DEV TRADERS BY PARTNER P.V. MAKWANA AND OTHERS Vs. S. DEENADAYALU, SOLE PROPRIETOR OF SRI GOPINATH TEXTILES AND ANOTHER
HIGH COURT OF MADRAS
Dev Traders By Partner P.V. Makwana And Others
S. Deenadayalu, Sole Proprietor Of Sri Gopinath Textiles And Another
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Suryamurthy, J. -
(1.) This is an appeal against the judgment of Sethuraman, J. dismissing a petition for adjudicating the first respondent as an insolvent. The first respondent is a dealer in textiles. The petitioning creditors, who are also dealers in textiles, supplied goods to him for which he had to pay the first petitioner Rs. 3700, second petitioner Rs. 767 -50, third petitioner Rs. 3039 -67 and fourth petitioner Rs. 6125 -23. The debtor is alleged to have given notice of suspension of payment at a meeting of the creditors held on 4th April, 1972 at 5 -30 p.m. The second respondent is alleged to have been chosen by the creditors to file I. P. No. 35 of 1972. On 9th October 1972, the second respondent received a sum of Rs. 10,000. On 10th October 1972, when the petition came up for hearing, the counsel for the second respondent reported 'no instructions' and thereupon I.P. No. 35 of 1972 was dismissed for non -prosecution. The appellants who were present in the court applied for substituting themselves in I.P. 35 of 1972, alleging that the payment to the second respondent was a fraudulent preference within the meaning of S. 9(e) of the Presidency Towns Insolvency Act. This application was opposed by the first respondent who contended that he did not commit any act of insolvency and that the payment of a sum of Rs. 10,000 by him to the second respondent herein was under pressure. The second respondent supported the contention of the first respondent that there was no fraudulent preference. The learned Judge accepted the contention of the respondents and dismissed the petition.
(2.) The appellants now contend that the dominant intention of the debtor was to make the petitioning creditors to report no instructions and withdraw the insolvency petition, that there was no benefit to the estate of the debtor which, in the context, should mean the general body of creditors, and that therefore, the order of the learned Judge should be set aside. The question to be considered is whether the payment of a sum of Rs. 10,000 by the first respondent to the second respondent was a fraudulent preference and hence an act of insolvency committed by the first respondent. It is not disputed that a sum of Rs. 10,000, was paid by the first respondent to the second respondent on 9th October 1972, and consequently on 10th October 1972, the second respondent who had filed I.P. 35 of 1972, allowed the petition to be dismissed, and that it was dismissed on his counsel reporting no instructions. In order to constitute a fraudulent preference, the act of the debtor must be voluntary. In other words, it must be a deliberate or spontaneous act, an act of free -will. Payment under pressure, legal or illegal, is not a voluntary act. Fraudulent preference implies a deliberate discrimination between creditors. If the dominant intention of the debtor was to benefit himself, then the payment to one creditor alone would not constitute an act of insolvency. Preference must be the dominant view. In Williams on Bankruptcy it is observed that - -
Preference need not be the sole view, but must be the dominant view; it is sufficient that the preferring should have been the substantial, effectual or dominant view; but not necessarily the sole view with which the debtor acted.
In the Law of Insolvency in India, by D. F. Mullah, 3rd Edition, it is observed at page 535 that - -
In order to avoid a transaction as a fraudulent preference, it is not sufficient that the creditor was preferred; it is essential that the transfer or payment was made 'with a view' to giving a preference to that creditor over the other creditors. The view to prefer must have been dominant or substantial; it is not necessary that it should have been the sole view.
It is further observed at page 542 that - -
If the dominant view is to benefit the debtor himself, the fact that the particular creditor is preferred in the sense of obtaining a benefit not shared by others, will not constitute the transaction as a fraudulent preference.
Transfer or payment made under a threat of legal proceedings, whether civil or criminal, does not amount to fraudulent preference, even though there is no immediate power of rendering the threat available by taking legal steps. Similarly a transfer of payment under an apprehension of legal proceedings even though there has been no threat or demand or pressure from the creditor, does nor amount to a fraudulent preference.
In the instant case, the payment of Rs. 10,000 was made because of the imminent possibility of the first respondent being adjudicated an insolvent on the petition filed by the second respondent and the dominant intention was obviously to benefit the debtor himself. It is proved by the evidence of R.W. 1 (first respondent) and the circumstances in which he made the payment that his dominant view in making the payment was to benefit himself. By payment of Rs. 10,000 in full settlement of the claim of the second respondent the liability of the estate has been reduced and to this extent the estate of the first respondent has benefited. This benefit will accrue to the general body of creditors. It is not contended by the appellants that the assets of the first respondent are not sufficient to meet in full the claims of his creditors. There is nothing to show that the other creditors had been detrimentally affected by such payment. In these circumstances, we agree with the learned Judge that the act of insolvency alleged namely fraudulent preference within the meaning of S.9(c) of the Presidency Towns Insolvency Act has not been established. Hence the appeal is dismissed. No costs.;
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