The term ‘Fraudulently’ has been defined under section 25 of the Indian Penal Code,1860. A person is said to do a thing fraudulently if he does that thing with intent to defraud but not otherwise. The fraudulent act of a person can cause loss to another person or gain to another person.
Section 53 of Transfer of Property Act recognizes the need to protect the interest of the creditors. The main objective of the fraudulent transfer is to protect the creditor and subsequent transferee.
According to Section 53 of Transfer of Property Act, deal with two types of Transfer of Fraudulent Transfer such as:-
First under Section 53(1) of the Act:
“If immovable property is transferred to defeat or delay creditors of transferor, such transfer is voidable at the option of any such creditors.”
~Transfer by the transferor
~Of immovable property
~With the intention to defeat or delay his creditors
~The transfer is voidable at the option of the creditor defeated or delayed.
Exception of Section 53(1):
It recognizes two exceptions such as- the provision contained in section regarding declaration of nullity of fraudulent transfer is not attracted in following two conditions are as follow:
~A transfer in good faith for consideration and,
~Any law relating to insolvency for time being in force.
Suit instituted by creditors (include decree holder, whether he has or has not applied for execution of her decree) to avoid transfer on ground that it has been made with intent to defeat or delay the transferor must be instituted on behalf of all the creditors.
The leading case is Twyne's Case. Debtor D, secretly transferred the whole of his property, but retained only possession with him. This was done when C, a creditor had sued him.
Held, secrecy is a badge of fraud. The transfer was fraudulent. The creditors should bring a representative suit against the transferor. A transfer of immovable property made with intent to defeat subsequent transferees is voidable at the option of such transferee.
Second under Section 53(2) of the Act:
“Every transfer of immovable property made without consideration, with intent to defraud a subsequent transferee is voidable at the option of such transferee.”
For Above purpose, no transfer made without consideration is to be deemed to have been made with intent to defraud by reason only that subsequently a transfer for consideration was made.
~The transfer is done without consideration
~The transfer is done with the intention to defraud a subsequent transferee
~Such transfer is voidable at the option of the subsequent transferee
Scope of Section 53 of Transfer of Property Act:
i) The section applies only to immovable properties.
ii) The intention of the transferor must be to defeat or delay the creditors. Hence, it does not apply when the debtor prefers one creditor over the other. The leading case is: Musahar Sahu Vs. Hakim Lal. A was the creditor and B was the debtor. A filed a suit against B and applied for "attachment before judgment" of some properties belonging to B. But, B filed an affidavit stating that he had no intention, to alienate his properties. On the basis of this affidavit A's application for attachment was dismissed. A few months later B sold his properties to C, another creditor. Section 53 dealing with fraudulent transfer was not applicable. The result was the suit failed. It was held that 'C' was a genuine creditor, this was a case of debtor preferring one creditor over the other.
iii) If the creditor is fictitious or if money realised in selling the secured property is in excess, then Section 53 applies and the creditor is entitled to a decree.
iv) In case of fraud for instance C sued W, a widow and obtained a decree against her life-estate. W surrendered her properties to her son S. This was held fraud.
v) In case a waqf created by a Muslim to keep his creditors out of reach of his properties, it will hit by Section 53, as the intention was to defeat the creditors.
There are three remedies are open to creditor against transferee of debtor’s properties for consideration who has notice of the fraudulent, intent of debtor to defraud his creditors:
~Creditors may institute suit to avoid transfer under Section 53 of T.P Act. This suit must be on behalf of or for the benefit of all creditors. This would be representative suit filed under order 1 rule 8 of C.P.C
~Creditors may manifest an intention to avoid transfer otherwise then by filing a suit of by attachment the property, if he is a judgement creditors.
~Suit to set aside a fraudulent transfer is not the only remedy Section 53 can also pleaded as a defence to suit brought by transferee.
~Although a creditor cannot sue only on his own behalf, he is not obliged to defend a suit on behalf of whole body of creditors.
Section 53 may be pleaded as personal defence, by defeated or delayed creditors, although he has not himself filed a representative suit to avoid transfer.