1962 (11) TMI 53 - SC - Indian Laws

Supreme Court affirms sale intended to defeat creditors, denies bona fide purchaser status. Individual creditor can raise fraud defense.

C. ABDUL SHUKOOR SAHEB Versus ARJI PAPA RAO

The Supreme Court upheld the High Court's decision that the sale was intended to defeat or delay creditors and that the plaintiff was not a bona fide ... - Issues Involved:1. Whether the sale in favor of the appellant was sham and nominal.2. Whether the sale was intended to defeat or delay creditors under Section 53(1) of the Transfer of Property Act.3. Whether the plaintiff was a bona fide purchaser for value.4. Whether a transfer voidable under Section 53(1) of the Transfer of Property Act can be avoided by an individual creditor by way of defense to a suit under Order XXI, Rule 63, Code of Civil Procedure.Issue-wise Detailed Analysis:1. Whether the sale in favor of the appellant was sham and nominal:The written statement by the first defendant alleged that the sale deed was a '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.' The trial court found the sale to be real and supported by consideration, rejecting the claim that it was sham and nominal. However, the High Court reversed this decision, leading to the present appeal.2. Whether the sale was intended to defeat or delay creditors under Section 53(1) of the Transfer of Property Act:The first defendant argued that even if the sale was real, it was intended to defeat or delay creditors, making it voidable under Section 53(1) of the Transfer of Property Act. The trial court rejected this contention, but the High Court found that the sale was indeed intended to defeat or delay creditors. The Supreme Court considered various circumstances, including the financial embarrassment of the second defendant firm, the relationship between the plaintiff and the vendors, the pressure from creditors, the registration of the sale deed at Madras to keep it secret, and the lack of evidence on the purpose of the sale. The Court concluded that the cumulative effect of these circumstances indicated that the sale was intended to defeat or delay creditors.3. Whether the plaintiff was a bona fide purchaser for value:The trial court found that the sale was for full value and that the consideration was paid by the purchaser. The High Court did not set aside this finding. However, the Supreme Court held that the plaintiff was not a bona fide purchaser for value. The Court noted that the plaintiff and the vendor belonged to the same community, the plaintiff had a copy of the deed of dissolution showing the firm's indebtedness, the registration of the sale deed at Madras indicated secrecy, and the plaintiff did not insist that the sale proceeds be used to pay off debts. These factors led the Court to conclude that the plaintiff shared the intention to defeat or delay creditors.4. Whether a transfer voidable under Section 53(1) of the Transfer of Property Act can be avoided by an individual creditor by way of defense to a suit under Order XXI, Rule 63, Code of Civil Procedure:The appellant argued that a transfer voidable under Section 53(1) could only be avoided by a representative suit filed on behalf of creditors, not by an individual creditor as a defense to a suit under Order XXI, Rule 63. The Supreme Court rejected this argument, citing a Full Bench decision of the Madras High Court (Ramaswami Chettiar v. Mallappa Reddiar) and subsequent consistent rulings by other High Courts. The Court held that an attaching creditor could raise the defense of fraud under Section 53(1) in a suit to set aside a summary order under Order XXI, Rule 63. The amendment to Section 53(1) in 1929, which required creditor suits to be in a representative capacity, did not affect this defense.Conclusion:The Supreme Court dismissed the appeal, upholding the High Court's decision that the sale was intended to defeat or delay creditors and that the plaintiff was not a bona fide purchaser for value. The Court also affirmed that an individual creditor could raise the defense of fraud under Section 53(1) in a suit under Order XXI, Rule 63, Code of Civil Procedure.