FICTITIOUS TRANSFER

The rule applies only when there is a real transfer of property so as to create a vested
title in favour of a third party. This title may be vitiated at the instance of the creditor
whose claim has been fraudulently delayed or defeated by transferor. If the transfer is
fictitious one, so that the real owner remains the original transferor all along, this transfer
would not be subject to the application of the rule enunciated under section 53. It is only
when the transfer is a genuine one, but the intention behind effecting this transfer is not
genuine or bona fide that the rule applies.
Illustration, A the owner of an immovable property gets the land mutated in favor of
his son, without effecting a transfer. This transfer is not real one as the transferor
possesses the title over the property and the claim of the creditors can be enforced against
this property.
Therefore for rule to apply, it must be proved that the transfer with intent to defeat the
rights of creditors is real one, and not a sham and fictitious transfer, which is no transfer at
all. A fictitious transfer is outside the scope of this rule and need not be set aside here.
The primary requirement for the applicability of the section, therefore, appears to be
the existence of a valid transfer. Where it is claimed that the transfer made by the debtor
was a sham and fictitious transaction and there was no animus transferendi, i.e. when the
real intention of the parties was not to give effect to the supposed transfer at all and it was
merely to be used as a shield or a facade for achieving solve ulterior purpose, Section 53
of the Transfer of Property Act cannot legitimately be taken aid of.

CREDITOR
The word 'creditor' has been used in this section in somewhat wide sense. Thus, it
includes all those who are creditors at the date of transfer as well as those who become creditors
subsequent to the date of fraudulent transfer.1 Further, it includes not only those creditors who
have obtained decrees, but also those whose claims have yet to be proved in a Court. 2 On the

1 Ram Das v. Debu, A.I.R 1930 All. 610.

2 Islvar v. Devar, 30 Bom.146.

other hand, a person who claims an unliquidated sum for damages for tort or breach of contract is
not a creditor, nor a person whose claim for a debt has become time-barred.

CONTINGENCIES OF FRAUDULENT TRANSFER

Presumption of fraudulent intention:
The existence of a fraudulent intent has to be proved and would not be presumed by the
court. Each case has to be decided on its own merits, but where the transferee was in
embarrassed circumstances and the transfer is between near re1ations or members of a small
community; or the transfer was a cover up primarily to retain the benefit for the transferor unless
the benefit is very small, these would be evidences of fraudulent intention but merely because the
transfer was without considerations; or was for discharge of a bona tide debt in accordance with
family policy or was to a female descendant in absence of present debts would not indicate
fraud.3
Intent To defeat or delay creditors:
3 Maung Din v. Ma Hnin Me AIR 1925 Rang 2278.

The intention must be to defeat or delay the creditors generally, that is, all the creditors
or even a single creditor but a mere preference of one over the other creditor is not enough for
the application of this rule unless the transferee shares a fraudulent intention" or it is with the
intention to defeat a particular creditors interest. Where the price realised from one of the
creditors is considerably in excess of the debts or where a fictitious debt is included in the
consideration or where more property is transferred than necessary, it is an evidence of an intent
to defeat the creditors. The mere fact that a portion of the property is transferred is immaterial
unless there is cogent proof that there is other property left which is sufficient in value and easily
available for the creditors. Inadequacy of consideration may not itself be sufficient to make the
transaction voidable.4
Such intention can be proved by circumstantial evidence. The evidence required to
substantiate fraud must necessarily vary according to the circumstances of each case. The mere
fact that a transfer is made without consideration will not necessarily lead to an inference that the
transfer was made with the intention of defrauding the creditor. The following factors may be
relevant to a conclusion that the transaction is not bona fide(i) The debtor sells all his property keeping nothing to himself
(ii) The consideration is grossly inadequate
(iii) The transfer is made secretly and in haste;
(iv) the transferor puts all his property out of the reach of those who might become his
creditors before embarking on some hazardous enterprise.
But each of the above factors must be considered along with other circumstances of the
case. However suspicious a transaction may be, there must be cogent evidence of fraud. The
mere fact that debts are due from the transferor is not by itself sufficient to establish a fraudulent
intention.
It must, however, be noted that if a person acquires property for value and in good faith,
that is, without being a party to any design on the part of that transferor to defeat or delay
creditors, his rights will not be affected although the transferor's intention might have been
fraudulent. In fact, whenever Section 53 is applied it is the transferee who ultimately suffers
provided he knew of the fraudulent intention of the transferor. The knowledge and intention of

4 Kedarwati v Radhey LalAIR 1937 Pat 609,170 lC 353, (1936) Pat WN 898.

the transferee are the main factors. In Palamalai v. The South Indian Export Co. 5, A being in
financial difficulties wished to convert his property into cash so as to conceal it from his
creditors. B being aware of A's object assisted him by purchasing the property. The sale was
voidable under this section.
In order to take out the case from the operation of Section 53, it is, however, essential that
the debtor must not reserve any benefit for himself. If the debtor sells property to another
creditor to discharge the debt due to him and the price obtained is considerably in excess of the
debt discharged, this would be evidence of intent to defraud.6
The terms of Section 53 (1) are satisfied even if the transfer does not 'defeat' but only
'delays' the creditors. Therefore, the fact that the entire property of the debtor was not sold, does
not by itself negative the applicability of Section 53 (1) unless there is cogent proof that there is
other property left sufficient in value and of easy availability to render the alienation in question
immaterial for the creditors.7

Good Faith and consideration:

If the creditors established that the transfer was made with the object of defeating them,
the burden shifts on the transferee to prove: (i) that he had paid it fair price, and (Ii) that he was
not a party to the fraud. The term 'consideration' as used in this section has the same meaning as
it has in the Contract Act and therefore excludes natural love and affection. Transfers for natural
love and affection and treated as transfers without consideration.
Where the fraud on the part of the transferor is established, the burden of proving that the
transferee falls within the exception is upon him, and, in order to succeed, he must establish that(a) he was not a party to the design of the transferor,
(b) he did not share the intention with which the transfer has been affected, and
(c) he took the sale honestly believing that the transfer was in the ordinary and normal
course of business.
5 (1910) 33 Mad. 334 : 5 I.e. 33.
6 Hanifa Bibi v. Punnamma, (1907) 17 Mad. L.J.11.
7 Abdul Shukoor Saheb v. Arti Papa Rao. A.I.R. 1963 S.C. 1150