Cohen v Hussein and Others (Civil Appeal No. 52 of 1955) [1950] EACA 161 (1 January 1950)

## H. M. COURT OF APPEAL FOR EASTERN AFRICA

Before SINCLAIR (Vice-President), BRIGGS and BACON, Justices of Appeal

ELLIAHOO MANSOOR COHEN, Appellant (Original Plaintiff)

## (1) SYED ALI ABDULLA EL-SAFFI & BROS., (2) MUNAWAR SHARIF MOHAMED HUSSEIN, (3) ABDO MUTALEB SHERIF MOHAMED HUSSEIN, Respondents (Original Defendants)

## Civil Appeal No. 52 of 1955

(Appeal from the decision of H. M. Supreme Court of Aden, Campbell, J.)

Transfer of land—Conspiracy to defeat claims of creditors—Whether transactions void or voidable—Aden Civil Courts Ordinance, section 91 (b)—Aden Civil Courts Rules, rule 442; Aden Evidence Ordinance, section 10—Aden Transfer of Property Ordinance, sections 6 (2) (i) and (ii) and 53—Law of Property Act. 1925. section 172—Aden Interpretation and General Clauses Ordinance. section 41—Indian Transfer of Property Act, section 6 (h) and 23—Aden Contract Ordinance, section 25—Indian Contract Act, sections 17 and 23— Aden Documents Registration Ordinance, section 9 (1) $(b)$ —Aden Specific Relief Ordinance, section 38 (1) and (2)—Indian Specific Relief Act. section 39.

The appellant had issued proceedings against the second and third respondents for money lent and at the same time applied for attachment of certain shares of land inherited by them from their father who had died shortly before. He believed they were attempting to dispose of their shares but did not know to whom and, the Court holding that his affidavit disclosed insufficient proof of the necessary facts, dismissed his application. Later in the same month, the appellant saw in the Stamp Office a transfer of these shares to the first respondents and again applied for attachment before judgment but the affidavit in support was hurriedly drawn and again did not set out the full facts and his application was again dismissed. He subsequently obtained judgment for the amounts claimed but after execution proceedings had been completed there still remained a sum in excess of Sh. 20,000 due to him. He then instituted these proceedings alleging that the transfer of shares of land was made in pursuance of a conspiracy to defraud him and defeat the ends of justice by preventing him from obtaining satisfaction of his decree and asked that the transaction be declared null and void. The trial Judge found that fraud had been proved against the transferors but that the evidence was not strong enough to establish fraud against the transferees and dismissed the suit.

Held (2-5-56).—On a review of the evidence it appeared that the trial Judge had left out of account or had treated incorrectly certain matters which should have swayed the balance and that the transferees were active parties to the conspiracy and accordingly the trans-<br>action was not merely voidable but void and therefore a nullity.

Appeal allowed.

Cases referred to: Radhika Mohan Gope v. Hari Basha Saha, A. I. R. 1933, Cal. 812; Saling P. Marchand v. Gallinka Monan Sope v. Hurt Basina Statia, R. I. N. 1953, Cal. 612, Ishrar v. Devar, (1903) 27 Bom. 146; Abdul Hye v. Mir Mohamed Mozaffar Hosein, 11 I. A. 10; Amarchand v. Gokul, 5 Bom. L. R. 14

Chanan Singh and Sanghain for appellant.

Ali for respondent No. 1.

Respondents Nos. 2 and 3 absent, unrepresented.

BRIGGS, J. A.—One Sharif Mohamed Hassan Rifay died in Aden on 12th November, 1952, leaving certain immovable property, including that in issue in this appeal. His sons, the second and third respondents, each inherited a one-fifth interest in this property. They were, prior to his death, substantially indebted to the appellant, who is a moneylender. He wisely considered that, if his claims were ever to be met, he had better act quickly, and sued them on 17th November, 1952, in Suit No. 494 of 1952, in which he later obtained a decree for Sh. 24,071. On the same day he made an application for attachment before judgment of their shares in the land, but he failed to meet the somewhat strict requirements of section 91 (b) of the Civil Courts Ordinance and rule 442 of the Civil Courts Rules and his application was dismissed, the Court holding that his affidavit was insufficient proof of the necessary facts. I should say here that in this judgment I am referring to the new reprint of the Aden laws in all cases, though that reprint was not in force at the material times. At that time the appellant believed that the second and third respondents were attempting to dispose of the land with a view to defeating his claim, but he did not know to whom. The second and third respondents were duly served and filed their defence on 24th November. On 27th November the appellant saw in the Stamp Office a transfer deed of the shares of land of the second and third respondents in favour of the first respondent firm. Stamping in Aden must precede execution. That deed was executed and registered later in the same day. Meanwhile, the appellant made a second application for attachment before judgment. Not unnaturally, the affidavit was hurriedly drawn and it did not set out all the known facts. The learned Judge said: -

"The affidavit supporting the application is hopelessly defective. It rests upon a bare statement that the defendant intends to do something. No particulars as to how that intention is known has been shown.

## Application dismissed."

I think that, if the facts as now known had been properly presented, an order would have been made.

The appellant, having obtained his decree, took execution proceedings against the second and third respondents and realized in all some Sh. 7,500, but over Sh. 20,000 remained due in 1954, and there is no reason to suppose that the judgment-debtors could at any time have met the claim, except by means of the shares of land transferred to the first respondent firm, or the Sh. 30,000 which was the stated consideration for the sale. The appellant then sued the respondents, alleging that the transfer of the shares was made in pursuance of a conspiracy to defraud him and to defeat the ends of justice by preventing him from obtaining satisfaction of his decree. The second respondent admitted the facts alleged. The first and third respondents denied them, and the suit went for trial. The only relief asked for was a declaration that the transfer was null and voil and that in consequence the shares were liable to attachment and sale under the appellant's decree. An alternative claim for damages might have made matters much easier. The learned trial Judge had no hesitation in finding fraud against the transferors, but found that the evidence was not sufficient to establish fraud in the transferees. He therefore dismissed the suit. The appellant appealed to this Court.

,

I find myself obliged to differ from the learned Judge on the facts, and it will be convenient to deal with this issue first. I endorse the learned Judge's view that in order to succeed the plaintiff was bound to prove fraud in the first respondent firm, and to prove it with precision, but I think he did so. There were a number of circumstances which the learned Judge rightly regarded as most suspicious, and there was some direct evidence which, if accepted, would have been conclusive, but which the learned Judge, though he did not expressly reject it, felt to be of less good quality than is required for proof of an allegation of fraud. He therefore found that the onus was not discharged. I think, however, that he left out of account, or treated incorrectly, three matters which should have swayed the balance.

First, there was evidence that at the critical period the second and third respondents, and one Syed Ali Abdulla, a partner in the first respondent firm, had gone together to consult Mr. Taraporewalla, an advocate, about defending the appellant's claim, and that Syed Ali Abdulla had paid him a fee of Sh. 2,000. Mr. Taraporewalla was not called. Clearly the plaintiff could not effectively call him, since he would have been obliged to claim privilege. The second and third respondents offered no evidence; but Syed Ali Abdulla for the first respondents gave evidence and called witnesses and could easily have called Mr. Taraporewalla to prove, if it was the case, as he himself said, that he had never instructed Mr. Taraporewalla jointly with the second and third respondents or paid the alleged fee. I think the learned Judge could and should have drawn an inference adverse to the first respondent firm from their failure to call Mr. Taraporewalla. The judgment reads: —

"There is the evidence that Mr. Taraporewalla at one time was consulted by all three defendants at about the material time, and had his evidence been available no doubt it would have settled the matter. Unfortunately, however, he was not called."

This rather suggests that the learned Judge thought the appellant should have called the witness, and in any event it was an inadequate approach to the point.

Secondly, it was proved that in addition to acknowledging receipt of the full purchase price before execution in the transfer deed itself, the second and third respondents gave the first respondents a separate receipt dated 27th November, for the whole purchase price of Sh. 30,000. In fact, however, this sum was not paid at that time. The first respondents claimed at the trial to have paid the whole amount by various instalments at later dates and produced certain accounts and receipts of a rather unsatisfactory kind, but it is by no means certain that anything like the whole consideration named has yet been paid, and the learned trial Judge, although he noted that payment was made by instalments, in itself a matter of suspicion, entirely omitted to consider the receipt for Sh. 30,000, or the motive with which it was given. It is difficult to imagine any innocent motive which could have brought into being this false document.

Thirdly, the learned Judge failed to consider section 10 of the Evidence Ordinance. There was certainly, in this case, sufficient prima facie evidence of a conspiracy to bring that section into operation, and the learned trial Judge should under its terms have had regard to the effect of the statements in the defence of the second respondent as admissable evidence tending to show that the first respondent firm was a party to the conspiracy. It is not necessary to set them out in detail. If true, they were conclusive.

Although an appellate Court must hesitate to find fraud where the trial Court has found it not proved. I think these were misdirections which require us to review the finding. I have no hesitation in finding that the appellant proved with a sufficient degree of certainty the existence of the conspiracy he alleged, and that the first respondents by their partner Syed Ali Abdulla were active parties to it. It remains to consider various legal issues which arise.

It was submitted as a preliminary point in the Court below that the appellant's suit was brought under section 53 of the Transfer of Property Ordinance (Cap. 154) and that, since it was not brought as a representative action "onbehalf of, or for the benefit of, all the creditors" it should be dismissed as irregular. The learned trial Judge dismissed this objection. Whether or not this

action is rightly brought or soundly based. I think it is clear that it is not an action based on section 53. It does not alleged an intention to defeat or delay the creditors (plural) of the transferors, but only a conspiracy directed against the appellant. The question whether there are other creditors was never investigated. Again, there was no application to set aside a voidable transfer, but a prayer for a declaration that the transfer was null and void. The suit might not lie, but it could not be defeated by suggesting that it was brought within the terms of section 53 and failed to comply with those terms. On the other hand, I cannot altogether agree with the learned trial Judge that it was a case similar to Radhika Mohan Gope v. Hari Basha Saha, A. I. R., (1933) Cal. 812. In that case the plaintiff was the purchaser of land at an execution sale. Ten years after the sale the first defendant claimed registration as owner of the land by virtue of a purchase antecedent to the sale in execution, from the second defendant, who was alleged to have received the property as a gift from her husband, the judgment-debtor. It was held that the suit, though it "proceeded on the principle enunciated in section 53 of the Transfer of Property Act", was not a suit brought under that section. This, no doubt, is correct; but the plaintiff there claimed as a proprietor obstructed by a prior void or voidable transaction. I do not think this case is really similar.

In England cases of this nature are normally brought under section 172 of the Law of Property Act, 1925, which re-enacts the provisions of 13 Eliz, I c.5. It is said that the statute of Elizabeth merely declared the common law, and it may be that this is so. I should be loath to say that section 172 of the Law of Property Act, 1925, was "of general application" so as to become part of the law of Aden by virtue of section 41 of the Interpretation and General Clauses Ordinance (Cap. 83). I think that section 53 of the Transfer of Property Ordinance (Cap. 154) precludes that view. It is necessary to discover on what basis the appellant's action was brought, and I confess to having had some difficulty in this. I think the key to the situation is section 6 $(2)$ (i) (ii) of the Transfer of Property Ordinance, the relevant part of which reads: -

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"No transfer can be made ... for an unlawful object ... within the meaning of section 25 of the Contract Ordinance."

This is an exact reproduction of part of section 6 $(h)$ of the Indian Transfer of Property Act, but the relevant section of the Contract Act there is section 23. The current section 6 $(h)$ dates from an amendment made in 1900, but somewhat similar words applied earlier. Section 25 of the Contract Ordinance (Cap. 30) provides that the object of an agreement is unlawful if it is "forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law... or is... opposed to public policy within the principles of the Common Law of England". It should be noted that these provisions depart materially from those of the Indian section 23, which provide inter alia that the object is unlawful if it is "fraudulent". That provision may have been omitted in Aden because it has been narrowly construed in India by reference to section 17 of the Indian Act, a construction leading to inconvenience.

I am of opinion that a conspiracy to defeat the just claim of a creditor and thereby to pervert the course of justice must be "of such a nature that, if permitted, it would defeat the provisions" of the laws in force relating to the administration of justice generally. Those laws are not confined to written laws, but include the common law. I think also that such a conspiracy must be "opposed to public policy within the principles of the Common Law of England". The Indian Courts have taken a cautious, and perhaps narrow, view of the principles of public policy, but they recognize that intereference with the course of justice was within the English common law rule, though that rule may not now apply with full force in India. See Pollock and Mulla 5th ed. 175.

I think that on these grounds it can be said that the transfer deed was under section 6 of the Transfer of Property Ordinance void, that is, a nullity from its inception, and never operated to transfer title to the first respondents. An interesting discussion of the differences between transactions void under section 6 and those voidable under section 53 of the Indian Transfer of Property Act may be. found in *Chitaley and Annaji Rao* on the Transfer of Property Act, 3rd ed. 757, and is worth quoting in full.

"The following illustrations will bring out the distinction between this section and section 23. Contract Act:-

1. A is heavily indebted. He has some immovable property which he is anxious to save from his creditors. With this view, he consults B. B agrees to help him to put the property beyond the reach of his creditors. With this object, they enter into an arrangement. Under this arrangement, A transfers the property to B for a consideration which A is to dispose of secretly so as to put it out of the reach of his creditors. Such a transaction will come under section 23, Contract Act. The reason is that in such a case, the transfer is based on an agreement the object of which is fraudulent and is therefore unlawful within the meaning of section 23, Contract Act. In such a case, the transfer will be wholly void and not merely voidable at the option of the creditors of the transferor. In other words, the transaction will not be binding even as between the parties to it. As for the transferor's creditors they can ignore the transaction altogether and proceed against the property as if it had not been attempted to be transferred at all. It may also be noted here that under section 6 $(h)$ of this Act, no transfer can be made for an unlawful object or consideration within the meaning of section 23, Contract Act. This section does not apply to such cases.

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2. A transfers to $B$ for a consideration a certain immovable property with the intention of defeating his creditors, B knows A's intention and takes the transfer with such knowledge. But A has not communicated his object to B and such object has not become part of the subject-matter of the agreement between the parties which is purely confined to the transaction of transfer. In such a case, section 23, Contract Act, will not apply. Because, the section will only apply where the 'agreement between the parties' includes an unlawful object. The mere fact that one of the parties to the agreement is actuated by an unlawful intention and that the other party is aware of this will not make the object of the 'agreement' an unlawful one.

In such a case, this section will apply. Under this section it is not necessary that the parties must have 'agreed' as to the unlawful object. It is enough if the transfer is made with the intention of defeating or delaying creditors and the transferee is not acting in good faith. If he is aware that the transfer is being made with the intention of defrauding creditors, he cannot be said to be acting in good faith. Such a transaction, however, will not be 'void' under this section. It will be binding as between the parties to it. It will be only 'voidable' at the option of the "creditors' of the transferor."

I have underlined certain phrases of this passage which I would adopt as going, in my view, to the root of the matter. I think it is of central importance that, if my view of the facts is correct, these shares of land remained in law and in fact the property of the second and third respondent. I do not overlook the effect of registration of the document, which was compulsory under section 9 (1) (b) of the Documents Registration Ordinance (Cap. 49). It may, however, be

possible for us, under section 38 (2) of the Specific Relief Ordinance (Cap. 140) to order that the registered copy of the document be noted as cancelled.

Section 38 is adopted from section 39 of the Indian Specific Relief Act, and it appears from *Pollock and Mulla*, 5th ed. 908, that an instrument may be void "against" persons other than the parties to it. In particular, creditors whose rights may be defeated by the instrument may have it cancelled. See Ishrar v. Devar, (1903) 27 Bom. 146.

On these principles it would appear that this suit was maintainable, but I wish to do justice to a number of other interesting arguments which were addressed to us.

Mr. Chanan Singh, for the appellant, argued that, although the statute of Elizabeth I was in force only in the Presidency towns, before the enactment of the Transfer of Property Act the Courts of the Mofussil allowed a similar form of action, and such an action will still lie "by analogy with section 53" in parts of India where the Act is not in force. I think it is more correct to say that the action, where not brought under the section, is based on the principles of "justice, equity and good conscience" (Abdul Hye v. Mir Mohamed Mozaffar Hosein, 11 I. A. 10), or on "principles of equity which are of universal application" (Chitaley and Annaji Rao, 3rd ed. 757). Mr. Chanan Singh submitted that in cases under, or by analogy with, section 53, the onus on the plaintiff is merely to establish a fraudulent intention in the transferor and thereafter it is for the transferee to show good faith and consideration. He cited Amarchand v. Gokul, 5 Bom. L. R. 142, and Rambilas Sitaram v. Ganpatrao Pandharinath, A. I. R. 1954, Nagpur 129, 131. I would accept this as regards suits within section 53, but I am not satisfied that in Aden any suit could be brought "by analogy with" the section, and I think the special rule as to onus has no relevance to this case. To show a void, as opposed to a voidable, transfer it is necessary to establish active fraud in all the parties and the onus of proving this is always on the plaintiff.

Mr. Ali for the first respondents argued that either this was a suit under section 53 in which case it was irregular as not being brought as a representative action, (B. D. Patel v. Dunbhai, 16 Bom. 1, Reese River Silver Mining Co. v. Atwell, L. R. 7 Eq. 347) or alternatively it was a form of suit unknown to the law and not maintainable. He argued also, on the authority of Hakim Lal v. Moosharar Sahu, 34 Cal. 999, 1006, that even if the transferee is aware that the effect of the transfer will probably be to impede creditors the transfer may still be unimpeachable. The learned Judges were there asked, but declined, to go further and say that, even if the transferee intended actively to assist in defeating creditors, the transfer, if intended to operate as such and not a mere sham, would be protected. For this view there was a good deal of old authority notably Rajan Harji v. Ardeshir, 4 Bom. 70, 75) but the cases in point were decided before the passing of the Transfer of Property Act in 1882 and are, I think, if not wrongly decided, at least no longer law. Much turns on the intention of the transferors as regards the purchase price received. If it is known to the transferee that they intend to conceal it and put it beyond reach of their creditors, the transaction cannot stand. That was undoubtedly the position in the present case. Mr. Ali cited also Chutterput Singh v. Maharaj Bahadoor, 31 I. A. 1, 15, Madina Bibi v. Ismail, 63 Mad. 808, and Gregg v. Holland, (1902) 2 Ch. 360, but these do not appear to me to carry the matter any further. I think the only other authority which requires notice is a case, to which I have, unfortunately, been unable to refer, noted in the 1946 Yearly Digest of Indian Decisions, column 710, as follows:-

"Section 53—Applicability—Suit by creditor under Order 21, rule 63, C. P. Code, to set aside claim order—Allegation that transfer was with intent to defeat other creditors as well as plaintiff-If makes suit fall under section 53, T. P. Act.

Section 53 T. P. Act, does not refer to transactions which are void from the beginning, because they are sham and bogus, but refers to transfers which are voidable under the terms of the section. The mere fact that the plaintiff in a suit under Order 21, rule 63, C. P. Code, to remove the bar imposed by the decision of the execution Court, states that the impugned transfer was made for the purpose of deceiving and putting to loss not only the plaintiff but other creditors and for defeating the claims of not only the plaintiff but of other creditors, does not necessarily make the suit one under section 53, T. P. Act (Davis, C. J., and Thadani, J. J.), Bhojraj v. Verharam, I. L. R., (1946) Kar. $98 = 221$ I. C. $626 = 1946$ Sind (Rul.) $29 = A. I. R., 1946$ Sind 78."

This seems to confirm the view which I have expressed above, that there is an essential difference between void and voidable transactions, both as regards the form of action which may be necessary and as regards the basis of relief. As regards voidable transactions of this kind, I think it probable that the only remedy in Aden is a suit under section 53: but if the transaction is wholly void I think a suit by one creditor for his own benefit based on the tort of conspiracy will lie. I think the plaintiff in such a suit must prove actual damage and would always be well advised to claim damages as an alternative remedy. But the Court has wide power to make declarations where necessary and I think a declaration may be a perfectly appropriate remedy in an action for the tort of conspiracy. See 19 Hailsham 212, section 511, et seqq. Directions as to cancellation of registration would then be purely ancillary. I think it possible that the case can also be put in another way, that section 38 of the Specific Relief Ordinance does not merely provide an additional remedy in certain cases, but creates a specific right of action under the equitable jurisdiction of the Court in a case such as this.

I would allow the appeal, set aside the judgment and decree of the Supreme Court, make a declaration as prayed in the plaint that the transaction was null and void as against the plaintiff, order under section 38 (2) of the Specific Relief Ordinance (Cap. 140) that the registered copy of the instrument be marked as cancelled, and under section 38 (1) that the original be delivered up to the appellant, enjoin the second and third respondents against any dealing with, or attempt to dispose of, the shares in question, and order that the respondents do pay the appellant's costs here and below. I would remark that any attachment which may be made with the assistance of this Order will confer no separate or individual rights on the appellant. Rateable distribution will apply as usual, and in this sense the appellant's proceedings may enure for the benefit of all creditors.

SINCLAIR, Vice-President.—I agree.

BACON, J. A.—I also agree.