CHANAKYA NATIONAL LAW UNIVERSITY

The final draft for the fulfilment of project of Property Law

On

“COLLUSIVE GIFTS”

Submitted to:- Dr. P.V.K. Sita Rama Rao

Faculty of Property Law

Submitted by:-Harshit Gupta

Roll no.- 1623

2nd year B.B.A.L.L.B. (Hons.)

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CONTENTS

ACKNOWLEDGEMENT...............................................................................................................3

DECLARATION.............................................................................................................................4

AIMS AND OBJECTIVES.............................................................................................................5

RESEARCH METHODOLOGY....................................................................................................6

1. INTRODUCTION....................................................................................................................7

2. GIFTS UNDER TRANSFER OF PROPERTY LAW.............................................................8

3. FRAUDULANT TRANSFER...............................................................................................12

COLLUSIVE GIFTS.....................................................................................................................14

CONCLUSION..............................................................................................................................17

BIBLIOGRAPHY..........................................................................................................................18

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ACKNOWLEDGEMENT

Writing a project is one of the most difficult academic challenges I have ever
faced. Though this project has been presented by me but there are many people
who remained in veil, who gave their support and helped me to complete this
project.

First of all I am very grateful to my subject teacher Dr. P.V.K. Sita Rama Rao
without the kind support of whom and help the completion of the project would
have been a herculean task for me. He took out time from his busy schedule to help
me to complete this project and suggested me from where and how to collect data.

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DECLARATION

I hereby declare that the work reported in the BA LL.B (Hons.) Project Report entitled
“COLLUSIVE GIFTS” submitted at Chanakya National Law University, Patna is an
authentic record of my work carried out under the supervision of Dr. P.V.K. Sita Rama Rao. I
have not submitted this work elsewhere for any other degree or diploma. I am fully responsible
for the contents of my Project Report.

Harshit Gupta

2nd year B.B.A.L.L.B (Hons.)

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AIMS AND OBJECTIVES
The researcher has done research for the following purpose:
 To understand the problem of fraudulent transfer
 To understand how collusive gifts are fraudulent
 To know about laws against such transfers

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RESEARCH METHODOLOGY

This project is based upon doctrinal method of research. In many areas non-doctrinal method is
also used.

This project has been done after a thorough research based upon intrinsic and extrinsic aspects
of the project.

Sources of Data:

The following secondary sources of data have been used in the project-

1. Articles.
2. Books
3. Journals
4. Websites
5. Reasearch Papers

Method of Writing:

The method of writing followed in the course of this research project is primarily analytical.

Mode of Citation:

The researchers have followed a uniform mode of citation throughout the course of this project.

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 1. INTRODUCTION

When it comes to transferring a property within family members or giving it away as a gift to
another person, it is necessary to legally register the property in the donee’s name (receiver of
the property) through the gift deed process. The gift transfer is invalid without legal
documentation of the deed, which is different from the usual registration process.

A gift deed is a legal document used to voluntarily transfer a property as a gift from the donor to
a donee without the exchange of money.1 The gift can be transferred to a person or an institution
which should be accepted by the donee within the lifetime of the donor. Only an immovable
property that exists in the present can be transferred. The gift should also be tangible.

A fraudulent conveyance, or fraudulent transfer, is an attempt to avoid debt by transferring

money to another person or company. It is generally a civil matter, not a criminal one, meaning
that cannot go to jail for it2, but in some jurisdictions there is potential for criminal prosecution.3
It is generally treated as a civil cause of action that arises in debtor/creditor relations, particularly
with reference to insolvent debtors. The cause of action is typically brought by creditors or by
bankruptcy trustees.

Collusive gifts are part of fraudulent transfers. These are executed by parties in order to deceive
people to escape a liability or for wrongful gain. Parties collude to transfer the property for
mutual gain.

1
http://property.sulekha.com/how-to-transfer-a-property-through-gift-deed_614343_blog
2
Simkovic, Michael. Adler, Barry, ed. "Making Fraudulent Transfer Law More Predictable". Handbook on
Bankruptcy. Edward Elgar. SSRN 2775920 
3
Davies, Kevin; Roy, Julian (1998). "Fraud in the Canadian courts: An unwarranted expansion of the scope of the
criminal sanction". Canadian Business Law Journal.

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 2. GIFTS UNDER TRANSFER OF PROPERTY LAW

Sec 122 of the Transfer of Property Act defines a gift which has the following essential
requisites:-
 There must be a transfer of ownership of a property;

 The property should be of existing property;

 The transfer should be voluntary;

 It shall be without consideration;

 It can be of movable or immovable property;

 The transfer should be accepted by the Donee from the Donor;

 The acceptance of the transfer must be during the life-time of the donor and he must be
still capable of giving.

In the event of the donor dying before acceptance, the gift is void.

There is no mention of delivery of possession of property in Sec 122 which defines a „gift‟. The
requirement of acceptance by the donee would mean the donee agreeing or giving consent to the
said gift. Conditional gifts can also be made by the donor but the condition must not be
repugnant to any of the Sections 10 to 34 of the Transfer of Property Act. Even in the definition
of conditional gifts also, no mention of delivery of possession.
Sec 123 of the Transfer of Property Act makes a reference „to delivery‟. This section deals with
the mode of transfer in the case of gifts. It provides separate provisions for the gift of immovable
and movable properties.

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With regard to gifts of immovable property, Sec 123 provides the transfer must be effected by a
registered instrument signed by or on behalf of the donor and attested by at least two witnesses.
Two essentials have been prescribed for the transfer by way of gifts namely.
(i) be effected by a registered instrument;

(ii) Attested by atleast two witnesses. No mention is made with regard to delivery of
possession. One of the pre-requisite for registration is the transfer must be in writing
and cannot be done orally. The registration must be completed in the manner
prescribed by the Indian Registration Act, 1908. In other words, gifts of immovable
property are compulsorily registrable and it amounts to notice for a subsequent
transfer and not for earlier transactions prior to registration.4

With regard to movable property, the gifts can be effected either by registered instrument signed
as aforesaid (signed by the donor or on his behalf) or by delivery. For transfer of movable
property by way of gift two modes are prescribed namely –
(i) by a registered instrument (signed by the donor or on his behalf) and attested by two
witnesses; or
(ii) by delivery of possession

Even in the case of movable property, registration is made optional when delivery of possession
takes place. No delivery of possession is required when it is made through a registered
document. Sec 123 provides that delivery may be made in the same manner as goods sold are
made i.e., which the parties agree to constitute delivery or putting the goods in possession of the
buyer. As laid down by the Delhi High Court, “when it is executed by a deed, donor‟s admission
of execution of gift is enough to prove the gift; though one of the attesting witness is not called
for proving it.5

It is interesting to point out that Muslim Law has laid down different rules relating to gifts. They
may be stated thus:-

i) A declaration of gift by the donor;

4
Sahadev Vs. Shekh Papa (1905)29 Bom. P.119.
5
D.N.Dawar Vs. Ganga Ram Saran Dhama, AIR 1993 Del P.19.

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ii) Acceptance of the gift by the done

iii) Delivery of passion, if possible

A clear reading of Muslim Law requirements makes it clear that registration is not required with
regard to gifts. The position in Hindu Law is somewhat varying and deserves to be a subject of
special study.

The Transfer of Property Act has not defined the term „movable‟ as well as „immovable
property‟, but gave a non-inclusion statement to the effect that „immovable property‟ does not
include standing timber, growing crops or grass.6 This definition is too inadequate and does not
give an accurate account of what constitutes „immovable property‟. Attempts can be made to get
a definition of immovable property by reference to the Indian Registration Act, 1908 as well to
the General Clauses Act, 1897.

The Indian Registration Act states thus: “Immovable property shall include land, buildings,
hereditary allowances, rights-of way, lights, ferries, fisheries or any other benefits to arise out of
land or things attached to the earth or permanently fastened to anything which is attached to the
earth “but not standing timber, growing crop or grass”.7

The General Clauses Act, 1897 defines immovable property thus:

“Immovable property shall include land, benefit to arise out of land and things attached to earth
or permanently fastened to anything attached to the earth”.8

The real test for „immovability‟ “is whether or not the things rests by its own weight on earth
and whether it can or cannot change place and be removed from one place to another place”9

A clear reading of Sec 129 of the Transfer of Property Act makes clear that Muslim Law of gifts
remains unaffected by the above provisions of the Transfer of Property Act. Muslim gifts enjoy
protection from Transfer of Property Act. Even with regard to delivery of possession it is
provided, „if it is possible‟. Hence this aspects rests on possibilities.

6
See Sec 3 of the Transfer of Property Act.
7
Ibid
8
See Sec 3 (25) of the General Clauses Act, 1897.
9
H.R. (1952) Hyd 495 (DB).

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The Hindu Law of gifts considered transfer of possession as a valid requisite. 10 However, the
requirements of registration and attestation of the gift deed have not been dispensed with. 11 Rules
of Hindu and Buddhist laws were to remain unaffected except to the extent such rules were in
conflict with Sec 123 of TP Act. However after the Amendment Act 20 of 1929, only Muslim
Law received the protection and not the Hindu & Buddhist laws. Thus, the earlier protection
received by Hindu and Buddhist laws of gift was removed by the Amendment Act (as protection
is confined only to Muslim Law). Sec 123 of TP Act now supersedes the rules of Hindu Law, in
so far as delivery of possession to the donee is concerned.12

Sec 123 provides for compulsory registration and does not prescribe for delivery of possession of
immovable property to the donee. For a valid gift of immovable property delivery of possession
is not a pre-requisite. It must now be accepted that the provisions of Sec 123 of Transfer of
Property Act makes the necessity of the delivery of possession even it was required by strict
Hindu Law, no longer applicable.

Thus, delivery of possession is not an essential requirement for gifts of immovable property
except in the case of Muslim Law (if possible). This position of law is made quite clear by the
decision of the Supreme Court in Renikuntla Rajamma Vs. K.Sarwanamma which is quite
consistent the Statutory provision.13

10
Bhagwan Prasad Vs. Hari Singh, AIR 1925 Nagpur 199. See also Tirath Singh Vs. Man Mohan, AIR 1981 P & H
P.174.
11
Tricomdas Coverji Vs. Sri Gopinath Thakur, AIR 1916 PC P.182.
12
Revappa Vs. Madhava Rao, AIR 1960 Mysore P.97. See also Tirath Vs. Manohar Singh, AIR 1981 P & H P.174.
13
AIR 2014 SC P.2906.

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 3. FRAUDULANT TRANSFER

According to Transfer of Property Act fraudulent transfer means:14

(1) Every transfer of immovable 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.

(2) Every transfer of immovable property made without consideration with intent to defraud a
subsequent transferee shall be voidable at the option of such transferee.

For the purposes of this sub-section, no transfer made without consideration shall be deemed to
have been made with intent to defraud by reason only that a subsequent transfer for consideration
was made.

UNDERSTANDING OF THE SECTION

A person who is a debtor may try and delay or defeat his creditor from whom he has borrowed
money and if a person transfers his property with this intention, then the transfer is voidable at
the instance of the creditor.15 If the transferee who has become the owner knew of the transferor's
intention is bound by the option of the creditor, but if he has genuinely purchased property
without notice or having known of the transferor's intention, the creditor cannot enforce his
option against such a transferee. The second sub-clause speaks of when transfer of an immovable
14
Transfer of Property Act, 1882 Bare Act (Section 53)
15
http://vle.du.ac.in/mod/book/view.php?id=9202&chapterid=13331

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property is done for the purpose of causing fraud on a subsequent transferee and is done without
consideration is voidable at the instance of the transferee (section 53). This section protects the
rights of those people who may otherwise have had fraud committed on them to avoid liability
and the property is transferred to defraud them.

If the transferee purchased the property after proper enquiries and in good faith and belief, the
transfer is valid and he will not be liable.
However, the creditor can institute a suit against the transferor. If the transfer was made without
sufficient consideration or with the intention to defeat or defraud the creditors, the transfer is
voidable at the option of the transferee also.
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.

 In the case of Narendrabhai Chhaganbhai Bharatia v. Gandevi Peoples Co-op. Bank Ltd.
and ors16 it was held that

“It is essentially necessary that the facts should be considered in relation to each
other and weighed as a whole where the question for determination is whether a
transfer is a bona fide transaction entered into with the object of securing the debt
of transferee or whether it is a mere contrivance for defeating or delaying the just
claims of the other creditors and retaining the properties for the benefit of or in
trust for transferor.”

 It is now well settled that if objection is raised founded

on Section 53, Transfer of Property Act, such objection is distinct and separate from the
defense referred to above. As it has been observed by Sir Lawrence Jenkins in — ‘Mina

16
AIR2002Guj209

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 Kumari v. Bijoy Singh’,17 to attract the provisions
of Section 53, Transfer of Property Act. It must proceed on the footing that title has
passed, but the document under which the title has passed is a voidable one. It is not open
to a party to say that the provisions of section 53 are attracted as the document itself or
the transaction was a sham one.18 The question
whether Section 53, Transfer of Property Act, would be attracted in the present case or
not, whether such a defence had actually been raised by the defendant, and even if raised,
such defence was available to him or not, would be an alternative claim which would be
considered at the proper place later on. At this stage all that we are required to consider is
whether the transaction itself was a real one or not.

COLLUSIVE GIFTS

Collusive gifts also come in fraudulent transfers. To understand collusive gifts the understanding
of collusive suits is necessary.

A collusive lawsuit (sometimes referred to as a collusive action) is a lawsuit in which the parties
to the suit have no actual quarrel with one another, but one sues the other to achieve some result
desired by both. A suit which is filed with the intention of it being fictitious or a means to only
mislead is a collusive suit. These are usually filed with the intention to deceive or delay
proceedings of transfer so that the person to whom the right belongs to is delayed or is otherwise
unable to enjoy his right. e.g. Where a person has transferred property under the contract
between the parties but in reality does not want to transfer and in turn wants to put it to other use
or resell the property.

Collusive gifts are similar type of transfer of property in which two parties collude and one gifts
another the property because both of them are gaining something mutually.

For e.g. – A is in debt of B. B wants to claim his money from A by claiming his property. A then
colludes with C that he will gift his property to C and in exchange he will get some benefit from
C. So from this collusion both A and C are getting mutual benefit because A now will not be able
17
44 Ind. App. 72, (P.C)
18
https://civillawyersindia.wordpress.com/tag/fraudulent-transfer-of-property-under-section-53-of-transfer-of-
property-act/

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to give the money to B because he does not have any now. So in this way he saved his property
and absconded from paying his debt to B.

Collusive Gifts are considered fraudulent transfers because it is done to defraud creditors and
evade liabilities. The Bills of sale act, 1878 enacted some provisions to stop collusive gifts and
curb fraudulent transfer of property but these provisions were enacted way back in laws in UK.

The Bills of Sale Acts have their origin in legislation to control transfers of property made to
deceive creditors. In 1376 collusive gifts were avoided in favour of execution creditors and in
1379 it was enacted that “fraudulent deeds made by debtors to avoid their creditors, shall be
void.” In 1571 came the statute every conveyance of property, real or personal, with ‘intent to
delay, hinder or defraud creditors’.19 At one time the courts presume in any case where property
was transferred and the transferor nevertheless remained in possession, but it was later
established that whether the transfer was fraudulent was a question of fact and that the retention
of the property by the transferor was simply one of the relevant circumstances to take into
account; if the transfer was intended to be a mortgage this readily explained the fact that
possession did not change hands.20

In 1854 the Laws against Usury were repealed and in the same year steps were taken to avoid
secrecy where goods were transferred without change in possession. 21 This was done by the Bills
of Sale Act 1854 which required registration of bills of sale whereby the transferor retained
possession but gave the transferee the right to take possession in certain circumstances. This Act
was repealed but substantially re-enacted by the Bills of Sale Act 1878.

Kidar Lall Seal and another v. Hari Lall Seal22, where Bose, J., with whom Fazl Ali, J. agreed,
said:-

“I would be slow to throw out a claim on a mere technicality of pleading when the substance of
the thing is there and no prejudice is caused to the other side, however clumsily or inartistically
the plaint may be worded. In any event, it is always open to a Court to give a plaintiff such
19
Security over corporeal movables by A.W. Sijthoff, 1974, Page 33
20
https://civillawyersindia.wordpress.com/tag/fraudulent-transfer-of-property-under-section-53-of-transfer-of-
property-act/
21
Security over corporeal movables by A.W. Sijthoff, 1974, Page 33
22
1952 AIR 47

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general or other relief as it deems just to the same extent as if it had been asked for, provided that
occasions no prejudice to the other side beyond what can be compensated for in costs."

In the case of Phool Patti And Anr vs Ram Singh (Dead) Through Lrs. & Anr 23 it was held that
“On these broad facts, learned counsel for the appellants Phool Patti and Phool Devi contended
that the decree dated 24th November, 1980 was a collusive decree. In fact, a false case of a
family settlement had been made out by Ram Singh. In reality, Bhagwana had gifted the disputed
property to Ram Singh and that required compulsory registration under Section 17(1)(a) of the
Registration Act, 1908. Bhagwana had not only avoided payment of registration charges but also
stamp duty and had played a fraud upon the Trial Court in the first instance.”

CONCLUSION

23
CIVIL APPEAL NO. 1240 OF 2005, Supreme Court of India

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Under section 122 of the Transfer of Property Act, 1882, you can transfer immovable property
through a gift deed. Like a sale deed, a gift deed contains details of the property, the transferrer
and recipient. But instead of a sale consideration in a sale deed, a gift deed allows you to transfer
ownership without any exchange of money. Registering a gift deed with the sub-registrar is
mandatory as per section 17 of the Registration Act, 1908, and as per section 123 of the Transfer
of Property Act. If you don’t do this, the transfer will be invalid.

Besides that, once a gift deed is registered in the name of the recipient, only then can she apply
for mutation of the property. Mutation is necessary to transfer utility connections in the name of
the recipient. Also, for the recipient to be able to further transfer the property, a registered gift
deed will be required.

A gift deed must not be fraudulent i.e. it must not done for purpose to delay or defraud the
creditors. This is not a moral conduct because you could not evade the liability you have taken. It
must be conferred upon you and f you collude to evade it by and gift deed then such gift deed
would be held null and void.

BIBLIOGRAPHY
 Security over corporeal movables by A.W. Sijthoff, 1974
 Transfer of Property Act by R K Sinha
 Transfer of Property Act Bare Act
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 General Clauses Act Bare act
 Simkovic, Michael. Adler, Barry, ed. "Making Fraudulent Transfer Law More
Predictable". Handbook on Bankruptcy. Edward Elgar. SSRN 2775920 
 Davies, Kevin; Roy, Julian (1998). "Fraud in the Canadian courts: An unwarranted
expansion of the scope of the criminal sanction". Canadian Business Law Journal.
 http://vle.du.ac.in
 http://property.sulekha.com
 https://civillawyersindia.wordpress.com

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