P L D 1967 Karachi 307 (PLP)

Date 6f hearing: 30th March 1965. Present application has been filed by the Official Assignee of this Court under section 7 read with section 55 of the Insolvency Act (Act III of 1909) with a prayer to declare the transfer of house by K. B. Ghulam Akbar Khan (insolvent) to the opponent (Ferozud din) by an agreement of sale dated 21‑8‑61 coupled with delivery of possession of this property by the said insolvent "is void against the Official Assignee" and further that vacant possession of the aforesaid property be passed to the Official Assignee by the opponent "with further direction for payment of rent at the rate of Rs. 1,000 per month from 1‑9‑1961 till delivery of vacant possession". Ferozuddin while opposing this request has contended that he had purchased the property in good faith and with valuable consideration. A reference to relevant facts appears necessary in order to appreciate the points involved in this matter. One creditor had approached this Court (Insolvency Case No. 7/61) for adjudication of K. B. Ghulam Akbar Khan (insolvent) on 10‑11‑1961 and one of the acts of insolvency alleged was that his car had been attached in the execution of, one decree against him on 21‑9‑

61. This Court by an order dated 12‑2‑62 (Exh. 3/7) granted the application and K. B. Ghulam Akbar was adjudicated insolvent. Exh. 3/8 is the list of his creditors and it shows the amount of heavy debts that he had to pay. He owned a plot of land with buildings thereon bearing No. 206/K Block No. 2 PECH, Karachi measuring 1,200 sq. yds. He had raised construction on it in 1957 and according to the insolvent himself it had cost him Rs. 90,

000. It was leased out for three years from 6‑2‑1955 to 5‑2‑60 (sic) at a monthly rent of Rs. 1,000 and thereafter he kept this property in his possession till 31‑8‑

61. He had mortgaged this property on 26‑12‑57 by a registered deed of mortgage in the sum of Rs. 50,000 to Shikarpur Zamindar Co‑operative Bank Ltd. He was also indebted to Sind Provincial Co‑operative Bank Ltd., Karachi and Sind Mercantile Co‑operative Bank Ltd., Hyderabad. These two Banks had obtained awards against the insolvent under the provisions of the Co‑operative Societies Act and in execution thereof through the City Deputy Collector, Karachi, "the above‑mentioned property of the insolvent was attached and advertised for sale on 16‑8‑61 but the sale was postponed". It is further alleged that opponent had attended this auction and thereafter he entered into agreement Exh. 3/9 on 21‑8‑61 for Rs. 90,

000. It shows that a sum of Rs. 9,000 was paid to the insolvent by way of earnest money and further sum of Rs. 31,000 on 1‑9‑61 "when the insolvent was handed over vacant possession of the aforesaid property to the opponent to be used and occupied by him free of rent and the balance of Rs. 50,000 to be paid on the insolvent's conveying the said property to the opponent free from any mortgage or lien and on his obtaining income‑tax clearance certificate and the registered sale- deed. Exh. 3/10 dated 21‑8‑61 and 3/11 dated 1‑9‑61 are the two receipts executed by the insolvent for the sums of Rs. 9,000 and 31,000 as stated above. Possession of this house was handed over to the opponent when he paid Rs. 31,000 on 1‑9‑

61. He continues to remain in occupation of this house till today. According to the Official Assignee the value of this house at the time of this transaction was about Rs. 1,50,000 and it was capable "of being let out on a monthly rent of Rs. 1,000". He .has further added that insolvent and opponent had collusively and fraudulently "in order to deprive the creditors of their claims (sic) was made in haste for grossly inadequate consideration at the time when the insolvent was not able to discharge his debts". Ferozuddin (opponent) has shown his ignorance of the debts of the insolvent. He has also denied to have attended the auction which was fixed for 16‑8‑

61. According to him he has purchased this house in good faith and for valuable consideration. Both the parties have adduced oral and documentary evidence in support of their versions. All transfers made by an insolvent within 2 years before his insolvency are void under section 55 of the Insolvency Act (Act III of 1909) against the Official Assignee or receiver except antenuptial settlement and transfers in favour of purchasers in good faith and for valuable consideration. Thus the burden of proof lies upon the Official Assignee to prove in addition that such transaction took place within 2 years before the insolvency, that this transaction is not in good faith and for valuable consideration. This view has been expressed by various High Courts reported in the following cases Official Assignee v. Subala Dasi (A I R 1936 Rang. 98), Harry Pope v. Official Assignee, Rangoon (A I R 1934 P C 3), N. Subramania Iyer v. Official Receiver (A I R 1958 S C 1), Mating Hmoot v. Official Receiver, Mandalay. (A I R 1937 Rang. 276), Mt. Majidunnisa Bibi v. Babu Puran Chander Roy, Official Receiver (A I R 1941 All. 316). It was further held in this case that an inadequate consideration may be evidence of want of good faith which may by itself be sufficient for setting aside the transfer. Valuable consideration is defined in a case reported in P. K. Banerji, Official Liquidator, Cawnpore v. Mangal Prasad (A I R 1932 All. 243) and it means "money or money's worth and valuable means real as distinguished from a consideration that is merely illusory or nominal; but not necessarily meaning equivalent. The considera tion would be valuable if it is not so small as to be negligible when the value of the property is to be taken into account." Good faith is not defined in this Act. An act which if it is done with due care and attention would amount to good faith. Absence of good faith mans simple carelessness or negligence. According to General Clauses Act it means "an act shall be deemed to be done in good faith where it is in fact done honestly whether it is done negligently or not." Having explained the legal aspect of the matter I will now refer to the evidence and facts of this particular case. Admitted position is that K. B. Ghulam Akber Khan was adjudged incident by an order Exh. 3/7 dated 12‑3‑62 List of creditors Exh. 3, 8 shows that he was heavily indebted and to several persons. There is also no dispute about the fact that he had entered into this agreement of transaction of sale of his house by Exh. 3/9 on 21‑8‑

61. Thus this transaction had taken place within 2 years of his adjudication as insolvent. Official Assignee has also to prove that this transaction was not in good faith and with valuable consideration. I have, in this respect already referred to the legal position. Burden lies upon him to prove want of good faith and valuable consideration. Evidence of KB Ghulam Akbar Khan Exh. 3 shows that this house was leased out by him at Rs. 1,000 per month from 6‑2‑57 to 5‑2‑60 to ICA at Rs. 1,000 per month. His evidence further shows that he was indebted to Mercantile Co‑operative Bank, Hyderabad and Sind Provincial Co‑operative Bank who had obtained awards against him, and these awards were executed through City Deputy Collector, Karachi and this bungalow was attached. According to him this auction was fixed for 16‑8‑61 and opponent (Ferozuddin) was present. He had further added that "he (opponent) was aware that the bungalow was put to auction by City Deputy Collector. I was heavily indebted at that time." He has further added that this bungalow was worth Rs. 150,000 in those days. He had demanded Rs. 1,30,000 but the bargain was struck at Rs. 90,000 "I sold it for Rs. 90,000 which was much below its actual price, because that was the highest offer‑received by me." He has also admitted that his car had been attached in execution of the decree of District Court, Karachi and further that he had handed over the possession of this bungalow on 1‑9‑61 to the opponent. In his cross‑examina tion he has stated that "the opponent knew about the attachment and auction notices of City Deputy Collector and contracted the City Mukhtlarkar in my company several times. This was in October 1961". On the other hand the opponent Ferozuddin had examined himself, Mr. Mehdi Ali Siddiki, Additional District Judge, Karachi and Muhammad Siddik who was the broker in this transaction. Ferozuddin in his evidence on oath Exh. 5 has shown ignorance about the attachment, etc. I will now refer to one passage in his evidence in order to point out the circumstances which go against him and it reads as follows :‑ "I made inquiry regarding the title deeds of this house and Khan Bahadur Ghulam Akbar had told me that it was with him and he would give it to me. At that time I had not seen this title deed. At that time I had no knowledge that this house was on rent with ICA. I had not inquired from KB Ghulam Akbar about the probable rent of this house. I had taken possession of this house when I paid him a sum of Rs. 31,000 and even then I did not see the title deeds of this house. 1 had not inquired about this title deed at that time". He did not know him prior to this transaction. All these facts show that this transaction was entered into by the opponent not in good faith. Ordinarily no person would purchase a property for such a big amount without referring to its title deeds. It cannot be said that he had entered into this transaction with due diligence or care. Next witness is Mr. Mehdi Ali Siddiki, Additional District Judge, Karachi. His evidence Exh. 6 shows that Ferozuddin (Opponent) was approached by him during the middle of 1961 to purchase his house which in those days was incomplete. It was on a plot of 600 sq. yards. and he was offered Rs. 65,000 in June 1958. Next witness is Muhammad Siddik broker Exh.

7. He has supported the "opponent that Rs, 90,000 is an adequate price of this house. This house is on a plot of 1,200 sq. yds. It was purchased by the opponent for Rs. 90,000 only, though according to Mr. Mehdi Ali Siddiki he was offered Rs. 65,C00 for his incomplete house on a plot measuring only 6C0 sq. yds. This factor strongly supports the Official Assignee that opponent has purchased this house for inadequate consideration. Title deeds were not shown by the insolvent to the opponent. It is also satisfactorily proved that this house was under attachment and lastly that its posses sion was given by the insolvent to the opponent on 1‑9‑

61. Another factor to which I would make a reference is that this house was fixed for auction on 16‑8‑61 but it could not be done and 4 days later agreement Exh. 3/9 was entered into between the parties on 21‑8‑

61. I have also referred to the evidence of the insolvent himself who bad stated on oath in this Court that opponent bad attended this auction. I would also agree with the applicant that all the circumstances and reasons for which this insolvent entered into this transaction with opponent have not been proved but inference could be drawn in favour of the Official Assignee from the various factors referred to above. Several documents have been produced on behalf of the Official Assignee to show that insolvent had approached the City Deputy Collector, Karachi for postpone ment of this auction on various dates. It was further argued on behalf of the Official Assignee that this transaction is in contravention of the terms 1, 2 and 3 of the licence Exh. 4/1 entered into by insolvent with PECH. As a result of all this I allow this application and declare t4is transaction of 1‑9‑61 as void against the Official ; Assignee. I further order the opponent to pay the rent of this house from 1‑9‑61 till today at the rate of Rs. 1,000 per month within one month from today. He is further directed to hand over its possession to the Official Assignee within same period, but he is given option to keep this house at the same rent and he must exercise this option in writing within two weeks from today. He should bear the cost of Official Assignee for this application." S. Q. Application allowed.