Summary
An usufructuary mortgage in favour of the appellant's predecessor-in-interest was sought to be annulled by the Official Receiver as having been executed within two years of the adjudication of the mortgagors as insolvents, under S. 35(iii) of the Travancore Regulation VIII of 1090 (=1915) as not having been entered into in good faith and for valuable consideration. By an issue framed in the case the burden of proving affirmatively that the transfer was supported by good faith and valuable consideration was thrown on the transferee. There was also a preliminary objection by the Receiver that the usufructuary mortgage having been found to be an act of insolvency in the insolvency proceedings, that finding was res judicata between him and the transferee. The trial judge found in favour of the Receiver. On appeal by the transferee, the High Court affirmed the order of the trial judge allowing the Receiver's application for annulment solely on the ground that the appellant had failed to prove his bona fides in the sense that he had entered into the transaction without due care and attention within the meaning of S. 2(6) of the Travancore and Cochin General Clauses Act.
Held: that the courts below had erred in placing the onus on the transferee and their orders must be set aside.It is the settled law in insolvency proceedings that the burden of proving that a particular transaction is not supported by good faith and valuable consideration lies on the Official Receiver who challenges the transaction.Official Assignee v. Khoo Saw Cheow, (1931) A.C. 67, Official Receiver v. P.L.K.M.R.M. Chettyar Firm, (1930) L.R.58 I.A. 115 and Pope v. Official Assignee, Rangoon, (1933)L.R. 60 I.A. 362, relied on.Held further, that there was no scope for the application of the principle of res judicata in the instant case as the matter that directly arose for determination in it was whether the impugned transaction was not bona fide or for valuable consideration so far as the transferee was concerned and that was not in issue in the 33258 insolvency proceedings, nor had he been found in such pro- ceedings to be privy to any act of insolvency intended to defeat or delay the creditors.Mahomed Siddique Yousuf v. official Assignee of Calcutta, (1943) L.R. 70 I.A. 93, considered.The crucial question for decision in such a case would be whether the transferee was wanting in bona fides in respect of the transfer sought to be annulled and the correct test would be the one of honesty as laid down by S. 2(22) Of the Indian General Clauses Act and not that of due care and attention as contemplated by S. 2(6) of the Travancore and Cochin General Clauses Act.See the full content of this document
Extract
N. Subramania Iyer VS. The Official Receiver, Quilon
PETITIONER: N. SUBRAMANIA IYER Vs.RESPONDENT: THE OFFICIAL RECEIVER, QUILONDATE OF JUDGMENT: 24/05/1957BENCH: SINHA, BHUVNESHWAR P.BENCH: SINHA, BHUVNESHWAR P.JAGANNADHADAS, B.MENON, P. GOVINDACITATION: 1958 AIR 1 1958 SCR 257ACT: Insolvency-Receiver's application for annulment of transfer-Onus-Finding in insolvency Proceeding, if res judicata-Good faith-Test--Travancore Regulation VIII of 1090 (=1915) S.35(iii)-Travancore General Clauses Act(IIof 1072=1897), s.6(2) -Indian General Clauses Act (X of 1897), S. 2(22).JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 165 of 1953.Appeal by special leave from the judgment and order dated October 3, 1950, of the former Travancore Cochin High Court in A. S. No. 288 of 1120(T) arising out of the judgment and order dated the 3rd Thulum 1120 of the 2nd Judge, District Court, Quilon in C.M.P. No. 2391 dated 15-8-1103 in I.P.3/1100.K. S. Krishnaswamy Iyengar, Alladi Kuppuswami and M. S. K.Sastri, for the appellant.N. C. Chatterjee, M. R. Krishna Pillai and Sardar Bahadur, for respondent No. 1.1957, May 24. The Judgment of the Court was delivered bySINHA J.-This appeal by special leave is directed against the concurrent orders of the Courts below allowing the Official Receiver's application under s. 35 of Travancore Regulation VIII of 1090 (= 1915), to which we shall refer in the course of this judgment as the Insolvency Regulation, for annulling the usufructuary mortgage (Ex. I) for Rs.75,000 dated August 18, 1924, executed by a number of persons who may now be conveniently described as the insolvents. The main question for determination in this appeal on behalf of the transferee is whether the transaction in his favour is within the third exception to s. 35 aforesaid. (In this judgment we shall use the dates with reference to the Gregorian Calendar equivalent to the dates maintained under the Malayalam Calendar).259 In order to appreciate the arguments in this appeal it is necessary to state the following facts. Koya Kunju was a flourishing merchant at Quilon carrying on trade in piece goods, yarn, provisions etc. He died in or about the year 1921 leaving him surviving his widow, two sons and two daughters, who jointly carried on the ancestral business through the eldest son under a power of attorney. They added to the family business a tile factory and an oil mill.In June-July 1924 the sons approached the appellant's father, who was a flourishing money-lender living about fifty to sixty miles away from Quilon at a place called Mankompu. He agreed to advance the sum of Rs. 75,000 on the usufructuary mortgage of certain immovable properties in and near Quilon belonging to the family, for the purpose of carry...
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