Skip to content

Kali Nath Chakravarty and ors. Vs. Ambica Prashad Das and ors. - Court Judgment

LegalCrystal Citation
Decided On
Reported in41Ind.Cas.399
AppellantKali Nath Chakravarty and ors.
RespondentAmbica Prashad Das and ors.
Cases ReferredSharp v. Jackson
provincial insolvency act (iii of 1907), section 37 - fraudulent preference, essentials of. - .....annul the two mortgages.2. the insolvent was originally a medical practi(sic)ioner but started a rice business and it is his dealings in this business which have landed him in financial difficulties. the immoveable properties shown in his schedule consisted of three separate properties, viz., nos. 66, 67 and 68, tollygunge circular road, the first two of which were each valued at rs. 25,000, and the third at rs. 3,600. his moveable properties consisted mainly of machinery and fittings for the rice business valued at rs. 15,027 : there were also furniture and domestic articles valued at rs. 500. his assets thus amounted to rs. 69,127, while the liabilities exceeded rs. 90,000.3. the mortgage in favour of ambica prasad das covered no. 67, tollygunge circular road. the bond recites that a.....

Beachcroft, J.

1. This is an appeal against a decision of the Additional District Judge of Alipur in certain insolvency proceedings, by which he refused to annul two transfers of property. One Mani Lal Sahawas adjudicated an insolvent on a petition failed on the 18th February 1914 by one of his creditors. In the course of the proceedings the question of annulment of three mortgages came before the Court. These were 29 Ind. Cas. 128 : 21 C. L. J. 167 : 19 C. W. N. 157, in favour of one Ambica Prasad Bass for Rs. 10,000 dated 15th July 1913, 32 Ind. Cas. 313 : 43 C. 521 : 30 M. L. J. 116 : 3 L. W. 207 : 20 C. W. N. 393 : 14 A. L. J. 198 : (1916) 1 M. W. N. 198 : 19 M. L. T. 203 : 23 C. L. J. 406 : 18 Bom. L. R. 378 : 43 C. 521 (P. C.), in favour of one Chandi Charan Saha for Rs. 10,000 dated 14th November 1913 and 33 Ind. Cas. 548 : 43 C. 640 : 20 C. W. N. 420, in favour of one Pratap Chandra Ganguli for Rs. 16,000 dated 15th December 1913. The first two came up for consideration under Section 36 of the Provincial Insolveneey Act, the third under Sections 37 of the Act. The Judge declared the second mortgage void against the Receiver, but refused to annul the other two. The present appeal is by some of the creditors against the order refusing to annul the two mortgages.

2. The insolvent was originally a Medical Practi(sic)ioner but started a rice business and it is his dealings in this business which have landed him in financial difficulties. The immoveable properties shown in his schedule consisted of three separate properties, viz., Nos. 66, 67 and 68, Tollygunge Circular Road, the first two of which were each valued at Rs. 25,000, and the third at Rs. 3,600. His moveable properties consisted mainly of machinery and fittings for the rice business valued at Rs. 15,027 : there were also furniture and domestic articles valued at Rs. 500. His assets thus amounted to Rs. 69,127, while the liabilities exceeded Rs. 90,000.

3. The mortgage in favour of Ambica Prasad Das covered No. 67, Tollygunge Circular Road. The bond recites that a loan of Rs. 3,000 had been taken on the 30th June from Ambica, that amount with interest was deducted from the Rs. 10,000, and the balance Rs. 6,985 was stated to be paid in cash. Particulars of the notes by which the cash was paid were given in the schedule.

4. The evidence is to the effect that Rs. 6,985 was pot paid in cash at the time of the execution of the mortgage, because Rs. 4,000 had been advanced previously on the 12th July. Ambica himself had had to borrow that money from the witness Gopal Chandra Banerjee, a Pleader, as it was too late to get the money from the Bank, when wanted. The money was repaid to the Pleader on the 14th. A great deal is made of the fact that this payment on the 12th contradicts the recital in the bond itself and it is suggested that this story has been invented to meet the report of the Receiver, which shows that Mani Lal had according to his own account book received Rs, 4,030 on the 12th July and paid out that amount on that and the following day.

5. The explanation of the whole transaction seems to me to be a perfectly simple and natural one. The Pleader who drafted the mortgage-bond says that even before the hand-note of 30th June for Rs. 3,000 was executed it was settled that Ambica was to advance Rs. 10,000. Search, however, had to be made in the Registration Office. A draft of the mortgage-bond had to be prepared, and as the notes given by Gopal Chandra Banerjee were entered in the consideration column and there is nothing surprising in that precaution being taker, the Clause about receiving consideration was entered. There was apparently some urgency for the money on the 12th and if the draft had already been prepared by them, as to which there is no evidence either way, there is nothing extraordinary in its being allowed to stay as it was.

6. The evidence as to this is not merely oral. There is a receipt dated 12th July given by Mani Lal to Ambica, in which the numbers of the notes advanced on that date are given and the same numbers are found in the hand-note executed on the 12th July by Ambica Prasad in favour of Gopal Chandra Banerjee. To find in favour of the appellants we must, therefore, not only find that Mani Lal and Ambica entered into a fraudulent arrangement to favour Ambica or benefit the insolvent at the expense of the other creditors, for which there would be no justification on the evidence, but we must also find that the Pleader Banshadhar Bishnu has given false evidence and the Pleader Gopal Chandra Banerjee has not only done the same but abetted a forgery as well.

7. Finally, Ambica says he did not know Mani Lal before this transaction and there is no evidence to the contrary. In fact the cross examination of Ambica is not what one would expect in the case of a man charged with having got a transfer otherwise than in good faith and for valuable consideration. In regard to this mortgage then I have no doubt that the learned Judge came to the right conclusion.

8. The mortgage in favour of Protap Chandra Ganguli id beset with greater difficulties But it will be as well at once to correct a misstatement which was made to us, doubtless unintentionally, by the learned Vakil for the appellants, which to a great extent coloured his arguments. It was represented to us that this mortgage covered the whole of Mani Lal's property and it was argued that a mortgage of the entire estate raises a presumption of an intention to defeat creditors. In fact the mortgage-bond does not cover the 82 cottah plot which was previously mortgaged to Ambica, the reference in the bond to No. 67, Tollygunge Circular Road, would appear to be a mistake if the number of the premises as given in the schedule filed by the insolvent is correct. It, however, covers the other two landed properties and apparently also all the machinery and fittings; used for the rice business, so that the property mortgaged was in value rather less than two-thirds of the insolvent's property as shown in the schedule.

9. It has not been suggested that the amount advanced was insufficient as mortgages go, it was not even suggested to Protap himself in cross-examination that he had not given fair value, though it appears Mani Lal at first wanted an advance of Rs. 20,000 from him.

10. It appears from the recitals in the bond itself that Mani Lal received Rs. 3,782 odd in cash while Rs. 12,217 odd were retained to pay off debts. There was a debt of over Rs. 3,000 due to Protap himself for paddy supplied, three mortgages amounting to about Rs. 5,100, Rs. 1,500 due to a firm; of engineers for an engine and boiler, on which they had a lien, and Rs. 2,000 to be paid on a hand-note. All these debts were discharged. In fact Protap had to pay Rs. 413 in excess of the Rs. 16,000 as he explains in his evidence.

11. But it is said that the Receiver's report shows that Mani Lal's accounts were falsified, and that the sum advanced was not used for the purposes of his business: and it is further argued that Protap could not have believed that all creditors would be paid with the money advanced and the business re-established.

12. So far as the Receiver's report goes, I do not think we have been quite properly treated. It was hurriedly read over to us and consisting, as it does, of a mass of figures, difficult to follow, if we were to be asked to draw conclusions from the figures I think some trouble might have been spent in pointing out exactly how they affected the question before us. The value of the report largely depends on the circumstances in which it was made. It was made in June 1914 in consequence of an order of the Court on the Receiver to report how the money advanced on the mortgages had been spent. That was long before the present enquiry, which was instituted after the remand order of this Court in January 1915. The report also appears to have been based, in accordance with the order, only on the accounts of the insolvent. The Receiver was not, called as a witness in the present case and though the reading of the report was not objected to in this Court, the value attaching to it can only be the value which attaches to an ex parte enquiry into a case on a restricted source of information. And the value of the information to be got from the accounts themselves is further discounted by the opening passages of the report in which the Receiver after setting out his order says: 'The account books of the insolvent especially for the year 1320 are not in order, there are many items which have not been entered in the khatian, nor are the khatian items all totalled. It is difficult to find what is the financial position of the insolvent in the course of the year.' In view of this state of the accounts it would hardly be of use to attempt to extract any information from them. In fact they have not been placed before us and it is impossible to follow some parts of the Receiver's report without them. For instance, I may say I entirely fail to understand how the Receiver came to the conclusion expressed in the following passage, 'If we exclude Rs. 1,800 taken by insolvent, the amount that was paid to him (I do not know whether this refers to the insolvent or Chuni Lall Dutt) out of Protap Babu's money was not used on account of the business of the karbar and paid to any creditor of the insolvent.'

13. However, I shall assume for the purpose of argument that some of the money borrowed was not spent on the business, I do not see that that in any way affects the position: of the lender. He is not bound to see to the disposal of the money, nor could his position be affected by the fact, even if true, but which is not proved, that the insolvent falsified his accounts except in so far as falsification of accounts might; be evidence of fraudulent preference. The, one would not necessarily involve the other and no serious attempt has been made to establish the connection in this case. Nor to protect himself is it necessary that the lender should believe that it is possible to pays off all the creditors with his loan.

14. Section 37 of the Act, on which Section alone appellants rely, requires four conditions for its operation: 29 Ind. Cas. 128 : 21 C. L. J. 167 : 19 C. W. N. 157, the debtor must be unable to pay his debts as they become due, 32 Ind. Cas. 313 : 43 C. 521 : 30 M. L. J. 116 : 3 L. W. 207 : 20 C. W. N. 393 : 14 A. L. J. 198 : (1916) 1 M. W. N. 198 : 19 M. L. T. 203 : 23 C. L. J. 406 : 18 Bom. L. R. 378 : 43 C. 521 (P. C.), the transfer must be in favour of a creditor, 33 Ind. Cas. 548 : 43 C. 640 : 20 C. W. N. 420, the debtor must have acted; with a view of giving that creditor a; preference over other creditors, (1899) A. C. 419 at p. 421 : 68 L. J. Q. B. 866 : 80 L. T. 841 : 15 T. L. R. 418 : 6 Manson 261, the: debtor must be adjudged insolvent on; a petition presented within three months of the date of the transfer.

15. It is not disputed that the first, second and fourth Conditions are present in this case. The crux of the case is whether the third is.

16. The strongest point against Protap is his behaviour in what is described as stealing a march on his four co-creditors in getting the mortgage executed. He was the president of the Chatta Rice Dealer Association. At a meeting of this Association on the 15th December there was a discussion about Mani Lal's affairs as owing to his financial difficulties rice was not being: supplied to him by the rice dealers. It was; apparently arranged that Protap and two others should try to arrange his affairs and see that he was supplied with rice. Attempts: to manage his business for him, however, eventually fell through because as Lall Mohan Dass, one of the three men, says He did not behave properly.' But on the very day on which this discussion was held the mortgage-bond in favour of Protap. was executed. The execution took place at about 2 or 2-30 p. m. The meeting of the committee was held in the evening. It is, argued that the fact that the two incidents should have occurred on the same day is suspicious, to say the least of it. The fact that the bond was registered at Behala instead of at Alipur is put forward as another circumstance of suspicion, but it is perhaps a true explanation that that is due to the fact that at the Alipur Registry Office no document is accepted for registration after 2 p. m.

17. To take the matter beyond the region of suspicion much reliance is placed on the letter of Mani Lal that was handed in at another meeting of the Rice Dealers Association on 22nd December. In it Mani Lal said: The said Gangapadhaya Mohasay (i. e. Protap) who was my principal adviser in the matter of enquiry secretly advised me to mortgage my rice mill to him, and in that case he said he would arrange matters for properly conducting the business of the mill and for payment of my debts. I have adopted this most valuable advice of his with great respect and fully acted up to it.' He then went on to complain that in spite of this mortgage his debts had not been paid and arrangements had not been made for carrying on the business of the mill. At the same meeting Mani Lal signed a letter stating that he would not transfer or charge any of his property till he had paid the rice dealers what he owed them. He also stated that his homestead dwelling-house was unincumbered. In the Association's proceedings of the same day this letter is described as an ekrar and a month's time was given to Mani Lal to pay his debts.

18. The charge that Protap gave Mani Lal secret advice to execute the mortgage-bond in his favour rests only on this letter. Protap was not cross-examined on the point. Mani Lal himself has not been examined. In the circumstances it would be risky to accept this untested statement of Mani Lal complaining against Protap, especially when on the same day he tells the rice dealers that his dwelling-house is not under mortgage although it was covered by the mortgage in favour of Ambica and by the later mortgage in favour of Chandi Charan, which was subsequently annulled by the Court.

19. Though it is extremely probable that Protap knew how Mani Lal stood with regard to the Chatta Rice Dealers, it does not follow that the transfer to him comes within Section 37 of the Act. There is this to be said in favour of Protap against the view that he was stealing a march on the other creditors, that the notices for the meeting of the 15th December were only circulated on the morning of the 15th whereas the negotiations for the mortgage had taken place some days before. The draft had been finally prepared three days previously.

20. Again the evidence shows that Protap had been pressing Mani Lal to pay his debts. He had threatened to sue him unless he paid within a week or gave security. If Protap knew of the state of Mani Lal's affairs, the story that he pressed Mani Lal to pay is the more probable. When a transfer has been made under pressure, it cannot be said it was made with the view of giving the creditor preference. As was pointed out in the case of Nripindro Nuth Sahu v. Ashutosh Ghose 33 Ind. Cas. 548 : 43 C. 640 : 20 C. W. N. 420 following Sharp v. Jackson (1899) A. C. 419 at p. 421 : 68 L. J. Q. B. 866 : 80 L. T. 841 : 15 T. L. R. 418 : 6 Manson 261 the question whether there has been fraudulent preference depends, not upon the mere fact that there has been a preference, but also on the state of mind of the person who made it.'

21. In the circumstances whatever may be felt in regard to Protap's conduct in taking steps to conceal the fact of the mortgage from his co-creditors, if indeed he did wish to conceal it, and his version is that it was prepared at Mani Lal's house as Mani Lal did not want publicity, a very natural feeling in the case of a man whose business is tottering, it cannot be said that the object of the transfer was to give preference to Protap, and I think the learned Judge is right in coming to the conclusion that it was made for the purpose of trying to escape the Insolvency Court.

22. I would, therefore, dismiss the appeal with costs. We assess the hearing fee at five gold mohurs in the case of each respondent.

Walmsley, J.

23. I agree.

Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //