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Guntur Narasimham and anr. Vs. Nyapati Narayan Rao Garu - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1926Mad66
AppellantGuntur Narasimham and anr.
RespondentNyapati Narayan Rao Garu
Cases ReferredThree Towns Banking Company v. Maddevar
Excerpt:
.....thereof, it would have to be held that the right to sue had not only accrued to him, but has terminated as well, before he himself knew anything about the transaction, which would mean that the creditor would have no opportunity of avoiding the transfer at all. 280, the learned judge says :that the cause of action arises on the date when the creditor seeking to set aside the alienation knows that he has been defeated, defrauded, or delayed. it is true that, if a creditor obtains a decree in a suit under section 53, that decree accrues to the benefit of the other creditors as well, but i think section 53 confers on each of the creditors the right of bringing a suit on his own behalf......remain, on this construction, a dead letter. further, if the date of alienation is the starting point, creditors may become barred, for no fault of theirs, as it is very likely that they may not in time become aware of the transaction itself without even, be it noted, any active steps being taken by the debtor to conceal the transaction from his creditors.7. lot me now take the second theory suggested, the date of knowledge being the starting point as i have said, it matters little to a creditor that his debtor has alienated some of the properties. why should a creditor be driven to embark on litigation, merely because it has come to his knowledge that his debtor has entered into a transaction not above board? the property still remaining as i have said, may suffice or they may hope.....
Judgment:

Venkatasubba Rao, J.

1. The question to be decided in this appeal is one of' limitation. This suit was filed under Section 53 of the Transfer of Property Act. The plaintiff being the Receiver in insolvency represents the body of creditors of the insolvent. The transaction impeached is a mortgage, dated 27th July 1908, executed by the insolvent in favour of the defendant. The suit was filed on the l5th February 1918.

2. The first question that arises is : What is the article that is applicable? Article 120 seems to he the appropriate article. The decisions seem to be to the same effect : See Autkikesavaloo Naicker v. Hussain Sahib Kadiri [1915] 2 L.W. 479 and Venkateswara Aiyar v. Somasundaram Chettiar [1918] 7 L.W. 280. It was conceded before us, and in my opinion rightly, that the article applicable is Article 120. The more difficult question, however is : What is the starting point of limitation? On this point, there is no authority. Phillips, J., in Venkateswara Aiyar v. Somasundaram Chettiar [1918] 7 L.W. 280 expressed the view that the time runs from the date when the plaintiff had the knowledge of the facts entitling him to relief. This though, an obiter dictum, is entitled to great weight as the point was fully considered by him. Krishnan, J., in the judgment under appeal, as I understand it, is not quite definite on the point. He thinks that limitation runs from the date when the creditor exercises his option ; in the alternative, from the date when he has knowledge of the facts that give him a right to relief. As I read his judgment, he is more inclined to take the former than the latter view. It seems to me that he expressed the alternative view, as on the facts, whichever view was taken, the same result followed. Krishnan, J., having held that the suit was filed in time, the defendant has filed this appeal and Mr. Jagannadha Das has argued the case very fully on his behalf. His contention is that the date of alienation gives the starting point. He supports his contention by relying on what I may describe as grounds of convenience. Before adverting to these grounds, I shall deal with the point with reference to the two provisions of law that have a bearing viz...Section 53 of the Transfer of Property Act and Article 120 of the Limitation Act, Under Section 53, a transfer that offends against the rule enacted in it s voidable at the option of any person de frauded, defeated or delayed. Under Article 110 the suit may be brought within six years of the date when the right to sue accrues. The question resolves itself into this. When does the right to sue accrue? If the transaction is voidable at the option of a creditor, he may avoid it at any time at his pleasure. Section 53 does not say that, after the lapse of a certain time, ho shall not be able to avoid the transaction, it docs not prescribe a limit of time. What then constitutes the exercise of the option? In the words of Wallis, C.J., in Ramaswami Chettiar v. Mallappa Reddiar [1920] 43 Mad. 760 a voidable transaction may be avoided by any open or unequivocal declaration of an intention to avoid it, see page 769. The right to sue accrues when this option is exercised. Under Article 120 the suit may be instituted within six years from the date when the right to sue accrues. As that right accrues, as I have shown, when the plaintiff' exercises his option, the suit may be filed within six years from the date of the exercise of the option, The proper construction of the sections compels us to take this view and it seems to me that this is what Krishnan, J., intended to hold. If so, I entirely agree with him.

3. The alternative view, namely, that time begins to run from the date when the plaintiff becomes aware of the facts that entitle him to relief, found favour with Phillips, J., in Yenkateswara Aiyar v. Somasundaram Chettiar [1918] 7 L.W. 280. But a perusal of his judgment shows that only two theories were put forward before him, namely : (1) the date of alienation gives the starting point and (2) the date of knowledge. These were the two rival views that were placed before him and he preferred the view that knowledge gives the starting point. His judgment leaves no doubt in my mind that, if what may be compendiously described as the option theory was suggested to him, be would have gladly adopted it. Indeed in this connexion he uses the word ' option,' but does not go the necessary length. Section 53, it is needless to point out, does not take note of knowledge at all. It speaks of option and not of knowledge. Under Article 95 of the Limitation Act, which relates to a suit for relief on the ground of fraud, knowledge no doubt would be a material element, for the prescribed period of 3 years runs from the date when the fraud becomes known to the party wronged. But the suit contemplated by Section 53 is not one for relief on the ground of fraud, and the knowledge of fraud, to which Article 95 refers, is therefore not a material circumstance. Moreover, it is not necessary that there should be actual fraud to invalidate a transaction under Section 53, as the second clause of that section shows, which runs as follows:

Where the effect of any transfer of immovable property is to defraud, defeat or delay any such person and such transfer is made gratuitously or for a grossly inadequate consideration, the transfer may be presumed to have been made with such intent as aforesaid.

4. In my opinion, therefore, fraud or knowledge of fraud is not a relevant consideration.

5. On a strict construction of the sections I have arrived at this result, and it is a matter for satisfaction that considerations of convenience and justice point to the same conclusion. From this point of view, I shall next deal with the three different standpoints suggested.

6. First, let me take the date of alienation being the starting point. Section 53 refers to an intention to defraud prior or subsequent transferees, co-owners and creditors. I shall take the case of creditors, as this is the most usual case. It is settled that the benefit of the section is not restricted to existing creditors alone. Even subsequent creditors may impeach the transaction. Suppose then, a trader makes an alienation of the property which offends against the terms of this section. Why should any creditor call in question the alienation, if the trader is possessed of sufficient funds to satisfy him? Why should a subsequent creditor be barred, although the alienation was made long previous to his debt having come into existence? Creditors are not generally interested in impugning the transaction entered into by their debtor. In spite of the fact that a property worth Rs. 10,000 has been alienated the debtor may yet be possessed of assets worth lakhs, and why should any creditor, take the trouble of impugning the alienation? Or again, the debtor may have alienated the property, but may still be expected to make large profits or to amass large wealth. The creditors are only concerned with this that the debtor must one day be in a position to repay the amounts due. To say that the right to avoid a transaction becomes barred at the lapse of six years from the alienation is practically to throw upon them the burden of impeaching every suspicious transaction, although for the time being, it may not be necessary to adopt this course of conduct. In the case of subsequent creditors whose interest accrues at a period too remote the section will remain, on this construction, a dead letter. Further, if the date of alienation is the starting point, creditors may become barred, for no fault of theirs, as it is very likely that they may not in time become aware of the transaction itself without even, be it noted, any active steps being taken by the debtor to conceal the transaction from his creditors.

7. Lot me now take the second theory suggested, the date of knowledge being the starting point As I have said, it matters little to a creditor that his debtor has alienated some of the properties. Why should a creditor be driven to embark on litigation, merely because it has come to his knowledge that his debtor has entered into a transaction not above board? The property still remaining as I have said, may suffice or they may hope that the debtor may in time rally and no creditor can be expected to have before him a balance sheet disclosing actually the debtor's affairs.

8. The view then I have taken, namely, that the exercise of the option is the starting point imposes no unnecessary burden on the creditors. When they find that their interests demand that the transaction should be set aside, they exercise the option and avoid the transaction. Moreover, it is now settled that the option may be exercised otherwise than by the institution of a suit. Firstly, a creditor may attach the property alienated and he may do so, whatever may be the length of time that has lapsed from the date of alienation. Secondly, if on attachment, the transferee prefers a claim under Order 21, Rule 58, Civil P.C, and the claim is allowed, the judgment-creditor may file the statutory suit prescribed by Rule 63, without regard again to the lapse of time from the date of alienation : See Pokker v. Kunhamad [1919] 42 Mad. 143. Thirdly, if the claim is, on the other hand, disallowed and the transferee files the suit under Rule 63, the creditor may defend it by showing that the transaction was in fraud of creditors : See Ramaswami Chettiar v. Mallappa Reddiar [1920] 43 Mad. 760. In all these cases, the creditor exercises the option without resorting to suit, under Section 53, and it would be anomalous to hold that, although his right to file a suit is barred, his right still subsists to question the transaction by these other methods.

9. Mr. Jagannadha Doss strongly argued that the starting point should not be made to rest upon such a shifting ground as. exercise of option. I see nothing objectionable in this. To take another instance from the Limitation Act, under Article 60: the period of limitation for a suit to recover money deposited under an agreement that it shall be payable on demand, is three years from the date when the demand is made. The making of the demand is entirely dependent upon the volition of the plaintiff and the period of limitation may be indefinitely prolonged and a suit may be instituted without even a demand being made, in which case no question of limitation arises. The exercising of the option is antilogous in this respect to the making of the demand and the option may be exercised by the filing of the suit itself, in which case the question of limitation will likewise not arise. Mr. Jagannadha Doss, in his exhaustive argument, contended that this will be a startling result. I do not, in the least, agree with him. On the other hand, the English cases show that this is assumed to be the normal position. In re, Maddaver Three Town Banking Co. v. Maddaver [1884] 27 Ch. D. 523 a creditor brought an auction to set aside a conveyance several years after it was made, and although he had been aware of the facts during the whole period and gave no satisfactory reason for his delay, the . Court of appeal held, affirming North, J, that his right to impeach the transaction was not barred. The only limitation recognized is that the debt should be subsisting. North, J., puts it thus:

Where parties have been merely non-active, I do not see any reason why they should not take proceedings at any time, while the debt is a subsisting debt. The time might have arrived when the Statute of Limitations would be a bar, and, of course, when the debt was gone, no proceedings could be taken in respect of it.

10. Cotton, L.J., observes:

The plaintiffs in this case say : 'We are creditors whose debt is not barred and we seek payment out of property conveyed away by the debtor by a deed which the statute of 13, Eliz. C. 5, makes void as against us. The defendant relies on the delay of the creditor, but I am of opinion that this defence is not effectual.

11. See also May on Fraudulent Conveyances, page 120, where the learned author says:

Since the right of a creditor to set aside a deed under 13 Bliz. C. 5, is a legal right and not merely a right to get aside the instrument on equitable grounds, the fact that the creditor has delayed to take proceedings to set aside the deed under that statute, although with full knowledge of the facts, is immaterial, so long as the delay has not been such as to create a statutory bar. Until the right to recover the debt is barred by the Statutes of Limitations, the legal right to avoid the deed exists, and no equity arises from the mere delay to enforce it.

12. Mr. Jagannadha Doss next contended that the nature of the action is representative and if one creditor is barred the whole body of creditors becomes barred. May a creditor bring a suit on his own behalf or must the suit be brought on behalf of all the creditors? This question does not strictly arise, although I may say that on this point the preponderance of authority, so far as Madras is concerned, is in favour of the view that a creditor may bring such a suit on his own behalf. See Krishnan, J's. judgment in Pokker v. Kunhamad [19191 42 Mad. 143 and Justice Sadasiva Aiyar's observation at p. 781, in Ramaswami Chettiar v. Mallappa Reddiar [1920] 43 Mad. 760. Again under Section 11, Explanation 6, Civil Procedure Code, the section relating to res judicata, the result of a suit brought by one creditor, bona fide contested, may be binding on the transferee and on the general body of creditors. I express no opinion on this. But, assuming that, when there has been a suit, the principle of res judicata applies, it does not by any means follow that the inaction of the creditor, that is to say, his failure to file a suit within six years of his exercising the option, bars the general body of creditors. Under Section 53 of the Transfer of Property Act;

Any person so defrauded, defeated or delayed may avoid the transaction.

13. An individual right is conferred upon each creditor by this section and the inaction or laches of one cannot deprive the others of their rights. The learned vakil for the appellant relied on the analogy furnished by Varamma v. Gopaladasayya [1918] 41 Mad. 659 where, by reason of the nearest reversioner failing to sue, within the time limited, to set aside an alienation by a Hindu widow, all the reversioners existing as well as subsequently born were barred by limitation. The matter is not in parimateria. Special considerations apply in the ease of suits by reversioners and the analogy is misleading.

14. As the Receiver represents all the creditors, granting that the inaction of one may lead to the result contended for, it must be observed that, in this ease, it is not suggested that any particular creditor exercised his option at a time too remote for the suit to be brought. Therefore, though I have dealt with the matter at some length, the question as to the nature of the suit under Section 53, Transfer of Property Act, does not, as I have said, on the facts arise.

15. I hold that the suit is not barred by limitation.

16. It is lastly urged that the suit is quite a frivolous one, as appears from the previous proceedings that transpired in insolvency, but this is a matter we cannot go into, as the suit remains to be tried on the other issues in the case.

17. The only order as to costs that we propose to make is that they shall abide the event.

Madhavan Nair, J.

18. I agree with my learned brother that the plaintiff's suit in this case is not barred by limitation, but with regard to the grounds for that decision, I regret 1 have to differ from him.

19. I agree that a creditor's suit under Section 53 of the Transfer of Property Act is governed by Article 120 of the Indian Limitation Act ; but I think that the starting point for limitation is not the date on which the creditor exercises the option to avoid the transfer, but it is the date on which the circumstances entitling the creditor to have the transfer avoided first become known to him. The result of holding that the starting point for limitation is the exercise of option by the creditor is that the creditor, in that case, would be entitled to wait any number of years he pleases before bringing the suit, which would mean that in effect, there would be no period of limitation at all for a suit under Section 53 of the Transfer of Property Act. Having regard to the spirit and provisions of the Indian Limitation Act which contains also a residuary article for all suits not specifically provided for, I think that we should not construe Section 53 of the Transfer of Property Act in such a way as to have the abovementioned effect, unless the language thereof clearly compels us to adopt such a construction.

20. Section 53, of the Transfer of Property Act runs as follows:

Every transfer of immovable property made with intent to defraud prior or subsequent transferees thereof for consideration, or co-owners or other persons having an interest in such property, or to defeat or delay the creditors of the transferrer, is voidable at the option of any person so defrauded, defeated or delayed.

21. The sole basis, as it appears to me, for the view that the starting point of limitation is the date of the exercise of option by the creditor is the use of the expression, at the option ' in the above section. In my opinion, it is not necessary nor is it right to interpret that expression in such a way as to make the exercise of option the starting point. The same expression occurs in Sections 2 Clause (i), 19 and 19(A) of the Indian Contract Act. There it, has been used simply to indicate at whose instance it is that the transaction referred to therein is voidable and has no reference at all to any question of limitation for Article 114 of the Limitation Act pro-vides that the period of limitation for a suit for the rescission of a contract commences from the date when the facts entitling the plaintiff to have the contract rescinded first became known to him. I think that the words ' at the option of ' which occur in Section 53 of the Transfer of Property Act should also be construed in the same manner and the question whether a suit under that section is barred should be judged solely from a consideration of Article 120 of the Limitation Act.

22. Under Article 120 the time from which the period begins to run is ' when the right to sue accrues ' I agree with my learned brother that the date of the transfer (alienation) sought to be avoided can-not be the starting point for limitation. If we hold that the date of the transfer is the starting point, then, in a case where the creditor comes to know of the transfer only more than 6 years after the date thereof, it would have to be held that the right to sue had not only accrued to him, but has terminated as well, before he himself knew anything about the transaction, which would mean that the creditor would have no opportunity of avoiding the transfer at all. It is not therefore right to hold that the starting point of limitation is the date of alienation. When once the creditor comes to know of the circumstances which entitle him under Section 53, be avoid the transfer, there can be no further impediment in the way of his bringing the suit and I think the right to. sue accrues to him within the meaning of Article 120, from the date of such knowledge. This view finds support in the judgment of Phillips, J., in Venkateswara Aiyar v. Somasundaram Chettiar [1918] 7 L.W. 280, the learned Judge says :

That the cause of action arises on the date when the creditor seeking to set aside the alienation knows that he has been defeated, defrauded, or delayed.

23. It is true that it is not specifically stated in Article 120 that this is the starting point and that only the general expression 'when the right to sue accrues' occurs in that article, but it is a residuary article for all suits not specifically provided for and, as such, the language thereof has necessarily to be general. The interpretation to be put on that expression would, to a certain extent, depend on the particular class of cases to which the article is sought to be applied. As observed by Phillips, J.:

In all cases of fraud, misconduct, etc., the period of limitation for a suit begins to run from the time when the fraud, misconduct, etc., becomes known ; (vide Articles 90, 91, 95, 96 etc.,) but no such provision could be inserted in Article 120, for it is a residuary article and thus applicable to every variety of suit not otherwise provided for and is not confined to suits based on fraud. If such a suit coming within Article 120 is based on fraud, the time when the right to sue accrues, must, I think, be determined in consonance with the principle governing the other specific suits based on fraud, and that is, that the time, when the fraud becomes known, becomes the starting point for limitation.

24. No doubt, it is stated by the learned Judge that a suit by a creditor under Section 53 depends upon the exercise of option by him, but he states this, in order to negative the contention that the right to sue accrues on the date of alienation itself. I think, Krishnan. J., also, in the judgment under appeal, takes the same view ; for he observes thus in the concluding portion of his judgment:

The Receiver himself puts the cause of action as having arisen on the 31st July 1915, when one Sambiah and others learnt that the suit mortgage deed was a collusive document. It does not appear that Sambiah knew it earlier. Taking this view, it seems to me that the suit is not barred by limitation.

25. It is true that the learned Judge makes reference in an earlier portion of his judgment to the exercise of option by the creditor or by the Receiver, but the contest shows that he is there considering the question as to whether each of the creditors has got a separate right of suit under Section 53, or whether, if one creditor is barred by limitation from bringing the suit, the rest are also barred ; and I think that he did not intend to lay down that the exercise of option is the starting point for limitation. The decision in In Re Maddevar, Three Towns Banking Company v. Maddevar [1884] 27 Ch. D. 523 does not, in my view, help us in deciding the present question. That case merely decides that delay on the part of the creditors to take proceedings even after full knowledge of the facts, is immaterial provided the delay is not such as to create a statutory bar.

26. It is true, as pointed out by my learned, brother, that there would be some anomaly if a creditor is allowed to set out, in a suit under Order 21, Rule 63 of the Code of Civil Procedure, the fraudulent nature of the transfer as against the claimant, even though he may be barred by limitation from bringing a suit under Section 53 to have the transfer avoided, but it appears to me that the anomaly would still exist, even if we adopt the ' option theory ,' for, supposing the creditor exercises the Option on a particular date and keeps quiet for more than 6 years without bringing a suit, under Section 53, I take it that in proceedings under Order 21, Rule 63, such creditor may still set up the fraudulent nature of the transfer as against the claimant. This consideration, therefore, does not in my view give me any help in solving the present question.

27. For the reasons above stated, I am of opinion that the starting point for limitation is the date on which the circumstances entitling the creditor to have the transfer avoided first become known to him. In view of the fact that a few of the creditors in this case knew of the fraudulent character of the alienation in 1909, i.e., more than six year3 before the suit, it becomes necessary to consider whether the creditor's right of suit under Section 53 is an individual right which each individual creditor has or whether it is only a representative right in the sense that if one creditor is barred by limitation from bringing the suit, the others are also barred. I agree with my learned brother in thinking that the right of suit under Section 53 is an individual right which each creditor has. It is true that, if a creditor obtains a decree in a suit under Section 53, that decree accrues to the benefit of the other creditors as well, but I think Section 53 confers on each of the creditors the right of bringing a suit on his own behalf. As the Receiver represents the whole body of the creditors and as some at least of the creditors knew that the suit mortgage deed was a collusive document only within 6 years of the suit, I hold the suit by the Receiver is not barred by limitation.

28. In the result I agree that this appeal should be dismissed. I agree with him as regards the costs also.


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