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Case Number

Criminal Application for Revision No. 278 of 1935

Advocates

Garden Noad, with U.L Shah, for the Complainant-Petitioner.
G.N Thakor, with B.G Thakor, for the Opponents-Accused.
I.B Desai, also for Opponent No. 3.
Dewan Bahadur P.B Shingne, Government Pleader, for the Crown.

Judges

Mr. Barlee
Mr. Divatia, JJ.

Acts

sections 17 and 33 of the Presidency-towns Insolvency Act and sections 22 and 28 of the Provincial Insolvency Act.
SECTION 28 A PROVINCIAL INSOLVENCY ACT
PRESIDENCY TOWNS INSOLVENCY ACT
sections 421, 423 and 109 of the Indian Penal Code.
section 421. Inaian Penal Code,
section 423, Indian Penal Code,
GENERAL CLAUSES ACT

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Smart Summary

Judgment Summary — Divatia, J.

Factual and Procedural Background

The revisional application was filed by the original complainant challenging an order of discharge of four accused charged under sections 421, 423 and 109 of the Indian Penal Code. The complainant and accused Nos. 1 and 2 were partners in a charcoal-making business. Accused Nos. 1 and 2 obtained rights to cut trees in villages of the Bansda State to produce charcoal which was to be sold in Bulsar (British India). The complainant was the financing partner.

After accounting between the partners, in 1931 accused Nos. 1 and 2 allegedly pledged some ready-made charcoal to the complainant for Rs. 16,000 and agreed to deliver it at Bulsar; they failed to do so and the complainant sued. In one suit (Thana Court) one Ranchhodji (accused No. 3), who claimed a pledge, was by consent appointed receiver. Allegedly, Ranchhodji instigated accused Nos. 1 and 2 to execute a sale-deed (dated 13 November 1932) transferring their rights to cut trees to accused No. 4 (their joint nephew) for a nominal sum, with the intention of defrauding the complainant (creditor).

The complainant then sought adjudication of accused Nos. 1 and 2 as insolvents; in the insolvency proceedings accused No. 4 relied on the sale-deed. The complainant filed the criminal complaint alleging that all four accused committed offences of fraudulent removal of property to prevent distribution among creditors (s.421 IPC), fraudulent execution of a transfer-deed containing false statement (s.423 IPC), and abetment (s.109 IPC).

The Magistrate discharged the accused without examining the merits, holding that (a) the right to cut trees was not property, or (b) even if property, it was situated in the foreign State of Bansda and not subject to British India law and so could not be distributed among creditors in British India; hence disposal could not defeat creditors. The Sessions Judge agreed on the jurisdictional point but accepted (relying on precedent) that the right was property. The complainant sought revision in this Court, which is the present matter.

Legal Issues Presented

Whether the contractual right to cut trees (under the agreement with Bansda State) constitutes "property" and specifically "moveable property" for the purposes of sections 421 and 423 IPC.
Whether a dishonest transfer of moveable property situate in a foreign State (Bansda) can constitute an offence under section 421 IPC by preventing distribution among creditors in British India.
Whether the sale-deed executed in British India containing alleged false recitals gives rise to an offence under section 423 IPC.
Whether the courts below were correct in discharging the accused on the ground that British Indian insolvency or criminal law could not reach property outside British India.

Arguments of the Parties

Complainant's (Petitioner's) Arguments

The complainant alleged that the sale-deed executed by accused Nos. 1 and 2 in favour of accused No. 4 was made with the intention of defrauding him, a creditor, and thereby amounted to fraudulent removal/transfer of property to prevent distribution among creditors (s.421 IPC) and fraudulent execution of a deed containing false statement (s.423 IPC).
The complainant asserted that the pledged charcoal and the right to cut trees were part of the property available to satisfy his claim and that the transfer was intended to defeat that entitlement.

Opponents' (Accused/Defence) Arguments

The counsel for the opponents contended that the right to cut trees was only a personal licence (not transferable) and therefore not "property" within the meaning of the penal sections invoked.
It was argued that the property (if any) was situated in the foreign State of Bansda and therefore was not subject to British Indian insolvency or criminal law; consequently, disposal in Bansda could not defeat creditors in British India.
The opponents urged that the Court should not interfere with the Magistrate's discharge because the dispute is essentially civil and various civil proceedings (including a suit in the Bansda State Court) were pending regarding validity of the deed.
Mr. Thakor (opponents' counsel) contended that the word "property" in section 421 should be interpreted to include only corporeal property, relying on the definition of "moveable property" in section 22 and the arrangement of Chapter XVII of the Code.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Alisaheb v. Mohidin (1911) 13 Bom. L.R. 874	Holds that a contract for cutting trees to be converted into charcoal is an agreement relating to moveable property.	The Court relied on this authority to conclude that the right to cut trees under the agreement with Bansda State is moveable property and therefore falls within the ambit of "property" for the issues in this case.
Yok. Sp. Bank Ltd. v. Curlender & Co. [1926] A.I.R. Cal. 898	Summarised the law that moveable property follows the person and, subject to local-law exceptions, is bound by an adjudication in bankruptcy where the bankrupt is domiciled (as reflected in insolvency law principles).	The Court cited the case as one of the Calcutta decisions that summarised the applicable law on how moveables situate abroad may be treated in insolvency; it observed that the factual circumstances of that case differed from the present matter but used its summary principle to support the general rule.
Sumermull Surena v. Bansilal [1932] A.I.R. Cal. 310	Held that an Insolvency Court in Calcutta would not issue an injunction restraining a creditor domiciled elsewhere from suing in that other jurisdiction to recover immovable property there.	The Court cited this case to show that earlier Calcutta decisions dealt with difficulties arising where property had been or might be taken by third parties under foreign law; it distinguished those decisions from the present question (which concerns property still in insolvent's control).
Naoroji Sorabji Talati, In re (1908) 33 Bom. 462	Held that property of an insolvent situate at Shanghai vested in the Official Receiver in Bombay (the issue addressed was vesting, not how control or possession might be obtained).	The Court relied on this decision to support the proposition that property outside jurisdiction can vest in the official receiver in the forum of insolvency, although the means of obtaining control may require diplomatic or consular assistance.
Penn v. Lord Baltimore (1750) 1 Ves. Sen. 443	Illustrates the Chancery principle that courts may assert jurisdiction or control over property outside their territory in certain equitable contexts.	The Court invoked this historical authority by analogy to show that jurisdictional control over property outside the territory is not an impossibility in equity/insolvency contexts, supporting the view that the insolvent's property "wherever situate" can vest in the insolvency forum.

Court's Reasoning and Analysis

The Court conducted a focused analysis on two central strands: (A) whether the right to cut trees was "property" (and specifically moveable property), and (B) whether a dishonest transfer of such property situate in a foreign State can constitute an offence under section 421 IPC by preventing distribution among creditors in British India.

A. Property / Moveable Character:

The Court accepted the authority of Alisaheb v. Mohidin to conclude that the contractual right to cut trees to make charcoal is moveable property. The decision was treated as directly applicable to the subject-matter of the deed of transfer to accused No. 4.
The opponents' contention that the right was merely a personal licence was noted. The Court observed that nothing on the record established that the right was exclusively a personal licence; the Sessions Judge himself described the right as derived under a contract with the State. The document itself was not on the record, so the question remained for trial-level fact-finding.

B. Jurisdiction, Insolvency and the Effect of Transfers Outside the Territory:

The lower courts had held that property situated in Bansda could not be distributed by British Indian insolvency courts, and therefore its transfer abroad could not defeat creditors under British law. The High Court rejected this as a general proposition.
The Court cited a statement from Halsbury's Laws of England and corresponding insolvency statutes (sections of the Presidency-towns Insolvency Act and the Provincial Insolvency Act) to outline the governing principle: moveable property "follows the person" and, unless the local law where the property is situate prevents it, can be bound by an adjudication in the insolvency forum (i.e., where the bankrupt is domiciled or subject to jurisdiction).
Applying these principles and the cited authorities (including decisions from Bombay and Calcutta High Courts), the Court reasoned that moveable property belonging to the insolvent and situate in a foreign State would ordinarily vest in the receiver in insolvency and the receiver may take steps (including through the insolvent) to recover it so as to distribute it among creditors. Even if recovery may sometimes prove practically difficult, the legal liability of the property to be distributed remains.
Consequently, if the insolvent dishonestly or fraudulently transfers, removes, conceals or delivers such moveable property without adequate consideration with the intent to prevent distribution among creditors according to British Indian law, the elements of section 421 IPC will be satisfied even though the property is abroad.

C. On Section 423 (Fraudulent Execution of Transfer Deed Containing False Statement):

The Sessions Judge had stated that there was no false recital in the deed as contemplated by section 423, but had not discussed the evidence nor given reasons for that conclusion. The High Court noted the absence of reasoned assessment on the evidential record and did not make a final determination on that offence; rather, it concluded that the discharge could not stand on the legal grounds advanced by the lower courts.

D. Interpretation of "Property":

The Court considered the narrower interpretation urged by Mr. Thakor that "property" in section 421 should be limited to corporeal property. It observed that definitions in section 22 of the Code and Chapter XVII are not conclusive for every section and that the General Clauses Act provides a broader definition of "moveable property" as "property of every description" except immoveables. On that basis, the Court concluded that "property" in section 421 is wide enough to include an incorporeal chose in action and that a wide interpretation is appropriate given the mischief the section seeks to prevent.

E. Procedural Outcome / Remand:

The Court found the legal grounds on which the Magistrate and Sessions Judge discharged the accused to be unsustainable. It therefore set aside the order of discharge and remitted the matter to the trial Court for full consideration of the issues and evidence. Barlee, J. concurred, noting that the Magistrate is not bound to frame a charge automatically but must record findings on the relevant issues and then either frame a charge or discharge the accused based on those findings.

Holding and Implications

Holding:

Rule made absolute; the order of discharge is set aside and the case is remitted to the trial Court to be dealt with according to law.

Implications (direct consequences and legal conclusions articulated in the opinion):

The Court expressly held that the contractual right to cut trees (to be converted into charcoal) is moveable property (relying on Alisaheb v. Mohidin).
The Court held that, as a matter of insolvency and private international law principles (as summarized from Halsbury's and relevant insolvency statutes and authorities), moveable property situate in a foreign State ordinarily vests in the official receiver in the insolvency forum and can be subject to distribution among creditors; accordingly, a dishonest transfer of such property intended to prevent distribution among creditors can constitute an offence under section 421 IPC even if the property is physically located abroad.
The Court did not make a final determination on the offence under section 423 IPC (false recital) because the Sessions Judge's conclusion lacked discussion of evidence; that question remains to be addressed by the trial Court on remand.
Direct procedural effect: the accused are no longer discharged; the trial Court must consider the evidence, record findings on the issues, and then either frame charges or discharge the accused after proper consideration. The High Court's order removes the previous legal basis for discharge and requires a merits-oriented disposition at trial.
The opinion clarifies the application of section 421 in cross-border factual settings (property abroad) but does so by applying existing principles and authorities rather than purporting to establish an unrelated new rule of law beyond those principles articulated in the judgment.

Order: Rule made absolute; order of discharge set aside; matter remanded to trial Court.

Judge(s): Divatia, J.; Barlee, J. (concurring on the order). Y.V.D (noted in the judgment text).

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Manchersha Ardeshir Devierwala (Original Complainant), v. Ismail Ibrahim Patel No. 1 And Others (Original Accused), Opponents

Divatia, J.:—

This revisional application is preferred by the original complainant against the order of discharge of the four accused who were charged with offences under sections 421, 423 and 109 of the Indian Penal Code. The discharge order having been confirmed by the Sessions Judge, the complainant has come to this Court in revision.

His case in substance was that he and accused Nos. 1 and 2 were partners in the business of making charcoal out of wood. These two accused had obtained the right of cutting trees and making charcoal from wood in some villages in the Page: 711Bansda State. The charcoal was to be brought to Bulsar in British India for sale. The complainant was the financing partner and after accounts between the parties were made up, these accused had in 1931 pledged some ready made charcoal to the complainant for Rs. 16,000 and had agreed to deliver it to him at Bulsar. As the accused failed to do so, the complainant had filed suits against the accused. One suit was filed in Thana Court in which one Ranchhodji, accused No. 3, who alleged that some of the charcoal was pledged to him, was appointed a receiver by consent of the parties; this Ranchhodji, being afraid that his pledge may not be substantiated, instigated accused Nos. 1 and 2 to pass a sale-deed for a nominal sum to his joint nephew, accused No. 4, of their rights to cut trees under the agreement made with the Bandsa State. It is alleged that this sale-deed of November 13, 1932, was passed with the intention of defrauding the petitioner who was a creditor of accused Nos. 1 and 2 for a large amount. Thereafter, the complainant applied for the adjudication of accused Nos. 1 and 2 as insolvents, and in the insolvency proceedings, accused No. 4 preferred his claim under the abovementioned sale-deed. Therefore, the complainant filed the present complaint alleging that all the four accused had committed the offences of fraudulent removal of property to prevent its distribution among creditors under section 421. Inaian Penal Code, and fraudulent execution of a deed of transfer containing a false statement under section 423, Indian Penal Code, and the abetment of these offences.

The trying Magistrate, without going into the merits of the case, held that the acts with which the accused were charged did not come under those two sections inasmuch as the right to cut trees which had been transferred under the said sale-deed could not be regarded as property, and, secondly, even if it was property, it was not property which could be lawfully distributed among creditors, being situated in the foreign State of Bansda was not subject to the law of Page: 712British India and could not be attached in Bansda State under British law, and hence the disposal of such property in a foreign State could not defeat or delay creditors. On these grounds, the accused were discharged by him.

The learned Sessions Judge, who was approached in revision by the complainant, has held, and in our opinion rightly held, that the right of accused Nos. 1 and 2 under the agreement with the Bansda State to cut trees was property as decided in Alisaheb v. Mohidin, (1911) 13 Bom. L.R 874 but he agreed with the Magistrate that property was not governed by the law in British India, that the receiver in insolvency could not touch the property in the foreign State which was governed by its own laws, and that it could not be said that it could be distributed in British India, and its transfer, therefore, could not be said to be fraudulent.

Now, it seems to be clear on the authority of Alisaheb v. Mohidin (1911) 13 Bom. L.R 874 that the subject-matter of the deed of transfer by accused Nos. 1 and 2 to accused No. 4 is not only property but is also moveable property. That decision lays down that a contract for cutting of trees to be converted into charcoal is an agreement relating to moveable property.

The learned counsel for the opponents contends that the right of cutting trees was only a personal license, and, therefore, not property which can be transferred, and he-relies on some observations of the Sessions Judge that this was only a personal right, but the learned Judge himself has in another part of his judgment stated that the right is derived under a contract with the State, and there is nothing to show from the record that it was only a personal license. The document is not on the record.

The only question that remains is whether it is property which was intended to be prevented from being distributed among creditors according to law. The trees are no doubt Page: 713situated in Bansda State and the agreement between accused Nos. 1 and 2 and the Bansda State relating to the right of cutting trees took place in that State. The sale-deed transferring the right to accused No. 4 has been executed and registered in British India, the insolvency proceedings are in British India, and all the accused are also British Indian subjects. The lower Court has proceeded on the basis as to whether the British. Court had any jurisdiction to annul a transfer of property in foreign jurisdiction and thereby to divest the transferee and to vest the property in the receiver in insolvency, and it replies in the negative on the ground that the foreign Court would not recognise such annulment with, the result that the property could not be distributed among creditors in British India. But this view seems to us to be incorrect. According to the law of Bankruptcy, which, on this point is the same in England as in India, the law imposes on the bankrupt—

“A personal obligation enforceable by the punitive process of the Court to do all acts necessary for completing the title of the trustee to all property situate outside the British dominions………. By the rules of private international law, immoveable property can only be transferred in accordance with the lex rei sitce; moveables, on the other hand, follow the person and, wherever situate, are bound by an adjudication in bankruptcy in the country where the bankrupt is domiciled, unless the particular law of the country where the property is situate specially prevents this.”

Vide Halsbury's Laws of England, 2nd Edn., note, Vol. II, para. 277, page 208; Cf. sections 17 and 33 of the Presidency-towns Insolvency Act and sections 22 and 28 of the Provincial Insolvency Act. In two recent cases, the Calcutta High Court has summarised the law to the same effect, though the points actually decided in them were different from the point arising in the present case (Yok. Sp. Bank Ltd. v. Curlender & Co. [1926] A.I.R Cal. 898 and Sumermull Surena v. Bansilal [1932] A.I.R Cal. 310.

The position, therefore, is that moveable property in a foreign State belonging to the insolvent would ordinarily vest in the receiver in insolvency and the latter can take steps to recover it through the insolvent or otherwise so as Page: 714to make it available and distributable among his creditors. It may be that in some cases be may not succeed in doing so but the liability of the property being distributed among creditors does remain according to the law of British India, and if a dishonest or fraudulent transfer, removal or concealment or delivery of such property, is made by the insolvent without adequate consideration so as to prevent its distribution among his creditors according to our law, the offence under section 421 would be established even if that property is in a foreign State. I think, therefore, that the lower Courts were wrong in holding that no offence was committed under that section and in discharging the accused.

With, regard to the offence under section 423, the learned Sessions Judge says that there was no false recital in the deed of transfer as contemplated by that section, but in his judgment he has not discussed the evidence nor has he given any reasons for saying so.

In the result, the grounds of law in which the order of discharge is based cannot be sustained.

It has been urged by the learned counsel for the opponents that this Court should not, in any case, interfere with the order of discharge as the dispute between the parties is a civil one and various legal proceedings are pending between them, one of which is a suit by the petitioner in the Bansda State Court in which the validity of this deed of transfer is in question. However, the lower Courts have not gone into the merits of the case but have based their decision on the ground that the facts alleged by the complainant do not amount to an offence as British Indian Courts have no jurisdiction over the property. In this application, we have not got the evidence placed and discussed before us and we are therefore unable to say that the dispute is only of a civil nature.

The rule is made absolute, the order of discharge is set aside and the case is sent back to the trial Court to be dealt with according to law.

Barlee, J.:—I agree with the order proposed by my learned brother. This does not of course mean that the Magistrate is bound to frame a charge, for there are several points to be considered, which he has still to consider. He will have to record his findings on all the issues which arise in the case and then either frame a charge or discharge the accused.

On the merits we agree with the learned Sessions Judge that the opponents' right under the contract with the Bansda State was “property”. The principal question for us to decide is whether this right or the proceeds of its sale could have been distributed amongst the creditors in an insolvency had it not been transferred by the accused. The learned Magistrate held in the negative because the right is property outside British India. The learned Sessions Judge agreed with him on the ground that the Insolvency Court cannot annul a transfer of property which is not within its territorial jurisdiction. It seems to us that he has missed the point, for it is an offence to make a transfer which cannot be annulled by an Insolvency Court.

Section 28 of the Provincial Insolvency Act provides that the whole of the property of the insolvent shall vest in the Court or in a receiver and shall become divisible among the creditors.

It has been contended that this must be interpreted to include only the property of the insolvent which is within jurisdiction, on the ground that it must be presumed that the legislature does not intend to legislate in respect of property beyond jurisdiction. But this cannot be conceded; for the corresponding section of the Presidency-towns Insolvency Act, section 17, provides that the property of the insolvent “wherever situate” shall vest in the Official Assignee, and it is, therefore, clear that the legislature does not consider that its jurisdiction is restricted to property within jurisdiction. The reason is that the insolvent himself Page: 716is and must be subject to the jurisdiction of the Insolvency Court, since he must be a person who resides, or carries on business or works for gain within the local area in which the Court has jurisdiction; and he is, therefore, personally subject to the jurisdiction of the Court. This jurisdiction is similar to that claimed by the Court of Chancery over property both moveable and immoveable outside jurisdiction: Penn v. Lord Baltimore. (1750) 1 Ves. Sen. 443

The literature on this subject is scanty. We have been shown no case which is on all fours with the case with which we are dealing. In Naoroji Sorabji Talati, In re, (1908) 33 Bom. 462 it was held that the property of an insolvent situate at Shanghai vested in the Official Receiver in Bombay. The question there was not whether the property had vested in the Official Receiver in Bombay, but how he might get control or possession; and the solution was that he could seek the assistance of the British Consul, who had jurisdiction over the insolvents. Two cases have been cited from an unauthorised report. In Yok. Sp. Bank Ltd. v. Curlender & Co. [1926] A.I.R Cal. 898 the question was entirely different from that at present under consideration. Apparently Mogi & Co., a Japanese firm, was declared insolvent in Japan; and the Yokohama Bank obtained a dividend in Japan. In a contemporaneous or subsequent insolvency in Bombay, the Bank was a creditor and it was held that it was not bound to account for the dividend received out of jurisdiction, as that was not a part of the fund available for distribution among the creditors in Bombay. It is to be noticed that both the Bank and Mogi & Company had a Japanese domicile. It was not argued that moveables in Japan would not have been a part of the fund available for the Indian creditors had they not been transferred; and it seems to have been assumed that they would have been available had the Yokohama Bank had an Indian domicile.

The other case is Sumermull Surena v. Bansilal, [1932] A.I.R Cal. 310 in which it was held merely that an Insolvency Court in Calcutta would not issue an injunction to restrain a creditor domiciled in Bikaner from suing in Bikaner to recover immoveable; of an insolvent situate there. This merely means that the Bikaner creditor was not subject to the personal jurisdiction of the Calcutta Court.

The general result is that the property of an insolvent which is outside jurisdiction vests and can always be distributed, so long as it remains in the possession of the insolvent. In the two Calcutta cases the Courts were not concerned with this question, but with difficulties which had arisen owing to the fact that the property had been taken or was likely to be taken by third parties by due process of a foreign law; and with such questions we have no concern.

Mr. Thakor has contended that the word “property” in section 421 includes only corporeal property. He relied on section 22 for the definition of “moveable property” and on the plan of Chapter XVII of the Code. In his view in none of the other sections of that Chapter, which relate to offences against property, can the word “property” be interpreted as anything but corporeal property.

It is clear that in theft, robbery and receiving stolen property the property must be corporeal property, and very possibly the same can be said about “mischief”. I am not so sure about “criminal breach of trust”. But we do not think it necessary to consider the chapter section by section or to decide exactly whether the word “property” in other sections can only refer to corporeal property, for we are satisfied that there is no rule which restricts the meaning of the word in the section with which we are dealing. The definition in section 22 of “moveable property” is an inclusive definition. It informs us that “moveable property includes corporeal property of every description”, but it does not give us any information about incorporeal property. Page: 718A wider definition is contained in the General Clauses Act, where “moveable property” is denned in section 3, clause (34), as property of every description except immoveable property. The word “property” in section 421 is wide enough to include a chose in action, and it appears to us that we should give a wide interpretation to the word here since the act of dishonestly transferring a chose in action to defraud creditors is within the mischief of the section.

Rule made absolute.

Y.V.D

Manchersha Ardeshir ... v. Ismail Ibrahim Patel...