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Report No. 178

4. Certain transfers by to be punishable- Insertion of section 424 A in the Indian Penal Code( 45 of 1860):

In the last three decades, there is a surge in real estate transactions all over the country. Sale of land, construction of multi-storied buildings and sale of flats has become a common feature in every city or town. Along with this business, malpractices have also increased. Builders purchase land or enter into development agreements with owners of land.

They then enter into agreements of sale with prospective buyers in respect of the land or in respect of buildings or flats already constructed or proposed to be constructed. In the process, some unscrupulous builders enter into agreements with more than one purchaser in respect of the same premises constructed, or proposed to be constructed. While entering into such transactions, they do not disclose to the prospective purchasers that they have already entered into like agreements with others earlier in regard to the same property.

This conduct of builders is leading to endless litigation in courts and the litigation drags on for years. The Skipper Company case (Delhi Development Authority V. Skipper Construction Co (p) Ltd and Others (2000) 10 SC 130) handled by the Supreme Court is a case in point. In that case hundreds of purchasers had to suffer and the litigation regarding refund of amounts paid by them or in regard to specific performance is still pending.

The Commission is of the view that in such cases civil remedies alone are not sufficient and that a specific provision in the Indian Penal Code in regard to such transactions is necessary. Further the existing provisions in section 415 of Indian Penal Code, which may cover such cases,are not sufficient 32 in as much as the corresponding provision for punishment in Section 418 does not provide any term of minimum imprisonment. It is proposed that in the case of offences like the one discussed above, the punishment of imprisonment can be up to three years but subject to a minimum sentence of one year with fine.

It is also proposed that such transfers should be punishable per se if made knowingly and it is not necessary to prove fraud or dishonesty.

We propose to include a new provision in the Indian Penal Code dealing with the offence in the manner stated below. The Commission felt that even though by and large, the Penal Code consists of offences for which mens rea is an important criterion and the offence of the nature referred to here does not depend upon proof of a mens rea, yet it was felt that the amendment should be inserted in the Indian Penal Code. We propose to add a new provision 424 A, I.P.C.

It is, therefore, proposed to add the following section 424 A in the Indian Penal Code, 1860.

"424A. Whoever, having entered into any prior transaction or having created any prior encumbrance in relation to immovable property or having knowledge of the existence of such prior transaction or encumbrance, enters into a subsequent transaction or creates a subsequent encumbrance in favour of another person in relation to or affecting the whole or any part of such property an.-

(a) knowingly fails to bring the existence of such prior transaction or prior encumbrance to the notice of such other person; or 33

(b) knowingly fails to include a recital in regard to the existence of such prior transaction or prior encumbrance in any subsequent instrument executed in relation to the whole or part of such property with such other person, 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.

Explanation:- sale, agreement of sale, exchange, mortgage, lease, charge, or right to possession in relation to land or land with buildings or flats already in existence or buildings or flats proposed to be constructed shall be a "transaction" or "encumbrance" within the meaning of this section."



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