Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 9
PETITIONER:
MALINI AYYAPPA NAICKER (NOW DEAD) THROUGH L.R. ETC. ETC.
Vs.
RESPONDENT:
SETH MANGHRAJ UDHAVDAS FIRM BY MANAGING PARTNER CHATHURBHUJ
DATE OF JUDGMENT:
13/02/1969
BENCH:
HEGDE, K.S.
BENCH:
HEGDE, K.S.
SIKRI, S.M.
BACHAWAT, R.S.
CITATION:
1969 AIR 1344 1969 SCR (3) 698
1969 SCC (1) 688
ACT:
Provincial Insolvency Act, 1920, s. 75(1), first
proviso--Power of High Court to satisfy itself that an
appeal was decided by the District Court "according to law"-
Scope of.
HEADNOTE:
The petitioning creditor in an insolvency proceeding sought
annullment of two mortgages, one for Rs. 15,000/- in favour
of the appellant in C.A. 845 and another for Rs. 10,000/- in
favour the appellant in C.A. 846. The mortgages were dated
November 4, 1950 and were registered on November 6, 1950.
The insolvency Court held that the- mortgages were not
supported by consideration and were executed with a view to
screening some of the properties of the insolvents ’from
their creditors. It therefore, annulled the mortgages under
section 53 of the Provincial Insolvency Act. The District
Judge, in appeal, reversed the findings of the trial court
but the High Court, acting under the first proviso of
section 75(1) of the Act, set aside the judgment of the
District Judge and restored that of the Insolvency Court.
in an appeal to this Court by special leave, it was
contended on behalf of the appellants (i) that the High
Court while acting under the first proviso of section 75(1)
to satisfy itself "that an order made in any appeal decided
by the District Court was according to law" had no power to
disturb the findings of fact reached by the appellate court;
the jurisdiction of the High Court is a very limited one and
not more than that conferred on it by sub-section 100(1)
C.P.C.; and (ii) that the conclusions of the High Court were
unsustainable on the evidence on record.
HELD: (i) The legislature did not confer on the High
Court ’under the first proviso to s. 75(1) of the Act an
appellate power nor did it confer on if a jurisdiction to
reappreciate 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 reexamine both questions
of law and fact it would have conveyed its intention by
appropriate words as has been done under various other
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 9
statutes. A wrong decision on facts by a competent court is
also a decision according to law. [701 D]
A decision being "contrary to law" as provided in s.
100(1)(a) of the Code of Civil Procedure is not the same
thing as a decision being not "according to law" as
prescribed in the first proviso of s. 75(1) of the Act. The
latter expression is wider in ambit than the former. It
is neither desirable not possible to give an exhaustive
definition of the expression "according to law". The power
given to the High Court under the first proviso to s. 75(1)
of the Act is similar to that given to it under s. 25 of the
Provincial Small Causes Courts Act. [701 F]
Bell & Co. Ltd. v. Waman Hemraj, (1938) 40, Bom. L.R. 125;
Hari Shankar v. Rao Girdhari Lai Chowdhury, [1962] 1, supp.
S.C.R. 399;
699
Official Receiver, Kanpur and Anr. v. Abdul Shakur [1965] 1
S.C.R. 254; referred to and explained.
(ii) On the evidence, the findings of the District Court on
the payment of consideration were correct findings of fact
and the High Court could not have interfered with the same.
However, one payment in respect of the mortgage in C.A. 845
was not proved and the mortgage was therefore only valid to
the extent of Rs. 10,5001-.
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 845 and 846
of 1963.
Appeals by special leave from the judgment and order dated
January 17, 1958 of the Madras High Court in Civil Revision
Petitions Nos. 981 and 982 of 1956.
S. V. Gupte and R. Thiagarajan, for the appellants (in
both the appeals).
Naunit Lal, for the respondents Nos. 1(c) and 17 (in C.A.
No. 845 of 1963) and respondents Nos. 1 (c) and 16 (in C.A.
No. 846 of 1963).
The Judgment of the Court was delivered by
Hegde, J. These appeals arise from an 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 Ayyappa
Naicker. The said Srinivasa Naicker is dead and the appeal
is being prosecuted by his legal representatives. Both
those mortgages are dated November 4, 1950 and they were
registered 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 S. 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 S. 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 9
special leave from this Court.
The learned Counsel-for the appellants challenged the
decision of the High Court primarily on two grounds.
According to him
700
the High Court while acting under the 1st proviso to S. 7 5
(1) of the Act had no power to disturb the findings of fact
reached by the appellate court. Next he contended that the
conclusions of the High Court are unsustainable on the
evidence on record. The learned Counsel for the contesting
respondents supported the decision of the High Court.
The two principal questions that arise for decision in these
appeals are (1) was the High Court within its jurisdiction
in interfering with the findings of the learned District
Judge that the impugned transactions are bona fide
transactions and that they were supported by consideration
and (2) are the conclusions reached by the High Court
correct on the facts and circumstances of the case ? It
would be convenient to take up first, the question as to the
scope of the powers of the High Court under the 1st proviso
to S. 75 (1) of the Act. That section reads :
"The debtor, any creditor, the receiver or any
other person aggrieved by a decision come to
or an order made in the exercise of insolvency
jurisdiction by a Court subordinate to a
District Court may appeal to the District
Court, and the order of the District Court
upon such appeal shall be final :
Provided that the High Court, for the purpose
of satisfying itself that an order made in any
appeal decided by the District Court was
according to law, may call for the case and
pass such order with respect thereto as it
thinks fit :
Provided further, that any such person
aggrieved by a decision of the District Court
on appeal from a decision of a subordinate
Court under section 4 may appeal to the High
Court on any of the grounds mentioned in sub-
section (1) of section 100 of the Code of
Civil Procedure, 1908."
According to Shri S. V. Gupte, learned, Counsel for the
appellants the jurisdiction of a High Court under the 1st
proviso to s. 75(1) is a very limited one, the same being
not more than that conferred on it by sub-s. (1) of S. 100
of the Code of Civil Procedure. In support of his
contention he invited our attention to the scheme of S.
75(1) of the Act. He urged’ that sub-s. (1) of S. 75
prescribes that the decision of the District Court in appeal
is final and the finality conferred on the decision of the
District Court is subject to a very limited scrutiny by the
High Court. We were further told that the power conferred
on the High Court under the 1st proviso to S. 75(1) is only
a revisional power, which power in its very nature is
narrower in compass than an appellate pow&. According to
him the power conferred under the 1st proviso to s. 75(1) of
the Act is co-extensive with that
701
given to the High Court under s. 100(1) (a) of the Code ’of
Civil Procedure.
On the other hand Mr. Naunit Lal, learned Counsel for the
respondent urged that the High Court under the 1st proviso
to s. 75(1) of the Act has an extensive power and that power
is very much wider than the power conferred on it under s.
100(1) (a) of the Code of Civil Procedure; the power of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 9
High Court under the 1st proviso to s. 75 (1) of the Act to
call for the case to satisfy itself that the order made by
the District Court was according to law and pass such other
order in respect. thereto as it thinks fit includes within
itself the right to examine whether the District Court had
taken into consideration all the material evidence and
whether it had properly assessed that evidence.
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 s. 75 (1) of the Act an appellate power nor did
it confer on it a jurisdiction to reappreciate 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 reexamine 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 Lai that the power conferred under the 1st
proviso to s. 75 ( 1 ) of the Act enables it to de novo
examine the findings of fact reached by the District Court.
A decision being "contrary to law" as provided in s. 100(1)
(a) of the Code of Civil Procedure is not the same thing as
a decision being not "according to law" as prescribed in the
1st proviso of s. 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 s. 75(1) of the Act is
similar to that given to it under s. 25 of the Provincial
Small Causes Courts Act. Explaining the scope of the latter
provision Beaumont, C.J. (as he then was) in Bell & Co.,
Ltd. v. Waman Hemraj (1) observed:
"The object of s. 25 is to enable the High
Court to see that there 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
(1) [1938]40 Bom. L.R. 125.
L10Sup./69-10
702
interfere in revision, as does s. 115 of the
Code 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 a proper opportunity
of being heard, or the burden of proof has
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 at."
The said statement of the law was accepted as
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 9
correct by this Court in Hari Shankar v. Rao
Girdhari Lal Chowdhury(1). We think the same
applies squarely to the 1st proviso to s. 7 5
(1) of the Act.
In support of his contention Mr. Gupte placed
considerable reliance on the decision of this
Court in Official Receiver, Kanpur and Anr. v.
Abdul Shakur and Ors. (2) wherein this Court
held that the High Court in exercise of its
power under the 1st proviso to s. 75 (1) of
the Act is incompetent to disturb the findings
of fact reached by the District Court and
further the question whether a statutory
presumption was rebutted by the rest of the
evidence on record was also a question of fact
which again was not open to be reviewed by the
High Court. Shah, J. who spoke for the Court
observed thus at p. 259.
"The District Court inferred from the facts
found that the statutory presumption under s.
118 of the Negotiable Instruments Act had been
weakened and the burden which lay upon the
insolvent was discharged and it was not open
to the High Court exercising jurisdiction
under s. 75(1) proviso 1, nor even under
proviso 2 of the Provincial Insolvency Act to
set aside the judgment of the District Court,
for it is well settled that the question
whether a statutory presumption is rebutted by
the rest of the evidence is a question of
fact."
It may be remembered that Shah, J. was also a party to the
decision in Hari Shankar’s, case(2), We see no conflict
between
(1) (1962) 1 Supp. S.C.R. 933.
(2) [1965] 1 S.C.R. 254.
703
the two decisions. The former decision enumerates some of
the circumstances under which the High Court can interfere
while considering whether the decision under review was made
according to law. All that is laid down in Abdul Shakur’s
case(1) is that the High Court is not competent to disturb a
finding of fact reached by the District Court even’ if in
reaching that finding it was required to take into
consideration a statutory presumption.
We shall now proceed to examine the facts of this case bear-
ing in mind the principles set out above.
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), tile 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
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 9
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.
The case of the mortgagees is that when Exh. A-1 and A-2
were executed they were unaware of the fact that the
insolvents had got into financial difficulties by then. The
learned District Judge has accepted this plea and the
learned Judge of the High Court has not come to a contrary
conclusion.
There was no relationship between the insolvents and the
mortgagees. In fact they belong to different communities.
The insolvents are Hindus and the mortgagees are Christians.
They also live at different places. The insolvents were
residing at Sirkali and the mortgagees at Tuticorin, a place
which is at a considerable distance from Sirkali.
According to the mortgagees the circumstances under which
Exh. A-1 and A-2 came to be executed are as follows
(1) [1965] 1 S.C.R. 254.
704
In about the beginning of 1950 Ponnayya Konar approached
Srinivasa Naicker for a loan of Rs. 30,000. Srinivasa
Naicker told him that he and his son-in-law Ayyappa Naicker
together would lend him a sum of Rs. 25,000 on the mortgage
of his properties at Tuticorin. But as they did not have
the entire sum of Rs. 25,000 in their hands at that time, a
sum of Rs. 10,000 was paid to Ponnayya Konar on April 28,
1950 and a promissory note was taken for that amount. (Exh.
A-11). In the beginning of September, 1950 Ponnayya Konar
sent his son Arulappan with the letter (Exh. B-7) to get
some more money. Accordingly another sum of Rs. 5,000 was
paid on September 8, 1950 and the pronote (Exh. A-12) was
taken from Arulappan. They agreed to pay the balance amount
promised to be advanced at the time of the execution of the
mortgage deeds. The mortgage deeds were got written up and
executed on 4th November 1950. Therein it was recited that
they were executed for cash consideration. It was thought
that the mortgagees would be able to pay the balance amount
before the registration of the documents on November 6,
1950. But by that time they were not able to get together
the entire amount that remained to be paid. On the date of
the registration Ayyappa Naicker paid to the mortgagors only
a sum of Rs. 4,500 another sum of Rs. 500 was adjusted
towards the interest due on the sum of Rs. 15,000 previously
advanced in April and September. The remaining sum of Rs.
5,000 was paid in two instalments, a sum of Rs. 1700 through
Amirthan, the 3rd son of Ponnayya Konar on January 7, 1951
and the remaining sum of Rs. 33,00 again through Amirthan on
February 10, 1951.
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-
1 1 and A- 1 2 which were found punched and defaced. Exhs.
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 question.
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 Exh. A-
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 9
11 and A-12 as well as the entries in the account books were
intended to support the claim tinder 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
705
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 mortgages 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 Exh. 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 themselves 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
entries.
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
struck to their case that cash consideration passed under
Exh. A-1 and A-2 and this the Court thought was a
deliberately false plea. 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 consi-
deration 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 incidental.
The last and by far the most important circumstances 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
706
of fact and by no means a wholly unreasonable finding. The
High Court could not have interfered with the same.
From the above discussion it follows that generally
speaking we shall come to the details of consideration
presently-the findings of the District Court as regards the
payment of consideration under Exh. A-1 and A-2 are
findings of facts and they were not open to review by the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 9
High Court.
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 under 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 s. 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 same.
We shall first take up Exh. A-2, the mortgage deed executed
in favour of Srinivasa Naicker. It is said that the
consideration payable under that mortgage was paid in the
following manner:
Rs. 5,000 under promissory note Exh. A-11;
Rs. 1,700 paid in cash on 7-1-1951 and
Rs. 3,300 also paid in cash on 10-2-1951; The receipt of the
aforementioned sums is entered in the day book and edger 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 final.
So far as the consideration for Exh. A-1 is concerned it is
said to have been made up of--
(i) a sum of Rs, 10,000 advanced under Exh. A-11;
707
(ii) Rs. 500 the interest due under Exh. A- 11 and A-12;
and
(iii) Rs. 4,500 paid on 6-11-1950.
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 years. Had the learned District
Judge’s attention been drawn to the fact that there is no
documentary evidence in proof of the payment of that item it
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 9
is highly doubtful whether he would have held in favour of
the mortgagee 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.
In the result Civil Appeal No. 846 of 1963 is allowed and
the judgment and decree of the High Court is set aside and
that of the District Court restored. Civil Appeal No. 845
is allowed in part i.e. the mortgage Exh. A-1 is held to be
valid to the extent of Rs. 10,500 and interest thereon. In
the circumstances of the case we direct the parties to bear
their own costs in all the courts.
R.K.P.S, C.A. 845/63 allowed in part.
C.A. 845/63 allowed in part.
708