Desai v Official Receiver (C.A. 32/1932.) [1932] EACA 51 (1 January 1932)

# COURT OF APPEAL FOR EASTERN AFRICA.

# Before SIR JACOB BARTH, C. J. (Kenya), SIR JOSEPH SHERIDAN, C. J. (Tanganyika), and LAW, Acting C. J. (Uganda).

### KHANDUBHAI DESAI (Appellant) (Original) ${\tt GULABRAI}$ $Respondent)$

$\eta_1$

#### OFFICIAL RECEIVER as Trustee of the Estate of Kassamali Bankrupt $(Respondent)$ $(Original)$ Rahemtulla Nathoo, a Applicant). $\Box$

### C. A. $32/1932$ .

Bankruptey Ordinance, 1930, Section 46—Intention of debtor · in making a transfer to give a preference-Threats of criminal prosecution—Effect on mind of debtor—Threats not made genuinely—Transfer deemed fraudulent.

Held (31-12-32): - That the mere threat of taking criminal proceedings (where, to the knowledge of the debtor and the person making the threat, no crime has been committed) does not constitute<br> "pressure" so as to negative the provision contained in section<br> 46 of the Bankruptcy Ordinance, 1930, that the intention of the<br> debtor in making a transfer wa made under such circumstances, where the other provisions of<br>section 46 have been fulfilled, will be deemed to be fraudulent.

Mangat for Appellant.

Schwartze for Respondent.

The Official Receiver filed an application for an Order declaring the transfer of chattels and book debts and payment of Sh. 3.000 by the bankrupt to G. K. Desai (the appellant) void as against the Official Receiver, and that the said G. K. Desai be ordered to hand over to the Official Receiver the said chattels and to re-assign the book debts or their value and to refund the sum of money paid.

The Bankruptcy Petition was filed on 20th November, 1931, and a Receiving Order made the following day. The Order for summary administration was made on 31st December, 1931.

It was alleged by the Official Receiver, inter alia, in support of the application that on or about 6th October, 1931, the debtor assigned and transferred to the appellant the goods, book debts and money the subject of the application. The application alleged that the transfer and payment were fraudulent and gave an undue preference to the present appellant.

In joining issue by affidavit, Desai (appellant), admitted taking possession of the assets assigned or made over to him, but denied that the transaction was fraudulent or an undue preference, and alleged that such transaction was entered into between him and the debtor owing to pressure brought to bear by him upon the debtor and in pursuance of an agreement made on 1st January, 1930.

The trial Judge held that the transfer of chattels and book debts by the bankrupt to Desai, and the payment of Sh. 3,000, were void as against the Official Receiver, and he ordered the said Desai to hand over the chattels, to re-assign the book debts or their value and to refund the sum of Sh. 3,000 all to the Official Receiver and to pay the costs of the application. From that Order the present appeal arose.

Mangat relied on the effective threat of prosecution. There was no proof of motive or intention to prefer the debtor. Bills and another v. Charles Smith (1865), 34 L. J., Q. B. 68, at 70 and 72; Bulteel and another v. Trustee in re Parker, 32 T. L. R. 661. There was evidence before the trial Judge as to the pressure brought to bear on the debtor, and there was no fraud.

Schwartze submitted that fraud is not necessarily an ingredient in a fraudulent preference. The money which had been lent by appellant to the bankrupt was lent prior to 1st January, 1930. Referred to Manilal v. Bank of Bengal, 1 Allahabad 309.

SIR JACOB BARTH, C. J.—This is an appeal from a judgment of the Supreme Court of Kenya setting aside a payment of Sh. 3,000 to the appellant by Kassamali Rahemtulla as a fraudulent preference, and also on the same ground to set aside a chattels mortgage given to the appellant by Kasamali Rahemtulla and dated 6th October, 1931.

Kassamali Rahemtulla filed his petition in bankruptcy on 20th November, 1931, and a Receiving Order was made on 21st November, 1931. An Order for summary administration of the estate was made on 31st December, 1931.

It was attempted to support the alleged preference in the lower Court by alleging that pressure was brought to bear on the debtor, who at the time of the payment and the delivery of the chattels mortgage is alleged to have been solvent. The pressure was, it is stated, a threat by the appellant, who seems to have become very exigent, to prosecute the debtor if he would not give a bill of sale.

The learned trial Judge has carefully analysed the facts, and has in the absence of any evidence from the debtor as to the effect on his mind of the alleged threats by the appellant to prosecute, in my opinion rightly come to the conclusion that no reasonable man would be affected by the statements which were alleged to have been made.

The fact of the appellant's eagerness to get security or cash or both, coupled with the knowledge which he admitted that the debtor was borrowing at a high rate of interest, points to the appellant being aware of the debtor's unsound financial position.

The learned trial Judge had the advantage of sceing and hearing the witnesses and the impression left on his mind is that the whole case for the appellant was an ingeniously concocted story. I am not disposed to differ from that opinion. The appellant is a law clerk of some eighteen years experience, who must have known that on the facts there was no foundation for his alleged threat to take criminal proceedings, and as the learned trial Judge has pointed out a mere threat to take criminal proceedings has no terror to a man who has committed no crime.

The learned trial Judge has in my judgment properly applied the well-settled principles of law relating to the subject.

The letter of 1st January, 1930, from the debtor to the appellant discloses no consideration for the promise.

The appeal should in my view be dismissed with costs.

SIR JOSEPH SHERIDAN, C. J.—The question left for decision in this appeal is whether the debtor made a fraudulent preference in favour of his creditor, the appellant, within the meaning of section 46 of the Bankruptcy Ordinance. The debtor was not called to give evidence as to what induced him to execute an instrument of chattel mortgage as well as make a payment of Sh. 3,000 to the appellant on the 6th October, 1931. The debtor filed his petition on the 20th November, 1931, and a Receiving Order was made on the 21st November, 1931. The appellant, in his evidence said: "I got money by pressure. The sole reason for giving the bill of sale was that he was frightened at the possibility of being sent to prison." The learned trial Judge carefully analysed the evidence with a view to ascertaining what the dominant or substantial motive of the debtor was in executing the instrument and making the payment in favour of the appellant, and came to the conclusion that there was no such evidence of pressure as would, having regard to the authorities take the case out of section 46, supra. I agree with the judgment of the Supreme Court, and would dismiss the appeal with costs.

LAW, Ag. C. J.-In this case the Official Receiver applied for an Order declaring the transfer of certain chattels and book debts by the bankrupt, Kassamali R. Nathoo, to appellant, under an instrument dated the 6th October, 1931, and also a payment of Sh. 3.000 by the bankrupt to the appellant, to be void, as fraudulent preferences, as against the Official Receiver, and that the appellant should return those chattels, re-assign the book debts. and refund the Sh. 3,000 to the Official Receiver. The application is governed by the provisions of section 46. Bankruptev Ordinance, 1930. In effect, this section enacts that every such transaction made by any person unable to pay his debts, as they became due, in favour of any creditor, with a view of giving such creditor a preference over the other creditors, shall, if so made within three months from the date on which a bankruptcy petition is presented (on which petition such person is adjudged bankrupt) be deemed fraudulent and void as against the trustee in bankruptcy. The transfer and payment are not denied. It is also admitted that the transaction took place within the statutory period. The learned trial Judge held that the onus of proving a prima facie case under the section lay on the Official Receiver, which he had discharged in as much as he had shown that the debtor knew, at the time in question, that his financial position was one of insolvency and that he was parting with the bulk of his property. The evidence certainly justifies that finding. The circumstances of the transaction are, of course, a question of fact, and the principal matter for consideration is whether the debtor's dominant motive was to prefer the appellant or to obtain some advantage for himself, as declared in the case of Ex parte Deacon, 1913, 2 K. B., p. 80, which was considered by the learned Judge. It was incumbent on the appellant to satisfy the Court as to the debtor's motive. He gave evidence himself, but called no witnesses. It was urged for respondent that appellant should have called the debtor to give evidence. In my view this is correct; the debtor is presumably the person who could give the Court the best information on the subject. It is observed from the evidence that appellant went to the office of one Jamal Pirbhai, on the 30th September, when they discussed the financial condition of the debtor which they agreed was not good. At the end of October, at a meeting of creditors, the debtor consented to do his best to have the transaction of the 6th October cancelled if the creditors generally would agree to a composition. The appellant admits that the debtor retained possession of his goods, which were the subject matter of the bill of sale in question, and that a large portion thereof was sold to the debtor's brother, Mohamedali Rehemtulla, a young man of only twenty years of age, who employs the debtor though the latter used to employ him. The appellant relies on Exhibit 3 as a prior agreement, effect to which was given by the bill of sale. In view of the case of Manna Lal v. The Bank of Bengal, 1876, L. L. R., 1 Allahabad, page 309, there being no consideration, Exhibit 3 cannot avail him. The appellant has also attempted to show that the debtor acted under pressure by him of criminal proceedings. There is no substance in this suggestion, to my mind, and I agree with the reason given by the learned Judge in this connexion. It has been urged on behalf of appellant that his bona fides can be tested by consideration of the fact that he had only to finance the debtor for the statutory period, so as to ensure the debtor's petition being postponed accordingly, and thus protect himself under the transfer. To accept such an argument would be to leave out of consideration. the possibility of any creditor petitioning for the debtor's adjudication within that period.

Upon a full consideration of the circumstances of the case I have no doubt that the conclusions arrived at by the learned Judge were correct. I would therefore dismiss the appeal with $costs.$

$\alpha$

$\mathcal{L}^{\mathcal{A}}\left(\mathcal{L}^{\mathcal{A}}\right)$

f-j-

$\mathcal{A} \in \mathcal{A}$