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Nalam Viswanatham Vs. the Official Assignee of Madras - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtChennai
Decided On
Judge
Reported in32Ind.Cas.795
AppellantNalam Viswanatham;The Official Assignee of Madras
RespondentThe Official Assignee of Madras;chikka Padmavathi Ammal
Cases ReferredSethna v. Kallianji Sangjibhai
Excerpt:
.....46 and 56 - fraudulent preference--intention of insolvent--natural and probable consequence of payment 'creditor,' meaning of--payment made 'in ordinary course of business,' whether can be preferential--accommodation acceptor, liability of. - - justice bake well on a notice of motion taken out by the official assignee in the matter of the insolvency of nalam venkataratnam, who was adjudicated as an insolvent on the 30th march 1911. the notice of motion was taken out on the 21st april 1911. the prayers of the motion were for a declaration that the insolvent was guilty of fraudulent preferences in drawing 16 hundis for rs. nalam viswanatham as soon as he received the hundi, exhibit v, endorsed upon it 'credited and debited,'padmavathi having already endorsed it over to him, treating..........be deemed to have been made with the view and intention to prefer that creditor, whatever other views the insolvent may also have had in making that payment and whether those other views were more dominant or less dominant, more substantial or less substantial than the view to give a preference. of course, if there was legal duress [see brooke, ex parte, hassal, in re (1874) 9 ch. app. 301; 34 l.j. bk. 49 such as the arrest of the person or the attachment of the property of the insolvent in consequence of which that payment was made, then the view to prefer may be negatived. mr. justice bakewell seems to have followed the english cases, which held that a payment made in the ordinary course of business though made to prefer a creditor cannot be held to have been made with, a view to.....
Judgment:

Sadasiva Aiyar, J.

1.These three cases have arisen out of the same order passed by Mr. Justice Bake well on a notice of motion taken out by the Official Assignee in the matter of the insolvency of Nalam Venkataratnam, who was adjudicated as an insolvent on the 30th March 1911. The notice of motion was taken out on the 21st April 1911. The prayers of the motion were for a declaration that the insolvent was guilty of fraudulent preferences in drawing 16 hundis for Rs. 21,682 in favour of Nalam Viswanatham Chetty between the 10th and 13th March 1911 and a hundi in favour of Chikka Padmavathi for Rs. 5,000 on the 11th March 1911 and for directing the said Nalam Viswanatham to pay to the Official Assignee Rs. 10,500 realised on foot of 7 of the 16 hundis or in the alternative that he should be directed to pay Rs. 5,500, and Chikka Padamavathi should be directed to pay the remaining Rs. 5,000. Nalam Viswanatham and Chikka Padmavathi were the two respondents in this notice of motion. Padmavathi did not appear to contest the motion before Mr. Justice Bakewell, nor did she appear in the Appeal No. 19 of 1915 preferred by the Official Assignee against Mr, Justice Bakewell's order which omitted to fix her with any liability.

2. After full arguments, I think that the following facts are proved by the evidence in the case. Those facts are (a) 'The insolvent had a running account with Viswanatham; they were in the habit of accommodating one another by accepting bills and the insolvent used to draw on his mofussil constituents in favour of Viswanatham in order to repay the sums due to the latter.'

(b) On the 12th January 1911, the insolvent had drawn 8 hundis upon Viswanatham for Rs. 8,000, payable on the 13th and 25th March 1911. Viswanatham accepted these hundis for the accommodation of the insolvent, that is, though he had no monies of the insolvent in his hands, the hundis were discounted at the Bank of Madras. The insolvent was bound in the usual course of business to put Viswanatham in funds before the 13th and 25th March 1911 to meet Viswanatham's liabilities as acceptor to the Bank of Madras. It was partly with this view that the 16 hundis were sent between the 10th and 13th March by the insolvent to Viswanatham,

(c) Out of the Rs. 10,500 collected by Viswanatham, he paid Rs. 5,500 into the Bank of Madras so as to discharge himself of his liability to the Rank of Madras as an acceptor of the insolvent's hundis.

(d) The insolvent owed Chikka Padmavathi, his daughter, Rs. 5,000. Padmavathi and Nalam Viswanatham were relations. Padmavathi asked Viswanatham (on whom the insolvent drew an at sight hundi for Rs. 5,003 in Padmavathi's favour) to hold the Rs. 5,000 as her banker. Padmavathi herself endorsing the hundi in advance and sending it to Viswanatham. Nalam Viswanatham as soon as he received the hundi from Padmavathi debited himself with the Rs. 5,000 as received from Padmavathi and credited her with the Rs. 5,000. He afterwards on her requisition sent Rs. 4,500 and still had Rs. 500 left with him as her banker when this motion was taken out.

3. On these facts, the learned Judge held (1) that the payment of Rs. 5,500 to the Bank of Madras was not a fraudulent preference of Viswanatham.

(2) That the hundi drawn on Viswanatham by the insolvent in favour of the insolvent's daughter, who is not shown to have pressed for payment of her debt, was an undue preference.

(3) That as Viswanatham had not actually accepted the hundi drawn on him by the insolvent in favour of Chikka Padmavathi, so as to make himself liable thereon to her, that hundi can only be treated as an authority by the insolvent to Viswanatham to pay the Rs. 5,000 to his daughter and that authority having been revoked by the insolvency, Viswanatham's payment of Rs. 4,500 afterwards to Chikka Padmavathi was unauthorised and cannot bind the Official Assignee.

4. On the above conclusions the learned Judge directed Viswanatham to pay Rs. 5,000 to the Official Assignee with interest from 30th March 1911 and costs.

5. As already stated, the whole case is again before us in appeal, through the two regular appeals and the memorandum of objections filed against the order of the learned Judge.

6. I shall first dispose of Chikka Padmavathi's affair. The learned Judge has not referred to the letter Exhibit 14, written by Padmavathi to Viswanatham on the 13th March 1911. It is as follows: 'I have now enclosed herein one sight hundi for Rs. 5,000 drawn on 11th March 1911 on you by Nalam Venkataratnam (that is, the insolvent) to my order. Please receive it and credit to my account Rs. 5,000, as per aforesaid hundi, etc.' It is in accordance with this letter that Viswanatham debited himself in his own accounts with Rs. 5,000 and credited Padmavathi with Rs. 5,000 as soon as he got Rs. 10,500 by the cashing of some of the hundis. It seems to me that, after he had so accepted the position of her debtor in accordance with her request, it cannot be said that she did not actually become his creditor or 'Customer or that the insolvent had a right to revoke the authority to pay money to Padmavathi. There was no doubt a fraudulent preference of Padmavathi by the insolvent and Padmavathi could and ought to be directed to repay the sum of Rs. 5,000 to the Official Assignee. As Rs. 500 of her money is still with Nalam Viswanatham, he can and ought to be directed to repay Rs. 500 and Padmavathi should pay the remaining Rs. 4,500. But I do not think that Nalam Viswanatham is bound to repay the whole Rs. 5,000 for which, in accordance with the insolvent's and Padmavathi's request, he made himself liable to, Padmavathi who gave up her claim against her father, treating the hundi drawn on Viswanatham as full satisfaction of that claim. Nalam Viswanatham as soon as he received the hundi, Exhibit V, endorsed upon it 'credited and debited,' Padmavathi having already endorsed it over to him, treating his acceptance as certain and asking him to credit the money in her favour. When Viswanatham, on receiving the hundi so endorsed by Padmavathi, kept it with him without sending it back to her as dishonoured and debited himself in his accounts as her debtor, he became irrevocably liable to her as the acceptor of the hundi.

7. Coming to the other item of Rs. 5,500, the learned Judge has held Viswanatham not liable for reasons to be gathered from these two sentences in his judgment; 'As regards the payment to the Bank, the insolvent was bound to put Nalam Viswanatham in funds to meet the former's inabilities to the Bank and Nalam Viswanatham was entitled to appropriate monies of the insolvent in his hands towards his outstanding accounts. These payments or appropriations were then made in the ordinary course of business and I do not think that any question of undue preference arises', It does not appear quite clear from these sentences whether the learned Judge intended to hold that, though Viswanatham, must be deemed to be a creditor of the insolvent in respect of this Rs. 5,500, the insolvent was justified in asking him to repay himself out of the monies of the insolvent which might come to Viswanatham's hands and as it was in the usual course of business for Viswanatham to so appropriate monies of the insolvent towards that kind of debts, it would not constitute., in law a fraudulent preference. I, however, take it that that is what the judgment of the learned Judge means. In this view, it is assumed that Nalam Viswanatham was a creditor of the insolvent in respect of the monies which Nalam Viswanatham owed to the Bank of Madras as accommodation acceptor for the insolvent. Taking this assumption as sound for the moment, 1 am not satisfied that it would not constitute an undue preference under the Statute by the, mere, fact that the payment to the creditor was made in the ordinary course of business. Section 56 of the Presidency Towns Insolvency Act says: 'That every payment made by any person unable to pay his debts in favour of any creditor, with a view of giving that creditor a preference over the other creditors, shall, if such person is adjudged insolvent, on a petition presented within three months after the date thereof, be deemed fraudulent and void against the Official Assignee'. This section follows the words in the corresponding Section 48 of the English Bankruptcy Act of 1883. Many English cases were quoted before us on the question of the meaning of the word view' used in that Act which word, of course, indicates a mental state. Most of the learned Judges in the English Courts (including the House of Lords) have laid it down for themselves that the doctrine of fraudulent preference, which had been elaborated by the Courts before the Bankruptcy Act of 1869, must still be looked to as guide for finding out whether the insolvent in making a particular payment had 'the view' to give fraudulent preference and as some of those, old cases had held that the 'view' of the insolvent must be the substantial or dominant view in his mind in order to render it a fraudulent preference, we must even after the Act find out whether the intention to give preference was the substantial or dominant intention acting on the insolvent's mind when he made the payments Further, as certain old cases had held that it would not be the substantial or dominant view to prefer, if the debtor had acted in the ordinary course of business or in fulfillment of a prior agreement or was performing a special contract and so on, such a payment in the ordinary course of business, etc., though it did prefer a particular creditor, was not made with a 'view' to prefer him. With the greatest respect to those decisions, I do not feel myself bound by their authority and I have to construe the Indian Act according to the plain meaning of its terms. When the natural and' probable consequence of a payment is the preference of a particular creditor among numerous creditors, and when the policy of the Act is that the debtor's assets should be equally distributed among all creditors, as much as possible, the payment by an insolvent debtor which has the natural effect of preferring a creditor must be deemed to have been made with the view and intention to prefer that creditor, whatever other views the insolvent may also have had in making that payment and whether those other views were more dominant or less dominant, more substantial or less substantial than the view to give a preference. Of course, if there was legal duress [see Brooke, Ex parte, Hassal, In re (1874) 9 Ch. App. 301; 34 L.J. Bk. 49 such as the arrest of the person or the attachment of the property of the insolvent in consequence of which that payment was made, then the view to prefer may be negatived. Mr. Justice Bakewell seems to have followed the English cases, which held that a payment made in the ordinary course of business though made to prefer a creditor cannot be held to have been made with, a view to prefer that creditor within the meaning of the section of the Insolvency Act. Excepting the case of the payments made under legal duress, I am not prepared to whittle away the plain beneficial policy of the Bankruptcy Act by metaphysically weighing the different problematical motives and intentions in the mind of the insolvent and finding out whether the view to prefer was the most dominant or substantial among those motives and intentions. Unless the insolvent gives evidence about his motives and his evidence i believed as to his dominant motive, the task is a hopeless one to find out his dominant motive. As Mr. Justice Beaman says in Sethna v. Kallianji Sangjibhai 15 Bom. L.R. 113: 'It must always be an extremely difficult question in such cases to decide what was the dominant determinant in the insolvent's mind,' The learned Judge then refers to the too ready inclination to accept any pressure, even the most honest pressure, as sufficient to warrant the conclusion that the payment was not voluntary' and finally refers to later cases, showing that the earlier doctrine is no longer good law as it certainly never was good psychology.'

8. Having thus expressed my respectfully dissent from the learned Judge on the question of law on the strength of which he seems to have decided in favour of the appellant Viswanatham in the matter of Us. 5,500, I think that the conclusion itself of the learned Judge, that Viswanatham cannot be made to repay that Us. 5,500 to the Official Assignee, is correct. My reason is that the payment to Viswanatham cannot be treated as a payment to a creditor. As said in Halsbury's Laws of England, Volume 2, page 281, 'In order to avoid a transaction as a fraudulent preference it is essential that the relation of debtor and creditor should exist between the parties to the transaction. 'The person for whose benefit the act... is done must be a creditor of the person doing the act.' Section 56 of the Presidency Towns Insolvency Act says that the payment should be in favour of a creditor. The word 'creditor' is not defined by the Act. I take it that the word 'creditor' means one that can compel the performance of an obligation by another person who is called the 'debtor,' the person lying under the obligation. In Wharton's Law Lexicon, creditor' is said to be correlative to debtor,' and debtor' is defined as he that owes something to another'. The obligation to pay money must, it seems to me, be existing in order to make a man a debtor though the time for the discharge of the obligation may be in the future. The person, who on the happening of certain contingencies, which may or may not happen, will become entitled to enforce an obligation then created against another person, cannot, in my opinion, be called a creditor. Creditor must, as I said before, be one to whom money or the equivalent of money is legally due, though it may become payable in future. The cases of Paine, In re, Read, Ex parts (1897) 1 Q.B. 122; 75 L.T. 316 and Blackpool Motor Car Company Ltd. In re, Hamilton v. Blackpool Motor Car Company. Ltd. (1901) 1 Ch. D. 77 were quoted to us for the proposition that a person who, though no money is due to:him as an existing obligation, would have a right to prove in bankruptcy was a creditor of the bankrupt in the 'sense' in which it is used in the section relating to fraudulent preference. Vaughan Williams, J., in the case of Paine, In re Bead; Ex parts (1897) 1 Q.B. 122 says: 'The Act contains no definition of the i word 'creditor' and, therefore, to arrive at the meaning I must look at the history; of the section'. And then on a consideration of that history, the learned Judge arrives at the conclusion that a person, who though not a creditor is in essence or by construction a creditor or might become a creditor (or a prospective creditor) under certain contingencies was also included in the meaning of the word 'creditor' in the section of the English Bankruptcy Act corresponding to Section 56 of our Act. With the greatest respect to the learned Judges who were responsible for those two English decisions, (each of them deciding singly), I am not prepared to follow them, especially as the Court of Appeal in the case reported as Mills, In re, Official Receiver, Ex-parte 5 Morrell 55 clearly held that a person who was only a surety for the insolvent (and to whom, therefore, the insolvent was under a legal obligation to see that he is not pursued by the creditor for the money borrowed by the insolvent) was not a creditor within the section' relating to fraudulent preference. No doubt Section 46, Clause (3), says that 'All debts and liabilities, present or future, certain or contingent, to which the debtor is subject,... or to which he may become subject, before his discharge, shall be deemed to be debts provable in insolvency.' And Clause (4) says: 'An estimate shall be made by the Official Assignee of the value of any debt or liability provable as aforesaid which, by reason of its being subject to any contingency or contingencies...does not bear a certain value.' A surety or an accommodation acceptor is no doubt a contingent creditor who is entitled to prove under Section 46(1). The question is whether he is a creditor who can be fraudulently preferred under Section 56. As I said, very eminent English Judges have differed on this point when construing corresponding sections of the English Acts. Lord Esher, M.R., says in Mills, In re Official Receiver Ex parte 5 Morrell 55; 'Now Greenwood' (the surety)/'is not a creditor at all. The case is therefore, not within the words of the section' Fry, L.J., says: 'The Statute appears to me to be very plain. It avoids a payment to a creditor with a view to give such a creditor a preference. Greenwood was a surety and not a creditor at all.' I am inclined to agree with the opinion in Mills, In re Official Receiver Ex parte 58 L.T. 871. Viswanatham as an accommodation acceptor for the insolvent was not, therefore, a creditor of the insolvent though he was a debtor of the Bank and the sum of money, Rs. 5,500, belonging to the insolvent cannot be said to have been paid by the insolvent to Viswanatham as if he was the insolvent's creditor, but in order to put Viswanatham in funds to discharge Viswanatham's own liability to the Bank undertaken by him for the benefit of the insolvent and in order to prevent the contingency of Viswanatham becoming in future the creditor of the insolvent by being obliged to pay that Rs. 5,500 to the Bank out of Viswanatham's own moneys. I regret that I am unable to agree with Beaman, J., [Sethna v. Kallianji Sangjibhai 19 Ind. Cas. 57; 15 Bom. L.R. 113 that it is such a 'self-evident' proposition that a surety or an accommodation acceptor is a 'creditor', the learned Judge quoting Paine, In re, Bead, Ex parte (1897) 1 Q.B. 122; 66 L.J.Q.B. 71; 3 Manson 309; 45 W.R. 190 in his favour as an unnecessary authority while ignoring Mills, In re Official Receiver Ex parte 5 Morrell 55. I, therefore, hold that no question of fraudulent preference arises in this case.

9. In the result, I would modify the order of the learned Judge by confining Viswanatham's liability to repayment of the Rs. 500 and interest from 30th March 1911, with the like interest.

10. The memorandum of objections filed by the Official Assignee will be dismissed with costs. Padmavathi will pay the costs of the Official Assignee in Appeal No. 19 of 1915. Viswanatham will get his costs of Appeal No. 93 of 1913 from the estate. The Official Assignee will also be entitled to recover all his costs from the estate.

Napier, J.

11. I agree. I have no doubt that the term 'creditor' means a creditor prior to the payment and that we have not to look to any financial transaction or any financial position arising out of the payment or subsequent to it. I am quite clear that Nalam Viswanatham was not a creditor in respect of those accommodation bills. It is not suggested that there is anything in the Negotiable Instruments Act which makes him a creditor and, with the greatest deference to the high authority in Paine, In re, Read, Ex, parte (1897) 1 Q.B. 122; 45 W.R. 190, I cannot give the word the extended construction suggested there. I am fortified in my opinion by the clearly expressed language of the Court of Appeal in Mills, In re Official Receiver Ex parte 5 Morrell 55, I agree with my learned brother also that the words with a view of giving that creditor a preference' have received, in some cases, in England a construction so narrow as to defeat the object of the section, and I am not prepared to accept the view that if the payment was made in the ordinary course of business it could not be a statutory fraud. There is, however, no necessity to discuss this question as I have held that Viswanatham was not a creditor, but I wish to guard myself against being supposed to agree with what appears to be the view of the learned Trial Judge on this point.


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