Fraudulent Deeds and Dispositions of Property

Broken down

Section 320 needs an inadequate consideration. The words "without adequate consideration" qualify the transfer limb, so a genuine sale at a fair price to a stranger is outside the section however inconvenient it is for the creditors.

Section 321 attacks the other side of the balance sheet. Section 320 is about assets going out; section 321 is about a debt owed to the debtor being prevented from coming in, for example by releasing it or by an arrangement to have it paid elsewhere.

Section 322 punishes two different lies in one deed. A false statement about the consideration, which is the device used to evade stamp duty and to hide the real price; and a false statement about the person for whose benefit the deed really operates, which is the benami transaction.

Section 323 is the widest of the four. It covers concealing or removing property, assisting in it, and dishonestly releasing a claim, without any requirement that a creditor be in view.

Distinctions that carry marks

A worked example

Sanjay owes forty lakh rupees to three suppliers who have filed suits against him. A month before the first hearing he transfers his warehouse to his brother-in-law for one lakh rupees and moves his stock to a relative's premises.

Which provisions? Section 320 for both acts. Transferring the warehouse without adequate consideration, and removing the stock, each done intending or knowing it likely to prevent the distribution of the property among his creditors. The minimum is six months and the maximum two years, or fine, or both.

Does it matter that no decree has yet been passed? No. The section speaks of preventing the distribution of the property according to law among his creditors, and a suit pending is enough to show what he intended.

Change the transfer. Suppose the warehouse was sold at a fair market price to an unconnected buyer and the money paid into Sanjay's bank account. The transfer limb of section 320 is not satisfied, because the consideration was adequate, and the money remains available to the creditors.

A customer owes Sanjay ten lakh rupees. He writes to the customer releasing the debt in exchange for a private payment to his wife. Section 321 applies, dishonestly or fraudulently preventing a debt due to himself from being made available according to law for payment of his debts, and section 323 also applies to the dishonest release of a claim to which he was entitled.

The deed of transfer of the warehouse recites a consideration of thirty lakh rupees although one lakh was paid. Section 322 applies to Sanjay, to the brother-in-law, and to anyone else who signed or became a party, because the deed contains a false statement relating to the consideration.

Change that fact. Suppose the price recited is correct but the deed names the brother-in-law as purchaser when the property is really bought for and held for Sanjay's son. That is the second limb of section 322: a false statement relating to the person for whose use or benefit the deed is really intended to operate.

What beginners get wrong

Thinking every transfer by a debtor is an offence. Section 320 needs the transfer to be without adequate consideration, and needs the intention or knowledge about defeating creditors.

Thinking section 322 is about stamp duty. Evading duty is dealt with by the stamp law. Section 322 punishes the false statement itself, whatever its purpose.

Thinking only the transferor is liable under section 322. The section covers whoever signs, executes or becomes a party to the deed.

Missing that section 320 protects other people's creditors too. The words are "his creditors or the creditors of any other person".

Limits and criticism

The punishments are too low to deter. Two years for defeating creditors of any amount, and three years for a false deed, are figures from a period when the sums were small.

These offences are almost never prosecuted. The dispute is treated as civil, the creditor sues to set the transfer aside, and the criminal provisions lie unused.

Section 322 sits awkwardly beside the benami legislation. Holding property benami is now dealt with by a separate statute with its own machinery and much heavier consequences, and the Sanhita's three year offence adds little.

"Adequate consideration" is undefined, so the section's most important limit is left entirely to the court.

Quick revision

Section 320. Dishonestly or fraudulently removing, concealing, delivering or transferring property without adequate consideration, intending or knowing it likely to prevent distribution among creditors: six months to two years, or fine, or both.

Section 321. Dishonestly or fraudulently preventing a debt or demand due to oneself or another from being made available for payment of debts: two years, or fine, or both.

Section 322. Signing, executing or becoming party to a deed containing a false statement about the consideration, or about the person for whose use or benefit it really operates: three years, or fine, or both.

Section 323. Dishonestly or fraudulently concealing or removing property, assisting in it, or dishonestly releasing a claim: three years, or fine, or both.

The pattern. Assets going out, section 320; debts not coming in, section 321; the document that lies, section 322; the residuary, section 323.

Test yourself

1. What limits the transfer limb of section 320? The words "without adequate consideration". A transfer at a fair price does not fall within that limb, however inconvenient it is for the creditors.

2. What is the difference between sections 320 and 321? Section 320 concerns the debtor's property being moved out of the creditors' reach. Section 321 concerns a debt or demand due to the debtor being prevented from becoming available for payment of his debts.

3. What two false statements does section 322 punish? A false statement relating to the consideration for the transfer or charge, and a false statement relating to the person or persons for whose use or benefit the deed is really intended to operate.

4. Who can be liable under section 322? Whoever dishonestly or fraudulently signs, executes or becomes a party to the deed or instrument, not only the transferor.

5. Does section 320 protect only the accused's own creditors? No. It covers preventing the distribution of property according to law among his creditors or the creditors of any other person.