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SECTION53:FRAUDULENTTRANSFER
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INTRODUCTION
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Fraudulent transfer law developed under the common law and was
codified in the Statute of Elizabeth. 1 The Statute of Elizabeth provided for
the avoidance and punishment of transfers made "to the end, purpose
and intent, to delay, hinder or defraud creditors.2 This early fraudulent
transfer statute was apparently in part a criminal law, in part a revenue
measure (the Crown could receive a portion of any recovery), and only in
part a creditor protection. However, when the English courts held that a
judgment creditor could disregard a fraudulent conveyance and levy
execution on the property transferred, the fraudulent conveyance law
became primarily one of creditor protection.
This section deals with the subject known as fraudulent transfers
of immoveable property. Subject to savings hereinafter mentioned, a
transfer is fraudulent when it is made with intent to defeat or delay the
creditors of the transferor or to defraud a subsequent transferee. In the
first instance consideration may or may not be present. In the second
113Eliz.,ch.5(1571)(Eng.).SeealsoGlenn,supranote9,SS5862.
213Eliz.,ch.5,S1(1571)(Eng.).
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3PhoolanDeviv.SurendraPrakash,AIR1983All440(442).
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it. Policy of law always has been to frown upon all attempts at fraudulent
transferors. While law favours exchange of property as a natural right of
a person to deal with it in a normal manner, the law has always set its
face against this privilege being abused to the detriment of the innocent
public. Creditors inclusive, who had dealt with transferor on the faith of
the security of their debtor. Any attempt by the debtor to withdraw his
assets from the control of his creditors therefore, has always received just
condemnation by the courts of law who have compelled the debtor to
make good the representation on the faith of which presumably he had
obtained credit. In such circumstances, the courts have never been loath
in setting aside such transactions.
Before Section 53 of the Transfer of Property Act can be applied, the
creditor plaintiff must come to the Court in the premise that although
the transaction was genuine and effective, yet it was entered into with
intent to delay or defeat the creditors.
7PhoolanDeviv.SurendraPrakash,AIR1983A1I440(442).
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declaration that the decree and all the proceedings in execution were null
and void was otherwise maintainable apart from the provisions of S. 53.8
TRANSFER
The transfers referred to in this section are transfers binding
between the parties, but voidable in the circumstances stated in the
section. A document made to defeat or to delay his creditors is binding on
the executant, and those claiming under him. The transfer is valid until
it is set aside, and must not be confused with benami or colourable
transfers which are merely sham transfers, and not meant to operate
between the parties.
In the collusive or benami transactions there is no transfer, but the
property is merely put in a false name, and generally for the purpose of
defrauding creditors. As observed by Sir Lawrence Jenkins in Mina
Kumari v Bijoy Singh,9 the difference is distinct though it is often flurred.
Such colourable or sham deeds do not require to be set aside, for the real
title is all along with the transferor. They are outside the scope of the
8T.Mudaliarv.TNarayanaReddiar.AIR1959Mad141(142)(DB);seealsoRamNathanv.unnamalai,
AIR1942Mad632:ILR(1943)Mad47.
9(1916)ILR44Cal662,44IA72,40IC242,AIR1916PC232.
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FRAUDULENT TRANSFER
10Prabhunathv.sarjuPrasadAIR1940All407.
11Chumarv.AlimaAIR1998Ker.139.
12GurmailSinghv.Udhamkaur(deed)byIrsAIR1999P&H300.Seegenerally[65]
CivilProcedure.
13MadanMohunSinghv.RajaKishoriKumariAIR1917Cal222,(1917)21CalWN
88.
14MaganLaljagjiwandasv.LakhiramHaridasmalAIR1968Guj193,(1968)9GujLR
161.
15SripatSinghv.NareshChandraBoseAIR1926Pat.94.
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Nothing in this sub-section shall affect any law for the time
being in force relating to insolvency.
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transferee,
but
that
no
presumption
to
defraud
shall
(ii)
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(iii)
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16Smt.PhoolanDeviv.SurendraPrakash,A.I.R.1983All.440,
17TransferofPropertyAct1882Sec53(1)para1.Nothinginthisstatutoryprovision
willaffectanvlawforthetimebeinginforcerelatingtoinsolvency:Transferofproperty
Act1882Sec53(1)para3.
18TransferofpropertyAct,1882Sec53para4.SeeAnanthaRamanPillaiV.
ArunachalamAIR1952TC105.
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But each of the above factors must be considered along with other
circumstances of the case. However suspicious a transaction may be,
there must be cogent evidence of fraud. The mere fact that debts are due
20KedarwativRadheyLalAIR1937Pat609,170lC353,(1936)PatWN898.
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In order to take out the case from the operation of Section 53, it is,
however, essential that the debtor must not reserve any benefit for
himself. If the debtor sells property to another creditor to discharge the
debt due to him and the price obtained is considerably in excess of the
debt discharged, this would be evidence of intent to defraud.22
The terms of Section 53 (1) are satisfied even if the transfer does not
'defeat' but only 'delays' the creditors. Therefore, the fact that the entire
21(1910)33Mad.334:5I.e.33.
22HanifaBibiv.Punnamma,(1907)17Mad.L.J.11.
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property of the debtor was not sold, does not by itself negative the
applicability of Section 53 (1) unless there is cogent proof that there is
other property left sufficient in value and of easy availability to render
the alienation in question immaterial for the creditors.23
to
the
extent
the
transaction
cannot
be
regarded
as
The principle of s 53 has been adopted in the Punjab where the TP Act
was not in force, and was also followed in Bombay before the TP Act was
extended to that Presidency.
23AbdulShukoorSahebv.ArtiPapaRao.A.I.R.1963S.C.1150
24RajaniKumarDassvGourkishoreShaha(1908)ILR35Cal105l.
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It has, however, been held that the requirement that any suit filed to set
aside a fraudulent transfer must be a representative suit, will not be
insisted upon in Punjab as that is a mere technicality.25
Creditor:
The word 'creditor' has been used in this section in somewhat wide
sense. Thus, it includes all those who are creditors at the date of transfer
as well as those who become creditors subsequent to the date of
fraudulent transfer.26
Further, it includes not only those creditors who have obtained decrees,
but also those whose claims have yet to be proved in a Court. 27 On the
other hand, a person who claims an unliquidated sum for damages for
tort or breach of contract is not a creditor, nor a person whose claim for a
debt has become time-barred.
Partition:
This section has been applied to cases of partition. The
correctness of these decisions was a question canvassed before the
25BadriDassvChunilal(1961)63PunjLR319,AlR1961Punj398;ShalloDeviv
MobinderSinghAIR1971P&H325.AndseeStateofPunjabvGianiBirSingh(1968)
ILR1Punj10,AlR1968Punj479.
26RamDasv.Debu,A.I.R1930All.610.
27Islvarv.Devar,30Bom.146.
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31
Mahomedan law.
It is open to a debtor to prefer one or more creditors over the others in
the payment of his debts, and so long as he retains no benefit in the
30Pichamoppanarv.VetuPillai,AIR1947Mad203.
31SeeHarprasadv.MohammadUsman1942AllLJ645.
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property, the mere circumstance that some creditors stand paid while
others remain unpaid, does not attract the provisions of S 53.
Where it was found that the sale of the assets of the company was
effected for the purpose of discharging the debts payable by the company
and that the consideration was not inadequate, it is immaterial that the
transfer was effected in favour of a person who was not a creditor.
A debtor can prefer one creditor over others in the payment of his debts.
So long as he retains no benefit in the property, the mere circumstance
that some creditors stand paid while others remain unpaid, does not
invalidate the transfer. Sale of assets by a company for adequate
consideration is not invalid merely because it is in favour of a noncreditor.32
Plea of defence based on Section 53:
32UnionofIndiav.Rajeswari&Co.AIR1986SC1748.
33A.l.R.(1962)S.C.370:(1962)3S.C.R.739.
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(ii)
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34AbdulShakoorSahibv.ArjiPapaRao,AIR1963SC1150.
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that he had paid it fair price, and (Ii) that he was not a party to the
fraud.
The term 'consideration' as used in this section has the same meaning as
it has in the Contract Act and therefore excludes natural love and
affection. Transfers for natural love and affection and treated as transfers
without consideration.
Where the fraud on the part of the transferor is established, the
burden of proving that the transferee falls within the exception is upon
him, and, in order to succeed, he must establish that(a) he was not a party to the design of the transferor,
(b) he did not share the intention with which the transfer has been
affected, and
(c) he took the sale honestly believing that the transfer was in the
ordinary and normal course of business.
When once the conclusion is reached that the transaction was effected
with the intent on the part of the transferor to convert the property into
each so as to defeat or delay his creditors, then the following
circumstances prove that the plaintiff shared that intention:
(i)
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(ii)
(iii)
(iv)
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knowing it, the transferee helped him to achieve this purchase, it has
naturally to be held that he shared that intention and was himself a
party to the fraud. Therefore, it has to be held that the plaintiff was not a
transferee in good faith and that the transfer itself was a scheme by the
transferor with the knowledge and concurrence of the transferee to put
property out of the reach of the creditors.
Nature of suit:
A creditor's suit to avoid a transfer must be a suit on behalf not
only of himself, but of the whole body of creditors (See Order 21, Rule 63,
C.P.C.). This rule has been laid down with a view to protect the debtor
from multiplicity of suits by each and every creditor, if there are more
than one.
In a suit to avoid a transfer under this section, the issues to be
framed are: (1) Was the transfer made with intent to defeat or delay the
creditors?
(2) If so, was the purchaser from such a debtor a transferee in good
faith and for consideration?
The onus of proving the first issue lies on the creditor, and' if that is
established, the onus of proving the second issue is on the transferee.
Suit by transferee:
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BIBLIOGRAPHY
Primary Sources
1. AIRs
2. CLT
3. Transfer of Property Act, 1882
Secondary Sources
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Websites Referred:
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