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A.L.S.P.P.L. Subramanian Chettiar Vs. Subbaraya Goundan and ors. - Court Judgment

LegalCrystal Citation
SubjectProperty
CourtChennai
Decided On
Reported inAIR1935Mad246; 155Ind.Cas.611
AppellantA.L.S.P.P.L. Subramanian Chettiar
RespondentSubbaraya Goundan and ors.
Cases ReferredJanaki Ram Vilas Nidhi Ltd. v. Official Receive Coimbatore
Excerpt:
.....transfer by the insolvent for the purposes of sections 53 and 54. on this ground, i hold that the mortgage deed, ex. 1,991 was advanced as an additional loan to get the mortgage deed executed, the petitioner could not be deemed to have acted in good faith. the fraudulent object of the debtor which would prejudicially affect the interests of the other creditors was well-known to the petitioner's agent, narayanan chettiar i should think that even if it could not be strictly brought under section 54, the annulment could be effected under section 53 of the act. considering the peculiar circumstances of this case and also the partial success and failure on both sides, i direct the parties to bear their own costs in this revision petition, and would leave the order as to costs made by the..........by their guardian ad litem. even if such a guardian was not competent to execute a sale deed or mortgage deed on their behalf, the sale as a whole was treated as a valid transaction , ignoring or leaving out of consideration the fact of the minors by their guardian-ad litem having joined as co-executants. in the present cases, there is no question of the invalidity of the mortgage deed, ex. i, so far as the execution of fe by the minor sons represented by their father as guardian is concerned. ac, cording to the recitals in the deed, this-mortgage was effected to the extent of the major portion of the consideration,, for the purpose of discharaing the antecedent debts of the father. the cash, consideration received is stated to be for discharging some other debts by him,. the.....
Judgment:
ORDER

Sundaram Chetty, J.

1. This is a civil revision petition filed against the judgment of the District Judge of Coimbatore in O.M.A. No. 31 of 1928 confirming the decision of the trial Court in an application under Sections 53 and 54, Provincial Insolvency Act 5 of 1920, for the annulment of the mortgage deed, Ex. 1, dated 9th October 1924, and executed by one Subbaraya Goundan (who was subsequently adjudged an insolvent) in favour of Subramaniam Ohettiar, by his agent Narayanan Ohettiar for Rs. 7,000. The applicant was one of the petitioning creditors at whose instance the debtor, Subbaraya. Goundan, was declared an insolvent. Both the lower Courts have given a concurrent finding that the aforesaid mortgage was a fraudulent preference in favour of one of the creditors within the meaning of Section 54 of the Act and on the strength of that finding annulled the mortgage as against the Official Receiver. The petition for annulment had to be filed by one of the creditors as the Official Receiver declined to take any action. There is no doubt that a creditor can make an application of this kind when the receiver refuses to act. The present civil revision petition was filed by the alienee. The debtor is respondent 1 in this petition, and on his death, his two sons have been added as his legal representatives. Respondent 2 is the applicant who filed the petition for annulment of the, mortgage.

2. The facts of this case may be briefly stated. Subbarayya Goundan, though possessed of some property, was in embarrassed circumstances. He was indebted to several money lending firms and other creditors, in respect of some of the debts, decrees also appear to have been passed. When the matters stood thus, he found himself unable to pay his debts as they became due, with the result that a sort of composition with his creditors was attempted to be effected. At a meeting of some of the creditors, the debtor desired them to reduce the fate of interest upon his debts from three to, one per cent per mensem, and asked them to wait for two months. Two of the creditors agreed to the reduction of interest to 18 per cent in respect of all the debts, but Narayanan Chetty, the agent of the present petitioner, did not agree to such a reduction in respect of his dues. No final agreement could be reached. Subsequently, some arrangement was effected as between Narayanan Chettiar (the agent of the petitioner) and the debtor, whereby the mortgage in question for Rs. 7000 was created in favour of the petitioner of almost the entire property of the debtor's family. The interest due to the petitioner on the previous debts was fixed at a per cent mensem, and for the amount so found due, namely, Rupees 5,009 together with a sum of Rs. 1,991 received in cash, (in all Rs. 7,000) interest at 2 per cent per mensem was fixed in the mortgage bond. The finding of the learned Subordinate Judge is to the effect, that the debtor, who was in embarrassed cireumstances, was pricked in mind on account of the refractory conduct of some of the creditors who declined to reduce the interest as desired by him, and created a mortgage practically over his entire property in favour of the present petitioner, to whom he gave a vindictive preference, with a view to punish the other creditors. The learned District Judge has adopted a similar view. He says that the debtor acted in this way in order (to put one creditor (the petitioner) in a favoured position. It is however argued before me that the Courts below should have held that the dominant motive of the debtor was to secure the cash advance of Rs. 1,991 and not to show any preference to the petitioner over the other creditors of the insolvent. It is true that for the purpose of avoiding a transfer of property under Section 54 of the Act as a fraudulent preference, it must be shown that the dominant or sub-stantial motive of the debtor was to give preference to one creditor over the rest. That is a question of fact to be decided according to the circumstances of each case. After a due consideration of the argument on both sides I am not inclined to interfere in revision with a concurrent finding of fact arrived at by both the Courts below. It does not appear that the mortgage was given in the present case as the result of any pressure put upon the debtor by the petitioner's agent, Narayanan Chettiar. As observed by the learned District Judge, a mere threat to sue, which, if at all, was the only pressure, would not be such as to change the nature of the debtor's act from a voluntary to an involuntary one, especially when he was in expectation of such suits being filed by almost all the creditors. It was not therefore to secure freedom from being sued for the debts that this mortgage was created.

3. In this case, the debtor seems to have been in a position to tell Narayanan Chettiar that he would not give a mortgage in order to give security for the debts due to the petitioner, unless a further loan was advanced. Narayanan Chettiar does not appear to have been in a position to dictate to the debtor that a mortgage must be executed as a security for the debts due to the petitioner. The dominant or substantial motive of the debtor in the present case was to give preference to one creditor over the rest, and the transfer was not made simply to protect himself from legal proceedings. Nor can it be said that the further advance of Rs. 1,991 was the main factor which prompted the debtor to execute the mortgage deed. I concur with the findings of the Courts, below that the transaction in question amounts to a fraudulent preference within the meaning of Section 54 of the Act.

4. A new question of law was raised in this Civil Revision Petition, that in the view taken by the Courts below, namely, that this mortgage is a fraudulent preference, it could be annulled only in respect of the insolvent's share in the mortgage properties' but not in respect of the shares of his two sons also which, were comprised in the mortgage. Under Section 54 of the Act, it is only a transfer of property effected by the insolvent that can be annulled. In the present case, the mortgage deed, Ex. 1, was executed not only by Subbaraya Goundan (the insolvent) but also by his two minor sons representd by him as their father and guardian. The deed expressly re, cites that they have hypothecated the properties specified in the schedule belonging to them and remaining in their enjoyment. The deed purports to be a transfer by way of mortgage of the joint properties of the father and his two sons who constitute a joint Hindu family. Obviously, it is not a transfer of property by the father alone.. This is a case where the creditor dealt not with the managing member only of an undivided family, but with all the members of the family as co-obligors, The mere fact that the two sons wero minors and had to be represented by their father as guardian does not make it a mortgage effected by the father alone as the managing member of the family. It must be taken that the executants of this mortgage deed are three and not one, and that would be the case if the two sons were majors, when the mortgage deed was executed. Can it be said that the two sons were not parties at all to this mortgage deed and that the deed does not purport to transfer their interests also in the properties mentioned in the schedule? Any such contention would be against the plain recitals in Ex. 1. It is clear that the parties to this transaction intended that all the members of the family, namely, the father and his two sons, should execute the mortgage deed as co-obligors (vide the observations in Naryana Iyer v. Venkataramana Iyer (1902) 25 Mad 220 and Sivasami Chetty v. Sevugan Chetty (1902) 25 Mad 389. If three co-owners, one. of whom alone being an adjudged insolvent, should transfer their joint properties in favour of one of their creditors, the transfer by the insolvent alone to the extent of his own share therein, would come within the scope of Section 54 of the Act. The transfer by the other two co-owners to the extent of their indealt with under Section 53 or Section 54, Insolvency Act, though such a transfer may be sought to be avoided under Section 53, T.P. Act.

5. Reference was made by the learned' Counsel for Respondent to the decisions reported in Surapa Raja v. Venkayya 1916 Mad 1011 and Rajagopalan v. Subbarama Ayyar 1919 mad 305. Those cases do not in my opinion help him in his contention in. this case. In the first case, the sale deed was executed by the elder brother who was a major and also the manager of the-family, and the younger brother, a minor represented by his mother as guardian,, also joined in the execution of that sale deed. It was found that the sale by the minor represented by his mother as guardian would be invalid, but this circumstance was held not be sufficient to vitiate the sale as such, inasmuch as the elder brother as manager of the family was competent to sell the family property for justifiable purposes. On such a view, the sale as a whole was upheld. In the second case also, the transfer was not only by the father who was-clearly entitled to dispose of the properties in order to discharge the debt& binding on the minor sons, but the minors also joined in the execution represented by their guardian ad litem. Even if such a guardian was not competent to execute a sale deed or mortgage deed on their behalf, the sale as a whole was treated as a valid transaction , ignoring or leaving out of consideration the fact of the minors by their guardian-ad litem having joined as co-executants. In the present cases, there is no question of the invalidity of the mortgage deed, Ex. I, so far as the execution of fe by the minor sons represented by their father as guardian is concerned. Ac, cording to the recitals in the deed, this-mortgage was effected to the extent of the major portion of the consideration,, for the purpose of discharaing the antecedent debts of the father. The cash, consideration received is stated to be for discharging some other debts by him,. The purpose for which this mortgage was effected being such as would justify the guardian of the minors to alienate their shares in the family property, the-execution of the deed by the father as guardian of the minor sons would not be invalid' by reason of any defect as found in the aforesaid decisions. There is no need to treat the mortgage deed in question as one executed by the father alone as the manager of the family, ignoring the fact of its execution by the minors also, for the purpose of enabling the Insolvency Court to annul this mortgage deed in its entirety. I am clearly of opinion that in so far as it is an alienation by the two sons of the debtor (insolvent), it cannot be viewed as a transfer by the insolvent for the purposes of Sections 53 and 54. On this ground, I hold that the mortgage deed, Ex. 1, cannot be annulled so far as the two-thirds share ,of the insolvent's sons in the mortgaged (property is concerned.

6. Another contention raised on behalf of the petitioner is, that the mortgage must be upheld in respect of the amcunt advanced in cash at the time of the mortgage as there could be no question of fraudulent preference of a creditor regarding the same. It is true that at the time of giving preference by means of a transfer of property there should be the relation of debtor and creditor between the parties to the transfer. The petitioner was a creditor to whom a sum of Rs. 5,009 was due at the time of this transfer. The sum of Rs. 1,991 was cash advanced as a fresh loan, and the mortgage given to secure the repayment of that sum cannot strictly be deemed to be a transfer in favour of one who was already a creditor. This seems to be the view taken by a Division Bench of this Court in a decision reported in Janaki Ram Vilas Nidhi Ltd. v. Official Receive Coimbatore 1925 Mad 328. The learned Judges have held that so far as the amount newly received was concerned Section 54 of the Act could have no application. But, in the present case, the application was filed under both the sections. The circumstances disclosed in the evidence from which a fraudulent preference was inferred indicate also that when this sum of Rs. 1,991 was advanced as an additional loan to get the mortgage deed executed, the petitioner could not be deemed to have acted in good faith. He was fully aware of the debtor's embarrassed condition. No bona fide enquiries were made as to the alleged necessity for borrowing this sum. The fraudulent object of the debtor which would prejudicially affect the interests of the other creditors was well-known to the petitioner's agent, Narayanan Chettiar I should think that even if it could not be strictly brought under Section 54, the annulment could be effected under Section 53 of the Act. No modification of the order of the Courts below need be made in-respect of this newly raised objection. The finding of the Courts below that the mortgage deed, Ex. 1, is fully supported by consideration is upheld.

7. For the foregoing reasons, the order of annulment passed by the Courts below is modified by declaring that the mortgage deed, Ex. I, is fraudulent and void, as against the receiver to the extent of its being an alienation of the debtor Subbaraya Goundan's one-third share in the mortgaged properties and it shall stand annulled to that extent only. Considering the peculiar circumstances of this case and also the partial success and failure on both sides, I direct the parties to bear their own costs in this revision petition, and would leave the order as to costs made by the Courts, below undisturbed.


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