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PROPERTY
A PROJECT REPORT
ON
(2014-2015)
Declared By:
Akhil Gangesh
Roll No. 14
Section-C
Semester- IV(Batch-13)
B.A., L.L.B (Hons.)
ACKNOWLEDGEMENTS
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
Raipur, Chhattisgarh
CONTENTS
Certificate of Declaration………………………………..................…………2
Acknowledgment .................................................................................................3
TRANSFER OF PROPERTY ACT Page 3
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
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
RESEARCH METHODOLOGY
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.
INTRODUCTION
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.
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.
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.
TRANSFER OF PROPERTY ACT Page 9
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
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.
2
Term Rep. 587
TRANSFER OF PROPERTY ACT Page 10
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
4
(1899)23 Bom. 1.
5
(1895)22 Cal.185
TRANSFER OF PROPERTY ACT Page 11
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
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
TRANSFER OF PROPERTY ACT Page 12
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
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 :-
6
A.I.R 1982 All. 316
7
(1907-08) LR 35 IA 98
TRANSFER OF PROPERTY ACT Page 13
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
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.
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
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.
2. The transfer was made soon after the decree ordering the payment
of debt was passes against the judgment-debtor.
4. The consideration paid was very small when compared to the real
or original value of the property transferred.
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, 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
TRANSFER OF PROPERTY ACT Page 17
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
10
A.I.R 1976 SC 656
TRANSFER OF PROPERTY ACT Page 18
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
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:-
11
1915 LR 43 IA 104
TRANSFER OF PROPERTY ACT Page 19
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
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
TRANSFER OF PROPERTY ACT Page 20
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
Section 53(1) recognizes two exceptions. The rule that a fraudulent transfer can
be avoided by creditors is not applicable to:
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 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.
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
TRANSFER OF PROPERTY ACT Page 22
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
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) 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.
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
TRANSFER OF PROPERTY ACT Page 24
CONCEPT OF FRAUDULENT TRANSFER AND TRANSFER OF
PROPERTY
CONCLUSION
BIBLIOGRAPHY
WEBSITES
www.legalserviceindia.com
www.manupatra.com
BOOKS