KANDAPPA GOUNDER Vs. OFFICIAL RECEIVER COIMBATORE

JUDGEMENT

(1.) THIS is a revision under Section 75 of the Provincial Insolvency Act by a mortgagee-alliance whose mortgage has been held to be a fraudulent preference by the learned District Judge of Coimbatore differing from the learned Subordinate judge of Erode, at the instance of the Official Receiver in the insolvency of one palaniswami. The mortgage deed in question, Ex A. 3, is for Rs. 11,000 and executed on 26-6-1953. In the petition under Ss. 53 and 54 of the Provincial insolvency Act, it is alleged that the next day, two other mortgage in favour of the sons of the alience each for Rs. 11000 had been executed. In the counter affidavit field by the alience, there was no denial of the fact of the execution of the mortgages. He only affirmed that all the mortgages were for proper consideration and in good faith for discharging the prior and binding debts. The petition for adjudication was filed on 30-7-1953. It may be stated that the mortgage deed was actually registered only on 4-7-1953. There was a suit O. S. 221 of 1965 on the basis of the mortgage and to this suit, the Official Receiver was a party. It is stated that he was ex parte. The mortgage suit was hotly contested and a decree was passed. The plea of res judicata based on the decree in the mortgage suit was overruled by the learned District Judge in the view that the truth of the mortgage was not questioned in this proceeding and all that was contended was that it was a fraudulent preference. This view of the learned District Judge has not been assailed before me and it is therefore unnecessary for me to consider this aspect of the matter.

(2.) LEARNED counsel, Mr. P. S. Ramachandran, appearing for the petitioner alliance, contends that for a finding of fraudulent preference, the respondents must establish not only preference of a creditor but that the preference was fraudulent. It is submitted that these elements must be established as present on the date the mortgage was executed and it must be found that the debtor was not possessed of sufficient assets on the date of the mortgage to discharge his debts. Learned counsel also submits that the mere statement that on the subsequent date two other mortgages were taken will not by itself be sufficient. It would be relevant only in conjunction with a total inadequacy of the assets and then also only if one can infer that the mortgage made in favour of the present alliance, was part of a fraudulent scheme of the insolvent. The learned counsel points out that all that the District Judge notices is that under the three mortgages practically, the entire portion of the insolvent's properties had come to be cornered without providing for discharge of the debts of the petitioning creditors. It is stated that about Rs. 9000 was originally due to them under two promissory notes, one of 1950 and the other of 1951. Counsel for the petitioner points out that this finding is inadequate and vague and rightly as there us not even a reference as to the value of the assets and the equity of redemption has not been evaluated. I have been taken through the evidence tendered on behalf of the alienee. I think the learned counsel for the petitioner is justified in his criticism of the judgment of the learned District Judge who has reversed the judgment of the learned Subordinate judge.

(3.) MR. M. S. Venkatarama Aiyar, learned counsel appearing for the first respondent, the petitioning creditor in the insolvency, submits that the other two mortgages were also being impugned and proceedings were pending. But I cannot take judicial notice of this statement and even otherwise it takes one nowhere. It may be that they are being impugned. We do not know under what circumstances they are being impugned and we have to guide ourselves only by the records now in these proceedings. A perusal of the judgment of the learned District Judge leaves one in the impression, that the learned District Judge has failed to appreciate the elements that will have to be established before an alienation is invalidated as a fraudulent preference. That consideration passed for the mortgage in question and in discharge of debts is not open to doubt in this case and must be taken as established. Whether the insolvent intended preference of the mortgage and whether he was then in bankrupt circumstances at the time of the mortgage have not been specially considered and definite findings given on evidence.