Ramesh 14 August 2017

Insolvency and fraudulent transfer of properties

Sir,

I'm in trouble and please advice me. I gave 20 Lacs Loan to my relative and received promissory note. As I pressurised him to return money, he transferred his 3 properties(house and two agricultural lands) as "gift settlement" to his daughter, giving nothing to his 2 sons.

I filed money recovery case against him and he received summons. He is yet to file the written statement. Meanwhile he has applied for insolvency, stating that he is farming in LEASED lands and unable to pay his debts as his crops died due to failed monsoon, listed me and 3 other creditors. He did not list his 3 properties.

Now, should I contest to dismiss the insovency petition (or) should I pray court to void/set aside the fraudulent transfer of 3 properties to daughter?

Plan-1
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The set aside properties will be shared among 4 creditors. The total property worth 30 Lacs will be not enough to pay all creditors. During insolvency proceedings, will I get filing cost(1 Lac) for money suite, Lawyer fees so far 85k and 2% interest rate in promissory note? what happens to the pending money recovery suite? The other 3 creditors have not filed any money recovery suite.

what if his daughter sells the 3 properties when I file suite to set aside fraudulent transfer?
After receiveing the summons, he will sell to an buyer and make cash to avoid paying creditors.
The innocent buyer will be protected by Law(section53) because he is not aware of the debt of father and pending money recovery suit.

what is the implication of set aside of the sale of property? Further sale of property is blocked?
It will have an entry in encumbrance certificate? so buyers avoid on seeing the EC? father gets back the ownership of the property? After voiding the sale, he will make another sale to 3rd person and make cash.

Plan-2
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If there is any way to dissmiss the insolvency petition, then after getting the decree from money suite, I will attach the properties during execution petition and the auctioned money will not be shared among creditors, so I will get the filing cost for money suite, Lawyer fees and 2% interest rate.

what if his daughter sells the 3 properties after money suit decree is passed and before attaching the properties?

Plan-3
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Prolong the insolvency case for 1 year, as long as the case is going, he will be cool and happy. Get the money suit decree, void the fraudulent transfer of 3 properties to daughter, attach these properties in exectution petition and get the money.

Please give your suggestions

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3 Replies

Azhagananth (Lawyer) 15 August 2017

Section 53 in The Transfer of Property Act, 1882

1[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 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 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.]

you are safe grauded by the above act, Proceed and contest with the suit and I.P.

After getting the Judgment file the Execution petition for the Attachment of the property for the realization of amount. ..

Ramesh 15 August 2017

thanks Azhagananth for the reply

Ramesh 16 August 2017

The below things may happen, but please correct me if I'm wrong.

If I Contest and dismiss the IP citing the fraudulent transfer of properties, then debtor and his daughter will sell the properties to an bona fide buyer and make cash to avoid paying creditors.

They may sell any time after dismissing the IP or after getting the decree in money suite

The bona fide buyer will be PROTECTED by Law(section53) because buyer is not aware of the debt of father and pending money recovery suit. --- sale cannot be cancelled