Malini Ayyappa Naicker (Now Dead)
Through L.R. Vs. Seth Manghraj Udhavdas  INSC 38 (13 February 1969)
13/02/1969 HEGDE, K.S.
CITATION: 1969 AIR 1344 1969 SCR (3) 698 1969
SCC (1) 688
Provincial Insolvency Act, 1920, s. 75(1),
first proviso--Power of High Court to satisfy itself that an appeal was decided
by the District Court "according to law"Scope of.
The petitioning creditor in an insolvency
proceeding sought annullment of two mortgages, one for Rs. 15,000/in favour of
the appellant in C.A. 845 and another for Rs. 10,000/in favour the appellant in
C.A. 846. The mortgages were dated November 4, 1950 and were registered on
November 6, 1950.
The insolvency Court held that themortgages
were not supported by consideration and were executed with a view to screening
some of the properties of the insolvents 'from their creditors. It therefore,
annulled the mortgages under section 53 of the Provincial Insolvency Act. The
District Judge, in appeal, reversed the findings of the trial court but the
High Court, acting under the first proviso of section 75(1) of the Act, set
aside the judgment of the District Judge and restored that of the Insolvency
in an appeal to this Court by special leave,
it was contended on behalf of the appellants (i) that the High Court while
acting under the first proviso of section 75(1) to satisfy itself "that an
order made in any appeal decided by the District Court was according to
law" had no power to disturb the findings of fact reached by the appellate
the jurisdiction of the High Court is a very
limited one and not more than that conferred on it by sub-section 100(1)
C.P.C.; and (ii) that the conclusions of the High Court were unsustainable on
the evidence on record.
HELD: (i) The legislature did not confer on
the High Court 'under the first proviso to s. 75(1) of the Act an appellate
power nor did it confer on if a jurisdiction to re appreciate the evidence on
record. While exercising that power the High Court is by and large bound by the
findings of fact reached by the District Court. If the legislature intended to
confer power on it to reexamine both questions of law and fact it would have
conveyed its intention by appropriate words as has been done under various
other statutes. A wrong decision on facts by a competent court is also a
decision according to law. [701 D] A decision being "contrary to law"
as provided in s. 100(1)(a) of the Code of Civil Procedure is not the same
thing as a decision being not "according to law" as prescribed in the
first proviso of s. 75(1) of the Act. The latter expression is wider in ambit
than the former. It is neither desirable not possible to give an exhaustive
definition of the expression "according to law". The power given to
the High Court under the first proviso to s. 75(1) of the Act is similar to
that given to it under s. 25 of the Provincial Small Causes Courts Act. [701 F]
Bell & Co. Ltd. v. Waman Hemraj, (1938) 40, Bom. L.R. 125;
Hari Shankar v. Rao Girdhari Lai Chowdhury,
 1, supp.
699 Official Receiver, Kanpur and Anr. v.
Abdul Shakur  1 S.C.R. 254; referred to and explained.
(ii) On the evidence, the findings of the
District Court on the payment of consideration were correct findings of fact
and the High Court could not have interfered with the same.
However, one payment in respect of the
mortgage in C.A. 845 was not proved and the mortgage was therefore only valid
to the extent of Rs. 10,5001-.
CIVIL APPELLATE JURISDICTION: Civil Appeals
Nos. 845 and 846 of 1963.
Appeals by special leave from the judgment
and order dated January 17, 1958 of the Madras High Court in Civil Revision
Petitions Nos. 981 and 982 of 1956.
S. V. Gupte and R. Thiagarajan, for the
appellants (in both the appeals).
Naunit Lal, for the respondents Nos. 1(c) and
17 (in C.A. No. 845 of 1963) and respondents Nos. 1 (c) and 16 (in C.A. No.
846 of 1963).
The Judgment of the Court was delivered by
Hegde, J. These appeals arise from an insolvency proceeding wherein one
Ponnayya Konar and his sons were adjudicated as insolvents. In the said
proceeding the petitioning creditor sought to get annulled two mortgages one
for Rs. 15,000 (Exh. A-1) executed by the insolvents in favour of Ayyappa
Naicker, the appellant in Civil Appeal No. 845 of 1963 and the other for Rs.
10,000 (Exh. A-2), the subject matter of Civil Appeal No. 846 of 1963, in
favour of one Srinivasa Naicker, the father-in-law of the aforementioned
Ayyappa Naicker. The said Srinivasa Naicker is dead and the appeal is being
prosecuted by his legal representatives. Both those mortgages are dated
November 4, 1950 and they were registered on November 6, 1950. The Insolvency
Court held that those mortgages were not supported by consideration and that
they were executed with a view to screen some of the properties of the
insolvents from their creditors. It accordingly annulled those mortgages under
S. 53 of the Provincial Insolvency Act (hereinafter referred to as the Act). In
appeal the learned District Judge reversed the findings of the trial court. He
came to the conclusion that those mortgages were fully supported by
consideration and that they were genuine transactions. The High Court acting
under the 1st proviso to S. 75(1) of the Act reversed the judgment of the
learned District Judge and restored that of the Insolvency Court. These appeals
have been brought against the decision of the High Court after obtaining
special leave from this Court.
The learned Counsel-for the appellants
challenged the decision of the High Court primarily on two grounds.
According to him 700 the High Court while
acting under the 1st proviso to S. 7 5 (1) of the Act had no power to disturb
the findings of fact reached by the appellate court. Next he contended that the
conclusions of the High Court are unsustainable on the evidence on record. The
learned Counsel for the contesting respondents supported the decision of the
The two principal questions that arise for
decision in these appeals are (1) was the High Court within its jurisdiction in
interfering with the findings of the learned District Judge that the impugned
transactions are bona fide transactions and that they were supported by
consideration and (2) are the conclusions reached by the High Court correct on
the facts and circumstances of the case ? It would be convenient to take up
first, the question as to the scope of the powers of the High Court under the
1st proviso to S. 75 (1) of the Act. That section reads :
"The debtor, any creditor, the receiver
or any other person aggrieved by a decision come to or an order made in the
exercise of insolvency jurisdiction by a Court subordinate to a District Court
may appeal to the District Court, and the order of the District Court upon such
appeal shall be final :
Provided that the High Court, for the purpose
of satisfying itself that an order made in any appeal decided by the District
Court was according to law, may call for the case and pass such order with
respect thereto as it thinks fit :
Provided further, that any such person
aggrieved by a decision of the District Court on appeal from a decision of a
subordinate Court under section 4 may appeal to the High Court on any of the
grounds mentioned in subsection (1) of section 100 of the Code of Civil
Procedure, 1908." According to Shri S. V. Gupte, learned, Counsel for the
appellants the jurisdiction of a High Court under the 1st proviso to s. 75(1)
is a very limited one, the same being not more than that conferred on it by
sub-s. (1) of S. 100 of the Code of Civil Procedure. In support of his
contention he invited our attention to the scheme of S.
75(1) of the Act. He urged' that sub-s. (1)
of S. 75 prescribes that the decision of the District Court in appeal is final
and the finality conferred on the decision of the District Court is subject to
a very limited scrutiny by the High Court. We were further told that the power
conferred on the High Court under the 1st proviso to S. 75(1) is only a
revisional power, which power in its very nature is narrower in compass than an
appellate pow&. According to him the power conferred under the 1st proviso
to s. 75(1) of the Act is co-extensive with that 701 given to the High Court
under s. 100(1) (a) of the Code 'of Civil Procedure.
On the other hand Mr. Naunit Lal, learned
Counsel for the respondent urged that the High Court under the 1st proviso to
s. 75(1) of the Act has an extensive power and that power is very much wider
than the power conferred on it under s.
100(1) (a) of the Code of Civil Procedure;
the power of the High Court under the 1st proviso to s. 75 (1) of the Act to
call for the case to satisfy itself that the order made by the District Court
was according to law and pass such other order in respect. thereto as it thinks
fit includes within itself the right to examine whether the District Court had
taken into consideration all the material evidence and whether it had properly
assessed that evidence.
We are of the opinion that the extreme
contentions advanced on either side cannot be accepted. Quite clearly the
legislature did not confer on the High Court under the 1st proviso to s. 75 (1)
of the Act an appellate power nor did it confer on it a jurisdiction to
reappreciate the evidence on record. While exercising that power the High
Court, is by and large bound by the findings of fact reached by the District
Court. If the legislature intended to confer power on it to reexamine both
questions of law and fact it would have conveyed its intention by appropriate
words as has been done under various other statutes. A wrong decision on facts
by a competent court is also a decision according to law. For these reasons we
cannot accept the, contention of Mr. Naunit Lai that the power conferred under
the 1st proviso to s. 75 ( 1 ) of the Act enables it to de novo examine the
findings of fact reached by the District Court.
A decision being "contrary to law"
as provided in s. 100(1) (a) of the Code of Civil Procedure is not the same
thing as a decision being not "according to law" as prescribed in the
1st proviso of s. 75(1) of the Act. The latter expression is wider in ambit
than the former. It is neither desirable nor possible to give an exhaustive
definition of the expression "according to law". The power given to
the High Court under the 1st proviso to s. 75(1) of the Act is similar to that
given to it under s. 25 of the Provincial Small Causes Courts Act. Explaining
the scope of the latter provision Beaumont, C.J. (as he then was) in Bell &
Co., Ltd. v. Waman Hemraj (1) observed:
"The object of s. 25 is to enable the
High Court to see that there has been no miscarriage of justice, that the
decision was given according to law. The section does not enumerate the cases
in which the Court may (1) 40 Bom. L.R. 125.
L10Sup./69-10 702 interfere in revision, as
does s. 115 of the Code of Civil Procedure, and I certainly do not propose to
attempt any exhaustive definition of the circumstances which may justify such
interference; but instances which readily occur to the mind are cases in which
the Court which made the order had no jurisdiction or in which the Court has
based its decision on evidence which should not have been admitted, or cases
where the unsuccessful party has not been given a proper opportunity of being
heard, or the burden of proof has been placed on the wrong shoulders. Wherever
the Court comes to the conclusion that the unsuccessful party has not had a
proper trial according to law, then the Court can interfere. But, in my
opinion, the Court ought not to interfere merely because it thinks that
possibly the Judge who, heard the case may have arrived at a conclusion which
the High Court would not have arrived at." The said statement of the law
was accepted as correct by this Court in Hari Shankar v. Rao Girdhari Lal
Chowdhury(1). We think the same applies squarely to the 1st proviso to s. 7 5
(1) of the Act.
In support of his contention Mr. Gupte placed
considerable reliance on the decision of this Court in Official Receiver,
Kanpur and Anr. v. Abdul Shakur and Ors. (2) wherein this Court held that the
High Court in exercise of its power under the 1st proviso to s. 75 (1) of the
Act is incompetent to disturb the findings of fact reached by the District
Court and further the question whether a statutory presumption was rebutted by
the rest of the evidence on record was also a question of fact which again was
not open to be reviewed by the High Court. Shah, J. who spoke for the Court
observed thus at p. 259.
"The District Court inferred from the
facts found that the statutory presumption under s. 118 of the Negotiable
Instruments Act had been weakened and the burden which lay upon the insolvent
was discharged and it was not open to the High Court exercising jurisdiction
under s. 75(1) proviso 1, nor even under proviso 2 of the Provincial Insolvency
Act to set aside the judgment of the District Court, for it is well settled
that the question whether a statutory presumption is rebutted by the rest of
the evidence is a question of fact." It may be remembered that Shah, J.
was also a party to the decision in Hari Shankar's, case(2), We see no conflict
between (1) (1962) 1 Supp. S.C.R. 933.
(2)  1 S.C.R. 254.
703 the two decisions. The former decision
enumerates some of the circumstances under which the High Court can interfere
while considering whether the decision under review was made according to law.
All that is laid down in Abdul Shakur's case(1) is that the High Court is not
competent to disturb a finding of fact reached by the District Court even' if
in reaching that finding it was required to take into consideration a statutory
We shall now proceed to examine the facts of
this case bearing in mind the principles set out above.
We shall first set out the undisputed facts.
The respondent Ponnayya Konar was a well to do person. He had one rice mill at
Kivalur and another at Sirkali. He also had landed properties in Sirkali and
Tuticorin. He was having money dealings with the family of Sreenivasa Naicker
from about the year 1925 Under the original of Exh. B-1, a registered deed of
Othi dated 28th September, 1925, he had borrowed a sum of Rs. 30,000 from
Rangappa Naicker, the father of Srinivasa Naicker. On October 5, 1930 the said
deed was renewed by the execution of a simple mortgage deed by Ponnayya Konar
and his sons in favour of Rangappa Naicker.
Under the registered mortgage deed dated 13th
January, 1942 (Exh. B-4 is its copy), tile insolvents had borrowed from Ayyappa
Naicker Rs. 20,000 out of which he discharged some of the debts due to Rangappa
Naicker. Ayyappa Naicker was himself a rich man. Under the partition deed entered
into in his family on October 30, 1936 (Exh. B-3) he got a cash of Rs. 52,000
and lands measuring 250 acres. The debt due to Ayyappa Naicker under the deed
dated 13th January 1942 was discharged by payment of Rs. 5,000 and interest on
3rd April, 1948 and Rs. 15,000 and interest on the 28th March, 1949, as can be
seen from Exhs. B-5 and B-6.
The case of the mortgagees is that when Exh.
A-1 and A-2 were executed they were unaware of the fact that the insolvents had
got into financial difficulties by then. The learned District Judge has
accepted this plea and the learned Judge of the High Court has not come to a
There was no relationship between the
insolvents and the mortgagees. In fact they belong to different communities.
The insolvents are Hindus and the mortgagees
They also live at different places. The
insolvents were residing at Sirkali and the mortgagees at Tuticorin, a place
which is at a considerable distance from Sirkali.
According to the mortgagees the circumstances
under which Exh. A-1 and A-2 came to be executed are as follows (1)  1
704 In about the beginning of 1950 Ponnayya
Konar approached Srinivasa Naicker for a loan of Rs. 30,000. Srinivasa Naicker
told him that he and his son-in-law Ayyappa Naicker together would lend him a
sum of Rs. 25,000 on the mortgage of his properties at Tuticorin. But as they
did not have the entire sum of Rs. 25,000 in their hands at that time, a sum of
Rs. 10,000 was paid to Ponnayya Konar on April 28, 1950 and a promissory note
was taken for that amount. (Exh.
A-11). In the beginning of September, 1950
Ponnayya Konar sent his son Arulappan with the letter (Exh. B-7) to get some
more money. Accordingly another sum of Rs. 5,000 was paid on September 8, 1950
and the pronote (Exh. A-12) was taken from Arulappan. They agreed to pay the
balance amount promised to be advanced at the time of the execution of the
mortgage deeds. The mortgage deeds were got written up and executed on 4th
November 1950. Therein it was recited that they were executed for cash
consideration. It was thought that the mortgagees would be able to pay the
balance amount before the registration of the documents on November 6, 1950.
But by that time they were not able to get together the entire amount that
remained to be paid. On the date of the registration Ayyappa Naicker paid to
the mortgagors only a sum of Rs. 4,500 another sum of Rs. 500 was adjusted
towards the interest due on the sum of Rs. 15,000 previously advanced in April
and September. The remaining sum of Rs.
5,000 was paid in two instalments, a sum of
Rs. 1700 through Amirthan, the 3rd son of Ponnayya Konar on January 7, 1951 and
the remaining sum of Rs. 33,00 again through Amirthan on February 10, 1951.
In the insolvency proceedings on the
application of the petitioning creditor, a commissioner to search the house of
the insolvents and seize their books of account and other relevant records was
appointed. After search the Commissioner seized from the house of the
insolvents several account books (ledgers as well as day books) as well as A1 1
and A1 2 which were found punched and defaced. Exhs.
A-11, A-12 as well as several of the entries
in the ledger and day books were marked by consent in the proceedings from
which these appeals have arisen. Hence their genuineness is not open to
It is most unlikely that those documents were
got up by the insolvents and kept in their house, depending on the off chance
of a court commissioner searching their house and seizing them, so that they
may serve as corroborating evidence in support of the impugned mortgages. If
Exh. A11 and A-12 as well as the entries in the account books were intended to
support the claim tinder Exhs. A-1 and A-2, the most natural course would have
been to draw up the mortgage deeds in such a way as to 705 take assistance from
them. In that case the mortgage deeds would not have recited that they were
executed for cash consideration. Further Exhs. A-11 and A-12 would have been
left in the possession of the mortgagees. We are convinced that the version put
forward by the mortgagees is substantially true. The original agreement between
the parties was to take mortgages of the Tuticorin properties for cash
consideration. 'The intermediate steps taken were necessitated by the fact that
mortgagees were not able to get together in one, lump the required amount. The
promissory notes Exhs. A-11 and A-12 were taken as stop gap arrangements. The
recitals in the mortgage deeds accord with the original agreement between the
parties. That was likely to be the reason why the promissory notes Exh. A-11
and A-12 were returned to the parties. The entries in the account books of the
insolvents reflect the transactions as they took place. If they were bogus
entries made to support Exhs. A-1 and A-2, a receipt of Rs. 25,000 in cash on
4th November 1950 would have been shown therein. The learned District Judge
correctly thought that the account entries in question had a great deal of
intrinsic value. On the other hand the insolvency court and the High Court
unnecessarily allowed themselves to be influenced by the apparent contradiction
appearing between the recitals in Exhs. A-1 and A-2 and those in Exhs. A-11,
A-12 and the account entries.
One other circumstance which had weighed with
the High Court in holding that Exhs. A-1 and A-2 do not represent genuine
transactions is that in their pleadings the mortgagees have struck to their
case that cash consideration passed under Exh. A-1 and A-2 and this the Court
thought was a deliberately false plea. The learned District Judge had carefully
considered this circumstance but was of opinion that the same was of no
consequence. We think that the High Court had attached undue importance to that
The issue before the parties at the time of
the pleadings was whether the mortgages in question were supported by
consideration or not and not the manner in which that consideration was paid.
In their plea the mortgagees were merely adhering to the tenor of the mortgage
deeds. From the facts stated earlier, it is clear that the mortgagees at all
stages proceeded on the basis that Exhs. A-1 and A-2 were executed for cash
consideration, the other steps taken by them being merely incidental.
The last and by far the most important circumstances
that appears to have influenced the High Court was the failure of the
mortgagees to produce their account books. This circumstance was carefully
considered by the District Judge.
He held that the adverse inference that could
be drawn from that circumstance was rebutted by the other evidence available in
the case. It was open to him to do so. His finding on this point is also a
finding 706 of fact and by no means a wholly unreasonable finding. The High
Court could not have interfered with the same.
From the above discussion it follows that
generally speaking we shall come to the details of consideration presently-the
findings of the District Court as regards the payment of consideration under
Exh. A-1 and A-2 are findings of facts and they were not open to review by the
This takes us to the various items of
consideration said to have passed under Exhs. A-1 and A-2 and the proof
The District Court has held that the entire
consideration mentioned in those documents has passed. We have now to see
whether its finding in respect of the various items of consideration is
supported by legal evidence. The challenge to the payment of consideration
under Exhs. A-1 and A-2 made by the petitioning creditor includes a challenge
to the passing of the various items of consideration said to have passed.
Ordinarily the burden of proving that a document impeached under s. 53 of the
Act is not supported by consideration is on the party who challenges its
That is so because the party who stands by
the document can take advantage of the admission made by the insolvent in the
document in question., But in this case the mortgagees themselves do not stand
by the recitals in the documents as regards the manner in which consideration
Therefore it is for them to prove the passing
of consideration. Hence we have to see how far they have succeeded in proving
We shall first take up Exh. A-2, the mortgage
deed executed in favour of Srinivasa Naicker. It is said that the consideration
payable under that mortgage was paid in the following manner:
Rs. 5,000 under promissory note Exh. A-11;
Rs. 1,700 paid in cash on 7-1-1951 and Rs.
3,300 also paid in cash on 10-2-1951; The receipt of the aforementioned sums is
entered in the day book and edger of the insolvents. The relevant entries
amount to an admission on the part of the insolvents of having received the
amounts mentioned therein. We have earlier considered the authenticity of those
account books. The evidence of the mortgagees as regards the payment of
consideration is strongly corroborated by the entries in the insolvents'
account books. It was open to the learned District Judge to rely on them. Hence
his finding as regards the validity of the mortgage under Exh. A-2 must be held
to be final.
So far as the consideration for Exh. A-1 is
concerned it is said to have been made up of-(i) a sum of Rs, 10,000 advanced
under Exh. A-11;
707 (ii) Rs. 500 the interest due under Exh.
A11 and A-12;
and (iii) Rs. 4,500 paid on 6-11-1950.
The receipts of the various sums mentioned
above excepting the sum of Rs. 4,500 said to have been paid on 6th November
1950, are entered in the day book and the ledger of the insolvents. Hence to
that extent the finding of the learned District Judge is unassailable. So far
as the payment of Rs. 4,500 said to have been made on November 6, 1950 is
concerned no corresponding entry in the day book or the ledger had been proved.
This important circumstance was not noticed by the learned District Judge. He
proceeded on the basis that the account entries support the payment of that
item as well. The evidence of Ayyappa Naicker as regards that payment is
necessarily interested. The only other evidence on that point is that of P.W.
2, the Registrar who registered Exhs. A-1 and A-2. He is a relation of the
insolvents. He did not endorse that payment in Exh. A-1, though he knew that he
was required to do so under the rules. We are also surprised how he could have
remembered that fact after several years. Had the learned District Judge's
attention been drawn to the fact that there is no documentary evidence in proof
of the payment of that item it is highly doubtful whether he would have held in
favour of the mortgagee as regards the payment of that item. After going
through the evidence bearing on the point we are not satisfied that the payment
of that amount is satisfactorily proved.
In the result Civil Appeal No. 846 of 1963 is
allowed and the judgment and decree of the High Court is set aside and that of
the District Court restored. Civil Appeal No. 845 is allowed in part i.e. the
mortgage Exh. A-1 is held to be valid to the extent of Rs. 10,500 and interest
thereon. In the circumstances of the case we direct the parties to bear their
own costs in all the courts.
R.K.P.S, C.A. 845/63 allowed in part.
C.A. 845/63 allowed in part.