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PSale & Purchase Of Property

PSale & Purchase Of Property

Sale under Transfer of Property Act, 1882

            
Table Of Content

    1.Introduction
    2.Definition of sale
        2.1.Contract for sale
    3.Parties to sale
         3.1.Competency of a seller
         3.2.Competency of a buyer
    4.Rights and liabilities of buyer and seller
         4.1.Liabilities and rights of the seller and the buyer before completion of sale
           4.1.1.Liabilities of a seller
            4.1.2.Rights of a seller 
           4.1.3.Liabilities of a buyer 
           4.1.4.Right of a buyer 
         4.2.Liabilities and rights of the seller and the buyer after completion of the sale
           4.2.1.Liabilities of a seller 
           4.2.2.Right of a seller 
           4.2.3.Liabilities of a buyer
           4.2.4Rights of a buyer
    5.Marshalling by subsequent purchaser
    6.Encumbrances and court sale
    7.Rescission of a contract of sale 
      7.1.Effects of rescission 
    8.Important case laws 
    9.Conclusion

In common parlance, a “sale” is a transaction wherein one person purchases some article from another in exchange for some consideration. However, when it comes to the law, a sale has several facets. The law categorises the subject matter of the sale into moveable and immoveable properties. At present, when it comes to property laws, there are no laws that exhaustively deal with them. For instance, the Sale of Goods Act, 1930, generally covers the sale of moveable properties. However, it excludes “money” and ”actionable claims” from its scope, even though they are considered moveable properties, according to Section 2(7) of the Act. Similarly, in the Transfer of Property Act, 1882 (here-in-after also referred to as “TPA”), the general rules of transfer provided in Chapter II and the modes of transfer under Chapters VI (exchanges), VII (gifts), and VIII (actionable claims) of the Act apply to both moveable and immoveable properties. However, when it comes to the specific modes of transfer, such as sale, mortgage, and lease, TPA only deals with immoveable properties.

Before moving further, we must understand the kinds of transfers this Act deals with. Though it encompasses many types of transfers, such as mortgage, lease, exchange, gift, and actionable claims, it must be noted that the scope of this Act is not exhaustive. It applies only to certain kinds of transfers.

Now that we have a clear understanding of the applicability of this Act, we can deduce that a sale under TPA is also a transaction between living parties dealing with immoveable property. The provisions of sale under TPA range from Sections 54 – 57 which deal with the definition, modes of transfer, registration, rights and liabilities of buyer and seller, and other aspects relating to marshalling and encumbrances.

Definition of sale

Section 54 of the Transfer of Property Act, 1882, defines “sale” as the transfer of ownership in exchange for a price. The term “price” is to be interpreted as a price in terms of money and not otherwise. If the transfer involves any other kind of consideration, it is not a sale. Further, the Section also provides that the price need not be paid simultaneously with the transfer. The price may either be paid in full or partially, or partly paid and partly promised. The transfer will be deemed complete in all three cases. Thus, what is relevant is not the immediate payment but the reference as to when and how the payment is to be made.

The subject matter of the sale under the said Act is immoveable properties. Section 54 includes immoveable properties, both tangible and intangible. The tangible properties are those that are visible, such as lands, houses, etc. The intangible properties are those that do not have a physical existence, such as copyrights, trade secrets, the right to ferries or fisheries, or a right to mortgage debt, etc. This Section provides two specific methods for how a sale can be made and executed. According to this Section, a sale can be completed by a “registered instrument” in cases of

In other cases, such as the transfer of tangible immoveable property of a value less than Rs 100, a sale can be made either by a “registered instrument” or by “delivery of property”. According to this Section, when the seller hands over the possession to the buyer or the person he specifies, delivery of the property is deemed to have occurred.

Contract for sale

Section 54 further incorporates the concept of “contract for sale.” It is an agreement between the parties that a sale will be effectuated in the future by executing a sale deed on mutually settled terms.

In English law, such a contract transfers an equitable estate in favour of the purchaser. However, under Indian law, a contract for sale does not transfer any title, nor does it create a charge or interest on the property. It is merely a promise to create a right to obtain another document, i.e., a deed of sale. Therefore, it does not require registration, as held in the case of Dave Ramshankar Jivatram v. Bai Kailasgauri (1972). The Gujarat High Court in this case also held that it is not enforceable in any court of law. For instance, A agreed to sell the property to B, but they did not execute any documents. Later on, A sold the property to C. In this case, B cannot approach the court to enforce his right to specific performance.

However, as the courts in India developed from the common law approach to equity courts in contractual matters, this difference has become insignificant to a great extent. Various judgements have laid down that if an overt act, such as payment of advance money, delivery of possession, or any similar act, has been done in pursuance of the agreement, the transferee becomes entitled to obtain relief from the courts. For instance, in Kodapalli Satyanarayan v. Kondapalli Mavullu (1998), the Andhra High Court observed that if a property has been transferred to someone other than the prior agreement holder and the subsequent transferee has notice of the earlier transaction, then he will be deemed to hold that property in trust for the former party.

Similarly, in Ramesh Chand Ardawatiya v. Anil Panjwani (2003), the defendant agreed to sell his piece of land to the plaintiff. He also puts the plaintiff in possession of the property for an advance payment. The plaintiff constructed a boundary wall on that property. A trespasser tries to encroach upon the land at the behest of the defendant. The plaintiff sought a declaration from the Court that he was rightfully in peaceful possession of the property and sought a permanent injunction to restrain the trespassers from interfering with his possession. The Court granted the relief and held that the plaintiff is entitled to protect his possession and that A should refrain from taking the law into his hands and instead assert his title through due process of law.

The Court also observed, “if a person who entered into possession under a contract for sale and is in peaceful and settled possession of the property with the consent of the owner, he is entitled to protect his possession against the whole world, except the true owner.” However, if he is in possession of the property in part performance of the contract for sale and the requirements of Section 53A are satisfied, he may protect his possession even against the true owner.”

Parties to sale

In every sale, there are always two parties. The person who transfers the property is known as the “seller,” and the person who receives such property in exchange for monetary consideration paid by him is known as the “buyer.” They both must be competent in the eyes of the law to effectuate a valid sale deed.

Competency of a seller

Section 7 of the Act deals with the persons who are competent to transfer. According to this Section, a transfer will be valid only if the transferor (the person who is transferring the property) fulfils the following conditions:

This part of the Section is pari materia (on the same subject matter) with Section 11 of the Indian Contract Act, 1872, which deals with competency to enter into a contract. It states that to make a valid contract, a person must have reached the age of majority, must be of sound mind and must not be disqualified by any law from contracting

For instance, a Karta is empowered to sell the property of a Hindu Undivided Family (HUF) only in cases of legal necessity, pious purpose, or in favour of the female members of the family. Likewise, a guardian of a minor is authorised to sell the property of the minor only with the permission of the court and not otherwise. Similar observations have been made by the Supreme Court in the case of Lakhwinder Singh v. Miss Paramjit Kaur (2003), wherein it observed that if a sale deed has been executed by a person having a general power of attorney over the property without the permission of the Court, such a sale deed will not be valid in the eyes of the law. The case of Smt M Bhagyamma v. Bangalore Development Authority (2012) further extended the scope and held that if a power of attorney authorises the agent to transfer the property, then he will be deemed to be a competent seller.

Competency of a buyer

Generally, every person is competent to be a buyer, provided they are not disqualified from purchasing any property under any law that is in force in India. Besides that fact, even a minor can be a buyer, provided that the transfer is made by his guardian. It is based on the principle that a minor is entitled to retain assets and be exempt from liabilities. It was observed by the Allahabad High Court, in the case of Ulfat Rai v. Gauri Shankar (1911), that a sale to a minor by the guardian, which has been duly executed in exchange for a duly paid consideration, is valid.

In a nutshell, the essentials of a sale can be summarised in the following points:

Rights and liabilities of buyer and seller

Every property transaction create certain rights and liabilities for the contracting parties. In the case of a sale, the contracting parties, a buyer and a seller, are also vested with some rights and liabilities. Generally, the parties themselves expressly agree as to which rights and liabilities they will subject themselves to. These are mostly mentioned in a sale deed. However, the Act does not leave it entirely up to the parties. Section 55 lays down a detailed description of every right and liability in the absence of a contract to the contrary. For convenience, the rights and liabilities of the buyer and seller can be categorised into the rights and liabilities before and after the completion of the sale.

Liabilities and rights of the seller and the buyer before completion of sale

Liabilities of a seller

Rights of a seller

Liabilities of a buyer

In the English case of Summers v. Griffiths (1866), an old lady contracted to sell a property at a much lower price, believing that her rights in the property were not absolute. The buyer was aware that the lady’s interest in the property was perfect and absolute, but he did not disclose it to the lady. He was held liable for fraud, and the sale was set aside.

Right of a buyer

Liabilities and rights of the seller and the buyer after completion of the sale

Liabilities of a seller

Right of a seller

Liabilities of a buyer

Rights of a buyer

Section 56 of the Act deals with marshalling. The situation of marshalling arises when a debt has to be satisfied and two or more properties are available. The rule of marshalling suggests that where the owner of two or more properties mortgages them to one person and sells one or more of the properties to another person, the buyer of the property is entitled to make an arrangement with the mortgagee to satisfy his debt out of those properties that are not sold to him.

This Section is based on the principles of equity. It insists that when a buyer purchases some property, its absolute interest must be protected. In Brahm Parkash v. Manbir Singh (1963), the Supreme Court held that under Section 56, a subsequent purchaser has a right to claim marshalling. This Section also provides that such marshalling shall not affect the rights of the mortgagee, persons claiming under him, or any other person who has acquired any interest in the property for consideration.

Encumbrances and court sale

Generally, a sale needs to be free of any kind of lien, charge, or obligation. However, there may be instances in which a property with encumbrances has been sold. Section 57 of the Act caters to such a situation. This Section covers both the sales made by the court or in the execution of a decree and those made outside the court. It offers a legal procedure to obtain a declaration from the court that the property is free from any kind of encumbrance.

Section 57(a) provides that any party to the sale may apply to the Court to obtain this relief. If the court thinks fit, it may direct or allow the applicant to deposit in court, for the encumbrancer (who has the charge over the property), a capitalised value of the periodic charge or a capital sum charged on the property, together with incidental charges, sufficient to satisfy the charges or any interest thereon. The court shall also order the deposit of any additional amount that it considers sufficient for meeting any further costs, expenses, interest, or any other contingency, but it shall not exceed one-tenth of the original amount unless otherwise directed by the court.

Section 57(b) states that the court may serve notice on the encumbrancer after the payment has been made. The court can also dispense with such notice after recording its reasons. In addition to that, the court may also declare the property to be free from any encumbrances and proceed to issue an order of conveyance, or vesting order, proper for giving effect to the sale. Further, Section 57(c) deals with the order of transfer and distribution of the deposit to the encumbrancer.

It is also provided that an appeal is allowed from any declaration, order, or direction made in accordance with this Section, just as if it were a decree. (Section 57(d)).

Under this Section, the jurisdiction is vested in either of the following Courts, as provided in Section 57(e):

  1. A High Court in the exercise of its ordinary or extraordinary original civil jurisdiction;
  2. A District Court within the local limits of whose jurisdiction the property or any part thereof is situated; or,
  3. Any other Court notified by the State Government in the official gazette from time to time.

Recently, the Kerala High Court, in M.P. Varghese v. Annamma Yacob (2020), elaborated in great depth on Section 57. The Court discussed the aims and objectives of this Section as well as thoroughly explained its procedural mechanism. In this case, the property was divided among the siblings through a partition deed with a clause stating that the brothers must pay Rs. 500 each to their sister within a year. If they fail to do so, the sister will acquire a charge over the property. The brother, who is the appellant in this case, entered into a contract of sale with someone. He contends that the respondent, in this case, the sister, is refusing to accept the payment because of which the property is burdened with the charge, and consequently he is not able to execute the sale deed. The respondent failed to show any reasonable cause for refusal of payment apart from personal reasons. The Court noted that the amount of Rs. 500 alone stands charged on the property as a capital sum, and the appellant has no further obligation whatsoever. Thus, it was held that the appellant is entitled to a declaration under Section 57.

Rescission of a contract of sale

To rescind a contract means to do away with it. Rescission is an equitable remedy that allows the contracting parties to cancel the contract and return to the position they would have had if the contract had not been made. A sale transaction is similar to a contract. It can also be rescinded by the parties in the same manner as other contracts.

Rescission of a contract is governed under Sections 27-30 of the Specific Relief Act, 1963. Section 27(1) of this Act provides the ground of rescission, which can be claimed by any person interested in the contract. These grounds are mentioned as follows:

  1. Where the contract is voidable or terminable by the plaintiff;

    2. The contract becomes voidable when the plaintiff’s consent to enter into a contract has been obtained through coercion, fraud, misrepresentation, or undue influence. This has been provided under Section 19 and Section 19A of the Indian Contract Act, 1872. Section 55 of the TPA also contemplates a similar situation. It states that when the buyer or seller, as the case may be, omits to disclose any material fact to the detriment of the other, such omission will be considered fraudulent. Thus, rescission in such cases can also be claimed by the aggrieved party.

  2. Where the contract is unlawful for causes not apparent but the defendant is to be blamed more

    3. The Specific Relief Act, 1963, also contemplates one other ground for rescission under Section 28(1) of the Act. This rescission is a result of non-compliance with the court’s order to pay the purchase amount within a stipulated time in a suit of specific performance. It states that when the order of specific performance has been decreed against the seller and the purchaser is directed to pay the amount within a time fixed by the court and he fails to do so, the seller may apply in the same suit to have the contract rescinded.

    Apart from the aforementioned grounds, the Indian Contract Act, 1872, also provided some more grounds on which the rescission of a contract can be claimed. These provisions are mentioned in the following points:

    • Under Section 39, if a party to a contract refuses to perform the promise or disables himself from performing the promise in its entirety, the other party is at liberty to put an end to such a contract.
    • Section 53 states that if a party to a contract prevents another party from performing his part of the promise, the contract becomes voidable at the option of the party so prevented.
    • Section 55 mentions that time is the essence of the contract and if the party fails to perform his promise in a specified time, the aggrieved party can claim to put an end to such contract.

Effects of rescission

The rescission renders the contract null and void and aims to put the parties back to their status quo ante, i.e., the previously existing state of affairs. If the parties cannot be restored to the same position, they will not be able to go for rescission. Thus, restoration of benefit is one of the essential elements for the rescission of a contract. The provisions for the restoration of benefits and compensations are mentioned in the points listed below:

Important case laws

Essential elements of sale

The courts have interpreted Section 54 now and again. A thorough interpretation of this Section has helped the Courts decipher the essential ingredients of sale. Following is a list of cases that helps in understanding the nature of some of the important ingredients:

Effect of an unregistered sale deed

In this case, the appellant contended that the property belonged to her mother, who inherited it from her father, and the respondent was trying to interfere with the property by creating a bogus document of title in his favour. However, the respondent claimed that he received the property through the will of his father, who acquired the property through a sale deed from the appellant’s maternal grandfather. Since the value of the property was less than one hundred rupees, they did not register the sale deed.

The court held that Section 54 of the Transfer of Property Act, 1882, allows two alternative modes for the execution of the sale in the case of tangible immoveable property valued at less than Rs. 100, namely, by way of either a registered instrument or simple delivery of the property. Since the latter criteria have been fulfilled by the respondent, the appellant’s claim stands to be dismissed.

Conclusion

In light of the above discussion, we can conclude that the Transfer of Property Act, 1882 deals with the sale of immovable property by the act of living parties lucidly and comprehensively. It does provide not only the definition but also the modes of execution and registration. It also provides a framework of rights and liabilities to which the seller and buyer will be subjected, but at the same time, it is also flexible enough to allow the parties to settle on other terms at their discretion. In my view, there is one matter that needs some clarification. It can be seen that the bare text of Section 54 lacks clarity regarding the ramifications of an unregistered sale deed. It plainly states that it does not create any title or interest in the property. Though various courts have ruled that the answer depends on the facts and circumstances of each case and the applicability of principles of equity in those cases, the language of the Section remains rigid. To eliminate any confusion, it should be more comprehensive and expansive.

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