FRADULENT TRANSFER:

Section 53 of the Transfer of Property Act, 1882 talks about fraudulent transfers. Every owner of a
property has the right to transfer his property as he likes. But the transfer must be made with a
bonafide intention. Section 53 of the Transfer of the Property Act, 1882 deals with the requirement of
the fraudulent transfer of the Property. A transfer is a fraudulent transfer of Property if it is made to
defeat or delay the creditors of the transferor or without consideration with intent to defraud a
subsequent transferee. Where the transfer is made with a fraudulent intention, the object of the
transfer would be bad in the eyes of equity and justice, though it is valid in law.
Section 53 consists of two rules which are given below:

(I)
1. Every transfer of immovable property,
2. made with intent to defeat or delay the creditors of the transferor,
3. shall be violable at the option of any creditor so defeated or delayed.
4. This sub-section will not impair the rights of a transferee in good faith and for consideration.
5. It will also not affect any law for the time being in force relating to insolvency.
6. A suit may be instituted by one creditor on behalf of or for the benefit of all the creditors.

(II)

1. Every transfer of immovable property,

2. made without consideration,
3. with intent to defraud a subsequent transferee,
4. shall be voidable at the option of such transferee.
5. A transfer made without consideration shall not be deemed to have been made with intent to
defraud by reason only that a subsequent transfer for consideration was made.

(I) It says that every transfer of immovable property made with intent to defeat or delay the creditors
of the transferor shall be variable at the option of any creditor so defeated or delayed. This means that
the transfer is valid in law but it can be avoided by that creditor whose interest has been defeated or
delayed.

The essential requirements of this section are given below:

1. There must be a transfer of an immovable property.
2. Transfer must have been made with intent to defeat or delay the creditors of the transferor.
3. The transfer shall be voidable at the option of the creditor whose interest has been defeated or
delayed.

Exceptions:
1. The rights of a transferee in good faith and for consideration are unaffected.
2. Any right created by the law of insolvency remains unaffected.

1. TRANSFER OF IMMOVABLE PROPERTY:

The requirement to bring about application of this section is that there must be a transfer of
immovable property valid in law. When the transfer is valid and confers a good title upon the
transferee, only then will this section be applicable. This section does not cover nominal,
sham, or simulated transfers of property because, in such cases, there is no intention to
transfer the property, and no right is conveyed in the property.
This section will be applicable only where the transaction is a transfer of property within the
meaning of section 5 of this Act. Such property must be immovable in nature can be
transferred – which would not, in any case, include growing crops, standing timber, or grass
and all that we covered earlier.
 2. INTENT TO DEFRAUD CREDITORS:
For this section to apply, the transfer must be made with the intent to defraud creditors. Here,
"creditors" includes both current creditors and those who may become creditors after the
transfer. Typically, a "creditor" is someone owed a specific debt, but it does not include
claimants of unliquidated damages, time-barred debts, auction purchasers without decrees, or
mortgagees with secured debts.
The section addresses "creditors" in general, meaning the transfer must aim to disadvantage
multiple creditors, not favour one over others. This is to say that it is important to cull out the
intention behind the transfer which is in question. If such transfer has been with the scheme or
design to result in delay or defeat of the creditors – such transfer is voidable. Now the
question arises as to how can this, seemingly, ill–intention is proved? It must be proved by
making use of evidence – which may be direct or circumstantial in nature. Intent to defraud
can be inferred by circumstances such as:
 The debtor transfers all assets, keeping none.
 The consideration is inadequate.
 The transfer is made secretly.
 The transferor aims to put property beyond the reach of potential creditors.

3. TRANSFER TO BE VOIDABLE:
Any transfer made with intent to defeat or delay creditors is not void. It is voidable only at the
option of the creditors whose interests have been defeated or delayed by debtor (transferor).
The creditor so defeated must exercise his option to avoid the transaction. Till the creditor
exercises his option and a pronouncement is made by the court to that effect, the transaction
will remain valid. A suit instituted by a creditor shall be instituted on behalf of or for the
benefit of all the creditors.

4. PREFERENCE OF ONE CREDITOR TO ANOTHER:

The preference of a one creditor to another, even though fraudulent in the law of insolvency,
cannot be impeached under the general law. The debtor may pay one creditor and leave
another unpaid but he must not retain a benefit for himself.
Example- A sued B for a debt. B requested a delay in the case, and during this time, sold her
land to her sister, C. When A won the suit and tried to claim the land as payment, C objected.
B claimed she sold the land to pay off a debt, but there was no evidence that payment had
been demanded or that B alone was responsible for it. The court ruled that the sale was
voidable, as it was done to defraud creditors.

5. DELAY THE CREDITORS:

Section 53 applies not only when a transfer aims to avoid paying creditors altogether but also
when it merely delays their payment. If a debtor sells some, but not all, of their property, it
doesn’t automatically mean Section 53 doesn’t apply. To argue that Section 53 is irrelevant,
there must be strong proof that the debtor retained enough property, of adequate value, that is
easily accessible to satisfy creditor claims. Without such evidence, the transfer could still be
seen as an attempt to delay or obstruct creditors and fall under Section 53.

EXCEPTIONS:

This section provides for two exceptions. First exception says that section 53(1) will not impair the
rights of a transferee in good faith and for consideration. Second exception says that it will not affect
any law for the time being in force relating to insolvency.

Good faith and Consideration:

Where a transferee acquires property from the debtor in good faith and for value, he is not affected by
the rule contained in sub-section (1). If the creditors establish that the transfer was made with the
object of defeating them the burden shifts on the transferee to prove that he had paid a fair price for
the property and that he was not a party to the fraud. A thing is deemed to be done in good faith where
it is done honestly, whether it is done negligently or not. Good faith required is that of the transferee
and not the transferor. The doctrine of constructive notice is also not applicable under this section.
Mere knowledge of an impending execution of a decree against the transferor is not sufficient to make
the transferee a transferee without good faith, when he does not share the intention of the transferor to
defeat or delay his creditors nor does he participate in the commission of the fraud.

Insolvency:
The law of insolvency aims at providing for equal distribution of the assets of the insolvent among his
creditors, and therefore, its provisions are more stringent.

(II) SUBSEQUENT TRANSFER:

Sub-section (2) of Section 53 provides that a transfer made gratuitously with intent to defraud a
subsequent transferee shall be voidable at the instance of that transferee. This sub-section comes into
play where a prior transfer is made without consideration and a subsequent transfer of the same
property is made for consideration. The prior transfer without consideration should have been made
with intent to defraud creditors. In such a case, where the same property is transferred again to a
subsequent transferee, the prior transfer shall be voidable at the option of the subsequent transferee.
For example, A makes a settlement of his property to his children and subsequently he sells the same
property to B. If B can prove that the sale was made with the intention to defraud him, the settlement
is liable to be set aside.
Even a fraudulent transfer does not impair the rights of a transferee who acted in good faith and
purchased the property for valuable consideration. However, such transfer shall not be deemed to be
fraudulent by reason only of any subsequent transfer for consideration.

ILLUSTRATIVE CASES:
(i) A creditor obtained a decree against a widow who had a life interest in the property gifted to her by
her husband. The widow in order to render the property out of reach of the creditor surrendered her
interest to her son. It was held that the surrender was voidable at the option of the creditor under
section 53.

(ii) A, who was in embarrassed conditions, wished to convert his property into cash so as to conceal it
from his creditors. B, who was aware of his condition, assisted him by purchasing the property. The
sale was held to be voidable under section 53.

The Burden of Proof

 Initial Burden on Creditors:

o Burden lies on creditors under Section 53 of TPA, 1882.
o They initiated legal action, attacking the debtor based on fraudulent transfer.
 Creditor's Assertion:
o The creditor must establish that the transfer was fraudulent.
o The aim is to show the transfer was intended to defeat or delay creditor's claims.
 Shift in Burden:
o Upon creditor's successful proof, burden shifts to the transferee.
 Transferee's Defense:
o A transferee must prove good faith in acquiring the property.
o Burden includes demonstrating bona fide purchase for value.
o Transferee must show non-involvement in the fraudulent transfer.
 Section as a Shield for Transferee:
o Transferees can use Section 53 as a defense mechanism.
o Protection against allegations of fraudulent involvement.
 Creditor's Use as a Sword:
o Section 53 serves as a legal weapon for creditors.
 o Allows them to challenge and attack the debtor in case of fraudulent transfers.

SECTION: 53A-PART PERFORMANCE:

According to Section 53A

1. Where any person contracts to transfer—

(a) for consideration,
(b) any immovable property,
(c) by writing signed by him or on his behalf,
(d) from which the terms necessary to constitute the transfer can be ascertained with
reasonable certainty,
2. The transferee—
(a) has, in part performance of the contract, taken possession of the property (or any part
thereof), or
(b) being already in possession, continues in possession in part performance of the contract
and has done some act in furtherance of the contract, and
(c) has performed or is willing to perform his part of the contract,
3. Then, notwithstanding that—
where there is an instrument of transfer, that has not been completed in the manner prescribed
therefor by the law for the time being in force,
4. The transferor (or any person claiming under him) shall be debarred from enforcing against
the transferee (and persons claiming under him) any right in respect of the property of which
the transferee has taken or continued in possession, other than a right expressly provided by
the terms of the contract.
5. However, the section will not affect the rights of a transferee for consideration who has no
notice of the contract or its part-performance.

Doctrine of Part-Performance
The doctrine of part-performance, also known as "equity of part-performance," states that if a person
has taken possession of an immovable property based on a contract of sale and has either performed
or is willing to perform their part of the contract, they cannot be ejected from the property on the
grounds that the sale was unregistered and the legal title has not been transferred to them.

Doctrine of Part-Performance in India:

Now, this doctrine does not merely give rise to an equity, as in England. It creates a statutory right.
However, this right is more limited than English equity in two ways:

1. The contract must be in writing.

2. It is available only as a defense.

The Supreme Court observed that the protection provided under Section 53A is a shield only against
the transferor. It prevents the transferor from disturbing the possession of the proposed transferee,
who has been put into possession under the agreement. It does not affect the ownership of the
transferor, who remains the full owner of the property until it is legally conveyed by executing a
registered sale deed.

Thus, it may be said that Section 53A is a partial importation into India of the English equitable
doctrine of part-performance.

Essential Requirements of Section 53A

1. There must be a contract to transfer an immovable property for consideration.

2. The contract should be in writing and its terms can be ascertained with reasonable certainty.
 3. The transferee should have taken possession of the property in part-performance of the
contract or, if already in possession, should have continued in possession in part-performance
of the contract, and should have done something in furtherance of the contract.
4. The transferee is ready and willing to perform their part of the contract.

1. Contract to Transfer an Immovable Property for Consideration:

The first requirement of this section is that there must be a contract to transfer an immovable property,
and the contract must be in writing. The protection given under Section 53A is available only in those
cases where the transfer of property is made in pursuance of a contract. Partition is not a transfer of
property; therefore, the protection of Section 53A will not be available.

The transfer of property must be for consideration. Where transfer is without consideration, this
doctrine will not be applicable. For example, a gift is a transfer without consideration; therefore, this
section will not offer protection in such cases.

The section is applicable only to transfers of immovable properties. It does not apply to an agreement
for the transfer of movable properties. The section will also not apply to any stipulation authorizing
the owner to seize a vehicle given out on hire purchase for non-payment of instalments.

2. Contract in Writing and Ascertainable with Reasonable Certainty:

The contract must be in writing. If the contract for transfer is oral, Section 53-A does not apply. In the
case of V.R. Sudhakara Rao v. T.V. Kameswari, it was ruled that the benefits of Section 53-A
cannot be claimed by a person who possesses property based on an oral agreement of sale. It is not
sufficient for the contract to be in writing; it must also be duly executed, meaning it should be signed
by the transferor or someone on their behalf.

The terms of a contract must not be vague or ambiguous but certain and expressed clearly. Transfer of
possession or its continuance must have been agreed upon in terms of the contract. It should fulfil all
the requirements of valid contracts. It is crucial that the terms of the written contract can be
determined with reasonable certainty (Hamida v. Humer and Ors.).

3. Possession or Continuance in Possession:

Under Section 53A, for the transferee to claim part-performance of a contract, they must have either
taken possession of the property after the contract or continued in possession if already in possession.
This possession must be in pursuance of the contract. If possession is not taken, this section will not
apply.

When a transferee has paid a substantial part of the sale consideration and taken possession, part-
performance is considered. If the transferee has once taken possession but has subsequently lost it,
does not nullify their right under Section 53A. If already in possession under another capacity, the
transferee must show that the possession continues under the new contract of transfer (Tenant). It is
not necessary to possess the whole property; partial possession suffices if agreed in the contract.
However, possession must be obtained lawfully.

Where the transferee is already in possession of the property, he must do some act in furtherance of
the contract like paying increased rent or part of the property's price, as long as they are directly
related to the contract (Nathulal vs Phoolchand). Acts done before or incidental to the contract do not
qualify as part-performance.

4. Readiness or Willingness of Transferee:

The principle of equity is that "he who seeks equity must do equity".524 Therefore, the transferee
who wants to take benefit of this section must also do his part of the contract. He must be willing and
ready to perform his part under the contract. A purchaser, who has already take possession of the
property, cannot protect his possession under this section if he is not willing to pay the price of the
property. Apart from retaining the possession, transferee must also show his readiness and willingness
to fulfil his obligation. It can also be inferred from his conduct. It is also necessary that the
willingness to perform the part must be absolute and unconditional. If the willingness is loaded with a
condition, it cannot be termed a willingness. Additionally, no protection is available if the transferee
lacks an agreement with the owner.

Tenant in Possession, Change in Relationship:

A tenant has no right to seek protection of his possession by virtue of Section 53A when the jural
relationship is that of landlord and tenant. The Rent Act would prevail, and the landlord could seek
eviction in terms of the provisions of the applicable rent legislation.

However, where the relationship has been transformed, and the tenant is in possession by virtue of an
agreement of sale to him, and in that capacity has done certain acts in furtherance of the agreement,
the relationship of landlord and tenant ceases from the date of the agreement. It is replaced by the new
relationship of intending seller and purchaser. There is an implied surrender of tenancy. From the date
of the agreement, no rent is to be paid, and the tenant/purchaser assumes responsibility for any
damage to the property.

EXCEPTIONS:
The proviso to Section 53-A of Transfer of Property Act includes an exception in favour of a
transferee for consideration who has no knowledge of the contract or its part performance. This
implies that a transferee who acquires the property for consideration without any knowledge of the
contract or its execution is not affected by this rule.

Any rights the transferee may have against the transferor under this section would not be enforceable
against a bona fide transferee for value who has no knowledge of the previous transaction.

In the case of Hemraj v. Rustomji, the Supreme Court held that the proviso to the section protects
the rights of a transferee for consideration. In other words, any rights that the transferee may have
based on the unregistered document and the part performance of the contract would not be
enforceable against a bona fide transferee for value who had no knowledge of the prior transaction.
The burden of proof lies on the person claiming the benefits of part performance to demonstrate that
the subsequent transferee had knowledge of the previous transaction.

PRINCIPLES:
The principle established in Walsh v. Lonsdale states that Section 53-A incorporates three principles
of equity:
(i) One who seeks equity must act equitably.
(ii) Equity considers the intention rather than the form.
(iii) Equity treats as completed what should have been completed.

Instrument of Transfer (Unregistered Instrument):

This means that this section comes into effect even if the instrument of transfer has not been
completed in the manner prescribed therefor by the law for the time being in force, like the
Registration Act, which prescribes for registration of instruments of transfer. But it is necessary that
the instrument of transfer must be signed by like a document of transfer.

Nature of Transferee's Rights under Section 53A

1. No Title or Interest: Section 53A doesn't grant the transferee ownership or interest in the
property. It only protects possession, preventing the transferor or others from evicting them if
conditions are met. This protection is a defense, not a right to claim ownership.
 2. No Right of Action: The transferee cannot sue for possession but can defend against eviction
if they fulfill the conditions of Section 53A. The principle is that part-performance is a
defense ("shield"), not an attack ("sword").
3. Protection against Whom: Protection under Section 53A applies only against the transferor
or those claiming under the transferor, not third parties.
4. Unregistered Lease: An unregistered lease for over a year can only protect the lessee as a
monthly tenant, not for longer terms.
5. Sale of Mortgaged Property: If the mortgagor sells the property to the mortgagee, the
mortgagee's possession is protected under Section 53A, and the mortgagor loses the right to
reclaim possession.

Section 17(1)(f) of the Registration Act

The documents of contracts regarding the transfer of any immovable property for consideration for
the purpose of Section 53A of The Transfer of Property Act, 1882, must be executed on or after the
inception of the Registration and Other Related Laws Amendment Act, 2001.
(Inserted by Act 48 of 2001, s. 3, w.e.f. 24-9-2001)

High Court of Delhi, Justice Subramonium Prasad

Case: Joginder Tuli vs. State NCT of Delhi & Ors. [W.P.(CRL) 1006/2020]
Date: 17.01.2022

1. Registered Document Requirement for Section 53A Benefits:

The Delhi High Court held that to gain the benefits of Section 53A of the Transfer of Property
Act, the document relied upon must be registered. An unregistered document cannot be
admitted as evidence or relied upon in view of Section 17(1A) read with Section 49 of the
Registration Act. Hence, the benefit of Section 53A could have been given to the respondent
only if the alleged Agreement to Sell cum receipt met the requirements of Section 17(1A) of
the Registration Act.
2. Suit Under Section 6 of the Specific Relief Act:
If the petitioner had been in lawful possession, they would have filed a suit under Section 6 of
the Specific Relief Act within six months.
3. Court’s Observation on Writ Petition:
The Court observed that the petition appeared to be an attempt by the petitioner to regain
possession of the property and bypass the limitation period for filing a suit. Therefore, the
writ petition, along with pending applications, was dismissed.