ALIGARH MUSLIM UNIVERSITY

MALAPPURAM CENTRE, KERALA

TRANSFER OF PROPERTY ACT

End term Assignment

TOPIC- Doctrine Of Frudulent Transfer

(section 53 of transfer of property Act)

Submitted to Submitted by
Dr. Naseema pk Sadhvi Singh
Assistant Professor GK7930
Department of law 18BALLB33
Content TS Page No.
TABLE OF
Introduction 03

Section 53 and its essential feature 04

English law on Frudulent transfer 05

Indian law on Frudulent transfer 06

Sham transfer 07 to 08

How Frudulent intention in transfer can be 08 to 09

proved

If there are several creditors 09 to 10

Exception 11to 12

Gratuitous transfer to defraud subsequent 13

transfer

Conclusion 14

Bibliography 15
 INTRODUCTION
Every owner of a property has right to transfer his property as he likes. There must be a bonfire
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.

Section 53 & Its Essentials

Section 53 deals with the Doctrine of Fraudulent transfers.

It provides that:-
Section 53(1) explains about –
Transfers of an immovable property,Made with intent to defeat or delay the creditors of the
transferors,Shall be voidable at the option of creditor so defeated or delayedBut the exceptions to
the of this sub section are-
The rights of a subsequent transferee in good faith for consideration,Any law for the time being
in force relating to insolvency. 1
Essentials of Section 53
 Transfer of immovable property.
 Made with intent to defeat or delay the creditors of the transfer.
 Shall be voidable at the option of the creditor so defeated or delayed

1
Transfer of property act 1982
Section 53(2) explains about-
Transfer of an immovable property,Transfer without consideration and again transferred to
another person, 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.

ENGLISH LAW ON FRAUDULENT TRANSFERS

The English law regarding the fraudulent transfer is depended upon the Twyne’s case. In this
case Pierce was indebted to Twyne and also to C. C filed a suit against Pierce for satisfaction of
his debt, but when the suit was pending in the court, Pierce who was in the possession of goods
and chattels, in secret made a general deed of gift of all his goods and chattels to Twyne, in
satisfaction of his debt, without any obstruction that Pierce continued in possession of the goods,
and marked them with his own mark. Afterwards C had judgment against Pierce and when his
goods were sought to be seized in execution of the judgment, Twyne and others resisted. Here
the question arises whether the gift in favor of Twyne was fraudulent, the court held that:

The gift had the signs and marks of fraud, because the gift is general, there is no necessity for the
donor to do this. For it is commonly said, quod dolosus vesatur in generalibus.The donor
continued in possession and used them as his own, so it clearly shows that he had defrauded and
deceived the creditor.The gift was made in secret, et done clandestine sunt simper suspiciosa.
The gift was made during the pendency of suit.Even after the gift was made, the donor was still
in possession and therefore here there was a trust between the parties and the fraud is covered by
the trust.The gift deed contains that it was made truly, honestly and bonfire.
So in this case we should observe that, even if there was a true debt due to Twyne, but the gift
which was made with no consideration and bonfire, and it shall be deemed that a gift made with
any trust in favor of donor is considered to be done with fraud.2

2
S.N shulka on transfer of property Act 22 edition
In another case regarding the same issue, Edwards v. Harben , the judgment was given by
Buller,. J. he said if the possession is not followed by deed, it is deemed to be done with
fraudulent intent and it is void.

INDIAN LAW ON FRAUDULENT TRANSFERS

Section 53 of TPA as it is originally stood was based on the statutes of Elizabeth. Now, this
section is in consonance with that of the English statute. The first part of the section deals with
the transfers in fraud of creditors, and the second deals with the fraud of subsequent purchaser. A
transfer though it may not offend this section could be still be avoided either under Section 55 of
the Presidency Towns Insolvency Act, 1909, or Section 53 of the Provincial Insolvency Act,
1920, and a provision saving insolvency law is introduced in the section.

This section is applicable only where the transaction is transfer of property within the meaning
of Section 5 of the Act. In the case of Sunder Lal v. Gurusaran Lal , it was held that
relinquishment of share by one co-parcener in favor of other is not a transfer of property within
meaning of this section and Section 53 does not apply. Surrender is not a transfer of property,
but in the case of Nath v. Dhunbaiji , the court held that surrender by a life-estate holder is a
transfer and it is covered by this section. In the case of Joshua v. Alliance Bank , a settlement
was provided for the appointment and it was found that the appointment was done to defeat or
delay the creditors. Therefore observing the facts, the court held that appointment made with
reference to the settlement was fraudulent transfer. Naturally a question is arises regarding the
Section 53 of TPA, that when the consideration is good in part. If the transfer was for the
purpose of delaying or defeating creditors, the transaction will be set aside as there was fraud in
it. But if a part of the consideration is utilized for paying off a mortgage debt of the transferor,
then either the transfer would be treated as valid to that extent or if the transfer is set aside the
vendee is given charge on the property.3

3
Supra note 2
 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. Such transfers are fictitious transfers. Benami
transaction is also a sham transfer because the real owner has no intention that property should
belong to ostensible owner. It can be clearly explained by the following cases.
In the case of Jangali Tewari v. Babban Tewari , a sham transfer is not a real transfer at all.
The intention of the real owner is not necessarily fraudulent. So, such transfers do not require to
be avoided because the real title already vests in the transferor.

In the case of Petherpermal Chetty V. Muniandi Servai , a sale deed of land was
executed in June 1895 in favor of the predecessor of the appellant. The transaction was a benami
transaction, it was not real. An equitable mortgagee of the land sued in September 1895, to
establish his lien on the ground that the sale was intended to defraud creditors and obtained a
decree by which the equitable mortgagee was paid off and the mortgage was discharged. On the
death of the vendor of the land, the appellant, legal representative of the purchaser was sued by
the heir of the vendor (respondent in the case) for the recovery of the land. The defence
argument was that the plaintiff, on account of his participation in the fraudulent attempt to defeat
his creditor, was not entitled to recover possession of the land.
The court held that:-
Persons have been allowed to recover property which they had assigned away, where they had
the intention to defraud or delay creditors, who, in fact, were never injured. But when fraudulent
or illegal purpose has actually been effected by mean of the colourable grant, the legal maxim in
pari delicto potior est condition possidentis applies. The court will help neither party. It says let
the estate lie where it falls. To enable a fraudulent party to retain property transferred to him in
order to effect a fraud must, according to the authorities, be effected. Then alone, does the
fraudulent grantor or transferor, lose the right to claim the aid or support of the law to recover
the property he has parted with. The principle however will not apply in the case if the transferor
seeks for possession from the transferee before the fraud is effectuated.
In the case of Immani Appa Rao v. Gollapalhili Rama Lingamurthi , a sale of property was
made with the mutual consent of the vendor and the vendee to defraud the creditors of the
vendor. There was no consideration and the transferee also agreed to act as a benamidar until the
transferor required him to reconvey the property to his sons. The transferor and his sons
trespassed and occupied the property, as the creditors were defrauded. The transferor, in defence,
urged that the transferee has no rights in the property as the transfer was a fraudulent transfer. So
in this case the court observed that:-4
The transferors emphasized that the doctrine which is pre-eminently applicable to the present
case is ex dolo malo non oritur action or ex turpi causa non oritur actio. It means they contended
that the right of action cannot arise out of fraud or out of transgression of law. According to them
it is necessary that the possession should lie where it lies, in pari delicto potior est condition
possidentis. The law favors him who is actually in possession in case where there is guilty of
fraud on both the parties. The principle of public policy is that no court will lend its aid to a man
who founds his cause of action upon an immoral or illegal act. If the cause of action arises from
the plaintiff’s side, the court says that he has no right to be assisted; it is same in the case of
defendants. The Court also said that there is no question of estoppels in such a case because the
fraud in question was agreed by both the parties and both the parties have assisted each other in
carrying out fraud. It also said, in such a cases the transferee would be guilt for liability of
double fraud, as he joined transferor joined in the fraudulent scheme and participated in
commission of the transfer and he committed another fraud by suppressing from the Court the
fraudulent character of the transfer when he made out the claim for the recovery of the properties
conveyed to him. The transfer was not supported by any consideration and therefore no title is
transferred to him.
So in the view of public interests, the Court held that the plea of fraud is allowed and tried and it
is upheld that the estate should lie where it rests.
Notwithstanding the rights of transferor and a benami transferee, if the transfer was made to
defeat the creditors, a creditor himself can ignore a benami transaction and can proceed against

4
Avtar Singh on Transfer of property act second edition
the property as it was of the transferor. The creditor need not have to set it aside under this
section because, benami transaction is not a transfer at all.5
We have to note that, whether the transfer is real or sham, it is depended upon the facts and
circumstances in each case. If it is clearly shown that the very object of the transfer was to defeat
the interest of creditors, the transfer can be avoided by the creditor under this section.
But the present scenario is changed. The Benami Transaction Act, 1988 provides that properties
purchased in the name of ostensible owner or benamidar shall belong to benamidar and real
owner cannot claim from him. This Act now treats benami transfer as a real transfer under which
the benamidar becomes real owner. However, Section 3 of this Act says that the provisions of
Section 53 of TPA or any law relating to transfers for illegal purposes are not affected.

How Fraudulent Intention in the Transfers Can Be Proved

Fraudulent intention in transfers must be proved by direct or circumstantial evidence and every
case must be examined in the light of surrounding circumstances. Some circumstances that give
a strong presumption that the transfer was fraudulent are:
The transfer was made in secret and haste.
The transfer was made soon after the decree ordering the payment of debt was passes against the
judgment-debtor.
The debtor in the case transferred whole of his property without keeping anything for himself.
The consideration paid was very small when compared to the real or original value of the
property transferred.
Evidence was shown that there was no actual payment of consideration as given in the sale deed.
Not only these circumstances, but there are many other circumstances in which inference of
intent to defeat or delay creditors may be drawn. So every case is depended upon its own facts
and circumstances. It is subject to a matter of fact that the transfer is bonfire or fraudulent 6

IF THERE ARE SEVERAL CREDITORS7

5
Ibid
6
Dr poonam Gandhi Saxena on Property law second edition
7
Supra note 4
If there are several creditors, transfer in favor of one creditor does not amount to an intention to
defeat or delay the remaining creditors. It’s upon the debtor’s discretion to pay his debts in any
order of his preference. If A has taken loan from B, C and D, transfers certain properties to C in
satisfaction of the loan taken from him. This transfer necessarily cannot be considered as a
transfer made to defeat or delay the interest of other creditors. It was happened in the case of
Mina Kumari v. Bijoy Singh , the Privy Council held that in the case there are two or more
creditors, the debtor can give preference to any creditor and can clear his debts in any order he
chooses.

Another landmark regarding this context is Chogmal Bhandari v. Deputy Commercial Tax
Officer, Kurnool . The facts of the case were: A partnership of two partners was dissolved in
1963. A registered deed of trust was executed by which the properties were vested in the trustees
for purpose of paying off the creditors. Afterwards a business was started by the grandson of one
of the partners and some provisional assessments were made his name for the years 1966-1969.
In 1971, Sales Tax authorities made the assessments in the name of the Joint Hindu Family for
the first time but found that the tax could not be realized from the assesses on account of the
Trust Deed, and therefore, treated the Deed as void and fraudulent and contended that the
assessments were made to defeat the debts of Sales Tax Department. But in proceedings, these
facts were found. It was found there was no assessment made against the Joint Hindu Family at
the time of execution of Trust Deed. Therefore there was no real debt due by from one of the
executants of the Trust. There was no intention of use of unlawful purpose by the Trust. In the
Trust Deed, the names of the creditors to whom the debts are to be payable were clearly
mentioned. The Trustees did not keep reserve any advantage for themselves. It was also found
that there was no material to show that the creditors obtained collusive decrees.8

Here the question arisen before the Supreme Court was that whether this Trust Deed was hit by
Section 53 of TPA or not. In this context, Supreme Court held that:-
Observing the facts and circumstances of the case, it cannot be said that Trust was executed to
defraud the creditors, Sales Tax Department. Under the section a person must prove two facts to

8
Dr D.G Tripathi on Transfer Property act sixteenth edition
challenge the transaction. Firstly, the document was executed by settler. Secondly, the said
document was executed with a clear intention to defraud or delay the creditors. It is a matter of
the fact that intention would be proved on the basis of facts and circumstances surrounding the
case. The Supreme Court also held that, it is a well settled that a mere fact that the debtor
chooses to prefer one creditor to the either because the priority of the date or otherwise by itself
cannot be misleaded that it was done to defeat the other creditors.9

In Musahur Sahu v. Hakim Lal , Kisun Binode and Musahur Sahu were the debtor and creditor
respectively. Musahur Sahu sued the Judgment-Debtor Kisun Binode for the recovery of his
debts in December, 1900. Musahur Sahu presented a petition for attaching the properties of the
debtor as a security. This petition was filed in January, 1901, when the original suit was during
pendency. In February, 1901, Kisun Binode, the debtor gave an affidavit that he has no intention
to attach any property, accordingly the petition for attachment was dismissed. But after the
petition was dismissed, Kisun Binode sold his properties to Hakim Lal who was another creditor
of him. Then Musahur Sahu, pleaded that the transfer to Hakim Lal were done do defeat or delay
his interest and therefore it should be held void under Section 53 of TPA and the properties
should not be given to Hakim Lal.

In this case, the appeal was dismissed by the Privy Council, and held that transfer of property by
a debtor to one creditor in preference of the other is not a fraudulent transfer with the intent to
defeat or the delay the interest of another creditor. The Lordships observed in the case
Middleton v. Collak , the transfer if defeats or delays the creditors is not an instrument which
prefers one creditor to another but an instrument which removes a property from the creditors to
the benefit of the debtor. The debtor must not remain any advantage or benefit for himself. He
may one creditor and leave another unpaid. The court further observed that as soon as it is found
that the transfer here impeached was made for adequate consideration in satisfaction of genuine
debts, and without retaining any benefit to the debtor, it follows that no ground for impeaching it
lies in the fact that the plaintiff who also was a creditor was a loser by a payment being made to
this preferred creditor, there is no question being bankrupt.

9
Supra note 8
 EXCEPTIONS TOSECTION 5310
 It recognise two exceptions

Frudulent transfer can be avoided by creditors is not applicable to:

 A transferee in good-faith and consideration,

 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.
In the case of Vinayak v. Kaniram , 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. Sarangapani , 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.

10
Supra note 4
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 forceights 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.

Section 53 (2): Gratuitous transfer to defraud subsequent Transfer

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.
Under Section 53, the Wakfnama would be voidable only at the option of the person who was
defrauded or delayed. An important fact should be noted that this section does not violate the
rule of Muslim Law. 11

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 Revenue , 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.12

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.

11
Supra note 2
12
Supra note 8
BIBLIOGRAPHY

BOOKS

• Dr.G.P.TRIPATHI ON THE TRANSFER OF PROPERTY ACT, (16 th

EDITION, 2009).
• S.N.SHUKLA ON THE TRANSFER OF PROPERTY ACT, (27 th
EDITION, 2009).

• Dr. POONAM PRADHAN SAXENA, PROPERTY LAW, (2 nd

EDITION, 2011)

• Dr. AVTAR SINGH, TEXT BOOK ON THE TRANSFER OF

PROPERTY ACT, (2nd EDITION, 2009)

STATUTES

• TRANSFER OF PROPERTY ACT, 1882.

.