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M.R. Venkatarama Aiyar Vs. the South Indian Bank, Ltd., Through Its Authorised Agent K.S. Venkatachalam and ors. - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Judge
Reported in55Ind.Cas.452
AppellantM.R. Venkatarama Aiyar
RespondentThe South Indian Bank, Ltd., Through Its Authorised Agent K.S. Venkatachalam and ors.
Cases ReferredParasurama Pattar v. Veeraghava Pattar
Excerpt:
civil procedure code (act v of 1908), section 73 - rateable distribution--deposit in court for payment to decree-holder creditor--rights of rival decree-holders to impeach decree--fraud and collusion--suit for declaration that decree was obtained by fraud and for injunction restraining payment, maintainability of. - - there is no proof that he bad ceased to be agent of the chetty before the decree in original suit no. 2 had to be resorted to because the 1st defendant had failed to obtain the money. even after the 1st defendant was known to have failed in raising the money, the note was not recovered from him. the accounts of the firm appear to have been kept in a perfectly regular manner, both as regards transactions with strangers and as regards adjustments between the various branches.....burn, j.1. plaintiffs are creditors of vynagaram lakshmana chetty and nataraja aiyar. the former was carrying on money lending business in the tanjore district with a head office at kumbakonam and branches at mudikondan and nagapatam. the firm also did business in madras, calcutla, singapore and other place nataraja aiyar was associated with the firm, and it is suggested that when its credit was failing, his assistance was sought in order to improve the financial position. at the time the transaction now in question was entered into, he was a young man of considerable means. lakshmana chetty is now an insolvent and the where abouts of nataraja aiyar are said to be unknown, plaintiffs' witness no. 1, the defendant and narayana sastri were respectively the agents of the firm at kumbakonam,.....
Judgment:

Burn, J.

1. Plaintiffs are creditors of Vynagaram Lakshmana Chetty and Nataraja Aiyar. The former was carrying on money lending business in the Tanjore District with a head office at Kumbakonam and branches at Mudikondan and Nagapatam. The firm also did business in Madras, Calcutla, Singapore and other place Nataraja Aiyar was associated with the firm, and it is suggested that when its credit was failing, his assistance was sought in order to improve the financial position. At the time the transaction now in question was entered into, he was a young man of considerable means. Lakshmana Chetty is now an insolvent and the where abouts of Nataraja Aiyar are said to be unknown, Plaintiffs' witness No. 1, the defendant and Narayana Sastri were respectively the agents of the firm at Kumbakonam, Mudikondan and Nagapatam, The plaintiffs have obtained decrees against their debtors and considerable sums realised in execution were held by the Nagapatam Sub-Court. The 1st defendant also obtained a decree in Original Suit No. 26 of 1910 against the same debtors and he applied under Section 73 of the Code of Civil Procedure for rateable distribution along with the plaintiffs. In the ordinary course the tat defendant would admittedly be entitled to a share in the assets realised. At the time the applications were disposed of by the Court, proceedings were pending in the High Court which, if decided against the 1st defendant, would have resulted in his decree, which was passed ex parte, being set aside. The Court, in ordering rateable distribution, directed that the proportionate share to which the 1st defendant would be entitled on the basis of his decree should be retained in Court, while the sums due to the other judgment creditors were disbursed. The proceedings in the High Court terminated in favour of the 1st defendant. But the amount rateably due to him has not actually been paid and is still in Court deposit. The decree in Original Suit No. 2p of 1910 is dated 16th April 1910, but the final order of the High Court was not pissed until 7th December 1912. On 9th January 1913, the present suit was instituted. The relief sought was a declaration that the defendant was not entitled to participate in the distribution of assets under Section 73 of the Code of Civil Procedure. It was alleged in the plaint that the decree in Original Suit No. 26 of 1910 had been obtained by means of fraud and collusion; and it was further asserted that the promissory note on which the 1st defendant's claim was based was entirely unsupported by consideration. The suit was dismissed on 22nd December 1915, the Subordinate Judge holding that it was not sustainable without a prayer for consequential relief. He also held that the suit for declaration as prayed for in this case would not lie, where actual payment had not been made under the provisions of Section 73.

2. On appeal to the High Court (Appeal No. 21 of 1916) the decision of the Subordinate Judge was set aside after permission had been granted to the plaintiffs to amend the plaint by adding a prayer for consequential relief by way of injunction. This point and a question of stamp duty are the only matters dealt with in the judgment of the High Court.

3. On the re-hearing in the Sub-Court of Nagapatam, the contest before the Subordinate, Judge related firstly to questions of fact, as to whether there had been any fraud or collusion in obtaining the decree in Original Suit No. 26 of 1910 and whether the promissory note in favour of the 1st defendant was supported by consideration or not; and secondly, to questions of law relating to the maintainability of a suit of this nature. The Subordinate Judge found that there was no consideration for the promissory note, and that, except in one particular, there had been no extrinsic fraud or collusion in obtaining the decree.

4. On the questions of law, he found that the suit was maintainable and granted the plaintiffs the declaration and injunction prayed for. The 1st defendant appeals.

5. With regard to the finding as to fraud and collusion, the Subordinate Judge came to the conclusion that as far as Nataraja Aiyar and the proceedings taken by him are concerned, there was no collusion of any kind between him and the 1st defendant. On the evidence no other conclusion was possible. The other defendant in the suit. Lakshmana Chetty, was proceeded against through his agent at Nagapatam, Narayana Sastri. Collusion is not alleged but as to fraud the Subordinate Judge, as 1 understand him, is of opinion that the impleading of Narayana Sastri as the agent of Lakshmana Chetty was a fraudulent act on the part of the 1st defendant. This is based on the ground that the agency of Narayana Sastri, which had admittedly existed, had been terminated prior to the institution of Original Suit No. 26 of 1910 to the knowledge of 1st defendant. The agency is said to have come to an end owing to the insolvency of Lakshmana Chetty. Adjudication in insolvency would have this effect under Section 201 of the Contract Act.

6. The facts as to the insolvency proceedings are these: a creditor's petition was presented agains Lakshmana Chetty to declare him insolvent on 7th October 1908. This was in the District Court of Madura. He was declared insolvent on 29th March 1909 by the Sub-Court, Madura (East). That order was subsequently annulled on 18th October 1909, as the Subordinate Judge found that be had acted without jurisdiction. Eventually an order adjudicating Lakshmana Chetty an insolvent was passed in the District Court of Madura on the 29th September 1910. It is dear from these proceedings that neither at the time when Original Suit No. 26 of 1910 was instituted nor at the time when the decree in Original Suit No. 26 of 1910 was passed was Lakshmana Chetty an insolvent. The order of adjudication which had been previously passed, having been made without jurisdiction, was a nullity.

7. It is also pointed out that in another suit, Original Suit No. 32 of 1908, the defendant himself had pleaded that Narayana Sastri was not Lakshmana Chetty's agent. All that is stated in the written statement in that suit is that Narayana Sastri 'had no power to file this plaint.' 1 do not think that the written statement can be taken as asserting that the agency was no longer existing. The evidence of plaintiffs' witness No. 1 shows that Narayana Sastri did continue to conduct the affairs of the firm long after the institution of the insolvency proceedings. The Kumbakonam branch was closed in June 1908 and according to plaintiffs' witness No. 1 the whole of the accounts were handed ever to Narayana Sastri. There is no proof that he bad ceased to be agent of the Chetty before the decree in Original Suit No. 26 of 1910 was obtained. He did not defend the suit, but it cannot be inferred from this that the agency had terminated or that there was collusion. It is not clear that any part of the assets held by the Court was realised from Lakshmana Chetty's properties.

8. The next Question is whether the promissory note on which the 1st defendant sued was supported by consideration. Exhibit H is the note. It was executed on 2nd February 1908 by plaintiffs' witness No. I both in his capacity as agent for Lakshmana Chetty and as agent for Nataraja Aiyar. It is for a sum of Rs. 30,000 and was attested by plaintiffs' witness No. 3. There is no dispute as to the genuineness of the note and the only contest is as to the circumstances in which it came into existence. The 1st defendant was regarded as a person capable of raising money when wanted. This appears from a number of letters on the record (e.g.) Exhibits III (a), III (c) and VIII (e). He was approached at this time with a request to procure Rs. 30,000. Vide Exhibit VI (a) of 30th January 1908. It was in pursuance of prior communications with the 1st defendant that plaintiffs' witness No. 1 went to Mudikondan on the 2nd February when Exhibit H was executed. Even prior to this date, rumours injurious to the firm's credit appear to have been spread about, vide Exhibit D 1. Shortly afterwards the stability of the business seems to have been severely shaken by loss of credit, tide Exhibits D 10 and D 11. The firm was in need of money and it became increasingly difficult to procure it. The chief reason why the Mudikondan branch was in urgent need of fund was this; that a number of the depositors were desirous of withdrawing their moneys as they wished to purchase lands in Court auction and had to provide themselves with the means of making the necessary payments when the sale took place. This is the transaction referred to in a number of letters as the sale of Kollumangudi lands. Exhibits DD-5 and DD-7 and another letter of the 26th January 1908 make the position clear.

9. The plaintiffs' case is that the sum of Rs. 30,000 was needed principally for meeting this demand and in fact a loan of Rs. 30,000 was raised from plaintiffs' witness No. 2 under Exhibits B and B 1 of the 13th and 15th Febraury 1908 respectively. It was out of this money that the purchasers in the Court sale were supplied with the funds necessary to pay up the balance of the price when it fell due about the middle of February, tide Exhibit D-8 The suggestion is that plaintiffs' witness No. 2 had to be resorted to because the 1st defendant had failed to obtain the money.

10. The 1st defendant's case is that the loan advanced by him was required for remittance to Madras and Calcutta and has nothing whatever to do with the repayment to local constituents of their deposits.

11. The Subordinate Judge has examined the evidence at length and with care and has come to the conclusion that there was no consideration for the note. The reasons given by him have not been successfully attacked and the conclusion appears to ma to be right. There is in the first place the oral evidence, Plaintiffs' witness No. 1 and the attestor, plaintiffs' witness No. 3, both assert that no consideration passed. On the other side there is the statement of the 1st defendant and of the 5th defence witness. The latter's evidence is unworthy of credit and has been rightly rejected by the Subordinate Judge. The explanation given by the plaintiffs' witnesses for the execution of the note and for its delivery to the 1st defendant is that it was anticipated that he would be able to raise the money, once he was armed with this document which pledged not only the credit of Lakshmana Chetty but also that of Nataraja Aiyar. Even after the 1st defendant was known to have failed in raising the money, the note was not recovered from him. The evidence as regards this cannot be regarded as altogether satisfactory. It is stated by the witnesses on the plaintiffs' side that the fact that the note was in the possession of the 1st defendant was publicly mentioned. The 1st defendant is said to have admitted that no consideration had passed and to have asserted his intention of keeping the note in order to support a claim against the firm, which was known by him to be in a precarious condition. Plaintiffs' witness No. 2, who is a relative of the 1st defendant, was also a creditor of the firm, and the evidence is that the 1st defendant asserted that he was retaining the note in order that plaintiffs' witness No. 2 might benefit by any sums which might be realised on it. The admissions of the 1st defendant, to this effect are spoken to by plaintiffs' witnesses Nos. 1, 2 and 4 The two latter are men of wealth and position and one of them, as already stated, is connected with the 1st defendant. The Subordinate Judge accepts the evidence of these witnesses and points out that plaintiffs' witness No 2 in particular seems to be a very respectable man. According to his own statement, however, his respectability did not render him proof against acquiescing in a fraud which might benefit himself, and it is unlikely that 1st defendant would have proclaimed his intention in the manner suggested. I am not inclined to attach importance to the oral evidence as to the 1st defendant's admission. The plaintiffs have given a reasonable account as to why the money was required, which is supported by the correspondence as has already been pointed out. The 1st defendant's story is that it was required in order to make payments to Marwaris. There is no corroboration of this statement. No writing has been referred to in which any demand of money on this account is mentioned. The 1st defendant himself admits that he has no knowledge of how this large sum was dealt with and that he never made any enquiries on this point. The accounts of the firm appear to have been kept in a perfectly regular manner, both as regards transactions with strangers and as regards adjustments between the various branches of the firm itself. A number of loans are referred to in the evidence, and all of these can be traced through the accounts, e.g., Rs. 30.000 borrowed from plaintiffs' witness No. 2 under Exhibits B and

, There is, however, not a single entry relating to the loan the defendant is alleged to have made. It is important to remember that the accounts were written long before any dispute had arisen and while the 1st defendant, plaintiffs' witness No. 1 and Narayana Sastri were on perfectly friendly terms. The 1st defendant had access to the account not only of the branch of which he was himself in charge but also of those in Kumbakonam, vide Exhibit S, and he must have been well aware that no entry relating to this very large advance received through himself was to be found in any of the firm's books. Yet in spite of this there is no evidence whatever of a word of protest on his part. It is impossible to believe that this would have been the case if the 1st defendant had really made himself responsible, as he alleges, for Rs. 30,000 for the benefit of the firm. The 1st defendant has given a long explanation as to how he raised the necessary money, and it is not suggested that he could have provided the whole of the amount himself. The story is that he borrowed Rs. 25,000 and advanced Rs. 5,000 of his own. He alleges that Rs. 20,000 was borrowed from Adi Swaminatha Aiyar. The evidence regarding this transaction has been dealt with at length by the Subordinate Judge in paragraphs 25 to 28 of (he judgment. I do not think that anything can usefully be added to what he has said in the judgment and I entirely agree with the conclusions arrived at by him. Subject to a remark about Exhibit XV, the facts appear to me to have been accurately stated and the inferences from them to have been correctly drawn. As to Exhibit XV, it no doubt shows that a sum of about Rs. 3,000 was paid by him to Swaminatha Aiyar on 16th October 1911; but there is nothing to connect this with the alleged loan of Rs. 20,000 and it is clear that there were other monetary transactions between the 1st defendant and his relative Adi Swaminatha Aiyar. It may be pointed out that the entry in Exhibit XV gives no support to the story of a small outstanding balance which the 1st defendant has invented for the purpose of explaining his failure to produce the discharged promissory notes. Rs. 5,000 is said to have been borrowed from 1st defendant's witness No. 6, who is the sister's husband of the 1st defendent. This lean is not supported by any document, although it asserted that a promissory note was to be executed, and no accounts are produced containing any reference to this amount. The 1st defendant stated that he had kept no accounts for this period, but this is in conflict with the evidence of plaintiffs' witness No. 6. A perusal of the evidence of this witness leaves no doubt that he was never in a position to advance such a sum. As to the balance of Rs. 5,000, there is no corroboration of the 1st defendant's assertion. The conduct of the 1st defendant is also inconsistent with his ever having made the loan. His account is that he had procured this large sum of Rs. 30,000 on his own personal credit and that the money was utilised solely for the benefit of the firm by which he was employed. He was to get absolutely no advantage, but on the other hand he incurred heavy liabilities and this, at a time, when he was a war a that the firm's credit was failing. He represents himself as having discharged the debts incurred by him for the benefit of the firm, out of his own pocket and by the sale of his own property. Although there is a great deal of correspondence subsequent to the making of the loan between the 1st defendant and plaintiff's witness No. 1, yet there is not a single reference to the 1st defendant's own position and to the large debt due to him by the firm. It is almost impossible to believe that in the circumstances, the let defendant would not have taken some steps to protect himself against the loss with which he was faced, if there had been any truth in his having made an advance of this amount. One point which has been strongly relied upon for the appellant is the admitted fact that on the 3rd February 1908 a sum of Rs. 10,000 was remitted from Mudikondan to Nagapatam through plaintiffs' witness No. 1. This was on the day subsequent to the execution of Exhibit H and the 1st defendant's case is that the Rs. 10,000 forms part of the Rs. 30,000 which was advanced by him. The plaintiffs on the other hand assert that the money was raised by means of Exhibit Vila, a promissory note executed by Nataraja Aiyar in favour of M. Rama Aiyar. There is no dispute about the genuineness of Exhibit Vila. The 1st defendant explains that, it represents a purely private transaction between Nataraja Aiyar and Rami Aiyar and that the money was received by Nataraja and not by the firm. For this contention the wording of Exhibit VIIa and a letter, Exhibit VIIb, are relied upon. Nataraja was at the time at Vedaranyam. Admittedly the promissory note was sent to him there for execution. In terms, it is a transaction between him and M. Rama Aiyar. There is no recital in the promissory note that the money was required for the firm. The note was taken to Vedaranyam by plaintiffs' witness No. 3 who was Gumarstah of the firm, and in Exhibit VIIa, it is recited that Rs. 12,000 has been received through him on the 4th February. Exhibit VIIb is a letter of even date which contains a similar statement. It is, however, clear, as pointed out by the Subordinate Judge in paragraph 37 of the judgment, by reference to letters written by the 1st defendant himself, that the money raised under Exhibit VIIa was obtained for the firm and utilised by it. This is also the evidence of 1st defendant's witness No. 1 and plaintiffs' witness No. 3. Their evidence is corroborated by the contemporaneous entries in the accounts--vide paragraph 38 of the lower Court's judgment. I have no doubt that this view of the matter is correct, and that no money was sent to Vedaranyam but that M. Rama Aiyar supplied funds direct to the agents of the firm who were at Mudikondan and that the money was used for the firm's purposes. The sum thus obtained was Rs. 12,000 and it was from out of this that plaintiffs' witness No. 1 was able to take Re. 10,000 to Nagapatam on the 3rd February. Exhibit Vila is dated 4th February, but the evidence establishes that the money had been actually received on the 2nd. The remittance to Nagapatam in no way supports the truth of the loans by the 1st defendant.

12. Stress has been laid on the fact that the promissory note Exhibit H was allowed to remain in the possession of the 1st defendant. That it should have been left with him for a short time with hopes that he would procure the money is natural enough. But there was considerable delay in taking any effective steps to secure its return. Reference has already been made to this, and to the explanation which is furnished in the oral evidence. It was not until August 1908 that a formal notice, Exhibit XVII, demanding return of the Exhibit H was sent to the 1st defendant; and to this he replied by Exhibit XVIIa asserting that the note was supported by consideration. Shortly afterwards, a suit, Original Suit No. 32 of 1908, was instituted for a declaration that no consideration had passed. The original plaintiff was Lakshmana Chetty by his agent Narayana Sastri, the Nagapatam agent. The suit was dismissed on a question of stamp duty in the Court of first instance, and this decision was confirmed on appeal on 7th September 1909 Exhibit X (c)]. Nothing further was done. Lakhaman Chetty was in very involved circumstances, and this may account for his inaction. Narayana Sastri is dead and Lakshmana Chetty has not been examined. 13. Nataraja Aiyar had been added as a plaintiff and why he took no farther steps is not made clear. He actively contested proceedings in Original Suit No. 26 of 1910. The conduct of the debtors in Original Suit No. 32 of 1908 does not in my opinion rebut the very strong evidence indicative of the absence of consideration for Exhibit H.

13. The facts then are that the decree in Original Suit No. 26 of 1910 was not obtained by collusion, that there was no extraneous fraud, but that the promissory note on which the decree is based was unsupported by consideration. As far as the parties to the suit are concerned, the judgment is final and there are no circumstances which would enable them to have it set aside. Logadapatti Chinnayya v. Kotla Ramanna 19 Ind. Cas. 579 : 38 M.P 203 : 25 M.L.J. 228 : 13 M.L.T. 421 : (1913) M.W.N. 387; Kadirvelu Nainar v. Kuppusieami Naicker 45 Ind. Cas. 774 : 41 M.P 743 : 34 M.L.J. 590 : 23 M.L.T. 372 : 8 L.W. 103 : (1918) M.W.N. 614. An order in 1st defendant's favour for rateable distribution has been passed, but no payment has been made to him. It romains to be determined whether it is open to third parties in the position of the plaintiffs to impugn the validity of the decree and whether a suit for declaration of this kind is maintainable.

14. The latter point may be considered first.

15. The question is whether the suit is premature because the share of the 1st defendant has not been disbursed. Once assets have been disbarred, Clause 2 of Section 73 of the Civil Procedure Code, 1908, expressly provides for a suit for refund where the payment has been made to a person not entitled to receive it. The contention for the appellant is that the plaintiffs have no cause of action until payment has been made and that suit for declaration will not lie. Two decisions of this Court have been relied upon, Pdrasurama Pattar v. Veeraraghava Pattar 7 M.L.J. 277 and an unreported case C.C.C. Appeal No. 31 of 1909 (Exhibit I). In the former case a decree holder had been paid the whole sum realised by him in execution of his decree as the application of another decree holder for rateable distribution had been dismissed. The latter succeeded in getting the order of dismissal set aside and the former was directed to pay back into Court the sum he had drawn. He then sued for a declaration that the other claimant was not entitled to rateable distribution, but as no assets had come in the latter's hands it was held that the suit was not maintainable. Hart v. Tara Prasanna Mukherjee 11 C. 718 is referred to. There the Court had ordered under Section 295 (Section 73 of the Code of Civil Procedure, 1908) that the whole sum realised by the defendant in execution proceedings should be paid to him in spite of plaintiff's application for the rateable distribution. No disbursement was, however, made. The plaintiff sued for payment out of Court to him of the sum which he claimed as rateably due. The question whether a declaratary suit was maintainable was raised in the arguments. The judgment, however, proceeds on the basis that the suit was brought under the provisions of Section 295, and the decision is that it would not lie because assets had not come into the hands of the defendant. There is no suggestion in the judgment that any other remedy was open to the plaintiff.

16. In Trailalyt Nath Adhya v. Pulin Behari Baral 3 C.L.J. 358 it was held that a suit would lie for a declaration that a decree-holder, who was otherwise qualified to get rateable distribution under Section 73, was not entitled to receive payment on the ground that his decree had been obtained by collusion and fraud, The decision in Hart v. Tara Prasanna Mukherjee 11 C.P 718 was distinguished on the ground that the prayer was for a refund. The plaintiff had asked in the alternative for recovery from the defendant in the event of payment having been made, but the report indicates that this event had not happened and he also asked for payment out of the assets held by the Court.

17. Both the Calcutta cases were considered in C.C.C. Appeal No. 31 of 1909. The facts on which the declaration was sought are not stated in the judgment. Apparently it was not a case in which the decree was attacked on the ground of collusion. The decision reported in Parasurama Pattar v. Veeraraghava Pattar 7 M.L.J. 277 was followed, and it also was a case in which the right to distribution was not disputed on the ground that the decree was collusive. The case of Trailakya Nath Adhya v. Pulin Behari Baral 3 C.L.J. 358 is referred to as being in favour of the maintainability of a declaratory suit, and it is remarked that the decision may perhaps be distinguished on the ground that the decree of the rival decree-holder was alleged to be collusive. It was held that a suit for a declaration was not maintainable and it was pointed out that the Legislature had provided a special machinery for a limited purpose and a special remedy for determining questions of right which might arise. To hold that such a suit is not maintainable would result in many instances in depriving the plaintiff of his only effective remedy. The Madras cases do not decide that such a suit is not maintainable when the decree is attacked on the ground of collusion. That is the case which was put forward in the plaint. In the absence of proof of collusion the suit in my opinion will fail on another ground and, therefore, this point need not be dealt with further. The case of the respondents is that as they were not parties in Original Suit No. 26 of 1910 and as the judgment is only in personam, they are entitled to have it vacated even on grounds which would not be open to the defendants in the suit. The judgment is said to be only a piece of evidence as to the existence of a debt which it is open to the respondents to rebut and which they have succeeded in rebutting. The Subordinate Judge has held that the facts that Exhibit H was not supported by consideration and that the defendant must have supported his claim by false evidence are sufficient to entitle the plaintiffs, who held decrees against the same judgment-debtors, to the relief they pray for in this suit. It is contended before us that this view is wrong. It is conceded that oases of collusion or proceedings in bankruptcy stand on a different footing. The argument advanced is that apart from the exceptions just mentioned, the plaintiffs would be entitled to relief in such circumstances only to which the principle illustrated by Section 53 of the Transfer of Property Act is applicable. The fact that there has been a fraud by one creditor on the judgment-debtor will not enable other creditors to dispute the validity of the decree, where the fraud was not aimed at them and they had no direct interest in the' suit.

18. A number of English cases have been cited, but it is unnecessary to deal with them at length because all the decisions relate to bankruptcy proceedings and there is really no controversy as to the powers of a Court exercising bankruptcy jurisdiction.

19. Kibble, Ex parte, Onslow, In re (1875) 10 Ch. App. 373 : 44 L.J. Bk, 63 : 32 L T. 188 : 23 W.R. 433 Lennox, Ex parte, Lennox, In re (1885) 16 Q.B.D. 315 : 55 L.J.Q.B. 55 : 44 L.T. 452 : 34 W.R. 51 Eraser, In re, Central Bank, Ex parte, (1892) 2 Q.B. 633 : 67 L.T. 401 : 9 Morrell 256; Hawkins, In re, Troup, Ex parte (1895) 1 Q.B. 404 : 64 L.J.Q.B. 373 : 14 R.P 44 : 72 L.T. 41 : 43 W.R. 306 : 2 Hanson 14 were referred to.

20. These cases establish that the mere fact that a debt which is sought to be proved is founded on a judgment does not prevent the trustee in bankruptcy inquiring into the reality of the debt on which the judgment is based. Such an inquiry may be held even before a receiving order has been made and even at the instance of the debtor, although the latter would be estopped by the judgment from disputing the existence of the debt in any other forum. In order to justify the rejection of the debt by the Court, it is not necessary that there should be proof of collusion or of fraud. It is enough that the transaction should have been unfair and unreasonable. [Vide Hawkins, In re, Troup, Ex parte (1895) 1 Q.B. 404 : 64 L.J.Q.B. 373 : 14 R.P 44 : 72 L.T. 41 : 43 W.R. 306 : 2 Hanson 14 It is clear from the judgments that the decisions are based on the peculiar powers of the Court of Bankruptcy. The Court is charged with the administration of the estate for the benefit of the whole body of creditors and the interference of the Court has far reaching and permanent effects on their rights. The proceedings in bankruptcy are the acts of the Court and it is not estopped by any prior conduct on the part of the debtor, by any engagements he may have entered into or by any decrees which may have been passed against him from inquiring into the true nature of the transactions so that the assets may be equitably distributed between the bona fide creditors of the bankrupt. These decisions do not touch the question of the rights of third parties to attack decrees on their own account. If the 1st defendant seeks to prove his debt in the Insolvency Court in order to share in the assets of Lakshmana Chetty held by the Receiver, it may be open to the Court to go behind the judgment in Original Suit No. 26 of 1910 and inquire into the consideration for Exhibit H. There is nothing in the cases cited to support the plaintiffs' contention as to the maintainability of the present suit. In this view, it is hardly necessary to notice the further argument that a Court anting under Section 73 of the Code of Civil Procedure is invested with powers similar to those exercisable in insolvency proceedings. I think the correctness of this proposition is doubtful.

21. In Sunder Dass, In re 11 C.P 42 it has no doubt been held that the Court has a right to inquire whether any decree on which rateable distribution is claimed is a sham decree or not. The reason given is one which furnishes a ground for the interference of a Court of Bakruptcy in such matters, namely, that a debtor should not be allowed to defeat the rights of his bona fide creditors by means of claims brought into existence collusively for this vary purpose. In Shankar Sarup v. Mejo Mal 23 A.P 313 : 3 Bom. L.B. 713 : 28 I.A. 203 : 5 r W.N. 649 : 8 Bar. P.C.J. 72 the Judicial Committee expressed the following view as to the nature of proceedings under Section 295(73) of the Code of Civil Procedure : 'The scheme of Section 295 is rather to enable the Judge as matter of administration to distribute the price according to what seem at the time to be the rights of parties, without this distribution importing a conclusive adjudication on those rights, which may be subsequently re adjusted by a suit such as the present. Their Lordships approve of the decision on this paint in Vishnu Bhikaji Phadke v. Achut Jagannath Ghate 15 B.P 488 and they concur in the further observation made by the learned Judge in that case that the application of the 13th Article is also precluded by the fact that the order for distribution was a step in an execution proceeding, and was, therefore, made in the suit in which the decree was made which was in process of execution. The order for distribution was thus an order in a suit.' A Court cannot in execution go behind the decree which it is executing. If the orders passed under Section 73 are made in execution of the several decrees which happen to be before the Court, it is difficult to see how the Court has authority to question the validity of any of them. The action of a Court under Section 73 is materially different from that of a Court in insolvency proceedings. The estate is not vested in the Court. The remedies open to the creditors in future are not curtailed. The Court merely gives effect to a rule of procedure enacted for the purposes set out in the judgment of Strachey, C.J., in Bithal Das v. Nand Kishore 23 A.P 106. The decisions cited for the respondents do not help the determination of the point in issue. They, however, rely upon general principles as establishing their title to the relief now sought. They contend that the judgment in Original Suit No. 26 of 1910 is not one binding against all the world, that the existence of the debt sued upon is not res judicata as far as they are concerned and that the position they hold as judgment' creditors of the defendants in the suit entitles them to question the validity of the transaction. The judgment is not one in rem, the facts found are not res judicata and the plaintiffs have now an interest in disputing the 1st defendant's right to receive payment. The answer furnished on behalf of the appellant is that there are exceptions to the rule that judgments in personam bind only parties and privies and that the present case falls within : those exceptions. The existence of exceptions is recognised and acted upon in Srinivasa Aiyangar v. Aarayar Srinivasa Aiyangar 6 Ind. Cas. 221 : 33 M.P 433 : 8 M.L.T. 33 : 20 M.L.J. 5413 : (1910) M.W.N. 479. In that judgment a long passage is quoted with approval from an American , case, Candee v. Lord 51 Am Dec. 294 : 2 N.Y. 269 as giving a dear instance of such an exception. The passage in question contains the whole of the argument for the appellant. The proposition enunciated is this. An owner may dispose of or burden his property as he pleases, provided he does not thereby cause injury to others. He may for instance contract a debt and this is a matter which concerns solely himself and the particular creditor, provided the act is not done in bad faith and to the prejudice of other of editors. When bad faith has been shown, the transaction can be avoided. When the proviso has been complied with, strangers cannot intervene. They are not entitled to question the way in which a man has dealt with his own, merely because he has been improvident in incurring liabilities or careless in defending his rights. As regards judgments the conclusion is thus stated (page 486): Page of 33 M.--Ed. ' It follows from the principle suggested that a judgment obtained without fraud or collusion and which concludes the debtor, whether rendered upon default, confession, or after contestation is upon all questions affecting the title to his property conclusive evidence against creditors to establish first the relation of creditor and debtor between the parties to the record : and second the amount of the indebtedness.' No Indian or English decisions covering the same ground have been cited before us. Black on Judgments, Volume 1, Section 294, Bigelow on Estoppel at page 167 and Bigelow on Fraud at page 91 indicate that the view taken in Candee v. Lord 51 Am, Dec. 294 : 2 N.Y. 269 is one generally accepted by American authorities.

22. An act of a debtor or a judgment passed against him may subsequently become highly detrimental to the interests of other creditors, but this will not entitle them to interfere if all was done in good faith at the time the events took place. (Vide Bigelow on Fraud loc. cit).

23. An illustration of the application of these principles is to be found in Suppa Bhattar v. Suppu Sokkaya Bhaitar 30 Ind. Cas. 962 : 29 M.L.J. 558 : 18 M.L.T. 402 : (1915) M.W.N. 829 : 2 L.W. 1005. X had been the sole owner of certain property. Y claimed it under an alienation by X. Y's claim was upheld in a judgment passed in litigation to which all persons having an existing interest in disputing the claim were parties. Subsequently Z, who had not been a party to the previous suit, acquired such an interest and tried to question Y's rights on grounds similar to those which had failed before. It Was held that he was not entitled so to do.

24. I think the principle of the decision to be that the persons who had the exclusive right to settle the question bad done so without any fraud on Zand he could not object to what had taken place.

25. The passages relied upon in the bocks referred to above lay stress on the fact that a fraud practised on the debtor is not in itself any ground for interference by third parties. The defendant holds a decree, which finally determines that the relation of creditor and debtor exists between him and his judgment-debtors and which is also conclusive as to the amount of the debt as between the parties. Fraud there has been, but not of a nature to enable the debtors to re-Open the matter. The plaintiffs are now seeking to have the debtors' lost cause re-tried because the result is injurious to themselves. They, have failed to establish collusion or fraud against' themselves. In these circumstances I thick the principle of the decision above referred to applies and the plaintiffs are not entitled to attack the decree by showing that it is not based on a real debt.

26. I am, therefore, of opinion that the appeal must be allowed and the suit dismissed. I agree with the order as to costs proposed by my learned brother.

Sadasiva Aiyar, J.

27. The 1st defendant is the appellant. The plaintiffs and the defendants Nos. 2 and 3 (who have common interests with the plaintiffs) are the respondents. The material facts and pleadings have been mentioned in detail in the judgment just now pronounced by my learned brother and I shall not repeat them.

28. I substantially agree with his conclusions throughout and have not much to say in my own words.

29. The decree attacked in the plaint, namely the decree in Original Suit No. 26 of 1910, was obtained by the 1st defendant against Nataraja Aiyar ex parte and the assets held by the Court were realised in execution against his properties alone, as the other judgment debtor's (Lakshmana Chetty's) properties bed vested in tie Official Receiver on his insolvency.

30. That decree is dated 16th April 1910. The plaintiffs in the present suit state in paragraph 7 of the plaint: 'Nataraja Aiyar reglecied to appear and the Pleader engaged by him did not also appear on the date of hearing and by reason of the gross and culpable neglect of the said Nataraja Aiyar and by the defendant getting untrue and false returns ' (the 1st defendant in this suit who was impleaded plaintiff and the decree-holder in the other suit) 'and by the said defendant falsely swearing that the debt was due, the decree has been obtained. The same is fraudulent, Bull and void and collusive and is devoid of legal effect as against the plaintiffs. The subsequent proceedings initiated by Nataraja Aiyar to set aside the ex parte decree were fraudulently and collusively conducted by him. He fraudulently abstained from letting in all the evidence which could have been availed of by him. But in any case the said decree is not binding on the plaintiffs. '

31. Two of the eminent leaders of the Bar of this Court, Messrs. T.R. Bamachandra Aiyar and K. Sreenivasa Aiyangar, appeared for the contesting parties (namely, Nataraja Aiyar and the present 1st defendant) respectively in the proceedings conducted to set aside the ex parte decree and they have been examined as defence witnesses Nos. 2 and 1 in the case. As the learned Subordinate Judge remarks in paragraph 43 of his judgment, 'After reading their evidence it is not possible to find that there can be any collusion between Nataraja Aiyar and the 1st defendant in the con-duct of those proceedings' See also Venkatarama Aiyar v. Nataraja Aiyar 18 Ind. Cas. 360 : 24 M.L.J. 235 : 13 M.L.T. 140 : (1918) M.W.N. 165 which contains the report of those hotly contested proceedings between Nataraja Aiyar and the 1st defendant and in which Nataraja Aiyar was unsuccessful.

32. That a judgment, though obtained on perjured evidence, is conclusive between the parties has been now settled by the Full Bench decision in Kadirvelu Nainar v. Kuppuswami Naioker 45 Ind. Cas. 774 : 41 M.P 743 : 34 M.L.J. 590 : 23 M.L.T. 372 : 8 L.W. 103 : (1918) M.W.N. 614.

33. It is dear from the principle of the decisions in Srinimsa Aiyangar v. Arayar Srinivama Aiyangar 6 Ind. Cas. 221 : 33 M.P 433 : 8 M.L.T. 33 : 20 M.L.J. 5413 : (1910) M.W.N. 479 and in Sayam Mamamoorthi Dhora v. Secretary of State for India 19 Ind. Cas. 656 : 36 M.P 141 : 21 M.L.J. 469 which principle was substantially approved in Kuppa Bhattar v. Suppu Sohkaya Bhattar 30 Ind. Cas. 962 : 29 M.L.J. 558 : 18 M.L.T. 402 : (1915) M.W.N. 829 : 2 L.W. 1005 that when the relationship of decree-holder and judgment-debtor was finally established between the at first as the only defendant The present 1st defendant and Nataraja Aiyar by the decree in Original Suit No. 26 of 1910, the extent and reality of Nataraja Aiyar's indebtedness under that decree cannot be questioned by third persons (though they are also creditors of Nataraja Aiyar) so long as that decree remains effective. As regards proceedings in insolvency and bankruptcy and proceedings taken in winding up registered companies, special powers are given to Courts and Receivers (not to set aside judgments and decrees, but as said in some English oases) 'to get round judgments, ' 'to go behind judgments, ' so that the creditors who have got just debts alone may share in the distribution of assets and not the creditors whose debts are unjust though they may be decree-creditors. Those decisions are, in my opinion, not applicable to the question of rateable distribution in execution proceedings under the Civil Procedure Code. Most Insolvency and Bankruptcy Acts, for instance, contain special provisions which direct that domestic servants and clerks, etc, should be paid in full the arrears of wages due to them for particular periods of time in preference to other creditors, and contain similar special provisions based on special considerations, but these considerations cannot be taken into account under the Civil Procedure Code.

34. I am, therefore, clear that the plaintiffs who are decree-holders (just like the 1st defendant) against Nataraja Aiyar cannot attack the 1st defendant's decree as not creating a valid debt against Nataraja Aiyar and as, therefore, not being a decree capable of execution against Nataraja Aiyar's assets, if Nataraja Aiyar himself is precluded from setting aside that decree and if there was no collusion between the 1st defend ant and Nataraja Aiyar in the obtaining of the decree by the 1st defendant. [Of course if there was such collusion, it was open to the plaintiffs to attack it. See Surya Narayana Jagapati Raju v. Gopala Surya Rao 17 Ind. Cas. 940 : 23 M.L.J. 699 : 12 M.L.T. 660

35. In the above view, it is unnecessary to consider the question whether the plaintiffs have a right to sue for a declaration and injunction and whether their only course was to have waited till the money was paid in the course of rateable distributor to the 1st defendant and then to bring their suit or suits for recovery of that money under the provisions of Section 73, Civil Procedure Code. I might, however for the sake of completeness express my considered view that they are not so precluded. It may happen that the remedy under Section 73, Civil Procedure Code, may become, in certain cases, quite illusory; for example, where the creditor to whom it was wrongly paid is a pauper or has no tangible property or absconds. The right of a man to recover the debt out of his debtor's assets is a substantial right. Where that right is in danger, I do not see why he should be confined to a particular remedy given by a particular Statute and why he should not resort to another remedy given by another Statute (such as the Specific Relief Act) to protect his rights effectively. If there are observations in certain cases which hold that a suit for declaration and injunction (where the plaintiff is entitled to sue under Section 73 after the wrong distribution takes place) is premature, I respectfully dissent from those observations. The actual decision in Parasurama Pattar v. Veeraraghava Pattar 7 M.L.J. 277 can be supported on the ground that the consequential relief of injunction was 'not asked for. Exhibit I merely follows Parasurama Pattar v. Veeraghava Pattar 7 M.L.J. 277 and the actual decision may be supported on the same ground.

36. In the result, though with great reluctance, I agree with my learned brother in holding that the lower Court's decision must be reversed and the suit dismissed, but as the 1st defendant obtained a dishonest decree and raised the false defence that the promissory note on which he obtained that decree in Original Suit No. 26 of 1910 was supported by consideration, I would direct the parties to bear their respective costs in both Courts.


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