What is fraudulent transfer?
The principle of Section 53 is based on the rule of justice, equity and good conscience. The section enumerates fraudulent transfer.
- Every transfer of immovable property, made with the intent to defeat or delay the creditors of the transferor, comes into the category of the fraudulent transfer and therefore, they are voidable at the option of the creditors, who are so defeated or delayed.
- Every transfer of immovable property made, without consideration with intent to defraud a subsequent transferee, comes under the category of fraudulent transfer. Therefore, it is voidable at the option of such transferee.
In both circumstances, the transfer is voidable at the option of the person affected by such fraudulent transfer. The rule is adopted by Punjab where the Act is not in force.
- ”A” obtained a decree against B for the possession of certain properties and mesne profits estimated at RS. 10,000. ”B”, a month later, executed a deed of trust,settling all the property, of which he was then possessed,on his wife and children. The settlement was voidable under Section 53.
- ”A” sells property to B in fraud of creditors. Creditor C attaches the property in execution of a decree against A. B objects to the attachment and C maintains his right to attach and B’s objection is dismissed. B, then, sues for a declaration of his right to the property. C may plead, in defence, that the transfer to B was in fraud of creditors.
A creditor’s suit: A creditor’s suit, to avoid a transfer, must be a suit on behalf, not only of himself, but of the whole body of creditors. This is because the debtor might, otherwise, be exposed to the multiplicity of suits by each and every creditor. It has, however, been held that it is enough if the suit is in substance, on behalf of all creditors, even though it is not a representative suit as such. A single creditor can, of course, file a suit if he is the only creditor.