Surya Mull Marwari and Others vs Dwarka Prasad Marwari and Another

Jwala Prasad, J.—This is an appeal by defendants 1st party 1 to 5, defendant 1 being the father of defendants 2 to 5. Defendant 6 Sheochand Rai Marwari is defendant 2nd party. On 5th August 1921, the plaintiff executed a kabala or sale-deed purporting to sell eight items of properties described in the plaint to defendant 1 Surya Mull Marwari and defendant 6 Sheoehand Rai Marwari and put them in possession thereof.

On 17th September 1923, the plaintiff instituted the present suit No. 83 of 1923 in the 1st Court of the Munsif of Bhagalpur, for a declaration that the sale-deed in question was a mere farzi transaction executed for fear of creditors under the advice of his well-wishers and no consideration had passed and the defendants were merely farzidars or name-lenders having no title to the properties in question. The defendants were ostensibly put in possession of the properties with a view to shield the farzi nature of the transaction. They were making collections merely as commission agents on behalf of the plaintiff, whereas the money collected was actually received by the plaintiff. The plaintiff states that in Asin 1330 (1923) when there was no longer any necessity to keep the properties benami in the names of the defendants he wanted the latter to execute a deed of release in respect of the properties in his favour. Defendant 6, 2nd party, executed a deed of release on 16th November 1922, in respect of half of the properties, but the defendants 1st party refused to do so and prevented him from, making collections and taking khas possession of the properties. The plaintiff, therefore, seeks to recover khas possession of the properties and Rs. 417-3-6, the collection money, and also mesne profits.

Defendant 1 resisted the claim of the plaintiff denying that the sale transaction was benami and asserting that the sale deed was executed for a consideration of Rs. 1,975, defendant 1 having paid Rs. 987-8-0 his half share therein and the other half having been paid by the defendants 2nd party and that both the defendants came into possession of the properties in dispute on their own behalf and in their own right, and appropriated the income to themselves. He impugned the deed of release, dated 16th November 1922, executed by defendant 2nd party in favour of the plaintiff as being collusive and as having been executed for consideration received and bargain made by the plaintiff. The other defendants including defendant 2nd party filed separate written statements supporting that of defendant 1. Defendant 2nd party while supporting the written statement of defendant 1 added that the deed of release of 16th November 1922 was executed by him for consideration and he released half the share in the properties purchased by him after receiving Rs. 650 from the plaintiff.

The Munsif dismissed the suit holding that the kabala was not a farzi transaction. On appeal the Additional Subordinate Judge by his decision, dated 23rd December 1925, reversed the decision of the Munsif, holding that the kabala was a farzi transaction and gave a decree in favour of the plaintiff. Defendants 1st party have come up to this Court in second appeal and impugn the finding arrived at by the Court below. The question is whether the kabala, as a matter of fact, was executed for consideration or was merely a farzi transaction.

The Court below has found that the defendant 1st party is a close neighbour of the plaintiff, both having shops close to each other and upon the evidence on the record they had common dealings with each other for some time before the transaction in question and that the defendant 2nd party, though not a neighbour, had several kinds of karbar or dealings with the plaintiff and had only shortly before accommodated the plaintiff by reconveying to him a certain property worth Rs. 20,000 which he had purchased at a revenue sale. Therefore, the Court below holds that defendants 1st and 2nd parties were the suitable persons in whose names of farzi document was likely to be executed if the plaintiff chose to do so. The Court below holds that no consideration passed. The kabala states that the money was borrowed to meet necessary expenses. What those necessary expenses were are not stated in the deed. The respondents attempted to prove by oral evidence that the necessity was that the plaintiff wanted to make a gift of lump sum of money to his sister who had lost her husband about the time and that he had to pay some money to a certain creditor. The Court below does not accept this evidence and says that the story about the gift to the sister is absurd and that the necessity to pay the creditor has not been corroborated by any independent evidence.

Accordingly, the Court below finds that there was no real necessity for the sale. It accepted the evidence adduced by the plaintiff that no consideration passed and the transaction was a farzi one. It also held that the property was of much higher value than what is stated in the kabala which supports the view that it was not a real transaction, and further that the defendants had not sufficient money at the time to purchase the properties in question. The learned Subordinate Judge also held that the plaintiff enjoyed the income of the properties even after the execution of the kabala and that the defendants were ostensibly in charge of the collection as agents of the plaintiff. He also accepted the plaintiff''s case t hat defendant 2nd party executed the deed of release in respect of half of the properties in question. The findings arrived at by the Court below are findings of fact and the final conclusion raised by the Court below that the transaction was a furzi one which passed no title to the defendants and that the defendants were mereh trustees in respect of the properties for the plaintiff, is a conclusion j of fact and cannot be reopened in second appeal. The learned advocate on behalf of the defendants-appellants has not been able to show that the findings arrived at by the Court below are vitiated on any legal principle. Therefore, it must be| accepted as conclusive that the plaintiff has a subsisting title in the properties in dispute and has been in possession thereof and is entitled to recover possession from the defendants.

The argument of the learned advocate, however, has been that, although the defendants have no title of their own in. the properties in dispute and are in possession of the same as trustees for the plaintiff, they are entitled to resist the claim of the plaintiff to recover possession of the same, because the object with which the farzi deed was executed was fraudulent and no Court of justice will help the plaintiff in relieving himself from a fraudulent transaction like the one in question. In other words, the learned advocate says that the plaintiff is out of Court, is entitled to no relief and his suit must be dismissed. This contention if founded upon the statement made in the plaint that the plaintiff executed this document under the advice of his well wishers and relations with a view to protect the properties from his creditors. The defendants repudiated this suggestion and urged that the object stated in the plaint to protect the properties from his creditors is false, as there were no unsecured debts against which the plaintiff had any fear and his debts, if any, were all secured and the defendants gave evidence to that effect Both the Courts below have held that most of the plaintiff''s debts were secured debts and that there was only one unsecured debt of a man in Bombay. The Munsif says that the creditor at Bombay being far away from where the properties are situate, there appeared to have been no occasion for executing this deed to protect himself against that creditor.

The learned Subordinate Judge thinks that that might be a probable intention, and there may be some other unsecured debts. The point urged before us was not specially raised in the Court below. Therefore, one has to look into the evidence to find out whether any creditor of the plaintiff was defrauded. The evidence is that the Bombay debt; was paid off by the plaintiff and there is nothing to show tint any creditor was in fast defrauded. Therefore, even if there Was any intention to commit fraud it was not carried into effect and the authorities seem to mike a distinction between a successful fraud and that which has not been successful.

All the cases on the subject have been fully dealt with by Mukherji, J., in the case of Jadu Nath Poddar v. Rup Lal Poddar [1906] 33 Cal. 967. The distinction was drawn by Lord Hardwicke in Birch v. Blagrave [1755] Ambl. 264, between a case in which the unlawful intention has been carried into execution and a case in which no fraud was actually committed. This view is supported by a number of authorities quoted at p. 981 of the aforesaid Calcutta case. In Symes v. Hughes [870] 9 Eq. 475, the principle is stated as follows:

where the parties for which the assignment was made has not carried into execution and nothing is done under it, the mere intention to effect an illegal object does not deprive the assignor of his right to recover the property back from the assignee who has given no consideration for it.

The equity will not permit the assignee to work a fraud and retain the property himself by setting up the statute of fraud as a defence: Haigh v. Kaye [1872] 7 Ch. 469, Lincoln v. Wright [1859] 4 De. G. & J. 16 and Childers v. Childers [1857] 1 De. G. & J. 482. The principle seems to have been recognized in the Indian Trusts Act (2 of 1882), Section 84, which provides:

Where the owner of property transfers it to another for an illegal purpose and such purpose is not carried into execution, or the transferrer is not as guilty as the transferee, or the offset of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee must hold the property for the benefit of the transferrer.

The Indian decisions also favour this view: vide Yaramati Krishnayya v. Ghundru Papayya [1897] 20 Mad. 326.This has also been adopted in our own Court: Ahmed Husain v. Ghulam Ali Ashgar [1919] 52 I.C. 866, It was laid down that a transfer which is merely colourable and made with the indention of defrauding creditors can always be set aside by the transferrer at any time before the fraud has actually taken place. But if the fraudulent intention has succeeded, the Courts will not assist either party claiming under such a transaction. There has been no doubt divergence of opinion, but the view seems to incline more towards the one adopted in the eases referred to above, and I would, therefore, assent to the same view.

It seems to me that prima facie the real nature of the transaction ought to guide the Court in determining the real rights of the parties. Thus, when it is established that a transfer was a sham, transaction and that the title remained all along with the transferrer, there is no reason why the Court should not give effect to the real state of affairs and determine the real rights of the parties. This is irrespective of what the object or the intention of the party might be in entering into a sham or benami transaction. He can be punished if he has by his act defrauded any one; but if no body has is fact been defrauded, there is no reason why he should be punished for his intention by keeping away from him the property which actually belongs to him and vesting it in a parson to whom the property never belonged and on whom the sham transaction conferred no title. The transferee was a privy and party to the transaction. To refuse relief to the transferrer is to encourage a double fraud on the part of the transferee, namely, in. being party to the fraud and in trying to dishonestly enjoy the fruits of his own fraud depriving the real owner of the property.

The transferrer, therefore, is made liable, according to the trend of the authorities, to punishment only when the intended fraud has been carried into effect. In the present case there is not the faintest suggestion that anybody was defrauded. The plaintiff says in his evidence that he executed this farzi deed to protect himself from his creditors under the advice of the defendants themselves. The defendants were directly party to the transaction and aided and assisted the plaintiff in executing the farzi transaction. The plaintiff seems to be possessed of large properties and his unsecured debts were not so enormous as there could be any difficulty to the creditors in. realizing their debts from the other properties. The fact remains that the document was merely a farzi transaction, and the plaintiff is entitled to succeed. The result is that the appeal is dismissed with costs.

Courtney-Terrell, C.J.

I agree.