Tag: #TransferofPropertyAct

Introduction

A property transfer (whether movable or immovable), such as a gift, cash, real estate, or mortgage, is known as alienation. Hindu law places a stronger emphasis on alienations because, typically, neither the Karta nor any other coparceners have full authority to alienate the joint family property or his interest in the joint family property. The Hindu Succession Act of 1956¹ and the Transfer of Property Act of 1882² both regulate the alienation of coparcenary property under Hindu law. And according to them, though the Karta or the head of the family has the duty to look after the regular expenses of the family and also protect the joint family property, he doesn’t have absolute power over alienation. The power of alienation vested upon Karta is similar in both Dayabhaga and Mitakshara law. According to that, Karta can only alienate property under three exceptional circumstances. 

On the other hand, the court ruled in the case of Kandasami vs. Somakanda³ that the Karta can alienate the property in the Hindu Undivided Family. All family members must provide their approval in cases of this form of estrangement. The only need is that the coparcener must be the major in accordance with the law to which they are subject. After receiving the coparcener’s approval, the property may be alienated.

Grounds of Alienation

According to Vijnaneshwara, a prominent jurist of twelfth-century India, a property of the Hindu Joint Family can be alienated due to three circumstances-

1. Apatkale- It describes a circumstance in which the entire family, or a single member of it, encounters an emergency involving their property. The purpose of this transaction is to combat the threat or make an effort to prevent the catastrophe for which money is required. When it makes reference to the property, it means that the transfer is required for its preservation or protection and that it requires quick action. It should be held that this transaction or alienating is not a mere profitable charity but a way to safeguard properties owned by a joint family.
2. Kutumbarthe- “For the benefit of the Kutumb” is what this phrase signifies. Kutumb alludes to members of the family. As a result, this involves the alienation of a property for a family member or relative’s support. For instance, housing, food, clothing, and education. medical costs, etc.
3. Dharmarthe- It gives relaxation for the purpose of carrying out charitable, pious, and virtuous obligations. Typically for philanthropic and religious reasons.

But it should be held that this thesis of Vijnaneshwara has gone through modifications and severe changes have been performed in it by the Indian Judiciary. It would be mentioned below.

Father’s Power of Alienation

In some circumstances, only the father has the authority to alienate his child, hence a father has greater power than even Karta. Fathers are given unlimited alienation rights under Dayabhaga Law, meaning they are free to sell off any movable or immovable property they choose, whether it is personal property or family heirlooms. Under Dayabhaga School, sons do not automatically acquire a right to property; hence, a father may alienate the property without the sons’ permission. A landmark judgment regarding this situation was given in Ramkoomar vs. Kishenkunkar⁴, where the concerned Court ruled that while it was immoral, a father’s gift of his entire estate to his younger son during the elder’s lifetime was permissible but giving away all of the family’s landed property was not permitted.

While it has long been accepted practice, under Mitakshara Law, that the father had complete discretion over the disposition of his distinct movable property. However, there was contention regarding his several immovable properties. But in the case of Rao Balwant Singh v. Rani Kishor⁵, the Privy Council put an end to the dispute in 1898 by ruling that the father had full alienation authority over his distinct property, both movable and immovable. Later it was held that whether a joint family property or undivided property, the Father can alienate whole property in two cases-

1. Gifts of Love and Affection– The Father has absolute power on sending Gifts of Love and Affection (Jewels, Valuable metal ornaments, Clothing, Cash, part of movable property) to his own wife, daughter, son-in-law or any other close relatives.
   
   But it should be noted that Gifts of Love and Affection of immovable property cannot be made to the son. Such gifts can only be made to daughters, as in Guramma v. Malappa⁶, a gift of immovable property to a daughter made by her father after her marriage was held to be valid.
   
   But sending affectionate tokens through Gifts cannot be done via Will. Because an important concept was established in the case of Subbarami vs. Rammamma⁷ that such gifts cannot be made by a will because as soon as a coparcener passes away, he loses his stake in the joint property, which he cannot afterwards transfer.

2. Alienation for Discharge of His Personal Debts- In order to pay off his prior debts, which the sons are obligated to do religiously because they are not immoral or illegal, the father has the right to alienate the family’s property. If the two criteria below are met, a father may sell off the joint family property to pay off his debts:
   
   • The debt came before.
   • The loan should not be incurred for Avyavaharik, or for immoral or unethical reasons.
     
3. Although taken from an ancient Mitakshara text, the two criteria above were also established in the
   case of Brij Narain vs. Mangla Prasad⁸.

Karta’s Power of Alienation

It is a common belief that the karta has a great power inside a Hindu joint family. However, he is not the sole owner of the property when it comes to property concerns, thus he can only use the power of alienation in particular circumstances. The powers of the Karta under Mitakshara Law and the Dayabhaga Law are comparable. Only three situations— Legal Necessity (Apatkale), Partial Necessity, and Benefit of Estate —permit the alienation of the property by karta. Though with the approval of all adult coparceners present at the time of the alienation, the Karta may, however, alienate the joint family property regardless of any necessity for the law or advantage to the estate.

1. Legal Necessity- Legal need can refer to any action taken to meet a family’s basic necessities during an emergency such as a flood, war, starvation, etc. In contrast to the word purpose, there should be no other sources available to the Karta in order to exercise this option.
   
   Nevertheless, it has been acknowledged by contemporary law that necessity may go beyond that. In Devulapalli Kameswara Sastri vs. Polavarapu Veeracharlu⁹, it was decided that necessity should not be considered in the sense of what is absolutely necessary but rather what would be viewed as proper and reasonable in accordance with the ideals of the joined Hindu family like-
   
   • Monthly expenses of all members of the joint family and additional medical bills.
   • For payment of various Taxes.
   • For paying EMI of debt incurred as a joint Hindu Family.
   • Performance of necessary ceremonies, like- Mundan, Bibah, Sradhs, and Upanyana.
   • For marriage ceremony of male & female coparceners of family.

2. Partial Necessity- According to the Privy Council in the case of Krishandas vs. Nathuram¹⁰, a sale will only be valid where the purchaser acts in good faith, conducts due diligence, and is able to demonstrate that the sale itself is justified by legal necessity in cases where the necessity is only partially met, that is when the money needed to meet the necessity is less than the amount raised by alienation.
   
   For Example- If the Karta of a Joint Hindu Family has collected Rs. 50,000/- through alienation and gives proof that he is required of Rs 40,000/- in good faith that falls under necessity, then the alienation will be valid.

3. Benefit of Estate- The benefit from the estate is often known as “kutumbarthe”. It has been stated that alienation can be carried out to benefit any other family estate or to satisfy the needs of family property. Alienation under this cause is strictly defensive or protective in nature with the dilution of “apatkale”, alienations that an ordinarily prudent man would consider reasonable in the specific set of circumstances are also permitted. The alienations made by the karta for the benefit of the estate are legal and hence not void. This concept was not mentioned in any ancient textbook and was first introduced in the case of Palaniappa vs. Deivasikamony¹¹.

Coparcener’s Power of Alienation

A coparcener has the authority to give up his ownership interest in joint family assets. A coparcener may give his complete undivided interest to another coparcener or coparceners, with or without their approval, or they may renounce it in their mutual interest. Either way, the gift is lawful. Renunciation that includes a requirement to give him maintenance is legal. However, a gift or renunciation of one coparcener’s share in favor of another coparcener or coparceners is invalid. And a coparcener is not allowed to sell or mortgage his undivided interest without the consent of other coparceners of the Joint Family. Even they don’t have the right to gift a part of their undivided interest to their special ones to show a token of affection.

Sole Surviving Coparcener’s Power of Alienation

As long as the lone surviving coparcener does not have an heir, the joint family property becomes separate property when it is transferred into his possession. His only obligation is to provide for the family’s female members (the widows). In that case, he can alienate his interest from the total property. So long as the widow’s part is excluded, he may alienate the other property as his own. However, if another coparcener is present in the wombat at the moment of the estrangement, this is not applicable. However, if the son was born after the transaction, he could not contest the alienation. If a widow adopts a child after her husband’s death, that child will also have the right to challenge the alienation made by the sole surviving coparcener according to the landmark judgment of Bombay High Court in the case of Bhimji vs. Hanumant Rao¹².

Unauthorized Alienation of Property & Burden of Proof

Unauthorized alienation of property refers to the transfer of property without authorization, which makes the transfer invalid. Alienation of property can be developed through will, gifts, or a mortgage, as was previously discussed. Karta works for the welfare of the family since, as we all know, he is the manager of Hindu families. Alienation is described as “any disposal of a portion or the entirety of the joint family property by the father, karta, coparcener, or the sole surviving coparcener by any act or omission, voluntary or involuntary”.

According to the case of Hanoomaprasad vs. Babooee¹³ burden of proof is on the alienee. He has to prove in the court that the alienation made by him was in good faith and it was regulated through either Legal/Partial Necessity or Benefit of Estate. Any unauthorized alienation made by the sole coparcener, Karta or Father is voidable under Hindu Succession Act.

Coparcener’s Right to Challenge such Alienation

If the father, karta, coparcener, or the only remaining coparcener acts outside of their authority and alienates joint property, that alienation can be contested and overturned before it expires. In accordance with Article 126 of the Indian Limitation Act, 1908, a son has 12 years to contest his father’s alienation, and in accordance with Article 144, coparceners have 6 years to contest the alienation caused by karta. Any other coparcener with a stake in the property, from the time he learns of it until the lawsuit is prohibited by time limits, may contest and set aside the alienation if the father, Karta, coparcener, or single surviving coparcener overstepped their authority in making it.

Alienee’s Right & Remedies

The courts have applied various interpretations to Alienee’s right to divide. However, the existence of this privilege is firmly established. The purchaser cannot seek the exact property that was sold to him, according to the Bombay and Madras High Courts. He is limited to requesting the general division of his alienor’s interest. And from the date of purchase until the day that the partition is ruled upon, Alienee is not entitled to any portion of the earnings. The Supreme Court ruled that a person who purchases a coparcener’s share at auction in order to enforce a monetary judgment against him is not entitled to future profits as of the purchase date. In the event that the partition is unaffected, and the property is transferred to the buyer, who then takes possession, the other co-owners have the right to co-own the property with him or to sue him to regain ownership.

Conclusion

From the explanation above, it is clear that a family’s most important and indispensable component is its property. If Karta alienated that property without the other coparcener’s approval, it would frequently result in conflict and inconvenience for the family as a whole. The Karta, who represents the entire family and occupies the Supreme position in the Hindu Undivided Family, is the only manager of the family and serves as its exclusive representative.

Each coparcener is entitled to use the joint property to the fullest extent possible without hindering it or using it in a way that is harmful to the interests of other coparceners. The family business manager, however, should have some privileges in regard to sustaining the entire family business. For the family business to run well, it is vital to devolve some control to him.

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Endnotes:

1. Hindu Succession Act, 1956, Sec. 6, Act no. 30 of 1956
2. Transfer of Property Act, 1882, Act no. 4 of 1882
3. Kandasami Asari vs Somaskanta Ela Nidhi Limited, (1910) 20 MLJ 371
4. (1812) 2 SD 42 (52)
5. (1928) 30 BOMLR 1331
6. 1964 AIR 510, 1964 SCR (4) 497
7. (1920)43 Mad 824
8. (1924) 26 BOMLR 500
9. (1911) ILR 34 Mad 422
10. 1927 P.C. 37
11. 1917 P.C. 68.
12. AIR 1950 Boom. 271
13. Supra Note 10

This article is authored by Dibyojit Mukherjee, a student of Institute of Law, Nirma University

INTRODUCTION

A transfer is an act of transferring something from one person to another. Any physical or virtual entity possessed by a person or group of people is considered property. A property asset can be transferred from one person to another through transferring rights, interests, ownership, or possession. Either or all of the ingredients can be satisfied. It can happen in two ways: by the parties’ acts and by law.

Section 5 of the Transfer of Property Act of 1882 defines the term “transfer of property.” It describes an activity in which a live person transfers property to one or so more people, or to himself or to one or so more living people, in the present or future. A living person is defined as a corporation, an association, or a group of individuals, whether or not they are incorporated.

Some important concepts in this act are as follows:

1. Immovable property involves land, benefits resulting from the land, and goods linked to the land, according to the General Clauses Act of 1897. Immovable property can be defined as including all property that is not standing wood, growing crops, or grass in the context of property transfer.
2. Mortgage debt was omitted from actionable claims following the amendment of 1900. Wallis C.J. held in Peruma animal vs. Peruma Naicker that mortgage debts might be transferred as actionable claims before 1900, but that they were excluded from the actionable claims because the legislature meant that the mortgage debt is transferred in the mortgagee’s interest through an instrument that is registered.
3. Instrument: The instrument is defined as a non-testamentary instrument according to the 1882 Transfer of Property Act. It serves as proof of a property transfer between living parties. An instrument is a formal legal document, according to the legal terminology.
4. Attested: A formal document signed by someone acting as a witness is referred to as attested. The executors are the persons who are in charge of transferring the property. In 1926, the amendment legislation was passed, stating that two or more witnesses must sign the document in the presence of the executant, not necessarily at the same time, and they must not be parties to the transfer.
5. Registered: According to the 1882 Transfer of Property Act, “registered” refers to any property that is registered in a jurisdiction where the Act is in effect. Various registration procedures must be followed.
   a. The property’s description should be stated.
   b. Avoid being a victim of fraud.
   c. A competent person should present the deeds.
   d. The property must be listed in the very jurisdiction as the registered office.
6. Actionable claims: A claim to any debt, except a debt acquired by a mortgage of immovable property or pledge o or hypothecation of movable property, or to any equitable interests in movables, not in the claimant’s possession, either actual or constructive possession, which the civil courts recognize as providing grounds for relief, whether such debt or advantageous interest is existent, accusing, or conditional.
7. Notice: The term “notice” refers to being aware of a fact. The individual is well-versed in a variety of scenarios. The Transfer of Property Act of 1882 settled 2 kinds of notices.
   
   Other important concepts are actual or implied notice means the one who is aware of a specific truth and constructive notice means that reality is discovered as a result of circumstances.
   
8. Transfer of property must be done by a competent person: For a legitimate transfer, the person transferring the property must be of sound mind, not intoxicated, a major, or not a person prohibited by law from entering into a contract of transfer of property with another person.
9. The transfer must be made in the following format: Property transfers do not have to be in writing, but if there is a specific property to transfer, it should be in writing:
   a) Over a hundred rupees was spent on the sale of the transportable property.
   b) The sale of intangibles must be done in writing.
   c) All mortgages with a value of more than a hundred rupees must be transferred in writing.
   d) A documented transference of actionable claims is required.
   e) Immovable property is given as a gift.
   f) A lease of more than one year on immovable property.

OSTENSIBLE OWNER

The provision is founded on the idea of proportionality. No one can confer a higher right on a property than what he owns, and alium transferee potest quam ipsa habet and nemo plus juris, which means that no one may transfer a right or title larger than what he owns. The ostensible owner’s transfer emphasizes the notion of holding out.

To make use of this section, you must meet specific qualifications, according to the law for its application. They are as follows:

1. The most important need is that the individual transferring the property is the ostensible owner.
2. The property owner’s permission should be given either implicitly or explicitly.
3. The transfer ought to be in exchange for something.
4. The transferee must exercise reasonable caution in determining the transferor’s authority to complete the transaction and whether he acted in good faith.
5. The idea of ostensible owner transfer is founded on the doctrine of estoppel, which states that when a genuine owner of property makes someone appear to be the owner to third parties and they engage on that representation, he cannot retract his representation.
6. This clause and its rules apply only to immovable property but not to movables.

However, the ostensible owner is really not the true owner, but he can pretend to be the real owner in such transactions. By the purposeful neglect or acquiescence of the genuine owner of the land, he has obtained that right, rendering him an ostensible owner. A guy who has been away for a number of years has donated his property to a close cousin to utilize for agricultural purposes and whatever else he sees suitable.

In this situation, the ostensible owner is a family member, and if he transfers the property to a third party during that time, the true owner cannot claim his property and claim that the person was not permitted to transfer it. Another scenario is when the property is in the wife’s name but the husband used to handle the finances and other aspects of the property. If the husband sells the property as a result, the wife will be unable to reclaim it.

In Ram Coomar v. MacQueen, the privy council declared that when it comes to transfers by apparent owners, somewhere along that lines that 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 buys it for value from the obvious owner believing that he is the real owner, the third person shall not be allowed to recover on a secrete title until he can overthrow that of notice, or something that adds up to constructive that ought to have put him on an inquiry, which, if put on trial, would have led to a discover.

ESSENTIALS

There are essentials that need to be meant to be an ostensible owner of any property. Like the term itself, the word ‘ostensible’ denotes ‘seeming’ or ‘apparent’. An ostensible owner is a person who poses as the one who owns that immovable property but is not the true owner.

1. A person must be the property’s ostensible owner.
2. That person must be such an owner with the genuine owner’s express or implied approval.
3. The one who is transferring must buy the property for consideration from the ostensible owner.
4. The transferee must take reasonable care before accepting the transfer to ensure that the transferor has the authority to make the transition; in other words, it should be done in good faith.

Reasonable care can be defined as the level of care that a reasonable and average person would take. It is his responsibility to check the transferor’s title.

As in the case of Nageshar Prasad v. Raja Pateshri, where the name of the proprietor was incorrectly recorded in the revenue records. The name was written was that of someone else, and the rightful owner had already complained about the mistake. The individual whose name was on the revenue records later sold it to a third party, who took possession of the property without making required investigations, and the rightful owner later objected. The third party is obligated to provide all available documents that may provide more information on the property’s title, which may include police registers, municipal registers, and other documents.

Also, there is a safety net in place for the true owner. As in the case of Mathura v. Ambika, in which the actual owner had disposed of the property to another person and had it registered prior to the ostensible owner’s transfer could even be registered, it was held that the real owner’s transfer would be valid because he has a greater title to the property than the ostensible owner, and that the rights of a third party who had purchased the property from the ostensible owner will not be protected under this section.

Only if the foregoing necessary conditions for the section’s applicability are met does the true owner lose his rights in the property here under the section.

There are steps to register an ostensible owner. Firstly, the documentation pertaining to the property must be examined to see if the transferor’s name appears as the owner.

Second, if the individual whose name appears on the records for the property in issue intends to buy it or not. Thirdly, look into “who has ownership of the site property and who is using it.” If the individual is the owner of the property according to the records and documents in the case at hand, the chances of it being a property of an ostensible owner or him being an ostensible owner are slim. However, “enjoying the property” doesn’t merely mean “being in possession of the property,” but also “selling rights,” “right to enjoy the benefits of the said property,” “right to lease out the stated property and receive compensation,” and “right to enjoy the benefits of the said property,” among other things. In this scenario, the term “enjoyment” has now been given a larger meaning.

Finally, the reason for it being given the ostensible ownership element, i.e. why the true owner has not bought it in his own name.

The transfer must be made without considering some factors:

1. The ostensible owner’s transaction is always for consideration. There should be some sort of exchange. Gratuitous transfers are not covered in this section.
2. When there is a transfer by an ostensible owner, care must be taken. He is unable to give the property away as a gift. As stated in the Indian Contract Act of 1872, consideration is a required component of every contract, and an ostensible owner’s property can only be transferred via contract. In addition, section 4 of the act states that anything that’s not expressly specified in this act must be determined from the basic definitions set forth in the Indian Contract Act of 1872.

THE BURDEN OF PROOF

The transferee bears the burden of proof in demonstrating that the transferor was the ostensible owner and also had permission to sell the property.

He must also demonstrate that he behaved in good conscience and took all reasonable precautions while obtaining possession of the property. It’s because he needs to show that he wasn’t at fault when he took the property and that the burden of proof should be shifted to the rightful owner. To shift his burden of proof, he can show that the transferor did not permit the transferee to know the true facts and went to great lengths to conceal them.

CONCLUSION

The Act’s Section 41 has done a good job of safeguarding the interests of the said innocent third party. However, this section may appear to be prejudiced in favor of the third party, this is only the case if the genuine owner is at fault. No one else can simply claim that he now owns the property and can no longer be evicted. The third party must exercise extreme caution when purchasing the property, and these criteria have been imposed by law to prevent the apparent owner and the third party from abusing this section. In a way, this also protects the genuine owner’s interests.

This article is written by Tingjin Marak, a BA/LLB student at Ajeenkya DY Patil University Pune.

Introduction

Transgender¹ or the third sex denotes those people who cannot align themselves to their given respective biological genders with their inherent biological features. They are usually born as male or female but their innate perseverance of gender turns out to be different from their bodily features. Their self-proclaimed gender identity doesn’t match with their sex leading to the discrepancy in their gender orientation. Transgender, transsexual, and hijra are synonymous with each other and are used to denote them.

Since the dawn of human civilization, the existence of transgender people has been acknowledged but they have been devoid of subsequent approval from mainstream society. Even in this 21st century, such people are viewed as taboo and are subjected to persecution and a state of constant denial. Shame and stigma still continue to characterize such subjects in both public and private spheres thus engendering grave misconceptions. They are systematically denied equal rights in spheres of education, employment, marriage, divorce, inheritance, property, adoption, etc. The rudimentary reason for their denial of equal rights is ambiguity in recognition of their gender status as most of the civil rights especially succession, inheritance, marriage, and property rights are gender-specific and the policymaking in India has been always conceived primarily in respect of only two genders i.e. male and female, thereby preventing them from exercising their civil rights in their desired gender.

National Legal Services Authority vs Union of India

The Supreme Court in its landmark judgment of National Legal Services Authority vs Union of India² declared the transgenders as the third gender and endowed them with the right of self-identification of gender as female/ male / third gender. This self-perceived gender identity forms a very crucial part of one’s right to life under Article 21 of the Indian Constitution. The two-judge bench affirmed their entitlement to the fundamental rights granted to them via the constitution of India. Any denial of their fundamental rights in the civil or criminal sphere owing to their third gender is discriminatory to them. The court held transgenders as socially and economically backward classes (OBC) who are entitled to reservation in educational institutions and public sector appointments.

Constitutional Rights

Article 14 of the Constitution of India states that the State shall not deny to “any person” equality before the law or the equal protection of the law within the territory of India. The phrase “any person” includes transgender too. And article 15 prohibits discrimination against any citizen on grounds of sex. Non-recognition of the identities of transgender/hijras leads to the systematic denial of the rights of equality and equal protection of the law. Article 19 (1) (a) of the Indian Constitution describes that all citizens shall have the right to freedom of speech and expression. It guarantees one of the most basic and fundamental human rights. Expression and alignment of one’s gender is hence an obvious derivative of article 19 (1)(a). Denial of the right to express one’s sexual identity through speech and choice of romantic/sexual partner would lead to violation of Article 19

The Transfer of Property Act 1882 and Miscellaneous rights

The Transfer of Property Act 1882³ and its subsequent amendments regulate the transfer of property. The phrase ‘transfer of property’ denotes a demonstration by which a person transfers or passes the property to at least one person, or himself, and at least one different person. It basically implies the transfer of property from one person to another. The term person consists of an individual, or body of individual or company, or association. Section 5 of the Act provides that transfer of property must take place between two or more persons who are living or it must take place inter vivos. The word “person” above forth holistically includes male, female and third gender. The other property-related laws such as The Hindu Disposition Of Property Act, 1916, The Indian Easements Act, 1882, etc include the word “person” to connote and include transgender within its sphere and do not per se disqualify them from legal transactions.

Inheritance Laws

The inheritance and succession laws lay down rules pertaining to the devolution of property on the death of an individual. The property is devolved on the basis of the relationship between the deceased and the inheritor. The succession laws in India are governed by the respective personal laws of the religious communities that chiefly recognize inheritors into the watertight compartments of the male and female genders. In order to claim property rights, transgenders are required to recognize themselves as male or female.

The Hindu Succession Act 1956⁴ which governs the inheritance of properties is completely silent pertaining to the rights of transgender. It explains who is Hindu and whom all comprise the inheritance schedule (such as son, daughter, spouse, etc.) within the said definition. The Act establishes a comprehensive and uniform system of inheritance. Ownership over the property is granted only to males and females thereby excluding the third gender. Such trans people are devoid of property rights and subject to extreme prejudice and vulnerability. They have to align their genders to respective categories of either male or female in order to claim property rights. So they have to establish their gender identity as per the one assigned to them at their birth certificate. Moreover, trans people are not entitled to the status of legal heir of their parent’s separate property nor coparcener in the Joint Hindu Family with their gender identity.

Similar to the line of succession rules of The Hindu Succession Act, the personal law of Muslims i.e. Shariat too follows similar rules pertaining to transgender property rights. Indian Succession Act, 1925 governs property inheritance of Christians. Notably, Section 44 of the act has included transgender and elucidates upon their inheritance of the ancestral property.

THE TRANSGENDER PERSONS (PROTECTION OF RIGHTS) ACT, 2019

THE TRANSGENDER PERSONS (PROTECTION OF RIGHTS) ACT, 2019⁵ has made a decent effort to protect the rights of transgender and promote their welfare by prohibiting discrimination on grounds of education, employment, healthcare, movement, access to goods and services, choice of occupation, etc. The act has sought to remove discrepancies in unfair treatment with regard to the right to reside, purchase, rent, or otherwise occupy any property. Section 4(2) of the Act provides the right to self-perceived gender identity. Section 5 of the Act provides that a transgender person could be perceived as third gender (transgender) by making an application to the District Magistrate for issuing a certificate of identity as a transgender person. But the act does not delineate anything about property rights thereby perpetuating lacunae in the system.

Evolving Sphere

Recently States such as Uttar Pradesh⁶, Uttarakhand, etc have sought to enforce progressive laws on property inheritance of transgender people. It has successfully passed an amendment to include transgender people in the UP Revenue code wherein they will be included in the inheritance nomenclature. The transgender people will now be recognized as members of a landowner’s family and will hold an equal right to inherit agricultural property.

Conclusion

The SC judgment in the NALSA case coupled with THE TRANSGENDER PERSONS ACT, 2019 has sought to create a level playing field by endowing trans people with the right to self-identification and creation of the label of the third gender. Transgenders cannot be denied the right to property per se as they have the absolute right to inherit family property unless disqualified by law. The State must strive to ensure equality of rights and promote the holistic development of the trans community as a whole.

References:

1. FAQs, https://transequality.org/issues/resources/frequently-asked-questions-about-transgender-people
2. WP (Civil) No 400 of 2012
3. https://www.indiacode.nic.in/bitstream/123456789/2338/1/A1882-04.pdf
4. https://www.ijlmh.com/wp-content/uploads/2019/03/Inheritance-Rights-of-Transgender-A-Cry-of-Humanity.pdf
5. https://www.news18.com/news/buzz/why-transgender-people-still-have-to-go-through-hoops-to-get-married-or-inherit-property-in-india-2842545.html

This article is written by Riya Ganguly, 2 nd year BBA LLB student at Bharati Vidyapeeth New Law College, Pune.

INTRODUCTION:

Insolvency and Bankruptcy Code, 2016 came into existence to govern the easy exit of businesses, it has been witnessed from time to time that India has been lacking the legal framework for the companies whose businesses have been hindered and they want to exit the market although it had also been a matter of concern to determine the order of distribution of assets at the time of liquidation of the company. Previously there were no specific provisions to govern the distribution of assets amongst the creditors. But in the present era section 53 of the Insolvency and Bankruptcy code, 2016 deals with the mechanism for the distribution of assets under liquidation.

The mechanism laid down under the code is termed as “waterfall mechanism”. In a general sense, the waterfall mechanism lay put the list of stakeholders in a sequential manner to indicate the priority in getting the payments from liquidation.

HISTORICAL PERSPETIVE:

At the time of Insolvency proceedings, the Inter-se ranking amongst creditors plays an important role as it dictates the arrangement and determines the priority in which the financial offerings by the resolution applicant shall be distributed to the secured creditors. The status of determining the priority was the different pre-IBC regimes and post IBC regimes.

Pre-IBC Regime:
The Supreme Court of India in the case of ICICI Bank v. Sidco Leathers Ltd. and Others¹ addressed the issue of priority under Sections 529 and 529A of the Companies Act, 1956, which govern the ranking of creditors’ claims in a company in liquidation similar to what is given under section 53(1) (b) of the code. In this instance, the Supreme Court interpreted the meaning and scope of Section 48 of the Transfer of Property Act, 1882 to rule that the first-charge holder’s claims would persuade over the second-charge holder’s. The Supreme Court also noted that there was a lack of legislative clarity on this issue and that if the legislature had intended to reduce a right as important as the right of priority, it would have done so explicitly in the legislation.

Post- IBC Regime:
Even after the IBC came into force, there has been no clarity on this subject. Explanation: Section 53 of the IBC provides that “Each of the debts will be paid in full, or in equal proportion within the same class of beneficiaries, if the proceeds are inadequate to meet the debts in full, at each step of the distribution of proceeds in respect of a class of recipients who rank similarly.”

As a result, the IBC envisions the distribution of liquidation proceeds on a pari passu basis, or on an equal level, among the same class of stakeholders. Any agreement that upsets the priority ranking established by Section 53 of the IBC must be rejected, according to Section 53(2) of the code. Moreover, the issue of priority of inter-se secured creditors who have relinquished their security interests has not been specifically cleared by the code.

The National Company Law Appellate Tribunal in the matter of Technology Development Board v Anil Goel² held that “the moment when a secured creditor relinquishes their security interest in the liquidation estate, the sale proceeds shall then be strictly distributed as per the waterfall mechanism given under section 53 of IBC remains unpaid following the enforcement of security interest thereby when compared to a secured creditor, it has a lower priority.”

THE WATERFALL MECHANISM UNDER IBC:

The waterfall mechanism lays down that at the time of the company’s liquidation and while distributing the assets of the company the secured financial creditors shall be given the priority and the amount belonging to them shall be paid fully according to their admitted claim before initiating any distribution to unsecured financial creditors.

The Appellate Authority in its recent landmark judgment in the case of Technology Development Board vs. Anil Goel, Liquidator of Gujarat Oleo Chem Limited (GOCL) & Ors³ made it specifically held that: “Whether the Secured Creditor holds a first charge or second charge is material only if the Secured Creditor elects to realize its security interest.” “However, once a Secured Creditor opts to relinquish its security interest, the distribution of assets would be governed by Section 53(1)(b)(ii), which states that – all Secured Creditors who have renounced security interests rank equally.”

Statutory provision:
The statutory provision which sets out the order of priority for the distribution of sale proceeds from the sale of liquidation assets is categorically mentioned under Section 53 of the Insolvency and Bankruptcy Code, 2016.

According to section 53 (1) (b):
“The following debts will be ranked equally between and among them:
(i) workmen’s dues for the period of twenty-four months preceding the liquidation commencement date; and
(ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52”

According to Section 53(2) of the code:
“The liquidator will overlook any contractual arrangements between receivers under sub-section (1) with equal ranking if they disturb the sequence of priority under that sub-section.”

WATERFALL MECHANISM AND MEANING OF SECURED CREDITOR:

A secured creditor is one in whose favor a “security interest” has been created by the corporate debtor.⁴ Section 52 of the code provides the secured creditors with two options:

• either to realize its security interest, or
• give away its security interest to the liquidation estate⁵

It is the duty of each secured creditor to communicate to the liquidator about his decision to either relinquish his security interest or to realize its security interest.
If the secured creditor fails to inform the liquidator of its intention within 30 days from the commencement of the liquidation process, the security interest held by such secured creditor is deemed to be relinquished.⁶
In case a secured creditor chooses to relinquish its security interest then it has to stake its claim to the liquidation estate.

CONCLUSION:

The prevailing approach towards the Secured creditors’ priority rights, established at the time of lending, supposedly provides them with a security net in the event that the firm defaults and insolvency procedures are initiated. Even after the IBC was enacted, there is nothing in the IBC that specifically addresses this issue. Furthermore, Section 53(2) of the IBC only prohibits agreements that disrupt the waterfall mechanism’s sequence of precedence. The problem of priority of inter-se secured creditors who have renounced their security interests is left unanswered. As a result, it is clear that there is still lacking legal certainty on this topic.

The intrinsic ambiguity in the topic, as well as the lack of a clear legal precedent, leaves no answer to the difficulty. It is conceivable, however, that any priority rights connected to a security interest stay tied to the security interest, and that when the security interest is abandoned, the priority rights associated with the security interest expire as well. Although it appears that lawmakers considered all issues when establishing the IBC’s liquidation waterfall, which favored secured creditors, legislators should give equal weight to the interests of other stakeholders in order to fulfill the IBC’s goals.

References:

1. (2006) 10 SCC 452.
2. Technology Development Board v Anil Goel, Company Appeal (AT) (Insolvency) No.731 of 2020
3. Company Appeal (AT) (Insolvency) No.731 of 2020
4. Insolvency and Bankruptcy Code, 2016, Section 3 (30).
5. Insolvency and Bankruptcy Code, 2016, Section 52 (1).
6. Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016, Regulation 21A.

This article is written by Shubhendra Joshi, a BBA.LL.B 4th-year student of Indore Institute of Law.

Bench

Justice Indu Malhotra, Justice L. Nageswara Rao

Date of Judgment

9th July 2020

Provisions

Order VII Rule 11(a) & 11(d), CPC, Section 73AA of Land Revenue Code, The Limitation Act, 1963

Cases Referred

Vidyadhar v. Manikrao [(1999) 3 SCC 573], Chandrashankar Manishankar vs. Abhla Mathur and others [AIR (39) 1952 Bombay 56]

Introduction

In Dahiben v. Arvindbhai Kalyanji Bhanusali & Ors., the Supreme Court of India stated that mere non-payment of the full amount of consideration cannot be held as a ground for cancellation of sale deed.

Factual Background

• The Supreme Court was considering an appeal from a Division Bench of the Gujarat High Court, which had upheld the Trial Court’s judgment admitting an O7R11 application and ruling that the Appellants’ complaint was prohibited by limitation. In the recent case, the plaintiff owned a piece of agricultural property in the hamlet of Mota Varachha, Surat Sub-District. According to Section 73AA of the Land Revenue Code, the land was subject to restricted tenure. The Plaintiffs applied to the collector of the district for permission to sell the property to Respondent 1. The collector allowed the property to be sold and set the sale price according to the jantri issued by the State Government. The purchaser was required to pay via cheque, with a reference to the payment in the Sale Deed. The plaintiffs sold the property to respondent 1 after obtaining all necessary permissions. Respondent 1 issued 36 cheques for the payment of Rs.1,74,02,000 towards the sale considerations in the favour of Plaintiff.
• Later, Respondent No. 1 got the Land from Plaintiff and sold it to a group of third parties, comprising Respondents Nos. 2 and 3, in a transaction dated April 1, 2013, for Rs.2,01,00,000.
• The Plaintiff filed a suit before the Principal Civil Judge of Surat in December 2014, more than five years after the Sale Deed was executed, alleging that the sale consideration for the Land had not been paid in full by Respondent No.1 and praying, inter alia (among other things), that the Sale Deed is declared void, illegal, and ineffective. Respondents No. 2 and 3 were impleaded in the complaint since the Land had already been sold to them and was in their possession at the time the suit was filed.
• The Plaintiffs claimed that they were completely illiterate, unable to read or write, and could only make a thumb imprint on the Sale Deed dated 02.07.2009. The Sale Deed was gotten without full consideration being paid. Just Rs. 40,000 had been paid through six checks by Respondent No. 1, and the rest 30 checks adding up to Rs. 1,73,62,000 were false checks.
• On the grounds that the Suit was precluded by limitation and that no cause of action had been disclosed in the plaint, the Respondent filed an Application for Rejection of the Plaint under O7R11 (Application for Rejection).
• The Trial Court determined that the time restriction for filing the lawsuit was three years from the date of the sale deed’s execution on July 2, 2009. The Trial Court further highlighted that the lawsuit was filed on December 15, 2014, and so was time-barred. The Trial Court dismissed the lawsuit and granted the Application for rejection. The Appellants sought an appeal with the Gujarat High Court after being aggrieved by the Trial Court’s decision, which in turn upheld the decision. As a result, Plaintiff petitioned the Supreme Court to set aside the High Court’s decision.

Issues Raised

1. Whether non-payment of the part of sale consideration is a ground for cancellation of registered sale deed?
2. Whether the case filed by Plaintiff is barred by the Limitation Act?

SC Analysis and Judgment

The Supreme Court outlined the law that applies while determining an application under Order VII Rule 11 CPC. The court cited Vidyadhar v. Manikrao¹ and Section 54 of the Transfer of Property Act, 1882, saying that the words “price paid or promised or part paid and part promised” indicate that actual payment of the entire price at the time of the execution of the Sale Deed is not a sine qua non for the sale to be completed. The Court stated that in the Plaint, the Plaintiffs established a case of claimed non-payment of a portion of the selling consideration and requested relief of cancellation of the Sale Deed on this basis. Even in case, the whole purchase price is not paid, as long as the paperwork is registered and signed, the sale is done, and the title transfers to the transferee under the transaction. If a portion of the sale price is not paid, the transaction’s validity is unaffected. The parties must intend to transfer ownership of the property in exchange for a price that can be paid now or in the future to be regarded as a sale. The Plaintiffs might have other remedies in law for recovery of the equity consideration but could not be allowed the relief of cancellation of the registered Sale Deed.

Further, the SC held that Plaintiff’s claim that it first learned of the alleged fraud in 2014 after receiving the index of the Sale Deed was completely false because receiving the index would not be a cause of action for initiating the complaint. It was also noted that Plaintiff had omitted the date of execution and registration of the Sale Deed on purpose. As a result, it determined that the present case was a classic situation in which the Plaintiffs tried to build up an artificial cause of action to bring the claim within limitation by skillful writing of the plaint and that it should be dismissed at the threshold.

In Chandrashankar Manishankar vs. Abhla Mathur and Ors.², it was held that the document’s recital indicating payment of the consideration may be false, but it doesn’t make the document invalid. The entire amount does not have to be paid for the sale to be effective, since Section 54 of the Transfer of Property Act stipulates that the price may be paid or pledged in whole or in part. The Court further concluded that if the consideration was not paid but the document demonstrates that there was an intention to pay, the document is not declared invalid because the consideration was not paid. If, on the other hand, there was no intention of paying any consideration, the document is null and void.

The bench so on held that the Plaintiffs’ current lawsuit is a misuse of the court’s procedure and devoid of any merit. In light of the foregoing discussion, the instant Civil Appeal is rejected, with costs of Rs. 1,00,000/- payable by the Appellant to Respondents Nos. 2 and 3 within twelve weeks of this Judgment’s date.

Conclusion

In the recent case, the court determined the fact that the parties should not waste the time of the court as already there is a huge number of cases pending before the court and the lawyers of the parties should reject the plaint at the threshold if it does not disclose any cause of action. Plaintiff should be diligent in safeguarding its legal rights and making sure that legal actions are started before the statute of limitations runs out. In addition, the plaintiff should make certain that the plaint is well constructed in order to highlight important problems. If the ownership of the property has been transferred to the other party, even if the money has not been paid in whole or in half, the party has no right to launch a lawsuit against the other, claiming that the contract is void or illegitimate. If the plaint is submitted beyond the deadline if the averments do not reveal a valid cause of action, the Courts will not hesitate to dismiss the case.

Citations

1. (1999) 3 SCC 573
2. AIR (39) 1952 Bombay 56

Analysis by Hemant Bohra student at School of Law, Lovely Professional University, Punjab.

-Report by Jayseeka Virdi

The Supreme Court on Friday set aside the judgment and decree passed by the First Appellate Court and that of the High Court and passed a decree in favor of the plaintiffs. A bench consisting of Justice Hemant Gupta, A.S. Bopanna said that the suit for redemption of the mortgaged property filed by the appellants must be allowed.

PLAINTIFF’S CONTENTION

The plaintiff relied on various cases to prove its stand, they contended that in Pandit Chunchun Jha v. Sheikh Ebadat Ali & Anr., the suit by the plaintiff for redemption was dismissed by the High Court but when an appeal was filed in the Supreme Court, that appeal was approved. Further, that contended that in the case of Shri Bhaskar Waman Joshi v. Shri Narayan Rambilas Agarwal, the Supreme Court upheld the right of redemption. Counsel for the plaintiff relied on the evidence of the conduct of transferors/defendants which indicated the character of the transaction as a sale. (but this was further dismissed by the Court). A complete reading of the document would show that a sum of Rs.3,000/- was taken as a loan from the defendant for household expenses. The same was to be returned and the defendant was bound to retransfer the land. The condition that if the plaintiff is not able to pay the loan amount within one year, the document will be taken as a permanent sale deed is a contentious clause between the parties.

KEY HIGHLIGHTS

• SC heard the CIVIL APPEAL NO. 10197 OF 2010 filed by the plaintiff which challenges the judgment passed by the HC which affirmed the order passed by the First Appellate Court.
• Both the Courts ruled in favor of the defendants and dismissed the suit for redemption filed by the plaintiffs of the mortgaged property.
• The petitioner wanted his land back from the defendant by giving him the amount he took from him as per the document, and the defendant denied giving him back his. The plaintiff/appellant through this appeal prays in the SC for the redemption of his lands. The SC ruled in favor of the plaintiff and allowed the appeal.

DEFENDANT’S CONTENTION

The learned counsel relied on the judgment of Vanchalabai Raghunath Ithape (Dead) by LR v. Shankarrao Baburao Bhilare (Dead) by LRs & Ors. 10. In this case, the suit for redemption filed by them was maintained. But he said that the cases reported in Umabai and Tulsi were not brought to the notice of this Court. The learned counsel contended that, since such judgments were not being considered, the judgment of the Supreme Court in the Vanchalabai case could not form a valid and binding precedent on the Court. The learned counsel for the defendants further referred to Dharmaji Shankar Shinde & Ors. v. Rajaram Shripad Joshi (Dead) through LRs & Ors, the suit of redemption filed by the plaintiffs was dismissed by this Court. Another judgment relied on by him was Sopan (Dead) through his LR v. Syed Nabi. Learned counsel for the defendants also referred to the fact that the suit by plaintiffs was filed after twenty years of the document being executed and, during the time, the defendants had improved the land. Therefore, because of this, the plaintiff was not allowed to demand redemption.

SUPREME COURT ALLOWED THE APPEAL

The Supreme Court allowed the appeal by the plaintiffs and said that the defendant’s contention that the plaintiff had filed suit for redemption after 20 years of execution of the document could not be accepted because the limitation period for filing a suit for redemption was 30 years. Therefore, the Court said that they found the order of the First Appellate Court which accepted the appeal of the defendants and dismissed the suit for redemption was not legally sustainable, and the same goes for the order of the High Court.

What are the key provisions of the Transfer of Property Act, 1882?

• Section 63 of the Act states that accession by the mortgagee, during the mortgage being continued, the mortgagor shall be allowed to such accession on redemption, but if a contract has been signed to the contrary then he shall not be entitled to accession even in redemption.
• Section 63(a) of the Act, liability of mortgagor to pay for improvement arises only if the mortgagee incurred the costs in an unavoidable situation, for example, to prevent it from destroying or necessity arose because of the security being inadequate or to comply with an order bypassed a competent authority.
• Section 58(c) of the Act, as amended in the year 1929 and a proviso was added to the section, which said that no transaction will be considered to be a mortgage, unless and until such condition is already present in the particular document which affects the sale.

Discuss the provisions related to Transfer of Property Act

• Section 5
• Section 7
• Section 54
• Section 58(c)