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K. Shrirama Row and anr. Vs. K. Bapayya - Court Judgment

LegalCrystal Citation
CourtChennai
Decided On
Reported inAIR1924Mad189
AppellantK. Shrirama Row and anr.
RespondentK. Bapayya
Cases Referred and Sadagopa Ayyangar v. Sellammal
Excerpt:
- .....2nd and 3rd defendants are the sons of 1st 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 1st defendant was adjudicated an insolvent, and the 4th 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 badhrayya whose sister he had married. he appears to have paid some of the creditor's amounts which represented 4 annas.....
Judgment:

Venkatasubba 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 O.S. No. 36 of 1909-The appellant before us is the 4th judgment-debtor, Sreerama Rao. The decree was obtained by the plaintiff Bangaru Subba Rao in August 1909. The 1st defendant is the father-in-law of the 4th defendant, Sreerama Rao, the appellant, and the 2nd and 3rd defendants are the sons of 1st 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 1st defendant was adjudicated an insolvent, and the 4th 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 Badhrayya 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 in4916 there was correspondence between the decree-holder Subba Rao and Sreerama Rao, in regard, to the settlement of; this decree.

2. Ex. V is a telegram dated 20th April, 1916 from the decree-holder to the appellant. Ex. V (a) is a similar telegram dated 11th May, 1916. Exs. V (b), V (c) and V (d) are respectively dated 19th May, 20th May and 9th October of 1916. Ex. VI is a letter dated 15th May, 1916, written by Bangaru Sobanadri, partner of the decree-holder, to the appellant. Ex. IX is a letter dated 28th June, 1916, from Sreerama Rao, to the decree-holder. These exhibits show very clearly 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 brother-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 Badhrayya The appellant's case is that the decree was actually discharged, 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 take 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 into 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 Bapapya. 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. [His Lordship held on evidence and the probabilities that the appellant had made out his case and proceeded as follows:--]

4. 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-debtor should have put forward 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 think 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 parties. 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 relief. The principle is well settled and I need only refer to Scott v. Brown, Doesing Mc Nab & Co. [1892] Q.B.D. 724, 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 action. This old and well-known legal maxim is founded on 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 allow 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.5. I may observe that the case of the plaintiffs was that they were entitled to rescission upon the ground that the defendants instead of purchasing 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. Lopes, L.J. makes the following observations;-

In my judgment, it is unnecessary to determine whether the finding 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.6. Lastly, I may notice another objection urged by the respondent. He argued that the adjustment was not certified under Order 21, 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 Ramayya v. Krishnamurthi [1917] 40 Mad. 296 and Sadagopa Ayyangar v. Sellammal 1922 Mad. 510. These decisions are against the respondent's contention.

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

Spencer J.

8. I entirely agree. As the appellant engaged in a conspiracy to defraud his creditors, I do not think his con duct, in the transaction was such, as to entitle him to recover his costs in these proceedings. A parties will bear their own costs throughout.


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