Submitted by:
Suyogaya Awasthy
2014127
SEMESTER V
Visakhapatnam
OCTOBER 2016
I, Suyogya awasthy, hereby declare that this Project titled submitted by me is an original
work undertaken by me. I have duly acknowledged all the sources from which the ideas and
extracts have been taken. The projects free from any plagiarism issue.
Table of Cases 04
Introduction 05
Sham Transfers 08
Burden of Proof 13
Conclusion 14
Bibliography 15
Edwards v. Harben 05
Nath v. Dhunbaiji 06
Middleton v. Collak 11
Vinayak v. Kaniram 12
CHAPTER 2
Section 53 & Its Essentials
CHAPTER 3
ENGLISH LAW ON FRAUDULENT
TRANSFERS
The English law regarding the fraudulent transfer is depended upon the Twynes 1 case. In
this case Pierce was indebted to Twyne and also to C. C filed a suit against Pierce for
satisfaction of his debt, but when the suit was pending in the court, Pierce who was in the
possession of goods and chattels, in secret made a general deed of gift of all his goods
and chattels to Twyne, in satisfaction of his debt, without any obstruction that Pierce
continued in possession of the goods, and marked them with his own mark. Afterwards C
had judgment against Pierce and when his goods were sought to be seized in execution of
the judgment, Twyne and others resisted. Here the question arises whether the gift in
favor of Twyne was fraudulent, the court held that:
1. The gift had the signs and marks of fraud, because the gift is general, there is no
necessity for the donor to do this. For it is commonly said, quod dolosus vesatur in
generalibus.( That this gift had the signs and marks of fraud, because the gift is general, without
exception of his apparel, or any thing of necessity)
2. The donor continued in possession and used them as his own, so it clearly shows
that he had defrauded and deceived the creditor.
3. The gift was made in secret, et done clandestine sunt simper suspiciosa.
4. The gift was made during the pendency of suit.
5. Even after the gift was made, the donor was still in possession and therefore here
there was a trust between the parties and the fraud is covered by the trust.
6. The gift deed contains that it was made truly, honestly and bonafide.
So in this case we should observe that, even if there was a true debt due to Twyne, but the
gift which was made with no consideration and bonafide, and it shall be deemed that a
gift made with any trust in favor of donor is considered to be done with fraud.
In another case regarding the same issue, Edwards v. Harben 2, the judgment was given by
Buller,. J. he said if the possession is not followed by deed, it is deemed to be done with
fraudulent intent and it is void.
Section 53 of TPA as it is originally stood was based on the statutes of Elizabeth. Now,
this section is in consonance with that of the English statute. The first part of the section
deals with the transfers in fraud of creditors, and the second deals with the fraud of
subsequent purchaser. A transfer though it may not offend this section could be still be
avoided either under Section 55 of the Presidency Towns Insolvency Act, 1909, or
Section 53 of the Provincial Insolvency Act, 1920, and a provision saving insolvency law
is introduced in the section.
This section is applicable only where the transaction is transfer of property within the
meaning of Section 5 of the Act. In the case of Sunder Lal v. Gurusaran Lal 3, it was held
that relinquishment of share by one co-parcener in favor of other is not a transfer of
property within meaning of this section and Section 53 does not apply. Surrender is not a
transfer of property, but in the case of Nath v. Dhunbaiji 4, the court held that surrender by
a life-estate holder is a transfer and it is covered by this section. In the case of Joshua v.
Alliance Bank5, a settlement was provided for the appointment and it was found that the
appointment was done to defeat or delay the creditors. Therefore observing the facts, the
court held that appointment made with reference to the settlement was fraudulent transfer.
Naturally a question arises regarding the Section 53 of TPA, that when the consideration
is good in part. If the transfer was for the purpose of delaying or defeating creditors, the
transaction will be set aside as there was fraud in it. But if a part of the consideration is
utilized for paying off a mortgage debt of the transferor, then either the transfer would be
treated as valid to that extent or if the transfer is set aside the vendee is given charge on
the property.
CHAPTER 4
SHAM TRANSFERS
Sham transfer means fictitious transfer. When the transferor does not intend that the
property should be really vested in the transferee, such transfers are therefore unreal or
4 (1899) 23 Bom. 1.
7 (1907-08) LR 35 IA 98.
CHAPTER 5
How Fraudulent Intention in the Transfers Can Be
Proved
Fraudulent intention in transfers must be proved by direct or circumstantial evidence and
every case must be examined in the light of surrounding circumstances. Some
circumstances that give a strong presumption that the transfer was fraudulent are:
1. The transfer was made in secret and haste.
CHAPTER 6
If there are several creditors, transfer in favor of one creditor does not amount to an
intention to defeat or delay the remaining creditors. Its upon the debtors discretion to
pay his debts in any order of his preference. If A has taken loan from B, C and D,
transfers certain properties to C in satisfaction of the loan taken from him. This transfer
necessarily cannot be considered as a transfer made to defeat or delay the interest of other
creditors. It was happened in the case of Mina Kumari v. Bijoy Singh 9, the Privy Council
held that in the case there are two or more creditors, the debtor can give preference to any
creditor and can clear his debts in any order he chooses.
Another landmark regarding this context is Chogmal Bhandari v. Deputy Commercial Tax
Officer, Kurnool10. The facts of the case were: A partnership of two partners was
dissolved in 1963. A registered deed of trust was executed by which the properties were
vested in the trustees for purpose of paying off the creditors. Afterwards a business was
started by the grandson of one of the partners and some provisional assessments were
made his name for the years 1966-1969. In 1971, Sales Tax authorities made the
assessments in the name of the Joint Hindu Family for the first time but found that the tax
could not be realized from the assesses on account of the Trust Deed, and therefore,
treated the Deed as void and fraudulent and contended that the assessments were made to
defeat the debts of Sales Tax Department. But in proceedings, these facts were found. It
was found there was no assessment made against the Joint Hindu Family at the time of
execution of Trust Deed. Therefore there was no real debt due by from one of the
11 (1915) LR 43 IA 104.
12 (1876) 2 Ch D 104.
Section 53(1) recognizes two exceptions. The rule that a fraudulent transfer can be
avoided by creditors is not applicable to:
a) A transferee in good-faith and consideration,
b) Any law relating to insolvency for the time being in force.
CHAPTER 8
BURDEN OF PROOF
The burden of proof lies on the creditors of the transferor to show that the transfer was
made to defeat or delay the interest of the creditor. In the case of Chandradip v. Board of
Revenue15, the onus to prove the fraud lies on the person alleging it. But it may be noted
that the burden to prove the intention would largely depend upon the facts and
circumstances of each case.
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