INTRODUCTION

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.
In India, this principle is governed by the section 53 of Transfer of Property Act. This
section safeguarding the rights of transferees in good faith and for consideration empowers the
creditors to avoid any transfer of immovable property made by the debtor with intent to defeat or
delay the creditors3 S. 53 is not exhaustive and therefore the principle of the section would apply
in cases of fraudulent transfers even if the section may not apply in terms. The provisions of S.
53 must be strictly construed.
The basic requisites for the applicability of S. 53 are:(i) There should be a transfer of immovable property;
(ii) The transfer ought to have been made with intent to defeat or delay the creditors;
(iii) The suit must be brought by the creditor, acting on behalf of or for the benefit of
the entire body of creditors, for avoiding such transfer.
Under S. 53 of the T.P. Act a person who challenges the validity of the transaction must
prove two facts(I) That the document was executed by the settler

1 13 Eliz., ch. 5 (1571) (Eng.). See also Glenn, supra note 9, SS 58- 62.
2 13 Eliz., ch. 5, S 1 (1571) (Eng.).
3 Phoolan Devi v. Surendra Prakash, AIR 1983 All 440 (442).

(2) That the said document was executed with clear intention to defraud or delay the
creditor. How the intention is to be proved is a matter which would largely depend on the facts
and circumstances of each case.4
The primary requirement for the applicability of this section is the existence of a valid
transfer. Where it is claimed that the transfer made by the debtors was a sham and fictitious
transaction and there was no animus transfer end i.e. when the real intention of the parties was
not to give effect to the supposed transfer at all and it was merely to be used as a shield or a
facade for achieving some ulterior purpose.
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. It is only to such cases that Section 53 will in
terms apply.5

4 Suresh mallappa shetty v. Spl. Recovry officer, 2003 AIHC 1164.

5 Phoolan Devi v. Surendra Prakash, AIR 1983 A1I 440 (442).

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.
Transfer includes a sale6; a grant under a 1ease7 including a lease created by a mortgagor8
transfer by way of a Mortgage or one by exchange or an oral gift under Muslim law. Any transfer
made with the permission of the court and in accordance with the terms imposed by it will not be
subject to the rule of lis pendens9

6 Gurmail Singh v. Udham kaur(deed) by Irs AIR 1999 P&H 300. See
generally [65] Civil Procedure.
7 Madan Mohun Singh v. Raja Kishori Kumari AIR 1917 Cal 222, (1917) 21
Cal WN 88.
8 Magan Lal jagjiwandas v. Lakhiram Haridasmal AIR 1968 Guj 193, (1968)
9 Guj LR 161.

FRAUDULENT TRANSFER
Section 53: - Fraudulent transfer.-(l) 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.
This section consists of two parts. The first part lays down that 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. To take one
illustration, A, who is heavily indebted, and against whom a suit for the recovery of debts
is going to be filed, sells his house to B to save it from being attached and sold in payment
of the debt. If B knows of A's fraudulent intention, the sale to B is liable to be set aside at
the option of the creditors. It will be seen that the rights of a transferee in good faith and
for consideration are not affected even though the transfer is made with intent to defeat
the creditors.
The second part of the section lays down that every transfer of immovable property
9 Sripat Singh v. Naresh Chandra Bose AIR 1926 Pat. 94.

made without consideration with intent to defraud a subsequent transferee shall be

voidable at the option of such transferee, but that no presumption to defraud shall
necessarily arise by reason only that a subsequent transfer for consideration was made.