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Report No. 26

Clause 55

General.-This deals with fraudulent preferences, and corresponds to section 54 of the Provincial Act and section 56 of the Presidency Act.

"Void".-The Provincial Act treats the transfers under this clause as "void"1. So does the Presidency Act. But the Provincial Act also says that they "shall" be annulled by the "court"-a provision not found in the Presidency Act. It is not considered necessary to depart from the language used in the Presidency Act2.

Surety.-In England, it had been held under the Bankruptcy Act of 1883, that a payment by the debtor to a surety for a debt was not a fraudulent preference, vide Re Muills, (888) 58 LT 871; Re Warran, (1900) 2 QB 138. The law was altered in the Bankruptcy Act of 1914, which provided in section 44(1) that the payment to a surety by the debtor was also a fraudulent preference. Section 55 of the Presidency Act, 1909, followed the language of English Act of 1883, and section 54 of the Provincial Act, 1920, followed that of section 55 of the Presidency Act. It was, however, held in Roderigues v. Ramaswami, 1917 ILR 40 Mad 783 (FB), following the English authorities, that a surety is a creditor for the purposes of the section. Necessary change has been made to include surety.

Period.-The period of three months has been increased to six months3.

Explanation.-As pointed out in an earlier Report4, there is a conflict of views on the question whether, for deciding a fraudulent preference under the Insolvency law, the transfer should be deemed to have been made on the date of the instrument or on the date of the registration. It was observed there, that the matter should be dealt with by an amendment of the relevant provisions of the insolvency law. It is proposed that the period should be counted from the date of registration5.

This will make for more efficient working of the insolvency law, by giving an extended period and defeating any move on the part of an insolvent to avoid the provisions relating to fraudulent preference by postponing registration. It is considered that the principle should apply to the section relating to voluntary transfers also6-7, though the cases where the result would be different must be very few, in view of the limits within which documents are ordinarily required to be registered (sections 23-26, Registration Act).

Transfers falling under section 53, Transfer of Property Act-

These need not be discussed8.

1. Cf. Ramaswami Chettiar v. Official Receiver, (1960) 1 SCR 616: AIR 1960 SC 70: 1960 SCJ 128.

2. See the body of the Report, paras. 20-21.

3. See discussion in the body of the Report, para. 23.

4. 6th Report of the Law Commission (Registration Act), para. 73.

5. See Mulla, (1958), p. 638.

6. See clause 54.

7. Cf. Mulla, (1958), p. 163, para. 154, generally.

8. See Mulla, (1958), pp. 56, 65, 146, 618, 603, for several points.

Clause 56

1. This follows section 54A of the Provincial Act, which was introduced by the Amending Act (39 of 1926). The section gives effect to the view taken by the Calcutta High Court in Re Surajmull Mungle Chand, AIR 1921 Cal 403 and by the Madras High Court in Ananthanarayana Aiyar v. Sankaranarayana Ayyar, 1924 ILR 47 Mad 673. (There is no such provision in the Presidency Act1).

2. Instead of the word "annulment", the word "avoidance" has been substituted2.

3. For the practice in Presidency Towns, see Mulla, (1958), p. 642, para. 160.

4. Cf. clauses 54 and 55.

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