CONTENTS

ACKNOWLEDGEMENTS ..................................................................2

INTRODUCTION .................................................................................3

LEGAL PROVISIONS INVOLVED ....................................................4

FACTS OF THE CASE .........................................................................5

LEGAL ISSUES ....................................................................................7

JUDGEMENT .......................................................................................8

CRITICAL COMMENT AND CONCLUSION .................................12

 ACKNOWLEDGEMENTS

Many people assisted me in successfully finishing this project. I want to thank

everyone involved in this initiative. I’d like to thank my Mentor, Mr. Ashutosh
Singh, who gave us a very interesting and knowledge testing assignment of
commentary on a case related to the subject of Property Law. His ideas and
comments aided in the completion of this project.

I am grateful to the college administration and library for providing me with

topic-appropriate research material aiding in the completion of this case
comment. Finally, I’d like to express my gratitude to my parents and friends for
their excellent comments and guidance during the completion of this project

-Neelesh Ganguly
 INTRODUCTION

This case comment is an effort to achieve proper unbiased analysis of the

judgement of the Madras High Court in the Case of Muniammal v. Thyagaraja
Mudiliar & Anr. This judgement was delivered by a single judge bench
comprising of Justice Ramaswami.

The case in appellate jurisdiction to the High Court in second appeal against the
order and decree of the District Judge, which was a slightly modified order of the
District First-Class Magistrate.
 LEGAL PROVISIONS INVOLVED

The main essence of the matter deals with Section 53 of the Transfer of Property
Act, 1882. Section 53 provides a rule against fraudulent transfer of property.
The Bare Act enshrines the section as:-

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 include a decree-holder whether he

has or has not applied for execution of his decree) to avoid a transfer on the
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 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.
 FACTS OF THE CASE

The entire happenings of the case unravelled from 1949 to 1952. The following
points encompass the crux of the entire case.

• Annamalai Mudaliar, the second defendant, became indebted to his own

sister Muniammal, the first defendant, on a promissory note on 16-8-
1949.
• The first defendant filed a suit against the second defendant, on the foot
of that promissory note, and obtained an instalment decree on 20-9-1951,
with the first instalment payable on 15-10-1951.
• The first defendant took steps to attach the only property belonging to the
judgment-debtor, which was a soda-water manufacturing shop run under
the name and style of "Baby Soda Factory". The judgment-debtor
obstructed in the matter more than once. The attachment became duly
effective on 8-4-1952.
• At this time Thyagaraja Mudaliar, the plaintiff, came forward and claimed
to have purchased the property i.e. the Baby Soda Factory, under a sale
deed said to have been executed by the second defendant on 1-10-1951
which was registered within a week thereafter. The items of consideration
for this sale deed were stated to be Rs. 155 (owed by Annamalai to
Thyagaraja) and a sum of Rs. 345 said to have been paid in cash to the
vendor, amounting to Rs. 500.
• This claim petition was dismissed by the District Munsif (First Class
Magistrate). The plaintiff then appealed before the District Judge, who
allowed the appeal to the restricting and limiting extent of holding that the
appellant had at least established a right to a lien or charge over the property
conveyed. Therefore, even though the District Judge agreed that the title of
Mr. Thyagaraja could not be established on the property, he was still in
possession of it as he was a prior creditor of Mr. Annamalai. This was
supposedly a relief granted in equity.
 LEGAL ISSUES

The High Court of Madras, while hearing the case on second appeal, framed the
following two issues:

1. Whether the sale is a fraudulent conveyance brought into existence by the

plaintiff and the second defendant in collusion to defraud the decree-holder,
Muniammal?

2. Whether any relief can be given to the plaintiff (respondent) in equity?

 JUDGEMENT

Ramaswami, J., in his judgement, referred to several authorities on fraudulent

transfer of property, stating that certain broad distinguishing factors have been
put together in England, America and India regarding this issue. On the
consideration of these authorities, he also remarked: “It is surprising how human
nature is the same all the world over, irrespective of colour, creed and race.”

However, the Ramaswami, J. prefaced his statements by stating that the factors
which make up a fraudulent transfer must necessarily depend upon the
circumstances and merits of each case.

Authorities on Fraudulent transfer of property

Halsbury's Laws of England 1

There are a number of circumstances which weigh with the Court in

determining whether, in any particular case, there was an intent to defraud
creditors. The strongest of these indications, or badges, of fraud is the
continuance of the grantor in possession of the property he has purported
to alienate, when such continuance in possession is not in accordance with
the tenor and object of the conveyance; and even though the grantee is let
into possession jointly with the grantor, the presumption of fraud will still
be raised. Continuance in possession is not, however, evidence of fraud
where the possession is consistent with the nature of the grant, as in the case
of a mortgage; but retention of the title deeds of the property granted is an
indication of a fraudulent intent.
Other indications of a fraudulent intent are the fact that the alienation
comprises substantially the whole of the property of the grantor; in the case
of an alienation of shares, that a call has been made upon them; that the
alienation is made after a writ has been issued against the grantor, or after
execution has been issued; that the conveyance by which it is effected

1 Halsbury's Laws of England (Simonds Edition), Volume 17 page 657 (para 1269).
 contains an unnecessary statement to the effect that it was made without a
fraudulent intent; that the conveyance contains a false recital, though this
will not be conclusive against a party who did not know that the recital was
false: or that the grantor reserved to himself a power of revocation.2

Dhodi, Law of Fraud and Fraudulent Transfers in India 3

Badges of fraudulent conveyances

(1) The strongest indication is the continuance of the grantor in possession
of the property where such possession is not under or consistent with the
deed of conveyance even if the possession be jointly with the grantee, except
where the grantor and grantee are husband and wife. The mere fact of
having some interest in property would not render it void.
(2) The retention of title deeds of the property alienated, by the alienor
would render it void.
(3) Indebtedness is a very strong evidence though not conclusive proof of
fraudulent intention.
(4) Alienation of substantially the whole of the property of the grantor e.g.,
gift of all before attachment.
(5) Alienation made after issue of warrant of attachment, after notice of suit,
after injunction in execution: and soon after decree.
(6) False recital, known to be false, made in the deed of alienation, e.g., (i)
fictitious items mentioned in a deed giving preference to a creditor, (ii) only
part of the consideration recited having been paid.
(7) The grantor reserving to himself a power of revocation. Mere fact of
having some interest in the property would not render it void.
(8) The deed of alienation contained an unnecessary statement to the effect,
that the alienation was being made without any fraudulent intent.
(9) A transfer having in effect delved creditors is not void, unless there be
inadequate consideration or other facts raising presumption of fraud.

2 Twyne's case (1602) 1 Smith LC (13th Edn.) 1 (A); Morris v, Morris, (1895) AC 625 (B); Sanders v. Crossley, (1919)
2 Ir R 71 (C); Perry-Herrick v. Attwood, (1857) 27 LJ Ch 121 (D); Re Hirth; Ex parte Trustee, (1899) 1 QB 612 (E);
Re Troughton, (1894) 71 LT 427 (F); Alton v. Harrison; Poyser v. Harrison, (1869) 4 Ch A 622 (G); Edmunds v.
Edmunds, (1904) P. 362 (H): Pearce v. Bulteel, (1916) 2 Ch 544 (1): Re Baker, (1936) Ch 61 (J); Re Hooker's
Settlement (1954) 3 All ER 321 (K).
3 Daulat Ram Dhodi, “Law of Fraud and Fraudulent Transfers in India”, Second edition, page 205.
 (10) Lack of passing of consideration mentioned its the deed when taken
with other facts may go to show the deed to be a sham one, not passing
anything.

The intention of the parties to a transaction and the nature of interest

thereby created can be determined from the following factors :

(1) Motive of entering into a benami transaction may be to defeat an

impending execution. The motive of defeating an impending execution does
not affect a transfer effected to prefer one creditor over another. It does not
amount to a transfer intended to defeat all the creditors. It does not render
a bona fide transfer for adequate consideration, void. Such an intent is not
one amounting to defraud, delay or defeat creditors within S. 53 , Transfer
of Property Act.
(2) Position of the parties to the transaction, their condition, state and rank
and the direct tendencies of the transfer are circumstances determining their
intention.
(3) Previous or subsequent conduct of the parties, the possession of the
property in question; the possession of title deeds of the property, are factors
on the point of intent.
(4) Relationship of the parties to one another, as father and sons, or husband
and wife, or a transfer to an employee of the transferor's legal adviser,
transfer to uncle, transfer to brother; go to decide the question of intention.
Mere relationship is not enough.
(5) The source or adequacy of purchase money determines intent...”

Application on the present case

The Court applied these principles in the present case. Ramaswami, J. found the
following incidents which, in his opinion, pointed to a fraudulent transfer:

1. This conveyance came into existence after Muniammal started proceedings

to realize her debt.
2. This was the only property which the judgment-debtor possessed in this
world.

3. In the sale deed Ex. A-1 no provision has been made for discharging the
decree debt of Muniammal.

4. The vendee plaintiff has been evading alternately that he made no enquiries
about the indebtedness of the vendor and that the vendor informed him of his
indebtedness. In either event the fraudulent intent of this vendee stands made out.

5. It has been established that Baby Soda Factory was worth Rs. 1,000 and
more but has been purported to be sold for Rs. 500.

6. Prior to this alleged purchase, possession of the Soda Factory has been with
the vendor, managed through his son.

Keeping these incidents in mind, the Court held that it was clear that this was a
case of fraudulent transfer/conveyance of property and therefore section 53 of the
Transfer of Property Act is attracted. The transfer was deemed voidable at the
instance of Ms. Muniammal.

With regard to Mr. Thyagaraja’s claim of equitable relief, the court applied the
maxim "he who seeks equity must do equity". In this case the sale deed itself is
not supported by consideration to the extent of Rs. 500. On the other hand, the
evidence as seen and analyzed by the District Munsif clearly shows that cash
consideration of Rs. 345 did not pass.

Therefore, when the entire transaction is a fraudulent one brought about in

collusion by the vendor and vendee in order to defraud an innocent third party,
the claimant is not entitled to any equity in his favour.
 CRITICAL COMMENT AND CONCLUSION

This judgment of the Madras High Court is important as it clearly distinguished

the general principles and rules to be followed in cases of fraudulent
transfer/conveyance of property under Section 53 of the Transfer of Property Act
1882, after a detailed analysis of authorities by the Judge from various
international and national jurisdictions. The Court also clearly expressed that the
factors which make up a fraudulent transfer must necessarily depend upon the
circumstances of each case, thereby cautioning future judges such that no
approach can be fool-proof and law ultimately depends upon how it is applied in
any given case.

The importance of this landmark judgment can also be seen from the fact that it
is referred to by nearly all books and commentaries on Property Law in India in
glowing terms. Justice Ramaswami’s dicta, “It is surprising how human nature is
the same all the world over, irrespective of colour, creed and race” is well
representative of the human race and the role of the property law in securing
justice and restoring equity in society.