1. The plaintiff obtained a sale-deed from one Veeravasantha Chetty in 1906. The property was afterwards attached by the defendants for a debt due to them. The plaintiff then put in a claim petition and subsequently instituted this suit for a declaration of his rights under the sale-deed. Defendants contended that the sale-deed was not supported by consideration, that it was colourable and executed to defraud the creditors of the vendor. The District Munsif upheld the defendants' contention. He gives in his judgment several reasons in support of his view. He says that Veeravasantha Chetty disposed of all his properties about the time that the sale-deed was executed, that he was deeply involved in debts, that the plaintiff was his brother and that the vendor suspended business shortly after he executed the sale-deed. He also points out that though the sale-deed sets out that the object of selling the property was to discharge the debts due to certain Madras creditors, those creditors had, as a matter of fact, made no demand for their debts, and that more than a month elapsed after the execution of the sale-deed before payment to them was made. None of them was present either personally or by proxy at the execution of the sale-deed. He came to the conclusion that, as a matter of fact, Veeravasantha Chetty did not pay the debts to the three creditors mentioned in the sale-deed out of the money received from the plaintiff. He found the 1st issue, 'whether the plaint sale is genuine and supported by consideration or whether it is colourable and was executed in fraud of creditors concerned,' in the affirmative. Whether he meant that, although the consideration was paid before the Sub-Registrar, it was not retained by the vendor or whether ha meant that in order to defeat the creditors, Veeravasantha Chetty converted his immoveable property into cash so as to place it beyond the reach of his creditors, is not clear from his judgment.
2. In appeal, the District Judge took the question for decision to be whether the sale was, in fact, made to defeat or delay creditors and whether the plaintiff was a bona fide purchaser for consideration. The learned Judge finds that money passed from the plaintiff to the vendor and that the three creditors mentioned in the sale-deed were, in fact, paid after the sale. He then says: 'I do not think that more can be demanded.' He does not meet any of the reasons given by the Munsif for his conclusion that at the time of the execution of the sale-deed, it was not the intention of the vendor to use the money received as consideration of the sale for the purpose of paying off the creditors mentioned therein. He does not refer to the reasons given by the District Munsif for his view that the vendor really paid the debts out of his own money and not out of the money paid by the plaintiff. Apparently, the view that he took was that it would be sufficient if, as a matter of fact, the vendor subsequently paid off the creditors for the discharge of whose debts the sale-deed purported to be executed. The District Munsif referred to the cases cited in Hakim Lal v. Mooshahar Sahu 34 C.P 999; 6 C.L.J. 410; 11 C.W.N. 889. The District Judge says that that case was not properly understood by the District Munsif. It does not appear for what purpose the District Munsif made reference to Hakim Lal v. Mooshahar Sahu 34 C.P 999; 6 C.L.J. 410; 11 C.W.N. 889 but there can be no doubt that, as laid down in that case, if a person in involved circumstances, with the intention of defeating or delaying his creditors, converts the immoveable property of his which could be easily got hold of by his creditors into money, the mere fact that consideration was paid for the sale would not enable the vendee to maintain the contention that the sale was not voidable under Section 53 of the Transfer of Property Act. Of course, notwithstanding any fraudulent intent on the part of the alienor, a bona fide transferee taking a transfer without notice of the alienor's fraudulent intention would be protected. If, as found by the District Munsif, the consideration was not intended to be used for paying off the three creditors, one of two inferences would seem to follow, viz., either that it was not intended by the vendor to retain the consideration or that it was intended to keep it for his own benefit. In the circumstances, we think it necessary to ask the District Judge to return a fresh finding on the question whether the sale to the plaintiff was voidable under Section 53 of the Transfer of Property Act. Both parties are at liberty to adduce fresh evidence. The finding will be submitted within two months from the date of the re opening of the District Court and seven days will be allowed for filing objections.
3. In compliance with the order contained in the above judgment, the District Judge submitted the following
4. Plaintiff sued for a declaration of his right to plaint property and a permanent in junction against defendants.
2. He bought the property from one Veeravasantha Chetty. Defendants tried to attach it in execution of decrees against that person.
3. The Mansif found plaint sale was colourable and in fraud of creditors and he dismissed the suit.
4. On appeal, my predecessor found that the sale to plaintiff purported to be to pay off three of the vendor's creditors. They were in fact so paid off after the sale. He found the sale was not fraudulent and decreed appellant's claim.
5. On second appeal, I am asked for a finding whether the sale to plaintiff was voidable under Section 53 of the Transfer of Property Act. Fresh evidence is admissible.
6. Shortly after the sale to plaintiff, the vendor disappeared and has been declared bankrupt with liabilities of Rs. 35,000.
7. Plaintiff is brother of the vendor. When a person on the eve of bankruptcy transfers his house to his own brother, there naturally arises considerable suspicion that the transfer is made to defeat or delay creditors and is voidable at the option of those creditors. The burden lies on plaintiff in such a case to show clearly that the transfer to him was not only for consideration but that the consideration was used for paying creditors and not concealed to defraud them.
8. The new evidence now put in is a deposition by an uncle of the vendor and a trust deed Exhibit XIV, a receipt Q, referred to in Exhibit V, a book (QI) of receipts for monies paid to creditors of a firm from which plaintiff's vendor withdrew by Exhibit V and R and R-1--two press books showing office copies of letters from a Madras firm of Subramania Chetty to plaintiff's vendor. Plaintiff's vendor's insolvent petition was referred to fix the amount of his liabilities.
9. Plaintiff devoted himself to breaking down some of the reasons on which the Munsif decided against him; and on these matters, he has succeeded.
10. The sale-deed to plaintiff purports to have been for paying off three of the vendor's creditors. The purchase money Rs. 2,500 purports to have bean paid to the vendor by plaintiff before the Sub-Registrar. The sale-deed is dated 22nd March 1906. On 27th April 1906, a month later, the vendor did in fact pay off two Madras creditors Rs. 1,373 and Rs. 232. The Munsif complains that the receipts only show that the vendor paid and not that it was plaintiff's money. The receipts could not and would not show that. The Munsif thinks that the vendor did not use plaintiff's money for this purpose as he must have had other money in his hands got by Exhibit V.
11. Exhibit V is a release-deed of 27th March 1906, whereby plaintiff's vendor withdraws from partnership in two businesses and receives his share Rs. 2,586. Now, it is proved by witness Kadiri Chetty, now examined, and by receipt Q that plaintiff's vendor only received Rs. 516-15-11 in cash out of that money. The rest Rs. 2,070 was to be paid, and has been paid, by Kadiri Chetty to Ambalathady Chetty, another creditor of the vendor's.
12. Hence it is proved that the vendor for purposes of paying off his three creditors as per sale-deed had not got the use of the money obtained by Exhibit V. Hence he either paid those creditors with the money obtained from plaintiff or with some other funds. He paid them with some money not derived from Exhibit V.
13. Again the Munsif makes much of the fact that the Madras creditors did not press for their dues and in those circumstances he does not believe that the vendor would have sold his house to pay off those debts.
14. Exhibits R and R 1, letter books of the Madras firm of Subramania Chetty, show that they did demand their dues several times and, failing, threatened a suit.
15. That is all that the new evidence adduced succeeds in proving.
16. I think it is clear that, though a sale by an impending bankrupt to his brother is prima facie suspicious, still plaintiff's vendor did in fact pay off in a month or so the creditors to pay whom he purported to sell his property. He had not in his hands the other funds from which the Munsif surmises that he paid the creditors and he had been strongly pressed by the biggest creditor to pay up.
17. The case is, therefore, not so strong as the Munsif thought it was--that is all the effect of the new evidence. It remains to consider whether the suspicion of fraud naturally attaching to this transaction amounts to more than suspicion.
18. Now, plaintiff's vendor was on the eve of bankruptcy. On 22nd March 1906, shortly before he disappeared and the insolvency became notorious fast, he sold to his brother plaint house by Exhibit N. By Exhibit VI he sold other property to an uncle for Rs. 2,500 and by Exhibit VII he sold yet more property to another near relative for Rs. 1,000 and by Exhibit VIII he gave away his remaining property to other relations on 23rd March 1906. Therefore, on 22nd March 1906 or thereabouts, if all those sales were real, he came into possession of Rs. 6,000.
19. He did not, as far as can be seen, pay any creditors at once. A month later, he paid about Rs. 1,600 to two Madras creditors, and in April 1906, he re-paid one Karuppa Goundan Rs. 560 odd on a pro-note. This Karuppa Goundan is P.W. No. 1. He says he lent Rs. 500 to plaintiff's vendor on 29th March 1905 by Exhibit M. This was his only transaction with plaintiff's vendor, but he had dealings with one Cholappa Chetty and with plaintiff. He says plaintiff asked him to lend Rs. 500 to his vendor. So he borrowed it from Cholappa Chetty and lent it to the vendor. Cholappa Chetty owed about Rs. 500 to plaintiff. On being re-paid by plaintiff, he gave the vendor's pro-note endorsed as paid to plaintiff. So, as the Munsif points out, practically this man lent the vendor plaintiff's money and got it back again either for himself or plaintiff, and he gave plaintiff the pro-note. It is not easy to see any meaning in this round about transaction beyond creating an appearance of use of part of plaintiff's money by his vendor to pay a debt. P.W. No. 3 attested all plaintiff's vendor's alienation on 22nd March 1906.
20. He says he went to plaintiff's shop. The document was written inside the shop. Plaintiff and his vendor were there. The document was read over to plaintiff and then only did the vendor sign and witness attested. Now, plaintiff's version is that he was not present when the witness attested his sale-dead. He was present when his vendor signed it. This was done in the house in question, i.e., the plaint house--not plaintiff's shop. Probably, the attestation of witnesses took place afterwards.
21. Plaintiff says he was present when this vendor paid the Madras creditors a month later and a creditor's gumastah speaks to that. But he had no reason to be present there. He did not pay the creditor. He had paid his vendor and ended the transaction a month before. I find that, considering the vendor's impending bankruptcy, the fact that plaintiff is his brother, that the vendor did not pay the debts for which he purported to effect the sale for one month, that on the same day he sold other properties to other near relations and has not accounted for the use of those monies, and that plaintiff and the attestor contradict each other as to all circumstances of the execution of the document and that the payment of Rs. 560 odd to Karuppa Goundan is a most suspicious item, this sale to plaintiff must be held to have been colourable and intended to defeat and delay creditors and is, therefore, voidable under Section 53 of the Transfer of Property Act.
5. This second appeal coming on for final hearing after the return of the finding of the lower Appellate Court upon the issue referred by this Court for trial, the Court delivered the following
6. The finding of the Judge is that several alienations were made by the debtor on the 22nd and 23rd of March 1906 for a total consideration of about Rs. 6,000 and that he paid off only debts amounting to Rs. 2,160. No doubt, the particular debts paid off were those for the discharge of which the properties in question in this suit were sold to the plaintiff, but we cannot say that the Judge was bound to find that the payments were made out of moneys received from the plaintiff. The Judge was entitled to infer from the circumstances that the sale in question was part of a scheme of fraudulent alienations. We accept the finding that the alienation was invalid as against creditors under Section 53 of the Transfer of Property Act. We do not think that the Judge intended to hold that the sale was altogether a sham, not intended to be operative as between the parties to it. This is the real meaning of the word colourable and it would be well to avoid using it where all that is meant is that an alienation is voidable by third parties on the ground of fraud.
7. We reverse the decree of the lower Appellate Court and restore that of the District Munsif with costs here and in the lower Appellate Court.