Fraudulent transfer of house property
Advocate Ravinder
(Querist) 31 May 2013
This query is : Resolved
Dear experts and learned members,
My client A lent an amount of Rs. 10 lakhs to B as hand loan basing on promissory note on 1.8.2010 with two witnesses and no sureties. B has one house constructed on 100 sq yds of land in Hyderabad and it is worth about Rs.25 lakhs. Except the about house B is not having any other property.
As the limitation of pronote is nearing, sensing the danger of payment of amount, court attachment of his house, he fraudulently, without my notice sold out the same to X (probably his hence men)in the month of April, 2013 vide regd sale deed. X had already taken possession (physical possession)of the same the very next day of registration.
Now the problem is whether my client can file a case on X for cancellation of sale deed and recovery of money. Will X can take the benefit of bonafide purchaser.
I request the experts and learned members, to give me a solution how to recovery my clients amount either from B or X.?
With kind regards
Ravinder.P
Khaleel Ahmed
(Expert) 31 May 2013
There is no link with the sale of house to the hand loan given by your client.Your client can not cancel the sale deed . Your client can file the recovery of the hand loan after the maturity of the promissory note.
Raj Kumar Makkad
(Expert) 31 May 2013
A has no relationship with X so no litigation can be filed thereto. Your client must have been vigilant. Application under Order 38 Rule 5 of CPC (attachment before decision) was best remedy which even now can be plied but only on the transaction money shown in the sale deed.
You need to file immediately the suit for recovery with the aforesaid application enclosing the sale documents and insist upon the court to stop B not to use that amount received from sale consideration.
R.K Nanda
(Expert) 31 May 2013
no more to add.
Advocate Ravinder
(Querist) 01 June 2013
Dear experts, I remember that there is clause in T.P.Act that if any debtor transfers his property within some period, fraudulently to any third person will be invalid and the creditor has right to recover the same from the third party. Kindly clarify.
Any I thank all experts for your valuable advice.
Raj Kumar Makkad
(Expert) 01 June 2013
a Bona fide Person means the person having a good or sincere or an honest intention or belief. A Bona fide Purchaser is a term used in the law of property to refer to an innocent party who purchases property without notice of any other party's claim to the title of that property. He is a person who purchases the property for value that is must pay for it or must give considerations rather than simply be the beneficiary of a gift. Even when a party, fraudulently conveys property to a bona fide purchaser, may be by any way that is by transferring or selling to the bona fide purchaser property that has already been conveyed or transferred to someone else, that bona fide purchaser will, get a valid title or a good title to the property despite the competing claims of the other party. However, parties who are claiming for the real ownership in the property will retain a cause of action (a right to sue) against the party who made the fraudulent conveyance. Thus, a Bona fide purchaser is a person , who acts in good faith , without any notice of the real title over the purchased property, purchases that property from a person , who himself not having a good title over that property, Here, 2 things must be noticed that , Firstly, He is acting in good faith, secondly, he must be honestly in his intentions and thirdly, he purchased the property with a false notice of false title over the purchased property but as he is the bona fide purchaser , his rights and interests are protected under the laws. Thus, here we see that Bonafide Purchasers act in good faith and has no notice of the good title over the property even after a reasonable care and investigation. But, final thing is that, they are ultimately Bonafide and were not aware of the real title over the property even after a reasonable enquiry. Thus TP Act. provides them some Rights and Immunities so that their interest, over the property, though purchased under a defective/bad Title must be protected. This concept is an exception to the rule contained in the maxim Nemo dat quo non hobet and also of Section 27 of Sales of Goods Act.
Raj Kumar Makkad
(Expert) 01 June 2013
The right is dealt by section 53 of TPA and has two parts:- a. 53 (1) b. 53 (2) (a) This Right of the Bona fide Purchaser is incorporated in Section 53(1) which says that if a property is transferred by a person who is heavily indebted and transfer the property for consideration to a Bona fide purchaser with good faith and without notice, with intent to defraud or delay the creditors, the rights over the property transferred to that Bona fide purchaser will not be hampered. But if the transferor and the transferee engaged together in the work of defrauding or delaying the creditors, transferee will be stopped from taking the defence of this right and the transaction will be voidable at the option of the creditors but require that such a suit must be instituted either in a representative capacity or for the benefit of all the creditors. ILLUSTRATION- A, who is heavily indebted , and against whom a suit for the recovery of debts is going to be filled, sells his house to B to save it from being attached and sold in payment of the debt.
If B knows of A’s fraudulent intention, the sale to B is liable to be set aside at the option of the creditors. It will be seen that the rights of a transferee in good faith and for consideration are not affected even though the transfer is made with intent to defeat the creditors. The right is based on the principle of equity, is just to prevent the rights of the Bona fide purchaser over the property transferred to him for consideration and under good faith without notice of transferor’s fraudulent intention of defrauding or delaying the creditors.
If the transferee participated in the transferor’s intention then the transfer will be set aside at the option of creditor even if it is for consideration. Where the transferor has fraudulent intention, the transferee will only be protected if he proves that he acted in good faith and he has paid consideration for the transfer. Non-participation in the transferor’s fraudulent intention constitutes good faith on the part of transferee. (b) This right is dealt by section 53 (2 ) of TPA, every transfer of immovable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee, but it is provided that such transfer should not be deemed to be fraudulent by reason only of any subsequent transfer for consideration.
This section says that when a person transfer a property gratuitously to a person with an intent to defraud any subsequent transferee, on the option of this subsequent transferee the gratuitous transfer can become voidable. ILLUSTRATION- A settles his property to his son. This is done in a will executed and registered by A. He sells the property to B. It is subsequent to settlement. Ordinarily B should get nothing.
But if he can prove that settlement was made pending negotiation of sale to B and it was made with intent to defeat B. And B is a Bonafide purchaser for value without notice; the settlement would be voidable at the option of B. CASE STUDY--- Palamalai Mudaliar v South India Export Company , In the instant matter the 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. Thus due to aid and support of transferee to the transferor in the present matter, transferee cannot take the plea of the present right. Ratan Devi Moondana v. Jawaharlal Sultanmal, Mesers In the instant case the creditor filed a suit against the debtor Bajrang Lal.
During the pendency of the suit Bajrang Lal executed the sale-deed of the building which belonged to him in favour of his wife. There was a genuine debt of more than Rs. 20000 outstanding in favour of his wife against her husband. It was held that the transfer by the Bajrang Lal of the building in suit in favour of his wife was not voidable under section 53. It was merely a preference of one creditor over another. Such a preference does not amount to a transfer defeating or delaying the creditors, within a meaning of section 53. Jivaram Jagjivan Das v. Kantilal Keshavlal Trivedi In the instant case a house was mortgaged. The mortgage was binding upon all the members of family because it was joint at the time of mortgage. After the execution o mortgage the family was partitioned. But the arrangements were not made for the payments of debts. It was held that the partition was fraudulent in so far as it did not make any provisions for the payments of debt due upon the mortgage.
Advocate Ravinder
(Querist) 02 June 2013
I have gone through the whole text you have posted. My case will be covered under Sec. 53(1) of T.P.Act. My querry is resolved. Thank you. And I suggest you to send the above text as an Article to LCI, so that everybody can read it.
By the by I would like to ask one thing in the same context of T.P.Act.
For ex.if A is indebted to B a sum of Rs. 10 lakhs by way of promissory note, transfer his properties to X to defeat the rights of B.
There is one sec in t.p.act saying within six months from the date of entering into promissory note, if the debtor transfers any of his properties to third person, to defeat the right of creditor, the transfer will be void. Can you please clarify.
