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Citation Codes
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Case Number
Advocates
  • Messrs K. Krishnaswami Aiyangar and S. Ranganadha Aiyar for the Appellants.
  • Mr. B. Somayya for the Respondents.
Judges
  • Devadoss
  • Sundaram Chetty, JJ.
Acts
  • Clause 6 of Section 16 of the old Act corresponding to Clause 7 of Section 28 of the present Act corresponded to Section 53 of the present Act.
  • SECTION 34 PROVINCIAL INSOLVENCY ACT
  • provisions in the English Act and the Provincial Insolvency Act,
  • clause 7 of Section 28. controls the provisions of Section 53.
  • Section 53 and that of Section 54. In Section 53 the clause
  • SECTION 36 PROVINCIAL INSOLVENCY ACT
  • provision in Section 28, Clause 7. Section 51
  • SECTION 53 PROVINCIAL INSOLVENCY ACT
  • Clause 7 of Section 28 govern Section 53.
  • Section 43 of the English Act
  • Section 16(6) of the old Act
  • provision in Section 28(7)
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Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Messrs K. Krishnaswami Aiyangar and S. Ranganadha Aiyar for the Appellants.
  • Mr. B. Somayya for the Respondents.
Judges
  • Devadoss
  • Sundaram Chetty, JJ.
Acts
  • Clause 6 of Section 16 of the old Act corresponding to Clause 7 of Section 28 of the present Act corresponded to Section 53 of the present Act.
  • SECTION 34 PROVINCIAL INSOLVENCY ACT
  • provisions in the English Act and the Provincial Insolvency Act,
  • clause 7 of Section 28. controls the provisions of Section 53.
  • Section 53 and that of Section 54. In Section 53 the clause
  • SECTION 36 PROVINCIAL INSOLVENCY ACT
  • provision in Section 28, Clause 7. Section 51
  • SECTION 53 PROVINCIAL INSOLVENCY ACT
  • Clause 7 of Section 28 govern Section 53.
  • Section 43 of the English Act
  • Section 16(6) of the old Act
  • provision in Section 28(7)
See more information ...
Smart Summary

Concise Analytical Summary of the Opinion

Factual and Procedural Background

These appeals challenge an order of the District Judge of Anantapur that annulled certain voluntary transfers of property pursuant to Section 53 of the Provincial Insolvency Act. The appellants argued that Section 53 did not apply because the transfers were made more than two years before the date of the adjudication order. They contended that the phrase "is adjudged insolvent" in Section 53 must mean the date of the adjudication order itself and not the date of presentation of the petition on which the adjudication was based. The central procedural question presented to the court was whether applications to set aside voluntary transfers under Section 53 lie where the transfer was more than two years before the adjudication order but within two years of the presentation of the petition that led to adjudication. The matter proceeded with examination of statutory interpretation, relevant precedent, and factual findings on the bona fides of specific transactions (Ex. III, Rx. XIX, Ex. XVI), concluding with dismissal of the appeals.

Legal Issues Presented

  1. Whether the two-year period in Section 53 of the Provincial Insolvency Act is to be calculated backwards from the date of the order of adjudication, or from the date of presentation of the petition on which the adjudication was made.
  2. Whether Clause 7 of Section 28 (which provides that the order of adjudication relates back to the date of presentation of the petition) governs the operation of Section 53.
  3. Whether voluntary transfers that fall within two years of the date of presentation of the petition (but more than two years before the adjudication order) are voidable under Section 53.

Arguments of the Parties

Appellants' Arguments

  • Section 53 does not apply because the transfers were made more than two years before the date of the adjudication order.
  • The phrase "is adjudged insolvent" should be read to refer to the date of the adjudication order and not the date of presentation of the petition on which adjudication is made.
  • Clause 7 of Section 28 cannot be used to alter the plain meaning of Section 53; if the Legislature intended the period to run from presentation of the petition it would have used language similar to Section 54 (which expressly refers to petitions presented within three months).

The opinion does not present a separate, detailed list of the respondents' party-by-party arguments in the same explicit format; instead the respondent positions are reflected through the court's reasoning, statutory construction, and citation of authorities.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Sankaranarayana Aiyar v. Alagiri Aiyar (1918) 35 MLJ 296 Held that adjudication referred to in the relevant section must be treated as made on the date of presentation of the petition (i.e., relation back to presentation date). The court treats this authority as controlling for their High Court, endorses its reasoning, and relies on it to conclude that the two-year period in Section 53 is to be calculated from the date of presentation of the petition.
Reis, In re. Clough, Ex parte (judgment of Wright, J.) Distinguishes between "adjudicated bankrupt" and "becoming bankrupt"; construes "becoming bankrupt" as commencing with the first available act of bankruptcy within the three months before petition presentation. The court cites Wright, J.'s observation to note a distinction in English phrasing, but holds that Indian Section 28(7) must not be overlooked and that the relation-back clause should govern Section 53.
Rakhal Chandra Purkait v. Sudhindra Nath Bose (1904) 1 K B 451 at 455 Calcutta High Court: provisions of Provincial Insolvency Act to be read with Section 16(6) (relation-back provision in old Act). The court cites this case as supporting the view that relation-back provisions must be read into the section governing voidable transfers; the decision is used as corroborative authority for calculating the period from presentation.
Sheonath Singh v. Munshi Ram Bench of Allahabad High Court concurred with the view taken in Sankaranarayana Aiyar and with the policy inherent in that view. The court records that this authority concurs with the Madras High Court's approach and thereby strengthens the weight of supporting precedents favouring relation back to presentation of the petition.
Nagindas v. Gordhan Das Held that the two-year period in Section 53 is to be calculated from the date of the adjudication order and not from the date of presentation of the petition. The court explicitly dissents from this view, noting that the Nagindas judgment did not discuss at length whether Clause 7 of Section 28 controls Section 53, and rejects its conclusion in favour of the relation-back interpretation.
Ghulam Muhammad v. Panna Ram (1922) 72 I C 433 Lahore High Court reached the same conclusion as Nagindas (i.e., two years from adjudication order). The court notes this decision but finds its reasoning unconvincing on the question whether Section 16(6)/Section 28(7) should be read into the relevant provision; the court follows the opposite view.
Madhu Sardar v. Khitish Chandra Barterjee (1914) I.L.R. 42 C 289 Held that Section 34 restricts operation of Clause 6 of Section 16 and that Section 34's provision regarding assets realized in execution is an exception to the general rule in Section 16(6). The court cites this decision to acknowledge that specific exceptions exist, but on careful consideration holds that the two-year period under Section 53 should nonetheless be calculated from the date of presentation of the petition.
Rakhal Chandra Purkait v. Sudhindra Nath Base (1919) ILR 46 C 991 (Calcutta decision) Approached the question in alignment with the relation-back interpretation. The opinion references this decision as part of the cluster of authorities supporting reading relation-back provisions into the section governing voidable transfers.

Court's Reasoning and Analysis

The court's analysis proceeds from textual interpretation, statutory context, canons of construction and policy considerations:

  1. Text vs. context: The court begins by acknowledging that if Section 53 were read in isolation, a plausible argument exists that "is adjudged insolvent" refers only to the date of the adjudication order. The court recognises the textual difference between Section 53 ("if the transferor is adjudged insolvent within two years after the date of the transfer") and Section 54 (which expressly ties the period to petitions presented within three months).
  2. Relation-back clause: The court then identifies Clause 7 of Section 28 as a general provision stating that an order of adjudication shall relate back to and take effect from the date of presentation of the petition on which it is made. It treats Section 28(7) as a general, governing provision applicable to dealings by or with the insolvent unless a specific exemption exists.
  3. Canon of construction and reconciliation of sections: Applying the canon that statutes should be read so as not to impute inconsistency to the Legislature, the court holds that where a general provision (Section 28(7)) can be reconciled with a specific provision (Section 53), the provisions should be read together rather than allowing a single phrase in one section to override a clear general clause.
  4. Comparative law and prior English authority: The court examines the corresponding English provisions (including Section 43 of the English Act and Wright, J.'s observations in Ex parte Clough) but notes that the Indian Legislature enacted an explicit relation-back clause (Section 28(7)) that differs in application from the English rule (which relates back to the act(s) of bankruptcy). Therefore, the court gives primacy to the domestic statutory scheme.
  5. Precedent and consistency: The court surveys relevant Indian judicial authorities. It follows the Madras High Court decision in Sankaranarayana Aiyar v. Alagiri Aiyar and related supporting decisions (including the Calcutta decision Rakhal Chandra Purkait and the Allahabad concurrence), and it distinguishes and expressly rejects the contrary views expressed in Nagindas v. Gordhan Das and the Lahore decision in Ghulam Muhammad v. Panna Ram for reasons explained (noting those decisions did not adequately address whether Section 28(7) governs Section 53).
  6. Policy considerations: The court emphasises the policy of the Insolvency Act — preventing fraudulent preferences and fraudulent transfers — and observes that the two-year period specified in Section 53 should not be made dependent on the possible delay of the court in entering an adjudication order. To allow operation to depend on judicial delay would undermine the Act's policy and could permit fraudulent transfers close in time to petition presentation to escape attack merely because adjudication occurred later.
  7. Conclusion on statutory construction: Taking the statutory text, Section 28(7)'s general application, canons of construction, policy and binding or persuasive precedent together, the court concludes that the period of two years in Section 53 must be calculated backwards from the date of the presentation of the petition on which the adjudication is made.
  8. Factual application to the appeals: On the merits, the court affirms the District Judge's factual findings that specific purchases (the purchase evidenced by Ex. III, the transaction evidenced by Rx. XIX, and the sale evidenced by Ex. XVI) were not made in good faith. The court notes missing documentary evidence (e.g., mortgage bond, promissory note), failure to make inquiries in suspicious circumstances and absence of supporting account-books, and accepts the trial judge's credibility findings. Accordingly, the transactions are held voidable/void as against the Official Receiver.

Holding and Implications

Holding: The court holds that the two-year period mentioned in Section 53 of the Provincial Insolvency Act is to be calculated backwards from the date of presentation of the petition on which the adjudication is made. The appeals were dismissed and costs were awarded against the appellants.

Direct consequences for the parties:

  • The District Judge's annulment of the impugned transfers is sustained insofar as the transfers fell within two years of the presentation of the petition (even if more than two years before the formal adjudication order) because the period is to be reckoned from petition presentation.
  • The court affirms the trial judge's findings that specific transactions (those evidenced by Ex. III, Rx. XIX and Ex. XVI) were not effected in good faith and are therefore void against the Official Receiver.
  • The appeals fail and are dismissed with costs.

The opinion bases its statutory interpretation on the domestic relation-back provision (Section 28(7)), precedential decisions supporting that view, and the policy objectives of the Insolvency Act. The court expressly dissents from contrary High Court decisions that held the two-year period to run from the date of the adjudication order.

Show full summary ...

    Raohamadugu Rangiah v. Y.V. Appaji Rao

    1. These appeals are against the order of the District Judge of Anantapur annulling certain transfers of property under Section 53 of the Provincial Insolvency Act. It is contended for the appellants that Section 53 of the Act does not apply as the transfers of property were more than two years before the date of the adjudication of the insolvent. Ft is urged that the expression "is adjudged insolvent" can only refer to the adjudication of the insolvent and not to the date of the presentation of the petition on which the adjudication was made. The question for determination is, does an application to set aside a voluntary transfer lie under Section 53 of the Provincial Insolvency Act if the transfer is more than two years from the date of the order of adjudication but within two years from the date of the presentation of the petition on which the adjudication was made? This point is covered by authority so far as our High Court is concerned.

    2. In Sankaranarayana Aiyar v. Alagiri Aiyar (1918) 35 M L J 296 Oldfield and Sadasiva Aiyar, JJ., considered this point at considerable length and came to the conclusion that the adjudication referred to in section 36 of the old act had to be treated as made on the date of the presentation of the petition on which the insol-vent was adjudicated. It is contended that this decision is wrong and is opposed to the view of the Bombay and Lahore High Courts. The argument is that under Section 53 the period of two years is to be calculated backwards from the date of adjudication as the clause "if the transferor is adjudged insolvent within two years after the date of the transfer" can only mean the date of the order of adjudication and not the date of the presentation of the petition on which the adjudication is made, that clause 7 of section 28 cannot govern the plain meaning of the words in Section 53, and if the Legislature intended that the two years should be calculated backwards from the date of the presentation of the petition the expression "is adjudged insolvent" would not have been used, for in Section 54 it is clearly enacted that the transfer should be within three montijs of the petition presented for adjudication. No doubt there is a difference between the wording of Section 53 and that of Section 54. In Section 53 the clause is Any transfer... shall, if the transferor is adjudged insolvent within two years after the date of the transfer, be voidable....

    3. Section 54 is Every transfer of property... shall, if such person is adjudged insolvent on a petition presented within three months after the date thereof, be deemed fraudulent and void....

    4. If Section 53 stood alone, it might be contended with some show of reason that the expression ''is adjudged insolvent" can only mean the order of adjudication, but in clause 7 of section 28 it is enacted that an order of adjudication shall relate back to and take effect from the date of the presentation of the petition on which it is made. The question is, does Clause 7 of Section 28 govern Section 53. It is suggested that Clause 7 is not an independent section as in the English Act and therefore it cannot be held to govern the provisions of section 53. This argument is fallacious. Section 28 lays down the consequences that flow from the order of adjudication. It is a general provision relating to adjudication and the consequences of adjudication. Section 28(7) is therefore a general clause which applies to all dealings by or with the insolvent unless any particular dealing is expressly exempted from its operation.

    5. Section 53 is based upon the corresponding provision in the English Act and in interpreting Section 53 we must take into consideration what the Law of Bankruptcy is under the English Act. Reliance is placed upon a judgment of Wright, J., in Reis, In re. Clough, Ex parte (2) where the learned Judge observed that there was a difference between the meaning of the words "adjudicated bankrupt" and the meaning of the words "becoming bankrupt". The expression in section 47 of the english act is "If the settlor become bankrupt." It was contended before Wright, J., that the expression "becomes bankrupt" should be held to mean "being adjudged bankrupt" and he construed the expression "becoming bankrupt" as insolvency commencing at the time of the first of the acts of bankruptcy proved to have been committed within three months next preceding the date of the presentation of the bankruptcy petition. He did not accept the contention that the expression "adjudged bankrupt" meant only the actual adjudication of the insolvent. He only stated the contention that there was a distinction between, the use of the words"adjudged bankrupt"and the use of the words "becoming bankrupt". There is no reason for overlooking the clear provision in Section 28(7) in considering the other sections of the Act. It is a well-known canon of construction that the Courts should construe the provisions of legislative enactments in such a way as not to impute inconsistency to the Legislature. Where the provisions are reconcilable the Courts should try to reconcile. They should not attach importance to a single phrase or clause in one section and overlook the clear provision in other sections which are of a general character. There are exceptions to the general provision in Section 28, Clause 7. Section 51 which reads as follows:

    Where execution of a decree has issued against the property of a debtor, no person shall be entitled to the benefit of the execution against the Receiver except in respect of assets realised in the Courts of the execution by sale or otherwise before the date of the admission of the petition," contains an exception toS.28(7). A creditor or a debtor may present a petition for adjudication of the debtor. The petition may be returned for correction and some time may elapse before the petition is admitted by the Court. In such cases the date from which the time should be reckoned is not the date of the admission of the petition but that of the presentation thereof. Under Section 55 which relates to bona fide transactions a transaction would be held to be good if it takes place before the date of the order of adjudication and if the person with whom such transaction takes place had not, at the time, notice of the insolvency petition by or against the debtor. If the argument of appellants is to hold good a voluntary transfer made a day before the presentation of the insolvency petition cannot be attacked if the Court does not adjudicate the insolvent for two years. The policy and the scope of the Insolvency Act is to prevent fraudulent preference and fraudulent transfers and the period mentioned in Section 53 has nothing to do with the delay of the Court in passing the order of adjudication. The matter might be taken as far as the Privy Council and if it takes five years for the matter to be finally settled by the Privy Council, could it be said that a voluntary transfer made a few days before the presentation of the insolvency petition could not be attacked by reason of the adjudication not having been made for a considerable time owing perhaps to causes over which the Court might not have control? Oldfield and Sadasiva Aiyar, JJ., have given cogent reasons for their conclusion that Clause 6 of Section 16 of the old Act corresponding to Clause 7 of Section 28 of the present Act corresponded to Section 53 of the present Act. It is unnecessary to consider all the arguments advanced in that case.

    6. In Rakhal Chandra Purkait v. Sudhindra Nath Bose (1904) 1 K B 451 at 455, a Bench of the Calcutta High Court held that the provisions of Section 36 of the Provincial Insolvency Act were to be read with Section 16(6) of the Act. In Sheonath Singh v.Munshi Ram (4) a Bench of the Allahabad High Court concurred in the view taken by this Court in Sankaranarayana Aiyar v. Alagiri Aiyar (1918) 35 MLJ 396. The learned Judges observed:

    ...the view which we take is the view which was always taken from the earliest days in the administration of the Bankruptcy Law for reasons inherent in the policy of the Bankruptcy Law... some of which are contained in that judgment of the Madras High Court.

    7. The case that is strongly relied upon by Mr. K.S. Krishnaswami Aiyangar is Nagindas v.Gordhan Das (5). In that case Sir Norman Macleod, C.J. and Coyajee J., held that the point of time from which the two years period mentioned in Section 53 was to be calculated was the date on which the order of adjudication was made and not the date of the presentation of the petition. With very great respect we dissent from the view of the two learned Judges. They do not discuss at length the point whether clause 7 of Section 28. controls the provisions of Section 53. They refer to the judgment of Wright, J. in Ex parte Clough (2), and after referring to corresponding provisions in the English Act and the Provincial Insolvency Act, conclude at page 738:

    It cannot be denied that a person is adjudged insolvent on the day on which the order is made, though the effect of the order on the insolvent's property relates back to an earlier date, and observe Therefore, in our opinion, if it had been intended that a voluntary transfer should be voidable if made within two years from the date of the presentation of the petition on which the adjudication order is made, there was no reason why that should not have been as clearly stated in Section 53 as it is in Section 54, and we do not think that the doctrine of 'relation back' can be imported into the former section, so as to make it appear that the point of time from which the two years are to be calculated is the date of the presentation of the petition and not the date when the transferor is adjudged insolvent.

    8. We fail to see why the general provision of law in clause 7 of section 28 should not be read into Section 53 unless the clear terms of Section 53 are against reading that clause into it. It cannot be suggested that the Indian Legislature made a departure from the English Law in enacting Section 53. Under the English Law the relation back is to the available acts of bankruptcy or the first of the available acts of bankruptcy. Section 43 of the English Act enacts:

    The bankruptcy of a debtor, whether the same takes place on the debtor's own petition or upon that of a creditor or creditors, shall be deemed to have relation back to, and to commence at, the time of the act of bankruptcy being committed on which a receiving order is made against him, or, if the bankrupt is proved to have committed more acts of bankruptcy than one, to have relation back to, and to commence at, the time of the first of the acts of bankruptcy proved to have been committed by the bankrupt within three months next preceding the date of the presentation of the bankruptcy petition.

    9. The Indian Legislature in enacting clause 7 of section 28 lays down that the order of adjudication shall relate back to and take effect from the date of the presentation of the petition on which it is made and not from the act of bankruptcy on which a receiving order is made or, if there are more acts of bankruptcy than one, the first of the acts of bankruptcy committed within three months next preceding the date of the bankruptcy petition.

    10. In Ghulam Muhammad v. Panna Ram (1922) 72 I C 433 the Lahore High Court takes the same view as that of the Bombay High Court in Nagindas v. Gordhan Dai (1925) I.L.R. 49 B 730. The learned Judges refer to the decision in Sankaranarayana Aiyar v. Alagiri Aiyar (1918) 35 MLJ 296 and comment on the argument of Sadasiva Aiyar, J. and observe that his argument merely amounts to an admission that the framers of the Act committed a mistake and an explanation how the mistake came to be committed. The view of the two learned Judges is opposed to the view of the Calcutta High Court, Rakhal Chandra Purkait v. Sudhindra Nath Base (1919) ILR 46 C 991 and to the decision in Sankaranarayana Aiyar v. Alagiri Aiyar (1918) 35 MLJ 296. With due respect we must say that no convincing argument has been referred to in their judgment as to why Section 16(6) of the old Act should not be read into Section 36 of the Act. In Madhu Sardar v. Khitish Chandra Barterjee (1914) I.L.R. 42 C 289 Mookerjee and Beachcroft, JJ. held that Section 34 of the Provincial Insolvency Act restricts the operation of Clause 6 of Section 16 and the provision in Section 34 with regard to the assets realised in execution must be held to be an exception to the general rule laid down in Section 16(6) of the old Act. On a careful consideration of the relevant sections of the Act and the case-law on the point we have no hesitation in holding that the period of two years should be calculated backwards from the date of the presentation of the petition on which the adjudication is made.

    11. As to the merits in Appeal No. 307 the learned District Judge has discussed the evidence in paragraphs 19 and 20 of his judgment. We have been taken through the evidence on this point and we see no reason to differ from the finding of the learned Judge that the purchase under Ex. III was not made in good faith by the appellants. One of the items of consideration for the sale was an amount due under a mortgage bond. The mortgage bond has not been produced and there is no reliable evidence that the insolvent undertook to pay the appellants a sum of money which a third person owed him on a mortgage. Neither the original mortgage deed said to have been executed by the insolvent nor a registration copy of it was produced by the appellants. We therefore accept the finding of the learned Judge on this point without hesitation.

    12. In C.M.A. No. 91 of 1925 the 7th respondent is the first appellant. The learned Judge discusses his case in para-graph 22 of the judgment. Though the appellant is a stranger to the insolvent, yet it is remarkable that he did not care to make any enquiry as to why the insolvent was executing a number of documents on the same day alienating his property to several persons. There is one circumstance which ought to be taken into consideration; on the day on which this document was executed, a suit was filed and an injunction was obtained against the insolvent alienating any of his properties. No doubt the appellant says she was not aware of the issue of an injunction. But it is very unlikely that when a man in well-to-do circumstances alienates his immoveable property in favour of several persons and executed on the same day a number of documents, the persons who are parties to the documents would not have taken the trouble to find out why he was doing so. If a person abstains from enquiry he cannot be said to have acted bona fide. We therefore agree with the learned District Judge in holding that the transaction evidenced by Rx. XIX is void against the Official Receiver.

    13. The 28th respondent is the legal representative of the 4th respondent in the Lower Court. The sale in his favour is evidenced by Ex. XVI. One of the items of consideration is the amount due on a promissory note. The promissory note has not been produced and the evidence as to the passing of consideration for Ex. XVI is unsatisfactory. The evidence of P. Ws. 6 and 7 is not of much use. No account-books are produced, and it is strange that a family which has considerable money dealing should not have kept accounts to evedence their transactions. It is unnecessary to discuss the evidence in detail. We have no hesitation in holding that the transaction is void as against the Official Receiver.

    14. In the result the appeals fail and are dismissed with costs.

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    Comments

    Raohamadugu Rangiah v. Y.V. Appaji Rao
    (Sep 23, 1926)