MODADUGULA SREERAMULU Vs. PERAKAM SINGAYYA

JUDGEMENT

(1.) Twelve persons, claiming themselves to be the creditors of Modadugula Sreeramulu, filed a creditor petition (I.P. No. 9 of 1963) against him, impleading him as sole respondent, in the Court of the District Judge, West Godavari at Eluru. They prayed for adjudicating the respondent, Sreeramulu as insolvent and for annulling a mortgage dated 12th April, 1963 which Sreeramulu had executed in favour of his natural brother, Modadugula Raghuramulu. The respondent contested the petition. The learned Additional District Judge passed an order dated 16th February, 1965, adjudicating the respondent as an insolvent and vesting his properties in the Official Receiver. The respondent filed this appeal against the order of adjudication. For convenience, we shall refer to the parties by their denomination in the lower Court namely, the appellant Modadugula Sreeramulu as the respondent and the petitioning creditors as the petitioners. The contentions of the petitioners were as follows: The respondent executed a large number of promissory notes in favour of the petitioners receiving cash consideration which amounted to a total of Rs. 60,731-0-0 by way of Principal, as mentioned in the petition. He was himself the scribe of the promissory notes. He made part-payment of only Rs. 100 on 19th December, 1960 towards the promissory note debt dated 25th December, 1957. The sister of the respondent, Potti Rama Lakshmamma of Eluru, gifted to the respondent the vested remainder in a large property by a document dated 17th May, 1960. Thus, it became his self-acquired property. But, with the object of defeating the petitioning creditors, the respondent executed a fraudulent and collusive mortgage deed (Exhibit A-3) dated 12th April, 1963 of that entire property in favour of his natural brother purporting to be in discharge of certain other debts. It is a sham, nominal and fraudulent transaction intended to defeat the genuine creditors of the respondent. Several creditors mentioned in that document (Exhibit A-3) are relations and close friends of the respondent. No amount has been advanced by them to the respondent under the mortgage (Exhibit A-3) by the mortgagee or the persons mentioned therein as creditors. Even if some of these debts mentioned in the mortgage (Exhibit A-3) are true, the mortgage amounts to a fraudulent preference.

(2.) The respondent filed a counter contending as follows. The respondent was given in adoption to a rich family which was never in need. He was running commission business under the name and style of Potti Guravaiah & Go with another partner from 1940 to 1950 and earned profits in that business. From 1950, he did business in tamarind on a modest scale up to 1959 and also earned profits. From 1959 onwards, he had no business. In the course of trade, he was pledging his wife's jewellery in the Imperial Bank at Eluru and discharging the debts. His family consisted of himself, his wife and children of tender age viz., four sons and a daughter. He owns his family house which was worth about Rs. 30,000 and gets a rent of about Rs. 60 to Rs. 70 per month by letting out a portion. The wife of the respondent participated in an unauthorised scheme of chit fund transactions at the instigation of the petitioners and without the knowledge of the respondent. He owed some debts to some genuine creditors. As they were pressing him to discharge those debts, he executed the mortgage (Exhibit A-3) which was fully supported by consideration and was valid. The only debts which he owed were those mentioned by him in his counter viz., (1) to P. Subrahmanyam in a sum of Rs. 1,091 as per the decree in S. G. No. 89 of 1962 on the file of the Sub-Court, Eluru; (2) to S. Janardanarao in a sum of Rs. 1,300 as per the decree in O.S. No. 62 of 1962 on the file of the District Munsiff's Court, Eluru; and (3) to one Kanala Gurumurthi in a sum of Rs. 4,584 in O.S. No. 140 of 1962 on the file of the District Munsiff's Court, Eluru, out of which only Rs. 1,500 was outstanding. The respondent never borrowed any money from any of the petitioners. Thus, the petitioners participated in an illegal chit fund transaction along with the wife of the respondent. On the pretext that there was some loss sustained by them, they all rushed into the house of the respondent in the dead of night in the year 1962 with their henchmen and forced the respondent by criminal intimidation to execute various promissory notes in their favour wilh anterior dates. The respondent had to sign in those promissory note's with a view to save himself and his family. These promissory notes are without any consideration and are void in law. All these promissory notes, except one, bear dates which fall within the range 15th July, 1960 to 7th May, 1962. When the respondent was trying to take action about these promissory notes which had been taken by the petitioners, the latter lulled the respondent into inaction by promising time after time to return the promissory notes. The petitioners rushed to Court with the Insolvency Petition as a cheap method of getting huge consolidated amount without any consideration. The respondent is fully capable of paying the true debts.

(3.) The learned Additional District Judge framed one point for decision namely, whether the respondent is liable to be adjudicated as insolvent ? The petitioners examined three witnesses. Of these, P.W. 1 is the first petitioner. He deposed that the respondent executed a promissory note (Exhibit A-1) in his favour on the date which it bears namely, 14th March, 1962 and received cash consideration which is mentioned in that promissory note namely Rs. 8,600. P.Ws. 2 and 3 are the attestors to these promissory notes. They corroborated P.W. 1. Of these, P.W. 2 is himself the 7th petitioner in whose favour a promissory note dated 7th May, 1962, is signed by the respondent. P.W. 3 is the husband of the 11th petitioner who is the promissee in another promissory note signed by the respondent and bearing date 6th August, 1961 for a sum of Rs. 2,500. The petitioner also marked documents (Exhibits A-l to A-11). Of these, Exhibit A-2 is an entry for Rs. 8,600 in the account book of the first petitioner (P.W. 1) which shows payment of that amount concerned in the promissory note (Exhibit A-1). Exhibit A-8 is the promissory note for Rs. 4,000, dated 1st April, 1962, in favour of the eighth petitioner. Exhibit A-9 is the promissory note in favour of the 12th petitioner for a sum of Rs. 4,231. Exhibit A-11 is a promissory note in which the third petitioner is the promissee with date 5th January, 1962 and the amount of consideration is Rs. 2,500. The respondent deposed as R.W. 1 and examined his wife as R.W. 2. They deposed to their contentions in the counter. The documents, Exhibits B-1 to B-6, which are account books and the entries therein, are marked on behalf of the respondent.