TMI Blog1956 (8) TMI 23X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. The case of the official liquidator is that in May, 1952, and even long before, the bank was in a hopelessly insolvent state and unable to pay its debts. Veerappa Chettiar, the second respondent, is a well to do person and what happened as a result of these entries was that Veerappa Chettiar instead of paying the money due by him to the bank paid or agreed to pay that money to Lakshmi Achi. In this manner, Lakshmi Achi was fraudulently preferred to the other creditors of the bank. In these circumstances, the official liquidator has taken out the present application for a declaration that the transaction is void and not binding on him being an act of fraudulent preference. There is a further prayer that respondents Nos. 1 and 2 be directed to pay the liquidator a sum of Rs. 11,455-8-1 with interest thereon at 9 per cent. per annum from 2nd May, 1952, till the date of payment. In the affidavit which she filed, Lakshmi Achi denied that she was aware of what was happening to the bank. She did not know whether there were any other creditors to whom the bank owed money. It is wrong to say that she has been preferred. Her deposit had matured and the bank was bound to pay her the mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed my claim as a creditor of the bank to the extent of the said amount. I submit that the official liquidator is estopped from disputing the discharge of the overdraft account having admitted my claim as a creditor of the bank." He claimed that he had acted with the utmost bona fides in the matter and that he was entitled to protection under section 54(2) of the Insolvency Act. Section 231(1) of the Indian Companies Act, 1913, so far as it is now material runs as follows: "Any transfer, payment .. or other act relating to properly which would, if made or done by .an individual be deemed in his insolvency a fraudulent preference, shall, if made or done by a company, be deemed in the event of its being wound up, a fraudulent preference of its creditors, and be invalid accordingly." It will be noticed that under the terms of the Act, no cash payment is necessary. Any act relating to the property would suffice provided certain other conditions are satisfied. Under section 56(1) of the Presidency Towns Insolvency Act, "every transfer of property, every payment Made .by any person unable to pay his debts as they become due from his own money in favour of any creditor, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the kariasthan of Veerappa Chettiar, deposed that his employer's residence was one and a half furlongs away from the premises of the bank. Anyway the distance was not very much. Veerappa Chettiar is a businessman who had overdraft facilities with the bank and if the bank had terminated the services of its employees as far back as June, 1951, it is very unlikely indeed that Veerappa Chettiar remained in ignorance of that fact. It might be pleaded on behalf of the first respondent that she is a woman. But then it is clear that she had dealings with the bank and it will be idle to pretend that she knew nothing of business matters. In any case, her fixed deposit had matured on 6th April, 1952, and in the usual course, she would have asked for payment either in person or by, a messenger. When a deposit matures, a bank which is functioning normally makes payment as a matter of course. In this case, Lakshmi Achi was not paid and when she was not paid, she was bound to have made enquiries and the slightest enquiry, assuming for the moment that she was up till then ignorant of the true position of the bank, would have made her aware of its true position. In this connection, it is pertinen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d May, 1952, as per the entries in the bank's books of account." But in paragraph 9 there is a suggestion that the payment was in cash. The relevant passage is: "I have repaid the bank the full amount of my liability under the overdraft account and which as a result of such payment has resulted in a credit balance to the extent of Rs. 632-0-9 in my favour." Of course, it is possible to offer the explanation that when making this statement, Veerappa had in mind only repayment by adjustment. If the matter had stood there, I may probably not have commented on it. But when we examine the pay-in slips we find that they furnish further evidence of some uncertainty in the minds of those who put the transaction through as to whether they should call it a cash transaction or a transfer which merely involved the making of certain adjustments. Normally when a person goes to a bank and pays in cash, he fills up a pay in slip. When he does not pay cash, he uses a different form. The Nattukottai Bank too had two sets of forms, one to record cash payments, another to show transactions which did not involve the passing of cash. In the present case the transaction appears under two slips, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ake. At the top of page 13 of Exhibit B-24 it is written Nandana Avanna and 'Avanna' is scored out and Vaikasi is written thereafter. I do not now remember why the mistake took place. If I want to write Ani or Adi or Avani I will have to begin with (Avanna) letter. Similarly at the top of page 18 of Exhibit B-24 after Nandana Year " " is scored and thereafter "Ani" is written. I cannot see why it is so excepting it is a mistake. We do not maintain any chittas. We do not write in slips before we write the accounts in Exhibit B-24. Question: I put it to you that these above mistakes can occur only in cases where accounts are written not on the dates of entries but copied long after from other entries. Is it so? Answer: No. Question: Can you give any reason why so far Exhibit B-24 has not been filed in this proceeding, either Exhibit B-24 or its copy? Answer: I cannot say." The matter, however, does not rest on suspicion alone. We have on record the categorical evidence of Sivasooryan that the entries in the books of the bank were written not on 2nd May, 1952, but several days later. He deposed: "From pages 236 to 238, the entries which are in my handwriting were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o stand. But I do not see how this view of the matter can be accepted. Section 227 (2) of the Indian Companies Act, 1913, runs as follows: "In the case of a winding up......by ..the court, every disposition of the property (including actionable claims) of the company......made after the commencement of the winding up shall unless the court otherwise orders be void." If as the evidence of Sivasooryan clearly shows these entries were made after the winding up petition had been filed, then the transaction would be hit at by section 227 of the Act and it would be void and further discussion would be unnecessary. I shall, however, complete the discussion on the basis that, the transaction was effected before the winding up petition was. presented. Mr. Jagadisa Aiyar, the learned advocate for the respondents, argued that when a transfer like the one in question takes place it is not sufficient to show that as a consequence thereof a particular creditor obtained an advantage. It must also be shown that the purpose of the transfer was to prefer that creditor. He referred to Halsbury (Third Edition, Vol. II) pages 556-557, paragraphs 1103-1104: "In order that a transaction may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld have had some force if Veerappa Chettiar had been a person of doubtful solvency or one from whom it would have been difficult to recover the money. But the evidence, of this kariasthan is that he is a rich man. Therefore, the benefit which Mr. Jagadisa Aiyar, said, the bank derived, is purely illusory. The present transaction is in no way analogous to a case where a debtor to obtain a breathing space or in the hope of staving off disaster or to obtain room for manoeuvring or to obtain an advantage for himself pays off a creditor. It is simply a case where one particular creditor was paid by the assignment of a debt due to the bank and the transaction could have had no other purpose than to benefit Lakshmi Achi. In this connection the manner in which the bank dealt with two other creditors stands in striking contrast. One of them is Perialwar, a sanitary inspector. In 1950 he was in Devakottai and on 13th March, 1950, he deposited a sum of Rs. 1,000 in the bank. The deposit was for two years which means it matured on 13th March, 1952. After the deposit matured, Perialwar wrote to the bank asking it to send him his money since he had been transferred in the interval to Mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ither Lakshmi Achi nor Veerappa Chettiar or Ramanathan Chettiar, the managing director of the bank, went into the box and explained why the payment was made. Every one of them however has studiously avoided the box. Veerappa Chettiar no doubt put his kariasthan in. But I do not regard him as an adequate substitute for Veerappa himself. In the course of his arguments, Mr. Jagadisa Aiyar, referred to In re Stenotyper Ltd., Hastings Bros. v. Steno Typer Ltd. [1901] 1 Ch. 250 The facts there were as follows: A company was indebted to Hastings Brothers and was unable to pay its debts as they became due from its own moneys. This fact was known to the directors of the company; but the chairman of the directors was personally liable on an acceptance of the company for part of the debt due to Hastings Brothers. A scheme was then put through by the directors by which the debentures of the company were allotted to Hastings Brothers as security for the debt. The court refused to set aside the transaction as a fraudulent preference. This decision has no application to the facts of the case before me. In that case, it was clear on the evidence that the intention was not to prefer Hasti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of devices that may be practised or suffered by the insolvent to deprive the creditors of the benefit of all his property." I would here again draw attention to something I said a little earlier, namely, that under the terms of section 231 of the Indian Companies Act, 1913, even a transfer of property is not required. The words used in the statute are extremely comprehensive and they are "any act relating to property." Mr. Jagadisa Aiyar then raised yet another point. After the official liquidator took over, he wrote to Veerappa Chettiar informing him that he was declaring a dividend of three annas in the rupee on the sum of Rs. 632-0-9, being the amount standing to his credit in the day book of the bank. As a result of this, said Mr. Jagadisa Aiyar, the official liquidator is estopped from taking up his present position. I am unable to see any estoppel in the matter. It has not been shown how as a consequence of anything that the official liquidator did, Veerappa Chettiar altered his position to his disadvantage. It will be noticed that, in acting as he did, the official liquidator was merely proceeding on the basis of section 43 of the Banking Companies Act, which runs: ..... X X X X Extracts X X X X X X X X Extracts X X X X
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