Fraudulent transfer to defeat creditors can be resisted in Order XXI Rule 63 proceedings, even if creditor suits are representative.

A transfer made with intent to defeat or delay creditors under section 53(1) of the Transfer of Property Act is voidable at the instance of a creditor, and that defence may be raised by an attaching decree-holder in a suit under Order XXI, Rule 63 CPC. The transaction was found, on the surrounding circumstances, to be designed to place the property beyond creditors' reach, so it was treated as a fraudulent transfer. Although consideration was real and adequate, the transferee was not protected because knowledge of the vendor's indebtedness, secrecy of the sale, and lack of proper inquiry showed absence of good faith. The statutory defence was not confined to a representative suit.

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Issues: (i) whether the sale of the property was a genuine transfer or was effected with intent to defeat or delay creditors under section 53(1) of the Transfer of Property Act; (ii) whether the transferee was protected as a transferee in good faith and for consideration; (iii) whether an attaching decree-holder could, in a suit under Order XXI, Rule 63 of the Code of Civil Procedure, resist the transferee's claim by pleading fraud under section 53(1), and whether such avoidance could be confined only to a representative suit.

Issue (i): whether the sale of the property was a genuine transfer or was effected with intent to defeat or delay creditors under section 53(1) of the Transfer of Property Act.

Analysis: The transfer was examined against the financial embarrassment of the firm, the pressure of creditors, the timing of the negotiations and sale, the manner in which the sale was registered, and the absence of any explanation showing that the proceeds were earmarked for payment of debts. The cumulative effect of these circumstances showed that the transaction was not merely an ordinary sale but was designed to place the property beyond the reach of creditors.

Conclusion: The transfer was made with intent to defeat or delay creditors and was voidable at the instance of the decree-holder.

Issue (ii): whether the transferee was protected as a transferee in good faith and for consideration.

Analysis: Although consideration was found to be real and adequate, the transferee was held to have knowledge of the vendor's indebtedness and financial distress, to have shared in the secrecy of the transaction, and to have failed to make proper inquiry as to why the firm's only immovable property was being sold. The transfer was therefore treated as a concerted scheme between transferor and transferee to keep the asset away from creditors.

Conclusion: The transferee was not in good faith and was not protected by the saving provision for transferees in good faith and for consideration.

Issue (iii): whether an attaching decree-holder could, in a suit under Order XXI, Rule 63 of the Code of Civil Procedure, resist the transferee's claim by pleading fraud under section 53(1), and whether such avoidance could be confined only to a representative suit.

Analysis: The statutory scheme of section 53(1) did not prescribe any exclusive method by which the creditor's option to avoid a fraudulent transfer had to be exercised. The nature of claim proceedings under Order XXI did not bar the attaching creditor from defending the suit on the ground that the transfer was voidable for fraud on creditors. The later amendment requiring a creditor's suit to be representative regulated the form of a suit filed by a creditor, but did not take away the defence available to an attaching creditor in a suit brought by a defeated claimant.

Conclusion: The defence under section 53(1) was open in the suit under Order XXI, Rule 63, and avoidance was not confined to a representative suit.

Final Conclusion: The appeal was held to fail because the impugned sale was a fraudulent transfer not protected by good faith, and the decree-holder was entitled to resist the claimant's suit on that basis.

Ratio Decidendi: A transfer made with intent to defeat or delay creditors is voidable at the instance of a creditor, and that defence may be raised in a suit under Order XXI, Rule 63 of the Code of Civil Procedure even though a creditor's own suit for avoidance, if filed, must be representative in form.

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