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Cheruthazath Abdulla Haji v. Cheriyandi Ibrayan Kutti
Structured Summary of the Judgment
Factual and Procedural Background
Defendant 2 executed a mortgage for Rs. 5,000 over certain immovable properties in favour of the plaintiff (respondent 1). At the time of the transaction defendants 1 and 2 were in embarrassed financial circumstances. Defendant 5 (the appellant) purchased some of the mortgaged properties at a sale held in execution of decrees obtained against defendant 2 by defendants 3 and 4. The plaintiff preferred a claim before the executing Court; that Court held in favour of the appellant, finding that the mortgage was a colourable transaction intended to save defendant 2's private properties. The plaintiff instituted the present suit seeking a declaration that the mortgage is valid and binding and that the sale to defendant 5 is valid only subject to the mortgage. Issues 4, 5 and 6 (as framed for trial) raised whether the mortgage was executed to defeat or delay creditors (issue 4), whether the plaintiff was a transferee in good faith for consideration (issue 5), and whether the kanom deed was valid and binding on defendants 3 and 4 (issue 6). The District Judge concluded that the mortgage was not void for want of consideration. The present appeal challenges that outcome and engages the question of the applicability and effect of Section 53 of the Transfer of Property Act.
Legal Issues Presented
- Whether the mortgage executed by defendant 2 was invalid because it was executed to defeat or delay the creditors of defendant 2 (i.e., whether the transaction falls within Section 53 of the Transfer of Property Act).
- Whether the plaintiff was a transferee in good faith and for consideration (specifically, whether consideration passed and, if so, its amount).
- Whether the kanom deed was valid and binding on defendants 3 and 4.
- Whether a plea under Section 53 can be raised merely as a defence by an affected judgment-creditor or whether the creditor must previously institute a suit to avoid the transfer (the scope and procedural consequences of the Full Bench decision in Subramania Ayyar v. Muthia Chettiar).
Arguments of the Parties
Plaintiff (Respondent 1)
- Sought a declaration that the mortgage (Ex. A) was a valid and binding transaction.
- Maintained that the sale to defendant 5 was valid only subject to the mortgage in favour of the plaintiff.
Appellant (Defendant 5)
- The executing Court had found in favour of the appellant, holding that the mortgage was a colourable transaction intended to save defendant 2's property from creditors; the appellant relied on that finding.
- Mr. Menon, for the appellant, argued that the transaction was a "sham" — a paper transaction without intention to give it effect — and that a sham transaction would not fall within the purview of Section 53 of the Transfer of Property Act.
- The appellant also relied on authorities (including Abdul Kadar v. Ali Miah and Privy Council observations) to argue that a transaction which is "voidable" under Section 53 may be avoided by acts manifesting intention and need not be set aside only by a prior suit.
Contesting Defendants (Defendants 3 and 4) and Defence Pleadings
- Contended that the transaction was entered into for the purpose of defrauding or defeating the creditors of defendant 2 and was therefore invalid under Section 53; this position appears in the written statements of defendant 3 and defendant 5.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Subramania Ayyar v. Muthia Chettiar (Full Bench) | Where an unsuccessful intervenor in claim proceedings institutes a suit under Order XXI, Rule 63, CPC for declaration of his title as vendee from the judgment-debtor and for cancellation of the summary order dismissing his claim, it is not open to the judgment-creditor to resist the plaintiff's suit on the ground that the sale to the plaintiff was a fraud on the creditors of the vendor unless the transfer had been previously avoided by the creditor in a properly instituted suit. | The Court treated this Full Bench decision as binding and decisive: it "stands in the way of the appellant" and the Court felt itself bound to follow it, resulting in dismissal of the appeal. |
| Palaniandi Chetti v. Appavu Chettiar | Addressed the procedural question whether the issue is one of a transaction being void or voidable under Section 53 and the plaintiff's locus to sue; influenced the framing of issues in the present case. | Referred to as an antecedent Division Bench decision relied upon by the Court and as part of the chain of authority supporting the Full Bench approach; Court adhered to its view. |
| Abdul Kadar v. Ali Miah (Calcutta High Court) | Held that "voidable at the option" does not mean a suit must be instituted; a person entitled to avoid may do so by any act manifesting intention and not necessarily by a suit. | Cited by appellant's counsel as supporting avoidance by acts rather than suit; the Court reviewed it but found it not sufficient to displace the Full Bench and other contrary authorities and therefore did not accept it as overruling the Full Bench approach. |
| Bijoy Gopal Mukerji v. Krishna Mahishi Debi (Privy Council) | Observation that when a transaction is voidable, it may be avoided at the option of the party affected by it. | Cited by appellant's counsel; the Court noted the observation but did not treat it as displacing the Full Bench decision binding on the Court in this jurisdiction. |
| Muthukumara Chetti v. Anthony Udayar (Division Bench) | Decision to similar effect as to avoidance of transactions described as voidable. | Cited by appellant's counsel; noted by the Court but not accepted as sufficient to overturn or depart from the Full Bench ruling. |
| Hakim Lal v. Mooshar Sahu (Mookerji, J.) and Musahar Sahu v. Lala Hakim Lal (Privy Council) | Authority for the proposition that to avoid multiplicity and divergence of judicial opinion there should be one suit (akin to an administration suit) in which the matter is directly put in issue, with ordinary appeals available. | The Court (Seshagiri Aiyar, J.) invoked this line of authority to justify the desirability of a single suit approach and to weigh the competing difficulties; it supported adherence to earlier decisions favouring centralized adjudication rather than multiplicity of conflicting suits. |
| Chatterput Singh v. Maharaj Bahadur | Referenced as an authority touching the requirement that a properly instituted suit is the appropriate forum to set aside transfers affecting creditors' rights. | Cited by the Court as one of the precedents supporting the view that a suit should be brought to set aside the transfer; used to justify adherence to the one-suit approach. |
| Burjorji Dorabji Patel v. Dhunbai (Telang, J.) | Referenced as a decision directly touching the point that without bringing a suit it is not open to a defendant to plead that the transaction is invalid. | Cited by the Court as part of the body of authority supporting the requirement of a suit to avoid transfers under Section 53; weighed against decisions cited by the appellant. |
| Ishivar Timappa v. Devar Venkappa Shanbog (Sir Lawrence Jenkins, C.J.) | Decision holding that, without bringing a suit, it is not open to a defendant to plead that the transaction is invalid. | Referred to by the Court as authoritative support for the view that a defendant cannot simply raise the defence of invalidity under Section 53 in the absence of a prior suit by the creditor; used to reject the contention that avoidance can be effected other than by suit. |
Court's Reasoning and Analysis
The Court began by identifying the central statutory provision at issue: Section 53 of the Transfer of Property Act, which makes transfers of immovable property made with intent to defraud prior or subsequent transferees or to defeat or delay creditors voidable at the option of any person so defrauded, and provides a presumption where transfers are gratuitous or for grossly inadequate consideration.
The Court examined the evidence and submissions: the appellant relied on evidence that, if believed, indicated the transaction's object was to defeat defendant 2's creditors (defendant 2 being in embarrassed circumstances and the plaintiff a close relation). Mr. Menon for the appellant argued the transaction was a "sham" — a mere paper transaction without intention to give it effect — and that a sham would not fall within Section 53. The Court observed that whether the transaction was a sham or an honest transfer intended to secure an interest for the plaintiff, if its effect was to defeat creditors it fell squarely within the mischief of Section 53.
However, the Court confronted precedent governing the procedural consequences of Section 53 in execution/claim proceedings. The Full Bench decision in Subramania Ayyar v. Muthia Chettiar held that a judgment-creditor cannot resist a vendee-plaintiff's suit (to set aside an executing Court's adverse order) on the ground that the sale was a fraud on creditors unless the creditor had previously avoided the transfer by a properly instituted suit. The Court held that this Full Bench ruling was binding and decisive in the present case.
The appellant's counsel sought reconsideration of the Full Bench approach and relied on authorities (including Abdul Kadar v. Ali Miah and Privy Council observations) that suggested a voidable transaction might be avoided by acts manifesting intention and not necessarily by suit. The Court reviewed those authorities but concluded they did not overturn or undermine the Full Bench decision. The Court noted that some contrary authorities existed from the same High Court and other jurisdictions but declined to depart from the Full Bench ruling which it regarded as binding.
Justice Seshagiri Aiyar, concurring, emphasized the conceptual distinction between sham (colourable) transactions where the transferee has no real interest (and hence lacks locus to sue) and transactions where an interest is intended to be secured but the effect is to defeat creditors. He agreed that both classes fall within Section 53 if they defeat creditors, but explained that the Full Bench decisions aimed to ensure coherence in adjudication by requiring a creditor to pursue a direct suit to avoid the transfer to prevent multiplicity and conflicting decisions.
Holding and Implications
APPEAL DISMISSED
Holding: The Court dismissed the appeal (with costs to respondent 1), applying and adhering to the Full Bench decision in Subramania Ayyar v. Muthia Chettiar. The Court held that a defence founded on Section 53 cannot be raised in the circumstances described unless the creditor who claims to be affected has previously avoided the transfer by instituting a proper suit.
Implications: - The direct consequence for the parties is that the appellant (defendant 5) could not successfully resist the plaintiff's suit on the sole ground of a Section 53 defence in the absence of a prior suit by the creditor to avoid the transfer; the appeal was therefore dismissed and costs were awarded to respondent 1. - The Court adhered to existing Full Bench authority and did not lay down a new precedent reversing that approach. The judgment acknowledges potential practical difficulties (such as apparent unfairness to parties who obtained favourable executing-court orders) but declines to depart from the binding Full Bench decision and related authorities that favour centralized adjudication to avoid multiplicity and conflicting decisions.
End of summary. This summary reflects only the contents of the provided opinion and does not add facts or inferences beyond that text.
The Judgment of the Court was delivered by
Abdur Rahim, J.:— Defendants 1 and 2 were doing some business and got into embarrassed circumstances about the date of the transaction in question. That transaction is a mortgage of Rs. 5,000 executed by defendant 2 on certain properties belonging to him in favour of the plaintiff, respondent, 1 before us Defendant 5 in the suit, the appellant in this appeal, is a purchaser of some of the properties at a sale held in execution of decrees obtained against defendant 2 by defendants 3 and 4. The plaintiff preferred a claim before the executing Court and that Court held in favour of the appellant. The finding of the executing Court was that the mortgage was a colourable transaction intended to save defendants 2's private properties in the calamity that was in view. The plaintiff has filed the present suit in order to have it declared that the mortgage is a valid and binding transaction and that the sale to defendant 5 is valid only subject to this mortgage. The order of the Court executing the decree would have the effect under the Code of Civil Procedure of concluding the rights of the parties if no suit was instituted. The main question which was tried before the learned District Judge was set forth in issues 4, 5 and 6. I think, all taken together, they were meant to raise the question whether the mortgage in question was invalid, having been executed to defeat or delay the creditors of defendant 2. That is the exact language of issue 4. Issue 5 raises a more particular question, whether the plaintiff was a transferee in good faith and for consideration. Issue 6 says: “Whether the kanom deed is valid and binding on defendants 3 and 4?” The evidence bearing on the point is fully treated in the judgment of the Acting District Judge and his conclusion is, whatever motives might have led the plaintiff into the transaction, the mortgage was not void for want of consideration. He seems inclined to find that at least Rs. 2,800 were paid for Ex. A, if not more. But it is not necessary to express any opinion on the question of fact whether any consideration passed between the parties and if so, what was the amount advanced by the plaintiff. The whole case of the contesting defendant was that the transaction was entered into for the purpose of defrauding the creditors of defendant 2 and was invalid on that ground. That is what is expressly stated in paras. 3 and 4, of the written statement of defendant 3 and defendant 5's written statement also is to the same effect. The Issues, as I have already stated also raise the same question, that is, in effect, whether the transaction was one which came within the purview of Section 53 of the Transfer of Property Act. No doubt the District Judge, in para. 9 of his judgment, states:
“The form of these issues (issues 5 and 6) appears to be due to the fact that, when they were framed, it was not clear that, as decided in Palaniandi Chetti v. Appavu Chettiar(1), the question, whether the mortgage was voidable under Section 53 of the Transfer of Property Act, did not arise and the only question was, whether it was void.”
2. If the transaction came within the purview of S. 53 at all, then whether it was called void or voidable would not make any difference, if by “void” is meant, as apparently it was intended by the parties to mean, a transaction for which there was no consideration.
3. Section 53 of the Transfer of Property Act, says:
“Every transfer of immovable property, made with intent to defraud prior or subsequent transferees thereof for consideration, or co-owners or other persons having an interest in such property or to defeat or delay the creditors of the transferor, is voidable at the option of any person so defrauded, defeated or delayed. Where the effect of any transfer of immovable property is to defraud, defeat or delay any such person, and such transfer is made gratuitously or for grossly inadequate consideration, the transfer may be presumed to have been made with such intent as aforesaid.”
4. Now the evidence on which the learned counsel for the appellant relied would, if believed, show that it was a transaction, the object of which was to defeat the creditors of defendant 2. Defendant 2 was in embarrassed circumstances at the time, the plaintiff was a close relation of his, and if the allegations of defendant 5 are well founded it might well be that the transaction was entered into with the intention of defeating the creditors of defendant 2. That was the case put forward by the appellant. But then Mr. Menon has argued for the appellant that the transaction was a “sham” and that if it is a sham, it does not come within the purview of Section 53 of the Transfer of Property Act. He says that it was merely a piece of paper got up by the parties and there was no intention to give effect to it at all in any way. No doubt if it was only a paper got up simply for amusement's sake S. 53 will not apply. But that is not the case of Mr. Menon's client. His case is that there was a very serious intention in fact for executing Ex. A, and that was to defeat defendant 2's creditors. It is clear that effect was intended to be given to it, if not between defendant 2 and the plaintiff, at least so far as the claims of defendant 2's creditors are concerned, and that is just the case which is covered by Section 53 of the Transfer of Property Act. Whether we call that a sham transaction or void, it does not make the slightest difference. The legislature calls it voidable, because until it is set aside it has certain legal consequences.
5. If that was the nature of the transaction as was the case of the defence, the Full Bench ruling of this Court reported in Sabramania Ayyar v. Muthia Chettiar(2), to which my learned brother was a party, stands in the way of the appellant. It decides:
“Where an unsuccessful intervenor in claim proceedings institutes a suit under O. 21, R. 63 of the CPC, for declaration of his title as vendee from the judgment-debtor and for cancellation of the summary order dismissing his claim it is not open to the judgment-creditor (defendant) to resist the plaintiff's suit on the ground that the sale to the plaintiff was a fraud on the creditors of the vendor, unless the transfer had been previously avoided by the creditor in a properly instituted suit;”
6. That is to say, S. 53 cannot be pleaded merely as a defence: a suit has to be instituted by the creditor whose rights are affected by the transaction to have that transaction set aside. Until then, no defence founded on S. 53 can be pleaded. That is exactly this case, except that here we are concerned with a mortgage instead of a sale which, it is not suggested, can make any difference. The Full Bench decision followed another decision of my learned brother sitting in a Division Bench reported in Palaniandi Chetti v. Appavu Chettiar. Mr. Menon strongy urged upon us that the Full Bench ruling required reconsideration, and has referred to several decisions bearing upon the question which be says were not placed before the Full Bench. One of the cases directly bearing on the point is a decision of the Calcutta High Court reported in Abdul Kadar v. Ali Miah(3). There it was held that “voidable at the option” does not mean that there must be a suit instituted in order to set aside the transaction; it is open to a person who has a right to avoid a transaction within the meaning of S. 53 to avoid it by any act manifesting his intention, and it need not necessarily be done by a suit. He has also referred to the ruling of the Privy Council in Bijoy Gopal Mukerji v. Krishna Mahishi Debi(4) and has relied on the observation contained in a passage of the judgment of their Lordships at p. 333 where they say that, when a transaction is voidable, it may be avoided at the option of the party affected by it.
7. The ruling in Muthukumara Chetti v. Anthony Udayar(5) of a Division Bench of this Court is to a similar effect. Then Mr. Menon points out that there had been a number of decisions of this Court which were directly opposed to the ruling of the Full Bench in Subramania Ayyar v. Muthia Chettiar. Some of those cases are referred to in the judgment of my learned brother in Palaniandi Chetti v. Appavu Chettiar. It is also pointed out that the language of Section 53 of the Transfer of Property Act, does not in any way imply that a suit has to be instituted to set aside the transaction if it is sought to be avoided by the creditor or creditors affected by it. No doubt the view of the law propounded in the Full Bench decision may lead to complications and difficulties, as in this case. Supposing the transaction to have been-designed to defeat creditors, the appellant who is pre-judicially affected by it cannot plead this as a defence; the respondent-plaintiff's suit has to be decreed and the order of the executing Court nullified, the appellant being obliged to institute a suit to have the transaction set aside, although the order of the executing Court is in his favour. In fact there is great force in Mr. Menon's argument that in such cases the proceedings before the executing Court would become more or less illusory. I must say that if the matter were res integral, I should have been inclined very seriously to consider the whole question. But my learned brother, who has been a party to both the cases cited above, adheres to his view, and I feel myself entirely bound by the Full Bench decision.
8. The appeal must therefore be dismissed with costs of respondent 1.
Seshagiri Aiyar, J.:— I entirely agree with my learned brother that in the circumstances of this case the transaction must be deemed to be one in which the parties intended that an interest should be secured to the plaintiff in the property mortgaged to him. Defendant 5, in his written statement, apparently understood the transaction in that light. Therefore it is not open to the learned counsel for the appellant now to say that this was a case of a sham transaction-altogether. I think it however desirable to remove certain misconceptions regarding the effect of the Full Bench decision, in Subramania Aiyar v. Muthia Chettiar. All transactions, whether they are sham or are intended to secure some interest in the property, are within the mischief of Section 53 of the Transfer of Property Act, if their effect is to defeat or defraud creditors. In some of them there may be no intention at all that the transferee should have any interest in the property. Such transactions are generally known as sham or colourable transactions. In other cases, e.g gifts to relations or sales for inadequate consideration, there may be an intention to transfer the property, but the effect of the transfer would be to defeat or delay creditors. Therefore both classes of cases are within the purview of Section 53 of the Transfer of Property Act. The essential difference between a sham transaction and the transaction of the other class which I have just now mentioned as affecting the position of the defendant in a suit is this: in the case of a sham transaction, where there is no intention to transfer property, the defendant can answer a person who comes into Court to set aside the adverse order passed in execution proceedings:
“You have no locus standi to bring the suit, because you have no interest in the property as nothing has been secured to you by the transfer. You are only a screen for the real owner and therefore you have no right to bring the suit.”
9. That is the reason which actuated me at any rate when I consented to an issue being remitted in the case in Palaniandi Chetti v. Appavu Chettiar. We wanted to ascertain in that case whether the plaintiff who brought the suit had any interest which enabled him to contest the position of the defendant. I think it necessary to draw attention to this aspect of the case, because a great many misconceptions have grown round the Full Bench decision in Subramania Ayyar v. Muthia Chettiar and round the decision in Palaniandi Chetti v. Appavu Chettiar. Now Mr. Menon has asked us to reconsider the decision in the Full Bench case. He has quoted a large number of cases and he says he has not quoted the whole list of cases bearing on the point. Let us take it that he has quoted the best of those he has collected. I shall first take Abdul Kadar v. Ali Miah, a decision of two Judges of the Calcutta High Court, which is directly in point. It is permissible to point out that the learned Judges seem to have ignored the observations of Mookerji, J., in Hakim Lal v. Mooshar Sahu(6), which decision was confirmed by the Privy Council in Musahar Sahu v. Lala Hakim Lal(7); they seem to have ignored also the decision in Chatterput Singh v. Maharaj Bahadur(8). They have not referred to the opinion of Telang, J., in Burjorji Dorabji Patel v. Dhunbai(9) which directly touches this point, and to another decision of Sir Lawrence Jenkins, C.J, a very high authority, in Ishivar Timappa v. Devar Venkappa Shanbog(10), in which the learned Judge has held that, without bringing a suit, it is not open to a defendant to plead that the transaction is invalid. No doubt there are some cases in Madras the other way, but the point we are now discussing was not directly raised in them. Mr. Menon has asked us to say that because of these decisions the matter should be referred to a Full Bench of five Judges. It is clear that a matter which has not been considered directly should not be regarded as an authority. Take the latest decision of the Judicial Committee. The Judicial Committee had been allowing appeals under the Land Acquisition Act for any number of years, and when their attention was drawn to Section 54 of the Land Acquisition Act, they put an end to the practice and refused to allow further appeals under the Act for a number of years, the view apparently being that if the matter was not considered directly, the decision should not be regarded as binding on Courts. It is only where the matter has been debated by counsel at the Bar, and where a considered judgment has been given, that counsel is entitled to say that decision has not been considered. For these reasons I am of opinion that nothing that has been said this evening by Mr. Menon has in any way shaken my opinion regarding the soundness of the decisions in Palaniandi Chetti v. Appavu Chettiar and in Subramania Ayyar v. Muthia Chettiar. I adhere to them. In my opinion there will be no difficulty in giving effect to them.
10. There is one matter to which my learned brother has drawn attention. It is a very serious matter, and I think it requires further consideration. For example, the person in whose favour an order has been passed is in the unfortunate position of not being able to defend that order in the suit. No doubt, that is a serious position. But there are other difficulties the other way. Any number of persons may raise similar defences in different suits by a person to whom property has been transferred. They may be in different Courts. There may be different decisions, one holding that the transaction is an honest one, another that it is a sham one and a third that it is for inadequate consideration. In order to avoid multiplicity of proceedings, and in order to avoid possible divergence of judicial opinion, it has been ruled by Mookerjee, J., in Hakim Lal v. Mushahar Sahu, following Chatter put Singh v. Maharaj Bahadur, that there should be one suit like an administration suit in which the matter should be directly put in issue, and it should be open to appeal and second appeal. No doubt the difficulties pointed out by my learned brother are of a very serious character, but the other difficulties outweigh them. I am therefore of opinion that the decisions to which I was a party should be adhered to. I agree in the order proposed by my learned brother.
S.N/R.K
11. Appeal dismissed.
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