SUBMITTED TOWARDS THE FULFILLMENT OF THE COURSE

TITLED DRAFTING, PLEADING & CONVEYANCING

A PROJECT ON

FRAUDULENT TRANSFER

SUBMITTED TO: Dr. B.R.N.Sharma

FACULTY: DRAFTING, PLEADING & CONVEYANCING

SUBMITTED BY:

RAHUL DEO

4th

YEAR (8th

SEM)

ROLL NO: 443

B.A. LL.B.(Hons.)

ACKNOWLEDGEMENT

The present project on the topic “FRAUDULENT TRANSFER” has been able to get its final

shape with the support and help of people from various quarters. My sincere thanks go to all

the members without whom the study could not have come to its present state. I am proud to

acknowledge gratitude to the individuals during my study and without whom the study may

not be completed. I have taken this opportunity to thank those who genuinely helped me. In

the completion of this project many people helped us directly and indirectly. First of all we

would like to thank my university i.e. CHANAKYA NATIONAL LAW UNIVERSITY,

PATNA, who gave us the idea and encouragement to venture into this project.

I am grateful to our faculty of DPC, Dr. B.R.N.Sharma, who gave us the opportunity to make

a project on “FRAUDULENT TRANSFER”.

Any sort of addition, alteration and criticism regarding our work is most welcome.

I have made every effort to acknowledge credits, but I apologies in advance for any omission

that may have inadvertently taken place.

Last but not least I would like to thank Almighty whose blessing helped me to complete the

project.

Chanakya National Law University, Patna Rahul Deo

8th Sem(443)

RESEARCH METHODOLOGY

The project is basically based on the doctrinal method of research work as no field work is

done on this topic. The whole project is made with the use of secondary source.

AIMS & OBJECTIVES:

The aim of the project is to present a detailed study of ‘FRAUDULENT TRANSFER’

through decisions, suggestions , different writings, articles and reports.

SOURCES OF DATA:

The following secondary sources of data have been used in the project-

1. Articles

2. Books

3. Websites

METHOD OF WRITING:

The method of writing followed in the course of this research paper is primarily analytical.

MODE OF CITATION:

The researcher has followed a blue book citation throughout the course of this research paper.

TABLE OF CONTENT

Topic Page No

1. Introduction-----------------------------------------------------------------------05

2. Fraudulent Transfer and It’s Relevant Provisions-----------------------07-08

3. Impact of Fraudulent Transfer and The Remedies available for it----09-16

4. Model Drafts-----------------------------------------------------------------17-22

5. Conclusion------------------------------------------------------------------------23

Bibliography----------------------------------------------------------------------24

INTRODUCTION

A fraudulent conveyance, or fraudulent transfer, is an attempt to avoid debt by transferring

money to another person or company. It is a civil cause of action. It arises in

debtor/creditor relations, particularly with reference to insolvent debtors. The cause of action

is typically brought by creditors or by bankruptcy trustees.1

A transfer will be fraudulent if made with actual intent to hinder, delay or defraud any

creditor. Thus, if a transfer is made with the specific intent to avoid satisfying a specific

liability, then actual intent is present. However, when a debtor prefers to pay one creditor

instead of another that is not a fraudulent transfer.2

There are two types of fraudulent transfer—actual fraud and constructive fraud. Actual

fraud typically involves a debtor who as part of an asset protection scheme donates his assets,

usually to an "insider", and leaves himself nothing to pay his creditors. Constructive

fraud does not relate to fraudulent intent, but rather to the underlying economics of the

transaction, if it took place for less than reasonably equivalent value at a time when the

debtor was in a distressed financial condition. It is important to notice that the actual

distinction between the two different types of fraud is what the intentions of the debtor were.

For example, where the debtor has simply been more generous than they should have or, in

business transactions, the business should have ceased trading earlier to preserve capital (see

generally, wrongful trading). In a successful suit, the plaintiff is entitled to recover

the property transferred or its value from the transferee who has received a gift of the debtor's

assets. Subsequent transferees may also be targeted, although they generally have stronger

defenses than immediate transferees. 3

Although fraudulent transfer law originally evolved in the context of a relatively simple

agrarian economy, it is now widely used to challenge complex modern financial transactions

such as leveraged buyouts.

1 http://indiankanoon.org/search/?formInput=fraudulent%20transfer(15-04-2014)

2 Ibid.

3 http://scholar.google.co.in/scholar?q=fraudulent+transfer-

+case+law&btnG=&hl=en&as_sdt=0%2C5&as_vis=1(15-04-2014)

Fraudulent transfer liability will often turn on the financial condition of the debtor at a

particular point in the past. This analysis has historically required "dueling" expert testimony

from both plaintiffs and defendants, which often led to an expensive process and inconsistent

and unpredictable results. Courts and scholars have recently developed market-based

approaches to try to make this analysis simpler, more consistent across cases, and more

predictable.4

4 http://heinonline.org/HOL/Page?handle=hein.journals/vanlr38&div=35&g_sent=1&collection=journals(16-

04-2014)

FRAUDULENT TRANSFER AND IT’S RELEVANT PROVISIONS

Principle. – Every owner of property has right to transfer his property as he likes. But, the

transfer must be made with a fide intention. Where the transfer is made with a fraudulent

intention e.g. with the intention of defeating the interest of creditor or interest of any

subsequent transferee. Where the transfer is made with fraudulent intention, the object of the

transfer would be bad in the eyes of equity and justice though it is valid in law. Since

fraudulent transfers are otherwise valid in law, they are not void. But, because they are made

with mala fide intention, equity would render it voidable by the person who was so

defrauded. Equity, therefore, does not allow a person to alienate his own property when such

alienation tends to delay or defeat the interest of his creditor or any subsequent transferee.5

This principle of equity has been incorporated in Section 53 of the Transfer of Property

Act. Law relating to fraudulent transfers as given in this section has two parts. The first part

provides that a transfer with an intent to delay or defeat the creditor of the transferor shall be

voidable by such creditor. The second part of this section provides that a gratuitous transfer

with intent to defraud a subsequent transferee is voidable at the option of such transferee. For

instance, A is owner of a house. He takes a loan of Rs. 10,000A from B. Thus, A is debtor and

B is creditor. House is the only property through which B can recover his loan. B intends to

do so but A becomes aware of B 's intention and before B could take any action A sells the

house to C, who knows that A is selling the house so that could not get back his money. The

sale of the house is a fraudulent transfer and is voidable by B whose interest has been

defeated.6

Section 53 of Transfer of Property Act, 1882 provides that

(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.

5 Dr. R.K.Sinha, The Transfer of Property act, central law agency,Allahabad,2010,11

th edition, p.202

6 Ibid.

(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.7

Section 53(1) : Fraudulent Transfers.—Section 53 (1) provides that—

1. Transfer of an immovable property,

2. made with intent to defeat or delay the creditors of the transferor,

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 a subsequent transferee in good faith, for consideration, and

b.) any law for the time being in force relating to insolvency.

Characteristics of Fraudulent Transfers.—The essential conditions for the applicability of

Section 53 (1) are :

1. There is transfer of immovable property.

2. The transfer is fraudulent i.e. mode with an intent to defeat or delay the creditors of

the transferor.

When the above-mentioned conditions are fulfilled, the transfer of property is avoidable by

the creditor or creditors whose interest has been defeated or delayed.8

7 Section 53 of Transfer of Property Act,1882.

8 Dr. Poonam Pradhan Saxena, Property Law, Lexis- Nexis, Nagpur, 2009, 2nd Edn, p.314.

IMPACT OF FRAUDULENT TRANSFER AND THE REMEDIES

AVAILABLE FOR IT

Transfer of Immovable Property.—There must be a valid transfer of immovable property.

For applicability of this section, it is necessary that there is a transfer of property and such

transfer is valid and enforceable so that property vests in the transferee. Section 53(1) does

not apply where the transfer is in itself void. This section makes a valid transfer void at the

option of creditor after the property had already vested in transferee. A suit under this section

must accept the validity of the transfer first and then proceed to get it invalidated if it is

proved to be fraudulent. In other words, the transfer under this section must be perfectly valid

till it is declared void under this section by a defrauded creditor.

This section is applicable only where the transaction is a transfer of property within the

meaning of Section 5 of the Act. Relinquishment is not transfer of property. Therefore,

relinquishment of share by one co-parcener in favour of the other is not a transfer of property

within the meaning of this section and Section 53 in terms does not apply. Similarly, this

section is inapplicable to surrender. But, surrender by a life-estate holder has been held to be

a transfer under this section.9 Dissolution of partnership is also not regarded as a transfer,

therefore, a deed of dissolution of partnership was not held transfer and this section was

applied.10

Sham Transfers. - Sham transfer means fictitious transfer. A transfer is fictitious when the

transferor does not intend that property should really vest in the transferee. Such transfers are

therefore unreal or colourable transfers and are never meant to operate between the parties.

The transferor may transfer a property in favour of transferee only for name’s sake i.e. in the

false name of transferee. Such transfers are, therefore, unreal or colourable transfers and are

not made to operate between the parties. Benami transaction is also a sham transfer because

the real owner has no intention that property should belong to ostensible owner.

Immovable property.—Section 53(1) is applicable to transfers only of immovable

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

However, the principles laid down in this section have been applied by the Privy Council to

fraudulent transfer of movable property on the ground of equity, justice and good

9 Nath v. Dhunbaiji, (1899)23 Bom.

10 Ishwar Dass Hem Raj v. Radha Mal Arjan Dass, A.I.R. 1960 Punj. 417.

conscience.11

The principles of equity incorporated in this section were applied also to a case

of assignment of a decree where it was found that major part of the consideration amount was

secretly reserved for the benefit of the assignor.12

Fraudulent transfer to defeat or delay creditor.—The transfer which can be avoided by

the creditor under this section must be with an intent to defeat or delay the interest of the

creditors of the transferor. In other words, the transfer is made with the sole object of

defeating or delaying the interest of creditors rather than to give the property to transferee

honestly.

Intent to defeat or delay.—A transfer made with an intent of either defeating or delaying the

interest of creditor is a fraudulent transfer. The only interest of a creditor in the debtor's

property is that he can recover his money from that property in case the debtor fails to repay

it personally. So, where a debtor transfers his property before creditor makes any attempt to

realise his debt from that property, it would no longer be debtor's property. In this manner the

interest of the creditor would be defeated. Whether a transfer has been made with intent to

defeat or delay creditors, is a mixed question of law and facts. Decision of fraudulent

intention of the transferor must be taken after considering the facts of the case and the

circumstances in which the transfer was made. There is no specific criterion to ascertain the

fraudulent intention of transferor. But inference of such intention may be drawn from some

broad considerations. In Munyammalv. Thygraja the Madras High Court rightly

observed thus:

"The factors which constitute a fraudulent conveyance must necessarily depend upon the

circumstances of each case. But certain broad indicia have been formulated in England,

America and India. It is surprising how human nature is the same all the world over

irrespective of colour, creed and race."

Accordingly, where the debtor sells all his properties after the decree to a purchaser who is in

the knowledge of his debts, it may be presumed that the transferor (debtor) has a fraudulent

intent to defeat or delay his creditor. Such presumption may be more strong if there is

evidence that no price has actually been paid by the purchaser. Where the transferee shares

the fraudulent intent and actively aids and assists the transferor in fulfilling his intention of

11 A.I.R. 1993 Orissa 1.

defrauding the creditor, there is no doubt that the transfer was made to defeat the interest of

the creditor.13

Where a judgment-debtor who was a Muslim transferred his property to his

wife saying that it was in lieu of her dower and the transfer was made soon after the

attachment of his properties in execution of decree against him, it was held that the transfer

was fraudulent.14

Fraudulent intention must be proved by direct or circumstantial evidence and every case must

be examined in the light of surrounding circumstances. However, following circumstances

may give a strong presumption that the transfer was fraudulent:

i.) The transfer was made secretly and in haste.

ii.) The transfer was made soon after the decree was passed against the judgment-

debtor.

iii.) The transferor who was indebted alienated substantially the whole property e.g.

gift of all the properties before the attachment.

iv.) The consideration was very small amount in comparison of the real value of the

property transferred.

v.) There is evidence that there was no actual payment of consideration as shown in

the sale-deed.

These are, however, some of the circumstances in which inference of intent to defeat or delay

creditors may be drawn. Every case under this section would depend upon its own facts and

circumstances and in all cases it is a matter of fact whether the transfer is bona fide or

fraudulent.

Preference to one creditor.—If there are several creditors, transfer in favour of one

creditor does not amount to an intention to defeat or delay the remaining creditors. A debtor

is entitled to pay his debts in any order of preference. For example, A,who has taken loan

from C and D, transfers certain properties to B in satisfaction of the loan taken from him (B).

This transfer is not necessarily with intent to defeat or delay the interest of remaining

creditors C and D. It has been held by the Privy Council that in case there are two or more

creditors, "a debtor, for all that is contained in Section 53 of the Transfer of Property Act may

pay his debts in any order he pleases and prefer any creditor he chooses". In Chogmal

13 A.I.R. 1958 Mad. 580.

14 GokulChand v. Khanam Nur, (1936) Pesh. 216. Under Muslim law, on marriage every husband has to pay some money or property to wife as dower. Unpaid dower is debt.

Bhandari v. Deputy Commercial Tax Officer, Kurnool15

a deed of settlement was executed

allegedly to evade the payment of sales-tax, but there was no sales-tax order against the

author of the settlement deed. The Supreme Court held that the fact that a debtor prefers one

creditor does not lead to an inference that the intention was to defeat the other creditor (Sales-

Tax Department).

It is significant to note that the word used in this section is 'creditors' 'not creditor'.

Therefore transfer must be to defeat or delay the creditors in general and not to prefer one

creditor to another. In Musahur Saliu v. Hakim Lai16

is a leading case on this point. Facts

and the law laid down by the Privy Council in this case is given below:

Musahur Sahu v. Hakim Lai.—Kisun Binode was debtor and Musahur Sahu was

creditor. In December, 1900 the creditor Musahur Sahu sued the judgment-debtor Kisun

Binode for recovery of his debts. During pendency of this suit, in January, 1901, Musahur

Sahu presented a petition before the Court for attaching properties of the debtor by way of

security. In February, 1901 Kisun Binode, the debtor gave an affidavit that he did not intend

to transfer any of his properties whereupon the petition for attachment was dismissed. But,

despite his affidavit Kisun Binode (debtor) sold his properties to Hakim Lai who was another

creditor of Kisun Binode. Musahur Sahu the plaintiff (appellant) pleaded that since the

transfer of properties by his debtor Kisun Binode were made with intent to defeat or

otherwise delay his interest, it should be held void under Section 53 and Hakim Lai should

not be given properties transferred to him.

Decision.—The Privy Council dismissed the appeal and held that transfer of property by a

debtor to one creditor in preference of the other is not a fraudulent transfer with intent to

defeat or delay the interest of another creditor.

Their lordships observed that the transfer which defeats or delays creditors is not an

instrument which prefers one creditor to another but an instrument which removes property

from the creditors to the benefit of the debtor. The court further observed that so soon as it

is found that the transfer here impeached was made for adequate consideration in

satisfaction of genuine debts, and without reservation of .my benefit to the debtor, it

follows that no Wound for impeaching it lies in the fact that the plaintiff who also was a

creditor was a loser by payment being made to this preferred creditor, there being made to

this preferred creditor, there being in the case no question of bankruptcy'.

15

A.I.R. 1976 S.C.656 16 (1915) 43 Cal. 521, 32 I.C. 343 P.C.

Creditors.—Word creditor as used in this section, means any person who is entitled

to got a certain sum of money from the other called debtor. Thus, a person who has given

some loan to another is creditor of that other person. It includes not only those persons who

have already obtained a decree in their favour from the Court but also includes persons who

have a claim to be established by Court. A person who has sold goods to another but could

not recover its price is also a creditor within the meaning of this section. Under Muslim

Law dower is that sum of money or property which every husband must pay to his wife.

Unpaid dower is therefore a debt. Until the dower debt is paid, wife is creditor and husband

is debtor. Similarly, a deserted Hindu wife in her claim for maintenance is a creditor. But, a

person claiming only an unliquidated (uncertain) sum for damages for tort or breach of

contract is not a creditor.17

Transfer is voidable at the instance of creditors.— When a transfer is proved to have

been made with intent to defeat or delay creditors it is voidable by creditors, Section 53 does

not as such make a fraudulent transfer void. It remains a perfectly valid transfer until the

creditors exercise their right to avoid the transfer. Since the right to avoid the transfer is

optional, a creditor may or may not exercise his right under this section. Where creditors do

not prefer to avoid the transfer, the transfer shall continue to be a valid transfer under which

the property has already vested in the transferee. Moreover, under this section only creditors

are entitled to avoid fraudulent transfer Transferor or transferee or any other person has no

such right.

Representative Suit.— It is provided in Section 53 (1) that a suit instituted by a creditor

under this section must be instituted on behalf of, or for the benefit of, all the creditors.

Accordingly, a creditor's suit to avoid a fraudulent transfer must be a suit not only for himself

but on behalf of all creditors of the transferor. That is to say, any one creditor represents other

creditors. The purpose of this rule is to protect the debtor from multiplicity of suits by other

creditors. However if there is only one creditor whose interest has been defeated or delayed

by fraudulent transfer, he can file that suit as a single creditor. It may be noted that where

there are two or more creditors, although a creditor is not entitled to file a suit only for

himself but he cannot be compelled to defend such suit on behalf of all creditors.18

Attaching Creditor.- Creditors may protect their interests not only by avoiding the

transfer under Section 53 but also by another method. They may do it by attaching the

property transferred. In Abdul Shukoor v. Arji Papa Rao , the Supreme Court observed that

17

Mulla ; Transfer of Property Act, Ed. VII P.261. 18 Ramanath v. Algappa, A.I.R.(1956) Mad. 682.

attaching the property which debtor has transferred fraudulently, is sufficient evidence of hiS

intention to avoid the transfer. No separate suit under Section 53 is necessary. Where a

creditor is proceeding against the property of the debtor by way of attachment and the

transferee is putting forth claim, it is not essential for the attaching creditor to file a fresh suit

for challenging the transfer as fraudulent.19

It is to be noted that also in view of the amended provisions of O. 21, R. 58 of Civil

Procedure Code, the question of filing a separate suit is barred and all questions relating to

title or interest in respect of the attached property are to be decided and adjudicated only in

the claim proceedings and not by any separate suit.

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

made to defeat or delay their interest. When they have proved on the basis of facts which p

facie show that the transferor intended to defraud the creditors, the burden shifts on the

debtors to explain the facts and prove that it was not fraudulent.5 However, the decision of the

Court must not rest only on suspicion howsoever doubtful the transfer might be. The decision

that the transfer was fraudulent must be taken by the Court on legal grounds established by

legal testimony.6

Exceptions to Section 53(1).—Section 53 (1) recognises two exceptions. The rule that

a fraudulent transfer can be avoided by creditors, is not applicable to :

(a) a transferee in good-faith for consideration, and

(b) any law relating to insolvency for the time being in force.

Transferee in good-faith for consideration — A transferee who takes property in good-

faith for consideration is protected. Where a transferee has purchased the property in good-

faith from a debtor, the creditors cannot avoid the sale under Section 53 (1). Good-faith has

not been defined in this Act. But, the generally accepted meaning which is given to this term

is that, an act is done in good-faith if it is done honestly whether it is done negligently or not’.

Where a transferee has no knowledge i.e no actual or constructive notice of the fraudulent

intention of the transferor (debtor), the creditors cannot avoid the transfer under this sub-

section even if they prove fraudulent intent of the debtor. But, where transferee is aware of

fraud or aids and takes part in transferor's fraudulent dealings, he cannot be said to have acted

in good-faith. Knowledge and mala fide intention of the transferee are determining factors.

19 Alamelu Ammal v. Chinnaswamy Raddiar, A.I.R. 1989 Mad. 311.

Where the transferor’s intention was to convert his immovable property into cash so as to

put it out of the reach of his creditors and the purchaser was aware of that intention, it was

held that purchaser was party to fraud and the sale was voidable by creditors. If the purchaser

had no knowledge of fraud, the sale is valid and cannot be avoided.

The interest of transferee in good-faith has been protected only where he has paid

consideration. Consideration here means pecuniary consideration as defined in the Indian

Contract Act. Natural love and affection is therefore not consideration. Dower-debt has been

regarded as a valid consideration, therefore, transfer of properties by a Muslim husband to his

wife in lieu of unpaid dower is a good consideration under this section and cannot be avoided

by the husband’s creditors if made in good-faith. In Kapini Goundan v. Saranganapani20

a

man who had taken large sum of money as loan, transferred his whole property to the

children of his first wife in ’consideration’ of her relations allowing him to marry a second

wife. In this interesting case, the Madras High Court held that this was a good consideration

and transfer was not a fraud on the creditors. It is submitted that this decision must be

regarded as only an exception and should not be regarded as a general rule.

Good-faith on the part of transferee is more significant factor in protection of the rights

of transferee than payment of consideration. Therefore, even if it is proved that consideration

is real, it does not always mean that transferee has good-faith. However, no presumption of

fraud can be made merely on the ground that consideration was inadequate.21

Rights created under insolvency laws.—Section 53 does not affect the rights created

under the law of insolvency. Thus, rights of a transferee created under any provision of

insolvency law are not affected even if the transferor’s intent was to defeat or delay the

interest of creditors. The object of insolvency laws is to distribute the insolvent's properties in

equal proportion among his creditors without giving any preference to any one. If one

creditor is given any preference, it may be fraudulent under the law of insolvency. Whereas,

such preference has not been regarded as fraud under Section 53. Therefore, there are

inconsistencies in the laws of insolvency and Section 53. In Javvadi Narasimhamurti v.

Maharaja Pittapur22

the Madras High Court observed that "it is necessary to distinguish

between certain classes of cases and to remember that Section 53, Transfer of Property Act

does not apply to transactions which though supported by good consideration, might in case

of an insolvency be impeached as fraudulent preferences." The Court has given others points

20

(1916)Mad. W.N.288, 34 I.C.744 21

Doma v. Govind, A.I.R. 1924 Nag. 124 22 A.I.R. 1941 Mad. 690.

of difference between insolvency laws and the law given in Section 53.

Where the transferor (debtor) has been declared insolvent and the transferee purchases

property from such insolvent person, the transfer cannot be avoided by creditors, under

Section 53 . In such cases, the Insolvency Courts are competent to decide whether the transfer

is voidable under Section 53 of this Act on application made by Official Assignee or the

Official Receiver, as the case may be.” However, this jurisdiction is not exclusive and in

some cases the Court of Insolvency would decline to exercise jurisdiction and leave the

matter to be determined under Section 53 in a regular suit.

Section 53 (2) : Gratuitous transfer to defraud subsequent transferee: Section 53 (2)

enacts that gratuitous transfer of an immovable property with intent to defraud a subsequent

transferee shall be voidable at the option of subsequent transferee. The second part of Section

53, therefore, contemplates a situation where an immovable property is first transferred to a

person without consideration and the same property is again transferred to another a person.

Under, this sub-section, the subsequent transferee may avoid the first transfer if he could

prove that the former gratuitous transfer was fictitious or sham transfer and was made with a

view to defraud him (subsequent transferee).23

For instance, A makes a gift of his 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 first transferee has preference over

the second and C should not get the house. But, under this subsection it is provided that if

first transfer is proved to be fraudulent, the subsequent transfer shall prevail and the first

would be voidable by the subsequent transferee. In other words, this sub-section protects the

interest of a bona fide transferee for value from a fraudulent gratuitous transfer made

earlier.24

However, the mere fact that the first transfer was gratuitous and the Second transfer is

with consideration, does not raise presumption of fraud in respect of the prior transfer. Fraud

in the prior transfer must be fully established. For example, where a person settles his

properties on for the benefit of his children and after sometimes sells the same properties to

B, no presumption can be drawn that prior transfer was necessarily with a view to defraud B.

The issue of fraud must be fully established by B.

The expression ‘subsequent transferee’ does not include a purchaser at the Court- sales

whether he is a third party or the decree-holder himself.25

23

Keshav Chandra Nayak v. Laxmidhar Nayak, A.I.R 1993 Orissa 1. 24

Firm Man Singh v. B.N. Sinha, A.I.R. 1940 Lah. 198. 25 Mahendra v. Suraj Prasad, A.I.R. 1958 Pat. 568.

MODEL DRAFTS

Plaint

IN THE COURT OF DISTRICT JUDGE, NAWADA

SUIT UNDER ORDER XXI OF THE CIVIL PROCEDURE CODE, 1908

SUIT NO 227/2014

Mr. Ramesh kumar Rai, S/O- Mr. Ganesh Kumar Rai

M.G.Road, Purani Godown, Nawada, Bihar ..............................Plaintiff

VERSUS

Mr. Surendra Prasad, S/O- Vishwas Prasad

Nala Road, Gumti Par, Nawada, Bihar ...............................Defendant

SUIT FOR SETTING ASIDE SALE OF IMMOVABLE PROPERTY ON GROUND OF

IRREGULARITY OR FRAUD

The Plaintiff above named most respectfully sheweth:

1. That the plaintiff was running a business of general store at his home town.

Defendant was, also, running a business of same kind at Nala Road.

2. Defendant business was not profitable. It was going in loss. So, he asked one lakh

fifty thousand rupees (Rs. 1,50,000) as loan from the plaintiff on 25 June 2013 @

10% simple interest and promised to return it within six months.

3. Plaintiff gave the said amount i.e one lakh fifty thousand rupees (Rs. 1,50,000) on 30

June 2013 and said that above mentioned terms has to be fulfilled.

4. So, the defendant was debtor and plaintiff was creditor. But, neither the amount nor

the interest were returned by the defendant. Creditor sued the judgment-debtor for

recovery of his debts.

5. During the pendency of this suit, on 2 February 2014, defendant sold his properties to

the third party i.e. kishan singh with intent to defeat or otherwise delay his interest.

6. That the cause of action arose on 5 february when the plaintiff came to know about

the selling of the properties to third party at Nawada. Hence the court has jurisdiction.

7. The value of the suit for purposes of court-fee and jurisdiction is Rs.1,500. Hence the

court has jurisdiction.

8. It is prayed that since the transfer of properties by the defendant i.e. his debtor were

made with intent to defeat or otherwise delay his interest, it should be held void under

Section 53 and the third party i.e. Kishan Singh should not be given properties

transferred to him. And decree may be passed in plaintiff’s favour against the

defendants and costs of the suit be awarded to the plaintiff.

Place – Nawada

Date – 10 February, 2014 Adv. Signature Plaintiff’s Signature

Verification.— I, Ramesh Kumar Rai, the above named plaintiff do hereby verify that the

contents of para nos. 1-4 are true to my knowledge and the contents of the remaining paras

are based on legal advice from my Advocate which I believe to be true.

Place – Nawada

Date – 10 February, 2014.

Written Statement of Defendant

IN THE COURT OF DISTRICT JUDGE, NAWADA

SUIT UNDER ORDER XXI OF THE CIVIL PROCEDURE CODE, 1908

SUIT NO 227/2014

Mr. Ramesh kumar Rai, S/O- Mr. Ganesh Kumar Rai

M.G.Road, Purani Godown, Nawada, Bihar ..............................Plaintiff

VERSUS

Mr. Surendra Prasad, S/O- Vishwas Prasad

Nala Road, Gumti Par, Nawada, Bihar ...............................Defendant

SUIT FOR SETTING ASIDE SALE OF IMMOVABLE PROPERTY ON GROUND OF

IRREGULARITY OR FRAUD

Written statement on behalf of defendant

The Defendant submits as under:

1. Para 1 is correct.

2. Para 2 is admitted.

3. Para as stated is not admitted. Plaintiff had not given the entire amount. He said that

remaining 50,000 rupees will be managed by our transaction. So, only one lakh

rupees was given as loan.

4. Para 4 is admitted.

5. Para 5 as stated is denied. Defendant sold his properties to the third party i.e. kishan

singh. Intention was not to defeat or otherwise delay the interest of the plaintiff as

Kishan singh was also, a creditor to the defendant.

6. Para 6-8 are legal paras. Hence, need not to be replied.

7. It is therefore prayed that the suit may be dismissed with costs.

Place – Nawada

Date – 20 February, 2014 Adv. Signature Defendant’s Signature

Verification.— I, , Surendra Prasad, the above named defendant do hereby verify that the

contents of para nos. 1- 4 are true to my knowledge and the contents of the remaining paras

are based on legal advice from my Advocate which I believe to be true.

Place – Nawada

Date – 20 February, 2014.

Plaint

IN THE COURT OF DISTRICT JUDGE, PATNA

SUIT UNDER ORDER XXI OF THE CIVIL PROCEDURE CODE, 1908

SUIT NO 837/2014

Mr. Visal Singh, S/O- Mr. Ganesh Singh

Smriti complex, Boring Road, Patna, Bihar .................................Plaintiff

VERSUS

Mr. Birendra Yadav, S/O- Yaduvanshi Yadav

Satyabhama College, Patna, Bihar ...............................Defendant

SUIT FOR SETTING ASIDE SALE OF IMMOVABLE PROPERTY ON GROUND OF

IRREGULARITY OR FRAUD

The Plaintiff above named most respectfully sheweth:

1. That the plaintiff was running his Floor Mill at his home town. And Defendant was

running yamaha showroom at Nala Road.

2. Defendant was constructing his house. So, he needed sum of Rupees two lakh. and he

asked two lakh rupees (Rs. 2,00,000) as loan from the plaintiff on 20 january 2013 @

8% simple interest and promised to return it within one year.

3. Plaintiff gave the said amount i.e two lakh rupees (Rs. 2,00,000) on 30 January 2013

and said that above mentioned terms has to be fulfilled.

4. So, the defendant was debtor and plaintiff was creditor. But, neither the amount nor

the interest were returned by the defendant. Creditor sued the judgment-debtor for

recovery of his debts.

5. During the pendency of this suit, on 2 August, 2013, defendant sold his properties to

the third party i.e. Jairam singh with intent to defeat or otherwise delay his interest.

6. That the cause of action arose on 10 August, 2013 when the plaintiff came to know

about the selling of the properties to third party in patna. Hence the court has

jurisdiction.

7. The value of the suit for purposes of court-fee and jurisdiction is Rs.2,000. Hence the

court has jurisdiction.

8. It is prayed that since the transfer of properties by the defendant i.e. his debtor were

made with intent to defeat or otherwise delay his interest, it should be held void under

Section 53 and the third party i.e. Jiaram Singh should not be given properties

transferred to him. And decree shall be passed in plaintiff’s favour against the

defendants and costs of the suit be awarded to the plaintiff.

Place – Patna

Date – 10 August, 2013 Adv. Signature Plaintiff’s Signature

Verification.— I, Ramesh Kumar Rai, the above named plaintiff do hereby verify that the

contents of para nos. 1-4 are true to my knowledge and the contents of the remaining paras

are based on legal advice from my Advocate which I believe to be true.

Place – Nawada

Date – 10 August, 2013.

CONCLUSION

Fraudulent transfer is exclusively, dealt under section 53 of the Transfer of Property Act,

1882. Possible ingredients of the section can be: transfer of an immovable property;

i.) transfer of an immovable property;

ii.) the transferor owes financial liability to creditors;

iii.) the transfer is with intention to defeat or delay creditors;

iii.) such transfer is voidable at the option of the creditors.

A fraudulent conveyance, or fraudulent transfer, is an attempt to avoid debt by transferring

money to another person or company. It is a civil cause of action. It arises in

debtor/creditor relations, particularly with reference to insolvent debtors. The cause of action

is typically brought by creditors or by bankruptcy trustees.

A transfer will be fraudulent if made with actual intent to hinder, delay or defraud any

creditor. Thus, if a transfer is made with the specific intent to avoid satisfying a specific

liability, then actual intent is present. However, when a debtor prefers to pay one creditor

instead of another that is not a fraudulent transfer. Although fraudulent transfer law originally

evolved in the context of a relatively simple agrarian economy, it is now widely used to

challenge complex modern financial transactions such as leveraged buyouts.

Fraudulent transfer liability will often turn on the financial condition of the debtor at a

particular point in the past. This analysis has historically required "dueling" expert testimony

from both plaintiffs and defendants, which often led to an expensive process and inconsistent

and unpredictable results. Courts and scholars have recently developed market-based

approaches to try to make this analysis simpler, more consistent across cases, and more

predictable.26

26

http://heinonline.org/HOL/Page?handle=hein.journals/vanlr38&div=35&g_sent=1&collection=journals(16-04-2014)

BIBLIOGRAPHY

BOOKS

1.Dr.Bharuka G.C.,Mulla’s transfer of property Act , lexisnexis,newdelhi,2006,10th edition

2.Dr.Sinha, R.K, The Transfer of Property act, central law agency,Allahabad,2010,11th edition.

3.Subbarao G.C.V.,Law of property,revised by Vepa sarthi,ALT Publication,Hyderabad,2009,5th ed.

4.Dr. Shukla S.N.,The Transfer of property,ALP,Faridabad,2006.,26th edition

5. Dr. Poonam Pradhan Saxena, Property Law, Lexis- Nexis, Nagpur, 2009, 2nd

edition

6. Takwani, C.K., Civil Procedure, EBC, Lucknow, 1996, 3rd

edition

WEBSITES

1. http://www.lexuniverse.com/public-page.html

2. http://www.lawyersclubindia.com/web_directory/Vakilno1-611.asp

3.http://heinonline.org/HOL/Page?handle=hein.journals/vanlr38&div=35&g_sent=1&collecti

on=journals

4. http://indiankanoon.org/search/?formInput=fraudulent%20transfer

5.http://scholar.google.co.in/scholar?q=fraudulent+transfer+case+law&btnG=&hl=en&as_sdt

=0%2C5&as_vis=1