When a transaction is intended to defeat or delay creditors, the entire transaction should be set aside, and the party involved in the fraud should not be allowed protection for the portion of the debt discharged.

Wadsworth, J.

1. This appeal raises a question under Section 53 of the Transfer of Property Act. The appellant, who was the plaintiff in the Court below, got a small cause decree against the second defendant and in discharge of that decree he got a mortgage from the second defendant for a sum of Rs. 1,000 on 23rd March, 1934. Besides the amount of Rs. 450 which went to discharge the small cause decree, there were two other debts of the second defendant which were purported to have been discharged out of the consideration for the mortgage. These two debts have been found to be fictitious. In a suit of 1931 the first defendant had got a decree for rent against the second defendant and on 8th May, 1934, in execution of that rent decree he attached the property covered by the mortgage in favour of the appellant. Presumably this property was not the property on which the rent decreed fell due, so that there was no question of a first charge for rent. The appellant filed a claim in the execution proceedings on the strength of his mortgage. The claim petition was rejected and hence he had to file the present suit. The first Court found that the mortgage was good to the extent of Rs. 450 which went to discharge the small cause decree, that the other items of consideration were not true and gave a decree that the mortgage was valid and binding to the extent of Rs. 450 only. The lower appellate Court agreed with the findings of fact, namely, that the consideration was true to the extent of Rs. 450 which went to the discharge of the small cause decree but that the balance of Rs. 550 represented fictitious payments, one of which was alleged to have been made by the appellant, the mortgagee, himself. The lower appellate Court also came to the conclusion that the transaction as a whole being in fraud of creditors, it must be declared void as a whole and could not be held valid to the extent to which the money went in discharge of a prior debt due to the mortgagee.

2. Now in dealing with cases falling under Section 53 of the Transfer of Property Act in which the consideration is held to be partly good, it is necessary to distinguish between certain classes of cases and to remember that Section 53 of the Transfer of Property Act does not apply to transactions which, though supported by good consideration, might in case of an insolvency be impeached as fraudulent preferences. There are three main classes of cases : (1) those in which that portion of the consideration which is true goes to discharge a prior simple debt of the transferee himself (as in the present case) ; (2) cases in which that portion of the consideration which is true goes to the discharge of a prior mortgage-debt on the property transferred. These cases raise questions of subrogation and, under Section 92 of the Transfer of Property Act as amended in 1929, questions of registration, with which we are not now concerned; (3) cases in which that portion of the consideration which is true goes to discharge prior simple debts due to third parties and not to the transferee. In such cases the transfer cannot be supported by the argument that the transferee is to some extent getting a payment of his own debt and at the most conniving at what might be considered a fraudulent preference. Although in Loorthi Odayar v. Gopalaswami Aiyar (1923) 46 M.L.J. 125 such a transaction, being in the form of a mortgage, was held to be good to the extent to which the consideration went in discharge of other debts of the transferor, this decision has been criticised in Appalaraju v. Krishnamurthy (1931) 34 L.W. 949 and Muthuvasu Chettiar v. Velu Muruga Nadar (1939)2MLJ362 , and it is doubtful whether it can now be considered good law. A further distinction has been made in some of the cases between fraudulent transfers by way of sale and fraudulent transfers by way of mortgage and there has been a tendency to regard a mortgage which is supported by good consideration only to the extent to whic