Case: Malini Ayyappa Naicker (Now Dead) Through L.R. Etc. Etc Vs. Seth Manghraj Udhavdas Firm By Managing Partner Chathurbh

1. These appeals arise from on insolvency proceeding wherein one Ponnayya Konar and his sons were adjudicated as insolvents. In the said proceeding the petitioning creditor sought to get annulled two mortgages one for Rs. 15,000 (Exh. A-1) executed by the insolvents in favour of Ayyappa Naicker, the appellant in Civil Appeal No. 845 of 1963 and the other for Rs. 10,000 (Exh. A-2), the subject-matter of Civil Appeal No. 846 of 1963, in favour of one Srinivasa Naicker, the father-in-law of the aforementioned Ayappa Naicker. The said Shrinivasa Naicker is dead and the appeal is being prosecuted by his legal representatives. Both those mortgages are dated November 4, 1950 and they were remtered on November 6, 1950. The Insolvency Court held that those mortgages were not supported by consideration and that they were executed with a view to screen some of the properties of the insolvents from their creditors. It accordingly annulled those mortgages under Section 53 of the Provincial Insolvency Act (hereinafter referred to as the Act). In appeal the learned District Judge reversed the findings of the trial Court. He came to the conclusion that those mortgages were fully supported by consideration and that they were genuine transactions. The High Court acting under the 1st proviso to Section 75 (1) of the Act reversed the judgment of the learned District Judge and restored that of the Insolvency Court. These appeals have been brought against the decision of the High Court after obtaining special leave from the Court11. We shall first set out the undisputed facts. The respondent Ponnayya konar was a well to do person. He had one rice mill at Kivalur and another at Sirkali. He also had landed properties in Sirkali and Tuticorin. He was having money dealings with the family of Sreenivasa Naicker from about the year 1925. Under the original of Exh. B-1, a registered deed of Othi dated 28th September, 1925, he had borrowed a sum of Rs. 30,000 from Rangappa Naicker, the father of srinivasa Naicker. On October 5, 1930, the said deed was renewed by the execution of a simple mortgage deed by Ponnayya Konar and his sons in favour of Rangappa Naicker, Under the registered mortgage deed dated 13th January, 1942 (Exh. B-4 is its copy), the insolvents had borrowed from Ayyappa Naicker Rs. 20,000 out of which he discharged some of the debts due to Rangappa Naicker. Ayyappa Naicker was himself a rich man. Under the partition deed entered into in his family on October 30, 1936.(Exh. B-3) he got a cash of Rs. 52,000 and lands measuring 250 acres. The debt due to Ayyappa Naicker under the deed dated 13th January 1942 was discharged by payment of Rs. 5,000 and interest on 3rd April, 1948 and Rs. 15,000 and interest on the 28th March, 1949, as can be seen from Exhs. B-5 and B-6.

Court's reasoning:
6. We are of the opinion that the extreme contentions advanced on either side cannot be accepted. Quite clearly the legislature did not confer on the High Court under the 1st proviso to Section 75 (1) of the Act an appellate power nor did it confer on it a jurisdiction to re-appreciate the evidence on record. While exercising that power the High Court is by and large bound by the findings of fact reached by the District Court. If the legislature intended to confer power on it to re-examine both questions of law and fact it would have conveyed its intention by appropriate words as has been done under various other statutes.A wrong decision on facts by a competent court is also a decision according to law. For these reasons we cannot accept the contention of Mr. Naunit Lal that the power conferred under the 1st proviso to Section 75 (1) of the Act enables it to de novo examine the findings of fact reached by the District Court7. A decision being contrary to law (as provided in Section 100 (1) (a) of theCode of Civil Procedure is not the same thing as a decision being not according to law as prescribed in the 1st proviso of Section 75 (1) of the Act. The latter expression is wider in ambit than the former. It is neither desirable nor possible to give an exhaustive definition of the expression according to law. The power given to the High Court under the 1st proviso to Section 75 (1) of the Act is similar to that given to it under Sec. 25 of the Provincial Small Cause Courts Act. Explaining the scope of the latter provision, Beaumont, C. J. (as he then was) in Bell and Co. Ltd. v. Waman Hemraj, 40 Bom LR 125 = (AIR 1938 Bom 223  ) observed:The object of Section 25 is to enable the High Court to see that them has been no miscarriage of justice, that the decision was given according to law. The section does not enumerate the cases in which the Court may interfere in revision as does Section 115 of theCode of Civil Procedure, and I certainly do not propose to attempt any exhaustive definition of the circumstances which may justify such interference;but instances which readily occur to the mind are cases in which the Court which made the order had no jurisdiction or in which the Court has based its decision on evidence which should not have been admitted, or cases where the unsuccessful party has not been given to proper opportunity of being heard, or the burden of proof as been placed on the wrong shoulders.Wherever the Court comes, to the conclusion that the unsuccessful party has not had a proper trial according to law, then the Court can interfere. But, in my opinion, the Court ought not to interfere merely because it thinks that possibly the Judge who heard the case may have arrived at a conclusion which the High Court would not have arrived at8. The said statement of the law was accepted as correct by this Court in Hari Shankar v. Rao Girdhari Lal Chowdhury, 1962 Supp 1 SCR 933 = (AIR 1963 SC 698  ). We think the same applies squarely to the 1st proviso to Section 75 (1) of the Act15. In the insolvency proceedings on the application of the petitioning creditor, a commissioner to search the house of the insolvents and seize their books of account and other relevant records was appointed. After search the commissioner seized from the house of the insolvents several account books (ledgers as well as day books) as well as A-11 and A-12 which were found punched and defaced. Exhibits A-11, A-12 as well as several of the entries in the ledger and day books were marked by consent in the proceedings from which these appeals have arisen. Hence their genuineness is not open to question16. It is most unlikely that those documents were got up by the insolvents and kept in their house depending on the off chance of a Court commissioner searching their house and seizing them, so that they may serve as corroborating evidence in support of the impugned mortgages. If Exhs . A-11 and A-12 as well as the entries in the account books were intended to support the claim under Exhs. A-1 and A-2, the most natural course would have been to draw up the mortgage deeds in such a way as to take assistance from them. In that case the mortgage deeds would not have recited that they were executed for cash consideration. Further Exhs. A-11 and A-12 would have been left in the possession of the mortgagees. We are convinced that the version put forward by the mortgagees is substantially true. The original agreement between the parties was to take mortgagees of the Tuticorin properties for cash consideration. The intermediate steps taken were necessitated by the fact that mortgagees were not able to get together in one lump the required amount. The promissory notes Exhs. A-11 and A-12 were taken as stop gap arrangements. The recitals in the mortgage deeds accord with the original agreement between the parties. That was likely to be the reason why the promissory notes Exhs. A-11 and A-12 were returned to the parties. The entries in the account books of the insolvents reflect the transactions as they took place. If they were bogus entries made to support Exhs. A-1 and A-2 a receipt of Rs. 25,000 in cash on 4th November 1950 would have been shown therein. The learned District Judge correctly thought that the account entries in question had a great deal of intrinsic value. On the other hand the insolvency court and the High Court unnecessarily allowed them selves to be influenced by the apparent contradiction appearing between the recitals in Exhs. A-1 and A-2 and those in Exhs. A-11, A-12 and the account entries17. One other circumstance which had weighed with the High Court in holding that Exhs. A-1 and A-2 do not represent genuine transactions is that in their pleadings the mortgagees have stuck to their case that cash consideration passed under Exhs. A-1 and A-2 and this the Court thought was a deliberately false. The learned District Judge had carefully considered this circumstance but was of opinion that the same was of no consequence. We think that the High Court had attached undue importance to that circumstance. The issue before the parties at the time of the pleadings was whether the mortgages in question were supported by consideration or not and not the manner in which that consideration was paid. In their plea the mortgagees were merely adhering to the tenor of the mortgage deeds. From the facts stated earlier, it is clear that the mortgagees at all stages proceeded on the basis that Exhs. A-1 and A-2 were executed for cash consideration, the other steps taken by them being merely incidental18. The last and by far the most important circumstance that appears to have influenced the High Court was the failure of the mortgagees to produce their account books. This circumstance was carefully considered by the District Judge. He held that the adverse inference that could be drawn from that circumstance was rebutted by the other evidence available in the case. It was open to him to do so. His finding on this point is also a finding of fact and by no means a wholly unreasonable finding. The High Court could not have interfered with the same20. This takes us to the various items of consideration said to have passed under Exhs. A-1 and A-2 and the proof thereof. The District Court has held that the entire consideration mentioned in those documents has passed. We have now to see whether its finding in respect of the various items of consideration is supported by legal evidence. The challenge to the payment of consideration trader Exhs. A-1 and A-2 made by the petitioning creditor includes a challenge to the passing of the various items of consideration said to have passed.Ordinarily the burden of proving that a document impeached under Section 53 of the Act is not supported by consideration is on the party who challenges its validity. That is so because the party who stands by the document can take advantage of the admission made by the insolvent in the document in question. But in this case the mortgagees themselves do not stand by the recitals in the documents as regards the manner in which consideration was paid. Therefore it is for them to prove the passing of consideration. Hence we have to see how far they have succeeded in proving the sameThe receipt of the aforementioned sums is entered in the day book and ledger of the insolvents. The relevant entries amount to an admission on the part of the insolvents of having received the amounts mentioned therein. We have earlier considered the authenticity of those account books. The evidence of the mortgagees as regards the payment of consideration is strongly corroborated by the entries in the insolvents account books. It was open to the learned District Judge to rely on them. Hence his finding as regards the validity of the mortgage under Exh. A-2 must be held to be final23. The receipts of the various sums mentioned above excepting the sum of Rs. 4,500 said to have been paid on 6th November 1950, are entered in the day book and the ledger of the insolvents. Hence to that extent the finding of the learned District Judge is unassailable. So far as the payment of Rs. 4,500 said to have been made on November 6, 1950 is concerned no corresponding entry in the day book or the ledger had been proved. This important circumstance was not noticed by the learned District Judge. He proceeded on the basis that the account entries support the payment of that item as well. The evidence of Ayyappa Naicker as regards that payment is necessarily interested. The only other evidence on that point is that of P. W. 2, the Registrar who registered Exhs. A-1 and A-2. He is a relation of the insolvents. He did not endorse that payment in Exh. A-1, though he knew that he was required to do so under the rules. We are also surprised how he could have remembered that fact after several year. Had the learned District Judges attention been drawn to the fact that there is no documentary evidence in proof of the payment of that item it is highly doubtful whether he would have held in favour of the mortgagees as regards the payment of that item. After going through the evidence bearing on the point we are not satisfied that the payment of that amount is satisfactorily proved.