NARAYAN Vs. NATHU

JUDGEMENT

(1.) THIS is an appeal preferred against the order of the District Judge, Amraoti, setting aside the order, passed by the Subordinate Judge, annulling the sale dated 25-5-22, under Section 53 of the . Provincial Insolvency Act, 1920, for Rs. 7,000 in favour of respondent Nathu. The consideration of this sale consists of Rs. 5,200 payable to mortgagees who were relations of the debtor Ganpat in satisfaction of a mortgage dated 20-3-1922, Rs. 600 received as earnest money and Rs. 1,200 paid before the Sub-Registrar. The sale relates to two fields belonging to the debtor. This transfer to Nathu is one of the three-acts of insolvency on which the present appellant Narayan's application, dated 20-6-22, to get his debtor Ganpat. adjudged insolvent was founded. The other two transfers were the aforesaid mortgage dated 20-3-22 and the sale dated 16-6-22 for Rs. 795 in respect of a house to one Punjaji. The sale in favour of Punjaji was annulled by the Subordinate Judge but upheld by the lower appellate Court. Against the District Judge's order upholding the said sale, Second Appeal No. 147-B of 1924 has been filed. This judgment will govern both these appeals.

(2.) IT is contended before me and I think very rightly, that the District Judge has misdirected himself upon a point of law in dealing with the facts involved in those two cases and that sufficient attention was not directed to the question as to how far the burden of proof which under the ruling of this Court in Gopal v. Ramkrishna A.I.R. 1921 Nag. 103 lay on the alienees was discharged by them. It was pointed by this Court in the aforesaid case that the mere fact that valuable consideration has been paid for the transfer does not necessarily lead to an inference of good faith also. Admittedly in the case of transfer to Nathu Rs. 5,200 were left with him. Rs. 600 were said to have been paid by way of earnest money and Rs. 1,200 are described to have been paid before the Sub-Registrar. Even assuming these recitals to be correct the whole of the consideration lay as between the vendor and the vendee in their own hands. The vendor has also bolted away and is now earning his livelihood by labour. It is thus clear from facts found that he planned a fight from his creditors with the sale proceeds of the transfer being partly in his hands and partly left in the hands of the vendee. Indeed the sole object of his transfer presumably must have been to convert his property into cash and shuffle out of sight his money and himself. This coupled with the circumstances that the transferee Nathu is a relation of the debtor ought to have sufficed for imputing to him notice of the transferrer's evil design. His good faith was thus on trial in the case in which his transfer is in question. If he acted innocently his transaction holds good only if he has paid good and sufficient consideration for it. Mere proof of payment of consideration has for this reason been considered insufficient to lead to an inference of good faith.

(3.) I have read the orders of the District Judge in both the cases and I do not find any appreciation of the evidence on the lines laid down by their Lordships of the Privy Council. Their Lordships of the Privy Council have pointed out in Musahar Sahu v. Hakim Lal [1916] 43 Cal. 521 that a case in which no consideration of the; law of bankruptcy applies there is nothing to prevent a debtor paying one creditor in full and leaving others unpaid, although the result may be that the rest of his assets will be insufficient to provide for the payment of the rest of his debts. It therefore follows that in cases where questions of bankruptcy are involved, preference by debtor to one creditor, retention of benefit to himself, his absconding away with the sale-proceeds, and arranging for the management or cultivation of his property through the apparent vendees, without any arrangement to apply the sale proceeds towards the liquidation of the debts due to the general body of creditors, necessarily give rise to the only legal inference that the debtor resorted to the transfers in collusion with the transferees with the common intention of defeating and delaying his creditors. In short the only legal inference deducible from such facts could, in the peculiar circumstances of this case, be that there was a common intention on the part of the vendor and the vendee to act mala fide in the matter of shielding the property. In order to prove good faith it was therefore necessary for the purchaser to Show that there was real intention of the debtor to pass ownership, and of himself to acquire it. Mere transference of possession was insufficieut to give rise to any inference which would support an intention to acquire ownership. The burden of proof could not therefore be said to have been duly discharged by the purchaser under each of the two sales.