Case: Immani Appa Rao And Others Vs. Gollapalli Ramalingamurthi And Ors

appellants and respondent 2are members of an undivided Hindu family. The case for respondent 1 was that he had purchased the properties described in the Schedule attached to his plaint on April 1,1936 in a sale held by the Official Receiver in the insolvency of respondent 2. A registered sale deed was accordingly issued in favour of respondent 1 (Ex.P. 4) on September 21, 1936. In pursuance of the said sale respondent 1 obtained possession and enjoyment of such properties after partitioning them with Rayudu, the brother of respondent 2. In October 1938, however, theappellants and respondent 2trespassed on the said properties and so respondent 1 had to file the present suit claiming a declaration of his title in regard to the said properties, and asking for their possession and or past and future mesne profits. That in brief is the nature of the suit from which the present appeal arises2. The claim thus made by respondent 1 was resisted by respondent 2 and the appellants on several grounds. It was urged by respondent 2 that the transfer in favour of respondent 1 was benami and that respondent was not the real owner of the properties. In support of this case respondent 2 gave, what according to him, was the antecedent history of the sale in favour of respondent 1. He alleged that he had sustained heavy losses in business conducted by him with the result that he was indebted to the extent of Rs. 25,000. Apprehending that the suit properties would be lost to the family at the instance of his creditors he and his junior mother-in-law Kanthamani Seshamma approached respondent 1s father-in-law Suryaprakasa Sastrulu for advice and on his advice respondent 2 executed a collusive and nominal mortgage deed for Rs. 1,000 (Ex. P. 9) in favour of respondent 1 on June 16, 1933. Similarly, on the same advice a similar nominal transfer deed was executed in favour of respondent 1 on August 6, 1939, (Ex. P. 12) after the properties covered by the said document had been released from an earlier non-possessory mortgage (Ex. P. 11) which had been executed on July 21, 1930. Thus, according to respondent 2 the documents executed in favour of respondent 1 were nominal and collusive and were not supported by any consideration3. Respondent 2 further alleged that the execution of the said collusive documents between him and respondent 1 came to the knowledge of some of his creditors and that led to an insolvency petition against respondent 2 by one of his creditors in I. P. No. 91 of 1933. This petition was filed in the Court of the Subordinate Judge at Ellore on September 15, 1933, against respondent 2. In these insolvency proceedings respondent 2 was adjudicated insolvent and the Official Receiver, appointed to take charge of respondent 2s properties, brought the said properties to sale subject to the aforesaid nominal mortgages in favour of respondent 1. Kanthamani Seshamma purchased the said properties with her own money but benami in the name of respondent 1 on condition that respondent 1 would re-convey the said properties to the family of respondent 2 whenever called upon to do so. The allegation of respondent 1 that he had obtained possession of the properties was denied, and it was urged that respondent 1 had no title to the properties and was entitled to no relief in the suit filed by him. That is the substance of the pleas raised by respondent 2 and the appellants joined respondent 2 in making the same pleas by their separate written statement4. At the trial three issues were tried as preliminary issues; they were issues 5, 8 and 9. Issues 8 and 9 were in regard to the court fees payable on the claim made in the plaint and regarding the pecuniary jurisdiction of the Court. The Court found that it had jurisdiction to try the suit and it valued the subject-matter of the suit at Rs. 2,411-7-2 on which additional court-fee was paid by respondent 1. Issue 5 was as to whether the sale in favour of respondent 1 bound the shares of the appellants in the family properties. The learned trial judge answered this issue in favour of the appellants purporting to follow the Full Bench decision of the Madras High Court in Ramasastrulu v. Balakrishna Rao, ILR (1943) Mad 83; (AIR 1942 Mad 682  ). According to the said decision the right of respondent 2 as the father of the appellants and manager of the undivided Hindu family to set the shares of his sons for purposes binding on the family did not vest in the Official Receiver on his insolvency, and so the sale effect ed by the Official Receiver in favour of respondent 1 did not, and could not, in law bind the shares of the appellants in the properties conveyedAfter these findings were recorded respondent 1 applied for the amendment of his plaint and the said amendment was allowed. By this amendment respondent 1 alleged that the suit properties were the self-acquired properties of respondent 2 and so the appellants had no interest therein. On this alternative plea it was urged by respondent 1 that the properties sold by the Official Receiver to respondent 1 conveyed the entire properties which belonged to respondent 2 alone. In addition to this alternative claim made by an amendment respondent 1 also made an alternative prayer that he should be either given possession of the whole of the properties or 1/5th of the properties according as the properties are found to be separate properties of respondent 2 or are held to be properties of the undivided family consisting of respondent 2 and the appellants. These alternative grounds taken by respondent 1 by virtue of the amendment were traversed by respondent 2 and the appellants in their additional written statementsWhen the suit went to trial on the amended pleadings several issues were framed by the learned trial judge. In addition to the issues arising on the pleadings the learned trial judge framed suo motu one more issue 1(a), whether respondent 1 was the benamidar of the appellants, and if yes, whether the appellants could be allowed to plead the same as a defence in the suit. The learned trial judge found that the suit properties were the joint family properties of respondent 1 and the appellants. Alternatively he held that even if they were originally the self-acquired properties of respondent 2 they had been blended with the family properties and thus became the properties of the undivided family. He found that the shares of the appellants in the said properties did not vest in the Official Receiver and so were not conveyed to respondent 1. He came to the conclusion that the purchase by respondent 1 from the Official Receiver was only a benami transaction for the benefit of the appellants and that respondent I had not obtained possession of the properties at any time. According to the learned trial judge the sale in favour of respondent I was fraudulent and was brought into existence to defraud the creditors of respondent 2; and this fraud had been carried out and the creditors of respondent 2 had been defrauded. Since the fraud had been carried out, the learned judge held that respondent 2 and the appellants could not be allowed to plead the same as a defence in the suit. As a result of this finding the learned judge passed a preliminary decree in favour of respondent 1 for 1/5th share in items 1 to 4 and 8 to 10 of the properties described in the Schedule attached to the plaint. In regard to items 5 to 7 on which the dwelling house of the family was constructed the learned judge held that respondent 1 was entitled to monetary compensation. Consistently with the preliminary decree thus passed as to the share of respondent 1 the learned judge also directed that future mesne profits should be determined under O. 20, R. 12(c) of the Code of Civil ProcedureAgainst this decree respondent 1 preferred an appeal, No. 288 of 1943, in the Court of the Subordinate Judge, West Godavari at Ellore. In this appeal he claimed that a decree should be passed in his favour in respect of the whole of the properties sold to him by the Official Receiver. The appellants filed cross-objections and urged that the learned trial judge was in error in framing issue 1(a) suo motu and challenged his conclusion on it. The appellate Court agreed with the conclusions of the trial judge and so dismissed both the appeal and the cross-objectionsAgainst this appellate decree respondent 1 filed a Second Appeal, No. 1656 of 1947, and the appellants filed cross-objections. This appeal came on for hearing before Mr. Justice Raghava Rao and it was urged before him that since the Provincial Insolvency (Amendment) Act No. 25 of 1948 which introduced S. 28A had come into operation in the meanwhile retrospectively the decision of the Courts below that the Official Receiver could not in law have sold the appellants shares in the family properties could no longer be sustained. This contention was raised by respondent 1. It was met by the appellants by their counter-contention that issue 1(a) had been sprung upon them as a surprise; it had been framed by the trial court after it had heard arguments on both sides and that the appellants had no opportunity to show that in fact the fraud contemplated by the parties had not been effectively carried out. They alleged that if the fraud had not been carried out the principle of estoppel invoked against them could not come into play. This contention raised by the appellants was accepted by the High Court which called for a finding by the trial court on issue 1(a), after giving both the parties an opportunity to adduce evidence on the question about the completion or otherwise of the fraud connected with the benami purchase. After remand the trial court took evidence and made a finding that respondent 2 had successfully played fraud on his creditors by getting the properties purchased by respondent 1 benami or his sons at the sale held by the Official Receiver. In due course this finding was submitted by the trial court to the High Court. Thereupon the appellants filed objections to the said findingAfter this finding was received the second appeal was again placed for hearing by Mr. Justice Raghava Rao. At the second hearing the appellants raised the point that the amending Act by which S. 28-A was inserted in the Provincial Insolvency Act was ultra vires. The learned judge overruled the objections made by the appellants against the finding submitted by the trial court on the issue remanded to it and accepted that finding; but in view of the fact that the vires of the amending Act was challenged he thought it expedient that the second appeal should be heard by a Bench of two judges. That is how the second appeal came before a Division Bench of the Madras High Court for final disposalIn its final judgment the High Court has observed that the argument that Act 25 of 1948 was ultra vires was not pressed before the High Court, that certain other grounds were sought to be raised by the appellants but they were not allowed to be raised; so that in the result the main argument urged before the High Court was whether having regard to the fact that the fraud contemplated by respondent 2 and respondent 1 had been effectively carried out it was open to the appellants to plead that fraud against respondent 1 in respect of his claim for possession of the suit properties in the present suit. The High Court considered the conflicting decisions on this point and adhered to the view which has prevailed in the said High Court since the decision in Voddina Kamayya v. Gudisa Mamayya 32 Mad LJ 484: (AIR 1918 Mad 365) and held that theappellants and respondent 2were estopped from setting up the fraud against respondent 1 in his present suit. In the result respondent 1s claim in respect of the whole of the properties conveyed to him by the Official Receiver has been decreed. It is against this decree that the appellants have come to this Court with a certificate granted by the High Court

Court's reasoning:
The point thus raised lies within a narrow compass and the material facts which give rise to it are no longer in dispute. It is common ground that the approach of the Court in determining the present dispute must be conditioned solely by considerations of public policy.  It is true that as a result of permitting respondent 2 and the appellants to prove their plea they would incidentally be assisted in retaining their possession; but this assistance is of a purcly passive character and all that the Court is doing in effect is that on the facts proved it proposes to allow possession to rest where it lies. It appears to us that this latter course is less injurious to public interest than the formerThere can be no question of estoppel in such a case for the obvious reason that the fraud in question was agreed by both the parties and both parties have assisted each other in carrying out the fraud. When it is said that a person cannot plead his own fraud it really means that a person cannot the permitted to go to a Court of Law to seek for its assistance and yet base his claim for the Courts assistance on the ground of his fraud. In this connection it would be relevant to remember that respondent 1 can be said to be guilty of a double fraud; first he joined respondent 2 in his fraudulent scheme and participated in the commission of fraud the object of which was to defeat the creditors of respondent 2, and then he committed another fraud in suppressing from the Court the fraudulent character of the transfer when he made out the claim for the recovery of the properties conveyed to him. The conveyance in his favour is not supported by any consideration and is the result of fraud; as such it conveys no title to him. Yet, if the plea of fraud is not allowed to be raised in defence the Court would in substance be giving effect to a document which is void ab initio. Therefore, we are inclined to hold that the paramount consideration of public interest requires that the plea of fraud should be allowed to be raised and tried, and if it is upheld the estate should be allowed to remain where it rests. The adoption of this course, we think, is less injurious to public interest than the alternative course of giving effect to a fraudulent transfer. In our opinion, the view taken by these subsequent decisions of the Madras High Court does not represent the true and correct approach to the questionWe are not impressed by this argument. Even if respondent 1 has based his case on a conveyance the position still remains that as a result of the facts proved by respondent 2 and the appellants the conveyance is void ab initio. It is a document fraudulently executed and as such it conveys no title to the transferee at all. That being so we do not think that in giving effect to the considerations of public interest or policy it makes any difference that the deed on which the present suit, is brought as one of conveyanceWe do not see how this section is material or can give any assistance in the decision of the point before us. In the present case the transferee is not in possession of the properties and the present care is not one of the three categories of cases contemplated by the section. If the argument assumes that the only cases where equitable principles can be invoked are cases falling under S. 84 and S. 84 is exhaustive in that sense, we have no difficulty in rejecting the said argument. Since the present case is entirely outside S. 84 it inevitably falls to be considered on considerations of general policy, and as we have already held, judged in the light of such considerations it must be held that the public interest would be less injuriously affected if the property is allowed to remain where it lies. Therefore, we must hold that the High Court was in error in not giving effect to the finding recorded by the trial court that the fraud mutually agreed upon and contemplate by respondents 1 and 2 had been effectively carried out and that in the carrying out of the fraud both the parties were equally guiltyThis question has been the subject matter of judicial decisions in most of our High Courts and it appears that the consensus of judicial opinion with the exception of the Madras High Court is in favour of the view which we have taken. In Bombay the principle that in dealing with a contest between two participants in fraud possession should be allowed to remain where it rests appears to have been consistently accepted until Chief Justice Sir Lawrence Jenkins struck a note of dissent in Sidlingappo v. Hirasa, ILR 31 Bom 405. Thereafter the correctness of this judgment was sometimes doubted in the subsequent decisions of the said High Court (Vide : Lakshman Balwant v. Vasudeo Mohaniraj, 33 Bom LR 356 : (AIR 1931 Bom 227  )) and finally the Full Bench of the said High Court reversed the said decision of Sir Lawrence Jenkins in Guddappa Chikkappa v. Balaji Ramji ILR (1941,) Bom 575   : (AIR 1941 Bom 274  ) (FB). Since then the decision of the Full Bench has been consistently followed in the Bombay High Court. The same view has been accepted by the Calcutta, Allahabad, Nagpur and Patna High Courts (Vide : Preomath Koer v. Kazi Mahomed Shazid, 8 Cal WN 620, Emperor v. Abdul Sheikh, AIR 1920 Cal 90, Vilayat Hussain v. Mt. Misran, ILR 45 All 396 : (AIR 1923 All 504  ), Nawab Singh v. Daljit Singh, ILR 58 All 842: (AIR 1936 All 401), Qader Baksh v. Hakim, ILR 13 Lah 713 : (AIR 1932 Lah 503) (FB) Bishwanath v. Surat Singh, AIR 1943 Nag l13 and Jharia Coal Field Electric Supply Co., Ltd. v. Kaluram Agarwala, ILR 30 Pat 137: (AIR 1951 Pat 463  )(Case of illegal contract))In Madras the earlier decisions of the High Court appear to have taken the same view (Vide: Venkataramana v. Viramma, ILR 10 Mad 17, Yaramati Krishnayya v. Chundru Papayya ILR 20 Mad 326 and Raghavalu Chetty v. Adinarayana Chetty ILR 32 Mad 323  . In the case of 32 Mad LJ 484 : (AIR 1918 Mad 365) however, a Division Bench of the Madras High Court upheld the view that a person who has conveyed property benami to another for the purpose of effecting a fraud on his creditors cannot, where the fraud has been effected, set up the benami character of the transaction by way of defence in a suit by the transferee for possession under the conveyance. Since then this view has prevailed in the Madras High Court (Vide : K. Kotayya Naidu v. C. Mahalakshmamma, ILR 56 Mad 646   : (AIR 1933 Mad 457  ) and Arunachalam Chettiar v. Rangaswamy Chettiar, ILR 59 Mad 289   : (AIR 1936 Mad. In our opinion, the view taken by these subsequent decisions of the Madras High Court does not represent the true and correct approach to the questionEven if respondent 1 has based his case on a conveyance the position still remains that as a result of the facts proved by respondent 2 and the appellants the conveyance is void ab initio. It is a document fraudulently executed and as such it conveys no title to the transferee at all. That being so we do not think that in giving effect to the considerations of public interest or policy it makes any difference that the deed on which the present suit, is brought as one of conveyanceIt is then contended that in deciding the point raised by the appellants we must look to the provisions of S. 84 of the Indian Trusts Act and nothing else. The Indian Trusts Act is a comprehensive code and it is only in cases falling under S. 84 that it would be permissible to the Court to apply the equitable principles or to invoke considerations of public policy as the appellants purport to do. Section 84 provides that where the owner of property transfers it to another for an illegal purpose and such purpose is not carried into execution, or the transferor is not as guilty as the transferee, or the effect of permitting the transferee to retain the property might be to defeat the provisions of any law, the transferee must hold the property for the benefit of the transferor.We do not see how this section is material or can give any assistance in the decision of the point before us. In the present case the transferee is not in possession of the properties and the present care is not one of the three categories of cases contemplated by the section. If the argument assumes that the only cases where equitable principles can be invoked are cases falling under S. 84 and S. 84 is exhaustive in that sense, we have no difficulty in rejecting the said argument. Since the present case is entirely outside S. 84 it inevitably falls to be considered on considerations of general policy, and as we have already held, judged in the light of such considerations it must be held that the public interest would be less injuriously affected if the property is allowed to remain where it lies. Therefore, we must hold that the High Court was in error in not giving effect to the finding recorded by the trial court that the fraud mutually agreed upon and contemplate by respondents 1 and 2 had been effectively carried out and that in the carrying out of the fraud both the parties were equally