Report No. 70
48.11. Good faith.-
Even where the other ingredients are satisfied, protection is given only to a transferee in good faith for consideration. This practically means that the transferee must have been party to the fraud if the section is to apply-although the burden of proving good faith is on the transferee. There is a difference between good faith and proper inquiry, as we have pointed out under sections 50-51. The mere fact that the transferee has some reason to suspect1 that there may be other creditors, or even his knowledge2 that the transferor is in financial embarrassment, does not necessarily prove absence of good faith.
1. Razina Khalun v. Abida Khalun, AIR 1937 All 39 (41).
2. Rajbari Bank v. Harshamukhi Sinha, AIR 1947 Cal 154.
48.12. Fraudulent preference.-
The law of insolvency invalidates fraudulent preferences1 in certain circumstances. The principles applicable for the operation of such provision are, however, different from those on which section 53 rests. The object of the prohibition in the Insolvency law is to secure rateable distribution of the assets amongst the creditors and to prevent discrimination inter se.
The object of section 53, on the other hand, is to protect all creditors. The lis is between the body of creditors on the one hand and the transferee on the other. In the case of a fraudulent preference, the lis is between creditors inter se. That provision incidentally is applicable only to a transfer within two years before insolvency. The provision in the Transfer of Property Act, on the other hand, is applicable at all times.
1. Section 54, Provincial Insolvency Act, 1920; section 56, Presidency Towns Insolvency Act, 1909.
48.13. Subsequent transferees-Position under sub-section (1).-
Two further propositions are worth pointing out regarding sub-section (1) of section 53-
(a) Where the first transferee is a bona fide transferee for consideration, he gets a good title, and a subsequent transferee from that transferee, even if not bona fide, is protected1.
(b) A bona fide transferee from a fraudulent transferee would also be protected2.
1. Brandlyn v. Ord., (1738) 26 ER 359.
2. (a) Firm Man Singh v. B.N. Sinha, AIR 1940 Lah 198 (199);
(b) Kunhu Pothu v. Raru Nair, AIR 1923 Mad 558 (560);
(c) Parthasarathy v. Subbaraya, AIR 1924 Mad 67.
48.14. Sub-section (2)-Transfer in fraud of subsequent transferee.-
This disposes of sub-section (1) of section 53. Under sub-section (2), a transfer can be set aside, if in fraud of subsequent transferee, but only if without consideration. Fraud must be proved. The last paragraph provides, in effect, that a transfer made without consideration shall not be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made.
48.15. No change.- The above discussion discloses no need to change the section.