Authored By : Atkinson, B.K. Mullick
Atkinson, J.
1. This miscellaneous appeal comes before us by way of an appeal from the order of the District Judge of the 21st January 1916, refusing to inquire into the validity of certain deeds of transfer executed by the insolvent in this matter on the ground that they were invalid transfers and executed for the purpose of preventing the debtor's property from being realised for the benefit of the creditors of the insolvent.
2. The argument mainly before us has turned upon the question of the construction to be put upon section 36 of the Provincial Insolvents' Act (Act III of 1907), as to upon whom the onus of proof lies relative to any transfers executed by an insolvent within two years prior to his declaration of insolvency The insolvent was heavily indebted, and on the 28th May 1913, applied to have himself declared an insolvent, and on the 7th November 1913, the Court was pleased to declare the insolvent an insolvent person. Long prior to his application to be declared an insolvent the insolvent was heavily indebted to numerous persons whose debts were contracted in the years 1911, 1912 and 1913: and the first creditor on the list set out in Schedule A to the insolvent's petition is the applicant in the present case, a man called Hemraj Champa Lal, for the sum of Rs. 7,000, whose debt was established by a decree in a suit in 1911. There were various other creditors whose debts all appeared in the schedule, amounting to a total sum of Rs. 14,677; and in Schedule B to the petition, the petitioner sets out the total amount of assets in hand on the 28th May 1913, when the petition was filed, showing assets to the extent of Rs. 3,387-5-6. Prior to the declaration of insolvency the insolvent disposed of some valuable property, some pukka houses of which he was the proprietor in Gaya, and three deeds of transfer were executed relative to the same and they are now impeached, and the three transfers bear date the 6th July 1912, the 4th August 1912 and the 6th February 1913. All of which transfers were made and executed by the insolvent within two years prior to the declaration of insolvency.
3. The applicant hero, the main creditor, comes forward under section 36 of the Provincial Insolvents' Act (Act III of 1907), and seeks to have these transfers set aside on the ground that they are not bona fide, that they were not made for valuable consideration, and that these transfers were effected, if at all, for a consideration that was grossly inadequate, and that thus the creditors were hindered and prevented from realizing the entire assets and estate of the insolvent. The applicant before the learned Judge adduced some four or five witnesses only to prove that the transfers which he sought to impeach were transfers made within two years prior to the act of insolvency; and he contended that having given such proof, the onus was shifted on to the transferees to establish the bona fides of their transfers. The learned Judge seems to us not to have carefully considered the legal obligations imposed by section 36. To our mind it is perfectly clear that if a transaction by way of transfer of an insolvent's property takes place within two years prior to the act of insolvency or to the declaration of insolvency, that then nothing more is necessary on the part of the person impeaching the transaction than to prove that it took place within two years prior to the act itself; and that having done so, the onus is shifted upon the transferee to establish the bona files and good faith of the transaction which he seeks to maintain and uphold. Ample authority is forthcoming for that proposition, and we think the decision in Nilmoni Chowdhuri v. Basanta Kumar Banerjee20 Ind. Cas. 814 : 19 C.W.N. 865, is an authority which we consider we ought to adopt. And we are fortified in that view by the decision in Muhammad Habibullah v. Mushtaq Husain 37 Ind. Cas. 684 : 14 A.L.J. 1183, where two Judges of the Allahabad High Court, Mr. Justice Walsh and Mr. Justice Sunder Lal, both held that considerations affecting section 53 of the Transfer of Property Act did not apply to section 36 of the Provincial Insolvents' Act, in these words, which we adopt as our own:--
"Provisions analogous to those contained in section 36 of the Act are to be found in section 47 of the English Bankruptcy Act of 1883, and Statute 13 Elizabeth Ch. V, and 27 Elizabeth Ch. IV. The language of each of these Statutes is slightly different. Each case, therefore, must be considered in the language of the Statute concerned. In our opinion section 36 of Act III of 1907 is wider in its scope than section 53 of Act IV of 1882. Under the latter section transfers made with the intent to defeat or delay creditors or subsequent transferees are made voidable at the instance of the creditors so defrauded or defeated, and it is also declared that where such transfers have the effect of defeating or delaying creditors they would be presumed to have been made with that intent, if they are made gratuitously or for grossly inadequate consideration. Under section 36 of the Act no such intent is necessary. All that is required is that it must be made within two years of the adjudication of the insolvency of the debtor. Under both these sections transferees in good faith and for valuable consideration are protected. Section 36 also protects transfers 'made before and in consideration of marriage.' We think it is, therefore, not necessary for Dr. Sen to avail himself of the provisions of section 53 of the Transfer of Property Act."
4. Accordingly we adopt that view of the law and we decide the construction of section 36 accordingly.
5. Mr. Kulwant Sahai, who appears on behalf of one of the transferees, urges with great force that section 36 of the Provincial Insolvents' Act of 1907 contemplates a proceeding at the suit of the Receiver appointed by the Court to administer and realize the assets of the insolvent. This application is preferred, not by the Receiver, but by one of the creditors, and it is urged that no individual creditor has any locus standi under section 36 of this Statute that would warrant the Courts in holding that he could pursue any independent proceeding, irrespective of the Receiver's position in the matter. Now, in this case the Receiver was appointed under section 16 by the District Judge, and the duties and powers of Receivers are prescribed by section 20, and in clause (d) of section 20 one of his duties is to institute, defend or continue any suit or other legal proceeding relating to the property of the insolvent;" and under [this Statute, as under the English Bankruptcy Acts, the property of the debtor vests in the Receiver upon the adjudication of insolvency. Now, the English Statutes are in precisely the same terms as the Statute I have referred to, and there is abundance of authority to show that once the Statute provides that the property is to vest in the Receiver, the Receiver becomes a trustee for the general body of creditors to safeguard their interests in the realization of the assets of the insolvent; and that the duty is primarily upon him to recover the assets and to take all proceedings that may be necessary to recover the property of the insolvent for the benefit of his creditors. So much is this so that in the case of Ex parte Kearsley, In re Genese (1886) 17 Q.B.D. 1 : 55 L.J.Q.R. 325 : 34 W.R. 474 : 3 Morrell 57, it was laid down that a creditor could not take any proceedings independently of the Receiver without application to the Court, and only then if the Receiver refused. The learned Judge Mr. Justice Cave says:--
"The proper course for creditors, if the trustee refuses to act, or to allow his name to be used (a trustee in the English Acts is the same as the Receiver here) is for them to come to the Court and apply for leave to use the name of the trustee on giving him an indemnity against costs. On such an application the Court will consider the nature of the proposed proceedings, and, if satisfied that there are prima facie grounds for allowing the creditors to proceed, will grant the application."
6. To the same effect the law will be found stated in paragraph 235 of Lord Halsbury's Laws of England, Volume 2, under Bankruptcy, which describes the classes of property which vest in the Receiver as follows:--
"The rights falling under the second class (that is, the rights which have accrue by virtue of insolvency) may be enforced by action by the trustee, unless the cause of action is one which from its nature does not vest in the trustee, or to the benefit of which the estate is not entitled. Rights of action which vest in the trustee by virtue of the superior title which in some cases is conferred on him by the Bankruptcy Acts, as, for instance, the right to recover money or property transferred by way of fraudulent preference or the right to recover property in the reputed ownership of the bankrupt, may be enforced by the trustee by action. All rights of action which relate directly to the bankrupt's property and can be turned into assets for the payment of debts pass to the trustee."
7. And in Rose v. Buckett (1901) 2 K.B. 449 : 70 L.J.K.B. 736 : 84 L.T. 670 : 50 W.R. 8 : 8 Manson 259 : 17 T.L.R. 544, at page 454 of the Report, Lord Collins lays down the rule of law as to what property vests in a Receiver. He says:-
"The general principles which determine whether a cause of action does or does not pass to the trustee in bankruptcy are well fettled, and may be stated in the language of Parke, B, in Beckham v. Drake (1849) 2 H.L.C. 579 : 9 E.R. 1213 : 84 R.R. 301. What then is the proper construction of this section of the Act...according to its words and the several cases decided upon it The proper and reasonable construction appears to me to be, that the Statute transfers not all rights of action which would pass to executors,...but all such as would be assets in their hands for the payment of debts,...and all which could be turned to profit."
8. So to a like effect is the case reported as Ex parte Moore, Solobodinsky, In re (1903) 2 K.B. 517 : 72 L.J. K.B. 883 : 39 L.T. 190 : 52 W.R. 156 : 10 Manson 341 : 19 T.L.R. 616. And at page 525 Mr. Justice Wright says:
"The trustee relies on the Bankruptcy Act, which by section 43 provides that the bankruptcy of a debtor shall be deemed to have relation back to, and to commence at, the time of the first act of bankruptcy committed by him within the statutory period of three months; and by section 44 his property vests in his trustee as from the date of that previous act of bankruptcy."
9. If the property vests in the trustee, then he is the person primarily entitled to recover it; or if the property has been made away with by the insolvent, the trustee is the person primarily entitled to follow it and to recover it back for the benefit of the creditors.
10. In paragraph 475 of Lord Halsbury's Laws of England, Volume 2, the position of the trustee is summarised in appropriate language. I use the word "trustee" here as synonymous with the Receiver" appointed under the Statute we have to consider:--
"The trustee in a bankruptcy ought not to make an application himself, or allow an application to be made in his name, to recover property alleged to have been given to a creditor by way of fraudulent preference, except for the benefit of all the creditors; he ought not to do so simply for the purpose of benefiting a single creditor."
11. To us it appears abundantly clear that what was contemplated by the procedure provided for by this Statute was, that the Receiver was the person to impeach any fraudulent transfer or conveyance by the insolvent of his property. If the Receiver refused to do so, then it would be open to any creditor to apply to the Judge for leave to institute a proceeding under section 36 on his own behalf and on behalf of the other creditors. But until the Receiver refuses or declines to act, no one else can do so, because he is the person to set the proceeding under section 36 in motion.
12. Accordingly, in our opinion, this application in its present form is not sustainable; but having regard to the course which we intend to pursue, we will direct that the name of the present applicant be struck out and that the name of the Receiver be substituted for it, and that then the application as amended in that form shall be remanded to the learned District Judge, having regard to our direction on the point of law which we have now given by this decision, for determination of the following questions:--
1. Are the three transfers impugned real and genuine transfers, or are they fictitious transfers made to protect the property from the creditors
2. What was the market value of the property conveyed in each case on the date of the transfers
3. Were the transfers impugned made in good faith and for valuable consideration
4. If not, was there want of good faith on the part of the transferee
13. The Judge has now clearly laid down for him the necessary law dealing with the onus of proof, and upon his answers to these questions remanded he will determine the rights of the parties.
14. Having regard to the way in which the case has been argued, we are of opinion that each party should bear their own coats.
B.K. Mullick, J.
I concur.
