December 11, 2024
Overview: The Transfer of Property Act is part of the syllabus for roughly all states' Prelims and Mains Judiciary Examination 2025. As a judiciary aspirant in 2025 or a student in your Law School, you should know how to prepare Transfer of Property Act notes in depth.
Refer to this article to understand all the essential topics of the Transfer of Property Act for Judiciary Preparation. Read this entire blog and make notes accordingly. It would help if you also made notes for yourself after referring to this article.
In this Blog we will cover:
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The term "transfer" refers to a procedure or action through which ownership of certain assets is transferred to another party. In the first paragraph of Section 5, the definition of a property transfer is explained as follows: A property transfer entails an action carried out by a living individual, whether in the present or the future, to transfer ownership of assets to one or more other living individuals or to oneself and one or more other living individuals. To execute a property transfer is to carry out this action.
A property transfer involves a living individual transferring ownership, whether in the present or the future, to one or more living individuals or even to oneself. In India, the Transfer of Property Act of 1882 governs property transfers. The Act defines the term "transfer of property" in Section 5.
As per this section, the transfer of property refers to an action through which a living person conveys ownership, whether currently or at a later time, to one or more other living individuals or to oneself along with other living individuals. It's worth noting that the term "living person" encompasses entities such as companies or associations, whether incorporated or not. However, this section doesn't impact any existing laws related to companies, associations, or groups of individuals that are currently in force.
What is the Purpose of the Transfer of Property Act?
The Transfer of Property Act serves the purpose of defining and amending laws related to the transfer of property through the actions of parties involved rather than through legal operations. Such transfers of property are essentially contracts, and therefore, they must meet all the requirements to constitute a valid contract.
Key Definitions:
Living Person: This term includes not only individual living persons but also extends to encompass "a company or association or body of individuals," whether they are incorporated or not. However, this provision does not affect any existing laws pertaining to companies.
Property: While the Act does not provide a specific definition for "property," it has a broad and inclusive meaning. Property can encompass various forms, including both movable (such as books or water bottles) and immovable (such as ownership or copyrights).
Transfer: The term "transfer" also holds a broad meaning, as it can involve the transfer of all rights and interests in a property or just one or more specific rights in that property.
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Essentials of Transfer of Property:
Transfer Involves Living Persons: Property transfers, referred to as "inter vivos," can only occur between living individuals. Transfers to persons who do not exist are not valid. The category of "living person" includes companies, associations, or bodies of individuals, whether incorporated or not.
Property Must Be Transferable: Generally, property of any kind can be transferred. However, there are exceptions outlined in Section 6 of the Act, which lists properties that cannot be transferred. For instance, public offices, pensions, and certain rights are among the items that cannot be transferred.
Transfer Must Not Violate the Law: Transfers that oppose the nature of interest affected, are for unlawful purposes or considerations, involve persons legally disqualified from being transferees, or go against the principles of public policy are prohibited.
Persons Competent to Transfer: Individuals who are competent to enter into contracts, as defined in Section 11 of the Indian Contract Act, may transfer property. This typically includes those who have attained the age of majority, are of sound mind, and are not disqualified from entering into contracts by any other applicable law.
Types of Transfers Under the Transfer of Property Act:
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Case Law Example:
In the case of Harish Chandra vs. Chandra Sekhar (AIR 1977, All 44), the court held that if a transfer deed explicitly states that the transferor was the owner of the property and expresses the intention to transfer their title, it would constitute a valid transfer of property.
Defining Movable and Immovable Property:
Movable and immovable properties are differentiated based on several common factors:
Understanding Movable and Immovable Property:
Movable Property: Movable property is characterized by its ability to be easily relocated from one place to another without undergoing any changes in its size, shape, quantity, or quality. Essentially, movable property is transferable through human effort. Examples of movable property include items like books, utensils, and vehicles. However, there are exceptions, such as when a banyan tree is cut or sold for wood, it becomes classified as movable property. Similarly, contracts related to activities like cutting bamboo or collecting leaves fall under the category of movable property.
Movable property does not require mandatory registration under the Indian Registration Act, 1908, and its transfer is voluntary. This type of property is subject to sales tax, central sales tax, and specific restrictions and conditions outlined in tax acts and the Central Sales Tax Act, 1956. The transfer of movable property is completed by a simple delivery, and it does not alter the nature of an ancestral impartible estate.
Movable property encompasses a wide range of assets, including rights of worship, royalties, decrees for the sale of immovable property, decrees for rent arrears, maintenance allowances, standing timber, growing crops, grass, government promissory notes, and more.
Immovable Property: Immovable property, as defined by the General Clauses Act, 1897, includes land, benefits arising from land, and objects attached to or permanently fixed to the earth. This encompasses a broad spectrum of elements, from land and buildings to hereditary allowances, rights of way, light, ferries, fisheries, and other land-related benefits. The definition of immovable property under the Transfer of Property Act, 1882, excludes standing timber, growing crops, or grass.
However, this exclusion is not exhaustive, and a comprehensive interpretation combines definitions from the General Clauses Act and the Transfer of Property Act, concluding that immovable property includes land, benefits arising from land, and objects attached to the earth, except for standing timber, growing crops, or grass.
Immovable property is characterized by various elements, as outlined by legal scholar Salmond, including a determinate portion of the earth's surface, the ground beneath the surface down to the earth's center, the infinite column of space above the surface, natural objects on or beneath the surface, and objects placed on or under the surface through human agency for permanent annexation.
Immovable property includes a wide range of elements, such as rights to ferries, fisheries, rent collection, hereditary offices, equity of redemption, mortgage interests in immovable property, factories, and more. It's important to note that the degree, manner, extent, and strength of attachment, as well as the object of annexation, play crucial roles in determining whether a property is considered movable or immovable. Transfer of immovable property typically requires registration, whereas movable property transfers do not have this requirement.
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Baijnath vs. Ramadhan and Anr, AIR 1963: This significant case was adjudicated by the Allahabad High Court and subsequently referred to a larger bench due to conflicting decisions regarding the key issue at hand.
Issue at Hand: The primary question raised in this case was whether standing shisham or neem trees could be categorized as standing timber as defined under section 2(6) of the Act.
Judgment: The court, in its ruling, emphasized the paramount importance of determining the intention behind the trees in question. It considered whether the parties involved intended to deal with these trees specifically for the purpose of cutting them down or using them as standing timber, rather than merely as ordinary trees.
Shantabai vs. State of Bombay, AIR 1958 SC 532: In this notable case, the Supreme Court held that the real intention behind planting a tree would be the decisive factor. The purpose for which the tree was originally planted and its subsequent use were taken into account. The court established that entering a piece of land and cutting trees would fall under the category of benefits arising from the land.
Kapoor Construction vs. Leela Nagaraj & Ors., AIR 2005: In this case, the court provided valuable insights into the factors that play a crucial role in determining whether a property should be classified as movable or immovable. These factors include:
These cases have contributed significantly to the legal understanding of property classification, particularly in distinguishing between movable and immovable assets based on factors such as intention and mode of annexation.
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Definition of Transferable Property: Transferable property refers to assets that can be conveyed or moved from one entity or individual to another for their use. Section 6 of the Transfer of Property Act, 1882, establishes that property of various kinds can be transferred, except when prohibited by this act or other prevailing laws. In the absence of any legal restrictions preventing the transfer, the property owner may proceed with the transfer.
Those contesting non-transferability must demonstrate the existence of specific laws or customs that restrict the right to transfer. In some cases, unauthorized individuals may transfer property and subsequently acquire an interest in that property.
When property is transferred subject to a condition that entirely restrains the transferee from disposing of their interest in the property, this condition is considered void. An exception exists in the case of a lease where such a condition benefits the lessor or those claiming under the lessor. Typically, only individuals with an interest in the property have the authority to transfer their interest and confer proper title to another party.
Transferable Property vs. Non-transferable Property:
Non-Transferable Property under Section 6 of the Act:
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Who Can Transfer Property Under the Transfer of Property Act, 1882:
Section 7 of the Transfer of Property Act specifies that any person competent to contract is competent to transfer property, either wholly or in part. Additionally, the person willing to transfer property must hold title to the property or have the authority to transfer it, even if they are not the actual owner.
It is crucial to be entitled to the transferable property or have the authority to dispose of transferable property, even if it is not personally owned. Competency to contract is determined by the age of majority, which is typically attained at 18 years, although it may be 21 years in certain circumstances, as stipulated by the Indian Majority Act, 1875.
Persons Disqualified to Transfer: Certain individuals are disqualified from transferring property, including convicts, insolvent individuals, aliens, and enemies. A transfer by a defective guardian of a minor's property is also considered invalid under Section 11 of the Hindu Minority and Guardianship Act.
Case Laws:
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Transfer to an Unborn Person: An Explanation
Definition of Transfer to an Unborn Person: Transfer to an unborn person refers to a legal scenario in which an interest in property is created for the benefit of an individual who is not yet in existence but may come into existence in the future. Section 13 of the Transfer of Property Act, 1882, outlines the conditions under which such transfers can occur. These conditions ensure that any interest created for an unborn person does not take effect unless it covers the entirety of the remaining interest of the property's transferor.
While an unborn child does not have current legal existence, both Indian and English law treat a child in the womb as already born for many legal purposes, following the legal maxim "nasciturus pro jam nato habetur."
To transfer property for the benefit of an unborn person, a trust mechanism must be employed. In simpler terms, the immovable property must vest in a living person between the date of the transfer and the birth of the unborn person, as property cannot be directly transferred in favor of an unborn person.
Key Elements of Section 13 of the Transfer of Property Act:
Procedure for a Valid Transfer of Property to an Unborn Person:
Section 13 outlines a specific procedure for transferring property for the benefit of an unborn person:
Case Laws Relevant to Transfer of Property to an Unborn Person:
The transfer of property to unborn persons is possible through indirect means using trusts. Section 13 of the Transfer of Property Act ensures that such transfers adhere to specific conditions to prevent obstacles in the free disposition of property for future generations. To make a valid transfer in favor of an unborn person, it is crucial to convey the entire remaining interest of the property to the unborn individual. This ensures that the transfer takes effect in accordance with the law, and any other approach may render the transfer void.
Rule Against Perpetuity Explained
Definition of Rule Against Perpetuity: The rule against perpetuity, as defined under the Transfer of Property Act, places a limit on the maximum time period during which property can be transferred. In this context, "perpetuity" means an indefinite or limitless duration. This rule prevents the creation of transfers that render a property inalienable for an indefinite period, known as the perpetuity period. Section 14 of the Transfer of Property Act addresses the rule against perpetuity.
Conditions for Compliance:
Transfer During Lifetime: To prevent violations of Section 5 of the Transfer of Property Act, property transfers must occur during the lifetime or before the death of the person with prior interest and the conception of the beneficiary. Failing to do so will render the transfer void.
Attainment of Full Age: The transfer of property to an unborn person or the creation of an interest in favor of the beneficiary can happen in three stages:
Object of the Rule Against Perpetuity: The primary objective of the rule against perpetuity is to ensure that property remains transferable and does not become inalienable for extended periods. This promotes the free circulation of property, benefiting trade, commerce, society, and property ownership. It aims to prevent the creation of perpetuities, which could hinder the active use and transfer of property.
Conditions for Rule Against Perpetuity under the Transfer of Property Act:
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Differences in the Rule Against Perpetuity between Indian Law and English Law:
Exceptions to the Rule Against Perpetuity:
Vested Interest for the Ultimate Beneficiary:
A vested interest in favor of the ultimate beneficiary is achieved either:
Conclusion: Section 14 of the Transfer of Property Act establishes the rule against perpetuity to prevent the stagnation of properties and ensure their free circulation for the benefit of society. This rule encourages property's active use and transfer, which is essential for trade, commerce, and the overall betterment of society.
Case Laws under Rule Against Perpetuity under Transfer of Property Act:
Understanding Vested Interest
Definition of Vested Interest: Vested interest refers to an interest in a property that is created in favor of a person without specifying a specific time or connection. In a vested interest, the interest in the property belongs to the transferee, even though the right to enjoy the property may be delayed. The person with the vested interest does not have immediate possession of the property but has the expectation of receiving it upon the occurrence of a specified event.
Section 19 of the Transfer of Property Act defines Vested Interest: "Where, on a transfer of property, an interest therein is created in favor 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 from the terms of the transfer."
Example of Vested Interest: Suppose 'X' promises to transfer his property to 'Y' when 'Y' reaches the age of 22. 'Y' will have a vested interest in 'X's' property until he gains possession of it. If 'Y' were to pass away at the age of 21, the vested interest would transfer to 'Y's' legal heirs, who would be entitled to the property within the specified time frame.
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Characteristics of Vested Interest:
When Does Vested Interest Occur? Vested interest can occur in two stages:
Understanding Contingent Interest
Definition of Contingent Interest: Contingent interest refers to an interest created in favor of a person that depends on the occurrence of a specified uncertain event. In a contingent interest, the right to the property is not granted until the uncertain event happens, and if the event does not occur, the person does not receive the property. The contingent interest is entirely contingent on the condition imposed on the transfer.
Conditions for Contingent Interest:
Dependence on Uncertain Event: Contingent interest occurs when the interest depends on a specified uncertain event.
Examples of Contingent Interest:
Exceptions to Contingent Interest under Section 120 of the Indian Succession Act, 1925:
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Characteristics of Contingent Interest:
Vested interest is an immediate or present interest in a property, while contingent interest depends on the occurrence of a specified uncertain event. Both types of interests have distinct characteristics and implications, and they play a crucial role in property transfers and ownership rights.
Case Law: Lachman vs. Baldeo (1919) 21 OC 312
In this legal case, a deed of gift was transferred by one individual in favor of another person. However, the transferor included an instruction that the transferee should not take possession of the property until the transferor's own demise. Despite the postponement of the right to enjoy the property, the transferee was deemed to have a vested interest in the property.
Case Law: Leake vs. Robinson (1817) 2 Mer 363
In the case of Leake vs. Robinson, the court established a significant legal principle. It was ruled that whenever a condition is attached to a legacy, specifying that it is to be given 'at a particular age,' 'upon attaining a particular age,' or 'a specific age,' it can be inferred that the transfer involves a contingent interest.
Doctrine of Election in Property Law
The doctrine of election in property law pertains to the choice made by an individual between two alternative or incompatible rights when presented with such a situation. Under this doctrine, if a person is granted two rights through a single instrument, with one right being contingent on the other, they are obligated to select one of these rights. This means that the beneficiary cannot simultaneously enjoy both rights; they must choose between the conflicting options. Essentially, the person who receives a benefit under an instrument must also bear any associated burdens.
The doctrine of election is codified in the Transfer of Property Act, 1882, under Section 35, and is also found in sections 180-190 of the Indian Succession Act. It requires individuals to make a choice regarding whether they wish to assume ownership of someone else's property and whether they intend to uphold the conditions set forth.
The doctrine of election is founded on the principle that one cannot accept a benefit under an instrument or transaction and simultaneously reject or disapprove of its unfavorable aspects. In simpler terms, if an individual accepts a benefit from a deed or instrument, they must also accept any corresponding obligations or conditions.
For instance, consider a scenario in which 'A' promises to give 'B' 50 lakh rupees but with the condition that 'B' must sell his house to 'C.' In this case, 'B' must make a choice between accepting 'A's offer and complying with the condition to give up his house or refusing 'A's offer and retaining his house.
Essential Conditions for Application of the Doctrine of Election
For the doctrine of election to apply, several essential conditions must be met:
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Exceptions to the Doctrine of Election
There are exceptions to the doctrine of election:
Modes of Doctrine of Election
There are two modes of making an election:
Direct Election: This can be done through various means, including a written letter, a telegram, oral communication from the transferor, or any indication by the person that expresses the transferor's intention.
Indirect Election: Indirect election includes three types:
Case Laws
Mohd. Kader Ali Fakir vs. Lukman Hakim: This case emphasizes that a person who accepts a benefit under an instrument must also accept any burden imposed by the same instrument. The doctrine of election ensures that one cannot accept favorable aspects while rejecting unfavorable ones under the same instrument.
Dhanpati vs. Devi Prasad and Others (1970) (3) SCC 776: In this case, the court outlined the essential conditions for the application of the doctrine of election. It stressed that the owner must not have a right to transfer the property, must transfer some benefit to the owner of the property, and both transfers must be part of the same transaction. The owner must choose to confirm or dissent from the transfer.
Transfer by an Ostensible Owner in Property Law
An ostensible owner refers to a person who appears to be the legitimate owner of a particular property but, in reality, is not the true owner. This individual is not a trespasser or someone in unlawful possession of the property. Instead, they act as if they are the property owner, often with the consent or acquiescence of the actual property owner.
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Transfer by Ostensible Owner
Section 41 of the Transfer of Property Act deals with the concept of a transfer by an ostensible owner.
Essentials of Ostensible Owner
Several key elements must be met for a transfer by an ostensible owner to be valid:
Benami Transaction
Benami transactions are a common example of ostensible ownership. In a benami transaction, one person holds the property while another provides the consideration for it. The person providing the consideration is the actual owner, while the person in whose name the property is held is the ostensible owner.
Benami transactions are now regulated by the Benami Transactions Act, 1988, which prohibits such transactions and imposes penalties. However, there are exceptions to this prohibition, including when someone buys property in their spouse's name or in the name of an unmarried daughter.
Validity of the Transfer
If all the requirements of Section 41 are met, the transfer by an ostensible owner is considered valid and not null or void.
Burden of Proof: Ostensible Owner
The burden of proof under Section 41 falls upon the transferee, who must demonstrate:
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Rule of Estoppel over the Real Owner
Section 41 operates on the principle of estoppel. If the real owner of the property assures the transferee that the ostensible owner has the right to deal with and alienate the property, and the transferee reasonably believes this to be true even after taking due care, the real owner is prevented from later questioning the transfer. This is based on the idea that the real owner's conduct led to the transfer, and the innocent party should not suffer as a result.
Case Laws
The Doctrine of Lis Pendens in Property Law
The Doctrine of Lis Pendens, derived from the Latin phrase "Pendente lite nihil innovetur," translates to "during the pendency of litigation, nothing new should be introduced." It signifies that when there is ongoing litigation concerning a property, no fresh transactions or interests should be created in relation to that property. The doctrine aims to maintain the status quo of the property in question during the course of legal proceedings.
Key Aspects of the Doctrine of Lis Pendens:
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Illustrations:
Essentials of the Doctrine of Lis Pendens:
Several elements must be met for the doctrine of lis pendens to apply:
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Non-Applicability of the Doctrine of Lis Pendens:
The doctrine of lis pendens does not apply in certain circumstances:
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Purpose of the Doctrine of Lis Pendens:
The doctrine of lis pendens is essential to prevent the transfer of the title of a disputed property without the court's consent. Without this doctrine, litigation could continue indefinitely, making it impossible to bring lawsuits to a successful conclusion. The doctrine ensures that the rights of parties are protected and prevents unfair transactions during ongoing litigation.
Applicability of Section 52 of Transfer of Property Act: Conditions to Be Satisfied:
The Supreme Court, in the case "Dev Raj Dogra vs. Gyan Chand Jain and others," established the following conditions for the application of Section 52 of the Transfer of Property Act:
Case Laws Illustrating the Doctrine of Lis Pendens:
Definition of Fraudulent Transfer: A fraudulent transfer, as per the Transfer of Property Act, refers to the unlawful transfer of property with the intent to deceive or defraud creditors. Such transfers involve the intention to hinder creditors from exercising their legitimate and equitable rights. When a transfer is made with fraudulent intent, it is considered unjust and contrary to principles of equity and justice, even if it is legally valid.
Relevant Section: Section 53 of the Transfer of Property Act, 1882, deals with fraudulent transfers.
Key Elements of Fraudulent Transfer:
Example: If 'A' transfers ownership of his property to 'B' with the intention of shielding his assets from creditors, this transfer is deemed fraudulent.
Legal Consequences of Fraudulent Transfer: A fraudulent transfer of property creates a civil cause of action. The affected creditor can approach the court to set aside such a transfer. The court has the authority to declare a fraudulent transfer void at the request of the defrauded creditor.
Objective of the Doctrine of Fraudulent Transfers: The primary objective of Section 53 is to protect the rights of creditors who may be owed financial liabilities by the transferor. It aims to provide security to those creditors who might suffer delays or defeats in their claims due to the transferor's ill intentions. Creditors, who have done nothing more than lend money to the deceitful transferor, deserve legal protection, which can only be provided by legislative policy.
Essentials of Fraudulent Transfer under the Transfer of Property Act:
Exceptions to Fraudulent Transfer:
A fraudulent transfer may not be void if the following conditions are met:
Filing a Suit for Fraudulent Transfer:
Suits related to fraudulent transfers are typically filed by the affected creditor. The suit is framed based on the grounds that the transfer was made with the intent to defraud or delay the transferor's creditors. These suits are instituted on behalf of all creditors to avoid multiple lawsuits against the same parties on the same matter.
Burden of Proof in Fraudulent Transfer Cases:
There is no presumption in law that a transfer was made with the intent to defraud creditors. The burden of proof initially lies with the creditors to demonstrate the transferor's intent to defeat or delay them. Once the creditors establish a prima facie case of fraudulent intent, the burden shifts to the transferor to provide a defense and explain the circumstances.
Proviso: The law protects bona fide transferees who have paid consideration for the transfer and were unaware of the fraudulent intentions of the transferor. However, if the transferee had constructive notice of the fraud, it is assumed that they knew about it.
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Case Laws Illustrating Fraudulent Transfers:
The doctrine of fraudulent transfers aims to protect the rights of creditors and ensure that fraudulent transactions do not hinder their legitimate claims.
Definition of Rule of Part Performance: The rule of part performance is a legal principle based on equity. It was developed in England and later incorporated into the Transfer of Property Act, 1882, through the Amendment Act of 1929.
Key Elements of the Rule of Part Performance:
Illustration: Suppose 'A' enters into a contract with 'B' to sell a plot of land for a specified amount. 'A' accepts an advance payment from 'B' and hands over possession of the plot. Later, when 'B' is ready to make the full payment, 'A' refuses to accept it and asks for the plot back.
In this scenario, 'B' is prepared to fulfill their part of the contract, but 'A' is not. In such a case, 'B' can file a case for specific performance against 'A,' even if the sale was not registered.
Essentials of the Rule of Part Performance:
Objectives Behind the Rule of Part Performance: The rule of part performance is based on the principle of equity and is intended to protect the rights of parties in a contract. Its objectives include:
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Transfer of Property: The rule of part performance applies to the transfer of immovable property, including sales, leases, and mortgages.
Proviso: The law protects bona fide transferees who have paid consideration for the transfer and were unaware of the transferor's breach of contract. However, if the transferee had constructive notice of the breach, it is assumed that they knew about it.
Case Law Illustration: In the case of Kanchanbai vs. Moti Chand (AIR 1967 MP 145), the court clarified that the term "creditors" includes even a single creditor. The rule of part performance can be applied even if the intent was to defraud a single creditor.
The rule of part performance aims to protect the rights of parties in a contract and ensure that they are not unfairly affected by the actions or omissions of the other party.
Case Law Examples of the Rule of Part Performance
Case 1: Kukaji vs. Basantilal (AIR 1955 MB 93)
Facts of the Case:
Judgment:
Case 2: Sardar Govindrao Mahadik vs. Devi Sahai
Facts of the Case:
Judgment:
These case law examples illustrate the application of the rule of part performance in situations where possession alone is not sufficient to claim part performance, and additional actions or advancements of the contract are required to establish the right to retain possession.
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Definition of Actionable Claim:
An actionable claim refers to a claim or debt for which legal action can be taken. It signifies a right to enforce a claim through legal means. This term often pertains to unsecured debts or beneficial interests in movable property that are recognized by civil courts as grounds for seeking relief. Actionable claims can be transferred, and their transfer is regulated by the Transfer of Property Act, 1882.
Actionable Claim under the Transfer of Property Act:
Under the Transfer of Property Act, an actionable claim encompasses claims to unsecured debts or beneficial interests in movable property that are not in the possession of the claimant. These claims can be transferred from one party to another, and the Act provides guidelines for their transfer in Chapter VIII, which includes sections 130 to 137.
Examples of Actionable Claims:
Exceptions to Actionable Claim:
Some claims and rights are not categorized as actionable claims under the Transfer of Property Act. These exceptions include:
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Transfer of Actionable Claims:
The transfer of actionable claims is regulated by Section 130 of the Transfer of Property Act. To transfer an actionable claim, the following conditions must be met:
Notice of Transfer to Debtors:
While notice of transfer to debtors is not mandatory for the validity of the transfer, providing notice is advisable to bind the debtor with the transfer. Section 131 of the Transfer of Property Act specifies that the notice must be in writing, signed by the transferor or their authorized agent, and should include the name and address of the transferee.
Case Law Example:
H. Anraj vs. Govt. of Tamil Nadu, A.I.R. 1986 S.C. 63: In this case, the Supreme Court ruled that the right to participate in a draw is a beneficial interest in movable property, and the objective of participation is to win the award. Therefore, the transfer of such rights qualifies as an actionable claim.
A mortgage is a financial arrangement wherein a borrower secures a loan to purchase or maintain real estate, typically a home, and commits to repay the borrowed amount over time through a series of regular payments. In this arrangement, the property itself serves as collateral to guarantee the repayment of the loan. Mortgage transactions involve the transfer of an interest in a specific immovable property, either to secure funds provided through a loan, existing or future debt, or to fulfill an engagement that might lead to a financial obligation.
As per Section 58(a) of The Transfer of Property Act, 1882, a mortgage is defined as the transfer of an interest in a particular immovable property, with the aim of securing the payment of money advanced or to be advanced as a loan, an existing or potential debt, or the performance of an engagement that could result in a pecuniary liability. In this context, the transferor is referred to as the mortgagor, the recipient of the transfer as the mortgagee, the total sum involving principal and interest currently secured is known as the mortgage-money, and the associated document, if any, formalizing the transfer is termed a mortgage-deed.
Characteristics of a Mortgage:
Involves Immovable Property: Mortgages are applicable exclusively to immovable property, which includes land and structures, along with profits derived from land-related assets such as trees, buildings, and machinery. However, it is important to note that machinery not permanently affixed to the earth and capable of relocation is not considered immovable property.
Partial Transfer of Ownership: Unlike a sale, where full ownership rights are transferred, a mortgage involves the transfer of specific ownership rights while retaining other ownership rights with the original owner.
Purpose for Securing a Loan: The primary purpose of a mortgage is to secure a loan, leading to a monetary obligation. Property transfer for any other purpose does not constitute a mortgage. For instance, transferring property to settle prior debts would not qualify as a mortgage.
Specific Identification of Property: The mortgaged property must be distinctly identifiable based on attributes such as size, location, and boundaries.
Possession May Remain with Mortgagor: The actual possession of the mortgaged property is not always transferred to the mortgagee. The mortgagor can retain possession while securing the loan.
Right to Property Returns to Mortgagor: After repaying the debt, the mortgagor regains full ownership rights over the mortgaged property.
Mortgagee's Right to Recover Debt: If the mortgagor fails to repay the loan, the mortgagee has the right to recover the debt by selling the mortgaged property.
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A mortgagor is an individual or entity that borrows money from a lender, typically for the purpose of acquiring real estate, such as a home or other property. The mortgagor is the party that transfers an interest in a specific immovable property as collateral to secure a mortgage loan. The term is often used in the context of real estate transactions, where the mortgagor pledges the property as security to obtain financing for the purchase.
Mortgagors can secure different mortgage loan terms depending on various factors assessed during the loan approval process. Mortgage loans are considered secured loans, meaning they are backed by the collateral of real estate, and this collateral serves as a guarantee for the repayment of the loan. If the mortgagor fails to make timely payments, they may face foreclosure, which could result in the lender taking possession of the property.
For example, if an individual, 'A,' wishes to purchase a home and needs a loan to do so, 'A' becomes the mortgagor when they transfer an interest in the specific immovable property (the purchased home) to secure the loan. 'A' is responsible for repaying the loan according to the agreed-upon terms.
Who is a Mortgagee?
A mortgagee is a lender or financial institution that provides a mortgage loan to a borrower, commonly known as the mortgagor. In a mortgage transaction, the mortgagee is the recipient of the mortgage and holds the interest in the specific immovable property pledged as collateral. The term "mortgagee" is typically used in real estate and lending contexts, referring to the party that lends money for the purchase or refinancing of property and receives a security interest in return.
The mortgagee plays a crucial role in the mortgage process, as they have a legal claim on the mortgaged property until the borrower repays the loan in full. This legal interest ensures that the mortgagee has a right to take possession of the property and sell it if the mortgagor defaults on their loan payments. The mortgagee is also responsible for determining the terms and conditions of the mortgage loan, overseeing the servicing of the loan, and managing the title rights related to the property.
The concept of a "Charge" under the Transfer of Property Act refers to an interest established over an immovable property to secure the repayment of a debt or obligation owed to another party. In essence, it is a financial encumbrance placed on a property without transferring ownership. Notably, not all charges are classified as mortgages, as the two terms are distinct. A charge serves as a legal mechanism to ensure the payment of a specified amount without necessitating a property transfer.
Key Elements of a Charge under the Transfer of Property Act:
Immovable Property: A charge must be linked to an immovable property, which can be either existing or future property belonging to the debtor. The intention is to create security that can be legally enforced.
Clear Specification: The property must be clearly identified and specified as collateral for the debt. Precise details about the property are vital for establishing a valid charge.
No Transfer of Ownership: Unlike a mortgage, a charge does not involve the transfer of property ownership or rights. It creates a personal obligation or the right to pay from the specified property.
Creation by Agreement: A charge can be created through a mutual agreement between the parties involved. It does not require specific technical language or formalities, but the intention to use the property as security must be evident from the agreement.
Operation of Law: Charges can also arise by operation of law, without the parties' explicit consent. This occurs when legal requirements compel certain obligations, even without the parties' intent.
Exceptions to Charges:
Two exceptions to charges are defined in Section 100 of the Transfer of Property Act:
Charges on Trust Property: A charge cannot be created on immovable property that serves as trust property for incurring expenses related to trust execution or maintenance.
Notice Requirement: If a property is transferred to a new owner without their knowledge of an existing charge on the property, the charge cannot be enforced against them.
Differences Between Charge and Lien:
A charge and a lien are distinct legal concepts:
Types of Charges under the Transfer of Property Act:
Two common types of charges are:
Fixed Charge: Created on specific, unchanging assets such as land, buildings, or machinery. The identity of the assets remains constant during the loan period, and the lender typically has significant control over them.
Floating Charge: Established on assets that can change or fluctuate, such as stock or debtors. These assets can be used in the ordinary course of business until the charge crystallizes, usually upon default or insolvency.
Registration of charges is mandatory for corporations under the Companies Act, 2013. Companies must register charge particulars with the Registrar of Companies within 30 days of creating the charge. Failure to do so can render the charge void against the liquidator and other creditors. However, the charge remains valid until the company goes into liquidation.
If there is a valid reason for delay, the Registrar may condone it, allowing for late registration within 300 days of the charge's creation. The company can request an extension by submitting Form CHG-10 and providing a statement ensuring that the rights of intervening creditors are not adversely affected. In cases of continued non-compliance, the company can seek an extension from the Central Government under Section 87 of the Companies Act.
Case Law Examples on Charges under the Transfer of Property Act:
JK (Bombay) Private Ltd vs. New Kaiser-I-Hind Spinning and Weaving Co Ltd (1970 AIR 1041, 1970 SCR (3) 866): In this case, the court ruled that while a charge does not involve the transfer of interest or property, but rather the creation of a right for payment from a specific property, a mortgage, in contrast, entails the actual transfer of property or interest. The court emphasized that no specific wording is necessary to establish a charge; however, there must be a clear intention to create a property security for immediate payment.
Raychand Jivaji vs. Basappa Virappa Bellary (1940) 42 BOMLR 1113: The court in this case determined that it is sufficient to establish a charge if the document clearly indicates the intention to use the property as security for the payment of money, without transferring any rights or interests in the property.
Debi Singh and Ors. vs. Jagdish Saran Singh (AIR 1952 All 716): This case clarified that a mortgage is a legal arrangement in which a person borrows money, secures repayment, and pays interest by creating a right or charge in favor of the lender on their movable and/or immovable property.
Hasan vs. Mt Kalawati (147 IC 302, AIR 1933 All 934): The Calcutta High Court's decision in this case held that if an instrument is explicitly labeled as a mortgage and grants the mortgagee the power to recover the mortgaged money from the sale of the property, it should be treated as a mortgage. However, if the instrument does not overtly appear as a mortgage but instead establishes a lien or directs the recovery of money from a specific property without mentioning a sale, it creates a charge.
Definition of Sale under Transfer of Property Act: Sale, as defined under the Transfer of Property Act, refers to the transfer of ownership of a property in exchange for a price, whether paid, promised, partly paid, or partly promised. While the term "sale" is commonly associated with the purchase and sale of goods and services, under the Act, it specifically pertains to the sale of immovable property and is governed by Section 54 of the Transfer of Property Act, 1882.
Key Definitions from Section 3 of the Act: To fully grasp the concept of sale, it's essential to understand certain key definitions provided in Section 3 of the Transfer of Property Act:
Section 54 of the Transfer of Property Act: Section 54 of the Act offers a comprehensive definition of the term "sale" and outlines the manner in which the sale of immovable property can take place. In this context, sale implies the complete transfer of all rights in the property being sold, leaving no rights with the transferor.
Key Points from Section 54:
Contract for Sale: A contract for the sale of immovable property is a formal agreement that establishes specific terms between the parties involved. In this contract, the seller commits to selling or delivering the property to the buyer at a predetermined price agreed upon by the buyer. A contract of sale for goods is distinct from the sale of immovable property and is governed by separate laws.
Essentials of a Sale under Transfer of Property Act:
The essentials that must be met for a transaction to be considered a sale under the Transfer of Property Act include:
Rights and Liabilities of Buyer and Seller: Both the buyer and seller involved in a property sale have specific rights and liabilities:
Understanding these elements and legal provisions is crucial for individuals involved in property transactions governed by the Transfer of Property Act.
Case Law Examples Related to Sale under the Transfer of Property Act:
Definition of Gift under the Transfer of Property Act: A gift under the Transfer of Property Act is the transfer of certain existing movable or immovable property made voluntarily and without consideration by one person, referred to as the 'donor,' to another person, known as the 'donee,' and accepted by or on behalf of the donee. The donor is the person transferring the property, while the donee is the recipient of the gift.
Essentials of a Gift under the Transfer of Property Act:
Void Gifts under the Transfer of Property Act: Gifts can be rendered void under various circumstances, including:
Universal Donee: A universal donee, as defined in Section 128 of the Transfer of Property Act, means that when a transfer is made, the entire property of the donor, along with all debts and liabilities at the time of the transfer, is transferred to the donee. The donee becomes personally liable for these debts and liabilities.
Onerous Gift: Onerous gift, as defined in Section 127 of the Transfer of Property Act, pertains to a situation where a gift is made in one transfer to the same person with several items. In such cases, the donee has the option to accept one item and reject the others. This concept is based on the principle that one who receives a benefit must also bear the burden.
Creation of an Effective Gift: According to Section 123 of the Transfer of Property Act, the transfer of immovable property by way of gift must be executed through a registered instrument or on behalf of the donor, and it must be attested by at least two witnesses. For movable property, either a registered instrument or delivery of possession is sufficient.
Grounds for Revocation or Suspension of a Gift: Section 126 of the Transfer of Property Act provides grounds on which a gift can be revoked or suspended, including:
Case Laws related to Gift under Transfer of Property Act:
Definition of Lease under Transfer of Property Act: A lease of immovable property, as defined under the Transfer of Property Act, is the transfer of the right to enjoy such property for a certain period, either express or implied, or in perpetuity, in consideration of a price or promise, or money, a share of crops, services, or any other valuable consideration, to be periodically rendered or on specified occasions, to the transferee (donee) by the transferor (donor). Lease-related provisions in the Transfer of Property Act, 1882 are covered from Section 105 to Section 117, and a lease can only pertain to immovable property.
Lease under the Transfer of Property Act: Section 105 of the Transfer of Property Act provides the definition of a lease, stating that it involves the transfer of immovable property for a specific duration, in consideration of which the transferee accepts the terms and conditions specified in the agreement. The Transfer of Property Act, 1882, governs leases, encompassing Sections 105 to 117.
Key Parties in a Lease:
Essentials of a Lease under Transfer of Property Act: To constitute a valid lease under the Transfer of Property Act, certain essential elements must be met:
Termination of a Lease: A lease can be terminated through various means as stipulated in the Transfer of Property Act:
Notice to Quit and Its Implications: A notice to quit is a formal written statement issued to the lessee by the lessor when the lessee intends to terminate the lease agreement, either on the grounds specified in Section 111 or upon the expiry of the duration mentioned in Section 106. The notice to quit can be waived, either expressly or implicitly, as described in Section 112. The waiver indicates the intention to continue the existing lease.
Effect of Holding Over: Section 116 explains the effect of holding over, where the lessee retains possession after the termination of the lease. If the lessor accepts this, it is not considered a new lease but rather a continuation of the existing one. The lease becomes renewable, typically as a monthly or yearly lease, based on the terms outlined in Section 106.
Case Laws related to Lease under Transfer of Property Act:
1. An unequivocal and irrevocable settlement conferring enjoyment rights over the property in present and each getting a specific share in it upon the death of the settlor would create:
A. A contingent interest in favour of each of the beneficiary
B. A vested interest in favour of each of the beneficiary
C. Either A or B depending on the facts of the case
D. Neither A nor B, as it would be void
2. B gifts a share of business to A on the condition that in case B does not like the future daughter-in-law of B, the property will revert back to B. Which of the following statements will apply?
A. The gift and condition and valid
B. The gift is absolute, condition is invalid and discarded
C. The gift is void in totality
D. The gift is valid in case B’s son choose not to marry
3. B makes a gift deed in favour of A. The gift deed contains transfer of three houses unburdened by obligations, two houses which are mortgaged with C, two cars under the hire purchase agreement and three horses, one of which is lame. Which of the following statements will apply?
A. A can accept the whole gift, he has an option to accepting or not accepting the lame horse
B. A must accept the whole gift or refuse the same
C. A can choose to take gift of three houses and avoid all the rest
D. A has a choice to take over movable property and avoid immovable property
4. B makes a gift of residential house comprising of three distinct units, one each to D, E and F. E refuses the gift. Which of the following statements will apply?
A. One unit will default back to B
B. The house will be divided equally between D and F
C. E will continue to own one unit
D. None of these
5. B transfers some property to C with a condition that in case A marries during B’s lifetime the property will go to B. A marries during B’s life. Which of the following statements will apply?
A. The transfer to C is void and property reverts back to B
B. The transfer and condition are valid, and the property will transfer to A
C. The transfer is valid, but condition is invalid property remains with C
D. The transfer is voidable at C’s option
Transfer of Property Act for Judiciary exams is important. However, you must understand the concepts thoroughly to score better in the examination. Here are quick tips for preparing for Transfer of Property Act for all state Judiciary Exams:
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