore a day after the varthamanam letter was passed, the mortgage deed was taken from the debtor. It may be mentioned here that it was a second mortgage.

4. The law on the subject of fraudulent preference is summarised in Mullah's Law of Insolvency at pages 443 and 448. Regarding the test to be applied, this is what the learned author says,

In order to avoid a transaction as fraudulent preference it is not sufficient that the creditor was preferred; it is essential that the transfer or payment was made with a view to give preference to that creditor over the other creditors. The view to prefer must have been the dominant or substantial view; it is not necessary that it should have been the sole view.

5. Again at page 448 occur the following sentences.

The transfer or payment made under a threat of legal proceedings whether civil or criminal, does not amount to a fraudulent preference, even though there is no immediate power of rendering the threat available by taking legal steps. Similarly a transfer or payment made under an apprehension of legal proceedings even though there has been no threat, demand or pressure from the creditor, does not amount to a fraudulent preference.

6. The case reported in Ranga Reddy v. Official Receiver, Anantapur : AIR1938Mad177 , is strongly relied on by the petitioner's learned Advocate in support of his contentions. That was a case in which the debtor had executed a sale deed in favour of his nephew and son-in-law who was one of his creditors. At the trial the vendee even stated in cross examination that as he was the debtor's son-in-law the debtor wanted to pay him first. In spite of these circumstances it was held, applying the test laid down by Bowen L.J. in the case reported in Ex parte Hill : In re Bird (1883) 23 Ch. D. 695, that the debtor had no idea of giving preference to the creditor, that such an idea was not the operative effectual view and that consequently there was no fraudulent preference of the creditor. The learned advocate for the respondent contends that in this decision the debtor had already committed a criminal offence and that it was to avoid the consequences that he executed the sale deed in question; but whether the proceedings threatened were civil or criminal will not according to the decision make any difference. So long as there was threat of civil proceedings to avoid which the debtor has made the alienation and so long as his dominant motive was not to fraudulently prefer a particular creditor the validity of the alienation cannot be challenged under Sections 54 and 55 of the Provincial Insolvency Act. The case reported in Arunachalam Chetiiar v. Official Receiver, Tanjore : (1925)49MLJ562 , which is relied on by the learned advocate for the respondent seems to have no application to the present case. As contended by the learned Advocate for the petitioner the question whether there was fraudulent preference or not is mainly a question of fact and it will depend upon the circumstances of each case. In the case in Arunachalam Chettiar v. Official Receiver, Tanjore : (1925)49MLJ562 , it was found by the learned Judges that one of the mortgage deeds executed by the debtor was undoubtedly a fraudulent transaction and that it was impossible in deciding the question of the debtor's motive in respect of another mortgage executed at or about the same time to treat the two transactions as absolutely distinct and separate from each other. There was a distinct finding in that case that the facts disclosed that at the time the alienation was made by the insolvents they were in desperate circumstances and were trying to part with their assets recklessly and desperately not caring what the consequence might be.

7. In the present case on the evidence placed before him the learned Subordinate Judge had arrived at the conclusion that the dominant motive of the debtor when he executed the mortgage was not to prefer the mortgagee to his other creditors but that the debtor was compelled to execute the mortgage deed under a threat of legal proceedings which would have led to costs being incurred by the debtor. The existence of the debt was not disputed. Even the learned District Judge states in his judgment that the consideration for the mortgage was not assailed before him. It seems to me in these circumstances that there was no warrant for the District Judge interfering with the finding of fact arrived at by the learned Subordinate Judge that in this case there was no fraudulent preference. The learned District Judge seems to have fallen into an error because he does not seem to have applied his mind to Ex. V, the genuineness of which was not attacked at any stage and which shows unmistakably that the creditor was, pressing for payment and was threatening to file a suit against the debtor shortly before the execution of the mortgage deed. One of the reasons that induced the learned District Judge to hold that there was no pressure or threat of legal proceedings seems to be what is stated in paragraph six of his judgment namely that the creditor did not even send a registered notice to the insolvent threatening him with a suit. The conclusion is irresistible that had the learned Judge looked at Ex. V he would certainly have been satisfied that the creditor was threatening to sue the debtor and the debtor was appealing fervently to the creditor not to resort to litigation. In these circumstances I am satisfied that the view taken by the learned Subordinate Judge is correct and that there was no valid reason for setting aside his decision.

8. Another defect in the learned District Judge's judgment is brought to my notice and that is that he has failed to deal with the second point that was raised before the learned Subordinate Judge, namely, that even though the mortgage is found to be fraudulent within the meaning of Sections 54 and 55 of the Provincial Insolvency Act in respect of the insolvent's interest in the property yet the transaction must be held to be binding on the shares of the minor sons of the insolvent on whose behalf also he had executed the mortgage. This is a serious omission, but in view of the finding that I have recorded about the nature of the alienation it is not necessary to say anything more about it; nor is it necessary now to consider the question of the validity of the mortgage in respect of the shares of the insolvent's sons, since the finding of the learned Subordinate Judge is upheld here. I therefore set aside the decision of the learned District Judge and restore that of the learned Subordinate Judge. The petitioner shall have his costs both here and in the lower appellate Court.


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