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What Is Fraudulent Transfer: Section 53 Transfer of Property Act, 1882

Fraudulent transfer refers to the transfer of property made with the intent to defeat or delay creditors. Section 53 of the Transfer of Property Act discusses fraudulent transfers of immovable property and declares that such transfers will be voidable at the option of creditors who are defeated or delayed. However, transfers made to subsequent transferees in good faith for consideration are protected. The burden is on creditors to prove the transfer was made with fraudulent intent.

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6K views3 pages

What Is Fraudulent Transfer: Section 53 Transfer of Property Act, 1882

Fraudulent transfer refers to the transfer of property made with the intent to defeat or delay creditors. Section 53 of the Transfer of Property Act discusses fraudulent transfers of immovable property and declares that such transfers will be voidable at the option of creditors who are defeated or delayed. However, transfers made to subsequent transferees in good faith for consideration are protected. The burden is on creditors to prove the transfer was made with fraudulent intent.

Uploaded by

Adan Hooda
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

What is Fraudulent Transfer

Section 53 of the Transfer of Property Act, 1882 talks about fraudulent

transfer. Every owner of a property has the right to transfer his property as he

likes. But the transfer must be made with a bonafide intention. Where the

transfer is made with a fraudulent intention, it means intending to defeat the

interest of creditor or interest of any subsequent transferee. Where the

transfer is made with a fraudulent intention, the object of the transfer would be

bad in the eyes of equity and justice, though it is valid in law.

Essentials of Fraudulent Transfer


1. Transfer of immovable property.

2. Made with intent to defeat or delay the creditors of the transfer.

3. Shall be voidable at the option of the creditor so defeated or delayed.

But the provisions of this sub-section shall not affect-

A. The rights of subsequent transferee in good faith, for consideration.

B. Any law for the time being in force relating to insolvency.

Note: Partition and family settlement are not transferred under this act. So this

section may not apply to partition or family settlement.


Note: Sham transfers mean fictitious transfer/Benami transfer, which is

outside the scope of this section.

Section 53 safeguards the interest of a creditor in case of only real transfer,

which is made with a fraudulent intention. On the other hand, a sham transfer

is actually not a real transfer.

Note: Section 53 applies to transfers only of immovable properties. The

provisions of this section do not apply to a transfer of movable property.

Provisions Relating to Fraudulent Transfer


The burden of proof lies on the creditors to show that the transfer was

made to defeat or delay the creditor.

A transferee who takes property in good faith for consideration is protected. In

other words, when a transferee has purchased the property in good faith from

a debtor, the creditor cannot make this transfer void.

Section 53 (2) Gratuitous Transfer to Defraud Subsequent


Transferee

Section 53 (2) of TPA, provides that gratuitous transfer of immovable property

with the intent to defraud a subsequent transferee shall be voidable at the

option of the subsequent transferee.


For Example-

A makes a gift of a house to B in January 1990. In February 1990, A sells the

same house to C. Here, B and C are two claimants of the same property.

The general rule is that the first transferee has preference over the second.

Under this sub-section, it is provided that if the first transfer is proved to be

fraudulent, the subsequent transfer shall prevail over the previous one.

In other words, this sub-section protects the interest of a bona fide transferee

for value from a gratuitous fraudulent transfer made earlier.

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