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  • For the Appellant: S. Easwara Iyer L. G. Potti
  • For the Respondent: No.1
Judges
  • T.C Raghavan, J.
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Citation Codes
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citation codes
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Attorney(S)
  • For the Appellant: S. Easwara Iyer L. G. Potti
  • For the Respondent: No.1
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  • T.C Raghavan, J.
Acts
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Smart Summary

Structured Summary of the Opinion

Factual and Procedural Background

The State Bank of Travancore (the plaintiff and appellant) brought a suit for cancellation of a sale deed (Ex. D-6) dated 27 October 1952, executed by the first defendant in favour of his brother (the contesting respondent / second defendant). At trial the court considered two chief issues: (1) whether the suit properties were acquired in the name of the first defendant with funds of the contesting respondent and held in trust for him; and (2) whether the sale deed Ex. D-6 was a bona fide transaction supported by consideration or a sham/fictitious transaction intended to defeat or delay the Bank.

The trial court found in favour of the contesting respondent on both issues: it held that the properties were acquired with the contesting respondent's funds and held by the first defendant in trust, and that the sale deed was bona fide and supported by consideration (not a sham). The Bank appealed.

The lower appellate court reversed aspects of the trial court: it held that the properties belonged to the first defendant (i.e., no trust for the contesting respondent) and that Ex. D-6 was fraudulent. The lower appellate court also held the suit barred by limitation under Article 91 of the Limitation Act, 1908 (on reliance including Subbaraidu v. Satyanarayana Raju, AIR 1962 Andh Pra 25), and ultimately confirmed the dismissal of the suit.

The present opinion reviews those conclusions and directs further proceedings: it sets aside the decision of the lower appellate court and remits the appeal to that court for fresh disposal on specified questions and, if necessary, after additional evidence.

Legal Issues Presented

  1. Which provision of the Limitation Act applies to a suit seeking cancellation of the document Ex. D-6 dated 27 October 1952 — Article 91 (as held by the lower appellate court) or Article 120 (as argued by the present court)?
  2. Whether the suit falls within Section 53 of the Transfer of Property Act (i.e., whether the transfer can be declared void as against creditors and representative suits can be maintained)?
  3. Whether the properties conveyed by Ex. D-6 were purchased with funds of the contesting respondent and held by the first defendant in trust for him?
  4. Whether Ex. D-6 was a bona fide transaction in discharge of a debt owed by the first defendant to the contesting respondent, or whether it was intended to defeat or delay the creditors (i.e., fraudulent under Section 53)?

Arguments of the Parties

Appellant (State Bank of Travancore) / Appellant's Counsel

  • The lower appellate court relied on Article 91 of the Limitation Act, 1908 to hold the suit barred (since Ex. D-6 dated 27 October 1952 and suit filed June 1958), and the Bank contended before the lower appellate court accordingly.
  • In the present appeal, appellant's counsel argued alternatively that even if the suit did not fall under Section 53 of the Transfer of Property Act, it would nevertheless be maintainable under Section 42 of the Specific Relief Act, 1877, relying on Skariya v. Cherian Joseph (AIR 1965 Ker 288) and on an observation in Jamnabai v. Dattatraya (AIR 1936 Bom 160) about the scope of "right as to any property".
  • Appellant's counsel further relied on a Madras Division Bench decision (Thiruvengada Mudaliar v. Narayana Reddiar, AIR 1959 Mad 141) that Section 42 is not exhaustive and that declaratory relief may be maintainable outside Section 42.

Contesting Respondent (Second Defendant) / Contested Respondent's Counsel

  • The contesting respondent maintained (and the trial court had found) that the suit properties were acquired by the first defendant with funds sent by the contesting respondent and held by the first defendant in trust for him.
  • Alternatively, the contesting respondent argued that, even if not held in trust, the first defendant owed amounts to the contesting respondent and the sale under Ex. D-6 was a bona fide transaction in discharge of that indebtedness (a preference legitimately exercised by the debtor). The counsel invoked the Privy Council's observation in Mina Kumari Bibi v. Bijoy Singh Dudhuria (AIR 1916 PC 238) that a debtor may pay his debts in any order and prefer any creditor he chooses.
  • Evidence was pointed to (money-order receipts and other documentary exhibits) and circumstances such as the arrival of the contesting respondent's wife from Singapore and the construction and occupation of a house named for the child Indira to support the claim of funds having been brought and spent in India.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Abdullakhan Darvakhan v. Purshottam Damodar, AIR 1944 Bom 267 Authority cited in support of the view on applicable limitation provision (Article 120). Used by the court (along with Mulla and Rustomji) to show Article 120 applies and to conclude the District Judge erred in holding the suit barred under Article 91.
Subbaraidu v. Satyanarayana Raju, AIR 1962 Andh Pra 25 Relied upon by the lower appellate court to apply Article 91 of the Limitation Act. Not followed by the present court; the present court disagreed with the lower appellate court's reliance on this decision for applying Article 91.
Thomas Pillai v. Muthurama Chettiar, (1909) ILR 33 Mad 205 Authority holding representative suits and applicability to creditors (subsequent creditors included). Cited to support that Section 53 suits may be representative and that subsequent creditors may be included; thus the Bank need not be non-suited because it was the only creditor known at institution.
Murli Motiram v. Rewachand Dhanomal, AIR 1946 Sind 137 Authority on representative suits and Section 53 principles. Relied on for the proposition that representative suits and suits on behalf of creditors are maintainable.
Ram Das v. Debu, AIR 1930 All 610 Authority on representative suits under Section 53 / creditors' rights. Applied to support that subsequent creditors fall within the rule of Section 53 and representational relief is open.
Dookali Pattah v. Ramdevi, AIR 1941 Rang 76 Decision holding that even if the plaintiff is the only creditor, a representative suit on behalf of creditors is maintainable. Used to reinforce that the Bank being the only creditor at institution does not defeat its suit under Section 53.
Abdul Shukoor Saheb v. Arji Papa Rao, AIR 1963 SC 1150 Interpreted a similar plaint containing alternative allegations (benami/nominal or fraudulent transfer). The court relied on this Supreme Court interpretation to hold the present plaint pleaded alternatives and thus to treat the suit as one under Section 53 of the Transfer of Property Act.
Skariya v. Cherian Joseph, (1965 Ker LT 341) AIR 1965 Ker 288 Decision holding that Section 42 of the Specific Relief Act may cover creditor's rights to proceed against debtor's property (interpretation of "right as to any property"). Cited by appellant's counsel to argue maintainability under Section 42; the court noted the argument but did not decide it because it held the suit under Section 53.
Jamnabai v. Dattatraya, AIR 1936 Bom 160 Observation by Beaumont, C.J. that "right as to any property" (Section 42) is wider than "right to any property". Referenced by counsel and the court in relation to the Section 42 argument raised by the appellant; the court declined to decide that issue having held Section 53 applicable.
Thiruvengada Mudaliar v. Narayana Reddiar, AIR 1959 Mad 141 Division Bench ruling that Section 42 is not exhaustive of declaratory suits and the law allows declarations outside that section. Relied on by appellant's counsel to support an alternative basis for maintainability; the court observed the authority but did not rule on that alternative ground.
Mina Kumari Bibi v. Bijoy Singh Dudhuria, AIR 1916 PC 238 Privy Council observation that a debtor may pay his debts in any order and prefer any creditor he chooses. Invoked by contesting respondent's counsel to support the contention that a transaction preferring one creditor need not be fraudulent if intended bona fide to discharge a real debt; the court treated this as a relevant principle in assessing bona fides of Ex. D-6.
Mulla, Transfer of Property Act (5th Edn.) and Rustomji, Law of Limitation and Adverse Possession (6th Edn.) Textbook authority on Transfer of Property Act and limitation law. Referred to by the court in concluding Article 120 applies and in support of the limitation-related analysis.

Court's Reasoning and Analysis

The court's analysis proceeds in logical sequence addressing limitation, statutory classification of the suit, evidentiary questions about ownership and trust, and whether the transaction was fraudulent or bona fide:

  1. Limitation (Article 91 v. Article 120). The court held that Article 120, not Article 91, applied to the suit. The basis articulated is that Ex. D-6 was dated 27 October 1952 and the suit was filed in June 1958 — within six years of the document — and the cited authorities (Mulla on Transfer of Property Act, Rustomji on Limitation, and Abdullakhan Darvakhan v. Purshottam Damodar, AIR 1944 Bom 267) supported applying Article 120. Accordingly, the District Judge erred in finding the suit barred by limitation.
  2. Applicability of Section 53, Transfer of Property Act. The court concluded that the plaint contained sufficient allegations to bring the suit within Section 53: the Bank pleaded two alternative cases — (a) the sale deed was nominal/benami (not supported by real consideration); or (b) if not nominal, it was fraudulent to defeat or delay creditors. The court relied on representative-suit principles (O.1 R.8 CPC and Schedule I Appendix D No.13) and prior decisions showing that subsequent creditors and even a lone creditor may maintain such representative suits; thus the District Judge erred in treating the suit as outside Section 53.
  3. Alternative grounds (Section 42 / declaratory relief). The court noted the appellant's alternative contention that the suit could be maintained under Section 42 of the Specific Relief Act or as a declaratory suit outside Section 42 (supported by Skariya v. Cherian Joseph and Thiruvengada Mudaliar). Because the court had already held the suit fell within Section 53, it declined to express an opinion on those alternative grounds.
  4. Ownership, trust and evidentiary assessment. On the factual question whether the properties were purchased with the contesting respondent's funds and held in trust, the court reviewed documentary evidence: money-order receipts Exs. D-7 to D-7(e) showed only Rs. 1,225 received by the first defendant from the contesting respondent up to the relevant date, while the total consideration in purchase documents Exs. D-1, D-2, D-3 and D-9 was Rs. 6,300. Thus, on that showing the first defendant could not have bought the properties solely with the contesting respondent's remittances, and the District Judge was correct to that extent.
  5. Additional evidence and plausible inferences. The court acknowledged other evidence (Exs. D-7(f) to D-7(z)) indicating additional amounts may have been sent, and noted circumstances such as the contesting respondent's wife's arrival from Singapore and the construction and occupation of the house named after her child. While these facts made plausible that funds from the contesting respondent (or his wife) might have contributed to the properties, the court was careful to state that such likelihoods did not conclusively establish trust or ownership in favour of the contesting respondent.
  6. Bona fides v. fraud under Section 53. The court explained the legal principle that, under Section 53, preference to one creditor by the debtor is not in itself void unless it is shown that the transfer was intended to defeat or delay other creditors. Applying that principle, the court identified the crucial factual questions necessary to determine whether Ex. D-6 was fraudulent or bona fide: (a) what was the market value of the properties on the date of Ex. D-6; and (b) what was the amount actually due by the first defendant to the contesting respondent at that time (including any moneys said to have been spent by the wife).
  7. Insufficiency of materials and need for further inquiry. The court found no adequate materials before it to determine market value or the true indebtedness (including possible contributions by the contesting respondent's wife). The recital of consideration in Ex. D-6 (Rs. 5,000) was not treated as conclusive (it could have been understated to reduce stamp duty). Given the evidentiary gaps, the court concluded it could not on the record determine whether Ex. D-6 was intended to defeat or delay creditors or was a bona fide discharge of a debt.
  8. Disposition. Because of these unresolved material questions, the court set aside (reversed) the lower appellate court's decision and remitted the matter to that court for fresh disposal. The lower appellate court was directed to consider market value and the true amount due, to take additional evidence if necessary, and then decide whether Ex. D-6 was fraudulent or bona fide.

Holding and Implications

holding:

Decision of the lower appellate court set aside; appeal remitted to the lower appellate court for fresh disposal.

Implications and direct consequences:

  • The court held that Article 120 of the Limitation Act applies to this suit and that the District Judge was therefore wrong to treat the action as barred under Article 91.
  • The suit was properly framed under Section 53 of the Transfer of Property Act (representative suit capacity was established by the plaint and supporting law), so the Bank is not non-suited merely because it was the only creditor known at the time.
  • The lower appellate court must, on remand, determine (a) the market value of the properties on the date of Ex. D-6, and (b) the amount then due by the first defendant to the contesting respondent (including any amounts said to have been spent by the contesting respondent's wife in construction). The lower appellate court may take additional evidence on these points if necessary.
  • After resolving those factual questions, the lower appellate court will decide whether Ex. D-6 was intended to defeat or delay creditors or whether it was a bona fide transaction in discharge of the liability of the first defendant to the contesting respondent.
  • Costs: the parties will suffer their respective costs in the second appeal; the lower appellate court will provide for the costs of the lower courts in the decree it ultimately passes.
  • The opinion does not state that it is announcing any new binding precedent beyond applying and distinguishing existing authorities; its immediate effect is to remit the matter for further fact-finding and determination by the lower appellate court.
DK/JHS/D.V.C

Order recorded: "Order accordingly." (final paragraph of the opinion).

Show full summary ...

    State Bank Of Travancore v. A.K Nanan And Another

    1. The State Bank of Travancore, the plaintiff, is the appellant, and the second defendant, the second respondent, is the contesting respondent. The suit was for cancellation of a sale deed (Ex. D-6) dated 27th October, 1952 by the first defendant in favour of his brother, the contesting respondent. The two important issues considered by the trial court were whether the suit properties were acquired in the name of the first defendant with the funds of the contesting respondent and held in trust for the latter: and whether the sale deed was a bona fide transaction supported by consideiation or it was a mere sham and fictitious transaction to defeat or delay the Bank. On both these issues the trial court held in favour of the contesting respondent, viz., that the properties were acquired in the name of the first defendant with the funds of the contesting respondent and held in trust for the latter; and that the transaction was a bona fide one supported by consideration and not intended to be a sham or fictitious one to defeat the Bank.

    2. The matter was taken up in appeal by the Bank. The appellate court held that the properties belonged to the first defendant in other words, there was no trust for the contesting respondent: and that Ex. D-6 was fraudulent. However, the lower appellate court opined that the suit was barred by limitation, because Article 91 of the Limitation Act of 1908 applied to the case in the opinion of the lower appellate court, since Ex. D-6 was executed on 27th October, 1952 and the suit was filed in June 1958 and since there was no allegation in the plaint that the Bank came to know of the transfer within three years of the institution of the suit, the suit was barred by limitation under Art. 91 Again, in the opinion of the lower appellate court, the suit could not be treated as one under Section 53 of the Transfer of Property Act I may also add that the lower appellate court placed reliance on the decision of the Andhra Pradesh High Court in Subbaraidu v. Satyanarayana Raju, AIR 1962 Andh Pra 25 Ultimately, the lower appellate court also confirmed the dismissal of the suit. The first question to be considered is whether the provision applicable to the case is Article 91 of the Limitation Act of 1908 as held by the District Judge I think not. In my opinion Art. 120 applies to the case. I do not think it is necessary to consider this matter elaborately; and I shall only refer to Mulla's Transfer of Property Act, 5th Edn. page 287 and to Rustomji's Law of Limitation and Adverse Possession, 6th Edn., page 528 and also to the decision of the Bombay High Court in Abdullakhan Darvakhan v. Purshottam Damodar, AIR 1944 Bom 267. The position is quite clear; and therefore, the District Judge is in error in holding that the suit was barred by limitation, because the document sought to be set aside (Ex. D-6) was dated 27th October, 1952 and the suit was filed in June 1958, within six years of the document.

    3. Then, the District Judge seems to think that the suit as framed will not come within Section 53 of the Transfer of Property Act. Here also, I am of opinion that the District Judge is in error, because there are sufficient allegations in the plaint to bring the suit within the scope of S. 53. It is true that there is no other creditor of the first defendant; still, it is not necessary to bring a suit within S. 53 that there should be another creditor existing to the knowledge of the plaintiff. The recitals in the amended plaint and the prayers therein indicate that the suit was instituted for the Bank and also for and on behalf of all the other creditors of the first defendant, if any. The law does not require that at the time of the institution of the suit more than one creditor should be in existence. The representative suit is a suit that would fall within O. 1, R. 8 of the CPC; and the form of the decree in such a suit is shown in Schedule I. Appendix D. No. 13 of the Code. This shows that the transfer should be held void as against the plaintiff and all other creditors, if any, of the defendant. There are also decisions holding that subsequent creditors would also come within the rule enunciated in S. 53 (vide Thomas Pillai v. Muthurama Chettiar, (1909) ILR 33 Mad 205; Murli Motiram v. Rewachand Dhanomal AIR 1946 Sind 137; Ram Das v. Debu, AIR 1930 All 610 and Dookali Pattah v. Ramdevi, AIR 1941 Rang 76). I may point out that the decision of the Rangoon High Court last cited above holds that even if the plaintiff is the only creditor, he is entitled to maintain a representative suit on behalf of the creditors, if any. Therefore, the fact that the Bank was the only creditor cannot non suit the Bank.

    4. Considering the recitals in the plaint, as already stated, it can only be held that two cases in the alternative were pleaded by the Bank: one, that the sale deed was not supported by consideration in the sense that it was merely nominal or benami intended to secrete the properties from the creditors: and two, that in case it was found otherwise, viz., that the sale was not merely nominal, then it might be declared as a fraudulent transaction to defeat or delay the creditors of the first defendant. A similar plaint containing similar prayers was interpreted by the Supreme Court in this manner in Abdul Shukoor Saheb v. Arji Papa Rao, AIR 1963 SC 1150. The suit is therefore one under Section 53 of the Transfer of Property Act.

    5. The counsel of the appellant then argues that even if the suit does not fall within Section 53 of the Transfer of Property Act, it will fall within Section 42 of the Specific Relief Act of 1877. In support of this contention he draws my attention to the decision of Raman Nayar, J. in Skariya v. Cherian Joseph, 1965 Ker LT 341 : (AIR 1965 Ker 288). My learned brother has disagreed with the decision of the Andhra Pradesh High Court in AIR 1962 Andh Pra 25 on which the District Judge has placed reliance. Raman Nayar, J. has relied on an observation by Beaumont, C.J in Jamnabai v. Dattatraya, AIR 1936 Bom 160 that “right as to any properly” in Section 42 of the Specific Relief Act is wider in scope than “right to any property”; and has held that the former expression is wide enough to cover the right of a creditor to proceed against the property of his debtor for recovering his debt. The learned Judge has held further that even without an attachment a creditor can file a suit to declare that a particular properly is property belonging to his debtor under Section 42 of the Specific Relief Act because “right as to any property” in that section is wide enough to include such a case within its ambit.

    6. Again, my attention is drawn to a Division Bench ruling of the Madras High Court to the effect that Section 42 of the Specific Relief Act is itself not exhaustive of the categories of declaratory suits; and that the law does allow suits for a mere declaration which may not strictly fall within that section. The said decision is Thiruvengada Mudaliar v. Narayana Reddiar, AIR 1959 Mad 141. The argument of the counsel of the appellant is that even if the present suit does not come within Section 53 of the Transfer of Property Act, the suit will still be maintainable either under Section 42 of the Specific Relief Act or even otherwise on the strength of the aforesaid Madras Division Bench ruling. Since I have already held that the suit comes within Section 53 of the Transfer of Property Act, I need not express any opinion on this aspect.

    7. The further question is whether the properties covered by Ex. D-6 were purchased with the funds of the contesting respondent and held by the first defendant in trust for the former. On this question the Subordinate Judge held in the affirmative, while the District Judge answered the question in the negative. As pointed out by the District Judge, the properties were purchased under Ex. D-1, D-2, D-9 and D-3 between Meenam 1114 and Meenam 1121 (between April 1939 and April 1946). From the money order acknowledgments produced, Exs. D-7 to D-7(e), the amount received by the first defendant from the contesting respondent up to the last date mentioned above was only Rs. 1,225. The total consideration under Exs. D-1, D-2, D-3 and D-9 was Rs. 6,300. Therefore, it is clear that the first defendant could not have purchased the suit properties with the amounts sent by the contesting respondent; and consequently, it is difficult to hold that the properties were purchased with the funds furnished by the contesting respondent for his benefit or in trust for Mm. To this extent the conclusion of the District Judge is correct.

    8. Still, there is other evidence in the case e.g Exs. D-7(f) to D-7(z), to establish that several other amounts were also sent by the contesting respondent to the first defendant. It has also emerged that the wife of the contesting respondent came to India from Singapore in 1940; and that it was during her stay in India that the house in one of the items of the properties was constructed. The evidence shows that she and her children lived there; and that the house itself was named after her eldest child, Indira it is also quite likely (though for that reason it cannot be held that the house itself belonged to the contesting respondent in trust) that the wife of the contesting respondent brought amounts from Singapore when she came away in 1940 and these amounts were also spent for the construction of the house, which was completed for the use of her children and herself. In these circumstances, the counsel of the contesting respondent argues that even if the properties were not held in trust by the first defendant, he owed amounts to the contesting respondent and the sale under Ex. D-6 was only a bona fide transaction in discharge of the debt due by the first defendant to the contesting respondent. In other words, the argument is that, at any rate, the conclusion of the District Judge that the transaction was fraudulent is not correct. The counsel invites my attention to an observation of the Privy Council in Mina Kumari Bibi v. Bijoy Singh Dudhuria, AIR 1916 PC 238 to the effect that a debtor, for all that is contained in Section 53 of the Transfer of Property Act, may pay his debts in any order he pleases and prefer any creditor he chooses. The counsel proceeds that whatever may be suspected and whatever may be the relationship between the first defendant and the contesting respondent, there is no positive evidence in this case from which any fraudulent intention can be gathered; and if really amounts were due by the first defendant to the contesting respondent, the transaction might be a bona fide one to discharge that liability.

    9. The argument appears to have considerable force. Whatever might be the position in the insolvency law if a preference in favour of one creditor is made by the debtor, under Section 53 of the Transfer of Property Act, unless it is established that the transfer was Intended to defeat or delay the creditors of the transferor, the transfer cannot be annulled. In other words, with reference to the present case, even if the first defendant owed moneys to the Bank at the time of Ex. D-6, still, if he owed moneys to the contesting respondent as well and he executed Ex. D-6 bona fide to discharge that liability, the fact of the existence of the debt to the Bank will not make the transaction a fraudulent one. In view of this, the questions become material as to what was the market price of the properties at the time of Ex. D-6 and as to what was the amount owed by the first defendant to the contesting resdeni then. In other words, the material question is whether the market price of the properties at the time and the amount then due by the first defendant to the contesting respondent were more or less equal so as to enable the court to conclude that the document was a bona fide one in discharge of a real and existing debt.

    10. The consideration mentioned in Ex. DC) is only Rs. 5,000 but it has come out in evidence that much more was due to the contesting respondent from the first defendant. The recital of consideration in Ex. D-6 is in no way conclusive, because, as rightly pointed out by the Subordinate Judge, it might have been shown at a smaller figure merely for the purpose of reducing stamp duty and registration expenses.

    11. No materials are placed before me to arrive at a conclusion as to what was the market value of the properties at the time of Ex. D-6 and also to arrive at a conclusion as to what was the actual amount due by the first defendant to the contesting respondent including amounts spent by the wife of the latter, if any for the construction of the house Without further materials on these aspects I find it difficult to come to a conclusion whether the transaction was a fraudulent one to defeat or delay the creditors of the first defendant.

    12. Therefore, I set aside the decision of the lower appellate court and remit the appeal to it for fresh disposal. The lower appellate court will consider the question as to what was the market price of the properties conveyed under Ex. D-6 on the date of that document: the lower appellate court will also consider as to what amount was then due by the first defendant to the contesting respondent including amounts said to have been spent by the wife of the contesting respondent, if any, in the construction of the house if necessary, the lower appellate court may take additional evidence as well on this question; and it will then decide whether Ex. D-6 was intended to defeat or delay the creditors of the first defendant or was a bona fide transaction in discharge of the liability of the first defendant to the contesting respondent. The parties will suffer their respective costs in the second appeal; and the lower appellate court will provide for the costs of the lower courts in the decree it will ultimately pass.

    DK/JHS/D.V.C

    13. Order accordingly.

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    Comments

    State Bank Of Travancore v. A.K Nanan And Another
    (Aug 16, 1966)