1. This appeal arises out of insolvency proceedings, and is directed against an order of the learned District Judge of Mymensingh dated 30th September 1936 by which he annulled certain dispositions regarding immovable property made by the insolvent Surendra Nath Sarma Sarkar. Surendra was adjudicated insolvent on 18th May 1935, on his own application under Section 74, Provincial Insolvency Act. On 1st June 1935, one Mahendra Chandro Saha, creditor No. 6, applied for annulment of the transactions in question, a receiver was appointed and he held an inquiry and made a report. On 17th September 1935 the receiver filed three petitions praying that three respective transactions made by the insolvent be declared void as against the receiver. The documents by which these transactions were effected were, firstly a deed of gift Ex. 2 dated 25th January 1927, executed by the insolvent in favour of his wife; secondly a mortgage Ex. C dated 15th March 1927 executed jointly by Surendra and his wife in favour of one Nagendra Nath Kar Sarkar, the appellant before us; and thirdly a deed of sale Ex. D dated 21st November 1933, executed jointly by Surendra and his wife in favour of Nagendra.
2. Before dealing with the issues framed by the learned District Judge it would be convenient to set out the relevant facts as far as may be in chronological order. Surendra was originally in possession of certain immovable properties which included two taluks known respectively as taluk Krishna Kinkar and taluk Kali Kanta. Surendra being indebted to the appellant Nagendra to the extent of Rs. 350 took a further loan of Rs. 1150 from the appellant, and as security for the total sum of Ea. 1500 executed in the appellant's favour on 2nd June 1925 a mortgage (Ex. O) of taluk Krishna Kinkar. On 21st December 1926, Surendra borrowed money from his landlords, and executed two further mortgages of taluq Krishna Kinkar in their favour, apparently without disclosing the existence of the first mortgage. On 25th January 1927, Mahendra Chandra Saha to whom Surendra was also indebted on a number of money bonds filed a suit against him being Suit No. 166 of 1927 of the Netrokona-Munsiff, and in that suit Mahendra obtained on 26th January 1927 an order of attachment before judgment of Surendra's properties. It is alleged that in pursuance of that order an attachment was actually effected of taluk Kali Kanta. In Ex. 8 the order sheet of the suit there appears under the date 22nd February 1927 the entry: 'Immovables attached.' Mahendra's suit terminated eventually in a compromise decree dated 22nd November 1927, but prior to this, Surendra in the year 1927 executed two of the dispositions which are the subject-matter of this appeal. On 25th January 1927 Surendra executed a deed of gift Ex. 2 in favour of his wife in respect of some of his immovable properties including taluk Kali Kanta and the document was registered on 9th March 1927. At about this time Surendra was in further need of money, and it is said that his landlords were threatening to sue him for the sums advanced by them upon the security of taluk Krishna Kinkar, which had, as stated above, been previously mortgaged to Nagendra. Under these circumstances Surendra approached Nagendra for a further loan. Surendra was then indebted to Nagendra to the extent of Rs. 2840 and he proposed that to enable him to get out of his difficulties Nagendra should advance him a sum of Rs. 2160 and that he should take as security for the entire debt of Rs. 5000 a mortgage which would embrace all the immovable properties of Surendra and his wife. The proposal was accepted, and Nagendra, paid Rs. 2116 in cash on 15th March 1927. On the same date Surendra and his wife executed the document Ex. C by which Surendra mortgaged to Nagendra two properties, one of which was taluk Krishna Kinkar, and his wife mortgaged to Nagendra taluk Kali Kanta.
3. By 1933 Surendra had not made any payment in satisfaction of Nagendra's dues and Nagendra had filed a suit for Rs. 6000 against him on these mortgages. Surendra again approached Nagendra, this time with the proposal that he would convey to Nagendra by way of sale all his properties including those already mortgaged. In satisfaction of his total dues which were admitted to amount to Rs. 6000, and that Nagendra would release him from his indebtedness. This proposal also was accepted and on 21st November 1933 Nagendra and his wife jointly executed a kobala Ex. D by whioh they conveyed to Nagendra all their immovable property including the two taluks Krishna Kinkar and Kali Kanta. As already stated it is the transactions evidenced by the documents Ex. 2, Ex. C and Ex. D which were challenged in the insolvency proceedings as collusive and mala fide. Pour issues were framed of which only three are material for the purposes of this appeal. They were as follows:
1. Is the deed of gift dated 11th Magh 1333 B.S. executed by the insolvent Surendra Hath Sauna Saikar in favour of his wife Hemanta Bala Devi a collusive and mala fide document? Can the validity of the above document be challenged in this proceeding?
2. Is the mortgage bond, dated 1st Chaitra 1333 B.S. executed by the insolvent Surendta Nath Sarma Sarkar and his wife Hemanta Bala Devi in favour of Nagendra Nath Kar Sarkar, a collusive and mala fide document? Can the validity of the above document be challenged in this proceeding?
3. Is the kobala dated 5th Agrahayan 1840 B.S. corresponding to 21st November 1933 executed by the insolvent Surendra Nath Sarma Sarkar, and his wife Heroantabala Devi in favour of Nagendra Nath Kar Sarkar, a collusive and mala fide document? Can this document be annulled and can the validity of the above document be challenged in this proceeding?
4. In connexion with Issue 1, it was con-tended by the receiver in the Court below that the deed of gift Ex. C was executed after attachment before judgment of Taluk Kali Kanta had been effected in Mahendra's suit; and the learned District Judge in dealing with this question has observed that there is no reason for supposing that this attachment was not in fact made. It has been contended on behalf of the receiver that the deed of gift Ex. 2 is antedated, that the attachment was made on or about 27th January 1927, certainly before the registration of the deed of gift by Surendra in favour of his wife, and that as Mahendra's claim was enforceable under that attachment the transfer in favour of the wife and the subsequent transfer to Nagendra were under Section 64, Civil P.C., void as against such claim. The first question which this contention raises is whether to begin with an objection based on Section 64, Civil P.C. is properly within the scope of an application under either Section 53 or Section 4, Provincial Insolvency Act, and it seems to us that this question is not free from doubt. The next question which arises is whether Mahendra's claim was enforceable under the attachment at the time when the receiver moved the District Judge under Sections 4 and 53. At that time Surendra's property was vested in the receiver and no creditor at whose instance an attachment had been effected, could have proceeded to sell the property. These questions would have to be answered were we to find that Taluk Kali Kanta had in fact been attached before judgment on or about 27th January 1927 in Mahendra's suit.
5. The documentary evidence in support of this allegation consists of the following: (1) Ex. 8 which is the order sheet in Suit No. 166 of 1927 of the Netrokona Munsifi and which shows that an order for a writ of attachment before judgment to issue was made on 26th January 1927 and that certain immovable properties of the defendant were attached by 22nd February 1927; (2) Ex. 5, a slip of paper pasted into an old account book of Mahendra's which contains entries descriptive of Taluk Kali Kanta; (3) Ex. 6, a page of another old account book of Mahendra's containing entries which if true show that attachment before judgment of some immovable property of Surendra's was effected at the instance of Mahendra on 27th January 1927. We may deal with this evidence before proceeding further. The order sheet Ex. 8 shows that there was an attachment of some immovable property belonging to Surendra but it does not indicate which property. The writ of attachment was not forthcoming, as in 1937 it was no longer in existence, having been destroyed under the rules of Court. We have scrutinized the originals of Exs. 5 and 6, and from the appearance of the ink it seems to us extremely doubtful that these documents were written as early as the year 1927. Ex. 5 is just a loose sheet of paper without date, pasted, as already stated, into an old account book, and we are left to speculate as to the context in which the writing was made. Ex. 6 is still more suspicious, because it is the only entry showing an attachment of immovable property which appears in that particular account book. The other pages in that account book contain entries relating to Mahendra's monetary transactions, and have nothing to do with any suit or legal process. Another circumstance which casts doubts upon the genuineness of these documents in the fact that they were not produced at an early stage, indeed not until after Mahendra's Karmachari Jitendra Nath Ganguli, who was witness 1 for the receiver, had given his evidence and had stated in cross-examination: 'There are papers in Mahen. dra's house to show which properties of Surendra were attached before judgment.'
6. The oral evidence which was adduced to support the story of attachment before judgment of Taluk Kali Kanta consists of the testimony of this Jitendra Nath Ganguli, one Gobinda Chandra Saha, another man who used to be employed by Mahendra, and one Nabi Hossain, an illiterate cultivator. Jitendra alleged that he acted as identifier when the peon served the writ of attachment. He admitted that he had no record of this and that he was speaking from memory. The attachment was effected seven years before, and to base a finding that it was Taluk Kali Kanta and not some other immovable property of Surendra's which was then attached upon this witness's recollection alone would not be safe. The witness Gobinda Chandra Saha merely stated that he went with Jitendra to the zamindar's sherista in order to obtain particulars of the property to be attached, and that he saw the latter note them down in Ex. 5. He also stated that Ex. 6 was in Jitendra's handwriting. This witness's testimony does not carry the matter beyond the evidentiary effect of Exs. 5 and 6, documents which are in our opinion suspicious and unreliable. The evidence of Nabi Hossain is of the vaguest nature and it is clear that he was a mere chance witness. What he stated was as follows:
About 9 or 11 years ago Mahendra attached certain property of Surendra Sarma. I went to that para on a visit when the Parwana was served, Mahendra's gomasta, the Thakur, was the identifier.
7. This completes the evidence regarding the attachment and we are not prepared to hold it established that it was Taluk Kali Kanta which was attached in Mahendra's suit. This being so, it is unnecessary to arrive at any decision regarding the contention that the conveyance to Nagendra was void as against Mahendra's claim which was enforceable under the attachment by reason of Section 64, Civil P.C. or to express a conclusion upon the maintainability in law of such a contention in proceedings under Sections 4 and 53, Provincial Insolvency Act. But we may observe again that it seems to us doubtful that the claim of an attaching creditor could be said to be enforceable under the attachment after the property had vested in the receiver, and equally doubtful whether an objection based upon Section 64, Civil P.C. is properly within the scope of Section 4 or Section 53, Provincial Insolvency Act.
8. The learned District Judge's findings on the first three Issues were as follows Regarding Issue 1 he held that the gift by Surendra to his wife was collusive and malafide. With respect to issue 2 he held that the mortgage in favour of Nagendra of the property which was the subject-matter of the gift by Surendra to his wife, that is, of Taluk Kali Kanta, was collusive and mala fide. Consistently with these findings he held as regards Issue 3 that the subsequent kobala executed by Surendra and his wife in Nagendra's favour was also collusive and mala fide so far as Taluk Kali Kanta was concerned. The result of the learned District Judge's findings was that though the conveyance to Nagendra of Surendra's other properties was upheld, the conveyance to Nagendra of Taluk Kali Kanta was annulled. It is the latter result that has been assailed on behalf of the appellant before us.
9. In the proceedings before the District Judge evidence was led to show that the gift of Taluk Kali Kanta made by Surendra in favour of his wife (Deed Ext. 2) was a genuine transaction, but the learned District Judge has, as stated, found otherwise. Upon an examination of the evidence and the circumstances we do not feel justified in disturbing this finding, and we will take it that the deed of gift was a benami transaction, and that Surendra's wife acquired no real title to Taluk Kali Kanta. On behalf of the respondent, it has been contended that as Surendra's wife never had any real interest in this taluk the mortgage by her in Surendra's favour (Ex. C) created no charge and the subsequent kobala Ex. D conveyed just nothing. In view of this contention it is necessary to consider whether it is open to Nagendra to invoke the provisions of Section 41, T.P. Act. That Section enacts what is known as the doctrine of ostensible ownership in these terms:
Wherewith the consent express or implied of the person interested in immovable property, a person is the ostensible owner of such, property, and transfers the same for consideration, the transfer shall not be voidable on the ground that the transferor was not authorized to make it, provided that the transferee, after taking reasonable care to ascertain that the transferor had power to make the transfer, has acted in good faith.
10. It has been contended on behalf of the receiver firstly that Nagendra was colluding with Surendra at the time when the latter executed the deed of gift Ex. 2 in favour of his wife, secondly that in taking the mortgage of Taluk Kali Kanta from Surendra's wife, Nagendra could not be said to have taken reasonable care to ascertain whether Surendra's wife had the power to make the transfer or to have himself acted in good faith, and thirdly that the mortgage is voidable under Section 53, Provincial Insolvency Act. With regard to the first contention there is no evidence whatever to suggest that Nagendra was in collusion with Surendra at the time when the latter executed the deed of gift Ex. 2 in favour of his wife, and the circumstances presently to be considered are opposed to; such a theory. This contention must therefore be negatived. The second contention that Nagendra's conduct at the time when he took the mortgage of Taluk Kali Kanta was such as to exclude him from the protection of Section 41, T.P. Act, calls for an examination of the evidence. The testimony of Nagendra waa to the following effect: Surendra informed him that after mortgaging the other taluk, viz. Krishna Kinkar in his favour, he had again mortgaged it to his landlords who were threatening to sue him. Surendra wanted a further loan and proposed that he would mortgage what little property was left to him and would induce his wife to whom he had conveyed some property by way of gift to join in the bond. Nagendra took steps to ascertain whether the gift was a bona fide transaction. He saw the deed Ex. 2, and ascertained from the attesting witnesses that Surendra had executed the gift because he had no sons, was in bad health, and was anxious that his wife should have full power of disposal over this property after his death. Nagendra made further inquiries and was satisfied that Surendra's wife was in possession of that property. He also took legal advice. He had no reason to think that the deed of gift was executed for the purpose of defrauding creditors, and he had no knowledge of Mahendra's attachment before judgment. Surendra informed him that his only debts were the sums he owed to his landlords and some other petty dues. Nagendra's evidence derives support from the testimony of Bepin Chandra Sarma Sircar who was witness 3 for the receiver and who stated as follows:
Surendra owed Rs. 1500 on a mortgage bond to Nagendra. For liquidating the debts of the two mortgage bonds in favour of the Singhs and Girija Devi (Surendra's landlords) and also in lieu of the previous dues of Rs. 1600 of Nagendra, the disputed mortgage bond of Rs. 5000 was executed by Surendra and Hemanta Bala (Surendra's wife) in favour of Nagendra. At the time of execution of the mortgage bond Rs. 2160 was paid in cash.
11. This witness was an attesting witness to the deed of gift Ex. 2 and he states that the recitals in that deed were correct and that Surendra had suffered from liver pain for a long time. There is no reason for disbelieving the evidence just noted, and we are satisfied that Nagendra made all reasonable inquiries regarding the title of Surendra's wife to Taluk Kali Kanta and that he acted in good faith. Nagendra accordingly acquired title to TalukKali Kanta. The question is whether that title can be annulled under Section 53, Insolvency Act. The learned District Judge has found that the mortgage Ex. C was not a fictitious transaction. The debts recited in the mortgage instrument were then due to Nagendra from Surendra and he further paid some more money to the mortgagors. The consideration for the conveyance Ex. D was the discharge of the money due to Nagendra on the basis of the mortgage Ex. C. These two transfers can only be annulled at the instance of the receiver if there was want of good faith on the part of Nagendra. The onus on this point is on the receiver, but without relying upon the question of burden of proof we think that there is ample evidence to establish good faith on the part of Nagendra. The principles laid down in Lala Hakimlal v. Mooshabhur Shabu (1907) 34 Cal. 999 are helpful. It was laid down in that case that in the absence of a law of bankruptcy (in the case before us the transfers are not sought to be avoided and cannot be avoided under Section 54, Insolvency Act) a preferential transfer of property to one creditor in satisfaction of an existing debt due to him is not fraudulent as to other creditors, although the debtor in making the transfer intended to defeat the claims, and the transferee had knowledge of such intention, if the only purpose of the latter is to secure his own debt and the property is not worth materially more than the amount of his debt. At p. 1014 of the report there is a quotation from the judgment of Black C.J. in Coranhovan v. Hart (1853) 21 Pa. St. 500.
If a debtor with the purpose of cheating his creditors, convert his lands into money, because money is more easily shuffled out of sight than land, he of course, commits a gross fraud. If his object in making the sale is known to the purchaser, and he nevertheless aids and assists in executing it, his title is worthless as against creditors, though he may have paid the full price. But the rule is different when property is taken for a debt. One creditor of a failing debtor is not bound to take care of another. It cannot be said that one is defrauded by the payment of another. In such cases, if the assets are not large enough to pay all, somebody must suffer. It is a race in which it is impossible for every one to be foremost.
12. The last contention on behalf of the receiver must also fail. Prom our findings that the mortgage Ex. C was a bona fide transaction for valuable consideration it follows that neither this mortgage nor the subsequent sale evidenced by Ex. D which was in satisfaction of the mortgage dues can be annulled. This appeal is allowed and the decree passed by the learned District Judge in so far as it annuls the mortgage Ex. C and the deed of sale Ex. D to Nagendra of Taluk Kali Kanta is reversed. The costs of the appellant will be paid by the opposing creditor Mahendra Chandra Saha. We assess the hearing fee at three gold mohurs.
R.C. Mitter J.
13. I agree.