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PETITIONER: N.   SUBRAMANIA IYER

       Vs.

RESPONDENT: THE OFFICIAL RECEIVER, QUILON

DATE OF JUDGMENT: 24/05/1957

BENCH: SINHA, BHUVNESHWAR P. BENCH: SINHA, BHUVNESHWAR P. JAGANNADHADAS, B. MENON, P. GOVINDA

CITATION:  1958 AIR    1            1958 SCR  257

ACT: Insolvency-Receiver’s application for annulment of  transfer -Onus-Finding in insolvency Proceeding, if res judicata-Good faith-Test--Travancore  Regulation VIII of 1090  (=1915)  S. 35(iii)-Travancore  General Clauses Act(IIof 1072=1897),  s. 6(2) -Indian General Clauses Act (X of 1897), S. 2(22).

HEADNOTE: An  usufructuary  mortgage  in  favour  of  the  appellant’s predecessor-in-interest  was  sought to be annulled  by  the Official  Receiver as having been executed within two  years of  the adjudication of the mortgagors as insolvents,  under S. 35(iii) of the Travancore Regulation VIII of 1090 (=1915) as  not  having  been entered into in  good  faith  and  for valuable consideration.  By an issue framed in the case  the burden  of  proving  affirmatively  that  the  transfer  was supported  by  good  faith and  valuable  consideration  was thrown  on  the transferee.  There was  also  a  preliminary objection  by  the Receiver that the  usufructuary  mortgage having  been  found  to  be an  act  of  insolvency  in  the insolvency  proceedings,  that  finding  was  res   judicata between  him and the transferee.  The trial judge  found  in favour  of the Receiver.  On appeal by the  transferee,  the High  Court affirmed the order of the trial  judge  allowing the  Receiver’s  application  for annulment  solely  on  the ground that the appellant had failed to prove his bona fides in  the  sense  that he had  entered  into  the  transaction without due care and attention within the meaning of S. 2(6) of the Travancore and Cochin General Clauses Act. Held:     that  the  courts below had erred in  placing  the onus on the transferee and their orders must be set aside. It  is  the settled law in insolvency proceedings  that  the burden  of  proving  that a particular  transaction  is  not supported  by good faith and valuable consideration lies  on the Official Receiver who challenges the transaction. Official  Assignee  v.  Khoo  Saw  Cheow,  (1931)  A.C.  67, Official Receiver v. P.L.K.M.R.M. Chettyar Firm, (1930) L.R. 58  I.A. 115 and Pope v. Official Assignee, Rangoon,  (1933) L.R. 60 I.A. 362, relied on. Held further, that there was no scope for the application of the  principle  of res judicata in the instant case  as  the

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matter  that  directly  arose for determination  in  it  was whether  the impugned transaction was not bona fide  or  for valuable   consideration  so  far  as  the  transferee   was concerned and that was not in issue in the 33 258 insolvency  proceedings, nor had he been found in such  pro- ceedings  to be privy to any act of insolvency  intended  to defeat or delay the creditors. Mahomed  Siddique Yousuf v. official Assignee  of  Calcutta, (1943) L.R. 70 I.A. 93, considered. The  crucial question for decision in such a case  would  be whether the transferee was wanting in bona fides in  respect of  the transfer sought to be annulled and the correct  test would be the one of honesty as laid down by S. 2(22) Of  the Indian  General  Clauses Act and not that of  due  care  and attention  as contemplated by S. 2(6) of the Travancore  and Cochin General Clauses Act.

JUDGMENT: CIVIL APPELLATE JURISDICTION: Civil Appeal No. 165 of 1953. Appeal  by special leave from the judgment and  order  dated October 3, 1950, of the former Travancore Cochin High  Court in A. S. No. 288 of 1120(T) arising out of the judgment  and order  dated the 3rd Thulum 1120 of the 2nd Judge,  District Court,   Quilon in C.M.P. No. 2391 dated 15-8-1103  in  I.P. 3/1100. K.   S. Krishnaswamy Iyengar, Alladi Kuppuswami and M. S. K. Sastri, for the appellant. N.   C. Chatterjee, M. R. Krishna Pillai and Sardar Bahadur, for respondent No. 1. 1957, May 24.  The Judgment of the Court was delivered by SINHA  J.-This appeal by special leave is  directed  against the  concurrent  orders  of the Courts  below  allowing  the Official  Receiver’s application under s. 35  of  Travancore Regulation VIII of 1090 (= 1915), to which we shall refer in the  course of this judgment as the  Insolvency  Regulation, for  annulling  the usufructuary mortgage (Ex.  I)  for  Rs. 75,000  dated  August  18, 1924, executed  by  a  number  of persons  who  may  now  be  conveniently  described  as  the insolvents.   The  main question for determination  in  this appeal   on  behalf  of  the  transferee  is   whether   the transaction  in his favour is within the third exception  to s.  35 aforesaid. (In this judgment we shall use  the  dates with  reference to the Gregorian Calendar equivalent to  the dates maintained under the Malayalam Calendar). 259 In  order to appreciate the arguments in this appeal  it  is necessary  to state the following facts.  Koya Kunju  was  a flourishing  merchant at Quilon carrying on trade  in  piece goods,  yarn, provisions etc.  He died in or about the  year 1921  leaving  him  surviving his widow, two  sons  and  two daughters,  who  jointly carried on the  ancestral  business through  the  eldest son under a power  of  attorney.   They added to the family business a tile factory and an oil mill. In  June-July  1924  the  sons  approached  the  appellant’s father,  who  was a flourishing  money-lender  living  about fifty to sixty miles away from Quilon at a place called Mankompu.  He agreed to advance the sum of Rs. 75,000 on the usufructuary mortgage of certain immovable properties in and near  Quilon  belonging to the family, for  the  purpose  of carrying on their trade and business after his two sons  had made certain enquiries at Quilon about the status and  means

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of the borrowers and whether the transaction would be  worth their while.  After a draft had been made at the instance of the creditor, the mortgage bond and a lease deed granting  a lease   of  the  mortgaged  properties  to  the   mortgagors themselves  bearing the same date, namely, August 18,  1924, were executed and registered by the heirs aforesaid.said  of Koya  Kunju.   The  purpose of the loan  is  stated  in  the document  to  be the family necessity, namely,  carrying  on trade  etc.  In lieu of interest on the Rs. 75,000  advanced at  the  rate of nine per cent. per annum for  a  period  of three  years  the mortgaged properties,  namely,  buildings, fields  and  coconut orchards etc., were said to  have  been delivered  to the mortgagee who in his turn granted a  lease back to the mortgagors on payment of a stated sum by way  of annual  rents,  viz., Rs. 6,750, equivalent to  interest  at nine  per cent. on the principal sum advanced.  It was  also stipulated in the lease deed that if rent was in arrears for two years, the lessees would surrender the properties to the lessor and accrued arrears of rent also would be a charge on those  properties.  It is common ground that  the  mortgaged properties were unencumbered at the date of the transaction, but  soon  after a hypothecation deed in favour of  a  third party named Kadir Moideen 260 Rowther was executed on August 30, 1924, for the sum of  Rs. 78,859-15-0,  hypothecating  the  equity  of  redemption  in respect  of  the properties mortgaged to the  appellant  and certain  other  properties.   The  second  bond  which  will hereinafter be called the hypothecation bond, to distinguish it  from  the usufructuary mortgage bond  in  question,  was admittedly  executed to liquidate the outstanding debts  due to the hypothecatee himself in respect of dealings in cloth, yarn and iron goods between the parties to that transaction. It  appears that those two parties were having  dealings  in those commodities from about the year 1911.  Hence they were very  well known to each other on account of their  business dealings,   whereas   the  mortgagee  in  respect   of   the usufructuary  mortgage  bond  in  question  was  a  complete stranger to the family of the mortgagors.  On September  15, 1924,  one  of the business creditors of the family  of  the mortgagors,S.  M.   Sheikh   Mohideen   Rowther,   made   an application in the District Court of Quilon for adjudicating them as   insolvents.  He implement the mortgagors, the five heirs  aforesaid  of  Koya  Kunju.   Amongst  the  acts   of insolvency  were  mentioned  the  transactions  between  the insolvents  and  the appellant and  the  hypothecation  bond aforesaid.   In his affidavit in answer, the  first  counter petitioner for himself and as agent of the other members  of the  family  admitted their joint trading business  and  the debts incurred by his firm.  He also admitted the debts  due under  the  usufructuary mortgage bond in question  and  the hypothecation  bond aforesaid and ended by saying  that  the debts of the counter petitioners including the debts covered by the said usufructuary mortgage bond and the hypothecation bond  amounted  to two and a half lakhs of rupees  and  that their assets were worth not less than seven lakhs of rupees. He denied that they had committed any acts of insolvency  or had  done  anything to delay or defeat their  creditors  and expressed  their  readiness  to pay the  debts  due  to  the petitioning creditor.  A number of other creditors also made similar  applications  for adjudicating  the  mortgagors  as insolvents.  All those proceedings appear to have been 261 consolidated  and  the District Judge by  his  orders  dated August   29,   1927,  adjudged   the   counter   petitioners

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insolvents.  About the contents and effect of this order  of adjudication  something  more will have to be  said  in  the course  of  this  judgment  while  dealing  with  the   most important question of law raised by the learned counsel  for the  Official  Receiver.  By his orders  dated  October  19, 1924, the District Judge appointed the Official Receiver  as the   interim  receiver  in  respect  of   the   insolvent’s properties  to  take  immediate  possession  thereof.    The interim  receiver, Sri V. N. Narayana Pillai, made a  report to  the court on February 11, 1925, stating inter alia  that the total yield of the properties mortgaged to the appellant could  be  estimated  at Rs. 1,600 per  year  and  that  the insolvents  were not prepared to continue in  possession  of the mortgaged property at a rent of Rs. 6,750 as  stipulated in  the  lease  deed aforesaid;  and  that,  therefore,  the mortgaged  property  was  not expected to  fetch  an  income equivalent  to  nine  per  cent. on  the  mortgage  bond  as stipulated.   The  rent having fallen in  arrears  over  two years,   the  mortgagee  instituted  a  suit   against   the mortgagors,  impleading  the  Official  Receiver  also   for recovery  of  arrears  of rent with interest,  as  also  for recovery_ of possession of the mortgaged property ; and  the suit  appears  to have been decreed for the  reliefs  prayed for.   Since  then  the mortgagee appears to  have  been  in direct possession of the property.  It does not appear  that in that suit any question as to the want of consideration or of bona fides of the mortgage bond was raised either by  the mortgagors themselves or by the Official Receiver. It  was on March 28, 1928, that the Official  Receiver  made his application to the court praying "that the court may  be pleased  to declare the transfers described in  schedule  A, void as against your petitioner".  Schedule A comprised  the usufructuary mortgage bond aforesaid and the lease deed,  as also  the  hypothecation bond for Rs.  78,859-15-0.   It  is remarkable  that no allegations of fact bearing on the  bona fides  of the transactions impeached are made in respect  of the mortgage bond in question.  After stating the insolvency 262 proceedings  and the fact of the execution of the  deeds  in schedule  A  and that the insolvency petition on  which  the order  of  adjudication was passed had been filed  in  court within  two  years  after the dates of  transfer,  the  only relevant  statement made in the petition is para. 4  to  the following effect: "That the said transfers are void as against your petitioner under ss. 35 and 36 of the Insolvency Regulation." This  petition of the Official Receiver was opposed  by  the mortgagee’s  son, N. Krishna Iyer, on his father’s  behalf,’ chiefly  on  the ground that the mortgage was  a  bona  fide transaction   for  valuable  consideration  which  was   not affected  by  the Insolvency Regulation, that  there  was  a misjoinder  of  parties  and causes  of  action,  apparently objecting  to  the  Receiver filing  a  single  petition  in respect   of  the  usufructuary  mortgage  deed  arid.   the hypothecation bond; and that it was barred by limitation and estoppel.  A number of issues were raised on July 24,  1929, the  most  important of them being the first  issue  to  the following effect : " Whether the otti and lease deeds impeached by the Receiver were  executed in good faith and for valuable  consideration ?" Other  issues  related to the formal issues in  bar  of  the proceedings.. Before the learned District Judge (Mrs.   Anna Chandy) a preliminary objection was raised on behalf of  the Receiver  to the effect that in view of the decision of  the

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Judicial Committee of the Privy Council in Mahomed  Siddique Yousuf v. Official Assignee of Calcutta (1), the matter  was res   judicata  between  the  parties  and  the   order   of adjudication  could be questioned only by an appeal  against it, which had not been done.  The learned Judge gave  effect to that objection and held that the transferee was precluded from  agitating the matter and that his only remedy  was  by way of appeal against the order of adjudication.  This point has been very prominently raised by the learned counsel  for the  respondent, the Official Receiver, at the forefront  of his arguments and will (1)  (1943) L. R. 70 I. A. 93. 263 have  to  be dealt with at the proper  place.   The  learned Judge  held  on  the merits that Ex.   I,  the  usufructuary mortgage bond, was not for the full consideration stated  in the  deed  but  that only Rs. 20,000 had been  paid  to  the mortgagors  and  that in any event the transaction  did  not represent  a bona fide transfer.  As the hypothecation  bond is  not  the subject matter of this appeal, it  is  no  more necessary to follow the course of the proceedings in respect of   that  transaction.   The  Receiver’s  application   was therefore allowed, both on the ground of incompetency of the transferee  to challenge the adjudication order and  on  the finding  that it was a "fraudulent transfer".  On appeal  by the  mortgagee,  the learned Judges of the High  Court  dis- agreed  with the trial Judge and held that the  decision  in Mahomed  Siddique YOUSUF’s case (1) could not stand  in  the way  of the appellant and that the entire  consideration  of Rs.  75,000  had  been  proved to  have  been  paid  to  the mortgagors  but agreed with the trial Judge in holding  that the transaction was not made in good faith in the sense that it  had not been entered into with due care  and  attention. In  the  result the appeal was  dismissed.   The  transferee prayed for a certificate of fitness to appeal to this Court, but the High Court refused that application.  The  appellant then moved this Court and obtained special leave to appeal. A  number of points were raised on behalf of  the  appellant and at the threshold of the arguments it was contended,  and in  our opinion rightly, that the courts below had erred  in throwing   the   burden  on  the   transferee   of   proving affirmatively  that the transaction impeached,  namely,  the usufructuary  mortgage  bond  dated  August  18,  1924,  was supported  by  good faith and valuable  consideration.   The Judicial Committee of the Privy Council laid it down in  the case of Official Assignee v. Khoo Saw Cheow (2), that upon a true construction of the Bankruptcy Ordinance of the Straits Settlements, s. 50, sub-s. (3), which in terms is similar to the  provisions of s. 35 of the Insolvency  Regulation,  the onus  is  upon  the  Official  Assignee  to  prove  that   a conveyance which he was seeking to set aside was not made in good faith and for valuable consideration.  In (1) (1943) L.R. 70 I.A. 93. (2) [1931] A. C. 67. 264 that  case the trial Judge had ruled that the onus of  proof lay  upon the transferee and had set aside  the  transaction upon  failure of proof led by the transferee.  On appeal  it was held that the trial Judge had misdirected himself as  to the onus and that as the result of the misdirection was very serious in that it had coloured the whole outlook as to  the facts and had substantially prejudiced the appellant’s  case a  retrial  was necessary.  The Privy Council  affirmed  the decision  of  the Appeal Court and  dismissed  the  Official Assignee’s  appeal, the respondent-transferee not  appearing

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before  the  Judicial  Committee.   In  the  same  year  the Judicial  Committee followed the aforesaid precedent in  the case of Official Receiver v. P.L.K.M.R.M. Chettyar Firm (1), which was a case under the Provincial Insolvency Act,  1920. On  a  consideration of the provisions of s. 53 of  the  Act their Lordships reaffirmed the proposition laid down in  the earlier case of that very year reported in Official Assignee v.  Khoo. Saw Cheow(2).  Their Lordships examined the  terms of  s.  53  and s. 50 of Ordinance No.  44  of  the  Straits Settlements dealt with in that previous decision and came to the  conclusion that they were in substance the  same.   The third  decision of their Lordships of the Privy  Council  to the  same effect is reported in Pope v.  Official  Assignee, Rangoon (3).  This case went up in appeal from a decision of the Rangoon High Court under the provisions of s. 55 of  the Presidency  Towns  Insolvency  Act.   In  this  case   their Lordships observed further that if the transaction impeached was a real and not fictitious one, the receiver could not be said  to have brought the case within the section unless  he proved  that  the transferee knew that  the  transferor  was insolvent at the time the transfer was made, even though the transfer was of the entire assets of the transferor.   These three decisions of the Judicial Committee settled the law in this  country  contrary to what had been  the  consensus  of judicial  opinion  previously, that the  initial  burden  of proving that the transaction impeached had not been made (1)  (1930) L. R.58 1. A. 115. (2)  [1931] A.C. 67. (3) (1933) L.R. 60 I.A. 362, 265 in  good  faith and for valuable consideration lies  on  the party  seeking  to set aside the transaction.   The  learned counsel  for  the  respondent was not  able  to  adduce  any reasons to the contrary and it must therefore be taken  that it is settled law in insolvency proceedings that the  burden of  proof  lies  on the Official Assignee  or  Receiver  who challenges  the  transaction.   In  this  case,  as  already pointed  out, the issue framed in terms laid the  burden  of proof on the transferee, the appellant.  He led the evidence recording  of  which  began on November 21,  1930,  and  the evidence  of his witnesses, C. P. Ws.  1 to 7  was  recorded between  November  21,  1930  and  November  20,  1932,   on different dates.  C. P. W. 8, one of the insolvents, appears to  have  been  examined  in  the  interest  of  the  second mortgagee,  that is to say, in support of the  hypothecation bond.  He was crossed on behalf of the petitioning creditor, as also of the appellant.  He was examined and crossexamined in February and March 1933.  It was then for the first  time that  it was alleged on behalf of the mortgagors  that  only Rs.  20,000 out of Rs. 75,000 secured under the mortgage  in question  had actually been paid and that the remaining  Rs. 55,000  had  so far remained unpaid.  More will have  to  be said about this aspect of the case later.  C. P. W. 10,  one of  the other mortgagors was examined on the same  lines  as his  brother, C.P.W. 8. C.P.W. 12 is the younger brother  of S.K.  Kadir Moideen Rowther, the second mortgagee,  who  had taken the hypothecation bond.  He was examined on October 9, 1935.   Curiously enough, nothing appears to  have  happened until  the first Official Receiver, V. N.  Narayana  Pillai, aged  64  years,  was  examined as  C.P.W.  13  on  November 29,1943.    It  was  he  who  had  started   the   annulment proceedings  in  respect of the mortgage bond  in  question. His evidence and conduct of the proceedings will have to  be dealt  with  presently.  We have pointed out  the  extremely dilatory  way  in which the proceedings  in  the  Insolvency

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Court  were conducted.  The annulment proceedings  commenced in  1928 and were determined by the Court of first  instance by its orders dated October 19, 1944, 34 For  a  period  of more than  sixteen  years  the  annulment proceedings  were kept hanging.  For whose benefit  it  does not  appear.   We  would fain believe  that  this  extremely dilatory  way  of  dealing  with  litigation  involving  the business  community  is  not a habit in  that  part  of  the country and that the present case is only an exception.   On appeal the High Court has noticed the delay but without  any apparent disapproval.  We have not been able to discover any reasons,  valid or otherwise, for this callous disregard  of public time and litigants’ interest. Realising that the annulment proceedings had taken a dubious course on an issue wrongly throwing the onus of proof on the transferee,  the learned counsel for the Receiver sought  to support  the  order annulling the encumbrance on  the  short ground that the matter was res judicata between the Receiver and the incumbrancer on the authority of the decision of the Privy  Council  in  Mahomed  Siddique  Yousuf  v.   Official Assignee  of  Calcutta  (1).  That was an  appeal  from  the Calcutta  High Court in a case arising under the  Presidency Towns  Insolvency  Act,  III  of 1909.   In  that  case  the Judicial  Committee, following the well established rule  in England as laid down in the leading case of Ex parte Learoyd In  re Foulds (2), has held that the order  of  adjudication based  on  the allegation that one of the  several  acts  of insolvency was the impugned transfer was conclusive  against the  transferee  in  subsequent  proceedings  taken  by  the Official Assignee to set aside the transfer by virtue of  s. 116,  sub-s.  (2) of the Presidency  Towns  Insolvency  Act, 1909.   Their  Lordships have pointed out in the  course  of their  judgment that the provisions of the Presidency  Towns Insolvency  Act  then before their Lordships were  in  terms similar  to  those of the Bankruptcy Act of 1869  which  had been repeated in the subsequent Acts of 1883 and 1914.  They also point out that it is rather anomalous that the decision should adversely affect a party who was not before the court when  the adjudication order was made.  But they  held  that the  words  of the statute and the  requirements  of  public policy in relation to (1) (1943) L.R. 70, I.A. 93. (2) (1878) 10 Ch.  D. 3. 267 adjudication   proceedings  were  enough  to  outweigh   any considerations  of  hardship to individuals.  On  this  view they  affirmed the decision of the Calcutta High  Court  and overruled that of the Madras High Court in Official Assignee of  Madras v. O.R.M.O.R.S. Firm(1).  Naturally  very  strong reliance   was  placed  by  the  learned  counsel  for   the respondent-Receiver on that case.  It was argued that as the order  of  adjudication  dated August  29,  1927,  had  with reference  to the transaction in question,  amongst  others, held  that the debtors had committed acts of  insolvency  by executing  the deed (Ex.  I) with a view to defeat or  delay their creditors, it was no more an open controversy and  the findings  then  recorded  were  conclusive  in  the  present proceedings.   There  are, in  our  opinion,  insurmountable difficulties in the way of the respondents on this aspect of the  case.  It was stated by the petitioning creditors  that the  counter  petitioners  (insolvents)  had  executed   the usufructuary mortgage bond in question and the hypothecation deed  in respect of almost all their properties with a  view to defeat or delay the other creditors.  Issue 5 was  raised

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in these terms: "  Have  the  defendants committed  acts  of  insolvency  as alleged in the petition ? "  and  the finding of the court was that those were  acts  of insolvency   "  with  intent  to  defeat  or   delay   their creditors."  It is said that these findings are  resjudicata between  the Receiver and the appellant.  Even so, there  is no  finding that the transferee was privy to such acts.   It was  not necessary to find at that stage, and it has not  in terms been found, that the transaction impugned in this case was  not bonafide so far as the transferee is  concerned  or without  consideration  matters  which  directly  arise  for determination  in  the annulment proceedings leading  up  to this  appeal.  Hence, even assuming that the rule laid  down by  their  Lordships of the Judicial  Committee  in  Mohomed Siddique  Yousuf  v. Official Assignee of Calculta(2)  in  a case  arising  under the Presidency  Towns  Insolvency  Act, applies  to  a  case  like  the  present  governed  by   the Insolvency Regulation, which follows more closely the (1) (1926) I.L.R. 50 Mad. 541. (2) (1943) L.R. 70 I.A. 93. 268 Provincial  Insolvency  Act  and not  the  Presidency  Towns Insolvency Act, the present controversy is not barred by any finding in the order of adjudication.  In this appeal we are concerned with the bona fides of the transferee.  Nor has it been found that there was no valuable consideration for  the mortgage.   Hence, without pronouncing on the  applicability of the decision aforesaid of the Judicial Committee it  must be held that the question under s. 35 is still open. Having  disposed  of  the preliminary  questions  raised  on behalf  of  the parties, we have now to determine  the  main question in controversy, namely, whether it has been  proved that  the usufructuary mortgage bond dated  August  18,1924, was  not made in good faith and for valuable  consideration. Section 35 of Travancore Regulation VIII of 1090 (= 1915) is in these terms: "Any  transfer  of  property not being(i)  a  transfer  made before, or at, and in consideration of, marriage, (ii)or  a transfer made to, or for, the wife or children  of the   transferor  of  property  that  has  accrued  to   the transferor  in consideration of the marriage or in right  of his wife, (iii)or  a  transfer  made  in  favour  of  a  purchaser  or incumbrancer in good faith and for valuable consideration, shall,  if the transferor is adjudged insolvent  within  two years  after the date of the transfer, be void  against  the receiver, and may be annulled by the Court." This  section  is  equivalent to s.  36  of  the  Provincial Insolvency Act (III of 1907) and to s. 53 of the  Provincial Insolvency  Act (V of 1920), except for the addition of  the second   exception  which  was  apparently  added   in   the Travancore  law  to make it in consonance  with  local  laws relating to devolution of family property, and secondly that the  word  "void" in the last clause of the section  in  the Insolvency  Regulation  and  in  s.  36  of  the  Provincial Insolvency  Act  of 1907 has been changed  into  "voidable". Regulation  VIII  of  1915 aforesaid has  been  replaced  by Travancore 269 Regulation  VIII of 1108 (1932).  Section 53 of  the  latter has taken the place of s. 35 of the former and is exactly in the same terms except for the fact that the word "void"  has been  changed into "voidable", thus bringing the  Regulation of 1932 in line with the Act of 1920.

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It is not necessary for the purposes of this case to go into the  question of whether any legal significance attaches  to the  change  of  the word " void" into  "  voidable  ".  The legislative  history  of the law relating  to  annulment  of transfers  or encumbrances made or created by a  person  who has  since been declared insolvent, indicated  above,  shows that  the law in the united State of Travancore  and  Cochin was  the same as the law in what used to be  called  British India.   The question now is, has the Receiver on  whom  the burden  of  proof lay, as shown above,  been  successful  in discharging  that burden.  It has not been argued before  us by  the  learned counsel for the Receiver  that  the  courts below  were  not  in error in discussing  the  evidence  and deciding  this controversy on the basis that the burden  Jay on  the transferee to prove that the transfer in his  favour was  bona fide and for consideration.  If the burden lay  on the transferee, he would have to show not only that he  paid -some consideration but that he paid valuable  consideration and  that consideration was paid bona fide.  As to  what  is the  legal  import  of  "  bona  fide"  will  be   discussed presently.  But we are in this case proceeding on the law so far settled in this country after the decisions aforesaid of the Privy Council that the burden lies on the Receiver.  The contrary  proposition  has not been pressed upon us  and  we need  not therefore pronounce upon that.  If the burden  lay on  the  Receiver,  in  our  opinion,  his  application  for annulment  can be allowed on proof either that there was  no consideration for the transaction or that the  consideration was  so  inadequate as to raise the presumption of  want  of good faith.  Alternatively, the Receiver may also succeed on showing that though there was valuable consideration for the transaction  impeached, there was want of good faith in  the sense 270 that  the transferee knowing all the circumstances of  the,, transferor who had since been adjudged an insolvent  entered into the transaction with a view to screening the assets  of the  insolvent  from the Receiver in  whom  the  insolvent’s property vests for the benefit of the creditors.  Such  will be  mostly  cases of benami transactions in favour  of  some relative  of the insolvent or a person in whom he  has  full confidence  that he will hold it ultimately for the  benefit of the insolvent or persons in whom he may be interested. Or it  may be that a person finding himself over head and  ears in  debts  wishes to convert his assets into  liquid  assets with the collusion or connivance of the transferee.  In both cases the intention clearly is to shield the assets  against the  claims  of  creditors and in  such  cases,  though  the transfer may have been for consideration, either adequate or otherwise,  but  having  been entered into with  a  view  to defraud  or  delay  the creditors, the  transferor  and  the transferee  sharing  the common intention,  the  transaction must  be  annulled and the assets must be brought  into  the common  hotchpotch  for  the  benefit  of  the   insolvent’s creditors. Though the learned District Judge held that only Rs.  20,000 had  been  paid by the mortgagee to the insolvents  and  Rs. 55,000 out of Rs. 75,000, the stated amount of the  mortgage money,  had remained unpaid, the High Court has  found  that the  entire  consideration  passed.   If  this  finding   is correct,  then  the fact that such a large amount  had  been paid  by the mortgagee would take him a long way to  success in  proving the bona fides of the transaction.  But  it  has been  argued  by  the learned counsel  for  the  respondent- Receiver  that,  finding  is  not  correct.   It  has   been

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strenuously  argued  on behalf of the  respondent  that  the mortgage  bond in question was without  consideration.   The Official Receiver had also filed a memorandum of  objections in the High Court challenging the correctness of the finding by  the  learned  District Judge that Rs. 20,000  had  as  a matter  of  fact been paid to the transferors.   As  on  the question   of  consideration  the  two  courts  below   have materially  differed in their conclusions, the  question  is open 271 before  us.   We  have, therefore, to examine  how  far  the transaction  in  question was  for  valuable  consideration. Before  advancing this large sum of money the  creditor  had deputed  his two advocate sons, C.P. Ws.  1 and 2,  to  make enquiries  into  the  antecedents of  the  persons  who  had applied for the loan and as to whether they were financially sound and otherwise desirable persons to deal with.  The two young men who had just entered upon their legal career  went and  stayed with a relation of theirs who has been  examined as C. P. W. 6, Venkitarama Iyer Ramakrishna Iyer, who was at the  relevant dates posted as Assistant Excise  Commissioner at  Quilon.  This gentleman being interested in the  welfare of the family of the intending lenders, claims to have  made confidential enquiries from respectable merchants at  Quilon and  told  his  two young guests  that  the  borrowers  were persons  of position and good business reputation  and  that they  had ample unencumbered properties on the  security  of which advance up to a lakh of rupees could be made.  The two sons  of the mortgagee having satisfied themselves that  the proposed  mortgagors were persons of good status in  society and sound financial position reported to their father who on the  strength of the reports by his sons agreed to lend  Rs. 75,000  on a first mortgage of properties  reportedly  worth more  than  at least a lakh of rupees.  The  mortgagee  also examined  himself as C.P.W. 7. The father and the  two  sons have given evidence in support of their case that out of the Rs.  75,000 agreed to be advanced on the mortgage when  some of  the mortgagors went with the registered document to  the mortgagee’s  place, Rs. 55,000 was paid in cash to  them  on the  basis of the receipt (Ex.  LIV) dated August 20,  1924. The  remaining  Rs. 20,000, according to the  evidence,  was paid  later.   Those payments were made in  six  instalments between September 1, and September 9, 1924, as evidenced  by receipts (Exs.  LVII and LVIII) and endorsements on letters, Exs.   LIX(a),  LXI(a),  LXIV(a)  and  LXV(a).   All   these payments are also supported by the corresponding entries  in the books of account regularly kept by 272 the  mortgagee and proved in court as Exs.  LXVII  to  LXXII series.   Of the six instalments paid as aforesaid, some  of them  were  paid to the mortgagors’ creditors  and  some  of those creditors have been examined.  C.P.W. 4 admits  having received  Rs.  2,500 and endorsed receipt of the  same,  Ex. LIX(a).   C.P.W. 3 similarly speaks of having  received  Rs. 1,500 and endorsed receipt of the same, Ex.  LXIV(a) and  is corroborated  by  his accountant, C.P.W. 9, who  proves  the ledger and day book, Exs.  LXXX and LXXXI.  Thus we have not only  the  evidence of the mortgagee and his  relations  but also of third parties, creditors of the insolvents,  proving the  passing of consideration.  The case does not rest  only upon   oral   testimony.   It  is  amply   corroborated   by contemporaneous  entries in books of account  maintained  by the  lender himself and by third parties who have been  paid by him on account of the mortgagors.  This considerable body of  oral  and  documentary  evidence  is  supported  by  the

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admissions  of  the  mortgagors, not in  the  mortgage  bond itself  which stand rebutted, but by a series of  admissions of receipt of the entire consideration money in the  several receipts  and endorsements made by some of them.   All  this voluminous  evidence has been very carefully  considered  by the learned Chief Justice at pages 31 to 34 of the  judgment of  the  High Court.  We need not repeat all that  has  been said by the High Court for recording the finding that it was coiistrained  to differ from the conclusions of the  learned District  Judge and to hold that Ex.  I "is fully  supported by  consideration  ".  As  already  indicated,  neither  the mortgagors  themselves  nor the Official Receiver  in  their pleadings   made  out  a  case  that  the  transaction   was unsupported by consideration or that the consideration  paid was  not  full amount shown in the document as  having  been advanced or that a much smaller sum like only Rs. 20,000 had been actually paid.  It has been shown above with  reference to  the dates of the examination of witnesses that C.P.  Ws. 1 to 7 had been examined and their evidence recorded between November  21, 1930, and November 20, 1932.  Until that  date it was not even suggested to those                             273 witnesses in cross-examination that only Rs. 20,000 had been paid  and no more.  For the first time on February 4,  1933, when one of the mortgagors was examined as C.P.W. 8, it  was alleged  that  only  Rs. 20,000 had  been  received  by  the mortgagors,  which  amount  they paid  to  their  creditors. C.P.W.  10,  the second of the mortgagors, was  examined  on June  12,  1933.   He  does  not  in  any  way  improve  the Receiver’s  case  that  the  transaction  was  without  con- sideration.   He does not even say that only Rs. 20,000  out of  the consideration stated in the mortgage bond  had  been received  by  the  mortgagors.  Lastly,  the  then  Receiver himself  was examined as C. P. W. 13 on November  29,  1943. This  gentleman, who is described in the judgments below  as one of the leading advocates, does not appear to have  taken his  duty as a Receiver very seriously.  He does not  appear to have examined the insolvents themselves or their books of account  carefully to find out the exact financial  position of this trading family.  He seems to suggest in his evidence that  at the material dates the Quilon Bank was  functioning and   that   the   insolvents  "did   not   get   additional accommodation  in  the said bank or the  other  hundi  shops during 1099" (1923-24).  These statements, to put it mildly, are disingenuous.  In the first instance, they would suggest that  the insolvents had borrowings from the Quilon Bank  or other hundi shops and secondly that their financial position was  so embarrassed that the said bank or other hundi  shops had refused to give them any further advance of money.  As a matter of fact, it is nobody’s case that the insolvents  had at any time any dealings with the Quilon Bank.  We know from the  evidence that the insolvents owed to the Imperial  Bank anything  between  Rs.  30,000 to,  Rs.  40,000.   Either  a portion  or  the  whole of the dues of the  Bank  have  been liquidated.   The  evidence  is not specific.   One  of  the mortgagors  claims  to have paid a portion of  the  Imperial Bank’s  dues  by  selling ornaments of  the  ladies  of  his family,  thereby directly suggesting that no portion of  the mortgagee’s  money was utilised for payment of the  dues  of the Imperial 35 274 Bank.   The  High  Court  rightly  refused  to  accept   the mortgagors’ belated attempt to prove by their bare testimony that  any  amount out of the consideration of  the  mortgage

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bond  in  question  had  remained  unpaid.   The  Receiver’s evidence was directed mostly to making statements suggesting that  the  mortgagee  had not made such  enquiry  about  the financial  position  and  status  of  the  mortgagors  as  a reasonable  man of business would do.  He has not  made  any definite  statement that the mortgage bond in  question  was without  consideration.   In cross-examination he  has  been constrained  to  admit  that he did  not  remember  to  have examined  the  mortgagor who was in charge of  the  business (first counter petitioner).  He admits that it is usual  for an Official Receiver to examine the insolvent.  He has  said further that he did not consider it necessary to examine the insolvents regarding the subject-matter of the petition  for annulment.  He also admitted that he had not examined any of the accounts to see whether the insolvents had received  the entire  consideration of the mortgage in question, and  that "the  mortgagee  Nilakanta  Iyer is a  very  rich  man.   My information is that the insolvents had no dealings with  him before  the  insolvency." He was also questioned as  to  the insolvents’ dealings with the Imperial Bank and he gave  the very vague answer that he was not sure as to what amount was due  to the bank.  He also admitted that he had  never  seen the mortgagee under Ex. 1, nor bad he asked him anything  in connection  with  the mortgage, and that the  mortgagee  had obtained  a  decree and in execution of the said  decree  he took delivery of the property which was in his possession as Receiver.   According to him, the properties covered by  the usufructuary mortgage bond and the hypothecation bond  would be  worth  about a lakh and a half rupees.   It  would  thus appear from the statements of the Receiver himself as C.P.W. 13 examined about 19 years after the insolvency  proceedings began,  that he had not made such enquiries as he was  bound to make as Official Receiver. From  what  has been said above there cannot  be  the  least doubt that if the burden lay on the Receiver 275 to  prove  that  the transaction  in  question  was  without consideration,  he has hopelessly failed to  discharge  that burden.  We are prepared to go further and say that even  if the burden were on the transferee to show affirmatively that he  had  paid  the  full consideration,  we  would  have  no hesitation  in confirming the findings of the High Court  on this  part  of the case which have been arrived at  after  a very  full  and fair consideration of the  evidence  on  the record,  pro and con, though there is very  little  evidence adduced in support of the allegation that the mortgage  bond in question was without consideration or full consideration. The finding on the question of consideration being  entirely in  favour  of  the  appellant-mortgagee,  the,  only  other serious  question which remains to be considered is  whether the  transaction was bona fide.  We have  already  indicated that  it is settled law not only of the Insolvency  Acts  in England but also in this country that it is not necessary in annulment  proceedings to prove that the transferor who  has been  subsequently  adjudged an insolvent should  have  been honest and straightforward in the matter of the  transaction impeached.   If lie was really so, there would not  be  much difficulty in coming to the conclusion that the  transaction as  a  whole  was bona fide.  Even if  the  mortgagors  were wanting  in  bona fides and assuming that to be  so  in  the present  case,  the  crucial question still  remains  to  be answered.   Unless  it  is found  that  the  transferee  was wanting  in  bona  fides in respect of  the  transaction  in question,  he cannot be affected by the dishonest course  of conduct  of  the  transferor.   Has it  been  shown  by  the

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evidence  on  the record that the mortgagee was a  party  or privy  to the dishonest intentions of the mortgagors  in  so far  as  they  may have intended to defeat  or  delay  their creditors by executing the mortgage bond?  The courts below, and  particularly the High Court, have taken the  view  that the  mortgagee  had failed affirmatively to prove  his  bona fides.  This conclusion is based upon the consideration that the  General Clauses Act (II of 1072)=(1897), in cl. (6)  of s.  2 provides that "Nothing is said to be done or  believed in good faith which is done or believed 276 without due care and attention." Applying this definition of "good faith" to the present case, the High Court came to the conclusion  that  the  mortgagee has  not  proved  that  the mortgage  transaction  was entered into with "due  care  and attention".   The  United  State of  Travancore  and  Cochin Interpretation and General Clauses Act (VII of  1125)=(1950) repeats the same definition which appears to have been taken from  the  definition of the term from  the  Madras  General Clauses Act (1 of 1891).  The definition of "good faith"  in the  Indian  General  Clauses Act (X of 1897)  is  in  these terms: " A thing shall be deemed to be done in good faith where  it is in fact done honestly, whether it is done negligently  or not." The High Court was of the opinion that if the definition  of "good  faith"  contained in the Indian General  Clauses  Act quoted   above  were  to  apply  to  the   case,   different considerations might arise.  But the definition of that term as  quoted above in the Travancore-Cochin Act is  different. Applying  that  definition  to the present  case,  the  High Court’s conclusion was that the appellant-mortgagee had  not shown  due  care  and  attention  while  entering  into  the transaction.    In  this  connection  it  is  necessary   to determine  whether the High Court was right in applying  the test  aforesaid in determining the question of  bona  fides. We have to find which of the two tests, the one laid down in the  General Clauses Act of Travancore-Cochin or  the  other laid  down  in  the  Indian  Act,  is  more  appropriate  to proceedings  in insolvency.  Act 11 of 1070 (1897), even  as Act  VII  of  1125 (1950),  contains  the  following  saving clause- "Unless  there  be  something repugnant in  the  subject  or context."  As  a  matter of fact, these words  or  words  to similar effect are to be found in all General Clauses  Acts. The  question, therefore, naturally arises whether there  is anything  in  the  subject  or  context  of  the  Insolvency Regulation  which is repugnant to the idea of  applying  the test of due care and attention.  The law of insolvency  aims at a just and equal distribution of the assets of a  person, who has suffered loss 277 in  trade  or business or otherwise, amongst  his  creditors whose  debts  are  provable under the law;  and  provides  a machinery  for  expeditious disposal of his  assets  amongst those  entitled.   The  law is  calculated  to  advance  the interest  of  the business community.  On the one  hand,  it protects the creditors by compelling the insolvent to  place all  his  assets  at  the  disposal  of  the  court  without concealing  any  of his assets.  Similarly it  protects  the interests of an honest alienee or an honest secured creditor of the insolvent.  On the other hand, it protects an  honest debtor   from   harassment  by  creditors   who   may   take simultaneous proceedings for realization of their debts from their common debtor even by sending him to civil prison.  It

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is necessary for the promotion of trade and commerce that an honest  debtor  should  be released  from  his  multifarious obligations  as soon as his assets have been placed  at  the disposal of the court for the benefit of his creditors.   It also  lays down penal provisions for punishing  a  dishonest debtor.  It also makes provisions for saving the debtor  and his  creditors from the unscrupulous conduct of persons  who may have entered into unconscionable bargains with a  person who is financially involved.  The law of insolvency is aimed against  a  dishonest debtor but not necessarily  against  a debtor  who has suffered loss in his trade or business as  a result of transactions which may not have been done with due care and attention.  Business sometimes is an adventure  and very  often involves risks which cannot be  easily  foreseen even  by persons of common prudence.  Annulment  proceedings are  aimed at transactions between a debtor who  has  become insolvent and a creditor who, knowing the true state of  the debtor’s crashing business, has taken undue advantage of the embarrassed  financial position of the debtor.  In  view  of these considerations, in our opinion, the test of honesty is more  appropriate than the test of due care  and  attention. It  may  be added that a General Clauses Act is  enacted  in order to shorten language used in parliamentary  legislation and  to avoid repetition of the same words in the course  of the same piece of legislation.  Such an Act is not meant  to give 278 a   hide-bound  meaning  to  terms  and  phrases   generally occurring  in  legislation.   That is  the  reason  why  the definition  section  contains words like  "Unless  there  is anything  repugnant  in the subject or context."  Words  and phrases  have  either a very narrow significance or  a  very wide  significance according as the context and  subject  of the legislation requires the one or the other meaning to  be attached to those words or phrases.  The books contain  many illustrations showing that the same words have been used  in different  senses in different contexts.   The  significance attaching   to  the  expression  "  good  faith  "  in   the Travancore  Cochin General Clauses Act is, in terms  of  the definition  of that phrase in the Indian Penal Code  and  in the  Indian Limitation Act.  The Indian General Clauses  Act applies  to all legislation after the coming into effect  of that  Act.   The definition of "good faith"  in  the  Indian General Clauses Act would have been applicable to the Indian Limitation  Act also but the legislature in its  wisdom  has given a special definition of "good faith "  different  from the  one in- the Indian General Clauses Act advisedly.   The Indian Penal Code which came into existence earlier than the Indian  General Clauses Act contains its own definitions  to serve  its  own  special  purposes.   The  Travancore-Cochin General  Clauses Act, 1950, of course, applies by virtue  of s.2  to  all enactments then in force or  passed  after  the commencement of the Act unless there was anything  repugnant in the subject or context.  Hence it cannot be said that the definition  of  " good faith " as contained in  the  General Clauses  Act of 1950 must apply in the same sense  to  every piece  of legislation to which it may apply irrespective  of the subject or the context.  The Insolvency Regulation is on the  same  lines  as  the  Provincial  Insolvency  Act   and therefore must be understood in the same sense.  If that  is the  correct approach to the law of in-solvency,  a  secured creditor  who has advanced money to a debtor honestly,  even though he may not have taken all due precautions, would  not come  within the mischief of s. 35.  It must, therefore,  be held  that  the test of good faith as laid down in  the  law

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generally applicable to Indian 279 Statutes  is  more  appropriate  to  proceedings  under  the insolvency law.  That being so it must also be held that the courts below have approached the question of bona fides from a wrong standpoint and have applied a wrong test. Having come to the conclusion that honesty is the test to be applied in judging the bona fides of the creditor, a secured creditor  in  this  case,  we have to see  how  far  he  has satisfied  that  test.   In this connection  it  has  to  be remembered  that it is common ground that the mortgagee  had absolutely  nothing  to do with the  mortgagors  before  the mortgage  transaction  was  concluded.  There  is  no  blood relationship  or any other kind of relationship which  could be  urged  as  the  motive for  entering  into  a  dishonest transaction in the sense that the creditor had joined  hands with  the  debtors  in screening the  property  against  the claims  of  the  latters’ creditors.  It  may  be  that  the debtors were financially involved; but there is no  evidence on  the record even to suggest that the mortgagee was  aware or  apprised of their true financial position.  We  have  no doubt  in  our  mind that if the  mortgagee  had  the  least suspicion that he would have to face a prolonged  litigation to  realise his money from the debtors, he would  have  been the  last person to enter into the transaction in  question. He was certainly interested in earning good interest on  his capital.   But that is not the same thing as saying that  he had  entered  into a dishonest deal with  persons  who  were about  to  crash in their business.  It is  also  noteworthy that  the  insolvent’s ancestor had died  only  about  three years  before  the  transaction in  question.   During  this period  of three years they had added to their  business  by having  a  file factory and an oil mill.  That  is  not  the conduct  of  a family which was about to crash.  It  may  be that  they were much too ambitious to become  rich  quickly. But  it  has  not  been suggested or  found  that  they  had indulged  in  unscrupulous  dealings in  the  way  of  their business.   At least that was not their reputation at  about the   time  the  mortgage  transaction  was  entered   into. Otherwise  C.P.W. 6, the Assistant Commissioner  of  Excise, the mortgagee’s 280 relation, would certainly not have advised them, being their well wisher, to enter into a hazardous transaction.  We have not  been shown any evidence which could lead us to  believe that  the insolvents’ reputation at that time in the way  of their   trade   and  business  was   anything   but   sound, notwithstanding  the ipse dixits of the receiver,  the  last witness,  examined  19  years  after  the  proceedings   had started.   It is very easy to be wise after the event.   But there  were no indications until August 1924, so far as  the mortgagee is concerned, that he was dealing with a party who was  about to crash.  Whatever may have been the  intentions or the course of conduct of the insolvents, there is nothing to  attribute  that intention or course of  conduct  to  the mortgagee.  His evidence, as also of his two sons who helped him  in entering into this transaction, has impressed us  as truthful and straightforward. Assuming  that the courts below were right in  applying  the test  of due care and attention, what is there to show  that the  mortgagee  was  wanting  in that  respect  ?   Being  a complete stranger to the family of the borrowers, he deputed his  young lawyer sons to make such enquiries as they  could from  persons  who  were expected to  know  them  and  their business  dealings and after satisfying themselves that  the

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borrowers  had  a  good  reputation  and  had   unencumbered properties of much greater value than the sum proposed to be advanced,  the mortgage transaction was finalized.  It  must be remembered in this connection that even the test  applied to  a  lender while lending money to the karta  of  a  joint Hindu family does not insist upon the creditor seeing to the application of the funds advanced.  In the instant case  the borrowers  represented  to the creditor that  they  required funds  in the way of their business.  Their enquiry  yielded the  information that they had borrowings to the  extent  of Rs.  30,000  to Rs. 40,000 and  outstanding  claims  against their debtors to a much larger extent.  That is the state of affairs in a normal trading family.  The fact that all their immovable properties worth, according to the Receiver,  more than  a lakh and a half rupees till then  were  unencumbered was another indication of the 281 apparent solvency of the family.  But it has been argued  on behalf  of the respondent that the mortgagee was put on  his enquiry  by  the very fact that the debtors’  account  books disclosed  debts against them.  Therefore, it is  said,  the mortgagee  should have pursued his enquiry further.  It  was suggested that the business houses in the town of Quilon and the  Quilon Bank itself should have been contacted in  order to ascertain the financial position of the debtors.  It  has already been pointed out that they had no business  dealings with that Bank.  The mortgagee’s sons have deposed that they made enquiries of respectable persons named, as also of  two leading  hundi houses which may have been expected  to  know about  the financial position of the borrowers’ family.   It was  further argued that it was not specifically  stated  in the  mortgage  bond itself that the money was  intended  for payment  to  creditors  specifically  named.   Ordinarily  a trading  firm  has  no fixed list of its  creditors  or  its debtors.   It is always a floating list.  Hence when it  was said  that money was being borrowed with a view to  carrying on   the   business  of  the  trading   family,   that   was comprehensive enough to include the necessity of paying  the outstanding  debts  of  the firm.   Unless  the  lender  had reasons  to  suspect  that the money was  not  intended  for carrying on the business of the firm but was meant to corner the same with a view to defeating or delaying creditors,  it would  not ordinarily be the look-out of the lender  dealing at  arm’s length to try to pry into the business secrets  of the  borrower.   In  our  opinion,  therefore,  it  was  not necessary for the lender either to insist upon a list of the borrower’s  creditors  to be specifically mentioned  in  the deed  or upon paying the money directly to those  creditors. That  would  be  throwing too great a  burden  on  a  lender honestly  dealing  with  a trading family and  it  would  be equally  an irksome thing for a trading family to  be  dealt with on those terms.  It cannot, therefore, be said that the lender had not shown such care and attention as a reasonable person in those circumstances would do.  The learned counsel for the respondent further pointed out certain discrepancies in the statements in the 36 282 mortgage  deed  and  in the oral  evidence  adduced  by  the mortgagee as pointing to the conclusion that the lender  had not  been careful and cautious and was therefore wanting  in good  faith.   Those are very  speculative  arguments  which cannot be the foundation for a finding that the Receiver had succeeded  in disproving good faith.  In this connection  it was also pointed out that there was no satisfactory evidence

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as  to how the lender raised Rs. 55,000 which he  paid  soon after  the  registered mortgage bond was delivered  to  him. There  is evidence in the shape of an entry in the  passbook in  the name of the mortgagee issued by a respectable  hundi shop in Alleppey, Ex.  LXVI (a), showing that Rs. 40,000 was withdrawn  by him on August 19, 1924, just the day  previous to the date of payment of Rs. 55,000.  It is the mortgagee’s case  that he paid the sum of Rs. 55,000 to  the  mortgagors with  the amount of Rs. 40,000 thus withdrawn to  which  was added Rs. 15,000 which he had with him already.  There is no reason  to  doubt the truth of this version which  has  been accepted  by  the High Court.  It must, therefore,  be  held that  the evidence adduced by the mortgagee apart  from  the question  of  burden of proof has affirmatively  proved  the passing of consideration for the mortgage and that there are no circumstances which could throw any suspicion on the bona fides of the transaction. It had been argued on behalf of the appellant that his  case had been seriously prejudiced by the joint trial, so to say, of  the  issue  relating to his  transaction  with  the  one relating  to the hypothecation bond dated August  30,  1924. It  was also argued that the mortgage bond in  question  had been executed and registered and given effect to beyond  two years from the date of adjudication and that therefore  this transaction  could not be brought within the mischief of  s. 35 of the Insolvency Regulation.  In view of our findings on the  other  and more direct and important issues it  is  not necessary  to pronounce upon these additional grounds  urged on behalf of the appellant. In view of our findings on the main issues in the case,  the appeal must be allowed, the judgments and 283 orders  of  the  courts  below  annulling  the  usufructuary mortgage bond in question set aside and the transaction held binding  on the estate of the insolvents.  It  follows  that the  lease back to the mortgagors being a part of  the  same transaction  is  equally  binding  on  the  estate  of   the insolvents.    The  appellant  is  entitled  to  his   costs throughout,  to come out of the estate in the hands  of  the Official Receiver who must pay his own costs. Appeal allowed.