NRIPENDRO NATH SHAHOO; GOPINATH MANDAL Vs. ASHUTOSH GHOSH

JUDGEMENT

(1.) These appeals are directed against an order under Section 37 of the Provincial Insolvency Act. On the 4th December 1911, Nilratan Mandal and his four brothers executed a mortgage for Rs. 9,000 in favour of one of their unsecured creditors, Nripendra Nath Sahu. On the 27th December 1911 and 14th February 1912, they executed two other mortgages, one for Rs. 6,000 and another for Rs. 10,000, in favour of their unsecured creditor Gopinath Mandal. On the 19th February 1912, a third creditor, Kissen Chand Kessari Chand, applied to the District Judge under Section 5 of the Provincial Insolvency Act so that the mortgagors might be adjudicated insolvents. The application was granted and a local Pleader, Babu Ashutosh Ghose, was appointed Receiver. In due course on the 26th September 1912, the Receiver applied to the Court to take action under Section 37 and to annul the three mortgages mentioned. This application was granted on the 30th January 1913, and the present appeals, which have been preferred by the two mortgagees separately, are directed against that order. The District Judge has found that when Nilratan Mandal executed and registered the deeds, he knew that he was not in a position to pay his debts, and that, consequently, the mortgages must be declared fraudulent and void as against the Receiver. This decision of the District Judge has been assailed before us, on the ground that all the elements necessary to justify an order for avoidance of the mortgages under Section 37 have not been established, and that the requirements of that section have not been fully appreciated. In our opinion, this contention is well-founded and the case must be re-tried.

(2.) Sub-section (1) of Section 37 of the Provincial Insolvency Act--we quote so much only of the sub-section as applies to the present case--provides as follows: "Every transfer of property or of any interest therein.... by any person unable to pay his debts, as they become due, from his own money, in favour of any creditor with a view of giving that creditor a preference over the other creditors, shall, if such person is adjudged insolvent on a petition presented within three months after the date thereof, be deemed fraudulent and void as against the Receiver and shall be annulled by the Court." It is plain that before a transfer by a debtor of any interest in his property is avoided under this section, four conditions must be fulfilled, namely, first, the debtor must, at the date of the transaction, be unable to pay from his own money his debts as they fall due; secondly, the transaction must be in favour of a creditor or of some person in trust for a creditor; thirdly, the debtor must have acted with the view of giving such creditor a preference over his other creditors; and fourthly, the debtor must be adjudged an insolvent on an insolvency petition presented within three months after the date of the transaction sought to be impeached. There is no dispute that the second and fourth elements are present in the case before us. The mortgagees were creditors of the mortgagors on the dates when the mortgage instruments were executed; the promissory notes on which they had previously advanced moneys to the Mandals were unpaid on those dates : these have been produced and proved to represent genuine transactions. There is also no question that the insolvency petition was presented by the creditor on the 19th February 1912, that is, within three months after the earliest of the three mortgages impeached. The controversay has thus centered round the first and third conditions. Before we discuss the requirements of these two conditions, we may point out, however, that where an act is impeached as a fraudulent preference the onus of proof lies on the Receiver Expnrte Lancaster, In re Manden (1883) 25 Ch. D. 311 at p. 319 : 53 L.J. Ch. 1123 : 50 L.T. 223 : 35 W.R. 4488], and it has been said Laurie, Ex parte Green (1898) 5 Manson, 48 : 67 L.J.Q.B. 431 : 46 W.R. 491] that the burden of proof lies on the Receiver, even if the debtor was insolvent at the time of the payment and knew himself to be so, though the view has been indicated that in such a case the onus might shift: In re Eaton and Company, Ex parte Viney (1897) 2 Q.B. 16 : 66 L.J.Q.B. 491 : 4 Manson, 111, In re Lake, Ex parte, Dyer (1901) 1 K.B. 710 : 70 L.J.K.B. 390 : 84 L.T. 4439 : 49 W.R. 291 : 8 Manson, 145 : 17 T.L.R. 296.

(3.) The first point for consideration is, whether the mortgagors were, on the dates of the mortgage transactions, able to pay from their own money their debts as they fell due. The evidence on the record does not enable us to pronounce an opinion upon this matter. There were, it must be remembered, three mortgages of the 4th December 1911, 27th November 1911 and 14th February 1912. Each of these transactions has to be tested from the point of view of the condition mentioned, and it is quite conceivable that the mortgagors, though not able to pay from their own mfney their debts as they fell due on the 14th February 1912, might have been in a very different position more than two months earlier, on the date of the first of the three mortgages. Two factors must plainly be taken into account on the date of each transaction, namely, what were the debts payable by the mortgagors on that date, and, what was the money then available to them to pay such debts? In this connection, it may be pointed out that in the determination of the question whether a person is able or unable to pay his debts as they become due from his own money, the fact trat he has money locked up which, at a later period, may be available for the payment of his debts is immaterial : Washington Diamono Co., In re (1898) 3 Ch. 95 : 62 L.J. Ch. 895 : 69 L.T. 27 : 41 W.R. 681. The question, therefore, whether the debtors were, at the date of each of the three mortgages impeached, unable to pay, from their own money, their debts as they fell due, must be investigated.