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1923 Supreme(SC) 19
Privy Council
Ameer Ali, Sir John Edge, Dunedin, Atkinson , Justice Viscount Finlay, JJ.
Satish Chandra Chatterji and others -Appellant
Versus
Kumar Satish Kantha Roy and others -Resopndent
P. C. A. No. 33 of 1921 from Bengal A. No. 35 of 1919
Decided On : 27-04-1923
Hunter, Watkins, E. Dalgado, Wallach, Dunne, M. Pankh, De Gruyther
A revenue sale may be set aside if it is established through facts and legitimate inferences that the sale resulted from a fraudulent conspiracy and the purchaser acted as a sham bidder to facilitate the fraud.
Headnote:(A) Revenue Sales Act, 1859 - Sections 25 and 26 - Validity of sale for arrears of revenue - Fraud and collusion - Where a sale is brought about by the deliberate withholding of revenue by a manager in conspiracy with third parties to injure co-owners and annul a mortgage, such sale is liable to be set aside - Proof of fraud can be derived from established facts and legitimate inferences drawn from the conduct of the parties. (Paras 15, 16)
(B) Evidence - Credibility of witnesses - Conduct of the purchaser - Where a purchaser is financially distressed, lacks the means to pay the purchase price, and exhibits total indifference toward the property and the litigation for a prolonged period, such conduct is inconsistent with being a bona fide purchaser and supports an inference that the purchaser was a sham bidder acting as a tool for others. (Paras 25, 30, 35)
Facts of the case:
A revenue-paying estate was held jointly by several parties. The manager of one co-owner deliberately withheld a small revenue installment to trigger a government auction of the entire estate, aiming to annul a mortgage held by other co-owners. The estate was purchased at auction by an individual who was allegedly part of a conspiracy involving the manager and another wealthy person. It was alleged that sale notices were suppressed and the property was sold at an undervalue. The purchaser claimed to be the sole buyer but was found to be in significant debt and showed an inexplicable lack of interest in the property's details or the legal challenges to the sale.
Findings of Court:
The court found a collusive arrangement to injure the co-owners. The purchaser was determined to be a sham bidder acting as a tool for the actual conspirators. Evidence from third parties indicated that the purchaser could not dispose of the property without the consent of the wealthy co-conspirator, confirming the fraudulent nature of the transaction.
Issues: Whether the auction sale of the revenue-paying estate was valid or if it was brought about by collusion and fraud, rendering it illegal and ultra vires.
Ratio Decidendi: Fraud and collusion must be proved by established facts or inferences legitimately drawn from those facts. When a purchaser's financial status and conduct—specifically a total lack of interest in the asset and the litigation—are inexplicable for a real buyer, and evidence shows the purchaser is controlled by another, the court may infer a fraudulent conspiracy to effect a sham sale.
Result: Appeal dismissed.
This is an appeal from a decree, dated the 8th July, 1919, of the High Court of Judicature at Fort William in Bengal which reversed a decree, dated the 2nd April, 1917, of the Subordinate Judge, Fourth Court of the 24-Parganas.
The main question for decision in the appeal is whether or not a sale of revenue-paying estate purporting to have been carried out under the Bengal Revenue Sales Act, XI of 1859 , in respect of unpaid arrears of revenue, and purchased by the appellant Satish Chandra Chatterji (now dead) was good and valid.
The Subordinate Judge before whom the case was tried decided this question in the affirmative; the High Court decided it in the negative and made the decree hereafter mentioned.
For convenience sake the several parties to the suit may be thus denoted; the appellant by his first name, Satish; the first four respondents by their family name of Roy : the fifth respondent by the name of Akshoy; the sixth by that of Sitanath; and the formal respondent by the name of Kali Dasi.
The facts out of which the appeal has arisen are somewhat complicated. They may be stated as briefly as is needful as follows :
The estate purported to be sold was the Towzi, No. 2402. It was entered on the Roll of the Collector of the 24-Parganas as subject to the payment to the Govern ment of an annual revenue of Rs. 398-9 annas. It comprised two villages, Atpur and Panditnagar. It was held jointly by one Hemada Kantha Roy, the father of the formal respondent, and the Roys. The estate had never been formally or, legally partitioned, nor the entire revenue apportioned, but the co-owners arranged among themselves to pay to the Govern ment separately their respective appro priate shares of the revenue. Hemada paid separately one-third and the Roys together two-thirds. Hemada had, some years before the sale complained of, mort gaged his one undivided third of this zemindari to a certain Shebait, living in the vicinity, who subsequently assigned this mortgage to the Roys, the members of that family thus becoming owners of two undivided thirds of the Towzi and mortgagees of the remaining undivided one-third. At the date of the alleged sale a sum of Rs. 3,655 odd was due upon this mortgage. In the month of January, 1915, if not for some time earlier, Hemada was very ill. In the early days of that month he was confined to bed, and died on the 10th day of it.
Hemada for some considerable time had had in his employment as manager of his estate Sitanath, the sixth respondent. This manager - not from want of funds, that is not suggested - left unpaid the instalment, due in the month of Septem ber, 1915, of the revenue payable in res pect of his employer's share. This instal ment only amounted to the paltry sum of Rs. 26-4-8.
It is charged that Sitanath withheld the payment of this instalment deliberately with the design of bringing about a sale by the Government of the whole Towzi, the revenue never having been appor tioned, with the result that the mortgage held by the Roys would, if the sale took place, be annulled, to their great pecu niary loss.
The revenue being thus in arrear, the Collector, acting under the powers con ferred upon him by the provisions of Ben gal Revenue Sales Act, XI of 1859, on the 8th January, 1915, put up for sale the interest of all, the joint co-owners in the entire Towzi, and sold it to Satish, who was apparently, the highest bidder at the auction, for a sum of Rs. 9,200.
The Roys immediately appealed from the order of the Collector, declaring Satish the purchaser, to the Commissioner. It is said that they based their application to have the sale set aside on the ground of fraud as well as of irregularity in the mode in which the sale was constituted and conducted. No evidence has, however, been given to establish this, nor have the Board been referred to any authority to show that the Commissioner would have had jurisdic tion to inquire into such a charge, and the terms of the order made by the Com missi
