26 NLR 52

• Jurisdiction: Sri Lanka
• Court: Court of Appeal (Sri Lanka)
• Citation: 26 NLR 52
• Date: 04 February 1924
• Case Number: NLR26V52
• Type of Document: Case report

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Present: Bertram C. J. and Ennis J.

SOOSAIPILLAI v. FERNANDO

307—D. C. Colombo, 4,133.

Insolvency—Fraudulent preference—Fraudulent alienation—Prescription —Concealed fraud—Action for accounting by assignee of partner— Must plaintiff show that there had been profits to ask for an accounting ?

W and the defendant entered into a partnership as from January 1, 1914, for three years by P 1. On December 11, 1914, W assigned his interest in the partnership to the defendant by deed P 2. By an informal document P 4a of the same day, the defendant agreed to give W one-third of the profits " that may be earned by. ... the business carried on under deed P I." W filed his petition of insolvency in October, 1915, and the assignee brought this action on February 21, 1922, against the defendant, praying that the defendant should be ordered to furnish an account of the profits of the business from December 11, 1914, to December 31. 1921, and subsequently added a further prayer that the deed of assignment P 2 and the agreement P 4a be set aside, and the plaintiff declared entitled to half of the entire business in terms of the deed of partnership P 1.

The District Judge held that P 2 was not a fraudulent alienation; that the agreement P 4a was binding on the defendant; that it terminated on December 31, 1916, when the partnership deed ceased to have any effect; that the Claim up to February 20, 1916, was prescribed; and as the existence of any profits had not been proved, he dismissed the action.

Held, that the creditors were entitled to the profits between February 21, 1916, and December 31, 1916, when the partnership expired under P 1; and that plaintiff was entitled under P 4a to an account of the profits of the business carried on under P 1.

An assignment by an insolvent may be impeached on several grounds. It may be impeached as a fraudulent preference tinder section 58 of the Insolvency Ordinance, or as a voluntary settlement under section 51. It may also be impeached if it can be shown that apart from these sections it is in effect a fraudulent conveyance executed within twelve months prior to the filing of the petition. If it was of an earlier date, the only remedy of the creditors is by a Paulian action.

THE facts are set out in the judgment.

Elliott, K.C. (with him H. V. Perera and C. W. Perera), for plaintiff, appellant.

H. J. C. Perera, K.C. (with him Samarawickreme, R. D. Pereira, and D. P. Fernando), for defendant.

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February 4, 1924. Bertram C. J.—

This is an appeal raising issues both of fact and law, but is in the main a case turning upon facts, and the difficulty that we have in the case is that it seems impossible to accept either of the conflicting stories told by the two principal witnesses. There is a further difficulty in that another witness, whose evidence would have been decisive on all the aspects of the case, has not been called at all. We are left to piece together the truth of the stories of witnesses whom we cannot believe.

The case originates out of the insolvency of Peter de Silva Wijeyeratne, who was declared an insolvent in October, 1915. The originator of the case is the insolvent himself, and the costs of the action are being defrayed by his wife.

The insolvent's story is as follows: He and the defendant were partners, and had for some time been associated in a landing and shipping business. A few months after they had entered into a formal partnership, his circumstances became embarrassed. At the time he was approached by his partner, the defendant, and pressed to put more money into the business. He declared his inability to do so, and was thereupon pressed to assign his share to his partner. They consulted a well-known proctor, Mr. J. A. Perera, and the insolvent alleges that upon this gentleman's advice, with a view to preventing the boats and other assets of the business being seized by the creditors of Wijeyeratne, they made an arrangement under which Wijeyeratne was to assign his share of the partnership to the defendant, and so to all appearances terminate his connection with the business, but that at the same time what is described as a "secret document" should be executed, reserving to Wijeyeratne an interest in the business to the extent of one-third of the profits.

The deed of assignment was prepared by Mr. J. A. Perera, and was to be executed not at his office or at the house of the partners, but, for some reason unexplained, at the house of a relation of Wijeyeratne. Mr. A. J. Perera did not attend to attest the document, but handed it to a junior proctor of good position. Mr. W. J. C. Fernando, to get it attested for him. This circumstance is not explained, but, of course, the explanation may be that Mr. Perera had other business to attend to. When the parties met, Wijeyeratne refused to sign the deed of assignment, unless at the same time a document was drawn up and executed securing him the one-third of the profits which had been promised him. Mr. W. J. C. Fernando had received no instructions on this point from Mr. Perera, but on the defendant's admitting that there was such an undertaking, he drew 'up, in a very informal way, a document to give effect to the undertaking, and this was signed by the defendant.

This is the first part of the story as told by the insolvent. We have now to follow the second part of the story which is concerned with

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the fortune of the so-called " secret document. " Later on in the evening of the same day Mr. J. A. Perera called upon the bankrupt and learnt, apparently with some surprise and embarrassment, of the execution of this document. He asked to see it, and had some difficulty in doing so, owing to the objection of the insolvent's wife. He saw it, however, and then, according to the insolvent, persuaded the latter to let him take it away with a view to getting a more formal document executed. Such a more formal document never was executed. Very soon after this a dispute arose between defendant and Wijeyeratne with regard to three promissory notes, amounting to Rs. 25,000, which, under the arrangement between the partners at the time of the partnership deed, were to have been discharged by Wijeyeratne, but had not been discharged in accordance with the arrangement. There seems every reason to believe that the defendant's complaint was just, and I understand the-District Judge so to think, but on this point there has been no issue. Mr. J. A. Perera appears to have been asked by the defendant not to surrender the "secret document" until this question was settled. A letter requesting the return of the document P 4 was drafted by Mr. W. J. C. Fernando for Wijeyeratne, who at this time was insolvent. Various evidence adduced shows that the document was at this time still in the possession of Mr. J. A. Perera. Afterwards it was found in the possession of the defendant. This in its main lines is the story of the insolvent.

The story of the defendant is entirely irreconcilable with this. According to him the impending insolvency of Wijeyeratne had nothing to do with the assignment. Wijeyeratne left the business as he had no time to manage it. Nothing was said about his financial affairs. The consideration for the transfer was calculated simply upon the basis of the financial position of the business. There was no stipulation at the time for any secret collateral agreement, but after the arrangement had been made and a few days before the execution of the assignment, Wijeyeratne came to him and pressed him to promise him, notwithstanding the assignment, a share of the profits. The defendant yielded to his importunities, and promised this share as "something extra." He declared that he...