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transfer. Possibly the creditor wished to invalidate the transfer, so as to save himself the trouble of hunting for assets which were less valuable and less easily identified. In a case in Bombay the debtor, being in pecuniary difficulties, executed a gift of all his property in favour of his wife and minor sons. This, of course, left the debtor absolutely without assets, and the transaction was at once set aside.1

A voluntary conveyance by a man who is about to be tried for any crime, where conviction works a forfeiture, will be fraudulent. And even considerations of affection will not support the transfer, where the object is to remove the property from the effect of the sentence; as, for instance, where the conveyance by a man about to be tried for a felony was made in trust for a wife. But such an assignment at any time before conviction will bind the property, if made bond fiddle and for valuable consideration. Where, however, the assignment was made by a person who, under a mistake of fact, thought he had committed a crime when he really had not, it was held that the transaction was not illegal, and a re-conveyance to himself decreed.+

¶364. Fraudulent Preference. Under the Indian Insolvency Act, 11 & 12 Vict., c. 21, s. 24, any voluntary conveyance to the creditor by a person in insolvent circumstances, and in contemplation of becoming an insolvent, if made within two months before the petition on which an adjudication of insolvency takes place, shall be deemed fraudulent and void as against the assignees of the insolvent. Such a mode of avoiding what is called, in insolvency, a fraudulent preference, must be worked out in the Insolvent Court It can have no bearing upon the question, whether the conveyance is void under the statute of Elizabeth. "No consequence whatever can follow from an act of bankruptcy, of which the creditors might have availed themselves if they had applied in time, but of which they did not avail themselves within the time. limited by the Bankruptcy Act." 5 Accordingly, where A being indebted to B and C, after being sued to judgment

1 Hormusji v. Cowasji, 13 Bom. 297.

2 Re Saunders' estate, 32 L.J. Ch. 224; S.C. 4 Giff. 179.

3 Whitaker v. Wisbey, 12 C.B. 44; Chowne v. Baylis, 31 L.J. Ch. 757; S.C. 31 Beav. 351. 4 Davies v. Otty, 34 L.J. Ch. 252.

Per Thesiger, L.J., re Bamford, 12 Ch. D., at p. 324.

6.

by B, went to C, and voluntarily gave him a warrant of attorney to confess judgment, on which judgment was immediately entered, and execution levied on the same day on which B would have been entitled to execution, and had threatened to sue it out, it was held that the preference given by A to C was not unlawful. Lord Kenyon, C.J., said: There was no fraud in this case. The plaintiff (C) was preferred by his debtor (A), not with a view of any benefit to the latter, but merely to secure the payment of a just debt to the former, in which I see no illegality or injustice."1 No provision avoiding conveyances by way of fraudulent preference is found in the insolvency clauses of the Civil P.C., Chapter XX.. but under s. 351, such an unfair preference for one creditor may be made a ground for refusing the debtor his discharge. Where the widow of a man who died insolvent conveyed his whole property to his separated brothers in consideration of two time-barred debts, it was held that this transfer could not be set up as against an attachment, made after the death of the husband under a decree obtained against him while still alive. West, J., seems to have rested the case on the ground of fraudulent preference; and the disfavour with which the jurisprudence of civilized nations regards unequal dispositions of property by a man in insolvent circumstances, and known to be such by the disponee, which leads to their being set aside, unless where the transferee has simply pressed a valid claim, or made a purchase in good faith. In the parti cular case the conveyance was a purely voluntary gift, and probably a sham. If the impropriety of the transaction consisted in preferring one creditor to all the others, then the Court did exactly the same thing in favour of the plaintiff. As Sargent, C.J., pointed out in Motilal v. Utam Jagivandas, the proper remedy in such a case is to take some proceeding, which apparently ought to be by s. 344 of the Civ. P.C., to have the whole property dealt with for the benefit of all the creditors. This is exactlty what was said by Fry, J., in Golden v. Gillam, and by Thesiger, L.J., in re Bamford (ante, ¶¶ 359, 364). In a case where a very large debt was due to the defendants, who were some of many creditors, and the debtor assigned

3

1 Holbird v. Anderson, 5 T.R. 235.

2 Rangilbai v. Vinayek Vishnu, 11 Bom. 666, at p. 676.
8 13 Bom. 434.

to them a decree, out of which they were to pay themselves, and hand over the balance to the debtor's father, and where the defendants accepted and carried out the arrangement in good faith, the Madras High Court held that it could not be set aside at the suit of another creditor. The Court spoke of the debtor as having acted fraudulently in contemplation of his approaching failure and insolvency. But the term fraudulently in this application means nothing more than that the arrangement was opposed to the equal distribution prescribed by the insolvency laws, when they are put into operation. Here they had not been put into operation, and, till they are, a man is master of his own money, and may pay any creditor he wishes, in any order he wishes, provided he really does pay him, and does not only pretend to pay him. Apparently, then, no payment by way of preference by a man in difficulties would be punishable under s. 206, merely because the insolvency law calls it a fraudulent preference.

1365. Chapter XVII. contains another set of sections421 to 424-the object of which appears to be so similar to that of ss. 206 to 208, that it is difficult to understand why they are found in a different part of the Code. In order to satisfy s. 206, a definite intention must be found to prevent the property dealt with from being seized under an impending decree, or execution of a court of justice. Under s. 421, the intention must be to prevent property from being distributed according to law amongst creditors. Under s. 422 there must be an intent to prevent a debt or demand from being made available according to law for the payment of debts. No specific intent is stated in ss 423 and 424. It is sufficient to make out that the acts done were dishonestly or fraudulently done. Taken together, the two series of sections seem intended to punish every conceivable mode in which a man can deal with his own property, for the purpose of cheating somebody else.

1366. Fraud on Insolvency Law. The intention which governs the whole of s. 421 is "to prevent, or knowing it to be likely that he will thereby prevent, the distribution of that property according to law among his creditors, or the creditors of any other person." This can only refer to

1 Gopal v. Bank of Madras, 16 Mad. 379.
2 See per Lord Hobhouse, 15 I.A., p. 19.

proceedings in the nature of insolvency, either under the Presidency Act, or under the insolvency clauses of the Civil Procedure Code already referred to (ante, ¶ 364). There is no other process known to the law by which a man's property is distributed among his creditors. Section 206 plainly refers to the ordinary process, by which each creditor seizes on his own account whatever he can get. It is not necessary, under s. 421, that the defendant should have actually come under the operation of the insolvent law, or that steps should have been taken, or even be about to be taken, to bring him under the operation of the law. It is necessary that the act should be done in contemplation of insolvency; that is to say, that at the time the act complained of is done, or in consequence of that act after it is done, he should be made unable to pay his creditors in the ordinary way.1 Further, it must be done with the intention of preventing the equal distribution of the debtor's property among his creditors, and in a manner which can be described as dishonest or fraudulent.

1367. Fraudulent Preference. Where an insolvent debtor removes, or conceals, or delivers over his property to any person, simply in order that it may escape seizure for his debts, there can be no doubt as to both the dishonesty and fraud of the proceeding. The only difficulty will arise under the next clause of the section, where he dishonestly or fraudulently transfers or causes to be transferred to any person without adequate consideration, any property, with the intent described in the section. This seems to aim at what is known in bankruptcy as fraudulent preference. The use of the words "dishonestly or fraudulently," shows that the section contemplates different states of mind, of which, probably, fraudulent is the weaker, and is used because it is a technical term, which has been frequently defined by the courts in reference to this particular class of acts. In Young v. Fletcher, Pigott, B., said, with regard to s. 67 of 12 & 13 Vict., c. 106, which declares that a fraudulent transfer by a trader of any of his goods with intent to defeat or delay his creditors, shall be an act of bankruptcy: "We have to say what is the meaning of the word fraudulent in the

1 Smith v. Cannan, 2 E. & B. 35; S.C. 22 L.J. Q.B. 290; Morris v. Morris (1895), A.C. 625. 23 H. & C. 732; S.C. 34 L.J. Ex 154.

section. It seems to me that all the authorities almost are uniform upon that subject, and it is not necessary that there shall be moral fraud. The great point to look at is this: Would it have the effect of defeating and delaying the creditors? and if so, it is fraudulent within the meaning of the bankruptcy acts, the object of which is that the goods of the debtor shall be divided ratably among his creditors." As to what acts are considered to have such an effect, the law was laid down as follows by Wightman, J.:1 1 "The assignment of the whole of a trader's property is an act of bankruptcy, as the necessary effect of such a deed is to delay and defeat creditors.* So also the assignment of the whole, with a colourable exception only of part, is an act of bankruptcy for the like reason, for though a small part is left out, it is in effect an assignment of the whole. An assignment of part by way of fraudulent preference would be an act of bankruptcy; but if it be assigned under pressure, the authorities show that it is not an act of bankruptcy.' is not a necessary ingredient in the fraud which constitutes an act of bankruptcy that the grantee should have notice of the fraud.3

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¶368. An assignment even of the whole of a trader's property, present and future, is not fraudulent under the bankruptcy law, if at the time of the assignment he receives some substantial contemporaneous payment or some substantial undertaking to make payment in futuro; for such an arrangement, so far from defeating or delaying his creditors, may enable him to continue his business so as to put them in a better position. Nor is the mere fact that a debtor under insolvent circumstances pays the whole of his claim to a single creditor either an act of bankruptcy or an indictable offence. It is a preference, but it is not a fraudulent preference, unless the act is done by the debtor of his own accord, for the purpose of defeating the law, and preventing the due distribution of

1 Smith v. Timmins, 1 H. & C. 849; S.C. 32 L.J. Ex. 215.

2 It makes no difference that the assignment is to trustees for the benefit of all the creditors who assent to it. It is in itself an act of bankruptcy and void against the official assignee. The question whether it is voluntary or not is immaterial. Karsandas v. Maganlal, 25 Bom. 476; Manmohundas v. McLeod, 26 Bom. 765.

8 Hall v. Wallace, 7 M. & W. 353; Smith v. Cannan, 2 E. & B. 35; S.C. 22 L.J. Q.B. 290.

Khoo Kwat Siew v. Wooi Taik, 15 I.A. 15, p. 19.

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