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1936 Supreme(Cal) 209
CALCUTTA HIGH COURT
A.H. Md. Ismail and Co. - Appellant
Versus
Sachidananda Bhattacharjee - Respondent
Appeal from Appellate Decree No. 1374 of 1933
Decided On : 16-03-1936
The central legal point established in the judgment is the determination of the validity of a hypothecation bond in the context of insolvency and fraudulent preference.
Headnote:
Hypothecation Bond - Suit under Or. 21, r. 63 of the CPC - Gaslight Improvement Company v. Terrel 10 Equity Cases 168 (1870)
Fact of the Case:
Plaintiff filed a suit for establishment of title under a hypothecation bond executed by Defendant No. 2 in his favor. Defendant No. 1 contested the suit, alleging the bond to be fraudulent and inoperative. The trial Judge dismissed the suit, but the lower Appellate Court allowed the appeal and remanded the suit for decision on other points.
Finding of the Court:
The trial Judge found the bond unenforceable due to fraud and insolvency of Defendant No. 2, while the lower Appellate Court concluded that the bond was a preference given by Defendant No. 2 to the Plaintiff and was not obtained by pressure.
Issues: The main issues revolved around the validity of the hypothecation bond, the insolvency of Defendant No. 2 at the time of execution, and the competence of the appeal to the District Judge.
Ratio Decidendi: The trial Judge's decision was based on the insolvency of Defendant No. 2 and the fraudulent nature of the bond, while the lower Appellate Court focused on the bond being a preference and not obtained by pressure.
Final Decision: The Court set aside the judgments and decree of the Courts below, added new issues, and remanded the suit to the trial Court for rehearing.
JUDGMENT
1. This appeal arises out of a suit under Or. 21, r. 63 of the CPC instituted on 24th May, 1923, for establishment of Plaintiff's title under a hypothecation bond executed by Defendant No. 2 in his favour to certain pugmills machinery and bricks belonging to the Defendant No. 2. Plaintiff's case, briefly stated, is as follows:-
Messrs. Bull and Company, Defendant No. 2 in the suit, is a Company registered under the Indian Companies Act. On 8th January, 1924, it was indebted to the National Bank of India to the extent of Rs. 40,030-10 as-3p, guaranteed by its the then Managing agent Messrs. Kilburn and Company. By a resolution passed on that day at an extraordinary meeting of the share-holders of the Company, the firm of Bhattacharya & Co., of which Plaintiff is the sole proprietor, became the managing agent of Defendant No. 2 in place of Messrs. Kilburn and Company and on the very date paid the said amount to Messrs. Kilburn and Company and thereby became the creditor of Defendant No. 2 to the extent of Rs. 40,030-10as.-3ps. On 10th January, 1924, Plaintiff purchased 150 shares of Defendant No. 2 in order to qualify him to be a director of Defendant No. 2 and became the chairman of the Board of directors under its Articles of Association. Thereafter Plaintiff advanced various sums of money to Defendant No. 2 and the Defendant No. 2 made repayments from time to time. On 15th January, 1925, Defendant No. 2 became indebted to the Plaintiff to the extent of Rs. 70465-10-3p. On 16th January, 1925, at a meeting of the directors of Defendant No. 2, attended by four directors and presided over by the Plaintiff, it was agreed to hypothecate the stock-in-trade of Defendant No. 2 to the Plaintiff as security for his advances to the Defendant No. 2 and to have the necessary hypothecation bond drawn up by the solicitors of Defendant No. 2. Defendant No. 1 supplied coal to Defendant No. 2 between 7th March, 1925 and November, 1925, of the value of Rs. 11,406-8as-3ps. and a sum of Rs. 4673-2-3ps. remained unpaid.
2. Defendant No. 1 instituted a suit against Defendant No. 2 in August, 1926, for recovery of the balance of the price of coal supplied by him to Defendant No. 2.
3. On 11th October, 1926, the dues of the Plaintiff from Defendant amounted to Rs. 77,678-3-3 and a bond was executed by Defendant No. 2 on that date in favour of the Plaintiff, securing the said amount by hypothecating the stock-in-trade and outstandings of Defendant No. 2.
4. The suit of Defendant No. 1 against Defendant No. 2 Was decreed on 25th April, 1927.
5. On 18th August, 1927. Defendant No. 1 attached the properties which are the subject-matter of the present suit in execution of his decrees, and which are covered by the hypothecation bond executed by Defendant No. 2 in Plaintiff's favour on 11th October, 1926. Plaintiff thereupon preferred a claim to the properties. On 20th April, 1928, by an order of this Court the time for registration of the hypothecation bond was extended. Plaintiff's claim to the attached properties was disallowed on 28th April, 1928. The hypothecation bond was registered on 5th May, 1928. Plaintiff is therefore entitled to have his title under the hypothecation bond declared to the properties attached.
6. Defendant No. 1 alone contests this suit. He denies that Defendant No. 2 was ever indebted to the Plaintiff and impugns the hypothecation bond executed by Defendant No. 2 in Plaintiff's favour as fraudulent, collusive, invalid and inoperative.
7. The trial Judge dismissed the suit on the ground that the hypothecation bond was brought into existence for defrauding other creditors of the Defendant No. 2 at a time when the Defendant Company was practically insolvent and the bond was therefore unenforceable against the Defendant No. 1. He how-ever did not come to any finding as to the other points urged by Defendant before him which are noted in the concluding portions of his judgment.
8. On appeal by the Plaintiff to the lower Appellate Court
