About this subject
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The law of transfer of property is covered in twelve units, from the basic question of what property is to the special rules that apply when a person living outside India buys or sells property in India. Buying a flat, taking a home loan, renting a shop, gifting land to children and signing an agreement to sell are all transfers of property, so every rule can be connected to everyday transactions.
For every important case, learn the facts, the question, the decision and the principle. The principle matters most: it is what is applied in examination answers and in practice.
Unit 1: The Idea of Property and the Scope of the Act
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What is property?
In everyday language, property means things: a house, land, a car. In law, property is not the thing itself but the set of rights a person has over a thing. When Prince says a house is his property, he means he has the right to possess it, use it, enjoy its income, keep others out of it and transfer it.
Property is a bundle of rights. Ownership is the largest bundle. Sale, mortgage, lease, exchange and gift are different ways of passing some or all of this bundle from one person to another.
A person may hold only part of the bundle; each such part is an interest in property:
- a tenant holds the right to enjoy a house for a period;
- a mortgagee holds an interest in land as security for a loan;
- a person with a right of way holds a small right over his neighbour's land.
Classification of property
- Corporeal: can be touched, such as land or a car.
- Incorporeal: rights that cannot be touched, such as a debt, a copyright or a right of way.
- Movable or immovable: studied under Section 3 below.
Property passes either by act of the parties (Prince sells his land to Farhan) or by operation of law (heirs inherit on death). The Act deals with the first kind.
The Act and its scope
The Transfer of Property Act, 1882 came into force on 1 July 1882. Its preamble says it is expedient to define and amend certain parts of the law relating to transfer of property by act of parties, so the Act does not claim to cover every question of property law.
- Where the Act is silent, courts apply justice, equity and good conscience.
- Where the Act was never formally extended, courts have applied its principles on the same basis.
- Since 31 October 2019, the Act extends to the Union territories of Jammu and Kashmir and Ladakh.
Savings in Section 2
Nothing in the Act affects any transfer by operation of law, or by or in execution of a decree or order of a competent court, except as provided by Section 57 and the chapter on mortgages. Nothing in the second chapter affects any rule of Muhammadan law; for example, a gift under Muslim law follows its own rules (Unit 6).
Structure of the Act
- Chapter One: preliminary matters, including the definitions in Section 3.
- Chapter Two (Sections 5 to 53A): general principles of transfer. Its first part applies to all property; its second part to immovable property.
- Remaining chapters: sales, mortgages and charges, leases, exchanges, gifts, and actionable claims.
Rules of Interpretation
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- Plain and ordinary meaning, read in context. Section 3 opens with "unless there is something repugnant in the subject or context", so even a definition gives way when the context clearly demands otherwise.
- Read with related laws (Section 4). The chapters and sections relating to contracts are taken as part of the Indian Contract Act, 1872. Section 54 paragraphs 2 and 3, and Sections 59, 107 and 123 are read as supplemental to the Registration Act, 1908; these are the sections requiring registered documents for sales, mortgages, leases and gifts.
Ashwini Kumar Ghosh v. Arabinda Bose (Supreme Court): A 1951 law, opening with a non obstante clause ("notwithstanding anything contained in"), gave every Supreme Court advocate the right to practise in any High Court. Question: could such an advocate practise on the Original Side of the Calcutta High Court, whose rules required counsel to be instructed by an attorney? Held, by a majority of 3 to 2 in a judgment by Chief Justice M. Patanjali Sastri (Justices B.K. Mukherjea and S.R. Das dissenting): the right to practise means both acting and pleading and cannot be cut down to pleading only. Principle: (1) the enacting part is read on its own plain words; a non obstante clause does not narrow it, but only sets aside inconsistent existing laws; (2) four of the five judges held that the statement of objects and reasons, the Bill's original form and changes during its passage are not admissible aids to interpret the Act. These rules apply whenever a section of the Transfer of Property Act begins with the word "notwithstanding".
Immovable Property (Section 3)
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Section 3 says only that immovable property does not include standing timber, growing crops or grass. It states what is excluded, not what is included, so one turns to Section 3(26) of the General Clauses Act, 1897: immovable property includes land, benefits to arise out of land, and things attached to the earth, or permanently fastened to anything attached to the earth. The Registration Act's similar definition adds rights to ways, lights, ferries and fisheries.
Three main parts:
- Land itself;
- Benefits to arise out of land: the right to collect rent, to catch fish from a particular lake, or to take fruit or wood from land;
- Things attached to the earth.
"Attached to the earth" (Section 3)
- Rooted in the earth: trees and shrubs;
- Imbedded in the earth: walls or buildings;
- Attached to what is so imbedded for the permanent beneficial enjoyment of that to which it is attached: e.g. a door or window frame fitted into a wall of a house.
Why standing timber, growing crops and grass are excluded
Though rooted in the earth, they are meant to be cut and taken away. Standing timber means trees fit to be cut down for building material, where the idea is to cut them soon. A mango orchard kept for its fruit is meant to stay, so it is part of the land.
The test is not only physical attachment but also the intention and purpose of the attachment.
Movable property
Under the General Clauses Act, movable property means property of every description except immovable property. The Sale of Goods Act, 1930 treats growing crops, grass and things attached to or forming part of the land, agreed to be severed before sale or under the contract of sale, as goods. In practice, a sale of goods needs no registration; a transfer of immovable property worth 100 rupees or more usually does.
Prince owns land with a teak forest. If he sells Farhan the right to cut and take away the teak trees over the next month, with the trees to be cut at once, it is a sale of standing timber: movable. If he gives Farhan the right to enter the land for ten years, cut trees as they grow and take them away, Farhan gets a continuing benefit to arise out of land: immovable. Such a right is a profit à prendre, a right to take something from the land of another.
Profit à prendre: the leading cases
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Ananda Behera v. State of Orissa (Supreme Court, Justice Vivian Bose; leading case on profit à prendre): The Raja of Parikud owned the Chilka lake area. The petitioners paid him large sums for oral licences, with receipts, to catch and carry away fish from particular sections of the lake for future years. Before those years began, a land reform law vested the estate in the State, which refused to recognise their rights. They argued they had bought future goods and their fundamental rights were violated. Held: they had acquired not future goods but a licence to enter the land coupled with a grant to catch and carry away fish, a profit à prendre. In England it is an interest in land; in India it is a benefit to arise out of land, so immovable property. Under Section 54, such a sale needed a registered instrument, whether the right was tangible property worth 100 rupees or more or intangible property of any value. The oral licences passed nothing; the petition failed.
Updated from the lecture: the lecture said tangible property worth over 100 rupees. The correct position is that Section 54 requires a registered instrument for tangible immovable property of the value of one hundred rupees and upwards, that is, 100 rupees or more. Source: Transfer of Property Act, 1882, Section 54 (Indian Kanoon).
Shantabai v. State of Bombay (Supreme Court): A zamindar gave his wife Shantabai an unregistered document granting her the right to cut and take away all kinds of wood from his zamindari forests. A land reform law then vested the estates in the State; the Forest Department stopped her, and she petitioned under Article 32 claiming violation of her fundamental right to property. Held: petition dismissed. If the document granted an interest in the forest or a profit à prendre, it was immovable property passable only by a registered document; if it gave only a personal contractual right, the State had not taken that contract and her remedy was at most a civil suit. Justice Vivian Bose added that she could cut not only standing timber but also trees not yet fit to be felled, so the grant covered immovable property too. Unregistered, it passed no title, and she had no fundamental right to enforce.
State of Orissa v. Titaghur Paper Mills Company Limited (Supreme Court, Justice D.P. Madon): Orissa levied purchase tax on standing trees and bamboos agreed to be severed. The company had timber contracts (buying standing trees in Government forests) and bamboo contracts (the right, for eleven to fourteen years, to enter forest areas and cut and remove bamboos that would grow there, with other rights). Held: standing timber is movable, being excluded from immovable property by both the Transfer of Property Act and the Registration Act; it is a tree meant to be converted into timber so soon that it can already be looked upon as timber. Trees agreed to be severed are goods, and their purchase can be taxed. The bamboo contracts, however, gave a continuing benefit to arise out of land, a profit à prendre, which is immovable, so amounts under them could not be taxed as the price of goods.
| Standing timber | Profit à prendre |
|---|---|
| Trees to be cut soon; already looked upon as timber | Continuing right to enter land and take what grows |
| Movable; trees agreed to be severed are goods (taxable as goods) | Benefit to arise out of land; immovable (not taxable as price of goods) |
| No registration needed | Registered instrument needed |
Learn Titaghur Paper Mills for the contrast: trees to be cut at once are movable; a long right to keep taking what grows from the land is immovable.
Other Definitions in Section 3
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- Instrument means a non-testamentary instrument; a will is not an instrument under this Act.
- Registered means registered under the law for the time being in force regulating registration of documents, today the Registration Act, 1908.
- Actionable claim is also defined in Section 3; it is studied in Unit 7.
Attested
A mortgage deed and a gift deed of immovable property must be attested. "Attested" means attested by two or more witnesses, each of whom has (a) seen the executant sign or affix his mark, or (b) seen some other person sign in the presence and by the direction of the executant, or (c) received from the executant a personal acknowledgement of his signature or mark; and each of whom has signed in the presence of the executant. More than one witness need not be present at the same time, and no particular form of attestation is necessary.
Attestation in three rules: (1) at least two witnesses; (2) each sees the signing or receives a personal acknowledgement; (3) each signs in the executant's presence. Courts also require the intention to attest, so a scribe who only writes the document, or a person who signs only to identify the executant before the registering officer, is not an attesting witness merely for that reason.
Notice (Section 3)
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Many doctrines protect a transferee only if he had no notice of a fact, so this definition affects almost the whole subject.
A person has notice of a fact when he actually knows it, or when, but for wilful abstention from an inquiry or search which he ought to have made, or gross negligence, he would have known it. Actual notice is real knowledge; constructive notice is knowledge the law presumes because the person deliberately closed his eyes or was grossly negligent.
Farhan is buying a flat from Prince. A careful buyer asks for the title deeds and checks the sub-registrar's records. Farhan does neither, because he suspects the flat is mortgaged and does not want to find out. This is wilful abstention; the law treats him as knowing of the mortgage.
Mere negligence is not enough. Gross negligence is careless disregard so serious that it suggests a lack of good faith, or at least a failure to take the most basic care any reasonable person in that position would take.
Gross negligence: the Lloyds Bank case
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Lloyds Bank Limited v. P.E. Guzdar and Company (Calcutta High Court, Justice Page): A property on Chowringhee Road, Calcutta, was mortgaged to the National Bank of India by deposit of title deeds. The deeds later came back to the owners and were deposited with Lloyds Bank for a large loan. Question: which bank had priority? Normally the earlier mortgage comes first, but Section 78 postpones a prior mortgagee through whose fraud, misrepresentation or gross neglect another person was induced to advance money on the property. Held: Lloyds Bank had priority. The earlier bank had carelessly let the deeds leave its hands, while Lloyds Bank lent without notice of the earlier mortgage and without gross negligence. Principle: gross negligence is very difficult to define, but it must be something which raises a positive equity against the person.
The three Explanations: forms of constructive notice
Explanation I: Registration as notice
Where a transaction relating to immovable property must by law be effected by a registered instrument and has been so effected, any person acquiring the property, or any part or share of it, is deemed to have notice of that instrument from the date of registration, provided that:
- it was registered in the prescribed manner;
- it was entered or filed in the books kept under Section 51 of the Registration Act; and
- its particulars were correctly entered in the indexes kept under Section 55 of that Act.
Properly registered documents can be searched by anyone, so the law expects a buyer to search.
Explanation II: Possession as notice
Any person acquiring immovable property, or any share or interest in it, is deemed to have notice of the title, if any, of any person for the time being in actual possession of it.
Farhan buys a shop from Prince while Aadil is running a business in it. Farhan is deemed to know whatever rights Aadil has, perhaps as tenant or as buyer under an earlier agreement. A careful buyer inspects the property and asks the occupant in what right he is there.
Explanation III: Notice to an agent
A person is deemed to have notice of a fact if his agent acquires notice of it while acting for him in the course of business to which the fact is material. But if the agent fraudulently conceals it, the principal is not charged with notice as against any person who was a party to, or knew of, the fraud.
Constructive notice cannot be used against the true owner
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Umadevi Nambiar v. Thamarasseri Roman Catholic Diocese (Supreme Court, Justice V. Ramasubramanian): Two sisters inherited their father's property. Umadevi gave her sister a power of attorney to grant leases and borrow money, but not expressly to sell. The sister transferred the property to others, who sold it to the diocese. In Umadevi's suit for partition of her half share, the High Court held she had constructive notice of the registered transfers and dismissed it. Held: decree for partition restored. (1) The power of attorney gave no power to sell; the draftsman had carefully listed leasing and borrowing and left out selling. (2) The High Court had turned the definition of notice upside down. It decides when a person dealing with property is treated as knowing a fact; it does not bind an owner to a sale her agent had no authority to make merely because the sale was registered. Principle: constructive notice protects careful purchasers; it cannot validate an unauthorised transfer against the true owner.
| Actual notice | Constructive notice |
|---|---|
| Real knowledge | Knowledge the law imputes |
| What you knew | What you should have known |
| — | Arises from wilful abstention, gross negligence, registration, possession or an agent's knowledge |
Actual notice is what you knew; constructive notice is what you should have known.
The Doctrine of Eminent Domain
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If the Government needs Prince's land for a highway and he refuses to sell, the State can still take it. This is eminent domain, from the Latin dominium eminens (supreme ownership), a phrase used by the Dutch jurist Hugo Grotius.
Eminent domain is the inherent power of the sovereign to take private property for public use, subject to two conditions: (1) a public purpose; and (2) compensation to the owner.
The power was long exercised under the Land Acquisition Act, 1894, replaced by the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (in force from 1 January 2014). The 2013 Act:
- generally requires a social impact assessment;
- requires prior consent of at least 80 per cent of affected families for acquisition for private companies, and 70 per cent for public private partnership projects;
- gives much higher compensation, plus a solatium equal to the full compensation; and
- provides rehabilitation and resettlement for those who lose land or livelihood.
The Right to Property under the Constitution
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In 1950 the right to property was a fundamental right: Article 19(1)(f) gave every citizen the right to acquire, hold and dispose of property, and Article 31 protected against deprivation and required compensation for compulsory acquisition. A long conflict between Parliament and the courts over land reforms and compensation led to several amendments.
The Constitution (Forty-fourth Amendment) Act, 1978 deleted Article 19(1)(f) and Article 31 with effect from 20 June 1979 and inserted Article 300A:
No person shall be deprived of his property save by authority of law.
| Before the 44th Amendment | After the 44th Amendment |
|---|---|
| Fundamental right (Articles 19(1)(f) and 31) | Constitutional right, not fundamental (Article 300A) |
| Direct remedy in the Supreme Court under Article 32 | No Article 32 remedy; the High Court can be approached under Article 226 |
The protection is still real: property can be taken only by authority of law, meaning a valid law made by the legislature. An executive order without the backing of law cannot take away property.
K.T. Plantation Private Limited v. State of Karnataka (Constitution Bench, Justice K.S. Radhakrishnan): Held: though no longer fundamental, the right to property is a valuable constitutional right. Public purpose is a precondition for deprivation under Article 300A, the right to claim compensation is inbuilt in it, and a statute depriving a person of property is open to judicial review.
Vidya Devi v. State of Himachal Pradesh (Supreme Court, Justice Indu Malhotra): Around 1967 the State took an illiterate widow's land for a road without acquisition proceedings or payment. Decades later she sought compensation; the High Court sent her to a civil suit, saying limitation could not be decided in a writ petition. Held: appeal allowed. Taking private property without due process of law violates her human right as well as her constitutional right under Article 300A; the State was directed to pay compensation.
Kolkata Municipal Corporation v. Bimal Kumar Shah (Supreme Court, Justice P.S. Narasimha): The Corporation claimed to acquire a private plot under a municipal provision that gave it no power of compulsory acquisition. Held: acquisition illegal. A power to acquire plus a compensation provision is not enough. Principle: "authority of law" means a law followed through a fair procedure; Article 300A carries seven procedural sub-rights.
The seven sub-rights under Article 300A: (1) notice; (2) to be heard; (3) a reasoned decision; (4) the duty to acquire only for a public purpose; (5) restitution or fair compensation; (6) an efficient and expeditious process; (7) conclusion of the proceedings.
Unit 1 in brief: the Act regulates how the bundle of rights passes between living persons; the definitions in Section 3, especially immovable property, attestation and notice, recur throughout the subject; and the constitutional right to property means that even the State must respect ownership.
Unit 2: Meaning of Transfer of Property (Section 5)
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The general principles of transfer apply to every transfer, whether a sale, mortgage, lease, exchange or gift.
Section 5: transfer of property means an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself, or to himself and one or more other living persons.
Four ideas in the definition
- An act of the parties. Property passing by operation of law (inheritance, or a court sale in execution of a decree) is generally outside the Act.
- Between living persons (inter vivos). A will is not a transfer under the Act, because it speaks only after death.
- In present or in future. The conveyance happens now; enjoyment may come later, e.g. Prince transfers his house to Farhan today, with possession after Prince's death. But the property must exist today; a mere hope of property cannot be transferred.
- To himself, or to himself and others, e.g. Prince transfers his property to himself and his wife as joint owners.
A living person includes a company, association or body of individuals, incorporated or not, so a company can transfer and receive property, subject to company law.
Sunil Siddharthbhai v. Commissioner of Income Tax (Supreme Court): A partner brought shares he personally owned into his firm as capital contribution. Held: this was a transfer, since his exclusive interest became a shared interest with the other partners; but no taxable capital gain arose then, as what he received (a right to a future share in profits and assets) could not be valued in money. Parliament later changed this tax rule by statute, so the case is remembered only for its idea. Principle: the meaning of transfer depends on the statute; tax law uses it more widely than the Transfer of Property Act.
What Can Be Transferred: Section 6 and its Exceptions
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Section 6: property of any kind may be transferred, except as otherwise provided by this Act or any other law for the time being in force. Transferability is the rule and restriction the exception, because free movement of property makes trade and credit possible. Whoever says property cannot be transferred must point to a clear exception.
Clause (a): Spes successionis
Spes successionis means the hope of succession. The following cannot be transferred: the chance of an heir apparent succeeding to an estate; the chance of a relation obtaining a legacy on a kinsman's death; or any other mere possibility of a like nature.
Farhan is the only son of Prince, who owns a self-acquired house. While Prince lives, Farhan has only a hope of inheriting; Prince may sell, gift or bequeath the house to someone else. If Farhan sells his future inheritance to Aadil today, the sale is void: there is nothing yet to transfer. The same applies to a hoped-for legacy, since the testator can change the will at any time.
The rule is strict because selling hopes invites speculation, and needy heirs may sell their chances for a small price.
Shehammal v. Hasan Khani Rawther (Supreme Court, Justice Altamas Kabir): A Muslim father, in his lifetime, paid several children and took written deeds by which they gave up their expected shares. After his death some, including his daughter Shehammal, claimed shares, arguing that an expected share is a mere hope that cannot be transferred or given up. Held: claim refused. An heir who has accepted consideration for relinquishing a future share is estopped from later claiming it; it would be against public policy to let him take the benefit of spes successionis after accepting the price. Principle: a mere hope cannot be transferred, but one paid to give it up cannot go back on his word.
A transfer of a mere hope is void under Section 6. But where a person fraudulently or erroneously represents that he is authorised to transfer immovable property, transfers it for consideration, and later acquires an interest in it, Section 43 (feeding the grant by estoppel, Unit 3) may help the transferee.
Clauses (b) to (i)
(b) Mere right of re-entry for breach of a condition subsequent cannot be transferred to anyone except the owner of the property affected.
Prince gifts land to Farhan on condition that if a liquor shop is ever opened on it, Prince may take it back. Prince cannot sell this bare right of re-entry to Aadil; it can go only to Farhan, the owner of the land affected.
(c) An easement cannot be transferred apart from the dominant heritage.
Prince has a right of way over Farhan's land to reach his house. The right exists for the house, so Prince cannot sell it alone to Aadil; but when he sells the house, the right of way passes with it.
(d) An interest restricted in its enjoyment to the owner personally cannot be transferred by him. E.g. a father lets his widowed daughter live in one room of his house for life; this personal right of residence cannot be transferred to a stranger.
K. Balakrishnan v. K. Kamalam (Supreme Court, Justice D.M. Dharmadhikari): A woman gifted her share in a property including a school to her two minor children (a son of sixteen and a daughter of four), reserving to herself the management and income for life. Years later she executed a cancellation deed and made a will. The son sued; the High Court held no ownership had passed because she had kept management and income. Held: gift upheld. A donor may transfer ownership by gift while reserving possession and enjoyment for her lifetime; no law prohibits this. Clause (d) did not apply, as this was not property whose enjoyment was restricted to its owner personally. The gift was accepted and complete, so the later cancellation deed and will could not revoke it. (Relevant again in Unit 6.)
(dd) A right to future maintenance, however arising, secured or determined (added in 1929), cannot be transferred, because maintenance is for the personal support of the person entitled; if it could be sold, that purpose would be defeated. Arrears already due are a debt and can be transferred.
(e) A mere right to sue cannot be transferred, because the law does not want people buying lawsuits and trading in litigation.
Farhan breaks a contract with Prince, whose claim for damages is undecided. This mere right to sue cannot be sold to Aadil. But a debt already due, such as a loan of fifty thousand rupees, is an actionable claim and can be transferred (Unit 7).
(f) A public office cannot be transferred, nor the salary of a public officer, before or after it becomes payable. (g) Stipends of military, naval, air force and civil pensioners of the Government, and political pensions, cannot be transferred. These protect the public service: an officer who has sold his salary may lose the independence his office needs, and a pensioner must not be left without support.
(h) No transfer can be made:
- in so far as it is opposed to the nature of the interest affected;
- for an unlawful object or consideration within Section 23 of the Indian Contract Act, 1872 (e.g. to stifle a criminal prosecution, or for an immoral purpose: void);
- to a person legally disqualified to be a transferee (e.g. Section 136 disqualifies judges, legal practitioners and court officers from buying actionable claims).
(i) Nothing in Section 6 authorises a tenant with an untransferable right of occupancy, a farmer of an estate who has defaulted in paying revenue, or a lessee of an estate under the management of a Court of Wards, to assign his interest.
"Any other law for the time being in force": many land reform and tribal protection laws forbid or restrict transfer of certain lands; where such a law applies, it prevails.
| Not transferable | Transferable |
|---|---|
| Right to future maintenance | Arrears of maintenance already due |
| Mere right to sue | Debt already due (actionable claim) |
| Easement on its own | Easement passing with the dominant heritage |
| Spes successionis | Property in existence today (enjoyment may be future) |
Persons Competent to Transfer (Section 7)
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Section 7: every person competent to contract and entitled to transferable property, or authorised to dispose of transferable property not his own, is competent to transfer it, wholly or in part, absolutely or conditionally, in the circumstances, to the extent and in the manner allowed and prescribed by any law for the time being in force.
- Owner competent to contract: under Section 11 of the Indian Contract Act, one who has attained majority, is of sound mind and is not disqualified by law.
- Non-owner authorised to dispose: an agent under a power of attorney, a trustee, an executor, a guardian acting with the court's permission, the karta of a Hindu joint family acting for legal necessity.
Minors
A minor cannot transfer property, not being competent to contract, but can receive it: a sale or gift to a minor is valid. A guardian deals with a minor's property only as the law allows; under the Hindu Minority and Guardianship Act, 1956, a natural guardian needs the court's previous permission to sell, mortgage or gift the minor's immovable property.
Mohori Bibee v. Dharmodas Ghose (Privy Council; leading case on minors): Dharmodas Ghose, a minor, mortgaged his house to the moneylender Brahmo Dutt, whose agent knew of the minority. Through his mother as next friend, Dharmodas sued for a declaration that the mortgage was void. The moneylender died, and his executors, including Mohori Bibee, continued the appeal. Held: a minor's agreement is void, not merely voidable; the mortgage was void. The minor was not ordered to return the money, since the lender knew of the minority and there was no contract to restore. Principle: as Section 7 links the power to transfer with competence to contract, a transfer by a minor is void.
Persons of unsound mind
Sona Bala Bora v. Jyotirindra Bhattacharjee (Supreme Court, Justice Ruma Pal): Bhogirath agreed in a family compromise to gift one of his three bungalows to his wife, but soon sold all three, with the land, to an outsider. In the buyer's suit for possession, the family pleaded that Bhogirath was of unsound mind at the sale. The trial court and a single Judge agreed; a Division Bench reversed. Held: trial court restored. The family proved circumstances, such as his unnatural and inexplicable fixation on selling all his properties, making it probable he was incapable of rational behaviour when he sold. The burden then shifted to the buyer to prove a lucid interval, which he failed to do. The suit was dismissed, but the family had to refund the price with interest. Principle: a person of unsound mind cannot transfer, and a buyer relying on a lucid interval must prove it.
Operation of Transfer and Oral Transfer (Sections 8 and 9)
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Operation of transfer (Section 8)
Unless a different intention is expressed or necessarily implied, a transfer passes forthwith (at once) to the transferee all the interest which the transferor is then capable of passing in the property and in its legal incidents. This reflects nemo dat quod non habet: no one can give what he does not have. If Prince holds only a lease of a shop, he can pass only the lease.
| Property | Legal incidents that pass automatically |
|---|---|
| Land | Easements annexed to it; rents and profits accruing after the transfer; all things attached to the earth |
| House | Easements; rent accruing after the transfer; locks, keys, bars, doors, windows and all other things provided for permanent use with it |
| Debt | Securities for it; not arrears of interest accrued before the transfer |
Prince sells his rented house to Farhan. Doors, windows and the right of way pass without mention. Rent for the period after the sale goes to Farhan; rent that fell due before the sale stays with Prince.
Oral transfer (Section 9)
A transfer may be made without writing in every case where writing is not expressly required by law. Writing is the exception, not the rule.
| Writing expressly required | Oral transfer possible |
|---|---|
| Section 54: registered instrument for sale of tangible immovable property worth 100 rupees or more, and of reversions and other intangible things | Sale of tangible immovable property worth less than 100 rupees, by delivery |
| Section 59: registered and attested deed for most mortgages securing 100 rupees or more | Mortgage by deposit of title deeds (no writing at all) |
| Section 107: registered instrument for a lease from year to year, exceeding one year, or reserving a yearly rent | Monthly lease, by oral agreement with delivery of possession |
| Section 123: registered and attested instrument for a gift of immovable property | Gift or sale of movable property, by delivery |
| Section 130: written instrument for transfer of an actionable claim | — |
Conditions Restraining Alienation (Section 10)
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Alienation means transferring one's interest to another. These rules protect the transferee's freedom.
Section 10: where property is transferred subject to a condition or limitation absolutely restraining the transferee, or anyone claiming under him, from parting with or disposing of his interest, the condition or limitation is void. Only the condition is void; the transfer stands. The power to transfer is an essential part of ownership: one cannot give ownership with one hand and take away its main power with the other.
Prince sells a house to Farhan on condition that Farhan shall never sell, mortgage or gift it to anyone. The condition is void, and Farhan takes the house free of it.
Absolute and partial restraint
| Absolute restraint | Partial restraint |
|---|---|
| Takes away the power of alienation completely, or almost completely in real effect, whatever the words used | Leaves the power of alienation substantially alive |
| Void under Section 10 | May be valid |
| Never to sell, mortgage or gift to anyone | Not to sell to one named rival, or not to sell outside the family |
Exceptions in Section 10
- Leases: a restraint for the benefit of the lessor or those claiming under him is valid, e.g. a condition that the tenant shall not sublet without the landlord's consent.
- Proviso for certain married women: property may be transferred to or for the benefit of a woman who is not a Hindu, Muhammadan or Buddhist so that she has no power during her marriage to transfer or charge it. This old proviso was meant to protect married women from pressure by their husbands.
Mohammad Raza v. Abbas Bandi Bibi (Privy Council, Sir George Lowndes): In 1870 a family dispute over land in Oudh was compromised. Sughra Bibi became owner of a share, but the compromise said she could not transfer it to a stranger and that it would pass as family property to the legal heirs. She sold and mortgaged her share to outsiders; after her death her heir sued to recover it. Held: the restriction was partial, not absolute, since it barred only alienation to strangers and left her free to transfer within the family. A partial restriction is not repugnant to ownership and is not hit by Section 10. The transfers to strangers were invalid, and the heir recovered the property.
Conditions Restraining Alienation (Section 10): Further Cases
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Mata Prasad v. Nageshwar Sahai (Privy Council): a family dispute over an estate in Oudh was settled by compromise between a Hindu widow and the person entitled to succeed after her death. His right to inherit after her death was acknowledged, and he in turn agreed not to alienate the property during her lifetime, any such alienation to be null and void. Held: the settlement was prudent and reasonable in the circumstances and was upheld. Principle: a limited restriction, lasting only for the widow's lifetime and forming part of a genuine settlement of a family dispute, may be upheld by the courts.
Canbank Financial Services Limited v. The Custodian: the case arose from the securities scam of the early 1990s. Units of a mutual fund scheme, described by the scheme as non-transferable, passed through the stockbroker Hiten P. Dalal to Canbank Financial Services, which paid for and received them. The Custodian appointed under the special law for the scam claimed the units. Held (Supreme Court, Justice S.B. Sinha): the transfer in favour of Canbank Financial Services was valid. Under Section 10 an absolute restraint is void, while a partial restraint is not; since the units had been delivered for consideration, a valid right had been created in the transferee. Principle: Section 10 protects the transfer of movable property, such as units and securities, just as it protects the transfer of land.
Land granted by the State
Lakshmamma v. State of Karnataka: the Government of the old Mysore State, and later Karnataka, granted land free or at low prices to members of the Scheduled Castes and Scheduled Tribes, with conditions forbidding its sale, some forever and some for a fixed period. Many grantees sold the land anyway. A State law of 1978 declared such sales void and allowed the land to be restored to the grantees. The purchasers argued that a permanent ban on alienation was void under Section 10. Held (Karnataka High Court, Justice Puttaswamy): the argument was rejected. A grant by the Government in accordance with law is not a transfer by a living person within Section 5, so Section 10, and the rule against perpetuity, do not apply to such grants. Principle: Section 10 governs private transfers; the State may attach lasting conditions to land that it grants to weaker sections for their protection.
Restrictions Repugnant to the Interest Created (Section 11)
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Section 10 protects the power to transfer. Section 11 protects the power to enjoy.
Section 11 provides that where an interest is created absolutely in favour of any person, but the terms of the transfer direct that the interest shall be applied or enjoyed by him in a particular manner, he is entitled to receive and dispose of the interest as if there were no such direction.
Prince sells a house to Farhan absolutely, but directs that Farhan shall live in it himself and shall never let it out on rent. The direction is repugnant to the absolute interest, so Farhan may ignore it.
Exception: the second paragraph
Where the direction is made in respect of one piece of immovable property in order to secure the beneficial enjoyment of another piece, the transferor may still enforce it.
Prince sells one of his two adjoining plots to Farhan with a direction not to build above two floors, so that Prince's house on the other plot keeps its light and air. The direction is enforceable, because it protects neighbouring land and is not a mere whim.
Andhra Pradesh Industrial Infrastructure Corporation Limited v. S.N. Raj Kumar: the Corporation allotted industrial plots to several companies on condition that the project be set up within two years, failing which the allotment would be cancelled. After full payment, it executed registered sale deeds in their favour. Years later it tried to cancel the allotments because the projects had not been set up. Held (Supreme Court, Justice A.K. Sikri): the Corporation's appeals were dismissed. Once the contract was concluded and registered sale deeds had transferred the plots, the conditions of the earlier allotment letters could not ordinarily be enforced to take the property back. Principle (link with Section 11): the section helps a transferee only where the conveyance has created an absolute interest, because property transferred absolutely passes with all its legal incidents. If the deed grants an absolute interest, conditions repugnant to it fall away; if it grants only a conditional interest, Section 11 does not help.
Condition Making Interest Determinable on Insolvency or Attempted Alienation (Section 12)
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Section 12 goes one step further. Where property is transferred subject to a condition or limitation making any interest cease if the person becomes insolvent or tries to transfer or dispose of it, the condition or limitation is void.
Prince gifts land to Farhan on condition that if Farhan becomes insolvent, the land will come back to Prince. The condition is void, because it would allow the property to escape from Farhan's creditors.
Exception: Section 12 does not apply to a condition in a lease for the benefit of the lessor. A lease may therefore validly provide that it will end if the tenant becomes insolvent.
Transfer for the Benefit of an Unborn Person (Section 13)
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Section 5 allows a transfer only to a living person, so a person not yet born cannot receive property directly. Yet people often wish to provide for future grandchildren. Section 13 reconciles the two: the property is first given to a living person, usually for life, and then to the unborn person.
Section 13 provides that where, on a transfer, an interest is created for the benefit of a person not in existence at the date of the transfer, subject to a prior interest created by the same transfer, the interest created for that unborn person shall not take effect unless it extends to the whole of the remaining interest of the transferor in the property.
Conditions
- The interest of the unborn person must be preceded by a prior interest, created by the same transfer, in favour of a living person.
- The unborn person must be given the whole of the remaining interest of the transferor, that is, an absolute interest and not a life interest.
- Naturally, the unborn person must come into existence before the prior interest ends.
(Illustration to the section) Prince transfers his property to a trustee to hold it for Prince and his intended wife for their lives, one after the other. After the death of the survivor, the property is to go to the eldest son of the marriage for his life, and after his death to the second son. The eldest son is not born at the date of the transfer and is given only a life interest. His interest therefore does not take effect, because it does not extend to the whole of Prince's remaining interest.
Why an absolute interest? Otherwise a person could tie up property for generation after generation, with each unborn person getting only a life interest, and keep it out of the market. Section 13 stops this at the first unborn generation.
Tagore v. Tagore (Privy Council, ten years before the Act): a wealthy Hindu, Prasanna Kumar Tagore, left his property by will to his nephew for life, and then to a line of male descendants not yet born. His disinherited son challenged the will. Held: under Hindu law a gift can be made only to a person in existence when the gift takes effect, and a person cannot create a new line of succession unknown to the law; the gifts to the unborn persons failed. Principle: this case is the root of the rule. Later laws relaxed it for Hindus, and today a transfer for the benefit of an unborn person is allowed, but only within the limits of Sections 13 and 14.
Sreedhar v. N. Revanna (Supreme Court): a grandfather gifted premises in Bangalore to his grandson Revanna, then a boy of five. The deed also mentioned Revanna's younger brothers who might be born later, and said that the donee and his brothers would have no right to alienate the property in any manner. Years later Revanna sold the property. His sons sued, claiming the sales were void because of the condition and that the gift itself was bad under Section 13. Held (Justice Ashok Bhushan): Section 13 had no application, because the gift was made to a living person, Revanna, and not to any unborn person; a condition that mentions persons yet to be born is quite different from a gift made to them. The condition that the donee shall not alienate the property in any manner was an absolute restraint, void under Section 10. Revanna was entitled to sell and the sons' suit failed. Principle: Section 13 applies only where the gift is made to an unborn person; merely mentioning persons yet to be born in a condition does not attract it.
T. Subramania Nadar v. T. Varadarajan (Madras High Court): a grandfather executed a settlement deed in 1949 settling property on his grandsons, with their father as guardian. Some grandsons were born many years later. The eldest claimed the whole property; the younger ones claimed equal shares under the same deed. Held (Justice A. Kulasekaran): the settlement was upheld in favour of the grandsons born later as well; the deed gave them their shares as tenants in common, as the settlor intended. The eldest grandson's plea of adverse possession was rejected. Principle: one co-owner cannot become owner of the other co-owners' shares by adverse possession unless he proves ouster, that is, a clear exclusion of the others from the property.
The Rule Against Perpetuity (Section 14)
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A perpetuity, in simple words, is an arrangement that keeps property from vesting absolutely in anyone for an unreasonably long time.
Section 14 provides that no transfer of property can operate to create an interest which is to take effect after the lifetime of one or more persons living at the date of the transfer, and the minority of some person who shall be in existence at the expiration of that period, and to whom, if he attains full age, the interest created is to belong.
The maximum permitted period
- The life or lives of persons living at the date of the transfer, plus
- the minority of the ultimate beneficiary.
- The ultimate beneficiary must be in existence when the last of those lives ends.
| English common law | Transfer of Property Act, 1882 |
|---|---|
| Lives in being plus a fixed period of 21 years | Lives in being plus only the actual minority of the beneficiary |
Prince transfers land to Farhan for life, and after Farhan's death to Farhan's unborn son absolutely when that son attains the age of 18. This is valid: the son will be born within Farhan's lifetime, and the interest will vest in him at the latest when his minority ends. But if the land is to vest in the son only when he attains 25, the gift is void, because vesting may be postponed beyond the minority.
Sections 13 and 14 work together. Section 13: the unborn person must get the whole remaining interest. Section 14: the interest must vest within the permitted period. A gift to an unborn person must pass both tests.
Classes, Failure of Prior Interests and Accumulation (Sections 15 to 18)
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Section 15: transfer to a class
Where property is transferred to a class of persons, such as all the children of Farhan, and the interest fails for some members of the class because of Sections 13 and 14, the interest fails in regard to those persons only, and not in regard to the whole class.
Section 16: chain of interests
Where, because of Sections 13 and 14, an interest created for a person or a class fails, any interest created in the same transaction and intended to take effect after or upon the failure of that prior interest also fails. In the Section 13 illustration, the second son's interest also fails, because it was meant to take effect after the failed interest of the eldest son.
Section 17: directions to accumulate income
A transferor may direct that the income of property be saved and added to it instead of being paid out. Such a direction is void to the extent it goes beyond the longer of two periods:
- the life of the transferor; or
- 18 years from the date of the transfer.
Three exceptions, where accumulation may continue longer:
- paying the debts of the transferor or of any person taking an interest under the transfer;
- providing portions for children or remoter issue;
- preserving or maintaining the property.
Section 18: transfers for the benefit of the public
The restrictions in Sections 14, 16 and 17 do not apply to a transfer for the benefit of the public in the advancement of religion, knowledge, commerce, health, safety or any other object beneficial to mankind. A trust for a free hospital or a school may therefore last forever, because such property serves the public and tying it up does not harm society.
Vested Interest (Sections 19 and 20)
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Section 19 provides that where, on a transfer, an interest is created in favour of a person:
- without specifying the time when it is to take effect; or
- in terms specifying that it is to take effect forthwith; or
- on the happening of an event which must happen,
such interest is vested, unless a contrary intention appears. A vested interest is not defeated by the death of the transferee before he obtains possession.
Prince transfers his farm to Farhan, providing that Farhan will get possession only after the death of Prince's mother. Death is certain to happen, so Farhan gets a vested interest today; only his enjoyment is postponed. If Farhan dies before the mother, his interest does not end. It passes to his heirs, who will take possession when the mother dies.
Explanation to Section 19
An intention that an interest shall not be vested is not to be inferred merely because:
- its enjoyment is postponed; or
- a prior interest is given to someone else; or
- income is directed to be accumulated; or
- the interest is to pass to another person if a particular event happens.
Postponement of enjoyment does not by itself make an interest contingent.
Section 20: unborn person
Where an interest is created for a person not then living, he acquires a vested interest upon his birth, unless a contrary intention appears, although he may not be entitled to enjoy it immediately.
Contingent Interest (Sections 21 to 24)
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Under Section 21, where an interest is created in favour of a person to take effect only on the happening of a specified uncertain event, or if a specified uncertain event shall not happen, the person acquires a contingent interest. It becomes vested:
- in the first case, when the event happens;
- in the second case, when the happening of the event becomes impossible.
Prince transfers land to Farhan if Farhan becomes a judge. Becoming a judge is uncertain, so Farhan has only a contingent interest. When he is appointed, the interest vests. If he dies before that, the interest fails.
Exception: income given before the specified age
Where a person is to become entitled to an interest on attaining a particular age, and the transferor also gives him absolutely the income from that interest before he reaches that age, or directs the income to be applied for his benefit, the interest is not contingent.
Land is given to Aadil when he attains 21, and meanwhile its whole income is to be paid to him. The law treats this as a vested interest, because the transferor has already given him the fruits of the property.
Sections 22 to 24: rules of construction
- Section 22: a transfer to such members of a class as attain a particular age does not vest in any member who has not attained that age.
- Section 23: a transfer that is to accrue if an uncertain event happens, with no time fixed, fails unless the event happens before, or at the same time as, the prior interest comes to an end.
- Section 24: a transfer to those persons who are surviving at some unspecified period goes to those alive when the intermediate interest ends.
Vested and Contingent Interests Compared
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| Point | Vested interest | Contingent interest |
|---|---|---|
| When it takes effect | At once or on a certain event | Depends on an uncertain event |
| Nature of right | Present right, though enjoyment may be postponed | Only a conditional right until the event happens |
| Death of transferee | Not defeated by death before possession | Survival depends on the event; if the event is personal (e.g. becoming a judge), death before it defeats the interest |
| Transferability | Property; can be transferred | Property; can be transferred |
Formula: Vested = certain event, present right. Contingent = uncertain event, conditional right.
Rajes Kanta Roy v. Shanti Debi (Supreme Court): a father executed a trust deed of his properties in favour of his two sons. The income was first to pay his debts and make monthly payments to himself and his sons; on a son's death his interest would pass to his heirs. Shanti Debi, widow of a third son who had died earlier, held a compromise decree for a monthly allowance against both surviving sons and sought to attach a property allotted by the deed to Rajes. Rajes argued that his interest was only contingent and so could not be attached. Held (Justice B. Jagannadhadas): rejected. Rajes's interest was vested in title, though restricted in enjoyment so long as the settlor was alive and the debts remained unpaid, exactly as the Explanation to Section 19 says. Being vested, it could be attached. Principle: postponement or restriction of enjoyment does not make an interest contingent; a vested interest can be attached.
Kokilambal v. N. Raman (Supreme Court): a widow, Kokilambal, executed settlement deeds in favour of her foster son, Varadan, reserving a life interest for herself. Varadan died before her. She revoked the settlements and settled the property on two other relatives. Varadan's brother claimed Varadan had acquired a vested interest that passed to his heirs; the High Court agreed. Held (Justice A.K. Mathur): reversed. The settlor intended the property to pass to Varadan only on her death, if he was then alive. Varadan had only a contingent interest, and since he died before her it never vested; the settlor remained owner and could settle the property afresh. Principle: whether an interest is vested or contingent depends on the true intention of the transferor, gathered by closely reading the whole document.
Conditional Transfers (Sections 25 to 34)
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A condition precedent must be fulfilled before the interest begins. A condition subsequent brings an existing interest to an end.
Section 25: when a conditional interest fails
An interest dependent upon a condition fails if the condition:
- is impossible to fulfil;
- is forbidden by law;
- is of such a nature that, if permitted, it would defeat the provisions of any law;
- is fraudulent;
- involves or implies injury to the person or property of another; or
- is regarded by the court as immoral or opposed to public policy.
Illustrations to Section 25, each void: a lease of a farm on condition that the tenant shall walk a hundred miles in an hour; a gift of money on condition that the donee shall marry a woman already dead at the date of the transfer; a transfer on condition of murdering someone; a gift to a niece if she will desert her husband.
Section 26: substantial compliance with a condition precedent
A condition to be fulfilled before a person takes an interest is deemed fulfilled if it has been substantially complied with. This is linked with the cy pres idea, meaning "as near as possible".
Money is given to Farhan on condition that he marries with the consent of three named persons. One of them dies. A marriage with the consent of the other two fulfils the condition. But a marriage without their consent, followed by consent after the marriage, does not.
Sections 27 to 30: ulterior dispositions (gift over)
- Section 27: where property is given over to another person, the ulterior disposition takes effect when the prior disposition fails, even in a manner the transferor did not foresee, unless he intended a particular manner of failure.
- Section 28: an interest may pass to another person if a specified uncertain event happens or does not happen. Such a condition subsequent is read strictly.
- Section 29: the ulterior disposition cannot take effect unless the condition is strictly fulfilled.
- Section 30: if the ulterior disposition is invalid, the prior disposition is not affected.
Sections 31 to 34: conditions ending an interest and conditions requiring an act
- Sections 31 and 32: a condition that an interest shall cease if a specified uncertain event happens or does not happen is allowed, subject to Section 12. The event must be one which could legally have been a condition for creating the interest.
- Sections 33 and 34 (conditions requiring an act):
- Where no time is fixed, the condition is broken when the person makes its performance impossible, permanently or for an indefinite period.
- Where a time is fixed and performance is prevented by the fraud of a person who would benefit from non-fulfilment, the time is extended as against him.
- Where no time is fixed and such fraud makes performance impossible, the condition is deemed fulfilled.
Effect of a void condition
| Void condition precedent | Void condition subsequent |
|---|---|
| The transfer itself fails, because the interest was to begin only after the condition | The transfer stands; the transferee keeps the interest free of the condition |
Void condition precedent: no gift. Void condition subsequent: gift without condition.
The Doctrine of Election (Section 35)
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The doctrine rests on fairness: a person cannot take a benefit under a document and at the same time reject the burden it places on him. He cannot approbate and reprobate, that is, accept and reject the same instrument.
Section 35 provides that where a person professes to transfer property which he has no right to transfer, and as part of the same transaction confers a benefit on the owner of that property, the owner must elect either to confirm the transfer or to dissent from it. If he dissents, he must relinquish the benefit, and the benefit reverts to the transferor as if it had not been given.
(Illustration to the section) The farm at Sultanpur belongs to Farhan and is worth 800 rupees. By a deed of gift, Prince professes to give that farm to Aadil, and by the same deed gives 1,000 rupees to Farhan. Farhan must choose. If he keeps his farm, he forfeits the gift of 1,000 rupees. If Prince dies before Farhan elects, Prince's representative must pay 800 rupees to Aadil out of the 1,000 rupees given up. The disappointed transferee is compensated from the benefit the owner rejected.
Compensation to the disappointed transferee:
- In a gift, it is due only if the transferor has died or become unable to transfer afresh before the election.
- In a transfer for consideration, it is always due.
Further rules in Section 35
- The duty to elect arises whether or not the transferor believed the property to be his own.
- A person who takes no benefit directly under the transaction, but only indirectly, need not elect.
- A person who takes a benefit in one capacity may dissent in another capacity.
- Where a particular benefit is expressly given in lieu of the property, the owner who claims his property must give up only that particular benefit, not other benefits under the same transaction.
How election is made
- It may be express or inferred from conduct.
- Acceptance of the benefit is an election to confirm the transfer if the person knows of his duty to elect and of the circumstances that would influence a reasonable man, or if he waives inquiry.
- Such knowledge is presumed if he enjoys the benefit for two years without expressing dissent.
- If he does not elect within one year of the transfer, the transferor may require him to elect; if he still does not do so within a reasonable time, he is deemed to have confirmed the transfer.
- Where the person is under a disability, such as minority, the election is postponed until the disability ends or until a competent authority elects for him.
Valliammai Achi v. Nagappa Chettiar (Supreme Court): the case arose under Section 180 of the Indian Succession Act, 1925, which applies the same doctrine of election to wills. A Hindu father made a will disposing of properties of his joint family; his son, as executor, obtained probate and carried out the will. The executor later adopted a son, who, after the executor's death, claimed a share, arguing the properties had always remained joint family property. It was argued that the executor, by carrying out the will, had elected to accept it, binding the adopted son. Held (Justice K.N. Wanchoo): a will cannot change the character of joint family property, and the adopted son had his own independent interest which he did not claim through his adoptive father, so even an election by the adoptive father could not bind him. Principle: election arises only where a person must choose between his own property, which the testator has tried to give to someone else, and a benefit the testator has given him out of the testator's own property. The same idea governs Section 35 for transfers between living persons.
Apportionment (Sections 36 and 37)
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- Section 36 (apportionment by time): in the absence of a contract or local usage to the contrary, rents, annuities, pensions, dividends and other periodical payments in the nature of income are apportioned day by day as between the transferor and the transferee, when the interest of the person entitled to them is transferred.
- Section 37 (apportionment of benefit of obligation): where an obligation relates to the whole property, such as payment of rent, and the property is divided into several shares by a transfer, the benefit of the obligation is apportioned among the several owners of the shares.
These sections close the general principles that apply to every transfer, whether of movable or immovable property. The special rules for immovable property alone follow in Unit 3.
Unit 3: Transfer of Immovable Property (Sections 38 to 53A)
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The rules of Unit 2 apply to every kind of property. The second part of Chapter II of the Act, from Section 38 to Section 53A, applies only to immovable property.
Almost every rule in this part answers one practical question: when two innocent persons claim the same land, who should win?
Transfer by a person authorised only in certain circumstances (Section 38)
Section 38 deals with a person who may transfer property only if certain circumstances exist, such as a guardian or a manager who may sell only for necessity.
Where such a person transfers the property for consideration, alleging that those circumstances exist, they shall be deemed to have existed as between the transferee on one side and the transferor and the other persons affected on the other, if the transferee:
- used reasonable care to ascertain their existence; and
- acted in good faith.
A buyer who honestly and carefully checks that a legal necessity exists is protected under Section 38, even if it later turns out that there was no necessity at all.
Transfer where a third person is entitled to maintenance (Section 39)
Section 39 protects a person who has a right to receive maintenance, or a provision for advancement or marriage, from the profits of immovable property. If the property is transferred:
- the right may be enforced against the transferee if he has notice of it, or if the transfer is gratuitous;
- the right cannot be enforced against a transferee for consideration and without notice of the right, nor against the property in his hands.
A widow has a right to maintenance out of the income of a family house. If the house is sold to a buyer who knows of her right, she can enforce it against him. If it is sold to an honest buyer for value who did not know of it, she cannot.
Obligations Restricting the Use of Land (Section 40)
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Section 40 extends the same notice rule to the use of land. It deals with two kinds of rights that do not amount to an interest in land or an easement:
- First paragraph: a right to restrain the use of another person's land in a particular manner, for the more beneficial enjoyment of one's own land.
- Second paragraph: an obligation arising out of contract and annexed to the ownership of land.
Such a right or obligation:
- may be enforced against a transferee with notice, or a gratuitous transferee, of the land affected;
- cannot be enforced against a transferee for consideration and without notice of it.
(Illustration to Section 40) Prince contracts to sell his land to Farhan. While the contract is still in force, Prince sells the same land to Aadil, who knows of the contract. Farhan may enforce the contract against Aadil to the same extent as against Prince.
An agreement to sell, though it creates no interest in land, binds a later buyer who takes with notice of it.
Source of the first paragraph: Tulk v. Moxhay
Tulk v. Moxhay (1848), English case: Tulk owned the open garden in Leicester Square in London, along with several houses around it. He sold the garden to Elms, who promised, for himself and his successors, to keep the garden open and not to build upon it. After several sales, the land reached Moxhay. His own purchase deed did not contain the promise, but he knew about it. When Moxhay proposed to build on the square, Tulk, who still owned the neighbouring houses, sued to stop him. Held: Lord Cottenham, the Lord Chancellor, upheld an injunction against Moxhay. If a promise attached to land could be escaped simply by selling the land, the original owner would lose the protection he had bargained for. Principle: a person who buys land with notice of such a restriction cannot stand in a better position than the person he bought from.
The Act adopts this idea: the restriction binds a transferee with notice and a gratuitous transferee, but not a buyer for consideration without notice.
Transfer by Ostensible Owner (Section 41)
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Section 41 is one of the most important protections for buyers.
Prince buys a house with his own money but, for reasons of his own, puts it in the name of his brother Farhan. For years Farhan appears to the world as the owner, and Prince allows this. Farhan then sells the house to Aadil, who pays full price and checks the records carefully. Prince cannot recover the house from Aadil by saying that Farhan was never the real owner.
The provision
Where, with the consent, express or implied, of the persons interested in immovable property, a person is the ostensible owner of the property and transfers it for consideration, the transfer shall not be voidable on the ground that the transferor was not authorised to make it.
Proviso: the transferee must have taken reasonable care to ascertain that the transferor had power to make the transfer, and must have acted in good faith.
Five conditions
- The transferor is the ostensible owner, that is, he appears to be the owner but is not the real owner.
- He is the ostensible owner with the consent, express or implied, of the real owner.
- He transfers the property for consideration. So a gift from an ostensible owner is not protected.
- The transferee took reasonable care to check the power of the transferor.
- The transferee acted in good faith.
Rationale
Both the real owner and the buyer are innocent of fraud, yet the law protects the buyer because the real owner created the false appearance. When one of two innocent persons must suffer, the loss should fall on the one who made the loss possible. Section 41 is really a rule of estoppel.
Ramcoomar Koondoo v. John and Maria McQueen (1872), Privy Council: the source of Section 41. Property stood in the name of one person while another claimed to be its real owner, and the dispute was whether the real owner could recover it from those who had acquired it from the apparent owner. Held: it is a principle of natural equity that where one man allows another to hold himself out as the owner of an estate, and a third person purchases it for value from the apparent owner, believing him to be the real owner, the man who allowed this cannot recover the property on the strength of his secret title. Principle: the real owner can succeed only if he shows that the purchaser had direct or constructive notice of the real title, or that there were circumstances which ought to have put the purchaser on an inquiry that would have revealed it.
Ostensible Ownership and Benami Transactions
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Benami literally means "without a name". A benami transaction is one where property is held by one person, but the consideration was paid by another person who is the real owner. In the example above, Farhan is the benamidar and Prince is the real owner.
Legislative history
- Indian courts long recognised benami transactions, but they became a common way to hide black money.
- Parliament enacted the Benami Transactions (Prohibition) Act, 1988.
- It was substantially amended with effect from 1 November 2016 and renamed the Prohibition of Benami Property Transactions Act.
The Act now:
- prohibits benami transactions;
- bars the real owner from filing any suit or taking any defence to recover property held benami;
- provides for confiscation of benami property and for penalties.
Arrangements excluded from the definition of benami transaction
- Property held by a karta of a Hindu undivided family for the family, and paid for out of the known sources of the family.
- Property held by a person in a fiduciary capacity, such as a trustee.
- Property bought by an individual out of his known sources of income in the name of his spouse or child, or in joint names with his brother, sister or lineal relative.
Connection with Section 41
Both rules deny protection to a real owner who hides behind another name. Section 41 protects the honest buyer from the ostensible owner. The Benami Act goes further and generally prevents the real owner from recovering the property at all.
Union of India v. Ganpati Dealcom Private Limited (2022), Supreme Court: Held: certain provisions of the original 1988 Act were unconstitutional, and prosecution and confiscation under the 2016 amendments could not apply to earlier transactions. Later development: on 18 October 2024, the Supreme Court recalled that judgment on a review petition, observing that the constitutional validity of those provisions had not been challenged and argued between the parties in that case, and directed that the matter be heard afresh. Principle: those questions are open again.
Transfer by a Person Having Authority to Revoke a Former Transfer (Section 42)
Section 42 deals with a person who transfers immovable property reserving a power to revoke the transfer, and later transfers the same property for consideration to another transferee. The later transfer operates in favour of that transferee as a revocation of the former transfer, to the extent of the power, and subject to any condition attached to its exercise.
(Illustration to Section 42) Prince lets a house to Farhan and reserves power to revoke the lease if, in the opinion of a named surveyor, Farhan uses the house in a way that harms its value. Later Prince, thinking that such use has been made, lets the house to Aadil. The lease to Aadil operates as a revocation of Farhan's lease, but subject to the opinion of the surveyor as to whether Farhan really harmed the house.
Feeding the Grant by Estoppel (Section 43)
▶ Watch this part of the lecture (1:24:00)
Section 43 protects a buyer who is misled about the title of the seller. Where a person fraudulently or erroneously represents that he is authorised to transfer certain immovable property, and professes to transfer it for consideration, the transfer shall, at the option of the transferee, operate on any interest which the transferor may acquire in the property at any time during which the contract of transfer subsists.
Saving: nothing in the section impairs the right of transferees in good faith for consideration without notice of the existence of this option.
(Illustration to Section 43) Prince, a Hindu who has separated from his father, sells three fields to Farhan, representing that he is entitled to transfer all of them. In fact, one field still belongs to his father. Later the father dies and Prince inherits that field. Farhan, not having rescinded the contract, may require Prince to deliver that field to him.
This is called feeding the grant by estoppel: the later acquisition of the seller "feeds" the earlier defective transfer.
Conditions
- The transferor made a representation, fraudulent or even innocent, that he was authorised to transfer the property.
- The transfer is for consideration.
- The transferor later acquires an interest in the property.
- The contract of transfer still subsists, that is, the buyer has not rescinded it.
- The option belongs to the transferee, not to the transferor.
Section 43 and Section 6(a)
Section 6(a) says that a mere hope of inheritance (spes successionis) cannot be transferred. The two provisions are reconciled as follows.
Jumma Masjid, Mercara v. Kodimaniandra Deviah, Supreme Court: the question was how Section 43 fits with Section 6(a). Held: Section 43 applies even where the transferor had only a hope of succession at the time of the transfer, provided he represented that he had a present interest and the transferee acted on that representation. Principle: Section 6(a) deals with a transfer of a hope as such, where both parties know it is only a hope; Section 43 deals with a transfer induced by a representation of present title. The two sections work in different fields.
Limits of the rule
Narayan Chandra Saha v. Dipali Mukherjee, Calcutta High Court (Justice Pranab Kumar Chattopadhyay): the son of an owner, without any authority from his father, let two small kiosks to some persons as monthly tenants and gave them rent receipts. After the father died, the son became one of the co-owners, and later all the co-owners sold the property to a buyer, who sued to evict the occupants. The occupants argued that under Section 43 the son's later acquisition of a share had cured the defect in their tenancy. Held: the argument was rejected and the eviction decrees upheld. Section 43 operates only where the transferor made a representation that he was authorised to make the transfer and the transferee acted on it; here no such representation was pleaded or proved. Principle: the later acquisition of an interest does not automatically validate an earlier unauthorised transfer.
Transfer by Co-owners (Sections 44 and 47)
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Many properties in India are owned by several persons together.
Section 44: transfer by one co-owner
Where a co-owner, legally competent in that behalf, transfers his share of immovable property or any interest in it, the transferee acquires, as to that share and so far as necessary to give effect to the transfer:
- the transferor's right to joint possession or other common or part enjoyment of the property; and
- the right to enforce a partition.
Exception (second paragraph): where the transferee of a share of a dwelling house belonging to an undivided family is not a member of that family, nothing in the section entitles him to joint possession or other common or part enjoyment of the house. His remedy is to seek partition.
The object of the second paragraph of Section 44 is to protect the privacy of a family home from a stranger.
Section 47: joint transfer by co-owners of a share
Where several co-owners together transfer a share of the common property without saying from whose share it comes, the transfer takes effect on their shares:
- equally, where the shares were equal; and
- proportionately, where the shares were unequal.
Joint Transfers and Distinct Interests (Sections 45 and 46)
Section 45: transfer for consideration to persons jointly
Section 45 decides how joint buyers share what they acquire under a transfer for consideration to two or more persons jointly:
- Consideration paid out of a common fund: they take interests in the property as nearly as possible identical with their interests in the fund.
- Consideration paid out of separate funds: they take interests in proportion to the shares of the consideration each advanced.
- No evidence as to their shares: they are presumed to be equally interested.
Prince pays 60 per cent and Farhan pays 40 per cent of the price of a plot bought in their joint names. They own it in the same proportion, unless they agreed otherwise.
Section 46: transfer for consideration by persons having distinct interests
Section 46 deals with the reverse situation. The transferors share the consideration equally where their interests were of equal value, and proportionately where their interests were of unequal value.
(Second illustration to Section 46) One person has a life interest in a village estate, and two others hold the reversion after him. They sell the estate together for 1,000 rupees. If the life interest is valued at 600 rupees and the reversion at 400 rupees, the life tenant receives 600 rupees and the reversioners share 400 rupees.
Priority of Rights (Section 48)
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Section 48 deals with a person who purports to create, by transfer at different times, rights in or over the same immovable property, where those rights cannot all exist or be exercised to their full extent together. Each later created right shall, in the absence of a special contract or reservation binding the earlier transferees, be subject to the rights previously created.
Section 48 reflects the maxim qui prior est tempore, potior est jure: he who is first in time is stronger in right. A person cannot transfer what he has already given away.
Prince mortgages his house to Farhan and later sells it to Aadil. Aadil takes the house subject to Farhan's mortgage.
Exceptions to the priority rule
- Section 41 protects a buyer from an ostensible owner.
- Section 78 postpones a prior mortgagee who, by fraud, misrepresentation or gross neglect, induces another person to lend on the property.
- The Registration Act gives a registered document priority over certain oral agreements and unregistered documents (studied in Unit 11).
Protection for Holders under Defective Titles (Sections 49 to 51)
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Section 49 protects a transferee of insured property, while Sections 50 and 51 protect persons who hold property honestly under a title that later proves defective.
Section 49: transferee's rights under policy
Where immovable property is transferred for consideration and the property is insured against fire, the transferee may require any money that the transferor actually receives under the policy for damage by fire to be applied in reinstating the property.
Section 50: rents bona fide paid to holder under defective title
No person shall be chargeable with any rents or profits of immovable property which he has in good faith paid or delivered to any person from whom he in good faith held the property, even if it afterwards appears that the person to whom he paid had no right to receive them. So an honest tenant who pays rent to the person he believes to be his landlord is protected.
Section 51: improvements made by bona fide holders under defective titles
Where the transferee of immovable property makes an improvement on it, believing in good faith that he is absolutely entitled to it, and is later evicted by a person with a better title, he may require the person evicting him to choose between two courses:
- have the value of the improvement, as at the time of eviction, estimated and paid or secured to the transferee; or
- sell his interest in the property to the transferee at its then market value, without counting the value of the improvement.
If the transferee has sown crops that are growing when he is evicted, he is entitled to those crops and to free entry and exit to gather and carry them.
The Doctrine of Lis Pendens (Section 52)
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Lis pendens is a Latin phrase meaning a pending suit.
Prince and Farhan are fighting a suit over the ownership of a plot. While the suit is pending, Prince quickly sells the plot to Aadil. If such a sale could defeat the suit, no litigation over land would ever end, because each party would keep transferring the property to new persons. The doctrine of lis pendens prevents this.
The provision
Section 52 applies during the pendency, in any court having authority within India, of a suit or proceeding which is not collusive and in which any right to immovable property is directly and specifically in question. During that time, the property cannot be transferred or otherwise dealt with by any party to the suit or proceeding so as to affect the rights of any other party under any decree or order which may be made in it.
Exception: a transfer made under the authority of the court and on such terms as it may impose.
Conditions
- A suit or proceeding must be pending.
- It must not be collusive.
- A right to immovable property must be directly and specifically in question.
- The transfer must be made by a party to the suit.
- The transfer must affect the rights of another party under the eventual decree.
Period of pendency (Explanation)
- Begins: from the date of presentation of the plaint or institution of the proceeding in a court of competent jurisdiction.
- Continues: until the suit or proceeding has been disposed of by a final decree or order, and complete satisfaction or discharge of that decree or order has been obtained, or has become unobtainable because the period of limitation for its execution has expired.
So even appeals and execution proceedings keep the property under the shadow of the suit.
Effect of a transfer in breach of Section 52
- The transfer is not void; it is valid between the transferor and the transferee.
- It is subject to the result of the suit. The transferee pendente lite (the person who acquires property during the suit) is bound by the decree just as his transferor is.
- The doctrine applies whether or not the transferee knew of the suit, because it rests on the necessity of finality, not on notice.
Case law on lis pendens
Madhukar Nivrutti Jagtap v. Pramilabai Chandulal Parandekar, Supreme Court (Justice Dinesh Maheshwari): owners of agricultural land signed agreements to sell it and received part of the price, then refused to complete the sale. The buyers sued for specific performance, and while the suit was pending the owners sold the land to others. The courts below treated the agreements as mere security for a loan, but the High Court decreed specific performance. Held: the documents were genuine agreements for sale. The effect of Section 52 is not to render transfers made during the suit void, but only to make them subservient to the rights of the parties under the decree, so the later buyers remained bound by the result of the suit. However, because of the long passage of time and other circumstances, the Court set aside the decree for specific performance and awarded compensation of 15 lakh rupees, payable jointly and severally by the original owners and the later buyers.
Govindammal v. Rangasamy Gounder, Madras High Court (Justice N. Sathish Kumar): during a suit for declaration of title, one defendant sold the property to a third person. The plaintiffs applied to add the purchaser as a defendant, but the trial court refused, saying the purchase was hit by lis pendens anyway. Held: the revision was allowed. Although the rights of a purchaser pendente lite depend on the result of the suit, adding him as a party is not against law, and the plaintiffs, as masters of their suit, may seek relief against him. Principle: a transferee pendente lite may be impleaded under Order 1, Rule 10 of the Code of Civil Procedure.
N.C. Bhartia v. Gandevi People's Co-operative Bank Limited, Gujarat High Court (Justice A.M. Kapadia): a co-operative bank had obtained a decree against a firm and its partners, and execution proceedings were pending. During those proceedings the judgment debtors sold their property to a close relative for 80,000 rupees by a registered sale deed. The bank sued for a declaration that the sale was fraudulent. Held: the decree in favour of the bank was upheld. The sale was a fraudulent transfer under Section 53, made with the clear intention of putting the property beyond the reach of the bank, and the buyer, who shared that intention, was not a transferee in good faith. The sale was also hit by Section 52, because it was made while the proceedings between the bank and the debtors were pending. Principle: one transfer may offend both Section 52 and Section 53; the two doctrines can work side by side.
Kamalammal v. Senthil, Madras High Court (Justice D. Murugesan): a father suffered a decree for damages for malicious prosecution, and joint family property was sold in a court auction to satisfy it. Shortly before the auction, his minor sons had filed a suit for partition, and the auction purchaser was later made a party to that suit. Held: the debt arose from the father's own wrongful act; under Hindu law such a debt, called avyavaharika, does not bind the sons. The auction sale could bind only the father's own share, and the sons were entitled to partition of their shares. The sons' plea of lis pendens (the auction took place while their suit was pending) was not considered because it had not been raised in the courts below. Principle: a debt arising from the father's own wrongful act (avyavaharika) does not bind the sons' shares; and a plea of lis pendens that comes too late, without being raised in the courts below, will not be considered.
Fraudulent Transfer (Section 53)
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Section 53 deals with transfers made to cheat creditors or later transferees.
Section 53(1): transfer to defeat or delay creditors
- Every transfer of immovable property made with intent to defeat or delay the creditors of the transferor is voidable at the option of any creditor so defeated or delayed.
- Nothing in this sub-section impairs the rights of a transferee in good faith and for consideration, or affects any law relating to insolvency.
- A suit by a creditor to avoid such a transfer must be instituted on behalf of, or for the benefit of, all the creditors.
Prince owes large sums to several creditors. To keep his house away from them, he transfers it to his friend Farhan for no real price. Any creditor may sue, on behalf of all the creditors, to avoid the transfer. But if Prince had sold the house to Aadil, who paid a fair price in good faith, the creditors cannot touch it.
Section 53(2): gratuitous transfer to defraud a subsequent transferee
Every transfer of immovable property made without consideration with intent to defraud a subsequent transferee is voidable at the option of that transferee. But no transfer made without consideration is deemed to be made with intent to defraud merely because a subsequent transfer for consideration was made.
Lis Pendens and Fraudulent Transfer Compared
| Point of difference | Lis pendens (Section 52) | Fraudulent transfer (Section 53) |
|---|---|---|
| Who is protected | The parties to a pending suit | Creditors and later transferees |
| Intention of transferor | Applies whatever the intention of the transferor | Requires an intention to defeat or delay creditors, or to defraud a later transferee |
| Effect of transfer | Not voidable; it simply remains subject to the decree | Voidable at the option of the creditor or later transferee |
| Bona fide transferee for value | Bound even if he paid value in good faith | Protected if in good faith and for consideration |
The Doctrine of Part Performance (Section 53A)
▶ Watch this part of the lecture (1:41:00)
Prince signs a written agreement to sell his flat to Farhan for 50 lakh rupees. Farhan pays most of the price, and Prince hands over possession, but the registered sale deed is never executed. A few years later prices rise, and Prince sues to evict Farhan, saying that without a registered sale deed Farhan owns nothing. Section 53A is the law's answer to this injustice.
Background: English equity and the Indian position before 1929
In England, courts of equity developed a doctrine of part performance to prevent such injustice. In India, the Privy Council refused to import it.
Mian Pir Bux v. Sardar Mahomed Tahar, Privy Council (Lord Macmillan): the owner of a building plot in Sind had agreed in writing to sell it, and the buyer was in possession, but no registered sale deed was ever made. In the suit to eject him, the buyer pleaded the agreement to sell. Held: at the date of that suit this was no defence. Under Section 54, a sale of such land could be made only by a registered instrument, and a contract of sale created no interest in the land. The buyer's proper remedy was a suit for specific performance filed in time. The Privy Council itself noted that the law had since been changed by the amendment of 1929, which inserted Section 53A.
Essentials of Section 53A
- A person contracts to transfer immovable property for consideration, by a writing signed by him or on his behalf, from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty.
- The transferee has, in part performance of the contract, taken possession of the property or any part of it; or, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of it.
- The transferee has performed or is willing to perform his part of the contract.
Effect
When all these are present, the transferor, or any person claiming under him, is debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession. The only exception is a right expressly provided by the terms of the contract. This is so even though, where there is an instrument of transfer, the transfer has not been completed in the manner prescribed by law.
Proviso: transferee for consideration without notice
Nothing in the section affects the rights of a transferee for consideration who has no notice of the contract or of the part performance. So if Prince sells the flat to Aadil, who pays value without notice, Aadil is protected.
Possession by the transferee (Farhan) is itself notice under Explanation II to Section 3, so a later buyer will rarely lack notice and rarely get the benefit of the proviso.
The 2001 amendment: registration now compulsory
- Before 2001, an unregistered agreement could support the defence of part performance.
- The Registration and Other Related Laws (Amendment) Act, 2001 changed this with effect from 24 September 2001.
- It inserted sub-section (1A) in Section 17 of the Registration Act, making registration compulsory for a document containing a contract to transfer immovable property for consideration, for the purposes of Section 53A.
- It also removed from Section 53A the words that had allowed protection even where the contract, though required to be registered, had not been registered.
For an agreement signed on or after 24 September 2001, a transferee who wants the protection of Section 53A must have a registered agreement.
Ameer Minhaj v. Dierdre Elizabeth Wright Issar, Supreme Court (Justice A.M. Khanwilkar): a buyer sued for specific performance of an agreement to sell land at Coonoor and relied on unregistered documents, which the High Court excluded from evidence. Held: the Supreme Court restored the trial court's order admitting them. After the 2001 amendment, a document containing a contract to transfer immovable property must be registered if a party wants to rely on it for the purposes of Section 53A. If it is not registered, the only consequence is that it has no effect for the purposes of Section 53A. Principle: under the proviso to Section 49 of the Registration Act, such an unregistered document can still be received as evidence of the contract in a suit for specific performance.
Part Performance as a Shield
Section 53A does not give the transferee ownership. It only prevents the transferor from enforcing his rights against the transferee's possession.
Section 53A is a shield and not a sword. The transferee can use it to defend his possession, but not to claim title or to recover possession from someone else.
Shield survives the bar of limitation
Shrimant Shamrao Suryavanshi v. Pralhad Bhairoba Suryavanshi, Supreme Court (Justice V.N. Khare): the owner of agricultural land agreed to sell it, received part of the price and put the buyer in possession. In breach of the agreement, and allegedly despite an injunction, he later sold the land to another person by a registered sale deed. The later purchaser sued the first buyer for possession. A suit for specific performance of the agreement had become time barred. Issue: could the first buyer still defend his possession under Section 53A? Held: yes, if the conditions of the section are satisfied. The law of limitation bars only a remedy by way of suit; it does not bar a defence. The Court also relied on the history of the section, whose framers intended it to protect a transferee in possession even after the period for a suit had expired. Principle: the Section 53A defence is available even when a suit for specific performance is time barred.
Use by a transferee as plaintiff
Dharmaji v. Jagannath, Bombay High Court: the question was whether a transferee could use Section 53A as a plaintiff. Held: the Court took the practical view that a transferee who satisfies the conditions of Section 53A, and is in possession, may even file a suit for an injunction to protect that possession against interference by the transferor. On the facts, however, possession had not been delivered, and the appeal failed. Principle: even here, the section only protects possession; it does not give title.
Part performance and adverse possession
Santram Dewangan v. Shivprasad, Chhattisgarh High Court (Justice Sanjay K. Agrawal): the owner of land agreed to sell it and delivered possession, but no sale deed was executed. After more than twelve years, the buyer claimed ownership by adverse possession. Held: the claim was rejected and the decree for possession in favour of the owner upheld. A person in possession under an agreement to sell holds permissive possession, which is referable to the title of the owner, so he cannot claim that his possession is adverse. Principle: the agreement does not create title, and Section 53A is available only as a shield, so long as the transferee is willing to perform his part.
Asha V. Wadhwani v. Arun Jethmalani, Delhi High Court (Justice Rajiv Sahai Endlaw): the owners of the ground floor of a house in Delhi had allowed relatives to occupy it. When asked to leave, the occupants claimed that they had bought the premises under an oral agreement, and also that they had become owners by adverse possession. Held: possession was decreed in favour of the owners. An oral agreement cannot attract Section 53A, which needs a written contract. Persons who enter as permitted occupants cannot claim adverse possession without clear proof of hostile possession. Principle: the two pleas (purchase under an agreement and adverse possession) contradict each other.
Agreement to sell gives no right to possession outside Section 53A
Joginder Tuli v. State N.C.T. of Delhi, Delhi High Court (Justice Subramonium Prasad): a man who claimed rights in a shop under an old agreement to sell and a later unregistered memorandum filed a criminal writ petition seeking police action about his possession. Held: the petition was dismissed. The documents relied on did not establish any right to possession. If he had really been in lawful possession, he would have sued under Section 6 of the Specific Relief Act within six months of being dispossessed, and the petition looked like an attempt to get possession while getting around the limitation that barred his suit for specific performance. Principle: an agreement to sell, without the conditions of Section 53A, gives no right to possession, and remedies must be sought in the proper civil forum.
Connecting the Rules of Unit 3
Prince agrees in a registered agreement to sell his flat to Farhan, takes most of the price and gives possession.
- Farhan is protected against Prince by Section 53A.
- If Prince then sells the flat to Aadil, Aadil is deemed to have notice because Farhan is in possession, so the proviso to Section 53A does not help him; Section 40 also binds him because he bought with notice of the contract.
- If Prince had sold the flat to Aadil while a suit by Farhan was pending, Section 52 would make that sale subject to the decree.
- If Prince had made the transfer only to cheat his creditors, Section 53 would let them avoid it.
Each rule of Sections 38 to 53A protects a different innocent person at a different moment.
Sale of Immovable Property (Sections 54 to 57)
▶ Watch this part of the lecture (1:50:31)
After the general rules of transfer, each specific transfer is studied in turn. The most common of them is sale. This unit covers sale and the discharge of encumbrances on sale.
Meaning and Essentials of Sale (Section 54)
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Sale (Section 54): a transfer of ownership in exchange for a price paid or promised or part paid and part promised.
The essentials of a sale are:
- A seller and a buyer. The seller must be competent to transfer under Section 7. The buyer need only be competent to receive property, so even a minor can be a buyer.
- Subject matter. Under this Act the subject matter is immovable property. A sale of movable goods is governed by the Sale of Goods Act, 1930.
- Price. There must be a price, and price means money. If the consideration is some other property, the transaction is an exchange. The price may be paid at once, promised for the future, or partly paid and partly promised.
- Transfer of ownership. The entire bundle of rights must pass, not merely a lesser interest such as a lease or a mortgage.
- Mode. The sale must be made in the manner the law requires.
How a sale is made
The second and third paragraphs of Section 54 prescribe the manner:
- A sale of tangible immovable property of the value of 100 rupees and upwards, or of a reversion or other intangible thing, can be made only by a registered instrument.
- A sale of tangible immovable property of a value less than 100 rupees may be made either by a registered instrument or by delivery of the property.
- Delivery takes place when the seller places the buyer, or such person as he directs, in possession of the property.
In practice, since almost every piece of land is worth more than 100 rupees, a sale of immovable property needs a registered sale deed. A reversion (such as the right of a landlord to get back his property at the end of a lease) and other intangible things (such as a right to collect rent) always need a registered instrument, whatever their value.
The Sale Deed
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A sale deed:
- names the seller and the buyer;
- describes the property with its boundaries;
- states the price and its payment;
- records the transfer of ownership; and
- usually contains the covenants of the seller about title and encumbrances.
It must be stamped under the stamp law of the State, usually on the market value of the property, and it must be presented for registration within four months of its execution under the Registration Act.
When does ownership pass?
Ownership passes when the parties intend it to pass.
- Where a registered sale deed is required, the sale is complete only when it is registered.
- Once registered, under Section 47 of the Registration Act, it operates from the time it would have operated if no registration had been required, which is normally the date of execution.
- Payment of the full price is not always a condition for the passing of ownership. If the parties intend ownership to pass on execution and registration, it passes, and the unpaid seller is protected by a charge on the property for the unpaid price.
- If the parties intend that ownership shall pass only on full payment, it does not pass until then.
Delhi Development Authority v. Skipper Construction Company Private Limited: The DDA auctioned a valuable plot on terms that a quarter of the bid would be paid at once and the balance within a fixed period. Skipper Construction made the highest bid, of about 9 crore 82 lakh rupees, but did not pay the balance despite repeated extensions. Later arrangements let it build on the plot, but the property in the land was to remain with the Authority until the whole price was paid. Meanwhile, it collected large sums from the public by selling space in a building it planned to build on the plot, sometimes selling the same space to more than one person. The Authority finally re-entered the plot. Held (1996): the Supreme Court lifted the corporate veil and directed that the persons defrauded be repaid with interest, even out of properties of the directors and their family. Held (1999): a buyer who has paid money in anticipation of delivery has a charge on the seller's interest under Section 55, which can follow a substituted security. Principle: where the terms of a sale make payment of the full price a condition for the passing of title, title does not pass until the price is paid, and a buyer who has not acquired title cannot pass it on.
Agreement to Sell and Sale Compared
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Contract for sale (Section 54, fourth paragraph): a contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties. It does not, of itself, create any interest in or charge on such property.
The last sentence is the key. An agreement to sell gives the buyer only a personal right to have the sale completed; it does not make him an owner.
- If the seller refuses to complete the sale, the buyer may sue for specific performance under the Specific Relief Act, 1963.
- Under Section 19 of the Specific Relief Act, and under Section 40 of this Act, the agreement can be enforced against a later buyer who takes the property with notice of it.
- But the buyer cannot claim ownership until a registered sale deed is executed.
| Point | Sale | Agreement to sell |
|---|---|---|
| Effect | Transfers ownership at once | Only promises a future transfer |
| Nature of right | Right in rem, good against the whole world | Right in personam, good against the seller and those who take from him with notice or without consideration |
| Registration | Sale of immovable property worth 100 rupees or more needs a registered deed | Creates no interest in the land; must be registered if the buyer wants to rely on it for part performance under Section 53A |
| Destruction of property | Loss falls on the buyer as owner | Loss falls on the seller, who is still the owner |
Simple formula: sale is transfer now; agreement to sell is a promise of transfer later.
Sales by power of attorney
Suraj Lamp and Industries Private Limited v. State of Haryana: the leading case on so-called sales by power of attorney. In many cities, people bought property not by a registered sale deed but by a combination of an agreement to sell, a general power of attorney in favour of the buyer, and a will by the seller (SA, GPA and Will transactions). These were used to avoid stamp duty, registration charges and taxes, and encouraged the use of unaccounted money. Held (Supreme Court, judgment by Justice R.V. Raveendran): immovable property can be legally transferred only by a registered deed of conveyance. An agreement to sell, whether or not the buyer is in possession, does not convey title, as Section 54 itself says. A power of attorney is not a transfer at all; it only authorises the agent to act for the principal, can be revoked, and ends with the death of the principal. A will takes effect only on death. So such transactions are not sales and do not transfer title. They may still be treated as agreements to sell, used to seek specific performance or to defend possession under Section 53A, and genuine powers of attorney given to manage property are not affected. Principle: no registered conveyance, no title.
Dadarao v. Ramrao
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Dadarao v. Ramrao: The owner of a paddy field agreed to sell it for 2,000 rupees and received 1,000 rupees as earnest money. The agreement said the sale deed would be executed by a fixed date, but also that if the sale deed was not made, or if the buyer refused to accept it, 500 rupees would be given or taken in addition to the earnest money, and no sale deed would be executed. The owner did not execute the sale deed, and the buyer sued for specific performance. The owner died, and his nephews contested the suit. Held: the Supreme Court refused specific performance. The parties had themselves agreed on what would happen if the sale did not take place: a payment of money, and no sale deed. So the agreement did not give the buyer a right to compel a sale. The Court instead awarded him the earnest money and the agreed sum, with interest. Principle: an agreement to sell is a contract and its own terms decide the remedy; where the parties agree that money shall be paid instead of a sale, the court will not force a sale.
Rights and Liabilities of the Seller and the Buyer (Section 55)
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Section 55 sets out the rights and liabilities of the parties in the absence of a contract to the contrary.
Liabilities of the seller before the sale is completed
- Disclose to the buyer any material defect in the property or in his title, of which the seller is aware and which the buyer is not aware of and could not discover with ordinary care.
- Produce his documents of title for inspection on request.
- Answer, to the best of his information, all relevant questions about the property and his title.
- Execute a proper conveyance when the buyer tenders the price.
- Until then, take as much care of the property and the documents as an owner of ordinary prudence would take.
- Give the buyer possession.
- Pay all public charges and rent up to the date of sale, and discharge the encumbrances then existing, unless the property is sold subject to them.
Liabilities of the seller after the sale
- The seller is deemed to contract with the buyer that the interest he professes to transfer subsists and that he has power to transfer it. This implied covenant for title runs with the property, so it benefits every later owner.
- Deliver the title deeds to the buyer on payment of the price.
Rights of the seller
- He is entitled to the rents and profits of the property until ownership passes.
- Where ownership has passed before the whole price is paid, he has a charge on the property for the unpaid price, with interest, against the buyer and all persons claiming under him, except a transferee for consideration without notice of the non-payment.
Liabilities of the buyer
- Disclose to the seller any fact about the nature or extent of the seller's interest that materially increases its value, of which the buyer is aware and the seller is not.
- Pay or tender the price at the time and place of completion.
- Once ownership has passed, bear any loss arising from destruction of or damage to the property not caused by the seller.
- Pay the public charges and rent that fall due after ownership has passed.
Rights of the buyer
- After ownership has passed, he is entitled to the benefit of any improvement or increase in value of the property, and to its rents and profits.
- Before delivery, he has a charge on the property for purchase money properly paid by him in anticipation of delivery, with interest, unless he has improperly refused to accept delivery.
Omission to disclose is fraudulent
The last paragraph of Section 55 says that an omission to make the disclosures required of the seller and the buyer is fraudulent. So the old rule of caveat emptor (let the buyer beware) is softened in Indian property law: the seller cannot hide a latent defect that he knows of and the buyer cannot discover.
Prince sells his house to Farhan, knowing that the municipality has passed an order to demolish part of it, and says nothing. Farhan could not have discovered this with ordinary care. Prince has failed in his duty of disclosure, and Farhan may claim compensation or, where the omission is fraudulent, avoid the sale.
Marshalling by a Subsequent Purchaser (Section 56)
If the owner of two or more properties mortgages them to one person and then sells one or more of them to another person, the buyer is, in the absence of a contract to the contrary, entitled to have the mortgage debt satisfied out of the property or properties not sold to him, so far as they will extend. This must not prejudice the rights of the mortgagee, or of any other person who has acquired an interest in any of the properties for consideration.
Prince mortgages his house and his shop to a bank. Later he sells the shop to Farhan. Farhan can ask that the bank recover its loan first from the house, as far as the house will suffice, so that his shop is saved. This is marshalling. The same idea operates between mortgagees under Section 81.
Discharge of Encumbrances on Sale (Section 57)
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An encumbrance is a burden on property, such as a mortgage, a charge or a claim for an annual payment. Buyers naturally prefer property free from encumbrances, and Section 57 gives the court a useful power.
- Where immovable property subject to an encumbrance is sold by the court, or in execution of a decree, or out of court, the court may, on the application of any party to the sale, direct or allow payment into court of the amount needed to discharge the encumbrance.
- For an annual or monthly sum, the court fixes an amount which, invested in Government securities, will meet the charge from its interest.
- For a principal sum, it fixes the amount due with interest.
- An additional amount, ordinarily not exceeding one tenth, is paid in to meet further costs and interest.
- The court may then, after notice to the encumbrancer, declare the property freed from the encumbrance and make orders for its conveyance; the money in court is paid to the persons entitled to it.
Exchange (Sections 118 to 121)
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In a sale, ownership passes for a price in money. In an exchange, ownership passes not for money but for another thing.
Meaning of Exchange (Section 118)
Exchange (Section 118): when two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an exchange.
Prince gives his plot in a village to Farhan, and Farhan gives his shop in the town to Prince. Each transfers ownership and each receives ownership. That is an exchange.
The words "neither thing or both things being money only" matter:
- If one side gives property and the other gives money, the transaction is a sale, because money is the price.
- If neither side gives money, it is an exchange.
- If both sides give money, as when one currency is exchanged for another, the law also treats it as an exchange.
Essentials of exchange:
- Two parties, each competent to transfer.
- A mutual transfer of ownership, not of a lesser interest.
- The things exchanged are not money on one side only.
- The transfer is made in the proper legal form.
Mode of Exchange
The second paragraph of Section 118 says that a transfer of property in completion of an exchange can be made only in the manner provided for the transfer of such property by sale. So an exchange of tangible immovable property worth 100 rupees or more needs a registered instrument, exactly as a sale does. An exchange is sometimes described as two sales, where each party is a seller of what he gives and a buyer of what he takes.
Satyawan v. Raghubir (Punjab and Haryana High Court): A man offered some brothers an exchange of his land for theirs, assuring them his land was free from encumbrances. An oral exchange was said to have taken place, and he obtained a court decree recognising it. The brothers later discovered that his land was mortgaged to a bank, lay in a different village from what was promised, and was of poorer quality. They sued to set aside the exchange and the decree. Held (Justice M.L. Singhal): an oral exchange of such land was not permissible. Earlier decisions of that Court had said Section 118 was not extended to Punjab, so oral exchange was valid there; but Section 49 of the Registration Act, as amended in 1929, made an unregistered exchange of such land ineffective. Since there was no valid exchange, the transaction fell and the brothers' suit succeeded. Principle: the form of an exchange matters; an unregistered exchange of such land is ineffective.
Rights and Liabilities of the Parties (Sections 119 to 121)
Section 120 (general rule): save as otherwise provided in this chapter, each party has the rights and is subject to the liabilities of a seller as to that which he gives, and has the rights and is subject to the liabilities of a buyer as to that which he takes. So all the duties of disclosure, title and delivery under Section 55 apply in both directions.
Section 119 (special remedy): if a party to an exchange, or a person claiming through him, is deprived of the thing received, or any part of it, because of a defect in the title of the other party, then, unless a contrary intention appears:
- the other party is liable to him for the loss caused; or
- at the option of the person deprived, he may claim the return of the thing he gave, if it is still in the possession of the other party, his legal representative, or a transferee from him without consideration.
Prince exchanges his plot for Farhan's shop. Later a stranger proves that the shop really belonged to him, and Prince loses it. Prince may claim compensation from Farhan or, if Farhan still holds the plot, take his plot back.
Section 121 (exchange of money): on an exchange of money, each party warrants the genuineness of the money given by him.
Exchange and Sale Compared
The difference lies in the consideration: in a sale it is a price in money; in an exchange it is another thing. This difference can have real consequences.
Commissioner of Income Tax v. Motor and General Stores Private Limited: A company owned a cinema house and first resolved to sell it for 1 lakh 20 thousand rupees. But the deed finally executed was an exchange deed, under which the company received preference shares of a sugar company of the same face value instead of money. The tax authorities treated it as a sale and taxed the profit. Held (Supreme Court): it was an exchange, not a sale. A sale under Section 54 is a transfer of ownership for a price, and price means money; if the consideration is some other valuable thing, it may be an exchange or barter, but not a sale. The recitals and earlier resolutions could not override the clear operative words of the deed, so the profit could not be taxed as a profit on a sale. Principle: money makes it a sale; property makes it an exchange.
Exchange and Other Transactions
| Exchange compared with | Distinction |
|---|---|
| Gift | A gift is made without consideration. An exchange always has consideration, namely the other thing. |
| Barter | Barter usually means the exchange of goods for goods. The Sale of Goods Act, 1930 does not cover barter, because a sale of goods also needs a price in money. |
| Mortgage or lease | An exchange transfers full ownership, absolutely. A mortgage transfers only an interest as security for a debt, and a lease transfers only a right to enjoy for a period. |
Exchange therefore belongs with sale and gift in the family of absolute transfers.
Gift (Sections 122 to 129)
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In a gift, one side gives and the other only receives, as when a father gifts a flat to his daughter or a grandmother gifts land to her grandson. Gifts are among the most litigated transfers in Indian courts.
Meaning of Gift (Section 122)
Gift (Section 122): the transfer of certain existing movable or immovable property made voluntarily and without consideration, by one person, called the donor, to another, called the donee, and accepted by or on behalf of the donee. Such acceptance must be made during the lifetime of the donor and while he is still capable of giving. If the donee dies before acceptance, the gift is void.
Essentials of a gift:
- Transfer of ownership. A mere permission to use is not a gift.
- Existing property, movable or immovable. A gift of property the donor may acquire in future is not allowed (Section 124).
- Voluntary, that is, with the free consent of the donor.
- Without consideration. Natural love and affection is the motive for most gifts, but it is not consideration in the legal sense. If money or other value passes, the transaction may be a sale or an exchange, not a gift.
- A donor competent to transfer and a donee, who may even be a minor. An unborn person cannot accept a gift, so he can benefit only through a prior interest, within the limits of Section 13.
- Acceptance by the donee during the lifetime of the donor.
Free Consent
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"Voluntarily" means the gift must not be caused by coercion, fraud, misrepresentation or undue influence. Gifts by old or dependent persons are often challenged on the ground of undue influence.
Subhas Chandra Das Mushib v. Ganga Prosad Das Mushib: An aged father, joined by one of his daughters, executed a deed of settlement gifting property to a grandson (the son of one of his sons). Another son challenged the deed as obtained by undue influence. The High Court presumed undue influence from the relationship of the parties and the great age of the donor, and asked the donee to prove that the gift was spontaneous. Held (Supreme Court): that approach was set aside. The law of undue influence is the same for gifts between living persons as for contracts under Section 16 of the Indian Contract Act. The court must first ask whether the relations between donor and donee were such that the donee was in a position to dominate the will of the donor, and then whether the donee actually used that position to obtain an unfair advantage. Principle: mere relationship, or mere old age, does not raise a presumption of undue influence; it must be clearly pleaded and proved.
Acceptance
- Acceptance may be express or implied from conduct. A donee who takes the gift deed into his keeping, takes possession, or starts collecting rent has accepted the gift.
- Where the donee is a minor, his guardian may accept for him. In a gift from a parent to a minor child, courts readily infer acceptance.
K. Balakrishnan v. K. Kamalam (studied in Unit Two): Held (Supreme Court): a donor may gift ownership while reserving possession and enjoyment for her own lifetime, and once the gift had been accepted, a later cancellation deed and a will could not undo it.
Sanjukta Ray v. Bimalendu Mohanty (Orissa High Court): A mother built a house on land she held on a long lease, and later executed a registered gift deed of the house in favour of her daughter, Sanjukta. The mother went on living in the house until her death. Her son later claimed the gift had never been accepted, so the house was still family property; the trial court agreed. Held (on appeal, Justice A. Pasayat): the gift was upheld. The burden of proving non-acceptance lay on the person who alleged it. The donee's holding of the registered deed was a strong circumstance showing acceptance. The deed also recited that possession had been delivered, which raised a presumption in favour of the donee. The mother's continued stay in the house was easily explained by the close family relationship. Principle: acceptance may be proved from the surrounding circumstances.
How a Gift is Made (Section 123)
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- Immovable property: the transfer must be effected by a registered instrument signed by or on behalf of the donor, and attested by at least two witnesses.
- Movable property: the transfer may be effected either by such a registered instrument or by delivery. Delivery may be made in the same way as goods sold may be delivered.
For a gift of immovable property, three things are essential: (1) a written instrument signed by the donor, (2) attestation by two witnesses, and (3) registration. Delivery of possession is not essential under the Act. For a gift of a car or jewellery, simple delivery is enough.
S. Thiagarajan v. Saraswathi Kittu (Madras High Court): A mother executed a registered settlement deed, in substance a gift, in favour of her daughter. Her son later challenged the gift, producing a deed by which she was said to have revoked it, but the mother herself maintained in her evidence that the gift was valid and that she had never wished to revoke it. Held: the deed satisfied every requirement of Section 123. It was voluntary and without consideration, a registered instrument signed by the donor, attested by two witnesses, and accepted and acted upon by the donee. So from the date of its execution the donor had completely divested herself of her rights, and the gift could not be revoked except on the grounds allowed by Section 126, none of which existed. Principle: a complete gift is final.
A deed that satisfies every formality may still fail for another reason: a donor can give only what he owns.
N. Shaikoya v. M. Attakoya (Kerala High Court): The property belonged to an old joint family in Lakshadweep, governed by custom and by old court decrees under which members could only enjoy the income of coconut trees for their lives and had no right to alienate the property. A member executed a registered gift deed of such properties in favour of his wife and children; another member challenged it. Held: the properties were ancestral, members had only a right to enjoy the usufruct during their lives, and a later partition deed did not make them the absolute property of the donor. So the gift was invalid. Principle: a donor can give only what he owns.
Future Property and Several Donees (Sections 124 and 125)
- Section 124: a gift comprising both existing and future property is void as to the future property.
- Section 125: a gift of a thing to two or more donees, of whom one does not accept it, is void as to the interest which he would have taken had he accepted.
Prince gifts to Farhan his present house and any house he may buy in future. The gift of the present house is valid, but the gift of the future house is void.
Suspension and Revocation of Gifts (Section 126)
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Section 126 states when a gift, once made, can be taken back:
- Revocation by agreement. The donor and the donee may agree that on the happening of a specified event which does not depend on the will of the donor, the gift shall be suspended or revoked. But a gift which the parties agree shall be revocable wholly or in part at the mere will of the donor is void, wholly or in part, as the case may be.
- Revocation by rescission. A gift may be revoked in any of the cases (except want or failure of consideration) in which, if it were a contract, it might be rescinded. So a gift caused by fraud, misrepresentation, coercion or undue influence may be revoked.
- Nothing in the section affects the rights of transferees for consideration without notice.
Prince gifts land to Farhan with a condition, agreed by both, that if Farhan dies before Prince, the gift shall be revoked. This is valid, because the event does not depend on the will of Prince. But a condition that Prince may take the land back whenever he likes makes the gift void to that extent.
Senior Citizens Act, Section 23
Section 23 of the Maintenance and Welfare of Parents and Senior Citizens Act, 2007 adds another route. It deals with a senior citizen who, after the commencement of the Act, transfers property, by gift or otherwise, subject to the condition that the transferee shall provide him basic amenities and basic physical needs. If the transferee refuses or fails to do so, the transfer shall be deemed to have been made by fraud, coercion or undue influence. At the option of the transferor, the Tribunal may then declare it void.
Urmila Dixit v. Sunil Sharan Dixit (2025): A mother executed a gift deed of her house in favour of her son. On the same day, the son signed a written promise to look after her for the rest of her life, failing which the gift could be taken back. Later the mother complained that he was not maintaining her and had even attacked her, and applied under the Senior Citizens Act to cancel the gift. The authorities declared the gift deed void; the High Court reversed. Held (Supreme Court, judgment by Justice Sanjay Karol): the cancellation was restored. The Act is a beneficial law meant to protect elderly persons who are not being looked after, and must be read in that spirit. Since the gift was made subject to the condition of care and maintenance and the son failed to fulfil it, the gift deed was quashed and possession was directed to be restored to the mother. Principle: where a senior citizen gifts property subject to a condition of care and maintenance and the donee fails to fulfil it, the gift may be declared void under Section 23 of the Senior Citizens Act.
Onerous Gifts and Universal Donee (Sections 127 and 128)
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Onerous gifts (Section 127)
An onerous gift is a gift that comes with a burden.
- Single transfer of several things: where one of them is burdened by an obligation, the donee can take nothing by the gift unless he accepts it fully.
- Two or more separate and independent transfers: the donee may accept one and refuse the others, even though the one he accepts is beneficial and the others are burdensome.
- Donee not competent to contract (such as a minor): he is not bound by the burden while he is a minor. But if, after attaining majority and becoming aware of the obligation, he retains the property, he becomes bound by the burden.
By a single transfer, Farhan is given a house free of debt and a mortgaged plot. He cannot accept the house and refuse the mortgaged plot.
Universal donee (Section 128)
Where a gift consists of the whole of the donor's property, the donee is personally liable for all the debts due from, and liabilities of, the donor at the time of the gift, to the extent of the property comprised in it. This protects creditors against a person who gives away everything he owns.
Gifts Saved from the Act (Section 129)
Nothing in the gift chapter relates to gifts of movable property made in contemplation of death, or affects any rule of Muhammadan law.
- Donatio mortis causa: a gift of movable property made by a person who expects to die soon; it takes effect only if he dies.
- Hiba (gift under Muslim law): needs a declaration of the gift by the donor, acceptance by the donee, and delivery of possession. It may be oral and does not need a registered instrument.
Gift Compared with Trust, Actionable Claim, Will and Sale
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| Gift compared with | Gift | Other transaction |
|---|---|---|
| Trust | Ownership passes to the donee for his own benefit | Ownership passes to a trustee, who must hold it for the benefit of someone else. Governed by the Indian Trusts Act, 1882; a trust of immovable property created between living persons needs a registered non-testamentary instrument |
| Actionable claim | Gift of immovable property needs registration and attestation under Section 123 | A gift of a debt or other actionable claim is governed by Section 130, which needs only an instrument in writing signed by the transferor, whether the transfer is with or without consideration |
| Will | Takes effect during the lifetime of the donor and, once complete, generally cannot be revoked | Takes effect only on death and can be revoked at any time before death |
| Sale | For nothing | For a price |
Unit 7: Transfer of Actionable Claims
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The earlier units dealt with the transfer of land, houses and things. In modern life, however, much wealth exists in the form of claims: a trader is owed money by his customers, a contractor is owed money on his bills. Such claims can be sold, and this unit explains how.
Meaning of actionable claim (Section 3)
Section 3 defines an actionable claim as a claim to any debt, other than a debt secured by mortgage of immovable property or by hypothecation or pledge of movable property, or to any beneficial interest in movable property not in the possession, either actual or constructive, of the claimant, which the civil courts recognise as affording grounds for relief, whether such debt or beneficial interest be existent, accruing, conditional or contingent.
Two kinds of actionable claim
- A claim to an unsecured debt. A debt secured by a mortgage of land, or by hypothecation or pledge of goods, is excluded, because it is transferred along with its security under other rules.
- A claim to a beneficial interest in movable property which is not in the possession of the claimant (neither actual nor constructive possession).
Farhan owes Prince Rs. 50,000 on a loan given without any security. Prince's claim is an actionable claim (an unsecured debt).
Prince has bought and paid for goods, but the seller has not yet delivered them. His right to those goods is an actionable claim (a beneficial interest in movable property not in his possession).
Further features of the definition
- The claim must be one which the civil courts recognise as a ground for relief.
- It may be existent, accruing, conditional or contingent. So a debt that will fall due next year can also be an actionable claim.
- Common examples: book debts of a business, arrears of rent already due, and money payable under a contract.
Under Section 6(e), a mere right to sue for unliquidated damages, such as a claim for damages for breach of contract that has not yet been decided, is not an actionable claim and cannot be transferred.
Mode of transfer (Section 130)
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Section 130 sets out the mode of transfer:
- The transfer of an actionable claim, whether with or without consideration, shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent.
- It is complete and effectual upon the execution of such instrument.
- Thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, vest in the transferee, whether notice of the transfer has been given or not.
Protection of the debtor
Every dealing with the debt by the debtor, such as paying it to the original creditor, is valid as against the transfer, unless the debtor is a party to the transfer or has received express notice of it. Once the transfer is complete, the transferee may sue in his own name, without the consent of the transferor and without making him a party.
Prince transfers to Aadil, by a signed writing, his claim of Rs. 50,000 against Farhan. The transfer is complete at once. If Farhan, not knowing of the transfer, pays Prince, the payment is valid, and Aadil must recover the money from Prince. Once Farhan receives express notice, he must pay Aadil.
Exception to Section 130 and notice (Section 131)
- Nothing in Section 130 applies to the transfer of a marine or fire policy of insurance, or affects Section 38 of the Insurance Act, 1938, which has its own rules for assigning insurance policies.
- Section 131: the notice of transfer must be in writing, signed by the transferor or his agent, or, if the transferor refuses to sign, by the transferee or his agent, and must state the name and address of the transferee.
Substance of the transaction
Courts look at the substance of a transaction to decide whether a debt has been assigned.
Bharat Nidhi Limited v. Takhatmal (Supreme Court): A bank agreed to finance the works of a contractor. To secure the loans, the contractor executed an irrevocable power of attorney authorising the bank to receive all money due or to become due to him under his contracts, and endorsed a bill to the bank. Before the bank received payment, a creditor of the contractor attached the amount in execution of a money decree. The bank sued, claiming the money as assignee. The High Court dismissed the suit; the Supreme Court allowed the bank's appeal. Held: the power of attorney, coupled with the endorsement on the bill, was a clear engagement by the contractor to pay the bank out of the money receivable, and so amounted to an equitable assignment of the fund by way of security. The Court restated the settled rule that an agreement between a debtor and a creditor that a debt shall be paid out of a specific fund creates a valid equitable charge on that fund and operates as an equitable assignment. The attaching creditor could not take the money. Principle: substance matters; a clear intention to give a creditor a right to a specific fund transfers that right.
Form of the instrument in writing
Sitarama Ayyar v. Narayanaswami Pillai (Madras High Court, an old decision): During a settlement of accounts, the guardians of two minors signed a statement of accounts containing an entry directing the plaintiff to receive a debt of Rs. 600, with interest, due from a third person. Question: was this entry a valid transfer of the debt? Held: yes. The words "instrument in writing" in Section 130 do not mean a document in technical language or in any particular form. All that is required is that the transfer be made in writing showing the intention of the creditor to transfer the debt. The debt passed to the plaintiff.
Rights and liabilities of the parties
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Transferee subject to equities (Section 132)
The transferee of an actionable claim takes it subject to all the liabilities and equities to which the transferor was subject in respect of it at the date of the transfer. The transferee steps into the shoes of the transferor and gets no better right.
If Farhan could have set off a counter-claim against Prince, he can set it off against Aadil, the transferee, as well.
Sections 133 to 135
- Section 133 (warranty of solvency): where the transferor of a debt warrants the solvency of the debtor, the warranty, in the absence of a contract to the contrary, applies only to his solvency at the time of the transfer, and is limited, where the transfer is made for consideration, to the amount or value of that consideration.
- Section 134: deals with a debt transferred by way of mortgage and says how the money recovered is to be applied.
- Section 135: gives the assignee of a fire insurance policy all rights of suit under it, if the insured property is absolutely vested in him at the date of the assignment.
Incapacity of officers connected with courts (Section 136)
No judge, legal practitioner or officer connected with any court of justice shall buy or traffic in, or stipulate for, or agree to receive any share of, or interest in, any actionable claim. No court shall enforce any such claim at the instance of such a person. This is a rule of public policy: people connected with courts must not be tempted to trade in the very disputes that come before those courts.
Contracts involving personal confidence
Indu Kakkar v. Haryana State Industrial Development Corporation Limited (Supreme Court): The Corporation allotted an industrial plot to a firm on condition that the firm would build on it and set up an industry within fixed periods. The firm failed, and the Corporation resumed the plot. While the firm's suit against the resumption was pending, the firm sold its rights in the plot to Indu Kakkar without the Corporation's consent, and she carried on the challenge. Held: the Corporation had allotted the plot relying on the promise of that particular allottee to perform its obligations. The allottee could not leave the scene after putting someone else in its place without the Corporation's consent, and the newcomer could not force the Corporation to recognise her. She had no standing to question the resumption. Principle: the benefit of a contract may usually be transferred, but where the contract depends on personal confidence and carries obligations, the right cannot be transferred so as to bind the other party without its consent.
Transfer of debts and securities: exclusions (Section 137)
Nothing in this chapter applies to:
- stocks, shares or debentures – transferred under company law and, where held in electronic form, through a depository;
- instruments which are for the time being, by law or custom, negotiable – cheques, bills of exchange and promissory notes are transferred under the Negotiable Instruments Act, 1881, by delivery or by endorsement and delivery;
- any mercantile document of title to goods – such as a bill of lading or a warehouse receipt, governed by the Sale of Goods Act and mercantile law.
Actionable claim and negotiable instrument
| Actionable claim | Negotiable instrument (holder in due course) |
|---|---|
| Transferee takes subject to all the equities against the transferor (Section 132). | A holder in due course, who takes in good faith and for value, can take free from the defects in the title of earlier parties. |
| Transferred by a signed instrument in writing (Section 130). | Transferred under the Negotiable Instruments Act, 1881 by delivery or by endorsement and delivery. |
Formula to remember: Actionable claim – subject to equities. Negotiable instrument in due course – free from equities. This is why commerce prefers negotiable instruments.
With sale, exchange, gift and the transfer of actionable claims, the absolute transfers are complete. The next unit turns to transfers made not to part with property forever but to secure a debt, beginning with the mortgage.
Unit 8: Mortgage
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A mortgage uses property as security rather than parting with it forever. When a person takes a home loan, the bank does not buy the flat; it takes a mortgage over it. Mortgage law is the backbone of credit in any economy.
Meaning of mortgage (Section 58, clause (a))
A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability.
- Mortgagor: the transferor.
- Mortgagee: the transferee.
- Mortgage money: the principal money and interest secured for the time being.
- Mortgage deed: the instrument, if any, by which the transfer is made.
Four essentials of a mortgage
- Transfer of an interest, not of full ownership. The mortgagor keeps the rest, called the equity of redemption.
- Specific immovable property, clearly identified.
- Purpose: to secure the payment of money, or the performance of an engagement that may give rise to a money liability.
- Security for a debt: the relationship of debtor and creditor lies behind every mortgage.
Prince borrows Rs. 20 lakh from a bank and mortgages his flat as security. The bank gets an interest in the flat. Prince remains the owner, and when he repays, he gets the flat back free.
Six kinds of mortgage (Section 58)
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1. Simple mortgage
The mortgagor, without delivering possession, binds himself personally to pay the mortgage money, and agrees, expressly or impliedly, that if he fails to pay, the mortgagee shall have a right to cause the property to be sold and the proceeds applied in payment. There are two securities: the personal promise of the borrower and the right to have the property sold.
Prince borrows Rs. 5 lakh from Farhan, promises to repay, and agrees that if he does not, Farhan may have his shop sold through the court. Prince keeps possession.
2. Mortgage by conditional sale
The mortgagor ostensibly sells the property on condition that:
- on default of payment on a certain date the sale shall become absolute; or
- on payment the sale shall become void; or
- on payment the buyer shall transfer the property back to the seller.
Proviso: no such transaction is deemed to be a mortgage unless the condition is embodied in the document which effects or purports to effect the sale. The condition of repayment and return must be in the same deed.
3. Usufructuary mortgage
The mortgagor delivers possession, or binds himself to deliver possession, to the mortgagee, and authorises him to retain possession until payment, and to receive the rents and profits and appropriate them in lieu of interest, or in payment of the mortgage money, or partly for each. There is usually no personal liability, and the mortgagee cannot sue for sale.
Prince mortgages his farm to Farhan, who takes possession and keeps the income of the farm instead of interest.
4. English mortgage
The mortgagor binds himself to repay the mortgage money on a certain date, and transfers the property absolutely to the mortgagee, subject to a proviso that the mortgagee will re-transfer it to the mortgagor upon payment of the mortgage money as agreed. Its features: a personal promise, a fixed date, and an absolute transfer subject to re-transfer.
5. Mortgage by deposit of title deeds (equitable mortgage)
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Where a person, in the towns of Calcutta, Madras and Bombay, or in any other town notified by the State Government, delivers to a creditor or his agent documents of title to immovable property, with intent to create a security on it, the transaction is a mortgage by deposit of title deeds. It is also called an equitable mortgage, and most bank loans against property in India are secured this way.
- Its great advantage is that it needs no written deed at all. The intention to create security, together with delivery of the title deeds, is enough.
- But if the parties write down the bargain itself in a document that constitutes the mortgage, that document may need registration.
6. Anomalous mortgage
Any mortgage that is not one of the five kinds above, such as a combination of a simple and a usufructuary mortgage. Under Section 98, the rights and liabilities of the parties to an anomalous mortgage are determined by their contract and, so far as the contract does not extend, by local usage.
Mortgage by conditional sale and sale with a condition of repurchase
A mortgage by conditional sale looks very much like a sale with a promise to sell back, but the consequences are very different.
| Mortgage by conditional sale | Sale with a condition of repurchase |
|---|---|
| The relationship of debtor and creditor continues. | Ownership passes to the buyer. |
| The mortgagor keeps his right to redeem. | The seller has only a contractual right to buy back, lost if not exercised within the agreed time. |
| The condition for return must be in the same document as the sale (proviso to Section 58(c)). | If the agreement to reconvey is in a separate document, the transaction is a sale followed by a contract to sell back. |
Test applied by courts
The question is decided by the intention of the parties, gathered from the document and the surrounding circumstances. Signs pointing to a mortgage:
- the price is much lower than the real value of the property;
- the seller remains in possession;
- a relationship of borrower and lender existed before;
- the document speaks of a loan and interest.
Under the proviso to Section 58, clause (c), if the condition for return is not in the same document as the sale, the transaction cannot be a mortgage by conditional sale at all.
Bhimrao Ramchandra Khalate v. Nana Dinkar Yadav (Supreme Court, Justice Hemant Gupta): In 1969 Bhimrao needed Rs. 3,000 and executed a document titled a conditional sale deed in favour of Nana as security for the loan. When Bhimrao later offered to repay and asked for the land back, Nana refused and transferred the land to his brother. Bhimrao sued for redemption, claiming the transaction was a mortgage; the courts below treated it as a sale. Held: the document was a mortgage by conditional sale, not an out-and-out sale. What matters is the substance of the transaction and the intention of the parties, not the title given to the document. The document itself contained the condition for reconveyance on repayment and was executed to secure a loan. Bhimrao was entitled to redeem, and his suit, filed within thirty years, was within time.
Shyam Singh v. Daryao Singh (Supreme Court, Justice D.M. Dharmadhikari): Land owners sold their land by a registered sale deed. On the same day, the buyer executed a separate agreement to reconvey the land to them within ten years. The original owners later transferred their right of repurchase to Shyam Singh for a price, and he sued the buyer for specific performance of the agreement to reconvey. The courts below held that the right of repurchase was personal and could not be assigned. Held: nothing in the agreement of repurchase prohibited its assignment, expressly or impliedly, so the assignee was entitled to seek specific performance; the case was sent back to the trial court on other questions. Principle: because the agreement to reconvey was in a separate document, the transaction was a sale followed by a contract to sell back, not a mortgage by conditional sale; such a contractual right of repurchase is transferable unless the contract shows that it was meant to be personal.
Form of a mortgage (Section 59)
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- Principal money of Rs. 100 or more: a mortgage, other than a mortgage by deposit of title deeds, can be effected only by a registered instrument signed by the mortgagor and attested by at least two witnesses.
- Principal money less than Rs. 100: a mortgage may be effected either by such a registered and attested instrument or, except in the case of a simple mortgage, by delivery of the property.
The Lakshmi Vilas Bank Limited v. Shreechakra Enterprises (Madras High Court, Justice M. Chockalingam): A bank gave an export credit loan to a partnership firm and sued when it was not repaid. The bank also claimed that another person had deposited the title deeds of his property with it, creating an equitable mortgage as security for the loan. Held: the loan was decreed with interest against the firm and its partners, and that person was also held liable as a guarantor because he had signed the letter of guarantee; but the bank had not proved that he deposited the title deeds, so no equitable mortgage was created and the claim against his property failed. Principle: a mortgage by deposit of title deeds needs no deed, but the lender must still prove that the title deeds were actually deposited with the intention of creating a security.
Updated from the lecture: the lecture said the bank proved neither the guarantee nor the deposit of title deeds, so the other person was not liable at all. The correct position is that the High Court found he had signed the letter of guarantee and held him liable along with the firm and its partners; only the claim of an equitable mortgage over his property failed, because the deposit of title deeds was not proved. Source: The Lakshmi Vilas Bank Ltd v. M/s. Shreechakra Enterprises, Madras High Court, 11 July 2002 (Indian Kanoon).
Rights of the mortgagor: the right of redemption (Section 60)
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The most important right of the mortgagor is the right to redeem. At any time after the principal money has become due, the mortgagor has a right, on payment or tender of the mortgage money at a proper time and place, to require the mortgagee:
- to deliver to him the mortgage deed and all documents relating to the property which are in the possession or power of the mortgagee;
- where the mortgagee is in possession, to deliver possession;
- at the cost of the mortgagor, either to re-transfer the property to him or to a third person he directs, or to execute an acknowledgement in writing that the right of the mortgagee has been extinguished, and to have it registered where the mortgage was registered.
Proviso: the right must not have been extinguished by act of the parties or by decree of a court. The right of redemption ends only in these ways; for example, the mortgagor may later sell his equity of redemption to the mortgagee by a separate transaction, or a court may pass a final decree of foreclosure or sale.
Clog on the equity of redemption
Courts have long said: "once a mortgage, always a mortgage." The mortgagee cannot insert into the mortgage any term that prevents the mortgagor from getting his property back on payment. Such a term is a clog on the equity of redemption, and it is void. Examples of clogs:
- a term that the property shall become the absolute property of the mortgagee if the loan is not repaid by a certain date, with no further right to redeem;
- a term that postpones redemption for so long that the right becomes illusory;
- a term that lets the mortgagee keep a permanent benefit from the property even after repayment.
Two further rules
- Indivisibility: a mortgagor cannot redeem only a part of the property by paying a part of the debt, except where the mortgagee has acquired the share of a mortgagor.
- Limitation: under the Limitation Act, 1963, a suit to redeem must be filed within thirty years from the date when the right to redeem accrues.
Banarsi Das v. Jiwan Ram (Punjab and Haryana High Court): In 1951 land was mortgaged with possession for Rs. 1,200, and the mortgagor was allowed to stay on the land as a tenant of the mortgagees. The mortgage was not redeemed within thirty years. Later the mortgagor's side claimed that a payment made after the thirty years had redeemed the land. Held: once the limitation period for a suit for redemption had expired, the right to redeem was itself extinguished under Section 27 of the Limitation Act, and no question of equity remained; the mortgagees became entitled to the land. Principle: the right of redemption, though strongly protected, is lost if not exercised within the time the law allows; but for a usufructuary mortgage, time does not run merely from the date of the mortgage (see the note below).
Updated from the lecture: the lecture presented this case as showing that a mortgage with possession becomes irredeemable, and the mortgagee owner, once thirty years pass from the date of the mortgage. The correct position is that, for a usufructuary mortgage, the mortgagor's right under Section 62 to recover possession arises only when the mortgage money is paid out of the rents and profits (or partly so and the balance is paid or deposited); limitation under Article 61 of the Limitation Act, 1963 starts only then, so the mere expiry of thirty years from the date of the mortgage does not extinguish the right, and the mortgagee cannot claim ownership on that ground alone. The High Court's view in this case is therefore no longer good law for usufructuary mortgages. Source: Singh Ram (D) Thr. L.Rs. v. Sheo Ram & Ors., Supreme Court of India, 21 August 2014 (Indian Kanoon).
A special statute can also cut down the right of redemption.
Celir LLP v. Bafna Motors Mumbai Private Limited (Supreme Court, Justice J.B. Pardiwala): A bank enforced its security over a property in Navi Mumbai under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), which lets banks sell secured assets without going to court. After several failed attempts, the property was auctioned and Celir became the highest bidder. The borrower then obtained an order from the High Court allowing him to redeem the property by paying the bank. Held: the Supreme Court set that order aside. After the 2016 amendment of Section 13(8) of that Act, the borrower's right to redeem the secured asset is extinguished once the notice of public auction is published. Principle: under that special law, redemption must happen before the auction notice, and the ordinary right under Section 60 cannot be used to defeat a completed auction process.
Other rights of the mortgagor
- Section 60A: a mortgagor entitled to redeem may require the mortgagee, instead of re-transferring the property to him, to assign the mortgage debt and transfer the property to a third person, such as a new lender.
- Section 60B: a mortgagor may inspect and make copies of the documents of title in the custody of the mortgagee.
- Section 61: a mortgagor who has executed two or more mortgages in favour of the same mortgagee may redeem any one of them separately, unless the contract says otherwise.
- Section 62: a usufructuary mortgagor may recover possession when the mortgage money is paid out of the rents and profits, or when he pays or tenders the balance.
- Sections 63 and 63A: on redemption the mortgagor gets the benefit of accessions to the property and of improvements made by the mortgagee, subject to paying for necessary improvements in certain cases.
- Section 65A: a mortgagor in lawful possession may grant leases of the property that will bind the mortgagee, within the limits the section lays down.
Duties of the mortgagor
- Section 65 implies certain promises by the mortgagor, in the absence of a contract to the contrary: that he has title to transfer the interest, that he will defend the title, that he will pay public charges and the rent of a leasehold, and so on.
- Section 66: a mortgagor in possession must not commit any act that is destructive or permanently injurious to the property, if the security is insufficient or will be rendered insufficient by that act.
Rights of the mortgagee
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Foreclosure or sale (Section 67)
At any time after the mortgage money has become due and before a decree for redemption or payment into court, the mortgagee has a right to obtain from the court either a decree that the mortgagor shall be absolutely debarred of his right to redeem (a decree for foreclosure), or a decree that the property be sold.
Not every mortgagee can claim both remedies:
- Only a mortgagee by conditional sale, or an anomalous mortgagee whose deed allows it, can sue for foreclosure.
- A usufructuary mortgagee as such, and a mortgagee by conditional sale as such, cannot sue for sale.
| Kind of mortgagee | Remedy |
|---|---|
| Simple mortgagee | Sues for sale |
| English mortgagee | Sues for sale |
| Mortgagee by conditional sale | Sues for foreclosure |
| Usufructuary mortgagee | Keeps possession and takes the income until paid |
| Anomalous mortgagee | Foreclosure only if the deed allows it |
Suit for the mortgage money (Section 68)
The mortgagee may sue for the mortgage money itself only in four cases:
- where the mortgagor binds himself to repay;
- where the property is wholly or partly destroyed, or the security is rendered insufficient, by a cause other than the wrongful act of either party, and the mortgagor, given a reasonable opportunity, fails to provide further security;
- where the mortgagee is deprived of the whole or part of his security by the wrongful act or default of the mortgagor;
- where the mortgagee is entitled to possession and the mortgagor fails to deliver it or to secure its quiet enjoyment.
Power of sale without intervention of the court (Section 69)
Allowed only in three situations:
- in an English mortgage where neither party is a Hindu, Muhammadan or Buddhist, or a member of any other class notified by the State Government;
- where the mortgage deed expressly confers such a power and the mortgagee is the Government;
- where the mortgage deed expressly confers such a power and the property is situated in Calcutta, Madras, Bombay or another notified town.
Even then, the power can be used only after a written notice requiring payment and a default of three months, or where interest of at least Rs. 500 is in arrears for three months. Section 69A allows the appointment of a receiver of the income of the property in similar cases.
In practice, banks today rely mainly on the SARFAESI Act, 2002 (seen in the Celir case). It allows secured creditors, once the account turns non-performing and a notice of sixty days is given, to take possession of the secured asset and sell it without the intervention of a court, subject to the remedies it provides.
Duties of a mortgagee in possession (Section 76)
- Manage the property as a person of ordinary prudence would manage it if it were his own, and try his best to collect the rents and profits.
- Pay the Government revenue and other public charges, and make necessary repairs out of the income.
- Not commit any act destructive or permanently injurious to the property.
- Keep clear, full and accurate accounts.
If he fails in these duties, he is liable for the loss.
Suits on mortgages
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Sections 85 to 90 of the Act, which once dealt with suits on mortgages, were repealed when the Code of Civil Procedure was enacted; the subject is now covered by Order 34 of the Code, which provides a two-stage procedure:
- Preliminary decree: in a suit for foreclosure, sale or redemption, the court declares the amount due and fixes a date for payment.
- Final decree: if the amount is paid, a final decree orders the documents and possession to be handed back, and the property is freed. If it is not paid, the court, on application, passes a final decree either debarring the right to redeem or directing sale.
Order 34, Rule 14: a mortgagee who obtains a mere money decree cannot bring the mortgaged property to sale in execution, except by a suit for sale on the mortgage.
Priority
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When the same property is mortgaged more than once, the basic rule under Section 48 is that the earlier right prevails. The Act adds some refinements.
Postponement of prior mortgagee (Section 78)
Where, through the fraud, misrepresentation or gross neglect of a prior mortgagee, another person has been induced to advance money on the security of the mortgaged property, the prior mortgagee shall be postponed to the subsequent mortgagee. (Compare the case of Lloyds Bank v. P.E. Guzdar from Unit 1.)
Raman Chetty v. Steel Brothers and Company Limited (Privy Council, Sir Arthur Wilson): A boat owner in Burma, Maung Gyi, first mortgaged a steam launch and some cargo boats to the agent of Raman Chetty, and later mortgaged the same vessels to Steel Brothers. On his insolvency, the sale proceeds were not enough to pay both. Raman Chetty claimed priority as the earlier mortgagee, but he had given written consent for the later mortgage to be a first charge, and had himself received a large part of the money that Steel Brothers advanced. Held: having joined in inducing Steel Brothers to lend their money as a first charge, he could not turn round and claim priority for his own earlier mortgage. Principle: a prior mortgagee can lose priority by his own conduct; the basis is fairness and estoppel, and Section 78 reflects a similar idea.
Other priority rules
- Section 79 (mortgage to secure future advances): where a mortgage secures future advances or the performance of an engagement and the maximum amount to be secured is expressed, a subsequent mortgagee of the same property who takes with notice of the earlier mortgage is postponed to the earlier mortgagee in respect of all advances made up to that maximum.
- Section 93 (prohibition of tacking): no mortgagee who pays off a prior mortgage thereby gains priority for his own original security; and, except in the case covered by Section 79, no mortgagee who makes a further advance gains priority for that advance over an intermediate mortgage.
- Proviso to Section 48 of the Registration Act: a mortgage by deposit of title deeds takes effect against any mortgage deed subsequently executed and registered for the same property.
Marshalling and contribution
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These are two rules of fairness between mortgagees.
Prince owns two houses. He mortgages both to a bank for Rs. 10 lakh. Later he mortgages only one of them to Farhan. If the bank recovers its whole debt from the house mortgaged to Farhan, Farhan may be left with nothing, although the bank could have been paid from the other house.
Marshalling (Section 81)
If the owner of two or more properties mortgages them to one person, and then mortgages one or more of them to another person, the subsequent mortgagee is, in the absence of a contract to the contrary, entitled to have the prior mortgage debt satisfied out of the property or properties not mortgaged to him, so far as they will extend. This must not prejudice the rights of the prior mortgagee, or of any other person who has acquired an interest in any of the properties for consideration. In the example, Farhan can ask that the bank be paid first out of the other house. Section 56 gives the same right to a buyer (Unit 4).
Contribution (Section 82)
Where mortgaged property belongs to two or more persons with distinct and separate rights of ownership, their different shares or parts are, in the absence of a contract to the contrary, liable to contribute rateably to the mortgage debt. Each share is valued at the date of the mortgage, after deducting any other mortgage or charge on it at that date. The right of contribution is made subject to the right of marshalling under Section 81.
| Marshalling (Section 81) | Contribution (Section 82) |
|---|---|
| Decides the order in which properties are resorted to between successive mortgagees. | Decides how the burden of one debt is shared among several owners. |
Redemption by others and subrogation
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Persons who may sue for redemption (Section 91)
- any person, other than the mortgagee of the interest sought to be redeemed, who has any interest in or charge upon the property mortgaged, or in or upon the right to redeem it;
- any surety for the payment of the mortgage debt;
- any creditor of the mortgagor who has obtained a decree for sale of the property in a suit for the administration of his estate.
Subrogation (Section 92)
Subrogation means substitution: stepping into the shoes of another.
- Legal subrogation (arises by law): any of the persons referred to in Section 91, other than the mortgagor, and any co-mortgagor, on redeeming the property, have, so far as regards redemption, foreclosure or sale, the same rights as the mortgagee whose mortgage he redeems may have against the mortgagor or any other mortgagee.
- Conventional subrogation (arises by agreement, third paragraph): a person who has advanced to a mortgagor money with which the mortgage has been redeemed is subrogated to the rights of the mortgagee whose mortgage was redeemed, but only if the mortgagor has, by a registered instrument, agreed that he shall be so subrogated.
- Condition for both kinds (last paragraph): no one gets the right of subrogation unless the mortgage in respect of which it is claimed has been redeemed in full.
Prince mortgages his house first to a bank and then to Farhan. Farhan, the second mortgagee, pays off the bank in full. He now stands in the shoes of the bank, with its priority over any later mortgagee (legal subrogation). If a friend lends Prince the money to pay off the bank, the friend gets the bank's rights only if Prince agrees to this by a registered instrument (conventional subrogation).
Mortgage compared with sale and lease
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| Mortgage | Sale |
|---|---|
| Transfers only an interest, as security. | Transfers ownership for a price. |
| The mortgagor keeps his right to redeem. | The seller keeps nothing. |
| Usufructuary mortgage | Lease |
|---|---|
| Gives possession and income to the transferee. | Gives possession and income to the transferee. |
| The mortgagee holds possession as security for a debt. | The lessee holds possession as a tenant in return for rent. |
| Possession must be given back on payment. | Possession is for the term of the lease. |
Formula to remember: A mortgage is a transfer to secure. A sale is a transfer to part with. A lease is a transfer to enjoy.
The next unit deals with a security lighter than a mortgage, namely the charge.
Unit 9: Charge (Sections 100 and 101)
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A mortgage transfers an interest in land as security. Sometimes, however, land is made security for money without any interest being transferred at all. That is a charge.
Meaning of a charge (Section 100)
Section 100 provides that where immovable property of one person is, by act of parties or operation of law, made security for the payment of money to another, and the transaction does not amount to a mortgage, the latter person is said to have a charge on the property. All the provisions of the Act which apply to a simple mortgage shall, so far as may be, apply to such a charge.
Three features of a charge:
- Immovable property is made security for the payment of money.
- This happens either by act of the parties or by operation of law.
- The transaction is not a mortgage, because no interest in the property is transferred. The charge-holder only gets a right to be paid out of the property.
Prince borrows two lakh rupees from Farhan and signs a document saying that the loan shall be paid out of the income and, if necessary, the sale of his shop. He transfers no interest in the shop to Farhan. This creates a charge by act of parties.
Kinds of charge
- Charge by act of parties: arises when the owner himself makes his property security, as in the example above.
- Charge by operation of law: arises when a law creates it without any agreement. Two such charges arise under Section 55 (sale):
- an unpaid seller who has passed ownership before receiving the full price has a charge on the property for the unpaid price;
- a buyer who has paid the price in advance has a charge on the property for the amount paid, unless he has improperly refused to take delivery.
- A court may also create a charge by its decree, for example to secure maintenance or a share in family property.
Rights and liabilities under a charge
Since the rules of a simple mortgage apply, the charge-holder can file a suit to have the property sold and to be paid out of the sale price. He cannot ask for foreclosure, and he has no right to possession. A charge by itself creates no personal liability; the charge-holder can sue the debtor personally only if the debtor has separately promised to pay.
Protection of transferee without notice: Section 100 provides that, save as otherwise expressly provided by any law, no charge shall be enforced against any property in the hands of a person to whom it has been transferred for consideration and without notice of the charge. The section does not apply to the charge of a trustee on the trust property for expenses properly incurred in executing the trust.
If Prince sells the charged shop to Aadil, who pays full price and has no notice of the charge, Farhan cannot enforce the charge against Aadil.
No merger of a prior charge (Section 101)
A mortgagee or charge-holder may buy the rights of the owner in the property without causing his mortgage or charge to merge, as between himself and any subsequent mortgagee or charge-holder. He therefore keeps his earlier priority. No subsequent mortgagee or charge-holder can foreclose or sell the property without redeeming the prior mortgage or charge, or otherwise than subject to it.
K. Muthuswami Gounder v. N. Palaniappa Gounder: Two persons had bought the same land at two different court auctions, each claiming a better title. The land belonged to Ganesan. First, Ganesan executed a registered security bond hypothecating the land for a loan from Vairavan Chettiar, who later obtained a decree on that bond and brought the land to sale; the respondent bought it at that court auction. Separately, a firm had filed a money suit against Ganesan. To have an attachment before judgment raised, Ganesan executed a registered security deed for seven thousand rupees naming this land. The firm later obtained a simple money decree, attached the land and sold it; the appellant bought it at that sale. The first question was whether the security deed created a charge or was only an undertaking not to alienate the land.
Held: The Supreme Court (Justice S. Rajendra Babu), agreeing with the High Court and not with the trial court and the first appellate court, held that the deed was a mere undertaking not to alienate the land and created no charge, since it recited no clear obligation to pay the decretal amount out of the property. Even assuming a charge had existed, the appellant did not acquire the rights of a charge-holder, because the firm had not enforced the charge; it had simply attached and sold the land in execution of a money decree. The appeals were dismissed.
Principle: (1) A document creates a charge only when it clearly makes specific property the source of payment; a mere promise not to sell the property is not a charge. (2) A charge must be enforced as a charge. A purchaser at a sale held under a simple money decree gets only what the debtor then had, not the priority of a charge.
Mortgage and Charge Compared
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A favourite examination question.
| Point | Mortgage | Charge |
|---|---|---|
| Nature | Transfer of an interest in specific immovable property. | Transfers no interest; only a right to payment out of the property. |
| Creation | Only by act of parties. | By act of parties or by operation of law. |
| Effect on later transferee | Being an interest in the property, binds a later transferee. | Cannot be enforced against a transferee for consideration without notice, unless a law provides otherwise. |
| Formalities | A mortgage deed securing one hundred rupees or more must be registered and attested by two witnesses. | A charge created by a document needs registration where the Registration Act requires it; the attestation rule of Section 59 speaks only of mortgages. |
| Personal liability | Usually carries a personal covenant to repay. | By itself carries none. |
Every mortgage is a security with an interest. Every charge is a security without an interest.
Unit 10: Lease: Meaning and Essentials (Section 105)
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The lease is the most common transfer of all: every rented flat, shop and office in India is held under a lease.
Definition
Section 105: A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is the lessor, the transferee the lessee, the price the premium, and the money, share, service or other thing to be so rendered the rent.
Essentials of a lease
- A lessor and a lessee, both competent.
- The subject must be immovable property.
- A transfer of a right to enjoy the property, not of ownership.
- The transfer must be for a certain time, express or implied, or in perpetuity.
- Consideration: a premium paid at the start, or rent paid periodically, or both.
The lessee must also accept the transfer.
Prince lets his shop to Farhan for three years at twenty thousand rupees a month, and Farhan pays a lump sum of two lakh rupees at the start. The three years is the term, the two lakh rupees is the premium, and the monthly payment is the rent. The lessee gets a real right to enjoy the property, which he can defend even against the lessor during the term.
Lease and Licence Compared
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A licence is defined in Section 52 of the Indian Easements Act, 1882. It is a right given by one person to another to do something on his immovable property which would otherwise be unlawful, where the right does not amount to an easement or an interest in the property. A paying guest, a person allowed to run a stall inside a mall, or a hotel guest is usually a licensee.
| Point | Lease | Licence |
|---|---|---|
| Interest | Transfer of an interest in the property. | Creates no interest; only a personal permission. |
| Transferability | Can be transferred by the lessee, unless the contract forbids it. | Generally not transferable. |
| Revocability | Not revocable at the will of the lessor during its term. | Generally revocable, except in the cases mentioned in the Easements Act. |
| Heritability and binding effect | Heritable; binds a transferee of the lessor. | Personal to the licensee; a transferee of the grantor is not bound. |
| Suit against trespasser | Lessee can sue a trespasser in his own name. | Licensee generally cannot. |
Test to distinguish lease from licence
Courts do not decide by the name of the document. Many documents called leave and licence agreements have been held to be leases, and some called leases have been held to be licences. Courts look at the substance and the real intention of the parties, gathered from the whole document and the surrounding circumstances. Exclusive possession is an important sign of a lease, but it is not conclusive.
Delta International Limited v. Shyam Sundar Ganeriwalla: Premises in Calcutta used as a petrol service station; the business had been handed over to another party under a written agreement described as a leave and licence. When possession was sought back, the occupant argued that the agreement was really a lease and could not be ended at will. Held: The Supreme Court (Justice M.B. Shah) held the agreement to be a licence. Principle: The real test is the intention of the parties. The document must be read as a whole and the label used is not decisive. Exclusive possession is an important factor, but it can be outweighed by other terms showing that no interest in the property was meant to pass. Look at substance, not form.
Lease distinguished from sale and usufructuary mortgage
- Lease and sale: a sale transfers ownership. A lease transfers only a right to enjoy, and the ownership remains with the lessor.
- Lease and usufructuary mortgage: a usufructuary mortgagee also enjoys the property, but he does so as security for a debt, and the relationship ends when the debt is repaid. A lessee enjoys the property in return for rent, and the relationship ends when the lease is determined.
How Leases Are Made and Their Duration (Sections 107 and 106)
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Formalities (Section 107)
A lease of immovable property from year to year, or for any term exceeding one year, or reserving a yearly rent, can be made only by a registered instrument. All other leases may be made either by a registered instrument or by oral agreement accompanied by delivery of possession. Where a lease is made by a registered instrument, the instrument must be executed by both the lessor and the lessee. Section 17 of the Registration Act also makes such leases compulsorily registrable.
If the parties sign a lease deed for five years but never register it, the deed cannot create a five year lease. Whether the tenant then becomes a trespasser was answered in the following case.
Antony v. K.C. Ittoop and Sons: The owner of a building let a shed to Antony under a lease deed for five years at a monthly rent. The deed was never registered. The building later passed to new owners, who sued to evict Antony, arguing that since the deed was unregistered he had no valid tenancy and the rent control law could not protect him. Held: The unregistered deed could not create a lease for five years. But a lease can also arise from oral agreement accompanied by delivery of possession, and from conduct. The owner had put Antony in exclusive possession and accepted monthly rent from him, so a lease for a period not exceeding one year had come into existence by conduct. Antony was a tenant and became a statutory tenant under the rent control law. The civil suit for eviction failed, though the owner could still approach the Rent Control Court. Principle: A void lease deed does not make the tenant a trespasser, because the relationship of landlord and tenant can be proved from possession and payment of rent.
Duration where not fixed (Section 106)
Section 106 fills the gap where the parties have not fixed the duration. It was substituted by an amendment Act of 2002. In the absence of a contract or local law or usage to the contrary:
| Purpose of lease | Deemed to be | Terminable by either party by |
|---|---|---|
| Agricultural or manufacturing | Lease from year to year | Six months' notice |
| Any other purpose | Lease from month to month | Fifteen days' notice |
The amended section adds three practical rules:
- The notice period begins from the date the notice is received.
- A notice is not invalid merely because the period mentioned in it falls short of the required period, provided the suit or proceeding is filed after the required period has expired.
- Every notice must be in writing, signed by or on behalf of the person giving it, and sent by post, or delivered personally to the party or to a member of his family or a servant at his residence, or, if that is not practicable, affixed to a conspicuous part of the property.
If Prince wants Farhan to vacate a monthly tenancy of a shop, he must give a written notice, and he may file his suit once fifteen days from its receipt have passed.
Rights and Liabilities of the Lessor and the Lessee (Section 108)
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Section 108 sets out the rights and liabilities of the parties, in the absence of a contract or local usage to the contrary.
Duties of the lessor
- Disclose to the lessee any material defect in the property of which he is aware and which the lessee could not discover with ordinary care.
- Put the lessee in possession on request.
- He is deemed to promise that, if the lessee pays the rent and performs the contract, the lessee may hold the property during the lease without interruption. This is the covenant for quiet enjoyment.
Rights of the lessee
- Any accession made to the property during the lease, subject to the law of alluvion, is treated as part of the lease.
- If any material part of the property is wholly destroyed or rendered substantially and permanently unfit for its purpose by fire, tempest, flood, violence of an army or a mob, or other irresistible force, the lease becomes voidable at the option of the lessee, unless the injury was caused by his own wrongful act or default.
- If the lessor fails, after notice, to make repairs he is bound to make, the lessee may make them and deduct the cost, with interest, from the rent.
- The lessee may remove things he attached to the earth, even after the lease ends, while he is in possession, provided he leaves the property as he received it.
- Where the lease is of uncertain duration, he is entitled to the crops he planted, if the lease ends by an event not caused by his default.
- He may transfer his interest absolutely, or by mortgage or sub-lease, but he remains liable under the lease.
Liabilities of the lessee
- Disclose facts, unknown to the lessor, that materially increase the value of his interest.
- Pay the rent at the proper time and place.
- Keep the property in as good a condition as when he received it, subject to reasonable wear and tear and irresistible force, and allow the lessor to inspect it.
- Give notice to the lessor of any encroachment or proceeding that affects the property.
- Use the property as a person of ordinary prudence would use his own, and not for any purpose other than that for which it was leased.
- Not erect any permanent structure without the consent of the lessor, except for agricultural purposes.
- When the lease ends, put the lessor into possession.
M.C. Chockalingam v. V. Manickavasagam: The owners of a cinema theatre leased it for three years. The lease expired and the owners had already asked for possession, but the lessee stayed on and applied for renewal of the cinema licence, which required the applicant to be in lawful possession of the building. The owners also applied. The High Court upheld the renewal in favour of the lessee. Held: The Supreme Court allowed the owners' appeal. After the lease had ended, and without the owners' consent, the lessee was not in lawful possession. He may have had a kind of possession that the law protects against forcible dispossession, but that is not the same as lawful possession. Principle: Under Section 108, the lessee is bound to restore possession when the lease ends.
Determination of a Lease (Section 111)
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Section 111 lists eight ways in which a lease ends:
- Efflux of time limited by the lease.
- Where the time is limited conditionally on some event, by the happening of that event.
- Where the interest of the lessor itself ends on some event, by the happening of that event.
- Merger: where the interests of the lessee and the lessor in the whole property become vested at the same time in one person in the same right.
- Express surrender: where the lessee yields up his interest to the lessor by mutual agreement.
- Implied surrender: for example, where the lessee accepts a new lease from the lessor that starts during the old one.
- Forfeiture.
- On the expiry of a notice to determine the lease, or to quit, duly given by one party to the other.
Forfeiture
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Forfeiture arises in three cases:
- The lessee breaks an express condition which provides that, on breach, the lessor may re-enter.
- The lessee renounces his character as lessee by setting up title in a third person or by claiming title in himself.
- The lessee is adjudicated insolvent and the lease provides that the lessor may re-enter on that event.
In each case, the lessor or his transferee must give notice in writing to the lessee of his intention to determine the lease. Forfeiture is not automatic.
Waiver of forfeiture and of notice to quit (Sections 112 and 113)
Section 112: A forfeiture is waived by acceptance of rent which has become due since the forfeiture, or by distress for such rent, or by any other act of the lessor showing an intention to treat the lease as subsisting, provided the lessor knows that the forfeiture has been incurred. But where rent is accepted after the lessor has filed a suit for ejectment on the ground of forfeiture, the acceptance is not a waiver.
Section 113: A notice to quit is waived, with the express or implied consent of the person to whom it is given, by any act of the person giving it which shows an intention to treat the lease as subsisting.
Relief against forfeiture (Sections 114 and 114A)
Section 114 (non-payment of rent): Where a lease is forfeited for non-payment of rent and the lessor sues to eject the lessee, the court may relieve the lessee against the forfeiture if, at the hearing, he pays or tenders the arrears with interest and full costs, or gives security for payment within fifteen days.
Section 114A (breach of other express conditions): No suit for ejectment lies unless the lessor has first served a written notice specifying the breach and, if the breach can be remedied, requiring the lessee to remedy it, and the lessee has failed to do so within a reasonable time. This section does not apply to conditions against assigning, sub-letting or parting with possession, or to forfeiture for non-payment of rent.
Holding Over and Tenancy at Sufferance (Section 116)
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Section 116 deals with a lessee or under-lessee who remains in possession after the lease has been determined. If the lessor or his legal representative accepts rent from him, or otherwise assents to his continuing in possession, the lease is renewed, in the absence of an agreement to the contrary, from year to year or from month to month according to the purpose of the lease, as specified in Section 106. Such a lessee is a tenant holding over.
If the lessor does not assent, the lessee who stays on is only a tenant at sufferance. He is in possession without the consent of the owner, but since he entered lawfully he is not a trespasser in the ordinary sense. He cannot claim the protection of Section 116.
Holding over needs the assent of the lessor. Without assent, it is only sufferance.
Shanti Prasad Devi v. Shankar Mahto: After a lease ended, the lessee stayed on and claimed that the lease had been renewed by holding over. The lease contained a renewal clause which laid down a particular period and required renewal to be settled by mutual agreement or through the mediation of village elders. Held: The lessor had neither expressly nor impliedly agreed to renew. The renewal clause, prescribing its own period and mode of renewal, was an "agreement to the contrary" within Section 116, so there could be no implied renewal by holding over. Principle: Mere acceptance of money from a lessee who continues in possession after the lease has ended does not, by itself, show assent to the continuance.
Sevoke Properties Limited v. West Bengal State Electricity Distribution Company Limited: Land at Siliguri was leased for fifteen years. The term expired but the lessee stayed on. The lessor sued for possession without first serving a notice to quit under Section 106. The High Court dismissed the suit, accepting the lessee's argument that notice was necessary. Held: The Supreme Court restored the decree for possession. Where a lease for a fixed term ends by efflux of time under Section 111, clause (a), no notice to quit is required. The lessee had admitted in his pleadings that the lease was for fifteen years and had expired, and since the lessor had not assented to his continuing in possession, he was not a tenant holding over under Section 116. Principle: A notice under Section 106 is needed only to end a periodic tenancy.
Renewal of Leases, Rent Control Laws and Agricultural Leases
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Renewal and rent control
Many leases give the lessee an option to renew. Such an option is a matter of contract and must be exercised as the contract says. In cities, the general law of the Act often gives way to State rent control laws, which protect tenants against eviction.
Subhash Chander v. Bharat Petroleum Corporation Limited (2022): Land at Kaithal in Haryana was leased in 1958 for twenty years to Burmah Shell, whose rights later passed to Bharat Petroleum by statute. The lease allowed one renewal for another twenty years, and it was renewed. When the second term ended in 1998, the owners filed a civil suit for possession. Held: The courts held that the civil suit could not be entertained, and the Supreme Court agreed. The land fell within the Haryana rent control law, so once the lease ended the lessee became a statutory tenant, who could be evicted only on the grounds and before the authority provided in that law. Principle: Where a rent control law applies, the landlord must use that special law and not a civil suit.
Agricultural leases (Section 117)
None of the provisions of the chapter on leases apply to leases for agricultural purposes, except in so far as the State Government may, by notification, declare them to apply. Agricultural tenancies are governed mainly by State tenancy and land reform laws.
Shyam Lal v. Deepa Dass Chela Ram Chela Garib Dass: Agricultural land near Faridabad had been leased for fixed terms, the last of which ended in 2005. The new owner treated the tenant as a trespasser and obtained a decree for possession, which the High Court upheld. The Supreme Court noted that the land was governed by the Punjab Security of Land Tenures Act, 1953, and observed that under that law a tenant of agricultural land does not become a trespasser merely because the lease period has expired and can be evicted only on the grounds and by the procedure in that Act. Because this view differed from an earlier decision of the Court, the Bench referred the question to a larger Bench.
Held: In 2016, a three judge Bench allowed the appeal. The State Act does not protect a person whose lease has merely expired. But the lease deed was unregistered, so it could not prove a fixed term, and the lease was treated as one from year to year. The tenant had stayed on with the implied consent of the owner, so under Section 116 he kept the status of a tenant and could be evicted only on the grounds in the State Act. Section 107 applies even to agricultural leases in Punjab and Haryana. Principle: For agricultural land, the State tenancy law usually decides the rights of the parties.
Unit 11: Easements: Nature, Essentials and Classification
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Besides transfers of ownership, security and enjoyment, the law recognises smaller rights over the land of another person, namely easements and licences. This unit also covers two laws that touch every property document in India: the Registration Act and the stamp law.
The house of Prince stands behind the plot of Farhan, and the only way to the main road passes through Farhan's plot. For thirty years, Prince and his family have walked across that path. Whether Prince has any right to continue is a question of easements.
Definition (Section 4, Indian Easements Act, 1882)
An easement is a right which the owner or occupier of certain land possesses, as such, for the beneficial enjoyment of that land, to do and continue to do something, or to prevent and continue to prevent something being done, in or upon, or in respect of, certain other land not his own. The land for whose benefit the right exists is the dominant heritage (its owner, the dominant owner). The land on which the burden is imposed is the servient heritage (its owner, the servient owner).
The Explanation to Section 4 adds three points:
- "Land" includes things permanently attached to the earth.
- "Beneficial enjoyment" includes possible convenience, remote advantage and even a mere amenity.
- "To do something" includes the removal and appropriation by the dominant owner, for the beneficial enjoyment of his land, of any part of the soil of the servient heritage or anything growing or subsisting on it. So in India, some rights to take things from the land of another can also be easements, if they are attached to a dominant heritage.
Essentials of an easement
- There must be two heritages, a dominant and a servient one.
- They must belong to different persons; no one can have an easement over his own land.
- The right must exist for the beneficial enjoyment of the dominant heritage, and not merely for the personal benefit of its owner.
- The right must be to do something, or to prevent something, on the servient land.
- The right must be certain and well defined.
Classification (Section 5)
| Kind | Meaning | Example |
|---|---|---|
| Continuous | Enjoyment is, or may be, continual without the act of man. | Right to receive light through a window. |
| Discontinuous | Needs the act of man for its enjoyment. | Right of way, which needs someone to walk. |
| Apparent | Shown by some permanent sign. | A window or a drain. |
| Non-apparent | No such permanent sign. | Right to prevent a neighbour from building above a certain height. |
Natural Rights and Riparian Rights
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Section 7 says that easements are restrictive of certain rights which every owner has by the very fact of ownership. Its illustrations describe these natural rights:
- Every owner has the exclusive right to enjoy and dispose of the products of his land.
- Every owner of land has the right to have it, in its natural condition, supported by the land of his neighbours.
- Every owner of land has rights in the water that flows past it.
Riparian rights
The rights of an owner whose land abuts on a natural stream are riparian rights. Such an owner has a natural right that the water of a natural stream, flowing in a defined natural channel past his land, shall be allowed by other persons to flow within his limits without interruption and without material alteration in quantity, direction, force or temperature. Each riparian owner may make a reasonable use of the water, for example for domestic purposes and for his cattle, but must not unreasonably diminish or pollute the flow to the owners lower down the stream.
| Natural right | Easement |
|---|---|
| Comes with ownership itself. | An additional right over the land of another. |
| Needs no grant and no long use. | Must be acquired in one of the ways the law recognises. |
| May be cut down by an easement. | May restrict a natural right, e.g. an upper owner may acquire, by grant or long use, a right to pollute or divert the stream to some extent against the owners below him. |
Creation and Acquisition of Easements
Section 8: An easement may be imposed by anyone in the circumstances, and to the extent, in and to which he may transfer his interest in the servient heritage. So a lessee can impose an easement only for the period of his lease.
Section 12: An easement may be acquired by the owner of the dominant heritage, or on his behalf by a person in possession of it.
Four main ways of acquiring an easement:
- Express grant, by a document or otherwise.
- Implied grant, especially easements of necessity and quasi easements under Section 13.
- Prescription, under Section 15.
- Local custom, under Section 18.
Easements of necessity and quasi easements (Section 13)
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Section 13 applies where one person transfers or bequeaths immovable property to another, or where joint owners partition their property. If an easement over the other property of the transferor is necessary for enjoying the property transferred, the transferee gets that easement. This is an easement of necessity.
Prince owns a large plot, sells the back half to Farhan, and keeps the front half, which alone touches the road. Farhan gets a right of way over the front half, because without it the back half could not be used at all.
The necessity must be absolute. Mere convenience is not enough. If there is another way, however inconvenient, there is no easement of necessity.
Quasi easements: Where the transferor, while he owned both parts, used one part for the benefit of the other in a way that is apparent and continuous, and that use is necessary for enjoying the transferred part as it was enjoyed when the transfer took effect, the transferee gets that right.
A drain from the back house runs through the front part. When the back house is sold, the buyer gets the right to continue using the drain.
Under Section 41, an easement of necessity is extinguished when the necessity comes to an end. So if a new public road later reaches Farhan's plot, his easement of necessity over Prince's land ends.
Easement by Prescription (Section 15)
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Section 15 covers three kinds of rights:
- Access and use of light or air to and for any building, peaceably enjoyed with it as an easement, without interruption, for twenty years.
- A right of support for land subjected to artificial pressure, such as land carrying a building, enjoyed in the same way.
- A right of way or any other easement, peaceably and openly enjoyed by any person claiming title to it, as an easement and as of right, without interruption, for twenty years.
In each case the right becomes absolute. Each period of twenty years must end within two years before the institution of the suit in which the claim is contested. Where the servient property belongs to the Government, the period is thirty years instead of twenty.
Conditions for a prescriptive easement
- Peaceable, not by force.
- Open, not secret.
- As of right and as an easement, not by the permission of the owner.
- Without interruption.
- For twenty years, or thirty against the Government.
Interruption means an actual stopping of the enjoyment by an obstruction caused by another person, not a mere non-use by the claimant. An obstruction counts as an interruption only if the claimant submits to it or acquiesces in it for one year after he knows of it and of the person who caused it. The Limitation Act, 1963 repeats this rule in its Section 25.
If Prince has used the path across Farhan's plot openly, as of right, without asking permission and without interruption for more than twenty years, he has acquired a right of way by prescription. But if Farhan had given him permission, the use was not as of right, and no easement arises however long it continues.
Extinction of Easements
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The Easements Act, from Section 37 onwards, lists the ways in which an easement is extinguished. The important ones:
- When the right of the servient owner that created it comes to an end.
- When the dominant owner releases it, expressly or impliedly.
- When a power of revocation reserved in its grant is exercised.
- An easement granted for a limited period, or subject to a dissolving condition, ends when the period expires or the condition is fulfilled.
- An easement of necessity ends when the necessity ends.
- An easement that becomes incapable of being at any time beneficial to the dominant owner is extinguished.
- By a permanent change in the dominant heritage that materially increases the burden on the servient heritage in a way the servient owner cannot reduce, subject to exceptions such as an easement of necessity.
- By a permanent alteration of the servient heritage by superior force.
- By the complete destruction of either heritage.
- By unity of ownership, when the dominant and servient heritages come to belong to the same person in the same right.
- By non-enjoyment: an easement, whether continuous or discontinuous, ends if it is not enjoyed for an unbroken period of twenty years.
The Act also provides for the suspension of an easement, and for its revival in certain cases, for example when a heritage that was destroyed is restored within a set period.
Licences (Indian Easements Act)
Definition (Section 52)
A licence is a right granted by one person to another, or to a definite number of other persons, to do, or continue to do, in or upon the immovable property of the grantor, something which would, in the absence of such right, be unlawful, and the right does not amount to an easement or an interest in the property.
A licence is a personal permission. It makes lawful what would otherwise be a trespass.
Prince allows Farhan to park his car in the compound of his house every night. That is a licence.
Rules relating to licences
- A licence may be express or implied from conduct.
- It cannot be transferred by the licensee, except a licence to attend a place of public entertainment, such as a ticket to a film.
- When the grantor transfers the property, his transferee is not bound by the licence.
Revocation (Section 60)
A licence may be revoked by the grantor, unless:
- it is coupled with a transfer of property and that transfer is in force; or
- the licensee, acting on the licence, has executed a work of a permanent character and incurred expenses in doing so.
If Prince allows Farhan to build a permanent pipeline across his land, and Farhan spends money building it, Prince cannot later revoke the licence.
Revocation may be express or implied, and the Act lists events on which a licence is deemed to be revoked, such as the destruction of the property or the completion of the purpose for which it was granted. On revocation, the licensee is entitled to a reasonable time to leave the property and remove his goods. If a licence was granted for consideration and the licensee is evicted by the grantor without any fault of his own before he has fully enjoyed the right, he may recover compensation from the grantor.
Easement and Licence Compared
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| Point | Easement | Licence |
|---|---|---|
| Nature | A right attached to land; needs a dominant heritage. | A personal right; needs no dominant heritage. |
| Interest in land | A right in the land of another, good against its later owners. | Creates no interest; a transferee of the grantor is not bound. |
| Transfer | Passes with the dominant heritage when that land is transferred. | Cannot be transferred. |
| Revocability | Cannot be revoked at the will of the servient owner. | Generally revocable, subject to the exceptions in Section 60. |
| Prescription | Can be acquired by prescription. | Can never become an easement by mere length of use, because use by permission is not use as of right. |
Easement: a right for the land. Licence: a permission for the person.
The Law of Registration (Registration Act, 1908)
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Purposes of registration
- To give public notice of transactions affecting land, so that any buyer can search the records.
- To prevent fraud and forgery, because the registering officer records the execution and the identity of the parties.
- To provide good evidence of title.
Compulsory registration (Section 17)
- Instruments of gift of immovable property.
- Other non-testamentary instruments which purport or operate to create, declare, assign, limit or extinguish, whether in present or in future, any right, title or interest, vested or contingent, of the value of one hundred rupees and upwards, in immovable property.
- Instruments acknowledging the receipt of consideration for such a transaction.
- Leases of immovable property from year to year, for any term exceeding one year, or reserving a yearly rent.
- Instruments transferring decrees or awards that affect such rights.
- Since 2001, sub-section (1A): documents containing contracts to transfer immovable property for consideration, for the purposes of Section 53A of the Transfer of Property Act.
Documents that need not be registered (Section 17(2))
- A document that does not itself create any right, but merely creates a right to obtain another document, such as an ordinary agreement to sell, subject to sub-section (1A).
- A decree or order of a court, except a compromise decree that includes immovable property other than the subject matter of the suit.
- A certificate of sale granted to a purchaser at a public auction by a civil or revenue officer.
Optional registration (Section 18)
- Instruments relating to immovable property worth less than one hundred rupees.
- Leases for one year or less.
- Instruments relating to movable property.
- Wills.
Administration, time and place
Sections 13 and 14 deal with registering officers and their reports and establishments. More important are the rules of time and place:
- Section 23: A document other than a will must be presented for registration within four months of its execution.
- Section 28: A document affecting immovable property must be presented in the office of the Sub-Registrar within whose sub-district the whole or some part of the property is situated.
Effect of Registration and Non-Registration
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Section 47: Time from which a registered document operates
A registered document operates from the time from which it would have commenced to operate if no registration had been required, and not from the time of its registration.
A sale deed executed on one date and registered some weeks later operates from the date of execution.
Section 48: Registered documents against oral agreements
All non-testamentary documents duly registered and relating to any property take effect against any oral agreement or declaration relating to that property, unless the oral agreement or declaration was accompanied or followed by delivery of possession and constitutes a valid transfer under the law. Proviso: a mortgage by deposit of title deeds takes effect against any mortgage deed subsequently executed and registered for the same property.
Section 49: Effect of non-registration
No document required by Section 17, or by any provision of the Transfer of Property Act, to be registered shall affect any immovable property comprised in it, or be received as evidence of any transaction affecting such property, unless it has been registered.
Proviso: such an unregistered document may be received as evidence of a contract in a suit for specific performance, or as evidence of any collateral transaction not required to be effected by a registered instrument. Since 2001, it can no longer be used as evidence of part performance for the purposes of Section 53A.
Section 50: Priority of registered documents
Certain registered documents relating to land, such as sales, gifts, mortgages and long leases, take effect against every unregistered document relating to the same property, other than a decree or order, whether the unregistered document is of the same nature or not. Registration therefore gives priority.
Under Explanation I to Section 3 of the Transfer of Property Act, registration of a document operates as notice to later buyers, if it has been properly registered and indexed.
Proposed new Registration Bill
In May 2025, the Central Government released the draft of a new Registration Bill for public consultation. It proposes to replace the Act of 1908, to require registration of more documents (such as agreements to sell, powers of attorney for transferring property, sale certificates and equitable mortgages), and to move the whole system online. Until Parliament enacts a new law, the Registration Act, 1908 continues to govern.
Stamp Law
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Every property document must also be properly stamped. The Indian Stamp Act, 1899, together with the stamp laws of the States, requires stamp duty to be paid on instruments. The States fix the rates of duty on most property documents, such as sale deeds, gift deeds and leases, usually on the market value of the property.
Stamp duty is a tax on the instrument, not on the transaction as such.
Key provisions of the Indian Stamp Act, 1899
- Section 3: Makes instruments chargeable with duty.
- Section 17: Instruments executed in India must be stamped before or at the time of execution.
- Section 33: A person who has authority to receive evidence, such as a court, and a person in charge of a public office, other than a police officer, must impound an instrument produced before him that is not duly stamped.
- Section 35: Such an instrument cannot be admitted in evidence or acted upon, unless the proper duty and a penalty are paid.
- Section 36: Once an instrument has been admitted in evidence, its admission cannot later be questioned in the same suit on the ground of improper stamping.
- Section 40: The Collector who receives an impounded instrument decides the duty and penalty payable and certifies it.
Stamp Law: Legal Status of an Unstamped Agreement
Effect of non-stamping
Reference on arbitration agreements and the Indian Stamp Act (seven-judge Bench of the Supreme Court) (2023): in December 2023 a Bench of seven judges decided a reference on the interplay between arbitration agreements and the Indian Stamp Act. Held: an unstamped or insufficiently stamped agreement is inadmissible in evidence, but it is not void or unenforceable from the beginning. The defect is curable by paying the duty and penalty. Principle: non-stamping affects admissibility, not validity.
Proposed new stamp law
In November 2023 the Central Government released the draft of a new Indian Stamp Bill, meant to replace the Act of 1899, for public consultation. Until Parliament enacts a new law, the Indian Stamp Act, 1899 and the State stamp laws continue to apply.
Three laws every transfer deed must satisfy
A sale deed, gift deed, mortgage deed and long lease must each satisfy three laws at once, and a careful lawyer checks all three.
| Law | What it governs |
|---|---|
| Transfer of Property Act, 1882 | What must be in writing and attested |
| Registration Act | Makes the transfer public and effective |
| Stamp law | Makes the document admissible |
The law of foreign exchange adds one more layer of rules when the buyer or seller lives outside India.
Unit 12: Transfer of Property and the Foreign Exchange Management Act, 1999
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Many Indians live and work abroad, and many of them buy, inherit or sell property in India. The Transfer of Property Act tells how a transfer must be made. When one party lives outside India, the Foreign Exchange Management Act, 1999 (FEMA) decides whether the transfer is allowed at all.
Why foreign exchange law matters for property
FEMA regulates dealings that involve foreign exchange and persons outside India. A purchase of Indian land by a person living abroad brings money into India, and a sale by him may take money out of India. The law therefore controls:
- who may acquire property;
- how the price must be paid; and
- how much of the sale money may be sent abroad.
Division of work: the Transfer of Property Act, the Registration Act and the stamp law govern the form of the transfer; FEMA and the rules made under it govern the permission for it. A sale deed may be perfectly executed and registered, and yet the transaction may break the foreign exchange law.
Resident and Non-Resident
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Everything in FEMA depends on residential status, not citizenship.
Person resident in India (Section 2)
In simple terms, Section 2 of FEMA defines a person resident in India as a person who has resided in India for more than 182 days during the preceding financial year.
However, a person who has gone out of India, or stays outside India, for employment, for business, or for any other purpose showing an intention to stay outside for an uncertain period, is not a person resident in India.
A person who is not resident in India is a person resident outside India.
NRI and OCI
Two groups of persons resident outside India are specially important:
- Non-Resident Indian (NRI): a person resident outside India who is a citizen of India.
- Overseas Citizen of India (OCI): a person resident outside India who is registered as an Overseas Citizen of India cardholder under the Citizenship Act, 1955.
For property purposes, the law treats these two groups almost alike.
Section 6 of FEMA: Basic Rules on Property
- Section 6(4): a person resident in India may hold, own and transfer immovable property situated outside India if he acquired it when he was resident outside India, or inherited it from a person who was resident outside India.
- Section 6(5): a person resident outside India may hold, own and transfer immovable property situated in India if he acquired it when he was resident in India, or inherited it from a person who was resident in India.
Prince bought a flat in Pune while living in India. He later moves to Dubai for work. He may keep that flat and later sell it.
Rule-making power
Since 15 October 2019, the power to lay down detailed rules for such investments rests with the Central Government, which makes them in consultation with the Reserve Bank of India (RBI). The rules on immovable property are now found in the Foreign Exchange Management (Non-debt Instruments) Rules, 2019.
Acquisition of Property by an NRI or OCI
Under Rule 24 of the Non-debt Instruments Rules, an NRI or OCI may acquire any immovable property in India other than agricultural land, a farm house or plantation property.
Three modes of acquisition
- Purchase.
- Gift from a person resident in India or from another NRI or OCI. In every case the donor must be his relative as defined in the Companies Act, 2013.
- Inheritance of any property, even agricultural land, from a person resident in India, or from a person resident outside India who had himself acquired the property in accordance with the foreign exchange law in force at that time.
Payment of the price
The price may be paid only through normal banking channels, that is:
- out of money remitted to India from abroad; or
- out of money held in his non-resident bank accounts in India.
The price cannot be paid in foreign currency notes or traveller's cheques.
Farhan, an Indian citizen working in London, may buy a flat in Bengaluru by paying from his non-resident account. He cannot buy a mango orchard or a farm house. He may, however, inherit agricultural land from his father who lived in India.
Transfer of Property by an NRI or OCI
- An NRI or OCI may transfer any immovable property in India to a person resident in India.
- He may transfer immovable property other than agricultural land, a farm house or plantation property to another NRI or OCI.
If Farhan owns agricultural land that he inherited, he can sell or gift it only to a person resident in India.
Repatriation of sale money
The sale money may be sent abroad, but within limits:
- Where a property was bought in accordance with the law, the sale proceeds may generally be repatriated up to the amount originally paid in foreign exchange.
- For residential property, this facility is limited to not more than two properties.
- Beyond this, money in his ordinary non-resident rupee account, including sale proceeds of assets, may be remitted abroad up to USD 1 million in a financial year under the remittance rules.
- Larger amounts need the approval of the RBI.
Foreign Spouse of an NRI or OCI
The Rules allow the spouse of an NRI or OCI, who is not himself or herself an NRI or OCI, to acquire one immovable property in India (other than agricultural land, a farm house or plantation property) jointly with the NRI or OCI spouse. Conditions:
- the marriage must have been registered; and
- it must have subsisted for a continuous period of at least two years immediately before the acquisition.
Persons Who Need Prior Permission of the RBI
The Rules place a strict restriction on citizens of certain neighbouring and other countries. A citizen of any of the following cannot acquire or transfer immovable property in India without the prior permission of the RBI:
- Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan, Hong Kong, Macau or North Korea.
Exceptions
- A lease for a period not exceeding five years is outside this restriction.
- The restriction does not apply to a person who holds an OCI card.
Acquisition for Carrying on a Permitted Activity
A person resident outside India who has set up a branch, office or other place of business in India for carrying on a permitted activity may acquire immovable property in India that is necessary for, or incidental to, carrying on that activity.
- This does not apply to a liaison office, which may only act as a channel of communication and cannot carry on business.
- The acquisition must comply with all applicable laws.
- A declaration must be filed with the RBI within 90 days of the acquisition.
Connecting Foreign Exchange Law with the Transfer of Property Act
Prince, living in India, sells his flat in Delhi to Farhan, an NRI in Canada. Under the Transfer of Property Act, the sale needs a registered, stamped sale deed. Under FEMA, Farhan may buy the flat because it is not agricultural land, but he must pay the price through proper banking channels. If Aadil, a citizen of China living in Beijing, wanted to buy the same flat, he would need the prior permission of the RBI.
In every property transaction with a person living abroad, ask two questions: (1) Is the transfer valid in form? (2) Is it permitted by the foreign exchange law?
Quick revision
▶ Watch this part of the lecture (3:55:31)
The law of transfer of property runs from the idea of property as a bundle of rights to the rules for persons living outside India.
Three habits for the examination:
- In every problem, first identify the kind of transfer, then check its form, registration and stamp.
- Always name the section and support it with the leading case.
- Whenever two concepts look similar, such as sale and agreement to sell or lease and licence, write their differences clearly, with an example.