ABDEL RAHMAN ABDEL WAHAB ALLOUB, Appellant-Defendant v. RECEIVER IN BANKRUPTCY OF YOUSIF AND ABDEL KERIM ALI MUSA
Bankruptcy-Fraudulent preference-Transaction may be preference though
transferee took without notice of available act of bankruptcy and in good
faith
1 The current 1953 Rent Restriction Ordinance doesnot contain an identical
section. The nearest equivalent to this seems to be section 11 (a) which talks
about recovery of possession by the landlord where the tenant fails to pay any
rent lawfully due.
* Court: Peacock J.
Appellant, a creditor of Yousif and Abdel Karim, received a payment
-from Yousif and Abdel Karim when Yousif and Abdel Karim had told him
that they were unable to pay their debts in full. On the subsequent bank-
ruptcy of Yousif and Abdel Karim, the receiver (respondent) sued appel-
lant to recover the amount of the payment, alleging that the payment was
voidable at his instance under Bankruptcy Ordinance 1916, section 31, as a
fraudulent preference. Appellant replied that, although when he took the
payment he knew Yousif and Abdel Karim were in financial difficulties, he
took in good faith, without intending to be preferred, and without notice of
any available act of bankruptcy· by Yousif and Abdel Karim, therefore the
transaction was not voidable at the instance of respondent but was pro-
tected by Bankruptcy Ordinance 1916, Section 32.
Held: (i) A transaction may amount to a fraudulent preference even
though the transferee took in good faith, before the presentation of the
bankruptcy petition, and without notice of any available act of bankruptcy
by the transferor.
(ii) Certain transactions are protected against avoidance by the re-
ceiver in bankruptcy provided certain conditions are fulfilled, e.g., that the
transferee took in good faith and without notice of any available act of
bankruptcy by the transferor, by Bankruptcy Ordinance 1916, section 32,
but such transactions only receive such protection provided they are not
fraudulent preferences as defined by section 31 of that Ordinance. This is
indicated by the opening words of section 32, which are "Subject to the
foregoing provisions . . . ," and which mean "except as provided (herein-
before)."
(iii) A court is not bound to consider whethet a disputed transaction
falls within section 32 if it is already satisfied that the transaction is a
fraudulent preference within the terms of section 31.
(iv) The fact that a transferor, on making a transfer, tells his trans-
feree that he is unable to pay all his debts in full, is some evidence for
the transferee and for the court that the transferor made the transfer with
a view to giving a preference to the transferee.
Constantine Saba v. Receiver in bankruptcy of Beshir Terous AC-APP-
24-1921, 1 S.L.R. 187 followed.
Appeal
July 29, 1922. Peacock J. This appeal is presented on the ground
that the district judge should have taken section 321 of Bankruptcy
Ordinance 1916 into consideration, before holding that this transaction
was a fraudulent preference and void within section 31.2
In his petition of appeal the appellant does not suggest that apart
from section 32 this transfer was not made with a view of giving the
1 Section 32 of Bankruptcy Ordinance 1916 was substantially re-enacted as
section 51 of Bankruptcy Ordinance 1929.
2 Section 31 of Bankruptcy Ordinance 1916 was substantially re-enacted as
section 50 of Bankruptcy Ordinance 1929.
appellant preference-apart from section 32 he does not appear to
consider this arguable. He argues that, as the appellant' had no notice
of any act of brankruptcy and received the .money before the date of
the petition and in good faith, this must not be treated as a fraudulent
preference.
There is no. doubt that the bankrupt firm considered it to its,
interest to make this payment to the appellant. It would be very dif-
ficult for the appellant, having regard to his admission that the bank-
rupt firm informed him that its financial position debarred the firm
paying its debts in full, to argue that the transfer of property was not
made with a view of giving him preference.
I am satisfied that the learned judge was entitled to consider
this transfer to be void as being a fraudulent preference within section
31 of the Bankruptcy Ordinance. If within section 31, what effect
has section 32? It has been held in the case of Constantine Saba v.
Receiver in bankruptcy of Beshir Terous AC-APP-24-1921, 1 S.L.R.
-that the words "Subject to the foregoing provisions" mean "except
as provided" and therefore do not apply if the court is satisfied that
the transaction is covered by section 31. I am in agreement with that
decision and am bound by it. The appeal must - be dismissed with ,
costs.
Appeal dismissea