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Madras High Court
A. Ahmed Ally And Co. vs Official Assignee In Re: M. … on 8 March, 1915
Equivalent citations: 29 Ind Cas 947
Author: Napier
Bench: S Aiyar, Napier


Napier, J.

1. This is an appeal from the judgment of Mr. Justice Bakewell sitting in insolvency on a motion by the Official Assignee, calling on the respondents before him to show cause why an order should not be made declaring that the sale to them of the entire stock of the insolvent’s girders, alleged to have been made on the 20th May 1913 for a sum of Rs. 23,608-11-4, should not be set aside on the ground that it was a fraudulent preference orthat it was not made in good faith and for valuable consideration.

2. The learned Judge has held that the transaction was not a genuine sale but was a nominal one and was not intended to be an out and out sale; and that even if it was a sale the property was in the possession, order and disposition of the insolvent within the meaning of Section 52 of Act III of 1909. On the latter point 1 am quite clear. There is no evidence worth the name that any attempt was made by the respondents to take possession of this property until after the act of insolvency and I entirely disbelieve the story of their having had their name painted up at the stpres where the insolvent kept these girders prior to that date.

3. As to the transaction itself my own opinion is that it was not intended by both partiss to be a complete transaction taking effect from that time. Whether at a subsequent date the transaction might have been made complete would have depended on the course which the insolvent’s affairs took and the extent to which he was able to meet his liabilities. I have no doubt that the first payment of Rs. 8,000 by cheque and Rs. 1,500 in cash on the 19th May was made prior to this transaction with respect to the girders; and that it was only later on the 19th or possibly on the 20th that the girder transaction was put through. I cannot accept the story that the bills for Rs. 7,500 were given as part payment for the girders. That story is negatived most clearly by the evidence in the case. The hundis, which were promissory notes, were signed by the insolvent and drawn in favour of one Champa Lal, while the respondents also signed them as drawers; defence third witness says, “Champa Lal said he would lend money on joint signatures, so we went to insolvent’s office and Allibhoy brought the hundis signed by Ahmed Ally.” I have no doubt that this was an ordinary transaction under which the insolvent borrowed The money from Champa Lal, who at that time possibly having some doubt of the financial standing of the insolvent insisted on the second name. It is impossible to suppose that, if this was an ordinary transaction of purchase of girders and payment for them by the respondents, the hundis would have been drawn in this form.

4. A great deal was made of the fact that there appeared to be one or two small transactions in girders by the respondents after the 20th of May. These may be transactions of the nature which it is shown that the respondents entered into prior to the insolvency; that is to say, when they got an order for a small number of girders, they wore in the habit of selling the girders and procuring them from the insolvent.

5. Mr. Devadoss has invited our attention to the whole of the evidence and has made as much as he could of the small points in his favour. Bat I am perfectly satisfied in my own mind that this was, as Mr. Justice Bakewell puts it, not intended to be an out and out sale and in that view I would dismiss this appeal with costs on the original side scale.

6. Mr. Devadoss raised the Question whether the respondents would not be entitled to rank as secured creditors, on the view that the girders were mortgaged with them at the time that the insolvent procured their name to the promissory note. I express no opinion on this point as I do not think it is before us.

7. Sadasiva Aiyar, J.–It seems to me that the appellants and the insolvents were not only of the same “caste” as stated by the senior partner of the appellants’ firm (namely, Abdul Husain, the defence sixth witness) and belonged to the same place (Sidpur), but they were also very thick friends. Defence 6th witness admits that he had known Jeevajee all his life. I do not believe that anything took place about the girders in dispute on the 19th May 1913, when Rs. 9,500 was lent by the appellants to the insolvents who must have been very hard up for money oven on that date. The appellants, because they were such friends of the insolvents, drew all the money in deposit in their Bank and gave that sum of Rs. 8,000 and the balance of Rs. 1,500 in cash to the insolvents on the 19th of May. On the 20th May the insolvents were still very hard up for money. They then requested the appellants to help them by an accommodation signature to a promissory note for Rs. 7,500 and the appellants consented. The evidence of the 7th witness on the defendants’ side: (Fazi Ally) shows that the appellants must have known on the 20th May that the firm of Jeevajee has become very shaky. It was then that bill of sale Exhibit B was executed in favour of the appellants. The goods, however, were left in the office of the insolvents till (as I gather from the evidence) the morning of the 5th June 1913, the insolvents having committed their act of insolvency on the evening of the 4th June. On these facts, the bill of sale is clearly, in my opinion, fraudulent and void as against the Official Assignee under Section 56, Clause (1), of the Presidency Towns Insolvency Act, III of 1909, whether the sale was an out and out sale, or whether it was only intended as security for the prior debt of Rs. 24,000 and as security against the loss which the appellants might be put to in future by reason of their having accommodated the insolvents with their signature to the promisssory note in favour of Champa Lal. The learned Judge is, therefore, right in declaring the sale void and this appeal should be dismissed.

8. As regards the question whether the appellants could not rank as secured creditors in respect of the Rs. 24,000 which was due to them before the 20th May 1913 or in respect of the Rs. 7,500 or any lesser sum they lost after the date of the insolvency through the insolvents’ inability to meet the promissory note to Champa Lal on the due dates, that claim is not before us and it is unnecessary, as my learned brother said, to express any opinion on that question.

9. The appeal is dismissed with costs on the original side scale.

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