Introduction

Property is considered as one of the essentials required by the human being apart from food and
clothing for his survival. Transfer of property refers to taking of possession from one person to
another and in India is governed by the legislation The Transfer of property Act.
Relationship between people over property are never so simple or so unqualified and the concept
of fraudulent transfer appeared. The illegal transfer of property to another party in order to defer,
hinder or defraud creditors, or to put such property out of the reach of a creditor is known as the
fraudulent transfer.
Section 53 of The transfer of Property Act deals with the fraudulent transfer of property.

Fraudulent transfer of property:

Every owner of property has right to transfer his property as he likes, but the transfer must be
made with bona fide intention. When any transfer made with the intention to defeating the
interest of creditor or interest of any subsequent transferee it is known as fraudulent transfer of
property. When the transfer is made with fraudulent intention, the object of transfer is mala fide
in the eye of equity and justice though it is valid in law. It is not void but voidable.

Section 53 of Transfer of Property Act;

1) 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.
2) 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 made1.

Essentials requirements of fraudulent transfer:

i.
ii.
iii.
iv.
v.
vi.

There must be a transfer of an immovable property.

A transfer must be made by a debtor to a third person for consideration.
The intention behind the transfer should be to defeat or defraud the creditors.
The transfer shall be voidable at the option of the creditor.
The creditor can file suit on behalf of himself and all other creditors.
If the property is purchased by the transferee in good faith, he will not be liable.

1 1.Singh Avtar, The Transfer of Property Act, Universal Law Publishing Co., New
Delhi, 3rd edition, 2014

English law on Fraudulent Transfer:

The English law regarding the fraudulent transfer is depended upon the Twynes2 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 debt 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. Following are the questions arises whether the gift in favour of
Twyne was fraudulent, the court held that:
1. 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.
2. The donor continued in possession and used them as his own, so it clearly shows that
he had defrauded and deceived the creditor.
3. The gift was made in secret, et done clandestine sunt simper suspiciosa.
4. The gift was made during pendency of suit.
5. Even after the suit was made, the donor was still in possession and therefore here
there was a trust between the parties and the fraud was covered by the trust.
6. 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 bonfie, and it shall be deemed that a gift
made with any trust in favour of donor is considered to be done with fraud.
In another case regarding the same issue, Edwards v harben 3, 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.

2 Reported in 3,coke,80
3 2Term rep. 587

Indian Law on Fraudulent Transfer

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 Town Insolvency Act, 1909, or section 53 of the Provincial Insolvency Act1920,
and a provision saving insolvency law is introduced in the section.
This section is applicable only where the transaction is transfer of property within section 5 of
the act. In the case of Sunder Lal v. Gurusaran Lal 4, it was held that relinquishment of share by
one co-parcener in favour of other is not a transfer of property within meaning of this section and
section 53 doesnt apply. In the case of Joshua v Alliance bank 5, a settlement was provided for
the appointment and it was found that the appointment was done to defeat or delay the creditors.
On observing the facts of the case the court held that appointment made with reference to the
settlement was fraudulent transfer.

Sham Transfer
Sham transfers means fictitious transfer. When the transferor does not intend that the property
should be really vested in 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.
Determination of fraudulent intention:
Fraudulent intention may be determined by the following evidence.
(a) That the debtor made a voluntary settlement.

4 AIR 1938Oudh 65
5 (1895) 22 Cal. 185

(b) That the debtor a grossly inadequate consideration without reserving sufficient property for
the payment of his debt.
(c) That he put all his property out of reach of those who might become his creditors before
embarking on a hazardous enterprise or.
(d) That the transfer is in embarrassed circumstances and the transaction is between relation.
(e) That the transfer was a mere cloak for retaining a benefit for the transferor.
If there are several creditors:

If there are several creditors, transfer in favour of one creditor does not amount to an intention to
defeat or delay the remaining creditors. Its upon the debtors discreation 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 interests of other creditors. It was happened in the case of
Mina Kumari v. Bijoy singh6, the Privy Council held that in the case there are two or more
creditors, the debtors can give preference to any creditor and can clear his debts in any order he
chooses.
Another landmark regarding this context is Chogmai Bhandari v Deputy Commercial Tax
Officer, Kurnool7. In this case 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 of the creditors. Afterwards a business was started by the grandson of one of the partners
and some provisional assessments were made on his name for the years 1966-1969. In 1971,
sales tax authorities made the asessments in the name of 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 assessment 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 execution of trust deed.
6AIR 1916 P.C 238
7 AIR 1976 S.C 656

Therefore there was no real debt due by from one of the executant 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 trustee did not keep reserve any
advantage for themselves.
In this case Supreme court said that to challenge this section two essentials must be proved.
Firstly, the document was executed by the settler and secondly, the said document was executed
with a clear intention to defraud or delay the creditors. Court also said that mere giving
preference to one creditor among other is not a valid defence.
Exceptions to section 53(1)

Section 53(1) recognizes two exceptions. The rule that a fraudulent transfer can be avoided by
creditors is not applicable to:
1. A transfer in good faith and consideration
2. Any law relating to insolvency for the time being in force
A transfer 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 case of Vinayak v Kaniram8, the transferors intention was to convert his immovable property
into cash so as to keep it out of reach of the creditors and the purchaser was also a party o fraud
as he was aware of the fraudulent intention and sale was voidable at the option of the creditors.

8 AIR 1926 Nag 293

Therefore, good faith on the part of transferee is more significant factor in protection of right of
the transferee than payment of consideration.
Any law relating to insolvency for the time being in force:
The rights of the transferee created under the law of insolvency are not affected by section 53
even if the transferrors intent was to defeat or delay the creditors 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 give prefrnce, then it is deemed to be a fraudulent transfer under this
section.
Where the transferor 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
competatnt here to decide whether the transfer was voidable under section 53 of TPA.

Section 53(2): Gratutious transfer to defraud subsequent transferee:

Section 53(2) enacts that gratuitous transfer of an immovable property with intent to defraud a
subsequent transfree 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 transfer. 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 with an intent
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 made to defraud.
Fraud in the prior transfer must be fully established by the subsequent transferee.

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. It may be noted that the burden to prove the intention
would largely depend upon the fact and circumstances of case.
How transfer may be avoided:
Fraudulent transfer may be avoided by following ways.
(i) By filing a suit to set aside the fraudulent transfer.
(ii) By pleading S. 53 in defence.
(iii) By pleading S. 53 in execution proceeding.
(iv) Avoiding by conduct.

Conclusion
Section 53 of Transfer of Property Act deals with the concept of Fraudulent Transfer. The first
part of this section deals with the transfer made to delay or defraud the creditors of the
transferors and it is voidable at the option of such creditors. The second part deals with the
gratuitous transfers with intent to defeat or delay the creditor. 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 insolvency act is not affected by the section 53 even if the transfers intent is to
defraud or delay. In my opinion law regarding the fraudulent transfer should be made stricter and
such transferor or transferee must be penalized for such act.