Fraudulent Transfer of Property and its effect

1. Introduction

The principle of section 53 is based on the rule of justice, equity and good conscience. The section enumerates fraudulent transfer. A transfer made with intention to defeat any right of the transferee or of any other person interested therein is called fraudulent transfer of property. Such transfer is not void but voidable at the option of person named.

2. Relevant Provisions

(i) Section 53 Transfer of Property Act 1882.

(ii) Cross reference Section 17 of Contract Act

3. Meaning of Fraud

A false representation of a matter of fact, whether by words or by conduct, by false or misleading allegations, or by concealment of that which shall have been disclosed, which deceives and is intended to deceive another so that he shall act upon it to his legal injury.

4. Meaning of Transfer

Transfer means an act of the parties, or of law, by which the title to property is conveyed from one person to another.

5. Meaning of Fraudulent Transfer

A transfer of property the object of which is to defraud a creditor or hinder or delay him or to put such property beyond his reach is called Fraudulent Transfer.

6. Fraudulent Transfer of Property

Under Transfer of Property act, following points are important to explain of fraudulent transfer of property.

(i) Voidable at option of Defeated or Delayed Creditor

Every transfer of immovable property, which is made with intent to defeat or delay creditors of transferor, is voidable at option of any creditor, who is so defeated or delayed. For example, Bashir is indebted to Ahmad, and he attempts to sell his house, and is intentions to convert his house into cash to defeat Ahmad. And if Rasheed is aware of Bashir’s indebtness, but he purchases Bashir’s house, then such transfer is voidable at option of Ahmad.

(ii) Rights of Transfer In Good faith and for consideration

Transfer of immovable property, which is made with intent to defeat or delay creditors of transferor, does not affect rights of transferee in good faith and for consideration. For example, Bashir is indebted to Ahmad, and he attempts to sell his house, and his intention is to convert his house into cash to defeat Ahmad. And if Rasheed is not aware of Bashir’s indebtness, but he purchases Bashir’s house against a consideration of ten lakh rupees, then such transfer does not affect rights of Rasheed.

(iii) Law Relating to Insolvency

Transfer of immoveable property, which is made with intent to defeat or delay creditors of transferor, does not affect any law, which is in relation to insolvency and which is in force.

(iv) Institution of Suit

If a creditor institute’s suit to avoid a transfer on this ground that it has been made with intends to defeat or delay the creditors of transferor, it is considered that such suit is instituted on behalf of all creditors or for benefit of all creditors.

(v) Voidable at Option of Subsequent Transferee

Every transfer of immoveable property, which is made without consideration and which made with intent to defraud a subsequent transferee, is voidable at option of such transferee.

Conclusion

To conclude, it can be stated that two points are important as far as fraudulent transfer is concerned; first point is that transfer of property act has discussed fraudulent transfer only in respect of immoveable property. And second point is that person, who alleges fraudulent transfer, is under burden to prove fraudulent transfer.

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