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NationalLawInstituteUniversity,
Bhopal

PROJECT OF Property I
On
Fradulent Transfer
Guidedby: Submittedby:
DrSanjayYadav

ChandanMishra

Rollno.2009B.ALLB12.
Trimester6th

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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 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 These two statutes were repealed and re-enacted as Sections 172 and 173 of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 creditors 3 S. 53 is not exhaustive and
1

13Eliz.,ch.5(1571)(Eng.).SeealsoGlenn,supranote9,SS5862.
13Eliz.,ch.5,S1(1571)(Eng.).
3
PhoolanDeviv.SurendraPrakash,AIR1983All440(442).
2

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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;
(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
4

Sureshmallappashettyv.Spl.Recovryofficer,2003AIHC1164.
C.Bhandariv.Dy.CommrlT.Officer.AIR1976SC656(660).
6
PhoolanDeviv.SurendraPrakash,AIR1983A1I440(442).
5

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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 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
7

PhoolanDeviv.SurendraPrakash,AIR1983A1I440(442).
T.Mudaliarv.TNarayanaReddiar.AIR1959Mad141(142)(DB);seealsoRamNathanv.
unnamalai,AIR1942Mad632:ILR(1943)Mad47.
8

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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, 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

(1916)ILR44Cal662,44IA72,40IC242,AIR1916PC232.
Prabhunathv.sarjuPrasadAIR1940All407.
11
Chumarv.AlimaAIR1998Ker.139.
12
GurmailSinghv.Udhamkaur(deed)byIrsAIR1999P&H300.Seegenerally[65]CivilProcedure.
13
MadanMohunSinghv.RajaKishoriKumariAIR1917Cal222,(1917)21CalWN88.
14
MaganLaljagjiwandasv.LakhiramHaridasmalAIR1968Guj193,(1968)9GujLR161.
15
SripatSinghv.NareshChandraBoseAIR1926Pat.94.
10

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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.

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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

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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.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 creditors 18. 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.

CONTINGENCIES OF FRAUDULENT TRANSFER


Presumption of fraudulent intention:
Smt.PhoolanDeviv.SurendraPrakash,A.I.R.1983All.440,
TransferofPropertyAct1882Sec53(1)para1.Nothinginthisstatutoryprovisionwillaffectanvlaw
forthetimebeinginforcerelatingtoinsolvency:TransferofpropertyAct1882Sec53(1)para3.
18
TransferofpropertyAct,1882Sec53para4.SeeAnanthaRamanPillaiV.ArunachalamAIR1952TC
105.
16
17

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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 creditors 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-

19

MaungDinv.MaHninMeAIR1925Rang2278.
KedarwativRadheyLalAIR1937Pat609,170lC353,(1936)PatWN898.

20

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(i) the debtor sells all his property keeping nothing to himself; (ii) the
consideration is grossly inadequate;
(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

21

(1910)33Mad.334:5I.e.33.
HanifaBibiv.Punnamma,(1907)17Mad.L.J.11.

22

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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 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.

23

AbdulShukoorSahebv.ArtiPapaRao.A.I.R.1963S.C.1150
RajaniKumarDassvGourkishoreShaha(1908)ILR35Cal105l.
25
BadriDassvChunilal(1961)63PunjLR319,AlR1961Punj398;ShalloDevivMobinderSinghAIR
1971P&H325.AndseeStateofPunjabvGianiBirSingh(1968)ILR1Punj10,AlR1968Punj479.
24

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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 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,

26

RamDasv.Debu,A.I.R1930All.610.
Islvarv.Devar,30Bom.146.
28
19661SCR349,AIR1966SC432.
29
Vinayakv.MureshwarAIR1994Nag.44.
27

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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.
31

In 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.
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
30

Pichamoppanarv.VetuPillai,AIR1947Mad203.
SeeHarprasadv.MohammadUsman1942AllLJ645.

31

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company for adequate consideration is not invalid merely because it is in favour of a noncreditor.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

UnionofIndiav.Rajeswari&Co.AIR1986SC1748.
A.l.R.(1962)S.C.370:(1962)3S.C.R.739.

33

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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

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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
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
34

AbdulShakoorSahibv.ArjiPapaRao,AIR1963SC1150.

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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.
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

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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
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.
35

AshutoshRathv.VysyarajuBadareenarayan,(1972)38,C.L.T.857[A.I.R.(1963)S.C,1150rel.on.
Talwarv.AdeshwarLal,A.I.R.(1972)Delhi122.

36

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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

37

MohanLalv.Anandbai,A.I.R.(1971)S.C.2177.

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