The Plaintiff and the Defendants in the present suit are residents of Chittagong, who were carrying on business at Rangoon. In 1898 the business of the Plaintiff and his brother, Defendant No. 5, failed, and it is alleged that he thereupon under the advice of Nur Ali, the predecessor of Defendants Nos. 2 to 4, paid Nur Ali a sum of Rs. 50,000 out of his own pocket for the purpose of settling with the creditors of the joint business. In 1899 the Plaintiff and his brother fell out and the latter declined to contribute his share of Rs. 50,000 thus paid by the Plaintiff. The Plaintiff admits that he thereupon on the 5th June 1899, at the instigation of Nur Ali executed in favour of Nur Ali a collusive mortgage bond for Rs. 67,000 in which he gave as security the joint ancestral properties of himself and his brother, signing the bond on behalf of himself and also on behalf of his brother upon the authority of an alleged power-of-attorney. Being subsequently advised that the power-of-attorney had ceased to be operative after the dissolution of the partnership between the Plaintiff and his brother and a mortgage deed executed after such dissolution was not binding upon his brother, the Plaintiff again at the instigation of Nur Ali executed a collusive promissory note for Rs. 5,000 in favour of Nur Ali on the 10th June 1900, on behalf of himself and his brother. In this document also the Plaintiff signed for his brother as his duly constituted agent and his case is that it was intended that Nur Ali should bring a test suit upon the promissory note and in the event of obtaining a decree against both the Plaintiff and Defendant No. 5, should execute the decree against Defendant No. 5 alone. A suit was next to be brought upon the mortgage bond and a similar procedure was to be adopted in respect of it in execution. The Plaintiff does not deny that his scheme from the outset was to defraud his brother. But all did not go smoothly. The Plaintiff returned to Chittagong and was away from Rangoon for nearly three years. It is alleged that during his absence and without any notice to him Nur Ali in 1903 transferred the promissory note to the first Defendant Hadayet Ali. Hadayet Ali then sued upon the note and on the 25th November 1903, obtained a decree against the Plaintiff alone. The decree was subsequently transferred to Chittagong for execution and on the 17th August 1907, attachment of the Plaintiff's immoveable properties was made in the Chittagong District. The Plaintiff thereupon brought the present suit in the Court of the Subordinate Judge of Chittagong on the 6th December 1907, praying for the following reliefs:—
1. That the decree in suit No. 86 of 1903 of the Chief Court of Lower Burmah on the basis of the said on-demand-note, which is without consideration and ineffectual, be declared to be collusive, fraudulent and ineffectual and not binding upon the Plaintiff and the said decree be declared null and void and incapable of execution against the Plaintiff.
2. That an order be made for whatever other relief the Court thinks fit to grant under the circumstances of the case.
Separate written statements were filed on the one hand by Defendant No. 1 Hadayet Ali and on the other by Defendants Nos. 2 to 4, the sons of Nur Ali who had succeeded to his estate upon his death. The Sub-ordinate Judge found in the Plaintiff's favour upon the issues relating to jurisdiction and limitation and res judicata, but he found against the Plaintiff on each of the most important issues which run as follows:—5. Whether the decree in the suit was obtained by fraud as alleged in the plaint? 6. Whether the Defendant No. 1 was a servant benamder of the deceased Nur Ali Chowdhry? 7. Whether the promissory-note-on-demand on which the decree complained against has been based was executed by the Plaintiff under misrepresentation and inducement without consideration as alleged in the Plaint? 8. What relief, if any, can the Plaintiff get in the suit?
The suit having been dismissed the Plaintiff appeals. Although the learned Subordinate Judge finds that there was no fraud on the part of Nur Ali either in the execution of the mortgage deed of the 5th June 1899 or in the execution of the on-demand-promissory-note of the 10th June 1900, or in its subsequent transfer to Hadayet Ali or in the matter of the decree of the 25th November 1903, obtained in the Chief Court of Lower Burmah, he is of opinion that the last finding alone is sufficient for defeating the suit now before us.
We think however that the Plaintiff has succeeded in establishing that he was prevented from making a proper defence to the suit by the fraudulent assurances received from Nur Ali and Hadayet Ali. The learned Subordinate Judge has in our opinion refused on inadequate grounds to accept, the evidence of the Plaintiff and of his witness D'Costa to the effect that Nur Ali in the presence of Hadayet Ali assured the Plaintiff that he would take out a decree against the Plaintiff and his brother Defendant No. 5, but execute it against the latter only, and that relying upon that assurance the Plaintiff went to his home in Chittagong and took no further steps to defend the suit. The Plaintiff admits that one Kala Mia, a neutral friend of the parties, attempted to induce Nur Ali to withdraw the suit, that Nur Ali declined to do so and that the Plaintiff thereupon filed a written statement alleging undue influence in the matter of the promissory note. This admission is not inconsistent with the Plaintiff's allegation that there was a subsequent arrangement between the parties by which Nur Ali agreed to proceed in execution against Defendant No. 5 only. The view that there was some such agreement is further supported by an examination of the various transactions between the parties. To begin with, we must in disagreement with the learned Subordinate Judge hold that the mortgage bond of 1899 was a fraudulent contrivance for hearing Defendant No. 5. The partnership between the Plaintiff and his brother was dissolved on the 31st July 1898 by mutual consent and a notice to that effect was duly published in the local official Gazette, lated the 25th February 1899. There is no reason for doubting that after the dissolution the claims against the Plaintiff amounted to Rs. 67,000 as set out in the schedule to the mortgage bond. The Plaintiff's case is that out of this sum he paid Rs. 50,000 and Nur Ali paid Rs. 2,500 suit that the bond was a wholly collusive affair. It is contended by the Defendant that the whole of this sum of Rs. 67,000 was paid by Nur Ali out of his own pocket. Upon the face of it, this allegation is un-rue, for it appears from the bond that a urn of Rs. 8,000 was not paid by Nur Ali to all while the Plaintiff asserts without ontradiction that a cheque for the sum of Rs. 6,500 issued by Nur Ali in Plaintiff's avour was subsequently dishonoured. It further appears that at the time when Nur Ali is said to have been making these advances to the Plaintiff at an interest of 12 per cent per annum he was himself borrowing money at much higher interest and that his liabilities were then certainly not less than Rs. 2,00,000. In our opinion he was not in a position to lend so large a sum as Rs. 67,000 to the Plaintiff. It is noticeable that Defendants Nos. 2 to 4 do not come forward to depose, nor do they attempt to show either by their account books or by calling any attesting witnesses that any consideration passed. On the other hand the Plaintiff's witness Klusemann states on oath that on the same day that the bond was executed Nur Ali gave the Plaintiff an acknowledgment in the shape of the letter Ex. 13 of the payment of Rs. 50,000 by Plaintiff. The learned Subordinate Judge has declined to believe Klusemann and ordinarily we should in appeal be 10th to interfere with his finding on a question of the credibility of a witness but in the present case this witness as well as the witness D'Costa was examined on commission and we in appeal are in as good a position as the learned Trial Judge to judge of his veracity. We think that having regard to the witness's present position in life and all the circumstances of the case his story as to the character of the bond is substantially true. It is to be noticed that no one denies that the signature on the latter purporting to be that of Nur Ali was his.
The Plaintiff charged his brother's properties when he had no authority to do so. His object was to realise from his brother a part of the Rs. 50,000 he had paid to Nur Ali. The mortgage deed was clearly a fraudulent transaction. The same remark applies to the promissory note executed in the following year. The Defendants allege that Nur Ali lent Rs. 5,000 on this note to enable Plaintiff to pay a creditor named Verappa Chetty. But Nur Ali was then in no better financial position and the Plaintiff's story that the promissory note was executed for the purpose of bringing a test case, to be followed up in the event of success by the larger suit upon the mortgage bond is true.
The Plaintiff's case on this point is supported by his witness Abdul Gani. On the other side we have no evidence whatsoever to prove passing of consideration. Nur Ali's account books would have been very valuable evidence in behalf of the defence. Moreover, if the schedule to the mortgage bond is to be believed Verappa, Chetty, though a former creditor, was not one of the creditors in June 1899. It appears from Ex. 11 that the Plaintiff owed Rs. 15,000 to M.T.T.V Verappa Chetty, which was secured by a mortgage of eleven boats: the Plaintiff swears that the debt was satisfied by making over the boats to the creditors, and the bond has been produced by the Plaintiff in the present case. Did he then again become a creditor subsequently? It is singular that we have no definite evidence upon this point, on either side and we think that the probabilities are that the alleged consideration for the promissory note was a fictitious debt. At that time Rajab Ali had lost all credit and it is not likely that a Chetty would advance a loan of Rs. 5,000 at such a time without any security. We are satisfied that the document was fraudulent, collusive and without consideration. The Court below relies upon a statement of the Plaintiff that he offered to renew the promissory note when he pro-posed to Nur Ali to withdraw the suit, but Plaintiff has offered an explanation which may be accepted.
The Defendants are in not better position in the matter of the assignment of the promissory note by Nur Ali and here again we must differ from the learned Judge's finding upon a question of fact. Hadayet Ali came to Burma without any money and worked for some years as Nur Ali's servant till apparently by means of a, successful marriage he started business on his owrn account. He says he paid Nur Ali Rs. 4,500 for the note. For a man of his position this was a large sum to lay out on an obviously had investment, for from the notification in the Burma Gazette he must have known that Rajab Ali and his brother had dissolved partnership long before the execution of the alleged note, and that so far as Defendant No. 5 was concerned it was extremely doubtful whether he was liable for the debt. The Plaintiff is supported by his witnesses Abdul Bari and Abdul Rasul who state that Nur Ali made a benami transfer to Hadayet Ali who was then a fellow employee in Nur Ali's service. On the other hand Hadayet Ali's brother Ahmed Mian and witness Sayanuthulla depose to a cash payment of Rs. 4,500 to Nur Ali and Hadayet Ali. But the latter witness is on hostile terms to the Plaintiff and the balance of evidence is decidedly in the Plaintiff's favour. We have to observe again that the Defendants have declined to produce any account books to show the payment or receipt of the alleged consideration. The result is that in our opinion the assignment was fraudulent and pari of the general scheme to defraud Defendant No. 5.
Finally we come to the proceedings in the suit in Rangoon. The bond was executed on the 10th June 1900. The suit was instituted on the 9th June 1903, where Rajab Ali was absent at Chittagong Rajab Ali filed his written statement on the 6th July 1903, and Faiz Ali filed his on some date in the same month not dis closed in the evidence. The Plaintiff's case is that shortly before he filed his written statement Kala Mian made an unsuccessful attempt to get Nur Ali to withdraw from the suit; that a few days after that he met Nur Ali in Court and was advised by Nur Ali not to contest the suit; that not satisfied with this assurance he on the 11th August 1903, applied for a commission to examine witnesses; that night or the following night Nur Ali and Hadayet Ali came to his house and assured him that the suit was for his benefit and advised him to leave by the next day's steamer and that he accordingly did so. It is alleged that the witness D'Costa whose father had been in Plaintiff's service and his mother were present at these conversation. We think this story is substantially true. It is argued that the Plaintiff had full knowledge of the suit and that, as he failed to defend it, he alone must be responsible. But the question is whether the Plaintiff was deceived by any promise made by Nur Ali, and in our opinion the reply must be in the affirmative. The Plaintiff was induced into the belief that Nur Ali would obtain the decree against the Plaintiff and Defendant No. 5, but would execute it against the Defendant No. 5 alone. It appears that on the 25th November 1903 the Court after examining the Defendant No. 5 recorded the following order:—“Mr. Burjori after examining the said Defendant says that he cannot carry the case further against him. There is therefore no sufficient evidence on the record to prove what is required, namely, the authority of the second’ Defendant to his brother the first Defendant to borrow the money sued for. The lower-of-attorney which the first Defendant held from the second Defendant was for the purposes of the partnership and this was dissolved in July 1898—two years before the promissory note in question was signed. The suit must be dismissed as against the second Defendant with costs. There will be a decree against the first Defendant who admits execution of the promissory note, but has not appeared or offered any evidence on the other issues, the burden of proving which lay upon him.”
It may be that it was not Nur Ali's fault that the Court declined to give a decree against the Defendant No. 5 but that does not affect the question whether there was fraud upon the Plaintiff, if the Plaintiff was in fact induced by Nur Ali not to defend the suit upon the assurance that the decree would be passed jointly against the two Defendants, but would be executed against the Plaintiff's brother alone.
The result is that we are satisfied that the mortgage bond and the promissory note were executed with the Intention of defrauding the Defendant No. 5, Faiz Ali; that Nur Ali thereafter turned against his confederate and with the intention of defrauding him assigned the promissory note to Hadayet Ali, and fraudulently caused an ex parte decree to be obtained thereupon. We understand that a suit has been instituted upon the mortgage bond for Rs. 67,000. The question whether the bond is a real or fictitious transaction does not directly arise in the present case. It arises incidentally and we desire to make it clear that our finding so far as that bond is concerned is based solely on the evidence before us and is necessarily incidental.
The decree being a fraudulent one, the question is, has the Plaintiff any remedy? Is the Plaintiff debarred from relief, because he was a party to a scheme for defrauding his brother, although as a matter of fact the brother was not defrauded?
Now it is well established that where the contemplated fraud has not been effected, a party to a fraudulent transaction does not lose his right to be relieved from the effect of such a transaction. It is unnecessary to discuss the authorities upon the point, as the question has been firmly set at rest by the Judicial Committee in the case of Petherpermal v. Muniandy(1). In that case a benami deed of a sale was executed in order to defeat the claim of an equitable mortgagee, but his claim was not defeated and the Judicial Committee observed: “The Plaintiff in suing to recover possession of his property, is not carrying out the illegal transaction but is seeking to put every one as far as possible in the same position as they were before that transaction was determined upon. It is the Defendant who is relying upon the fraud and is seeking to make a title to the lands through and by means of it. And despite his anxiety to effect great moral ends, he cannot be permitted to do this. Act, further, the purpose of the fraud having not only not been effected, but absolutely defeated, there is nothing to prevent the Plaintiff from repudiating the entire transaction revoking all authority of his confederate to carry out the fraudulent scheme, and recovering possession of his property. The decision of the Court of Appeal in Taylor v. Bowers(2) and the authorities upon which that decision is based clearly establish this: Synies v. Hughes(3) and In re Great Berlin Steam-Boat Co.(4) are to the same effect. And the authority of these decisions as applied to a case like the present, is not in their Lordships' opinion shaken by the observations of Pry, L.J, in Kearley v. Thomson ((5).”
It is contended however on behalf of the Respondent that the transaction in that case rested merely non the conveyance and that the principle enunciated in that case is inapplicable where, as in the present case, the original relations of the parties had merged in a decree of the Court. It is urged that a party to a collusive decree is bound by it, and reliance is placed upon the cases of Chenvirappa v. Puttappa, Ahmedbhoy v. Vullebhoy(7), [quoting Prudham v. Phillips(8)], Venkataramana v. Viramma(9), Rangamal v. Venkatachari(10) and Varadaraj v. Srinivas(11). In the last two cases, the fraud had been partially carried out, and those cases therefore need not be considered. In the first three however the fraud contemplated does not appear to have been effected.
On the other hand the Allahabad High Court in Param Singh…(Defendant); v. Lalji Mal…(Plaintiff)., held that the Plaintiff in that case was entitled to recover possession of properties in respect of which he had executed a fictitious deed of conditional sale, in order to protect the property from the claims of his son and had suffered judgment to go by default in a suit for foreclosure upon the deed, on the Defendant undertaking that the decree would not be executed, and if executed the property would be restored to him. The learned Judges were of opinion that the Plaintiff was not estopped by the decree, and that even if it were held that the Plaintiff was bound by the decree, he was entitled to insist upon the agreement and on the strength of it to recover possession from the Defendant. The case was not followed by the Bombay High Court in Chenvirappa v. Puttappa. But the Bombay case as well as some of the Madras cases cited above were considered by this Court in the case of Jadunath v. Ruplal(13), and the learned Judges declined to follow those cases, if they laid down anything inconsistent with the decisions of this Court. In the case of Jadunath, there was no decree passed upon the conveyance and the question of the effect of a collusive decree upon one of the parties to it does not appear to have been considered in that case. In a later case, however, Ahhil Prodhan v. Manmotha Nath the Court relieved the Plaintiff from the effect of a collusive ex parte decree. The facts of that case are given in the headnote and are as follows:
“In 1898, a tenant executed a fictitious conveyance of his land in favour of A, with a view to protect himself from invasion of his rights by his landlords. In 1899, he to protect himself from A, who proved unfaithful, induced his landlords to institute a fictitious suit for rent. That suit was decreed on the 7th November 1899. The landlords took out execution of that decree. A thereupon preferred a claim which was disallowed on the 20th January 1900. The decree was subsequently executed, and at the sale which followed the landlords purchased the holding on the 19th March, and possession was delivered on the 5th June 1900. On the 10th April 1900. A sued the tenant and the landlords for declaration of his title on the basis of his conveyance: but on the 23rd July 1900, this suit was withdrawn. In 1906 the landlords turned against the tenant and with the help of the Police took away by force the crops raised by him. On the 15th March 1907, the tenant commenced the present suit for declaration that the entire proceeding's in the rent suit of 1899 were fictitious and that the landlords did not acquire any title on the basis of their purchase at the execution sale. The Plaintiff also alleged that the landlords Defendants agreed to execute a release and in the prayer clause of the plaint he asked for execution of such release by the landlords.”
It was held that as the conveyance in favour of A was a fictitious document, A had no real title to the property and was not defrauded; that the case thus falls within the principle of the decision of this Court in Jadunath Poddar v. Ruplal Poddar and of the Judicial Committee in Petherpermal Chetty v. Munimidi Servai, namely, that to enable a fraudulent confederate to retain property transferred to him in order to effect a fraud, the contemplated fraud must be effected when and when alone does the fraudulent grantor or giver lose the right to claim the aid of the law to recover the property he has parted with. The Plaintiff is consequently not disentitle to protection in a Court of equity. It was declared that the rent suit and all proceedings based thereon were fictitious and had not affected the Plaintiff's title, and the Plaintiff's possession was confirmed.
The two cases referred to in the judgment, viz., Jadunath Poddar v. Ruplal Poddar and Petherpermal Chetty v. Muniandy Servai were both cases in which the Plaintiff sought to be relieved from the effect of a fraudulent conveyance, and not cases where a decree of Court had been passed upon it. Apparently therefore in the opinion of the learned Judges in the case of Akhil Prodhan v. Manmotha Nath, the question whether a party to a fraudulent transaction is entitled to protection in a Court of equity depends upon whether the fraud has been carried out, irrespective of the question whether a collusive decree has been passed between the parties. The learned Judges in dealing with the contention, whether sec. 317 of the Civil Procedure Code barred, the suit, which was overruled by them on the ground that a fictitious decree was passed in a fictitious suit, and that the sale held in execution of that decree was equally fictitious, referred to the observations of Lord Brougham in Bandon v. Becher(15). “A sentence is a judicial determination of a cause agitated between real parties, upon which a real interest has been settled. In order to make a sentence there must be a real interest, a real agreement, a real prosecution, a real defence, a real decision. Of all these qualities, not one takes place in the case of a fraudulent and collusive suit, there is no Judge, but a person invested with the ensigns of a judicial office is misemployed in listening to a fictitious cause proposed to him, there is no party litigating, there is no party Defendant, no real interest brought into question.” It is true that these observations were made in a case where the person who impugned the decree was not a party to it. But he was a tenant in remainder and was treated in argument in that case as having been represented by the parties to the former suit, and the observations were relied upon in the case of Akhil Prodhan as showing the nature of a fictitious and collusive suit.
We agree with the decisions in the cases of Akhil Prodhan v. Manmotha Nath and Param Singh…(Defendant); v. Lalji Mal…(Plaintiff).. We think that the principle that a party to a fraudulent transaction is entitled to relief in a Court of equity as against his fraudulent confederate so long as the fraud contemplated has not been carried into effect, is not inapplicable merely because the party suffers a decree to be passed against him in a fictitious and collusive suit which is only a part of the fraudulent scheme.
But even if the decree cannot be impugned by the Plaintiff, we think that having regard to the agreement that it would not be enforced against the Plaintiff, the latter is entitled to relief. The Bombay High Court in the case of Chenvirappa v. Puttappa is of opinion that such an agreement should be pleaded in the first suit and cannot be made the basis or support of a separate subsequent suit by the Defendant in the earlier case. But we agree with the view taken by the Allahabad Court that the agreement bound the Plaintiff in the first suit not to execute his decree, and that the question whether it barred execution could Dot have been determined in that former suit, and therefore the then Defendant (the present Plaintiff) is not estopped by the decree, and is entitled to have it declared that the decree is incapable of execution.
There is no prayer for injunction, but, we could grant that relief under the prayer for general relief, if it were necessary to grant relief by way of injunction. We are of opinion, however, that it is unnecessary to do so, and it would be sufficient to declare, having regard to the agreement not to execute the decree, that it cannot be executed, a declaration expressly prayed for by the Plaintiff.
It is true that a Court of Justice will not interpose actively in favour of a party who is particeps criminis to an illegal or fraudulent transaction but will leave him to the consequences of his own inequity. But here it is the Defendant who by applying for executing the fictitious decree, sought the assistance of the Court actively in his favour, and the Plaintiff thereupon sought the assistance of the Court to prevent the decree being put into execution.
The result is that the decree of the Court below is set aside and the ex parte decree, dated the 25th November 1903, obtained by the Defendant, is declared incapable of execution. But having regard to the circumstances of the case, each party will bear its own costs in both Courts.
Appeal allowed.