C.V.O. Chartered & Cost Accountants' Association

Basic and Practical Aspects of
Law Relating to Transfer of Property

Contributed by Shri Ashok Dedhia

Page 01

Introduction

The Contract Act, 1872 (“CA”), read with the Transfer of Property Act, 1882 (“TOP”) and the Sale of Goods Act, 1930 (“SGA”) governs law relating to transfer of property in India. CA read with TOP deals with transfer of immovable property, whereas CA read with SGA and few applicable provisions of TOP deal with transfer of movable property.

In addition to the above-referred basic laws, other special laws like Maharastra Ownership Flats Act, 1970, Maharastra Rent Control Act, 1999, Easements Act, 1882, Trademarks Act, 1999, Copyright Act, 1957 etc. are applicable in certain special circumstances, transactions and relationships modifying the effect of the basic laws.

Other facet of law affecting right, title and interest in the property, movable or immovable is personal laws like Hindu Succession Act, 1956, Indian Succession Act, 1925, etc. Rights in property of the deceased person devolve upon his/her heirs and/or legatees in accordance with the applicable personal law.

In this article we shall discuss certain basic provisions and practical aspects of law and transactions relating to immovable property.

Transfer of property under TOP

Under TOP, transfer of property means an act by which a living person (including company, association or body of individuals, whether incorporated or not) conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons.

Transfer has to be made by living (existing) person/s to another living (existing) person/s. A person can also transfer the property to himself (for ex. while declaring a trust where he is a trustee or to a partnership firm wherein he is a partner). Property can be transferred in present or in future but the property must be in existence.

What may be transferred?

Property of any kind may be transferred, except as otherwise provided under the law for time being in force. Section 6 of TOP, provides few of the rights, properties and interests that cannot be transferred.

Types of transfer of immovable property

Right in immovable property may be transferred by sale, mortgage, lease, gift and exchange.

Sale

“Sale” is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Document by which any immovable property is transferred (Deed of Conveyance or Instrument of transfer) is compulsorily registrable. Agreement for sale whereby any person agrees to sell an immovable property need not be registered. However, after recent amendment made by Registration and Other Related Laws (Amendment) Act, 2001, if agreement for sale is not registered purchaser cannot claim right to hold possession of the property even under circumstances mentioned under section 53A of the TOP.

Under section 53A of TOP, purchaser under an agreement for sale, shall be entitled to hold on to possession of the property agreed to be purchased under the said agreement in following circumstances:

Written agreement for sale to transfer an immovable property for consideration is entered into between the owner of the property and the prospective purchaser.

However, one has to bear in mind that section 53A only protects the purchaser from likely action of the owner/transferor/seller to remove the purchaser from the premises agreed to be sold. Section 53A does not confer clear right title and interest in the premises upon the Purchaser.

In any case, only because an agreement for sale is not registered, it is not debarred from being admitted as evidence for any suit for specific performance of the said agreement.

Under section 41 of the Maharastra Co-operative Societies Act, 1960, document relating to transfer of shares in a co-operative society is exempted from registration. Thus, till recently purchasers of the premises in a co-operative society were not registering the agreement for sale of shares in the society by which shares in the society were agreed to be transferred. Societies were transferring the shares on basis of such unregistered agreements together with relevant forms in relation thereto. Thus it was not necessary to execute any document conveying / transferring the shares.

However, now the Registration Act, 1908 and TOP are amended to pursue the purchasers to register the agreement for sale. It is provided that such unregistered agreements shall not confer right to hold possession of the premises under section 53A of the TOP. Under the circumstances, though technically, it is still not necessary to register the agreement for sale of shares in a co-op. hsg. society, it is now advisable to do so to avoid any future complications in the matter.

A view prevails that if the immovable property is transferred by transfer of shares in a company, bare agreement for sale of shares need not be registered. However, the agreement shall not provide for transfer of rights in the immovable property together with the transfer of shares. Only a separate possession letter may be obtained in such a case. It would also be advisable to get the shares transferred by the Board of Directors of the Company immediately at the time of completion of the deal itself. Articles of association of the company shall also expressly provide that owner of specific shares has right to occupy specific premises in the building of the company. Stamp duty payable on such bare transfer of shares in the company shall be only at the rate of 0.5% of the transaction value. Provisions of the Bombay Stamp Act, 1958 do not apply thereto. Transfer of shares is a centre's subject matter and state law cannot provide to levy stamp duty at the rate higher than the rate provided in the Indian Stamp Act.

Mortgage

“Mortgage” is transfer of an interest in a specific immovable property for the purpose of securing payment of money advanced or to be advanced by way of loan, an existing or future debt, or performance of an engagement, which may give rise to a pecuniary liability.

Types of Mortgages
Mortgage may be
(1) simple mortgage,
(2) mortgage by conditional sale,
(3) usufructuary mortgage,
(4) English mortgage,
(5) equitable mortgage (mortgage by deposit of title deeds) and
(6) anomalous mortgage. However, here we would discuss only those types of mortgages in brief that are of practical importance

English mortgage –
Where mortgagor binds himself to repay mortgage-money on a certain date, and transfers mortgaged property absolutely to the mortgagee, but subject to a proviso that he will re-transfer it to the mortgagor upon payment of the mortgage-money as agreed, transaction is called an English mortgage.

Mortgage by deposit of title-deeds –
Where a person in the towns of Calcutta, Madras, and Bombay, and in any other town which the State Government concerned may, by notification in the Official Gazette, specify in this behalf, delivers to a creditor or his agent documents of tile of immovable property, with intent to create a security thereon, transaction is called a mortgage by deposit of title-deeds.

Anomalous mortgage –
Any mortgage other than simple, usufructuary, English, equitable or a mortgage by conditional sale is called an anomalous mortgage.

Power of sale without intervention of court

The mortgagee shall have power to sell the mortgaged property without intervention of the court, inter alia, where such power is expressly conferred on the mortgagee by the mortgage-deed and the mortgaged property or any part thereof was, on the date of execution of the mortgage-deed, situated within the towns of Calcutta, Madras, Bombay, or in any other town or area which the State Government may, by notification in the Official Gazette, specify in this behalf. However, as in most cases the mortgagor would be in actual possession of the property, the mortgagee has to approach the court for order of sale, however, if power of sale is provided in the mortgage deed, it becomes relatively easier to obtain various orders from the court.

Charges

Where by act of parties or operation of law, immovable property of one person is made security for payment of money to another, and the transaction does not amount to a mortgage, latter person is said to have a charge on the property; and all the provisions of TOP which apply to a simple mortgage shall, so far as may be, apply to such charge. In case of simple mortgage, the mortgagor is personally liable to pay the mortgaged money and upon default the mortgagee may approach the court for sale of the mortgaged property for payment of the mortgaged debt.

Registration of mortgage deed

All the mortgages other than equitable mortgage are compulsorily registrable. In any case, it is always advisable to register even the document relating to equitable mortgage like “memorandum of equitable mortgage”.

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Vol.5 No.6 July - Aug 2002