MAHARASHTRA NATIONAL LAW UNIVERSITY AURANGABAD

FRAUDULENT TRANSFER
PROPERTY LAWS

IV Semester

B.A.LL.B(Hons.)

Submitted by: Submitted to:

Kritika Singh Prof. (Dr.) Kondaiah Jonnalagadda

Roll no. 24 ( Professor of Law)

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 TABLE OF CONTENTS

I. ACKNOWLEDGEMENT…………………………………………….…3

II. INTRODUCTION………………………………………………..……4

III. TRANSFER…………………………………………………………..6

IV. FRAUDULENT TRANSFER………………………………...………….7

V. CONTINGENCIES OF FRAUDULENT TRANSFER……………………...10

VI. BIBLIOGRAPHY………………………………………………..………….19

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 ACKNOWLEDGEMENT

I have tried to give my best in this project. However, it would not have been
possible without the kind support and help of my parents, teachers, friends and
this organisation. I would like to thank all of them.

I am highly thankful to Prof. Dr. Kondaiah J for his guidance and constant
supervision as well as for providing necessary information regarding the project
and also for his support in completing the project.

I would like to express my gratitude towards my parents and friends for their kind
co-operation and encouragement which helped me I completion of this project.

I would like to express my special gratitude to the library staff for their guidance
and time.

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 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.

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 case
consideration is non-existent. In either case the transaction is voidable at the instance of the
creditor defeated or delayed or the transferee defrauded. The Law of Property Act, 1925, on
which the present section is based, is wider; instead of the creditor being entitled to avoid the
transaction the person prejudiced is given the right. The original section was founded on two
statutes of Elizabeth, namely, 13 Eliz., c. 5 and 27 Eliz., c. 4. These two statutes were repealed
and re-enacted as Sections 172 and 173 of the Law of Property Act, 1925.

This section. while 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 jf 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;

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).

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 (ii) the transfer ought to have been made with intent to defeat or delay the creditors;
and
(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; and (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

Under Section 53 of the Transfer of Property Act a person who challenges the validity
of the transaction must prove two facts-(l) that a document was executed by the settler; and (2)
that the said document was executed with clear intention to defraud or delay the creditors, that
the purchaser did not acted in good faith.5

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, Section 53 cannot legitimately be taken aid of. 6 S.
53; presupposes a transfer, which is prima facie valid and operative. If the sale is valid ab initio,
and does not exist in the eye of law, a creditor need not bring any suit for avoiding 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
threrefore, 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

4
Suresh mallappa shetty v. Spl. Recovry officer, 2003 AIHC 1164.
5
C. Bhandari v. Dy. Commrl T. Officer. AIR 1976 SC 656 (660).
6
Phoolan Devi v. Surendra Prakash, AIR 1983 A1I 440 (442).

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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. 7

S. 53 speaks of fraudulent transfers i.e. real transactions, it does not apply to sham
fictitious transactions. Where the sale deed specifically recited that the entire sale consideration
had been received by the executants before the execution of the deed, the deed could not be
said fraudulent deed. Where in execution of a fraudulent decree possession had already been
delivered to the auction purchaser, creditor's suit for 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 section.10 It is relevant to note that a contention that the transaction is
a sham and nominal transaction, and that the property was never conveyed at all, and remained
the property of the original owner, may go even contrary to the contentions raised that are based
upon S 53 of the TP Act. If the contention that it is a sham and nominal transaction is accepted,

7
Phoolan Devi v. Surendra Prakash, AIR 1983 A1I 440 (442).
8
T. Mudaliar v. T Narayana Reddiar. AIR 1959 Mad 141 (142) (DB); see also Ram Nathan v.
unnamalai, AIR 1942 Mad 632: ILR (1943) Mad 47.
9
(1916) ILR 44 Cal 662, 44 IA 72, 40 IC 242, AIR 1916 PC 232.
10
Prabhu nath v. sarju Prasad AIR 1940 All 407.

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S 53 may not have any application. Infact, the challenge based on S 53 involves the admission
that the transfer is a real one.11
Transfer includes a sale12; a grant under a 1ease13 including a lease created by a
mortgagor14 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 pendens15.

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

11
Chumar v. Alima AIR 1998 Ker. 139.
12
Gurmail Singh v. Udham kaur(deed) by Irs AIR 1999 P&H 300. See generally [65] Civil Procedure.
13
Madan Mohun Singh v. Raja Kishori Kumari AIR 1917 Cal 222, (1917) 21 Cal WN 88.
14
Magan Lal jagjiwandas v. Lakhiram Haridasmal AIR 1968 Guj 193, (1968) 9 Guj LR 161.
15
Sripat Singh v. Naresh Chandra Bose AIR 1926 Pat. 94.

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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
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.

Section 53, while safeguarding the rights of transferee 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 creditors. It, however, requires that
such a suit must be instituted either in a representative capacity or for the benefit of all
the creditors.

The basic requisites for the applicability of Section 53 may be stated to be: (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; and (iii) the suit must be brought by the
creditor, acting on behalf of or for the benefit of the entire body of creditors. The primary
requirement for the applicability of the section, therefore, appears to be the existence of
a valid transfer. Where it is claimed that the transfer made by the debtor was a sham and
fictitious transaction and there was no animus transferendi, 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 solve ulterior purpose, Section 53 of the
Transfer of Property Act cannot legitimately be taken aid of. Policy of law always has
been to frown upon all attempts at fraudulent transfers. 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 the 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

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 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. 16
Every transfer of immovable property made with intent to defeat or delay the creditors
of the transferor will be voidable at the option of any creditor so defeated or delayed17. 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 must be instituted on behalf of or for the benefit
of, all the creditors18. Thus, a marriage settlement, a deed of appointment', a surrender of a life
estate, a relinquishment6, a collusive award or decree is voidable at his option but not a deed
of dissolution of partnership with intent to defeat the creditors.

16
Smt. Phoolan Devi v. Surendra Prakash, A.I.R. 1983 All. 440,
17
Transfer of Property Act 1882 Sec 53 (1) para 1. Nothing in this statutory provision will affect anv law for the
time being in force relating to insolvency: Transfer of property Act 1882 Sec 53(1) para 3.
18
Transfer of property Act, 1882 Sec 53 para 4. See Anantha Raman Pillai V. Arunachalam AIR 1952 TC 105.

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 CONTINGENCIES OF FRAUDULENT TRANSFER

Presumption of fraudulent intention:

The existence of a fraudulent intent has to be proved and would not be presumed by
the court. Each case has to be decided on its own merits, but where the transferee was in
embarrassed circumstances and the transfer is between near re1ations or members of a small
community; or the transfer was a cover up primarily to retain the benefit for the transferor
unless the benefit is very small, these would be evidences of fraudulent intention but merely
because the transfer was without considerations; or was for discharge of a bona tide debt in
accordance with family policy or was to a female descendant in absence of present debts would
not indicate fraud.19

Intent To defeat or delay creditors:

The intention must be to defeat or delay the creditors generally, that is, all the creditors
or even a single creditor but a mere preference of one over the other creditor is not enough for
the application of this rule unless the transferee shares a fraudulent intention" or it is with the
intention to defeat a particular creditor’s interest , Where the price realised from one of the
creditors is considerably in excess of the debts or where a fictitious debt is included in the
consideration or where more property is transferred than necessary, it is an evidence of an
intent to defeat the creditors generally The mere fact that a portion of the property is transferred
is immaterial unless there is cogent proof that there is other property left which is sufficient in
value and easily available for the creditors. Inadequacy of consideration may not itself be
sufficient to make the transaction voidable.20
Such intention can be proved by circumstantial evidence. The evidence required to
substantiate fraud must necessarily vary according to the circumstances of each case. The mere
fact that a transfer is made without consideration will not necessarily lead to an inference that
the transfer was made with the intention of defrauding the creditor. The following factors may
be relevant to a conclusion that the transaction is not bona fide-
(i) the debtor sells all his property keeping nothing to himself; (ii) the consideration is
grossly inadequate;

19
Maung Din v. Ma Hnin Me AIR 1925 Rang 2278.
20
Kedarwati v Radhey LalAIR 1937 Pat 609,170 lC 353, (1936) Pat WN 898.

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 (iii) the transfer is made secretly and in haste;
(iv) the transferor puts all his property out of the reach of those who might become his
creditors before embarking on some hazardous enterprise.
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 from the transferor is not by itself sufficient to establish a fraudulent
intention.
It must, however, be noted that if a person acquires property for value and in good faith,
that is, without being a party to any design on the part of that transferor to defeat or delay
creditors, his rights will not be affected although the transferor's intention might have been
fraudulent. In fact, whenever Section 53 is applied it is the transferee who ultimately suffers
provided he knew of the fraudulent intention of the transferor. The knowledge and intention of
the transferee are the main factors. In Palamalai v. The South Indian Export Co. 21, A being in
financial difficulties wished to convert his property into cash so as to conceal it from his
creditors. B being aware of A 's object assisted him by purchasing the property. The sale was
voidable under this section.
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 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

Transfer partly for genuine consideration and partly fraudulent:

Where in a transfer, two considerations are stated one of which is valuable and
separable from the other, effect will be given in the instrument to the exact amount of

21
(1910) 33 Mad. 334 : 5 I.e. 33.
22
Hanifa Bibi v. Punnamma, (1907) 17 Mad. L.J.11.
23
Abdul Shukoor Saheb v. Arti Papa Rao. A.I.R. 1963 S.C. 1150

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 consideration which is valuable and to the extent the transaction cannot be regarded as
fraudulent 24 out where a substantial portion is for fraudulent intention or the two parts
are not separable, the whole transaction would be voidable.

Applicable as Rule of Justice, Equity and Good Conscience:

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. 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 Supreme Court in Sarin v. Poplai, 28 but the Supreme Court
declined to go into the question. The correct view, it is submitted, is that a partition is not a
transfer, and, therefore, not strictly within the Section, but that the principle of the Section
applies to a fraudulent partition. Where the object of the transfer is not merely to give a sharer

24
Rajani Kumar Dass v Gourkishore Shaha (1908) ILR 35 Cal 105l.
25
Badri Dass v Chunilal (1961) 63 Punj LR 319,AlR 1961 Punj 398; Shallo Devi v Mobinder Singh AIR 1971
P&H 325.And see State of Punjab v Giani Bir Singh (1968) ILR 1 Punj 10 ,AlR 1968 Punj 479.
26
Ram Das v. Debu, A.I.R 1930 All. 610.
27
Islvar v. Devar, 30 Bom.146.
28
1966 1 SCR 349, AIR 1966 SC 432.

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his rightful share in the family property, but to effect the partition in such a way that such sharer
would be able to defeat the creditors, as for instance, to allot to him properties which the
creditors would not be able to touch and which he would be able to keep for himself, it is clearly
a transaction which fulfils the requirement of the Section.29 A reference to arbitration which
led to an award and decree for partition by which the father received an allowance in lieu of
his share in the family property, was held not to be voidable under this section as there were
no debts in existence at the time of the reference, and as the object was not to defeat creditors,
but to safeguard the interests of a minor son. A partition which does not provide for the payment
of a Hindu father's debt is mala fide, and may be avoided by a creditor in proceedings in
execution of a decree against the father. Similarly, in a partition in which no property was
allotted to the father who was indebted, it was held that the partition was illusory, although the
sons were directed to pay the father's debts.30 Where there is partition in a joint Hindu family
or a release deed by an indebted coparcener, S 53 is attracted, if the object of the allotment of
share to such coparcener is to help him defeat his creditors. Even assuming that partition in a
Hindu family and release deed by a coparcener in respect of his share does not amount to a
'transfer' within the meaning of S 5 and, therefore, is not within the purview of s 53, the
principle of the section can be invoked. If the object of a given instrument of a partition or a
release deed is not to give a sharer his rightful share in the family properties, but to effect a
partition in such a way that such a sharer would be able to defeat the creditors, it would amount
to a fraudulent partition.

Waqf:
A deed of waqf executed as a device to put property out of the reach of creditors has
been held to be a transfer to which this section applies, the court observing that S 53 does not
infringe any rule of Mahomedan law, for under that law no person can make a waqf of his
entire property without making arrangements for the payment of his debts. 31In such a case, it
is immaterial that the transfer is valid under 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 property, the mere circumstance that some creditors stand paid while others
remain unpaid, does not attract the provisions of S 53.

29
Vinayak v. Mureshwar AIR 1994 Nag. 44.
30
Picha moppanar v. Vetu Pillai, AIR 1947 Mad 203.
31
See Har prasad v. Mohammad Usman 1942 All LJ 645.

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 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 non-creditor.32

Plea of defence based on Section 53:

The following case of the Supreme Court is illustrative of a plea of defence based
on Section 53 of the Transfer of Property Act:
Immani Appa Rao v. Coolapali Ramlingmurthy33, The defendant V the father and
manager of the joint Hindu family) had suffered heavy losses in the business conducted by him
with the result that he was indebted to the extent of several thousand rupees. Apprehending that
the properties would be lost to the family at the instance of his creditors, he executed a collusive
and nominal mortgage deed for Rs 1,000 in favour of the plainliff G. The execution of the said
collusive document between V and G came to the knowledge of some of the creditors and it
led to an insolvency petition against V by one of the creditors. In these insolvency proceedings,
V was adjudicated insolvent and the properties of V were sold to G subject to aforesaid nominal
mortgage in favour of the plaintiff. Really K purchased the property with his own money but
benami in the name of G on the condition that G would reconvey the properties to the family
of V whenever called upon to do so. In pursuance of the said sale-deed the plaintiff G obtained
possession but subsequently V trespassed on the properties and dispossessed. G. Later on the
plaintiff G filed a suit against V for declaration of his title and for recovery of possession. The
defendant pleaded that the document executed in favour of the plaintiff was nominal and
collusive and was not supported by any consideration.

In other words, the material facts in brief were that:

(a) The transaction in favour of the plaintiff was the result of a fraudulent plan to which
both he and the defendant agree",

32
Union of India v. Rajeswari & Co. AIR 1986 SC 1748.
33
A.l.R. (1962) S.C. 370: (1962) 3 S.C.R. 739.

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 (b) This transaction was effected with the mutual consent of the vendor and the vendee
to defraud the creditors of the vendor.
(c) So the transfer was not supported by any considerations and the transferee agreed
to act as the benamidar until the transferor required him to reconvey the properties to his sons.
(d) The object intended to be achieved and the fraud initially contemplated by both the
parties to the suit had been achieved and the creditors of the defendant had been defrauded.
(e) Thus, both the parties to the suit were confederated in the fraud and were equally
guilty of fraud.
It was held by the Supreme Court that:
(i) There can be no question of estoppel for the defendant from pleading in the suit
fraud and absence of consideration. The reason is that the fraud in question was agreed by both
the parties who had assisted each other in carrying out the fraud.
(ii) When it is said that a person cannot plead his own fraud, it really means that a
person cannot be permitted to go to a Court of law to seek for its assistance and yet base his
claim for the assistance of the Court on the ground of his fraud.
iii) The plaintiff can be said to be guilty of a double fraud:
(a) he joined the defendant in his fraudulent scheme and participated in the commission
of fraud the object of which was to defeat the creditors of the defendant;
(b) he committed another fraud in suppressing from the Court the fraudulent character
of the transfer when he made out the claim for recovery of possession. The conveyance in his
favour was not supported by any consideration and was the result of the fraud and, therefore,
conveys no title to him. Yet, if the plea of fraud is not allowed to be raised in defence, the court
would, in substance, be giving effect to the document which was void ab initio. Therefore, the
paramount consideration of public interest requires that the plea of fraud should be allowed to
be raised and tried and, if it is upheld, the estate should be allowed to remain where it rests.
The adoption of this course is less injurious to public interest than the alternative course of
giving effect to a fraudulent transfer.
The terms of Section 53 (1) are satisfied even if the transfer does not "defeat" but only
"delays" the creditors. The fact therefore that the entirety of the debtor's property was not sold
cannot 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.34

34
Abdul Shakoor Sahib v. Arji Papa Rao, AIR 1963 SC 1150.

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Good Faith and consideration:
If the creditors established that the transfer was made with the object of defeating them,
the burden shifts on the transferee to prove: (i) 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.1 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) The plaintiff and the vendor belong to the same community, a small, compact and
well knit one, and they must obviously have known each other having been in trade for several
years in several places in common and must, therefore, have been well acquainted with the
financial and business affairs of each other.
(ii) The plaintiff admittedly had with him a copy of the deed of dissolution which
discloses that the firm's business had resulted in losses and that it was greatly indebted, the
debts amounting to Rs. 2 lakhs. Even when the plaintiff was fixed with notice that the firm's
business had been running at a loss and had accumulated a very large volume of debts, the
purchaser did not insist that the consideration which he was paying should be utilised for the
discharge of at least some of the debts.
(iii) The property is situated at Vizianagram but the document of sale-deed was
registered at Madras. This was a view to keep the transaction secret from the creditors, and the
plaintiff was as much a party to the secrecy as the transferor.
(iv) The plaintiff made the enquiries before he took the transfer. He led evidence to
show that he consulted his lawyers about the title of the vendor but any attempt at an enquiry
of defendant 4 as to why he was affecting the sale of the only immovable property of the firm
which was allotted to him under the dissolution deed is significantly absent.

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 In these circumstances, it stands to reason that the plaintiff must be fixed with notice of
the design in pursuance of which transfer was effected. If the object of a transferor, who is
heavily indebted, was to convert his immovable property into cash for keeping it away from
his creditor and, 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:
A transfer which is voidable under Section 53 (1) of the Transfer of Property Act can
be avoided not only by a suit instituted by a creditor challenging the transfer on behalf of
himself and the other creditors, but also by way of defence to a suit under Order 21, Rule 63
C.P.C. by a transferee (claimant) whose petition was rejected in the summary proceeding under
Order 21, Rules 58 to 61, C.P.C.
In order to avoid transfer which come within the mischief of Section 53 of the Transfer
of Property Act, it is not necessary that the person who intends to avoid the transaction should
file a suit for the purpose. He may as well manifest his intention to avoid the transaction
otherwise than by filing a suit, as for example, by attaching the property transferred. His very
act of attaching the property would be sufficient evidence of his intention to avoid it. 35

35
Ashutosh Rath v. Vysyaraju Badareenarayan, (1972) 38, C.L.T. 857 [ A.I.R. (1963) S.C, 1150 rel. on.

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 Where in a suit under Section 53, brought by one of the creditors, the heading of the
plaint did not indicate that the suit was for and on behalf of all other creditors, but the names
of other creditors whom the plaintiff knew were given in the body of the plaint, the plaintiff
was held to have locus standi to file the suit and the suit is maintainable. 36

The appellant was shown to be the only creditor. There were no other creditors.
Held: As a creditor he could not be defrauded, because his loans were secured by the mortgage
deeds. A gift in respect of properties already mortgaged could not in any way defeat or delay
the mortgagee's right because the donee under the gift-deed could only take the properties
subject to the mortgages. The transfer by the deed of gift could not in any way affect the
mortgagee's right under the mortgages.37

36
Talwar v. Adeshwar Lal, A.I.R. (1972) Delhi 122.
37
Mohan Lal v. Anandbai, A.I.R. (1971) S.C. 2177.

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 BIBLIOGRAPHY

BOOKS

• Mulla, Sir Dinshaw Fardunji, The Transfer of Property Act, 12th Edition,
Lexis Nexis Publications
• Tripathi, T.P., The Transfer of Property Act, 1882 , 3rd Edition, Allahabad
Law Agency Publications
• Saxena, Poonam Pradhan, Property Law, 2nd Edition, Lexis Nexis
Publications
• Sinha, R.K. The Transfer of Property Act, 11th Edition. Allahabad:
Central Law Agency, 2010.

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