Lord Keeper in the case of Partridge v Gopp had enunciated certain words which are relevant herein. He opined that no one has power over his property to such extent using which he, whilst using his right of alienation of property, can delay, defraud or hinder his creditors. The only the situation he can do is when it is bona fide and is done upon consideration considered good in the eyes of law.

Introduction
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 the creditor or interest of any subsequent transferee. In simple words, fraudulent transfer of property denotes an illegal transfer of property with the malicious intent to defraud or delay the creditors.

In case of fraudulent transfer of property, the debtor intentionally deprived the creditor from his lawful and just entitlements. 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. The rules regarding fraudulent transfer of property are recognized under section 53 of Transfer of Property Act, 1882.

Section 53 - Fraudulent transfer:

53. Fraudulent transfer:

1. Every transfer of immoveable 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. Nothing in this sub-section shall affect any law for the time being in force relating to insolvency. A suit instituted by a creditor (which term includes a decree-holder whether he has or has not applied for execution of his decree) to avoid a transfer on the ground that it has been made with intent to defeat or delay the creditors of the transferor shall be instituted on behalf of, or for the benefit of, all the creditors.
    
2. Every transfer of immoveable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee. For the purposes of this sub-section, no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made.]

Section 53 of TPA, 1882 is comprised of two parts. The first part prescribes the principle defeat or delays his creditors that transfer shall be voidable at the option of any creditor so defeated or delayed. Under section 53 of TPA, 1882 the right of a bona fide purchaser will be protected provided that he acted in good faith and he purchases that property for consideration in spite of the fact that the transfer was made by the seller with intent to defeat or delay the creditors.

The second part of section 53 of TPA, 1882 formulated the principle that, where a transfer of immovable property is made gratuitously or without consideration by the transferor with an intention to defraud the subsequent purchaser, such transfer shall be voidable at the option of such transferee. This sub-section protects the interest of a bona fide transferee for value from a gratuitous fraudulent transfer made earlier.

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.

Meaning of Fraudulent Transfer

Fraudulent Transfer means the illegal transfer of property to defraud creditors. 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. To constitute a fraudulent transfer there should be an intention to hinder the creditor from his equitable and legitimate rights. Where the transfer is made with a fraudulent intention, it means intending to defeat the interest of the creditor or interest of any subsequent transferee.

Section 53 of the Transfer of Property Act, 1882 talks about fraudulent transfers. Fraudulent Transfer in general parlance, therefore, refers to transfers which are made with an intention to defraud. Thus a fraudulent transfer arises in a creditor-debtor relationship. In the fraudulent transfer, the property is put out of reach of the creditor so that the creditor is delayed from satisfying his debt.

For example
When 'A' transfers his property to 'B' without giving him his ownership of the property with the intention to keep his assets out of reach of his creditor, such a transfer is called a fraudulent transfer.

A fraudulent transfer of property gives rise to a civil cause of action. The court may set aside a fraudulent transfer at the request of the defrauded creditor. 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.

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).

In Dr Vimla vs. Delhi Administration, the Supreme Court observed that the term defraud involves 2 elements i.e., Deceit and Injury to the defrauded person. The injury does not only mean economic loss. It also includes deprivation of property or money and includes harm caused to body, mind, and reputation to a person.

The doctrine of Fraudulent Transfer from the perspective of English Law

Whilst delving into the Doctrine of Fraudulent Transfer from the perspective of Indian Law, it is interesting to see the perspective of the English Law more so in the case of legislation which was introduced in the colonial era, like The Transfer of Property Act, 1882.

The doctrine of Fraudulent Transfer, from the perspective of English Law is dependent, to the most extent, upon a celebrated case of Twyne. In this particular case law, Pierce owed certain liability which was financial in nature to two parties Twyne and C. Now, C i.e. the second person to whom Pierce owed such liability [financial in nature] approached the court by filing a suit seeking help in repayment of his debt by Pierce.

However, before the suit could come to any kind of fruition in the court, Pierce, being in the possession of goods as well as the chattels, in hush-hush manner made a deed of gift which was general in nature with the subject matter encompassing the totality of his belongings of chattels and goods to Twyne, the first person to whom Pierce owed such liability [financial in nature]. Such a gift was repayment of the debt that was owed to Twyne.

On a later instance, C secured judgment to procure goods and chattel in a manner that satisfies C's debt. In execution of such judgment, the seizure was sought to be done to which Twyne resisted. Twyne brought forth the argument that he had been a purchaser for value, which cannot be deemed to be inadequate, consideration which was also bona fide within the Fraudulent Conveyances Act, 1584.
At this juncture, question as to whether the gift made in favour of Twyne was done with the design as to defraud C, came into being.

To such, the honorable the court opined that:

• The gift in question seemingly held marks and symbol that it was meant to defraud since the gift is quite general, with no necessity, in a normal sense, for the donor to do such.
• Another indication was the unusual behavior of the donor to continue to hold possession of the gifts and what was even more so out of character was to keep using them as if they were his own only. The court opined that this was a clear indication of his ill intent in the whole case in question.
• As the saying goes gifts that are given in secret are always suspicious. In the present case as well, the gift was given in secrecy which arouses suspicion of the court.
• The court questioned the need to gift the title of such substances which were lis pendens. It is a strong symbol of ill intent to have gifted such substances during the pendency of the suit.
• The trust which existed between the donor and donee made it apparent that the fraudulent act was covered by the trust. The act of donee to allow the donor to not only keep the possession of the goods gifted but to continue to make use of it as if they were his own is certainly an act of trust.

In view of such and keeping note of the fact that the gift deed was indeed made on good consideration but was, in no circumstances, bonafide - the celebrated Star Chamber held this particular gift, in question, was indeed an attempt by Pierce to defraud one of his creditors under the Fraudulent Conveyances Act, 1571.

In another celebrated case dealing with a similar issue, Edwards v. Harben , the judgment, which was delivered by Buller, J., opined that if the possession is not done via a deed [made before or after], it is deemed to have been carried out with an intent to defraud. In such a case, it is void.

Essentials of the Doctrine of Fraudulent Transfer

The essential requirements of Section 53 of TPA are as mentioned below:

1. Transfer of property
2. The property must be immovable in nature
3. Transfer in question must have been done with the plan or scheme in mind to delay or defeat
4. Such delay or defeat must be suffered by the creditor(s)
5. The transfer would be voidable
6. Transfer must be for consideration

1. Transfer of Property:The very first essential is the application of The Transfer of Property Act, 1882 itself. If the transaction does not fall within the ambit of such legislation, there is absolutely no question of application of Section 53 of The Transfer of Property Act, 1882. According to the Act, transfer of property means when any person transfers property to one or more people or to himself and one or more people. Such a person may include a company, a body of individuals, an individual or association, and even immovable property can be transferred which would not, in any case, include growing crops, standing timber, or grass. Such transfer can be in present or even the future. However, there are certain rights which cannot be, in any case, being transferred which have been stipulated in Section 6 of The Transfer of Property Act, 1882. This transfer, moreover, shall be valid (in the eyes of law) and additionally, should bestow a good title upon the transferee. Following are some examples of transactions which do not transfer property:
   • Surrender and relinquishments.
   • Relinquishment of share by one coparcener in favour of the other.
   • Partition and family settlements but in case such partition is done with the design or scheme which is aimed towards affecting creditors in a manner that would delay or defeat the interests of the creditors, this section will apply.
   • Where it is claimed that the transfer was a transaction that would be deemed to be fictitious or sham (in the eyes of law) and there was no real transfer and was merely used in such a manner that it acted as a shield for achieving a hidden agenda, Section 53 is not applicable.
      
2. The property must be Immovable in Nature Section 53 of The Transfer of Property Act, 1882 attracts application to only that property which is considered to be immovable in nature. At this juncture, we face the pertinent question as to what are immovable properties: While The Transfer of Property Act, 1882 does not define what is immovable property, according to Section 3 of the Act, the immovable property does not, within its ambit, include:
   • Grass [which refers to fodder]
   • Standing Timber [which refers to trees which are fit to be used in repairs or buildings]
   • Growing Crops [which includes all such vegetables, etc. which are grown with the sole purpose of their produce]
   Scholars consider this definition to be a negative one since instead of outrightly providing the definition of immovable property, The Transfer of Property Act, 1882, merely gives us three things that are not immovable property. We look towards the General Clauses Act, 1867, for a more comprehensive definition of immovable property. The General Clauses Act, 1867 specifies the following as immovable property:
   • Land: The term land includes within its ambit both - the lower as well as the upper surface area of the earth. Any kind of interest which tends to vest in such would be treated as it is of immovable property. It includes streams, well, etc.
      
   • Benefits which are arising out of the land: Within such portion is included everything which deals with interest and rights vested in land, as defined above. The right of collection of rent is one prominent example.
      
   • Things that are attached to Earth: Within this category, there are further three subcategories that need to be read into:
     • Things which are rooted in the Earth: like shrubs, trees but does not include grass, standing timber, and growing crops. For example, mango trees are immovable property. In the case of Marshall v. Green, the learned court opined that if the sale was only of the right to cut and enjoy the trees as timber then it does not qualify as an interest in immovable property but instead qualifies as an interest in movable property. It is only when such right is extended over a number of years; it will qualify as an interest in immovable property.
     • Things which are embedded in the Earth: like the minerals, buildings, etc. By the usage of the word embedded, it means structures or things which have laid their roots or foundations laid much below the surface area of the Earth.
     • Things which have been fastened, in a manner which is permanent, to anything which is embedded in the Earth done for achieving one purpose which is of enjoyment but in a permanent sense. However, if the things which are attached are just temporary or transitory in nature and do not go on to add up to the value as well as the purpose of the structure or thing they have been attached to, they cannot be termed as immovable in nature. An appropriate example here would be ceiling fans, doors, and windows.
   In order to determine whether a fixture in question is of permanent nature or is merely temporary, we must consider the following points:
   • Mode of fixation that is to say it is temporary, standing on its own or has been dug in the Earth, etc.
   • Objective or the purpose which the fixation is intended to fulfill
      
3. Transfer in question must have been done with the plan or scheme in mind to delay or defeat:
   The third essential of Section 53 is that the intention behind the transfer must be to delay or defraud creditors. This is to say that it is important to cull out the intention behind the transfer which is in question. If such transfer has been with the scheme or design to result in delay or defeat of the creditors such transfer is voidable.
   
   Now the question arises as to how can this, seemingly, ill intention is proved? It must be proved by making use of evidence which may be direct or circumstantial in nature. Each case in question must be looked closely into and examined keeping in mind the surrounding circumstances. Some situations which tend to give strong presumption that the transfer, in question, was carried out with a scheme or design which is fraudulent in nature are:
   
   1. If the transfer was made under such circumstances that it was not widely known i.e. in secrecy.
   2. If the transfer was done in haste.
   3. If the transfer was carried out soon after a decree was passed against the judgment-debtor. Such decree must be such to order the repayment of debt.
   4. If the transfer was such that the debtor, mysteriously, transferred the whole of his property without any thought to himself i.e. without keeping any part of the property for himself.
   5. The consideration made for the transfer was such which was significantly small, when it is compared to the real, original or actual value of the property transferred.
   6. In accordance to the evidence discovered, it was proved that there is actually no consideration payment, contrary to what was given in the sale deed.
   In Palamalai Mudaliar v. South Indian Export Company, property was purchased by a person who knew that the transferor desired to convert it into cash which could be easily secreted so as to defeat the creditors. It was held that the transfer was voidable under Section 53.
   
   In Musahar Sahu v Lala Hakim Lal, it was held that it will not be fraud if the debtor chooses to pay one creditor and leave others unpaid provided that he must not retain any benefit.
    
4. Such delay or defeat must be suffered by creditor (s):
   The fourth essential is that the delay or defeat must have been suffered by creditor(s). This is to say the ill intentioned transfer, in question must be such wherein the affected people is or are creditor(s). Herein, it is pertinent to understand the term "creditor". It is said to be understood in a wide sense for this section.
   
   Who are creditors under the meaning of section 53 of TPA, 1882?
   
   • A landlord is creditor in respect of rents due to him from tenant.
   • A Hindu wife with a claim for past-maintenance against her husband is a creditor.
   • A Muslim wife to whom dower debt is due is a creditor.
   • An auction-purchaser, who is not a decree-holder, cannot be a creditor but a decree holder who becomes auction-purchaser of the same property is a creditor.
   In the case of Ram Das v Debut, the term was interpreted to include such people to whom the transferor owes some kind of liability which is financial in nature [i.e. creditors] which would include not only those to whom he owes at the time of transfer in question as well as those to whom he owes at a time which is after the transfer in question.
   
   In the case of Kanchanbai v. Moti Chand, the term creditors used in Section 53 was discussed. In such case, the transferor undertook a liability which was financial in nature amounting to a value of Rs. 2600 i.e. two thousand and six hundred rupees. The creditor requested repayment of the money which was owed to him.
    
5. Transfer would be voidable:
   Every transfer of property, which is immovable in accordance to the relevant section of The Transfer of Property Act, 1882, which is done possessed with an intention aimed to delay or defeat the creditors [or the people to whom the transferor owes some kind of liability which is financial in nature] of the transferor shall be voidable. Such option to consider the transaction void or not has been left in the hands of the aggrieved party who, here, will be the delayed or defeated creditors.
   
   This means that even though such transfer is, in the eyes of law, valid but it is left upon the creditor as to whether he wishes to avoid or not. The motive of the legislature behind such arrangement is to give the option to the party who has suffered or whose interest has been affected.
    
6. Transfer must be for consideration:
   The transfer must be such which is for consideration, one which is not such which was significantly small, when it is compared to the real, original or actual value of the property transferred. This is to say the consideration for the transaction, in question, must be adequate.

Framing of suit under fraudulent transfer

A creditor in order to avoid a fraudulent transfer of property must file the suit in a representative capacity. The benefit will be incurred in favor of all the creditors. Order 21, Rule 63 of CPC deals with the rules of representative suit.

Privity of contract is followed which means that only the parties to the contract can sue. Hence, no third party can sue on the creditor's behalf who is not a party to the suit. The suit is instituted by the creditor on the ground that the transfer is made to defeat or delay the creditors of the transferor.

The suit is instituted in the representative category or for the benefit of all creditors. This is to avoid a multiplicity of suits against the same opposite party/parties on the same subject. Dismissing a creditor's lawsuit would be binding on all creditors.

Good Faith and Consideration
The purchaser of the property from the transferor must prove firstly, that he had paid a fair and adequate price and secondly, that he was not a party to the fraud. He also has to prove that he acted in good faith. The standards of good faith are -

1. There must be an honest dealing between the parties;
2. The purpose of the transaction needs to be honest;
3. There must exist faithful performance of duties;
4. There must be an absence of fraudulent or malice intent.

The term consideration used under section 53 of TPA, 1882 has the same meaning as it has under The Contract Act, 1872. It excludes natural love and affection between the parties.

The Burden of Proof
Under section 53 of TPA, 1882 the burden of proving that a transfer is fraudulent lies on the creditors as he is attacking the debtor with this section. Once the fact is established by the creditor that the transfer was made fraudulently to defeat or delay his claims then the burden shifts on the transferee to prove that he acted in good faith and he is a bona fide purchaser for value and he was not a party to the fraud. So, the transferee can use this section as a shield for his defense and the creditor can use this section as a sword to attack the debtor.

Effects of Section 53 of Transfer of Property Act, 1882
A fraudulent transfer of property is voidable at the option of the creditors and if they not choose to avoid it, the transfer may be valid between the debtor and purchaser. Where a substantial portion of the transfer is fraudulent, the whole transfer shall be treated as fraudulent. Where only a part of the consideration was debt due to the creditor and the rest of it is fictitious the whole transfer must be void.

Exceptions to Doctrine of Fraudulent Transfer
The Transfer of Property Act, 1882, by way of Section 53 has recognized two exceptions in totem. The doctrine of fraudulent transfer is not applicable to:

1. The person to whom the transfer is made does the whole deed in good faith and for consideration.
2. Application of any law which relates to insolvency which is being enforced at such time.

Conclusion
Doctrine of Fraudulent Transfers is embodied in The Transfer of Property Act, 1882, in Section 53 wherein it is stated that all those transfers of property, which are considered to be immovable in accordance to the relevant section of The Transfer of Property Act, 1882, which is effectuated possessed with an intention aimed to delay or defeat the creditors of the transferor shall be voidable.

Such option to consider the transaction void or not has been left in the hands of the aggrieved party who, here, will be the delayed or defeated creditors. There are certain exceptions to this doctrine with respect to the transfers which are effectuated towards the transferee with adequate consideration and in good faith.

But if the transfer is merely a gift to a complete stranger, this question of good faith is completely irrelevant. The motive of the legislature behind such arrangement is to give the option to the party who has suffered or whose interest has been affected and to discourage ill intentioned transfers.

Bibliography:

• G. C. V. Subbaroa, Transfer of Property Act, C. Subbiah Chetty & Co., 16th Edn, 2022
• Bare Act, The Transfer of Property Act, 1882, Universal Lexis Nexis, 2022 pp. 20-21
• https://www.legalserviceindia.com/legal/article-4978-doctrine-of-fraudulent-transfer-under-section-53-of-tpa.html
• https://legalpaathshala.com/fraudulent-transfer/
• https://lawlegum.com/section-53-of-tpa-fraudulent-transfer/
• https://www.writinglaw.com/fraudulent-transfer-transfer-of-property-notes/

Also Read:

• Doctrine of Fraudulent Transfer under Section 53 of TPA