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Loorthia Odayar Vs. Gopalasami and anr. - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Judge
Reported inAIR1924Mad450; 80Ind.Cas.147
AppellantLoorthia Odayar
RespondentGopalasami and anr.
Cases Referred and Ummaohalcutti v. Ummerkutti Haji
Excerpt:
transfer of property act (tv of 1882), section 68 - fraudulent transfer--transfer to prefer creditors and to defeat others, validity of--consideration, passing of, effect of. - - i am satisfied that ho has not. in the circumstances i think that the failure to examine him as a witness was deliberate. i am, therefore, not satisfied that this sum was really paid to the 1st defendant. i may remark that this case is not an authority upon section 53, because the learned judges expressly state in their judgment that the question before them was to be decided with reference to general principles of justice and good conscience, the property with which they were dealing not being immoveable property and section 53 not having therefore direct application. 72 equally strong observations were made...........in part was for valuable consideration, was as regards the other part only, an arrangement to defeat creditors it was wholly void under section 53 of the transfer of property act. in that case, the assignment, that was impeached, was in favour of the creditor and the money obtained by the assignor was partially utilized for the payment of his debts. nevertheless it was held that as the arrangement was to some extent a device, intended to defeat the assignor's other creditors, the transaction was entirely invalid and no effect could be given to it. the reason for this decision, as i understand it, appears to be this. a mere preference of one creditor to another does not render the transaction voidable under section 53 of the transfer of property act. but if it is shown that the.....
Judgment:

Venkatasubba Rao, J.

1. The question to be decided in this appeal is: Is the mortgage (Ex. 1) executed by the 1st defendant in favour of the 2nd defendant liable to be set aside at the instance of the plaintiff under Section 53 of the Transfer of Property Act?

2. The 1st defendant and her son had executed in favour of the plaintiff a promissory note and the plaintiff tiled a suit for the recovery of the amount due under it. The first defendant filed a written statement in that suit denying the execution of the promissory note. This statement was filed on the 7th of February 1916. On the date of the hearing, the 1st defendant did not appear and an ex parte decree was obtained by the plaintiff in about June 1916.

2. In the mean-time, that is, a few days after the filing of the written statement but before the decree aforesaid was passed, the 1st defendant mortgaged her properties to the 2nd defendant by Ex. 1, dated 26th February 1916. The 2nd defendant is the brother's son of the 1st defendant and it is admitted that the mortgage deed comprised every item of immoveable property possessed by the 1st defendant. At the time of the mortgage, the suit against the 1st defendant was pending and a false defence was presumably put in, in order to gain time. The mortgage purports to be for Rs. 10,000 but it is in evidence that the 2nd defendant was not himself possessed of much property but it is said that his father and mother were wealthy and that he was in management of his father's properties. The 2nd defendant also admits that before the date of this transaction, be had not lent any large sums of money and that the maximum amount lent by him on any single occasion was about Rs. 300 or Rs. 400. The admissions made by him dearly show that the mortgage was not taken in the usual course of business but that it was a transaction of an unusual kind from the point of view of the 2nd defendant, No explanation is forth-coming as to why he suddenly turned a money-lender and lent such a large sum of money. As a fact, he admits that he had only with him Rs. 2,000 on the date of Ex. I and that he had to borrow the major portion of the consideration from his maternal aunt's husband and it is remarkable that this man had not even been examined. It is also significant that the mortgage that was created was a usufructuary mortgage for a period of 10 years. It seems to me that the object of creating such a mortgage was to diminish the value of the equity of redemption even granting that it was worth anything at all. 'What necessity was there to create a mortgage over the entire property of the 1st defendant, which was to subsist for such a long period of time? It is stated in Ex. 1 that the object of executing the mortgage was to raise money to pay off several creditors of the 1st defendant. There is nothing in the evidence to show that there was any pressure brought to bear by the creditors except in regard to one debt; whereas, so far as the plaintiff is concerned, he had actually filed a suit but it is curious that the mortgage deed makes no provision whatsoever for the payment of the debt due to the plaintiff. That the 1st and 2nd defendants intended to defeat the plaintiff's claim appears further from the circumstance that the mortgage deed was registered not in the Registrar's Office nor even at the residence of either the mortgagor or the mortgagee but at the house of one Dharmalinga Pillai in a place called Settiapuram. On a consideration of the probabilities of the case and of the evidence, I have come to the conclusion that the 1st defendant executed the mortgage with the intention of defrauding the plaintiff and that the 2nd defendant was aware of that intention.

3. The consideration for the mortgage deed is said to consist of.

(1) Rs. 7,037-12-10 which is the aggregate amount of the debts due by the 1st defendant to third parties and which the 2nd defendant claims to have discharged. The learned Subordinate Judge thinks that these debts were really not due and that the recital in the mortgage deed regarding their existence is false. I was first inclined to agree in this view but on further consideration I am not prepared to accept this finding. The transaction, as I pointed, is no doubt extremely suspicious but documents were produced to evidence the previous debts and witnesses were examined to prove those documents, and I find that there was no cross-examination directed to attack the genuineness of the documents. If they were seriously impugned it would have been open to the 2nd defendant to produce further evidence and I cannot draw any inference adverse to him from his omission to examine more witnesses on this point. As it is, he examined Ponnusami Pillai who proves not only the promissory note executed in his own favour but also Ex. 3 b executed in favour of Radhakrishna Pillai. Sadasiva Pillai proves Ex. 3-c and Narayanaswaray Iyer proves Ex. 3-a. In the circumstances, I am disposed to think that the evidence adduced is sufficient to prove the existence of the debts and I, therefore, find that the consideration to this extent did really pass for the mortgage document.

(2) Rs. 1,873-8-0 said to be the amount which was due by the 1st defendant to the 2nd defendant on a promissory note of a prior date, namely, 20th May 1913. Has the 2nd defendant made out the existence of this debt to himself? I am satisfied that ho has not. He was cross-examined in regard to his capacity to advance money. He had also to admit that he did not keep any accounts. A specific question was put to him as to whether he had lent any monies before the date of Ex. I. In the plaint, it was expressly stated that the promissory notes mentioned in the deed of mortgage were not genuine. The 2nd defendant was, therefore, bound to give clear evidence of the debt alleged be be due be himself. Beyond his word, no evidence has been adduced. The promissory note in his favour Ex. II, bears the attestation of Samiah Udayar and Srinivasa Iyar. Neither of them has bean examined. I may note that this Samiah Udayar has also attested Exs. 1, 3-A and 5, and this shows that he is more or less intimately connected with the defendants. It is still more strange that the 1st defendant has not been examined at all. The 2nd defendant admits that the relations between him and the 1st defendant have continued to be friendly. There is another circumstance to which I may advert though I do not propose to base my finding upon that. From a comparison of the documents filed in the suit, Ex. II appears to have been written by D.W. 4 and although he was examined, with reference to the other documents with which he was connected, nob a single question was put to him bearing on Ex, II. The mortgage document having beau executed in circumstances which show that the object of the transaction was to defeat the plaintiff, the onus was heavily upon the 2nd defendant to prove the existence of the debts alleged be have been discharged from and out of the consideration for the mortgage. In Palamalai Mudaliar v. The South Indian, Export Company 5 Ind. Cas. 33 : 89 M. 884 : 7 M.L.T. 167 : 20 M.L.J. 211 Wallis J. as he then was states the law thus, 'Now if the sale was effected with the object of preferring these two creditors to the plaintiffs and the other creditors it is clear and is admitted, that the sale would not be voidable under Section 53 of the Transfer of Property Act, but the burden of proving this where the sale appears otherwise be be voidable is on the defendant and should be established by satisfactory evidence.' This principle was also accepted by Mitra and Cas-perss, JJ. in Rajani Kuwar Das v. Gour Kishore Saha 85 C. 1051 : 7 C.L.J. 586Palamali Mudaliar v. The South Indian Export Co. (1), converting immoveable property into cash is the most obvious and effective method of defeating and delaying creditors;

4. Having thus found on facts, I must now consider what the law on the subject is. In Chidambaram Chettiar v. Sami Aiyar 3 O.M. 6 : 16 M.L.J. 427 : 1 M.L.T. 351, it was held that where a transfer, though in part was for valuable consideration, was as regards the other part only, an arrangement to defeat creditors it was wholly void under Section 53 of the Transfer of Property Act. In that case, the assignment, that was impeached, was in favour of the creditor and the money obtained by the assignor was partially utilized for the payment of his debts. Nevertheless it was held that as the arrangement was to some extent a device, intended to defeat the assignor's other creditors, the transaction was entirely invalid and no effect could be given to it. The reason for this decision, as I understand it, appears to be this. A mere preference of one creditor to another does not render the transaction voidable under Section 53 of the Transfer of property Act. But if it is shown that the object of the transaction is not merely to prefer a creditor but in addition is to defeat or to delay the other creditors, it then ceases to be a transaction by which merely a creditor is preferred but becomes a transaction to which Section 53 is directly applicable. The next step in the argument seems to be that the inclusion of a fictitious debt furnishes evidence of an intention to defeat the creditors and the transaction is thus wholly void against them. I may remark that this case is not an authority upon Section 53, because the learned Judges expressly state in their judgment that the question before them was to be decided with reference to general principles of justice and good conscience, the property with which they were dealing not being immoveable property and Section 53 not having therefore direct application. Apart altogether from this, the recent decisons of the Judicial Committee Mushar Sahu v. Lala Hakim Lal 82 Ind. Cas. 843 : 48 C. 521 : 80 M.L.J. 116 : 3 L.W. 107 : 20 C.W.N. 898 : 14 A.l.J. 198 : (1916) 1 M.W.N. 198 : 19 M.L.T. 208 : 28 C.L.J. 406 : 18 Bom. L.R. 878 : 43 I.A. 104 and Minakumari Bibi v. Bijoy Singh Dudhuria 40 Ind. Cas. 242 : 44 O. 662 : 1 P.L.W. 426 : 5 L.W. 711 : 32 M.L.J. 486 : 21 C.W.N. 586 : 21 M.L.T. 344 : 15 A.L.J. 382 : 25 C.L.J. 508 : 19 Bom. L.R. 424 : (1917) M.W.N. 473 : 44 I.A. 72 place the matter beyond doubt. In the former at page 525 an extract is given from the judgment of Palles, C.B, In Re Moroney where it is stated that although the effect of the transaction or even the interest of the debtor in making it may be to defeat another creditor, it is not a fraud within the statute. Their Lordships towards the close of their judgment say that a preference of one creditor to another is no ground for impeaching the deed even if the debtor was intending to defeat an anticipated execution by another creditor. In the latter case Minakumari Bibi v. Bijoy Singh Dudhuria 40 Ind. Cas. 242 : 44 O. 662 : 1 P.L.W. 426 : 5 L.W. 711 : 32 M.L.J. 486 : 21 C.W.N. 586 : 21 M.L.T. 344 : 15 A.L.J. 382 : 25 C.L.J. 508 : 19 Bom. L.R. 424 : (1917) M.W.N. 473 : 44 I.A. 72 equally strong observations were made. Their Lordships say at page 671 'It may be that the judgment-debtor preferred the plaintiff... and that he did this of set purpose, yet this would not stamp the transaction as a fraudulent transfer.' On these authorities it is perfectly dear that the transaction before us cannot be regarded as wholly void as against the plaintiff.

5. I may add that in Rajani Kumar Das v. Gour Kishore Saha 85 C. 1051 : 7 C.L.J. 586 : 12 C.W.N. 671; Palamalai Mudaliar v. South Indian Export Company 5 Ind. Cas. 33 : 89 M. 884 : 7 M.L.T. 167 : 20 M.L.J. 211 and Ummaohalcutti v. Ummerkutti Haji 29 Ind. Cas. 588 the transactions were not held to be wholly invalid and effect was given to the deed to the extent to which the consideration was applied for the discharge of the transferor's debts. I, therefore, hold that the mortgage in favour of the 2nd defendant is good to the extent of Rs. 7,037-12-10 and that the property is liable to be sold subject to this right of the 2nd defendant. The appeal will be allowed to that extent. The parties will pay and receive proportionate costs throughout.

Phillips, J.

6. I agree.


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