The trust deed must be made in good faith to be considered valid under Section 55 of the Presidency Towns Insolvency Act.

Bhashyam Aiyangar, J.

1. In this case two persons, Kasi Viswanatha Mudali and Balasundaram, were adjudicated insolvents on the 22nd July, 1929, on a creditors petition presented on the 2nd March, 1929. Some time before the presentation of that petition, that is on the 23rd August, 1928, the first insolvent, Kasi Viswanatha Mudali, had transferred all his property to himself and two of his numerous creditors, namely K. Rama Rao and B. Kottayya, jointly, on trust for the benefit of his creditors. The deed of trust recites that the arrangement evidenced by it was come to and settled by the six creditors specified in list A thereof after looking into the accounts of the transferor and "a discussion amongst themselves and with the transferor of the financial position of the transferor" and that the transferor "intimated unto the said creditors in list A that the other creditors (of whom there were more than 60 as specified in list C) would not disturb the arrangement now come to." After the adjudication, the Official Assignee applied by a notice of motion, dated the 23rd August, 1929, to declare that the said deed of trust was void as against him under Section 55 of the Presidency Towns Insolvency Act (III of 1909) and to direct the trustees to deliver over to him all the properties of the insolvent in their possession and for mother ancillary reliefs. This application was contested by the two co-trustees of the insolvent but was granted by the learned trial Judge. The trustees have appealed.

2. Now, the ground on which the learned trial Judge has held that the trust in question is voidable by the Official Assignee is that it is an act of insolvency and opposed to the spirit and policy of the law of insolvency. The debtor having transferred all his property under the said trust for the benefit of his creditors generally, it was undoubtedly an act of insolvency (section 9 (a) of the Act). But it had been effected more than three months before the presentation of the insolvency petition. The insolvency petition could not be and was not therefore grounded on it. It was based on a later and different act of the debtor. The learned Judge however thought that this did not make a difference. He held "that an act of insolvency is an act of insolvency whenever it is committed" and that once an adjudication was made on some act of insolvency the Official Assignee was entitled to have any earlier act of insolvency set aside. He relied in support of this on the observation of Lord Hobhouse in Khoo Kwat Siew v. Wooi Talk Hwat (1891) L.R. 19 I.A. 15 : I.L.R. 19 C. 223 at 231 (P.C.), namely:

The well-known rule of law is, that if a trader assigns all his property ... that is an act of bankruptcy, and is void against the creditors and the assignee, simply because nothing is left with which to carry on his business, and also the remarks of Lord Eldon to the same effect in Button v. Morrison (1810) 17 Ves. Jun. 193 : 34 E.R. 75.

3. It is contended before us that the view taken by the learned Judge is not correct. The argument is that apart from Sections 55 and 56 of the Act an act of insolvency can only be avoided if the adjudication is based on it or it is affected by a relation back of the assignees title provided in Section 51. It is urged that as in this case the adjudication is not based on the making of the transfer in question and the transfer was effected more than the full period of three months referred to in Section 51, previous to the presentation of the insolvency petition, the Official Assignee is not entitled to avoid it except under the two sections mentioned above.

4. I think this contention is valid. Neither of the authorities cited by the learned Judge appears to bear out the conclusion that an act of insolvency is ipso facto void. What all was laid down in Dutton v. Morrison (1810) 17 Ves. Jun. 193 : 34 E.R. 75 was that a conveyance by a trader of all his estate and effects was an act of bankruptcy. It does not follow from it