Introduction:
On the 9th of April 1982, Jangali Tewari v. Babban Tewari and Anr. was decided by the Allahabad High Court.
The case focused on how transfers of property are made to defraud creditors by deceiving them. Here the subject of the property is immovable, and the transfer of ownership is made with the intent to defraud a creditor or to create a sham transaction, hence a fraudulent transfer.
Section 53 of the Transfer of Property Act defines a fraudulent transfer.
“53. Fraudulent transfer.– (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 th e 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.
(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.”
In this article, we will discuss what constitutes a sham or fraudulent transaction and its relation to the aforementioned case.
Parties to the case :
JANGALI TEWARI (SINCE DECEASED) : Appellant
BABBAN TEWARI : Respondents
WHAT WAS THE CASE ABOUT?
The case focused on a second appeal filed by the plaintiff to the case, appealing to the court that a piece of his land or agricultural land cannot be used to pay off the debts from an earlier case. (Suit No. 131 of 1962) that involves his brother, the second defendant to the case.
FACTS TO THE CASE:
- This case is a Second Appeal filed by the plaintiff, who wants the court to review a case involving his agricultural land. According to the plaintiff, the land cannot be taken away to pay off old debts from a judgment in an earlier case involving his brother, the second defendant.
- The plaintiff and the second defendant are brothers and live together. During the old case in 1962, the second defendant sold the land to the plaintiff for ₹500 through a registered sale deed. When the old case ended, and a judgment was issued, the land in question was attached in 1966 (Execution Case No. 64 of 1966) to recover the debt.
- The plaintiff objected to the attachment under Order 21, Rule 58 of the Civil Procedure Code, but his objection was rejected. After the rejection, the plaintiff filed a new suit, which ultimately led to this Second Appeal.
- The second appeal was however dismissed.
Order 21, Rule 58 of the Civil Procedure Code in summary:
If someone claims that property attached to pay off a court decree should not be attached, the court will review the claim or objection. However, the court will not entertain such objections if:
- The property has already been sold before the objection was made.
- The objection was deliberately or unnecessarily delayed
if the court refuses to hear an objection (e.g., because of delay or the property being sold), the person can still file a separate lawsuit to prove their rights to the property. However, until the lawsuit is decided, the court’s refusal is considered final.
ISSUES TO THE CASE :
- Whether the sale deed executed between the plaintiff and the second defendant was a sham transaction or a genuine one?
- Whether the transaction was fraudulent under section 53 of Transfer of Property Act 1886?
THE DEFENSE ARGUMENTS:
- The defense argued that the sale deed between the plaintiff and the second defendant was fake and fraudulent.
- They claimed that both the plaintiff and the second defendant lived jointly and that the land in question was never actually transferred to the plaintiff.
- Instead, the transaction was a sham, orchestrated to delay payment to creditors from the earlier case. The consideration for the sale was grossly inadequate, amounting to only ₹500, which further demonstrated the fraudulent nature of the transaction.
- Consequently, the land was deemed to still be in the possession of the second defendant.
THE PLAINTIFF ARGUMENTS:
- Mr. R.P. Singh, the lawyer for the plaintiff, argued that even though the consideration was very low, under Section 53 of the Transfer of Property Act, a fraudulent transfer is only voidable, not automatically void.
- He contended that such a transfer remains valid unless a creditor files a lawsuit to cancel it.
- The lawyer referred to the case of Ram Rai Singh v. Lal Chandra Pratap Singh, asserting that even if a transfer is made without any consideration, it must be proven fraudulent before it can be invalidated.
COURT’S RULING :
The court found out that Mr.R.P singh’s arguments were unnecessary, because:
- Both lower courts concluded that the transfer was a sham and fictitious.
- Since the transaction was not real, no actual transfer of ownership occurred. The property remained with the second defendant (the plaintiff’s brother).
- Because the transfer was fake, there was no need to apply Section 53 of the Transfer of Property Act. The property could still be attached and sold to pay off the debt in the 1962 case.
Fraudulent Intent Confirmed:
The court further noted:
The second defendant’s goal was to avoid paying his debts. To achieve this, he transferred the property, which could have been sold to pay off the debt, to his brother for an exceptionally low price. This act constitutes one of the key elements of a fraudulent transfer, as it was intended to defraud the creditors. Consequently, the first defendant (the creditor) was justified in invoking Section 53 of the Transfer of Property Act to challenge the plaintiff’s claims. The court also clarified that the case referred to, Ram Rai Singh v. Lal Chandra Pratap Singh, dealt with a different legal context and therefore did not conflict with the court’s decision in this case.
CONCLUSION:
The appeal was dismissed with costs, meaning the plaintiff lost the case and had to pay for the legal expenses of the other party.
FAQ:
Q. What does Section 53 of the Transfer of Property Act say ?
Ans. Section 53 of the Transfer of Property Act allows a creditor to challenge a transfer of property if it was made with the intent to defraud creditors. Such transfers are voidable at the option of the creditor.
Q. Why was the second appeal dismissed?
Ans. The second appeal was dismissed because both the trial court and the appellate court had found sufficient evidence that the sale deed was a sham and fraudulent transaction. The plaintiff’s arguments did not successfully challenge these findings.
ARCHITA SHARMA
GOVERNMENT LAW COLLEGE, MUMBAI.
