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Present: Schneider a&d Jayewardene JJ.
Ordinance No. 14 of 1843—Crown debts—Sequestration of property of
debtor—Claim—Investigation under sections 6. 8 and 659 of the
Civil Procedure Code—Scope of inquiry not possession only—
Title—Damages—Res judicata—Separate action—Deed executed
with intent to defraud creditor—Fraudulent alienation.
Acting under section 2 of the Crown Debts Ordinance, No. 14 of1843, the Gonverment Agent seized the property of a Crown debtoron February 16 and 17, and hied the information in the DistrictCourt on February 26, together with a certificate of property dulyseized. The District Court issued a mandate of sequestration.The appellant claimed certain property on a deed (No. 113) datedJanuary 26.
Held, that (a) claims to property sequestered under section 3can be preferred and entertained by Court; (b) sections 668 and659 of the Civil Procedure Code applied to such claims; (c)the District Judge was right in holding that he was entitled to trythe question whether the deed was void or not in the claim *proceedings.
The question of possession should not be decisive ; the competingrights of the claimant and of the defendant should be adjudicatedupon ; the Court should decide whether the property belongs to thedefendant or not.
Held, further, that as the deed (No. 113) was executed mala fide,and for inadequate consideration and with the intention ofdefrauding the defendant’s creditors, one of whom was the Crown,the deed was void and of no effect under section 8 of the Ordinance.
“ In the construction of an Ordinance so borrowed from anEnglish Act, we are bound to follow the decisions of the EnglishCourt of Appeal on the Imperial Statute. So that the principlesof the Roman-Dutch law relating to fraudulent alienations have noapplication.
When it appears that the parties to a transaction impugned forfraud were actuated by a motive which is denounced as fraudulent,namely, a motive to hinder, delay, or defraud creditors, it isutterly immaterial how valuable a consideration may have passedfrom the grantee or transferee, for the conveyance is, nevertheless,void in law. A mere fraudulent intent on the part of the grantoralone will not invalidate the transfer if it is for valuable considera-tion, and there is no want of good faith on the part of the grantee.”
Obiter, Per Schneider J.—If the information or libel, which isrequired to be filed within seven days after the seizure, was filedafter that period had elapsed, it would not vitiate the proceedings.
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“ If it had been necessary I would Accordingly have held that thewarrant of the Court to the Fiscal had been rightly issued, althoughthe libel had not been hied within the time-limit mentioned in theOrdinance.”
Ellioti K.C. (with him Hayley and E. V. Perera), for claimant,appellant.
Akbar, S.-Q. (with him Illangakoon, C.C.), for respondent.
September 17, 1923. Jaybwardene J.—
This is a proceeding under the Crown Debts Ordinance, No. 14of 1843, and it arises in this way: Section 2 of the Ordinanceempowers the Government Agent upon his knowledge of thedefault of payment by any debtor of His Majesty, or notice givento him of any debt accrued to His Majesty, to promptly seize,take, and to keep in safe custody all the property of any debtorto the Crown sufficient to cover the debt due and costs. Actingunder this section the Government Agent of the Southern Provinceauthorized the Mudaliyar of West Giruwa pattu (see J 4) to seizeall the property of P. N. Kalupahana, suspended secretary of theDistrict Court, Tangalla, to an amount computed to be sufficientto cover a debt of Rs. 16,000, due and owing to the Crown. TheMudaliyar accordingly seized certain movable property, valued atRs. 1,845, contained in the lists A, B, and C. The seizure tookplace on February 16 and 17. The articles in list B were seizedin the house of Mr. D. A. Jayawickreme, Proctor, who statedthat the articles had been sold by Kalupahana to Don DavithRatnaweera, Patabendi Arachchi of Kudawellahella, on deed of saleNo. 113 of January 26, 1923. Thereafter, the Government Agent,proceeding under section 3 of the Ordinance, filed the informationor libel, which is required to be filed within seven days at farthest(exclusive of Sundays and other authorized public holidays) afterthe seizure, on February 26 in the District Court of Tangalla,together with a certificate of the property seized duly signed, andmoved for a warrant of sequestration, and the-District Judgeaccordingly issued a warrant of sequestration directed to theFiscal who sequestered the property (C 7). He also reported thatMr. D. A. Jayawickreme and Ratnaweera, Patabendi Arachchi*had preferred claims orally. Subsequently, two other claims werepreferred to some of the property by one K. Don Andris and G.Nonababa, respectively. There were, therefore, four claimantsclaiming different lots out of the articles seized and sequestered :—
Don Davith Ratnaweera, Patabendi Arachchi; (2) Mr. D. A.Jayawickreme, Proctor; (3) K. Don Andris; (4) G. Nonababa.The claims were entertained and fixed for inquiry, presumably,under sections 658 and 659 of the Civil Procedure Code, whichpermits claims to be made to property under sequestration and
The Govern-merit Agent,SouthernProvince, v.Kalupahana
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provides for their investigation. The main claim was that of the1st claimant, Ratnaweera, who claimed the bulk cf the propertyon deed of sale No. 113 of January 26,1923, granted in his favourby the debtor. The Crown impugned this sale as fraudulent.
After inquiry the learned District Judge held the deed (No. 113)to be fraudulent, and dismissed the claim. The other claims werealso dismissed. Ratnaweera now appeals, and several points havebeen raised on his behalf. It is contended that the District Judgehad no authority, in a claim inquiry under these sections, to gointo the question of the validity of the deed of sale, and that on theproduction of the deed which showed that the title was in theclaimant, the claim should have been upheld, and’ the Crown referredto a separate action to have the deed of sale set aside if it wasproved to be fraudulent. For the Crown it is contended that thedeed is impugned under section 8 of the Ordinance (Crown DebtsOrdinance) which declares sales executed to delay, hinder, ordefraud His Majesty utterly void and of no effect, and that this isnot the case of a deed which is merely voidable, that is, valid tillit is set aside. Both parties, therefore, concede that claims toproperty sequestered under section 3 of the Ordinance can beentertained under section 658 of the Civil Procedure Code, butthey differ as to the scope of the inquiry into such a claim. I thinkthe parties are right in saying that claims to property sequesteredunder section 3 can be preferred and entertained by the Court,and that sections 658 and 659 of the Civil Procedure Code applyto such claims. Section 3, after referring to the filing of aninformation or libel with a certificate of the properly seized, andempowering the District Judge to deliver to the Fiscal a warrantto sequester the property, says :
“ and any further proceedings which may be had thereon shouldbe according to such general rules of practice as now areor hereafter may be framed by the Judges of the SupremeCourt.”
The use of the word “ thereon” is somewhat ambiguous. Doesit refer to the libel or information filed or to the warrant tosequester ? I think it refers to both the libel or information and thewarrant to sequester, and the words “ such general rules of practice$8 now are or hereafter may be framed by the Judges of the SupremeCourt ” refer to the general rules and orders framed by the SupremeCourt, which were in operation at the date of the enactment ofOrdinance No. 14 of 1843, and which have now been superseded bythe Civil Procedure Code. The procedure adopted by the DistrictJudge in utilizing sections 658 and 659 of the Civil Procedure Codeis, therefore, right. This should not, in my opinion, be taken asnecessarily precluding a person claiming property sequestered frombringing a separate action in suitable cases for the determinationof a question of title.
Jayewab-DENB J.
The Govern-ment Agent,SouthernProvince, v.Kalupahana
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The Govern-ment Agent,SouthernProvince, v.Kalnpahana.
Then, with regard to the scope of the inquiry into the claim,it is contended for the appellant that these inquiries are limitedin the same way as inquiries into claims to property seized undera decree or order for money (seotions 244 and 245), that the questionof possession should be the deoiding factor, and that the Courtcannot enter into intricate questions such as fraud, &c., but thatsuch questions should be left to be decided in a regularly constitutedaction with proper pleadings and after a regular trial on issues.In support of this contention reliance is placed on the words ofseotion 658, which says that claims to property sequestered “shallbe investigated in the manner hereinbefore provided for theinvestigation of claims to property seized in execution of a decreefor money.” If the provisions for the investigation of claims hadended with this section, as is the case under the Indian CivilProcedure Code, section 487 (see order 38, rule 8), a great dealmight have been” said for the appellant’s contention. But ourCode has introduced a new section (section 659), which is as .follows
“ If upon any such investigation the Court is satisfied that theproperty sequestered was not the property of the’ defendant, it shall pass an order releasing such propertyfrom seizure, and shall decree the plaintiff to pay suchcosts and damages by reason of such sequestration as theCourt shall deem meet. If otherwise, the Court shalldisallow the claim, and make such order as to costs as itshall deem meet.”
Under this section it is clear that the Court has to be satis-fied that the property sequestered is “not the property of thedefendant” before it can release the property from seizure. Thisindicates that the question of possession should not-be decisive,but that the competing rights of the claimant and of the defendantshould be adjudicated upon, and that the Court should decidewhether the property belongs to the defendant or not. That is,the Court has to investigate the question of title. It is also to benoted that the Court is given the power to award compensationto the claimant for any damages sustained by him by reason ofthe sequestration. This would not be so, if the mere question ofpossession is to turn the scale in his favour. So in the case of”property seized under a decree for money, the Court is given thepower to impose a fine on persons making an altogether groundlessclaim, not on the result of the claim inquiry, but on the result of anaction instituted under section 247 in which the Court has todecide the question of title between the parties.
Further, the Ceylon Civil Procedure Code, sections 645 to 648,makes provision for the sequestration of mortgaged property beforejudgment in an action on a mortgage bond, if the defendant’
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cannot be found for the service of summons, and section 648 dealswith claims to property so sequestered, and provides that—
” If the property sequestered be claimed by a third party, theright thereto shall be tried between the claimant and theplaintiff as an incidental aotion; and the proceedingsin the original aotion shall be stayed, if the Court shallconsider such stay necessary for the purpose of justice,but not otherwise.”
There the Court has to decide ” the right thereto” or the titleto the property, and it directs the question to be decided not bya separate aotion, but as an incidental action w(Ramen Chetty v.Campbell1). By parity of reasoning, therefore, where the Courthas to decide the question of property in similar sequestrationsin other actions, the questions should be tried in the inquiry as anincidental action. Moreover, it has been held that an appeal layagainst an order allowing or disallowing claims to propertysequestered under section 659 (Karuppen v. Assanar? SaiboMarikar v. Anthony Fernando? Carimjee Jajferjee v. Andrew Pavia 4),and in the last case Wendt J. pointed out the difference betweenthe scope of an investigation under sections 244 and 245 and oneunder section 659, and said that the Court had in the case of claimsto property under sequestration to adjudicate on title and to awarddamages.
There are two cases which may, however, be cited in support ofappellant’s contention. In Karu^ven v. Assanar {supra)y which isa Full Bench decision* Lawrie A.C.J. and Withers J. (dissentientsBrowne J.) held that the disallowance of a claim to* propertysequestered under section 653 of the Civil Procedure Code is no barto the claimant instituting an action to establish his right to theproperty seized. Lawrie A.C.J., in the course of his judgment,said:—
“ I am of the opinion that the plaintiff could have appealedagainst the disallowance of his claim in the other action ;but, as there is no provision that the order disallowingsuch a claim is final, I am of opinion that it does notdetermine the question of the right of property; it doesno more than reject a claim on the materials then beforethe Court. It certainly settles these points : (l)that thegoods were rightly sequestered ; (2) that they may besold in execution if judgment goes for the plaintiff; butthe disallowance of a claim does not profess to adjudgethe property to be in one or in another, and I am notdisposed to give it a larger meaning than its own termsbear.”
1 (1896) 2 N. L. R. 94.3 (1896) 1 Thamb. 68.
* (1895) 4 N. L. R. 379.* (1906) 3 BaZ. 69.
The Govern-ment Agent.
SouthernProvincet v.Kalupahana
( is )1928.
The Govern-ment Agent,SouthernProvince, v.Kalupahana
Withers J. said :—
“ After giving my best consideration to this matter, I am inclineto concur with the judgment of the Acting Chief Justice.Though the Judge may not sustain the sequestration,against the claim of one who is no party to this action*unless he is satisfied that what has been sequestered isnot the property of the claimant, I do not think that hisdecision settles the question of title once and for all.Clause ‘600 especially conserves the rights of thirdparties before sequestration* and this being so, why shouldnot a third party be allowed to establish his title by anaction instituted*for that purpose ? Of course, he cannotrecover in that action any damages or costs given against-him in the claim inquiry.”
Browne J., in his dissenting judgment, gives what, to mymind, is the more correct interpretation of the section. Hesaid :—
“ On the question of procedure, whether a claimant can, aftertrial and disallowance of his claim under section 653,institute an action to assert and have decided in ordinaryprocedure his right to the property so claimed, I wouldhold it is not permissible for him to do so.”
“ I admit there is much reason why that right should be given,to him. When the Indian Civil Procedure Code, section487 (our section 658), required that a claim on sequestra-tion should be investigated in the same manner as a claimto property attached in execution, it was not directing aninvestigation in a summary manner or limiting at allany right of action thereafter, more especially in thatsuch action should be instituted within fourteen days.”“ But-when our Civil Procedure Code, section 658, gives alike direction, that refers one back to sections 241 and 247,we find the former contains the provision of an investiga-tion in a summary manner, which is not in the Indiansection 278, and the latter, the limitation of fourteen days’time, which is not in the Indian section 283, and thus aquestion of title to property might fall to be decidedwithout pleadings in a manner which possibly might workan injustice.”
“ As against this, however, it must be noted that the IndianCivil Procedure Code contains no such provision as section659 in 6ur Code and it, read in conjunction with section207,’ to my mind, decides that the decree which disallowswith costs and damages a claim on sequestration shall befinal unless reversed by appeal.”
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* Nor need this always work hardship, for, in the first place, *923.no claimant is obliged to try his title by the process of Jayewab-mere claim. On sequestration made of his property den® J.he may at once sue, and, if necessary, have the further The Govem-proceeding enjoined till decision of his claim. While,if he only claims, it will be always in the power of the Province, v.Court, and of the claimant and sequestrator, to have Kalupahanawithout any pleading save the statement of claim issuesstated to develop full adjudication upon the questions oftitle necessary to be raised.” .
The principle there laid down should, I think) be restrictedto cases where, in the investigation under section 659, the questionof title to the property has not been fully investigated, but has beensummarily disposed of in the same way as in an investigation of aclaim to property seized under a decree for money. If the questionof title has been fully investigated at the investigation into theclaim, the subsequent action being between the same parties, it isdifficult to see how the decision in the claim investigation can failto be a res judicata between them in the subsequent action, especiallyas there is a right of appeal against the decision. The judgmentcannot, therefore, be regarded as in any way limiting the scope ofthe investigation under section 659. In the other case, The Bankof Bengal v. The Jaffna Trading Company,1 it was held that section659 does not bar a regular suit for damages for wrongful sequestra-tion before judgment, as it contains no machinery for the trial of anaction for damages. In that case there had been no investigationof the claim, as the sequestration was withdrawn without anynotice to the claimant, and the claimant had no opportunity ofproving either title or damages. In such circumstances, which arenot contemplated by a section 659, a subsequent action for damageswould undoubtedly lie, but Wood Renton A.C.J. said :—.
“ I am unable to hold that, even if the Bank of Bengal under thebill of lading passed by endorsement to the Bank of Madras,the former would be precluded by anything in chapterXLVII. from bringing an independent action forthe recovery of damages cahsed by a wrongful sequestra-tioji. Section 659 contains no machinery for the trial ofactions for damages. The intention of the Legislatureclearly is that claims in sequestration proceedings shouldbe summarily disposed of. Such a demand for damagesas the Bank of Bengal seeks to enforce in the present casecould not be adequately investigated without the filing ofpleadings, the framing of issues, and the examination ofwitnesses. Can it be seriously argued that the Legislatureintended that this shduld be done in the course of summary1 [1913) 16 N. L.B. 417J
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Jayewab*DENE J.
The Govern-ment Agent*SouthernProvince, iKatupahana
proceedings with a view to the* removal of a sequestrationof property ? Moreover, chapter XLVII. of the Codecontemplates arrest of the person as well as of the property.If the appellant’s contention in regard to the scope of thechapter is correct, I see no reason why a defendant, whohas been unlawfully arrested, should not be forced to preferhis claim to damages under chapter XLVII. on pain offinding himself debarred from his remedy altogether.This view of the scope of section 659 is confirmed to someextent by the decision of Sundara Aiyar J. and Phillips J.in Manjappar Chettia v. Canapathi Gounden,1 to whichMr. Hector Jayawardene kindly called our attention asamicus curies. It was there held that section 95 of the newIndian Civil Procedure Code, which corresponds to section659 of our own Code, is no bar to a regular suit for damagesfor wrongful attachment before judgment.”
The learned Judge has in this passage overlooked, if I may pointout respectfully, the fact that under section 659 the Court is expresslyempowered to decree the plaintiff to pay all the damages sustainedby reason of the sequestration. If the Court can decree suchdamages, there must necessarily be the machinery for passing sucha decree. Under section 95 of the Indian Civil Procedure Codethe party has to apply for damages, the damages the Court canaward are restricted to Rs. 1,000, and it is also expressly providedthat an order on any such application shall bar any suit for damages,clearly implying thereby that otherwise a suit for damages wouldlie. Reliance on section 659 was hardly necessary in that case as bythe withdrawal of the sequestration the Court was prevented frommaking an order under the section.
On the other hand, there is the judgment of Wendt J. (in whichGrenier J. agreed) in Carimjee Jajferjee v. Andrew Pavia (supra)where the question of title to the property sequestered was fullygone into. The claim was based on a notarial deed, which wasimpugned as a fradulent alienatidn. The matter was investigatedas in a regular action, and the judgment of the ^District Judgeholding the deed to be in fraud of creditors was set aside, and thecase was sent back for the District Judge to assess under section659, the damages payable to the claimant by reason of the sequestra-tion. The attention of the Court was drawn to Karuppen v. Ussanar(supra)y for it was cited in support of the contention that an appeallay from an order under section 659, but the Court does not appearto have thought that that case prevented it from entering fullyinto the merits of the case and deciding on the title of the parties.The Court also found no difficulty in directing the District Judgeto assess damages in the claim inquiry itself. The judgment of
1 (1011) 21 Mod. LrJ. 1052.
{ 21 )
Mr. Justice Wendt does not appear to have been referred to at the1®23.
argument of the Bank of Bengal case (supra). ,Jayewhb-
The terms of section 659 empower the Court to decide questions PESEj*
# of title and claims to damages, and some machinery must be found The Govern-by which the Court can. exercise these powers, and that machinery,
I think, is an incidental action as provided for in section 648. It Province, r.
may be that when the order on the claim is made summarily KaluPa^ana
without any investigation on the merits, a subsequent action
is competent as laid down in Karuppen* v. Ussanar (supra), la
view of the terms of section 659, the District Judge was, in my
opinion, right in holding that he was entitled to try the question
whether deed No. 113 was void or not in the claim proceedings.
Mr. Elliot has also assailed the foundation of these proceedings.
He contended that the warrant to sequester was illegally issued,inasmuch as the information or libel of the Government Agent wasnot filed within seven days of the seizure, as required by section 3of the Crown Debts Ordinance. I gravely doubt whether it isopen to a person in the position of a claimant to question theregularity of the proceedings in the main action, but it is notnecessary to decide the point .definitely here, as I have no reasonto question the correctness of the District Judge’s finding that thegoods claimed by the appellant were seized on February 17, andthat the information having been filed on February 26, it was filedwithin the prescribed time. So much for procedural matters.
There remains the contention on the merits. The learned DistrictJudge has held that the deed of sale No. 113 was made withintent to delay, hinder, and defraud His Majesty, and hasdeclared it void under section 8 of the Ordinance’. It is strenuouslycontended that this finding is wrong. Mr. Elliot asserts that theclaimant has proved that the transfer was made bona fide andfor valuable consideration. Section 8, under which the Crownimpeaches the validity of the deed, enacts that;
(I give only the material parts):—.
“ All gifts, grants, sales, transfers …. as well of landsand tenements as of goods and chattels of any debtors toHer Majesty …. which have been or shall at
any time hereafter be contrived, executed, had, or madeby fraud, covin, collusion, or guile, to the end, purpose,and intent to delay, hinder* or defraud Her Majesty…. in their just and lawful action, suit, debts,
. shall be from henceforth deemed andtaken to be utterly void and of none effect ….”
(The rest of the section declares the party or parties knowing ofsuch fr%ud, &c., guilty of an offence, and prescribes the penaltiesto which they are liable.) Section 7, on which the appellant relies,declares that:
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The Govern-ment Agent,&outoemProvince,, v.Kalupahana
“No sale, pledge, transfer, or alienation of any goods, chattels,ox other movable property, upon good consideratioruandbona ‘fide to any person or persons or body corporate,prior to the date of the execution of the Crown upon anyjudgment ot award of any debt, fine, penalty, or forfeiturebeing due and payable to it, shall be invalidated by any-thing contained in this Ordinance to tlie contrary not-withstanding.”
I was at first inclined to the view that section 7 had no applicationto the present case, but after careful consideration I have cometo the conclusion that the appellant can rely on it. The sale inquestion here was prior to the execution of any judgment by theCrown, and the .order issuing the warrant of sequestration must beregarded as a judgment.
Now, section 8 of our Ordinance is based on the English Actagainst fraudulent deeds, gifts, alienations, &c., enacted in thereign of Queen Elizabeth (75 Elizabeth, c. 5), and reproducesalmost word for word the language of the preamble and section 1of that Act, and section 7, similarly, reproduces the material wordsof section 6 of the English Act. The English Act refers to fraudulentalienations generally, while the local Ordinance is restricted to thoseaffecting the rights of the Crown, and the verbal alterationsnecessary for this purpose have been introduced into our Ordinance.In the construction of an Ordinance so borrowed from an EnglishAct, we are bound to follow the decisions of the English Court ofAppeal on the Imperial Statute. See the judgment of the PrivyCouncil-in Trimble v. Hilly1 the local case of Meedert v. Bawa? andthe Indian case of Bomendra v. Brojendra? So that the principles ofthe Roman-Dutch law relating to fraudulent alienations, haveno application. These sectioned© not appear to have been thesubject of any judicial decisions locally, but they have beenfrequently interpreted in England and also in India, where theStatute of Elizabeth forms a substantial part of the ground work ofsection 53 of the Transfer of Property Act. In Hakim Lai v. Moos-hahar SahUy4 Mookerjee and Holmwood J.J., upon a review of allthe authorities and an examination of the principles underlyingthem, deduced the following rule :
“ A conveyance or transfer, whether founded on a valuable oradequate consideration or not, if entered into by theparties thereto with the intent to hinder, delay, or defraudcreditors (His Majesty) is void as to them. It is notenough, in order to support a conveyance or transfer asagainst creditors ( His Majesty), that it be made forvaluable consideration; it must also be 6ona fide”
1 (1879) 6 A. <7. (P. C.) 342.3 (1917) 27 Cal. L. J. 158 (170).
1 N. L. R. 514 (1907) 34 Cal. 999.
“ In other words, in the language of Lord Coke : ‘A good con-sideration doth not suffice if it be not also bona fide.9 Twyne’scase.1’*(‘
“ When it appears that the parties to a transaction impugnedfor fraud were .aotuated by a motive which is denouncedas fraudulent, namely, a motive to hinder, delay, ordefraud creditors, it is utterly immaterial how valuablea consideration may have passed from the grantee ortransferee, for the conveyance is nevertheless void inlaw. A mere fraudulent intent on the part of the grantoralone will not invalidate the transfer if it. is for valuableconsideration, and there is no want of good faith on thepart of the grantee. Where, however the transferee ishimself a creditor, he occupies a moie favoured position…. If however the transfer is not in reality a
preference of an actual debt, but is a mere colourabledevice to place the debtor’s property beyond the reachof his creditors, or if the transaction extends beyond thenecessary purpose of a mere preference, so as to securethe debtor some benefit or advantage, or to unnecessarilyhinder and delay other creditors, the transfer is fraudulent.The preferred creditor participates in the fraudulent intentof the debtor, where his purpose is not to secure thepayment of his own debt, but to aid the debtor in de-frauding other creditors, in covering up his property, in. giving him a secret interest therein, or in locking it upin any way for the debtor’s own use and benefit. Proofof a valid indebtedness does not necessarily disprove theexistence of a fraudulent intent.”
May, in his commentary on the Act of Elizabeth, lays down thesame principles, but they are not summarized in the same way asthey have been summarized in the Indian judgment I have justquoted. (See May’s Treatise on the Statutes of Elizabeth againstFraudulent Alienations, 2nd edition, chapters III. and IV.)
In the present case, therefore, two questions arise for decision.Was the deed, No. 113, contrived, executed, or made with intentto hinder, delay, or defraud His Majesty, or was it made upon goodconsideration and bona fide ? In determining these questionswe have to examine all the facts and circumstances of the case inthe light of the rules stated above. What are these facts andcircumstances ? Kalupahana who was the Secretary of the DistrictCourt of Tangalla was charged with misappropriating aboutRs. 16,000, being moneys entrusted to him in his official capacity*He was suspended in July or August, 1922. He appears to havebeen in insolvent circumstances. In addition to the Rs. 16,000
The Govern-ment Agent,SouthernProvince, v.Kalupahana
1 {1602) 1 Smith’s L. 0. 1.
( 24 )
The Govern•merit AgentSouthernProvince* v.Kalupahana
claimed by the Crown, he had many other creditors. The furniture,&c.» seized in this case appear to have been practically the*onlyproperty he was possessed of. Two of his creditors, the plaintiffsin D. C., Matara, 345, and C. R., Matara, 15,793, had obtainedjudgments against him for Rs. 753*85 and Rs. 112*04, respectively.
On the charges brought against him by the Crown, Kalupahanawas arrested, and the Court ordered him to give security in Rs. 10,000for his release on bail. Mr. Jayawickreme, the Proctor and Notaryalready referred to, one of the claimants in this case, was askedby Kalupahana^ brother-in-law, one Solomon Fernando, to standsurety, he refused, but Peneris Jayasuriya, a cousin of Mr. Jaya-wickreme stood surety. Peneris Jayasuriya lives in Mr. Jaya-wickreme’s house. The property now in question in this case wasseized under writ issued in D. C., Matara, 345, in November, 1922.Peneris Jayasuriya obstructed the Fisoal’s officers, and wasthreatened with a criminal prosecution. It is said that Mr.Jayawickreme also joined in the obstruction. On November 28,1922, Peneris Jayasuriya, as surety, and the judgment-debtors,Kalupahana and his wife, as principals, entered into a bond, J 3,with the Deputy Fiscal, by which Jayasuriya undertook to takecharge of the property seized until the sale, and in the meantime keepthem safely and securely. A claim appears to have been madeto the property by the debtor’s brother-in-law, but the claim wasrejected. Thereupon the Deputy Fiscal advertised the sale of theproperty for January 27,1923. The property was also seized underthe writ in the^Court of Requests case. In the meantime the salenow impugned was arranged. The present claimant-appellant cameforward as the purchaser: He is married to Mr. Jayawickreme’sfirst cousin. The sale took place on January 26, Mr. Jayawickremeacting aB Notary and attesting the deed. The consideration wasstated to be Rs. 1,500. The writ holders in cases Nos. 345 and15,793 were also present. They were paid what was due to them,and they signed the deed as witnesses. They gave evidence in thecase, and the learned District Judge has accepted their evidencethat they received in full the amounts due to them. The purchaserasserted a claim of Rs. 500 on a promissory note dated August 1,1922, granted by Kalupahana. This amount was set off againstthe .consideration, the Fiscal was paid Rs. 25*91 as his charges,and the balance, it is said, was paid to Kalupahana. The deed was .executed in the presence of the Deputy Fiscal, who was ill, and,did not notice the details of the transaction. The Crown deniedthat any sum was due to the claimant, and contend that the note,if there was one, was a bogus note. The learned District Judgehas found^ that the claim of the appellant of Rs. 500 is false, andthat the granting of a note by Kalupahana has not been proved.The note itself was not produced, and the only documentary•evidence of it is a counterfoil from Mr. Jayawickreme’s letter of
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demand book, which showed that he had sent a letter of demandto the debtor on January 17,1923, for Rs. 500. J 1, the counterfoil,was produced in the District .Court, but is not now in the record.Unfortunately the document, J 1, bore an alteration which greatlyaffected its value as evidence. It originally bore the date October30, 1922, but this had been struck off, and the date January 17,1923, entered instead. From October 18, 1922, to April 25, 1923,this is the only letter of demand issued from the book. Thesuggestion for the Crown is that when this litigation began, the pieceof evidence afforded by the counterfoil was fabricated to support theexistence of the note. Mr. Jayawickreme and the claimant bothgave evidence in support of the indebtedness on the note, but theDistrict Judge has rejected their evidence. He has seen and heardthe witnesses, and, in view of the alteration in the date on thecounterfoil and taking the circumstances into consideration, Ithink his conclusion is right. The relationship existing betweenthe parties and the financial position of the claimant who, it hasbeen proved, owns property only worth about 1,000 appear tostrengthen this conclusion. So, there has been a failure of consider-ation to the extent of at least Rs. 500. This finding throws con-siderable doubt on the assertion of the claimant and his witnessesthat any sum whatever was paid to the vendor. Deducting thesum of Rs. 893*76 paid to the creditors and as Fiscal’s fees, thebalance sum of Rs. 606 * 24 stands unaccounted for. It is suggestedthat the claimant is the nominal purchaser, and that, the personfor whose benefit the transaction was put through was Mr. Jaya-wickreme, and that all along an attempt had been made to place *these assets of Kalupahana beyond the reach of his creditors.
A very significant fact is that when the Deputy Fiscal seized thefurniture at Kalupahana’s house in November, 1922, he wasresisted and obstructed by Peneris Jayasuriya, and was preventedfrom removing the goods. Hence the necessity for giving a securitybond, J 3, by Peneris Jayasuriya and the judgment-debtors. Bythis bond Peneris Jayasuriya undertook to have charge of thegoods and keep them safely and securely till the sale. Then afalse claim to the property was put forward by Kalupahana’sbrother-in-law, a claim which, as I said, was rejected. Eventhereafter the Fiscal experienced some difficulty in getting deliveryof the goods from Peneris Jayasuriya, and Mr. Jayawickremepromised to give over the goods on behalf of Jayasuriya if thelatter did not do so. The Fiscal also threatened Peneris Jaya-suriya with a criminal prosecution. All these facts go to showthat a determined attempt was made to prevent these goods beingtaken in execution for the benefit of creditors.
Things were in this state when the sale to the claimant wasbrought about. The sale according to the claimant was arrangedfor him by Peneris Jayasuriya. Is the deed No. 113 then anything
Jayewab-DENE J.
The Govern-ment Agent,SouthernProvince, v.Kalupahana
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Jayewak-DBNB J.
The Govern-ment Agent,SouthernProvince, v.Kalupahana
more than a mere cloak intended to invest the original object ofpreventing an execution with the formalities of law ? No doubtthe claims of two creditors have been paid, but they were paid,according to the Deputy Fiscal, under the threat of a criminalprosecution for resistance and after a false claim had provedunsuccessful. The deed in question is, therefore, partly for valueand partly voluntary. Is this sale not a contrivance either forretaining for the debtor an interest in the goods or for making agift of a good part of the property to one of the debtor’s friends ?The person who came forward to purchase the goods is* marriedto a first cousin of Mr. Jayawickreme, and is also a cousin of Peneris.He lives and trades in a planked boutique of two rooms in thevillage Kudawellahella. He is worth about Rs. L000, but he buysvaluable and fashionable furniture, and leaves the bulk of themat Mr. Jayawickreme’s. Some of the articles have been tracedto the possession of Don Andris and Jfonababa, the father-in-lawand th^ sister-in-law, respectively, of Peneris. The claimant sayshe bought the furniture for sale, but this does not sound veryconvincing, as he is nofr.a furniture dealer. He says that he himselfconceived the idea of having a deed for the sale, although he hadnot heard of a deed for the sale of movable property before. Hewanted the deed to be executed in the presence of the DeputyFiscal and to procure his signature as a witness to the deed. Whyall these elaborate precautions ? He knew, and Peneris Jayasuriyaand Mr. Jayawickreme also knew, that Kalupahana had beensuspended for misappropriating moneys paid in testamentary cases,and that he had been prosecuted and had to find bail in Rs. 10,000.He also knew that Kalupahana had other creditors besides thosesatisfied at the execution of the deed. All this, in my opinion,points to the sale being a mere contrivance to place a good part ofKalupahana’s only property beyond the reach of his creditorsand to benefit some of his friends. The sale is, in my mind, clearlymala fide. But Mr. Elliot points to the deed, the publicity, and theopenness of the transaction, and the discharge of the debt of thetwo creditors as indications of its being entirely bona fide and forgood consideration. But as Lord Macnaghten once said : “ Fraudis infinite in variety, sometimes it is audacious and unblushing,,sopaetimes it pays a sort of homage to virtue, and then it is modestand retiring, it would be honesty itself if it could only afford it.But fraud is fraud all the same, and it is the fraud and not themanner of it which calls for the interposition of the Court.”
Acts and conduct which in some cases prove bona fides are inothers unmistakable badges* of fraud. In this case the deed andthe publicity attending its execution were intended to cover theabsence of bona fides. The fact that some consideration was paidis of no avail. The attempt to prevent the furniture from beingtaken in execution was conceived with the intention of delaying
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and defeating Kalupahana’s creditors, and the subsequent deed wasa contrivance to effectuate the same object. Such an intention isvery often incapable of direct proof, but must be inferred from theacts and conduct of parties, that is, from a consideration of all thefacts and circumstances of the case.
Upon a consideration of all the facts and circumstances here,I find, as the District Judge has found, that deed No. 113 wasexecuted maid fide and for an inadequate consideration, and withthe intention of defrauding Kalupahana’s creditors, one of whom isHis Majesty. Applying the rules formulated above to these conclu-sions, the deed must be declared void and of no effect under section8 of the Ordinance. Strictly speaking* the claima’nt is not entitledto claim any benefit under the deed, but the Crown has offered togive him credit for the sum of Rs. 893*76 paid to the creditors andas Fiscal charges. The claimant will pay to the Grown the sum ofRs. 606*24, being the difference between the value of the goods(Rs. 1,500) stated in the deed and the sum paid to the creditorsand to the Fiscal, and the claimant will be entitled to the’furnitureUnless this is done, the Crown will not be bdund by its offer, for itmight become impossible to give the claimant credit for the sumpaid, as the furniture might by now have greatly deteriorated, andit will be uncertain how much will be realized by their sale. How-ever, I have no doubt that the Crown will do what is just and fair inthe matter.
As my brother thinks that the claimant is entitled to a firstcharge upon the movables to the extent of the sum paid by himin satisfaction of the two writs, I am prepared to adopt the vari-ation in the decree suggested by him, and to declare that theclaimant-appellant should have a first charge upon the movablesin any case.
With this modification the appeal is dismissed, with costs.
The Govern-went Agent,SouthernProvince, r.Ktiiupahamt
Schneider J.—
I accept all the findings of facts arrived at by the learned DistrictJudge, for there appears to me to be no good reason why I shouldnot accept them. Inter alia he has found that the debts to Sonan-dara and L. M. de Silva were genuine. The evidence proves thatthese creditors had obtained decrees against Kalupahana, and hadseized the very movables which are involved in the contest nowbefore the Court, and that a sale was only averted by those debtsbejng satisfied by .payment, and the seizures being consequentlyremoved. It is also proved that it is the claimant-appeliant whopaid those debts. It might be that the money was actually nothis own, hut that makes no difference in so far as the claim of theCrown is concerned to levy execution on those movables. Atthe time that the Crown asserted its claim, the movables, uponWhich the Crown was entitled to levy execution as being the25/7
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The Govern-ment Agent,SouthernProvince, v.Kalupahana
property of the debtor, were subject to the encumbrance createdby those seizures. The claims of these judgment-creditors hadto be first satisfied before any part of the proceeds, if there hadbeen a sale, would have been available for the satisfaction of theclaim of the Crown- The person who has satisfied those claimsis entitled to be placed in the same position as those creditorswould have been had these seizures not been removed. Thelearned District Judge does not appear to have considered thisaspect of the case. Therefore, while I accept his finding that thesale in favour of the claimant-appellant was executed to defraudHis Majesty and therefore void, or to express the same thing inthe language of the Ordinance (No. 14 of 1843, section 8) that the“ sale was contrived by collusion to the end, purpose, and intentto defraud His Majesty/’ and that it was “ utterly void and of noneeffect.” I must, at the same time, give effect to that aspect of thecase to which I have just referred. I would, therefore, whileaffirming the order of the learned District Judge setting aside thesale in favour of the claimant, add to the order that although thesale is set aside, and the movables in question are therefore availablefor the satisfaction of the claim of the Crown, those movables aresubject to the encumbranoe created by the seizures under thewrits issued by Sonandara and de Silva, or, in other words, thatthe claimant-appellant is entitled to a first charge upon thosemovables to the extent of the sum paid by him for the satisfactionof those writs.
As regards the procedure, the learned District Judge appears tome to have followed the correct procedure. The Ordinance No. 14of 1843 prescribes a special procedure which is intended to securethe recovery of debts due to the Crown. In section 2 it authorizesa Government Agent or Assistant Government Agent or otherpersons duly authorized by writing signed by such GovernmentAgent upon the Agent’s own knowledge, or notice given to him,that a debt has accrued to His Majesty, immediately to seize andkeep in safe custody, but without removing the same (except inthose cases only where there are no adequate means for safelyand securely keeping the said property at the place where it isseized, and no sufficient security given for -the value thereof) all the’ property of the debtor to an amount sufficient to cover the debtdue and costs. In section 3 it directs that a libel or informationsetting forth the nature and amount of the debt shall be filed “ withinseven days at farthest after such seizure.” It directs the Courtin which such libel or information is filed, upon the filing of thelibel, together with a certificate of the property seized, “ to deliverto the Fiscal a warrant to sequester the property.” It is enactedin the same section that “ any further proceedings which may behad thereon shall be according to such general rules of practiceas now are Or hereafter may be framed by the Judges of the
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Supreme Court.’* It is to be noticed that the special procedureprescribed ends with the warrant for sequestration being issued bythe Court to the Fiscal. The question which arises is as to theinterpretation which should be placed on the last sentence ofsection 3 with regaxd to the further proceedings after the warrantof sequestration had been issued. The word “thereon” in thatsentence it plight be argued refers, strictly speaking, to the warrantto sequester. But, it seems to me, that if the word were soconstrued, it would not bear out the obvious intention of thewhole of the section, which is that when the procedure speciallyprescribed comes to an end with the issue of the warrant ofsequestration, the proceedings begun by the filing of the “ libel,”which must be regarded as an action, are to be construedaccording to the general rules of practice. In* opinion, there-fore, the word “ thereon” refers to the <c libeland also to the
warrant of sequestration, and what the section was intended tomean was that further proceedings after the issue of the warrantof sequestration should be according to general rules. The words“ such general rules of practice as now are or hereafter may beframed by the Judges of the Supreme Court ” would, I think,be interpreted reasonably if they be regarded as indicating thatthe further proceedings are to be governed by the Civil ProcedureCode, which prescribes general rules of practice and which repealed,and has taken the place of the rules and orders of the SupremeCourt, which at one time governed general practice. Accordingly,the warrant to sequester issued to the Fiscal must be regarded asa warrant to sequester before judgment, and the sequestration asbeing of the nature contemplated in section 653 of the Civil Proce-dure Code. Section 658 of the Civil Procedure Code indicates thatclaims may be preferred to the property sequestered, and section 659that the scope of the investigation of such a claim is as to theownership of the property. This was. also pointed out in thecase of Ramen Ghetty v. Campbell (supra). In view of the provisionsof section 8 of the Ordinance No. 4 of 1843, it was within the scopeof the investigation to inquire whether the deed of sale in favourof the cla mant-appellant was “ void.” I would here add thatwhere a deed is being attacked as fraudulent in proceedings, such asthese presents, the deed should be set aside if any ‘of the causes setout :n section 8 are present independent of any considerationwhether the ordinary elements of a Paulian action are present ornot. A proceeding such as this should not be regarded as a Paulianaction.
Besides contending that the findings of the learned District Judgeon the question of the invalidity of the deed were not right, Mr.Elliot argued that the District Judge’s order was bad for tworeasons. First, because there was no proof that Kalupahana wasindebted to the Crown. The Ordinance requires no proof other
The Govern-ment Agent,SouthernProvince, v.Kalupahana
I 30 )
The Govern-ment Agent,SouthernProvincef v.Kalvpahana
than knowledge on pai~t of the Government Agent of the existenceof a debt or notice received by him to that effect. The proceedingshere afford the necessary proof. The information filed in Courtby the Government Agent of the Southern Province sets out thata debt amounting to Rs. 16,000 was due to His Majesty fromKalupahana, late Secretary of the District Court, and there is acertificate signed by the Mudaliyar of West Giruwa pattu certifyingwhat property he had seized under the authority of the GovernmentAgent. Accordingly, there was placed before the District Courtall the material which the Ordinance requires should be furnishedbefore, the Court issues a warrant to the Fiscal to sequester. Hiscontention that the warrant to sequester was issued without thedue material being placed before the Court must therefore fail.He next contended that the libel was filed out of time, because theseizure, or at least the seizure of sojno part of the movables, hadbeen effected on February 16, whereas the information or libel wasfiled on February 26, that is, after the lapse of the seven daysmentioned in section 3. As a matter of fact, the District Judgehas held that the seizure was made on February 17, and not on the16th. I accept that finding. But even if the seizure had beenmade on February 16, I do not think I would have been justified inupholding Mr. Elliot’s contention that all the proceedings takenafter the libel was filed were vitiated thereby.’ The intentiQn ofthe Legislature in requiring that the libel shall be filed within thetime mentioned in section 3 is clearly to compel the GovernmentAgent to seek the assistance of a Court of law without delay, butthat provision should not be regarded as depriving a Court of itsjurisdiction to entertain a libel even after the expiration of thetime fixed by the Ordinance.’
In this case the Court accepted the libel and acted upon it—in doing that it vested itself with jurisdiction to deal with thematter. If it had been necessary, I would accordingly have heldthat the warrant of the Court to the Fiscal had been rightly issued,although the libel had not been filed within the time-limit mentionedin the Ordinance.
I would accordingly affirm the order*of the learned DistrictJudge, subject to the variation I have indicated in this judgment,and would dismiss the appeal, with costs.
Appeal dismissed.