(1) This is a second appeal preferred against the decree and judgment of the learned Subordinate Judge of Vellore in A.S No. 170 of 1956 reversing the decree and judgment of the learned District Munsif of Sholinghur in O.S No. 49 of 1954.
(2) The facts are short. The plaintiff purchased the suit house from the second defendant and his undivided father Kadirvelu Mudaliar on 22nd January, 1953 for Rs. 900. This sum of Rs. 900 was made up of a discharged mortgage amount of Rs. 700 due under Ex. A-2, a mortgage deed dated 20th December, 1935 executed by Kadirvelu and his son the second defendant in favour of the plaintiff's undivided brother Sivasankaran for Rs. 300. The balance of the consideration was made by a sum of Rs. 36 due on a promissory note Ex. A-3 due to P.W 4 Thangavelu Mudaliar and a payment of Rs. 164 in cash taken by the vendors. This sale deed was executed on 22nd January, 1953 and was registered on 23rd January, 1953. The plaintiff has taken possession of the property on the date of sale. There has been mutation of names in the registry of the Panchayat Board. After the purchase of the house the plaintiff has been in possession and enjoyment of the same.
(3) The first defendant obtained a money decree in O.S No. 27 of 1953 against Kadirvelu for recovery of a debt and obtained an order of attachment before judgment of the suit house on 23rd January, 1953. The plaintiff intervened with a claim petition E.A No. 1541 of 1953 in E.P No. 614 of 1955 filed by the first defendant. His claim was dismissed. Hence he filed the suit.
4. The trial Court dismissed the suit. On appeal the suit was decreed. Hence this second appeal by the defeated defendant.
5. The short point for determination in this Second Appeal is whether S. 53 of the Transfer of Property Act would be applicable to this case.
6. It has now become well settled as laid down in Middleton v. Pollock(1) that the meaning of S. 1 of the Elizabethan Statute on which S. 53 is based is that the debtor must not retain the benefit for himself and that it has no regard whatever to the question of preference or priority amongst the creditors of the debtor.
7. This was followed by the Privy Council in Musahar Sahu v. Hakim Lal(2) where the following passage occurs in the judgment of Lord Wrenbury:
“As a matter of law their Lordships take it to be clear that in a case in which no consideration of 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 rest of his debts. The law is, in their Lordships' opinion rightly stated by Pallas, C.B, in In re Moroney(3) where he says—The right of the creditors taken as a whole is that all the property of the debtor should be applied in payment of demands of them or some of them, without any portion of it being parted with without consideration or reserved, or retained by the debtor to their prejudice. Now, it follows from this, that security given by a debtor to one creditor upon a portion of or upon all his property although the effect of it, or even the intent of the debtor in making it, maybe to defeat an expected execution of another creditor, is not a fraud within the status; because notwithstanding such an act, the entire property remains available for the creditors, or some or one of them, and as the status gives no right of rateable distribution the right of the creditors by such act is not invaded, or affected. The transfer which defeats or delays creditors is not an instrument which prefers one creditor to another but an instrument, which removes property from the creditors to the benefit of the debtor. The debtor must not retain a benefit for himself. He may pay one creditor and leave another unpaid: Middlcton v. Pollock(4). So soon as it is found that the transfer here impeached was made for adequate consideration in satisfaction of genuine debts and without reservation of any benefit to the debtor, it follows that no ground for impeaching it lies in the fact that the plaintiff who also was a creditor was a loser by payment being made to this preferred creditor— there being in the case no question of bankruptcy.”
8. In Mina Kumari v. Bijoy Singh, it was held that a debtor for all that is contained in S. 53 of the Transfer of Property Act may pay his debts in any order he pleased and prefer any creditor he chooses. A debtor may therefore convey property to any creditor in satisfaction of the debt due to him even though the transfer is effected to avoid an impending execution by another creditor.
It has laid down in a judgment of this Court in Mohideen Tharragan v. Muhammad Mustappah Rowther, as follows:
“The onus of proof in a suit under S. 53 to avoid a transfer, is on the plaintiffs who wish to avoid the transfer. If the transfer is for valuable consideration and is made with the full intention that the title to the property should pass to the transferee, and if not benefit be intended to be retained to the grantor, then the transfer will be valid as against an attaching creditor even though the object of the transfer might have been to defeat an impending execution. The general creditors of the transferor are not defeated in such a case since, instead of the property of the debtor which has been transferred, there remains the money representing the price paid for the property in the hands of the debtor, and the creditors could proceed against the same; the debtor might as well have intended to have his property distributed among his creditors instead of allowing it to be taken in execution by ope decreeholder creditor only. In such cases the intention of the debtor to defeat the executing decree-holder creditor's ‘expected execution’ does not invalidate the transfer even though the transferee had also knowledge of the same. If the transfer be for cash and be made to a stranger who had knowledge of the intention of the transfer to convert the immovable property (which cannot be secreted) into money (which could easily be secreted) and to defeat the creditors of the transferor, then the transfer would be invalid. If the transfer to an existing creditor to whom the transferor already owed money, then even though the transferee has notice that the effect of the transfer would be to remove that property not only from the reach of the executing decree-holder's expected execution but also from the reach of the other creditors, the transfer would nevertheless be valid and not open to objection under S. 53, since it is open to every creditor to try his best to realise his debt from the common debtor; and ordinarily in the race between the creditors he who lags behind could not complain of him who proceeded fast and succeeded in getting at the property of the debtor. (I am not now considering the effect of the insolvency law in this connection). A debtor is entitled to leave alone one creditor and satisfy the other creditors in cases not falling under Insolvency Acts (provisions relating to fraudulent preference, etc.) If there be only one creditor, then the act of the debtor in transferring all his property to a stranger with a view to secrete the same and defeat the creditor would be fraudulent and the transfer would beset aside if the transferee had notice of the circumstances and of the debtor's even design.”
10. But at the same time the debtor must not reserve any benefit for himself (Bai Hakimbu v. Dayabai Rugunath. If the debtor sells property to another creditor to discharge the debt due to him and the price realised is considerably in excess of the debt discharged (Hanifa Bibi v. Vunnamma, or if a fictitious debt is included in the consideration (Narayana v. Viraraghavan(5) this would be evidence of an intent to defraud creditors generally. In the case of a fictitious debt the money is retained by the transfer for the benefit of the debtor. Again if more property is sold than is necessary the conversion of land into cash enables the debtor to keep property out of the reach of the creditors. (Alagappa v. Dasappa(6).
11. The net result of this analysis is that except for the sum taken as cash consideration, the attaching decree-holder cannot otherwise impeach the sale. But even as regards that sum of money, Kadirvelu has not been made a party to the suit and only his son is the second defendant. In the absence of materials it is not possible to say whether the second defendant can be made liable for that amount.
The decree and judgment of the learned Subordinate Judge are confirmed and this Second Appeal is dismissed, but in the circumstances, without costs.
No leave.
V.C.S