A R S M A R L ARUNACHALAM CHETTIAR BY POWER OF ATTORNEY AGENT, G S RAGHAVACHARIAR Vs. OFFICIAL RECEIVER OF TANJORE

JUDGEMENT

(1.) Is the transaction impeached by the Official Receiver fraudulent under Section 54 of the Provincial Insolvency Act ? The learned District Judge has come to the conclusion that it is and, in my opinion, he is right. On the evidence, the debtors were heavily involved in October, 1921. They were threatened with suits and applications for attachment and arrest before judgment. There seemed to be very little hope of averting bankruptcy. In these circumstances they executed a mortgage in favour of the appellant, a Nattukottai Chetty. The debt due to him was about Rs. 10,900 and odd and this mortgage was executed to secure Rs. 10,000 out of that sum. There is little reason to doubt that Raghavachari who was then acting for the Chetty was aware of the condition of the debtors affairs and of the fact that numerous other creditors were pressing them for repayment of amounts due. The other facts material for this appeal are the following : The debtors were said to be possessed of property worth about a lakh and five thousand. Their debts were admitted to amount to about the same figure. The immoveable property over which the appellant was given security was worth Rs. 30,000. The debtors did not own any other immoveable property. They executed over the identical property at the same time two mortgages, one in favour of the appellant and the other in favour of third parties who have also filed an appeal before us and with whose appeal I shall presently deal. So far as the transaction impeached in that other appeal is concerned, 1 cannot but come to the conclusion that the security was created with the express object of preferring those creditors, namely, the appellants in the other appeal. A man by name Venkatramier plays a very prominent part in bringing about the two transactions. Indeed the facts relating to the two mortgages are so inextricably mixed with each other that it is impossible for the purpose of deciding the question at issue, to deal with each as absolutely disconnected with the other. A ratham (car) which the debtors allege, (in an affidavit to which our attention has been directed) was theirs, they appear to have also disposed of, about the 25 of October. They closed their place of business on the 26 and they were declared insolvents on the 1 November. It must be pointed out that the appellants are not related to the insolvents nor has it been shown by direct evidence that the debtors were interested in this particular creditor, the appellant.

(2.) On these facts, what is to be our finding under Section 54 of the Insolvency Act ?

(3.) The word preference as used in this section does not; connote priority in respect of payment of a debt ; that no doubt is one meaning of the word preference, but it means in the context the favouring of one creditor to the detriment of others. In the sense of one creditor being given priority the result of the transaction always is a preference of that creditor : reference in that sense is the occasion for the moving of the Court under Section 54. As Cozens-Hardy, J. puts in Hastings Brothers V/s. The Stenotyper Limited (1901) 1 Ch 250 at 255. "The Court is bound to look at the motive and not at the result. " Lord Esher, M. R. in New Prance and Garrard's Trustee V/s. Hunting (1897) 2 QB 19. expresses the same idea thus : " The question whether there has been a fraudulent preference depends, not upon the mere fact that there has been a preference but also on the state of mind of the person who made it." The learned Master of the Rolls applied the test :--Was the debtor actuated by any feeling of bounty towards the creditor or was he doing what he did for his own benefit ? In the words of Lord Macnaghten in Sharp V/s. Jackson (3) was the debtor under an overwhelming sense of imminent peril ? Did he have before his mind a sense of his dangerous position ? In other words, the test is, did the debtor execute the deed with a view to protect himself or with a view to benefit the creditors ?