BHIKU APPA KURA Vs. DATTATRAYA CHANDRAYYA

JUDGEMENT

(1.) This is an appeal by the receiver of the estate of the insolvent Bhiku Appa Kura against the order of remand passed by the Assistant Judge of Sholapur under the following circumstances, Bhiku sold his shop to the respondent Dattatraya for Rs. 12,000 on December 15, 1930. The consideration was made up of Rs. 5,000 due as past debts after certain remission, and Rs, 7,000 paid in cash at the time of the execution of the sale deed. Within a week after the execution of the sale deed, an application for insolvency was made on December 23, 1930, and Bhiku was adjudged insolvent on June 27, 1931 The receiver of his estate made an application, under Secs.53 and 54 of the Provincial Insolvency Act to have the sale set aside on the ground that it was fraudulent and intended to give preference to the respondent. The sale was set aside on March 26, 1934, and the order was confirmed in appeal on August 5, 1935. The second appeal to the High Court was dismissed. Thereafter on August 28, 1939, the respondent made an application to have his name entered in the schedule of creditors for a sum of Rs. 15,355-10-6 out of which he claimed Rs. 7,000 as a charge on the insolvent's property. The receiver contended that the sale deed taken by the respondent was colourable and sham and without consideration, that the respondent's claim for Rs. 5,000 was time-barred and that as it had been held in the previous appeal that the amount of Rs. 7,000 had not been paid in cash, his claim for that amount was barred as res judicata. He also contended that as the amounts had been paid for obtaining a fraudulent sale deed the respondent was not entitled to be entered in the schedule of creditors. The Insolvency Court upheld these contentions and rejected the respondent's application. In appeal the learned Assistant Judge held that as the sale was voidable and was set aside at the instance of the receiver, the respondent was entitled to recover back his amounts under Section 65 of the Indian Contract Act. He, therefore, remanded the proceedings to the trial Court with a direction to allow the respondent to prove his claim in respect of both the past debt and the cash amount included as consideration in the sale deed. The receiver has presented this appeal against that order of remand, and it is contended that the plaintiff's claim cannot be recognised by the receiver either in respect of the cash amount of Rs. 7,000 or in respect of the amount of the past debt included in the consideration of the sale deed.

(2.) The contention in the lower Court that the respondent should not be allowed to prove whether he had actually paid Rs. 7,000 in cash in view of the finding in the previous litigation is not pressed, since although it was then held that the amount of Rs. 7,000 was not proved to have been paid in cash, yet ultimately the case was decided on the ground of fraudulent preference. It was not then necessary to decide finally whether the consideration was paid in cash or not, and the finding does not operate as res judicata..

(3.) We have to consider the right of the respondent with regard to the two items from different points of view. Rs. 5,000 which formed a part of the consideration of the sale deed was antecedent debt due on two promissory notes. It is recited in the sale deed that out of the amount due on the promissory notes some amount was remitted and the balance of Rs. 5,000 only was taken into account. This debt was in existence before the sale deed and cannot be said to have been tainted with any fraud, whereas, the amount of Rs. 7,000 was paid by the respondent in furtherance of a fraud. As held in Mai Chand V/s. Ram Jas [1939] A.I.R. Lah. 145 cash items of consideration in a transfer set aside by the Insolvency Court advanced at the time of the execution of a fraudulent transfer cannot be allowed to be proved as a debt, as it is advanced for the purpose of carrying out the fraud. But the learned Assistant Judge has allowed proof of that payment under Section 65 of the Indian Contract Act. That section provides that when an agreement is discovered to be void, or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.