Purchaser sued to set aside a claim order rejecting his objection to attachment; decree-holder defended that sale was fraudulent under s. 53(1) Transfer of Property Act. Held such defence is maintainable without representative suit; sale held fraudulent and purchaser not in good faith.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
1962
,
2 S.C.R. SUPREME COURT REPORTS 65
C. ABDUL SHUKOOR SAHEB
v.
ARJI PAP A RAO AND OTHERS
(S. K. DAS, K. SuBRA RAo and N. RAJAGOPALA AYYANGAR, JJ.)
Fraudulent Sale-Sale effected to defeat creditor-Attachment of property sold-Rejection of purchaser's claim-Suit to set aside claim order-Plea of fraudulent sale in defence-Main· tainability-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), 0. 1, r. 8, 0. 21, rr. 58 to 63.
The appellant pur~hased 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, however, was dissolved on March 31, 1949. The deed of dissolution showed that the partnership owed debts to the extent of Rs. 2! lakhs and that the suit property was alloted to defendant 4. The first respondent to whom money was due from the partnership obtained a decree onJune 19, i951, and had the suit property attached. The appellant filed a claim petition for raising the attachment but it was dismissed. He then instituted a suit to set aside the summary order under 0. 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 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.
Held: (1) that s. 53 (I) 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 in· tent specified and that the statute did not prescribe any particular method of avoidance. There was nothing ins. 53 (I), as
1962
1··
56 SUPREME COURT REPORTS [1963] SUPP.
C, A6du I Slrrikoor Salub v. Arji Po/JG Rao
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 0. 21, 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 ins. 53 (I) so that after the amendment, the rule that a suit by a creditor should be brought in a representative capacity .vould apply as much to a suit to set aside a summary order under 0. 21, r. 63, as to other suits.
(3) that the terms of s. 53 (I) were satisfied even if the transfa· 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, ,ufficient in value and of easy availability to render the alienation in question immaterial for the creditors.
RMnaswam·i Ghettiar v. Mallappa Reddiar, (1920) I. L. R. 43 Mad., 760, approved.
CIVIL APPELLATE jURISDWTION: Civil Appeal No. 164 of 1962.
Appeal from the judgment and decree dated Juoe 19, 1958, of the Andhra Pradesh High Court in Appeal Suit No. 944 of 1953.
K. Bhimasanlcaram, J. V. Krishna Sarrna and T. Satyanarayana, for the appellant.
A. Ranganadham Ghetty, Miss A. Vedavalli, N. Rajeshwara Rao and A. V. Rangam, for respondents 1 (a) and l (b).
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 Coustitu· tiou.
57
.,
2 S.C.R.
SUPREME COURT REPORTS
The following facts are necessary to be stated to appreciate the contentions urged before us. \Ve consider it would be convenient to refer to the parties by their array in the trial Court. The 2nd defendantfirm Hajee Abdul Kadir Sahib and Lala Batcha Sahib & Co., had been apparently carrying on business in several places including Viiianagaram, Bellary, Madras etc., m 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 businesss 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 1'Iarch 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. 2t 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 V aniyambadi valued at Rs. 20,000/- while the 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.
1962
C. Abdul Shukoor Salub v. Arji I'apa Rrzo
Ayyangar, J.
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58 SUPREME COURT REPORTS [1963] SUPP.
1962
C • .4bt!ul Sh""SaAtb
v. Arji Papa R•
While so, the 1st defendant-Arji Papa Raofiled suit 0. 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, 195l. 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 0. S. 145 of 1951 out of which this appeal arises to set aside that summary order under 0. 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 a5 the 5th defendant.
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, payiug 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 defendantthe 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 credi,. tors of whom he was one. The trial court upheld the plaintiff's claim that the sale was real and was fully-
2 s.c.R. SUPREME COURT REPORTS 59
supported by consideration. It also negatived the contention raiserl 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.
1962
C • .Abdul Shukoor s,,Mb v. Arji Papa Rao
AJ1angar, J.
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 0. XXI, r. 63, Code of Civil Procedure.
We shall deal with each ofthese points and in that order. There is no doubt that the written
60 SUPREME COURT REPORTS [1963] SUPP.
1962
C. Abdul Shukoor Sah16 v. Arji Papa Rao A,yyangar, J.
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 defrndants 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 :
"l t is further submitted that even if the sale deed is true, it is in fraud of creditors including the plaintiff and not binding on t.hem."
In paragraph 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 propt>rties beyond the reach of the creditors, defendants 2 to 4 seem to have hit upon the fraudulent device of the alleged sale to the plaintiff". In the light of these averments it cannot be said that the defendants did not raise two distinct pleas (I) 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
;
2 S.C.R. SUPREME COURT REPORTS 61
real transaction supported by consideration and intended to pass title to the plaintiff, still the same was, having regard 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 defences as distinct pleas but rolled both of them into a single plea raising the question "whether the plaintiff had title to the suit property and whether the claim order was liable to be set aside."
1962
0. Abdul Shu•oar Salwb v. ArjiPapa Rao Ayya11gor, J.
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. Ail we have necessarily to consider this evidence in dealing with the submissions made to us regarding the corre.:tness 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 tittle, 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 Pro)?erty Act as to justify or entitle the court to afford rehef if satisfied that the same was proved.
62 SUPREME COURT REPORTS [1963] SUPP.
1962
C. Abd•I Shukoo Sahib v. Arji Papa Rao
A1}Qngar, J.
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 follo"W"S :-
"The main point that falls to be considered in this appeal is whether the rnle deed in favour of the plaintiff, 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 credi • tors 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 the sale.
2 S.C.R. SUPREME COURT REPORTS 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 entire· ly 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 learned 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 question. We shall now proceed to consider the facts and circumstances of the case which are relevent 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 ari?;ument that the onus was upon the plaintiff-purchaser and that he would satisfy us that 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 cm;isiderations are evenly balanced, it would have little significance.
1962
C. A.bd11l Sltu'ltoor S11M v. Arji Papa Rao Ayyt1ngar, J.
64 SUPREME COURT REPORTS [1963] SUPP.
1962
C Abdul Shuko01 Sahib Arji Papa "· Raa Ay10n1ar, J.
The circumatances which are relevant for the consi· deration 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 21 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 finaneial 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 community-labbais of North Arcot district, a fairly small and well-knit 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
2 S.C.R. SUPREME COURT REPORTS 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 circum~tances 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, th at 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 betwt"en them-such as for instance inspection of the property or enquiries in the locality as regards value etc.. which would take place if the sall' was to be to a total stranger which would attract the attention of the firm's creditors.
1962
C. AbJ11l Js11,11r
Sud
y,
A~ii Popa R•
AyJanl&r, I.
The next circumstance is as regards the pre· ssure exerted on the 3rd and 4th defrndants by the creditors immediately prior to the impugned sale and which, in the normal course of events, wou Id 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. 0. S. 162 of 1948 on the file of the District Mnnsiff'~ Court, Vizianagaram was filed for the recovery of Rs. 1,016/· on a promissory note for Rs. 1,00_0/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
6fi SUPREME COURT REPORTS (1963] SUPP.
1962
C. Abdul Shukoor Sahtb v. ,f,jj PafJd Rat .4 p1angar, J,
! S.C.R. SUPREME COURT REPORTS G7
t
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 0. 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 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.
1961
C. Abdol Sltukoor Sahib v. Arji Pqa Rao
AJJ•"I"'·· J.
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 havingh 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 inclinaJ to agree with the learned Judges of the High Coun
t
68 SUPREME COURT REPORTS [19631 SUPP.
1962
in their appreciation of this piece of conduct. Ad- AbtW Sludoo• Sludoo• mittedly, the 4th defendant had his agents at Sahib v. Vizianagaram and similarly the plaintiff himself had A.Ii P•po &o his men there to look after his bidi business. There was no impediment in these circumstances and no AJY'"tar, J. expenses of travelling involved if only the 4th defen· dant had executed a power of attorney iu 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 d'sposed to dismiss as irrelevant the circumstance that the docµment was registered at Madras.
C. AbtW Sludoo• Sludoo• Sahib
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 l'f 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. Ordmarily in circumstances such as in this case there could only be two alternatives : (I) a sale in order to pay the ere· ditors 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
2 S.C.R. SUPREME COURT REPORTS
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 therefor the money was so utilised. It would therefore not be an unreasonable inference to draw from the circumstances of the sale 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.
1961
C. Abdol SW.., Saltlb v • .Arji Papa Rao
A.J'.JOllt• I J'
Before leaving this point it is necessafo/ 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 nqthing 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 SUPREME COURT REPORTS (1963] SUPP.
1161
C. Abdul Shukoor Sali.b v. Arji Papa R ..
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 the 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
2 S.C.R. SUPREME COURT REPORTS 71
I'
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, pr01:eeding on the basis that the Transfer was real and supported by consideration. The narrow question is wliether 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 dismi'ISal 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 (1) 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 DOt 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 on<:e 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 plain· tiff shared that intent. · For this purpose the follow· ing circumstances may be pointed out :
C. Abdul Shukoor Salub v. A•ji Papa Hoo
Ayyangar, J.
(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 scvera l places in common and must therefore have been wellacquainted with the financial and business affairs of each other.
72 SUPREME COURT REPORTS [1963] SUPP.
1961
C. Abdul SAukoor SaA1b v. bji Pupa Ra1
"-'111nga1, J.
(2) This general inference apart, the plaintiff admittedly had with him a copy of the deed of dis· solution 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. 2i 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 connect ion 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 disso· lution 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 signi · ficant. Even when the plaintiff was fixed with notice that the firm's business had been running at a los~ 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 uot insist that the consideration which he was paying should be utilised for the discharge of at least some
'
(
2 S.C;R. SUPREME COURT REPORTS 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 plaintiff's 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.
1962
C.Ai4rdSW... s..v• y, A>ji,..,. Ra•
_AJ',I.,. J •
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 (I) of the Ttansfer of Pi'operty Act can be avoided only by a suit filed by a creditor impugning the transfer on behalf of· himself and the other creditors and not by way of defence to a suit under 0. 21, r. 63, Code of Civil Procedure by a claimant whose application has been rejected in summary proceedings under 0. 21, rr. 58 to 61, Code of Civil Procedure.
Section 53 (1) of the Transfer of Property Act, as it stands at present, 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 _~_it S!ands as amended :
B. 53(1) as it stood before'! S. 53 (1) as it Btands the Amending Act, 1929. I ajter the Amending Act, I 1929.
"Every transfer of "Every transfer of immovimmovable property able property made with made with intent to deintent to defeat or delay fraud prior or subsequent the creditors of the
74 St:JPREME COURT REPORTS [1963] SUPP.
I
1961
C, Abdul S/nJ:oor Sahib
...
Arj;P.,.&o A.~zar, J.
S. 53 (1) as it stood bejare I S. 53 (1). as it stands the Amending Act, 1929. j after the Amending Act, 1929.
transferees thereof for · transferor shall be voidconsideration or coable at the option of any owners or other persons creditor so defeated ot having an interest in delayed. such property or to de· Nothing in this subfeat or delay the • credi· section shall impair the tors of the transferor, is rights of a transferee in voidable at the option of good faith and for con· any person so defrauded 'sideration. or delayed.
Nothing in this subsection shall affect any law for the time· being in force relating to insolvency.
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 inadequate consideration, the transfer may be presumed to have been made with such intent · as as aforesaid.
such transfer is made A suit instituted by gratuitously or for a a creditor (which term grossly inadequate inadequate conincludes a decree-holder sideration, the transfer whether he has or has may be presumed to not applied for execution have been made with of his decree) to avoid a such intent · as as aforesaid. transfer on the ground that it has been made Nothing contained with intent to defeat or in this section shall im · delay the creditors of the pair the rights of any transferor, shall be in· transferee in~ good faith stituted on behalf of, and for consideration." or for the benefit of, all the creditors."
Two points were made by the learned Counsel in support of this submission; the first being indepen · dent of the amendment effected by the Act of 1929
2 s~c.R. SUPREME COURT REPORTS . 75
and the other l:)asd.,on the provision as amended. The former was, based on the impact of the nature of the proce,edings under 0. 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 later was based on the amendm~P,t by which a creditor's suit was required to be in a reprsentative capacity. ·
1961
C. A.tdul ShllAwt Sah•• v. ArjiPq.R., .4J10n1ar, J,
It would be ·seen that so far as the first point was concemeq, 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 itwas amended.' It. was conceded that on tJ:ie section as, it stood prior to the amendmep.t, there . was .a •direct decision .against this arguqient, of a . Full• Bench of ·five Judges of the Madras High Court as . early as J 920 (R11maspX1m,i,, Chettiar v. Mallappa Reddiar (1 ) which had.' been consistently followed by every other HigQ.. Court in India up to this date without any doubt or dissent. Learned Counsel however. urged that this Court was not precluded from consider)ng the correctness of this decision notwithstanding its; having held the field for over forty years witjgmt question. As. a legal proposition, Counsel is und)ubtedly right, but the question is whether any reasons have been adduced before us to consider-that 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 0. XXI, rr. 58 to 61, cannot, in a suit to set aside the summary order under 0. 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 Tran8fer of Property Act, but (I) (1920) J. L, R • .,, Miid. 7111.
76 SUPREME COURT REPORTS [1963] SUPP.
1961
c. ~U./ sw.., s..w• Y. Arji PafM Ra• h_7apr1 J.
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 pro· perty 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 concemed 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 10 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. I, 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 0. 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 s. 53(1).
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
2 S.C.R. SUPREME COURT REPORTS 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 0. XXI, r. 58 etc., conformed, strictly to the terms of those provisions 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 10 set aside ,the summary order under 0. 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 0. XXI, r. 58, Code of Ci)lil 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 0. 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 1hat the transfer is sham and not real or that the transferee is in possession, for the benefit of the judgmentdebtor. 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( I). Thus there would be occasions when a defeated transferee whose transfer is real might have lo figure as a plaintiff in a suit to set aside a summary order under 0. 21, r. 63, Code of Civil Procedure. (3) The attaching decree-holder might raise in the summary proceedings two alternative defences to a transforee's claim (a) that the sale was sham and nominal and therefore the possession
1962
C. Abdul Slnd- Salii6 v. Arji P•P. llti• A,yan1ar, J._
78 SUPREME COURT REPORTS [1963) SUPP.
196~
C. Ahdul Shuk .. , Sahtb •• Arji Papal!.. 11,)'Jang.w, J.
of the transferee was really on behalf of the judgment· debtor, and (b) that even if the sale be real and intended to pass title it was voidable as a fraud on creditors. It is, no doubt, true that the second ·of'A:he 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 neverthe· less 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 0. 21, r. 59, on the defences which would be open in a suit under O. 21, r. 63, depends on t.wo factors : ( l) the summary order being passed on the merits and not because the making of the claim was designedly -0r 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 fail· ed in their claim petitions and·had to file suits to set aside summary orders under 0. 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 cl!Ses a stranger, cannot reasonably be expected to know of his own knowledge whetJi,er a ttal}Sfer
2 s.c.R. SUPREME COURT REPORTS 79
-- 1962
C. Abdul sw-
•S.W
v.
ArjiP.,_llM
AY.1MI"'" J.
He further pertinently pointed out that to hold that a plea based on t,he transfer being voidable under s. 53(1) could not be raised in. defence to a suit to set aside a su'mmary order would mean that "The creditor decree·holder would bC in a much worse pqsiHon for his success in .th.~ sum.mary claim proceedings th;;tn if he had lost in those proc~edings". ·
Section 53( l) of the Trans fer of Property Act rendered the . .tran8action 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 tojthis t!ie learned Judges observed :
80 SUPREME COURT REPORTS [1963) SUPP.
1162 0, AU.I Shtd:oor Sal1b v. At.ii Pq:J-Ra A1,."I"'• J.
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 been fraudulent; because, in consequence of the fraudulent character of the transfer and its avoidance by the judgml."'nt-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 judgment· creditor."
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 in e11tire 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 0. 21, r. 63, that the sale in favour of the plaintiff is vitiated by fraud of the type specified in the earlier quoted pro· vision 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 delayed creditor· as plaintiff suing oil 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 amend· ment. 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, ori which s. 53(1) was based,
2 S.C.R. SUl'REM.E COURT REPORTS 81
that suits by creditors for avoiding a transfer under s. 53 (I) was a rcpresent:itive action. To that ~eneral rule however, an exception was recognised m a number of decisions .. when the suit was to set aside a summary order under 0. 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 0. 21, r. 63, as to other suits. It was not suggested that there was anything in the terms of the amended s. 53 ( l) which referred to a defence to a suit and, in fact, learned Counsel did not contend that if a defence under s. 53 (l) could be raised by defeated attaching-creditor such l! defence had to be in a repreientative 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 sec 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.
1962 C. 4bdul Shw/coo, S,1h1b •• A.rji PafHJ Rao A1yan1ar, J,
The result is that the appeal fails and is dismissed with costs.
r l
3 issues framed by the court
Whether a transfer voidable under s. 53(1) TPA can be avoided by an individual attaching creditor by way of defence to a suit under O. XXI r. 63 CPC, or only in a representative suit.
Whether the sale to the appellant was made with intent to defeat or delay creditors under s. 53(1) TPA.
Whether the appellant was a transferee in good faith for consideration protected by s. 53(1) TPA.
Colour shows how this judgement treated each authority
Ramaswami Chettiar v. Mallappa ReddiarReferred
(1920) I.L.R. 43 Mad., 760 · Who else cites this
4 provisions across 3 enactments
C. Abdul Shukoor Saheb
Arji Papa Rao
S. K. Das
K. Subba Rao
N. Rajagopala Ayyangar
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
