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1915 Supreme(SC) 52
PRIVY COUNCIL [ON APPEAL FROM THEEAST INDIES]
VISCOUNT HALDANE, LORD WRENBURY, LORD PARMOOR, SIR JOHN EDGE, AND MR. AMEER ALI.
MUSAHAR SAHU - Appellant
Versus
HAKIM LAL - Respondents
On Appeal From The High Court in Bengal.
Decided On : Nov. 22. 1915.
Solicitors for appellants :T. L. Wilson & Co. Solicitors for respondents: Watkins & Hunter.
A transfer made for adequate consideration to satisfy a genuine debt is not voidable under Section 53 of the Transfer of Property Act, 1882, even if it prefers one creditor over others, as it does not remove property from the creditors to the benefit of the debtor.
Headnote:(A) Transfer of Property Act, 1882 - Section 53 - Transfer made with intent to defeat or delay creditors - A transfer for adequate consideration to satisfy a genuine debt is not voidable under this section, even if it prefers one creditor over others, provided the debtor retains no benefit.
(B) Preference of Creditors - In the absence of bankruptcy or insolvency laws, a debtor is permitted to pay one creditor in full while leaving others unpaid. Such an act does not constitute fraud under the statute as the property remains available for the creditors' benefit.
Facts of the case:
A debtor executed two conveyances of land. One was found to be without consideration and fraudulent. The other was made for real consideration to satisfy a debt. A creditor sought to set aside both, arguing they were part of one transaction intended to defeat creditors and that the validity of the second conveyance was tainted by the fraudulent nature of the first.
Findings of Court:
The court found that the second conveyance was made for real consideration. The fact that the debtor preferred one creditor over another does not make the transfer voidable under the relevant section.
Issues: Whether a transfer made for adequate consideration to prefer one creditor over another falls within the scope of Section 53 of the Transfer of Property Act, and whether a valid transfer is tainted by the fraudulent nature of a simultaneous separate transfer.
Ratio Decidendi: A transfer that defeats or delays creditors is one that removes property from the creditors to the benefit of the debtor. If a transfer is made for adequate consideration in satisfaction of genuine debts without reservation of benefit to the debtor, it is not impeachable under Section 53, regardless of the preference shown to one creditor over another. Each conveyance must be evaluated on its own merits.
Result: Appeal dismissed with costs.
Act Referred
Legal Category Hierarchy
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property law
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transfer of property
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fraudulent transfers
- intent to defeat or delay creditors
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fraudulent transfers
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transfer of property
Judgement
Appeal from a judgment of the High Court (April 3, 1907) reversing a judgment of the Subordinate Judge of Mozufferpore.
The appellants instituted two suits for declarations that each of two conveyances of land made by one Kishun Benode on September 2, 1901, was voidable under s. 53 of the Transfer of Property Act, 1882, as being made with intent to defraud, defeat, or delay creditors. One of the conveyances was in favour of one Kamta Prashad, the other in favour of the respondents. The latter conveyance stated that the consideration for its being made was the sum of Rs. 42,656, of which Rs. 30,309 were set off against a debt due to the transferees, and that the balance was left on deposit with them on account of debts due to certain other creditors.
The circumstances under which the conveyances were made appear from the judgment of their Lordships.
The two suits were tried together, and the Subordinate Judge set aside both conveyances. As to that in favour of Kamta Prashad he found that there was no consideration and that it was made in fraud of
50 Law. Rep. 43 Ind. App. 104 ( 1915- 1916)
Musahar Sahu V. Hakim Lal 151
the creditors. In the case of the conveyance to the respondents he found that there was consideration, but that it was not made bona fide and was within s. 53.
Upon appeal to the High Court in both suits, that Court (Mookerjee and Holmwood JJ.) affirmed the decision as to the conveyance to Kamta Prashad, as to which there was no further appeal. With regard to the conveyance to the respondents they agreed with the finding that there was good consideration, and held that the intention to prefer the transferees to other creditors did not bring it within the section. The appeal is reported at I. L. R. 34 Calc. 999.
Dube, for the appellants. The appellants accept the concurrent findings that there was consideration for the conveyance to the respondents. Having regard, however, to the circumstances in which the conveyance was made, and the relationship between the respondents and Kamta Prashad, it was, like the conveyance to the latter, fraudulent and made to defeat or delay creditors.
The respondents did not appear at the hearing.
1915. Nov. 22. The judgment of their Lordships was delivered by
LORD WRENBURY. On September 2, 1901, Kishun Benode executed two kobalas or conveyances, the one to Kamta Prashad and the other to the respondents, Hakim Lal and another. They were conveyances of certain lands, the parcels in the second deed being much more numerous than those in the first deed. Kamta Prashad was the nephew of Ram Aotar Lal, a brother of Hakim Lal. He was a minor and Ram Aotar Lal was his guardian.
The plaintiff, Musahar Sahu, was at this date a creditor of Kishun Benode. He had on December 14, 1900, sued for the debt, and on January 5, 1901, had presented a petition for security by way of attachment before judgment. On February 11, 1901, Kishun Benode had made an affidavit that he did not intend to transfer any of his properties, and accordingly on February 11, 1901, the petition was dismissed.
In this state of facts the two kobalas were executed by the debtor on September 2, 1901.
On December 5, 1901, the plaintiff obtained judgment in his action for Rs. 12,695.10 and costs. The defendant did not appear at the trial. On December 21, 1901, Kishun Benode applied for a rehearing, but on August 2, 1902, that application was dismissed by default. In the interval, namely, on June 11, 1902, the transferees had obtained an order for registration of their names in respect of the properties transferred.
Under these circumstances two suits were brought to set aside the kobalas on the ground that, within
s. 53 of the Transfer of Property Act IV. of 1882, the transfers were made with intent to defeat or delay the creditors of Kishun Benode.
The Subordinate Judge set aside the first kobala on the ground that no consideration was paid, that a debt of Rs. 6335 therein alleged to be due to Kamta Prashad was fictitious,
