1. This appeal is directed against an order of the Additional District Judge of Howrah dated 6th October 1931 passed under Section 53, Provincial Insolvency Act (1930) by which he annulled a certain transfer in favour of the appellants in the present case. The learned Additional District Judge has come to the conclusion that so far as the passing of the consideration is concerned it has been established in this case. He has further found that deeds were executed for the purpose of paying certain previous mortgages executed so far back as the year 1922 which transactions the learned Judge found to be genuine and for consideration. The reason given by the learned Judge for annulling the transfer is that he is satisfied on the circumstances of this case that the transfer was not made in good faith and the only question which has been debated before us in this appeal is as to whether the circumstances which have been established in this case lead to the necessary inference that the transaction, entered into by the appellants was bad for want of good faith. It is necessary to premise at the outset that the burden of proving the want of good faith of the transaction and the passing of consideration is on the receiver. The view which prevailed in India before, namely that the burden of proving the consideration and good faith lay on the purchaser of the encumbrances can no longer be regarded as a sound view of law in the face of the two decisions of their Lordships of the Privy Council to which reference has been made in the course of the argument. The first of these decisions was given in an appeal from the Straits Settlements. That was in the case of Official Assignee of the Estate of Cheah Soo Tuan v. Khoo Saw Cheow AIR 1930 PC 266 where their Lordships were construing the provisions of Bankruptcy Ordinance 50 of the Straits Settlements the provisions of which are somewhat analogous to the provisions of Section 53, Provincial Insolvency Act. The second case is the case of Official Receiver v. P.L.K.M.R.M. Chettyar Firm . It was laid down by their Lordships in this case that where the receiver is seeking to set aside a mortgage under the provisions of Section 5b, Provincial Insolvency Act (1920) the onus is upon him to prove that it was not made in good faith and for valuable consideration: vide Official Receiver v. P.L.K.M.R.M. Chettyar Firm . The learned Additional District Judge has kept these decisions in view and he has rightly cast the onus on the Official Receiver of showing that the transaction was not made in good faith and for valuable consideration.
2. The only question which we have to consider is whether the receiver who is the respondent in the present case has discharged that burden. It becomes necessary therefore to state the circumstances which have led to the transfer which is now the subject-matter of controversy. It appears that one Kalidas Mondal and his mother executed a mortgage of a half share of their dwelling house on 16th January 1922 in favour of the present appellants. The appellants had advanced a sum of Rs. 2,000 which was secured by the said mortgage. A portion of the consideration money from this sum was applied by Kalidas to the liquidation of the debts of his creditors. This transaction has been proved and has been marked as Ex. B in the case. On 11th July 1922 Kalidss's mother executed a further mortgage in favour of the appellants for a sum of Rs. 2,000. This document is marked as Ex. R and the evidence is that Kalidas paid a sum of Rs. 1,800 out of the consideration of Rs. 2,000 in favour of one Provabati Devi who was an earlier mortgagee and the release executed by the said Provabati Devi has been proved in this case and has been marked as Ex. U. On 17th November 1922 Kalidas and his mother executed a further mortgage in respect of this dwelling house for another sum of Rs. 2,000 which was paid before the Registrar at the time of registration in Cossipore Registration Office. Then it appears that be borrowed from the appellants from time to time some money on hatchitas. These hatchita debts amounted to about; Rs. 800. The learned Additional District Judge has found all these loans to be genuine. On 20th January 1926 Kalidas and his mother executed a conveyance of the mortgaged property for a consideration of Rs. 11,350 the consideration being made up of a sum of Rs. 10,473 due on the three mortgages which have already been mentioned and the balance in respect of the sum due on the hatchitas. On 1st February 1926 shortly after the execution of this conveyance, proceedings in insolvency were commenced at the instance of the debtor Kalidas. In the application for insolvency small debts due to some Kabulis amounting to Rs. 800 odd were mentioned as due from the applicant. The adjudication order was made on 8th March 1926.
3. After the adjudication order it appears that the receiver in insolvency took proceedings for annulment of the deed of sale and proceeded under the provisions of Section 54, Insolvency Act. On 14th May 1926 the learned Judge took the view that as it was a fraudulent preference in favour of the appellants who were two of the several creditors the transfer should be annulled. Against that decision the present appellants preferred an appeal to this Court and my learned brothers B.B. Ghose and N.K. Bose, JJ., said that the learned Additional District Judge entirely misconceived the case and set aside his order which was made under the provisions of Section 54 of the Act; and suggested that the proper course to take in the matter was that he should proceed under Section 58 of the Act. That was accordingly done on remand. On remand the appellants had adduced evidence in the case and both the appellants stated in their evidence that they had no knowledge of the intention of Kalidas to make an application to be adjudged an insolvent so soon after the transfer in their favour by the deed of sale. Reference has been made to a portion of this evidence by Mr. Mitter who appears for the appellants. Both of them have distinctly stated, as I have already indicated, that although they were, on intimate terms with Kalidas they had no apprehension in their minds that the said Kalidas intended to make an application to be adjudicated an insolvent. They have been subjected to cross examination on behalf of the receiver and I do not see that they have been in any way shaken in the cross-examination in so far as their date of knowledge is concerned. It has been argued on behalf of the respondent that they were not telling the truth, that they came to know of the order of adjudication four months after the date of the kobala in their favour. As a matter of fact they came to know of it on 8th March 1926 when the order of adjudication was made. It is no doubt true that there was a slight discrepancy and we cannot on the basis of that discrepancy reject the testimony of the appellants. On one occasion when they said that they had no knowledge of the insolvency their testimony was accepted.
4. The Receiver the only witness who has been called for the mother of Kalidas has said that she has made statements which would go to show that she know nothing about the mortgage. She knew nothing about the deed of sale although it appears from the endorsement that she went to the Registration Office, was identified by Kalidas and put her hand in the instrument. The circumstances from which the learned Judge infers that the present applicants were aware of the insolvent position of Kalidas are these: (1) that the application to be adjudged an insolvent was made shortly after the execution of the dead of sale (2) that the sale saved a lot of trouble and ensured payment of their unsecured dues also in full; (3) no serious attempt was made by the creditors to take possession of Kalidas's share in the house; (4) the kobala does not seem to have been properly explained to Haridasi and (5) there was no particular reason for effecting the sale just at that moment unless it was the awareness of Kalidas's intention to apply for insolvency. From these facts the learned Judge was of opinion that the necessary inference flows that the appellants were cognizant of the insolvent circumstances of Kalidas. We are of opinion that even conceding that these facts were established the necessary inference does not flow from this that they bad knowledge of the insolvent condition of Kalidas in the face of their testimony in this case. In order to appreciate this position it is necessary to realize the position of the creditors appellants. According to the finding they had already advanced a sum of Rs. 10,473 on the three mortgages and so they were secured creditors to that extent and there remains also the question of Kalidas's borrowing a sum of Rs. 800 odd which was an insecured debt. There does not seem to be any reason to infer from this circumstance that they were intending to leave a margin to the debtor and in considering the question of good faith of the transaction one has to consider whether this transaction was either entered into secretly or one by which the debtor was benefitted to a certain extent. The half share of Kalidas was sold for the sum which was due to the appellants on the mortgage and on the hatchittas both of which sums have been found due.
5. The appellant's have established according to the learned Judge the passing of consideration, the genuineness of the previous mortgage debts and further the adequacy of the consideration. Question has been raised in this case that a mere preference of one creditor is not sufficient to justify the inference that the transfer was not in good-faith and reference has been made to the provisions of Section 53, T.P. Act and the decisions on that section. It does appear that a distinction has been drawn in the cases between the effect of undue preference of one creditor in a transaction where there is no question of bankruptcy and the effect of such preference with reference to a transaction where the transaction can be challenged in bankruptcy proceedings. Reference may be made to the decision of their Lordships of the Judicial Committee in the case of Musahar Sahu v. Hakim Lal AIR 1915 PC 115 where this distinction is pointed out. It appears however from the present case that the circumstances' which have been mentioned, namely the unawareness of the position of the insolvent at the date of the sale, the fact that 110 possession was taken of the half share of Kalidas by the present creditors having regard to the circumstances to which I shall advert presently do not lead to the necessary inference of want of good faith. It may raise suspicion but as has been pointed out in the decisions of the Judicial Committee mere suspicion is no ground on which to rest a judicial decision and in fact it has been held to be a treacherous ground for legal decision. The fact that the appellants had not taken possession of the half share of the house cannot throw suspicion on the transaction for a partition suit had been pending and a stranger could not have been wise if ho would have proceeded to take joint possession of the half share till the disposal of the partition proceedings by the Court. Besides in the meantime, shortly after the transfer, these proceedings in insolvency were started and the receiver who had been appointed commenced proceedings for annulling the transaction under Section 54, Provincial Insolvency Act; and as a matter of fact the sale had been annulled some time in December 1926. The final decree in the partition suit was made in 1929 and the present proceedings are still pending. In those circumstances no inference can be drawn from the circumstance that although possession had not been taken this transaction was in reality a benami transaction. Then there is the question as to whether the transfer deed was explained to Haridasi. This question is not relevant to the determination of the present case. It was a matter between Haridasi and the appellants; she has not impeached this deed by taking any proceeding in Court. Having regard to all these circumstances we are of opinion that this appeal should be allowed and the order of the Additional District Judge set aside. We declare that the transaction effected on 20th January 1926, namely the conveyance of half share of Kalidas's house is a transaction which has been entered into in good faith and for consideration. There will be no order as to costs.
M.C. Ghose, J.
6. I agree.