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SALE OF IMMOVABLE PROPERTY
Section 54 to 57 of the Transfer of Property Act, 1882 deals with Sale of immovable property.
- Section 54- Definition of sale, Sale how made, Contract for sale
- Section 55- Rights and liabilities of buyer and seller
- Section 56- Marshalling by subsequent purchaser
- Section 57- Provision by Court for encumbrances and sale freed therefrom SECTION 54- DEFINITION OF SALE Definition of Sale - Sale is a transfer of ownership in exchange for a price paid or promised or part-paid and part-promised. Sale how made .—
- Such transfer, in the case of tangible immoveable property of the value of one hundred rupees and upwards, or other intangible thing, can be made only by a registered instrument.
- In the case of tangible immoveable 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 immoveable property takes place when the seller places the buyer, or such person as he directs, in possession of the property. Contract for sale.—
- A contract for the sale of immoveable 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. There is an absolute transfer of rights in the property sold. No rights are left in the transferor. In Vidyadhar v. Mankirao & Anr. J.T 1999(2) S.C 183, it was held that there must be transfer of ownership from one party to another i.e., transfer of all rights and interests. Intention of parties
- The real test is the intention of parties. The parties must intend to transfer the ownership of the property and they must also intend that the price would be paid either in the present or in future. The intention is to be gathered from the recital in the sale deed, conduct of parties and the evidence on record. THE ESSENTIAL ELEMENTS OF SALE
- Parties
- Property (the subject matter)
- The transfer
- The price (consideration) PARTIES
- There must be a seller and buyer
- Seller must be competent to transfer
MONEY (CONSIDERATION)
Price must be fixed by the contract. Payment of price not a condition precedent, it can be paid or promised or part-paid or part-promised. If the intention of the parties is that the property should pass on registration, the sale is complete as soon as the deed is registered whether the price has been pad or not, and the purchaser is entitled to sue for possession although he has not paid the price. Chandra Shankar v. Abhai Kumar I.L.R 52 Bom 56. THE ESSENTIALS OF A SALE IN BRIEF
- The sale must be between living persons. “Living persons” includes a company or associations or body of individuals, whether incorporated or not;
- The subject matter of sale must be an immoveable property;
- There should be at least two parties to a sale i.e., a seller and a buyer;
- They must be competent to enter into a contract;
- They must hold a legal title to the transferable property at the time of the sale or must be legally authorised to dispose of the property;
- There should be an absolute transfer of ownership in favour of the buyer;
- The consideration must be in the form of money/price. It can be either paid at the time of the transfer or as per the time or conditions mutually settled by the parties;
- The sale deed must be registered if it is a tangible immoveable property valuing one hundred rupees or more;
- A sale deed must be registered if the sale involves a transfer of intangible immoveable property or a transfer due to reversion;
- In cases of a tangible immoveable property valuing less than Rs 100, the sale can be made either by a registered instrument or delivery of property. CONTRACT FOR SALE AND CONTRACT OF SALE
- Section 54 further incorporates the concept of “contract for sale.” It is an agreement between the parties that a sale will be effectuated in the future by executing a sale deed on mutually settled terms.
- In sale/ Contract of sale- ownership transferred with immediate effect. In contract for sale/ agreement for sale- ownership will be transferred only on a future date
- Contract of sale gives right in rem. Contract for sale provides only right in personam. In English law, such a contract transfers an equitable estate in favour of the purchaser. However, under Indian law, a contract for sale does not transfer any title, nor does it create a charge or interest on the property. It is merely a promise to create a right to obtain another document, i.e., a deed of sale.
- Therefore, it does not require registration, as held in the case of Dave Ramshankar Jivatram v. Bai Kailasgauri (1972). The Gujarat High Court in this case also held that it is not enforceable in any court of law. For instance, A agreed to sell the property to B, but they did not execute any documents. Later on, A sold the property to C. In this case, B cannot approach the court to enforce his right to specific performance.
In Ramesh Chand Ardawatiya v. Anil Panjwani SC (2003), the defendant agreed to sell his piece of land to the plaintiff. He also puts the plaintiff in possession of the property for an advance payment. The plaintiff constructed a boundary wall on that property. A trespasser tries to encroach upon the land at the behest of the defendant. The plaintiff sought a declaration from the Court that he was rightfully in peaceful possession of the property and sought a permanent injunction to restrain the trespassers from interfering with his possession. The Court granted the relief and held that the plaintiff is entitled to protect his possession and that A should refrain from taking the law into his hands and instead assert his title through due process of law. The Court also observed, “if a person who entered into possession under a contract for sale and is in peaceful and settled possession of the property with the consent of the owner, he is entitled to protect his possession against the whole world, except the true owner.” However, if he is in possession of the property in part performance of the contract for sale and the requirements of Section 53A are satisfied, he may protect his possession even against the true owner.” RIGHTS AND LIABILITIES OF BUYER AND SELLER Section 55 of the Act, “in the absence of a contract to the contrary”, defines the duties, liabilities, and rights of both the buyer and seller, respectively, where there is a transfer of immovable property. The main objective behind Section 55 is to ensure fair dealings, prevent fraudulent acts, and keep the property in circulation (avoid the property becoming stagnant and going to waste). It is important to note, that Section 55 is applicable only where there is no contract to the contrary – which implies that as long as there is a clause in the
contract of sale outlining the rights, liabilities, and duties of the buyer and seller, there is no need for the provisions of Section 55 to apply. This phrase implies that any liabilities or charges imposed by the provisions under Section 55 of the Act, can be offset or nullified by a contract to the contrary. The contract can be expressed or implied, but its terms should be clear. If there is ambiguity with respect to the terms of the contract, then the decision regarding the same is usually made in favour of the buyer. Only a contract to the contrary can allow the buyer and seller to avail an exception from the provisions of Section 55. RIGHTS AND LIABILITIES OF SELLER AND BUYER (S.55) Rights and liabilities of seller and buyer can be categorized under : a) Before completion of sale b) After completion of sale A. BEFORE COMPLETION OF SALE RIGHT OF SELLER
- Right to take rents and profits [Section 55(4)(a)] LIABILITIES OF SELLER
- To disclose material defects [S. 55(1)(a)]
- To produce title-deeds [Section 55 (1)(b)]
- To answer questions as to Title [Section 55 (1)(c)]
- To execute a proper conveyance [Section 55(1)(d)]
- To bear loss to the property [Section 55(5)(c)]
- To pay outgoings [Section 55(5)(d)] LIABILITIES OF SELLER BEFORE SALE Disclosure of material defects in the property or title
- Section 55 imposes a duty on the seller to reveal or disclose all ‘material defects’ with respect to both the property and seller’s title.
- This duty applies where the seller is aware of the said defect and the buyer is not.
- The defect must also be of such a nature that despite practising due diligence, a prudent man would not be able to discover the problem in the property or title.
- If the seller were to deliberately neglect this duty, then it would amount to fraud or omission, on his part. What is a material defect? A material defect is a factor that can affect the decision of the buyer on whether to buy a certain property or not, once he becomes aware of it. Material defects can be of the following types:
- Something which interferes with or obstructs the enjoyment of the property;
- Failure to disclose a defect in the title;
Non-disclosure of street alignment, lack of right of way, or non-existence of independent passage to the property; For example, ‘X’ wants to sell his farmhouse to ‘Y’ but does not disclose the fact that due to the property being considerably old, the entire farmhouse is in urgent need of renovation and refurbishment, else there could be danger of collapse. This is a material defect in the property, and ‘X’ as the seller who is aware of the defect, has a responsibility to inform ‘Y.’ If “X’ fails to make the disclosure, then ‘Y’ has the right to rescind the contract. Title deeds for inspection
- Under this section, the seller is to produce his title-deeds for inspection and not for delivery
- In order that the buyer should satisfy himself as to title.
- In Haryana Financial Corporation v. Rajesh Gupta (2010), the seller ‘A’ wanted to sell a factory by way of auction.The buyer ‘B’ deposited a certain amount with ‘A’, on the condition that ‘A’ must ensure that there is an independent passage or way to the unit. The understanding regarding this condition was established through frequent communication between the parties. However, this passage was in fact, too narrow and not broad enough to meet ‘B’s’ requirements. Ultimately, ‘A’ was not able to arrange for an adequate passage to the unit. Therefore, ‘B’ refused to pay the pending amount for the property.A placed the property back for auction. Here, the Court, in light of Section 55(1)(a) of the Transfer of Property Act, 1872, held that the seller ‘A’ was in the wrong for failing to disclose a material defect – i.e., there was no adequate passage to the factory. The seller would not be allowed to take advantage of this wrong to swallow up the deposited money.
- Regardless of whether the seller has knowledge of the encumbrance or not, the seller still has to resolve it.
- The buyer has the right to enforce this duty on the seller through Section 69 of the Indian Contract Act, 1872.
- The seller has to pay any rents or charges accrued to the property before the date of execution of the sale deed.
- The seller also has the duty to deal with public charges, and in cases where necessary, gain the permission of the statutory authority to make the sale.
- Abdul Hameed v. Shahjahan Begum (2007). In this case, the Court held that the buyer has a right to require the seller to produce evidence that the property is free from encumbrances. The liability exists before the completion of sale and continues thereafter whether the existence of such charges is discovered before or after the completion of sale. RIGHTS OF SELLER BEFORE SALE Rents and profits
- Till the ownership is passed from the buyer to the seller, the latter is entitled to any income generated from the property, including rent collected from tenants occupying the property.
- If the buyer takes possession before the completion of the sale, then he can enjoy the income from the rent.
- However, the buyer is also liable to pay interest on the unpaid consideration he had promised to pay when he made the contract of sale.
- On the other hand, if the ownership of the property passes to the buyer, but the seller still retains possession of the property, then the seller is not allowed to collect interest on the purchase money.
- The seller cannot enjoy both possession and interest at the same time. The seller must choose between the two – interest and possession. DUTIES OF BUYER BEFORE SALE Duty to disclose material facts
- When the buyer has knowledge or information about the nature and extent of the seller’s interest in the property, and such knowledge or information indicates an increase in the material value of such interest, the buyer has a duty to disclose such information to the seller.
- This duty applies when the buyer has reason to believe that the seller is unaware of said information. To pay the price
- The duty of the buyer to furnish the promised consideration is paramount.
- He must pay or tender at the agreed time and place of executing the sale, and to such person as per the instructions of the seller.
- The duty to pay is “personal in nature” and the buyer upon refusal of the seller to accept it is free to make a deposit with the court. BUYERS RIGHT BEFORE SALE Charge for prepaid consideration
- Although the amount varies from case to case, the seller usually asks for a deposit from the buyer at the time of making the contract of sale.
Where the whole of such property is sold to several buyers the person who purchases the largest part of the property would be entitled to retain all the documents. SELLER’S RIGHT AFTER SALE Charge upon property for unpaid price(Vendor’s lien)- Section 55(4)(b) When sale is completed by conveyance and the price or part of the price is unpaid, the seller can exercise charge for the balance amount unpaid. This charge is converse of the buyer’s charge for the price prepaid u/s 55(6)(b).
- Where ownership and possession of the property have passed to the buyer, the seller cant get the possession back
- And when sale is complete, and ownership has passed to buyer, the seller cant refuse delivery of possession
- Seller’s charge under this Section is non-possessory
- The charge also extends towards interest on such amount from the date on which the possession has been delivered.
- Suit for sale of property can be initiated by seller for recovering the price
- Narayanan Moopil v. Narayanan Prabhakaran (1993) (1) KLT 41, the Court held that non payment of balance amount to the seller is not a ground for invalidating sale deed. The seller can sue the buyer for money unpaid and the seller can exercise charge over the property for the amount unpaid. BUYER’S RIGHT AFTER SALE Right to rents and profits -
According to Section 55 (6) (a) of the Act, the buyer is entitled to get all the rights over the property inclusive of all rents, profits, and also any other benefits over the property. The buyer becomes the property owner after completion of the sale or, in other words, after the transfer of ownership, and he/she is entitled to all the benefits from the date of transfer of ownership. BUYER’S DUTIES AFTER SALE
- TO BEAR THE LOSS TO PROPERTY(55(5)(C): This is the buyer’s duty to bear the property’s loss after the sale because after becoming the property owner, the seller is not liable to pay for any loss over the property. The buyer can’t blame the seller for any loss unless it is proved that the loss did occur because of the seller’s fault.
- TO PAY OUTGOINGS(55(5(d)): After transfer of ownership, the buyer is the owner of the property and entitled to pay all the taxes, rents, and revenues over the property. The seller is not liable for paying any taxes after the transfer of ownership. The buyer must pay all the liabilities over the property due after the sale. CASE LAWS In Durga Prasad v. Deep Chand AIR 1954 SC 75, the Supreme Court has emphatically held that when the vendor after entering into the contract of sale again transfers the same property in favour of others by conveyance, the proper remedy for the first purchaser (agreement-holder) is to sue for specific performance of the contract between himself and the vendor and also directed the subsequent transferee to join in the conveyance so as to pass on the title
