party to retain property transferred to him in order to effect a fraud must, according to the authorities, be effected. Then alone, does the fraudulent grantor or transferor, lose the right to claim the aid or support of the law to recover the property he has parted with. The principle however will not apply in the case if the transferor seeks for possession from the transferee before the fraud is effectuated. 6 A.I.R 1982 All. 316.. 7 (1907-08) LR 35 IA 98. 7 | P a g e
In the case of Immani Appa Rao v. Gollapalhili Rama Lingamurthi 8 , a sale of property was made with the mutual consent of the vendor and the vendee to defraud the creditors of the vendor. There was no consideration and the transferee also agreed to act as a benamidar until the transferor required him to reconvey the property to his sons. The transferor and his sons trespassed and occupied the property, as the creditors were defrauded. The transferor, in defence, urged that the transferee has no rights in the property as the transfer was a fraudulent transfer. So in this case the court observed that:- The transferors emphasized that the doctrine which is pre-eminently applicable to the present case is ex dolo malo non oritur action or ex turpi causa non oritur actio . It means they contended that the right of action cannot arise out of fraud or out of transgression of law. According to them it is necessary that the possession should lie where it lies, in pari delicto potior est condition possidentis. The law favors him who is actually in possession in case where there is guilty of fraud on both the parties. The principle of public policy is that no court will lend its aid to a man who founds his cause of action upon an immoral or illegal act. If the cause of action arises from the plaintiff’s side, the court says that he has no right to be assisted; it is same in the case of defendants. The Court also said that there is no question of estoppels in such a case because the fraud in question was agreed by both the parties and both the parties have assisted each other in carrying out fraud. It also said, in such a cases the transferee would be guilt for liability of double fraud, as he joined transferor joined in the fraudulent scheme and participated in commission of the transfer and he committed another fraud by suppressing from the Court the fraudulent character of the transfer when he made out the claim for the recovery of the properties conveyed to him. The transfer was not supported by any consideration and therefore no title is transferred to him. So in the view of public interests, the Court held that the plea of fraud is allowed and tried and it is upheld that the estate should lie where it rests. Notwithstanding the rights of transferor and a benami transferee, if the transfer was made to defeat the creditors, a creditor himself can ignore a benami transaction and can proceed against the property as it was of the transferor. The creditor need not have to set it aside under this section because, benami transaction is not a transfer at all.
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