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HIGH COURT OF ALLAHBAD
AGARWALA, MULLA, JJ.
Rameshwar Swarup
Versus
Surajmal Shyam Sunder
S.A.F.O. Nos.4 and 5 to 11 of 1953
Decided On : 21-02-1955
INSOLVENCY - PROVINCIAL INSOLVENCY ACT, 1920 - SECTION 4 - FRAUDULENT TRANSFER OF PROPERTY - MONEY PAID BY VICTIMS OF FRAUD - TRACED TO INSOLVENT'S BANK ACCOUNT - HELD TO BE HELD ON TRUST FOR VICTIMS - CHARGE DECLARED IN FAVOUR OF VICTIMS.
Fact of the Case:
Two individuals, Govind Ram and Gopal Das, ran a business under the name Ram Swarup Govind Ram. They swindled numerous people by offering to supply goods against payment of 50% of the price, with the balance to be paid upon sale of the goods. The Railway Receipts provided were bogus, and the customers, upon discovering the fraud, obtained orders freezing the money paid to the insolvents and filed insolvency petitions against them.
Finding of the Court:
The insolvency court allowed the claims of some creditors, declaring that the money paid to the insolvents and traceable in their bank accounts belonged to the creditors and not to the insolvents. However, the claim of one creditor, K. Raja Gopal Pillai, was disallowed. On appeal, the district judge allowed Pillai's appeal and declared a charge in his favor over the insolvents' assets for the amount claimed. The Official Receiver appealed against these decisions.
Issues: 1. Whether the money paid by the creditors to the insolvents and traceable in their bank accounts could be identified and recovered by the creditors. 2. Whether K. Raja Gopal Pillai was entitled to a charge over the insolvents' assets for the amount claimed, even though the money could not be clearly identified.
Ratio Decidendi: 1. The court held that the money paid by the creditors could be identified and recovered by them, as it was paid under a contract induced by fraud and was therefore held by the insolvents upon trust for the benefit of the creditors. 2. The court also held that Pillai was entitled to a charge over the insolvents' assets for the amount claimed, even though the money could not be clearly identified, as the money was held by the insolvents upon trust for his benefit and the withdrawals were deemed to be out of the amount belonging personally to the insolvents.
Final Decision: The court dismissed the appeals filed by the Official Receiver and upheld the orders of the lower courts, except for the order declaring a charge in favor of Pillai, which was modified to reflect the correct amount claimed.
AGARWALA, J.:- These are 8 connected appeals arising out of two insolvency petitions filed by two creditors against the same debtor. The facts briefly stated are as follows:
Two persons Govind Ram and Gopal Das carried on a business of supplying goods to order at Farrukhabad under the name and style of Ram Swarup Govind Ram. They set out to swindle a large number of persons in different places by pretending to be able to supply a large stock of various commodities. They would offer to supply goods against payment of 50 per cent. of the price which was to be paid against Railway Receipts of the goods on condition that the balance of 50 per cent. was to be paid as and when the goods were sold by the consignees.
This being a very tempting offer, attracted many persons who on getting Railway Receipts paid various amounts of moneys to Govind Ram and Gopal Das. It, however, turned out that the Railway Receipts were bogus as they were not in respect of any real goods. When the customers discovered the fraud, they rushed to the criminal Court and obtained orders for freezing of the money paid by them to these persons and later on two sets of creditors filed insolvency petitions against them.
These were petitions Nos.1 and 2 of 1950. Ultimately Govind Ram and Gopal Das were declared insolvents by an order dated 8-9-1950. The Official Liquidator was appointed Receiver of the assets of the insolvents and he seized various amounts lying to the credit of the insolvent Firm in several Banks.
Thereupon five sets of creditors applied to the insolvency Court under S.4, Provincial Insolvency Act that certain amounts specified in their applications which formed part of the amounts seized by the Official Receiver in the Banks may be declared to belong to them and not to the insolvents or in any case a charge may be declared in their favour in respect of the aforesaid amounts over the assets of the insolvents in the hands of the Official Receiver.
The Official Receiver objected to the claims on the ground that the mony which he had seized was in the account of the insolvents and was the money of the insolvents and could not be claimed by the claimants. The Insolvency Court allowed the claims of Messrs. Mahadeo Lal Ram Kumar, Seth Tara Chand and others, Messrs. Surajmal Shyam Sundar and Messrs. Ram Desh Lachmi Narain and it was ordered that the money which they had paid to the insolvents and which was traceable in the accounts of the insolvents in the various Banks be paid over to them as it belonged to them and not to the insolvents. But the claims of K. Raja Gopal Pillai were disallowed. Both K. Raja Gopal Pillai and the Official Receiver appealed against the decision of the Insolvency Court.
The learned District Judge allowed the appeal of K. Raja Gopal Pillai and declared that he should have a charge for the amount of Rs.8000/-and Rs.8500/- claimed by him over the assets of the insolvents and dismissed the appeal of the Official Receiver. The Official Receiver has now come up in second appeals against these orders.
2. Second Appeal No.4 of 1953 is against Surajmal Shyam Sunder, S.A. No.6 of 1953 is against Seth Tarachand and others, S.A. Nos.7 and 11 of 1953 are against Messrs. Ram Desh Lachmi Narain and S.A. No.9 of 1953 is against Firm Mahadeolal Ram Kumar. Appeals Nos.7 and 11 of 1953 refer to the very same claim. In all these five appeals the Courts below had declared that the amounts claimed by the claimants belonged to them.
Appeals Nos.5, 8 and 10 of 1953 are against K. Raja Gopal Pillai. Appeals Nos.8 and 10 of 1953 are with reference to one and the same claim in respect of Rs.8500/- and the other appeal No.5 of 1953 is in respect of the claim for Rs.8000/-.
3. The necessary facts in appeals Nos.4, 6, 7, 9 and 11 are common. In all these cases what happened was that as against the bogus Railway Receipts sent by the insolvents to the various claimants Hundies were drawn by the insolvents and the claimants paid the amounts of the Hundies
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