DAMODARAM SANJIVAYYA NATIONAL LAW UNIVERSITY

SABBAWARAM, VISAKHAPATNAM, A.P., INDIA

PROJECT TITLE
DELAY OR DEFEAT CREDITORS

SUBJECT
TRANSFER OF PROPERTY

NAME OF FACULTY
Prof. JOGI NAIDU

NAME OF STUDENT: ANANYA PANICKER

ROLL NO: 19LLB122
SEMESTER: 4th

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 ACKNOWLEDGEMENT

I w0uld like t0 thank Pr0f. Jogi Naidu sir f0r giving me an 0pp0rtunity f0r deeply studying
ab0ut Transfer of Property. This pr0ject is a result 0f dedicated eff0rt. It gives me immense
pleasure t0 prepare this pr0ject 0n a Delay or Defeat Creditors.

My deepest thanks t0 0ur lecturer Pr0f. Jogi Naidu sir, the guide 0f 0ur pr0ject f0r guiding
and c0rrecting vari0us d0cuments with attenti0n and care. I thank him c0nsultative help and
c0nstructive suggesti0n in this pr0ject. I w0uld like t0 thank my parents and c0lleagues wh0
have helped us in making this pr0ject a successful 0ne.

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CONTENTS

1. COVER PAGE
2. ACKNOWLEDGEMENT
3. PROJECT SUMMARY
4. OBJECTIVE OF THE SUMMARY
5. SIGNIFICANCE AND BENEFITS OF THE STUDY
6. SCOPE OF THE STUDY
7. LITERATURE REVIEW
8. RESEARCH METHODOLOGY
9. HYPOTHESIS
10. BODY OF THE PRODUCT
11. OUTCOMES OF THE PRODUCT
12. CONCLUSIONS AND SUGGESTIONS

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CONTENTS UNDER THE BODY OF THE PROJECT

TOPIC PAGE NO.

Introduction to Topic 7

Transfer 9

Intention to defeat or delay creditors 9

Analysis of section 53 A of TPA Act, 1882 12

Transfer in case of Joint Development 13

Agreements
Frauds on creditors act 14

Conclusion 14

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 ABSTRACT

Section 53 of the Transfer of Property Act, 1882 covers the part related to defeat or delay
creditors and the term fraudulent transfer. 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.

OBJECTIVE OF STUDY
The objective of this study is to:

1. To understand the use of Section 53 of Transfer of Property Act, 1882.

2. To analyse the implications of Delay or defeat creditors.

SIGNIFICANCE OF STUDY
The significance of the study is to understand the concept of delay or defeat creditors, which
section of the act deals with the concept, are there any provisions and any exceptions in the
section.

SCOPE OF STUDY
The scope of the study is largely curtailed to the laws of India dealing with the Delay or
Defeat Creditors.

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REVIEW OF LITERATURE

This research paper is prepared by referring many b00ks, articles fr0m magazines, j0urnals,
magazines, newspapers, internet s0urces etc.

RESEARCH METHODOLOGY

The study is based on the doctrinal method of research.

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 INTRODUCTION

The concept of delay or defeat creditors has been explained in different subjects and several
law and part deals with it, in this paper we will be focussing on all the aspects of delay and
defeat creditors and the several terms and factors related to the topic. Section 53 of the
Transfer of Property Act, 1882 covers the part related to defeat or delay creditors and the
term fraudulent transfer. 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.

Every transfer of immoveable 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.

Now, when we are discussing about the term defeat or delay creditors the term fraudulent
plays a vital role in analysing the whole topic. The term fraudulently has been explained by
Section 25 of the Indian Penal Code. A person is said to do a thing fraudulently if he does
that thing with intent to defraud but not otherwise. The fraudulent act of a person can cause
loss to another person or gain to another person. According to it, when a thing is done by a
person with the intention to defraud the other, he is said to have done that thing fraudulently.
The term defraud was explained by the Supreme Court in Dr. Vimla V. Delhi
Administration1. Supreme Court observed that the term defraud involves 2 elements:

1
Dr. Vimla Devi vs. Delhi Administration, 1963 AIR 1572.

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1. Deceit and
2. Injury to the person deceived.
The injury doesn't only mean economic loss. It includes deprivation of property or money and
includes any harm caused to any person in body, mind, reputation or such others.
Fraudulent Transfer signifies a transfer that takes place in order to Deceive or defraud
another.
Example: A took a loan from B and mortgaged the property X as security. Later on, A
realized that he was not able to pay back the loan and it would be paid out of the property X
now. In order to prevent that, he sold the Property to C. Here A intention was to defraud B,
hence the transfer was a fraudulent transfer.

 Fraudulent Transfer is dealt with under Section 53 of Transfer of Property Act,

1882.

This section recognizes the need to protect the interest of the creditors. The rule of equity,
justice, and good conscience has been incorporated in this section it prevents a person from
defeating the legitimate claims of his creditors.

 Essentials of Section 53 of TPA:

Section 53 (1):

1. Transfer by the transferor

2. Of immovable property

3. With the Intention to defeat or delay his creditors

4. The transfer is voidable at the option of the creditor defeated or delayed

Provided that there is no subsequent transferee, who

1. Acted in good faith, and

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2. The transfer was for consideration.

Section 53 (2):
1. Transfer by the transferor

2. Of immovable property

3. The transfer is done without consideration

4. The transfer is done with the intention to defraud a subsequent transferee

5. Such transfer is voidable at the option of the subsequent transferee.

 TRANSFER
In order to attract this section, there must be a transfer. The transfer must be of immovable
property. The transfer must be a real one which creates a vested title in favour of the third
party. Fictitious transfers do not attract this section. The Fictitious transfer is where the
transferor remains the real owner of the property Hence in order to set aside the transfer
under section 53, it has to be proved that the transfer was a real one and not a sham one.

Example: X took a loan from Y and kept his property A as security. X then gets the property
mutated in favour of his son. The mutation is done without effecting a transfer. As the father
is still the owner of the property, what appears to be a transfer is merely a sham and as Y still
has the claim over this property, there is no need to move under Section 53 of Transfer of
Property.

 INTENTION TO DEFEAT OR DELAY THE CREDITORS

A creditor here is a person to whom the transferor owes the financial liability. In order to
apply Section 53 of Transfer of Property it is necessary for a creditor to exist, and it is not
necessary for the creditor to be secured. The creditor can be unsecured as well.2
2
Unknown, Intention to delay and Defeat Creditors, SK Lawyers

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Even a subsequent creditor can move under this section. This means that it is not necessary
for the transferor to be in debt at the time of the transfer. If the transfer is made prior to the
debt transaction with the intention that the transferor might take a loan in the future and
wanted to take the property out of reach of the future creditors, it is equally fraudulent and
can be set aside at the option of the creditors. But the mere fact that the loan was taken right
after the transfer of property or there was subsequent indebtedness is not evidence of
Fraudulent intention towards subsequent creditors A Muslim wife in lieu of her dower debt
amounts creditor. The basic objective behind this section is to protect the creditors from
being delayed or defeated by removing the possible security. In order to attract section 53, it
is necessary for the intention to be fraudulent. Hence, the intention behind the transfer must
be to defeat or delay the creditors.3

 Kanchanbal v. Moti Chand4

Transferor owed the creditor is 2000. The creditor asked for the money back/recovery of
money. when even after being asked for the recovery of money the transferor didn’t pay
back. the creditor threatened to file a suit. After receiving the notice of the same the transferor
executed gift deed in favour of her daughter in law Creditor filed a suit under Section 53 of
TPA against the transfer.

It was contended by the transferor that Section 53 of TPA was not attracted in the present
case there was single creditor. It was observed by the court that the phrase creditors would
also include single credit the section would be attracted even when e single creditor is
degraded or there was intention just to defraud single creditor. Her the transfer was done with
the intention to defeat and delay the creditor's claim. Hence, section 53 would be applicable.
Here preference of one creditor over the others a not sufficient to attract this section unless
it's shown that it was done with the intent to defraud another creditor.

Example: A mortgaged his property X to C1, C2. and C3, while repaying the loan, he gave
preference to C1. Mer this fact wont amount to intention to defraud C2 and C3.

https:// sklawyers.com.au./dictionary/intention-delay-defeat-creditors/
3
Id.
4
 Kanchanbal vs. Moti Chand, AIR 1967 MP 145.

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The transfer should be defeat and delay the creditors. If the transferor transfers his property
but is willing to pay the creditors back when he owes to them or just a portion of the property
is transferred and there is another property left which is sufficient in value to pay back the
creditors then the Section 53 will not apply.
 Framing of Suit

Privity of contract is Followed which means only the parties to a contra canso Hence, no third
party, who is not a party to the suit can sue on the creditor's behalf. The suit is instituted by
the creditor on the ground that the transfer has been made with the intention to defeat or delay
the creditors of the transferor.
The suit is instituted in the representative Category on behalf of and for the benefit of all the
creditors It is to void the multiplicity of suits over the same subject against the seme opposite
party/parties Dismissal of the suit of one creditor would be binding on all the creditors.

 Burden of Proof

There is no presumption in law that the transfer was affected with the intention to defraud or
delay the creditors the existence of fraud would not be presumed by the court, it has to be
proved. So, when the transfer of property is challenged on the grounds of fraud then the
primary onus is on the petitioner to show how he was connected to the property.
Hence, here the primary onus is on the creditors to prove that the transfer was affected with
the intention to defeat and delay the creditors. But once it has been proved then the burden
shifts on the transferee to prove that he bought the property in good faith and consideration.

 Proviso

A bona fide transferee who paid the consideration for the transfer has been protected under
this section A bona fide transferee would mean that the transferee is unaware or has no
knowledge about the fraudulent intentions of the transferor. The knowledge includes actual
and constructive notice. If the transferee has the constructive notice of the fraud then it will
be presumed that he had the knowledge about the fraud.

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Also, the consideration must be the essence of the transfer. The transferee of a gratuitous
transfer would not protect. A creditor is a transferee in good faith even where he is aware of
the proceedings of another creditor against the transfer as he is protecting her own interest
and not defeating other creditor interests. Section 53 further provides that this section will not
affect any law relating to insolvency, which is in effect for the time being.

 ANALYSIS OF SECTION 53A OF TRANSFER OF PROPERTY ACT, 1882

The Transfer of Property Act, 1982 came into force on the 1 st July, 1882. In the first instance
it extends to whole India, except some states at the time of independent of India.

Section 5 defines ‘transfer of property’ means an act by which a living person conveys

property, in present or in future, to one or more other living persons, or to himself and one or
more other living persons; and “to transfer property” is to perform such act.

‘living person’ includes a company or association or body of individuals, whether

incorporated or not, but nothing herein contained shall affect any law for the time being in
force relating to transfer of property to or by companies, associations or bodies of individuals.

‘Immovable property’ is defined by the act as it does not include standing timber, growing
crops and gross.

To describe it in more detail, immovable property includes land, buildings, hereditary

allowances, rights to way, lights, ferries, fisheries or any other benefit which arises out of
land, and things attached to the earth or permanently fastened to anything which is attached to
the earth. It does not include standing timber, growing crops, or grass. It includes the right to
collect rent, life interest in the income of the immovable property, a right of way, a fishery, or
a lease of land.

A transfer of immovable property for more than Rs. 100 will be affected only through a
registered documents or instruments.

The provisions of Section 53A, envisages situations where under a contract for transfer of
immovable property, the purchaser has paid the price and has taken possession of the
property even though the transfer deed or conveyance has not been registered. In such cases
the transferor is debarred from agitating his title to the property against the purchaser.

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  TRANSFER IN CASE OF JOINT DEVELOPMENT AGREEMENTS

In case of Joint Development Agreement, landowner may hand over possession of land to the
developer for development without intention to transfer ownership to the developer in the
land, then this transaction is not covered under provisions of Section 53A of the Transfer of
Property Act, 1882.

The ownership rights can be said to have be transferred when transferee/developer acquires
right to use, lease out or dispose the property at his sole discretion.

Thus, in case of any Joint Development Arrangement, where possession of the land is given
to the developer by the landowner, without giving right of disposal, sale or otherwise does
not fall within provisions of Section 53A of the Transfer of Property Act, 1882 and hence not
a transfer of property within meaning of Section 2(47)(v) of the Income Tax Act, 1961.

 Dwarka Das Kapadia v. CIT [2003]5:  is a landmark decision which is generally
applied to treat the event of handing over the possession of land or entering into the
date of Joint Development Agreement as the year of transfer of land by the
landowner. The court observed that the contract read as a whole indicates that at the
time of entering into JDA, there is transfer of complete control over the property in
favour of the developer. Therefore, the date of entering into JDA, in the above
decision was considered to be relevant for recognizing the transfer of land by the
landowner. Thus, the essence of Section 2(47) (v) may be considered, when there is
transfer of complete control over the asset by the owner to the developer.
 Mysore Minerals Limited v. CIT [1999]6 : Hon’ble Supreme Court held that anyone
in possession of property in his own title exercising such dominion over the property
as would enable others being excluded there from and having right to use and occupy
the property in his own right would be the owner though a formal deed of title may
not have been executed and registered.

 FRAUDS ON CREDITORS ACT

Confession of judgment or warrant of attorney to confess judgment, given to defeat

creditors If any person, being at the time in insolvent circumstances, or unable to pay his

5
Dwarka Das Kapadia vs. CIT, 107/260ITR491(Bom)/[2003]
6
Mysore Minerals Limited vs. CIT, 1971 (82) ITR 570 (SC).

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debts in full, or knowing himself to be on the eve of insolvency, voluntarily or under pressure
or by collusion with a creditor or creditors, gives a confession of judgment or warrant of
attorney to confess judgment, with intent, in giving the confession or warrant of attorney to
confess judgment, to defeat or delay his creditors wholly or in part, or with intent thereby to
give one or more of his creditors a preference over his other creditors, or over any one or
more of the creditors, every such confession or warrant of attorney to confess judgment shall
be deemed to be void as against the creditors of the person giving it, and shall be invalid and
ineffectual to support any judgment or writ of execution.7

Gifts, conveyances etc. when insolvent and with intent to defraud: void, Subject to section
3, every gift, conveyance, assignment or transfer, delivery over or payment of goods, chattels
or effects, or of bills, bonds, notes or securities, or of shares, dividends, premiums, or bonus
in any bank, company or corporation or of any other property, real or personal, made by a
person when he is in insolvent circumstances, or unable to pay his debts in full, or knows that
he is on the eve of insolvency, with intent to defeat, hinder, delay or prejudice his creditors,
or any one or more of them, shall as against the creditor or creditors injured, delayed or
prejudiced, be utterly void, whether it is made voluntarily or under pressure.

CONCLUSION

Nothing herein contained affects any payment of money to a creditor, where the creditor by
reason or on account of the payment, has lost or been deprived of or has in good faith given
up any valid security which he held for the payment of the debt so paid, unless the value of
the security is restored to the creditor nor any substitution in good faith of one security for
another security for the same debt as far as the debtor’s estate is not thereby lessened in value
to the other creditors; nor shall anything herein contained invalidate a security given to a
creditor for a pre-existing debt, where by reason or on account of the giving of the security an
advance of money is made to the debtor by the creditor in the belief in good faith that the
advance will enable the debtor to continue his trade or business and to pay his debts in full.

BIBLIOGRAPHY
7
Kanda, Hideki, and Saul Levmore. “Explaining Creditor Priorities.” Virginia Law Review, vol. 80, no. 8, 1994, pp.
2103–2154. JSTOR, www.jstor.org/stable/1073554. Accessed 11 Dec. 2020.

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 www.westlawindia.com
 www.scconline.com
 www.Indiankanoon.org
 Kanda, Hideki, and Saul Levmore. “Explaining Creditor Priorities.” Virginia Law Review,
vol. 80, no. 8, 1994, pp. 2103–2154. JSTOR, www.jstor.org/stable/1073554. Accessed 11
Dec. 2020.
 Transfer of Property Act by Mulla, LexisNexis.

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