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What Is Fraudulent Transfer

This document defines and explains the concept of fraudulent transfer under Section 53 of the Transfer of Property Act 1882. [1] A fraudulent transfer is one made with the intent to defeat the interests of creditors or subsequent transferees. [2] For a transfer to be considered fraudulent under this section, it must involve immovable property and the intent must be to delay or defeat creditors. [3] The section protects subsequent transferees who purchase property in good faith for consideration.

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CHANDAN SANTHOSH
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98 views

What Is Fraudulent Transfer

This document defines and explains the concept of fraudulent transfer under Section 53 of the Transfer of Property Act 1882. [1] A fraudulent transfer is one made with the intent to defeat the interests of creditors or subsequent transferees. [2] For a transfer to be considered fraudulent under this section, it must involve immovable property and the intent must be to delay or defeat creditors. [3] The section protects subsequent transferees who purchase property in good faith for consideration.

Uploaded by

CHANDAN SANTHOSH
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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What is Fraudulent Transfer

Section 53 of the Transfer of Property Act, 1882 talks about fraudulent


transfer. 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. Where
the transfer is made with a fraudulent intention, it means intending to
defeat the interest of creditor or interest of any 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.
Essentials of Fraudulent Transfer

1. Transfer of immovable property.


2. Made with intent to defeat or delay the creditors of the transfer.
3. Shall be voidable at the option of the creditor so defeated or delayed.

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But the provisions of this sub-section shall not affect-
A. The rights of subsequent transferee in good faith, for consideration.
B. Any law for the time being in force relating to insolvency.
Note: Partition and family settlement are not transferred under this act. So
this section may not apply to partition or family settlement.
Note: Sham transfers mean fictitious transfer/Benami transfer, which is
outside the scope of this section.
Section 53 safeguards the interest of a creditor in case of only real transfer,
which is made with a fraudulent intention. On the other hand, a sham
transfer is actually not a real transfer.
Note: Section 53 applies to transfers only of immovable properties. The
provisions of this section do not apply to a transfer of movable
property.
Musahur Sahu and Another vs. Hakim Lal and Another, 1915

Privy Council held that transfer of property by a debtor to one creditor in


preference of the other is not a fraudulent transfer with the intent to defeat
or delay the interest of other creditors.
Note: If one creditor represents the other creditors, the purpose of this rule
is to protect the debtor from the multiplicity of the suits by the other
creditors.
Abdul Shukoor Saheb vs. Arji Papa Rao And Others

Hon'ble Supreme Court held that the creditor might claim the attachment
of the property of the debtor to protect the mortgage money.
The creditor will file no separate suit for attachment, and the creditor may
seek attachment of the property in section 53.
Provisions Relating to Fraudulent Transfer

The burden of proof lies on the creditors to show that the transfer was
made to defeat or delay the creditor.
A transferee who takes property in good faith for consideration is
protected. In other words, when a transferee has purchased the property in
good faith from a debtor, the creditor cannot make this transfer void.

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Section 53 (2) Gratuitous Transfer to Defraud Subsequent Transferee

Section 53 (2) of TPA, provides that gratuitous transfer of immovable


property with the intent to defraud a subsequent transferee shall be
voidable at the option of the subsequent transferee.
For Example-
A makes a gift of a house to B in January 1990. In February 1990, A sells
the same house to C. Here, B and C are two claimants of the same
property.
The general rule is that the first transferee has preference over the second.
Under this sub-section, it is provided that if the first transfer is proved to
be fraudulent, the subsequent transfer shall prevail over the previous one.
In other words, this sub-section protects the interest of a bona fide
transferee for value from a gratuitous fraudulent transfer made earlier.
Related:
List of Important Sections of Transfer of Property Act
Mortgage Definition and Kinds, Elements and Parties of Mortgage

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