S LEELAVATHI Vs. N DURAIRAJ

JUDGEMENT

(1.) The petitioning creditors alleged that the debtor who is the first respondent, has committed acts of insolvency under Ss. 9(b), 9(g) and 9(d)(ii) and (iii) of the Presidency Towns Insolvency Act, and that therefore he has to be adjudicated as insolvent. The case of the petitioning creditors is as follows: Through a Finance Broker, one Mr. N. Gurumukal, examined as P. W. 2, the first petitioner and the second petitioner claimed that they have advanced on 6-5-1976 and 17-3-1976 respectively sums Rs. 5000/- and Rs. 6000/-on promissory notes executed in their favour in and by which the first respondent agreed to repay the same with interest at 24% per annum. Towards the promissory note executed in favour of the first petitioning creditor, no amount has been paid. But it is said that towards the second promissory note in favour of the second petitioning creditor, a sum of Rs. 1000/- and interest up to 17-4-1976 is said to have been paid. The balance amount die and payable under the above said two promissory notes still remained unpaid. As on the date of the filing of the petition, it is said that a sun of Rs. 10,675/- in all is payable by the debtor-first respondent to the petitioning creditors. The petitioning creditors would say that the first respondent is heavily indebted besides the liability to pay the debts due and payable to them and that with intent to defeat and delay the creditors, the debtor who was trading under the name and style of Nirmala Textiles at No. 54 L B Road, Adyar Madras-20, has transferred his business to his father, the second respondent herein who is now said to be carrying on the same business under the name of Nirmalatha Textiles at the same address. The transfer, as above, is attacked as a fraudulent transfer being void of consideration and it is also alleged that it is a preferential treatment given by the debtor in favour of the second respondent who claims to be a creditor of the first respondent. The said transfer made by the debtor in favour of the second respondent in or about 17-5-1976 is therefore attacked as an act of insolvency within the meaning of S. 9(d) of the Act. The further ground alleged is that the debtor on 25-5-1976 and 8-6-1976 gave to Gurumuklal and the second petitioning creditor, notices of suspension of payment to all his creditors in general that he has sustained loss and transferred his business to his father. It is said that on 8-6-1976, the debtor informed the broker Mr. N. Gurumuklal that he could only pay 30 paise in the rupee to all creditors. By such representation made to the second petitioning creditor and the finance broker on 25-5-1976 and 8-6-76, the debtor has committed an act of insolvency under S. 9(g) of the Act. The third ground, on which the present petition is founded, is that the debtor was evading the creditors and departed from his usual place of business and secluded himself so as to deprive the creditors of all the means of communicating with him. It is alleged that the second petitioning creditor examined as P. W. 1 and P. W. 2 attempted to contact the debtor on three occasions in June, 1976, to wit. on 18th June, 23rd June and 28th June, but the debtor was not available. Hence it is said that an act of insolvency within S. 9(d) (ii) and 9(d)(iii) of the Act has been committed. It is further alleged that a notice of demand was sent on behalf of the second petitioning creditor on 21-7-1976 and the cover was returned with the endorsement 'left'. The transferee, however, received the notice and replied admitting the transfer, but contending that he was one of the creditors of his son and that the transfer was made because he pressed for repayment and that after taking over, he has discharged debts of the first respondent to the tune of about Rs. 70,000/-. This is brought out in the evidence of the transferee examined as R. W. 2. It is in these circumstances, that the petition has been filed.

(2.) The first respondent's case is that the petition is not maintainable as the cause of action in favour of each of the petitioning creditors is different. He denies having has any dealings with the petitioners and says that he does not know them. The promissory notes, on which the cause of action is based. In this petition by the petitioners are stated to be without consideration. He however, admits that P. W. 2, the broker, was having transactions with him and the said broker might have filled in certain blank promissory notes which he might have obtained in the course of his regular dealings with the broker. He says that no amount was received by him under the promissory notes in question. The case of the first respondent is that on 7-5-1976, he executed a blank promissory note on the representation of the broker that a sum of Rupees 2500/- was due under earlier transactions and similarly a promissory note on 17-3-1976 in blank was signed by him on the representation of P. W. 2 that certain other amounts were payable towards the earlier dealings with the debtor. After denying the quantum of the debt and pleading that he does not know the creditors at all, he would deny that the paid any money under any one of the promissory notes. He would say that his father who was one of his creditors, took over his entire liabilities, excepting the liability of about Rs. 4000/- due under the two promissory notes referred to above and the transfer made of his business of Nirmala Textiles was for sufficient consideration. He would add that he did not apprise his father of his liability of Rs. 4000/-of Nirmala Textiles. According to him, he was carrying on business of film distribution apart from the textile business, and the present application for adjudication has been filed with ulterior motives. He denies that he transferred the business of Nirmala textiles to his father in order to defeat and delay the creditors. He would also deny that he ever represented to anyone that he was suspending payments generally to his creditors and that he offered to pay only thirty paise in the rupee to them. He would emphatically urge that P. W. 2 knew his place of business of Kavitha Pictures and that at no time he called on him along with the second petitioning creditor at his quondam business place. Under all these circumstances, the insolvency petition is resisted. The second respondent as transferee, pleads ignorance of the debt alleged to be due by the debtor to the petitioning creditors. He says that he has become separate from his son and that he was living in Elurpatti in Musiri Taluk, Trichy District. As his son owed him large amounts and when he pressed for repayment of the same, the debtor was willing to transfer his textile business run under the name of Nirmala textiles provided he was willing to discharge all the debts payable by the debtor to his creditors. According to R. W. 2 (the second respondent) a list of the assets and liabilities together with the outstandings payable by the debtor was prepared and it was in those circumstances that he took over the business of Nirmala Textiles. He would concede that after taking over the business, he has been running the same under the name and style of Nirmalatha Textiles. He denied that the transfer was with intent to defeat creditors. He would also add that he is a bona fide purchaser for value and that the debtor, in the circumstances, did not commit any act of insolvency.

(3.) P. W. 1 is the second petitioning creditor. He proves the promissory note Ex. P.1 dated 17-3-1976 under which he lent a sum of Rs. 6000/- to the debtor who was doing textile business under the name of Nirmala Textiles. He alleges that the debtor has transferred his business to his father and that the second respondent is carrying on the old trade under a new name of Nirmalatha Textiles. He swears that the transfer was to cheat and defeat the creditors of the first respondent. He would also refer to his attempts to contact him on the 25th of May 1976 and 8th of June, 1976. He says that when he demanded repayment of his debt, the debtor is said to have represented that the could pay only thirty paise in the rupee. He speaks of his attempt to contact him at the shop of the first respondent. But he could not find him, but on the other hand, found his father doing business there. He marked Ex. P. 2 which is the notice of demand and says that it was received by the father. But the letter addressed to his son, namely, the first respondent was returned with endorsement 'left'. In the cross-examination he admits that he knew only the debtor, the first respondent, only for about a few months before the lent the money and that he came to know of him through the finance broker. He says that he went to the shop and gave the money. To a suggestion that certain blank notes with the finance broker were used by P. W. 1, he denied it. He said that P. W. 2 wrote the promissory note and that the debtor signed it. He denies that the promissory note was blank at the time when the debtor put his signature therein. He says that the representation regarding suspension of payments was oral. He emphasised that he contacted the first respondent along with Gurumuklal as alleged in the petition and pleads ignorance of the other business carried on by the debtor. Cross-examined by the transferee, he would say that he saw the second respondent only on the 25th of May, 1976 and later in June, 1976. He says that he went to the business place to meet the first respondent. But he found only the second respondent there. P. W. 2, Gurumuklal says that the debtor is known to him for the past three years, and says that he arranged loans for the debtor. He says that the promissory notes executed by the debtor were in connection with such lending. As a finance broker, he said that he has arranged for loans to the tune of Rs. 46,000/-to the debtor and that a sum of Rs. 27,000/-is still due. He filed Ex. P. 4 containing the list of the creditors of the debtor. Thereafter, he speaks about the transfer of Nirmala Textiles to the second respondent. He says that he met Durairaj in May 1976 and when he demanded repayment of his debts, he expressed his inability to pay. He does not know whether Durairaj was carrying on business in film distribution under the name of Kavitha Pictures. In the cross-examination, he denied that as a finance broker, he was taking blank promissory notes and was filling the names to suit his own purpose. He would say that the debtor knew the petitioning creditors. He denies having misused his position and reiterates that he filled the promissory notes in the presence of the debtor. When confronted with Ex. P.4 and asked about any evidence to show that he acted as a finance broker for all these creditors shown in Ex. P.4 he had to admit that he did not have any proof. He claims that he collected information and prepared Ex. P.4. he had to admit that sometimes the party never accompanied him to the financier. He would add that the financier used to go to the debtor. Her denies having filled up Exs. R. 1 to R.3 which were other promissory notes in connection with the dealings of the first respondent. P. W. 2 was cross-examined in detail that the promissory notes now produced by the petitioning creditors were only in renewal of earlier debts and that they are not supported by consideration. P. W. 2 denied the suggestion. He would say that he accompanied the creditors in March and May 1976 and it was then that the money was lent and the promissory notes executed. He does not know whether the debtor was carrying on business in the name of Kavitha Pictures. Cross- examined by the transferee, he would say that he met the second respondent in May, 1976 when he went to Adyar to meet the debtor. To a question by the Court that he remembered all the names of parties, without keeping any record of it, he said that he knows the names and can also say when he met them and the dates when he contacted them. He said that he was told that the debtor transferred the business and that he was not in a position to say whether the transferee paid the debts of the transferor. The husband of the first petitioner was examined as P. W. 3. He proved the advance made by him under Ex. P.5 and says that the debtor has transferred his business only to cheat the creditors and that the broker told him that the debtor wanted to settle by paying all the creditors twenty or thirty paise in the rupee. He placed complete reliance on the representation of P. W. 2. He admits that Ex. P-5 was written by the broker and that he saw Durairaj only once when he paid the money, in May, 1976. He said that when he was casually going through Adayar, he saw the change of the board and denied the suggestion that Ex. P-5 was blank and it was filled up by the broker and that no consideration was paid by him.