VENKADARI SOMAPPA Vs. OFFICIAL RECEIVER OF BELLARY

JUDGEMENT

(1.) The appeal is against the order of the learned District Judge of Bellary, passed in insolvency declaring void a mortgage executed by the insolvent in favour of the appellant. The Official Receiver attacked this mortgage both under Secs.53 and 54 of the Provincial Insolvency Act. The learned District Judge however declared it void on another ground, namely, that it was completed after the insolvency petition had been presented and after the appellant had come to know of that fact. On the face of it the mortgage-deed was executed on the 5 March, 1933. It was presented for registration on the 27 June in the office of the Sub-Registrar. The mortgagors denied registration and the Sub-Registrar held an enquiry and finally refused to admit the document to registration. On appeal to the District Registrar the latter directed the document to be registered and this was finally done on the 11 December, 1933, under the provisions of Section 75 of the Indian Registration Act (XVI of 1908). Meanwhile on the 28 August, 1933,the mortgagors had presented their insolvency petition and they were adjudicated on the 11 January, 1934. Admittedly the appellant knew of the presentation of the Insolvency petition when he was conducting proceedings under Sections 73 to 75 of the Registration Act to get the document registered. The learned District Judge held that this mortgage was effected between the date of the presentation of the petition and the date of adjudication, that it was in favour of a man who at the time knew of the filing of the petition and that it was therefore liable to be set aside. It is hardly necessary for us to say that on the facts assumed by the learned District Judge he was clearly right. Transfers effected after the petition has been filed are if the transferor is ultimately adjudicated insolvent void as against the Official Receiver. That is the effect of Section 28, sub-Ss. 2 and 7 of the Provincial Insolvency Act. And it would obviously be absurd if an insolvent could effectively transfer his property after he had filed his petition and thus deprive the Court of its power to administer the property for the benefit of the whole body of creditors. Section 55 of the Act protects a transferee for valuable consideration who takes the transfer without knowledge of the pendency of the insolvency petition - which was not the case here. But the learned District Judge as the basis of his finding assumed that the date of registration, was the 11th December, 1933, the date when the document was registered under Section 75(2) of the Indian Registration Act. We think however that he should have applied the provisions of Section 75(3) to the case. That sub-section is: Such registration [that is, registration effected by the order of the District Registrar under Section 75 (2)] shall take effect as if the document had been registered when it was first duly presented for registration.

(2.) The mortgage in this case must therefore be deemed to have been registered on the 27th of June. And on the 27 June, no insolvency petition had been presented. The insolvency petition was as we have said presented on the 28 August. On this footing the case is merely an example of the case where the Official Receiver prays for the annulment of a transfer effected before the filing of the insolvency petition.

(3.) Now since the transfer cannot be regarded as void for the reasons stated by the learned District Judge, it remains to be considered whether it can be avoided under Section 53 or Section 54 of the Provincial Insolvency Act. It so happens that the learned District Judge has, viewing the transaction as a contract to mortgage, taken up for consideration the question whether it was entered into with the intention of preferring the mortgagee over the other creditors of the insolvent. He has come to the conclusion that it was so intended. There is therefore sufficient material before us to enable us to come to a conclusion on the point, namely, whether this transfer should be deemed fraudulent and void as against the Receiver. The two points we have to consider are: 1. Was the mortgage effected with the intention of giving the mortgagee a preference over the other creditors, and 2. Was it effected within the three months next preceding the presentation of the insolvency petition.