C. Abdul Shukoor Saheb Vs. Arji Papa
Rao & Ors  INSC 314 (14 November 1962)
AYYANGAR, N. RAJAGOPALA AYYANGAR, N.
RAJAGOPALA DAS, S.K.
CITATION: 1963 AIR 1150 1963 SCR Supl. (2) 55
Fraudulent Sale-Sale effected to defeat
creditor-Attachment of property sold--Rejection of purchasers claim-Suit to set
aside claim order-Plea of tradulent sale in defence-Maintainabity-If such plea
could be raised only in a representative suit by creditors-Transfer of Property
Act, 1882 (4 of 1882), s. 53 (1)-Code of Civil Procedure, 1908 (Act 5 of 1908),
O. 1, r. 8, 6. 21, rr. 58 to 63.
The appellant purchased the suit property
under a sale deed executed by defendant 4 on May 20, 1949. Defendants 3 and 4
had been doing business in partnership, which, how. ever, was dissolved on
March 31, 1949. The deed of dissolution showed that the partnership owed debts
to the extent of Rs. 2-1/2 lakhs and that the suit property was allotted to
defendant 4. The first respondent to whom money was due from the partnership
obtained a decree on June 19, 1951, and had the suit property attached. The
appellant filed a claim petition for raising the attachment but it was
He then instituted a suit to set aside the
summary order under O. 21, r. 63, of the Code of Civil Procedure. The first
respondent's defence, inter alia, was that the sale was fraudulent intended to
defeat or delay. creditors and, therefore, was invalid under s. 53 (1) of the Transfer
of Property Act, 1882. The appellant pleaded that on a proper construction of
s. 53 (1) of the Act, a transfer which was voidable under the section could be
avoided only by a representative suit filed on behalf of creditors and not by
an individual creditor by way of defence to a suit to set aside a claim order.
The evidence in the case showed that the appellant was not a transferee in good
faith and that the transferor itself was a scheme by the transferor with the
knowledge and concurrence of the transferee to put the property out of the
reach of the creditors.
Held : (1) that s. 53 (1) of the Transfer of
Property Act, 1882, rendered a transaction voidable at the instance of the
creditors if the transfer was effected with the particular intent specified and
that the statute did not prescribe any particular method of avoidance. There
was nothing in s. 53 (1), as 56 it originally stood before the amendment of the
section in 1929, which precluded a defence by an attaching creditor to a suit
to set aside a summary order under O. 2 1, r. 63, Code of Civil Procedure, that
the sale in favour of the plaintiff was vitiated by fraud ; and the amendment
made no change in this matter.
(2) that it was merely to have a uniform rule
and to avoid conflicting decisions that the third paragraph was inserted in s.
53 (1) so that after the amendment, the rule that a suit by a creditor should
be brought in a representative capacity would apply as much to a suit to set
aside a summary order under O. 21, r. 63, as to other suits.
(3) that the terms of s. 53 (1) were
satisfied even if the transfer did not "defeat" but only
"delayed" the creditors.
The fact that the entirety of the debtor's
property was not sold could not by itself negative the applicability of the
section unless it was proved that there was other property left, sufficient in
value and of easy availability to render the alienation in question immaterial
for the creditors.
Ramaswami Chettiar v. Mallappa Reddiar,
(1920) I. L. R. 43 Mad., 760, approved.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 164 of 1962.
Appeal from the judgment and decree dated June
19,1958, of the Andhra Pradesh High Court in Appeal Suit No. 944 of 1953.
K. Bhimasankaram, J. V. Kriahna Sarma and T. Satyanarayana,
A. Ranganadham Chetty, Miss A. Vedavalli, N.
Rajeshwara Rao and A. V. Rangam, for respondents 1 (a) and (b).
1962. November 14. The judgment of the Court
was delivered by AYYANGAR, J.-This appeal comes before us on a certificate of
fitness granted by the High Court of Andhra Pradesh-under Art. 133(1)(a) of the
57 The following facts are necessary to be
stated to appreciate the contention-, urged before us. We consider it would be
convenient to refer to the parties by their array in the trial Court. The 2nd
defendant firm Hajee Abdul Kadir Sahib and Lala Batcha Sahib & Co., had
been apparently carrying on business in several places including Vizianagaram,
Bellary, Madras etc., in skins and hides since 1941 when the partnership was
formed between the 3rd and the 4th defendants. It was common ground that from
about 1947 or 1948 the firm had not been doing any business in Vizianagaram and
by that time it had contracted quite a large volume of debts, the tannery
business there proving a loss. The two partners accordingly entered into a deed
of dissolution dated March 31, 1949, in which it is stated that the book-debts,
stock in trade, immovable properties and other assets including the goodwill of
the firm were of the value of Rs. 2,90,000/-, and at the same time that the
partnership which was admitted to be suffering losses owed debts to the extent.
of Rs. 2-1/2 lakhs. It' was agreed between the partners that the 3rd defendant
Abdul Shukoor Saheb should go out of the partnership taking with him one item
of property in Vaniyambadi valued at Rs. 20,000/whilethe suit tannery which was
estimated as of the same value was to become the sole property of the 4th
defendant who was described in the deed as "the continuing partner".
Soon after this deed of dissolution the 4th
defendant entered into an agreement with the plaintiff for the sale to him of
the suit property for a sum of Rs. 19,000/-, and later executed the deed of
sale on May 20, 1949. The plaintiff was, however, advised that it would be
safer to have the conveyance in his favour executed by the other partner also
and accordingly the 3rd defendant was also an executant of the sale deed. On
the execution of the sale deed the plaintiff entered into possession and he
claimed to have thereafter effected improvements to the property.
58 While so, the 1st defendant-Arji Papa
Rao-filed suit O. S. 46 of 1950 in the Court of subordinate judge at
Visakhapatnam for the recovery of a sum of Rs. 12,950/5/8 against the 2nd
defendant firm and its partners defendants 3 & 4 and obtained a decree for
the sum claimed with interest and costs on June 19, 1951. Soon after filing the
plaint he obtained an order for attachment before judgment of the suit property
and that order was on the passing of the decree made absolute, subject however,
to the result of a claim petition which had been filed by the plaintiff for
raising the attachment. The Subordinate judge of Visakhapatnam dismissed the
plaintiff's claim and this has led to the suit O. S. 145 of 1951 out of which
this appeal arises to set aside that summary order under O. XXI, r. 63, Code of
Civil Procedure. The plaintiff impleaded as parties to the suit besides the
attaching decree-holder who was made the 1st defendant, the debtor-firm and the
two partners as defendants 2 to 4 respectively and the son of the 4th defendant
who executed the sale deed as his agent under a power of attorney as the 5th
The plaintiff claimed that he purchased the
property bonafide and for its full value, that since its purchase he having entered
into possession, 'was in enjoyment thereof in his own right, paying the rates
and taxes due thereon and had effected valuable improvements thereto, and that
consequently the property was not liable to be attached as belonging to the
partnership or any of its partners.
Broadly stated, the defence of the 1st
defendant the only contesting defendant, the others either remaining ex parte
or supporting the plaintiff, was that the sale in favour of the plaintiff was
either a sham and nominal transaction or in fraud of creditors of whom he was
one. The trial court upheld the plaintiff's claim that the sale was real and
was fully 59 supported by consideration. It also negatived the contention
raised by' the first defendant that the sale was fraudulent as intended to
defeat or delay creditors under s.
53 (1) of the Transfer of Property Act. The
1st defendant filed an appeal to the High Court and the learned judges reversed
the decision of the trial-judge and directed the dismissal of the plaintiff's
suit. It is the correctness of this decision that is challenged in this appeal.
Learned counsel for the appellant raised four
principal points in support of the appeal : (1) that on a proper construction
of the written statement the only real and effective defence that was raised
was that the sale in favour of the appellant was sham and nominal and that the
Courts below were in error in proceeding on the basis that the sale was in the
alternative impugned as brought about to defeat or delay creditors within s. 53
(1) of the Transfer of Property Act; (2) that on the facts and circumstances of
the case it had not been established that the sale in favour of the appellant
was vitiated by fraud against creditors falling within s. 53 (1) of the Transfer
of Property Act;
(3) that in any event, the plaintiff was a
purchaser in good faith and for valuable consideration and was therefore protected
even on the basis that the transferor intended, by the alienation, to defraud
his creditors; (4) that on a proper construction of s. 53 (1) of the Transfer
of Property Act, as it now stands, read in the light of the provisions of the
Code of Civil Procedure particularly those relating to claim petitions under O.
XXI rr. 58 to 63, a transfer which was voidable under s. 53 (1) could be
avoided only by a representative suit filed on behalf of creditors and not by
an individual creditor who may be defeated or delayed, by way of defence to a
suit to set aside a summary order under O. XXI, r. 63, Code of Civil Procedure.
We shall deal with each of these points and
in that order.
There is no doubt that the written 60
Statement has not been artistically drafted, keeping in view the real
distinction between a sham and nominal sale which is not intended to pass title
and a sale which is real but which is voidable at the instance of creditors
because the transfer is intended in the language of s. 53 (1) of the Transfer
of Property Act "to defeat and delay creditors".
In paragraph 2 of the Written Statement the
1st defendant stated :, "The said sale deed is sham; nominal and collusive
document not intended to pass any title but brought about to screen the suit
properties from the creditors of defendants 2 to 5. No consideration passed
under the sale deed and the recitals thereof in the document are fictitious and
make-believe." The paragraph. however, further went on to add "It is
further submitted that even if the sale deed is true, it, is in fraud of
creditors including the plaintiff and not binding on them." In paragraphs
3 the allegation was made that the plaintiff was the relative of defendants 2
to 5, that the plaintiff and the vendors were natives of the same place and
that the sale deed was clandestinely brought into existence at Madras at a.
time when defendants 2 to 5, were hard-pressed by the plaintiff and other
creditors and unable-to pay their debts., at Vizianagaram and that in order to
put the properties beyond the reach of the creditors, defendants 2 to; 4 seem
to, have hit upon the frauds device. of the alleged We to the plaintiff".
In the light of these averments it, cannot be-, said that the defendants did
not raise two distinct pleas (1) that the sale was a sham, a pretended Sale without
any consideration and not intended to pass any title to the nominal purchaser
and in the alternative (2) that even if it were a 61 real transaction supported
by consideration and intended to pass title to the plaintiff, still the same
was, having Tegard to the circumstances stated, a fraud upon the creditors and
therefore voidable at his instance. Though the pleading in the Written
Statement was in this form, the issues struck did not raise the two defenses as
distinct pleas but rolled both of them into a single plea raising the question
"whether the plaintiff hid title to the suit property and whether the
claim order was liable to be set aside." Notwithstanding the
indefiniteness in the frame of the issues it could not be said that when the
parties proceeded to adduce evidence the same was not directed to both the
above defences. As we have necessarily to consider thus evidence in dealing
with the submissions made to us regarding the correctness of the dismissal of
the plaintiff's suit by the High Court it is unnecessary to set out the details
of the evidence which indicates that the defence based upon s. 53 of the Transfer
of Property Act was borne in mind. At the, stage of the arguments before the
trial Judge it was the subject of keen contest between the parties. The learned
trial judge first dealt with the question as to whether the sale was real as
pleaded by the plaintiff or whether it was without consideration and sham and
nominal not intended to pass any little, and recorded a clear finding in favour
of the plaintiff After having done so he considered in detail the various
circumstances which were relied on by the first defendant in support of the
plea that the sale was in fraud of creditors so as to be voidable under. s.
53(1) of the Transfer of Property Act. He negatived this plea and upheld the
plaintiff's claim to the Property and passed a decree in his favour. In these
circumstances we consider that there is no force in the objection that there
has not been a sufficient plea of a defence based upon s. 53 of the Transfer of
Property Act as to justify or entitle the court to afford relief if satisfied
that the same was proved.
62 Before dealing with the second point it is
necessary to make a few observations in relation to certain submissions made by
learned Counsel for the appellant. This was in relation to the manner in which
the. learned judges of the High Court had approached this question and arrived
at a conclusion adverse to his client. The learned judges had formulated the
questions to be considered in the appeal as follows :"The main point that
falls to be considered in this appeal is whether the sale deed in favour of the
Plaintiffs Exhibit A-2, is a genuine transaction supported by consideration;
and, if on this point the finding is in favour of the plaintiff, the further
question that falls to be determined is whether the suit sale-deed was executed
in fraud of creditors and as such not binding on the first defendant and other
creditors of defendants, 2 to 5. If the finding on this issue is that the
transaction was in fact in the fraud of creditors, the further question that
would arise for consideration is whether the plaintiff could claim to be the
transferee in good faith and for consideration so as to claim the benefit of
the exemption contained in section 53 of the Transfer of Property Act.
Learned Counsel had no quarrel with the
propositions as here set out or the mode of approach, but his complaint was
that in dealing with the appeal these were not kept in view. He urged that they
did not consider either initially or even later the question as to whether the
sale to the plaintiff was real or was sham and nominal unsupported by
consideration and though they stated in one portion of the judgment that they
did not propose to consider this question because they were satisfied that the
decision on the other points might be sufficient to dispose of the appeal, yet
they made passing observation which appeared to throw doubt on the reality of
63 Again, learned Counsel pointed out that
though they had formulated the two questions viz., (1) assuming the sale to be
real whether the sale was intended by the transferor to defeat or delay
creditors, and (2) assuming the sale was voidable under s. 53(1) of the Transfer
of Property Act whether the plaintiff was a bona fide purchaser in good faith,
as distinct and separate questions, in the discussion which followed they did
not keep these two points separate.
Besides, it was urged that there were some
statements or assumptions made in the judgment which were entirely not,
warranted by the facts. We cannot say that there is not some force in these
submissions. In view of this, the course which we intimated to the teamed
Counsel that we would adopt was that we would ourselves consider the entire
evidence on the record and arrive at our own conclusions on such evidence in
regard to the two issues: (a) whether the sale was in fraud of creditors, and
(b) whether the plaintiff was a bona fide purchaser for value and that if it
became necessary to arrive at any finding as regards the reality of the sale,
we would remand the appeal to the High Court for the matter being considered
since the learned judges had expressly reserved the consideration of that
We shall now proceed to consider the facts
and circumstances of the case which are relevant to the issue as to whether the
sale was to defeat or delay creditors. There was some argument before us about
the burden of proof in such cases but learned Counsel for the appellant
submitted that he would assume for the purpose of argument that the onus was
upon the plaintiff-purchaser and that he would satisfy us that burden had been
discharged. This apart, we consider that the question of onus of proof is
merely academic at this stage because the entire evidence is before us and
except in a rare case where the considerations are evenly balanced, it would
have little significance.
64 The circumstances which are relevant for
the consideration of this question are these: The second defendant-firm was in
financial embarrassment at the time of the sale. The deed of dissolution dated
March 31, 1949 recites that the business carried on by the firm was resulting
in losses and that the debts amounted to about 2-1/2 lakhs of rupees. No doubt,
it is there stated that the assets of the firm were by consent of the parties
estimated of the value of Rs. 2,90,000/-. This estimate however included the
value of the goodwill, which would not be of any real value in the case of a
losing business of this sort and we do not know how much was attributed to this
item. This apart, the assets were said to be made up of book-debts, stock in
trade, immovable property etc. There is however, no indication as to the
relative value of these several components to judge whether or not the
alienation of the suit property would have the effect of delaying, if not
defeating the creditors.
It can however be asserted that the picture
presented by the deed of dissolution is certainly of a firm whose financial
position was far from satisfactory. There is no evidence on the record whether
the partners or either of them had any property of their own besides the assets
of the partnership for discharging the debts due to the firm's creditors.
Though the 4th defendant filed a written
Statement supporting the plaintiff, the plaintiff did not choose to examine him
as a witness in order to elucidate this matter or otherwise explain the
circumstances in which the impugned sale' was effected.
The next feature to be noticed is that the
plaintiff and the 4th defendant were both members of the same communitylabbais
of North Arcot district, a fairly small and wellknit community several of whom
are engaged in the hides and skins business. The learned judges of the High
Court have referred to the plaintiff and the 4th defendant as natives of ,the
same place and as relatives. Learned Counsel 65 for the Appellant pointed out
that whereas the-4th defendant was a native of Vaniyambadi, the plaintiff was,
native of Parnambet and the suggestion made that they were relatives had been
denied,-in the evidence. Learned Counsel might be right on these matters but we
consider that not much turns on them. Both of them were conducting business in
Madras and the plaintiff had also a business in Vizianagaram though it was in
bidis and not in hides and skins. In these circumstances we consider that it
matters little whether they were relatives or not. The significance of the 'plaintiff
and his vendors being members of the same community and well-known to each
other consists in this, that the plaintiff might have been chosen because of
his willingness to take the sale without any searching enquiry as to the
circumstances necessitating it, and because there would be less publicity in
the transaction being put through between them-such as for instance inspection
of the property or enquiries in the locality as regards value etc., which would
take place if the sale was to be to a total stranger which would attract the
attention of the firm's creditors.
The next circumstance is as regards the
pressure exerted on the 3rd and 4th defendants by the creditors immediately
prior to the impugned sale and which, in the normal course of events, would be
relevant, as providing that the sale was effected in order to put the property
beyond the reach of creditors by converting it into cash. On April 20, 1948, O.
S. 162 of 1948 on the file of the District Munsiff's Court, Vizianagaram was
filed for the recovery of Rs. 1,016/on a promissory note for Rs. 1,000/executed
by the firm. On September 8, 1948, it was reported as adjusted out of court.
Besides this some other suits were filed for
the recovery of amounts 'from the partnership but they were defended and were
ultimately dismissed. Then we come to 66 O. S. 191 of 1949 in which the plaint
was presented on April 4, 1949, for recovery of a sum of Rs. 1,385/and odd
which was decreed with interest and costs on November 22, 1949. The date on
which this last mentioned suit was filed is of some significance because of
another suit which was filed at about the same time. One Damayanti presented a
plaint on March 9, 1949, against the firm for the recovery of Rs-. 3,000/being
the principal and interest due on a promissory note. The date fixed for the
appearance by the defendant was April 4, 1949. It will be noticed that the deed
of dissolution was executed on March 31, 1949. The defendant did not enter
appearance on the day fixed and the Court passed an ex parte decree on April 5,
1949; for the amount claimed. She filed an application for execution on April
18, 1949, and obtained an order on April 21, 1949, for the attachment of the
suit property though the attachment was actually effected on June 8, 1949,
because the court was closed for the summer vacation. Long before these dates
the 4th defendant had made up his mind to alienate the suit property and we
have a letter from the 4th defendant to the plaintiff as early as February 5,
1949, which evidences negotiations for the sale of the property. There was
apparently some giggling about the price which caused some delay and a few days
after the attachment was ordered, on April 27, 1949, a formal agreement of sale
was entered into between the plaintiff and the 4th defendant under which he
agreed to purchase the property for a sum of Rs. 19,000/and the agreement
recited that the purchaser, i.
e., the plaintiff had paid a sum of Rs.
10,000/in advance as earnest money and the sale deed itself was executed on May
20, 1949. In pursuance of the order dated April 21, 1949, Damayanti attached
the suit property as already stated on June 8, 1949 and thereupon the plaintiff
filed a claim under O. XXI, r, 59, Code of Civil Procedure, for raising the 67
attachment but this, however, was dismissed on November 16, 1950, and
thereafter the amount of the decree was paid up by the judgment-debtor just a
few days before tile expiry of the one year period of limitation for filing the
suit under O. XXI, r. 63, Code of Civil Procedure. A suggestion was made to the
plaintiff while he was examined in the case that it was he who had paid up the
decree debt of Damayanti but he denied it and we shall proceed on the basis
that debt was discharged by the judgment-debtors themselves. For the purpose of
establishing that the firm was hard pressed by its creditors at the time of the
negotiations which resulted in the sale impugned in these proceedings and at
the time of the sale, it matters little who paid this decree-debt.
Next we have the circumstance that though the
properties were at Vizianagaram, the document was registered at Madras and the
suggestion made to the plaintiff was that this was meant as a measure of
secrecy to keep this alienation from the knowledge of the firm's creditors. The
explanation offered by the plaintiff was that having regard to the distance
between the native places of the two parties from Vizianagaram and the
proximity of these to Madras and the fact that both the Plaintiff, as well as
the executants were at Madras it was found more convenient to have the document
presented for registration at Madras instead of incurring the expenses of a journey
to Vizianagaram for having it registered there. The learned trial judge
accepted this explanation and held that the registration of the sale deed at
Madras was not a suspicious circumstance indicating an intention to keep the
transaction secret. The learned judges of the High Court, however, considered
it otherwise and expressed the view that this was done in order to keep the
transaction secret. We are inclined to agree with the learned judges of the
High Court 68 in their appreciation of this piece of conduct .Admittedly, the
4th defendant had his agent at Vizianagaram and similarly the plaintiff himself
had his men there to look after' his, bidi business. There was no impediment in
these circumstances and no expenses of traveling involved if only the 4th
defendant had executed a power @ of attorney in favour, of some one at
Vizianagaram to present the document for registration and admit its execution.
In fact, it may be mentioned that even the sale deed now impugned was executed
not by the 3rd and 4th defendants but by the 4th defendant's son-K. L. Abdulla
in whose favour a general power of attorney was executed on April 26, 1949,
apparently immediately the agreement for sale was concluded. It is in the light
of this feature that we are not disposed to dismiss as irrelevant the
circumstance that the document was registered at Madras.
The next feature of the case to which. we
must direct attention relates to the purpose for which the sale was executed.
As regards this, there is no evidence led to indicate why exactly the 4th
defendant desired with some urgency to dispose of the property at that
juncture. The relevant circumstance in the present case is that there was a
great deal of pressure from creditors, who not having been paid the amounts due
to them as and when they became due, were forced to file suits and those which
were decreed were those which were not defended and the firm was mulcted with
costs under each of these decrees. In the circumstances one would expect an
explanation as to why the sale was being effected. Ordinarily in circumstances
such as in this case there could only be two alternatives: (1) a sale in order
to pay the creditors out of the proceeds obtained; and (2) a sale in' order to
convert immovable property which was capable of being attached and brought to
sale for the realisation of the amounts due to the creditors 69 into cash,
which could either be secreted or used for the vendor's own purposes. If the
purpose was as that indicated in the first of the above alternatives the
proceeds of the sale would have been earmarked for the payment of particular
debts for which pressure Was the greatest. It is needless to add that if this
were the case and if creditors who were not so provided were defeated or
delayed it would merely be a case of a fraudulent preference which could be
impugned only under the law relating to insolvency and not as a fraud on creditors
for which s. 53 of the Transfer of Property Act makes provision. It is,
however, common ground that apart from the sale deed not making any provision
that the consideration was to be utilised for the discharge of any particular
debts, it is not the case of the plaintiff that there was any such stipulation
as to the application of the money or that without any stipulation there for
the money was so utilised. It would therefore not be an unreasonable inference
to draw from the circumstances of the tale at the Juncture at which it took
place that the Vendor's object was merely to convert this immovable property
into cash, so that it may not be available to the creditors.
Before leaving this point it is necessary to
advert to one matter which was suggested by learned Counsel for the appellant.
He submitted that the property sold was only a part of the assets of the
partners and that unless there was evidence to show that nothing was left
available for the creditors after the impugned sale, its validity could not be
impugned under s. 53 of the Transfer of Property Act. We consider that there is
no force in' this submission. As a matter of fact, there is no evidence as to
what other properties the partners had beyond what 'is contained in the deed of
dissolution on March 31, 1949. But that apart, the terms of s. 53(1) are
satisfied even if the transfer does not "'defeat" but only
"delays" the 70 creditors. The fact therefore that the entirety of
the debtors' property was not sold cannot by itself negative the applicability
of s. 53(1) unless there is cogent proof that there is other property left,
sufficient in value and of easy availability to render the alienation in
question immaterial for tie creditors. In the present case, as already pointed
out, we have no definite, evidence as to the nature and quality of the property
left as available to the creditors after the impugned alienation, and though
light on this could have been thrown by the 4th defendant being called as a
witness, the plaintiff did not choose to take the step, nor indeed did' he even
summon the production of the accounts of the firm which might have disclosed
the true state of affairs.
Each of these circumstances might be capable
of some explanation consistent with the case that the transfer now impugned was
effected in the normal and ordinary course of business by the 4th defendant for
some purpose which did not involve an intention to defeat or delay his
creditors, but the question we have to consider is their cumulative effect and
so viewed the conclusion appears irresistible that the object of the
transaction was to put the property out of the reach of the creditors. The
transfer was therefore plainly within the terms of the 1st paragraph of s. 53
(1) of the Transfer of Property Act and was voidable at the instance of the 1st
defendant who was a decree-creditor.
The next question is whether the plaintiff is
a bona fide purchaser for value so as to be protected by the second paragraph
of s. 53 (1) reading :
"Nothing in this section impairs the
rights of the transferee in good faith and for consideration.
As stated earlier, the learned trial judge
held that the Rs. 19,000/-, the sale price was the full value of 71 the
property and that the consideration as recited in the document was paid by the
purchaser. This finding has not been set aside by the High Court. We are,
therefore, proceeding on the basis that the Transfer was real and supported by
consideration. The narrow question is whether the plaintiff was a transferee in
good faith. It was submitted on behalf of the appellant that the learned judges
of the High Court had directed the dismissal of the plaintiff's suit even
without a definite finding that the plaintiff was a party to the fraud on the
part of the transferor to defeat or delay the creditors. There might be some
force in this submission that there is no specific finding to that effect but
that does not in any way assist the appellant. Where fraud on the part of the
transferor is established i. e. by the terms of paragraph (i) of s. 53(1) being
satisfied, the burden of proving that the transferee fell within the exception
is upon him and in order to succeed he must establish that he was not a party
to the design of the transferor and that he did not share the intention with
which the transfer had been effected but that he took the sale honestly
believing that the transfer was in the ordinary and normal course of business.
When once the conclusion is reached that the transfer was effected with the
intent on the part of the transferor to convert the property into cash so as to
defeat or delay his creditors, there cannot be any doubt on the evidence on
record that the plaintiff shared that intent. For this purpose the following
circumstances may be pointed out (1) The plaintiff and the vendor belong to the
same community, a small, compact and well-knit one and they must obviously have
known each other having been in trade for several years in several places in
common and must therefore have been well acquainted with the financial and
business affairs of each other.
72 (2) This general inference apart, the
plaintiff admittedly had with him a copy of the deed of dissolution dated March
31, 1949, which disclosed that the firm's business had resulted in losses and
that it was greatly indebted, the debts amounting to Rs. 2-1/2 lakhs.
(3) If as we have held that registration of
the sale deed at Madras was with a view to keep the transaction secret from the
creditors, the plaintiff was, as much a party to the secrecy as the transferor.
(4) One matter which would be of considerable
relevance and significance in this connections would be the enquiries that the
plaintiff made before he took the transfer. He no doubt led evidence to show
that he consulted his lawyers about the title-of the vendor; but any attempt at
an enquiry of the 4th defendant as to why he was effecting the sale of the only
immovable property of the firm which was alloted to him under the-deed of
dissolution is significantly absent.
In the circumstances, it stands to reason
that; the plaintiff must be fixed with notice of the design in pursuance of
which the transfer was effected. If the object of a transferor who is heavily
indebted was to convert his immovable property into cash for keeping it away
from his creditors and knowing it the transferor helped him to achieve that
purpose it has naturally to be held that he shared that intention and was
himself a party to the fraud.
In this connection, there is one circumstance
which is rather significant. Even when the plaintiff was fixed with notice that
the firm's business had been running at a loss and had accumulated a very large
volume of debts as disclosed by the recitals in the deed of dissolution, which
was placed in his hands, the purchaser did not insist that the consideration
which he was paying should be utilised for the discharge of at least some 73 of
the debts. We are therefore satisfied that the Plaintiff was not a transferee
in good faith and that the transfer itself was a scheme by the transferor with
the knowledge and concurrence of the transferee to put the property out of the
reach of the creditors The result therefore would be that the plaintiffs suit,
was liable, to be dismissed for the reason that the defence plea invoking s. 53
(1) of the Transfer of Property Act was made out.
What remains for consideration is a ;point of
law that was raised on behalf of the appellant that a transfer which is
voidable under s. 53 (1) of the Transfer of Property Act can be avoided only
by: a suit, filed by a creditor impugning the transfer onbehalf of himself and
the other creditors and not by way of defence to a suit under O. 21,. r. 63,
Code of Civil Procedure by a claimant whose application has been rejected in
summary proceedings under O. 21, rr. 58, to 61, Code of Civil Procedure.
Section 53 (1) of the Transfer of Property
Act, as it stands at presented is, as amended by the Transfer of Property
(Amendment) Act (Act 20 of 1929). As part of the argument on this head was
based on a comparison of the provisions of the section before and after the
same was amended, we shall set out in parallel, columns s. 53 (1) as it stood
before it was. amended in 1929 and as it stands as amended S. 53(1);as it stood
before S. 53 (1) as it stands the Amending Act, 1929 after the Amending Act,
1929 "Every transfer of "Every transfer of immov immovable property
able property made with made with intent to de,, intent to defeat or delay
fraud prior or subsequent the creditors of 1 the 74.
S. 53 (1) as it stood before S. 53 (1) as it
stands after the Ameding Act, 1929.
transferees thereof for consideration or co owners
or other persons having an interest in such property or to defeat or delay the
creditors of the transferor, is voidable at the option of any person so
defrauded or delayed.
Where the effect of any transfer of immovable
property is to defraud, defeat or delay any such person, and such transfer is
made gratuitously or for a grossly inadequate consideration, the transfer may
be presumed to have been made with such intent as aforesaid.
Nothing contained in this section shall
impair the rights of any transferee in good faith and for consideration."
after the Amending Act, 11929.
transferor shall be voidable at the option of
any creditor so defeated or delayed.
Nothing in this sub-section shall impair the
rights of a transferee in good faith and for consideration.
Nothing in this subsection shall affect any
law for the time being in force relating to insolvency. A suit instituted by a
creditor (which term includes a decree-holder whether he has or has not applied
for execution of his decree) to avoid a transfer on the ground that it has been
made with intent to defeat or delay the creditors of the transferor, shall be
instituted on behalf of, or for the benefit of, all the creditors." Two
points were made by the learned Counsel in support of this submission; the first
being independent of the amendment effected by the Act of 1929 75 and the other
based on the provision as amended. The former was based on the impact of the
nature G. of the proceedings under O. 21, rr. 58 to 61, Code of Civil
Procedure, and of the order that would be passed therein and particularly of
the questions that would arise in a suit under O. 21, r. 63, Code of Civil
Procedure, to set aside summary orders; while the latter was based on the
amendment by which a creditor's suit was required to be in a representative
It would be seen that so far as the first
point was concerned, the amendment made no change and that if the learned
Counsel were right the position would have been the same even on the section as
it stood before it was amended.
It was conceded that on the section as it
stood prior to the amendment, there was a direct decision against this
argument, of a Full Bench of five 6 judges of the Madras High Court as early as
1920 (Ramaswami Chettiar v. Mallappa Reddiar (1) which had been consistently
followed by every other High Court in India up to this date without any doubt
or dissent. Gleamed Counsel however urged that this Court was not precluded
from considering the correctness of this decision notwithstanding its having
held the field for over forty years without question, As a legal proposition,
Counsel is undoubtedly right, but the question is whether any reasons have been
adduced before us to consider that decision was wrong.
We shall be presently setting out the
reasoning on which it is contended that an attaching creditor who has succeeded
in the summary proceedings under O. XXI, rr. 58 to 61, cannot, in a suit to set
aside the summary order under O. XXI, r. 63, raise by way of defence the plea
that the sale in favour of the plaintiff-the transferee-claimant is vitiated by
fraud under s. 53(1) of the Transfer of Property Act, but (1) (1920) 1. I. R.
43. Mad. 760 76 before doing so it is necessary to point out that this very
argument was urged before the Full Bench referred to and after elaborate
consideration, rejected by them, Now the argument as regards the inference to
be drawn from the nature of the enquiry in the summary proceedings for
investigating. claims to property which has been attached is briefly as
follows:: s-53 of the Transfer of Property Act assumes that there, is a real
transfer intended to pass title to the transferee but that the transfer is
vitiated by fraud which renders it voidable. In the summary proceedings under
O. XXI, rr. 58 to 61, having regard to the terms of r. 61, the Court is
concerned only with the question as to whether the transferee is in possession
of the property in his own right and not on behalf of the judgment-debtor, when
a transfer is real, though it is liable to be impeached as a fraud on
creditors, and the transferee has entered into possession, he would succeed in
the summary proceedings, with the result-that it is the defeated attaching
'creditor who would have to figure as a plaintiff If he figures as a plaintiff
the suit would have to be in a representative capacity, that is, under O. 1, r.
8, Code-of Civil Procedure. In every case, therefore, when a transfer is real
but is liable to be set aside under s. 53 (1) on the provisions of O. XXI, rr.
58 to 61, Code of Civil Procedure, the transferee is bound to succeed in the
summary proceedings and the attaching decree holder would have to figure as a
plaintiff and the suit would be a representative suit. From this it is said
that it follows that in no case can an attaching creditor who defends a suit to
set aside a summary order in 'his favour resist it on the plea of fraud under
It would however be seen that, this last
step, which is vital for the argument to have force does not follow for the
argument does not proceed on any construction of the terms of s. 53(1) nor on
any legal 77 theory as to the mode or procedure ,by which; the intention to
avoid the transaction which the attaching creditor claims is voidable at his
instance may be expressed or enforced.
The argument would only establish that if the
Court investigating claims under O. XXI. r. 58 etc., conformed strictly to the
terms of those provision is the transferee under a real sale would succeed in
those proceedings and, he would be a defendant and need 'not be a plaintiff in
suits to set aside the summary order under O. XXI, r. 63. This line of
reasoning does not take into account at least the following possibilities: (1)
The claim or objection by the transferee may be rejected, not on :the merits,
but because it has been designedly or unnecessarily delayed (vide O. XXI, r.
58, Code of Civil Procedure). It is certainly not the contention of learned
Counsel that when there is a rejection of a transferee's claim under this
provision the order of rejection is any the less final and has not to be set
aside by a suit contemplated by O. XXI, r. 63, Code of Civil Procedure, in
order to overcome the effect of that finality. (2) The Court making the summary
enquiry might come to an erroneous conclusion that the transfer is-sham and not
real or that the transferee is in possession for the benefit of the judgment
debtor. In the suit filed by the transferee to set aside' this erroneous order,
the plaintiff would have to establish his title and even if he succeeds in
showing that the sale to him was real and effective, still the question would
remain whether, having regard to the circumstances of the transfer, the same is
not voidable under s. 53(1). Thus there would be occasions when a defeated
transferee whose transfer is real might have to figure as a plaintiff in a suit
to set aside a summary order under O. 21, r. 63, Code of Civil Procedure. (3) The
attaching decree-holder might raise in the summary proceedings two alternative
defenses to a transferee's claim (a) that the sale was sham and nominal and
therefore the possession 78 of the transferee was really on behalf of the judgment
debtor, and (b) that even if the sale be real and intended to pastilles it was
voidable as a fraud on creditors. It is, no doubt, true that the second or the
alternative defence is not open in the claim proceedings, but if however the
same were erroneously entertained and an order passed, rejecting the claim of
the transferee, the same would nevertheless be an order which would have to be
set aside by a suit by the defeated transferee and he cannot ignore it.
It would thus be seen that the entire
argument as regards the impact of the nature of the enquiry under O. 21, r. 59,on
the defences which would be open in a suit under O. 21, r. 63, depends on two
factors: (1) the summary order being passed on the merits and not because the
making of the claim was designedly or unnecessarily delayed, and (2) the
summary order being right on the merits and strictly in conformity to the
provisions of the Code.
As we have already pointed out, the points
urged before us as regards the scope of the enquiry into claim petitions was
also the subject of elaborate argument and consideration by the learned judges
of the Madras High Court in the Full Bench. Sadasiva Ayyar, J., classified the
cases of transferees who failed in their claim petitions and had to file suits
to set aside summary orders under O. 21, r. 63, under three heads : (a) -Where
the transferee was a mere benamidar; (b) Where he was a fraudulent transferee
in possession; and (c) Where he was a fraudulent transferee not in possession.
The learned Judge said :
"A creditor decree-holder, who is in
most cases a stranger, cannot reasonably be expected to know of his own
knowledge whether a transfer 79 by his judgment-debtor is only fraudulent or is
wholly nominal or partly nominal and partly fraudulent, and whether the
transferee is in possession and if in possession, whether he is so for himself
or for the judgment-debtor.
He would therefore' usually both in the claim
petition and in the suit which afterwards arises out of the order against the
claimant, be obliged to raise and be justified in raising alternatively all the
pleas open to him, and the Court which decided the claim against the claimant
might, in its conclusions on each of the three points, be either right or
wrong." He further pertinently pointed out that to hold that a plea based
on the transfer being voidable under s. 53(1) could not be raised in defence to
a suit to set aside a summary order would mean that "'The creditor
decree-holder would be in a much worse position for his success in the summary
claim proceedings than if he had lost in those proceedings".
Section 53(1) of the Transfer of Property Act
rendered the transaction voidable at the instance of the creditors if the
transfer was effected with the particular intent specified and the statute does
not prescribe any particular method of avoidance. Referring to this the learned
judges observed :
"If the creditor knowing of the transfer
applies for attachment; the application is sufficient evidence of his intention
to avoid it; if he only hears of the transfer when a claim petition is
preferred under O. 21, r.
58, and still maintains his right to attach,
that again is a sufficient. exercise of his option to avoid and entitles him to
succeed in the subsequent suit under r. 63".
They further pointed out that "the suit
under r. 63 is by the unsuccessful party to the claim-petition to establish the
80 right which he claims to the property in dispute. Whether this suit be
instituted by the attaching decree-holder or by the transferee claimant it must
equally be decided in favour of the former if the transfer is shown to have
because, in consequence of the fraudulent
character of the transfer and its avoidance by the judgment-creditor, the
result ,is that the transferee has not the right which he claims, namely, to
hold the property free from attachment in execution by the judgments." The
learned judges based their conclusion on this and on several other lines of
reasons which we consider unnecessary to set out, but it is sufficient to say
that we are enentire agreement with all of them. There is therefore no
substance in the point ;that there is anything in s. 53(1) as it originally
stood which precluded a defence by an attaching creditor to a suit to set aside
a summary order under O. 21, r. 63, that the: sale in favour of the plaintiff
is vitiated by fraud of the type specified in the earlier quoted provision and
the amendment has admittedly made no change in this matter.
It was next urged that the third paragraph of
the amended s. 53 (1) has, effected a change in the law and that thereafter
transfers voidable under 1st paragraph of s. 53 (1) could be avoided only in
suits filed by a defeated or delved creditor as plaintiff suing on behalf of
himself and other creditors.
We consider that there is no substance in
this objection either.
We shall first refer to the purpose of the
amendment. In decisions rendered prior to the amendment, there were a large
number in which it was held, following certain English cases decided with
reference to-13 Eliz., Ch. 5, on which s. 53(1) was based, 81 that suits by
creditors for avoiding a transfer under s. 53 (1) was a representative action.
To that general rule however, an exception was recognised in a number of'
decisions when the suit was to set aside a summary order under O. 21. r. 63,
and was brought by an attaching decree holder against whom an adverse order had
been made in the summary proceedings, it being held that such a suit need not
be in a representative capacity. The decisions on this point were however not
uniform. It was merely to have a uniform rule and to avoid these conflicting
decisions that the third paragraph was inserted so that after the amendment the
rule that a suit by a creditor should be brought in a representative capacity
would apply as much to a suit set aside a summary order under O. 21, r. 63, as
to other suits.
It was not suggested that there was anything
in the terms of the amended s. 53 (1) which referred to a defence to a suit
and, in fact, learned Counsel did not contend that if a defence under s. 53 (1)
could be raised by defeated attaching-creditor such a defence had to be in a
representative capacity, and we consider that learned Counsel was correct in
this submission. From a provision as to how a plaintiff, if he filed a suit,
should frame it, we can see no logical process by which it could be held that a
defendant cannot impugn the validity of the sale which is voidable at his
instance. We have, therefore, no hesitation in rejecting the legal point urged
on behalf of the appellant.
The result is that the appeal fails and is
dismissed with costs.