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Judgment
Anantanarayanan, J.—In this Second Appeal and in order to enable this Court to satisfactorily adjudicate upon the subject matter of
controversy, a finding will now be called for, from the first appellate Court upon the following point, viz.,
Did the alleged fraudulent transfer take place under such circumstances as to justify a clear - inference that some benefit in some form must have
been reserved for the judgment-debtors Defendant 2 to 4.
I may add in elucidation, that this is essential, because the learned Subordinate Judge has somewhat missed the real implications of the
presumption enacted u/s 7(1) of Madras Act I of 1955. The presumption will certainly apply, but it is a rebuttable one. Ostensibly, the transfer in
the present case is in favour of one creditor (Defendant 1) of the judgment-debtors (Defendants 2 to 4), and the sale deed ex facie does not
reserve any benefit for the transferor. The genuineness of the pre-existing debts is also not in dispute. Under these circumstances, this might amount
to a fraudulent preference under the Bankruptcy Law but it does not fall within the mischief of Section 53 of the Transfer of Property Act. See the
observations of the Bench in St. A.M. Palaniappa Chettiar Vs. Kuttayan Chettiar and Others, . Again Veeraswami J., has lately dealt with a case
very similar upon the facts, viz. Abdul Majid Lebbai Vs. Papathi Ammal and Another, . This case has specific reference to Sub-section (1) of
Section 7 of Madras Act I of 1955, and the learned Judge emphasises that an instrument which merely prefers one creditor to another cannot be
held to be a fraudulent transfer within the meaning of Section 53 of the Transfer of Property Act. The real test is whether the debtor has retained a
benefit to himself, and in the case, the transfer might well be fraudulent, since the benefit could have been applied to liquidate other debts. In the
present case, as I have earlier stressed, the entire consideration related to the discharge of the debts. But the complication is that the properties are
alleged to be far more valuable than the sale price, and, if this is true, it is not clear why the debtor preferred this creditor, particularly as there is no
evidence of pressure. These aspect will have to be kept in mind by the first appellate Court in submitting the finding, which could be arrived at after
taking additional evidence if deemed essential in the interest of justice. Time for submission of finding two months. Objections 10 days.
[This Second Appeal coming on for final hearing after the return of finding, the Court delivered the following].
JUDGMENT
Ananta Naryan, J.
In this second appeal instituted by the first Defendant in the Courts below, the facts were that the Plaintiff (main Respondent)-obtained a decree
in Small Cause No. 1093 of 1957, on the file of the District Munsif''s Court, Pudukottai against Defendants 2 to 4. In execution of the said decree,
he attached certain properties of the judgment-debtors (A schedule). The first Defendant (Appellant) was also a prior creditor of Defendants 2 to
4 (judgment-debtors) both in respect of a mortgage and in respect of two promissory notes. The properties of the judgment-debtors (B schedule)
were sold to the first Defendant on 5th September 1957, reciting antecedent debts including the other for Rs. 1,000. On the strength of his prior
purchase, the first Defendant filed a claim petition (Execution Application No. 1120 of 1957), when the Plaintiff sought to attach these properties
as those of his judgment-debtor (Defendants 2 to 4). The claim of the first Defendant was allowed, and the Plaintiff filed the suit to vacate the claim
order. He contended that the properties were worth actually Rs. 15,000 and that they were sold to the first Defendant for an unduly low value in
order to defraud creditors. The alienation was fraudulent both u/s 53 of the Transfer of Property Act and by virtue of the presumption enacted in
Section 7(1) of Madras Act I of 1955, Defendants 2 to 4 admittedly being agriculturists.
The learned Additional District Munsif held in favour of the reality of the antecedent debts of the first Defendant, and also held that the
transaction of sale in his favour was genuine and neither nominal nor intended to defraud creditors. In the result, the suit of the Plaintiff was
dismissed.
The matter went up in appeal to the learned Subordinate Judge, and he again discussed the evidence and probabilities at some length. It is
noteworthy that the learned Subordinate Judge did not come to any different-conclusion with regard to the reality of the antecedent debts of the
first Defendant ; in other words, the first Defendant was a genuine creditor, and if he was preferred, the transaction could only be impugned if the
aliened entered into it with an intention common to himself and the judgment-debtors, of defrauding other creditors. But the learned Subordinate
Judge thought that the properties were worth more than Rs. 1,000, and that the transfer was only with intent to defeat or delay the other creditor,
the Plaintiff. The appeal was allowed and the suit of the Plaintiff decreed.
When the matter came up to me in second appeal, I pointed out, in my earlier judgment, that the presumption u/s 7(1) of Madras Act I of 1955,
no doubt arose in circumstances of this kind, but it was a rebut table one, that the sale-deed ex facie did not reserve any benefit to the transferor
and that the genuineness of the pre-existing debts due to the first Defendant was not in dispute. I further stressed that what might amount to a
fraudulent preference under the Bankruptcy Law, would not fall within the mischief of Section 53 of the Transfer of Property Act, citing the
observations of a Bench of this Court in St. A.M. Palaniappa Chettiar Vs. Kuttayan Chettiar and Others, . An instrument which prefers one
creditor to another cannot be held to be a fraudulent transfer within the meaning of Section 53 of the Transfer of Property Act, unless, as an
additional circumstance, it is clear that the debtor has retained a benefit to himself. In that case, since the benefit could have been applied to
liquidate other debts, the transfer would be fraudulent. For these reasons I framed an issue namely:
Did the alleged fraudulent transfer take place under such circumstances as to justify a clear inference that some benefit in some form must have
bean reserved for the judgment-debtors (Defendants 2 to 4).
I called for a finding on this aspect after elucidating the principles applicable.
The learned Subordinate Judge has now submitted a finding in accordance with the directions of this Court. He has fully gone into the evidence,
and the finding is in clear and explicit terms. The learned Subordinate Judge finds that the properties were not worth more than Rs. 1,000 for which
they were sold, and that there was no circumstance to justify any inference of reservation of any benefit in any form in favour of judgment-debtors
(Defendants 2 to 4). Learned Counsel for the Plaintiff (first Respondent) stresses that, as earlier indicated by me, there is no evidence of pressure
from the first Defendant (Appellant), and that it is not prima facie clear why the debtors preferred that creditor. But, conceding this probability, it
cannot amount to much. If the antecedent debts of the first Defendant were real--one of them was a mortgage-- it may very well be that the
debtors preferred to liquidate these liabilities first, by virtue of a sale of a substantial part of their properties. So long as the properties were sold for
proper value, and there is no evidence of any benefit reserved for the transferor, the sale cannot be impugned upon the principles of Section 53 or
the presumption I have earlier referred to. That presumption has been fully rebutted by the findings on the facts and probabilities.
It follows, therefore, that the Second Appeal will have to be allowed, the decree and judgment of the lower appellate Court will have to be set
aside and the judgment and decree of the first Court restored. I must also make it plain that this interference becomes essential, because the
reversal of the decree of the first Court by the first appellate Court is really upon an erroneous application of the relevant principles of law. In other
words, the failure to apply the really germane test to the facts amounts to an error of law justifying interference in second appeal. The Second
Appeal is allowed accordingly, and the suit of the Plaintiff is dismissed. This has been in reality a race between creditors, and, under the
circumstances, I think it is sufficient to direct that the parties will bear their own costs throughout.
No leave.