JUDGMENT
(Delivered by Varadachariar, J.)
This appeal arises out of a suit for the recovery of money due under a mortgage bond, Ex. A, executed on 5th October 1929 by the 1st defendant and the 2nd defendant in favour of the plaintiff Defendants 1 to 4 are members of a joint Hindu family, the 1st defendant being the father and defendants 2 to 4 his sons. The 5th defendant was impleaded, as a document Ex. 1 had been executed by the 1st defendant in his favour on 7th October 1929 and according to its tenor it purported to be a puisne mortgage. But the 5th defendant admitted that it was a nominal transaction and he has accordingly taken no part in the suit except that he was examined as D.W 1 and has deposed not merely to the fact that Ex. 1 was a nominal transaction but also to a conversation that took place between himself and the 1st defendant about the time when Exs. A and I were thought of. The 1st defendant raised some objections in respect of certain portions of the amounts claimed by the plaintiff to be due. But, on these points, he has acquiesced in the finding of the lower Court. The real contesting defendants were defendants 6 and 7 who had obtained a money decree against the 1st defendant in O.S No. 43 of 1929 and had attached the properties hypothecated under Ex. A. in execution of their money decree. As attachment was effected only in 1933, the claim under Ex. A would have had precedence, if the mortgage was otherwise valid. Defendants 6 and 7 contended that Ex. A only evidenced a nominal transaction and that, in any event, it had been executed to defraud the 6th defendant and other creditors of the 1st defendant.
On the contention of defendants 6 and 7, the 3rd issue in the case was raised. The learned Subordinate Judge was of opinion that Exs. A and I had been brought into existence in pursuance of a common object to help the 1st defendant as against his creditors including the 6th defendant, and that Ex. A was not supported by consideration even in respect of the two amounts of Rs. 1600 said to be due from the 1st defendant to the plaintiff and of Rs. 2300 said to have been advanced by the plaintiff to the 1st defendant contemporaneously with Ex. A. He felt no doubt that Ex. A had been brought into existence to be used as a shield against the 6th defendant in respect of the money claim he had against the 1st defendant and in respect of which the suit O.S No. 43 of 1929 was instituted within a month after the date of Ex. A. In the result he gave a mortgage decree against defendants 1 to 4 for the sums that he found to have been actually advanced by him and declared the plaintiff's right under Ex. A to be subject not merely to the pre-existing mortgage under Ex. II in favour of the 7th defendant but also to the rights of defendants 6 and 7 under the attachment made by them in execution of the decree in O.S No. 43 of 1929. It is against this part of the decree which makes the plaintiff's rights subject even to the attachment in O.S No. 43 of 1929 that this appeal has been preferred by the plaintiff.
On the question of fact, we have little hesitation in agreeing with the finding of the learned Subordinate Judge. As he has discussed at very great length the evidence and the probabilities of the case, it will be sufficient for us to refer to a few broad features. Ex. A mentions three items of consideration: (1) a sum of Rs. 2,100 detained with the plaintiff to be paid in discharge of the admitted prior mortgage Ex. II in favour of the 7th defendant; (2) a sum of Rs. 1600 being the amount undertaken by the plaintiff to credit in the 1st defendant's favour in the accounts between himself and the plaintiff and (3) a sum of Rs. 2300 being the amount received by the executants before the Sub Registrar, making in all the total amount of Rs. 6,000. It is admitted that the sum of Rs. 2,100 payable under Ex. II had not been paid. The parties are at variance as to whether that amount was at all tendered by the plaintiff to the 6th and 7th defendants. Even here, we think the probabilities are in favour of the lower Court's view that the plaintiff's story of tender is not likely to be true. But we do not think that in the view we take on the other parts of the case, it is necessary to express any opinion on this point. On the other hand we may say that if the document was otherwise valid in law, the mere omission to pay or even to tender this sum of Rs. 2,100 will not affect its validity and operativeness to the extent of the consideration actually paid.
The next item of consideration, namely, Rs. 1600, involves in our opinion the crucial point in the case. If, as the learned Subordinate Judge has found, no such amount was due from defendants 1 to 4 to the plaintiff at or about the time of Ex. A, the whole story of the plaintiff as to the circumstances that led to the execution of Ex. A must be held to be false. It would naturally follow that the contesting defendant's version is the more probable. It is the plaintiff's story that Ex. A had to be taken by him because that was the only manner in which he could safeguard his interests in respect of the amount that had already become due to him from defendants 1 to 4. The evidence in the case both oral and documentary no doubt shows that the 1st defendant had dealings with the plaintiff. The plaintiff had businesses in two places, Theni and Uppukottai. At the time of the suit transaction, it appears that he was more often at Uppukottai than at Theni, and that he was frequently going to Theni, the two places being about six miles distant from each other. The shop at Theni was being carried on by the plaintiff's partner P.W 8 and also looked after by the plaintiff's son-in-law. The account books both of the Theni shop and of Uppukottai have been produced in the case. They show that prior to the suit transaction the 1st defendant had no dealings with the Uppukottai business at all but that his dealings were with the Theni shop. The significance of this circumstance is that the entry of this transaction in the Uppukottai accounts lends some support to the theory that it was desired to keep it secret from the people at Theni, including defendants 6 and 7. It is admitted that on prior occasions, the 1st defendant's liability to the plaintiff amounted to sums like 3 or 4 thousands or even more, but it has not been suggested that on such occasions the plaintiff had any doubts about the 1st defendant's ability to repay them in due course or that he considered it necessary to ask for security. At the time of Ex. A, however, it is said, that the plaintiff thought fit to demand the payment without delay of the sum of Rs. 1,600 which according to him was then due from the 1st defendant. It has been sought to be explained that the plaintiff was more insistent on this occasion because it came to his knowledge that the 1st defendant was indebted to a number of people. It is the next step in the plaintiff's story that when the 1st defendant was pressed for the payment of the amount then due, he not merely expressed his inability to find this money but also requested the plaintiff to advance some more money to enable him to pay off his other creditors and in the event of the plaintiff so doing promised to execute a mortgage deed securing the repayment of the whole amount. It will be seen that the foundation of this story is that a sum of about Rs. 1600 was due from the 1st defendant to the plaintiff about the time of Ex. A and that the plaintiff had to advance further sums to the 1st defendant and take Ex. A for the whole amount as the best means then available for safeguarding his interests even in respect of the amount already due. On the other hand, it is the story of the contesting defendants and the finding of the lower Court that on the date of Ex. A no amount was due from the 1st defendant to the plaintiff, that the story of the defendants' indebtedness and of the plaintiff's pressure on him is false and that the story of the loan of Rs. 2300 to be paid to the other creditors of the 1st defendant was also not true, that the payment of Rs. 2300 before the Sub Registrar as recorded by him in Ex. A was a mere make-believe that the inclusion of the amount due under Ex. II in Ex. A was only intended to give a colour of bona fides and reality to the transaction and that the execution of Ex. A was part of a scheme contrived by the 1st defendant with the help of the plaintiff and his partner P.W 8 to defeat the simple money claim which to the knowledge of the plaintiff and P.W 8 defendants 6 and 7 were then asserting against the 1st defendant's family.
A careful examination of the account books produced by the plaintiff is sufficient to show that the plaintiff's story that anything like a sum of Rs. 1,600 was due from the 1st defendant to the plaintiff at or about the time of Ex. A cannot be true. In the arguments before us, the plaintiff's learned Counsel Mr. Ch. Raghava Rao has taken his stand on the recital in Ex. A that all that was contemplated at the time of Ex. A was that the plaintiff should give credit to the 1st defendant in the accounts for the sum of Rs. 1,600 and he has contended that undue emphasis ought not therefore be laid on the actual existence of indebtedness to that extent on the date of Ex. A. But this argument throws overboard the whole story put forward by the plaintiff in respect of this claim. If the present suggestion is to be accepted, there was really no necessity for the plaintiff to get involved in this transaction at all; and in view of the suggestion that P.W 8 and the plaintiff were aware of the money claim of defendants 6 and 7 against the 1st defendant's family, the plaintiff's position will be much worse than his original case attempted to make it out to be. We are accordingly of opinion that the lower Court was justified in holding that if the plaintiff's story as to the indebtedness of the 1st defendant to the plaintiff on the date of Ex. A is not true, the only reasonable inference in the circumstances is that Ex. A like Ex. I must have been part of a scheme of the 1st defendant to defraud his creditors, particularly defendants 6 and 7.
It has not been seriously disputed before us that on a correct ascertainment of the accounts as they stood on the date of Ex. A, nothing would have been due from the 1st defendant to the plaintiff, unless we are prepared to accept the ingenious hypotheses which have been put forward on behalf of the plaintiff in respect of two entries in Ex. B against the dates 29th July 1929 and 10th August 1929. There is no doubt an error in the ledger Ex. B in that it gives credit to the 1st defendant only in November 1929 in respect of a sum of Rs. 1,500 which ought to have been credited in the 1st defendant's favour in June itself. As the entries in the daybooks are correct this error could not have misled the parties into the belief that there was really any amount due from the 1st defendant to the plaintiff on the date of Ex. A. It is this realisation that has led the plaintiff and his witnesses to put forward that hypothesis that the two credit entries in the 1st defendant's favour of Rs. 940 and Rs. 500 in July and August did not represent the exact state of things as the transactions there recorded happened and that in some mysterious way they should be regarded really as debits against the 1st defendant. As pointed out by the lower Court, the plaintiff examined as P.W 5 and his Uppukottai Kariasthan examined as P.W 1 have made no serious attempt to explain these entries, but they are entitled to be excused perhaps on the ground that on their own version they had no personal knowldge of the transactions recorded in those entries. Another hypothesis was tried by the Theni Kariasthan of the plaintiff who was examined as P.W 6. That hypothesis is apparently unintelligible and may be safely rejected as imaginary. The interval that elapsed between the examination of P.W 6 and the examination of the partner P.W 8 led P.W 8 to attempt another explanation. But his evidence shows that even this interval did not enable him to evolve a consistent hypothesis on which these entries could be explained. We reject this hypothesis as unfounded and hold that the entries 940 and 500 really represent credits in the 1st defendant's favour, for cotton handed over by him to the plaintiff on those dates and certainly do not represent, as suggested by the plaintiff, the price of ginned cotton which the plaintiff had undertaken to supply to third parties on behalf of the 1st defendant.
We may at this stage observe that the non-examination of the 1st defendant who more than anybody else could have thrown light upon the suit transaction, as well as the prior transactions above referred to, is a strong circumstance militating against the bona fides of that transaction. The evidence shows that the 1st defendant and his son the 2nd defendant still continue to have business dealings with the plaintiff and there is nothing whatever to suggest that they are on unfriendly terms. The contest raised by the 1st defendant in his written statement in respect of a few petty items seems to be unreal.
Proceeding next to the item of Rs. 2,300 recited to have been paid in cash, we agree with the learned Subordinate Judge that this does not represent a bona fide advance. It is admitted by the plaintiff himself that within two days after the registration of Ex. A, this sum came back to him, Rs. 300 having been paid into the Theni shop and the balance of Rs. 2,000 at Uppukottai. It seems to us immaterial whether the sum of Rs. 2,300 which passed hands before the Sub Registrar was taken from some shop at Periyakulam the place where the document was registered or was taken from Theni or Uppukottai or how the plaintiff obtained it. On the admission that it came back to the plaintiff whether in a lump sum or in two sums and whether immediately after the registration of Ex. A or a day or two thereafter, we have only to consider whether it represents a bona fide advance. Why the 1st defendant who was admittedly in financial difficulties at the time should have thought fit to borrow Rs. 2300 on a mortgage and to deposit it with the plaintiff, has not really been explained. It is true that there is some evidence to show that some months later the 1st defendant now and then drew monies from his accounts with the plaintiff, and utilised the same in driblets to pay off some of his creditors. Ex. A itself makes no reference to the creditors intended to be repaid nor even contains a general statement that it was borrowed to pay off the debts. On the terms of Ex. A there was nothing to prevent the 1st defendant using this sum of Rs. 2,300 for his own personal benefit in any manner that he chose. The best that can be said on this part of the claim in the plaintiff's favour is that he held this amount for the 1st defendant's benefit. When this part of the story is considered in the light of the fact that the statement in Ex. A of Rs. 1,600 being due from the 1st defendant to the plaintiff is false, and the unnecessary precaution of paying this amount before the Sub Registrar though it was intended that it should be paid back to the plaintiff, it is difficult to treat even this part of the transaction as a bona fide arrangement between the parties.
On these findings as to the two items of consideration alleged to have passed in respect of Ex. A, the question arises whether in the light of the other circumstances proved in this case, it is possible to uphold Ex. A. The evidence of D.W 1 and D.W 2 though it might not be relied upon to the extent of implicating the plaintiff in any scheme of fraud clearly proves the fraudulent intention of the 1st defendant. It is also established beyond doubt that for some months prior to the date of Ex. A defendants 6 and 7 had been taking steps to recover a large sum of money which they claimed to be due to them from the 1st defendant as a result of the partnership transaction between them. P.W 8 admits that in connection with those disputes between the 6th and 7th defendants and the 1st defendant, an arbitration muchilika was executed nominating himself and the plaintiff amongst the arbitrators. Even if it be assumed to be true that the plaintiff was unaware of the execution of this muchilika and took no part in the proceedings arising therefrom, it is clear from the admission of P.W 8 himself that the witness not only knew of these disputes but actually attempted to settle them, suggesting that the 1st defendant should pay a sum of Rs. 3200 in quit of that claim. P.W 8 was also aware that defendants 6 and 7 were not content to accept that amount and claimed a larger sum. On 21st August 1929 defendants 6 and 7 issued a lawyer's notice to the 1st defendant in respect of this claim of theirs, and it is about six weeks after that notice that Ex. A comes into existence. In the light of these circumstances, the inference drawn by the lower Court seems to us to be the only reasonable inference, that Ex. A must be held to have represented only a nominal transaction. But it is sufficient for the purposes of this case even if it is held to be a transaction operative between the parties but voidable as against the creditors under S. 53 of the Transfer of Property Act.
Even in the view that the transaction was voidable under S. 53 of the Transfer of Property Act, Mr. Raghava Rao contended that to the extent to which Ex. A was shown to have been supported by consideration, the plaintiff was entitled to a mortgage decree not merely against defendants 1 to 4 but even against 6 and 7 defendants. As we have already stated that the item of Rs. 1600 referred to in the mortgage bond does not represent a real debt, this argument will be of no avail to the plaintiff in respect of that sum. It will arise only in respect of the sum of Rs. 2300 which the learned Judge has found must have been drawn by the 1st defendant some months after the date of Ex. A and utilised in paying off some of his debts. It is well established law that if a transaction offends S. 53 of the Transfer of Property Act, it cannot ordinarily be upheld even to the extent to which it may be found to be supported by consideration; because, whatever may be the importance of the question of consideration, when dealing with the question of fact namely, whether the transaction was one that offended S. 53 or not, it has little bearing once the conclusion is reached that the transaction does offend S. 53. An exception has however been made in the transferee's favour in cases in which any part of the consideration for the document has been applied in the discharge of pre-existing secured debts, and it has been held that the transferee might in such cases be entitled to the benefit of the doctrine of subrogation. A distinction has also been suggested between sales and mortgages and it has been held that whereas a sale might have to be wholly set aside if it offends S. 53, a mortgage might be upheld as a valid security to the extent of the debt actually due on the date of the mortgage. This distinction has been based on the ground that to that extent the transaction would merely amount to a preference and as such would not fall under S. 53 of the Transfer of Property Act. This we understand is the basis of the decision in China Pitchiah v. Pedakottiah(1). But no case has gone the length of holding that even when there was no pre-existing debt, the mere fact that some consideration passed under a mortgage which on the evidence has been held to be in fraud of creditors will justify the view that the mortgage can be held to constitute a valid security to the extent of the contemporaneous advance. Reliance was however placed by Mr. Raghava Rao in this connection on certain observations in Loorthi Odayar v. Gopalasami Ayyar(2). Some of the observations there seem to be widely expressed but the contrast which the learned Judges emphasise between the decision in Chidambaram Chettiar v. Sami Aiyar(3), which was affirmed by the Privy Council in Chidambaram Chettiar v. Srinivasa Sastrigal(4), and the decision in Musahar Sahu v. Lala Hakim Lal(5), and Mina Kumari Bibi v. Bijoy Singh Dudhuria(6), makes it clear that they had in mind the distinction between a transaction in fraud of creditors and a transaction only amounting to a preference. If the learned Judges intended to lay down the law in the sense now contended for by Mr. Raghava Rao, we venture to think, with all respect, that it would be difficult to reconcile the decision with the weight of authority. Where a person lends money for the first time under a mortgage like the present, it will not be possible to regard it as a case of preference, merely because that money is utilised by the transferor to pay off some of his simple debts. We may add that on the facts we have above stated, the sum of Rs. 2300 can scarcely be regarded as even amounting to a contemporaneous advance. It was in our opinion only money which the plaintiff held for the benefit of the defendants and to that extent it was a secret advantage for the debtors' benefit. The fact that subsequent to the institution of O.S No. 43 of 1929 by defendants 6 and 7, the 1st defendant drew some moneys from the plaintiff and utilised the same to pay off some of his creditors cannot in our opinion improve the plaintiff s position in respect of Ex. A.
The appeal fails and is dismissed with costs of respondents 6 and 7.
N.R.RAppeal dismissed.