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Ramananda Paul and ors. Vs. Pankaj Kumar Ghosh, Receiver and ors. - Court Judgment

LegalCrystal Citation
SubjectCivil
CourtKolkata
Decided On
Reported inAIR1938Cal417
AppellantRamananda Paul and ors.
RespondentPankaj Kumar Ghosh, Receiver and ors.
Cases ReferredKamini Kumar Roy v. Hira Lal Pal Chowdhury
Excerpt:
- .....54, provincial insolvency act, uses the expression 'date of transfer' and this must mean, when the deed of transfer has been actually registered, the date when the transfer takes effect according to law and that is the date of the execution of the deed, unless the document itself, specifies some other date from which it takes effect.12. i am not impressed by the argument upon which so much stress has been laid by the learned judges of the rangoon high court that as the document can be presented for registration within a period of four months from the date of its execution, an insolvent, in collusion with a creditor whom he desires to favour, might execute a deed of mortgage secretly and present it for registration after three months have expired. in this way, it is said, section 54,.....
Judgment:

Derbyshire C.J.

1. This is an appeal from an order of the District Judge of Dacca made on 27th May 1935, wherein he declared a certain mortgage deed executed by the insolvent to be void as against the receiver, first, as a fraudulent or undue preference under Section 54, Provincial Insolvency Act and, secondly, under the provisions of Section 53 of the same Act. The insolvent, Brindaban Chandra Das Basak, resided and carried on business as a cloth dealer in Dacca. In addition to having his business, he had a certain quantity of private property in the form of land and houses. Prior to 1931, his affairs seemed to have become somewhat difficult and he was undoubtedly short of money. On 23rd February 1931, he executed a deed whereby he purported to transfer some of his property to debutter purposes. On 11th March 1931, he executed the mortgage deed which is now in question. This deed was registered on 23rd March 1931. On 16th June 1931, some creditors filed a petition in insolvency against Brindaban and on 11th January 1932 he was adjudicated insolvent. On 13th February 1933, the receiver made an application to have both the debutter deed and the mortgage deed set aside. The learned District Judge set aside both the deeds. We heard the appeal relating to the debutter deed yesterday and we upheld his decision with regard to that. The circumstances relating to the execution of the mortgage deed are these:

On 11th March 1931, the insolvent was undoubtedly in financial difficulties. Many decrees had been obtained against him and some of his property was attached. In addition to the decree-holders there were other creditors for a sum somewhere about Rs. 70,000. Amongst those creditors was the opposite party in this matter, Ramanarida Pal. Ramananda Pal was a creditor for a matter of Rs. 9000. He lived in Dacca and was well known to the insolvent. Several witnesses have stated that they were friendly. On 14th March, the mortgage deed in question was drawn up and it conveyed property worth about Rs. 60,000 to Ramananda Pal by way of mortgage. 'When the document was executed, according to the evidence, the mortgagee, Ramananda Pal, produced a sum of Rs. 33,000. He paid Rs. 13,000 odd to Brindaban and retained some rupees 19,000 odd. Of the Rs. 19,000, Rs. 9000 odd was retained by Ramananda against the debt that Brindaban owed. The other Rs. 10,000 was paid to various creditors who had obtained judgment against Brindaban or had attachment upon his property. Of the Rs. 13,400 paid to Brindaban he appears to have paid it all with the exception of a small sum well under Rs. 1000 to various creditors. However, there were still creditors for a sum of about Rs. 50,000 in value who received no payment at all. It is those creditors acting through the receiver who have challenged this transaction. It is said that the transaction was one in which the chief, if not the entire remaining asset of the insolvent, was transferred to Ramananda and so put out of the reach of the dissenting creditors and in return Ramananda was paid-a favoured batch of creditors also-out of the money that Ramananda lent under the mortgage. It is said that this amounts to an undue preference under Section 54, Provincial Insolvency Act and that it is also bad under Section 53 as being a transfer of property not made in good faith and for valuable consideration.

2. I will deal with the question of undue preference first. Section 54, provides that every transfer of property and every payment made by any person unable to pay his debts as they become due 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 as against the receiver, and shall be annulled by the Court. It was contended on behalf of Ramananda that Section 54 did not apply because the mortgage-deed was executed on 11th March, and the creditors' petition was presented on 16th June, more than three months afterwards. The receiver replied to that argument that the mortgage deed was registered on 23rd March, within three months of the presentation of the petition and that time begins to run from the registration of the deed. In support of that contention he relied upon two cases, namely the case in Muthiah Chettiar v. Official Receiver, Tinnevelly (1933) 20 AIR Mad 185 and the case in U Ba Sein v. Maung San (1934) 21 AIR Bang 216. I have given careful consideration to those two decisions. From the point of view of the operation of the bankruptcy law, there is something to be said for them. But in my view the legal position is concluded by Section 47, Registration Act of 1908 which provides:

A registered document shall operate from the time from which it would have commenced to operate if no registration thereof had been required or made, and not from the time of its registration.

3. Having regard to Section 47 of the Registration Act, I can only hold that the mortgage deed operated from 11th March 1931, and not from 23rd March. In my opinion, therefore, time began to run, as far as insolvency proceedings under the Act were concerned, from 11th March. In consequence, the petition brought in these proceedings was not brought within three months of the transfer of the property concerned and thus Section 54 has no application. The learned District Judge held on the authority of the two cases I have mentioned that Section 54 did operate, that there was an undue preference and that therefore the deed was void under Section 54. In my opinion, the learned Judge was in error in so holding. I now turn to the second question, namely was this transaction within the mischief of Section 53 of the Act. Section 53 of the Provincial Insolvency Act provides:

Any transfer of property not being a transfer made before or in consideration of marriage or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration shall, if the transferor is adjudged insolvent on a petition presented within two years after the date of the transfer, be voidable as against the receiver and may be annulled by the Court.

4. Here, the insolvent was adjudicated insolvent on 11th January 1932. The section provides that a transfer of property which is not made in favour of a purchaser or incumbrancer in good faith and for valuable consideration shall be set aside if the transferor is adjudged insolvent within two years. The question is, was this mortgage made in favour of an incumbrancer in good faith and for valuable consideration? There is no doubt that it was made for valuable consideration. The mortgagee extinguished his own debts of Rs. 9000 odd. He paid over to various creditors- some of them, decree-holders-on behalf of the insolvent sums amounting to between nine and ten thousand rupees in satisfaction of their claim. He also paid over to the insolvent himself about Rs. 13,000 odd which the insolvent paid to some of his creditors. The total consideration was about Rs. 33,000. The value of the property was somewhere about Rs. 60,000. There was not only valuable consideration, but substantial valuable consideration. Furthermore, it must be borne in mind that what the mortgagee, Ramananda, got was not an out and out conveyance of the property to him but a mortgage upon it, the equity of redemption remained with the mortgagor insolvent and is available for the remainder of the creditors.

5. The next question is was it a transfer made in favour of an incumbrancer in good faith? Some question has arisen as to whether it is the transferee incumbrancer who must receive in good faith or whether it is that the transfer itself must be made by the transferor in good faith to the transferee, incumbrancer also acting in good faith. This particular part of Section 53 is modelled upon Section 42, Bankruptcy Act of 1914 in England, which in turn was modelled upon Section 47, Bankruptcy Act of 1883. In Mackintosh v. Pogose (1895) 1 Ch D 505, this question was discussed under Section 47, Bankruptcy Act of 1883 and Stirling J. giving judgment said at page 509:

Now, I am of opinion that a person is a 'purchaser in good faith' within the meaning of Section 47, Bankruptcy Act of 1883, if he himself acts in good faith, and it is not necessary that both parties should act in good faith.

6. The learned Judge then goes on to give his reasons. He says:

I come to this conclusion on three grounds first, because I think that is the natural interpretation of the statute; secondly, because it is in accordance with the principles of those bankruptcy cases decided by the Courts before the passing of the Bankruptcy Acts, and thirdly, because it is in accordance with the bankruptoy statutes previous to the Act of 1883.

7. In my view, the same considerations apply here and it is a question in this case whether the transferee, that is the mortgagee, acted in good faith. The words 'good faith' have been defined in the General Clauses Act of 1887 as follows:

A thing should be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not.

8. The question is-did the mortgagee in this case act honestly? If it had. been a question whether a mortgagor insolvent honestly in this particular transaction, I should have had considerable difficulty in coming to an affirmative conclusion, partly because of his execution of the debutter deed. But where the actions of the mortgagee are concerned, I am unable to come to the conclusion that he acted otherwise than honestly. In the first place, the mortgagee paid out either to creditors of the insolvent or to the insolvent himself to be paid to the creditors, a sum of Rs. 24,000. What he got in return for that was not the property that was conveyed to him, but a charge on the property for the amount of money that he had paid out, plus the cancellation of his own debt. I find it difficult to say that a man who provides Rs. 24,000 to help to pay off the debts of a man whom he knows to be in financial difficulties receiving nothing more than the charge on certain property is acting dishonestly. There may be circumstances in which that may be said, but I am unable to say that in this particular case. It may be that Ramananda was a friend of the insolvent, but even that does not lead me to the conclusion that he acted dishonestly. A man may assist a friend who is in difficulties with a loan of money in return for a charge on property-that was all this was-and yet be acting honestly. It is said that Ramananda must have known that the payment of the particular creditors to whom Rupees 24,000 went was an undue preference within the meaning of Section 54, or might be such an undue preference, and that his payment of those creditors, his willingness that others should be paid, and his forgetfulness of the remainder was an undue preference and as such an act of bad faith. I am unable to accept that contention.

9. No evidence has been given to show that Ramananda knew how many creditors would be benefited and how many would be left out. No evidence has been given to show how many of the creditors who were not paid were not exercising pressure and how many of those who were paid were exercising pressure. There is evidence that some creditors were exercising pressure upon the insolvent, but there is no clear evidence as to whether most of those creditors exercising pressure were those who were paid or those who were not paid. In my view, the evidence before us does not enable one to come to the conclusion that the mortgagee in this case was acting in bad faith. The transactions were clearly for valuable considerations and I am of opinion that the transaction comes within the protection afforded by the words 'incumbrancer in good faith and for valuable consideration' and, consequently, the mortgage is not void as against the receiver. In my view, this appeal must be allowed with costs. The appellants will recover half of their costs from the receiver to the extent of the assets which are in his hands or may come to his hands before the completion of the insolvency proceedings, and the other half will be recovered from the other respondents equally. We assess the hearing-fee at seven gold mohurs.

B.K. Mukherjea, J.

10. I agree with my Lord the Chief Justice in holding that this appeal should be allowed. The appellants before us are seven persons who purport to be mortgagees under an instrument of mortgage executed in their favour by one Brindaban Chandra Das Basak who has been adjudicated an insolvent, and the appeal is directed against an order passed by the District Judge, Dacca declaring the mortgage void as against the receiver in insolvency under Sections 53 and 54, Provincial Insolvency Act. The application for insolvency was presented by some of the creditors on 16th June 1931 and the adjudication order was passed on 11th January 1932. The mortgage deed in question was executed by Brindaban on 11th March 1931 and registered on 23rd March following, the amount secured being Rs. 33,000. It appears that, prior to the execution of the mortgage bond, Brindaban had borrowed money from the mortgagees on different occasions on certain hundis and the amount due on them came up to about Rs. 9000. In the beginning of the year 1931, several creditors of Brindaban, of whom some had obtained decrees began to press him for payment of their dues and certain properties of Brindaban were actually put under attachment. With a view to raise money, Brindaban approached the appellants and the latter agreed to lend Rs. 33,000 which would go to liquidate the claims of the attaching creditors, the existing debts due to the mortgagees themselves on the hundis mentioned above, as well as portions of debts due to some other creditors whose names appeared in the mortgage bond. In accordance with this agreement, the mortgage bond was executed on 11th March 1931. The mortgagees' story, which has been accepted by the Court below is that the entire consideration money of Rupees 33,000 was paid by the mortgagees and that out of that, they retained a sum of Rs. 19,600 in their hands to cover their dues on the four hundis as well as for distribution to the attaching creditors. The receiver has also admitted that Brindaban himself has spent the major portion of the balance of Rs. 33,400 in paying off portions of debt due to other creditors who however do not appear to be attaching creditors. The District Judge while holding that this transfer by way of mortgage was for valuable consideration has annulled it on two grounds. In the first place, it has been held that the transfer was in favour of a creditor with a view to give him an undue preference and as such was void under Section 54, Provincial Insolvency Act. In the second place, it has been held that the transferees did not act in good faith and as the mortgage was made within two years of the presentation of the petition of insolvency, the transaction was hit by Section 53, Provincial Insolvency Act.

11. Mr. Bose who appears for the appellants has assailed the propriety of the decision of the learned Judge on both these two points. Now, so far as the first ground is concerned, I am of opinion that Section 54, Provincial Insolvency Act has no application to the facts of the present case. The mortgage bond was admittedly executed on 11th March 1931 and according to the evidence of the mortgagees which has been believed by the District Judge, the consideration money was also paid on that date though the document was actually registered on 23rd March 1931. If the date of transfer was the date of execution of the mortgage deed, the petition for insolvency was admittedly presented more than three months after that date and Section 54 would not possibly be attracted. The view taken by the District Judge which is sought to be supported on behalf of the respondent is, that the date of commencement of the period of three months under Section 54 is the date when the transfer becomes effective in law and as the mortgage bond was compulsorily registrable before it could be operative, the time would run from the date of registration and not from the date of the execution of the mortgage deed. In support of this contention, reliance has been placed upon two decisions one of the Madras and the other of the Rangoon High Court which are to be found reported in Muthiah Chettiar v. Official Receiver, Tinnevelly (1933) 20 AIR Mad 185 and U Ba Sein v. Maung San (1934) 21 AIR Bang 216. I agree with my Lord the Chief Justice in holding that the view of the learned Judges in both these decisions is not correct. It is true that a mortgage upon immovable property to secure an advance of Rs. 1000 or upwards can be made only by registered document, the only exception being where the mortgage is effected by deposit of title deeds; but once a document is registered it takes effect not from the date of registration but from the date of execution as laid down in Section 47, Registration Act. Section 54, Provincial Insolvency Act, uses the expression 'date of transfer' and this must mean, when the deed of transfer has been actually registered, the date when the transfer takes effect according to law and that is the date of the execution of the deed, unless the document itself, specifies some other date from which it takes effect.

12. I am not impressed by the argument upon which so much stress has been laid by the learned Judges of the Rangoon High Court that as the document can be presented for registration within a period of four months from the date of its execution, an insolvent, in collusion with a creditor whom he desires to favour, might execute a deed of mortgage secretly and present it for registration after three months have expired. In this way, it is said, Section 54, Provincial Insolvency Act can be nullified altogether. In my opinion, Section 54, Provincial Insolvency Act, has nothing to do with the publicity or secrecy of the transaction; for, it contemplates payment of money and incurring of other obligations which do not require registration in law and need not be made openly at all. It seems to me that the Legislature has deliberately dealt more leniently with a favoured creditor than a voluntary transferee and the former can escape if the perference is given more than three months before the application for insolvency was presented. In this view, it is not necessary to decide as to whether the circumstances of this case do establish that the transfer by way of mortgage was made by the insolvent with a view to give the mortgagees an undue preference over his other creditors. It is the dominant intention of a debtor that it is the determining factor in all such cases. Speaking for myself, I might say that if a debtor transfers a valuable property on the eve of insolvency to a creditor of his the consideration being the past debt due to the creditor, an inference of undue preference can legitimately be drawn. But if the debtor approaches a creditor for a loan and substantial advance is made by the latter who insists, as a part of the same bargain, on the payment of the existing debt, the debtor consenting to it cannot be said to have voluntarily given preference to the creditor. As I have said, it is not necessary to decide this matter in this case.

13. The only other question that requires consideration is, as to whether a mortgage can be avoided under Section 53, Provincial Insolvency Act. It is perfectly true that to enjoy the protection under Section 53, the purchaser or an incumbrancer must not only show that the transfer was for valuable consideration but it must also be proved that it was made in good faith. I agree with my Lord the Chief Justice in the view that good faith is necessary only on the part of the transferee. It is not required that the transferor should act in good faith also. It may be true that in this case the transferee was aware of the financial position of the debtor and was also cognizant of the fact that he had other creditors whose debts had to be satisfied, but these by themselves do not show that there was want of bona fides on the part of the transferee. It would be a mala fide transaction no doubt if it is shown that the transfer was a mere cloak to retain benefit for the transferor or the object of the transferor was to defeat or delay creditors and the transferee being aware of that object assisted the transferor in its execution : see the case in Kamini Kumar Roy v. Hira Lal Pal Chowdhury (1919) 6 AIR Cal 773. In the present case, it is beyond dispute that the mortgage was a genuine transaction and the object of raising money was to carry on business of the debtor or at any rate to pay off some of the business creditors. The consideration for the mortgage was not the satisfaction of the past debt merely but a substantial advance of Rs. 24,000 in addition to that and I cannot say that any dishonesty could be imputed to the mortgagees even if it so happened that the mortgage money was not distributed rateably amongst all the creditors or that some creditors were paid to the exclusion of others. Apart from the cases which come within the purview of Section 54, Provincial Insolvency Act, there is no duty cast on a creditor to protect the interests of other creditors and it cannot be said that one is defrauded by payment to another. For all these reasons, I agree with my Lord the Chief Justice that the appeal should be allowed and the application of the respondents to annul the mortgage should be dismissed.


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