CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF

PROPERTY

A PROJECT REPORT

ON

CONCEPT OF FRAUDULENT TRANSFER AND

TRANSFER OF PROPERTY

PROJECT SUBMITTED TO: PROJECT SUBMITTED BY

MISS APURVA VERMA AKHIL GANGESH

PROFESSOR (TRANSFER OF PROPERTY) ROLL NO. 14, SEM IV
SECTION C,BATCH 2013

(2014-2015)

(DATE OF SUBMISSION- 18/02/2015)

HIDAYATULLAH NATIONAL LAW UNIVERSITY

UPARWARA, NEW RAIPUR (C.G.)
CERTIFICATE OF DECLARATION

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The researcher hereby declares that the project work entitled

“CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY'' its importance and scope submitted to Hidayatullah National Law
University, Raipur, is a record of an original work done by the researcher under
the guidance of Miss Apurvi Verma professor of Transfer Of Property ,
Hidayatullah National Law University Raipur.
The research done by the researcher is his own original work and
wherever excerpts from the works of different authors have been taken, they
have been duly acknowledged.

Declared By:

Akhil Gangesh
Roll No. 14
Section-C
Semester- IV(Batch-13)
B.A., L.L.B (Hons.)

ACKNOWLEDGEMENTS

I would like to take this opportunity to express my deep sense of gratitude

towards my course teacher, Miss Apurva Verma for his kind gesture in allotting
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me such a wonderful and elucidating research topic and for giving me constant
guidance and encouragement throughout the course of the project.

I would also like to thank the University for providing me the internet and
library facilities which were indispensable for getting relevant content on the
subject and were instrumental in writing pertinent text.

Special thanks goes out to my seniors who have been relentless in their help
and supporting providing any material whenever required and my colleagues,
who always stood by me, irrespective of the decisions taken by me. Without
their support this project would not have seen the light of the day.

_____________________________________________________________

Akhil Gangesh

Semester-IV

B.A. L.L.B (Hons.)

Hidayatullah National Law University

Raipur, Chhattisgarh

CONTENTS

Certificate of Declaration………………………………..................…………2
Acknowledgment .................................................................................................3
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List of Abbreviations…………………………….…………........................….4
Research Methodology………….........................................................................5
Objectives of the study………..……...................................................................6
Introduction…………………..…………………...…..............................………7
Section 53 & its essentials.............……………..........................................…....8
English Law On Fraudulent Transfer..................................................................9
Indian Law On Fraudulent Transfer..................................................................11
Sham Transfers...........................................................................................13
How Fraudulent Transfer Intention In The Transfer Can Be Proved...............17
If There Are Several Creditors.....................................................................18
Exception To Section 53(1).........................................................................22
Section 53(2): Gratuitous Transfer To Defraud Subsequent
Transferee.............24

Burden Of Proof...........................................................................................25
Conclusion..........................................................................................26

Bibliography.......................................................................................27

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RESEARCH METHODOLOGY

This research is descriptive and analytical in nature. Secondary and electronic

resources have been largely used to gather information and data about the topic.

Books and other reference as guided by the faculty have been primarily
helpful in giving this project a firm structure. Websites, dictionaries, articles and
cases have also been referred.

OBJECTIVES OF THE STUDY

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This project report seeks to give a brief idea about ''CONCEPT OF

FRAUDULENT TRANSFER AND TRANSFER OF PROPERTY''. Following
are the objectives of the given project report.

 To understand the fraudulent transfer under transfer of property act 1882.

 To study its scope and modification in modern era.

INTRODUCTION

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Every owner of a property has right to transfer the property as he likes. There
must be a bonfire intention to transfer. if there is a fraudulent intention, the
intention of defeating the interest of creditor of a subsequent transferee, the
transfer is not valid in the eyes of law. These transfer arise in debtors and
creditor relations, particularly with insolvent debtors. The action against such
debtors are typically brought by creditors or by bankruptcy trustee. Here in
fraudulent transfer, the object of transfer would be bad in eyes of equity and
justice though it is valid in law. In some cases fraudulent transfer are valid but
not void in law but because they are made with malafide intention equity would
render it voidable by the person who was so defrauded. This principle of equity
has been incorporated in Section 53 of Transfer of Property Act,1882. This
section disallows a person to convey or alienate his property when such
conveyance defeats or delays the interest of his creditor or any subsequent
transferee.

SECTION 53 & ITS ESSENTIALS

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Section 53 deals with the Doctrine Of Fraudulent Transfers. It provides that :-

Section 53(1) explains about-

1. transfers of an immovable property,

2. made with intent to defeat or delay the creditor of the transferors,

3. shall be voidable at the option of creditor so defeated or delayed.

But the exception to the provisions of this sub section are-

a) The rights of a subsequent transferee in good faith for considerations.

b) Any law for the time being in force relating to insolvency.

Section 53(2) explains that -

1. Transfer of an immovable property,

2. Transfer without consideration and again transferred to another person,

3. The subsequent transfer may avoid the first transfer.

 For the purpose of Section 53(2), if the transfer without consideration,

it is deemed to be made with intent to defraud.

ENGLISH LAW ON FRAUDULENT TRANSFERS

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The English law regarding the fraudulent transfer is depended upon the
Twyne's1 case in this case Pierce was indebted to Twyne and also to C. C filed a
suit against Pierce for satisfaction of his debt, but when the suit was pending in
the court, Pierce who was in the possession of goods and chattels, in secret
made a general deed of gift of all his goods and chattels to Twyne, in
satisfaction of his debt, without any obstruction that Pierce continued in
possession of the good, and marked them with his own mark. Afterwards C had
judgment against Pierce when his goods were sought to be seized in execution
of the judgment, Twyne and others resisted. Here the question arises whether
the gift in favour of Twyne was fraudulent, the court held that :

1. The gift had the signs and marks of fraud, because the gift is general,
there is no necessity for the donor to do this. For it commonly said, quod
dolous vesatur in generalibus.

2. The donor continued in possession and used them as own as his own , so
it clearly shows that he had defrauded and deceived the creditor.

3. The gift was made during the pendency of suit.

4. Even after the gift was made, the donor was still in possession and
therefore here there was a trust between the parties and the fraud is
covered by the trust.

5. The gift deed contains that it was made truly, honestly and bonfire.

So in this case we should observe that, even if there was a true dept due to
Twyne, but the gift which was made with no consideration and bonfire and it

1
REPORTED IN 3,COKE,80.
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shall be deemed that a gift made with any trust in favour of donor is considered
to be done with fraud.

In another case regarding the same issue Edwards v Harben2 the judgment was
given by Buller.J., he said that if the possession is not followed by the deed, it is
deemed to be done with fraudulent intent and it is void.

INDIAN LAW ON FRAUDULENT TRANSFERS

2
Term Rep. 587
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Section 53 of Transfer of Property as it is originally stood was based on the

statutes of Elizabeth. Now, this section is in consonance with that of the English
statutes. The first part of the section deals with the transfers in fraud of
creditors, and the second deals with the fraud of subsequent purchaser. A
transfer though it may not offend this section could be still be avoided either
under section 55 of the Presidency Towns Insolvency Act, 1920 and a provision
saving insolvency law is introduced in the section.

This section is applicable only where the transaction is transfer of property

within the meaning of section 5 of the Act. In the case of Sundar Lal vs
3
Gurusaran Lal it was held that relinquishment of share by one co-parcener
in favour of other is not a transfer of property within the meaning of this section
and Section 53 doesn't apply. Surrender is not a transfer of property, but in the
case of Nath Vs Dhunbaiji4 the court held that surrender by life-estate holder is
a transfer and it is covered by this section. In the case of Joshua vs Alliance
Bank5 a settlement was provided for the appointment and it was found that the
appointment was done to defeat or delay the creditors. Therefore observing the
facts, the court held that appointment with reference to the settlements was
fraudulent transfers. Naturally a question arises regarding the section 53 of
Transfer of Property Act, that when the consideration is good in part. If the
transfer was for the purpose of delaying or defeating creditors, the transactions
will be set aside as there was fraud in it. but if a part of the consideration is
utilized for paying off a mortgage debt of the transferor, then either the transfer
would be treated as valid to that extent or if the transfer is set aside the vendee
is given charge on the property.
3
A.I.R 1938 Oudh 65.

4
(1899)23 Bom. 1.

5
(1895)22 Cal.185
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SHAM TRANSFERS

Sham transfers are the fictitious transfers. when the transferors did not
intent that the property should be really vested in the transferee, such
transfers are therefore unreal or colorable and never meant to operate
between the parties. Such transfers are fictitious transfers. Benami
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transfer is also a sham transfer because the real owner has no intention
that property should belong to the ostensible owner. It can be clearly
explained by the following cases :-

in the case of Jangali Tewari vs Babban Tewari6 it was said that a

sham transfer is not a real transfer at all.the intention of the real owner
is not necessarily fraudulent. So, such transfers don't require to be
avoided because the real title already vests in the transferors.

In the case of Petherpermal Chetty vs Muniandi Servai7 a sale deed

was executed in June 1885 in the favour of the predecessor of the
appellant. The transfer was the benami transfer and was not real. An
equitable mortgagee sued in September 1895, to establish its lien on
the ground that the sale was intended to defraud creditors and
obtained a decree by which the equitable mortgagee was paid off and
the mortgagee was discharged on the death of the vendor of the land,
the appellant, legal representative of the purchaser was sued by the
legal heir of the vendor for the recovery of the land.the defence
argument was that the plaintiff, on account of his participation in the
fraudulent attempt to defeat his creditor was not entitled to recover
possession of the land.

The court held that:-

6
A.I.R 1982 All. 316

7
(1907-08) LR 35 IA 98
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Person have been allowed to recover property which they had

assigned away, where they had the intention to defraud or delay
creditors,who,in fact, had never injured.but when fraudulent or illegal
purpose has actually been effected by the mean of the colorable grant
the legal maxim in pari delicto potior est condition possidentis
applies. The court will help neither party. It says let the estate lie
where it falls. To enable a fraudulent party to retain property
transferred to him in order to effect a fraud must, according to the
authorities be effected. Then alone, does the fraudulent grantor or
transferor, lose the right to claim the aid or support of the law to
recover the property he has parted with. The principle however will
not apply in the case if the transferor seeks for possession from the
transferee before the fraud is effectuated.

In the case of Immani Appa Rao v. Goilapalluii Rama Lingamurthi 8. a sale of

property was made with the mutual consent of the vendor and the vendee to
defraud the creditors of the vendor. There was no consideration and the
transferee also agreed to act as a benamidar until the transferor required him to
reconvey the property to his sons. The transferor and his sons trespassed and
occupied the property, as the creditors were defrauded. The transferor, in
defence, urged that the transferee has no rights in the property as the transfer
was a fraudulent transfer. So in this case the court observed that:-

The transferors emphasized that the doctrine which is pre-eminently applicable

to the present case is ex dolo malo non oritur action or ex turpi causa non
oritur actio. It means they contended that the right of action cannot arise out of
8
(1962) 3 SCR 739
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fraud - or out of transgression of law. According to them it is necessary that the

possession should he where it lies, inpari delicto potior est condition
possidentis. The law favors him who is actually in possession in case where
there is guilty of fraud on both the parties. The principle. of public policy is that
no court will lend its aid to a man who founds his cause of action upon an
immoral or illegal act. If the cause of action arises from the plaintiffs side, the
court says that he has no right to be assisted; it is same in the case of
defendants. The Court also said that there is no question of estoppels in such a
case because the fraud in question was agreed by both the parties and both the
parties have assisted each other in carrying out fraud. It also said, in such a
cases the transferee would be guilt for liability of double fraud, as he joined
transferor joined in the fraudulent scheme and participated in commission of the
transfer and he committed another fraud by suppressing from the Court the
fraudulent character of the transfer when he made out the claim for the recovery
of the properties conveyed to him. The transfer was not supported by any
consideration and therefore no title is transferred to him.

So in the view of public interests, the Court held that the plea of fraud is
allowed and tried and it is upheld that the estate should lie where it rests.

Notwithstanding the rights of transferor and a benami transferee, if the transfer

was made to defeat the creditors, a creditor himself can ignore a benarni
transaction and can proceed against the property as it was of the transferor. The
creditor need not have to set it aside under this section because, benami
transaction is not a transfer at all.

We have to note that, whether the transfer is real or sham, it is depended upon
the facts and circumstances in each case. If it is clearly shown that the very

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object of the transfer was to defeat the interest of creditors, the transfer can be
avoided by the creditor under this section.

But the present scenario is changed. The Benami Transaction Act. 1988
provides that properties purchased in the name of ostensible owner or
benarnidar shall belong to benamidar and real owner cannot claim from him.
This Act now treats benami transfer as a real transfer under which the
benamidar becomes real owner. However, Section 3 of this Act says that the
provisions of Section 53 of TPA or any law relating to transfers for illegal
purposes are not affected.

HOW FRAUDULENT TRANSFER INTENTION IN THE

TRANSFER CAN BE PROVED.

Fraudulent intention in transfers must be proved by direct or

circumstantial evidence an every case must be examined in the light
of surrounding circumstances. Some circumstances that give a strong
presumption that the transfer was fraudulent are:

1. The transfer was made in secret and haste.

2. The transfer was made soon after the decree ordering the payment
of debt was passes against the judgment-debtor.

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3. The debtor in the case transferred whole of his property without

keeping anything for himself.

4. The consideration paid was very small when compared to the real
or original value of the property transferred.

5. Evidence was shown that there was no actual payment of

consideration as given in the sale deed.

Not only these circumstances, but there are many other circumstances
in which inference of intent to defeat or delay creditors may he drawn.
So every case is depended upon its own facts -and circumstances. It is
subject to a matter of fact that the transfer is bonfire or fraudulent.

IF THERE ARE SEVERAL CREDITORS

If there are several creditors, transfer in favor of one creditor does not
amount to an intention to defeat or delay the remaining creditors. It's
upon the debtor's discretion to pay his debts in any order of his
preference. If A has taken loan from B, C and D, transfers certain
properties to C in satisfaction of the loan taken from him. This
transfer necessarily cannot be considered as a transfer made to defeat
or delay the interest of other creditors. It was happened in the case of
Mina Kumari v. Bijoy Singh9, the Privy Council held that in the case
there are two or more creditors, the debtor can give preference to any
creditor and can clear his debts in any order he chooses.

9
A.I.R 1916 P.C. 238
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Another landmark regarding this context is Chogmal Bhandari V.

Deputy, Commercial Tax Officer, Kurnool10. The facts of the case
were A partnership of two partners was dissolved in 1963. A
registered deN1 of trust was executed by which the properties were
vested in the trustees for purpose of paying off the creditors.
Afterwards a business was started by the grandson of one of the
partners and some provisional assessments were made his name for
the years 1966-1969. In 1971. Sales Tax authorities made the
assessments in the name of the Joint Hindu Family for the first time
but found that the tax could not be realized from the assesses on
account of the Trust Deed, and therefore, treated the Deed as void and
fraudulent and contended that the assessments were made to defeat
the debts of Sales Tax Department. But in proceedings, these facts
were found. It was found there was no assessment made against the
Joint Hindu Family at the time of execution of Trust Deed. Therefore
there was no real debt due by from one of the executants of the Trust.
There was no intention of use of unlawful purpose by the Trust. In the
Trust Deed the names of the creditors to whom the debts are to be a
payable were clearly mentioned. The Trustees did not keep reserve
any advantage for themselves. It was also found that there was no
material to show that the creditors obtained collusive decrees.

10
A.I.R 1976 SC 656
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Here the question arisen before the Supreme Court was that whether
this Trust Deed was hit by Section 53 of TPA or not. In this context,
Supreme Court held that:-

Observing the facts and circumstances of the case, it cannot be said

that Trust was executed to defraud the creditors. Sales Tax
Department. Under the section a person must prove two facts to
challenge the transaction. Firstly. the document was executed by
settler. Secondly, the said document was executed with a clear
intention to defraud or delay the creditors. It is a matter of the fact that
intention would be proved on the basis of facts and circumstances
surrounding the case. The Supreme Court also held that, it is a well
settled that a mere fact that the debtor chooses to prefer one creditor
to the either because the priority of the date or otherwise by itself
cannot be misleaded that it was done to defeat the other creditors.

In Musahur Sahu v. Hakim Lal11, Kisun Binode and Musahur Sahu

were the debtor and creditor respectively. Musahur Sahu sued the
Judgment-Debtor Kisun Binode for the recovery of his debts in
December, 1900. Musahur Sahu presented a petition for attaching the
properties of the debtor as a security. This petition was filed in
January, 1901, when the original suit was during pendency. In
February, 1901, Kisun Binode, the debtor gave an affidavit that he has
no intention to attach any property, accordingly the petition for d But

11
1915 LR 43 IA 104
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after the petition was dismissed Kisun Binode sold his properties to
Hakim Lal who was another creditor of him. Then Musahur Sahu,
pleaded that the transfer to Hakim Lal,were done do defeat or delay
his interest and therefore it should be held void under section 53 of
TPA and the properties should not be given to Hakim Lal.

In this case the appeal was dismissed by the Privy Council. and held
that transfer of property by a debtor to one creditor in preference of
the other is not a fraudulent transfer with the intent to defeat or the
delay the interest of another creditor. The Lordships observed in the
east Middleton V. Collak12, the transfer it defeats OT delays the
creditors is not an instrument which prefers one creditor to another
but an instrument which removes a property from the creditors to the
benefit of the debtor. The debtor must not remain any advantage or
benefit for himself. He may one creditor and leave another unpaid.
The court further observed that as soon as it is found that the transfer
here impeached was made for adequate consideration in satisfaction
of genuine debts, and without retaining any benefit to the debtor, it
follows that no ground for impeaching it lies in the fact that the
plaintiff who also was a creditor was a loser by a payment being made
to this preferred creditor, there is no question being bankrupt.

12
(1876) 2 Ch D 104
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EXCEPTIONS TO SECTION 53(1)

Section 53(1) recognizes two exceptions. The rule that a fraudulent transfer can
be avoided by creditors is not applicable to:

a) A transferee in good –faith and consideration,

b) Any law relating to insolvency for the time being in force.

 A transferee in good faith and consideration:

A transferee is protected if he takes the property in good-faith and

consideration. When a transferee purchases a property in good-faith and
consideration, the consideration, the creditors cannot take benefits of 53(1).
Where a transferee has no knowledge i.e. no actual or constructive notice of the
fraudulent intention of the transferor, the creditors cannot claim the property or
avoid the transfer under section 53(1). But if the transferee is aware of the

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fraudulent intent and aim and keeps silent, it is not to be done in good-faith and
cannot get the benefits of this exception.

In the case of Vinayak Vs Kaniram13, the transferor's intention was to convert

his immovable property into cash so as to keep it out of reach to the creditors
and the purchaser was aware about this intention of the debtor. The court held
that the purchaser was also the party to the fraud as he was aware of that
fraudulent intention and the sale was voidable at the option of the creditors.

In Kapini Goundan v. Sarangapani14, a man who had taken large sum of money
as loan, transfered his whole property to the children of his first wife in
consideration of her relations allowing him to marry a second wife. In the case,
The Madras court held that the considerations were good and the transfers was
not on the basis of fraudulent intention to keep it away from creditors. It should
be noted that this decision must be regarded as only an exception and should not
be regarded as a general rule.

Therefore good-faith on the part of transferee is more significant factor in

protection of rights of the transferee than payment of consideration.

 Any law relating to insolvency for the time being in force:

The rights of the transferee created under the law of insolvency are not affected
by section 53 even if the transferor’s intent was to defeat or delay the creditor’s
interest. The main aspect of the insolvency laws in that the properties of the
insolvent are equally distributed between the creditors. If one creditor is given
preference, then it is deemed to be a fraudulent transfer under this section.
13
A.I.R 1926 Nag. 293

14
(1916) MAD. W.N. 288
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Where the Transferor (debtor) has been declared insolvent, and the transferee
purchases such property from him, the transfer cannot be avoided by creditors,
In such case the Insolvency court are competent here to decide whether the
transfer was voidable under section 53 of TPA.

SECTION 53(2): GRATUITOUS TRANSFER TO DEFRAUD

SUBSEQUENT TRANSFEREE

Section 53 (2) enact that gratuitous transfer of an immovable property with the
intent to defraud a subsequent transferee shall be voidable at the option of
subsequent transferee. This section explains about the situation where an
immovable property is transferred to person without consideration and the same
property is again transferred to another person.

So the subsequent transferee has advantage under this section where he can
avoid the first transfer. But in this case subsequent transferee should prove that
the first transfer was a sham of fictitious transfer made to defraud him The
general rule is that the first transfer has advantage or preference over the second
and so on, but if the subsequent transferee proves that the first transfer was
fraudulent and it was made to defraud him, the later transfer would stand valid.
It should be noted that this section only protects the interest of the bonafide
transferee and the transfer should have some value (consideration).The mere
fact that the first transfer was gratuitous and later transfer was for consideration
does not essentially raise the presumption that the prior transfer was made to
defraud him. Fraud in the prior transfer must be fully established by the
subsequent transferee.

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Under Section 53, the Wakfnama would be to voidable only at the option of the
person who was defrauded or delayed. An important fact should be noted that
this section does not violate the rule of Muslim Law.

BURDEN OF PROOF

The Burden of proof lies on the creditors of the transferor to show that the
transfer was made to defeat or delay the interest of the creditor. In the case of
Chamdradip v.Board of Revenue15, the onus to prove the fraud lies on the
person alleging it. But it may be noted that the burden to prove the intention
would largely depend upon the facts and circumstances of each case.

15
A.I.R 1978 Pat. 148
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CONCLUSION

Section 53 of Transfer of property Act 1882 deals with “Fraudulent Transfers”.

This section has two sub sections. The first part of this section deals with the
transfer made to defeat or delay the creditors of the transferors and it is voidable
at the option of such creditor. The second part deals with the gratuitous transfer
with intent to defeat or delay the creditor. This section has some exceptions in
respect of the transfer done towards the stranger, and then the good faith is
irrelevant. The right of the transferee created under the law of insolvency are
not affected by section 53 even if the transferor’s intent was to defeat or delay
the creditor’s interest. The Basis of the section is that one ought to be just before
being generous. This section was made to disallow a person conveying the
properties to keep it away from the credits. In my option the laws regarding
frudent transfers must be made stricter and such transferors or transferees who
committed fraud must be penalized from committing fraud.

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BIBLIOGRAPHY

WEBSITES

 www.legalserviceindia.com

 www.manupatra.com

BOOKS

 Dr. G.P. Tripathi on Transfer Of Property Act (16TH Edition 2009)

 S.N.Shukla on Transfer Of Property Act(27TH Edition 2009)

 Mulla on Transfer of Property Act.

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