INTRODUCTION
The immovable property is the most valuable asset in today’s scenario. There is a huge shift in society’s mindset regarding the investment in tangible assets which will provide them with lots in return for a longer duration because of the heavy usage. Land purchases and sales have seen an immense surge in the last 10 years as land has been the most appreciated asset. The Transfer of Property Act (TPA), of 1882 is one of the oldest and most clearly defined acts with well-structured sections. Section 53 of the TPA protects the creditors acting in good faith from the fraudulent transfer of immovable property. The act specifies and goes ahead as the umbrella protection term in every situation from a corroded intention of the transferor, seller, or debtor. [1]
SECTION 53 AND ITS ESSENTIALS
Section 53 of the said act protects the creditors from faulty transactions by the sellers with ill intentions. In this section, intention plays a vital role and mere action of fraud or misrepresentation cannot be treated as the wrong act and is not punishable until it does not comply with mala fide intention.[2]
The section as mentioned earlier states that any intention of delayed delivery, less consideration, defeats the interest by delivering the used or broken goods or the goods with title discrepancy, etc. all the conditions are protected under section 53 of the TPA. Saving the interest of the creditors or the subsequent transferee from fraudulent transfers and eloping the debtor from the services meant to be served under the transfer are the key elements of section 53.[3]
The exact definition of ‘Fraudulently’ has been defined in section 25 of the Indian Penal Code which states: ‘A person is said to do a thing fraudulently if he does that action with the intent to defraud not otherwise’. This section majorly focuses on the transferor’s intent while transferring the property. This section aims to protect equity and justice by maintaining bona fide purposes.[4]
ESSENTIALS
- The property transfer must be the immovable state and the provisions must only apply to them.
- The transaction must take place to delay, postpone, remit, or defeat the creditor’s interest.
- The transaction must be voidable from the creditor’s side or any subsequent transferee.
- Any transfer shall not violate the interest of the subsequent transferee acting in good faith for consideration.
- Deals with only real transfers, not with Sham /Benami transactions or fictitious transfers.
- Section 53 only safeguards the real transaction done with malicious intent.
- The consideration must exist in the transfer.
- Not applicable on moveable property.[5]
CASE LAWS
- Musahar Sahu and Anothers v Hakim Lal and Another, 1915
In this case, the Privy Council held that when a debtor transfers the property to one creditor in preference of another, it does not fall under fraudulent transfer with the intent to defeat or delay the interest of the other creditor. But this rule protects the debtors from the assortment of suits by the other creditors[6].
- Edward v. Harben
In this case, the court assumed that if the possession of the property is done without a deed (after or before) it is deemed to be done with the intention of fraud. The possession of the property is fraud. [7]
- Muniyammal v. Thyagaraja ,1958
In this case, the court determined and laid down the factors constituting the fraudulent transfer which are:
- If the transferor became insolvent or had heavy debt.
- In any case, the consideration is missing in exchange for the transfer
- Pre-booking or benefit to the transferor.
- 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[8]
- Bhagwant v. Kedari Sahu ,1900
In this case, the court observed the word ‘intent’ means aim and denotes one object for which the transfer had taken place; it acts as the dominant motive for the action of the transfer.[9]
PROVISIONS OF SECTIONS 53 AND EXPLANATION
- The burden of proof lies on the creditors:
As per section 53, the creditor has to prove the intent or wrongdoing of the debtor. How were the debtor or transferor’s actions ill or fraudulent and what amount of loss was caused to the creditor of the subsequent transferor?
- The transferee takes the goods in good faith for consideration:
This section protects the creditor or the subsequent transferee acting in good faith from making the transfer void from the debtor’s side. The transferee takes the goods with true intentions without detecting any ill-motive of the transferor thus, after the transfer, if any mishap happens, the transferor cannot blame the transferee for that and cannot claim the money out of it.[10]
Example:
- Mr A sold an old bicycle to Mr A was aware that the cycle breaks sometimes it works and sometimes not. He fooled P by misleading and hiding the real fact. As with the first use of the cycle by P, he falls and hurts himself badly. When he claims compensation from A, he denies it by stating that the cycle no longer belongs to him.
- As the above example says P was acting in good faith but the intent of A was not genuine and the transfer will be treated as fraudulent.
- In this case, A will pay compensation to P under this act because of the ill-motive of selling the damaged goods with mala fide intentions.
- Intent to defraud a subsequent transferee shall be voidable:
As per section 53(2), any gratuitous transfer or any immovable property given under gift with the intent to defraud the creditors or subsequent transferee must stand voidable from the creditors’ option.
- Example: B gives his land to C in the form of a gift and later in the next 10 days B sells the same land to L.
- As per this section, the preference will be given to the first transfer over the second one and will be treated as fraudulent.
- This subsection will protect the interest of the bona fide transferee for value from a gratuitous fraudulent transfer made earlier. [11]
CONCLUSION
The definition of fraudulent transfer has a separate meaning in section 53 of the Transfer of Property Act, of 1882. Under this act, intent plays a vital role. Mere transfer of property without being aware of the default in the property i.e. acting in good faith and selling the property to the rightful owner does not fall under section 53 of the Transfer of Property Act, of 1882(TPA). Section 53 talks only about fraudulent transfers done by the transferor to delay or defeat the creditor or the subsequent transferee.
Sub-section 2 of 53 talks about the voidability from the transferees’ side accompanied by bona fide intentions and acting in good faith. Being aware of the default in the property and still accepting the contract, does not fall under section 53 of TPA. This subsection protects the interest of the transferee from the fraudulent transfer by the debtors and the transfer stands voidable from the option of the transferee.
As per the Transfer of Property Act, the doctrine of fraudulent transfer is pertinent only to immovable property; it describes the value of intent of the creditors and majorly imparts light on the voidability of the transfer that occurred. Power is mostly driven by the will of the aggrieved party. The section protects the delayed or defeated creditors.
Author(s) Name: Smriti Bharadwaj (Savitribai Phule University, Pune (DES’s Shri Navalmal Firodia Law College Pune)
References:
[1]‘Doctrine of Fraudulent transfer’(Drishti Judiciary ,19 January 2024) <https://www.drishtijudiciary.com/doctrines/transfer-of-property-act-doct/doctrine-of-fraudulent-transfer> accessed on 21 May 2024
[2] Transfer of property Act ,1882 s 53
[3] Transfer of property Act,1882 s 53 (1) (2)
[4] Indian Penal Code ,1860 s 25
[5] Transfer of property Act ,1882 s 5,s 53 & Indian Contract Act ,1872 s 10
[6] Privy Council Appeal No. 10 of 1912
[7] 2 Term Rep .587
[8] Second Appeal no. 792 of 1955 against decree of Dist. J., North Arcot at Vellore in A.S. No. 183 OF 1954
[9] Second Appeal of No. 688 of 1899
[10] Transfer of Property Act ,1872 s 53(1) & (2)
[11] Ibid
