FRAUDULENT TRANSFER

FRAUDULENT TRANSFER [SECTION 53]

Section 53 of the Transfer of Property Act deals with fraudulent transfer. The
object of the section is to protect the right of the creditor against any fraudulent
transfer to deprive the creditor of his right to revoke the debt from the property
of the transferor.

Section 53 of the Transfer of Property Act is restricted to immoveable property,

and has no application to movables. The benefit of this section is not restricted
to existing creditors alone, but it extends to subsequent creditors as well. This
section does not render a transaction void ab initio, but only voidable, and that
too, only at the option of any person defeated, delayed or defrauded.

Leading Case: Bangladesh vs. Serajul Haque [11 BLC 714]

In this case the court held that, section 53 of the Act is intended to prevent
fraudulent transfer of property. The essence of law being to advance the cause
of justice and not to frustrate it. If fraud is allowed to be perpetrated and
perpetuated the sanctity attached to law will wither away with disastrous
consequences to the society.

Fraudulent Transfers (Section 53):

Section 53 consists of two rules which are given below:

First Rule: According to Section 53, 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.

Exception:

 However, this rule does not impair the rights of a transferee in good faith
and for consideration.

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  This rule will also not affect any law for the time being in force.

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 attacked 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.

Second Rule: A suit may be instituted by one creditor on behalf of or for the
benefit of all the creditors. Every transfer of immovable property made without
consideration with intent to defraud a subsequent transferee shall be voidable at
the option of such transferee.

Explanation: 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.

Scope of Section 53

 The section is restricted to immovable property, and has no application to

movables.
 The benefit of this section is not restricted to existing creditors alone, but
it extends to subsequent creditors as well.
 This section does not render a transaction void ab initio, but only
voidable, and that too only at the option of any person defeated, delayed
or defrauded.

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Essential Requirements of Section 53:

The essential requirements of this section are given below:

 There must be a transfer of an immovable property.

 Transfer must have been made to with intent to defeat or delay the
creditors of the transferor.
 The transfer shall be voidable at the option of the creditors whose interest
has been defeated or delayed.

Intention to Defeat or Delay Creditors:

The intention must be to defeat or delay the creditors. Generally the 'creditor'
means a person to whom debt, i.e., a specific or liquidated sum of money is due.
It also includes a person who has obtained a decree for his debt and ordinary
creditors who have still a claim to prove.

The intention can be proved by circumstantial evidence. If the following

conditions are present, it may lead to an inference of defeating or delaying
creditors.

 Where the debtor sells all the property keeping nothing to himself.
 The consideration is not adequate.
 The transfer is made secretly.
 The transferor tries to take off his property out of the reach of those
persons 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.

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Remedies of Creditor's:

The following three remedies are open to a creditor against the transferee of the
debtor's properties for consideration who has notice of the fraudulent intent of
the debtor to defraud his creditors:

 The creditor may institute a suit to avoid the transfer under section 53 of
the Transfer of Property Act. This suit must be on behalf of or for the
benefit of all the creditors. This would be a representative suit under
Order I Rule 8 of the Civil Procedure Code.
 The creditor may manifest an intention to avoid the transfer otherwise
than by filling a suit, e.g., by attaching the property, if he is a judgment-
creditor.
 The suit to set aside a fraudulent transfer is not the only remedy, Section
53 of the Transfer of the Property Act can also be pleaded as a defence to
a suit brought by the transferee.

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