MR SHEO NATH SINGH Vs. LMUNSHI RAM

JUDGEMENT

(1.) This is an appeal from an order of the District Judge of Moradabad sitting in insolvency, dismissing an application, filed by the Receiver, for an order that a certain transfer made by the insolvent was void under the Insolvency Law and that the property be handed over to the Receiver. So far as the question decided by the learned Judge and now before us in appeal in concerned, the facts are not in dispute. The respondent suggests that there may be grounds for attacking the order of adjudication and the locus standi of the original petitioning creditor, but these are not matters which can be decided upon this application and he must be left to take such course as may seem proper to him by way of an independent application to the Court below.

(2.) The facts are that the petition or application in insolvency was presented on the 3rd of March, summons was issued on the 11th of March, on which day the debtor contracted for the sale of his immoveable properly, and on the following day, namely, the 12th of March, the sale deed in question was executed, providing that certain portions of the consideration money should be left with the purchaser for payment to certain creditors of the debtor of the debts due to them. The debtor was adjudicated insolvent on the 2st of March 1919 and on the 25th of March the present applicant, the Receiver, applied to set aside the transfer both under Sections 36 and 37 and, by a supplementary application or amendment of his original application made on the 24th April, under Section 16.

(3.) It is alleged that four witnesses were summoned on behalf of the applicant, the Receiver, and a large number on behalf of the debtor, but that no evidence was actually recorded on either side and that the Receiver declined to call any parole evidence or to put the witnesses summoned into the box simply because they had nothing relevant to say. The facts really speak for themselves and raise a question of Bankruptcy Law, which so far as the English law is concerned, has been settled for many years and which, we think, is not doubful under the Provincial Insolvency Act. Section 16, Sub-section 2, provides that, on the making of an order of adjudication, in this case the 21st of March, the whole of the property of the insolvent shall vest in the Receiver and shall become divisible among the creditors. If that provision stood by itself, there would be no question but that any dealing with bis property by the insolvent before the date of the adjudication would be good. Sub-section 6 contains a provision, which is familiar in the English Bankruptcy Law and which dates as far back at least as the year 1869, that an order of adjudication shall relate back and take effect from the date of the presentation of the petition on which it is made. In our view the joint effect of these two provisions is this: No vesting takes place until an order of adjudication is made. It is the making of the order of adjudication which vests the property and only upon such an order being made can any vesting take place at all; but once the order is made, the effect created by it is by a legal fiction taken to relate back to the presentation of the petition or, in other words, the commencement of insolvency. It is impossible to give any real meaning to the word "relate" or to the words "take effect from" contained in Sub-section 6 unless this be the real meaning. This question has, so far as we have been able to ascertain with the assistance of the experienced gentlemen appearing in this appeal, not been seriously raised hitherto and there is no reported case in the official reports, but there is a record of a case in which the question arose indirectly by reason of the meaning sought to be put upon Section 36, which was heard in the High Court at Madras in February 1918 by two Judges, both of whom took the view which we now take. That case is Sankaranarayana v. Alagiri Aiyar 49 Ind. Cas. 283 : (1918) M.W.N. 487 : 24 M.L.T. 149 : 35 M.L.J. 296 : 8 L.W. 281. We are not satisfied that there is really all the diffirence between the provisions of the English law and the Provincial Insolvency Act, which appears to have troubled the Madras High Court; but it does not matter, as the view which we take is the view which was always taken from the earliest days in the administration of the Bankruptcy Law for reasons inherent in the policy of the Bankruptcy Law, some of which are contained in the judgment of the Madras High Court. The commercial community cannot bo too often reminded of the risks which everybody runs in dealing with a man who is in low water and who may have committed an act of insolvency. Section 38 of the Provincial Insolvency Act, which is another section taken from the English Legislature, protests anybody who before the date of the order of adjudication deals with the insolvent for valuable consideration, but that protection has always been held to be unavailable to a transferee where the circumstances show that the transfer which he has taken is in itself an offence against the Bankruptcy Law, that is to say, a man cannot claim the protection of a bona fide transfer for value, where he is himself engaged in an act which is an act of insolvency. There are reasons for thinking that this transfer might have been assailed on at least two other grounds. If it be the fact, as was suggested, but this has not been proved, that it was a transfer under which the puachaser was to pay certain creditors of the debtor to the exclusion of others, and the debtor was unable to pay his creditors in full, it would have been an undue preference and in itself an act of insolvency under Section 4 (c). If, on the other hand, it was a transfer of the whole of his property which then remained to him with the intention of defeating or delaying his creditors except those for whose payment he made provision, that also would have been an act of insolvency under Section 4, and no transferee under such a deed could take any title against the Receiver if an interim order of adjudication were made. These matters have not been gone into because the adjudication appears to have proceeded upon an altogether different act of insolvency anterior in date, and the circumstances explain, and in our opinion justify, the cours taken by the Receiver in refraining from calling any evidence. Technically, no doubt, it may be said that the Receiver ought to make a formal affidavit setting out the facts which are ascertainable from the record, as we have mentioned them above, and file such affidavit, or formal evidence in support of his application, and if objection had been taken by the respondent to the absence of such an affidavit, it could easily have been remedied by an adjournment and by the Receiver filing the necessary affidavit, but there are no rules which make such a course obligatory upon the Receiver. It is left to the Court to use its discretion and common sense in each case, and of course the Court being the Court in which the order of adjudication has been made and in which all preliminary proceedings have already been taken, it can take judicial notice of the debts and proceedings. Therefore no possible prejudice could arise to the respondent from the absence of any formal evidence of the nature we have suggested. The real mistake of the learned Judge is that he has not adjudicated at all upon the matter, which, we think, is clearly established by the admitted facts. He treated it as an application which was really not supported by any evidence at all. If that were correct, he would have been right in dismissing the application, or at any rate in adjourning it to compel the Receiver to file some affidavit or other evidence, but in this particular case the deed and the date on which it was made and the date of the petition and the date of the order of adjudication spoke for themselves and constituted really the sole evidence to which it was necessary for the Receiver to refer in order to establish the invalidity of this deed. The appeal must be allowed with costs including fees on the higher scale and the deed declared void under Section 16. We may say that we entirely agree with the learned Judge that no case was made out under Section 37.