A PROJECT REPORT ON

Fraudulent Transfer under Section 53 of Transfer of

Property Act, 1882
Submitted to:
Ms. Navita Aggrawal
(Faculty, Transfer of property Act)
Submitted by:
Anant Ekka
Roll no:-26
Semester-IV A, BA.LLB (Hons.)

Date of Submission: 18/11/2018

Hidayatullah National Law University
 Declaration

I, Anant Ekka, hereby declare that, the project work entitled, “Fraudulent
Transfer Under Section 53 of Transfer of Property Act, 1882” submitted to Ms.
Navita Aggrawal, Faculty, H.N.L.U., Raipur is record of an original work done
by me under the guidance of Ms. Navita Aggrawal, Faculty, Transfer of
Property Act, H.N.L.U, Raipur.

Anant Ekka

Semester IV

Roll No. 26

Section A

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 ACKNOWLEDGEMENTS

First & foremost, I take this opportunity to thank Ms. Navita Aggrawal, Faculty, Transfer of
Property , HNLU for allotting me this challenging topic to work on. She has been very kind
in providing inputs for this work, by way of suggestions and by giving his very precious time
for some discussion. Hence I would like to thank her for all her cooperation and support.

Last but not the least; I would like to thank my friends for having a wonderful debate and
discussion, and hence creating a knowledge base for various aspects of this society as well as
our education.

Anant Ekka

Roll No.-26, Sec-A

Semester- IV

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 Table of Contents
Introduction 01

Fraudulent Transfers 02

1. Transfer of immovable property

2. Fraudulent transfer to defeat or delay creditor

3. Transfer is voidable at the instance of creditor

Exceptions to Section 53 (1) 06

Section 53 (2): Gratuitous transfer to defraud subsequent transferee 08

Burden of Proof 09

Conclusion 10

Bibliography 11

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Objectives:

The objective of the project is to understand:

1. What is fraudulent transfer and its essentials?

2. What are the exceptions?
3. What will happen if there are more than one creditor?

Methodology:
This projects work is based on the descriptive approach. It is based on secondary sources, i.e.,
books and electronic sources (internet).

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 Introduction

Every owner of a property has right to transfer his property as he likes. There must be a
bonafide intention to transfer. If there is a Fraudulent Intention, the intention of defeating the
interest of creditor or interest of any subsequent transferee, the transfer is not valid in the eyes
of law. These transfers arise in debtor and creditor relations, particularly with insolvent
debtors. The action against such debtors is typically brought by creditors or by bankruptcy
trustees.

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 transfers are valid in law but not void, 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.

Law relating to fraudulent transfers as given in this section has two parts. The first part
provides that a transfer with intent to delay or defeat the creditor of the transferor shall be
voidable by such creditor. The second part of this section provides that gratuitous transfer
with intent to defraud a subsequent transferee is voidable at the option of such transferee.

For instance, A is the owner of a house. He takes a loan of Rs. 10,000 from B. Thus, A is
debtor and B is creditor. House is only the property through which B can recover his loan. B
intends to do so but A becomes aware of B’s intention and before B could take any action A
sells the house to C, who knows that A is selling the house so that B could not get back his
money. The sale of house is a fraudulent transfer and is voidable by B whose interest has
been defeated.

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 Fraudulent Transfer
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 creditors of the transferors,

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

But the provisions of this sub section shall not affect-

a) The rights of a subsequent transferee in good faith for consideration,

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

Section 53(2) explains about-

1. Transfer of an immovable property,

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

3. The subsequent transferee may avoid the first transfer.

 For the purpose of Section 53(2), if a transfer is made without consideration, it is

deemed to be made with intent to defraud.

1. Transfer of immovable property

There must be a valid transfer of immovable property. For applicability of this section, it is
necessary that there is a transfer of property and such transfer is valid and enforceable so that
property vests in the transferee. Section 53(1) does not apply where the transfer is in itself
void. This section makes a valid transfer void at the option of creditor after the property had
already vested in transferee. A suit under this section must accept the validity of the transfer
first and then proceed to get it invalidated if it is proved to be fraudulent. In other words, the
transfer under this section must be perfectly valid till it is declared void under this section by
a defrauded creditor. This section is applicable only where the transaction is a transfer of
property within the meaning of Section 5 of the Act.

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Section 53(1) is applicable to transfers only of immovable properties. The provision of this
section does not apply to a transfer of movable property. However principle laid down in this
section have been applied by the Privy Council to fraudulent transfer of movable property on
the ground of justice, equity and good conscience.1

Sham transfers:-
Sham transfer means fictitious transfer. When the transferor does not intend that the property
should be really vested in the transferee, such transfers are therefore unreal or colourable and
never meant to operate between the parties. The transferor may transfer a property in favour
of transferee only for name sake i.e. in the false name of transferee. Such transfers are
therefore unreal or colourable transfers and are not made to operate between the parties.
Benami transaction is also a sham transfer because the real owner has no intention that
property should belong to ostensible owner.

Benami transfer is not a transfer as contemplated by section 53. Thus fictitious or Benami
transfers are outside the scope of this section. Section 53 only safeguards the interest of a
creditor in case of only real transfer which is made with fraudulent intention.

2. Fraudulent transfer to defeat or delay creditor

The transfer which can be avoided by the creditor under this section must be with an intent to
defeat or delay the interest of the creditors of the transferor. In other words, the transfer is
made with the sole object of defeating or delaying the interest of creditor rather than to give
the property to transferee honestly.

Intent to defeat or delay:-

A transfer made with an intent of either defeating or delaying the interest of the creditor is a
fraudulent transfer. The only interest of a creditor in the debtor's property is that he can
recover his money from that property in case the debtor fails to repay it personally. So, where

1
Abdool Hye v. Mir Mohammed, (1883) 10 Cal. 616

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a debtor transfers his property before, creditor makes any attempt to realise his debt from that
property, it would no longer be debtor's property. In this manner the interest of the creditor
would be defeated. Whether a transfer has been made with intent to defeat or delay creditors,
is a mixed question of law and facts. Decision of fraudulent intention of the transferor must
be taken after considering the facts of the case and the circumstances in which the transfer
was made. There is no specific criterion to ascertain the fraudulent intention of transferor. But
inference of such intention may be drawn from some broad considerations, In Munyammal v.
Thygraja2, the Madras High Court rightly observed thus:

“The factors which constitute a fraudulent conveyance must necessarily depend upon the
circumstances of each case. But certain broad Indicia have been formulated in England,
America and India. It is surprising how human nature is the same all the world over
irrespective of colour, creed and race.”

Accordingly, where the debtor sells all his properties after the decree to a purchaser who is in
the knowledge of his debts, it may be presumed that the transferor (debtor) has a fraudulent
intent to defeat or delay his creditor. Such presumption may be more strong if there is
evidence that no price has actually been paid by the purchaser.

Where the transferee shares the fraudulent intent and actively aids and assists the transferor in
fulfilling his intention of defrauding the creditor, there is no doubt that transfer was, made to
defeat the interest of the creditor.3

Every case under this section would depend upon its own facts and circumstances and in all
cases it is a matter of fact depend whether the transfer is bona fide or fraudulent.

Preference to one creditor:-

If there are several creditors, transfer in favour of one creditor does not amount to an
intention to defeat or delay the remaining creditors. A debtor is entitled to pay his debts in
any order of preference. For example, A, who has taken loan from B, C and D, transfers
certain properties to B in satisfaction of the loan taken from him (B). This transfer is not
necessarily with intent to defeat or delay the interest of remaining creditors C and D. It has
been held by the Privy Council that in case there are two or more creditors, "a .debtor, for all

2
AIR 1958 Mad. 580
3
Saroj Ammal v. Sri Venkateshwara Finance Corporation, AIR 1989 Mad.

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that is contained in Section 53 of the Transfer of Property Act may pay his debts in any order
he pleases and prefer any creditor he chooses.”4

In Musahur Sahu v. Hakim Lal5 is a leading case on this point. Facts and the law laid down
by Privy Council in this case is given below:

Kisun Binode was debtor and Musahur Sahu was creditor. In December, 1900 the creditor
Musahur Sahu sued the judgement-debtor Kisun Binode for recovery of his debts. During
pendency of this suit, in January, 1901, Musahur Sahu presented a petition before the Court
for attaching properties of the debtor by way of security. In February, 1901 Kisun Binode, the
debtor gave an affidavit that he did not intend to transfer any of his properties whereupon the
petition for attachment was dismissed. But, despite his affidavit Kisun Binode (debtor) sold
his properties to Hakim Lal who was another creditor of Kisun Binode. Musahur Sahu the
plaintiff (appellant) pleaded that since the transfer of properties by his debtor Kisun Binode
were made with intent to defeat or otherwise delay his interest, it should be held void under
Section 53 and Hakim Lal should not be given properties transferred to him.

Decision:-The Privy Council dismissed the appeal and held that transfer of property by a
debtor to one creditor in preference of the other is not a fraudulent transfer with intent to
defeat or delay the interest of another creditor.

3. Transfer is voidable at the instance of creditors

When a transfer is proved to have been made with intent to defeat or delay creditors it is
voidable by creditors, section 53 does not as such make a fraudulent transfer void. It remains
a perfectly valid transfer until the creditors exercise their right to avoid the transfer. Since the
right to avoid the transfer is optional, a creditor may or may not exercise his right under this
section. Where the creditors do not prefer to avoid the transfer, the transfer shall continue to
be a valid transfer under which the property has already vested in the transferee.

Representative suit:-

4
Mina Kumari v. Bijoy Singh
5
(1915) 43 Cal. 521

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It is provided in section 53(1) that a suit instituted by a creditor under this section must be
instituted on behalf of or for the benefit of all creditors. Accordingly, a creditor’s suit to avoid
fraudulent transfer must be a suit not only for himself but on behalf of all creditors of the
transferor. That is to say any one creditor represents other creditors. The purpose of this rule
is to protect the debtor from multiplicity of suits by other creditors. However if there I only
one creditor whose interest has been defeated or delayed by fraudulent transfer, he can file
suit as a single creditor.6 It may be noted that where there are two or more creditors although
a creditor is not entitled to file suit only for himself but he cannot be compelled to defend
such suit on behalf of all creditors.7

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 property in good-faith and consideration. When a

transferee purchases a property in good-faith and consideration, the creditors cannot take
benefit 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 fraudulent intent an aim and
keeps silent, it is not be done in good-faith and cannot get the benefit of this exception.

6
Union of India v. Ram Peary Debi, AIR 1984 Cal. 215
7
Ramanath v. Algappa, AIR 1956 Mad. 682

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In the case of Vinayak v. Kaniram8, the transferor’s intention was to convert his immovable
property into cash so as to keep it out of reach of the creditors and the purchaser was aware of
that intention of the debtor. The Court held that the purchaser was also a party to fraud as he
was aware of that fraudulent intention and sale was voidable at the option of the creditors.

In Kapini Goundan v. Sarangapani9, a man who had taken large sum of money as loan,
transferred his whole property to the children of his first wife in consideration of her relations
allowing him to marry a second wife. In this case, the Madras court held that the
consideration was good and the transfer 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 is 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. 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 cases, the Insolvency Courts are competent here to decide whether the transfer was
voidable under Section 53 of TPA.

8
A.I.R. 1926 Nag. 293.
9
(1916) Mad. W.N. 288

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 Section 53 (2): Gratuitous transfer to defraud
subsequent transferee
Section 53 (2) enacts that gratuitous transfer of an immovable property with 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 the subsequent transferee should prove that the first transfer was a
sham or 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 the later transfer was for consideration does not essentially
raise the presumption that the prior transfer was made to defraud. Fraud in the prior transfer
must be fully established by the subsequent transferee.

For instance, A makes a gift of his house to B in January, 1990. In February, 1990 A sells the
same house to C. Here B and C are two claimants of the same property. The general rule is
that first transferee has preference over the second and C should not get the house. But under
this sub-section it is provided that if first transfer is proved to be fraudulent, the subsequent
transfer shall prevail and the first would be voidable by the subsequent transferee. In other
words this sub-section protects the interest of a bona fide transferee for value from a
fraudulent transfer made earlier.10

However the mere fact that the first transfer was gratuitous and the second transfer is with
consideration, does not raise presumption of fraud in respect of the prior transfer. Fraud in the
prior transfer must be fully established. For example, where a person settles his properties on
A for the benefit of his children and after sometimes sell the same properties to B, no
presumption can be drawn that prior transfer was necessarily with a view to defraud B. the
issue of fraud must be fully established by B.

10
Firm Man Singh v. B.N. Sinha, AIR 1940 Lah. 198

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 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 Chandradip v. Board of
Revenue11, 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.

11
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 transfers with intent to defeat or delay the creditors. This
section has some exceptions in respect of the transfers done towards the transferee in good
faith and consideration. But if the transfer is a gift towards the stranger, then the good faith is
irrelevant. 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
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 creditors. In my
opinion, the laws regarding fraudulent transfers must be made stricter and such transferors or
transferees who committed fraud must be penalized for committing fraud.

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 Bibliography
BOOKS
 Dr.G.P.TRIPATHI ON THE TRANSFER OF PROPERTY ACT, (16th EDITION,
2009).
 MULLA ON THE TRANSFER OF PROPERTY ACT, (10th EDITION, 2006).
 Dr. AVTAR SINGH, TEXT BOOK ON THE TRANSFER OF PROPERTY ACT,
(2nd EDITION, 2009)

STATUTES
 TRANSFER OF PROPERTY ACT, 1882.

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