C.

Abdul Shukoor Saheb

Versus
Arji Papa Rao (Deceased) after him his Heirs and Legal Representatives and
others

Facts:
The 2nd defendant is a partnership firm between third and fourth defendant called Hajee Abdul
Kadir Sahib and Lala Batcha Sahib & Co., which had been carrying out business in
Vizianagaram since 1941. But from around 1947 or 1948 the firm had not been doing well and
had contracted large amount of debts. The two partners (3rd and 4th defendant) entered in to a
dissolution deed dated March 31, 1949. According to the deed it was decided that the 3rd
defendant should go out of the partnership taking with him one property valued at Rs 20,000,
whereas, the suit tannery valued equally would become the sole property of the 4th defendant.
Soon after the deed the 4th defendant entered in to an agreement with the plaintiff to sell him
the said land. The deed for the same was executed on May 20, 1949 by both the partners and
the plaintiff at Madras.
Now, the first defendant and the only contesting defendant is a creditor to the firm and had
filed a suit for the recovery of a sum of Rs 12,950 against the second defendant and the two
partners. He obtained a decree for the same and soon after filing the plaint the suit property
was attached to him to which a claim petition was filed by the plaintiff for raising the
attachment. The claim was dismissed by the Subordinate Judge and led to an appeal in the Trial
Court.

Procedural History:
The Trial Court has upheld the Plaintiff’s claim that the sale deed was real and was fully
supported by consideration. The Trial Court also negatived the contention raised by the first
defendant that the sale was fraudulent as intended to defeat or delay creditors. Later when the
First Defendant files an appeal to the High Court and the Court reversed the decision of the
Trial Court and directed the dismissal of Plaintiff’s suit.
Hence this appeal to the Supreme Court of India.

Issues:
 1) Whether the suit sale deed was executed in fraud of creditors and as such not binding
on the first defendant and other creditors of defendant 2 to 5?
2) Whether in the present case, the sale deed in favor of the plaintiff is a genuine
transaction supported by consideration?
3) Whether a suit under 53 was to be filed by a representative of all the creditors and not
just by a single creditor?
4) Whether if the debtor-transferor had other property that would serve the interests of the
creditors, would 53 still apply?

Rule:
Section 53 (1) of Transfer of Property Act, 1882. Fraudulent Transfers - Every transfer of
immoveable 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.
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.

Analysis:
The plaintiff contended that he had purchased the property bona fide and for its full value,
whereas, the first defendant has maintained that the purchase was either a sham and nominal
transaction or in fraud of creditors of whom he was one.
While answering the issue whether the sale deed was executed in fraud of creditors, the Apex
Court looked ta four things. Firstly, the court looked at the relationship between the plaintiff
and the 4th defendant. The significance of the relationship can be realized when one looks at
the fact that the Plaintiff might have been chosen because of his unwillingness to take the sale
without any searching enquiry as to the circumstances necessitating it which in turn would lead
to less publicity in the transaction which would take place if the sale was to be a total stranger.
Secondly, the court looked at the pressure exerted on the 3rd and 4th Defendants by the creditors
immediately prior to the impugned sale was affected.
Thirdly, the Court looked at the circumstance that although the properties were at
Vizianagaram, the document was registered at Madras and the suggestion made to the Plaintiff
was that this was meant as a measure of secrecy to keep this alienation from the knowledge of
the firm’s creditors.
Lastly, the Court looked at the purpose of this alienation. There was no evidence to show as to
why was it so urgent for the 4th defendant to dispose of the property. After the analyzing the
cumulative effect of all these factors the Court came to the conclusion that the transfer of the
suit property was done with an intention to delay or defeat the creditors and hence is voidable
at the instance of the 1st Defendant.
In analyzing the second issue of whether the Plaintiff was a purchaser in good faith and should
his rights be protected under Clause 2 of Section 53 of Transfer of Property Act, 1882. The
Court looked at the intention of the Purchaser. The Court looked at when the plaintiff was fixed
with notice that the firm's business had been running at a loss and had accumulated debts, as
disclosed by the recitals in the deed of dissolution, which was placed in his hands, the Plaintiff
still did not insist that the consideration which he was paying should be utilized for the
discharge of at least some of the debts. By looking at this the court was satisfied that the
Plaintiff was not a transferee in good faith and that the transfer itself was a scheme by transferor
with the knowledge and concurrence of the transferee to put the property out of the reach of
the creditors.
The court dismissed the third claim stating that a creditor filing a suit under Section 53 is for
the benefit of all creditors and does not require the authority to represent all other creditors.
The Court looked at the last issue and stated that there must be cogent proof that other property
exists and is available for the satisfaction of the creditors. In that case, mere transfer of property
would not be counted as it was with an intend to defraud the creditors.

Held:
1) The transfer in the present case falls within the terms of Section 53(1) of Transfer of
Property Act, 1884 and was voidable at the instance of the 1st defendant who was a
decree-creditor.
2) Creditors may claim the attachment of the property of the debtor to protect the mortgage
money.
3) Burden of Proof lies on the creditor to show that the transfer was made to defeat or
delay the creditors.
4) Whereas, when the transferee purchases the property in good faith from a debtor, the
creditor cannot make the transfer void.