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SECTION 53: - FRAUDULENT TRANSFER

PROJECT OF TRANSFER OF PROPERTY
ACT
On
FRAUDULENT TRANSFER

Submitted by :-









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SECTION 53: - FRAUDULENT TRANSFER


INTRODUCTION
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Fraudulent transfer law developed under the common law and was
codified in the Statute of Elizabeth.
1
The Statute of Elizabeth provided for
the avoidance and punishment of transfers made "to the end, purpose
and intent, to delay, hinder or defraud creditors.
2
This early fraudulent
transfer statute was apparently in part a criminal law, in part a revenue
measure (the Crown could receive a portion of any recovery), and only in
part a creditor protection. However, when the English courts held that a
judgment creditor could disregard a fraudulent conveyance and levy
execution on the property transferred, the fraudulent conveyance law
became primarily one of creditor protection.
This section deals with the subject known as fraudulent transfers
of immoveable property. Subject to savings hereinafter mentioned, a
transfer is fraudulent when it is made with intent to defeat or delay the
creditors of the transferor or to defraud a subsequent transferee. In the
first instance consideration may or may not be present. In the second
case consideration is non-existent. In either case the transaction is
voidable at the instance of the creditor defeated or delayed or the
transferee defrauded. The Law of Property Act, 1925, on which the
present section is based, is wider; instead of the creditor being entitled to
avoid the transaction the person prejudiced is given the right.
The original section was founded on two statutes of Elizabeth,
namely, 13 Eliz., c. 5 and 27 Eliz., c. 4. These two statutes were repealed
and re-enacted as Sections 172 and 173 of the Law of Property Act,
1925.

1
13 Eliz., ch. 5 (1571) (Eng.). See also Glenn, supra note 9, SS 58- 62.
2
13 Eliz., ch. 5, S 1 (1571) (Eng.).
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SECTION 53: - FRAUDULENT TRANSFER


This section. while safeguarding the rights of transferees in good faith
and for consideration empowers the creditors to avoid any transfer of
immovable property made by the debtor with intent to defeat or delay the
creditors
3
S. 53 is not exhaustive and therefore the principle of the
section would apply in cases of fraudulent transfers even jf the section
may not apply in terms. The provisions of S. 53 must be strictly
construed.
The basic requisites for the applicability of S. 53 are:-
(i) there should be a transfer of immovable property;
(ii) the transfer ought to have been made with intent to defeat or delay
the creditors; and
(iii) the suit must be brought by the creditor, acting on behalf of or for
the benefit of the entire body of creditors, for avoiding such transfer.
Under S. 53 of the T.P. Act a person who challenges the validity of
the transaction must prove two facts- (I) that the document was executed
by the settler; and (2) that the said document was executed with clear
intention to defraud or delay the creditor. How the intention is to be
proved is a matter which would largely depend on the facts and
circumstances of each case.
4

Under Section 53 of the Transfer of Property Act a person who
challenges the validity of the transaction must prove two facts-(l) that a
document was executed by the settler; and (2) that the said document
was executed with clear intention to defraud or delay the creditors, that
the purchaser did not act in good faith.
5



3
Phoolan Devi v. Surendra Prakash, AIR 1983 All 440 (442).
4
Suresh mallappa shetty v. Spl. Recovry officer, 2003 AIHC 1164.
5
C. Bhandari v. Dy. Commrl T. Officer. AIR 1976 SC 656 (660).
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SECTION 53: - FRAUDULENT TRANSFER


The primary requirement for the applicability of this section is the
existence of a valid transfer. Where it is claimed that the transfer made
by the debtors was a sham and fictitious transaction and there was no
animus transfer end i.e. when the real intention of the parties was not to
give effect to the supposed transfer at all and it was merely to be used as
a shield or a facade for achieving some ulterior purpose, Section 53
cannot legitimately be taken aid of.
6
S. 53; presupposes a transfer, which
is prima facie valid and operative. If the sale is invalid ab initio, and does
not exist in the eye of law, a creditor need not bring any suit for avoiding
it. Policy of law always has been to frown upon all attempts at fraudulent
transferors. While law favours exchange of property as a natural right of
a person to deal with it in a normal manner, the law has always set its
face against this privilege being abused to the detriment of the innocent
public. Creditors inclusive, who had dealt with transferor on the faith of
the security of their debtor. Any attempt by the debtor to withdraw his
assets from the control of his creditors therefore, has always received
just condemnation by the courts of law who have compelled the debtor to
make good the representation on the faith of which presumably he had
obtained credit. In such circumstances, the courts have never been loath
in setting aside such transactions.
Before Section 53 of the Transfer of Property Act can be applied, the
creditor plaintiff must come to the Court in the premise that although
the transaction was genuine and effective, yet it was entered into with
intent to delay or defeat the creditors. It is only to such cases that
Section 53 will in terms apply.
7


6
Phoolan Devi v. Surendra Prakash, AIR 1983 A1I 440 (442).
7
Phoolan Devi v. Surendra Prakash, AIR 1983 A1I 440 (442).
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SECTION 53: - FRAUDULENT TRANSFER


S. 53 speaks of fraudulent transfers i.e. real transactions, it does not
apply to sham fictitious transactions. Where the sale deed specifically
recited that the entire sale consideration had been received by the
executants before the execution of the deed, the deed could not be said
fraudulent deed. Where in execution of a fraudulent decree possession
had already been delivered to the auction purchaser, creditor's suit for
declaration that the decree and all the proceedings in execution were null
and void was otherwise maintainable apart from the provisions of S. 53.
8


TRANSFER

The transfers referred to in this section are transfers binding
between the parties, but voidable in the circumstances stated in the
section. A document made to defeat or to delay his creditors is binding
on the executant, and those claiming under him. The transfer is valid
until it is set aside, and must not be confused with benami or colourable
transfers which are merely sham transfers, and not meant to operate
between the parties.

In the collusive or benami transactions there is no transfer, but the
property is merely put in a false name, and generally for the purpose of
defrauding creditors. As observed by Sir Lawrence Jenkins in Mina
Kumari v Bijoy Singh,
9
the difference is distinct though it is often flurred.
Such colourable or sham deeds do not require to be set aside, for the real
title is all along with the transferor. They are outside the scope of the

8
T. Mudaliar v. T Narayana Reddiar. AIR 1959 Mad 141 (142) (DB); see also Ram Nathan v.
unnamalai, AIR 1942 Mad 632: ILR (1943) Mad 47.
9
(1916) ILR 44 Cal 662, 44 IA 72, 40 IC 242, AIR 1916 PC 232.
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SECTION 53: - FRAUDULENT TRANSFER


section.
10
It is relevant to note that a contention that the transaction is a
sham and nominal transaction, and that the property was never
conveyed at all, and remained the property of the original owner, may go
even contrary to the contentions raised that are based upon S 53 of the
TP Act. If the contention that it is a sham and nominal transaction is
accepted, S 53 may not have any application. Infact, the challenge based
on S 53 involves the admission that the transfer is a real one.
11
Transfer
includes a sale
12
; a grant under a 1ease
13
including a lease created by a
mortgagor
14
transfer by way of a Mortgage or one by exchange or an oral
gift under Muslim law. Any transfer made with the permission of the
court and in accordance with the terms imposed by it will not be subject
to the rule of lis pendens
15
.

FRAUDULENT TRANSFER

Section 53: - Fraudulent transfer.-(l) Every transfer of immovable
property made with intent to defeat or delay the creditors of the
transferor shall be voidable at the option of any creditor so defeated or
delayed.
Nothing in this sub-section shall impair the rights of a
transferee in good faith and for consideration.
Nothing in this sub-section shall affect any law for the time
being in force relating to insolvency.

10
Prabhu nath v. sarju Prasad AIR 1940 All 407.
11
Chumar v. Alima AIR 1998 Ker. 139.
12
Gurmail Singh v. Udham kaur(deed) by Irs AIR 1999 P&H 300. See generally [65] Civil Procedure.
13
Madan Mohun Singh v. Raja Kishori Kumari AIR 1917 Cal 222, (1917) 21 Cal WN 88.
14
Magan Lal jagjiwandas v. Lakhiram Haridasmal AIR 1968 Guj 193, (1968) 9 Guj LR 161.
15
Sripat Singh v. Naresh Chandra Bose AIR 1926 Pat. 94.
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SECTION 53: - FRAUDULENT TRANSFER


A suit instituted by a creditor (which term includes a decree holder
whether he has or has not applied for execution of his decree) to avoid a
transfer on the ground that it has been made with intent to defeat or
delay the creditors of the transferor, shall be instituted on behalf of,
or for the benefit of, all the creditors.
(2) Every transfer of immovable property made without
consideration with intent to defraud a subsequent transferee
shall be voidable at the option of such transferee.
For the purposes of this sub-section, no transfer made without
consideration shall be deemed to have been made with intent to
defraud by reason only that a subsequent transfer for consideration
was made.
This section consists of two parts. The first part lays down that
every transfer of immovable property made with intent to defeat or
delay the creditors of the transferor shall be voidable at the option
of any creditor so defeated or delayed.
To take one illustration, A, who is heavily indebted, and against
whom a suit for the recovery of debts is going to be filed, sells his
house to B to save it from being attached and sold in payment of the
debt. If B knows of A's fraudulent intention, the sale to B is liable to
be set aside at the option of the creditors. It will be seen that the
rights of a transferee in good faith and for consideration are not
affected even though the transfer is made with intent to defeat the
creditors.
The second part of the section lays down that every transfer of
immovable property made without consideration with intent to
defraud a subsequent transferee shall be voidable at the option of
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SECTION 53: - FRAUDULENT TRANSFER


such transferee, but that no presumption to defraud shall
necessarily arise by reason only that a subsequent transfer for
consideration was made.
Section 53, while safeguarding the rights of transferee in good faith
and for consideration, empowers the creditors to avoid any transfer
of immovable property made by the debtor with intent to defeat or
delay the creditors. It, however, requires that such a suit must be
instituted either in a representative capacity or for the benefit of all
the creditors. The basic requisites for the applicability of Section 53
may be stated to be:
(i) there should be a transfer of immovable property;
(ii) the transfer ought to have been made with intent to defeat or
delay the creditors; and
(iii) the suit must be brought by the creditor, acting on behalf of
or for the benefit of the entire body of creditors.
The primary requirement for the applicability of the section,
therefore, appears to be the existence of a valid transfer. Where it is
claimed that the transfer made by the debtor was a sham and
fictitious transaction and there was no animus transferendi, i.e. when
the real intention of the parties was not to give effect to the
supposed transfer at all and it was merely to be used as a shield or
a facade for achieving solve ulterior purpose, Section 53 of the
Transfer of Property Act cannot legitimately be taken aid of. Policy
of law always has been to frown upon all attempts at fraudulent
transfers.


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SECTION 53: - FRAUDULENT TRANSFER


While law favours exchange of property as a natural right of a
person to deal with it in a normal manner, the law has always set
its face against this privilege being abused to the detriment of the
innocent public, creditors inclusive, who had dealt with the transferor
on the faith of the security of their debtor.
Any attempt by the debtor to withdraw his assets from the control of his
creditors, therefore, has always received just condemnation by the
courts of law who have compelled the debtor to make good the
representation on the faith of which presumably he had obtained credit.
In such circumstances, the Courts have never been loath in setting
aside such transactions. Before Section 53 of the Transfer of Property
Act can be applied, the creditor plaintiff must come to the Court in the
premise that although the transaction was genuine and effective, yet it
was entered into with intent to delay or defeat the creditors. It is only to
such cases that Section 53 will in terms apply.
16

Every transfer of immovable property made with intent to defeat or delay
the creditors of the transferor will be voidable at the option of any
creditor so defeated or delayed
17
. A suit instituted by a creditor, which
term includes a decree-holder whether he has or has not applied for
execution of his decree, to avoid a transfer on the ground that it has been
made with intent to defeat or delay the creditors of the transferor must
be instituted on behalf of or for the benefit of, all the creditors
18
.
Thus, a marriage settlement, a deed of appointment', a surrender of a life
estate, a relinquishment6, a collusive award or decree is voidable at his

16
Smt. Phoolan Devi v. Surendra Prakash, A.I.R. 1983 All. 440,
17
Transfer of Property Act 1882 Sec 53 (1) para 1. Nothing in this statutory provision will affect anv law
for the time being in force relating to insolvency: Transfer of property Act 1882 Sec 53(1) para 3.
18
Transfer of property Act, 1882 Sec 53 para 4. See Anantha Raman Pillai V. Arunachalam AIR 1952 TC
105.
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SECTION 53: - FRAUDULENT TRANSFER


option but not a deed of dissolution of partnership with intent to defeat
the creditors.

CONTINGENCIES OF FRAUDULENT TRANSFER

Presumption of fraudulent intention:
The existence of a fraudulent intent has to be proved and would
not be presumed by the court. Each case has to be decided on its own
merits, but where the transferee was in embarrassed circumstances and
the transfer is between near re1ations or members of a small community;
or the transfer was a cover up primarily to retain the benefit for the
transferor unless the benefit is very small, these would be evidences of
fraudulent intention but merely because the transfer was without
considerations; or was for discharge of a bona tide debt in accordance
with family policy or was to a female descendant in absence of present
debts would not indicate fraud.
19


Intent To defeat or delay creditors:
The intention must be to defeat or delay the creditors generally,
that is, all the creditors or even a single creditor but a mere preference of
one over the other creditor is not enough for the application of this rule
unless the transferee shares a fraudulent intention" or it is with the
intention to defeat a particular creditors interest , Where the price
realised from one of the creditors is considerably in excess of the debts or
where a fictitious debt is included in the consideration or where more

19
Maung Din v. Ma Hnin Me AIR 1925 Rang 2278.
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SECTION 53: - FRAUDULENT TRANSFER


property is transferred than necessary, it is an evidence of an intent to
defeat the creditors generally.
The mere fact that a portion of the property is transferred is immaterial
unless there is cogent proof that there is other property left which is
sufficient in value and easily available for the creditors. Inadequacy of
consideration may not itself be sufficient to make the transaction
voidable.
20

Such intention can be proved by circumstantial evidence. The
evidence required to substantiate fraud must necessarily vary according
to the circumstances of each case. The mere fact that a transfer is made
without consideration will not necessarily lead to an inference that the
transfer was made with the intention of defrauding the creditor. The
following factors may be relevant to a conclusion that the transaction is
not bona fide-
(i) the debtor sells all his property keeping nothing to himself;
(ii) the consideration is grossly inadequate;
(iii) the transfer is made secretly and in haste;
(iv) the transferor puts all his property out of the reach of those
who might become his creditors before embarking on some
hazardous enterprise.
But each of the above factors must be considered along with other
circumstances of the case. However suspicious a transaction may be,
there must be cogent evidence of fraud. The mere fact that debts are due
from the transferor is not by itself sufficient to establish a fraudulent
intention.


20
Kedarwati v Radhey LalAIR 1937 Pat 609,170 lC 353, (1936) Pat WN 898.
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SECTION 53: - FRAUDULENT TRANSFER


It must, however, be noted that if a person acquires property for value
and in good faith, that is, without being a party to any design on the part
of that transferor to defeat or delay creditors, his rights will not be
affected although the transferor's intention might have been fraudulent.
In fact, whenever Section 53 is applied it is the transferee who ultimately
suffers provided he knew of the fraudulent intention of the transferor.
The knowledge and intention of the transferee are the main factors. In
Palamalai v. The South Indian Export Co.
21
, A being in financial
difficulties wished to convert his property into cash so as to conceal it
from his creditors. B being aware of A's object assisted him by
purchasing the property. The sale was voidable under this section.

In order to take out the case from the operation of Section 53, it is,
however, essential that the debtor must not reserve any benefit for
himself. If the debtor sells property to another creditor to discharge the
debt due to him and the price obtained is considerably in excess of the
debt discharged, this would be evidence of intent to defraud.
22

The terms of Section 53 (1) are satisfied even if the transfer does not
'defeat' but only 'delays' the creditors. Therefore, the fact that the entire
property of the debtor was not sold, does not by itself negative the
applicability of Section 53 (1) unless there is cogent proof that there is
other property left sufficient in value and of easy availability to render
the alienation in question immaterial for the creditors.
23



21
(1910) 33 Mad. 334 : 5 I.e. 33.
22
Hanifa Bibi v. Punnamma, (1907) 17 Mad. L.J.11.

23
Abdul Shukoor Saheb v. Arti Papa Rao. A.I.R. 1963 S.C. 1150
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SECTION 53: - FRAUDULENT TRANSFER


Transfer partly for genuine consideration and partly fraudulent:
Where in a transfer, two considerations are stated one of which is
valuable and separable from the other, effect will be given in the
instrument to the exact amount of consideration which is valuable
and to the extent the transaction cannot be regarded as
fraudulent
24
out where a substantial portion is for fraudulent
intention or the two parts are not separable, the whole transaction
would be voidable.

Applicable as Rule of Justice, Equity and Good Conscience:

The principle of s 53 has been adopted in the Punjab where the TP Act
was not in force, and was also followed in Bombay before the TP Act was
extended to that Presidency.
It has, however, been held that the requirement that any suit filed to set
aside a fraudulent transfer must be a representative suit, will not be
insisted upon in Punjab as that is a mere technicality.
25


Creditor:
The word 'creditor' has been used in this section in somewhat wide
sense. Thus, it includes all those who are creditors at the date of transfer
as well as those who become creditors subsequent to the date of
fraudulent transfer.
26


24
Rajani Kumar Dass v Gourkishore Shaha (1908) ILR 35 Cal 105l.
25
Badri Dass v Chunilal (1961) 63 Punj LR 319,AlR 1961 Punj 398; Shallo Devi v Mobinder Singh AIR
1971 P&H 325.And see State of Punjab v Giani Bir Singh (1968) ILR 1 Punj 10 ,AlR 1968 Punj 479.
26
Ram Das v. Debu, A.I.R 1930 All. 610.
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SECTION 53: - FRAUDULENT TRANSFER


Further, it includes not only those creditors who have obtained decrees,
but also those whose claims have yet to be proved in a Court.
27
On the
other hand, a person who claims an unliquidated sum for damages for
tort or breach of contract is not a creditor, nor a person whose claim for
a debt has become time-barred.
Partition:
This section has been applied to cases of partition. The
correctness of these decisions was a question canvassed before the
Supreme Court in Sarin v. Poplai,
28
but the Supreme Court declined to
go into the question.

The correct view, it is submitted, is that a partition is not a transfer, and,
therefore, not strictly within the Section, but that the principle of the
Section applies to a fraudulent partition. Where the object of the transfer
is not merely to give a sharer his rightful share in the family property,
but to effect the partition in such a way that such sharer would be able
to defeat the creditors, as for instance, to allot to him properties which
the creditors would not be able to touch and which he would be able to
keep for himself, it is clearly a transaction which fulfils the requirement
of the Section.
29
A reference to arbitration which led to an award and
decree for partition by which the father received an allowance in lieu of
his share in the family property, was held not to be voidable under this
section as there were no debts in existence at the time of the reference,
and as the object was not to defeat creditors, but to safeguard the
interests of a minor son.

27
Islvar v. Devar, 30 Bom.146.
28
1966 1 SCR 349, AIR 1966 SC 432.
29
Vinayak v. Mureshwar AIR 1994 Nag. 44.
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SECTION 53: - FRAUDULENT TRANSFER


A partition which does not provide for the payment of a Hindu father's
debt is mala fide, and may be avoided by a creditor in proceedings in
execution of a decree against the father. Similarly, in a partition in which
no property was allotted to the father who was indebted, it was held that
the partition was illusory, although the sons were directed to pay the
father's debts.
30
Where there is partition in a joint Hindu family or a
release deed by an indebted coparcener, S 53 is attracted, if the object of
the allotment of share to such coparcener is to help him defeat his
creditors. Even assuming that partition in a Hindu family and release
deed by a coparcener in respect of his share does not amount to a
'transfer' within the meaning of S 5 and, therefore, is not within the
purview of s 53, the principle of the section can be invoked. If the object
of a given instrument of a partition or a release deed is not to give a
sharer his rightful share in the family properties, but to effect a partition
in such a way that such a sharer would be able to defeat the creditors, it
would amount to a fraudulent partition.

Waqf:
A deed of waqf executed as a device to put property out of the
reach of creditors has been held to be a transfer to which this section
applies, the court observing that S 53 does not infringe any rule of
Mahomedan law, for under that law no person can make a waqf of his
entire property without making arrangements for the payment of his
debts.
31
In such a case, it is immaterial that the transfer is valid under
Mahomedan law.

30
Picha moppanar v. Vetu Pillai, AIR 1947 Mad 203.
31
See Har prasad v. Mohammad Usman 1942 All LJ 645.
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SECTION 53: - FRAUDULENT TRANSFER


It is open to a debtor to prefer one or more creditors over the others in
the payment of his debts, and so long as he retains no benefit in the
property, the mere circumstance that some creditors stand paid while
others remain unpaid, does not attract the provisions of S 53.
Where it was found that the sale of the assets of the company was
effected for the purpose of discharging the debts payable by the company
and that the consideration was not inadequate, it is immaterial that the
transfer was effected in favour of a person who was not a creditor.
A debtor can prefer one creditor over others in the payment of his debts.
So long as he retains no benefit in the property, the mere circumstance
that some creditors stand paid while others remain unpaid, does not
invalidate the transfer. Sale of assets by a company for adequate
consideration is not invalid merely because it is in favour of a non-
creditor.
32

Plea of defence based on Section 53:

The following case of the Supreme Court is illustrative of a plea of
defence based on Section 53 of the Transfer of Property Act:
Immani Appa Rao v. Coolapali Ramlingmurthy
33
, The defendant V
the father and manager of the joint Hindu family) had suffered heavy
losses in the business conducted by him with the result that he was
indebted to the extent of several thousand rupees.
Apprehending that the properties would be lost to the family at the
instance of his creditors, he executed a collusive and nominal mortgage
deed for Rs 1,000 in favour of the plainliff G.


32
Union of India v. Rajeswari & Co. AIR 1986 SC 1748.
33
A.l.R. (1962) S.C. 370: (1962) 3 S.C.R. 739.
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SECTION 53: - FRAUDULENT TRANSFER


The execution of the said collusive document between V and G came to
the knowledge of some of the creditors and it led to an insolvency petition
against V by one of the creditors. In these insolvency proceedings, V was
adjudicated insolvent and the properties of V were sold to G subject to
aforesaid nominal mortgage in favour of the plaintiff. Really K purchased
the property with his own money but benami in the name of G on the
condition that G would reconvey the properties to the family of V
whenever called upon to do so. In pursuance of the said sale-deed the
plaintiff G obtained possession but subsequently V trespassed on the
properties and dispossessed. G. Later on the plaintiff G filed a suit
against V for declaration of his title and for recovery of possession. The
defendant pleaded that the document executed in favour of the plaintiff
was nominal and collusive and was not supported by any consideration.
In other words, the material facts in brief were that:
(a) The transaction in favour of the plaintiff was the result of a
fraudulent plan to which both he and the defendant agree",
(b) This transaction was effected with the mutual consent of the
vendor and the vendee to defraud the creditors of the vendor.
(c) So the transfer was not supported by any considerations and
the transferee agreed to act as the benamidar until the
transferor required him to reconvey the properties to his sons.
(d) The object intended to be achieved and the fraud initially
contemplated by both the parties to the suit had been achieved
and the creditors of the defendant had been defrauded.
(e) Thus, both the parties to the suit were confederated in the
fraud and were equally guilty of fraud.


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SECTION 53: - FRAUDULENT TRANSFER


It was held by the Supreme Court that:
(i) There can be no question of estoppel for the defendant from
pleading in the suit fraud and absence of consideration. The
reason is that the fraud in question was agreed by both the
parties who had assisted each other in carrying out the
fraud.
(ii) When it is said that a person cannot plead his own fraud, it
really means that a person cannot be permitted to go to a
Court of law to seek for its assistance and yet base his claim
for the assistance of the Court on the ground of his fraud.
iii) The plaintiff can be said to be guilty of a double fraud:
(a) he joined the defendant in his fraudulent scheme and
participated in the commission of fraud the object of which was
to defeat the creditors of the defendant;
(b) he committed another fraud in suppressing from the Court the
fraudulent character of the transfer when he made out the
claim for recovery of possession. The conveyance in his favour
was not supported by any consideration and was the result of
the fraud and, therefore, conveys no title to him. Yet, if the plea
of fraud is not allowed to be raised in defence, the court would,
in substance, be giving effect to the document which was void
ab initio. Therefore, the paramount consideration of public
interest requires that the plea of fraud should be allowed to be
raised and tried and, if it is upheld, the estate should be
allowed to remain where it rests. The adoption of this course is
less injurious to public interest than the alternative course of
giving effect to a fraudulent transfer.
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SECTION 53: - FRAUDULENT TRANSFER


The terms of Section 53 (1) are satisfied even if the transfer does not
"defeat" but only "delays" the creditors.
The fact therefore that the entirety of the debtor's property was not sold
cannot by itself negative the applicability of Section 53 (1) unless there is
cogent proof that there is other property left, sufficient in value and of
easy availability to render the alienation in question immaterial for the
creditors.
34

Good Faith and consideration:
If the creditors established that the transfer was made with the
object of defeating them, the burden shifts on the transferee to prove: (i)
that he had paid it fair price, and (Ii) that he was not a party to the fraud.
The term 'consideration' as used in this section has the same meaning as
it has in the Contract Act and therefore excludes natural love and
affection. Transfers for natural love and affection and treated as transfers
without consideration.
Where the fraud on the part of the transferor is established, the
burden of proving that the transferee falls within the exception is upon
him, and, in order to succeed, he must establish that-
(a) he was not a party to the design of the transferor,
(b) he did not share the intention with which the transfer has been
affected, and
(c) he took the sale honestly believing that the transfer was in the
ordinary and normal course of business.
When once the conclusion is reached that the transaction was effected
with the intent on the part of the transferor to convert the property into
each so as to defeat or delay his creditors, then the following
circumstances prove that the plaintiff shared that intention:

34
Abdul Shakoor Sahib v. Arji Papa Rao, AIR 1963 SC 1150.
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SECTION 53: - FRAUDULENT TRANSFER


(i) The plaintiff and the vendor belong to the same community,
a small, compact and well knit one, and they must obviously
have known each other having been in trade for several years
in several places in common and must, therefore, have been
well acquainted with the financial and business affairs of
each other.
(ii) The plaintiff admittedly had with him a copy of the deed of
dissolution which discloses that the firm's business had
resulted in losses and that it was greatly indebted, the debts
amounting to Rs. 2 lakhs. Even when the plaintiff was fixed
with notice that the firm's business had been running at a
loss and had accumulated a very large volume of debts, the
purchaser did not insist that the consideration which he was
paying should be utilised for the discharge of at least some of
the debts.
(iii) The property is situated at Vizianagram but the document of
sale-deed was registered at Madras. This was a view to keep
the transaction secret from the creditors, and the plaintiff
was as much a party to the secrecy as the transferor.
(iv) The plaintiff made the enquiries before he took the transfer.
He led evidence to show that he consulted his lawyers about
the title of the vendor but any attempt at an enquiry of
defendant 4 as to why he was affecting the sale of the only
immovable property of the firm which was allotted to him
under the dissolution deed is significantly absent.
In these circumstances, it stands to reason that the plaintiff must be
fixed with notice of the design in pursuance of which transfer was
effected.
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SECTION 53: - FRAUDULENT TRANSFER


If the object of a transferor, who is heavily indebted, was to convert his
immovable property into cash for keeping it away from his creditor and,
knowing it, the transferee helped him to achieve this purchase, it has
naturally to be held that he shared that intention and was himself a
party to the fraud. Therefore, it has to be held that the plaintiff was not a
transferee in good faith and that the transfer itself was a scheme by the
transferor with the knowledge and concurrence of the transferee to put
property out of the reach of the creditors.

Nature of suit:
A creditor's suit to avoid a transfer must be a suit on behalf not
only of himself, but of the whole body of creditors (See Order 21, Rule 63,
C.P.C.). This rule has been laid down with a view to protect the debtor
from multiplicity of suits by each and every creditor, if there are more
than one.
In a suit to avoid a transfer under this section, the issues to be
framed are: -
(1) Was the transfer made with intent to defeat or delay the
creditors?
(2) If so, was the purchaser from such a debtor a transferee in good
faith and for consideration?
The onus of proving the first issue lies on the creditor, and' if that is
established, the onus of proving the second issue is on the transferee.

Suit by transferee:
A transfer which is voidable under Section 53 (1) of the Transfer of
Property Act can be avoided not only by a suit instituted by a creditor
challenging the transfer on behalf of himself and the other creditors,
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SECTION 53: - FRAUDULENT TRANSFER


but also by way of defence to a suit under Order 21, Rule 63 C.P.C. by a
transferee (claimant) whose petition was rejected in the summary
proceeding under Order 21, Rules 58 to 61, C.P.C.
In order to avoid transfer which come within the mischief of
Section 53 of the Transfer of Property Act, it is not necessary that the
person who intends to avoid the transaction should file a suit for the
purpose. He may as well manifest his intention to avoid the transaction
otherwise than by filing a suit, as for example, by attaching the property
transferred. His very act of attaching the property would be sufficient
evidence of his intention to avoid it.
35

Where in a suit under Section 53, brought by one of the creditors,
the heading of the plaint did not indicate that the suit was for and on
behalf of all other creditors, but the names of other creditors whom the
plaintiff knew were given in the body of the plaint, the plaintiff was held
to have locus standi to file the suit and the suit is maintainable.
36

The appellant was shown to be the only creditor. There were no other
creditors.
Held:
As a creditor he could not be defrauded, because his loans were secured
by the mortgage deeds. A gift in respect of properties already mortgaged
could not in any way defeat or delay the mortgagee's right because the
donee under the gift-deed could only take the properties subject to the
mortgages.




35
Ashutosh Rath v. Vysyaraju Badareenarayan, (1972) 38, C.L.T. 857 [ A.I.R. (1963) S.C, 1150 rel. on.
36
Talwar v. Adeshwar Lal, A.I.R. (1972) Delhi 122.
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SECTION 53: - FRAUDULENT TRANSFER


BIBLIOGRAPHY

Primary Sources

1. AIRs
2. CLT
3. Transfer of Property Act, 1882

Secondary Sources

1. Transfer of Property Act by Dr. GP Tripathi
2. Dr. Poonam Pradhan Saxena, Property Law (2
nd
, LexisNexis, New
Delhi 2011)
3. Sanjiva Row's Transfer of Property Act (7th, Universal, New Delhi
2011)
4. G.C. Bharuka, Mulla, The Transfer of Property Act 1882 (10th,
Lexis Nexis, New Delhi 2006)
5. Soli J. Sorabjee, Darashaw J Vakil's The Transfer of Property Act:
(4 of 1882)(3
rd
, Wadhwa and Company, New Delhi 2009)

Websites Referred:

1. www.du.ac.in (Study Material)
2. www.indiankanoon.org