Report No. 178
8. Non disclosure of factum of pending civil litigation to purchasers or transferees of immovable property to be an offence punishable with imprisonment and with fine-Insertion of section 424 B, Indian Penal Code, 1860.-
Section 52 of the Transfer of Property Act, 1882 declares that during the pendency of a suit or proceeding (which is not collusive) in which any right to immovable property is directly or specifically in question, the property cannot be transferred or otherwise dealt with by any party to the suit or other proceedings so as to affect the rights of any other party thereto under any decree or order which may be made, except when made under the authority of the Act and on such terms as the Court may impose. The section contains an Explanation as to what is meant by 'pendency' of a suit or proceeding.
The result of the section is that the rights of a purchaser/transferee of any part of such immovable property which is the subject matter of a suit or proceeding is dependent upon the ultimate result of the suit. If the transferor loses in the suit, the transferee gets nothing. The provision is no doubt salutary as it tries to prevent parties to litigation from alienating the suit properties and keeping them beyond the reach of the party who may ultimately succeed in the litigation.
But, as the law stands now, there is no provision which ensures that a purchaser will be informed by the seller about the pendency of any litigation in Court. Unwary purchasers pay huge 57 amounts of consideration and or are even put in possession whether under an agreement or a sale deed and they are never informed if there was any claim with regard to the same property pending in a court of law. Further, in regard to transactions pendente lite, the plea of the transferee being a 'bona fide purchaser without notice of the pendency of litigation' is not available in view of the provision of section 52.
In order to protect such transferees the Bombay Legislature (vide Bombay Act 41/1939) made an amendment to section 52, stating that the provisions of section 52 shall apply only if a general notice regarding the pendency of the suit or proceeding is registered under section 18 of the Indian Registration Act, 1908 giving the description of the immovable property and the court in which the matter is pending, the date of filing of the suit, etc. If any transfer is made before registering such a notice, the transferee will not suffer the disability created by the section.
The Law Commission in its 157th Report recommended that section 52 of the Transfer of Property Act, 1882 be amended on the model of the Bombay Act 14/1939. The proposal for amendment to section 52 is awaiting introduction in Parliament.
The Commission is of the view that apart from amending section 52 on the model of Bombay Act 4/1939, it is also necessary to insert a new new provision as Section 424 B, Indian Penal code, 1860 as recommended in the 157th Report to prevent such action by parties to suits or other 58 proceedings. This, it is felt, can be achieved by providing punishment up to a maximum of three years subject to a minimum punishment for a period of one year together with fine whenever the non-disclosure of such pendency of suits or proceedings in Courts is 'dishonest or fraudulent'.
No doubt, such cases may fall under section 415 (which defines 'cheating') read with section 418. But under section 418 punishment by way of imprisonment is not mandatory. Section 418 refers to cheating with knowledge that wrongful loss may ensue to person whose interest the offender is bound to protect. Again section 423 does not apply as it refers to dishonest or fraudulent execution of deed of transfer containing a false statement of consideration and does not also cover the type of transactions which are under consideration, namely, where there is suppression of facts relating to pendency of litigation.
It is proposed that for the purpose of the proposed section, it is sufficient if it is done knowingly and not necessarily with a dishonest or fraudulent intention. It is proposed to include the proposed provision in I.P.C. section 424 B despite that mens rea is not one of the criteria referred to in the proposed Section.
It is, therefore, proposed to add section 424 B in the I.P.C. as follows:
"424B. Whoever knowingly executes any instrument-
(a) which is or purports to be a transfer of immovable property or any interest therein;or 59
(b) which is or purports to be an agreement to transfer any immovable property or any interest therein; or
(c) which creates or purports to create a charge over immovable property, and
(i) fails to refer to the pendency of any suit or proceeding, in which any right to such property is in question, in the said instrument; and
(ii) executes such instrument without the authority of the court in which any suit or proceeding in relation to or affecting the whole or any part of such property is pending, shall be punished with imprisonment for a term which shall not be less than one year but which may extend to three years and shall also be liable to fine."