Report No. 70
Sale of Immovable Property: The Concept
Having dealt with the general principles applicable to the transfer of property, the Act is now concerned with rules relating to specific kinds of transfers of immovable property. An interest in immovable property can be transferred by a variety of modes. Sale, mortgages, lease and gift are more particularly dealt with in the Act, though the Chapter on gifts is not confined to immovable property. The present Chapter is concerned with sale.
50.2. Section 54 defines "Sale" as follows:-
"54. 'Sale' is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised."
This definition, incidentally, does not, in terms, mention immovable property. The rest of the section does. The section proceeds to lay down the mode of transfer as follows:-
"Such transfer, in the case of tangible immovable property of the value of one hundred rupees and upwards, or in the case of a reversion or other intangible thing, can be made only by a registered instrument."
In the case of tangible immovable property of a value less than one hundred rupees, such transfer may be made either by a registered instrument or by delivery of the property.
Delivery of tangible immovable property takes place when the seller places the buyer, or such person as he directs, in possession of the property."
Lastly, the section deals with the contract for sale:
"A contract for the sale of immovable property is a contract that a sale of such property shall take place on terms settled between the parties.
It does not, of itself, create any interest in or charge on such property."
50.3. Statutory mode of transfer.-
It is a general principle that where the law prescribes a mode of transfer, compliance with that mode is necessary before property can pass so as to confer title against third persons. Where, therefore, this section requires a registered instrument, title cannot pass by mere admission or by mere agreement of parties. There can, in other words, be no such thing in law as a title by estoppel, even though estoppel may create many precious rights.
A transfer under a decree or order of Court is outside the operation of section 54. The reason is, first, that such a transfer cannot be considered to be a transfer by act of parties and is, therefore, not a "transfer of property" at all;1 and secondly, section 2, clause (d), provides that nothing in this Act shall be deemed to affect any transfer by operation of law or by, or in execution of, a decree or order of a Court of competent jurisdiction. Such a transfer need not, therefore, be made by a registered instrument as is required by this section.
Thus, a sale in execution of a decree need not fulfil the conditions of this section and need not be registered.2 Similarly, the assignment of a security bond by the Court in favour of a party is not a sale within the Act. Nor is a transfer effected by a compromise decree, a sale, though such a compromise transfers property from one party to another for "price"3.
1. Poras Ram v. Mebsai, AIR 1928 All 67 (68).
2. Prem Nath v. Sundaranath, AIR 1960 Punj 630 (632).
3. Bindraban v. Rajpal Singh, AIR 1931 All 389 (390) (FB).
There is a difference of opinion on the question whether a sale by the Official Receiver in insolvency with the sanction of the Court is a transfer by operation of law, or by or in execution of, a decree or order of Court. According to a Full Bench decision of the Madras High Court,1 it is not. The same view has been held by the High Courts of Calcutta1 and Allahabad.2
A contrary view has been expressed by the Chief Court of Oudh3 in a case decided by a single Judge, on the ground that it is in the nature of a Court sale and that its validity really depended on the order of the Insolvency Court vesting the property in the Official Receiver. But a later Division Bench of the same Court4 has dissented from this view and has followed the view taken by the High Court5 of Calcutta and Madras. Where no Receiver in insolvency is appointed and the Court, by virtue of the powers conferred on it by section 58 of the Provincial Insolvency Act, 1920, sells the property, the sale can be made by a registered instrument.
It appears to us that the Madras view is the correct one, since the Official Receiver, though functioning under statute, is really acting as a successor in interest of the insolvent. We do not think that the state of the case law necessitates any express amendment of the section.
1. Sankara v. Narasimhulu, AIR 1927 Mad 1 (3): ILR 50 Mad 135 (FB).
2. AIR 1919 Cal 193: ILR 46 Cal 887 (DB) (per FB; Krishnan, J., dissenting).
3. AIR 1942 All 39 (41).
4. Waziray v. Mathura Prasad, AIR 1939 Oudh 55 (56).
5. AIR 1942 Oudh 424 (425).
50.5. Transfer of ownership.-
In order to constitute a sale there must be a transfer of ownership from one person to another. A "transfer of ownership" by a person mean's a transfer by such person of his rights and interests in the property in full and permanently. A transfer of a part only of such interests or for a particular period reserving the rest for the transferor himself is not a transfer of ownership. But it is not necessary that the transferor should be a full proprietor. He may be the owner of a partial interest in the property such as that of a mortgage or an occupancy tenant.
Where there is no transfer of ownership, the transaction, though in form a sale, cannot be considered to be a sale. Thus, a sham transaction, not intended to pass any title, is not a sale. A bona fide settlement of a disputed claim which is a mere recognition of each other's antecedent title is not a sale. The question whether there has been a transfer of ownership in any particular case will depend upon the intention of the parties. This again, must be ascertained from the facts and circumstances of the particular case.
It is an essential requisite of sale that the transfer of ownership must be for a consideration which is known in legal language as 'price'. Price is thus an essential ingredient in all sales, in the absence whereof the transfer is not a sale. What, then, is the meaning of the expression 'price'? It has been held by the Supreme Court1 that this expression in section 54 must be construed in the same sense in which it is used in section 4, read with section 2(10) of the Sale of Goods Act.
The substantial result of this position is that price means money only. Payment may not be immediate-section 54 expressly so provides. Payment need not even be in cash or current coin; it could be in any mode which represents money, such as a cheque or bank draft. But the transfer of ownership must bring, in return therefor, something which constitutes money or represents money according to legal concepts.
Difficult questions arise where the transfer is in lieu of a debt due to the purchaser from the seller. In general, such a transaction would be regarded as a sale2 and not as an exchange or as any kind of residuary transaction, provided the amount of the debt can be definitely ascertained.3
This would appear to be the general position. The question assumes practical importance in the case of Muslim husbands who execute instruments of transfer in consideration of dower. Either the transfer is made expressly in substitution for the monetary dower, or the document might provide that as a result of the transfer the claim to the dower debt is relinquished. It would appear that in both cases the transaction should, in general, be regarded as a sale.4
Although there are a few judicial decisions taking the view that, where the husband is released from a dower debt, the transaction is not a sale,5-6 we do not, with respect, agree with such construction. A determination of the matter depends on whether the consideration in such case is "price" within the meaning of section 54 or whether it is a "thing" within the meaning of section 118. We think that, in general, release of a debt should be treated as a price and not as a "thing".
1. I.T.C. v. M&G Stores, AIR 1968 SC 200 (202).
2. AIR 1951 All 86 (89, 90).
3. AIR 1935 PC 73 (78).
4. AIR 1917 Pat 18 (24): AIR 1915 Lah 251 (253).
5. Bashir Ahmad v. Mt. Zobadia, AIR 1926 Oudh 186 (189).
6. Talib Ali v. Kaniz Fatima, AIR 1927 Oudh 204 (206).
50.7. Payment of price.-
It fellow's from the definition of "sale" that to constitute a sale the parties must intend to transfer the ownership of the property and that they must also intend that the price should be paid, whether in present or in future. Where there is no intention to pass the ownership, the transaction is a colourable one.
This does not, of course, mean that the non-payment of the price will necessarily prevent title from passing to the buyer. This depends on the terms of the bargain. If the conveyance has been executed, the mere fact that the price has not been paid will not prevent title from passing to the buyer unless the conveyance so provides.
This is for the reason that full payment of the price is not an essential requisite of sale as defined in section 54, and if the intention is that the sale deed should operate as a transfer, then it is immaterial whether the whole or part of the consideration remains unpaid.1
1. Bhomi Cal v. Vincent, AIR 1922 Pat 619 (641) (FB).
50.8. Seller's right on non-payment.-
Once the title has passed, the seller cannot, in the absence of an agreement to the contrary-
(a) claim to retain possession as against the buyer of the property sold1; or
(b) set aside the sale on the ground of non-payment of price. His remedy is
(i) to sue the purchaser for the recovery of the purchase money, or
(ii) to enforce the seller's charge for the unpaid purchase money against the property sold and in the hands of the purchaser.2
The fact that price has not been paid may, show that the transaction was the result of undue influence, or that the transaction was a colourable one. But these are questions of evidence depending on the facts of the case, the burden of proof of which, in the ordinary run of cases, would lie upon the person alleging such special facts.
Conversely, once the execution of the instrument of sale is proved and it is found that the instrument contained a recital of payment of consideration, such a recital is prima facie proof of payment against the executant or person claiming under him.3
1. Dhuri v. Kishun Prasad, AIR 1965 Pat 29 (30).
2. Section 55(4)(b).
3. Ramaswami v. Jagannadha Rao, AIR 1962 AP 94 (97).
50.9. Inadequacy of price.-
Inadequacy of consideration does not, by itself, render a sale invalid.1 Thus, the mere fact that the purchaser gets the property for one fourth of its market value cannot render the sale invalid, although, in an appropriate case, it must constitute evidence of one of the ingredients of the concept of undue influence. In the absence of proof of undue influence, however, such a transaction is regarded as one in which the doctrine of "lucky purchasers",2 is applied.
On the same reasoning, the covers is also true, viz the fact that the price, as stated in the sale deed, is an inflated one has no effect on the validity of the sale if it is otherwise valid.3 Such devices are frequently adopted to defeat the right of pre-emption which is available to a third person under the ordinary law in some situations. On realising that the price is very high, the third person might feel disinclined to assert the right of pre-emption; that is the psychological reason operating in the minds of the parties in overstating the price in the sale deed.
Of course, as between the parties, evidence is always admissible to show that the 'price' was not really the amount representing the consideration for the sale, but a security for a pre-existing debt. And even third persons can show that what is stated in the deed was not the price agreed upon. But these aspects do not affect the validity of the deed of sale.
1. AIR 1957 Mad 630 (631).
2. AIR 1957 Mad 630 (631).
3. AIR 1924 All 938 (939).
50.10. Meaning of reversion-Recommendation.-
So much as regards the first paragraph of section 54. There occur, in the second paragraph, the words "in the case of a reversion or other intangible thing". The section provides that such a transfer, i.e., a transfer by way of sale, can be made only by way of a registered instrument. Obviously, the expression "reversion" here is wide enough to apply to immovable property in the possession of a tenant.1 Consequently, such transfer must be made only by a registered instrument, irrespective of the value.2
There are, however, decisions of the Oudh Chief Court and the Nagpur High Court3 holding that property in the possession of a tenant is tangible property and is not included in the expression "reversion or intangible thing". We are, with respect, of the opinion that this view is not correct. "Reversion" in ordinary parlance is understood certainly as covering such a situation, whatever else it may or may not cover.
In order to avoid controversy on this point, we recommend that an Explanation may be added to the effect that where immovable property is in the possession of person other than the transferor, the transfer of that property is a transfer of the reversion, if the person in possession has an interest in the property by way of lease.4
1. AIR 1938 Lab 304 (305): AIR 1916 Born 223.
2. AIR 1938 Mad 100 (101).
3. (1899) 2 Oudh Cases 754 (757); AIR 1954 Nag 109 (113).
4. This is not a draft.