RATAN CHAND JAHWIRLAL Vs. PRAMATHA NATH GUHA

JUDGEMENT

(1.) This appeal arises out of a proceeding under the Provincial Insolvency Act. Takatmull Nahata and Prithiraj Nahata, who were carrying on business under the name and style of Firm Mulcanchand Chauthumull of Calcutta, (respondents 2 and 3, hereinafter called Nahatas) used to advance goods on credit to Akshoy Chand, Prithiraj Begwami (respondents 4 and 5, hereinafter called Begwanis) who had been carrying on business from a long time as general merchants under the name and style of firm Akhoy Chand Prithwiraj Begwani at Sherpur and Jhinaigati in the District of Mymensingh. By the end of 1985 Sambat, corresponding to March or April 1928. the dues of the Begwanis to the Nahatas having exceeded Rs. 21,000 the latter refused to supply goods to the Begwanis on credit until their dues were paid off. The Begwanis were unable to pay off the debt of the Nahatas with the result that the dealings of the Nahatas with the Begwanis came to an end by the end of 1985 Sambat. The Begwanis then approached the appellants (hereinafter called Suranas) who agreed to advance goods on credit. The Begwanis however did not then disclose to the Suranas their indebtedness to the Nahatas. During the years 1986 and 1987 Sambat the Begwanis carried on business with the Suranas. They made certain payments to the Nahatas from time to time during these years. At the end of 1987, that is, the middle of April 1931, the Begwanis became indebted to the Suranas to the extent of Rs. 18,000, and the debt due to the Nahatas was reduced to Rs. 16,000 by payments made in 1986 and 1987 Sambat. At that time the Suranas came to know for the first time that the Begwanis were heavily indebted to the Nahatas. Certain letters were written to the Begwanis by the appellants officer Poune Chand Sethia who brought about the dealings of the appellants with the Begwanis. On 19 May 1931, the Begwanis executed a simple mortgage bond in respect of the buildings and land of their firm in the district of Mymensingh in favour of one of the Suranas for a consideration of Rs. 2,000 and sold to the Suranas their stock-in-trade in, their shops and the outstanding debts due to them for Rs. 4,000. The goodwill of the firm however was not sold. On 4 June 1931 the Nahatas filed a suit against the Begwanis in the Bikanir High Court for recovery of Rs. 16,667 odd and obtained an order for attachment before judgment of all the immovable properties of the Begwanis in Bikaner State and also a mortgage bond in favour of one of the Begwanis. This suit was decreed on confession on 21 July 1931. The Begwanis on the next day, that is, on 22 July, 1931, assigned the attached mortgage bond in favour of the Nahatas. In the meantime, on 6 June 1931, Poune Chand Sethi removed the goods purchased by the Suranas from the mortgaged premises to another shop. A criminal case was thereupon started against him at the instance of the Begwanis under Section 390, I.P.C. On 26 June 1931, the Suranas instituted a suit in Sujanagar Court within the Bikanir State against the Begwanis and attached before judgment the immovable properties of the Begwanis which were already attached by the Bikanir High Court. On 28 June 1931 Akhoy Chand Begwani was arrested before judgment a,t the instance of the Suranas. He was however released on security on 1st July 1931. On 8 August 1931 the Nahatas applied to the District Judge of Mymensingh for adjudging the Begwanis insolvents under the provisions of the Provincial Insolvency Act. On 26 September 1931 the adjudication order was made and respondent 1 was appointed receiver. On 2 January, 1932 the Suranas applied for annulment of the order of adjudication. That application however was rejected on 25 January 1932. The schedules of creditors in which the names of the Nahatas and Suranas only were entered was prepared on 17 March 1933. On 28 March 1933 the receiver applied to the learned Judge to annul the transfers in favour of the Suranas. The latter filed their objection to the said petition on 11 May 1933. On the same day the Suranas filed an application before the Judge for expunging the debt of the Nahatas from the schedule. The Nahatas filed their objection to the same on 29 May 1933. On 2 June, 1933 the receiver filed another application before the learned Judge for annulling the assignment of the mortgage bond in favour of the Nahatas and for certain other reliefs. The learned Judge heard all these applications together and by his order dated 22nd January 1934 the transfers in favour of the Suranas were annulled under Section 54 of the Act and the debt of the Nahatas was reduced to Rs. 500. He however did not pass any definite order so far as the application of the receiver against the Nahatas is concerned. Hence the present appeal by the Suranas. The Nahatas have also filed a cross-objection.

(2.) I shall deal with the application of the Suranas for expunging the debt of the Nahatas from the schedule under Section 50 of the Act. The case of the Suranas is that the claim of the Nahatas was fully satisfied on 22 July, 1931 by the assignment of a mortgage bond and by payment of Rs. 4,000 in cash and gold to them by the insolvents in pursuance of an arrangement. (His Lordship then examined the evidence on this point and held that the appellants had failed to prove that the claim was fully satisfied and proceeded). Now I will come to the application of the receiver for annulling the transfers in favour of the Suranas. It appears that the receiver submitted a report to the learned Judge on 23 December 1932 in which he stated that these transfers were benami transactions. The learned Judge however on 8 March 1933 directed him to apply under Secs.53 and 54, Provl. Inso. Act, for annulling these transfers. On 28 March 1933 the receiver, as has been already stated, applied to the learned Judge to annul these transfers under Secs.53 and 54 of the said Act. The objections to the said petition were filed by the Suranas on 11 May 1933. On 29 June 1933 the receiver wanted to amend his application by inserting another ground of attack, namely that the transactions were benami transactions. This amendment was allowed by the Court. Additional written statement was filed by the Suranas on 8 July 1933 and two additional issues wore framed on that day. The new ground of attack however was not pressed by the receiver before the learned Judge though the insolvents whom he examined as witnesses stated that the transfers were mere benami transactions. It was also not pressed before us by the learned Counsel for the receiver.

(3.) As regards the receiver's prayer to annul the transfers under Secs.53 and 54 of the Act the matter stands thus: The allegations of the receiver in connexion with his case under Section 53 are contained in the second paragraph of his petition. His case apparently is that the Suranas were not purchasers as in good faith as they purchased the stock-in-trade and other assets of the insolvents business for Rs. 4,000 although the real value of the goods sold was about Rs. 20,000. The Suranas denied these allegations in their petition of objection. When the matter came up for hearing before the learned Judge the Suranas wanted to adduce evidence about the value of the goods purchased by them, but the learned Counsel appearing on the other side objected to the taking of any evidence on the question of valuation on the ground that it was immaterial. The learned Judge therefore did not allow the Suranas to give any evidence about the valuation. The receiver also did not give any evidence on this point. It further appears from the judgment of the learned Judge that Dr. Sudhish Ch. Roy, who admittedly appeared before the learned Judge for the receiver as well as the Nahatas, and who also appeared before us on behalf of the receiver, argued the case before the learned Judge on the footing that the transactions were only fraudulent preferences within the meaning of Section 54 of the Act. Under these circumstances the learned Judge proceeded to consider whether the transactions in question were fraudulent preferences within the moaning of Section 54, Provincial Insolvency Act, which is in these terms: Section 54.-(1) Every transfer of property, every payment made, every obligation incurred, and every judicial proceeding taken or suffered by any person unable to pay his debts as they become due from his own money in favour of any creditor, with a view to 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; (2) this section shall not affect the rights of any person who in good faith and for valuable consideration has acquired a title through or under a creditor of the insolvent.