The Supreme Court, in Dr. Vimla v. Delhi Administration, has observed that the term “defraud” involves two elements namely, deceit and injury to the person deceived. This injury is not limited to economic loss. It can also be construed as deprivation of property or money as well as the harm caused to any person in body, mind, or reputation. Fraudulent Transfers in general parlance, therefore, refer to transfers that are made with an intention to defraud.
SECTION 53 OF THE TRANSFER OF PROPERTY ACT, 1882
The TPA Act deals with fraudulent transfers under Section 53: –
“Fraudulent Transfers– (1) Every transfer of immovable 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.
(2) Every transfer of immovable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee.”
The law stipulates that all cases of such fraudulent transfers are voidable at the option of the party so defrauded (the creditors or the subsequent transferee). The Section incorporates the common law principle of equity, justice, and good conscience as it attempts to prevent the defeat of legitimate claims of creditors or transferees.
Since the Act makes all such cases voidable at the option of creditors/transferees, the burden to prove such fraudulent conduct or intent initially lies on the creditors. Once, facts are proved sufficiently to show prima facie the intention of the debtor to defeat or delay the creditors, the debtor is required to make his case and explain the facts.
The object behind the Doctrine of Fraudulent Transfers
Section 53 is attracted in cases wherein any transfer of property, which is immovable in accordance with the relevant sections of The Transfer of Property Act, 1882, is done with the design or scheme to fulfill the objective of defrauding his creditors in a manner that they are defeated or delayed.
It was such a practice that compelled the legislature to enact this section. Their objective was to lend protection to creditors who are those to whom the transferor owes some sort of liability which is financial in nature. The basic objective is to lend a blanket to such people who suffer in the nature of delay or defeat of their interest. Such people whose mere fault was to lend money to the ill-intentioned transferor must be provided some kind of security- one which only the legislature through legal policy can provide.
- The transfer is for valuable consideration. Hence, gifts are excluded.
- Writing: There must be a written agreement. Hence, the Oral agreement will not suffice.
- The agreement should be signed by the transferor or by his duly authorized agent.
- Applies to immovables only.
- The terms of the Contracts must be capable of being ascertained with reasonable certainty.
- The transferee must be in possession of the immovable property.
- The transferee must be ready and willing to perform his part of the Contract
- Kanchanaburi vs. Moti Chand, AIR 1967 MP 145
In this case, the court observed that the phrase creditors would also include a single creditor. The clause would be attractive even if a single creditor was defrauded or intended to defraud only a single creditor. Here the transfer was made to fail and delay the creditor’s claim. Therefore, section 53 would be applicable.