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Madras High Court
Khan Sahib Bangi Abdul Khader … vs The Official Assignee Of Madras on 3 April, 1913
Equivalent citations: 20 Ind Cas 482, (1913) 25 MLJ 320


1. The order against which the present appeal is brought is an order made on the application of the Official Assignee under Section 56 of the Insolvency Act setting aside a transaction as a fraudulent preference. The appellant is the father-in-law of the insolvent who is now dead. On May 9, 1910 the insolvent made a transfer of his stock in trade to persons carrying on business under the name of Abdul Latheef. Sahib and Co. This was the act of insolvency on which on May 18, 1910 the order of adjudication was made on a creditor’s petition. There was no appeal against this order, and the Official Assignee took possession of the stock transferred to Abdul Latheef and Co. There were various proceedings in the insolvency with a view to establish the insolvent’s right to these goods and there was also a suit for the same purpose which was dismissed by Wallis J. on the ground that an order made by the Court in insolvency exercising a jurisdiction under Section 7 of the Act should not be set aside by suit. The appellate Court (Appeal No. 4 of 1912) took the same view.

2. It is clear therefore that the transfer of the stock in trade of May 9, 1910, must be taken to have been made with intent to defeat creditors. The fact that this transaction was intended to defeat creditors is we think a relevant fact with regard to the question, whether the insolvent made the payment on May 14, five days later which is impeached as a fraudulent preference with a view to giving the creditor, to whom the payment was made, a preference over the other creditors within the meaning of Section 56 of the Act. The payment was made to a near relation of the insolvent’s father-in-law. There can be no question that at the time of the payment he was unable to pay his debts as they became due. The learned Judge was of opinion that the insolvent intended to file his schedule when he made the transfer on May 9. We do not think there is anything to show this. As a matter of fact the order of adjudication was made on a creditors petition. We should think it more likely that the insolvent was anxious to stand off an adjudication to a time when the transfer of stock on May 9 and the payment of Rs. 10,000 on May 14, could not be impeached. It is not disputed that the Rs. 10,000 was paid to Abdul Razack, a son of the appellant, on May 14, in respect of a promissory note for the amount executed in 1908. This payment left a sum of Rs. 1,800. odd still due for interest. Abdul Razack stated on his examination that he told the insolvent he must pay the money or otherwise a suit would be filed. Abdul Razack admitted that when he got the money he knew of the transfer of the stock on May 9, and he said the insolvent told him he had got the money from Abdul Latheef. There is evidence that between 14th and 18th certain other creditors were paid. The appellant on his examination stated that when his son received the Rs. 10,000 he (the appellant) believed that the business was being carried on in the usual way. The evidence of pressure rests on the oral testimony of the appellant and his son. There is no letter by the appellant. The two letters written by the insolvent in April and November 1909 (Exhibits I and II) do not refer to any demand for the payment of the money due on the promissory note.

3. On this evidence can it be said, that the payment to the appellant was made with a view to prefer the appellant ? We do not think the evidence as to pressure can be relied upon. Assuming there was some pressure that is not sufficient. Even if the payment would never have been made but for the importunity it is fraudulent preference if it is also the fact that the payment never would have been made but for the desire to prefer the creditor. Per Vaughan Williams J. in re Bell (1892) 10 Mor. 15 at 18. The present case as it seems to us does not fall within the principle of Sharp v. Jackson (1899) A.C. 419. where the object of the payment was to shield a man from the consequences of his own conduct. We do not overlook the fact that the Official Assignee’s application was made till nearly a year after the alleged fraudulent preference was given. The explanation is that the Official Assignee was not aware of the payment until in response to a demand for a payment of an alleged debt of some Rs. 300 made on the appellant by the Official Assignee. The appellant swore his affidavit on January 12, 1901, in which he claimed interest on the promissory note and admitted the receipt of the Rs. 10,000. The explanation of the delay is not altogether satisfactory but we do not think the delay in itself is sufficient ground for declining to make an order if the facts bring the case within the Section If, on the proved or admitted facts we put to ourselves, the question to paraphrase the language of Vaughan Williams J. In re Bell (1892) 10 Mor. 15 at 18, was the substantial, effectual or dominant view with which the debtor made this payment, the preference of his father-in-law? We think the answer must be in the affirmative.

4. We think the learned judge was right in his conclusion. On the hearing of this appeal it was contended on behalf of the Official Assignee that the Official Assignee’s report was evidence of the facts relied on in support of the application. We feel considerable doubt as to this. We think the recital in the formal order of the Court rightly distinguishes between the report and the evidence adduced in support of the application. The recital runs ” upon reading the notice of motion…and the report…and upon hearing…the evidence adduced herein etc”

5. Mr. Devadoss, on behalf of the Official Assignee relied on E. 117. This rule, though reproduced as one of the rules made under the Act of 1909 is, we are told, a reproduction of a rule made .under the Act of 1848. Terms of the rule are no doubt wide enough to render the report prima facie evidence of the matter reported upon for all purposes, and on any application which the Official Assignee may make to the Court. As at present advised we should be disposed to hold (leaving Section 104 out of consideration for the moment) that the report is prima facie evidence of the matter reported only when the matter is one with regard to which the Official Assignee is directed or empowered by the provisions of the Act to make a report (See Sections 38 and 79). The Official Assignee is empowered to make a report under Section 104 for the purposes of prosecution. But this stands on a different footing. We do not think it could be reasonably contended that the report of the Official Assignee is prima facie evidence in Criminal Proceedings.

6. The only provision in the Act so far as we can see, which makes the report of the Official Assignee’s evidence is Section 39(4) which provides that on an application for discharge the report of the Official Assignee shall be prima facie evidence. The fact that there is an express provision in the discharge sections goes some way to indicate that in other matters the report is not evidence. If Rule 116 is to be construed as making any report for any purpose evidence of facts stated therein, we should be disposed to hold it” is ultra vires. It is certainly not covered by any of the special purposes mentioned in the rule-making section (Section 111 of the present Act of 1848) under which the rule in the first instance appears to have been made. Section 9(5) of the English Bankruptcy Act of 1890 which replaces Section 8 of the Act of 1883, provides that for the purposes of that section the report of the Official Receiver shall be prima facie evidence of the statements therein contained. The rules made under the English Act of 1883 do not contain any rule which makes, the report of the Official Assignee’s evidence, but it has been held that in certain cases when the Official Receiver is directed or empowered by the Act to make a report, his report is prima facie evidence; See Ex parte Campbell (1885) 15 Q.B.D. 213. (scheme of arrangements under Section 18 now Section 29 of the Act of 1890), Re Horniblow (1885) 2 Mor. 124 (Small Bankruptcies under Section 121).

7. Putting the report at its highest, it can only be evidence of the facts stated therein.

8. There is an allegation in the report before us that the insolvent has been guilty of gross fraud. This, as it seems to us, is a question for the Court. However we do not desire to express any final opinion on the point we have discussed.

9. So far as this appeal is concerned we have been able to deal with it on the evidence which is on the file apart from the report,

10. The appeal is dismissed with costs.

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