judgement:
62 to 465 of 1960.
Appeals from the judgment and order dated September 26,1955, of the Bombay High Court I. T. R. No. 22 of 1955.
K. N. Rajagopal Sastri, J. K. Hiranandi and N.H. Hingorani for the appellants.
N. D. Karkhanis and D. Gupta for the respondents.
April 19.
The Judgment of the Court was delivered by 270 SHAH, J.
This is a group of appeals against orders passed by the High Court of Bombay in Income Tax Reference under section 66(1) of the Indian Income Tax Act.
Chellsons Ltd. a Private Company was incorporated in April 1941.
The shareholders of the company at the material time were Kishinchand Chellaram holding 6 shares and Shewakram Kishinchand, Lokumal Kishinchand and Murli Tabilram each holding three shares.
Kishinchand, Shewakram and Lokumal were directors of the company.
At a General meeting of the shareholders of the company held on July 10, 1943, it was resolved to declare dividend at "60 per cent on the shares" of the company and for the purpose of that of declaration the profits of the year 1941 43 were included in the profit of the year 1942 43.
Pursuant to this resolution, Rs. 46,000/ were credited in the books of the company to the account of Kishinchand Chellaram on March 31, 1944 and Rs. 23,000/ were credited to each of the other three shareholders.
Another meeting of the shareholders was held on July 15, 1944, and it was resolved to declare dividend at "60 per cent on the shares" out of the profit of the company for 1943 44.
Pursuant to this resolution, on September 29, 1944, Rs. 30,000/ were credited in the company 's books of account to Kishinchand and Rs. 15 000/ were credited to the accounts of each of the other there shareholders.
In their respective returns for the assessment year 1945 46, Kishinchand, Showakram, Lokumal and Murli who will hereinafter be collectively called the assessees included the amounts credited to them in the company 's books of account as dividends for the three years 1941 42 to 1943 44.
On December 4,1947, at an Extraordinary General Meeting another resolution purporting to ' reverse the earlier resolutions dated July 10, 1943 and July 271 15, 1944, was passed by the company.
The resolution read as follows: "The notice dated 25th November, 1947 calling the Extraordinary General Body Meeting for today, was placed on the table.
" Whereas the sum of Rs. 1,90,000 paid to the shareholders during the year 1944 45 as per details given below viz 1941 42 1942 43 1943 44 Total Mr. inch and Chellaram 10,000 36,000 30,000 76,000 Mr. Shewakram Kishinchand 5,000 18,000 15,000 38,000 Mr. Lokumal Kishinchand 5,000 18,000 15,000 38,000 Mr. Murli Tahilram 5,000 18,000 15,000 38,000 Total 25,000 90,000 75,000 190,000 was sanctioned by the General Body inadver tently without taking into consideration the Company 's liability for taxation, including E. P. T. and all the shareholders having been fully apprised of the bona fide mistake it is hereby unanimously resolved that such dividend inadvertently paid be considered as loan to such individual shareholders ' and be paid back to the Company forthwith, and the con sideration of any dividend to the shareholder be deferred to the next Annual General Meet ing.
The adjustment in this regard will not 272 be made in the books of the Company as on 6th April, 1947.
" Even though this resolution was passed, and the proceedings for assessment before the Income Tax Officer were not disposed of the assessees did not file revised returns excluding the amounts credited as dividend, nor did they claim before the Income Tax Officer that those amounts not being income were not liable to tax.
By his order dated January 1, 1950, the Income Tax Officer brought the income returned by the assessees including the amounts credited to them as dividends, for the three years to tax.
In appeals to the Appellate.
Assistant Commissioner, the assessees contended that the amounts credited by the Company to their accounts in respect of the years 1941 42, 1942 43 and 1943 44 were not, in view of the subsequent resolution, liable to be taxed as dividend income. 'The Appellate Assistant Commissioner rejected this plea.
The assessees then appealed to the Appellate Tribunal and contended that the dividends for the three years in question were declared out of capital and such declaration of dividend being under the Indian,Companies Act invalid, in the assessment the amounts, credited to their accounts as dividend should be excluded.
The Income Tax Appellate Tribunal held that the dividends in respect of the years 1941 42 and 1942 43, having been received before the year of account relevant to the year of assessment 1945 46, were not liable to be taxed in that year.
But the Tribunal confirmed the orders of assessment as to the dividend for the year 1943 44, because, in their view, the resolution declaring dividend could not be reversed by a resolution at a subsequent General Meeting after the dividends had been paid.
At the instance of 273 the assessees the Appellate Tribunal referred in each of the four cases the following two questions: (1) Whether the shareholders of the company at the meeting held on December 4, 1947 could reverse the resolutions passed on July 10, 1943 and July 15, 1944 ? (2) Whether the sum of Rs. . . received by the assessee. . . as dividend in the account year 1944 45 relevant for the assessment year 1945 46 has been lawfully taxed in the assessment year 1945 46? If not, could only the dividends that could have been paid out of the profits or a part thereof be taxed in the assessment year 1945 46 ? (In each set of questions the appropriate amount received and the name of the assessee was incorporated in the second question).
The Tribunal observed in the order of reference that the Income Tax Department challenged the correctness of the claim made by the shareholders that dividend was paid without making provision for payment of tax, but they did not desire to go into accounts to ascertain whether provision for tax was made, as "the parties at the time of the hearing of the appeals proceeded on the footing that no such provision was made.
Even if provision was made, it makes no difference in so far as the Department is concerned.
The question is whether any divident has been declared out of capital and that question will have to be examined at the time of passing the order under Section 66 (5) of the Act, in view of question No. 2." The High Court declined to answer the first question because in their view it was unnecessary, and 'answered the first part of the second 274 question in the affirmative, and hold that the second part did not on that view arise for decision.
Against the order of the High Court these four appeals have been preferred by the assessees.
The only question material to these appeals which was argued by the assessees before the Tribunal was whether it was competent to the company by a subsequent resolution to reverse an earlier resolution declaring the dividend.
The Tribunal held that the earlier resolution could not be reversed by a subsequent resolution, and therefore what was paid and received as dividend could not by a subsequent resolution of the company be treated as paid otherwise than as dividend.
The High Court held that the assessments were properly made by the Income Tax Officer.
They observed that the assessment of an assessee for each year is self contained and subsequent events cannot justify modification of the assessment.
Section 16(2) provided (in so far as it is material) that "for the purposes of inclusion in the total income of an assessee any dividend shall be deemed to be income of the previous year in which it is paid, credited or distributed or deemed to have been paid, credited or distributed to him. x x x".
It is common ground that on July 15, 1944 dividend was declared by a resolution of the company and the amounts payable to the assessees were, in fact, credited on September 29, 1944, in the accounts maintained by the company, to each of the shareholders as dividend.
The amounts were therefore declared as dividend, treated as dividend and received by the assessees as dividend.
The assessees included the dividends so credited to their accounts in the returns.
It may be assumed that the company failed to provide for payment of tax before declaring dividend and that after providing for payment of tax the net profits of company may not have 275 been sufficient to justify declaration of dividend at 60% of the value of the shares.
On that assumption it may be inferred that the dividend or a part thereof was in truth paid out of the capital of the company.
Payment of dividend otherwise than out of profits of the year, or other undistributed profits was at the material time prohibited by article 97 of Table A of the Indian Companies Act, 1913 as amended by Act.
XXXII of 1936 read with section 17(2) of the Act; and therefore such payment may be regarded as unlawful.
If the Directors of a company have deliberately paid or negligently been instrumental in paying dividend out of capital they may have, in an action by the company or if the company is being wound up at the instance of the Liquidator to compensate the company for loss occasioned by their wrongful or negligent conduct.
(In ' the matter of The Union Bank Allahabad Ltd. (1).
In this case we are not concerned with the validity of the distribution of dividend, 'or the liability of the directors arising out of improper distribution of dividend.
We are concerned with the true character of the payment made on September 29, 1944, to the assessees.
If dividend is declared and the amount is credited or paid to the share holders as dividend can the character of the credit or payment be altered by a subsequent resolution so as to alter the incidence of tax which attaches to that amount? By virtue of section 16(2) the liability to pay tax attaches as soon as dividend is paid, credited or distributed or deemed to have been paid, credited or distributed to the shareholders and the Income Tax Act contains no provision for altering the incidence of liability to pay tax on the dividend, merely because it is found that in declaring dividend and paying it the company violated a prohibition (1) All.
276 relating to payment of dividend in the Indian Companies Act.
It is not necessary to consider in this case whether the shareholders may be compelled by the company to refund the amount improperly paid as dividend out of capital.
Even if the shareholders agree to refund the amounts received by them as dividend the original character of the receipt as dividend is not thereby altered.
In ascertaining ' whether liability to pay Income tax on dividend arose, a resolution of the company whereby payments made to the shareholders as dividend are to be treated as loans cannot retrospectively alter the character of the payment and thereby exempt it from liability which has already attached thereto.
Before this Court two contentions were raised by counsel for the assesses : (1) that on the amount received by each of the asseseees tax was not eligible because it was not dividend at all, and (2) that what was declared and paid as dividend ceased to be such by virtue of the subsequent resolution.
The first plea was not raised before the Tribunal, and on the question as framed it did not arise for decision on a reference under section 66 of the Indian Income Tax Act.
The jurisdiction of the High Court under section 66 being advisory, they were concerned to give their opinion on questions which fairly arose out of the order of the Tribunal, and were in fact raised and referred.
The question whether the payment made by the Company was not in the nature of dividend not having fairly arisen out of the order of the Tribunal, it cannot be raised in this Court as it could not in the High Court.
In any event, we are of the opinion that payment made as dividend by a company to its shareholders does not lose that character merely because it is paid out of capital.
Under the Income Tax Act, liability to pay tax attaches as soon as dividend is paid, credited or distributed or is so 277 declared.
The Act does not contemplate an enquiry whether the dividend is properly paid credited or distributed before liability to pay Tax attaches thereto.
The answer to the second contention for reasons already set out by us must be in the negative.
The appeals therefore fail and are dismissed.
In the circumstances of the case there will be no order as to costs.
Appeals dissmissed.

summary:
Chellsons Ltd., a private Ltd. Company, declared dividends without taking into account the company 's liability for taxation, including Extra Profits Tax.
The dividends so declared were credited in the books of the company to the accounts of each of the share holders.
Share holders in their return for the relevant assessment year included the amounts credited to them in the company 's books of account.
Payment of dividends otherwise than out of profits of the year, or other undistributed profits was at the material time prohibited, by article 97 of Table A of the Indian Companies Act, 1913, as amended by Act XXXII of 1936 read with section 17 (2) of the Act; therefore such payment could not be regarded as lawful, the company having failed to provide for payment of tax before declaring dividend.
On discovering its mistake at an Extra Ordinary General Meeting another revolution purporting to reverse the earlier resolutions declaring the dividends was moved, and the shareholders unanimously resolved inter alia that all the shareholders having been fully apprised of the bonafide mistake, the dividends inadvertently paid be considered as loans to such individual shareholders.
Before the Income Tax Officer the assessee who was a shareholder did not file a revised return, nor did he claim that the amount received by him was not liable to tax.
But on appeal before the Appellate Assistant Commissioner the assessee contended that amount credited by the company to his account was not in view of the subsequent resolution, liable to be taxed as dividend income.
The plea was rejected.
Before the Tribunal the assessee contended that the dividends were declared out of capital and such declaration was invalid under the Companies Act.
The tribunal held that what was paid and received as dividend could not by a subsequent resolution of the company be treated as paid otherwise than as dividend.
The High 269 Court agreed with the Tribunal observing that assessment for each year is self contained and subsequent events cannot justify modification of the assessment.
The assessee came up in appeal to the Supreme Court.
Held, that if the directors of the company have deliberately paid or negligently been instrumental in paying dividends out of capital they may have, in an action by the company or if the company is being wound up at the instance of the liquidator, to compensate the company for loss occasioned by their wrongful or negligent conduct.
In Matter of The Union Bank, Allahabad Ltd. (1925) I.L. R. 47 All.
669 approved.
Held, further, in ascertaining whether liability to pay income tax on dividend arose, a resolution of the company whereby payments made to the shareholders as dividends are to be treated as loans cannot retrospectively alter the character of the payment and thereby exempt it from liability which has already attached thereto.
Held, also, the payment made as dividend by a company to its share holders does not lose the character, of dividend merely because it is paid out of capital.
Under the Income Tax Act, liability to pay tax attaches as soon as dividend is paid, credited or distributed or is declared.
The Act does not contemplate an enquiry whether the dividend is properly paid, credited or distributed before liability to pay tax attaches thereto.


judgement:
riminal Appeal No. 97 of 1961.
Appeal by special leave from the judgment and order dated February 1, 1961, of the Allahabad High Court (Lucknow Bench) Lucknow in Criminal Appeal No. 403 of 1960.
section P. Sinha and Saukat Hussain, for the appellant.
G. C. Mathur and C. P. Lal.
for the respondent.
November 13.
The judgment of the Court was delivered by SUBBA RAO, J.
This is an appeal by Special leave against the judgment and order of the Allahabad High Court, Lucknow Bench, confirming that of the Additional Sessions judge, Kheri, convicting the appellant under section 218 of the Indian Penal Code and sentencing him to two, years ' rigorous im prisonment.
The prosecution case may be briefly stated : Some Railway officers and others, including one Chauhan, Railway Guard, went on two trollies towards Bhitra for a shoot.
Chauhan had with him a 40 double barrelled gun of twelve bore bearing No. 23727.
On either side of the Railway line there were reserve forests of the State.
Some of the group got down from the trollies, flashed a search light and fired their guns.
Two persons were shot dead.
Chauhan in order to create evidence in his favour got a report entered by the appellant, a Police Head constable. in the General diary of the Police Station purporting to have been taken on December 13, 1956, at 6.45 P.M. to the effect that Chauhan had deposited the said gun in the Police Station. 'Many other manipulations were made by the appellant in the Police record to bring it in conformity with the said false entry.
Several persons, including Chauhan and the appellant were prosecuted under sections 304 A, 201/109, 120 B and 218/109 of the Indian Penal Code, as.
well under section 26 of the Indian Forest Act, and they were tried by the Additional Sessions Judge, Kheri.
The appellant was also charged under section 218 of the Indian Penal Code.
All the accused were acquitted except the appellant who was convicted under section 218 of the Indian Penal Code and sentenced to two years ' rigorous imprisonment.
The appeal filed by him to the High Court was dismissed.
Hence this present appeal.
The learned counsel for the appellant raised two questions before us.
The first was that as Chauhan was acquitted of all the offences with which he was charged, the charge against the appellant under.
section 218, Indian Penal Code, should fall with it and the second that the prosecution against the appellant having been launched three months after the entry is alleged to have been made by him in the Police diary was barred by limitation under section 42 of the Police Act.
Section 218 of the Indian Penal Code reads "Whoever, being a public servant, and being as such public servant, charged with the prepa ration of any record or other writing frames 41 that record or writing in a manner which he knows to be incorrect, with intent to cause, or knowing it to be likely that he will thereby cause, x x x x with intent thereby to save, or knowing it to be likely that he will thereby save any person from legal punishment, or with intent to save, or knowing that he is likely thereby to save x x x x x shall be punished with imprisonment of either descri ption for a term which may extend to three years, or with fine or with both." The crux of the section so far as it is relevant to the present inquiry is that the public servant should have acted in the manner contemplated by this section with an intent thereby to save or knowing it to be likely that he will thereby save any person from legal, punishment.
The argument of the learned counsel under the, first head hinges upon the alleged inconsistency and ' conflict between the acquittal of Chauhan and the, conviction of the appellant.
Chauhan had been ' charged along with the appellant for offences under SS.
304 A, 120 B, 201/109 and 218/109 of the Indian, Penal Code and section 26 of the Indian Forest Act.
He was acquitted.
Omitting for the time being section 218/109 Indian Penal Code.
, let us see on what grounds he was so acquitted.
The learned Additional Sessions judge found that the following facts had been established : (1) That there were three guns with the party, including Chauhan 's gun; (2) That between miles 8 and 9 after the ' trollies were stopped and were placed by the side of ', the track, Ramdeo trolly man and Lala went away and shortly after that four gun shots were heard and shortly after that Lala returned alone and then all the members of the party excepting Ramdeo returned to Mailani by the Cane Special, 42 (3) That at the time when the four gun shots were heard, Chauhan and Gupta were standing just near the track with their guns in their hands and, Dilawar, Amin and Hira also remained standing by the side of the track.
(4) The medical evidence does not ' say about the duration of the gun shot injuries of Ramdeo and Chhotey but from the above noted discussion of the evidence it would appear that Ramdeo and Chhotey were likely to have received gun shot injuries between 7 20 to 7 40 P.M. in the night between December, 14 and 15, 1956.
From the foregoing facts found the learned Judge came to the conclusion that there was no direct or substantial evidence of any kind connecting any of the five accused, including Chauhan, with the death of Ramdeo and Chhotey.
It would be seen from the said finding that the learned judge accepted the evidence that Chauhan was in the shooting party that ' day, that he carried a gun with him, that two persons were killed with gun shots but for some reason with the correctness of which we are not concerned here he acquitted Chauhan.
It is, therefore, manifest that whether Chauhan was guilty or not, at the time the false entries were made in the case diary there was every likelihood of Chauhan being prosecuted along with others for causing the death of Ramdeo and Chotey.
Indeed as expected Chauhan and others were prosecuted though they were acquitted.
On the said facts the mere acquittal of Chauhan cannot displace the finding of the learned Judge that the appellant manipulated the record with an intent thereby to save or knowing it to be likely that he would 'thereby save Chauhan from legal punishment.
If the appellant had made the false entry in the diary and manipulated other records with a view to _ave Chauhan from the leggal punishment that might be inflicted upon him, the mere fact that he 43 was subsequently acquitted of the offence could not make it anytheless an offence under section 218 of the Indian Penal Code .
Nor can we accept the contention that the acquittal of Chauhan for the abetment of the offence under section 218 of the Indian Penal Code committed by,the appellant affects the conviction of the appellant under section 218 of the Indian Penal Code.
The gravamen of that charge against Chauhan is that he abetted the appellant in making a false entry in the diary and manipulating the record to fit in with that false entry ' The Additional Sessions judge considered the following three points in connection with the said offence (1) Whether Chauhan abetted Maulud Ahmad in making false entries in the General Diary of Police Station Mailani ? (2) Whether Chauhan deposited his gun at Police Station Mailani in the night between Dccember 14 and 15, 1956, and got the entry of the deposit in the General Diary antedated, i. e. according to the entry the gun was shown to be deposited on December 13, 1956, at 18 45 hours and whether Chauhan did it after consultation with Dilawar ? (3) Whether Maulud Ahmad (accused) made false entries in the General Diary of Police Station Mailani with the intention to save or knowing it likely that he would thereby save the offenders from legal punishment and by that false entry he was trying to get the evidence of the offences under sections 304 A of the Indian Penal Code and 26 of the Indian Forest Act to disappear ? The learned Judge found on the third point that the appellant intentionally falsified the official record with a view to save Chauhan but he acquitted Chauhan by giving him the benefit of doubt on the ground that his signature was not found against the 44 entry of deposit of the gun on December 13, 1956, and also against the entry of the return of the gun on December 18, 1956.
In the view of the learned judge it was not established conclusively that Chauhan abetted the appellant in manipulating the record but that could not exonerate the appellant for it had been held on the evidence that the false entries had been made in the record by the appellant with a view to save Chauhan.
Whether the acquittal of Chauhan was correct or not, the conviction of the appellant is not inconsistent with that of the acquittal of Chauban.
That apart it appears to us from the record that the acquittal of Chauhan is not justified in the circumstances of the case.
Though we cannot convict him as the State has not preferred an appeal to the High Court against his acquittal, we cannot rely upon that.
acquittal to acquit the appellant against whom the case has been proved to the hilt.
We,, therefore, hold that the conviction of the appellant is not inconsistent with the acquittal of Chauhan.
The second question that is the question of limitation depends upon the provisions of section 42 of the Police Act.
Section 42 reads "All x x x x prosecutions against any.
person, which may be lawfully brought for anything done or intended, to be; done under the ' provisions of this Act, or under the general police powers hereby given shall be commenced within three months after the act complained of shall have been committed, and not, otherwise, x x x x x X." The period of three months prescribed for Commencing a prosecution under this section is, only with respect to prosecution of a person for something done or intended to be done by him under the provisions of the Police Act or under general Police powers given by the Act, Section 42 does not apply to prosecution 45 against any person for anything done under the provisions of any other Act or under Police powers conferred under any other Act.
Under section 36 nothing contained in the Police, Act shall be construed to prevent any per son from being prosecuted under any Regulation or Act for any offence made punishable by this Act or for being liable under any other Regulation or Act or any other or higher penalty or punishment than is provided for such offence by this Act.
This section makes it clear that the provisions of the Act including section 42 do not preclude a person from.
being prosecuted for an offence under any other Act.
A combined reading of these provisions leads to the conclusion that section 42 only applies to a prosecution against a per son for an offence committed under the Police Act.
Under section 29 of the Police Act a Police officer, who is guilty of any violation of a duty, shall be liable on conviction before a Magistrate to a penalty Prescribed thereunder.
Section 44 thereof imposes a duty on every officer in charge of a Police Station to keep a General Diary in such form as prescribed.
If the appellant did not discharge his duty in the matter of keeping a regular diary, he had committed an offence under section 29 of the Act.
If he was prosecuted for such an offence under section 42, it should be done within the time laid down thereunder, but the prosecution in the 'present case was for an offence under section 218 of the Indian, Penal Code which is an offence under a different act and for which a much higher punishment is prescribed.
By reason of section 36 of the Police Act, section 42 thereof cannot apply to such a, prosecution.
An appeal is made for the reduction of the sentence on the ground that the Head Conatable was only a tool in the hands of a superior officer who might have been approached by Chauhan.
There is nothing on the record to disclose that Chauhan 46 approached any superior officer in the Police Department and that ' the appellant had manipulated the records on the dictation ' of such an officer.
This is a pure surmise based upon an observation made by the learned judge of the High Court in the judgment.
There is nothing improbable in Chauhan or some other person interested in him directly approaching, the appellant and the appellant acting in the manner.
he did for consideration or otherwise.
If a police officer manipulates the record such as police diary etc., it will be the end of honest criminal investigation in our country, Such offences shall receive deterrent punishment.
The punishment awarded errs more on the side of leniency than otherwise.
For the aforesaid reasons we hold that the decision of the High Court is correct.
The appeal fails and is dismissed.
Appeal dismissed.

dataset_name: IN-Abs

summary:
C and some other persons went on a shoot with guns where two persons were shot dead.
In order to create evidence in his favour C got a false report entered by the appellant, a Head constable, in the General Diary purporting to have been made on the previous day to the effect that 0 had deposited his gun.
C and the appellant and the others were tried for various offences including offences under sections 304 A and 218/109 Indian Penal Code.
All the accussed were acquitted but the appellant was convicted under section 218.
The appellant contended that after the acquittal of C, his conviction under section 218 couple not be sustained and (ii) that the prosecution having been launched more than three ' months after the entry was made was barred by limitation under section 42 Police Act.
39 Held, that the appellant was rightly convicted.
Whether C was guilty or not, at the time the entry was made there Was every likelihood of C being prosecuted, for causing the death of two persons.
The acquittal of C did not affect the finding that the false entry was made with the intention to save or knowing it to be likely to save C from legal punishment.
The acquittal of C under section 218/109 did not exonerate the appellant as it had been found that he had made the false entry with a view to save C. Held, further, that the prosecution was not barred by section 42 of the Police Act.
Sections 36 and 42 read together showed that section 42 was applicable only to prosecutions for offences under the Police Act and not to prosecutions under the Penal Code or other Acts.


judgement:
Appeal No. 164 of 1962.
Appeal from the judgment and decree dated june 19,1958, of the Andhra Pradesh High Court in Appeal Suit No. 944 of 1953.
K. Bhimasankaram, J. V. Kriahna Sarma and T. Satyanarayana, for the appellant.
A. Ranganadham Chetty, Miss A. Vedavalli, N. Rajeshwara Rao and A. V. Rangam, for respondents 1 (a) and (b).
November 14.
The judgment of the Court was delivered by AYYANGAR, J.
This appeal comes before us on a certificate of fitness granted by the High Court of Andhra Pradesh under article 133(1)(a) of the Constitution.
57 The following facts are necessary to be stated to apperciate the contention , urged before us.
We consider it would be convenient to refer to the parties by their array in the trial Court.
The 2nd defendantfirm Hajee Abdul Kadir Sahib and Lala Batcha Sahib & Co., had been apparently carrying on business in several places including Vizianagaram, Bellary, Madras etc., in skins and hides since 1941 when the partnership was formed between the 3rd and the 4th defendants.
It was common ground that from about 1947 or 1948 the firm had not been doing any businesss in Vizianagaram and by that time it had contracted quite a large volume of debts, the tannery business there proving a loss.
The two partners accordingly entered into a deed of dissolution dated March 31, 1949, in which it is stated that the book debts, stock in trade, immovable properties and other assets including the goodwill of the firm were of the value of Rs. 2,90,000/ , and at the same time that the partnership which was admitted to be suffering losses owed debts to the extent.
of Rs. 2 1/2 lakhs.
It ' was agreed between the partners that the 3rd defendant Abdul Shukoor Saheb should go out of the partnership taking with him one item of property in Vaniyambadi valued at Rs. 20,000/ while the suit tannery which was estimated as of the same value was to become the sole property of the 4th defendant who was described in the deed as "the continuing partner".
Soon after this deed of dissolution the 4th defendant entered into an agreement with the plaintiff for the sale to him of the suit property for a sum of Rs. 19,000/ , and later executed the deed of sale on May 20, 1949.
The plaintiff was, however, advised that it would be safer to have the conveyance in his favour executed by the other partner also and accordingly the 3rd defendant was also an executant of the sale deed.
On the execution of the sale deed the plaintiff entered into possession and he claimed to have thereafter effected improvements to the property.
58 While so, the 1st defendant Arji Papa Rao filed suit O. section 46 of 1950 in the Court of subordinate judge at Visakhapatnam for the recovery of a sum of Rs. 12,950/5/8 against the 2nd defendant firm and its partners defendants 3 & 4 and obtained a decree for the sum claimed with interest and costs on June 19, 1951.
Soon after filing the plaint he obtained an order for attachment before judgment of the suit property and that order was on the passing of the decree made absolute, subject however, to the result of a claim petition which had been filed by the plaintiff for raising the attachment.
The Subordinate judge of Visakhapatnam dismissed the plaintiff 's claim and this has led to the suit O. section 145 of 1951 out of which this appeal arises to set aside that summary order under O. XXI, r. 63, Code of Civil Procedure.
The plaintiff impleaded as parties to the suit besides the attaching decree holder who was made the 1st defendant, the debtor firm and the two partners as defendants 2 to 4 respectively and the son of the 4th defendant who executed the sale deed as his agent under a power of attorney as the 5th defendant.
The plaintiff claimed that he purchased the property bonafide and for its full value, that since its purchase he having entered into possession, 'was in enjoyment thereof in his own right, paying the rates and taxes due thereon and had effected valuable improvements thereto, and that consequently the property was not liable to be attached as belonging to the partnership or any of its partners.
Broadly stated, the defence of the 1st defendant the only contesting defendant, the others either remaining ex parte or supporting the plaintiff, was that the sale in favour of the plaintiff was either a sham and nominal transaction or in fraud of creditors of whom he was one.
The trial court upheld the plaintiff 's claim that the sale was real and was fully 59 supported by consideration.
It also negatived the contention raised by ' the first defendant that the sale was fraudulent as intended to defeat or delay creditors under section 53 (1) of the .
The 1st defendant filed an appeal to the High Court and the learned judges reversed the decision of the trial judge and directed the dismissal of the plaintiff 's suit.
It is the correctness of this decision that is challenged in this appeal.
Learned counsel for the appellant raised four principal points in support of the appeal : (1) that on a proper construction of the written statement the only real and effective defence that was raised was that the sale in favour of the appellant was sham and nominal and that the Courts below were in error in proceeding on the basis that the sale was in the alternative impugned as brought about to defeat or delay creditors within section 53 (1) of the ; (2) that on the facts and circumstances of the case it had not been established that the sale in favour of the appellant was vitiated by fraud against creditors falling within section 53 (1) of the ; (3) that in any event, the plaintiff was a purchaser in good faith and for valuable consideration and was therefore protected even on the basis that the transferor intended, by the alienation, to defraud his creditors; (4) that on a proper construction of section 53 (1) of the , as it now stands, read in the light of the provisions of the Code of Civil Procedure particularly those relating to claim petitions under O. XXI rr.
58 to 63, a transfer which was voidable under section 53 (1) could be avoided only by a representative suit filed on behalf of creditors and not by an individual creditor who may be defeated or delayed, by way of defence to a suit to set aside a summary order under O. XXI, r. 63, Code of Civil Procedure.
We shall deal with each of these points and in that order.
There is no doubt that the written 60 Statement has not been artistically drafted, keeping in view the real distinction between a sham and nominal sale which is not intended to pass title and a sale which is real but which is voidable at the instance of creditors because the transfer is intended in the language of section 53 (1) of the "to defeat and delay creditors".
In paragraph 2 of the Written Statement the 1st defendant stated : , "The said sale deed is sham; nominal and collusive document not intended to pass any title but brought about to screen the suit properties from the creditors of defendants 2 to 5.
No consideration passed under the sale deed and the recitals thereof in the document are fictitious and make believe.
" The paragraph.
however, further went on to add "It is further submitted that even if the sale deed is true, it, is in fraud of creditors including the plaintiff and not binding on them." In paragraphs 3 the allegation was made that the plaintiff was the relative of defendants 2 to 5, that the plaintiff and the vendors were natives of the same place and that the sale deed was clandestinely brought into existence at Madras at a. time when defendants 2 to 5, were hard pressed by the plaintiff and other creditors and unable to pay their debts.
, at V,izianagaram and that in order to put the properties beyond the reach of the creditors, defendants 2 to; 4 seem to, have hit upon the frauds device.
of the alleged We to the plaintiff".
In the light of these averments it, cannot be , said that the defendants did not raise two distinct pleas (1) that the sale was a sham, a pretended Sale without any consideration and not intended to pass any title to the nominal purchaser and in the alternative (2) that even if it were a 61 real transaction supported by consideration and intended to pass title to the plaintiff, still the same was, having Tegard to the circumstances stated, a fraud upon the creditors and therefore voidable at his instance.
Though the pleading in the Written Statement was in this form, the issues struck did not raise the two defenses as distinct pleas but rolled both of them into a single plea raising the question "whether the plaintiff hid title to the suit property and whether the claim order was liable to be set aside.
" Notwithstanding the indefiniteness in the frame of the issues it could not be said that when the parties proceeded to adduce evidence the same was not directed to both the above defences.
As we have necessarily to consider thus evidence in dealing with the submissions made to us regarding the correctness of the dismissal of the plaintiff 's suit by the High Court it is unnecessary to set out the details of the evidence which indicates that the defence based upon section 53 of the was borne in mind.
At the, stage of the arguments before the trial Judge it was the subject of keen contest between the parties.
The learned trial judge first dealt with the question as to whether the sale was real as pleaded by the plaintiff or whether it was without consideration and sham and nominal not intended to pass any little, and recorded a clear finding in favour of the plaintiff After having done so he considered in detail the various circumstances which were relied on by the first defendant in support of the plea that the sale was in fraud of creditors so as to be voidable under.
section 53(1) of the .
He negatived this plea and upheld the plaintiff 's claim to the Property and passed a decree in his favour.
In these circumstances we consider that there is no force in the objection that there has not been a sufficient plea of a defence based upon section 53 of the as to justify or entitle the court to afford relief if satisfied that the same was proved.
62 Before dealing with the second point it is necessary to make a few observations in relation to certain submissions made by learned Counsel for the appellant.
This was in relation to the manner in which the. learned judges of the High Court had approached this question and arrived at a conclusion adverse to his client.
The learned judges had formulated the questions to be considered in the appeal as follows : "The main point that falls to be considered in this appeal is whether the sale deed in favour of the Plaintiffs Exhibit A 2, is a genuine transaction supported by consideration; and, if on this point the finding is in favour of the plaintiff, the further question that falls to be determined is whether the suit sale deed was executed in fraud of creditors and as such not binding on the first defendant and other creditors of defendants, 2 to 5.
If the finding on this issue is that the transaction was in fact in the fraud of creditors, the further question that would arise for consideration is whether the plaintiff could claim to be the transferee in good faith and for consideration so as to claim the benefit of the exemption contained in section 53 of the .
Learned Counsel had no quarrel with the propositions as here set out or the mode of approach, but his complaint was that in dealing with the appeal these were not kept in view.
He urged that they did not consider either initially or even later the question as to whether the sale to the plaintiff was real or was sham and nominal unsupported by consideration and though they stated in one portion of the judgment that they did not propose to consider this question because they were satisfied that the decision on the other points might be sufficient to dispose of the appeal,yet they made passing observation which appeared to throw doubt on the reality of the sale.
63 Again, learned Counsel pointed out that though they had formulated the two questions viz., (1) assuming the sale to be real whether the sale was intended by the transferor to defeat or delay creditors, and (2) assuming the sale was voidable under section 53(1) of the whether the plaintiff was a bona fide purchaser in good faith, as distinct and separate questions, in the discussion which followed they did not keep these two points separate.
Besides, it was urged that there were some statements or assumptions made in the judgment which were entirely not, warranted by the facts.
We cannot say that there is not some force in these submissions.
In view of this, the course which we intimated to the teamed Counsel that we would adopt was that we would ourselves consider the entire evidence on the record and arrive at our own conclusions on such evidence in regard to the two issues: (a) whether the sale was in fraud of creditors, and (b) whether the plaintiff was a bona fide purchaser for value and that if it became necessary to arrive at any finding as regards the reality of the sale, we would remand the appeal to the High Court for the matter being considered since the learned judges had expressly reserved the consideration of that question.
We shall now proceed to consider the facts and circumstances of the case which are relevant to the issue as to whether the sale was to defeat or delay creditors.
There was some argument before us about the burden of proof in such cases but learned Counsel for the appellant submitted that he would assume for the purpose of argument that the onus was upon the plaintiff purchaser and that he would satisfy us that burden had been discharged.
This apart, we consider that the question of onus of proof is merely academic at this stage because the entire evidence is before us and except in a rare case where the considerations are evenly balanced, it would have little significance.
64 The circumstances which are relevant for the consideration of this question are these: The second defendant firm was in financial embarrassment at the time of the sale.
The deed of dissolution dated March 31, 1949 recites that the business carried on by the firm was resulting in losses and that the debts amounted to about 2 1/2 lakhs of rupees.
No doubt, it is there stated that the assets of the firm were by consent of the parties estimated of the value of Rs. 2,90,000/ .
This estimate however included the value of the goodwill, which would not be of any real value in the case of a losing business of this sort and we do not know how much was attributed to this item.
This apart, the assets were said to be made up of book debts, stock in trade, immovable property etc.
There is however, no indication as to the relative value of these several components to judge whether or not the alienation of the suit property would have the effect of delaying, if not defeating the creditors.
It can however be asserted that the picture presented by the deed of dissolution is certainly of a firm whose financial position was far from satisfactory.
There is no evidence on the record whether the partners or either of them had any property of their own besides the assets of the partnership for discharging the debts due to the firm 's creditors.
Though the 4th defendant filed a written Statement supporting the plaintiff, the plaintiff did not choose to examine him as a witness in order to elucidate this matter or otherwise explain the circumstances in which the impugned sale ' was effected.
The next feature to be noticed is that the plaintiff and the 4th defendant were both members of the same community labbais of North Arcot district, a fairly small and well knit community several of whom are engaged in the hides and skins business.
The learned judges of the High Court have referred to the plaintiff and the 4th defendant as natives of ,the same place and as relatives.
Learned Counsel 65 for the Appellant pointed out that whereas the 4th defendant was a native of Vaniyambadi, the plaintiff was, native of Parnambet and the suggestion made that they were relatives had been denied, in the evidence.
Learned Counsel might be right on these matters but we consider that not much turns on them.
Both of them were conducting business in Madras and the plaintiff had also a business in Vizianagaram though it was in bidis and not in hides and skins.
In these circumstances we consider that it matters little whether they were relatives or not.
The significance of the 'plaintiff and his vendors being members of the same community and well known to each other consists in this, that the plaintiff might have been chosen because of his willingness to take the sale without any searching enquiry as to the circumstances necessitating it,and because there would be less publicity in the transaction being put through between them such as for instance inspection of the property or enquiries in the locality as regards value etc.
, which would take place if the sale was to be to a total stranger which would attract the attention of the firm 's creditors.
The next circumstance is as regards the pressure exerted on the 3rd and 4th defendants by the creditors immediately prior to the impugned sale and which, in the normal course of events, would be relevant, as providing that the sale was effected in order to put the property beyond the reach of creditors by converting it into cash.
On April 20, 1948, O. section 162 of 1948 on the file of the District Munsiff 's Court, Vizianagaram was filed for the recovery of Rs. 1,016/ on a promissory note for Rs. 1,000/executed by the firm.
On September 8, 1948, it was reported as adjusted out of court.
Besides this some other suits were filed for the recovery of amounts 'from the partnership but they were defended and were ultimately dismissed.
Then we come to 66 O. section 191 of 1949 in which the plaint was presented on April 4, 1949, for recovery of a sum of Rs. 1,385/and odd which was decreed with interest and costs on November 22, 1949.
The date on which this last mentioned suit was filed is of some significance because of another suit which was filed at about the same time.
One Damayanti presented a plaint on March 9, 1949, against the firm for the recovery of Rs .
3,000/ being the principal and interest due on a promissory note.
The date fixed for the appearance by the defendant was April 4, 1949.
It will be noticed that the deed of dissolution was executed on March 31, 1949.
The defendant did not enter appearance on the day fixed and the Court passed an ex parte decree on April 5, 1949; for the amount claimed.
She filed an application for execution on April 18, 1949, and obtained an order on April 21, 1949, for the attachment of the suit property though the attachment was actually effected on June 8, 1949, because the court was closed for the summer vacation.
Long before these dates the 4th defendant had made up his mind to alienate the suit property and we have a letter from the 4th defendant to the plaintiff as early as February 5, 1949, which evidences negotiations for the sale of the property.
There was apparently some giggling about the price which caused some delay and a few days after the attachment was ordered, on April 27, 1949, a formal agreement of sale was entered into between the plaintiff and the 4th defendant under which he agreed to purchase the property for a sum of Rs. 19,000/and the agreement recited that the purchaser, i. e., the plaintiff had paid a sum of Rs. 10,000/ in advance as earnest money and the sale deed itself was executed on May 20, 1949.
In pursuance of the order dated April 21, 1949, Damayanti attached the suit property as already stated on June 8, 1949 and thereupon the plaintiff filed a claim under O. XXI, r, 59, Code of Civil Procedure, for raising the 67 attachment but this, however, was dismissed on November 16, 1950, and thereafter the amount of the decree was paid up by the judgment debtor just a few days before tile expiry of the one year period of limitation for filing the suit under O. XXI, r. 63, Code of Civil Procedure.
A suggestion was made to the plaintiff while he was examined in the case that it was he who had paid up the decree debt of Damayanti but he denied it and we shall proceed on the basis that debt was discharged by the judgment debtors themselves.
For the purpose of establishing that the firm was hard pressed by its creditors at the time of the negotiations which resulted in the sale impugned in these proceedings and at the time of the sale, it matters little who paid this decree debt.
Next we have the circumstance that though the properties were at Vizianagaram, the document was registered at Madras and the suggestion made to the plaintiff was that this was meant as a measure of secrecy to keep this alienation from the knowledge of the firm 's creditors.
The explanation offered by the plaintiff was that having regard to the distance between the native places of the two parties from Vizianagaram and the proximity of these to Madras and the fact that both the Plaintiff, as well as the executants were at Madras it was found more convenient to have the document presented for registration at Madras instead of incurring the expenses of a journy to Vizianagaram for having it registered there.
The learned trial judge accepted this explanation and held that the registration of the sale deed at Madras was not a suspicious circumstance indicating an intention to keep the transaction secret.
The learned judges of the High Court, however, considered it otherwise and expressed the view that this was done in order to keep the transaction secret.
We are inclined to agree with the learned judges of the High Court 68 in their appreciation of this piece of conduct.
Admittedly, the 4th defendant had his agent at Vizianagaram and similarly the plaintiff himself had his men there to look after ' his, bidi business.
There was no impediment in these circumstances and no expenses of traveling involved if only the 4th defendant had executed a power @ of attorney in favour,of some one at Vizianagaram to present the document for registration and admit its execution.
In fact, it may be mentioned that even the sale deed now impugned was executed not by the 3rd and 4th defendants but by the 4th defendant 's son K. L. Abdulla in whose favour a general power of attorney was executed on April 26, 1949, apparently immediately the agreement for sale was concluded.
It is in the light of this feature that we are not disposed to dismiss as irrelevant the circumstance that the document was registered at Madras.
The next feature of the case to which.
we must direct attention relates to the purpose for which the sale was executed.
As regards this, there is no evidence led to indicate why exactly the 4th defendant desired with some urgency to dispose of the property at that juncture.
The relevant circumstance in the present case is that there was a great deal of pressure from creditors, who not having been paid the amounts due to them as and when they became due, were forced to file suits and those which were decreed were those which were not defended and the firm was mulcted with costs under each of these decrees.
In the circumstances one would expect an explanation as to why the sale was being effected.
Ordinarily in circumstances such as in this case there could only be two alternatives : (1) a sale in order to pay the creditors out of the proceeds obtained; and (2) a sale in ' order to convert immovable property which was capable of being attached and brought to sale for the realisation of the amounts due to the creditors 69 into cash, which could either be secreted or used for the vendor 's own purposes.
If the purpose was as that indicated in the first of the above alternatives the proceeds of the sale would have been earmarked for the payment of particular debts for which pressure Was the greatest.
It is needless to add that if this were the case and if creditors who were not so provided were defeated or delayed it would merely be a case of a fraudulent preference which could be impugned only under the law relating to insolvency and not as a fraud on creditors for which section 53 of the makes provision.
It is, however, common ground that apart from the sale deed not making any provision that the consideration was to be utilised for the discharge of any particular debts, it is not the case of the plaintiff that there was any such stipulation as to the application of the money or that without any stipulation therefor the money was so utilised.
It would therefore not be an unreasonable inference to draw from the circumstances of the tale at the Juncture at which it took place that the Vendor 's object was merely to convert this immovable property into cash, so that it may not be available to the creditors.
Before leaving this point it is necessary to advert to one matter which was suggested by learned Counsel for the appellant.
He submitted that the property sold was only a part of the assets of the partners and that unless there was evidence to show that nothing was left available for the creditors after the impugned sale, its validity could not be impugned under section 53 of the .
We consider that there is no force in ' this submission.
As a matter of fact, there is no evidence as to what other properties the partners had beyond what 'is contained in the deed of dissolution on March 31, 1949.
But that apart, the terms of section 53(1) are satisfied even if the transfer does not " 'defeat" but only "delays" the 70 creditors.
The fact therefore that the entirety of the debtors ' property was not sold cannot by itself negative the applicability of section 53(1) unless there is cogent proof that there is other property left, sufficient in value and of easy availability to render the alienation in question immaterial for tie creditors.
In the present case, as already pointed out, we have no definite, evidence as to the nature and quality of the property left as available to the creditors after the impugned alienation, and though light on this could have been thrown by the 4th defendant being called as a witness, the plaintiff did not choose to take the step, nor indeed did ' he even summon the production of the accounts of the firm which might have disclosed the true state of affairs.
Each of these circumstances might be capable of some explanation consistent with the case that the transfer now impugned was effected in the normal and ordinary course of business by the 4th defendant for some purpose which did not involve an intention to defeat or delay his creditors, but the question we have to consider is their cumulative effect and so viewed the conclusion appears irresistible that the object of the transaction was to put the property out of the reach of the creditors.
The transfer was therefore plainly within the terms of the 1st paragraph of section 53 (1) of the and was voidable at the instance of the 1st defendant who was a decree creditor.
The next question is whether the plaintiff is a bona fide purchaser for value so as to be protected by the second paragraph of section 53 (1) reading : "Nothing in this section impairs the rights of the transferee in good faith and for consideration.
As stated earlier, the learned trial judge held that the Rs. 19,000/ , the sale price was the full value of 71 the property and that the consideration as recited in the document was paid by the purchaser.
This finding has not been set aside by the High Court.
We are, therefore, proceeding on the basis that the Transfer was real and supported by consideration.
The narrow question is whether the plaintiff was a transferee in good faith.
It was submitted on behalf of the appellant that the learned judges of the High Court had directed the dismissal of the plaintiff 's suit even without a definite finding that the plaintiff was a party to the fraud on the part of the transferor to defeat or delay the creditors.
There might be some force in this submission that there is no specific finding to that effect but that does not in any way assist the appellant.
Where fraud on the part of the transferor is established i. e. by the terms of paragraph (i) of section 53(1) being satisfied, the burden of proving that the transferee fell within the exception is upon him and in order to succeed he must establish that he was not a party to the design of the transferor and that he did not share the intention with which the transfer had been effected but that he took the sale honestly believing that the transfer was in the ordinary and normal course of business.
When once the conclusion is reached that the transfer was effected with the intent on the part of the transferor to convert the property into cash so as to defeat or delay his creditors, there cannot be any doubt on the evidence on record that the plaintiff shared that intent.
For this purpose the following circumstances may be pointed out (1) The plaintiff and the vendor belong to the same community, a small, compact and well knit one and they must obviously have known each other having been in trade for several years in several places in common and must therefore have been wellacquainted with the financial and business affairs of each other.
72 (2) This general inference apart, the plaintiff admittedly had with him a copy of the deed of dissolution dated March 31, 1949, which disclosed that the firm 's business had resulted in losses and that it was greatly indebted, the debts amounting to Rs. 2 1/2 lakhs.
(3) If as we have held that registration of the sale deed at Madras was with a view to keep the transaction secret from the creditors, the plaintiff was, as much a party to the secrecy as the transferor.
(4) One matter which would be of considerable relevance and significance in this connections would be the enquiries that the plaintiff made before he took the transfer.
He no doubt led evidence to show that he consulted his lawyers about the title of the vendor; but any attempt at an enquiry of the 4th defendant as to why he was effecting the sale of the only immovable property of the firm which was alloted to him under the deed of dissolution is significantly absent.
In the circumstances, it stands to reason that; the plaintiff must be fixed with notice of the design in pursuance of which the transfer was effected.
If the object of a transferor who is heavily indebted was to convert his immovable property into cash for keeping it away from his creditors and knowing it the transferor helped him to achieve that purpose it has naturally to be held that he shared that intention and was himself a party to the fraud.
In this connection, there is one circumstance which is rather significant.
Even when the plaintiff was fixed with notice that the firm 's business had been running at a loss and had accumulated a very large volume of debts as disclosed by the recitals in the deed of dissolution, which was placed in his hands, the purchaser did not insist that the consideration which he was paying should be utilised for the discharge of at least some 73 of the debts.
We are therefore satisfied that the Plaintiff was not a transferee in good faith and that the transfer itself was a scheme by the transferor with the knowledge and concurrence of the transferee to put the property out of the reach of the creditors The result therefore would be that the plaintiffs suit, was liable, to be dismissed for the reason that the defence plea invoking section 53 (1) of the was made out.
What remains for consideration is a ;point of law that was raised on behalf of the appellant that a transfer which is voidable under section 53 (1) of the can be avoided only by: a suit, filed by a creditor impugning the transfer on behalf of himself and the other creditors and not byway of defence to a suit under O. 21,.
r. 63, Code of Civil Procedure by a claimant whose application has been rejected in summary proceedings under O. 21, rr. 58, to 61, Code of Civil Procedure.
Section 53 (1) of the , as it stands at presented is, as amended by the Transfer of Property (Amendment) Act (Act 20 of 1929).
As part of the argument on this head was based on a comparison of the provisions of the section before and after the same was amended, we shall set out in parallel, columns section 53 (1) as it stood before it was.
amended in 1929 and as it stands as amended section 53(1);as it stood before section 53 (1) as it stands the Amending Act, 1929 after the Amending Act, 1929 "Every transfer of "Every transfer of immov immovable property able property made with made with intent to de,, intent to defeat or delay fraud prior or subsequent the creditors of 1 the 74.
section 53 (1) as it stood before section 53 (1) as it standsafter the Ameding Act, 1929.
transferees thereof for consideration or coowners or other persons having an interest in such property or to defeat or delay the creditors of the transferor, is voidable at the option of any person so defrauded or delayed.
Where the effect of any transfer of immovable property is to defraud, defeat or delay any such person, and such transfer is made gratuitously or for a grossly inadequate con sideration, the transfer may be presumed to have been made with such intent as aforesaid.
Nothing contained in this section shall impair the rights of any transferee in good faith and for consideration." after the Amending Act, 11929.
transferor shall be voidable at the option of any creditor so defeated or delayed.
Nothing in this sub section shall impair the rights of a transferee in good faith and for consideration.
Nothing in this subsection shall affect any law for the time being in force relating to insolvency.
A suit instituted by a creditor (which term includes a decree holder whether he has or has not applied fore execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor, shall be instituted on behalf of, or for the benefit of, all the creditors.
" Two points were made by the learned Counsel in support of this submission; the first being independent of the amendment effected by the Act of 1929 75 and the other based on the provision as amended.
The former was based on the impact of the nature G. of the proceedings under O. 21, rr.
58 to 61, Code of Civil Procedure, and of the order that would be passed therein and particularly of the questions that would arise in a suit under O. 21, r. 63, Code of Civil Procedure, to set aside summary orders; while the latter was based on the amendment by which a creditor 's suit was required to be in a representative capacity.
It would be seen that so far as the first point was concerned, the amendment made no change and that if the learned Counsel were right the position would have been the same even on the section as it stood before it was amended.
It was conceded that on the section as it stood prior to the amendment, there was a direct decision against this argument, of a Full Bench of five 6 judges of the Madras High Court as early as 1920 (Ramaswami Chettiar vs Mallappa Reddiar (1) which had been consistently followed by every other High Court in India up to this date without any doubt or dissent.
Gleamed Counsel however urged that this Court was not precluded from considering the correctness of this decision notwithstanding its having held the field for over forty years without question, As a legal proposition, Counsel is undoubtedly right, but the question is whether any reasons have been adduced before us to consider that decision was wrong.
We shall be presently setting out the reasoning on which it is contended that an attaching creditor who has succeeded in the summary proceedings under O. XXI, rr. 58 to 61, cannot, in a suit to set aside the summary order under O. XXI, r. 63, raise by way of defence the plea that the sale in favour of the plaintiff the transferee claimant is vitiated by fraud under section 53(1) of the , but (1) Mad.
760 76 before doing so it is necessary to point out that this very argument was urged before the Full Bench referred to and after elaborate consideration, rejected by them, Now the argument as regards the inference to be drawn from the nature of the enquiry in the summary proceedings for investigating.
claims to property which has been attached is briefly as follows:: s 53 of the assumes that there, is a real transfer intended to pass title to the transferee but that the transfer is vitiated by fraud which renders it voidable.
In the summary proceedings under O. XXI, rr. 58 to 61, having regard to the terms of r. 61, the Court is concerned only with the question as to whether the transferee is in possession of the property in his own right and not on behalf of the judgment debtor, when a transfer is real, though it is liable to be impeached as a fraud on creditors, and the tranferee has entered into possession, he would succeed in the summary proceedings, with the result that it is the defeated attaching 'creditor who would have to figure as a plaintiffq If he figures as a plaintiff the suit would have to be in a representative capacity, that is, under O. 1, r. 8, Code of Civil Procedure.
In every case, therefore, when a transfer is real but is liable to be set aside under section 53 (1) on the provisions of O. XXI, rr. 58 to 61, Code of Civil Procedure,the transferee is bound to succeed in the summary proceedings and the attaching decree holder would have to figure as a plaintiff and the suit would be a representative suit.
From this it is said that it follows that in no case can an attaching creditor who defends a suit to set aside a summary order in 'his favour resist it on the plea of fraud under section 53(1).
It would however be seen that, this last step, which is vital for the argument to have force does not follow for the argument does not proceed on any construction of the terms of section 53(1) nor on any legal 77 theory as to the mode or procedure ,by which; the intention to avoid the transaction which the attaching creditor claims is voidable at his instance may be expressed or enforced.
The argument would only establish that if the Court investigating claims under O. XXI.
r. 58 etc., conformed strictly to the terms of those provision is the transferee under a real sale would succeed in those proceedings and, he would be a defendant and need 'not be a plaintiff in suits to set aside the summary order under O. XXI, r. 63.
This line of reasoning does not take into account at least the following possibilities: (1) The claim or objection by the transferee may be rejected, not on :the merits, but because it has been designedly or unnecessarily delayed (vide O. XXI, r. 58, Code of Civil Procedure).
It is certainly not the contention of learned Counsel that when there is a rejection of a transferee 's claim under this provision the order of rejection is any the less final and has not to be set aside by a suit contemplated by O. XXI, r. 63, Code of Civil Procedure, in order to overcome the effect of that finality.
(2) The Court making the summary enquiry might come to an erroneous conclusion that the transfer is sham and not real or that the transferee is in possession for the benefit of the judgmentdebtor.
In the suit filed by the transferee to set aside ' this erroneous order, the plaintiff would have to establish his title and even if he succeeds in showing that the sale to him was real and effective, still the question would remain whether, having regard to the circumstances of the transfer, the same is not voidable under section 53(1).
Thus there would be occasions when a defeated transferee whose transfer is real might have to figure as a plaintiff in a suit to set aside a summary order under O. 21, r. 63, Code of Civil Procedure.
(3) The attaching decree holder might raise in the summary proceedings two alternative defenses to a transferee 's claim (a) that the sale was sham and nominal and therefore the possession 78 of the transferee was really on behalf of the judgment debtor, and (b) that even if the sale be real and intended to pastitle it was voidable as a fraud on creditors.
It is, no doubt, true that the second or the alternative defence is not open in the claim proceedings, but if however the same were erroneously entertained and an order passed, rejecting the claim of the transferee, the same would nevertheless be an order which would have to be set aside by a suit by the defeated transferee and he cannot ignore it.
It would thus be seen that the entire argument as regards the impact of the nature of the enquiry under O. 21, r. 59,on the defences which would be open in a suit under O. 21, r. 63, depends on two factors: (1) the summary order being passed on the merits and not because the making of the claim was designedly or unnecessarily delayed, and (2) the summary order being right on the merits and strictly in conformity to the provisions of the Code.
As we have already pointed out, the points urged before us as regards the scope of the enquiry into claim petitions was also the subject of elaborate argument and consideration by the learned judges of the Madras High Court in the Full Bench.
Sadasiva Ayyar, J., classified the cases of transferees who failed in their claim petitions and had to file suits to set aside summary orders under O. 21, r. 63, under three heads : (a) Where the transferee was a mere benamidar; (b) Where he was a fraudulent transferee in possession; and (c) Where he was a fraudulent transferee not in possession.
The learned Judge said : "A creditor decree holder, who is in most cases a stranger, cannot reasonably be expected to know of his own knowledge whether a transfer 79 by his judgment debtor is only fraudulent or is wholly nominal or partly nominal and partly fraudulent, and whether the transferee is in possession and if in possession, whether he is so for him self or for the judgment debtor.
He would therefore ' usually both in the claimpetition and in the suit which afterwards arises out of the order against the claimant, be obliged to raise and be justified in raising alternatively all the pleas open to him, and the Court which decided the claim against the claimant might, in its conclusions on each of the three points, be either right or wrong." He further pertinently pointed out that to hold that a plea based on the transfer being voidable under section 53(1) could not be raised in defence to a suit to set aside a summary order would mean that " 'The creditor decree holder would be in a much worse position for his success in the summary claim proceedings than if he had lost in those proceedings".
Section 53(1) of the rendered the transaction voidable at the instance of the creditors if the transfer was effected with the particular intent specified and the statute does not prescribe any particular method of avoidance.
Referring to this the learned judges observed : "If the creditor knowing of the transfer applies for attachment; the application is sufficient evidence of his intention to avoid it; if he only hears of the transfer when a claim petition is preferred under O. 21, r. 58, and still maintains his right to attach, that again is a sufficient.
exercise of his option to avoid and entitles him to succeed in the subsequent suit under r. 63".
They further pointed out that "the suit under r. 63 is by the unsuccessful party to the claim petition to establish the 80 right which he claims to the property in dis pute.
Whether this suit be instituted by the attaching decree holder or by the transferee claimant it must equally be decided in favour of the former if the transfer is shown to have been fraudulent; because, in consequence of the fraudulent character of the transfer and its avoidance by the judgment creditor, the result ,is that the transfere has not the right which he claims, namely, to hold the property free from attachment in execution by the judgments." The learned judges based their conclusion on this and on several other lines of reasons which we consider unnecessary to set out, but it is sufficient to say that we are enentire agreement with all of them.
There is therefore no substance in the point ;that there is anything in section 53(1) as it originally stood which precluded a defence by an attaching creditor to a suit to set aside a summary order under O. 21, r. 63, that the: sale in favour of the plaintiff is vitiated by fraud of the type specified in the earlier quoted pro vision and the amendment has admittedly made no change in this matter.
It was next urged that the third paragraph of the amended section 53 (1) has, effected a change in the law and that thereafter transfers voidable under 1st paragraph of section 53 (1) could be avoided only in suits filed by a defeated or delved creditor as plaintiff suing on behalf of himself and other creditors.
We consider that there is no substance in this objection either.
We shall first refer to the purpose of the amendment.
In decisions rendered prior to the amendment, there were a large number in which it was held, following certain English cases decided with reference to 13 Eliz., Ch. 5, on which section 53(1) was based, 81 that suits by creditors for avoiding a transfer under section 53 (1) was a representative action.
To that general rule however, an exception was recognised in a number of ' decisions when the suit was to set aside a summary order under O. 21.
r. 63, and was brought by an attaching decree holder against whom an adverse order had been made in the summary proceedings, it being held that such a suit need not be in a representative capacity.
The decisions on this point were however not uniform.
It was merely to have a uniform rule and to avoid these conflicting decisions that the third paragraph was inserted so that after the amendment the rule that a suit by a creditor should be brought in a representative capacity would apply as much to a suit set aside a summary order under O. 21, r. 63, as to other suits.
It was not suggested that there was anything in the terms of the amended section 53 (1) which referred to a defence to a suit and, in fact, learned Counsel did not contend that if a defence under section 53 (1) could be raised by defeated attaching creditor such a defence had to be in a representative capacity, and we consider that learned Counsel was correct in this submission.
From a provision as to how a plaintiff, if he filed a suit, should frame it, we can see no logical process by which it could be held that a defendant cannot impugn the validity of the sale which is voidable at his instance.
We have, therefore, no hesitation in rejecting the legal point urged on behalf of the appellant.
The result is that the appeal fails and is dismissed with costs.

summary:
The appellant purchased the suit property under a sale deed executed by defendant 4 on May 20, 1949.
Defendants 3 and 4 had been doing business in partnership, which, how.
ever, was dissolved on March 31, 1949.
The deed of dissolution showed that the partnership owed debts to the extent of Rs. 2 1/2 lakhs and that the suit property was allotted to defendant 4.
The first respondent to whom money was due from the partnership obtained a decree on june 19, 1951, and had the suit property attached.
The appellant filed a claim petition for raising the attachment but it was dismissed.
He then instituted a suit to set aside the summary order under O. 21, r. 63, of the Code of Civil Procedure.
The first respondent 's defence, inter alia, was that the sale was fraudulent intended to defeat or delay.
creditors and, therefore, was invalid under section 53 (1) of the .
The appellant pleaded that on a proper construction of section 53 (1) of the Act, a transfer which was voidable under the section could be avoided only by a representative suit filed on behalf of creditors and not by an individual creditor by way of defence to a suit to set aside a claim order.
The evidence in the case showed that the appellant was not a transferee in good faith and that the transferor itself was a scheme by the transferor with the knowledge and concurrence of the transferee to put the property out of the reach of the creditors.
Held : (1) that section 53 (1) of the , rendered a transaction voidable at the instance of the creditors if the transfer was effected with the particular intent specified and that the statute did not prescribe any particular method of avoidance.
There was nothing in section 53 (1), as 56 it originally stood before the amendment of the section in 1929, which precluded a defence by an attaching creditor to a suit to set aside a summary order under O. 2 1, r. 63, Code of Civil Procedure, that the sale in favour of the plaintiff was vitiated by fraud ; and the amendment made no change in this matter.
(2) that it was merely to have a uniform rule and to avoid conflicting decisions that the third paragraph was inserted in section 53 (1) so that after the amendment, the rule that a suit by a creditor should be brought in a representative capacity would apply as much to a suit to set aside a summary order under O. 21, r. 63, as to other suits.
(3) that the terms of section 53 (1) were satisfied even if the transfer did not "defeat" but only "delayed" the creditors.
The fact that the entirety of the debtor 's property was not sold could not by itself negative the applicability of the section unless it was proved that there was other property left, sufficient in value and of easy availability to render the alienation in question immaterial for the creditors.
Ramaswami Chettiar vs Mallappa Reddiar, Mad., 760, approved.


judgement:
Appeal No. 176 of 1960.
Appeal from the judgment and decree dated June 2, 1958, of the Mysore High Court in R. A. No. 268 of 1957.
section K. Javali, K. P. Bhat and B. R. L. Iyengar, for the appellants.
section K. Venkataranga Iyengar and R. Gopalakrishnan, for the respondents.
November 14.
The judgment of the Court was delivered by AYYANGAR, J.
On March 27, 1954, the three Kapurs who are the respondents before us filed original Suit No. 29 of 1954 before the District 48 judge Banglore, against the 3 appellants who are brothers for the recovery of over Rs. 50,000/ and subsequent interest and costs due on a simple mortgage.
Before the suit came on for trial the parties filed a memo of compromise dated September 30, 1955 and they prayed that the suit may decreed in terms there of The Court accepted the application and passed a decree as prayed for the order reading "It is ordered and decreed that the plaintiff 's suit be and the same is hereby decreed as per terms of the compromise, the copy of which is hereunto annexed".
The terms of the Razinama ran as follows "1.
That the defendants herein agree to a decree being passed as prayed for.
That the mortgaged properties are hereby sold for the amount of the decree in full satisfaction thereof.
The defendants will execute a regular sale and within ten days from this date.
That the mortgaged properties are hereby put in possession of the plaintiff (decree holder) by the 3rd, defendant (judgment debtor) and judgment debtors 1 & 2 agreeing to pay rent at Rs. 75 each for the two shops bearing Nos. 12 and 14 respectively, Godown Street, Bangalore City in their actual occupation and by attornment of the other properties in the occupation of the other tenants.
That on the judgment debtors or their nominees tendering the aforesaid decree amount through court or otherwise within the aforesaid one year from the date of 49 the decree, the decrce holders bind themselves to reconvey the properties which are sold to them under this rajinama at their cost provided it is distinctly agreed that time is essence of the contract and provided also that if the judgment debtors default in paying the rents as aforesaid on or before the 15th of any month they will lose the concession hereby offered to thee of having reconveyance of 'the properties in one years ' time.
Attachment on the properties belonging to the 2nd 'and 3rd defendants obtained before judgment stands hereby raised.
The defendants hereby assure that the properties hereby sold are not subject to any attachment.
In ; the event of any attachment subsisting on the properties, it is hereby agreed that the mortgage security shall not be merged by the sale.
" Broadly stated, the question raised in this appeal relates to the executability of cl. 2 of this compromise decree but before examining this contention it is necessary to state a few ' facts.
It would be noticed that under the second sentence of cl. 2 the appellants had to execute a regular sale deed within ten days from September 30, 1955.
They, however, did not do so and thereupon the respondents filed, on ;October 31, 1955, Interlocutory application No. 6 of 1955 (later numbered as Execution Application No. 83 of 1956) for directing the appellants to 'execute the sale deed and they annexed to their application a draft sale deed in which cls.
3 to 6 of the razmama were recited.
Apparently there were disputes between the parties ' each accusing the other :that it had not conformed to its undertaking under :the compromise, but with these we are not now 50 concerned.
Thereafter the appellants filed an application in the suit on March 16, 1956, praying that a sale deed might be executed in favour of a third party to the proceedings who had agreed to purchase the property on terms of paying the full decree amount as provided for by cl. 4 of the Razinama.
This application was opposed by the respondents and there were further applications of a similar type which it is not necessary to detail except to point out that they all proceeded on the basis that the compromise decree was capable of execution without any necessity for a further suit.
The appellants did not succeed in these applications.
It is sufficient if hereafter attention were confined to the application by the respondents E. A. 83 of 1956 by which they sought to get the appellants to execute a sale deed in their favour in accordance with the opening sentence of cl. 2 of the compromise.
The appellants opposed this application on the technical ground that the relief sought could not be had in execution but only by a separate suit in as much as the same did not ""relate to the suit" within O. XXIII, r. 3, Code of Civil Procedure, to whose terms we shall refer presently.
This objection was upheld by the learned District judge of Bangalore and the prayer of the respondents for directing the appellants to execute a sale deed in their favour was rejected.
This order has been reversed by the learned judges of the High Court on appeal by the respondents and it is the correctness 'of this judgment that is canvassed in this appeal which comes before us on a certificate of fitness granted by the High Court under article 133 (1)(a) of the Constitution.
It would be seen from this narration that the point involved in the appeal is very narrow and turns on the question whether the High Court was justified in directing the appellants to execute a sale deed conveying the suit properties to the respondents in the proceedings in execution of the decree in original 51 suit No. 29 of 1954 or whether the respondents could obtain that relief only in an independent suit instituted for that purpose.
It is common ground that the decree embodied the entire razinama including all its terms.
The relevant statutory provision for the passing of decrees by compromise is O. XXIII, r. 3, Code of Civil Procedure, which runs: "Where it is proved to the satisfaction of the Court that a suit has been adjusted wholly or in part by any lawful agreement or compromise, or where the defendant satisfies the plaintiff in respect of the whole or any part of the subject matter of the suit, the Court shall order such agreement, compromise or satisfaction to be recorded and shall pass a decree in accordance therewith, so far as it relates to the suit.
" We do not having regard to the facts of this case, consider it necessary to examine the position whether, when a decree has been passed embodying all the terms as part of the decree, an objection as to the executability of any particular term could be raised in execution proceedings, but shall proceed on the basis that it could be.
There is no dispute that the agreement was lawful and an executable decree could be passed "so far as it related to the suit".
Though in the courts below most of the argument turned on the import of the expression "so far as it relates to the suit" occurring in r. 3, learned Counsel for the appellants did not stress that contention before us, but rather on the construction of the several clauses of the compromise and their inter relation to which we shall advert presently.
We might, however, point out that the learned Judges were right in the view they took that the.
terms of the compromise " related" to the suit.
The property which was to be conveyed consisted entirely of property included in the mortgage and which was therefore liable to be sold in execution of the mortgage decree which was 52 the relief sought in the plaint.
The sale Price for the conveyance under the.
Razinama was the sum for the recovery of which the suit was laid.
There was therefore nothing which was outside the scope of the suit.
Besides all this the conveyance was the consideration 'for the compromise.
In these circumstances, it is not a matter for surprise that learned Counsel for the appellants laid little emphasis on the point which persuaded the teamed District judge to dis miss the respondents application.
Learned Counsel for the appellants however raised before us two contentions in the alternative.
His first and primary contention was that on a proper construction of the compromise, the consideration there for was not the actual execution of the conveyance by the judgment debtor to the decree holder but merely the argument to execute such a conveyance.
He pointed out that under cl. 1 of the compromise the defendants had agreed to a decree being passed as ,prayed for, which meant that a mortgage decree drawn up in the usual form had to be passed.
That decree, it was submitted, was under the compromise agreed to be treated as satisfied and full satisfaction to be recorded immediately on the filing of the 'compromise, and he suggested that the opening words in cl. 2 ',The mortgaged properties are hereby sold ,for the amount of the decree in full satisfaction thereof" was a reference to the agreement to execute the conveyance.
There were other clauses in the compromise 'cls.
3 to 6 but these,he submitted, related ,to the inter se rights between the parties.
The contention was that these other clauses of the razinama including the second limb of cl. 2 were intended to be enforced or implemented not by way of execution of the decree in this suit but that the decree to be passed under cl. 1 was to be treated as fully satisfied on the filing into court of the memo of compromise and the same being recorded by the court with the result that thereafter no portion of the 53 decree remained alive.
We find ourselves wholly unable to accept this argument.
No doubt. under cl 1 there, was to be a simple mortgage decree as prayed for in the suit, but it would, however, not be a proper construction of the 1st sentence of cl. 2 to say that the mere agreement to, convey and not an actual conveyance was intended to operate as a satisfaction of the decree passed or to be passed under cl. 1.
Learned Counsel is, no doubt, 'right in his submission that the sale of ' the property to the decree holders under cl. 2 was not to be absolute in the sense of conferring a right to an unconditional conveyance since the title to be obtained under the sale was subject to the conditions contained in cls.
3 ,to 6 and particularly cl. 4 under which it was stipulated that the title to the property might,, on the happening of certain contingencies, be divested from decree: holders to whom it had been conveyed under cl. 2.
In that sense cls.
2 to 6 might constitute an integrated scheme for adjusting the rights of parties but on that account it would not be open to the construction that the mere agreement to convey contained in cl. 2 (subject to the conditions stipulated in cls.
3 to 6) by itself amounted to a satisfaction of the decree.
The other submission of learned Counsel was that the learned judges should not have directed the execution of a conveyance in favour of the respondents without attaching to it the conditions laid down in cls.
3 to 6 and also without an examination of the question whether the appellants were entitled to enforce the reconveyance provided by those clauses.
On this matter the learned Judges expressed themselves thus: "The decree holder is entitled to execute the decree in respect of clause 2 of the compromise.
No opinion is expressed as to the executability 54 of the other clauses of the compromise as that question has not been raised before us.
" The fact, therefore, was that this point about either the inter relation between cl. 2 on the one hand and cls.
3 to 6 on the other or the contention of the appellants that they were entitled to relief under cls.
3 to 6 was not raised before the High Court and the matter was therefore left open.
The appellants can in the circumstances obviously have no cause for complaint that the High Court did not deal with it.
The question as to whether the appellants are entitled to relief under cls.
3 to 6 or whether they had lost their right to do so, is one which would have to be investigated on facts and cannot therefore be urged before us.
We do not, therefore, propose to pronounce upon it either.
It would, of course, be open to the appellants to agitate their rights in appropriate proceeding if they are 'so advised.
No other point has been urged before us.
The appeal fails and is dismissed with costs.
Appeal dismissed.

summary:
A suit instituted by the respondents for the recovery of money due under a simple mortgage from the appellants was compromised by the parties under a memo dated September 30, 1955, and the court passed a decree as per the terms of the compromise By cl. 1 of the memo the defendants agreed to a 47 decree being passed as prayed for in the suit, while cl. 2 recited: "That the mortgaged properties are hereby sold for the amount of the decree in full satisfaction thereof The defendants will execute a regular sale and within ten days from this date.
" The appellants did not comply with the terms of cl. 2 and on October 31, 1955, the respondents made an application before the court praying that the appellants might be directed to excecute a sale deed as per the terms of the compromise.
The appellants pleaded that the relief sought by the respondents could not be had in execution proceedings but only by a separate suit, on the grounds, inter alia, that the same did not relate to the suit within O. 23, r. 3, of the Code of Civil Procedure, and that, in any case, on a proper construction of the compromise the consideration therefore was not the actual execution of the conveyance by the judgment debtor but merely the agreement to execute such a conveyance.
Held : (1) that the terms of the compromise related to the suit inasmuch as the property which was to be conveyed consisted entirely of the property included in the mortgage.
(2) that on the true construction of the compromise, though cls. 2 to 6 might constitute an integrated scheme for adjusting the rights of parties, a mere agreement to convey contained in cl. 2 by itself did not amount to a satisfaction of the decree and that the consideration for the compromise was the execution of a conveyance.