Section 53 of Transfer of Property Act

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.

Section 53 of the Transfer of Property Act can be defined as:

(1) Every transfer of immoveable 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 immoveable 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.

Section 53 of the Transfer of the Property Act and Fraudulent Transfer of Property 

1. Object- in Thakurji vs. Narsinghji (1928), the Patna High Court observed that the primary object of sub-section (1) of Section 53 of the Act is to make assets of the Transferor available to the general body of the creditors.

2. Scope- The application of the section will be in force even if the transfer doesn’t “defeat” but only “delays” the creditors. In the case of C. Abdul Shukoor Saheb vs. Arji Papa Rao (1963), the fact that the entire debtor’s property was not sold cannot by itself negative the applicability of the section unless there is cogent proof that there is another property left, sufficient in value and of easy availability to render the alienation in question immaterial for the creditors.

3. Requirement-The requirement of the section is to avoid the possibility of the retention of all the benefits by the debtor. In case of Chogmal Bhandari vs. Dy. CTO (1976), it was held that, if a person proves challenges the validity of a transaction under Section 53 of the Act, he has to prove that the document in question was executed with a clear intention to defraud or delay the creditors.

4. Wide Extent- In the case of Sushila vs. Anandilal (1983), the court stated that, even though the section may not apply in terms, its principle would apply in cases of fraudulent transfers.

5. Applicability-In the case of Mahendra vs. Suraj Prasad (1957), the court held that the provisions of Section 53 of the Act come into operation only where the document is fraudulent in the sense that, though the transfer is real, the object was to defraud the creditors of the transferor. In the case of V.S. Murthy vs. Laksho Narayana (1960), the court held that if a father transfers the property to his son for a sum of Rs. 5000, while the debt due from the father to the son did not amount to even Rs. 4000, there is evidence of an intent to defraud creditors generally and the transfer will be hit by the section.

In case of Gharbhoya vs. Deodatta (1937), the court held that Section 53 doesn’t apply where the debtor doesn’t retain any benefit for himself and if it is found that the transfer was for adequate consideration which was entirely expanded in satisfaction of genuine debts of the debtor. In the case of Jamnabai vs. Dattatraya (1936), the Bombay High Court held that Section 53 would not apply when to the purchase of the property in the name of another as a bender. In the case of Union of India vs. Rajeswari (1986), the court held that, the section would be exempted to the transferor genuinely satisfied the debts by payment of sale proceeds.

6. Voidable Transfers- Chief Justice Wallis in the case of Rama Swami Chettiar vs. Mallappa Reddiar, held that, “It is open to the judgement-debtor, property which has been fraudulently transferred to the claimant with intent to defeat or delay creditors. If he knows of the transfer when he applies for attachment, the application is sufficient evidence of his intention to avoid it; if he hears of the transfer when a claim petition is preferred under Order 21, Rule 58, and still maintains his right to attach, that again is a sufficient exercise of this option to avoid.

7. Transfer meaning- In the case of Natha vs. Dhunbaji, it was stated that the word ‘transfer’ mentioned in the Section includes a settlement by which the settlor conveys all his interest in the property to trustees or a surrender by a Hindu widow of her life interest in favour of the reversionary.

8. “Intent” explained- In the case of Bhagwant vs. Kedari Sahu, the court observed that the term ‘intent’ referred to in the section implies “aim” and connotes the one object for which the transfer is made. It references the dominant motive without which it would not have been made.

9. Defeat or Delay- In the case of Mohammad Ali vs. Bisneillah (1930), a person carrying in business which was certain extent hazardous and with the opportunity of utilizing the property of another for his own purpose, executed a gift deed in favour of his wife. It was held that the effect of the deed would delay or defeat any future acclaims and thus was bad in nature.

10. Factors constituting Fraudulent transfer- In the case of Muniayammal vs. Thyagaraja (1958), the court laid down the following factors relating to fraudulent transfer such as:

• Continuance of the transferor in possession of the property he has purported to transfer when such continuance in possession is not in accordance with the tenor and object of the transfer
• Insolvency or indebtedness of the transferor
• Lack of consideration for the transfer
• Reservation of benefit to the transferor
• Relationship between the transferor and the transferee
• Pendency or threat of litigation, secrecy or concealment
• Transfer of the debtor’s entire estate, or substantially the whole of the estate
• The fact that the transfer is made after execution has been issued or a writ has been issued against the transferor

References

• Textbook on The Transfer of Property Act, Dr. Avtar Singh, Universal Law Publishing Co. Pvt. Ltd., 2006
• The Transfer of Property Act, Dr. Hari Singh Gour, Delhi Law House, 2004

For more articles on Transfer of Property Act, Click Here.

For law notes, Click Here.

AUTHOR DETAILS: Vaibhav Goyal is a 3rd year BA.LLB (H) student of Panjab University, Chandigarh.