Fraudulent Transfer of Property

1. Introduction
The principle of section 53 is based on the rule of justice, equity and good
conscience. The section enumerates fraudulent transfer. A transfer made with
intention to defeat any right of the transferee or of any other person interested
therein is called fraudulent transfer of property. Such transfer is not void but
voidable at the option of person named. The Transfer of Property Act, 1882 states
that any transfer of immovable property that is 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. When a person is burdened with huge debts and there is
a chance of institution of suit for recovery of debts against him, sells his
immovable property to avoid the chance of its attachment and sale for the
purpose of payment of the debt, such transfer is liable to be cancelled at the
option of the creditors, if the transferee has the knowledge of the fraudulent
intention of the transferor. Where a transfer of immovable is made without any
consideration with an intention to defraud a subsequent transferee, such transfer
shall be voidable at the instance of the transferee. However, such transfer should
not be held to be fraudulent by reason of any subsequent transfer for
consideration.

2. Relevant Provisions

(i) Section 53 Transfer of Property Act 1882.

(ii) Cross reference Section 17 of Contract Act

3. Meaning of Fraud

A false representation of a matter of fact, whether by words or by conduct, by

false or misleading allegations, or by concealment of that which shall have been
disclosed, which deceives and is intended to deceive another so that he shall act
upon it to his legal injury.

4. Meaning of Transfer
Transfer means an act of the parties, or of law, by which the title to property is
conveyed from one person to another.
5. Meaning of Fraudulent Transfer
A transfer of property the object of which is to defraud a creditor or hinder or
delay him or to put such property beyond his reach is called Fraudulent Transfer.

6. Essentials of Fraudulent Transfer

The following are some of the essential elements of Fraudulent Transfer:

1. A transfer must be made by a debtor to a third person for consideration.

2. The intention behind the transfer was to defeat or defraud the creditors.
3. The transfer is voidable at the option of the creditor.
4. The creditor can file suit on behalf of himself and all other creditors.
5. If the property was purchased by the transferee in good faith, he will not be
liable.

Under Transfer of Property act, following points are important to explain of

fraudulent transfer of property.

(i) Voidable at option of Defeated or Delayed Creditor

Every transfer of immovable property, which is made with intent to defeat or
delay creditors of transferor, is voidable at option of any creditor, who is so
defeated or delayed. For example, Bashir is indebted to Ahmad, and he attempts
to sell his house, and is intentions to convert his house into cash to defeat Ahmad.
And if Rasheed is aware of Bashir’s indebtness, but he purchases Bashir’s house,
then such transfer is voidable at option of Ahmad.

(ii) Rights of Transfer In Good faith and for consideration

Transfer of immovable property, which is made with intent to defeat or delay
creditors of transferor, does not affect rights of transferee in good faith and for
consideration. For example, Bashir is indebted to Ahmad, and he attempts to sell
his house, and his intention is to convert his house into cash to defeat Ahmad.
And if Rasheed is not aware of Bashir’s indebtness, but he purchases Bashir’s
house against a consideration of ten lakh rupees, then such transfer does not
affect rights of Rasheed.
(iii) Law Relating to Insolvency
Transfer of immoveable property, which is made with intent to defeat or delay
creditors of transferor, does not affect any law, which is in relation to insolvency
and which is in force.

(iv) Institution of Suit

If a creditor institute’s suit to avoid a transfer on this ground that it has been
made with intends to defeat or delay the creditors of transferor, it is considered
that such suit is instituted on behalf of all creditors or for benefit of all creditors.

(v) Voidable at Option of Subsequent Transferee

Every transfer of immoveable property, which is made without consideration and
which made with intent to defraud a subsequent transferee, is voidable at option
of such transferee.
 Conclusion

To conclude, it can be stated that two points are important as far as fraudulent
transfer is concerned; first point is that transfer of property act has discussed
fraudulent transfer only in respect of immoveable property. And second point is
that person, who alleges fraudulent transfer, is under burden to prove fraudulent
transfer.