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Kalagara Srirama Row and Official Receiver Vs. Kalagara Bapayya - Court Judgment

LegalCrystal Citation
Decided On
Reported in76Ind.Cas.845
AppellantKalagara Srirama Row and Official Receiver
RespondentKalagara Bapayya
Cases Referred and Sadagopa Aiyengar v. Sellammal
.....not certified--satisfaction of decree, whither can be pleaded. - - but for some reason, sreerama rao's attempts to get the decrees treated as discharged were unsuccessful; his attempts failed. he deposed that he hardly ever attested deeds, that the present instance was an exception and even after the present execution application was filed, his help was sought for by both sides, that he tried to effect a settlement, that he failed and that he was, therefore, obliged to go into the witness-box and speak to the facts which he knew. on material points, he is corroborated by the pleader, as well as the pleader's clerk ramachandra rao and venkata seshayya. 20. the 5th witness for the petitioner has been shown to be utterly unreliable. it is unsafe to attach any importance to his..........full satisfaction of the decree; but for certain reasons, which i shall presently notice, got the decree transferred in favour of bapayya who, i may mention, is the father-in-law of bhadrayya. the appellant's case is that the decree was actually dischargea, that the transfer in favour of bapayya was nominal and taken for his own benefit and that, in the circumstances, execution should not issue in favour of bapayya. the reason assigned for this benami transaction is this. the appellant was largely indebted, and his creditors were likely to enforce payment, he had property, but the debts he incurred to oblige his father-in-law were very large. he tried in 1911 to enter into a composition with his creditors by inducing them to lake 4-annas in the rupee. his attempts failed. now he was.....

Veakatasubba Rao, J.

1. This is an appeal against an order of the Subordinate Judge allowing, at the instance of one K. Bapayya, execution of the decree in Original Suit No. 36 of 1.909. The appellant before us is the fourth judgment-debtor Sreerama Rao. The decree was obtained by the plaintiff, Bangaru Subba Rao, in August 1909. The first defendant is the father-in-law of the fourth defendant, Sreerama Rao, the appellant, and the second and third defendants are the sons of first defendant. The first defendant became indebted to the decree-holder and Sreerama Rao was a surety for payment of the debt. Subsequent to the passing of the decree, the first defendant was adjudicated an insolvent, and the fourth-defendant became in consequence mainly responsible for the payment of the decree-amount. There were other decrees passed against Sreerama Rao in similar circumstances; that is to say, in respect of debts borrowed by his father-in-law for the payment of which he made himself liable as surety. In 1911, with a desire to enter into some arrangements with the various decree-holders, he borrowed moneys from one Badrayya whose sister he had married. He appears to have paid some of the creditor's amounts which represented 4-annas in the rupee. But for some reason, Sreerama Rao's attempts to get the decrees treated as discharged were unsuccessful; and since then, there were other negotiations, and in 1916 there was correspondence between the decree-holder Subba Rao and Sreerama Rao,in regard to the settlement of this decree'.

2. Exhibit V is a telegram dated 20th April 1916 from the decree-holder to the appeliant. Exhibit V(a) is a similar telegram dated nth May 1916. Exhibits V(b), V(c) and V(d) are respectively dated 19th May, 20th May and 9th October of 1916. Exhibit VI is a letter dated 15th May 1916, written by Bangaru Sobandr, partner of the decree-holder, to the appellant. Exhibit IX is a letter dated 28th June 1916, from Sreerama Rao to the decree-holder. These Exhbits show very crearly that the appellant was anxious to enter into some settlement with the decree holder. on the 23rd June 1917, the decree was transferred by a deed of that date by the decree-holder in favour of Bapayya, who filed an execution application, the order passed on which is the subject of the present appeal. The appellant contends that he borrowed Rs. 3,000 from his brolhei-in-law, the aforesaid Bhadrayya, and paid the amount to the decree-holder, Bangaru Subba Rao, in full satisfaction of the decree; but for certain reasons, which I shall presently notice, got the decree transferred in favour of Bapayya who, I may mention, is the father-in-law of Bhadrayya. The appellant's case is that the decree was actually dischargea, that the transfer in favour of Bapayya was nominal and taken for his own benefit and that, in the circumstances, execution should not issue in favour of Bapayya. The reason assigned for this benami transaction is this. The appellant was largely indebted, and his creditors were likely to enforce payment, he had property, but the debts he incurred to oblige his father-in-law were very large. He tried in 1911 to enter into a composition with his creditors by inducing them to lake 4-annas in the rupee. His attempts failed. Now he was able to induce this decree-holder Bangaru Subba Rao; to receive Rs. 3,000 in full satisfaction of the decree under which about Rs. 15,000 was due. But to prevail upon other creditors to give up large sums, it was necessary that they should continue to be under the impression that the decree in favour of Subba Rao was in full force. Should the other creditors become aware of the real facts, the chances of settlement were less. The appellant entered info secret transactions' with a few other decree-holders, got them to accept small sums, and, as in the present case got the decrees assigned in favour of this very Bapayya. It was desirable that the rest of the creditors should remain under the impression that all the decrees were still alive, because they would then, fearing that the property of the appellant would not be sufficient to discharge all the debts in full, be willing to enter into favourable settlement With Sreerama Rao. The appellant's case is that with this object he made it appear that the decree, though discharged, was yet alive and got an assignment of the decree in favour of a near relation in whom he had confidence. It is admitted that about this period three other decrees were also transferred to Bapayya. Sreerama Rao urges that all the assignments were benami and made with the same object. The question to be determined is, has the appellant made out his case

3. Mr. Madhava Rao a Pleader of 25 years' standing and having considerable practice, was examined on behalf of the appellant. He completely supports his case; and, in my opinion, his evidence is direct and unequivocal and, if believed, beats out the case of the appellant in its entirety. I shall extract a few passages from his long deposition:

The fourth judgment-debtor was corning to me, even subsequently, to effect a settlement with the decree-holder. I tried to effect a settlement between them. The result of my attempt was the execution of a transfer deed, by which this decree was conveyed to the present petitioner, K. Bapayya, by the decree-holder.

This petitioner was coming to me before this decree was transferred to him He was coming to me along with the fourth judgment-debtor.

The payment was made at my house, on behalf of the fourth judgment-debtor. I say so, because it Was the fourth judgment-debtor that was trying to get the decree transferred to somebody on his behalf. First defendant was attempting to get his decree transferred in the name of somebody, for his own benefit, in order to harass the fourth judgment-debtor, who was then on inimical terms with him. The fourth Judgment-debtor was telling me that any such transfer would lead to his ruin and that I must interfere and effect some settlement, by which the decree might be transferred to him, or settle the matter ill some other way. Then I interfered and effected the above-mentioned settlement. In order to avoid any trouble that might be given by first defendant to fourth defendant, this transfer deed came into existence.

From what transpired at that time, I understood that this transfer was intended for the benefit of the fourth judgment-debtor, I can say that it was a benami transaction.

4. It must also be mentioned that, according to the appellant, it was a part of the scheme to get the transfer in favour of Bapayya recognised by the Court. The object of the transfer could not be carried out, unless third parties Were really induced to believe not only that the decree Was alive tut also that the assignee-decree-holder was prepared to execute it. The appellant says that it was, therefore, agreed between him and Bapayya, that an application should be made to the Court for bringing the transferee, Bapayya, on the record and that an order should be procured to that effect, but that no further execution should take place.

5. On this point also, Mr. Madhava Rao gives very clear evidence, for he says:

This petitioner and the fourth respondent asked me to put in the execution application and get the transfer of the decree recognised and not to execute the decree any further.

6. I said that the decree was transferred on the 23rd June 1917. Then followed the annual vacation. After the re-opening of the Courts, on the 9th September 1917, an application to recognise the transfer was made to the Court. Notice went to Sreerama Rao. It is in evidence that he did not appear in Court. On the 30th October 1917, the order was made recognising the transfer and directing deposit of sale papers. On the 14th November 1917, the application came on by adjournment. The sale papers were not deposited and the execution petition was dismissed.

7. The conduct of Bapayya lends support to the version of the appellant; He himself did not attend Court in connection with the application to recognise the transfer. Sreerama Rao Seems to have been in charge of these proceedings, and Mr. Madhava Rao helped him to carry out his intention. The parties fell out subsequent to the date last mentioned, namely 14th November 1917, and the present execution application was filed on the 26th April, 1918. Bapayya requested Mr. Madhava Rao to appear for him and conduct the execution. Mr. Madhava Rao declined. The reason given by Mr. Madhava Rao. is very suggestive. He says:

I refused to take any further steps in the execution proceedings, because it would virtually come to the execution of the decree by the fourth defendant against himself.

Bapayya came tome to take further steps in. the matter, such as attachments, etc., i.e., to put in a fresh execution application. I did not file any such application, because it would be contrary to what took place previously. Although I was prevailed upon by the petitioner, I refused to put in a fresh E.P., for the aforesaid reasons. I remember I asked my clerk to refund to the petitioner some money that he took from the petitioner for the purpose of putting a fresh F.P.

8. I have no doubt that Mr. Madhava Rao was speaking the truth, when he made the statements which I have extracted above. He was subjected to a lengthy cross-examination. But I do not think that anything was elated to throw doubt upon his credibility. He deposed that he hardly ever attested deeds, that the present instance was an exception and even after the present execution application was filed, his help was sought for by both sides, that he tried to effect a settlement, that he failed and that he was, therefore, obliged to go into the witness-box and speak to the facts which he knew. He gave evidence on behalf of Sreerama Rao in the other connected application, where the contest between Bapayya. and the appellant was of a similar character As a matter of fact, another transfer in favour of Bapayya was the subject matter of that enquiry. Similar contentions were put forward and similar issues were raised. The Subordinate Judge who tried the case and saw the witnesses, including Mr. Madhava Rao, believed him and gave effect to Sree rama Rao's contention on appeal, the High Court remanded the case and the present Subordinate Judge, who succeeded the Subordinate judge who heard the petition on the previous occasion, on a review of the evidence, came to a different conclusion and allowed the execution application. Then he took evidence, in the present petition and also came to the conclusion that execution should be allowed.

9. I have referred to the connected petition only for this reason. The previous Subordinate Judge acted on Mr. Madhava Rao's evidence, and it might be expected that the present Subordinate Judge, who found that Bapayya's case was true, in the. present proceeding also would give some reasons for refusing to act upon Mr. Madhava. Rao's evidence. Even otherwise, he should have referred to this evidence and stated his opinion upon it. On the contrary, the Subordinate Judge ignores all the material parts of Mr. Madhava Rao's evidence and contents himself with, saying that the witness did not have direct knowledge, in regard to certain very insignificant matters, as to who paid the money and how it was paid. The Subordinate Judge says that Mr. Madhava Rao is not positive as to the amount paid, by whom it was paid, to whom it was paid and how much was paid. The Subordinate Judge further says referring to this witness:

He did not see payment of the money; nor can he have fully or attentively heard of the conversation and negotiation which took place at the place where his clerk transacts business, which is different from the place where he holds his office. Beyond mere attestation and taking part only in the suggestions and opinions that were asked for, now and then, he does not speak.

10. This seems to be scarcely a fair criticism of the evidence. If the Subordinate Judge had said that he did not believe Mr. Madhava Rao, I could understand him. But he does nothing of the kind. The reasons he gives for not acting upon his evidence are far from convincing. The effect of this witness's evidence, as set out in the judgment, is misleading.

11. It is unnecessary to dwell at any length on the evidence of Sreerama Rao. On material points, he is corroborated by the Pleader, as well as the Pleader's clerk Ramachandra Rao and Venkata Seshayya. I see no reason to distrust the evidence of Mr. Madhava Rao and his clerks.

12. The case of the appellant is also more probable than that of Bapayya. The latter says that he did not obtain transfers of any other decrees, than those passed-against Sreerama Rao. Why did he take an assignment of these decrees? He knew or ought to have known that the decree-holder was parting with the decree, for about one-fifth of its value, because he found it difficult to realise any amount. It was not his desire to harass Sreerama Rao, because, at the time of assignment, they were friends. Bapayya does not explain why he was suddenly seized with the desire to obtain assignments of decrees against Sreerama Rao. At any rate, his explanation is very unsatisfactory; Exhibit V Series, VI and IX, show that the appellant was making earnest efforts to settle the claim of the decree-holder. This circumstance also probablises the appellants case.

13. The appellant's witnesses have deposed that he was present at the time when the assignment was made, and it is also clear that he took an active part in the proceedings to get the transfer recognised by the Court. It was not likely that if, as a matter of fact, the object of the transfer was to substitute one creditor for another, he would himself have brought about the assignment and taken an active part in the matter of getting the assignment recognised. On the other hand, if, by a payment of Rs. 3,000, he was able to get the decree for five times that amount to be treated as discharged, he would not have, missed the opportunity; and on this footing, his exertions would be intelligible.

14. The conduct of Bappayya in dropping the execution proceedings, immediately the transfer was recognised, is also consistent with the case of the appellant.

15. Another circumstance which is in favour of the appellant is, that the consideration for the alleged assignment was Rs. 3,000, but it was made to appear in the deed that the consideration was only Rs. 1,000. The appellant's explanation is that a smaller amount was mentioned, in order that the other creditors might more easily be induced to enter into settlements. Mr. Madhava Rao also gives evidence on the point to. the same effect. There is hardly any ex-plantion forthcoming, on behalf of the transferee decree-holder.

16. I, am therefore, of the opinion that, both' on the evidence and on probabilities, the appellant has made out his case.

17. I would briefly examine the evidence adduced on behalf of Bapayya. He makes contradictory, statements in regard to the motive for this transfer. He first stated:

'It ' (transfer) 'was for my benefit and not for Sreerama Rao's.'

So I took the transfer thinking that I will get a share in the distribution of the estate.

I intended to sell the property and recover the money.

I intended to collect the whole money. I will be profited by it.

18. I may point out that at the hearing of the connected petition, he-made a statement to the same effect. The deposition has been filed and marked Exhibit XII.

19. This case is entirely inconsistent with another allegation made by him, namely, that he took the transfer with the object of helping his son-in-law Bhadrayya. Indeed, he contradicts himself hopelessly on this point, because he gives a third version that the object of the transfer was both to help his son-in-law and to make a profit for himself. His first statement that he took the assignment for his own benefit cannot be true, as he admits that he did not even make enquiry as regards the financial condition of Sreerama Rao at the time he took the assignment. As regards the second statement, that he intended-to benefit his son-in-law, it cannot be true, because both he and' his son-in-law admit that the latter had not known of the negotiations, till almost the actual moment when the transfer was|made. None of the witnesses examined on behalf of Bapayya is able to deny that Sreerama Rao was present at the time the assignment was made. The evidence of the petitioner's 3rd and 6th witnesses is extremely suspicious and inconclusive. They are not in a position to' say,-whether the transfer was for thejbene- fit of Bapayya or Sreerama Rao. But they Were able to depose in October 1920, that more than three- years previously Bapayya brought Rs. 1,000 and Rs. 2,000 and paid the amount into the hands of Subba Rao. It is hardly likely that, even if this fact was true, they could have remembered it, as it was not a matter which at the time could be of any importance.

20. The 5th witness for the petitioner has been shown to be utterly unreliable. He made the statement that he was not commissioned to interview Subba Rao, in connection with the negotiations in 1916. But when he was confronted with Exhibit X, he explained that in December 1917, Sreerama Rao took him to Cocanada for the purpose of asking Subba Rao to settle the decree. This is obviously false, because the decree having been transferred in June 1917, there could have been no negotiations whatever regarding it in December 1917.

21. The evidence on behalf of Bapayya is untrustworthy and discrepant. I am not prepared to act upon it.

22. I shall briefly notice the grounds on which the learned Subordinate Judge bases his judgment.

23. He says that the stamp-paper for the assignment having been purchased in the name of Subba Rao, is a circumstance that supports Bapayya's case. Subba Rao was the transferor and there is no reason why the stamp paper should not have been purchased in his name. It is common experience that in such cases the stamp paper is purchased, either in the name of the transferor or of the transferee. I do not think any argument can be founded on this fact.

24. The case of the appellant is that he borrowed the sum of Rs. 3,000 from Bhadrayya. On the other hand, Bapayya says that he had with him Rs. 2,000 and borrowed Rs. 1,000 from Bhadrayya, Bapayya relies upon the fact that Bhadrayya borrowed Rs. 1.000 on the date of the transfer from his 4th witness. The fact that Bhadrayy borrowed Rs. 1.000 by itself proves nothing. His born owing Rs. 1,000 would be quite consistent with the case of the appellant. If Bhrdrayya did not have the entire Rs. 3,000 with him, he might have borrowed Rs. 1,000 to make up the amount for the purpose of lending the same to Sreerama Rao. The Subordinate Judge remarks that Sreerarra Rao's version that he executed a promissory-note in favour of Bhadravja for Rs. 3,000 cannot beaccepted. Considering that the parties were nearly related to each other, and that the were then friends, the case of Sreerama Rao on this point is not improbable. Even if some suspicion attaches to the story of a promissory-note having been executed, I find no reason to disbelieve the main fact that he borrowed the amount from Bhadrayya. I may observe that neither Bhadrayya nor Bapayya has produced his account-books. It seems to me that they have been withheld deliberately.

25. It has been said that it was very unlikely. that Bhadrayya, who on the previous occasions lent moneys to Sreerama Rao, on the joint reponsibilty of the latter and his mother, would have on this occasion lent him Rs. 3,000 on a promissory-note executed by him solely, This argument loses much of its force, by reason of the fact that Bhadrayya admitted in his evidence that in 1916 or 1917 he took a note for Rs. 7,000 from Sreerama Rao alone. The last circumstance relied on by the Subordinate Judge is the fact that Mr. Madhava Rao's evidence does not touch the point. I have already shown that this view is far from correct, and I may also point out that though the Subordinate Judge says that the evidence of Mr.Madhava Rao is only based on a series of inferences, it is extremely clear, that, on a reading of his whole evidence, he was speaking to facts within his knowledge. It is unsafe to attach any importance to his answer in cross-examination where he refers to his reasons for his impression. The actual form of the answer would depend upon the manner in which the question was framed by the cross-examining Counsel. I have, therefore, come to the conclusion that Sreerama Rao paid Rs. 3,000 to the decree-holder and that the decree was discharged by payment. I have also come to the conclusion that the transfer of the decree in the name of Bapayya was taken with the object of imposing upon Sieerama Rao's other creditors and getting them to waive large amounts. I hold, further, that it was apart of the agreement between Bapayya and Sreerama Rao that an execution application should be filed, for the purpose of getting the transfer recognised and that no further execution should be taken. The object of this course also was to deceive the. numerous other creditors of Sreerama Rao.

26. I shall now deal with the questions of law that have been raised in this case. It has been argued on behalf of the respondent that the Court, having recognised the assignment and ordered execution to issue, it is not now open to the appellant to raise the question of the executability of the decree. The argument is that the judgment-debt or should have put for ward his objections before the assignment was recognised and execution ordered. He having failed to do so, he is barred by res judicata from now putting-forward the objection. I do not thank the question of res judicata arises at all. The agreement, spoken to by Sreerama Rao and his witnesses including Mr. Madhava Rao, is fraudulent and is opposed to public policy and clearly comes within the purview of Section 23 of the Indian Contract Act. It is a part of that agreement that the parties should procure an order recognising the transfer, withholding from the Court the fact that it was not intended by them to be operative but that the real intention was merely to mislead third partes. It was a discreditable conspiracy to cheat the creditors of Sreerama Rao. In such a case, when the facts come to the notice of the Court, the doctrine of pari delicto will be given effect to; and the Court will refuse aid to the party who has participated in the fraud and asks for relet, the principle is well settled and I need only refer to Scott v. Brown, Doering McNab & Co. (1892) 2 Q.B. 724 : 61 L.J.Q.B. 738 : 67 L.T. 782 : 41 W.R. 116 : 57 J.P. 213, where the facts were very similar to the facts of the present case. An agreement was made to purchase shares in a company, in order to induce persons, who might thereafter purchase shares in such company, to believe, contrary to the fact that there Was a bona fide market for the company's shares, and that the shares were at a real premium. It was held that no action could be maintained in respect of such agreement of purchase of shares. Lindley, L.J., observes:

Ex turpi causa non oritur actio. This old and well-known legal maxim is founded in good sense, and expresses a clear and well recognised legal principle, which is not confined to indictable offences. No Court ought to enforce an illegal contract, or a How itself to be made the instrument of enforcing obligations, alleged to arise out of a contract or transaction which is illegal, if the illegality is duly brought to the notice of the Court, and if the person invoking the aid of the Court is himself implicated in the illegality. It matters not whether the defendant has pleaded the illegality, or whether he has not.

27. I may observe that the case of the plaintiffs was that they were entitled to rescission upon he ground that the defendants, must ad of puchasing the shares from them in the ordinary way, had transferred to the plaintiffs the defendant's own shares, and the learned trial Judge non-suited plaintiffs on the ground that there was no evidence to go to the Jury in respect of their case.

28. Lopes, L. J., makes the following observations:

In my judgment, it is unnecessary to determine whether the holding of the learned Judge is right in this respect. There is a preliminary matter to be considered, of which the learned Judge might have taken, and this Court can and ought to take, judicial notice. In my judgment, it was an agreement between the plaintiffs and defendants to induce would-be-buyers of shares in this company, contrary to the fact, to believe there was a market for its shares, and that the shares were of greater value than they really were. Putting it shortly, an agreement to cheat the public by leading them to believe the shares had a value, which the plaintiffs and defendants knew they had not, and thus inducing them to become purchasers. Is such a transaction illegal? I am of opinion that it is.

29. Lastly, I may notice another objection urged by the respondent. He argued that the adjustment was not certified under Order XXI, Rule 2, and that the judgment debtor could not, therefore, avail himself of it. It is sufficient to say that this point is concluded by authority: See Bayyana Rumayya v. Nidamarthi Krishnamurthi 32 Ind. Cas. 952 : 40 M. 296 : 3 L.W. 186 : 19 M.L.T. 124 : (1916) 1 M.W.N. 133 and Sadagopa Aiyengar v. Sellammal : (1922)43MLJ761 These decisions, are against the respondent's contention.

30. In the result, all the contentions raised on behalf of the respondent fail, and the appeal must be allowed.

Spencer, J.

31. I entirely agree. As the appellant engaged in a conspiracy to defraud his creditors, I do not think his conduct in the transaction was such, as to entitled him to recover his costs in these proceedings. All parties will bear their own costs throughout.

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